-----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, Puss2819B6622UoSgQJzoOPMv6lNiNcE4mvK8pRXzCkL3UoNu5ZcviyQqd18wCxo P+b0zCcw05RTBWRtoJP8Yw== 0000726728-03-000013.txt : 20030305 0000726728-03-000013.hdr.sgml : 20030305 20030304185501 ACCESSION NUMBER: 0000726728-03-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030305 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: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13374 FILM NUMBER: 03592154 BUSINESS ADDRESS: STREET 1: 220 W CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025-1707 BUSINESS PHONE: 7607412111 MAIL ADDRESS: STREET 1: 220 WEST CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025-1707 10-K 1 form10k2002.txt 2002 FORM 10-K 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, 2002 Commission File Number 1-13374 REALTY INCOME CORPORATION (Exact name of registrant as specified in its charter) Maryland 33-0580106 - ----------------------------------------- -------------------------------------- (State or other jurisdiction of (IRS Employer Incorporation or organization) Identification Number) 220 West Crest Street, Escondido, California 92025 (Address of principal executive offices) Registrant's telephone number, including area code: (760)741-2111 Securities registered pursuant to Section 12 (b) of the Act: Name of Each Exchange Title of Each Class On Which Registered - ------------------------------------------- -------------------------------- Common Stock, $1.00 Par Value New York Stock Exchange Preferred Stock Purchase Rights Class B Preferred Stock, $1.00 Par Value New York Stock Exchange Class C Preferred Stock, $1.00 Par Value New York Stock Exchange 8.25% Monthly Income Senior Notes, due 2008 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 ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ X ] No [ ] At June 28, 2002, the aggregate market value of the Registrant's shares of common stock, $1.00 par value, held by non-affiliates of the Registrant was $1.2 billion, at the New York Stock Exchange ("NYSE") closing price of $36.92. 1 At March 1, 2003, the number of common shares outstanding was 34,963,664, the number of Class B preferred shares outstanding was 2,745,700, the number of Class C preferred shares outstanding was 1,380,000 and the number of Monthly Income Senior Notes, due 2008 outstanding was 4,000,000. Documents incorporated by reference: Part III, Item 10, 11 and 12 incorporate by reference certain specific portions of the definitive proxy statement for Realty Income Corporation's Annual Meeting to be held on May 6, 2003, to be filed pursuant to Regulation 14A. Only those portions of the proxy statement which are specifically incorporated by reference herein shall constitute a part of this Annual Report. FORWARD-LOOKING STATEMENTS - -------------------------- This annual report on Form 10-K, including documents incorporated by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this annual report, the words estimated, anticipated and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things: o Our anticipated growth strategies; o Our intention to acquire additional properties; o Our intention to sell properties; o Our intention to re-lease vacant properties; o Anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single-tenant retail properties; o Future expenditures for development projects; and o Profitability of our subsidiary, Crest Net Lease, Inc. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. In particular, some of the factors that could cause actual results to differ materially are: o Our continued qualification as a real estate investment trust; o General business and economic conditions; o Competition; o Interest rates; o Accessibility of debt and equity capital markets; o Other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters and illiquidity of real estate investments; o Changes in the tax laws of the United States of America; and o Acts of terrorism and war. Additional factors that may cause risks and uncertainties include those discussed in the sections entitled "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this annual report. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that this annual report was filed with the Securities and Exchange Commission. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this annual report might not occur. 2 REALTY INCOME CORPORATION Index to Form 10-K --------------------------
Page PART I Item 1: Business............................................................................................. 4 Item 2: Properties........................................................................................... 21 Item 3: Legal Proceedings.................................................................................... 21 Item 4: Submission of Matters to a Vote of Security Holders.................................................. 21 PART II Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters............................ 21 Item 6: Selected Financial Data.............................................................................. 22 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations................ 23 Item 7A: Quantitative and Qualitative Disclosures about Market Risk........................................... 37 Item 8: Financial Statements and Supplementary Data.......................................................... 38 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 58 PART III Item 10: Directors and Executive Officers of the Registrant................................................... 58 Item 11: Executive Compensation............................................................................... 58 Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...................................................................... 58 Item 13: Certain Relationships and Related Transactions....................................................... 58 PART IV Item 14: Controls and Procedures................................................................................. 59 Item 15: Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................... 59 SIGNATURES........................................................................................................... 62 OFFICER CERTIFICATES................................................................................................. 64 EXHIBIT INDEX........................................................................................................ 66
