-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TbC+nVmjsT0o86i/fsU8ekPDRQ5uVxjGdN7VIJAVBghz7Q4FVa8VvJ71bsJkvypT 7jGjPWMDJo1eltSmfboiig== 0000726728-97-000007.txt : 19970327 0000726728-97-000007.hdr.sgml : 19970327 ACCESSION NUMBER: 0000726728-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REALTY INCOME CORP CENTRAL INDEX KEY: 0000726728 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 330580106 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13374 FILM NUMBER: 97563997 BUSINESS ADDRESS: STREET 1: 220 W CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025 BUSINESS PHONE: 6197412111 MAIL ADDRESS: STREET 1: 220 WEST CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025 10-K 1 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, 1996 Commission File Number 1-13318 REALTY INCOME CORPORATION ------------------------- (Exact name of registrant as specified in its charter) Delaware 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: Name of Each Exchange Title of Each Class On Which Registered - ----------------------------------- ----------------------- Common Stock, $1.00 Par Value New York Stock Exchange - ----------------------------------- ----------------------- Securities registered pursuant to Section 12 (g) of the Act: None ---- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] (continued) At March 19, 1997 the aggregate market value of the Registrant's shares of common stock, $1.00 par value, held by non-affiliates of the Registrant was $532,447,000, at the New York Stock Exchange closing price of $24.125. There were 22,988,237 shares of common stock outstanding at March 19, 1997. 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 13, 1997, 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. This report on Form 10-K , including documents incorporated herein by reference, contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are inherently subject to risk and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Management's Discussion and Analysis of Financial Condition and Result of Operations." Page 1 REALTY INCOME CORPORATION Index To Form 10-K ================== Page PART I ---- Item 1: Business......................................... 3 Item 2: Properties....................................... 22 Item 3: Legal Proceedings................................ 22 Item 4: Submission of Matters to a Vote of Security Holders......................... 22 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 Item 8: Financial Statements and Supplementary Data...... 41 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........138 PART III Item 10: Directors and Executive Officers of the Registrant................................138 Item 11: Executive Compensation...........................138 Item 12: Security Ownership of Certain Beneficial Owners and Management.................138 Item 13: Certain Relationships and Related Transactions.....................................138 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K..........................139 SIGNATURES....................................................142 EXHIBIT INDEX.................................................145 Page 2 PART I ====== ITEM 1: BUSINESS - ----------------- THE COMPANY =========== Realty Income Corporation ("Realty Income" or the "Company") is a fully integrated, self-administered and self-managed Real Estate Investment Trust ("REIT") which management believes is the nation's largest publicly-traded owner of freestanding, single- tenant, retail properties diversified geographically and by industry and operated under net lease agreements. As of January 1, 1997, the Company owned a diversified portfolio of 740 properties located in 42 states with over 5.2 million square feet of leasable space. Approximately 99% of the Company's properties were leased as of January 1, 1997. Unless otherwise indicated, information regarding the Company's properties is as of January 1, 1997. Realty Income adheres to a focused strategy of acquiring freestanding, single-tenant, retail properties leased to national and regional retail chains under long-term, net lease agreements. The Company typically acquires, and then leases back, retail store locations from retail chain store operators, providing capital to the operators for continued expansion and other purposes. The Company's net lease agreements generally are for initial terms of 10 to 20 years, require the tenant to pay a minimum monthly rent and property operating expenses (taxes, insurance and maintenance), and provide for future rent increases (typically subject to ceilings) based on increases in the consumer price index or additional rent calculated as a percentage of the tenant's gross sales above a specified level. Since 1970, Realty Income has acquired and leased back to national and regional retail chains over 700 properties (including 25 properties that have been sold) and has collected in excess of 98% of the original contractual rent obligations on those properties. Realty Income believes that the long-term ownership of an actively managed, diversified portfolio of retail properties leased under long-term, net lease agreements can produce consistent, predictable income and the potential for long-term capital appreciation. Management believes that long- term leases, coupled with tenants assuming responsibility for property expenses under the net lease structure, generally produce a more predictable income stream than many other types of real estate portfolios. As of January 1, 1997, the Company's single-tenant properties were leased pursuant to leases with an Page 3 average remaining term (excluding extension options) of approximately 8.6 years. The Company was formed on September 9, 1993 in the State of Delaware. Realty Income commenced operations as a REIT on August 15, 1994 through the merger of 25 public and private real estate limited partnerships with and into the Company (the "Consolidation"). Each of the partnerships was formed between 1970 and 1989 for the purpose of acquiring and managing long- term, net leased properties. The Company is a fully integrated real estate company with in-house acquisition, leasing, legal, financial underwriting, portfolio management and capital markets expertise. The seven senior officers of the Company, who have each managed the Company's properties and operations for between six and 27 years, owned approximately 3.9% of the Company's outstanding common stock as of March 19, 1997. Realty Income has 35 employees as of March 19, 1997. RECENT DEVELOPMENTS =================== During 1996, the Company has continued implementing its growth plan, which is intended to increase the Company's funds from operations ("FFO") per share. FFO per share increased 4.0% in 1996 to $2.08 compared to $2.00 in 1995. FFO is defined as net income before net gain on sales of properties, plus provision for impairment losses, plus depreciation and amortization. As part of its growth plan, in 1996 and from the date of the Consolidation through December 31, 1996, the Company acquired 62 and 124 additional net leased retail properties, respectively, with an aggregate initial annual contractual base rent of approximately $6.2 million and $14.0 million, respectively. INCREASE IN MONTHLY DISTRIBUTION. In December 1996, the Company increased its monthly distribution to $0.1575 per share from $0.155 per share, representing an increase of 1.6%. The Company has paid monthly distributions of $0.1575 per share in December 1996 through March 1997. The monthly distribution of $0.1575 per share represents a current annualized distribution of $1.89 per share, and an annualized distribution yield of approximately 7.3% based on the last reported sale price of the Company's Common Stock on the New York Stock Exchange ("NYSE") of $25.875 on February 24, 1997. Although the Company expects to continue its policy of paying monthly distributions, there can be no assurance that the current level of distributions will be maintained by the Company or, because of fluctuations in the price of its common stock, as to the actual distribution yield for any future period. Page 4 INVESTMENT GRADE CREDIT RATING. The Company received an investment grade corporate senior debt credit rating by Duff & Phelps Rating Company, Moody's Investor Service, Inc., and Standard & Poors in December 1996. Duff & Phelps assigned a rating of BBB, Moody's Baa3, and Standard & Poors BBB-. These ratings are subject to change based upon, among other things, the Company's results of operations and financial condition. ACQUISITION OF 62 NET LEASED, RETAIL PROPERTIES. During 1996, the Company has increased the size of its portfolio through a strategic program of acquisitions. The Company acquired 62 additional properties (the "New Properties"), and selectively sold seven properties, increasing the number of properties in its portfolio by 8.0% from 685 properties to 740 properties during 1996. Of the New Properties, 57 were occupied as of February 1, 1997 and the remaining five were pre-leased and under construction pursuant to contracts under which the tenants have agreed to develop the properties (with development costs funded by the Company) and to begin paying rent when the premises open for business. The New Properties were acquired for an aggregate cost of approximately $55.5 million (excluding the estimated unfunded development costs totaling $3.8 million on properties under construction). The New Properties are located in 22 states, will contain approximately 603,900 leasable square feet and are 100% leased under net leases, with an average initial lease term of 11.7 years. The weighted average annual return on the cost of the New Properties (excluding the estimated cost of properties under construction) is estimated to be 10.6%, computed as estimated contractual net operating income (which in the case of a net leased property is equal to the base rent) for the first year of each lease, divided by total acquisition and estimated development costs. Since it is possible that a tenant could default on the payment of contractual rent, no assurance can be given that the actual return on the cost of the New Properties will not differ from the foregoing percentage. VARIABLE SENIOR NOTE REDEMPTION. On March 29, 1996, the Company redeemed, at par, the $12.6 million principal amount of variable rate senior notes due 2001. The notes were issued in 1994 as part of the Consolidation. BUSINESS OBJECTIVES AND STRATEGY ================================ GENERAL. The Company's primary business objective is to generate a consistent and predictable level of FFO per share and distributions to stockholders. Additionally, the Company generally will seek to increase FFO per share and distributions to stockholders through both internal and external growth, while also seeking to lower the ratio of distributions to stockholders as a percentage of FFO in order to allow internal cash flow to be Page 5 used to fund additional acquisitions and for other corporate purposes. The Company pursues internal growth through (i) contractual rent increases on existing leases; (ii) rental increases at the termination of existing leases when market conditions permit; and (iii) the active management of the Company's property portfolio, including selective sales of properties. The Company generally pursues external growth through the acquisition of additional properties under long-term, net lease agreements with initial contractual base rent which, at the time of acquisition, is in excess of the Company's estimated cost of capital. INVESTMENT PHILOSOPHY. Realty Income believes that the long-term ownership of an actively managed, diversified portfolio of retail properties under long-term, net lease agreements should produce consistent, predictable income and the potential for long-term capital appreciation. Under a net lease agreement, the tenant agrees to pay a minimum monthly rent and property expenses (taxes, maintenance, and insurance) plus, typically, future rent increases based on increases in the consumer price index or additional rent calculated as a percentage of the tenant's gross sales above a specified level. The Company believes that long- term leases, coupled with the tenants assuming responsibility for property expenses, produce a more predictable income stream than many other types of real estate portfolios, while continuing to offer the opportunity for capital appreciation. INVESTMENT STRATEGY. In identifying new properties for acquisition, Realty Income focuses on providing expansion capital to middle market retail chains by acquiring, then leasing back, their retail store locations. The Company classifies retail tenants into three categories: venture, middle market, and upper market. Venture companies are those which typically offer a new retail concept in one geographic region of the country and operate between five and 50 retail outlets. In general, these retail chains are thinly capitalized and are in the process of solving distribution, marketing, concept, geographic adaptation, and other problems associated with a new, growing company. Middle market retail chains are those which typically have 50 to 500 retail outlets, operations in more than one geographic region, success through one or more economic cycles, a proven, replicable concept, and an objective of further expansion. The upper market retail chains typically consist of companies with 500 or more stores which operate nationally in a mature retail concept. They generally have strong operating histories and access to several sources of capital. Realty Income focuses on acquiring properties leased to emerging, middle market retail chains which the Company believes are more attractive for investment because: (i) they generally have overcome many of the operational and managerial obstacles Page 6 that tend to adversely affect venture retailers; (ii) they typically require capital to fund expansion but have more limited financing options compared to upper market retailers; (iii) historically, they generally have provided attractive risk- adjusted returns to the Company over time, since their financial strength has in many cases tended to improve as their businesses have matured; (iv) their relatively large size compared to venture retailers allows them to spread corporate expenses among a greater number of stores; and (v) compared to venture retailers, middle market retailers typically have the critical mass to survive if a number of locations have to be closed due to underperformance. CREDIT STRATEGY. Realty Income provides sale leaseback financing primarily to less than investment grade retail chains. The Company believes that it is within this market that it can receive the best risk adjusted return on the financing that it provides to retailers. Realty Income has identified retailers' four primary financial obligations as their bank debt, bond debt, payment to suppliers and real estate lease obligations. Because the Company owns the land on which the tenant conducts its retail business, the Company believes that the risk of default on the retailers' lease obligations is significantly less than the retailers' unsecured general obligations. It has been the Company's experience that since retailers must retain their profitable retail locations in order to survive, they are less likely to reject a lease for a profitable location, which would terminate their right to use the property. Thus, as the property owner, the Company believes it will fare better than unsecured creditors of the same retailer in the event of a Chapter 11 reorganization. In addition, Realty Income believes that the risk of default of the real estate leases can be further mitigated by monitoring the performance of the retailers' individual unit locations and selling those units that are weaker performers. In order to qualify for inclusion in the Company's portfolio, new acquisitions must meet investment and credit requirements. The properties must generate attractive current yields, and the tenant must meet the Company's credit standards and have a proven market concept. The Company has established a three part analysis that examines each potential investment based on: 1) industry, company, market conditions and credit profile; 2) location profitability; and 3) overall real estate characteristics, value, and comparative rental rates. Companies that have been approved for acquisitions are generally those with fifty or more retail stores which are located in highly visible areas, with easy access to major thoroughfares, attractive demographics, and acquisition costs at or below appraised value. Page 7 ACQUISITION STRATEGY. Realty Income seeks to invest in industries that are dominated by independent local operators and in which several well organized regional and national chains are capturing market share through service, quality control, economies of scale, mass media advertising, and selection of prime retail locations. The Company executes its acquisition strategy by acting as a source of capital to regional and national retail chain stores in a variety of industries by acquiring, then leasing back, their retail store locations. Relying on executives from its acquisitions, credit underwriting, portfolio management, finance, accounting, operations, capital markets, and legal departments, the Company undertakes thorough research and analysis in identifying appropriate industries, tenants, and property locations for investment. In selecting real estate for potential investment, the Company generally will seek to acquire properties that have the following characteristics: * Freestanding, commercially zoned property with a single tenant; * Properties that are important retail locations for national and regional retail chains; * Properties that are located within attractive demographic areas relative to the business of their tenants, with high visibility and easy access to major thoroughfares; * Properties that can be purchased with the simultaneous execution or assumption of long-term, net lease agreements, providing the opportunity for both current income and future rent increases (typically subject to ceilings) based on increases in the consumer price index or through the payment of additional rent calculated as a percentage of the tenant's gross sales above a specified level; and * Properties that can be acquired at or below their appraised value at prices generally ranging from $300,000 to $10 million. PORTFOLIO MANAGEMENT STRATEGY. The active management of the property portfolio is an essential component of the Company's long-term strategy. The Company continually monitors its portfolio for changes that could affect the performance of the industries, tenants, and locations in which it has invested. Realty Income's executive committee meets at least monthly to review industry and tenant research, due diligence, property operations and portfolio management. This monitoring typically includes ongoing review and analysis of: (i) the performance of various tenant industries; (ii) the operation, management, business planning, and financial condition of the tenants; (iii) the health of the individual markets in which the Company owns Page 8 properties, from both an economic and real estate standpoint; and (iv) the physical maintenance of the Company's individual properties. The portfolio is analyzed on an ongoing basis with a view towards optimizing performance and returns. While the Company generally intends to hold its net leased properties for long-term investment, the Company believes that opportunities may exist to increase FFO through the active management of its portfolio of net lease properties. The Company intends to pursue a strategy of identifying properties that may be sold at attractive prices, particularly where the Company believes reinvestment of the sales proceeds can generate a higher cash flow to the Company than the property being sold. While the Company intends to pursue such a strategy, it will only do so within the constraints of the rules regarding REIT tax status. CAPITAL STRATEGY. The Company utilizes its $130 million, unsecured Acquisition Credit Facility as a vehicle for the short- term financing of the acquisition of new properties. When outstanding borrowings under the Acquisition Credit Facility reach a certain level (generally in the range of $75 to $100 million), the Company intends to refinance those borrowings with the net proceeds of long-term or permanent financing, which may include the issuance of common stock, preferred stock or convertible preferred stock, debt securities or convertible debt securities. However, there can be no assurance that the Company will be able to effect any such refinancing or that market conditions prevailing at the time of refinancing will enable the Company to issue equity or debt securities upon acceptable terms. The Company believes that it is best served by a conservative capital structure, with a majority of its capital consisting of equity. As of December 31, 1996, the Company's total indebtedness was approximately 12.8% of its equity market capitalization, which equates to shares outstanding multiplied by the Company's stock price on December 31, 1996. The Company received an investment grade corporate credit rating by Duff & Phelps Rating Company, Moody's Investor Service, Inc., and Standard & Poors in December 1996. Duff & Phelps assigned a rating of BBB, Moody's Baa3, and Standard & Poors BBB-. These ratings are subject to change based upon, among other things, the Company's results of operations and financial condition. In December 1996, the Company entered into a treasury interest rate lock agreement to hedge against the possibility of rising interest rates. Under the interest rate lock agreement, the Company receives or makes a payment based on the differential between a specified interest rate, 6.537%, and the actual 10-year treasury interest rate on notional principal of $90 million, at the end of six months. Based on the 10-year treasury interest Page 9 rate at December 31, 1996, the Company has an unrecognized loss on the agreement of $80,000. The Company anticipates issuing debt during the second quarter of 1997, subject to market conditions and acquisition levels. COMPETITIVE STRATEGY. The Company believes that to utilize its investment philosophy and strategy most successfully, it will seek to maintain the following competitive strategy: (i) SIZE AND TYPE OF INVESTMENT PROPERTIES: The Company believes that smaller ($300,000 to $10,000,000) retail net leased properties represent an attractive investment opportunity in today's real estate environment. Due to the complexities of acquiring and managing a large portfolio of relatively small assets, the Company believes that these types of properties have not experienced significant institutional participation or the corresponding yield reduction experienced by larger income producing properties. The Company believes the less intensive day to day property management required by net lease agreements, coupled with the active management of a large portfolio of smaller properties by the Company, is an effective investment strategy. In 1969, Realty Income identified a market niche and systematically built a portfolio around this niche. Twenty-seven years later, the Company is one of the largest owners of freestanding retail properties in America with just over five million square feet. The tenants of Realty Income's freestanding retail properties include convenience stores, consumer electronics stores, child care centers, restaurants, and other retailers providing goods and services which satisfy basic human needs and are used by consumers every day. In order to grow and expand, they need capital. Since the acquisition of real estate is typically the single largest capital expenditure of many such retailers, Realty Income's method of purchasing the property and then leasing it back under a net lease arrangement, allows the retail chain to free up capital. (ii) INVESTMENT IN NEW INDUSTRIES: While specializing in single tenant properties, the Company will seek to further diversify its portfolio among a variety of industries. The Company believes that diversification will allow it to invest in industries that are currently growing and have characteristics the Company finds attractive. These characteristics include, but are not limited to, industries dominated by local operators where national and regional chain operators can gain substantial market share and dominance through more efficient operations, as well as industries taking advantage of major demographic shifts in the population base. For example, in the early 1970s, Realty Income Page 10 targeted the fast food industry to take advantage of the country's increasing desire to dine away from home, and in the early 1980s, it targeted the child day care industry, responding to the need for professional child care as more women entered the work force. (iii) DIVERSIFICATION: Diversification of the portfolio by industry type, tenant and geographic location is key to the Company's objective of providing predictable investment results for its stockholders. As the Company expands it will seek to further diversify its portfolio. During 1996 and 1995, the Company added the consumer electronics and convenience store industries, respectively, to the portfolio. (iv) MANAGEMENT SPECIALIZATION: The Company believes that its management's specialization in single tenant properties operated under net lease agreements is important to meeting its objectives. The Company plans to maintain this specialization and will seek to employ and train high quality professionals in this specialized area of real estate ownership, finance and management. (v) TECHNOLOGY: The Company intends to stay at the forefront of technology in its efforts to efficiently and economically carry out its operations. The Company maintains a sophisticated information system that allows it to analyze its portfolio's performance and actively manage its investments. The Company believes that technology and information based systems will play an increasingly important role in its competitiveness as an investment manager and source of capital to a variety of industries and tenants. PROPERTIES ========== As of January 1, 1997, the Company owned a diversified portfolio of 740 properties in 42 states containing over 5.2 million square feet of leasable space. The portfolio consists of 153 after-market automotive retail locations (80 automotive parts stores and 73 automotive service locations), 319 child care centers, 36 consumer electronics stores, 42 convenience stores, four home furnishings stores, 173 restaurant facilities and 13 other properties. Of the 740 properties, 672 or 91% were leased to national or regional retail chain operators; 43 or 6% were leased to franchisees of retail chain operators; 16 or 2% were leased to other tenant types; and nine or 1% were available for lease. Approximately 98% of the properties were under net lease agreements. Net leases typically require the tenant to be responsible for property operating costs including property taxes, insurance, maintenance and structural repairs. Page 11 The Company's net leased retail properties are primary retail locations leased to national and regional retail chain store operators. The properties averaged approximately 7,100 square feet of leasable retail space on approximately 43,100 square feet of land. Generally, buildings are single-story properties with adequate parking on site to accommodate peak retail traffic periods. The properties tend to be on major thoroughfares with relatively high traffic counts and adequate access, egress and proximity to a sufficient population base to constitute a sufficient market or trade area for the retailer's business. The following table sets forth certain geographic diversification information regarding Realty Income's portfolio at January 1, 1997: Number Approx. Percent of Leasable Annualized of Total Proper- Percent Square Base Annualized State ties Leased Feet Rent (1) Base Rent ============ ======= ======= ========= =========== ========= Alabama 6 100% 42,300 $ 319,000 0.5% Arizona 27 96 184,900 2,342,000 3.9 California 52 98 973,200 10,207,000 17.0 Colorado 42 98 233,500 2,978,000 4.9 Connecticut 4 100 17,200 240,000 0.4 Florida 49 100 436,500 3,805,000 6.3 Georgia 37 100 187,600 2,441,000 4.1 Idaho 11 100 52,000 656,000 1.1 Illinois 25 100 182,600 2,081,000 3.5 Indiana 23 96 122,800 1,438,000 2.4 Iowa 8 100 51,700 452,000 0.8 Kansas 15 100 129,000 1,440,000 2.4 Kentucky 11 100 33,300 831,000 1.4 Louisiana 2 100 10,700 126,000 0.2 Maryland 6 100 34,900 505,000 0.8 Massachusetts 4 100 20,900 440,000 0.7 Michigan 5 100 26,900 353,000 0.6 Minnesota 17 100 118,400 1,713,000 2.8 Mississippi 11 100 106,600 792,000 1.3 Missouri 27 93 163,900 1,787,000 3.0 Montana 1 100 5,400 71,000 0.1 Nebraska 8 100 47,100 