3 PART I ITEM 1: BUSINESS -------- THE COMPANY Realty Income Corporation, The Monthly Dividend Company (R), a Maryland corporation ("Realty Income," the "Company," "our" or "we") was organized to operate as an equity real estate investment trust ("REIT"). The Company's primary business objective is to generate dependable monthly cash distributions from a consistent and predictable level of funds from operations ("FFO") per share. Over the past 33 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term (primarily 15 to 20 year) lease agreements. The monthly distributions are supported by the cash flow from our portfolio of retail properties leased to regional and national retail chains. We are a fully integrated, self-administered real estate company with in-house acquisition, leasing, legal, retail and real estate research, portfolio management and capital markets expertise. We seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. Our portfolio management focus includes: o Contractual rent increases on existing leases; o Rent increases at the termination of existing leases when market conditions permit; and o The active management of our property portfolio, including re-leasing of vacant properties and selective sales of properties. Our acquisition of additional properties adheres to a focused strategy of primarily acquiring properties that are: o Freestanding, single-tenant, retail locations; o Leased to regional and national retail chains; and o Under long-term, net-lease agreements. At December 31, 2002, we owned a diversified portfolio: o Of 1,197 retail properties; o With an occupancy rate of 97.7%, or 1,170 properties occupied of the 1,197 properties in the portfolio; o Leased to 79 different retail chains; o Doing business in 25 separate retail industries; o Located in 48 states; o With approximately 10 million square feet of leasable space; and o With an average leasable retail space of 8,400 square feet. Of the 1,197 properties in the portfolio, 1,192, or 99.6%, are single-tenant retail properties with the remaining five being multi-tenant properties. At December 31, 2002, 1,165, or 97.7%, of the 1,192 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 10.9 years. In addition to our real estate portfolio, at December 31, 2002, our taxable REIT subsidiary, Crest Net Lease, Inc. ("Crest Net"), had invested $4.6 million in a portfolio of four retail properties located in three states. These properties are held for sale. We typically acquire retail store locations under long-term leases with retail chain store operators. This provides capital to the operators for continued expansion and other corporate purposes. Our acquisition and investment activities are concentrated in well-defined target markets and generally focus on middle-market retailers providing goods and services that satisfy basic consumer needs. 4 Our net-lease agreements generally: o Are for initial terms of 15 to 20 years; o Require the tenant to pay minimum monthly rents and property operating expenses (taxes, insurance and maintenance); and o Provide for future rent increases (typically subject to ceilings) based on increases in the consumer price index, fixed increases, or additional rent calculated as a percentage of the tenants' gross sales above a specified level. Realty Income commenced operations as a REIT on August 15, 1994 through the merger of 25 public and private real estate limited partnerships with and into the Company. Each of the partnerships was formed between 1970 and 1989 for the purpose of acquiring and managing long-term, net-leased properties. The six senior officers of the Company owned 1.0% of the Company's outstanding common stock with a market value of $11.9 million at March 1, 2003. The directors and six senior officers of the Company, as a group, owned 2.6% of the Company's outstanding common stock with a market value of $31.8 million at March 1, 2003. Realty Income's common stock is listed on The New York Stock Exchange ("NYSE") under the ticker symbol "O." Our central index key ("CIK") number is 726728 and cusip number is 756109-104. Realty Income's Class B cumulative redeemable preferred stock is listed on the NYSE under the ticker symbol "OprB" and its cusip number is 756109-302. Realty Income's Class C cumulative redeemable preferred stock is listed on the NYSE under the ticker symbol "OprC" and its cusip number is 756109-500. Realty Income's 8.25% Monthly Income Senior Notes, due 2008 are listed on the NYSE under the ticker symbol "OUI". The cusip number of these notes is 756109-203. Realty Income had 56 employees as of March 1, 2003. We maintain an Internet website at www.realtyincome.com. On our website we make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file these reports with the Securities and Exchange Commission ("SEC"). RECENT DEVELOPMENTS ISSUANCE OF COMMON STOCK. In July 2002, we issued 1,550,000 shares of common stock at a price of $33.40 per share. The net proceeds of $48.9 million were used to repay a portion of our $200 million acquisition credit facility. In February 2002, we issued 273,150 shares of common stock to a unit investment trust at a net price to us of $30.26 per share, based on a 5% discount to the market price at the time of issuance of $31.85 per share. The net proceeds of $8.2 million were used to repay a portion of our $200 million acquisition credit facility. NEW $250 MILLION BANK CREDIT FACILITY. In October 2002, we entered into a new $250 million credit facility to replace our existing $200 million acquisition credit facility and our $25 million credit facility, each of which was scheduled to expire in 2003. Under the terms of the new credit facility, total funds available were increased by $25 million. Concurrent with the closing of the new facility, our previous credit facilities were canceled. 5 The borrowing rate on the new credit facility was reduced compared to the previous credit facilities. Realty Income's current investment grade credit ratings provide for financing at LIBOR (London Interbank Offered Rate) plus 90 basis points with a facility fee of 20 basis points, for all-in drawn pricing of 110 basis points over LIBOR as compared to an all-in pricing of 145 basis points on our previous credit facilities. The term of the new facility extends through October 2005. The co-lead Arranger and sole Administrative Agent for the credit facility is Wells Fargo Bank, N.A., with The Bank of New York acting as co-lead Arranger and sole Documentation Agent. They are joined by the Bank of America, N.A. and Wachovia Bank, National Association as co-Syndication Agents. Five other banks are also participants in providing the credit line: AmSouth Bank, Bank of Montreal, U.S. Bank National Association, BANK ONE, NA and Chevy Chase Bank, FSB. UNIVERSAL SHELF REGISTRATION OF $500 MILLION. In December 2002, we filed a universal shelf registration statement with the SEC covering up to $500 million in value of common stock, preferred stock and debt securities. This registration statement was declared effective by the SEC in January 2003. Through March 1, 2003, we have not issued any securities under the universal shelf registration statement. PROPERTY ACQUISITIONS. In 2002, we acquired 108 properties (the "New Properties") located in 24 states. In 2002, we invested $133.3 million in the New Properties and properties under development, excluding estimated unfunded development costs at December 31, 2002 of $9.3 million and investments by Crest Net. The initial weighted average annual unleveraged return on the $133.3 million invested in 2002 is estimated to be 10.4%, computed as estimated contractual net operating income (which in the case of a net-leased property is equal to the base rent or, in the case of properties under construction, the estimated base rent under the lease) for the first year of each lease, divided by the estimated total costs. Since it is possible that a tenant could default on the payment of contractual rent, we cannot assure you that the actual return on the funds invested will remain at the percentage listed above. The New Properties are expected to contain approximately 719,800 leasable square feet and are 100% leased under net leases, with an average initial lease term of 19.8 years. As of December 31, 2002, six of the New Properties were leased and under construction, pursuant to contracts under which the tenants agreed to develop the properties (with development costs funded by