509,000 0.8 Nevada 5 100 29,100 353,000 0.6 New Hampshire 1 100 6,400 122,000 0.2 New Jersey 2 100 22,700 344,000 0.6 New Mexico 3 100 12,000 103,000 0.2 New York 5 100 38,300 539,000 0.9 Page 12 (continued) Number Approx. Percent of Leasable Annualized of Total Proper- Percent Square Base Annualized State ties Leased Feet Rent (1) Base Rent ============ ======= ======= ========= =========== ========= North Carolina 18 100 77,100 1,154,000 1.9 Ohio 47 100 208,100 3,343,000 5.6 Oklahoma 9 100 60,200 542,000 0.9 Oregon 18 100 98,500 1,133,000 1.9 Pennsylvania 4 100 28,300 420,000 0.7 South Carolina 19 95 82,000 1,027,000 1.7 South Dakota 1 100 6,100 79,000 0.1 Tennessee 10 100 78,900 963,000 1.6 Texas 124 99 819,200 8,578,000 14.2 Utah 7 100 45,400 588,000 1.0 Virginia 16 100 79,100 1,252,000 2.1 Washington 42 98 249,700 2,956,000 4.9 West Virginia 2 100 16,800 147,000 0.2 Wisconsin 11 100 60,500 735,000 1.2 Wyoming 5 100 26,900 324,000 0.5 ------- ------- --------- ----------- --------- Total/Average 740 99% 5,226,700 $60,228,000 100.0% ======= ======= ========= =========== ========= (1) Annualized base rent is calculated by multiplying the monthly contractual base rent as of January 1, 1997 for each of the properties by 12. Annualized base rent does not include percentage rents (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level), if any, that may be payable under leases covering certain of the properties. Page 13 The following table sets forth certain information regarding the Company's properties, classified according to the business of the respective tenants: Approx. Realty Total Income Approx. Annual- Loca- Owned Leasable ized Industry tions Loca- Square Base Tenant Segment (1) tions Feet Rent (2) ============== ============ ======= ====== ========= =========== AUTOMOTIVE - ---------- CSK Auto, Inc. (formerly Northern Automotive) Parts 580 79 409,100 $ 4,192,000 Discount Tire Service 310 18 103,200 1,155,000 Econo Lube N' Tune Service 210 13 35,700 895,000 Jiffy Lube Service 1,400 28 66,300 1,762,000 Q Lube Service 490 4 7,600 180,000 R&S Strauss Service 110 2 31,200 431,000 Speedy Muffler King Service 1,080 7 40,900 531,000 Other Automotive -- 2 6,500 90,000 ------ --------- ----------- TOTAL AFTER-MARKET AUTOMOTIVE 153 700,500 9,236,000 CHILD CARE - ---------- Children's World Learning Centers Child Care 530 134 964,000 13,612,000 Kinder-Care Learning Centers Child Care 1,150 13 79,800 1,087,000 La Petite Academy Child Care 790 171 977,300 8,733,000 Other Child Care -- 1 4,200 -- ------ --------- ----------- TOTAL CHILD CARE 319 2,025,300 23,432,000 CONSUMER ELECTRONICS - -------------------- Best Buy Consumer Electronics 270 2 104,800 1,321,000 Rex Stores Consumer Electronics 230 34 408,300 2,694,000 ------ --------- ----------- TOTAL CONSUMER ELECTRONICS 36 513,100 4,015,000 Page 14 (continued) Approx. Realty Total Income Approx. Annual- Loca- Owned Leasable ized Industry tions Loca- Square Base Tenant Segment (1) tions Feet Rent (2) ============== ============ ======= ====== ========= =========== CONVENIENCE STORES - ------------------ 7-ELEVEN Convenience 20,240 3 9,700 235,000 Dairy Mart Convenience 1,020 22 66,500 1,512,000 East Coast Oil Convenience 40 2 6,400 219,000 The Pantry Convenience 400 14 34,400 1,333,000 Other Convenience -- 1 2,100 31,000 ------ --------- ----------- TOTAL CONVENIENCE STORES 42 119,100 3,330,000 HOME FURNISHINGS - ---------------- Levitz Home Furnishings 130 4 376,400 2,496,000 ------ --------- ----------- TOTAL HOME FURNISHINGS 4 376,400 2,496,000 RESTAURANTS - ----------- Don Pablo's Dinner House 70 7 60,700 604,000 Carver's Dinner House 90 3 26,600 495,000 Other Dinner House -- 13 108,400 1,015,000 Golden Corral Family 460 87 512,500 6,747,000 Sizzler Family 630 7 37,600 841,000 Other Family -- 4 23,900 96,000 Hardees Fast Food 3,100 3 10,300 144,000 Taco Bell Fast Food 4,890 24 54,100 1,501,000 Whataburger Fast Food 520 9 23,000 616,000 Other Fast Food -- 16 45,200 871,000 ------ --------- ----------- TOTAL RESTAURANTS 173 902,300 12,930,000 TOTAL OTHER Miscellaneous 13 590,000 4,789,000 ------ --------- ----------- Total 740 5,226,700 $60,228,000 ====== ========= =========== (1) Approximate total number of retail locations in operation (including both owned and franchised locations), based on information provided to the Company by the respective tenants. Page 15 (2) Annualized base rent is calculated by multiplying the monthly contractual base rent as of January 1, 1997 for each of the properties by 12. Annualized base rent does not include percentage rents (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level), if any, that may be payable under leases covering certain of the properties. Of the 740 properties in the portfolio, 732 are single-tenant properties with the remaining properties being multi-tenant properties. As of January 1, 1997, 724 or 99% of the single- tenant properties were subject to net leases with an average remaining lease term (excluding extension options) of approximately 8.6 years. The following table sets forth certain information regarding the timing of lease expirations on the Company's 724 net leased, single tenant retail properties: Percent Number of of Total Leases Annualized Annualized Year Expiring Base Rent (2) Base Rent ======== ========= ============= ========== 1997 26 $ 984,000 1.7% 1998 4 168,000 0.3 1999 20 898,000 1.6 2000 27 1,328,000 2.4 2001 49 3,802,000 6.7 2002 73 5,877,000 10.4 2003 68 5,161,000 9.2 2004 110 8,894,000 15.8 2005 86 6,010,000 10.7 2006 29 2,434,000 4.3 2007 78 4,426,000 7.8 2008 42 3,471,000 6.2 2009 11 719,000 1.3 2010 34 2,729,000 4.8 2011 31 2,649,000 4.7 2012 1 362,000 0.6 2014 2 265,000 0.5 2015 25 4,789,000 8.5 2016 7 1,345,000 2.4 2018 1 39,000 0.1 --------- ------------- ---------- Total 724 (1) $56,350,000 100.0% ========= ============= ========== (1) The table does not include eight multi-tenant properties and eight vacant, unleased properties owned by the Company. The lease expirations for properties under construction are based on the estimated date of completion of such properties. Page 16 (2) Annualized base rent is calculated by multiplying the monthly contractual base rent as of January 1, 1997 for each of the properties by 12. Annualized base rent does not include percentage rents (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level), if any, that may be payable under leases covering certain of the properties. DESCRIPTION OF LEASING STRUCTURE. At January 1, 1997, approximately 98% of the Company's properties were leased pursuant to net leases. In most cases, the leases were for initial terms of from 10 to 20 years and the tenant has an option to extend the initial term. The leases generally provide for a minimum base rent plus future increases (typically subject to ceilings) based on increases in the consumer price index or additional rent based upon the tenant's gross sales above a specified level (i.e., percentage rent). Where leases provide for rent increases based on increases in the consumer price index, such increases permanently become part of the base rent. Where leases provide for percentage rent, this additional rent is typically payable only if the tenant's gross sales for a given period (usually one year) exceed a specified level, and then is typically calculated as a percentage of only the amount of gross sales in excess of such level. In general, the leases require the tenant to pay property taxes, insurance, and expenses of maintaining the property. Matters Pertaining to Certain Properties and Tenants - ---------------------------------------------------- As of January 1, 1997, the Company's four largest tenants were Children's World Learning Centers, La Petite Academy, Golden Corral and CSK Auto, Inc., which accounted for approximately 23.7%, 16.5%, 12.4% and 8.4%, respectively, of the Company's rental revenue for the year ended December 31, 1996. The financial position and results of operations of the Company and its ability to make distributions to stockholders and debt service payments may be materially adversely affected by financial difficulties experienced by any such major tenants of other tenants, including, but not limited to, a bankruptcy, insolvency or general downturn in the business of such tenants. For the year ended December 31, 1996, approximately 42.0%, 24.3% and 15.3% of the Company's rental revenues were attributable to tenants in the child care, restaurant and after- market automotive industries, respectively. A downturn in any of these industries generally, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in those industries, which in turn could materially adversely affect the financial position and results of operations of the Company and its ability to make distributions to stockholders and debt service payments. Page 17 Nine of the Company's properties were vacant as of January 1, 1997 and available for lease. Seven of the vacant properties were previously leased to restaurant operators, one was formerly leased to a child care operator and one operated as a multi-tenant automotive center. As of January 1, 1997, 21 of the Company's properties which were under lease, were vacant and available for sublease by the tenant. These 21 properties (13 restaurants, three automotive stores, three child care, one other store and one medical building) were available for sublease and had tenants who were current with their rent and other lease obligations. As of January 1, 1997, 18 of the Company's properties had been sublet to tenants in different industries than the original tenant. All of these tenants were current with their rent and other lease obligations. Development of Certain Properties - --------------------------------- Of the 62 New Properties acquired by the Company in 1996, 57 were occupied as of February 1, 1997 and the remaining five were pre-leased and under construction pursuant to contracts under which the tenants have agreed to develop the properties (with development costs funded by the Company) and to begin paying rent when the premises opens for business. In the case of development properties, the Company typically enters into an agreement with a tenant pursuant to which the tenant retains a contractor to construct the improvements on the property and the Company funds the costs of such development. The tenant is contractually obligated to complete the construction on a timely basis, generally within eight months after the Company purchases the land, to pay construction cost overruns to the extent they exceed the construction budget by more than a predetermined amount. The Company also enters into a lease with the tenant at the time the Company purchases the land, which generally requires that the tenant begin paying base rent, calculated as a percentage of the Company's acquisition cost for the property, including construction costs and capitalized interest, when the premises opens for business. During 1996, the Company acquired 18 development properties, 13 of which have been completed, are operating and paying rent. Completion of the remaining five development properties is anticipated by April 1997. As of December 31, 1996, the total acquisition and estimated development costs for properties under development was $8.7 million, of which $3.8 million had not been funded. The Company will continue to seek to acquire land for development under similar arrangements. Page 18 DISTRIBUTION POLICY =================== Distributions are paid to the Company's stockholders on a monthly basis if, as and when declared by the Company's Board of Directors. In order to maintain its tax status as a REIT, the Company is generally required to distribute annually to its stockholders at least 95% of its taxable income (determined without regard to the deduction for dividends paid and by excluding any net capital gain). The Company intends to make distributions to its stockholders which are sufficient to meet this requirement. Future distributions by the Company will be at the discretion of its Board of Directors and will depend on, among other things, its results of operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code"), its debt service requirements and such other factors as the Board of Directors may deem relevant. In addition, the Acquisition Credit Facility contains financial covenants which could limit the amount of distributions payable by the Company in the event of a deterioration in the results of operations or financial condition of the Company, and which prohibit the payment of distributions on the Common Stock in the event that the Company fails to pay when due (subject to any applicable grace period) any principal of or interest on borrowings under the Acquisition Credit Facility. Distributions by the Company to the extent of its current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income. Distributions in excess of such earnings and profits generally will be treated as a non-taxable reduction in the stockholders' basis in its stock to the extent of such basis, and thereafter as a gain from the sale of such stock. Approximately 13.2% of the distributions made or deemed to have been made in 1996 were classified as a return of capital for federal income tax purposes, the Company is unable to predict the portion of 1997 or future distributions which may be classified as a return of capital since such amount depends on the Company's taxable income for the entire year. OTHER ITEMS =========== COMPETITION FOR ACQUISITION OF REAL ESTATE. The Company faces competition in the acquisition, operation and sale of its properties. Such competition can be expected from other businesses, individuals, fiduciary accounts and plans and other entities engaged in real estate investment. Some of the Page 19 Company's competitors are larger and have greater financial resources than the Company. This competition may result in a higher cost for properties the Company wishes to purchase. The tenants leasing the Company's properties generally face significant competition from other operators. This may result in an adverse impact on that portion, if any, of the rental stream to be paid to the Company based on a tenant's revenues and may also adversely impact the tenants' results of operations or financial condition. ENVIRONMENTAL MATTERS. Investments in real property create a potential for environmental liability on the part of the owner of such property for contamination resulting from the presence or discharge of hazardous substances on the property. Such liability may be imposed without regard to knowledge of, or the timing, cause or person responsible for the release of such substances onto the property. The Company believes that its properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company has not been notified by any governmental authority, and is not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of its present properties. Moreover, the tenants are required to operate in compliance with all applicable federal, state and local laws and regulations. Nevertheless, if environmental contamination should exist, the Company could be subject to strict liability by virtue of its ownership interest. In December 1996, the Company obtained a five year environmental insurance policy on the property portfolio. Based upon the 740 properties in the portfolio at December 31, 1996, the cost of the insurance will be approximately $80,000 per year. The limit of the policy is $10.0 million for each loss and $20.0 million in the aggregate, with a $100,000 deductible. There is a sublimit on properties with underground storage tanks of $1.0 million per occurrence and $5.0 million in the aggregate, with a deductible of $25,000. TAXATION OF THE COMPANY. The Company has elected to be taxed as a REIT under the Code, commencing with its taxable year ended December 31, 1994. As long as the Company meets the requirements under the Code for qualification as a REIT each year, the Company will be entitled to a deduction when calculating its taxable income for dividends paid to its stockholders. For the Company to qualify as a REIT, however, certain detailed technical requirements must be met (including certain income, asset and stock ownership tests) under Code provisions for which, in many cases, there are only limited judicial or administrative interpretations. Although the Company Page 20 intends to operate so that it will continue to qualify as a REIT, the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in the Company's circumstances preclude any assurance that the Company will so qualify in any year. For any taxable year that the Company fails to qualify as a REIT, it would not be entitled to a deduction for dividends paid to its stockholders in calculating its taxable income. Consequently, distributions to stockholders would be substantially reduced and could be eliminated because of the Company's increased tax liability. Should the Company's qualification as a REIT terminate, the Company may not be able to elect to be treated as a REIT for the subsequent five-year period, which would substantially reduce and could eliminate distributions to stockholders for the years involved. EFFECT OF DISTRIBUTION REQUIREMENTS. To maintain its status as a REIT for federal income tax purposes, the Company generally is required each year to distribute to its stockholders at least 95% of its taxable income. In addition, the Company is subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by it with respect to any calendar year are less than the sum of 85% of its ordinary income for such calendar year, 95% of its capital gain net income for the calendar year and any amount of such income that was not distributed in prior years. DILUTION OF COMMON STOCK. The Company's future growth will depend in large part upon its ability to raise additional capital. If the Company were to raise additional capital through the issuance of equity securities, the interests of holders of common stock could be diluted. Likewise, the Company's Board of Directors is authorized to cause the Company to issue preferred stock in one or more series and entitled to such dividends and voting and other rights as the Board of Directors may determine. Accordingly, the Board of Directors may authorize the issuance of preferred stock with voting, dividend and other similar rights which could be dilutive to or otherwise adversely affect the interests of holders of Common Stock. REAL ESTATE OWNERSHIP RISKS. The Company is subject to all of the general risks associated with the ownership of real estate, in particular the risk that rental revenue from the properties will not be sufficient to cover all corporate operating expenses and debt service payments on indebtedness incurred by the Company. These risks include adverse changes in general or local economic conditions, changes in supply of or demand for similar or competing properties, changes in interest rates and operating expenses, competition for tenants, changes in market rental rates, inability to lease properties upon termination of existing leases, renewal of leases at lower rental Page 21 rates and inability to collect rents from tenants due to financial hardship, including bankruptcy. Other risks include changes in tax, real estate, zoning and environmental laws which may have an adverse impact upon the value of real estate, uninsured property liability, property damage or casualty losses and unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state and local laws. Acts of God and other factors beyond the control of the Company's management might also adversely affect the Company. DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts of its executive officers and key employees. The loss of the services of its executive officers and key employees could have a material adverse effect on the Company's operations. ITEM 2: PROPERTIES - ------------------- Information pertaining to the properties of Realty Income can be found under Item 1. ITEM 3: LEGAL PROCEEDINGS - -------------------------- The Company is subject to certain claims and lawsuits, the outcome of which are not determinable at this time. In the opinion of management, any liability that might be incurred by the Company upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on the consolidated financial condition or results of operations of the Company. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ No matters were submitted to stockholders during the fourth quarter of the fiscal year. Page 22 PART II ======= ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ---------------------------------------------------------- A. The stock of the Company is traded on the New York Stock Exchange under the symbol "O." The following table shows the high and low sales prices per share for the Common Stock as reported by the New York Stock Exchange and distributions declared by Realty Income for the periods indicated. Price Per Share of Common Stock ------------------- Distributions 1995 High Low Declared (1) - ----------------------------------------------------------------- First Quarter $19.250 $16.500 $0.450 Second Quarter 21.500 17.875 0.450 Third Quarter 22.000 20.250 0.465 Fourth Quarter 22.500 19.250 0.850 (2) ------ $2.215 ====== 1996 - ----------------------------------------------------------------- First Quarter $23.125 $20.375 $0.310 (3) Second Quarter 21.375 19.500 0.465 Third Quarter 23.250 20.375 0.465 Fourth Quarter 24.500 22.250 0.470 ------ $1.710 ====== (1) Distributions currently are declared monthly by the Company based on financial results for the prior months. At December 31, 1996 a distribution of $0.1575 per share had been declared and was paid on January 15, 1997. (2) In the fourth quarter of 1995, four monthly distributions of $0.155 per share and a special distribution of $0.23 per share were declared. (3) In the first quarter of 1996, two monthly distributions of $0.155 per share were declared. B. There were 16,752 holders of record of Realty Income's shares of common stock as of March 19, 1997, however, Realty Income believes the total number of beneficial shareholders of Realty Income to be approximately 46,000. Page 23 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) -------------------------------------------------- 1996 1995 1994 1993 1992 ========== ========== ========== ======== ======== Total Assets (Book Value) $ 454,097 $ 417,639 $ 352,768 $384,474 $395,671 Cash and Cash Equivalents 1,559 1,650 11,673 29,329 7,414 Long Term Obligations 71,782 20,457 13,621 1,035 1,041 Total Liabilities 79,856 36,218 17,352 2,570 2,150 Stockholders' Equity 374,241 381,421 335,416 381,904 393,418 Net Cash Provided by Operating Activities 48,073 40,312 28,460 38,485 41,441 Net Change in Cash and Cash Equivalents (91) (10,023) (17,656) 21,915 1,976 Total Revenue 56,957 51,555 48,863 49,018 49,034 Consolidation Costs -- -- (11,201) -- -- Income from Operations 30,768 25,582 14,059 25,735 26,940 Net Gain on Sales of Properties 1,455 18 1,165 3,583 1,113 Net Income 32,223 25,600 15,224 29,318 28,053 Distributions Paid to Stockholders/ Partners 48,079 36,710 44,666 40,831 41,567 Ratio of Earnings to Fixed Charges (1) 14:1 10:1 39:1 5,865:1 N/A Net Income Per Share (2) 1.40 1.27 0.78 Distributions Paid Per Share (2)(3)(4) 2.093 1.825 0.60 Distributions Declared Per Share (2)(3)(4) 1.71 2.215 0.75 Page 24 (continued) As Of Or For The Years Ended December 31, (dollars in thousands, except per share data) -------------------------------------------------- 1996 1995 1994 1993 1992 ========== ========== ========== ======== ======== Weighted Average Number of Shares Outstanding (2) 22,977,837 20,230,963 19,502,091 (1) Ratio of Earnings to Fixed Charges is calculated by dividing earnings, by fixed charges. For this purpose, earnings consist of net income before fixed charges. Fixed charges are comprised of interest costs (including capitalized interest) and the amortization of debt issuance costs. Ratio of Earnings to Fixed Charges is not applicable for 1992 because the Company did not have any fixed charges. (2) Due to the change in the capital structure caused by the Consolidation (See Item 8, note 1 to the consolidated financial statements), per share information would not be meaningful for 1993 and 1992 and therefore has not been included. (3) The 1994 amount represents distributions paid or declared, as the case may be, after the Consolidation. (4) 1996 distributions paid per share and 1995 distributions declared per share include a special distribution of $0.23 per share. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ---------------------------------------------------------- GENERAL - ------- Realty Income Corporation ("Realty Income" or the "Company") was organized to operate as an equity real estate investment trust ("REIT"). The Company's primary business objective is to generate a consistent and predictable level of funds from operations ("FFO") per share and distributions to stockholders. Additionally, the Company generally will seek to increase FFO per share and distributions to stockholders through both internal and external growth, while also seeking to lower the ratio of distributions to stockholders as a percentage of FFO in order to allow internal cash flow to be used to fund additional Page 25 acquisitions and for other corporate purposes. Realty Income pursues internal growth through (i) contractual rent increases on existing leases; (ii) rental increases at the termination of existing leases when market conditions permit; and (iii) the active management of the Company's property portfolio, including selective sales of properties. The Company generally pursues external growth through the acquisition of additional properties under long-term, net lease agreements with initial contractual base rent which, at the time of acquisition, is in excess of the Company's estimated cost of capital. The Company's common stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "O" and commenced trading on October 18, 1994. Realty Income was organized in the state of Delaware on September 9, 1993 to facilitate the merger, which was effective on August 15, 1994 (the "Consolidation"), of 10 private and 15 public real estate limited partnerships (the "Partnerships") with and into Realty Income. Investors in the Partnerships who elected to invest in the equity of the Company received a total of 19,503,080 shares of common stock. Certain investors elected to receive Variable Rate Senior Notes due 2001 (the "Notes") totaling $12.6 million. The Consolidation was accounted for as a reorganization of affiliated entities in a manner similar to a pooling-of- interests. Under this method, the assets and liabilities of the Partnerships were carried over at their historical book values and operations were recorded on a combined historical cost basis. The pooling-of-interests method of accounting also requires the reporting of the results of operations as though the entities had been combined as of the beginning of the earliest period presented. Accordingly, the results of operations for the year ended December 31, 1994 comprise those of the separate entities combined from the beginning of the period through August 15, 1994 (the date of the Consolidation) and those of the Company from August 16, 1994 through December 31, 1994. Prior to August 17, 1995, the Company's day-to-day affairs were managed by R.I.C. Advisor, Inc. (the "Advisor") which provided advice and assistance regarding acquisitions of properties by the Company and performed the day-to-day management of the Company's properties and business. On August 17, 1995, the Advisor was merged with and into Realty Income (the "Merger") and the advisory agreement between Realty Income and the Advisor was terminated. Realty Income issued 990,704 shares of common stock as consideration for the outstanding common stock of the Advisor. Page 26 In July 1996, the Company expanded its board of directors to seven members. The new directors are Richard J. VanDerhoff, President and Chief Operating Officer of the Company, and Willard H. Smith Jr, formerly a Managing Director, Equity Capital Markets Division, of Merrill Lynch & Co from 1983 until his retirement in August 1995. In October 1996, the Company changed transfer agents from Chase Mellon Shareholder Services to The Bank of New York. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash Reserves Realty Income was organized for the purpose of operating as an equity REIT which acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of its net cash flow generated from lease revenue. The Company intends to retain an appropriate amount of cash as working capital reserves. At December 31, 1996, the Company had cash and cash equivalents totaling $1.6 million. Management believes that the Company's cash and cash equivalents on hand, cash provided from operating activities and borrowing capacity are sufficient to meet its liquidity needs for the foreseeable future. Capital Funding Realty Income has a $130 million three-year, revolving, unsecured acquisition credit facility that expires in November 1999. The credit facility currently bears interest at 1.25% over the London Interbank Offered Rate ("LIBOR") and offers the Company other interest rate options. As of March 10, 1997, $49.5 million of borrowing capacity was available to the Company under the acquisition credit facility. At that time, the outstanding balance was $80.5 million. On March 29, 1996, this credit facility was used to redeem the Notes at par, and has been and is expected to be used to acquire additional retail properties leased to national and regional retail chains under long term lease agreements. Any additional borrowings will increase the Company's exposure to interest rate risk. Realty Income will seek to meet its long-term capital needs for the acquisition of properties through the issuance of public or private debt or equity. In August 1995, the Company filed a universal shelf registration statement with the Securities and Exchange Commission covering up to $200 million in value of common stock, preferred stock or debt securities. Page 27 In the fourth quarter of 1995, the Company issued 2,540,000 shares of common stock at a price of $19.625 per share. The net proceeds were primarily used to repay borrowings under the acquisition credit facility. These borrowings were used to acquire properties in 1995. In December 1996, the Company entered into a treasury interest rate lock agreement to hedge against the possibility of rising interest rates. Under the interest rate lock agreement, the Company receives or makes a payment based on the differential between a specified interest rate, 6.537%, and the actual 10-year treasury interest rate on notional principal of $90 million, at the end of six months. Based on the 10-year treasury interest rate at December 31, 1996, the Company had an unrecognized loss on the agreement of $80,000. The Company anticipates issuing debt during the second quarter of 1997, subject to market conditions and acquisition levels. During the fourth quarter of 1996, the Company received investment grade corporate credit ratings for senior unsecured debt from Duff & Phelps Rating Co., Moody's Investor Services, Inc. and Standard and Poors, of BBB, Baa3, and BBB-, respectively. These ratings are subject to change based upon, among other things, the Company's results of operations and financial condition. Property Acquisitions During 1996, Realty Income purchased 62 retail properties (the "New Properties") in 22 states for $55.5 million (excluding the estimated unfunded development costs of $3.8 million on properties under development). These 62 properties will contain approximately 603,900 leasable square feet and are 100% leased under net leases, with an average initial lease term of 11.7 years. The weighted average annual unleveraged return on the cost of the 62 properties is estimated to be 10.6%, computed as estimated contractual net operating income (which in the case of a net leased property is equal to the base rent or, in the case of properties under construction, the estimated base rent under the lease) for the first year divided by the total acquisition and estimated development costs. Since it is possible that a tenant could default on the payment of contractual rent, no assurance can be given that the actual return on the cost of the 62 properties acquired in 1996 will not differ from the foregoing percentage. Of the 62 properties acquired in 1996, 57 were occupied as of February 1, 1997 and the remaining five were pre-leased and under construction pursuant to contracts under which the tenants have agreed to develop the properties (with development costs funded by the Company) and to begin paying rent when the premises Page 28 open for business. All of the New Properties, including the properties under development, are leased with initial terms of 7.75 to 20 years. The allocation of costs between land, and buildings and improvements on the 57 completed and occupied New Properties was approximately 34% and 66%, respectively. During 1996, the Company purchased a property which was adjacent to an existing tenant for $102,000 and leased the property to that tenant. The Company also invested $37,000 in existing properties, received equipment and other assets valued at $58,000 as settlements for amounts receivable, and purchased the outstanding Class A units in R.I.C. Trade Center, Ltd., Silverton Business Center, Ltd. and Empire Business Center, Ltd. for an aggregate of $150,000. After this purchase, Realty Income owned 100% of these partnerships, which were then dissolved. These partnerships owned three mixed-use light industrial business parks in San Diego, CA. 1996 ACQUISITION ACTIVITY Initial Approx. Lease Leasable Term Square Tenant Industry Location (Years) Feet ============== ============= ================ ======= ======== 1ST QUARTER Carver's Restaurant Glendale, AZ 19.8 8,100 Econo Lube N' Tune Auto Service Chula Vista, CA 15.0 2,800 Broomfield, CO 15.0 2,800 Dallas, TX 15.0 2,700 Lewisville, TX 15.0 2,600 2ND QUARTER Dairy Mart Convenience (1) Store Mt Washington, KY 20.0 2,800 (1) Tipp City, OH 15.0 3,800 Econo Lube N' Tune Auto Service Arvada, CO 15.0 2,800 Jiffy Lube Auto Service Centerville, OH 20.0 2,400 3RD QUARTER Best Buy Consumer Electronics Thousand Oaks, CA 20.0 59,200 Dairy Mart Convenience (1) Store Streetsboro, OH 15.0 3,800 (1) Wadsworth, OH 15.0 2,700 Page 29 (continued) 1996 ACQUISITION ACTIVITY Initial Approx. Lease Leasable Term Square Tenant Industry Location (Years) Feet ============== ============= ================ ======= ======== 3RD QUARTER (continued) Econo Lube N' Tune (1) Auto Service Arvada, CO 15.0 2,500 (1) Virginia Beach, VA 15.0 2,800 (1) Bremerton, WA 15.0 2,800 Jiffy Lube (1) Auto Service Beavercreek, OH 20.0 2,300 (1) Huber Heights, OH 20.0 2,300 Speedy Brake & Muffler Auto Service Hartford, CT 15.0 10,000 Indianapolis, IN 15.0 5,300 Milwaukee, WI 15.0 5,300 4TH QUARTER Best Buy Consumer Electronics Topeka, KS 20.0 45,600 East Coast Oil Convenience Store Stafford, VA 15.0 2,800 Warrenton, VA 15.0 3,600 Econo Lube N' Tune (1) Auto Service Thornton, CO 15.0 2,800 (1) Olathe, KS 15.0 2,800 Independence, MO 15.0 2,800 Richmond, VA 15.0 2,900 Jiffy Lube (1) Auto Service Hamilton, OH 20.0 2,300 Rex Stores Consumer Electronics Oxford, AL 7.8 10,000 Tuscaloosa, AL 7.8 12,000 Bradenton, FL 7.8 6,300 Mary Esther, FL 7.8 8,200 Melbourne, FL 7.8 8,000 Merritt Island, FL 7.8 10,000 Ocala, FL 7.8 10,000 Pensacola, FL 7.8 64,600 Tallahassee, FL 7.8 10,600 Titusville, FL 7.8 12,000 Venice, FL 7.8 8,200 Rome, GA 7.8 10,000 Council Bluffs, IA 7.8 9,000 Des Moines, IA 7.8 10,000 Peoria, IL 7.8 8,800 Page 30 (continued) 1996 ACQUISITION ACTIVITY Initial Approx. Lease Leasable Term Square Tenant Industry Location (Years) Feet ============== ============= ================ ======= ======== 4TH QUARTER (continued) Rex Stores Consumer Electronics Rockford, IL 7.8 10,100 Springfield, IL 7.8 10,300 Anderson, IN 7.8 15,600 Muncie, IN 7.8 12,500 Richmond, IN 7.8 6,500 Columbus, MS 7.8 10,000 Greenville, MS 7.8 9,100 Gulfport, MS 7.8 12,000 Hattiesburg, MS 7.8 12,000 Jackson, MS 7.8 15,100 Meridian, MS 7.8 9,000 Tupelo, MS 7.8 12,000 Vicksburg, MS 7.8 10,000 Lakewood, NY 7.8 14,100 Defiance, OH 7.8 7,200 Kettering, OH 7.8 10,600 Bristol, TN 7.8 12,400 Clarksville, TN 7.8 10,100 Vienna, WV 7.8 12,200 ------- -------- Average / Total 11.7 603,900 ======= ======== (1) The Company acquired these properties as undeveloped land and is funding construction and other costs relating to the development of the properties by the tenants. The tenants have entered into leases with the Company covering these properties and are contractually obligated to complete construction on a timely basis and to pay construction cost overruns to the extent they exceed the construction budget by more than a predetermined percentage. As of December 31, 1996, the total acquisition and estimated construction costs for the properties under development was $8.7 million, of which $3.8 million had not been funded. Distributions Cash distributions paid for the years ended December 31, 1996, 1995 and 1994 were $48.1 million, $36.7 million and $44.7 million, respectively. The 1996 and 1994 cash Page 31 distributions include a special distribution of $5.3 million and $5.8 million, respectively. For the year ended December 31, 1996, the Company paid 11 monthly distributions of $0.155 per share and increased the monthly distributions to $0.1575 per share in December 1996. The regular distributions paid during 1996 totaled $1.8625 per share. In addition, the Company paid a special distribution of $0.23 per share in January 1996. Total distributions paid in 1996 were $2.0925 per share. For tax purposes, a portion of the special distribution, in the amount of approximately $0.144 per share, was taxable as ordinary income in 1995 and the remaining $0.086 per share was included in each stockholders 1996 Form 1099. In December 1996, and January and February 1997, the Company declared distributions of $0.1575 per share which were paid on January 15, 1997, February 17, 1997 and payable on March 17, 1997, respectively. For the year ended December 31, 1995, the Company paid monthly distributions of $0.15 per share from January through July and increased its monthly distributions to $0.155 per share in August. Monthly distributions of $0.155 per share were paid in August through December 1995. The distributions paid for 1995 totaled $1.825 per share. The 1994 distributions were made up of eight partnership and four corporate monthly distributions in the aggregate amount of $38.9 million and the final partnership distribution of $5.8 million. The 1994 final partnership distributions were substantially comprised of proceeds from the sales of properties sold during 1993. From August 15, 1994, the date of the Consolidation, through December 31, 1994, the Company paid four monthly distributions of $0.15 per share, totaling $0.60 per share. Prior to the Consolidation on August 15, 1994, the Company did not have equivalent shares outstanding so no comparative per share information is presented. Other Information As a result of the Merger on August 17, 1995, the Company assumed a defined benefit pension plan (the "Plan") covering substantially all of its employees. The board of directors of the Advisor froze the Plan effective May 31, 1995. For each Plan participant, the accrued benefit earned under the Plan as of May 31, 1995 was frozen. The Plan was terminated on January 2, 1996. As part of the Plan's termination, the Company met its obligation to the Plan of $2.3 million in February 1997. Page 32 In December 1996, the Company obtained a five year environmental insurance policy on the property portfolio. Based upon the 740 properties in the portfolio at December 31, 1996, the cost of the insurance will be approximately $80,000 per year. The limit of the policy is $10.0 million for each loss and $20.0 million in the aggregate, with a $100,000 deductible. There is a sublimit on properties with underground storage tanks of $1.0 million per occurrence and $5.0 million in the aggregate, with a deductible of $25,000. FUNDS FROM OPERATIONS ("FFO") - ----------------------------- Funds from operations ("FFO") for 1996 was $47.7 million versus $40.4 million during 1995 and $39.2 million during 1994. Realty Income defines FFO as net income before net gain on sales of properties and the one-time expenses of the 1994 Consolidation, plus provision for impairment losses, plus depreciation and amortization. In accordance with the recommendations of the National Association of Real Estate Investment Trusts ("NAREIT"), amortization of deferred financing costs are not added back to net income to calculate FFO. Amortization of financing costs are included in interest expense in the consolidated statements of income. Management considers FFO to be an appropriate measure of the performance of an equity REIT. FFO is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distribution payments. Presentation of this information provides the reader with an additional measure to compare the performance of different REITs, although it should be noted that not all REITs calculate FFO the same way so comparisons with such REITs may not be meaningful. FFO is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of the Company's performance or to cash flow from operating, investing, and financing activities as a measure of liquidity or ability to make cash distributions. Page 33 Below is the reconciliation of net income to funds from operations (dollars in thousands): 1996 1995 1994 ======= ======= ======= Net Income $32,223 $25,600 $15,224 Plus Depreciation and Amortization 16,422 14,849 13,790 Plus Provision for Impairment Losses 579 -- 135 Plus Consolidation Costs -- -- 11,201 Less Depreciation of Furniture, Fixtures and Equipment (51) (17) -- Less Net Gain on Sales of Properties (1,455) (18) (1,165) ------- ------- ------- Total Funds From Operations $47,718 $40,414 $39,185 ======= ======= ======= For 1996, 1995 and 1994, FFO exceeded cash distributions, excluding the non-recurring special distributions of $5.3 million in 1996 (pertaining to the Advisor Merger) and $5.8 million in 1994 (final distribution for the predecessor partnerships), by $4.9 million, $3.7 million and $369,000, respectively. RESULTS OF OPERATIONS - --------------------- Prior to the Consolidation on August 15, 1994, the capital structure of the Partnerships consisted of limited partner interests with no long term debt. In the Consolidation, limited partners exchanged their partnership units for shares of common stock or Notes of the Company. The general partners did not receive any shares or Notes for their general partner interest. Due to these changes in capital structure, which were caused by the Consolidation, and additional expenses associated with the operations of a publicly traded REIT, the results of operations for the year ended December 31, 1994 are not necessarily comparable to 1996 and 1995. Comparison of 1996 to 1995 Rental revenue was $56.8 million for 1996 versus $51.2 million for 1995, an increase of $5.6 million. The increase in rental revenue was primarily due to the acquisition of 124 properties from December 1994 through December 1996. These properties generated revenue in 1996 and 1995 of $8.8 million and $3.8 million, respectively, an increase of $5.0 million. During 1997, the contractual lease payments (not including any percentage rents) on these 124 properties are approximately $14.0 million. Page 34 At December 31, 1996, 723 or 98.8% of the Company's leases, on the 732 single-tenant properties, provide for increases in rents through (i) base rent increases tied to a consumer price index with adjustment ceilings or (ii) overage rent based on a percentage of the tenants' gross sales. Some leases contain both types of clauses. Rental revenue generated on the 619 properties owned for all of both 1995 and 1996 increased by $871,000 or 1.9%, to $48.0 million from $47.1 million. Percentage rent, which is included in rental revenue, was $1.7 million for 1996 as compared to $1.6 million in 1995. The following table represents Realty Income's rental revenue by industry for the years ended December 31, 1996 and 1995: December 31, 1996 December 31, 1995 ---------------------- ---------------------- Rental Percentage Rental Percentage Industry Revenue of Total Revenue of Total =================== =========== ========== =========== ========== Automotive Parts $ 4,814,000 8.5% $ 4,724,000 9.2% Automotive Service 3,859,000 6.8% 3,007,000 5.9% Child Care 23,854,000 42.0% 23,358,000 45.6% Consumer Electronics 507,000 0.9% -- --% Convenience Stores 2,647,000 4.7% 1,254,000 2.4% Home Furnishings 2,496,000 4.4% 1,471,000 2.9% Restaurant 13,836,000 24.3% 12,632,000 24.7% Other 4,764,000 8.4% 4,739,000 9.3% ----------- ------ ----------- ------ Total $56,777,000 100.0% $51,185,000 100.0% =========== ====== =========== ====== Unleased properties are a factor in determining gross revenue generated and property costs incurred by the Company. At December 31, 1996, the Company had nine properties that were not under lease as compared to four properties at December 31, 1995. The remaining 731 properties were under lease agreements with third party tenants as of December 31, 1996. The significant portion of the remaining revenue earned during 1996 and 1995 was attributable to interest earned on cash invested in two funds which hold short-term investments in United States government agency securities and treasury securities. Interest revenue was $109,000 for 1996 as compared to $276,000 during 1995. The decrease in interest revenue was due to lower average cash balances held during 1996, which reflects the Company's desire to maintain an appropriate amount of cash as working capital reserves and invest excess available cash in properties. Page 35 Depreciation and amortization was $16.4 million in 1996 versus $14.8 million in 1995. The $1.6 million increase was primarily due to the depreciation of properties acquired during 1995 and 1996 and amortization of goodwill recorded in connection with the Merger of the Advisor. Total advisor fees and general and administrative expenses decreased by $1.7 million to $5.2 million in 1996 versus $6.9 million in 1995. General and administrative expenses were $5.2 million in 1996 versus $3.2 million in 1995 and advisor fees of $3.7 million in 1995. The $2.0 million increase in general and administrative expenses was due primarily to the Merger of the Advisor. Subsequent to the Merger, the Company commenced paying for management, accounting systems, office facilities, professional and support personnel expenses (i.e. costs of being self-administered). Prior to August 17, 1995, such costs were the responsibility of the Advisor. During the third quarter of 1996, the Company initiated a 401(k) plan. Costs of $65,000 associated with the plan are included in general and administrative expenses. Property expenses were $1.6 million in 1996 and 1995. Property expenses are broken down into expenses associated with multi-tenant non-triple net lease 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, site checks, bad debt expense and legal fees. General portfolio costs include, but are not limited to, insurance, legal, site checks and title search fees. Property expenses of $1.0 million were incurred on ten multi-tenant properties during 1996, eight of which were owned at the end of 1996. Property expenses of $1.0 million were incurred on eleven multi-tenant properties in 1995, ten of which were owned at the end of 1995. During 1996 two multi-tenant properties were sold and in 1995 one multi-tenant property was sold. Expenses incurred in 1996 on ten unleased single-tenant properties totaled $250,000 as compared to $161,000 in 1995 on seven unleased single-tenant properties. At December 31, 1996, nine properties were available for lease, one of which was a multi-tenant property. At December 31, 1995, four single-tenant properties were available for lease. The $89,000 increase is due to property taxes, maintenance and utilities on the additional vacant properties. General portfolio expenses in 1996 and 1995 totaled $337,000 and $441,000, respectively. The decrease in general portfolio expenses is primarily due to a decrease in insurance costs. Page 36 Interest expense is made up of four components which include: (i) interest on outstanding loans and notes; (ii) commitment fees on the undrawn portion of the credit facility; (iii) amortization of the credit facility origination costs; which are offset, in part, by; (iv) interest capitalized on properties under development. Interest capitalized on properties under development is included in the cost of the completed property and amortized over the estimated useful life of the property. Interest expense decreased by $275,000 to $2.4 million in 1996 as compared to $2.6 million for 1995. Interest incurred on loans and notes in 1996 and 1995 was $2.1 million and $2.4 million, respectively. Interest incurred was $266,000 lower in 1996 than in 1995 due to a decrease in the average outstanding balance and lower interest rates on the acquisition credit facility and the Notes. During 1996, the average outstanding balance and interest rate were $30.7 million and 6.96% as compared to $31.3 million and 7.68% during the comparable period in 1995. Included in the interest incurred in 1996 and 1995 was capitalized interest totaling $150,000 and $217,000, respectively. Commitment fees in 1996 were $156,000 as compared to $127,000 in 1995. In 1996 and 1995, a commitment fee of 0.15% per annum was incurred on the undrawn portion of the credit facility. Commitment fees increased in 1996 because the borrowing capacity was increased to $130 million from $100 million in December 1995. Amortization of the credit facility origination fees were $224,000 in 1996 as compared to $329,000 in 1995. The amortized credit facility origination fees decreased in 1996 as compared to 1995, because in December 1995 the term of the credit facility was extended one year, which extended the period of time over which unamortized fees are amortized. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In 1996, a $579,000 charge was taken to reduce the net carrying value on four properties because they became held for sale. No charge was recorded for an impairment loss in 1995. The Company anticipates property sales will occur in the normal course of business. During 1996, the Company recorded a gain of $1.5 million on the sale of two multi-tenant properties, five restaurant properties and the granting of an easement on another property. During 1995, the Company recorded a net gain of $18,000 on the sale of two child care properties and a multi- tenant property. During 1996 and 1995 cash proceeds generated from these sales were $4.4 million and $617,000, respectively. For 1996, the Company recorded net income of $32.2 million versus $25.6 million in 1995. The $6.6 million increase in net Page 37 income is primarily due to an increase in rental revenue from 124 properties acquired from December 1994 through December 1996 of $5.0 million, an increase in the net gain on sales of properties of $1.4 million and a net decrease in advisor fees, general and administrative expenses of $1.7 million, offset by an increase in depreciation and amortization expense of $1.6 million. Comparison of 1995 to 1994 Rental revenue was $51.2 million for 1995 versus $47.9 million for 1994, an increase of $3.3 million. The increase in rental revenue was primarily due to the acquisition of 62 properties from December 1994 through December 1995. These properties generated revenue of $3.8 million in 1995. The decline in revenues from properties owned during both 1995 and 1994 was mainly attributable to a decline in percentage rents. Percentage rent was $1.6 million for 1995 as compared to $2.6 million in 1994. The following table represents Realty Income's rental revenue by industry for the years ended December 31, 1995 and 1994: December 31, 1995 December 31, 1994 ---------------------- ---------------------- Rental Percentage Rental Percentage Industry Revenue of Total Revenue of Total =================== =========== ========== =========== ========== Automotive Parts $ 4,724,000 9.2% $ 4,977,000 10.4% Automotive Service 3,007,000 5.9% 2,705,000 5.7% Child Care 23,358,000 45.6% 23,522,000 49.1% Convenience Stores 1,254,000 2.4% -- -- Home Furnishings 1,471,000 2.9% -- -- Restaurant 12,632,000 24.7% 12,047,000 25.1% Other 4,739,000 9.3% 4,654,000 9.7% ----------- ------ ----------- ------ Total $51,185,000 100.0% $47,905,000 100.0% =========== ====== =========== ====== Unleased properties are a factor in determining gross revenue generated and property costs incurred by the Company. At December 31, 1995 and 1994, the Company had four properties that were not under lease, the remaining 681 and 626 properties, respectively, were under lease agreements with third party tenants. The significant portion of the remaining revenue earned during 1995 and 1994 was attributable to interest earned on cash invested in two funds which hold short-term investments in United States government agency securities or direct purchases of short- Page 38 term United States government agency securities. Interest revenue was $276,000 for 1995 as compared to $862,000 during 1994. The decrease in interest revenue was due to a reduction of cash held, which was invested in properties. Depreciation and amortization was $14.8 million in 1995 versus $13.8 million in 1994. The $1.0 million increase was primarily due to the depreciation of 62 properties acquired from December 1994 through December 31, 1995 and amortization of goodwill recorded in connection with the Merger of the Advisor. Total advisor fees and general and administrative expenses decreased by $312,000 to $6.9 million in 1995 versus $7.2 million in 1994. General and administrative expenses were $3.2 million in 1995 versus $1.8 million in 1994. Advisor fees were $3.7 million in 1995 versus $5.4 million in 1994. The $1.4 million increase in general and administrative expenses and $1.7 million decrease in advisor fees was due to the Merger of the Advisor. Subsequent to the Merger, the Company commenced paying for management, accounting systems, office facilities, professional and support personnel expenses (i.e. costs of being self- administered). Such costs were the responsibility of the Advisor through August 17, 1995. The advisor fees for 1995 were calculated in accordance with the terms of the advisory agreement which became effective August 15, 1994 and was terminated on August 17, 1995. Prior to August 16, 1994, advisor fees were calculated in accordance with the terms of the Partnership agreements of the Partnerships. Administration expense in 1994 included approximately $500,000 of one-time expenses primarily associated with the distribution of stock certificates, shareholder informational material and final partnership K-1's to shareholders after the Consolidation had occurred. Other administrative expenses increased in 1995 compared to 1994 due to additional expenses associated with the operation of a publicly traded REIT including, but not limited to, transfer agent fees, NYSE fees, board of directors fees and property acquisition expenses. Property expenses decreased to $1.6 million in 1995 as compared to $2.1 million in 1994 The $488,000 decrease was is primarily due to a decrease in property taxes, maintenance and utilities. Interest expense for 1995 was $2.6 million as compared to $396,000 for 1994. Of the $2.2 million increase, $1.4 million was for interest paid on the acquisition credit facility in 1995 and an increase of $665,000 of interest paid on the Notes. Interest incurred on loans and notes in 1995 and 1994 was $2.4 million and $354,000, respectively. Interest incurred was higher Page 39 in 1995 due to borrowings on the credit facility, and senior notes issued as part of the Consolidation. During 1995, the average outstanding balances and interest rates on the acquisition credit facility and the Notes were $31.3 million and 7.68%. Included in the interest incurred in 1995 was capitalized interest totaling $217,000. No interest was capitalized in 1994. Commitment fees in 1995 were $127,000 as compared to $13,000 in 1994. In 1995 and 1994, a commitment fee of 0.15% per annum was incurred on the undrawn portion of the credit facility. Amortization of the credit facility origination fees were $329,000 in 1995 as compared to $29,000 in 1994. Commitment fees and amortization of credit facility origination fees increased in 1995 because the credit facility was not entered into until November 1994. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In 1994, a $135,000 charge was taken to reduce the net carrying value on one property because it became held for sale. No charge was recorded for an impairment loss in 1995. In 1994, the Company expensed Consolidation costs aggregating $11.2 million which were nonrecurring costs incurred to effect the Consolidation. In a manner similar to the pooling- of-interests method of accounting, the Consolidation costs were charged to expense upon the consummation of the Consolidation. Such costs included, but were not limited to, fees paid to underwriters, attorneys, and accountants, as well as costs associated with obtaining a fairness opinion, soliciting the stockholders, and registering and listing the common stock and the Notes on the NYSE. During 1995, the Company recorded a net gain of $18,000 on the sale of two child care properties and a multi-tenant property. During 1994, the Company recorded a gain of $1.2 million on the sale of five restaurant properties. During 1995 and 1994 cash proceeds generated from these sales were $617,000 and $3.8 million, respectively. For 1995, the Company recorded net income of $25.6 million versus $15.2 million in 1994. The net income in 1994 was negatively impacted by one time Consolidation costs of $11.2 million. Net income for 1994, excluding the Consolidation costs, was $26.4 million. Page 40 IMPACT OF INFLATION - ------------------- Tenant leases generally provide for increases in rent as a result of increases in the tenant's sales volumes or increases in the consumer price index. Management expects that inflation will cause these lease provisions to result in increases in rent over time. However, inflation and increased costs may have an adverse impact on the tenants if increases in the tenant's operating expenses exceed increases in revenue. Approximately 98% of the properties are leased to tenants under net leases in which the tenant is responsible for property costs and expenses. These features in the leases reduce the Company's exposure to rising expenses due to inflation. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- Table of Contents Page - ----------------- ---- A. Independent Auditors' Report...............................42 B. Consolidated Balance Sheets, December 31, 1996 and 1995...............................43 C. Consolidated Statements of Income, Years ended December 31, 1996, 1995 and 1994.............45 D. Consolidated Statements of Stockholders' Equity, Years ended December 31, 1996, 1995 and 1994.............46 E. Consolidated Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994.............49 F. Notes to Consolidated Financial Statements.................51 G. Consolidated Quarterly Financial Data (unaudited) for 1996 and 1995............................63 H. Schedule III-Real Estate and Accumulated Depreciation.............................................64 Schedules not Filed: All schedules, other than that indicated in the Table of Contents, have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. Page 41 Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders Realty Income Corporation: We have audited the consolidated financial statements (Note 1) of Realty Income Corporation and subsidiaries as listed in the accompanying table of contents. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule III listed in the accompanying table of contents. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Realty Income Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/KPMG PEAT MARWICK LLP San Diego, California January 24, 1997, except as to paragraph two of Note 11, which is as of February 24, 1997 Page 42 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets =========================== December 31, 1996 and 1995 (dollars in thousands, except per share data) 1996 1995 ========= ========= ASSETS Real Estate, at Cost: Land $ 165,598 $ 147,789 Buildings and Improvements 398,942 367,637 --------- --------- 564,540 515,426 Less - Accumulated Depreciation and Amortization (138,307) (126,062) --------- --------- Net Real Estate 426,233 389,364 Cash and Cash Equivalents 1,559 1,650 Accounts Receivable 1,905 1,638 Due from Affiliates 383 493 Other Assets 2,183 1,927 Goodwill, Net 21,834 22,567 --------- --------- TOTAL ASSETS $ 454,097 $ 417,639 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Distributions Payable $ 3,619 $ 12,407 Accounts Payable and Accrued Expenses 1,172 673 Other Liabilities 5,065 4,541 Line of Credit Payable 70,000 6,000 Notes Payable -- 12,597 --------- --------- TOTAL LIABILITIES 79,856 36,218 --------- --------- Page 43 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets =========================== December 31, 1996 and 1995 (dollars in thousands, except per share data) 1996 1995 ========= ========= Commitments and Contingencies Stockholders' Equity Preferred Stock, Par Value $1.00 Per Share, 5,000,000 Shares Authorized, No Shares Issued or Outstanding -- -- Common Stock, Par Value $1.00 Per Share, 40,000,000 Shares Authorized, 22,979,537 and 22,976,237 Shares Issued and Outstanding in 1996 and 1995, respectively 22,980 22,976 Capital in Excess of Par Value 516,004 516,119 Accumulated Distributions in Excess of Net Income (164,743) (157,674) --------- --------- TOTAL STOCKHOLDERS' EQUITY 374,241 381,421 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 454,097 $ 417,639 ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Page 44 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Income ================================= Years Ended December 31, 1996, 1995 and 1994 (dollars in thousands, except per share data) 1996 1995 1994 (Note 1) ========== ========== ========== REVENUE Rental $ 56,777 $ 51,185 $ 47,905 Interest 109 276 862 Other 71 94 96 ---------- ---------- ---------- 56,957 51,555 48,863 ---------- ---------- ---------- EXPENSES Depreciation and Amortization 16,422 14,849 13,790 General and Administrative 5,181 3,214 1,765 Advisor Fees -- 3,661 5,422 Property 1,640 1,607 2,095 Interest 2,367 2,642 396 Provision for Impairment Losses 579 -- 135 Consolidation Costs -- -- 11,201 ---------- ---------- ---------- 26,189 25,973 34,804 ---------- ---------- ---------- Income from Operations 30,768 25,582 14,059 Net Gain on Sales of Properties 1,455 18 1,165 ---------- ---------- ---------- NET INCOME $ 32,223 $ 25,600 $ 15,224 ========== ========== ========== Net Income Per Share $ 1.40 $ 1.27 $ 0.78 ========== ========== ========== Weighted Average Number of Shares Outstanding 22,977,837 20,230,963 19,502,091 ========== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Page 45 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Stockholders' Equity ======================================================== Years Ended December 31, 1996, 1995 and 1994 (dollars in thousands) Accumu- lated Capital Distri- in butions Common Stock Excess in Excess ------------------- of Par of Net Shares Amount Value Income Total ========== ======= ======== ========= ======== BALANCE, December 31, 1993 (Note 1) -- $ -- $486,619 $(104,715) $381,904 Net Income -- -- -- 15,224 15,224 Distributions to Partners -- -- -- (32,964) (32,964) Distributions Paid and Payable to Stockholders -- -- -- (14,627) (14,627) Shares Issued in Exchange for Limited Partnership Interests 19,502,091 19,502 (19,502) -- -- Payment of Promissory Notes and Fractional Shares in Exchange for Limited Partnership Interests -- -- (1,505) -- (1,505) Notes Payable Issued in Exchange for Limited Partnership Interests -- -- (12,616) -- (12,616) ---------- ------- -------- --------- -------- BALANCE, December 31, 1994 (Note 1) 19,502,091 19,502 452,996 (137,082) 335,416 Page 46 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Stockholders' Equity ======================================================== Years Ended December 31, 1996, 1995 and 1994 (dollars in thousands) Accumu- lated Capital Distri- in butions Common Stock Excess in Excess ------------------- of Par of Net Shares Amount Value Income Total ========== ======= ======== ========= ======== Net Income -- -- -- 25,600 25,600 Distributions Paid and Payable to Stockholders -- -- -- (46,192) (46,192) Shares Issued in Exchange for Advisor Shares 990,704 991 20,186 -- 21,177 Shares Retired (57,547) (58) (1,172) -- (1,230) Shares Issued in Stock Offering, net of offering costs of $3,217 2,540,000 2,540 44,090 -- 46,630 Shares Issued in Exchange for Limited Partnership Interests 989 1 19 -- 20 ---------- ------- -------- --------- -------- BALANCE, December 31, 1995 22,976,237 22,976 516,119 (157,674) 381,421 Page 47 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Stockholders' Equity ======================================================== Years Ended December 31, 1996, 1995 and 1994 (dollars in thousands) Accumu- lated Capital Distri- in butions Common Stock Excess in Excess ------------------- of Par of Net Shares Amount Value Income Total ========== ======= ======== ========= ======== Net Income -- -- -- 32,223 32,223 Distributions Paid and Payable to Stockholders -- -- -- (39,292) (39,292) Shares Issued 3,300 4 73 -- 77 Stock Offering Costs -- -- (188) -- (188) ---------- ------- -------- --------- -------- BALANCE, December 31, 1996 22,979,537 $22,980 $516,004 $(164,743) $374,241 ========== ======= ======== ========= ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Page 48 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Cash Flows ===================================== Years Ended December 31, 1996, 1995 and 1994 (dollars in thousands) 1996 1995 1994 (Note 1) ======== ======== ======== CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 32,223 $ 25,600 $ 15,224 Adjustments to Net Income: Depreciation and Amortization 16,422 14,849 13,790 Provision for Impairment Losses 579 -- 135 Net Gain on Sales of Properties (1,455) (18) (1,165) Changes in Assets and Liabilities (net of the Merger with the Advisor): Accounts Receivable and Other Assets (646) (1) 980 Accounts Payable, Accrued Expenses and Other Liabilities 950 (86) 460 Due to Advisor -- (32) (964) -------- -------- -------- Net Cash Provided by Operating Activities 48,073 40,312 28,460 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sales of Properties 4,405 617 3,795 Acquisition of and Additions to Properties (55,705) (65,890) (3,485) Payment of Advisor Merger Costs -- (1,629) -- Cash Acquired from Advisor Merger -- 647 -- -------- -------- -------- Net Cash Provided by (Used in) Investing Activities (51,300) (66,255) 310 -------- -------- -------- Page 49 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Cash Flows ===================================== Years Ended December 31, 1996, 1995 and 1994 (dollars in thousands) 1996 1995 1994 (Note 1) ======== ======== ======== CASH FLOWS FROM FINANCING ACTIVITIES: Payments of Distributions (48,079) (36,710) (44,666) Proceeds from Lines of Credit 66,700 50,600 625 Payments of Lines of Credit (2,700) (44,600) (880) Payment of Notes Payable (12,597) -- -- Proceeds from Stock Offering, Net of Offering Costs of $3,217 -- 46,630 -- Stock Offering Costs (188) -- -- Payments in Lieu of Promissory Notes and Fractional Shares -- -- (1,505) -------- -------- -------- Net Cash Provided by (Used in) Financing Activities 3,136 15,920 (46,426) -------- -------- -------- Net Decrease in Cash and Cash Equivalents (91) (10,023) (17,656) Cash and Cash Equivalents, Beginning of Year 1,650 11,673 29,329 -------- -------- -------- Cash and Cash Equivalents, End of Year $ 1,559 $ 1,650 $ 11,673 ======== ======== ======== For supplemental disclosures, see Note 9. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Page 50 REALTY INCOME CORPORATION AND SUBSIDIARIES Notes To Consolidated Financial Statements ========================================== December 31, 1996, 1995 and 1994 1. Organization and Operation Realty Income Corporation (the "Company") was organized in the state of Delaware in September 1993 to facilitate the merger, which was effected on August 15, 1994 (the "Consolidation"), of 10 private and 15 public real estate limited partnerships (the "Partnerships") with and into the Company. The Company invests in commercial real estate and has elected to be taxed as a real estate investment trust ("REIT"). Investors in the Partnerships who elected to invest in the Company received common stock of the Company totaling 19,503,080 shares. Certain investors elected to receive Variable Rate Senior Notes (the "Notes") totaling $12.6 million. The Consolidation was accounted for as a reorganization of affiliated entities under common control in a manner similar to a pooling-of-interests. Under this method, the assets and liabilities of the Partnerships were carried over at their historical book values and their operations have been recorded on a combined historical cost basis. The pooling-of-interests method of accounting also requires the reporting of the results of operations as though the entities had been combined as of the beginning of the earliest period presented. Accordingly, the results of operations for the year ended December 31, 1994 comprise those of the separate entities combined from January 1, 1994 through August 15, 1994 and those of the Company from August 16, 1994 through December 31, 1994. Costs incurred to effect the Consolidation and integrate the continuing operations of the separate entities were expenses of the Company in the period the Consolidation was consummated. Prior to the Consolidation, the Company had no significant operations; therefore, the combined operations for the period prior to the Consolidation represent the operations of the Partnerships. The Consolidation did not require any material adjustments to conform the accounting policies of the separate entities to that of the Company. All intercompany transactions and balances have been eliminated. Page 51 1. Organization and Operation (continued) The results of operations of the previously separate entities for the period before the Consolidation was consummated that are included in the results of operations for the year ended December 31, 1994 follow: January 1, 1994 through August 15, 1994 ----------------- (dollars in thousands) Entity Net Income Revenue =================================== ========== ======= Northridge Bell, Ltd. $ 15 $ 29 Tustin Bell, Ltd. 39 47 Marina Bell, Ltd. 5 7 Fullerton Commercial Property, Ltd. 70 73 Chino Commercial Property, Ltd. 49 55 R.I.C. 76, Ltd. 38 52 R.I.C. 781, Ltd. 50 75 Garden Grove BYH, Ltd. 14 19 R.I.C. Associates #1, Ltd. 7 11 R.I.C. Associates #2, Ltd. 35 55 R.I.C. 79, Ltd. 299 451 R.I.C. 81, Ltd. 451 754 R.I.C. 14, Ltd. 664 1,188 R.I.C. 15, Ltd. 142 898 R.I.C. 16, Ltd. 811 1,735 R.I.C. 17, Ltd. 1,612 3,490 R.I.C. 18, Ltd. 531 1,707 R.I.C. 19, Ltd. 1,638 2,537 R.I.C. 20, Ltd. 614 1,789 R.I.C. 21, Ltd. 1,841 2,978 R.I.C. 22, Ltd. 1,472 2,574 R.I.C. 23, Ltd. 2,225 3,463 R.I.C. 24, Ltd. 1,731 2,737 R.I.C. 25, Ltd. 1,934 2,900 R.I.C. 26, Ltd. 571 818 ------- ------- Combined Results $16,858 $30,442 ======= ======= Page 52 2. Summary of Significant Accounting Policies Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and partnerships more than 50 percent owned (subsidiaries) after elimination of all material intercompany balances and transactions. Cash and Cash Equivalents - The Company considers all short- term, highly liquid investments that are readily convertible to cash and have an original maturity of three months or less at the time of purchase to be cash equivalents. Depreciation and Amortization - Depreciation of buildings and improvements and amortization of goodwill are computed using the straight-line method over an estimated useful life of approximately 25 years. Leases - All leases are accounted for as operating leases. Under this method, lease payments are recognized as revenue over the term of the lease on a straight-line basis. Income Taxes - Prior to the Consolidation, the Company's operations were conducted through private and public real estate limited partnerships. In accordance with partnership taxation, each partner was responsible for reporting its share of taxable income. Accordingly, no federal income tax provision has been made in the accompanying consolidated financial statements prior to August 16, 1994. After August 15, 1994, the Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. Management believes the Company has qualified and continues to qualify as a REIT and therefore will be permitted to deduct distributions paid to its stockholders, eliminating the federal taxation of income represented by such distributions at the Company's level. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements for the period August 16, 1994 through December 31, 1994 and the years ended December 31, 1996 and 1995. Distributions Paid and Payable - For the year ended December 31, 1996, cash distributions of $2.0925 per share were paid. The 1996 distributions were paid as a special distribution of $0.23 per share, eleven monthly distributions of $0.155 per share and one distribution of $0.1575 per share. As of December 31, 1996, a distribution of $0.1575 per share was declared and payable. Page 53 2. Summary of Significant Accounting Policies (continued) For the year ended December 31, 1995, cash distributions of $1.825 per share were paid. The 1995 distributions were paid as seven monthly distributions of $0.15 per share and five monthly distributions of $0.155 per share. As of December 31, 1995, three distributions totaling $0.54 per share were declared and payable. For the period August 16, 1994 through December 31, 1994, cash distributions of $0.60 per share were paid. The 1994 distributions were paid as four monthly distributions of $0.15 per share. The following presents the characterization for tax purposes of distributions paid or deemed to be paid to stockholders for the years ended December 31: 1996 1995 1994 ------ ------ ----- Ordinary Income $1.691 $1.876 $0.60 Return of Capital 0.257 0.093 -- ------ ------ ----- $1.948 $1.969 $0.60 ====== ====== ===== For tax purposes, a portion of the distributions payable at December 31, 1995, in the amount of $0.144 per share is deemed to be paid in 1995. This amount is included in the $1.876 per share taxable as ordinary income in 1995 and represents the remaining portion of taxable earnings and profits which were assumed by the Company in the merger with R.I.C. Advisor, Inc. (the "Advisor"). Provision for Impairment Losses - The Company reviews long- lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Generally, a provision is made for impairment loss if estimated future operating cash flows (undiscounted and without interest charges) over a long-term holding period plus estimated disposition proceeds (undiscounted) are less than the current book value. If properties are held for sale, they are carried at the lower of costs or estimated fair value, less costs to sell. For the years ended December 31, 1996 and 1994, provisions for impairment losses of $579,000 and $135,000, respectively, were charged to operations to reduce the net carrying value of four properties held for sale in 1996 and one property held for sale in 1994. There was no provision for impairment losses for the year ended December 31, 1995. Page 54 2. Summary of Significant Accounting Policies (continued) Net Income Per Share - Net income per share for 1996 and 1995 was calculated based upon the weighted average number of common shares and common stock equivalents outstanding during the year. Net income per share for 1994 was calculated assuming 19,502,091 shares of the Company's common stock were outstanding. Prior to the Consolidation, no shares of common stock were outstanding. Stock Option Plan - The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair- value-based method defined in SFAS 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS 123. Derivative Financial Instrument - The Company uses an interest rate treasury lock agreement to hedge the effect of interest rate fluctuations. This instrument meets the requirement for hedge accounting, including a high correlation to a specific transaction. Accordingly, amounts receivable or payable under the terms of the agreement and changes in market value are recognized in income when the effects of related changes of the hedge item are recognized. Reclassifications - Certain of the 1995 and 1994 balances have been reclassified to conform to the 1996 presentation. The reclassifications had no effect on stockholders' equity or net income. Use of Estimates - Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Page 55 3. Credit Facility Available for Acquisitions The Company has a $130 million, three-year, revolving, unsecured acquisition credit facility that expires in November 1999. The credit facility is from The Bank of New York, as agent, and several major U.S. and non- U.S. banks. As of December 31, 1996 and 1995, the outstanding balance on the credit facility was $70.0 million and $6.0 million, respectively, with an effective interest rate of approximately 6.85% and 7.19%, respectively. A commitment fee of 0.15%, per annum accrues on the average amount of the unused available credit commitment. The credit facility is subject to various leverage and interest coverage ratio limitations, all of which the Company is and has been in compliance with. In 1996 and 1995, interest of $150,000 and $217,000, respectively, was capitalized on properties under construction. No interest was capitalized in 1994. 4. Notes Payable On March 29, 1996, the Company redeemed, at par, the $12.6 million principal amount of Notes. Interest incurred on the Notes for the years ended December 31, 1996, 1995 and 1994 was $217,000, $997,000 and $332,000, respectively. 5. Operating Leases A. General At December 31, 1996, the Company owned 740 properties in 42 states. Of the Company's properties, 732 are single-tenant and the remainder are multi-tenant. At December 31, 1996, nine properties were vacant and available for lease or sale. Substantially all leases are net leases whereby the tenant pays property taxes and assessments, maintains the interior and exterior of the building, and carries insurance coverage for public liability, property damage, fire, and extended coverage. The Company's leases are primarily for initial terms of 10 to 20 years and provide for limited cost of living increases and/or increased rent based upon a percentage of the tenant's sales. Percentage rent for 1996, 1995 and 1994 was $1.7 million, $1.6 million and $2.6 million, respectively. Page 56 5. Operating Leases (continued) As of December 31, 1996, minimum annual rents to be received on the operating leases are as follows (dollars in thousands): Years Ending December 31, ========================= 1997 $ 56,814 1998 55,577 1999 55,095 2000 54,034 2001 52,730 2002-2018 269,305 -------- TOTAL $543,555 ======== B. Major Tenants The following schedule presents rental income, including percentage rents, from tenants representing more than 10% of the Company's total revenue for at least one of the years ended December 31, 1996, 1995 or 1994 (dollars in thousands): Tenant 1996 1995 1994 =============================== ======= ======= ======= Children's World, Inc. $13,460 $13,121 $12,907 La Petite Academy, Inc. 9,339 9,189 9,574 Golden Corral Corporation 7,017 6,550 6,362 CSK Auto, Inc. (Formerly Northern Automotive Corporation) 4,779 4,677 4,931 6. Net Gain on Sales of Properties In 1996, the Company sold seven properties for a total of $4.4 million and recognized a gain of $1.5 million. In 1995, the Company sold three properties for a total of $617,000 and recognized a net gain of $18,000. In 1994, the Company sold five properties and had three land easement transactions for a total of $3.8 million and recognized a net gain of $1.2 million. 7. The Merger of R.I.C. Advisor, Inc. On August 17, 1995, the Company merged with the Advisor and issued 990,704 shares of the Company's common stock valued at approximately $21.2 million (the "Merger"). The Merger was accounted for using the purchase method. Accordingly, the purchase price was allocated to assets acquired based on their Page 57 7. The Merger of R.I.C. Advisor, Inc. (continued) estimated fair values. This treatment resulted in approximately $22.9 million of goodwill. Amortization of goodwill for the years ended December 31, 1996 and 1995 was $916,000 and $340,000, respectively. The following unaudited pro forma summary presents information as if the Merger had occurred at the beginning of the period presented. The pro forma information is provided for information purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined company. For the Year Ended December 31, 1995 (dollars in thousands, except per share data) ----------------------------------------------------- Pro Forma Unaudited ========= Revenue $ 51,765 Net Income $ 24,751 Net Income Per Share $ 1.22 8. Fair Value of Financial Instruments Management of the Company believes that the carrying values reflected in the balance sheets at December 31, 1996 and 1995 reasonably approximate the fair values for cash and cash equivalents, accounts receivable, due from affiliates and all liabilities. In making such assessments, the Company utilized estimates and quoted market prices. See Note 13. 9. Supplemental Disclosure of Cash Flow Information Interest paid during 1996, 1995 and 1994 was $1,987,000, $2,186,000 and $354,000, respectively. The following non-cash investing and financing activities are included in the accompanying financial statements: A. Distributions payable totaled $3.6 million and $12.4 million at December 31, 1996 and 1995, respectively. B. In 1996, due from affiliates of $183,000 was reclassified to goodwill, related to the resolution of a pre-acquisition contingency. Page 58 9. Supplemental Disclosure of Cash Flow Information (continued) C. The Merger of the Advisor into the Company on August 17, 1995 resulted in the following: (dollars in thousands) Increases in: Other Assets $ (1,143) Goodwill (21,184) Common Stock retired after the Merger (1,230) Increases/(Decrease) in: Other Liabilities 3,029 Due to Advisor (2) Common Stock 991 Capital in Excess of Par Value 20,186 -------- Cash Acquired from Merger $ 647 ======== In 1995, other assets of $95,000 were reclassified to goodwill. Common stock retired after the Merger includes par value of common stock and capital in excess of par value of $58,000 and $1,172,000, respectively. D. In 1996 and 1995, pursuant to the assumption of the defined benefit pension plan by the Company (Note 11), the Company recorded a due from affiliate and a liability (included in other liabilities) of $73,000 and $493,000, respectively. This represents the amount of the increase in the liability to the plan, of which the Company is indemnified by the former shareholders of the Advisor. E. In 1994, the following increases occurred resulting from exchanges of limited partnership units for Notes payable and Common Stock (dollars in thousands): Notes Payable $ 12,616 Common Stock 19,502 Capital in Excess of Par Value 452,996 10. Related Party Transactions A. Advisory Agreement In August 1994, in connection with the Consolidation, the Company entered into an advisory agreement under which R.I.C. Advisor, Inc. advised the Company with respect to its investments and assumed day-to-day management of the Company (the "Advisory Agreement"). The Advisory Agreement provided for a monthly advisor fee equal to 0.1189% of the appraised value of the real estate properties as of the Consolidation date plus the current Page 59 10. Related Party Transactions (continued) book value of the non-real estate assets of the Company. Amounts incurred under the Advisory Agreement for the period from January 1, 1995 through August 17, 1995 and August 15, 1994 through December 31, 1994 were $3.7 million and $2.2 million, respectively. Prior to the Consolidation, the general partners of the Partnerships received management fees and reimbursements from the Partnerships (Note 10B). On August 17, 1995, the Advisor was merged into the Company (Note 7). As part of the Merger, the Advisory Agreement was terminated. B. Related Party Transactions Prior to the Consolidation Cash Distributions - The Advisor and William E. and Evelyn J. Clark, the former general partners of the Partnerships, collectively, received distributions of $342,000 for the period from January 1, 1994 through August 15, 1994. Management Fees and Administrative Expenses - For the period from January 1, 1994 through August 15, 1994, the Advisor received management fees of $432,000 and reimbursements for personnel and overhead costs incurred to administer the operations of the Partnerships of $2.8 million. These administrative expenses and management fees are included in advisor fees in the accompanying consolidated statements of income. 11. Employee Benefit Plan As a result of the Merger on August 17, 1995, the Company assumed a defined benefit pension plan (the "Plan") covering substantially all of its employees. The Plan's benefit formulas generally based payments to retired employees upon their length of service and a percentage of qualifying compensation during the final years of employment. The Company's funding policy was to contribute annually the amount necessary to satisfy the Internal Revenue Service's funding standards. The Plan did not provide for funding of prior service costs. The board of directors of the Advisor froze the Plan effective May 31, 1995. No additional employees were entitled to enter the Plan after May 31, 1995. For each Plan participant, the accrued benefit earned under the Plan was frozen as of May 31, 1995. The Plan was terminated on January 2, 1996. Final disbursement of the Plan's assets occurred on February 24, 1997. Page 60 11. Employee Benefit Plan (continued) The following table sets forth the Plan's funded status and amounts recognized in the Company's consolidated financial statements as of December 31, 1996 and 1995 (dollars in thousands): 1996 1995 ==== ==== Actuarial Present Value of Benefit Obligations: Accumulated Benefit Obligation, All Vested $(7,817) $(7,526) Plan Assets at Fair Value, Primarily Listed Stock and Cash and Cash Equivalents 5,537 5,319 -------- ------- Benefit Obligation in Excess of Plan Assets (Included in Other Liabilities) $(2,280) $(2,207) ======== ======= Assumptions Used: Discount Rates 6.0% 6.0% Rates of Increase in Compensation Levels N/A N/A Expected Long-Term Rates of Return on Assets 8.0% 8.0% At December 31, 1996 and 1995, the benefit obligation in excess of plan assets is included in other liabilities in the accompanying balance sheet. In connection with the Merger, the Company assumed a benefit obligation of $1.9 million. The Merger agreement provides for indemnification by the former shareholders of the Advisor with respect to increases in the benefit obligation. A receivable from the Advisor's former shareholders has been recorded as of December 31, 1996 and 1995 for $383,000 and $493,000, respectively, and is included as due from affiliates in the accompanying consolidated balance sheets, which offsets the Company's benefit obligation. 12. Stock Incentive Plan In September 1993, the board of directors of the Company approved a stock incentive plan (the "Stock Plan") designed to attract and retain directors, officers and employees of the Company by enabling such individuals to participate in the ownership of the Company. The Stock Plan 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. The Company adopted the disclosure-only option under SFAS 123, "Accounting for Stock-Based Compensation", as of January 1, 1996. If the accounting provisions of SFAS 123 had Page 61 12. Stock Incentive Plan (continued) been adopted as of the beginning of 1996, the effect on 1996 net income and net income per share would have been immaterial. Furthermore, based on current and anticipated use of stock options, it is not anticipated that the impact of the provisions of SFAS 123 would be material in any future period. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. Stock options expire 10 years from the date they are granted and vest over service periods of three and four years. At December 31, 1996, 1995 and 1994, options outstanding totaled 73,000, 30,000 and 30,000, respectively. Management believes that the impact of these options on the financial position and results of operations are immaterial and it is not anticipated that the impact of the options would be material in any future period. 13. Derivative Financial Instrument The Company has only limited involvement with a derivative financial instrument and does not use it for trading purposes. The derivative financial instrument is used to manage well- defined interest rate risks. In December 1996, the Company entered into a treasury interest rate lock agreement to hedge against rising interest rates. Under the interest rate lock agreement, which is in the notional amount of $90 million, the Company receives or makes a payment based on the differential between a specified interest rate (6.537%) and the actual 10-year treasury interest rate. Based on the December 31, 1996 10-year treasury interest rate, the Company has an unrecognized loss of $80,000. The Company is exposed to credit losses in the event of nonperformance by the counterparty to this agreement. The Company did not obtain collateral to support the financial instrument but monitors the credit standing of the counterparty and anticipates that the counterparty will be able to fully satisfy its obligation under the contract. 14. Commitments and Contingencies In the ordinary course of its business, the Company is a party to various legal actions which the Company believes are routine in nature and incidental to the operation of the business of the Company. The Company believes that the outcome of the proceedings will not have a material adverse effect upon its consolidated operations, financial position or liquidity. Page 62 REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED QUARTERLY FINANCIAL DATA (dollars in thousands, except per share data) (not covered by Independent Auditors' Report) First Second Third Fourth Quarter Quarter Quarter Quarter Year ======= ======= ======= ======= ======= 1996 ==== Total Revenue $13,778 $13,637 $13,840 $15,702 $56,957 Depreciation and Amortization Expense 4,074 4,049 4,052 4,247 16,422 Provision for Impairment Losses 323 -- -- 256 579 Other Expenses 2,276 2,186 2,166 2,560 9,188 Income from Operations 7,105 7,402 7,622 8,639 30,768 Net Income 7,850 7,615 7,890 8,868 32,223 Net Income Per Share 0.34 0.33 0.34 0.39 1.40 1995 ==== Total Revenue $11,928 $12,243 $13,102 $14,282 $51,555 Depreciation and Amortization Expense 3,345 3,586 3,863 4,055 14,849 Other Expenses 2,659 2,863 3,098 2,504 11,124 Income from Operations 5,924 5,794 6,141 7,723 25,582 Net Income 6,001 5,794 6,120 7,685 25,600 Net Income Per Share 0.31 0.30 0.31 0.35 1.27 Page 63 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== CSK AUTO, INC. (Formerly Northern Automotive Corporation) Phoenix AZ 231,000 513,057 None None Phoenix AZ 71,750 159,359 None None Phoenix AZ 222,950 495,178 None None Tucson AZ 194,250 431,434 None None Grass Valley CA 325,000 384,955 None None Jackson CA 300,000 390,849 None None Sacramento CA 210,000 466,419 None None Turlock CA 222,250 493,627 None None Canon City CO 66,500 147,699 None None Denver CO 141,400 314,056 None None Denver CO 315,000 699,623 None None Denver CO 283,500 629,666 None None Littleton CO 252,925 561,759 None None Council Bluffs IA 194,355 431,668 None None Boise ID 158,400 351,813 None None Boise ID 190,080 422,172 None None Coeur D'Alene ID 165,900 368,468 None None Lewiston ID 138,950 308,612 None None Moscow ID 117,250 260,417 None None Nampa ID 183,743 408,101 None None Twin Falls ID 190,080 422,172 None None Kansas City KS 185,955 413,014 None None Kansas City KS 222,000 455,881 None None Blue Springs MO 222,569 494,334 None None Independence MO 210,643 467,845 None None Kansas City MO 210,070 466,571 None None Kansas City MO 168,350 373,910 None None Kansas City MO 248,500 551,927 None None Missoula MT 163,100 362,249 None None Kearney NE 173,950 344,393 None None Page 64 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ CSK AUTO, INC. (Formerly Northern Automotive Corporation) Phoenix AZ 231,000 513,057 744,057 Phoenix AZ 71,750 159,359 231,109 Phoenix AZ 222,950 495,178 718,128 Tucson AZ 194,250 431,434 625,684 Grass Valley CA 325,000 384,955 709,955 Jackson CA 300,000 390,849 690,849 Sacramento CA 210,000 466,419 676,419 Turlock CA 222,250 493,627 715,877 Canon City CO 66,500 147,699 214,199 Denver CO 141,400 314,056 455,456 Denver CO 315,000 699,623 1,014,623 Denver CO 283,500 629,666 913,166 Littleton CO 252,925 561,759 814,684 Council Bluffs IA 194,355 431,668 626,023 Boise ID 158,400 351,813 510,213 Boise ID 190,080 422,172 612,252 Coeur D'Alene ID 165,900 368,468 534,368 Lewiston ID 138,950 308,612 447,562 Moscow ID 117,250 260,417 377,667 Nampa ID 183,743 408,101 591,844 Twin Falls ID 190,080 422,172 612,252 Kansas City KS 185,955 413,014 598,969 Kansas City KS 222,000 455,881 677,881 Blue Springs MO 222,569 494,334 716,903 Independence MO 210,643 467,845 678,488 Kansas City MO 210,070 466,571 676,641 Kansas City MO 168,350 373,910 542,260 Kansas City MO 248,500 551,927 800,427 Missoula MT 163,100 362,249 525,349 Kearney NE 173,950 344,393 518,343 Page 65 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== CSK AUTO, INC. (Formerly Northern Automotive Corporation) Phoenix AZ 160,574 N/A 11/09/87 300 Phoenix AZ 49,875 N/A 11/19/87 300 Phoenix AZ 124,329 N/A 11/02/89 300 Tucson AZ 136,215 N/A 10/30/87 300 Grass Valley CA 112,033 N/A 05/20/88 300 Jackson CA 109,383 N/A 05/17/88 300 Sacramento CA 145,977 N/A 11/25/87 300 Turlock CA 153,133 N/A 12/30/87 300 Canon City CO 46,226 N/A 11/12/87 300 Denver CO 98,291 N/A 11/18/87 300 Denver CO 207,413 N/A 05/16/88 300 Denver CO 186,673 N/A 05/27/88 300 Littleton CO 171,176 N/A 02/12/88 300 Council Bluffs IA 127,975 N/A 05/19/88 300 Boise ID 104,300 N/A 05/06/88 300 Boise ID 125,158 N/A 05/06/88 300 Coeur D'Alene ID 117,350 N/A 09/21/87 300 Lewiston ID 98,288 N/A 09/16/87 300 Moscow ID 82,938 N/A 09/14/87 300 Nampa ID 120,988 N/A 05/06/88 300 Twin Falls ID 125,158 N/A 05/06/88 300 Kansas City KS 122,445 N/A 05/13/88 300 Kansas City KS 135,054 N/A 05/16/88 300 Blue Springs MO 127,574 N/A 07/31/89 300 Independence MO 120,737 N/A 07/31/89 300 Kansas City MO 138,322 N/A 05/13/88 300 Kansas City MO 110,851 N/A 05/26/88 300 Kansas City MO 155,633 N/A 10/25/88 300 Missoula MT 114,372 N/A 10/30/87 300 Kearney NE 79,466 N/A 05/01/90 300 Page 66 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== CSK AUTO, INC. (continued) Omaha NE 196,000 435,321 None None Omaha NE 199,100 412,042 None None Albuquerque NM 80,500 178,794 None None Rio Rancho NM 211,577 469,923 None None Sante Fe NM 70,000 155,473 None None Las Vegas NV 161,000 357,585 None None Reno NV 456,000 562,344 None None Albany OR 152,250 338,153 None None Beaverton OR 210,000 466,419 None None Corvallis OR 152,250 338,153 None None Eugene OR 194,880 432,837 None None Oak Grove OR 180,250 400,336 None None Portland OR 190,750 423,664 None None Portland OR 147,000 326,493 None None Portland OR 210,000 466,412 None None Salem OR 136,500 303,170 None None Tigard OR 164,500 365,361 None None Amarillo TX 140,000 419,734 None None El Paso TX 66,150 146,922 None None El Paso TX 56,350 125,156 None None Lubbock TX 42,000 93,284 None None Lubbock TX 49,000 108,831 None None Midland TX 45,500 101,058 None None Odessa TX 50,750 112,718 None None Bellevue WA 185,500 411,997 None None Bellingham WA 168,000 373,133 None None Bothell WA 199,500 443,098 None None Everett WA 367,500 816,227 None None Hazel Dell WA 168,000 373,135 None None Kennewick WA 161,350 358,365 None None Kent WA 199,500 443,091 None None Lacey WA 171,150 380,125 None None Marysville WA 168,000 373,135 None None Moses Lake WA 138,600 307,831 None None Page 67 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ CSK AUTO, INC. (continued) Omaha NE 196,000 435,321 631,321 Omaha NE 199,100 412,042 611,142 Albuquerque NM 80,500 178,794 259,294 Rio Rancho NM 211,577 469,923 681,500 Sante Fe NM 70,000 155,473 225,473 Las Vegas NV 161,000 357,585 518,585 Reno NV 456,000 562,344 1,018,344 Albany OR 152,250 338,153 490,403 Beaverton OR 210,000 466,419 676,419 Corvallis OR 152,250 338,153 490,403 Eugene OR 194,880 432,837 627,717 Oak Grove OR 180,250 400,336 580,586 Portland OR 190,750 423,664 614,414 Portland OR 147,000 326,493 473,493 Portland OR 210,000 466,412 676,412 Salem OR 136,500 303,170 439,670 Tigard OR 164,500 365,361 529,861 Amarillo TX 140,000 419,734 559,734 El Paso TX 66,150 146,922 213,072 El Paso TX 56,350 125,156 181,506 Lubbock TX 42,000 93,284 135,284 Lubbock TX 49,000 108,831 157,831 Midland TX 45,500 101,058 146,558 Odessa TX 50,750 112,718 163,468 Bellevue WA 185,500 411,997 597,497 Bellingham WA 168,000 373,133 541,133 Bothell WA 199,500 443,098 642,598 Everett WA 367,500 816,227 1,183,727 Hazel Dell WA 168,000 373,135 541,135 Kennewick WA 161,350 358,365 519,715 Kent WA 199,500 443,091 642,591 Lacey WA 171,150 380,125 551,275 Marysville WA 168,000 373,135 541,135 Moses Lake WA 138,600 307,831 446,431 Page 68 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== CSK AUTO, INC. (continued) Omaha NE 129,058 N/A 05/26/88 300 Omaha NE 120,114 N/A 05/27/88 300 Albuquerque NM 56,451 N/A 10/29/87 300 Rio Rancho NM 143,192 N/A 02/26/88 300 Sante Fe NM 49,088 N/A 10/29/87 300 Las Vegas NV 112,900 N/A 10/29/87 300 Reno NV 166,582 N/A 05/26/88 300 Albany OR 108,629 N/A 08/24/87 300 Beaverton OR 149,833 N/A 08/26/87 300 Corvallis OR 108,629 N/A 08/12/87 300 Eugene OR 131,892 N/A 02/10/88 300 Oak Grove OR 128,604 N/A 08/06/87 300 Portland OR 136,099 N/A 08/12/87 300 Portland OR 104,883 N/A 08/26/87 300 Portland OR 148,546 N/A 09/01/87 300 Salem OR 97,389 N/A 08/20/87 300 Tigard OR 117,370 N/A 08/26/87 300 Amarillo TX 119,490 N/A 09/12/88 300 El Paso TX 46,387 N/A 10/27/87 300 El Paso TX 39,515 N/A 10/27/87 300 Lubbock TX 29,451 N/A 10/26/87 300 Lubbock TX 34,361 N/A 10/29/87 300 Midland TX 31,906 N/A 10/27/87 300 Odessa TX 35,587 N/A 10/26/87 300 Bellevue WA 132,350 N/A 08/06/87 300 Bellingham WA 119,864 N/A 08/20/87 300 Bothell WA 142,342 N/A 08/20/87 300 Everett WA 255,457 N/A 11/17/87 300 Hazel Dell WA 106,043 N/A 05/23/88 300 Kennewick WA 115,122 N/A 08/26/87 300 Kent WA 142,338 N/A 08/06/87 300 Lacey WA 122,110 N/A 08/13/87 300 Marysville WA 119,867 N/A 08/20/87 300 Moses Lake WA 98,887 N/A 08/12/87 300 Page 69 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== CSK AUTO, INC. (continued) Pasco WA 161,700 359,142 None None Puyallup WA 173,250 384,795 None None Redmond WA 196,000 435,317 None None Renton WA 185,500 412,003 None None Richland WA 161,700 359,142 None None Seattle WA 162,400 360,697 None None Silverdale WA 183,808 419,777 None None Spanaway WA 189,000 419,777 None None Spokane WA 66,150 146,921 None None Tacoma WA 191,800 425,996 None None Tacoma WA 196,000 435,324 None None Vancouver WA 180,250 400,343 None None Walla Walla WA 170,100 377,793 None None Wenatchee WA 148,400 329,602 None None Woodinville WA 171,500 380,908 None None DISCOUNT TIRE STORE Tucson AZ 178,297 396,005 None None Yuma AZ 120,750 268,190 None None Aurora CO 221,691 492,382 None None Colorado Sprgs CO 280,193 622,317 None None Colorado Sprgs CO 192,988 433,542 None None Pueblo CO 196,994 437,530 None None Austin TX 185,454 411,899 None None Dallas TX 191,267 424,811 None None Garland TX 242,887 539,461 None None Harlingen TX 134,599 298,948 None None Houston TX 151,018 335,417 None None Leon Valley TX 178,221 395,834 None None Pasadena TX 107,391 238,518 None None Plano TX 187,564 416,586 None None San Antonio TX 245,164 544,518 None None Bountiful UT 183,750 408,115 None None Provo UT 125,395 278,507 None None Page 70 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ CSK AUTO, INC. (continued) Pasco WA 161,700 359,142 520,842 Puyallup WA 173,250 384,795 558,045 Redmond WA 196,000 435,317 631,317 Renton WA 185,500 412,003 597,503 Richland WA 161,700 359,142 520,842 Seattle WA 162,400 360,697 523,097 Silverdale WA 183,808 419,777 603,585 Spanaway WA 189,000 419,777 608,777 Spokane WA 66,150 146,921 213,071 Tacoma WA 191,800 425,996 617,796 Tacoma WA 196,000 435,324 631,324 Vancouver WA 180,250 400,343 580,593 Walla Walla WA 170,100 377,793 547,893 Wenatchee WA 148,400 329,602 478,002 Woodinville WA 171,500 380,908 552,408 DISCOUNT TIRE STORE Tucson AZ 178,297 396,005 574,302 Yuma AZ 120,750 268,190 388,940 Aurora CO 221,691 492,382 714,073 Colorado Sprgs CO 280,193 622,317 902,510 Colorado Sprgs CO 192,988 433,542 626,530 Pueblo CO 196,994 437,530 634,524 Austin TX 185,454 411,899 597,353 Dallas TX 191,267 424,811 616,078 Garland TX 242,887 539,461 782,348 Harlingen TX 134,599 298,948 433,547 Houston TX 151,018 335,417 486,435 Leon Valley TX 178,221 395,834 574,055 Pasadena TX 107,391 238,518 345,909 Plano TX 187,564 416,586 604,150 San Antonio TX 245,164 544,518 789,682 Bountiful UT 183,750 408,115 591,865 Provo UT 125,395 278,507 403,902 Page 71 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== CSK AUTO, INC. (continued) Pasco WA 115,371 N/A 08/18/87 300 Puyallup WA 122,552 N/A 09/15/87 300 Redmond WA 138,643 N/A 09/17/87 300 Renton WA 131,215 N/A 09/15/87 300 Richland WA 115,371 N/A 08/13/87 300 Seattle WA 115,871 N/A 08/20/87 300 Silverdale WA 133,692 N/A 09/16/87 300 Spanaway WA 134,848 N/A 08/25/87 300 Spokane WA 45,982 N/A 11/18/87 300 Tacoma WA 136,848 N/A 08/18/87 300 Tacoma WA 137,444 N/A 10/15/87 300 Vancouver WA 128,606 N/A 08/20/87 300 Walla Walla WA 121,362 N/A 08/06/87 300 Wenatchee WA 105,883 N/A 08/25/87 300 Woodinville WA 122,363 N/A 08/20/87 300 DISCOUNT TIRE STORE Tucson AZ 95,701 N/A 01/19/90 300 Yuma AZ 64,812 N/A 01/23/90 300 Aurora CO 118,993 N/A 01/29/90 300 Colorado Sprgs CO 150,393 N/A 01/23/90 300 Colorado Sprgs CO 65,372 N/A 05/20/93 300 Pueblo CO 105,736 N/A 01/26/90 300 Austin TX 98,417 N/A 02/06/90 300 Dallas TX 102,663 N/A 01/26/90 300 Garland TX 130,370 N/A 01/19/90 300 Harlingen TX 72,246 N/A 01/17/90 300 Houston TX 81,059 N/A 01/25/90 300 Leon Valley TX 95,660 N/A 01/17/90 300 Pasadena TX 57,642 N/A 01/24/90 300 Plano TX 100,675 N/A 01/18/90 300 San Antonio TX 130,104 N/A 02/14/90 300 Bountiful UT 98,628 N/A 01/30/90 300 Provo UT 67,306 N/A 01/25/90 300 Page 72 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== DISCOUNT TIRE STORE (continued) Tacoma WA 187,111 415,579 None None ECONO LUBE N' TUNE Chula Vista CA 313,293 409,654 None None Arvada CO 201,565 339,038 None None Arvada CO 241,044 165,267 None None Broomfield CO 154,930 503,626 None None Thornton CO 276,084 250,393 None None Olathe KS 217,995 2,084 None None Independence MO 297,641 233,152 None None Dallas TX 234,604 325,951 None None Lewisville TX 199,942 324,736 None None San Antonio TX 198,828 437,422 None None Richmond VA 149,780 399,415 None None Virginia Beach VA 287,675 212,057 None None Bremerton WA 261,172 322,377 None None JIFFY LUBE Beaver Creek OH 205,000 4,381 None None Centerville OH 305,000 420,448 None None Hamilton OH 252,608 4,219 None None Huber Heights OH 282,000 8,855 None None Denver CO 79,717 369,586 None None Jacksonville FL 76,585 355,066 None None Lauderdale Lks FL 65,987 305,931 None None Seminole FL 68,000 315,266 None None Sunrise FL 80,253 372,069 None None Tampa FL 70,000 324,538 None None Tampa FL 67,000 310,629 None None Tampa FL 86,502 401,041 None None Atlanta GA 55,840 258,889 None None Atlanta GA 78,646 364,625 None None Marietta GA 60,900 293,461 None None Marietta GA 69,561 346,024 None None Page 73 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ DISCOUNT TIRE STORE (continued) Tacoma WA 187,111 415,579 602,690 ECONO LUBE N' TUNE Chula Vista CA 313,293 409,654 722,947 Arvada CO 201,565 339,038 540,603 Arvada CO 241,044 165,267 406,311 Broomfield CO 154,930 503,626 658,556 Thornton CO 276,084 250,393 526,477 Olathe KS 217,995 2,084 220,079 Independence MO 297,641 233,152 530,793 Dallas TX 234,604 325,951 560,555 Lewisville TX 199,942 324,736 524,678 San Antonio TX 198,828 437,422 636,250 Richmond VA 149,780 399,415 549,195 Virginia Beach VA 287,675 212,057 499,732 Bremerton WA 261,172 322,377 583,549 JIFFY LUBE Beaver Creek OH 205,000 4,381 209,381 Centerville OH 305,000 420,448 725,448 Hamilton OH 252,608 4,219 256,827 Huber Heights OH 282,000 8,855 290,855 Denver CO 79,717 369,586 449,303 Jacksonville FL 76,585 355,066 431,651 Lauderdale Lks FL 65,987 305,931 371,918 Seminole FL 68,000 315,266 383,266 Sunrise FL 80,253 372,069 452,322 Tampa FL 70,000 324,538 394,538 Tampa FL 67,000 310,629 377,629 Tampa FL 86,502 401,041 487,543 Atlanta GA 55,840 258,889 314,729 Atlanta GA 78,646 364,625 443,271 Marietta GA 60,900 293,461 354,361 Marietta GA 69,561 346,024 415,585 Page 74 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== DISCOUNT TIRE STORE (continued) Tacoma WA 100,431 N/A 01/25/90 300 ECONO LUBE N' TUNE Chula Vista CA 10,241 05/01/96 01/19/96 300 Arvada CO 5,086 08/28/96 04/09/96 300 Arvada CO 0 01/03/97 07/10/96 300 Broomfield CO 7,554 08/22/96 03/15/96 300 Thornton CO 0 12/31/96 10/31/96 300 Olathe KS 0 In Prcss 11/11/96 300 Independence MO 389 N/A 12/20/96 300 Dallas TX 4,889 08/09/96 02/19/96 300 Lewisville TX 4,871 08/02/96 02/14/96 300 San Antonio TX 22,600 N/A 09/15/95 300 Richmond VA 666 N/A 12/26/96 300 Virginia Beach VA 0 01/07/97 09/27/96 300 Bremerton WA 1,571 11/27/96 07/24/96 300 JIFFY LUBE Beaver Creek OH 0 In Prcss 09/09/96 300 Centerville OH 7,708 07/24/96 06/28/96 300 Hamilton OH 0 In Prcss 10/04/96 300 Huber Heights OH 0 12/03/96 07/18/96 300 Denver CO 204,014 N/A 10/08/85 300 Jacksonville FL 191,672 N/A 12/23/85 300 Lauderdale Lks FL 162,589 N/A 02/19/86 300 Seminole FL 170,186 N/A 12/23/85 300 Sunrise FL 199,168 N/A 02/14/86 300 Tampa FL 175,192 N/A 12/27/85 300 Tampa FL 167,684 N/A 12/27/85 300 Tampa FL 204,730 N/A 07/23/86 300 Atlanta GA 140,836 N/A 11/27/85 300 Atlanta GA 196,832 N/A 12/18/85 300 Marietta GA 158,414 N/A 12/26/85 300 Marietta GA 179,431 N/A 06/03/86 300 Page 75 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== JIFFY LUBE (continued) Louisville KY 56,054 259,881 None None Clinton MD 70,880 328,620 None None Durham NC 55,074 255,336 None None Raleigh NC 89,145 413,301 None None Columbus OH 71,098 329,626 None None Columbus OH 75,761 351,246 None None Dayton OH 70,000 324,538 None None Miamisburg OH 63,996 296,701 None None Northwood OH 65,978 263,912 None None Toledo OH 91,655 366,621 None None Toledo OH 73,408 293,632 None None Springfield Twp. PA 82,740 383,601 None None Q LUBE Bogart GA 66,807 309,732 None None Gainesville GA 53,589 248,452 None None Riverdale GA 58,444 270,961 None None Rome GA 56,454 261,733 None None R & S STRAUSS Cherry Hill NJ 1,074,640 1,032,304 None None Philadelphia PA 858,500 877,745 None None SPEEDY MUFFLER KING Hartford CT 248,540 482,460 None None Columbus OH 245,036 470,468 None None Eastlake OH 321,347 459,774 None None Indianapolis IN 231,384 428,307 None None Milwaukee WI 173,005 499,244 None None Milwaukee WI 152,509 475,468 None None New Berlin WI 188,491 466,268 None None Page 76 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ JIFFY LUBE (continued) Louisville KY 56,054 259,881 315,935 Clinton MD 70,880 328,620 399,500 Durham NC 55,074 255,336 310,410 Raleigh NC 89,145 413,301 502,446 Columbus OH 71,098 329,626 400,724 Columbus OH 75,761 351,246 427,007 Dayton OH 70,000 324,538 394,538 Miamisburg OH 63,996 296,701 360,697 Northwood OH 65,978 263,912 329,890 Toledo OH 91,655 366,621 458,276 Toledo OH 73,408 293,632 367,040 Springfield Twp. PA 82,740 383,601 466,341 Q LUBE Bogart GA 66,807 309,732 376,539 Gainesville GA 53,589 248,452 302,041 Riverdale GA 58,444 270,961 329,405 Rome GA 56,454 261,733 318,187 R & S STRAUSS Cherry Hill NJ 1,074,640 1,032,304 2,106,944 Philadelphia PA 858,500 877,745 1,736,245 SPEEDY MUFFLER KING Hartford CT 248,540 482,460 731,000 Columbus OH 245,036 470,468 715,504 Eastlake OH 321,347 459,774 781,121 Indianapolis IN 231,384 428,307 659,691 Milwaukee WI 173,005 499,244 672,249 Milwaukee WI 152,509 475,468 627,977 New Berlin WI 188,491 466,268 654,759 Page 77 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== JIFFY LUBE (continued) Louisville KY 140,289 N/A 12/17/85 300 Clinton MD 180,029 N/A 11/15/85 300 Durham NC 139,884 N/A 11/13/85 300 Raleigh NC 226,563 N/A 10/28/85 300 Columbus OH 181,956 N/A 10/02/85 300 Columbus OH 192,546 N/A 10/24/85 300 Dayton OH 177,904 N/A 10/31/85 300 Miamisburg OH 163,781 N/A 10/08/85 300 Northwood OH 181,293 N/A 09/12/86 180 Toledo OH 251,847 N/A 09/12/86 180 Toledo OH 201,708 N/A 09/12/86 180 Springfield Twp. PA 203,868 N/A 02/28/86 300 Q LUBE Bogart GA 167,201 N/A 12/20/85 300 Gainesville GA 134,117 N/A 12/19/85 300 Riverdale GA 145,137 N/A 01/15/86 300 Rome GA 141,287 N/A 12/19/85 300 R & S STRAUSS Cherry Hill NJ 56,777 08/02/95 01/26/95 300 Philadelphia PA 162,880 05/19/95 12/05/94 300 SPEEDY MUFFLER KING Hartford CT 5,629 N/A 09/30/96 300 Columbus OH 19,603 N/A 12/22/95 300 Eastlake OH 19,157 N/A 12/22/95 300 Indianapolis IN 4,997 N/A 09/27/96 300 Milwaukee WI 20,802 N/A 12/22/95 300 Milwaukee WI 5,547 N/A 09/27/96 300 New Berlin WI 19,428 N/A 12/22/95 300 Page 78 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== OTHER AUTOMOTIVE Fullerton CA 47,325 66,522 None None Minneapolis MN 58,000 268,903 None None CHILDREN'S WORLD Chandler AZ 144,083 668,080 None None Chandler AZ 291,720 647,923 None None Chandler AZ 271,695 603,446 None None Mesa AZ 297,500 660,755 None None Mesa AZ 276,770 590,417 None None Peoria AZ 281,750 625,779 None None Phoenix AZ 318,500 707,397 None None Scottsdale AZ 291,993 648,530 None None Tempe AZ 292,200 648,989 None None Tempe AZ 294,000 638,977 None None Tucson AZ 304,500 676,303 None None Tucson AZ 283,500 546,878 None None Calabasas CA 156,430 725,248 None None Carmichael CA 131,035 607,507 None None Chino CA 155,000 634,071 None None Chula Vista CA 350,563 778,614 None None Corona CA 144,856 671,585 None None El Cajon CA 157,804 731,621 None None Encinitas CA 320,000 710,729 None None Moreno Valley CA 304,489 676,214 None None Oceanside CA 145,568 674,889 None None R. Cucamonga CA 471,733 1,047,739 None None Sacramento CA 290,734 645,731 None None Simi Valley CA 208,585 967,055 None None Walnut CA 217,365 1,007,753 None None Aurora CO 141,811 657,497 None None Aurora CO 287,000 637,440 None None Aurora CO 301,455 655,609 None None Broomfield CO 107,000 403,080 None None Colorado Sprgs CO 115,542 535,700 None None Page 79 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ OTHER AUTOMOTIVE Fullerton CA 47,325 66,522 113,847 Minneapolis MN 58,000 268,903 326,903 CHILDREN'S WORLD Chandler AZ 144,083 668,080 812,163 Chandler AZ 291,720 647,923 939,643 Chandler AZ 271,695 603,446 875,141 Mesa AZ 297,500 660,755 958,255 Mesa AZ 276,770 590,417 867,187 Peoria AZ 281,750 625,779 907,529 Phoenix AZ 318,500 707,397 1,025,897 Scottsdale AZ 291,993 648,530 940,523 Tempe AZ 292,200 648,989 941,189 Tempe AZ 294,000 638,977 932,977 Tucson AZ 304,500 676,303 980,803 Tucson AZ 283,500 546,878 830,378 Calabasas CA 156,430 725,248 881,678 Carmichael CA 131,035 607,507 738,542 Chino CA 155,000 634,071 789,071 Chula Vista CA 350,563 778,614 1,129,177 Corona CA 144,856 671,585 816,441 El Cajon CA 157,804 731,621 889,425 Encinitas CA 320,000 710,729 1,030,729 Moreno Valley CA 304,489 676,214 980,703 Oceanside CA 145,568 674,889 820,457 R. Cucamonga CA 471,733 1,047,739 1,519,472 Sacramento CA 290,734 645,731 936,465 Simi Valley CA 208,585 967,055 1,175,640 Walnut CA 217,365 1,007,753 1,225,118 Aurora CO 141,811 657,497 799,308 Aurora CO 287,000 637,440 924,440 Aurora CO 301,455 655,609 957,064 Broomfield CO 107,000 403,080 510,080 Colorado Sprgs CO 115,542 535,700 651,242 Page 80 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== OTHER AUTOMOTIVE Fullerton CA 66,522 N/A 08/21/72 234 Minneapolis MN 145,160 N/A 12/18/85 300 CHILDREN'S WORLD Chandler AZ 327,024 N/A 12/17/86 300 Chandler AZ 200,946 N/A 12/11/87 300 Chandler AZ 187,253 N/A 12/14/87 300 Mesa AZ 188,630 N/A 09/29/88 300 Mesa AZ 168,554 N/A 09/29/88 300 Peoria AZ 188,962 N/A 03/30/88 300 Phoenix AZ 201,946 N/A 09/29/88 300 Scottsdale AZ 201,186 N/A 12/14/87 300 Tempe AZ 195,972 N/A 03/10/88 300 Tempe AZ 147,800 N/A 09/27/90 300 Tucson AZ 193,070 N/A 09/28/88 300 Tucson AZ 156,122 N/A 09/29/88 300 Calabasas CA 400,592 N/A 09/26/85 300 Carmichael CA 307,583 N/A 08/22/86 300 Chino CA 560,026 N/A 10/06/83 180 Chula Vista CA 245,831 N/A 10/30/87 300 Corona CA 412,848 N/A 12/19/84 300 El Cajon CA 394,941 N/A 12/19/85 300 Encinitas CA 220,482 N/A 12/29/87 300 Moreno Valley CA 228,428 N/A 02/11/87 300 Oceanside CA 364,315 N/A 12/23/85 300 R. Cucamonga CA 325,030 N/A 12/30/87 300 Sacramento CA 203,875 N/A 10/05/87 300 Simi Valley CA 522,035 N/A 12/20/85 300 Walnut CA 510,230 N/A 08/22/86 300 Aurora CO 346,674 N/A 03/25/86 300 Aurora CO 197,745 N/A 12/31/87 300 Aurora CO 213,404 N/A 09/27/89 300 Broomfield CO 376,143 N/A 01/12/83 180 Colorado Sprgs CO 264,297 N/A 12/04/86 300 Page 81 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== CHILDREN'S WORLD (continued) Englewood CO 131,216 608,372 None None Englewood CO 158,651 735,571 None None Fort Collins CO 117,105 542,950 None None Fort Collins CO 137,734 638,594 None None Littleton CO 287,000 637,435 None None Littleton CO 299,250 664,642 None None Longmont CO 115,592 535,931 None None Westminster CO 306,387 695,737 None None Dunwoody GA 318,500 707,399 None None Lilburn GA 116,350 539,488 None None Marietta GA 231,000 513,061 None None Marietta GA 273,000 619,076 None None Marietta GA 292,250 649,095 None None Marietta GA 295,750 596,299 None None Marietta GA 301,000 668,529 None None Smyrna GA 274,750 610,229 None None Stone Mountain GA 316,750 703,512 None None Addison IL 125,780 583,146 None None Bartlett IL 120,824 560,166 None None Bolingbrook IL 60,000 409,024 None None Carol Stream IL 122,831 586,416 None None Elk Grove Village IL 126,860 588,175 None None Glendale Heights IL 318,500 707,399 None None Hoffman Estates IL 318,500 707,399 None None Palatine IL 121,911 565,233 None None Roselle IL 297,541 561,036 None None Vernon Hills IL 132,523 614,430 None None Westmont IL 124,742 578,330 None None Lenexa KS 318,500 707,399 None None Olathe KS 304,500 676,308 None None Overland Park KS 305,691 707,397 None None Shawnee KS 315,000 699,629 None None Acton MA 315,533 700,813 None None Marlborough MA 352,765 776,487 None None Page 82 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ CHILDREN'S WORLD (continued) Englewood CO 131,216 608,372 739,588 Englewood CO 158,651 735,571 894,222 Fort Collins CO 117,105 542,950 660,055 Fort Collins CO 137,734 638,594 776,328 Littleton CO 287,000 637,435 924,435 Littleton CO 299,250 664,642 963,892 Longmont CO 115,592 535,931 651,523 Westminster CO 306,387 695,737 1,002,124 Dunwoody GA 318,500 707,399 