Realty Income) and with rent scheduled to begin in 2003. FUNDS FROM OPERATIONS (FFO). In 2002, our FFO increased by $17.3 million, or 22.2%, to $95.1 million versus $77.8 million in 2001. See our discussion of FFO in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this annual report, which includes a reconciliation of net income available to common stockholders to FFO. In 2002, Crest Net generated $2.7 million in FFO for Realty Income. The future contribution, if any, to our FFO by Crest Net will depend on the timing and the number of property sales it achieves, if any, in a given year. CREST NET. We created Crest Net in January 2000 to buy, own and sell properties, primarily to buyers using tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). Realty Income owns 100% of Crest Net's stock. The financial statements of Crest Net are consolidated into Realty Income's financial statements. All material intercompany transactions have been eliminated in consolidation. In 2002, Crest Net invested $6.1 million in three retail properties and properties under development. These three new properties are expected to contain approximately 13,200 leasable square feet, are 100% leased and have initial lease terms averaging 18.4 years. Two of these properties were sold in 2002. 6 In 2002, Crest Net sold 23 properties for $27.3 million and Realty Income recorded a gain of $3.5 million, before income taxes. At the end of 2002, Crest Net carried an inventory of $4.6 million, which is included on Realty Income's consolidated balance sheet in real estate held for sale, net. SALES OF INVESTMENT PROPERTIES. In 2002, we sold or exchanged 35 properties for a total of $20.2 million and recognized a gain of $6.3 million. Of this gain, $6.0 million is included in income from discontinued operations. We have an active portfolio management program that incorporates the sale of assets when we believe the reinvestment of the sale proceeds will generate higher returns, enhance the credit quality of our real estate portfolio or extend our average remaining lease term. At December 31, 2002, we classified real estate with a carrying amount of $6.5 million as held for sale, which includes $4.6 million in properties owned by Crest Net. Additionally, we anticipate selling properties from our portfolio that have not yet been specifically identified. We anticipate we will receive between $15 million and $30 million in proceeds from the sale of properties during the next 12 months. We intend to invest these proceeds into new property acquisitions. INCREASES IN MONTHLY DISTRIBUTIONS TO COMMON STOCKHOLDERS. We continue our 33-year policy of paying distributions monthly. In the past 12 months, we increased monthly distributions per share by $0.00125 on four separate occasions. In April 2002 the increase per share was to $0.19125, in July 2002 to $0.1925, in October 2002 to $0.19375 and in January 2003 to $0.195. The increase in January 2003 was our 21st consecutive quarterly increase and 23rd increase in the amount of our dividend since the Company's listing on the NYSE in 1994. In 2002, we paid 12 monthly cash distributions per share; three in the amount of $0.19, three in the amount of $0.19125, three in the amount of $0.1925, and three in the amount of $0.19375, totaling $2.3025 per share. In December 2002, January 2003 and February 2003, we declared distributions of $0.195 per share, which were paid on January 15, 2003, and February 18, 2003, and will be paid on March 17, 2003, respectively. The monthly distribution of $0.195 per share represents a current annualized distribution of $2.34 per share, and an annualized distribution yield of approximately 6.8% based on the last reported sale price of the Company's Common Stock on the NYSE of $34.66 on March 1, 2003. Although we expect to continue our policy of paying monthly distributions, we cannot guarantee that we will maintain the current level of distributions, that we will continue our pattern of increasing distributions per share, or what the actual distribution yield will be for any future period. DISTRIBUTION POLICY Distributions are paid to our common stockholders and Class C Preferred stockholders on a monthly basis and are paid to our Class B Preferred stockholders on a quarterly basis if, as and when declared by our Board of Directors. The Class B Preferred stockholders receive cumulative distributions at a rate of 9.375% per annum on the $25 per share liquidation preference (equivalent to $2.34375 per annum per share). The Class C Preferred stockholders receive cumulative distributions at a rate of 9.5% per annum on the $25 per share liquidation preference (equivalent to $2.375 per annum per share). In order to maintain our tax status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains) and we are subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including net capital gains). In 2002, our distributions totaled approximately 106.9% of our estimated REIT taxable income. Our estimated REIT taxable income reflects non-cash deductions for depreciation and amortization. We intend to continue to make distributions to our stockholders that are sufficient to meet this distribution requirement and that will reduce our exposure to income taxes. Our 2002 distributions to common stockholders were 82.1% of our funds from operations. 7 Our future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code, our debt service requirements and other factors as the Board of Directors may deem relevant. In addition, our credit facility contains financial covenants which could limit the amount of distributions payable by us in the event of a deterioration in our results of operations or financial condition, and which prohibit the payment of distributions on the common or preferred stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility. Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent we recognize capital gains and declare a capital gains dividend. Distributions in excess of earnings and profits generally will be treated as a non-taxable reduction in the stockholders' basis in the stock. Distributions above that basis generally will be treated as a capital gain. Approximately 5.8% of the distributions made or deemed to have been made in 2002 to our common stockholders were classified as a return of capital for federal income tax purposes. We are unable to predict the portion of future distributions that may be classified as a return of capital. BUSINESS PHILOSOPHY AND STRATEGY INVESTMENT PHILOSOPHY. We believe that the long-term ownership of an actively managed, diversified portfolio of retail properties, under long-term net-lease agreements, produces consistent, predictable income. Under a net-lease agreement, the tenant agrees to pay monthly rent and property operating expenses (taxes, maintenance and insurance) plus, typically, future rent increases (generally subject to ceilings) based on increases in the consumer price index, fixed increases or additional rent calculated as a percentage of the tenants' gross sales above a specified level. We believe that long-term leases, coupled with the tenant's responsibility for property expenses, generally produce a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income. INVESTMENT STRATEGY. In identifying new properties for acquisition, our focus is on providing expansion capital to retail chains by acquiring, then leasing back, their retail store locations. We categorize retail tenants as: 1) venture market, 