1,025,899 Lilburn GA 116,350 539,488 655,838 Marietta GA 231,000 513,061 744,061 Marietta GA 273,000 619,076 892,076 Marietta GA 292,250 649,095 941,345 Marietta GA 295,750 596,299 892,049 Marietta GA 301,000 668,529 969,529 Smyrna GA 274,750 610,229 884,979 Stone Mountain GA 316,750 703,512 1,020,262 Addison IL 125,780 583,146 708,926 Bartlett IL 120,824 560,166 680,990 Bolingbrook IL 60,000 409,024 469,024 Carol Stream IL 122,831 586,416 709,247 Elk Grove Village IL 126,860 588,175 715,035 Glendale Heights IL 318,500 707,399 1,025,899 Hoffman Estates IL 318,500 707,399 1,025,899 Palatine IL 121,911 565,233 687,144 Roselle IL 297,541 561,036 858,577 Vernon Hills IL 132,523 614,430 746,953 Westmont IL 124,742 578,330 703,072 Lenexa KS 318,500 707,399 1,025,899 Olathe KS 304,500 676,308 980,808 Overland Park KS 305,691 707,397 1,013,088 Shawnee KS 315,000 699,629 1,014,629 Acton MA 315,533 700,813 1,016,346 Marlborough MA 352,765 776,487 1,129,252 Page 83 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== CHILDREN'S WORLD (continued) Englewood CO 300,152 N/A 12/05/86 300 Englewood CO 360,061 N/A 12/29/86 300 Fort Collins CO 286,277 N/A 03/25/86 300 Fort Collins CO 336,707 N/A 03/25/86 300 Littleton CO 181,973 N/A 09/29/88 300 Littleton CO 189,741 N/A 09/29/88 300 Longmont CO 282,577 N/A 03/25/86 300 Westminster CO 203,860 N/A 09/27/89 300 Dunwoody GA 198,065 N/A 11/16/88 300 Lilburn GA 264,079 N/A 12/23/86 300 Marietta GA 154,926 N/A 03/18/88 300 Marietta GA 185,236 N/A 04/26/88 300 Marietta GA 179,960 N/A 12/02/88 300 Marietta GA 165,323 N/A 12/30/88 300 Marietta GA 185,347 N/A 12/30/88 300 Smyrna GA 170,859 N/A 11/15/88 300 Stone Mountain GA 196,977 N/A 11/16/88 300 Addison IL 307,473 N/A 03/25/86 300 Bartlett IL 295,355 N/A 03/25/86 300 Bolingbrook IL 387,953 N/A 10/18/82 180 Carol Stream IL 309,197 N/A 03/25/86 300 Elk Grove Village IL 310,125 N/A 03/26/86 300 Glendale Heights IL 198,065 N/A 11/16/88 300 Hoffman Estates IL 190,308 N/A 03/31/89 300 Palatine IL 298,026 N/A 03/25/86 300 Roselle IL 155,547 N/A 12/30/88 300 Vernon Hills IL 323,966 N/A 03/25/86 300 Westmont IL 304,932 N/A 03/25/86 300 Lenexa KS 190,308 N/A 03/31/89 300 Olathe KS 193,071 N/A 09/28/88 300 Overland Park KS 201,946 N/A 09/28/88 300 Shawnee KS 197,808 N/A 10/27/88 300 Acton MA 200,067 N/A 09/30/88 300 Marlborough MA 217,408 N/A 11/04/88 300 Page 84 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== CHILDREN'S WORLD (continued) Westborough MA 359,412 773,877 None None Olney MD 342,500 760,701 None None Waldorf MD 130,430 604,702 None None Canton MI 55,000 378,848 None None Apple Valley MN 113,523 526,319 None None Bloomington MN 124,113 575,416 None None Brooklyn Park MN 118,111 547,586 None None Brooklyn Park MN 112,823 523,073 None None Eagan MN 112,127 519,844 None None Eden Prairie MN 124,286 576,243 None None Maple Grove MN 111,691 517,822 None None Minnetonka MN 146,847 680,842 None None Plymouth MN 134,221 622,350 None None White Bear Lake MN 260,750 579,133 None None W Bloomington MN 40,000 468,484 None None Florissant MO 318,500 707,399 None None Gladstone MO 294,000 652,987 None None Lee's Summit MO 239,627 532,220 None None Manchester MO 287,000 637,435 None None St. Charles MO 259,000 575,246 None None Londonderry NH 335,467 745,082 None None Beavercreek OH 179,552 398,786 None None Centerville OH 174,519 387,613 None None Forest Park OH 170,778 379,305 None None Huber Heights OH 245,000 544,153 None None Loveland OH 206,136 457,829 None None Maineville OH 173,105 384,469 None None Westerville OH 294,350 646,557 None None Beaverton OR 135,148 626,647 None None Beaverton OR 115,232 534,301 None None Memphis TN 238,263 504,897 None None Memphis TN 238,000 528,608 None None Nashville TN 274,298 609,223 None None Arlington TX 82,109 380,678 None None Page 85 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ CHILDREN'S WORLD (continued) Westborough MA 359,412 773,877 1,133,289 Olney MD 342,500 760,701 1,103,201 Waldorf MD 130,430 604,702 735,132 Canton MI 55,000 378,848 433,848 Apple Valley MN 113,523 526,319 639,842 Bloomington MN 124,113 575,416 699,529 Brooklyn Park MN 118,111 547,586 665,697 Brooklyn Park MN 112,823 523,073 635,896 Eagan MN 112,127 519,844 631,971 Eden Prairie MN 124,286 576,243 700,529 Maple Grove MN 111,691 517,822 629,513 Minnetonka MN 146,847 680,842 827,689 Plymouth MN 134,221 622,350 756,571 White Bear Lake MN 260,750 579,133 839,883 W Bloomington MN 40,000 468,484 508,484 Florissant MO 318,500 707,399 1,025,899 Gladstone MO 294,000 652,987 946,987 Lee's Summit MO 239,627 532,220 771,847 Manchester MO 287,000 637,435 924,435 St. Charles MO 259,000 575,246 834,246 Londonderry NH 335,467 745,082 1,080,549 Beavercreek OH 179,552 398,786 578,338 Centerville OH 174,519 387,613 562,132 Forest Park OH 170,778 379,305 550,083 Huber Heights OH 245,000 544,153 789,153 Loveland OH 206,136 457,829 663,965 Maineville OH 173,105 384,469 557,574 Westerville OH 294,350 646,557 940,907 Beaverton OR 135,148 626,647 761,795 Beaverton OR 115,232 534,301 649,533 Memphis TN 238,263 504,897 743,160 Memphis TN 238,000 528,608 766,608 Nashville TN 274,298 609,223 883,521 Arlington TX 82,109 380,678 462,787 Page 86 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== CHILDREN'S WORLD (continued) Westborough MA 216,675 N/A 11/01/88 300 Olney MD 235,983 N/A 12/18/87 300 Waldorf MD 379,849 N/A 09/26/84 300 Canton MI 359,903 N/A 10/06/82 180 Apple Valley MN 277,510 N/A 03/26/86 300 Bloomington MN 303,397 N/A 03/27/86 300 Brooklyn Park MN 288,722 N/A 03/26/86 300 Brooklyn Park MN 275,798 N/A 03/27/86 300 Eagan MN 274,095 N/A 03/31/86 300 Eden Prairie MN 303,833 N/A 03/27/86 300 Maple Grove MN 273,030 N/A 03/26/86 300 Minnetonka MN 335,906 N/A 12/12/86 300 Plymouth MN 307,045 N/A 12/12/86 300 White Bear Lake MN 179,657 N/A 12/23/87 300 W Bloomington MN 454,457 N/A 06/18/82 180 Florissant MO 190,308 N/A 03/30/89 300 Gladstone MO 186,414 N/A 09/29/88 300 Lee's Summit MO 133,156 N/A 09/27/89 300 Manchester MO 197,744 N/A 12/22/87 300 St. Charles MO 178,453 N/A 12/23/87 300 Londonderry NH 190,246 N/A 08/18/89 300 Beavercreek OH 130,306 N/A 06/30/87 300 Centerville OH 125,586 N/A 07/23/87 300 Forest Park OH 121,950 N/A 09/28/87 300 Huber Heights OH 119,622 N/A 09/27/90 300 Loveland OH 153,391 N/A 03/20/87 300 Maineville OH 128,812 N/A 03/06/87 300 Westerville OH 148,737 N/A 09/26/90 300 Beaverton OR 306,742 N/A 12/17/86 300 Beaverton OR 261,540 N/A 12/22/86 300 Memphis TN 144,135 N/A 09/29/88 300 Memphis TN 150,906 N/A 09/30/88 300 Nashville TN 163,896 N/A 03/30/89 300 Arlington TX 235,699 N/A 12/13/84 300 Page 87 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== CHILDREN'S WORLD (continued) Arlington TX 238,000 528,604 None None Arlington TX 241,500 550,559 None None Austin TX 134,383 623,103 None None Austin TX 236,733 528,608 None None Austin TX 238,000 528,604 None None Bedford TX 241,500 550,559 None None Carrollton TX 277,850 617,113 None None Converse TX 217,000 481,963 None None Coppell TX 139,224 645,551 None None Coppell TX 208,641 463,398 None None Euless TX 234,111 519,962 None None Flowermound TX 202,773 442,846 None None Fort Worth TX 238,000 528,608 None None Houston TX 219,100 486,631 None None Houston TX 219,100 486,628 None None Houston TX 149,109 323,314 None None Lewisville TX 192,777 428,121 None None Lewisville TX 192,218 426,922 None None N Richland Hills TX 238,000 528,608 None None Plano TX 261,912 581,658 None None Plano TX 250,514 556,399 None None Plano TX 259,000 575,246 None None San Antonio TX 130,833 606,595 None None San Antonio TX 234,500 520,831 None None San Antonio TX 217,000 481,967 None None San Antonio TX 220,500 447,108 None None Centreville VA 371,000 824,003 None None Richmond VA 269,500 598,567 None None Virginia Beach VA 124,988 579,496 None None Woodbridge VA 358,050 795,239 None None Everett WA 120,000 540,363 None None Federal Way WA 150,785 699,100 None None Kent WA 128,300 539,141 None None Kent WA 140,763 678,809 None None Page 88 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ CHILDREN'S WORLD (continued) Arlington TX 238,000 528,604 766,604 Arlington TX 241,500 550,559 792,059 Austin TX 134,383 623,103 757,486 Austin TX 236,733 528,608 765,341 Austin TX 238,000 528,604 766,604 Bedford TX 241,500 550,559 792,059 Carrollton TX 277,850 617,113 894,963 Converse TX 217,000 481,963 698,963 Coppell TX 139,224 645,551 784,775 Coppell TX 208,641 463,398 672,039 Euless TX 234,111 519,962 754,073 Flowermound TX 202,773 442,846 645,619 Fort Worth TX 238,000 528,608 766,608 Houston TX 219,100 486,631 705,731 Houston TX 219,100 486,628 705,728 Houston TX 149,109 323,314 472,423 Lewisville TX 192,777 428,121 620,898 Lewisville TX 192,218 426,922 619,140 N Richland Hills TX 238,000 528,608 766,608 Plano TX 261,912 581,658 843,570 Plano TX 250,514 556,399 806,913 Plano TX 259,000 575,246 834,246 San Antonio TX 130,833 606,595 737,428 San Antonio TX 234,500 520,831 755,331 San Antonio TX 217,000 481,967 698,967 San Antonio TX 220,500 447,108 667,608 Centreville VA 371,000 824,003 1,195,003 Richmond VA 269,500 598,567 868,067 Virginia Beach VA 124,988 579,496 704,484 Woodbridge VA 358,050 795,239 1,153,289 Everett WA 120,000 540,363 660,363 Federal Way WA 150,785 699,100 849,885 Kent WA 128,300 539,141 667,441 Kent WA 140,763 678,809 819,572 Page 89 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== CHILDREN'S WORLD (continued) Arlington TX 150,904 N/A 09/26/88 300 Arlington TX 201,742 N/A 09/22/89 300 Austin TX 305,009 N/A 12/23/86 300 Austin TX 150,906 N/A 09/27/88 300 Austin TX 140,760 N/A 04/06/89 300 Bedford TX 201,743 N/A 09/22/89 300 Carrollton TX 191,440 N/A 12/11/87 300 Converse TX 137,590 N/A 09/28/88 300 Coppell TX 315,995 N/A 12/17/86 300 Coppell TX 143,755 N/A 12/11/87 300 Euless TX 171,338 N/A 05/08/87 300 Flowermound TX 147,147 N/A 04/20/87 300 Fort Worth TX 150,906 N/A 09/26/88 300 Houston TX 138,923 N/A 09/30/88 300 Houston TX 136,252 N/A 11/16/88 300 Houston TX 101,283 N/A 06/26/89 300 Lewisville TX 145,629 N/A 01/07/87 300 Lewisville TX 118,363 N/A 12/29/88 300 N Richland Hills TX 150,906 N/A 09/26/88 300 Plano TX 198,094 N/A 01/06/87 300 Plano TX 172,604 N/A 12/10/87 300 Plano TX 164,220 N/A 09/27/88 300 San Antonio TX 319,836 N/A 03/24/86 300 San Antonio TX 161,571 N/A 12/29/87 300 San Antonio TX 136,269 N/A 10/14/88 300 San Antonio TX 120,284 N/A 03/30/89 300 Centreville VA 208,144 N/A 09/29/89 300 Richmond VA 161,029 N/A 03/28/89 300 Virginia Beach VA 305,548 N/A 03/25/86 300 Woodbridge VA 227,024 N/A 09/29/88 300 Everett WA 509,459 N/A 11/22/82 180 Federal Way WA 342,210 N/A 12/17/86 300 Kent WA 488,080 N/A 06/03/83 180 Kent WA 332,277 N/A 12/17/86 300 Page 90 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== CHILDREN'S WORLD (continued) Kirkland WA 301,000 668,534 None None Renton WA 111,183 515,490 None None KINDER CARE Phoenix AZ 264,504 587,471 None None Phoenix AZ 260,719 516,181 None None Algonquin IL 241,500 509,629 None None Carmel IN 217,565 430,742 None None Fishers IN 212,118 419,959 None None Highland IN 220,460 436,476 None None Indianapolis IN 245,000 544,153 None None Wichita KS 209,890 415,549 None None Maple Grove MN 313,250 660,149 None None White Bear Lake MN 242,165 537,855 None None Las Vegas NV 201,250 446,983 None None Memphis TN 221,501 491,962 None None Appleton WI 196,000 424,038 None None LA PETITE ACADEMY Birmingham AL 63,800 295,791 None None Huntsville AL 28,600 197,165 None None Mobile AL 78,400 237,671 None None Mobile AL 63,000 292,084 None None Glendale AZ 115,000 285,172 None None Escondido CA 276,286 613,638 None None Folsom CA 281,563 625,363 None None Mission Viejo CA 353,891 744,367 None None Palmdale CA 249,490 554,125 None None Rancho Cordova CA 276,328 613,733 None None Roseville CA 297,343 660,412 None None Santee CA 248,418 551,748 None None Valencia CA 301,295 669,185 None None Broomfield CO 155,306 344,941 None None Colorado Sprgs CO 58,400 271,217 None None Page 91 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ CHILDREN'S WORLD (continued) Kirkland WA 301,000 668,534 969,534 Renton WA 111,183 515,490 626,673 KINDER CARE Phoenix AZ 264,504 587,471 851,975 Phoenix AZ 260,719 516,181 776,900 Algonquin IL 241,500 509,629 751,129 Carmel IN 217,565 430,742 648,307 Fishers IN 212,118 419,959 632,077 Highland IN 220,460 436,476 656,936 Indianapolis IN 245,000 544,153 789,153 Wichita KS 209,890 415,549 625,439 Maple Grove MN 313,250 660,149 973,399 White Bear Lake MN 242,165 537,855 780,020 Las Vegas NV 201,250 446,983 648,233 Memphis TN 221,501 491,962 713,463 Appleton WI 196,000 424,038 620,038 LA PETITE ACADEMY Birmingham AL 63,800 295,791 359,591 Huntsville AL 28,600 197,165 225,765 Mobile AL 78,400 237,671 316,071 Mobile AL 63,000 292,084 355,084 Glendale AZ 115,000 285,172 400,172 Escondido CA 276,286 613,638 889,924 Folsom CA 281,563 625,363 906,926 Mission Viejo CA 353,891 744,367 1,098,258 Palmdale CA 249,490 554,125 803,615 Rancho Cordova CA 276,328 613,733 890,061 Roseville CA 297,343 660,412 957,755 Santee CA 248,418 551,748 800,166 Valencia CA 301,295 669,185 970,480 Broomfield CO 155,306 344,941 500,247 Colorado Sprgs CO 58,400 271,217 329,617 Page 92 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== CHILDREN'S WORLD (continued) Kirkland WA 201,873 N/A 03/31/88 300 Renton WA 271,799 N/A 03/24/86 300 KINDER CARE Phoenix AZ 133,953 N/A 06/29/90 300 Phoenix AZ 109,253 N/A 12/26/90 300 Algonquin IL 118,469 N/A 07/10/90 300 Carmel IN 91,170 N/A 12/27/90 300 Fishers IN 88,887 N/A 12/27/90 300 Highland IN 92,382 N/A 12/26/90 300 Indianapolis IN 124,075 N/A 06/29/90 300 Wichita KS 87,954 N/A 12/26/90 300 Maple Grove MN 154,442 N/A 07/11/90 300 White Bear Lake MN 119,705 N/A 08/30/90 300 Las Vegas NV 101,919 N/A 06/29/90 300 Memphis TN 109,491 N/A 08/31/90 300 Appleton WI 100,000 N/A 07/10/90 300 LA PETITE ACADEMY Birmingham AL 184,521 N/A 10/31/84 300 Huntsville AL 191,688 N/A 06/15/82 180 Mobile AL 225,787 N/A 10/15/82 180 Mobile AL 172,369 N/A 04/25/85 300 Glendale AZ 245,557 N/A 02/08/84 180 Escondido CA 190,360 N/A 12/31/87 300 Folsom CA 198,898 N/A 10/23/87 300 Mission Viejo CA 124,478 N/A 06/24/93 300 Palmdale CA 158,190 N/A 09/14/88 300 Rancho Cordova CA 165,110 N/A 03/22/89 300 Roseville CA 210,035 N/A 10/21/87 300 Santee CA 178,766 N/A 07/23/87 300 Valencia CA 196,552 N/A 06/23/88 300 Broomfield CO 104,160 N/A 03/15/88 300 Colorado Sprgs CO 253,578 N/A 12/22/82 180 Page 93 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== LA PETITE ACADEMY (continued) Colorado Sprgs CO 92,570 241,413 None None Fort Collins CO 55,200 256,356 None None Greeley CO 58,400 270,755 None None Littleton CO 161,617 358,956 None None Louisville CO 58,089 269,313 None None Parker CO 153,551 341,043 None None Bradenton FL 160,060 355,501 None None Clearwater FL 42,223 269,380 None None Fort Myers FL 66,100 210,462 None None Jacksonville FL 38,500 228,481 None None Jacksonville FL 48,000 243,060 None None Jacksonville FL 184,800 410,447 None None Jupiter FL 78,000 360,088 None None Margate FL 66,686 309,183 None None Melbourne FL 256,439 549,345 None None Niceville FL 73,696 341,688 None None Orange Park FL 45,000 208,986 None None Orlando FL 68,001 313,922 None None Orlando FL 159,177 353,538 None None Orlando FL 245,249 544,704 None None Orlando FL 190,050 422,107 None None Oviedo FL 166,409 369,598 None None Panama City FL 69,500 244,314 None None Pensacola FL 147,000 326,492 None None Royal Palm Beach FL 194,193 431,309 None None Spring Hill FL 146,939 326,356 None None St. Augustine FL 44,800 213,040 None None Sunrise FL 69,400 246,671 None None Sunrise FL 245,000 533,280 None None Tallahassee FL 66,000 232,010 None None Tampa FL 53,385 199,846 None None Douglasville GA 54,000 250,356 None None Ellenwood GA 119,678 275,414 None None Fayetteville GA 148,400 329,601 None None Page 94 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ LA PETITE ACADEMY (continued) Colorado Sprgs CO 92,570 241,413 333,983 Fort Collins CO 55,200 256,356 311,556 Greeley CO 58,400 270,755 329,155 Littleton CO 161,617 358,956 520,573 Louisville CO 58,089 269,313 327,402 Parker CO 153,551 341,043 494,594 Bradenton FL 160,060 355,501 515,561 Clearwater FL 42,223 269,380 311,603 Fort Myers FL 66,100 210,462 276,562 Jacksonville FL 38,500 228,481 266,981 Jacksonville FL 48,000 243,060 291,060 Jacksonville FL 184,800 410,447 595,247 Jupiter FL 78,000 360,088 438,088 Margate FL 66,686 309,183 375,869 Melbourne FL 256,439 549,345 805,784 Niceville FL 73,696 341,688 415,384 Orange Park FL 45,000 208,986 253,986 Orlando FL 68,001 313,922 381,923 Orlando FL 159,177 353,538 512,715 Orlando FL 245,249 544,704 789,953 Orlando FL 190,050 422,107 612,157 Oviedo FL 166,409 369,598 536,007 Panama City FL 69,500 244,314 313,814 Pensacola FL 147,000 326,492 473,492 Royal Palm Beach FL 194,193 431,309 625,502 Spring Hill FL 146,939 326,356 473,295 St. Augustine FL 44,800 213,040 257,840 Sunrise FL 69,400 246,671 316,071 Sunrise FL 245,000 533,280 778,280 Tallahassee FL 66,000 232,010 298,010 Tampa FL 53,385 199,846 253,231 Douglasville GA 54,000 250,356 304,356 Ellenwood GA 119,678 275,414 395,092 Fayetteville GA 148,400 329,601 478,001 Page 95 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== LA PETITE ACADEMY (continued) Colorado Sprgs CO 215,874 N/A 08/31/83 180 Fort Collins CO 239,843 N/A 12/22/82 180 Greeley CO 167,729 N/A 11/21/84 300 Littleton CO 111,351 N/A 12/10/87 300 Louisville CO 172,667 N/A 06/22/84 300 Parker CO 108,463 N/A 10/19/87 300 Bradenton FL 105,394 N/A 05/05/88 300 Clearwater FL 269,380 N/A 12/22/81 180 Fort Myers FL 204,616 N/A 06/15/82 180 Jacksonville FL 228,481 N/A 12/22/81 180 Jacksonville FL 243,060 N/A 12/22/81 180 Jacksonville FL 110,421 N/A 03/30/89 300 Jupiter FL 200,235 N/A 09/11/85 300 Margate FL 151,346 N/A 12/16/86 300 Melbourne FL 93,369 N/A 04/16/93 300 Niceville FL 168,570 N/A 12/03/86 300 Orange Park FL 203,180 N/A 06/15/82 180 Orlando FL 174,563 N/A 09/04/85 300 Orlando FL 114,545 N/A 07/02/87 300 Orlando FL 168,975 N/A 12/10/87 300 Orlando FL 113,558 N/A 03/30/89 300 Oviedo FL 115,667 N/A 11/20/87 300 Panama City FL 237,527 N/A 06/15/82 180 Pensacola FL 87,835 N/A 03/28/89 300 Royal Palm Beach FL 120,763 N/A 11/15/88 300 Spring Hill FL 102,133 N/A 11/24/87 300 St. Augustine FL 213,040 N/A 12/22/81 180 Sunrise FL 239,819 N/A 06/15/82 180 Sunrise FL 145,743 N/A 05/25/89 300 Tallahassee FL 225,565 N/A 06/15/82 180 Tampa FL 199,846 N/A 12/22/81 180 Douglasville GA 156,193 N/A 10/23/84 300 Ellenwood GA 77,113 N/A 11/16/88 300 Fayetteville GA 88,672 N/A 03/29/89 300 Page 96 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== LA PETITE ACADEMY (continued) Lawrenceville GA 141,449 314,161 None None Lithia Springs GA 187,444 363,358 None None Lithonia GA 239,715 524,459 None None Marietta GA 148,620 330,090 None None Martinez GA 141,153 313,504 None None Stockbridge GA 168,700 374,688 None None Stone Mountain GA 65,000 301,357 None None Valdosta GA 73,561 341,059 None None Cedar Rapids IA 194,950 427,085 None None Iowa City IA 186,900 408,910 None None Johnston IA 186,996 347,278 None None Aurora IL 165,679 398,739 None None Elk Grove Village IL 214,845 477,180 None None Hoffman Estates IL 211,082 468,818 None None Lockport IL 189,477 442,018 None None O'Fallon IL 141,250 313,722 None None Orland Park IL 218,499 485,295 None None Schaumburg IL 218,798 485,956 None None Noblesville IN 60,000 278,175 None None Zionsville IN 127,568 319,770 None None Topeka KS 58,000 268,903 None None Wichita KS 108,569 401,828 None None Lexington KY 210,427 420,883 None None Ellicott City MD 219,368 630,839 None None Waldorf MD 237,207 526,844 None None Florissant MO 181,300 402,672 None None Liberty MO 65,400 303,211 None None Pearl MS 121,801 270,525 None None Cary NC 75,200 262,973 None None Chapel Hill NC 77,000 356,992 None None Charlotte NC 27,551 247,000 None None Charlotte NC 134,582 268,222 None None Concord NC 32,441 190,859 None None Durham NC 220,728 429,380 None None Page 97 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ LA PETITE ACADEMY (continued) Lawrenceville GA 141,449 314,161 455,610 Lithia Springs GA 187,444 363,358 550,802 Lithonia GA 239,715 524,459 764,174 Marietta GA 148,620 330,090 478,710 Martinez GA 141,153 313,504 454,657 Stockbridge GA 168,700 374,688 543,388 Stone Mountain GA 65,000 301,357 366,357 Valdosta GA 73,561 341,059 414,620 Cedar Rapids IA 194,950 427,085 622,035 Iowa City IA 186,900 408,910 595,810 Johnston IA 186,996 347,278 534,274 Aurora IL 165,679 398,739 564,418 Elk Grove Village IL 214,845 477,180 692,025 Hoffman Estates IL 211,082 468,818 679,900 Lockport IL 189,477 442,018 631,495 O'Fallon IL 141,250 313,722 454,972 Orland Park IL 218,499 485,295 703,794 Schaumburg IL 218,798 485,956 704,754 Noblesville IN 60,000 278,175 338,175 Zionsville IN 127,568 319,770 447,338 Topeka KS 58,000 268,903 326,903 Wichita KS 108,569 401,828 510,397 Lexington KY 210,427 420,883 631,310 Ellicott City MD 219,368 630,839 850,207 Waldorf MD 237,207 526,844 764,051 Florissant MO 181,300 402,672 583,972 Liberty MO 65,400 303,211 368,611 Pearl MS 121,801 270,525 392,326 Cary NC 75,200 262,973 338,173 Chapel Hill NC 77,000 356,992 433,992 Charlotte NC 27,551 247,000 274,551 Charlotte NC 134,582 268,222 402,804 Concord NC 32,441 190,859 223,300 Durham NC 220,728 429,380 650,108 Page 98 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== LA PETITE ACADEMY (continued) Lawrenceville GA 91,411 N/A 07/07/88 300 Lithia Springs GA 94,912 N/A 12/28/89 300 Lithonia GA 132,077 N/A 08/20/91 300 Marietta GA 94,276 N/A 09/16/88 300 Martinez GA 97,251 N/A 12/31/87 300 Stockbridge GA 100,801 N/A 03/28/89 300 Stone Mountain GA 170,226 N/A 06/19/85 300 Valdosta GA 168,257 N/A 12/03/86 300 Cedar Rapids IA 88,912 N/A 09/24/92 300 Iowa City IA 87,275 N/A 09/24/92 300 Johnston IA 65,941 N/A 08/19/91 300 Aurora IL 110,548 N/A 12/21/88 300 Elk Grove Village IL 142,780 N/A 04/08/88 300 Hoffman Estates IL 114,578 N/A 12/08/89 300 Lockport IL 139,546 N/A 10/29/87 300 O'Fallon IL 99,039 N/A 10/30/87 300 Orland Park IL 153,210 N/A 10/28/87 300 Schaumburg IL 150,750 N/A 12/17/87 300 Noblesville IN 164,160 N/A 04/30/85 300 Zionsville IN 100,949 N/A 10/28/87 300 Topeka KS 158,689 N/A 04/16/85 300 Wichita KS 177,846 N/A 12/16/86 300 Lexington KY 100,138 N/A 08/20/91 300 Ellicott City MD 174,897 N/A 12/19/88 300 Waldorf MD 163,434 N/A 12/31/87 300 Florissant MO 108,329 N/A 03/29/89 300 Liberty MO 171,271 N/A 06/18/85 300 Pearl MS 75,923 N/A 11/15/88 300 Cary NC 227,181 N/A 01/25/84 180 Chapel Hill NC 210,673 N/A 04/17/85 300 Charlotte NC 247,000 N/A 12/23/81 180 Charlotte NC 75,097 N/A 11/16/88 300 Concord NC 190,859 N/A 12/23/81 180 Durham NC 117,150 N/A 12/29/89 300 Page 99 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== LA PETITE ACADEMY (continued) Durham NC 238,000 471,201 None None Hendersonville NC 32,748 186,152 None None Kernersville NC 162,216 316,299 None None Morrisville NC 175,700 390,234 None None Bellevue NE 60,568 280,819 None None Omaha NE 60,500 280,491 None None Omaha NE 53,000 245,720 None None Omaha NE 142,867 317,315 None None Clementon NJ 279,851 554,060 None None Henderson NV 82,000 380,173 None None Sparks NV 244,752 543,604 None None Cincinnati OH 165,910 368,486 None None Dublin OH 84,000 389,446 None None Englewood OH 74,000 343,083 None None Gahanna OH 86,000 398,718 None None Pickerington OH 87,580 406,055 None None Westerville OH 82,000 380,173 None None Broken Arrow OK 78,705 220,434 None None Midwest City OK 67,800 314,338 None None Oklahoma City OK 50,800 214,474 None None Oklahoma City OK 79,000 366,261 None None Yukon OK 61,000 282,812 None None Charleston SC 125,593 278,946 None None Charleston SC 140,700 312,498 None None Columbia SC 58,160 269,643 None None Elgin SC 160,831 313,600 None None Goose Creek SC 61,635 192,905 None None Ladson SC 31,543 177,457 None None Lexington SC 55,869 274,742 None None Mt. Pleasant SC 40,700 180,400 None None Summerville SC 44,400 174,500 None None Sumter SC 56,010 268,903 None None Allen TX 177,637 394,537 None None Arlington TX 70,000 324,538 None None Page 100 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ LA PETITE ACADEMY (continued) Durham NC 238,000 471,201 709,201 Hendersonville NC 32,748 186,152 218,900 Kernersville NC 162,216 316,299 478,515 Morrisville NC 175,700 390,234 565,934 Bellevue NE 60,568 280,819 341,387 Omaha NE 60,500 280,491 340,991 Omaha NE 53,000 245,720 298,720 Omaha NE 142,867 317,315 460,182 Clementon NJ 279,851 554,060 833,911 Henderson NV 82,000 380,173 462,173 Sparks NV 244,752 543,604 788,356 Cincinnati OH 165,910 368,486 534,396 Dublin OH 84,000 389,446 473,446 Englewood OH 74,000 343,083 417,083 Gahanna OH 86,000 398,718 484,718 Pickerington OH 87,580 406,055 493,635 Westerville OH 82,000 380,173 462,173 Broken Arrow OK 78,705 220,434 299,139 Midwest City OK 67,800 314,338 382,138 Oklahoma City OK 50,800 214,474 265,274 Oklahoma City OK 79,000 366,261 445,261 Yukon OK 61,000 282,812 343,812 Charleston SC 125,593 278,946 404,539 Charleston SC 140,700 312,498 453,198 Columbia SC 58,160 269,643 327,803 Elgin SC 160,831 313,600 474,431 Goose Creek SC 61,635 192,905 254,540 Ladson SC 31,543 177,457 209,000 Lexington SC 55,869 274,742 330,611 Mt. Pleasant SC 40,700 180,400 221,100 Summerville SC 44,400 174,500 218,900 Sumter SC 56,010 268,903 324,913 Allen TX 177,637 394,537 572,174 Arlington TX 70,000 324,538 394,538 Page 101 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== LA PETITE ACADEMY (continued) Durham NC 89,471 N/A 08/20/91 300 Hendersonville NC 186,152 N/A 12/23/81 180 Kernersville NC 88,669 N/A 12/14/89 300 Morrisville NC 104,982 N/A 03/29/89 300 Bellevue NE 137,461 N/A 12/16/86 300 Omaha NE 178,621 N/A 08/01/84 300 Omaha NE 154,268 N/A 10/11/84 300 Omaha NE 98,433 N/A 12/09/87 300 Clementon NJ 103,698 N/A 09/09/91 300 Henderson NV 224,352 N/A 04/17/85 300 Sparks NV 167,139 N/A 01/29/88 300 Cincinnati OH 122,440 N/A 04/29/87 300 Dublin OH 214,975 N/A 10/08/85 300 Englewood OH 188,070 N/A 10/23/85 300 Gahanna OH 216,901 N/A 11/26/85 300 Pickerington OH 200,324 N/A 12/11/86 300 Westerville OH 209,857 N/A 10/08/85 300 Broken Arrow OK 205,330 N/A 01/27/83 180 Midwest City OK 176,247 N/A 08/14/85 300 Oklahoma City OK 208,516 N/A 06/15/82 180 Oklahoma City OK 228,361 N/A 11/14/84 300 Yukon OK 165,663 N/A 05/02/85 300 Charleston SC 82,697 N/A 05/26/88 300 Charleston SC 84,070 N/A 03/28/89 300 Columbia SC 168,119 N/A 11/14/84 300 Elgin SC 87,912 N/A 12/14/89 300 Goose Creek SC 192,905 N/A 12/22/81 180 Ladson SC 177,457 N/A 12/22/81 180 Lexington SC 171,297 N/A 11/13/84 300 Mt. Pleasant SC 180,400 N/A 12/22/81 180 Summerville SC 174,500 N/A 12/22/81 180 Sumter SC 151,895 N/A 06/18/85 300 Allen TX 110,460 N/A 11/21/88 300 Arlington TX 190,105 N/A 05/08/85 300 Page 102 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== LA PETITE ACADEMY (continued) Arlington TX 195,650 387,355 None None Austin TX 103,600 230,532 None None Austin TX 88,872 222,684 None None Austin TX 188,144 417,872 None None Austin TX 191,636 425,629 None None Austin TX 224,878 499,461 None None Austin TX 217,878 483,913 None None Cedar Park TX 168,857 375,036 None None Colleyville TX 68,000 315,266 None None Desoto TX 86,000 398,715 None None Duncanville TX 93,000 431,172 None None Fort Worth TX 85,518 396,495 None None Fort Worth TX 210,007 444,460 None None Fort Worth TX 216,160 427,962 None None Garland TX 211,050 468,749 None None Grand Prairie TX 167,164 371,275 None None Houston TX 58,000 268,901 None None Houston TX 60,000 278,175 None None Houston TX 102,000 472,898 None None Houston TX 139,125 308,997 None None Houston TX 139,125 308,997 None None Houston TX 141,296 313,824 None None Lewisville TX 79,000 366,264 None None Mansfield TX 181,375 402,838 None None Mesquite TX 85,000 394,079 None None Mesquite TX 139,466 326,525 None None Missouri City TX 221,025 437,593 None None Pasadena TX 60,000 278,173 None None Round Rock TX 80,525 373,347 None None Round Rock TX 186,380 413,957 None None San Antonio TX 102,512 475,289 None None San Antonio TX 81,530 378,007 None None San Antonio TX 139,125 308,997 None None San Antonio TX 181,412 402,923 None None Page 103 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ LA PETITE ACADEMY (continued) Arlington TX 195,650 387,355 583,005 Austin TX 103,600 230,532 334,132 Austin TX 88,872 222,684 311,556 Austin TX 188,144 417,872 606,016 Austin TX 191,636 425,629 617,265 Austin TX 224,878 499,461 724,339 Austin TX 217,878 483,913 701,791 Cedar Park TX 168,857 375,036 543,893 Colleyville TX 68,000 315,266 383,266 Desoto TX 86,000 398,715 484,715 Duncanville TX 93,000 431,172 524,172 Fort Worth TX 85,518 396,495 482,013 Fort Worth TX 210,007 444,460 654,467 Fort Worth TX 216,160 427,962 644,122 Garland TX 211,050 468,749 679,799 Grand Prairie TX 167,164 371,275 538,439 Houston TX 58,000 268,901 326,901 Houston TX 60,000 278,175 338,175 Houston TX 102,000 472,898 574,898 Houston TX 139,125 308,997 448,122 Houston TX 139,125 