2) middle market, and 3) upper market. Venture companies typically offer a new retail concept in one geographic region of the country and operate between five and 50 retail outlets. Middle market retail chains typically have 50 to 500 retail outlets, operations in more than one geographic region, have been successful through one or more economic cycles, and have a proven, replicable concept. The upper market retail chains typically consist of companies with 500 or more stores, operating nationally in a proven, mature retail concept. Upper market retail chains generally have strong operating histories and access to several sources of capital. Realty Income primarily focuses on acquiring properties leased to middle market retail chains that we believe are attractive for investment because: o They generally have overcome many of the operational and managerial obstacles that can adversely affect venture retailers; o They typically require capital to fund expansion but have more limited financing options; o They generally have provided us with attractive risk-adjusted returns over time since their financial strength has, in many cases, tended to improve as their businesses have matured; o Their relatively large size allows them to spread corporate expenses across a greater number of stores; and o Middle market retailers typically have the critical mass to survive if a number of locations are closed due to underperformance. 8 We also focus on and have selectively made investments in properties of upper market retail chains. We believe upper market retail chains can be attractive for investment because: o They typically are of a higher credit quality; o They usually are larger brand name, public and private retailers; o They utilize a larger building ranging in size from 10,000 to 50,000 square feet; and o They are able to grow because access to capital facilitates larger transaction sizes. While our investment strategy focuses primarily on acquiring properties leased to middle and upper market retail chains, we also selectively seek investment opportunities with venture market retail chains. Periodically, venture market opportunities arise where we feel that the real estate used by the tenant is high quality and can be purchased at favorable prices. To meet our stringent investment standards, however, venture retail companies must have a well-defined retailing concept and strong financial prospects. These opportunities are examined on a case by case basis and we are highly selective in making investments in this area. Historically, our investment focus has been on retail industries that have a service component because we believe the lease revenue from these types of businesses is more stable. Because of this investment focus, at December 31, 2002, approximately 76% of our annualized rent (as the term is used on page 13) is derived from retailers with a service component in their business. Furthermore, we believe these service-oriented businesses would be difficult to duplicate over the Internet and that our properties continue to perform well relative to competition from Internet businesses. CREDIT STRATEGY. We generally provide sale-leaseback financing primarily to less than investment grade retail chains. From 1970 through December 31, 2002, we have acquired and leased back to regional and national retail chains 1,266 properties (including 116 properties that have been sold) and have collected approximately 98% of the original contractual rent obligations on those properties. We believe that within this market we can achieve an attractive risk-adjusted return on the financing we provide to retailers. We believe the principal financial obligations of most retailers typically include their bank and other debt, payment obligations to suppliers and real estate lease obligations. Because we own the land and building in which a tenant conducts its retail business, we believe the risk of default on a retailers' lease obligations is less than the retailers' unsecured general obligations. It has been our experience that since retailers must retain their profitable retail locations in order to survive, in the event of reorganization, they are less likely to reject a lease for a profitable location, because this would terminate their right to use the property. Thus, as the property owner, we believe we will fare better than unsecured creditors of the same retailer in the event of reorganization. If a property is rejected by the tenant during a reorganization, we own the property and can either lease it to a new tenant or sell the property. In addition, we believe that the risk of default on the real estate leases can be further mitigated by monitoring the performance of the retailers' individual unit locations and considering whether to sell locations that are weaker performers. In order to qualify for inclusion in our portfolio, new property acquisitions must meet stringent investment and credit requirements. The properties must generate attractive current yields and the tenant must meet our credit profile. We have established a three-part analysis that examines each potential investment based on: o Industry, company, market conditions and credit profile; o Location profitability, if profitability data is available; and o Overall real estate characteristics, including value and comparative rental rates. The standard profile of companies whose properties have been approved for acquisition, generally are those with 50 or more retail stores that are located in highly visible areas, with easy access to major thoroughfares and attractive demographics. 9 ACQUISITION STRATEGY. We seek to invest in industries in which several, well-organized, regional and national chains are capturing market share through service, quality control, economies of scale, mass media advertising and the selection of prime retail locations. We execute our acquisition strategy by acting as a source of capital to regional and national retail chain stores in a variety of industries by acquiring then leasing back their retail store locations. We undertake thorough research and analysis to identify appropriate industries, tenants and property locations for investment. Our research expertise is instrumental to uncovering net-lease opportunities in markets where our real estate financing program adds value. In selecting real estate for potential investment, we generally seek to acquire properties that have the following characteristics: o Freestanding, commercially-zoned property with a single tenant; o Properties that are important retail locations for regional and national retail chains; o Properties that are located within attractive demographic areas relative to the business of their tenants, with high visibility and easy access to major thoroughfares; and o Properties that can be purchased with the simultaneous execution or assumption of long-term, net-lease agreements, offering both current income and the potential for rent increases. PORTFOLIO MANAGEMENT STRATEGY. The active management of the property portfolio is an essential component of our long-term strategy. We continually monitor our portfolio for changes that could affect the performance of the industries, tenants and locations in which we have invested. The portfolio is regularly analyzed with a view toward optimizing its returns and enhancing its credit quality. Company executives review industry research, tenant research, property due diligence and significant portfolio management activities. This monitoring typically includes regular review and analysis of: o The performance of various retail industries; o The operation, management, business planning and financial condition of the tenants; and o The health of the individual markets in which we own properties, from both an economic and real estate standpoint. We have an active portfolio management program that incorporates the sale of assets when we believe the reinvestment of the sales proceeds will generate higher returns, enhance the credit quality of our real estate portfolio, or extend our average remaining lease terms. At December 31, 2002, we classified real estate with a carrying amount of $6.5 million as held for sale. Of this amount, real estate owned by Crest Net totaled $4.6 million. Additionally, we anticipate selling properties from our portfolio, which have not yet been specifically identified. We anticipate receiving between $15 million and $30 million in proceeds from the sale of properties during the next 12 months. We intend to invest these proceeds into new retail properties. CAPITAL MARKETS STRATEGY. We believe our stockholders are best served by a conservative capital structure. At March 1, 2003, our total outstanding credit facility borrowings and outstanding notes were $337.1 million or approximately 20.4% of our total market capitalization of $1.65 billion. We define our total market capitalization as the sum of: o The shares of our common stock outstanding multiplied by the last reported sales price of the common stock on the NYSE on March 1, 2003 of $34.66 per share; o The liquidation value of the Class B Preferred Stock; o The liquidation value of the Class C Preferred Stock; and o Outstanding borrowings on the credit facility and outstanding notes at March 1, 2003. We have a $250 million revolving, unsecured acquisition credit facility that expires in October 2005. At March 1, 2003, the outstanding balance on the acquisition credit facility was $107.1 million with an effective interest rate of approximately 2.4%. A commitment fee of 0.2% per annum accrues on the total credit commitment of the credit facility. The credit facility has been and is expected to be used to acquire additional retail properties leased to regional and national retail chains under long-term net-lease agreements. The credit facility has also been used to provide capital to subsidiaries for the purpose of funding the acquisition of properties. 10 We use our credit facility for the short-term financing of new property acquisitions. When outstanding borrowings under the credit facility reach a certain level (generally in the range of $75 to $175 million) and capital is available on acceptable terms, we generally seek to refinance those borrowings with the net proceeds of long-term or permanent financing, which may include the issuance of common stock, preferred stock, convertible preferred stock, debt securities or convertible debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing or that market conditions prevailing at the time of refinancing will enable us to issue equity or debt securities upon acceptable terms. Historically, we have met our long-term capital needs through the issuance of common stock, preferred stock and long-term unsecured notes. Over the long-term, we believe that the majority of our future issuances of securities should be in the form of common stock. However, we may issue additional preferred stock or debt securities from time to time. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be invested on an accretive basis into additional properties. In addition, we may issue common stock to permanently finance properties that were financed using our credit facility or debt securities. However, we cannot assure you that we will have access to the capital markets at terms that are acceptable to us. We currently are assigned investment grade corporate credit ratings on our senior unsecured notes from Fitch Ratings, Moody's Investors Service and Standard & Poor's Ratings Group. Currently, Fitch has assigned a rating of BBB, Moody's has assigned a rating of Baa2 and Standard & Poor's has assigned a rating of BBB- to our senior notes. These ratings could change based upon, among other things, our results of operations and financial condition. We also have received credit ratings from the same rating agencies on our preferred stock. Fitch Ratings has assigned a rating of BBB-, Moody's Investors Service has assigned a rating of Baa3 and Standard & Poor's Ratings Group has assigned a rating of BB+. These ratings could change based upon, among other things, our results of operations and financial condition. Realty Income and its subsidiaries have no unconsolidated investments in "special purpose entities", "variable interest entities" or off-balance sheet financing, nor do we engage in trading activities involving energy or commodity contracts or other derivative instruments. COMPETITIVE STRATEGY. We believe that to successfully pursue our investment philosophy and strategy, we must seek to maintain the following competitive advantages: o Size and Type of Investment Properties: We believe smaller ($500,000 to $10,000,000) net-leased retail properties represent an attractive investment opportunity in today's real estate environment. Due to the complexities of acquiring and managing a large portfolio of relatively small assets, we believe these types of properties have not experienced significant institutional ownership interest or the corresponding yield reduction experienced by larger income-producing properties. We believe the less intensive day-to-day property management required by net-lease agreements, coupled with the active management of a large portfolio of smaller properties, is an effective investment strategy. The tenants of our freestanding retail properties generally provide goods and services that satisfy basic consumer needs. In order to grow and expand, they generally need capital. Since the acquisition of real estate is typically the single largest capital expenditure of many of these retailers, our method of purchasing the property and then leasing it back, under a net-lease arrangement, allows the retail chain to free up capital. o Investment in New Retail Industries: Though we specialize in single-tenant properties, we will seek to further diversify our portfolio among a variety of retail industries. We believe diversification will allow us to invest in retail industries that currently are growing and have characteristics we find attractive. These characteristics include, but are not limited to, retail industries dominated by local store operators where regional and national chain store operators can increase market share and dominance through consolidation and more efficient operations, as well as take advantage of major demographic shifts in the population base. 11 o Diversification: Diversification of the portfolio by retail industry type, tenant and geographic location is key to our objective of providing predictable investment results for our stockholders. Further diversification of our portfolio is an objective of the Company. At December 31, 2002, our retail property portfolio consisted of 1,197 properties located in 48 states, leased to 79 retail chains doing business in 25 industry segments. At December 31, 2002, all industry segments in our property portfolio comprise less than 20% of our annualized rent. o Management Specialization: We believe