308,997 448,122 Houston TX 141,296 313,824 455,120 Lewisville TX 79,000 366,264 445,264 Mansfield TX 181,375 402,838 584,213 Mesquite TX 85,000 394,079 479,079 Mesquite TX 139,466 326,525 465,991 Missouri City TX 221,025 437,593 658,618 Pasadena TX 60,000 278,173 338,173 Round Rock TX 80,525 373,347 453,872 Round Rock TX 186,380 413,957 600,337 San Antonio TX 102,512 475,289 577,801 San Antonio TX 81,530 378,007 459,537 San Antonio TX 139,125 308,997 448,122 San Antonio TX 181,412 402,923 584,335 Page 104 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== LA PETITE ACADEMY (continued) Arlington TX 79,876 N/A 02/07/91 300 Austin TX 218,657 N/A 10/29/82 180 Austin TX 207,839 N/A 01/12/83 180 Austin TX 123,885 N/A 05/11/88 300 Austin TX 118,003 N/A 12/22/88 300 Austin TX 137,106 N/A 01/03/89 300 Austin TX 126,209 N/A 06/22/89 300 Cedar Park TX 105,000 N/A 11/21/88 300 Colleyville TX 184,674 N/A 05/01/85 300 Desoto TX 248,723 N/A 10/24/84 300 Duncanville TX 252,567 N/A 05/08/85 300 Fort Worth TX 195,608 N/A 12/03/86 300 Fort Worth TX 108,832 N/A 02/01/90 300 Fort Worth TX 88,249 N/A 02/07/91 300 Garland TX 114,562 N/A 12/12/89 300 Grand Prairie TX 102,933 N/A 12/13/88 300 Houston TX 168,822 N/A 10/11/84 300 Houston TX 162,947 N/A 05/01/85 300 Houston TX 277,008 N/A 05/01/85 300 Houston TX 101,819 N/A 05/22/87 300 Houston TX 101,819 N/A 05/22/87 300 Houston TX 101,679 N/A 07/24/87 300 Lewisville TX 206,889 N/A 06/26/85 300 Mansfield TX 98,454 N/A 12/20/89 300 Mesquite TX 245,834 N/A 10/24/84 300 Mesquite TX 90,971 N/A 10/08/92 300 Missouri City TX 92,619 N/A 12/13/90 300 Pasadena TX 173,530 N/A 10/23/84 300 Round Rock TX 182,754 N/A 12/16/86 300 Round Rock TX 110,231 N/A 04/19/89 300 San Antonio TX 234,483 N/A 12/03/86 300 San Antonio TX 186,487 N/A 12/11/86 300 San Antonio TX 101,819 N/A 05/22/87 300 San Antonio TX 130,545 N/A 07/07/87 300 Page 105 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== LA PETITE ACADEMY (continued) San Antonio TX 162,161 360,166 None None San Antonio TX 182,868 406,155 None None Southlake TX 228,279 511,750 None None Sugarland TX 193,800 430,436 None None Texas City TX 48,000 222,918 None None The Woodlands TX 193,801 430,441 None None Watauga TX 165,914 368,502 None None Layton UT 136,574 269,009 None None Sandy UT 168,089 373,330 None None Chesapeake VA 190,050 422,107 None None Glen Allen VA 74,643 346,060 None None Portsmouth VA 171,575 381,072 None None Richmond VA 71,001 327,771 None None Virginia Beach VA 69,080 320,270 None None Federal Way WA 261,943 581,782 None None Puyallup WA 195,552 434,327 None None Redmond WA 279,830 621,512 None None Brookfield WI 233,100 461,500 None None Waukesha WI 215,950 427,546 None None Cheyenne WY 59,856 277,506 None None OTHER CHILD CARE Irving TX 63,853 296,034 None None BEST BUY Thousand Oaks CA 2,703,726 6,125,784 None None Topeka KS 974,960 3,472,226 None None REX STORES Oxford AL 323,085 406,655 None None Tuscaloosa AL 204,790 585,115 None None Bradenton FL 174,948 240,928 None None MaryEsther FL 149,696 363,263 None None Melbourne FL 269,697 522,414 None None Page 106 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ LA PETITE ACADEMY (continued) San Antonio TX 162,161 360,166 522,327 San Antonio TX 182,868 406,155 589,023 Southlake TX 228,279 511,750 740,029 Sugarland TX 193,800 430,436 624,236 Texas City TX 48,000 222,918 270,918 The Woodlands TX 193,801 430,441 624,242 Watauga TX 165,914 368,502 534,416 Layton UT 136,574 269,009 405,583 Sandy UT 168,089 373,330 541,419 Chesapeake VA 190,050 422,107 612,157 Glen Allen VA 74,643 346,060 420,703 Portsmouth VA 171,575 381,072 552,647 Richmond VA 71,001 327,771 398,772 Virginia Beach VA 69,080 320,270 389,350 Federal Way WA 261,943 581,782 843,725 Puyallup WA 195,552 434,327 629,879 Redmond WA 279,830 621,512 901,342 Brookfield WI 233,100 461,500 694,600 Waukesha WI 215,950 427,546 643,496 Cheyenne WY 59,856 277,506 337,362 OTHER CHILD CARE Irving TX 63,853 296,034 359,887 BEST BUY Thousand Oaks CA 2,703,726 6,125,784 8,829,510 Topeka KS 974,960 3,472,226 4,447,186 REX STORES Oxford AL 323,085 406,655 729,740 Tuscaloosa AL 204,790 585,115 789,905 Bradenton FL 174,948 240,928 415,876 MaryEsther FL 149,696 363,263 512,959 Melbourne FL 269,697 522,414 792,111 Page 107 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== LA PETITE ACADEMY (continued) San Antonio TX 116,694 N/A 07/07/87 300 San Antonio TX 112,605 N/A 12/06/88 300 Southlake TX 108,010 N/A 03/10/93 300 Sugarland TX 139,462 N/A 07/31/87 300 Texas City TX 216,725 N/A 06/15/82 180 The Woodlands TX 138,275 N/A 08/11/87 300 Watauga TX 119,393 N/A 07/07/87 300 Layton UT 73,943 N/A 02/01/90 300 Sandy UT 89,201 N/A 02/01/90 300 Chesapeake VA 113,558 N/A 03/28/89 300 Glen Allen VA 221,870 N/A 06/20/84 300 Portsmouth VA 105,650 N/A 12/21/88 300 Richmond VA 182,265 N/A 09/04/85 300 Virginia Beach VA 199,686 N/A 11/15/84 300 Federal Way WA 162,886 N/A 11/21/88 300 Puyallup WA 120,414 N/A 12/06/88 300 Redmond WA 201,370 N/A 07/27/87 300 Brookfield WI 97,679 N/A 12/13/90 300 Waukesha WI 90,493 N/A 12/13/90 300 Cheyenne WY 171,910 N/A 11/20/84 300 OTHER CHILD CARE Irving TX 154,849 N/A 04/23/86 300 BEST BUY Thousand Oaks CA 71,467 N/A 09/27/96 300 Topeka KS 5,787 N/A 12/27/96 300 REX STORES Oxford AL 2,033 N/A 11/26/96 300 Tuscaloosa AL 2,926 N/A 11/26/96 300 Bradenton FL 1,205 N/A 11/26/96 300 MaryEsther FL 1,816 N/A 11/26/96 300 Melbourne FL 2,612 N/A 11/26/96 300 Page 108 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== REX STORES (continued) Merritt Island FL 309,652 482,459 None None Ocala FL 339,690 543,504 None None Pensacola FL 419,842 1,899,287 None None Tallahassee FL 319,807 502,697 None None Titusville FL 176,459 579,793 None None Venice FL 259,686 362,562 None None Rome GA 254,902 486,812 None None Council Bluffs IA 255,217 117,792 None None Des Moines IA 188,520 367,614 None None Peoria IL 193,868 387,737 None None Rockford IL 159,587 618,398 None None Springfield IL 219,859 630,595 None None Anderson IN 180,628 653,038 None None Muncie IN 148,901 645,235 None None Richmond IN 93,999 193,753 None None Columbus MS 144,908 463,707 None None Greenville MS 144,588 433,764 None None Gulfport MS 299,464 502,326 None None Hattiesburg MS 198,659 457,379 None None Jackson MS 405,360 656,296 None None Meridian MS 181,156 515,598 None None Tupelo MS 121,697 637,691 None None Vicksburg MS 494,532 174,541 None None Lakewood NY 144,859 526,301 None None Defiance OH 97,978 601,863 None None Kettering OH 229,246 488,393 None None Bristol TN 344,365 468,719 None None Clarksville TN 290,775 395,870 None None Vienna WV 324,797 526,670 None None DAIRYMART Manchester CT 118,262 305,510 None None Vernon CT 179,646 319,372 None None Westbrook CT 98,247 373,340 None None Page 109 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ REX STORES (continued) Merritt Island FL 309,652 482,459 792,111 Ocala FL 339,690 543,504 883,194 Pensacola FL 419,842 1,899,287 2,319,129 Tallahassee FL 319,807 502,697 822,504 Titusville FL 176,459 579,793 756,252 Venice FL 259,686 362,562 622,248 Rome GA 254,902 486,812 741,714 Council Bluffs IA 255,217 117,792 373,009 Des Moines IA 188,520 367,614 556,134 Peoria IL 193,868 387,737 581,605 Rockford IL 159,587 618,398 777,985 Springfield IL 219,859 630,595 850,454 Anderson IN 180,628 653,038 833,666 Muncie IN 148,901 645,235 794,136 Richmond IN 93,999 193,753 287,752 Columbus MS 144,908 463,707 608,615 Greenville MS 144,588 433,764 578,352 Gulfport MS 299,464 502,326 801,790 Hattiesburg MS 198,659 457,379 656,038 Jackson MS 405,360 656,296 1,061,656 Meridian MS 181,156 515,598 696,754 Tupelo MS 121,697 637,691 759,388 Vicksburg MS 494,532 174,541 669,073 Lakewood NY 144,859 526,301 671,160 Defiance OH 97,978 601,863 699,841 Kettering OH 229,246 488,393 717,639 Bristol TN 344,365 468,719 813,084 Clarksville TN 290,775 395,870 686,645 Vienna WV 324,797 526,670 851,467 DAIRYMART Manchester CT 118,262 305,510 423,772 Vernon CT 179,646 319,372 499,018 Westbrook CT 98,247 373,340 471,587 Page 110 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== REX STORES (continued) Merritt Island FL 2,412 N/A 11/26/96 300 Ocala FL 2,718 N/A 11/26/96 300 Pensacola FL 9,496 N/A 11/26/96 300 Tallahassee FL 2,513 N/A 11/26/96 300 Titusville FL 2,899 N/A 11/26/96 300 Venice FL 1,813 N/A 11/26/96 300 Rome GA 2,434 N/A 11/26/96 300 Council Bluffs IA 589 N/A 11/26/96 300 Des Moines IA 1,838 N/A 11/26/96 300 Peoria IL 1,939 N/A 11/26/96 300 Rockford IL 3,092 N/A 11/26/96 300 Springfield IL 3,153 N/A 11/26/96 300 Anderson IN 3,265 N/A 11/26/96 300 Muncie IN 3,226 N/A 11/26/96 300 Richmond IN 969 N/A 11/26/96 300 Columbus MS 2,319 N/A 11/26/96 300 Greenville MS 2,169 N/A 11/26/96 300 Gulfport MS 2,512 N/A 11/26/96 300 Hattiesburg MS 2,287 N/A 11/26/96 300 Jackson MS 3,281 N/A 11/26/96 300 Meridian MS 2,578 N/A 11/26/96 300 Tupelo MS 3,188 N/A 11/26/96 300 Vicksburg MS 873 N/A 11/26/96 300 Lakewood NY 2,632 N/A 11/26/96 300 Defiance OH 3,009 N/A 11/26/96 300 Kettering OH 2,442 N/A 11/26/96 300 Bristol TN 2,344 N/A 11/26/96 300 Clarksville TN 1,979 N/A 11/26/96 300 Vienna WV 2,633 N/A 11/26/96 300 DAIRYMART Manchester CT 21,895 N/A 03/03/95 300 Vernon CT 22,888 N/A 03/09/95 300 Westbrook CT 26,756 N/A 03/09/95 300 Page 111 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== DAIRYMART (continued) New Albany IN 181,459 289,353 None None New Albany IN 262,465 331,796 None None Berea KY 252,077 360,815 None None Elizabethtown KY 286,106 286,106 None None Lebanon KY 158,052 316,105 None None Louisville KY 198,926 368,014 None None Louisville KY 216,849 600,765 None None Mt. Washington KY 327,245 333,709 None None Seekonk MA 298,354 268,518 None None Kingston NY 257,763 456,042 None None Atwater OH 118,555 266,748 None None Columbus OH 147,296 304,411 None None Cuyahoga Falls OH 297,982 357,579 None None Galion OH 138,981 327,597 None None Perrysburg OH 211,678 168,080 None None Streetsboro OH 402,988 137,998 None None Tipp City OH 355,009 219,816 None None Triffin OH 117,017 273,040 None None Wadsworth OH 266,507 153,760 None None 7-ELEVEN Flint MI 194,492 476,504 None None Columbus OH 273,085 471,693 None None Groveport OH 277,198 445,497 None None THE PANTRY INC. Henderson KY 225,000 515,000 None None Owensboro KY 360,000 590,000 None None Cary NC 450,000 825,000 None None Greenville NC 330,000 515,000 None None Greenville NC 225,000 405,000 None None Jacksonville NC 150,000 530,000 None None Columbia SC 150,000 450,000 None None John's Isle SC 170,000 350,000 None None Page 112 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ DAIRYMART (continued) New Albany IN 181,459 289,353 470,812 New Albany IN 262,465 331,796 594,261 Berea KY 252,077 360,815 612,892 Elizabethtown KY 286,106 286,106 572,212 Lebanon KY 158,052 316,105 474,157 Louisville KY 198,926 368,014 566,940 Louisville KY 216,849 600,765 817,614 Mt. Washington KY 327,245 333,709 660,954 Seekonk MA 298,354 268,518 566,872 Kingston NY 257,763 456,042 713,805 Atwater OH 118,555 266,748 385,303 Columbus OH 147,296 304,411 451,707 Cuyahoga Falls OH 297,982 357,579 655,561 Galion OH 138,981 327,597 466,578 Perrysburg OH 211,678 168,080 379,758 Streetsboro OH 402,988 137,998 540,986 Tipp City OH 355,009 219,816 574,825 Triffin OH 117,017 273,040 390,057 Wadsworth OH 266,507 153,760 420,267 7-ELEVEN Flint MI 194,492 476,504 670,996 Columbus OH 273,085 471,693 744,778 Groveport OH 277,198 445,497 722,695 THE PANTRY, INC. Henderson KY 225,000 515,000 740,000 Owensboro KY 360,000 590,000 950,000 Cary NC 450,000 825,000 1,275,000 Greenville NC 330,000 515,000 845,000 Greenville NC 225,000 405,000 630,000 Jacksonville NC 150,000 530,000 680,000 Columbia SC 150,000 450,000 600,000 John's Isle SC 170,000 350,000 520,000 Page 113 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== DAIRYMART (continued) New Albany IN 20,737 N/A 03/03/95 300 New Albany IN 23,779 N/A 03/06/95 300 Berea KY 25,858 N/A 03/08/95 300 Elizabethtown KY 20,504 N/A 03/03/95 300 Lebanon KY 22,654 N/A 03/03/95 300 Louisville KY 26,374 N/A 03/03/95 300 Louisville KY 13,017 06/18/96 11/17/95 300 Mt. Washington KY 2,694 10/28/96 05/31/96 300 Seekonk MA 19,244 N/A 03/03/95 300 Kingston NY 31,163 N/A 04/06/95 300 Atwater OH 19,117 N/A 03/03/95 300 Columbus OH 21,816 N/A 03/03/95 300 Cuyahoga Falls OH 25,627 N/A 03/03/95 300 Galion OH 23,478 N/A 03/06/95 300 Perrysburg OH 6,569 01/10/96 09/01/95 300 Streetsboro OH 0 In Prcss 09/03/96 300 Tipp City OH 0 In Prcss 06/27/96 300 Triffin OH 19,568 N/A 03/07/95 300 Wadsworth OH 729 11/26/96 07/01/96 300 7-ELEVEN Flint MI 19,854 N/A 12/21/95 300 Columbus OH 19,654 N/A 12/21/95 300 Groveport OH 18,562 N/A 12/21/95 300 THE PANTRY, INC. Henderson KY 28,325 N/A 08/25/95 300 Owensboro KY 32,450 N/A 08/25/95 300 Cary NC 45,375 N/A 08/25/95 300 Greenville NC 28,325 N/A 08/25/95 300 Greenville NC 22,275 N/A 08/25/95 300 Jacksonville NC 29,150 N/A 08/25/95 300 Columbia SC 24,750 N/A 08/25/95 300 John's Isle SC 19,250 N/A 08/25/95 300 Page 114 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== THE PANTRY INC. (continued) Lexington SC 255,000 545,000 None None Myrtle Beach SC 140,000 590,000 None None N Charleston SC 400,000 650,000 None None Summerville SC 115,000 515,000 None None La Vergne TN 340,000 650,000 None None Shelbyville TN 200,000 465,000 None None EAST COAST OIL Stafford VA 271,865 601,986 None None Warrenton VA 515,971 649,125 None None OTHER CONVENIENCE STORES Fullerton CA 29,170 41,003 None 11,934 LEVITZ FURNITURE Cathedral City CA 1,006,923 2,293,077 None None Concord CA 4,162,500 3,037,500 None None Winter Park FL 2,404,598 3,382,402 None None Plano TX 565,000 5,835,000 None None DON PABLO'S Flint MI 827,853 0 None None Akron OH 723,347 0 None None Norman OK 734,335 0 None None Oklahoma City OK 759,826 0 None None Bedford TX 919,303 98,231 None None Dallas TX 742,507 0 None None Mesquite TX 729,596 120,820 None None CARVERS STEAKHOUSE Glendale AZ 624,761 895,976 None None Orem UT 516,129 1,004,608 None None Sandy UT 635,945 884,792 None None Page 115 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ THE PANTRY, INC. (continued) Lexington SC 255,000 545,000 800,000 Myrtle Beach SC 140,000 590,000 730,000 N Charleston SC 400,000 650,000 1,050,000 Summerville SC 115,000 515,000 630,000 La Vergne TN 340,000 650,000 990,000 Shelbyville TN 200,000 465,000 665,000 EAST COAST OIL Stafford VA 271,865 601,986 873,851 Warrenton VA 515,971 649,125 1,165,096 OTHER CONVENIENCE STORES Fullerton CA 29,170 52,937 82,107 LEVITZ FURNITURE Cathedral City CA 1,006,923 2,293,077 3,300,000 Concord CA 4,162,500 3,037,500 7,200,000 Winter Park FL 2,404,598 3,382,402 5,787,000 Plano TX 565,000 5,835,000 6,400,000 DON PABLO'S Flint MI 827,853 0 827,853 Akron OH 723,347 0 723,347 Norman OK 734,335 0 734,335 Oklahoma City OK 759,826 0 759,826 Bedford TX 919,303 98,231 1,017,534 Dallas TX 742,507 0 742,507 Mesquite TX 729,596 120,820 850,416 CARVERS STEAKHOUSE Glendale AZ 624,761 895,976 1,520,737 Orem UT 516,129 1,004,608 1,520,737 Sandy UT 635,945 884,792 1,520,737 Page 116 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== THE PANTRY, INC. (continued) Lexington SC 29,975 N/A 08/25/95 300 Myrtle Beach SC 32,450 N/A 08/25/95 300 N Charleston SC 35,750 N/A 08/25/95 300 Summerville SC 28,325 N/A 08/25/95 300 La Vergne TN 35,750 N/A 08/25/95 300 Shelbyville TN 25,575 N/A 08/25/95 300 EAST COAST OIL Stafford VA 1,003 N/A 12/20/96 300 Warrenton VA 1,082 N/A 12/20/96 300 OTHER CONVENIENCE STORES Fullerton CA 45,776 N/A 11/08/72 234 LEVITZ FURNITURE Cathedral City CA 149,050 N/A 05/26/95 300 Concord CA 197,438 N/A 05/31/95 300 Winter Park FL 219,856 N/A 05/31/95 300 Plano TX 379,275 N/A 05/26/95 300 DON PABLO'S Flint MI 0 N/A 04/13/95 None Akron OH 0 N/A 12/22/94 None Norman OK 0 09/29/95 06/05/95 None Oklahoma City OK 0 N/A 07/06/95 None Bedford TX 90,500 N/A 12/27/94 300 Dallas TX 0 N/A 04/13/95 None Mesquite TX 112,094 N/A 12/23/94 300 CARVERS STEAKHOUSE Glendale AZ 28,373 N/A 03/06/96 300 Orem UT 41,859 N/A 12/13/95 300 Sandy UT 36,866 N/A 12/22/95 300 Page 117 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== OTHER DINNER HOUSE RESTAURANTS Riverside CA 225,795 534,679 35,000 21,560 San Ramon CA 406,000 1,126,930 None None Westminster CO 338,940 1,571,401 20,000 13,440 Alexandria LA 143,000 662,985 None 15,000 Roseville MN 281,600 1,305,560 None None Lake Oswego OR 175,899 815,509 None None Milwaukie OR 179,174 830,689 None None Greenville SC 500,000 1,273,648 20,000 None Nashville TN 484,975 1,192,627 20,000 31,098 Redmond WA 610,334 1,262,103 None None Tacoma WA 198,857 921,947 None None Tacoma WA 255,000 718,614 None None Cheyenne WY 220,764 790,772 None 13,500 GOLDEN CORRAL Red Bluff CA 136,740 633,984 None None Montrose CO 217,595 483,284 None None Sterling CO 95,320 441,928 None None Green Cove Sprgs FL 86,240 399,828 None None Hinesville GA 89,220 413,644 None None Lithonia GA 89,220 413,647 None None Stone Mountain GA 215,940 1,001,188 None None Ankeny IA 100,000 349,218 None None Boone IA 76,000 386,170 None None Rexburg ID 90,760 420,787 None None Alton IL 225,785 419,315 None None Dixon IL 230,090 511,036 None None Salem IL 213,815 474,892 None None Bedford IN 311,815 692,543 None None Decatur IN 181,020 385,618 None None Martinsville IN 100,000 463,642 None None Shelbyville IN 128,820 597,263 None None Derby KS 96,060 445,359 None None El Dorado KS 87,400 405,206 None None Page 118 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ OTHER DINNER HOUSE RESTAURANTS Riverside CA 225,795 591,239 817,034 San Ramon CA 406,000 1,126,930 1,532,930 Westminster CO 338,940 1,604,841 1,943,781 Alexandria LA 143,000 677,985 820,985 Roseville MN 281,600 1,305,560 1,587,160 Lake Oswego OR 175,899 815,509 991,408 Milwaukie OR 179,174 830,689 1,009,863 Greenville SC 500,000 1,293,648 1,793,648 Nashville TN 484,975 1,243,725 1,728,700 Redmond WA 610,334 1,262,103 1,872,437 Tacoma WA 198,857 921,947 1,120,804 Tacoma WA 255,000 718,614 973,614 Cheyenne WY 220,764 804,272 1,025,036 GOLDEN CORRAL Red Bluff CA 136,740 633,984 770,724 Montrose CO 217,595 483,284 700,879 Sterling CO 95,320 441,928 537,248 Green Cove Sprgs FL 86,240 399,828 486,068 Hinesville GA 89,220 413,644 502,864 Lithonia GA 89,220 413,647 502,867 Stone Mountain GA 215,940 1,001,188 1,217,128 Ankeny IA 100,000 349,218 449,218 Boone IA 76,000 386,170 462,170 Rexburg ID 90,760 420,787 511,547 Alton IL 225,785 419,315 645,100 Dixon IL 230,090 511,036 741,126 Salem IL 213,815 474,892 688,707 Bedford IN 311,815 692,543 1,004,358 Decatur IN 181,020 385,618 566,638 Martinsville IN 100,000 463,642 563,642 Shelbyville IN 128,820 597,263 726,083 Derby KS 96,060 445,359 541,419 El Dorado KS 87,400 405,206 492,606 Page 119 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== OTHER DINNER HOUSE RESTAURANTS Riverside CA 200,126 N/A 10/01/81 300 San Ramon CA 982,887 N/A 12/08/83 180 Westminster CO 1,025,650 N/A 06/28/84 300 Alexandria LA 363,869 N/A 01/17/86 300 Roseville MN 803,109 N/A 12/18/84 300 Lake Oswego OR 526,378 N/A 05/16/84 300 Milwaukie OR 539,488 N/A 05/08/84 300 Greenville SC 1,162,998 N/A 06/15/83 180 Nashville TN 1,099,959 N/A 05/20/83 180 Redmond WA 1,184,974 N/A 12/10/82 180 Tacoma WA 595,079 N/A 05/29/84 300 Tacoma WA 448,049 N/A 11/06/84 300 Cheyenne WY 688,410 N/A 01/12/84 180 GOLDEN CORRAL Red Bluff CA 310,336 N/A 12/18/86 300 Montrose CO 149,923 N/A 12/17/87 300 Sterling CO 271,852 N/A 12/27/84 300 Green Cove Sprgs FL 245,954 N/A 12/19/84 300 Hinesville GA 254,450 N/A 12/20/84 300 Lithonia GA 254,314 N/A 01/04/85 300 Stone Mountain GA 498,496 N/A 10/30/86 300 Ankeny IA 313,394 N/A 07/28/83 180 Boone IA 335,768 N/A 12/27/83 180 Rexburg ID 228,909 N/A 11/25/85 300 Alton IL 118,555 N/A 10/18/88 300 Dixon IL 158,513 N/A 12/28/87 300 Salem IL 149,937 N/A 10/30/87 300 Bedford IN 224,382 N/A 07/15/87 300 Decatur IN 129,196 N/A 03/31/87 300 Martinsville IN 226,952 N/A 12/23/86 300 Shelbyville IN 292,361 N/A 12/18/86 300 Derby KS 244,136 N/A 10/29/85 300 El Dorado KS 213,514 N/A 04/10/86 300 Page 120 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== GOLDEN CORRAL (continued) Great Bend KS 95,800 444,154 None None Jennings LA 107,120 496,636 None None La Plata MD 120,140 557,000 None None Sturgis MI 210,560 467,659 None None Albert Lea MN 213,150 473,412 None None Red Wing MN 248,325 551,541 None None Belton MO 89,328 418,187 None None Blue Springs MO 111,440 516,665 None None Carthage MO 85,020 394,175 None None Chillicothe MO 81,080 375,908 None None Fulton MO 210,199 466,861 None None Hannibal MO 266,011 590,822 None None Jackson MO 210,199 466,860 None None Nevada MO 222,552 494,296 None None Sedalia MO 269,798 599,232 None None St. Charles MO 695,121 1,001,878 None None St. Joseph MO 107,648 496,958 None None Sullivan MO 85,500 396,400 None None Clinton MS 100,000 337,371 None None Southaven MS 263,900 582,303 None None Fayetteville NC 116,240 538,919 None None Omaha NE 629,592 1,051,244 None None Amherst NY 935,355 896,819 None None Fulton NY 294,009 653,006 None None Ashland OH 120,740 559,801 None None Celina OH 207,060 459,841 None None Lebanon OH 210,134 466,717 None None Stow OH 317,546 712,455 None None Troy OH 130,540 605,238 None None Wash. Courthouse OH 123,120 570,836 None None Wilmington OH 119,320 553,217 None None Owasso OK 247,450 549,597 None None Ponca City OK 234,990 521,923 None None Hermiston OR 85,560 396,675 None None Page 121 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ GOLDEN CORRAL (continued) Great Bend KS 95,800 444,154 539,954 Jennings LA 107,120 496,636 603,756 La Plata MD 120,140 557,000 677,140 Sturgis MI 210,560 467,659 678,219 Albert Lea MN 213,150 473,412 686,562 Red Wing MN 248,325 551,541 799,866 Belton MO 89,328 418,187 507,515 Blue Springs MO 111,440 516,665 628,105 Carthage MO 85,020 394,175 479,195 Chillicothe MO 81,080 375,908 456,988 Fulton MO 210,199 466,861 677,060 Hannibal MO 266,011 590,822 856,833 Jackson MO 210,199 466,860 677,059 Nevada MO 222,552 494,296 716,848 Sedalia MO 269,798 599,232 869,030 St. Charles MO 695,121 1,001,878 1,696,999 St. Joseph MO 107,648 496,958 604,606 Sullivan MO 85,500 396,400 481,900 Clinton MS 100,000 337,371 437,371 Southaven MS 263,900 582,303 846,203 Fayetteville NC 116,240 538,919 655,159 Omaha NE 629,592 1,051,244 1,680,836 Amherst NY 935,355 896,819 1,832,174 Fulton NY 294,009 653,006 947,015 Ashland OH 120,740 559,801 680,541 Celina OH 207,060 459,841 666,901 Lebanon OH 210,134 466,717 676,851 Stow OH 317,546 712,455 1,030,001 Troy OH 130,540 605,238 735,778 Wash. Courthouse OH 123,120 570,836 693,956 Wilmington OH 119,320 553,217 672,537 Owasso OK 247,450 549,597 797,047 Ponca City OK 234,990 521,923 756,913 Hermiston OR 85,560 396,675 482,235 Page 122 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== GOLDEN CORRAL (continued) Great Bend KS 273,218 N/A 12/26/84 300 Jennings LA 272,245 N/A 10/17/85 300 La Plata MD 302,816 N/A 12/03/85 300 Sturgis MI 146,364 N/A 11/12/87 300 Albert Lea MN 146,878 N/A 12/16/87 300 Red Wing MN 171,067 N/A 12/30/87 300 Belton MO 257,247 N/A 12/18/84 300 Blue Springs MO 317,825 N/A 12/28/84 300 Carthage MO 214,294 N/A 12/03/85 300 Chillicothe MO 231,239 N/A 12/26/84 300 Fulton MO 151,262 N/A 07/30/87 300 Hannibal MO 191,425 N/A 07/30/87 300 Jackson MO 151,262 N/A 07/30/87 300 Nevada MO 160,151 N/A 07/30/87 300 Sedalia MO 159,150 N/A 07/31/89 300 St. Charles MO 41,041 12/22/95 03/16/95 300 St. Joseph MO 276,342 N/A 09/04/85 300 Sullivan MO 243,843 N/A 12/27/84 300 Clinton MS 302,758 N/A 07/28/83 180 Southaven MS 191,880 N/A 05/11/87 300 Fayetteville NC 331,514 N/A 12/20/84 300 Omaha NE 64,827 06/02/95 02/24/95 300 Amherst NY 39,311 12/21/95 05/31/95 300 Fulton NY 201,507 N/A 12/24/87 300 Ashland OH 274,022 N/A 12/19/86 300 Celina OH 156,608 N/A 01/02/87 300 Lebanon OH 151,215 N/A 07/31/87 300 Stow OH 220,127 N/A 12/31/87 300 Troy OH 298,605 N/A 12/05/86 300 Wash. Courthouse OH 279,424 N/A 12/19/86 300 Wilmington OH 270,801 N/A 12/31/86 300 Owasso OK 170,497 N/A 12/28/87 300 Ponca City OK 161,910 N/A 12/30/87 300 Hermiston OR 244,011 N/A 12/18/84 300 Page 123 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== GOLDEN CORRAL (continued) McMinnville OR 227,780 505,905 None None Connellsville PA 264,670 587,843 None None Waynesburg PA 222,285 493,704 None None Pierre SD 251,790 559,232 None None Memphis TN 405,274 1,060,680 None None Athens TX 245,245 544,700 None None Beeville TX 250,490 556,349 None None Brownwood TX 288,225 640,160 None None Crockett TX 90,780 420,880 None None El Campo TX 98,060 454,631 None None Gainesville TX 89,220 413,644 None None Hillsboro TX 75,992 352,316 None None League City TX 126,822 588,000 None None Lufkin TX 105,904 490,998 None None Mesquite TX 134,940 625,612 None None Mexia TX 93,620 434,046 None None Orange TX 93,560 433,768 None None Plainview TX 125,000 350,767 None None Port Lavaca TX 244,759 543,619 None None Rowlett TX 126,933 585,986 None None Vidor TX 90,618 420,124 None None Waxahachie TX 326,935 726,137 None None Cedar City UT 130,000 296,544 None None Virginia Beach VA 314,790 699,161 None None Auburn WA 301,595 669,852 None None Marysville WA 276,273 613,613 None None Oak Harbor WA 275,940 612,874 None None Monroe WI 193,130 428,947 None None Portage WI 199,605 443,328 None None Shawano WI 205,730 456,932 None None Sturgeon Bay WI 214,865 477,221 None None Oak Hill WV 85,860 398,069 None None Riverton WY 216,685 481,267 None None Sheridan WY 117,160 543,184 None None Page 124 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ GOLDEN CORRAL (continued) McMinnville OR 227,780 505,905 733,685 Connellsville PA 264,670 587,843 852,513 Waynesburg PA 222,285 493,704 715,989 Pierre SD 251,790 559,232 811,022 Memphis TN 405,274 1,060,680 1,465,954 Athens TX 245,245 544,700 789,945 Beeville TX 250,490 556,349 806,839 Brownwood TX 288,225 640,160 928,385 Crockett TX 90,780 420,880 511,660 El Campo TX 98,060 454,631 552,691 Gainesville TX 89,220 413,644 502,864 Hillsboro TX 75,992 352,316 428,308 League City TX 126,822 588,000 714,822 Lufkin TX 105,904 490,998 596,902 Mesquite TX 134,940 625,612 760,552 Mexia TX 93,620 434,046 527,666 Orange TX 93,560 433,768 527,328 Plainview TX 125,000 350,767 475,767 Port Lavaca TX 244,759 543,619 788,378 Rowlett TX 126,933 585,986 712,919 Vidor TX 90,618 420,124 510,742 Waxahachie TX 326,935 726,137 1,053,072 Cedar City UT 130,000 296,544 426,544 Virginia Beach VA 314,790 699,161 1,013,951 Auburn WA 301,595 669,852 971,447 Marysville WA 276,273 613,613 889,886 Oak Harbor WA 275,940 612,874 888,814 Monroe WI 193,130 428,947 622,077 Portage WI 199,605 443,328 642,933 Shawano WI 205,730 456,932 662,662 Sturgeon Bay WI 214,865 477,221 692,086 Oak Hill WV 85,860 398,069 483,929 Riverton WY 216,685 481,267 697,952 Sheridan WY 117,160 543,184 660,344 Page 125 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== GOLDEN CORRAL (continued) McMinnville OR 158,334 N/A 11/12/87 300 Connellsville PA 188,840 N/A 08/17/87 300 Waynesburg PA 158,597 N/A 08/17/87 300 Pierre SD 173,484 N/A 12/01/87 300 Memphis TN 61,873 06/30/95 03/17/95 300 Athens TX 168,977 N/A 12/01/87 300 Beeville TX 180,257 N/A 07/31/87 300 Brownwood TX 198,454 N/A 12/28/87 300 Crockett TX 227,200 N/A 12/17/85 300 El Campo TX 247,319 N/A 11/25/85 300 Gainesville TX 254,450 N/A 12/18/84 300 Hillsboro TX 224,362 N/A 08/01/84 300 League City TX 287,825 N/A 12/30/86 300 Lufkin TX 271,033 N/A 10/08/85 300 Mesquite TX 329,864 N/A 03/20/86 300 Mexia TX 234,308 N/A 12/18/85 300 Orange TX 235,819 N/A 12/10/85 300 Plainview TX 303,030 N/A 01/24/84 180 Port Lavaca TX 176,133 N/A 07/30/87 300 Rowlett TX 325,850 N/A 09/06/85 300 Vidor TX 267,539 N/A 08/01/84 300 Waxahachie TX 225,188 N/A 12/29/87 300 Cedar City UT 265,186 N/A 08/04/83 180 Virginia Beach VA 222,673 N/A 09/03/87 300 Auburn WA 207,800 N/A 12/16/87 300 Marysville WA 197,118 N/A 08/27/87 300 Oak Harbor WA 198,569 N/A 07/16/87 300 Monroe WI 133,066 N/A 12/17/87 300 Portage WI 137,509 N/A 12/23/87 300 Shawano WI 141,732 N/A 12/17/87 300 Sturgeon Bay WI 148,043 N/A 12/01/87 300 Oak Hill WV 244,871 N/A 12/28/84 300 Riverton WY 149,298 N/A 12/01/87 300 Sheridan WY 293,222 N/A 12/31/85 300 Page 126 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== SIZZLER R. Cucamonga CA 230,733 481,225 None None San Dimas CA 240,562 445,521 None None Casselberry FL 403,900 897,075 None None Orlando FL 230,000 1,066,339 None None Orlando FL 209,800 972,679 None None Nampa ID 74,156 343,821 None None Albion MI 143,280 694,578 None 12,341 OTHER FAMILY RESTAURANTS Hazelwood MO 157,117 725,327 None None St. Charles MO 175,413 809,790 None None Laramie WY 210,000 466,417 None None HARDEE'S Colorado Sprgs CO 152,000 704,736 None None Colorado Sprgs CO 313,250 695,730 None None Security CO 150,000 695,463 None None TACO BELL Tucson AZ 107,393 497,904 None None Chino CA 26,729 51,555 None None R. Cucamonga CA 95,192 441,334 None None Orlando FL 339,500 746,333 None None Garden City GA 197,225 438,043 None None Hinesville GA 172,611 383,376 None None Savannah GA 165,409 