that our management's specialization in single-tenant retail properties, operated under net-lease agreements, is important to meeting our objectives. We plan to maintain this specialization and will seek to employ and train high-quality professionals in this specialized area of real estate ownership, finance and management. o Technology: We intend to stay at the forefront of technology in our efforts to efficiently and economically carry out our operations. We maintain sophisticated information systems that allow us to analyze our portfolio's performance and actively manage our investments. We believe that technology and information-based systems will play an increasingly important role in our competitiveness as an investment manager and source of capital to a variety of industries and tenants. PROPERTIES At December 31, 2002, we owned a diversified portfolio: o Of 1,197 retail properties; o With an occupancy rate of 97.7%, or 1,170 properties occupied of the 1,197 properties in the portfolio; o Leased to 79 different retail chains; o Doing business in 25 separate retail industries; o Located in 48 states; o With approximately 10 million square feet of leasable space; and o With an average leasable retail space of 8,400 square feet. In addition to our real estate portfolio at December 31, 2002, our subsidiary, Crest Net had invested $4.6 million in a portfolio of four properties located in three states. At December 31, 2002, 1,165, or 97.3%, of our 1,197 retail properties were owned under net-lease agreements. Net leases typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. In addition, tenants are typically responsible for future rent increases (generally subject to ceilings) based on increases in the consumer price index, fixed increases or additional rent calculated as a percentage of the tenants' gross sales above a specified level. Our net-leased retail properties primarily are leased to regional and national retail chain store operators. Most buildings are single-story structures with adequate parking on site to accommodate peak retail traffic periods. The properties tend to be on major thoroughfares with relatively high traffic counts and adequate access, egress and proximity to a sufficient population base to constitute a suitable market or trade area for the retailer's business. 12 The following table sets forth certain information regarding our properties classified according to the business of the respective tenants, expressed as a percentage of our total rental revenue:
Percentage of Rental Revenue(1) ------------------------------------------------------------------------------------------------------- Annualized(2) Rent as of For the Years Ended --------------------------------------------------------------------------------------- Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Industry 2002 2002 2001 2000 1999 1998 1997 1996 - -------------------------------------------- --------------------------------------------------------------------------------------- Apparel Stores 2.2% 2.3% 2.4% 2.4% 3.8% 4.1% 0.7% --% Automotive Collision Service 0.7 * -- -- -- -- -- -- Automotive Parts 7.2 7.6 8.3 8.3 8.6 7.8 9.1 10.5 Automotive Service 8.2 7.0 5.7 5.8 6.6 7.5 6.4 4.8 Book Stores 0.4 0.4 0.4 0.5 0.5 0.6 0.5 -- Business Services 0.1 0.1 0.1 0.1 0.1 * -- -- Child Care 19.5 20.8 23.9 24.7 25.3 29.2 35.9 42.0 Consumer Electronics 3.2 3.3 4.0 4.9 4.4 5.4 6.5 0.9 Convenience Stores 10.3 9.1 8.4 8.4 7.2 6.1 5.5 4.6 Craft and Novelty 0.5 0.4 0.4 0.4 0.4 * -- -- Drug Stores 0.2 0.2 0.2 0.2 0.2 0.1 -- -- Entertainment 2.7 2.3 1.8 2.0 1.2 -- -- -- General Merchandise 0.5 0.5 0.6 0.6 0.6 * -- -- Grocery Stores 0.5 0.5 0.6 0.6 0.5 * -- -- Health and Fitness 4.1 3.8 3.6 2.4 0.6 0.1 -- -- Home Furnishings 5.1 5.4 6.0 5.8 6.5 7.8 5.6 4.4 Home Improvement 1.1 1.2 1.3 2.0 3.6 * -- -- Office Supplies 2.0 2.1 2.2 2.3 2.6 3.0 1.7 -- Pet Supplies and Services 1.6 1.7 1.6 1.5 1.1 0.6 0.2 -- Private Education 1.2 1.3 1.5 1.4 1.2 0.9 -- -- Restaurants 12.6 13.5 12.2 12.3 13.3 16.2 19.8 24.4 Shoe Stores 0.9 0.8 0.7 0.8 1.1 0.8 0.2 -- Sporting Goods 3.9 4.1 0.9 -- -- -- -- -- Theaters 4.2 3.9 4.3 2.7 0.6 -- -- -- Video Rental 3.3 3.3 3.7 3.9 4.3 3.8 0.6 -- Other 3.8 4.4 5.2 6.0 5.7 6.0 7.3 8.4 - -------------------------------------------- ------------------------------------------------------------------------------------ Totals 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ============================================ ==================================================================================== * Less than 0.1% (1) Includes rental revenue (prior to any reclassification for discontinued operations) for all properties owned by Realty Income during each period presented, except for properties owned by our subsidiary, Crest Net. (2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of December 31, 2002 for each of the properties by 12 and adding the previous 12 month's historic percentage rent, which totaled $1.6 million (i.e., additional rent calculated as a percentage of the tenants' gross sales above a specified level). For properties under construction, an estimated contractual base rent based upon the estimated total costs of each property is used.
Of the 1,197 properties in the portfolio at December 31, 2002, 1,192 were single-tenant properties with the five remaining properties being multi-tenant properties. At December 31, 2002, 1,165 of the 1,192 single-tenant properties, or 97.7%, were leased with a weighted average remaining lease term (excluding extension options) of approximately 10.9 years. 13 The following table sets forth certain information regarding the timing of the initial lease term expirations (excluding extension options) on our 1,165 net leased, single-tenant retail properties at December 31, 2002 (dollars in thousands):
Number of Annualized Percentage of Year Leases Expiring(1) Rent(1)(2) Annualized Rent - ---------------------------------------------------------------------------------------------------------------- 2003 89 $ 7,812 5.7% 2004 123 10,519 7.6 2005 88 6,855 5.0 2006 75 6,657 4.8 2007 117 8,584 6.2 2008 64 5,831 4.2 2009 29 2,801 2.0 2010 42 3,697 2.7 2011 35 5,356 3.9 2012 51 6,223 4.5 2013 70 12,355 9.0 2014 36 6,546 4.7 2015 32 3,428 2.5 2016 14 1,486 1.1 2017 20 5,906 4.3 2018 16 1,997 1.4 2019 50 9,034 6.5 2020 10 3,664 2.7 2021 95 14,394 10.4 2022 97 10,619 7.7 2023 1 163 0.1 2024 2 402 0.3 2026 2 372 0.3 2033 2 1,118 0.8 2034 2 834 0.6 2037 3 1,343 1.0 - ---------------------------------------------------------------------------------------------------------------- Totals 1,165 $ 137,996 100.0% ================================================================================================================ (1) This table does not include five multi-tenant properties and 27 vacant, unleased single-tenant properties owned by the Company and properties owned by our subsidiary, Crest Net. The lease expirations for properties under construction are based on the estimated date of completion of those properties. (2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of December 31, 2002 for each of the properties by 12 and adding the previous 12 month's historic percentage rent, which totaled $1.6 million (i.e., additional rent calculated as a percentage of the tenants' gross sales above a specified level). For properties under construction, an estimated contractual base rent based upon the estimated total costs of each property is used.
14 The following table sets forth certain state-by-state information regarding Realty Income's property portfolio at December 31, 2002 (dollars in thousands):
Approximate Number of Percent Leasable Annualized Percentage of State Properties(1) Leased Square Feet Rent(1)(2) Annualized Rent - ------------------------------------------------------------------------------------------------------------------ Alabama 14 100% 137,600 $ 1,391 1.0% Alaska 2 100 128,500 1,003 0.7 Arizona 35 94 248,800 3,856 2.7 Arkansas 8 100 48,800 916 0.6 California 60 98 1,009,500 14,175 9.9 Colorado 44 98 275,000 4,300 3.0 Connecticut 16 100 245,600 3,709 2.6 Delaware 1 100 5,400 72 * Florida 90 98 1,180,300 15,662 10.9 Georgia 70 99 539,500 7,569 5.3 Idaho 11 100 52,000 785 0.5 Illinois 41 98 322,200 4,476 3.1 Indiana 28 96 159,900 2,129 1.5 Iowa 10 100 67,600 731 0.5 Kansas 21 100 190,000 2,232 1.6 Kentucky 13 100 43,600 1,095 0.8 Louisiana 7 100 47,100 722 0.5 Maryland 15 100 118,500 2,814 1.9 Massachusetts 30 100 138,300 2,902 2.0 Michigan 14 93 87,300 1,193 0.8 Minnesota 21 90 230,700 1,993 1.4 Mississippi 21 100 174,000 1,720 1.2 Missouri 35 100 230,400 3,011 2.1 Montana 2 100 30,000 304 0.2 Nebraska 10 100 91,200 1,223 0.8 Nevada 10 100 100,700 1,600 1.1 New Hampshire 6 100 23,900 594 0.4 New Jersey 23 100 110,800 3,894 2.7 New Mexico 5 100 46,000 365 0.2 New York 24 100 265,600 5,614 3.9 North Carolina 37 100 199,300 4,099 2.9 North Dakota 1 100 22,000 65 * Ohio 66 97 429,100 6,324 4.4 Oklahoma 17 100 94,300 1,396 1.0 Oregon 18 100 206,000 2,002 1.4 Pennsylvania 33 100 261,700 3,838 2.7 Rhode Island 1 100 3,500 116 0.1 South Carolina 47 96 142,000 3,936 2.7 South Dakota 1 100 6,500 88 0.1 Tennessee 33 100 248,800 3,399 2.4 Texas 152 95 1,201,200 13,980 9.7 Utah 7 86 43,300 430 0.3 Vermont 1 100 2,500 87 0.1 Virginia 34 100 326,500 6,449 4.5 Washington 39 97 256,900 3,121 2.2 West Virginia 2 100 16,800 161 0.1 Wisconsin 17 94 168,400 1,913 1.3 Wyoming 4 100 20,100 281 0.2 - --------------------------------------------------------------------------------------------------------------- Totals/Average 1,197 98% 9,997,700 $ 143,735 100.0% =============================================================================================================== * Less than 0.1%, (see footnotes on the next page) 15 (1) Does not include properties owned by our subsidiary, Crest Net. (2) Annualized rent is calculated by multiplying the monthly contractual base rent as of December 31, 2002 for each of the properties by 12 and adding the previous 12 month's historic percentage rent, which totaled $1.6 million (i.e., additional rent calculated as a percentage of the tenants' gross sales above a specified level). For the properties under construction, an estimated contractual base rent based upon the estimated total costs of each property is used.
The following table sets forth certain information regarding the properties owned by Realty Income at December 31, 2002, classified according to the retail business types and the level of services they provide (dollars in thousands):
Number of Annualized Percentage of Industry Properties(1) Rent(1)(2) Annualized Rent - ---------------------------------------------------------------------------------------------------------------------- TENANTS PROVIDING SERVICES Automotive Collision Service 4 $ 985 0.7% Automotive Service 178 11,824 8.2 Child Care 315 27,987 19.5 Entertainment 10 3,862 2.7 Health and Fitness 9 5,961 4.1 Private Education 5 1,738 1.2 Theaters 11 5,996 4.2 Other 9 5,487 3.8 --------------------------------------------------------------- 541 63,840 44.4 --------------------------------------------------------------- TENANTS SELLING GOODS AND SERVICES Automotive Parts (with installation) 65 6,074 4.2 Business Services 1 124 0.1 Convenience Stores 117 14,828 10.3 Home Improvement 5 187 0.1 Pet Supplies and Services 6 1,570 1.1 Restaurants 216 18,193 12.6 Video Rental 34 4,715 3.3 --------------------------------------------------------------- 444 45,691 31.7 --------------------------------------------------------------- TENANTS SELLING GOODS Apparel Stores 5 3,103 2.2 Automotive Parts 73 4,292 3.0 Book Stores 2 610 0.4 Consumer Electronics 36 4,660 3.2 Craft and Novelty 3 745 0.5 Drug Stores 1 235 0.2 General Merchandise 11 687 0.5 Grocery Stores 2 734 0.5 Home Furnishings 38 7,289 5.1 Home Improvement 13 1,377 1.0 Office Supplies 9 2,846 2.0 Pet Supplies 4 761 0.5 Shoe Stores 4 1,254 0.9 Sporting Goods 11 5,611 3.9 --------------------------------------------------------------- 212 34,204 23.9 --------------------------------------------------------------- TOTALS 1,197 $ 143,735 100.0% =============================================================== (1) This table does not include properties owned by our subsidiary, Crest Net. (2) Annualized rent is calculated by multiplying the monthly contractual base rent as of December 31, 2002 for each of the properties by 12 and adding the previous 12 month's historic percentage rent, which totaled $1.6 million (i.e., additional rent calculated as a percentage of the tenants' gross sales above a specified level). For the properties under construction, an estimated contractual base rent based upon the estimated total costs of each property is used.
16 DESCRIPTION OF LEASING STRUCTURE. At December 31, 2002, 1,165 or 97.3% of the Company's 1,197 properties were leased pursuant to net leases. In most cases, the leases: o Were for initial terms of 15 to 20 years with the tenants having one or more options to extend the initial term; o Require the tenants to pay property taxes, insurance and expenses of maintaining the property; o Provide for a minimum base rent plus future increases (typically subject to ceilings) based on increases in the consumer price index, additional rent based upon the tenants' gross sales above a specified level (i.e., percentage rent) or fixed increases. Where leases provide for rent increases based on increases in the consumer price index, generally these increases permanently become part of the base rent. Where leases provide for percentage rent, this additional rent is typically payable only if the tenants' gross sales for a given period (usually one year) exceed a specified level, and then is typically calculated as a percentage of only the amount of gross sales in excess of that level. MATTERS PERTAINING TO CERTAIN PROPERTIES AND TENANTS. Twenty-seven of our properties were available for sale or lease at December 31, 2002, all of which are single-tenant properties. Sixteen of the properties had been previously leased to child care operators, six to restaurant operators, three to home improvement operators, one to an automotive service operator and one to a health care operator. At December 31, 2002, 14 of our properties under lease were unoccupied and available for sublease by the tenants, all of which were current with their rent and other obligations. Our largest tenant, Children's World Learning Centers, accounted for approximately 10.7% of our rental revenue in 2002. No other tenant comprised 9% or more of our rental revenue. At December 31, 2002, as a result of portfolio growth through acquisitions during the year, Children's World Learning Centers accounted for approximately 9.9% of our annualized rent. Annualized rent is calculated by multiplying the monthly contractual base rent for each of the properties by 12 and adding the previous 12 month's historic percentage rent, excluding properties owned by Crest Net. In general, a downturn in the industry represented by this tenant, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in this industry, which in turn could have a material adverse affect on our financial position, results of operations, ability to make distributions to stockholders and our ability to make debt service payments. In addition, a substantial number of our properties are leased to middle-market retail chains that generally have more limited financial and other resources than certain upper-market retail chains, and therefore are more likely to be adversely affected by a downturn in their respective business or in the regional or national economy in general. Our tenants in the child care and restaurant industries accounted for approximately 20.8% and 