367,379 None None Savannah GA 143,993 345,548 None None Statesboro GA 201,250 446,983 None None Boise ID 190,894 423,981 None None Boise ID 161,352 334,041 None None Anderson IN 197,523 438,707 None None Muncie IN 67,156 149,157 None None New Castle IN 246,192 320,572 None None Westfield IN 213,341 477,300 None None Page 127 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ SIZZLER R. Cucamonga CA 230,733 481,225 711,958 San Dimas CA 240,562 445,521 686,083 Casselberry FL 403,900 897,075 1,300,975 Orlando FL 230,000 1,066,339 1,296,339 Orlando FL 209,800 972,679 1,182,479 Nampa ID 74,156 343,821 417,977 Albion MI 143,280 706,919 850,199 OTHER FAMILY RESTAURANTS Hazelwood MO 157,117 725,327 882,444 St. Charles MO 175,413 809,790 985,203 Laramie WY 210,000 466,417 676,417 HARDEE'S Colorado Sprgs CO 152,000 704,736 856,736 Colorado Sprgs CO 313,250 695,730 1,008,980 Security CO 150,000 695,463 845,463 TACO BELL Tucson AZ 107,393 497,904 605,297 Chino CA 26,729 51,555 78,284 R. Cucamonga CA 95,192 441,334 536,526 Orlando FL 339,500 746,333 1,085,833 Garden City GA 197,225 438,043 635,268 Hinesville GA 172,611 383,376 555,987 Savannah GA 165,409 367,379 532,788 Savannah GA 143,993 345,548 489,541 Statesboro GA 201,250 446,983 648,233 Boise ID 190,894 423,981 614,875 Boise ID 161,352 334,041 495,393 Anderson IN 197,523 438,707 636,230 Muncie IN 67,156 149,157 216,313 New Castle IN 246,192 320,572 566,764 Westfield IN 213,341 477,300 690,641 Page 128 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== SIZZLER R. Cucamonga CA 481,225 N/A 04/03/81 180 San Dimas CA 445,521 N/A 03/12/81 180 Casselberry FL 211,068 N/A 12/29/89 300 Orlando FL 580,086 N/A 11/18/85 300 Orlando FL 496,224 N/A 08/15/86 300 Nampa ID 168,301 N/A 12/31/86 300 Albion MI 372,154 N/A 03/06/86 300 OTHER FAMILY RESTAURANTS Hazelwood MO 403,588 N/A 08/28/85 300 St. Charles MO 450,583 N/A 08/28/85 300 Laramie WY 108,426 N/A 03/12/90 300 HARDEE'S Colorado Sprgs CO 353,850 N/A 09/30/86 300 Colorado Sprgs CO 233,099 N/A 03/10/87 300 Security CO 349,194 N/A 09/30/86 300 TACO BELL Tucson AZ 267,566 N/A 01/17/86 300 Chino CA 50,883 N/A 06/23/75 300 R. Cucamonga CA 238,239 N/A 12/20/85 300 Orlando FL 227,418 N/A 02/03/88 300 Garden City GA 116,645 N/A 04/20/89 300 Hinesville GA 118,931 N/A 12/22/87 300 Savannah GA 113,969 N/A 12/22/87 300 Savannah GA 107,196 N/A 12/22/87 300 Statesboro GA 110,464 N/A 11/14/89 300 Boise ID 125,696 N/A 05/17/88 300 Boise ID 94,444 N/A 10/07/88 300 Anderson IN 128,855 N/A 03/25/88 300 Muncie IN 45,040 N/A 03/30/88 300 New Castle IN 108,372 N/A 01/07/87 300 Westfield IN 114,221 N/A 12/21/89 300 Page 129 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== TACO BELL (continued) Lexington KY 122,200 490,200 None None Wilkesboro NC 183,050 406,562 None None Corvallis OR 172,788 383,766 None None Salem OR 198,540 440,964 None None Killeen TX 262,500 583,014 None 14,398 New Braunfels TX 185,500 411,997 None None Norfolk VA 251,207 575,250 None 12,983 Grafton WI 149,778 332,664 None None WHATABURGER Dallas TX 242,025 479,170 None None Fort Worth TX 223,195 492,067 None None Ft. Worth TX 423,281 382,059 None None Houston TX 194,994 386,056 None None Houston TX 184,175 364,636 None None Porter TX 227,067 333,031 None None Sealy TX 197,871 391,754 None None Stafford TX 214,024 423,732 None None Temple TX 302,505 291,414 None None OTHER FAST FOOD RESTAURANTS Douglas AZ 75,000 347,719 None None Diamond Bar CA 76,117 183,052 None 15,000 Fullerton CA 36,296 51,020 None 14,628 Hemet CA 106,164 199,179 None None Riverside CA 90,000 170,394 None None Boulder CO 426,675 822,676 18,000 None Jacksonville FL 150,210 693,446 None None Jacksonville FL 143,299 664,373 None None Goshen IN 115,000 533,165 None None Muncie IN 136,400 632,380 None None South Bend IN 133,200 617,545 None 19,211 Wichita KS 98,000 454,350 None None Watertown NY 139,199 645,355 None None Page 130 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ TACO BELL (continued) Lexington KY 122,200 490,200 612,400 Wilkesboro NC 183,050 406,562 589,612 Corvallis OR 172,788 383,766 556,554 Salem OR 198,540 440,964 639,504 Killeen TX 262,500 597,412 859,912 New Braunfels TX 185,500 411,997 597,497 Norfolk VA 251,207 588,233 839,440 Grafton WI 149,778 332,664 482,442 WHATABURGER Dallas TX 242,025 479,170 721,195 Fort Worth TX 223,195 492,067 715,262 Ft. Worth TX 423,281 382,059 805,340 Houston TX 194,994 386,056 581,050 Houston TX 184,175 364,636 548,811 Porter TX 227,067 333,031 560,098 Sealy TX 197,871 391,754 589,625 Stafford TX 214,024 423,732 637,756 Temple TX 302,505 291,414 593,919 OTHER FAST FOOD RESTAURANTS Douglas AZ 75,000 347,719 422,719 Diamond Bar CA 76,117 198,052 274,169 Fullerton CA 36,296 65,648 101,944 Hemet CA 106,164 199,179 305,343 Riverside CA 90,000 170,394 260,394 Boulder CO 426,675 840,676 1,267,351 Jacksonville FL 150,210 693,446 843,656 Jacksonville FL 143,299 664,373 807,672 Goshen IN 115,000 533,165 648,165 Muncie IN 136,400 632,380 768,780 South Bend IN 133,200 636,756 769,956 Wichita KS 98,000 454,350 552,350 Watertown NY 139,199 645,355 784,554 Page 131 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== TACO BELL (continued) Lexington KY 241,849 N/A 12/03/86 300 Wilkesboro NC 131,727 N/A 07/24/87 300 Corvallis OR 119,052 N/A 12/22/87 300 Salem OR 113,324 N/A 05/23/89 300 Killeen TX 193,394 N/A 05/29/87 300 New Braunfels TX 138,035 N/A 03/26/87 300 Norfolk VA 185,374 N/A 10/15/87 300 Grafton WI 105,032 N/A 10/29/87 300 WHATABURGER Dallas TX 93,591 N/A 06/25/91 300 Fort Worth TX 105,022 N/A 06/26/91 300 Ft. Worth TX 28,654 N/A 02/10/95 300 Houston TX 75,404 N/A 06/25/91 300 Houston TX 71,220 N/A 06/25/91 300 Porter TX 24,977 N/A 02/09/95 300 Sealy TX 76,517 N/A 06/25/91 300 Stafford TX 82,763 N/A 06/26/91 300 Temple TX 21,856 N/A 02/09/95 300 OTHER FAST FOOD RESTAURANTS Douglas AZ 189,159 N/A 11/27/85 300 Diamond Bar CA 165,147 N/A 09/25/78 300 Fullerton CA 54,921 N/A 11/08/72 234 Hemet CA 180,317 N/A 04/15/77 300 Riverside CA 156,410 N/A 12/09/76 300 Boulder CO 724,547 N/A 01/05/84 180 Jacksonville FL 385,611 N/A 09/13/85 300 Jacksonville FL 361,189 N/A 12/13/85 300 Goshen IN 274,235 N/A 07/07/86 300 Muncie IN 333,431 N/A 03/18/86 300 South Bend IN 329,906 N/A 04/28/86 300 Wichita KS 231,791 N/A 08/08/86 300 Watertown NY 326,745 N/A 08/18/86 300 Page 132 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition -------------------------- ------------------ Buildings, Improvements and Description Acquisition Improve- Carrying (Note 1) Land ($) Fees ($) ments Costs ================= ============ ============ ======== ======== OTHER FAST FOOD RESTAURANTS (continued) Lexington SC 165,774 392,619 None None West Columbia SC 147,735 328,123 None None Ennis TX 173,250 384,793 None None OTHER PROPERTIES Mesa AZ 271,754 1,259,910 27,961 None Phoenix AZ 113,658 558,122 None None Phoenix AZ 322,708 1,496,143 189,456 10,462 Chino CA 53,271 102,748 None None Escondido CA 332,500 904,690 164,176 61,140 Fresno CA 428,900 3,434,562 None None Paramount CA 86,400 278,827 None None San Diego CA 3,745,000 8,772,525 None 112,826 San Diego CA 2,485,160 8,595,722 None 102,100 San Diego CA 5,797,411 15,301,354 None 172,143 Humble TX 106,000 545,518 None None Chesapeake VA 144,014 649,869 None 11,754 None 398,230 None 28,079 165,597,878 397,753,925 494,593 693,597 Page 133 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) ---------------------------------------- Buildings, Improvements and Description Acquisition (Note 1) Land ($) Fees ($) Total ================= ============ ============ ============ OTHER FAST FOOD RESTAURANTS (continued) Lexington SC 165,774 392,619 558,393 West Columbia SC 147,735 328,123 475,858 Ennis TX 173,250 384,793 558,043 OTHER PROPERTIES Mesa AZ 271,754 1,287,871 1,559,625 Phoenix AZ 113,658 558,122 671,780 Phoenix AZ 322,708 1,696,061 2,018,769 Chino CA 53,271 102,748 156,019 Escondido CA 332,500 1,130,006 1,462,506 Fresno CA 428,900 3,434,562 3,863,462 Paramount CA 86,400 278,827 365,227 San Diego CA 3,745,000 8,885,351 12,630,351 San Diego CA 2,485,160 8,697,822 11,182,982 San Diego CA 5,797,411 15,473,497 21,270,908 Humble TX 106,000 545,518 651,518 Chesapeake VA 144,014 661,623 805,637 None 426,309 426,309 165,597,878 398,942,115 564,539,993 Page 134 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which De- preciation in latest Income Statement Accumulated Date of is Com- Description Depreciation Constr- Date uted (in (Note 1) (Note 4) ($) uction Acquired Months) ================= ============ ======== ========== ========== OTHER FAST FOOD RESTAURANTS (continued) Lexington SC 114,240 N/A 07/06/88 300 West Columbia SC 100,888 N/A 01/13/88 300 Ennis TX 119,371 N/A 12/28/87 300 OTHER PROPERTIES Mesa AZ 649,468 N/A 06/30/86 300 Phoenix AZ 403,936 N/A 01/30/86 300 Phoenix AZ 781,977 N/A 06/30/86 300 Chino CA 101,409 N/A 01/07/75 300 Escondido CA 342,687 N/A 01/11/84 300 Fresno CA 3,255,811 N/A 10/29/82 180 Paramount CA 243,993 N/A 11/22/83 180 San Diego CA 4,505,936 03/08/86 03/25/86 300 San Diego CA 2,809,567 01/23/89 09/19/86 300 San Diego CA 4,580,428 01/20/89 08/05/87 300 Humble TX 398,423 N/A 03/25/86 300 Chesapeake VA 331,825 N/A 12/22/86 300 255,122 N/A Various Various 138,307,408 Page 135 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Note 1. Seven hundred thirty seven of the properties are single unit retail outlets. The Trade Center, Silverton Business Center and Empire Business Center properties are multi-tenant commercial properties. All properties were acquired on an all cash basis except one; no encumbrances were outstanding for the periods presented. Note 2. The aggregate cost for federal income tax purposes is $499,387,310. Note 3. Reconciliation of total real estate carrying value for the three years ended December 31, 1996 are as follows: 1996 1995 1994 ============ ============ ============ Balance at Beginning of Period $515,425,560 $450,703,481 $451,738,008 Additions During Period: Acquisitions 55,667,447 65,392,559 3,285,413 Equipment 35,000 0 0 Improvements, Etc. 60,303 447,720 83,571 Other (Leasing Costs) 0 50,138 115,977 ------------ ------------ ------------ Total Additions 55,762,750 65,890,417 3,484,961 ------------ ------------ ------------ Deductions During Period: Cost of Real Estate Sold 6,054,250 1,162,098 4,326,985 Cost of Equipment Sold 0 0 1,500 Other (Fully Amortized Commissions) 15,067 6,240 56,003 Other (Provision for Impairment Losses) 579,000 0 135,000 ------------ ------------ ------------ Total Deductions 6,648,317 1,168,338 4,519,488 ------------ ------------ ------------ Balance at Close of Period $564,539,993 $515,425,560 $450,703,481 ============ ============ ============ Page 136 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Note 4. Reconciliation of accumulated depreciation for the three years ended December 31, 1996 are as follows: 1996 1995 1994 ============ ============ ============ Balance at Beginning of Period $126,062,055 $112,168,982 $100,133,571 Additions During Period - Provision for Depreciation 15,364,936 14,462,491 13,788,354 Deductions During Period: Accumulated Depreciation of Real Estate Sold 3,104,516 563,178 1,696,940 Other (Fully Amortized Commissions) 15,067 6,240 56,003 ------------ ------------ ------------ Balance at Close of Period $138,307,408 $126,062,055 $112,168,982 ============ ============ ============ Note 5. A provision for impairment loss was made on the Automall in Mesa, AZ in 1994 and on the Automall in Phoenix, AZ; the Automall in Glendale, AZ; the Stone Meadow Center in Spring, TX and the Lizard's Thicket in Lexington, SC in 1996. Page 137 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - --------------------------------------------------------- The corporation has had no disagreements with its independent auditors' on accountancy or financial disclosure. PART III ======== ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information set forth under the captions Director Nominees and Officers Of The Company in the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on May 13, 1997, to be filed pursuant to Regulation 14A. ITEM 11: EXECUTIVE COMPENSATION - -------------------------------- The information set forth under the caption Executive Compensation in the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on May 13, 1997, to be filed pursuant to Regulation 14A. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------- The information set forth under the caption Security Ownership Of Certain Beneficial Owners And Management in the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on May 13, 1997, to be filed pursuant to Regulation 14A. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Not applicable. Page 138 PART IV ======= ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ---------------------------------------------------------------- A. The following documents are filed as part of this report. 1. Financial Statements (see Item 8) a. Independent Auditors' Report b. Consolidated Balance Sheets, December 31, 1996 and 1995 c. Consolidated Statements of Income, Years ended December 31, 1996, 1995 and 1994 d. Consolidated Statements of Stockholders' Equity, Years ended December 31, 1996, 1995 and 1994 e. Consolidated Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994 f. Notes to Consolidated Financial Statements g. Consolidated Quarterly Financial Data (unaudited) for 1996 and 1995 2. Financial Statement Schedule (see Item 8) Schedule III - Real Estate and Accumulated Depreciation Schedules not Filed: All schedules, other than those indicated in the Table of Contents, have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 3. Exhibits 2.1 Agreement and Plan of Merger between Realty Income Corporation and R.I.C. Advisor, Inc. dated as of April 28, 1995 (incorporated by reference to Appendix A to the Company's definitive Proxy Statement filed June 30, 1995) Page 139 3.1 Amended and Restated Certificate of Incorporation of Realty Income Corporation (filed as Exhibit 3.1 to the Company's 10-Q for the quarter ended September 30, 1994 and incorporated herein by reference) 3.2 Amended and Restated Bylaws of Realty Income Corporation (filed as Exhibit 3.2 to the Company's 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference) 4.1 Form of Stock Certificate (filed as Exhibit 4.04 to the Company's Registration Statement on S-4 (Registration Statement No. 33-69410) and incorporated herein by reference) 4.2 Form of Indenture (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-3 (Registration No. 33-95374) and incorporated herein by reference) 4.3 Form of Debt Security (filed and included as Exhibit 4.3 to the Company's Registration Statement on Form S-3 (Registration No. 33-95374) and incorporated herein by reference) 10.1 Revolving Credit Agreement (filed as Exhibit 99.2 to the Company's 8-K dated December 16, 1994 and incorporated herein by reference) 10.2 First Amendment to the Revolving Credit Agreement (filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference) 10.3 Second Amendment to the Revolving Credit Agreement (filed as Exhibit 99.2 to the Company's Form 8-K dated December 19, 1995 and incorporated herein by reference) 10.4 Third Amendment to the Revolving Credit Agreement, filed herewith 10.5 Stock Incentive Plan (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration No. 33-95708) and incorporated by reference) Page 140 10.6 Form of Indemnification Agreement to be entered into between the Company and the executive officers of the Company (filed as Exhibit 10.4 to the Company's Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference) 10.7 Form of Management Incentive Plan (filed as Exhibit 10.5 to the Company's Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference) 21.1 Subsidiaries of the Company as of January 1, 1997, filed herewith 24.1 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule (electronically filed with the Securities and Exchange Commission only) B. No report on Form 8-K was filed by registrant during the last quarter of the period covered by this report. Page 141 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/WILLIAM E. CLARK ----------------------------------------------------------- William E. Clark Chairman and Chief Executive Officer Date: March 21, 1997 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 and Chief Executive Officer (Principal Executive Officer) Date: March 21, 1997 By: /s/THOMAS A. LEWIS ----------------------------------------------------------- Thomas A. Lewis Vice Chairman of the Board of Directors and Vice President, Capital Markets Date: March 24, 1997 Page 142 SIGNATURES (continued) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/DONALD R. CAMERON ----------------------------------------------------------- Donald R. Cameron Director Date: March 19, 1997 By: /s/ROGER P. KUPPINGER ----------------------------------------------------------- Roger P. Kuppinger Director Date: March 19, 1997 By: /s/MICHAEL D. MCKEE ----------------------------------------------------------- Michael D. McKee Director Date: March 19, 1997 By: /s/WILLARD H. SMITH JR ----------------------------------------------------------- Willard H. Smith Jr Director Date: March 19, 1997 By: /s/RICHARD J. VANDERHOFF ----------------------------------------------------------- Richard J. VanDerhoff Director, President and Chief Operating Officer Date: March 25, 1997 Page 143 SIGNATURES (continued) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/GARY MALINO ----------------------------------------------------------- Gary Malino Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: March 25, 1997 By: /s/GREGORY J. FAHEY ----------------------------------------------------------- Gregory J. Fahey Controller Date: March 25, 1997 Page 144 EXHIBIT INDEX ============= Exhibit No. Description Page - ----------- ----------- ---- 10.4 Third Amendment to the Revolving Credit Agreement..............................146 21.1 Subsidiaries of the Company as of January 1, 1997...............................152 24.1 Consent of KPMG Peat Marwick LLP..............153 27 Financial Data Schedule (electronically filed with the Securities and Exchange Commission only)..............................154 Page 145 EX-10 2 Exhibit 10.4 ============ THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT -------------------------- THIS THIRD AMENDMENT TO THE REVOLVING CREDIT AGREEMENT ("Amendment") is made as of March 7, 1997, among Realty Income Corporation, a Delaware corporation (the "Company"), each of the banks identified on the signature pages hereof (each a "Bank" and, collectively, the "Banks") and The Bank of New York, as Agent and Swing Line Bank. W I T N E S S E T H - - - - - - - - - - WHEREAS, the Company, the Banks, the Agent and the Swing Line Bank entered into the Revolving Credit Agreement, dated as of November 29, 1994, as amended by the First Amendment to the Revolving Credit Agreement, dated January 26, 1995 and the Second Amendment to the Revolving Credit Agreement, dated December 4, 1995 (the "Credit Agreement"); and WHEREAS, the signatories hereto desire to amend the Credit Agreement as set forth herein; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements contained herein and in the Credit Agreement, the parties hereto agree that the Credit Agreement is hereby amended as set forth herein: 1. Capitalized terms used herein which are not otherwise defined herein but are defined in the Credit Agreement shall have the meanings given to such terms in the Credit Agreement. 2. The following definitions in Section 1.01 of the Credit Agreement are amended in their entirety to read as follows: "APPLICABLE MARGIN" shall mean the margin set forth in the following chart applicable to the Pricing Level then in effect: Page 146 Applicable Applicable Pricing Level LIBOR Margin ABR Margin --------------------------------------------- I 0.750% 0.000% II 0.875% 0.000% III 1.000% 0.000% IV 1.125% 0.000% V 1.250% 0.000% VI 1.500% 0.250% "Pricing Level I" shall be applicable for so long as the Company's Debt Rating is better than or equal to A/A2; "Pricing Level II" shall be applicable for so long as the Company's Debt Rating is lower than A/A2 but better than or equal to A-/A3; "Pricing Level III" shall be applicable for so long as the Company's Debt Rating is lower than A-/A3 but better than or equal to BBB+/Baa1; "Pricing Level IV" shall be applicable for so long as the Company's Debt Rating is lower than BBB+/Baa1 but better than or equal to BBB/Baa2; "Pricing Level V" shall be applicable for so long as the Company's Debt Rating is lower than BBB/Baa2 but better than or equal to BBB-/Baa3; and "Pricing Level VI" shall be applicable for so long as the Company's Debt Rating is lower than BBB-/Baa3. Changes in the applicable Pricing Level shall be effective as of the first day of the calendar quarter following the receipt by the Agent of a letter or letters from the applicable Rating Agencies evidencing a change in the Company's Debt Rating. "COMMITMENT FEE RATE" with respect to any Commitment Fee payment shall mean the commitment fee rate set forth in the following chart applicable to the Pricing Level (determined as set forth under "Applicable Margin" above including the receipt by the Agent of a letter or letters evidencing the Company's Debt Rating) in effect on the date on which such Commitment Fee payment is due: Pricing Level Commitment Fee --------------------------------------------- I 0.150% II 0.150% III 0.150% IV 0.150% V 0.150% VI 0.250% "KEY MANAGEMENT" shall mean William E. Clark, Thomas A. Lewis, Richard J. VanDerhoff, Gary M. Malino, Michael R. Pfeiffer and Richard G. Collins. Page 147 "TERMINATION DATE" shall mean, with respect to any Bank, the earliest to occur of (i) November 27, 1999 or such later date as may be agreed to by such Bank pursuant to SECTION 11.12, (ii) the date on which the obligations of the Banks to make loans hereunder shall terminate pursuant to SECTION 8.01 or the Commitments shall be reduced to zero pursuant to SECTION 2.05, and (iii) the date specified as such Bank's Termination Date pursuant to SECTION 11.12, or, if in any case (other than clause (ii) above) such day is not a Business Day, the next succeeding Business Day; in all cases, subject to the provisions of SECTION 11.12 (d). 3. Section 1.01 is hereby further amended to add the following definitions: "DEBT RATING" shall mean the highest rating published by at least two of the three Rating Agencies with respect to the senior unsecured debt of the Company, PROVIDED, that if no two Rating Agencies have published the same rating with respect to the Company's senior unsecured debt, the Debt Rating shall be the rating that is at the middle of the three published ratings. "RATING AGENCY" shall mean Moody's Investors Service, Inc., Standard & Poors, a division of the McGraw Hill Companies, Inc., or Duff & Phelps Credit Rating Co. 4. Section 7.01(b) is hereby amended by replacing the word "and" immediately prior to clause (iv) of the first sentence with a comma, and inserting the following clause after clause (iv) of the first sentence: "and (v) promptly, and in any event not later than five days after the end of the calendar quarter in which the Company receives notice of a change in the rating published by any of the Rating Agencies with respect to the Company's senior unsecured debt." 5. Section 7.02(c) of the Credit Agreement is hereby amended by restating clause (ii) thereof as follows: "(ii) enter into any merger or consolidation, or permit any Subsidiary to do so, other than (a) a merger or consolidation of a Wholly owned Subsidiary with one or more other Wholly owned Subsidiaries or into the Company, (b) a merger or consolidation of a Subsidiary or the Company with an entity for the purpose of controlling the property of that entity in the ordinary course of the Company's business, provided that the aggregate purchase price paid by the Company in all transactions under this clause (b) and clause (i)(b) above shall not exceed $10,000,000, or (c) a Page 148 merger of the Company into another corporation primarily for the purpose of changing the jurisdiction of incorporation of the Company, provided that the surviving entity shall assume all obligations of the Company hereunder;" 6. Section 11.12(a) of the Credit Agreement is restated hereby as follows: "(a) No later than February 28, 1998, the Company may, at its option, request all the Banks then party to this Agreement to extend their scheduled Termination Dates by one calendar year by means of a letter, addressed to each such Bank and the Agent. Each Bank electing (in its sole discretion) so to extend its scheduled Termination Date shall execute and deliver within forty-five (45) days following such request counterparts of such letter to the Company and the Agent, whereupon (unless Banks with an aggregate percentage of the Total Commitment in excess of 25% decline to extend their respective scheduled Termination Dates, in which event the Agent shall notify all the Banks thereof), such Bank's scheduled Termination Date shall be extended to the anniversary date of the year immediately succeeding such Bank's then-current scheduled Termination Date. If no such election is received within such forty- five day period from any Bank, such Bank shall be deemed to have elected not to extend its scheduled Termination Date." 7. The Company agrees to pay on demand all reasonable costs and expenses of the Agent (including all reasonable fees and expenses of counsel to the Agent) in connection with the preparation and execution of this Amendment. 8. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA. 9. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 10. The Credit Agreement, as amended hereby, shall be binding upon the Company, the Banks, the Agent and the Swing Line Bank and their respective successors and assigns, and shall inure to the benefit of the Company, the Banks, the Agent, the Swing Line Bank and their respective successors and assigns. 11. Except as expressly provided in this Amendment, all of the terms, covenants, conditions, restrictions and other provisions contained in the Credit Agreement shall remain in full force and effect. Page 149 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. REALTY INCOME CORPORATION By: /s/MICHAEL R. PFEIFFER Name: Michael R. Pfeiffer Title: Vice President, General Counsel and Secretary THE BANK OF NEW YORK as Agent for the Banks By: /s/LISA Y. BROWN Name: Lisa Y. Brown Title: Vice President THE BANK OF NEW YORK as a Bank and as the Swing Line Bank By: /s/LISA Y. BROWN Name: Lisa Y. Brown Title: Vice President SANWA BANK CALIFORNIA By: /s/JOHN LINDER Name: John Linder Title: Vice President SIGNET BANK VIRGINIA By: /s/ERIC A. LAWRENCE Name: Eric A. Lawrence Title: Senior Vice President Page 150 BANK HAPAOLIM, B.M., SAN FRANCISCO BRANCH By: /s/PAUL WATSON Name: Paul Watson Title: Vice President By: /s/JOHN RICE Name: John Rice Title: Vice President DRESDNER BANK, A.G., NEW YORK BRANCH AND GRAND CAYMAN BRANCH By: /s/CHRISTOPHER E. SARISKY Name: Christopher E. Sarisky Title: Assistant Treasurer By: /s/THOMAS J. NADRAMIA Name: Thomas J. Nadramia Title: Vice President WELLS FARGO BANK By: /s/CHERYL SALGADO Name: Cheryl Salgado Title: Vice President Page 151 EX-21 3 Exhibit 21.1 ============ Subsidiaries of the Company as of January 1, 1997 - ------------------------------------------------- Realty Income Texas Properties, L.P., a Delaware limited partnership Realty Income Texas Properties, Inc., a Delaware corporation Page 152 EX-24 4 Exhibit 24.1 ============ The Board of Directors Realty Income Corporation: We consent to incorporation by reference in Amendment No. 1 to the Registration Statement No. 33-95374 on Form S-3 of Realty Income Corporation and to incorporation by reference in Registration Statement No. 33-95708 on Form S-8 of Realty Income Corporation, of our report relating to the consolidated balance sheets of Realty Income Corporation as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, and the related Schedule III. Such report is dated January 24, 1997, except as to paragraph two of Note 11, which is as of February 24, 1997, and appears in the December 31, 1996 annual report on Form 10-K of Realty Income Corporation. /s/KPMG PEAT MARWICK LLP San Diego, California March 25, 1997 Page 153 EX-27 5
5 This Schedule contains summary financial information extracted from the registrant's Balance Sheet as of December 31, 1996 and Income Statement for the nine months ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1 12-MOS DEC-31-1996 DEC-31-1996 1,559,000 0 2,288,000 0 0 0 564,540,000 138,307,000 454,097,000 0 71,782,000 22,980,000 0 0 351,261,000 454,097,000 0 56,957,000 0 0 23,143,000 679,000 2,367,000 32,223,000 0 32,223,000 0 0 0 32,223,000 1.40 1.40 F1 Current assets and current liabilities are not applicable to the Company under current industry standards. Page 154
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