13.5%, respectively, of our rental revenue for the year ended December 31, 2002. A downturn in either of these industries, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in those industries, which in turn could have a material adverse affect on our financial position, results of operations, ability to make distributions to stockholders and our ability to make debt service payments. At December 31, 2002, all industry segments in our property portfolio comprise less than 20% of our annualized rent. DEVELOPMENT OF CERTAIN PROPERTIES. Of the 108 properties we acquired in 2002 and three properties acquired by Crest Net in 2002, all but five were occupied at March 1, 2003. The five properties were leased and under construction pursuant to a contract under which the tenant has agreed to develop the properties (with development costs funded by us or Crest Net) with rent commencing when the premises open for business. In the case of development properties, we either enter into an agreement with a retail chain where the retailer retains a contractor to construct the improvements and we fund the costs of that development, or we fund a developer who constructs the improvements. In either case, there is an executed lease at the time of the land purchase and there is a requirement to complete the construction on a timely basis, generally within 17 eight months after we purchase the land. The tenant or developer generally is required to pay construction cost overruns to the extent they exceed the construction budget by more than a predetermined amount. We also enter into a lease with the tenant at the time we purchase the land, which generally requires the tenant to begin paying base rent, calculated as a percentage of our acquisition cost for the property, including construction costs and capitalized interest, when the premises opens for business. In 2002, we acquired nine development properties, and Crest Net acquired two development properties, six of which have been completed, were operating and generating rent as of March 1, 2003. Both Realty Income and Crest Net will continue to pursue development opportunities under similar arrangements. OTHER ITEMS COMPETITION FOR ACQUISITION OF REAL ESTATE. We face competition in the acquisition, operation and sale of property. We expect competition from: o Businesses; o Individuals; o Fiduciary accounts and plans; and o Other entities engaged in real estate investment and financing. Some of these competitors are larger than we are and have greater financial resources. This competition may result in a higher cost for properties we wish to purchase. The tenants leasing our properties can face significant competition from other operators. This competition may adversely impact: o That portion, if any, of the rental stream to be paid to us based on a tenant's revenues; and o The tenants' results of operations or financial condition. ENVIRONMENTAL LIABILITIES. Investments in real property can create a potential for environmental liability. An owner of property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We face such liability regardless of: o Our knowledge of the contamination; o The timing of the contamination; o The cause of the contamination; or o The party responsible for the contamination of the property. There may be environmental problems, associated with our properties, of which we are unaware. In that regard, a number of our properties are leased to operators of oil change and tune-up facilities, and convenience stores that sell petroleum-based fuels. These facilities, or other of our properties, use, or may have used in the past, underground tanks for the storage of petroleum-based or waste products, which could create a potential for release of hazardous substances. The presence of hazardous substances on a property may adversely affect our ability to sell that property and we may incur substantial remediation costs. Although our leases generally require our tenants to operate in compliance with all applicable federal, state and local laws, ordinances and regulations and to indemnify us against any environmental liabilities arising from the tenants' activities on the property, we could nevertheless be subject to strict liability by virtue of our ownership interest, and there can be no assurance that our tenants would satisfy their indemnification obligations under the leases. The discovery of environmental liabilities attached to our properties could have a material adverse effect on our results of operations, financial condition or our ability to make distributions to stockholders. 18 We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous substances, toxic substances or petroleum products in connection with any of our present properties. Nevertheless, if environmental contamination should exist, we could be subject to strict liability by virtue of our ownership interest. Since December 1996, we have maintained an environmental insurance policy on our property portfolio. The limit on our current policy is $10 million per occurrence and $50 million in the aggregate, subject to a $25,000 self insurance retention per occurrence for properties with underground storage tanks and a $100,000 self insurance retention per occurrence for all other properties. It is possible that our insurance will be insufficient to address any particular environmental situation and that we will be unable to continue to obtain insurance for environmental matters in the future at a reasonable cost or at all. TAXATION OF THE COMPANY. We believe that we are organized and have operated, commencing with our taxable year ended December 31, 1994, and we intend to continue to operate, so as to qualify as a "real estate investment trust" under Sections 856 through 860 of the Code. However, we cannot assure you that we have satisfied the requirements for qualification as a REIT, that we will continue to be organized as a REIT or that we have been or will continue to be able to operate in a manner so that we qualify or will remain qualified as a REIT. Qualification as a REIT involves the satisfaction of numerous requirements under highly technical and complex Code provisions, for which there are only limited judicial and administrative interpretations, and the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources and we must pay distributions to stockholders aggregating annually at least 90% of our REIT taxable income (as defined in the Code and determined without regard to the dividends paid deduction and by excluding net capital gains). In the future, it is possible that legislation, new regulations, administrative interpretations or court decisions will change the tax laws with respect to qualification as a REIT, or the federal income tax consequences of those qualifications. If we were to fail to qualify as a REIT in any taxable year: o We would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates; o We would not be allowed a deduction in computing our taxable income for amounts distributed to our stockholders; o We could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost; o We would no longer be required to make distributions to stockholders; and o This treatment would substantially reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability for the years involved. Even if we qualify for and maintain our REIT status, we are subject to certain federal, state and local taxes on our income and property. For example, if we have net income from a prohibited transaction, that income will be subject to a 100% tax. Our subsidiary Crest Net is subject to federal and state taxes at the applicable tax rates on its income and property. 19 EFFECT OF DISTRIBUTION REQUIREMENTS. To maintain our status as a REIT for federal income tax purposes, we generally are required to distribute to our stockholders at least 90% of our REIT taxable income determined without regard to the dividends paid deduction and by excluding net capital gains each year. We also are subject to tax at regular corporate rates to the extent that we distribute less than 100% of our REIT taxable income (including net capital gains) each year. In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, of certain distributions we pay, with respect to any calendar year, if those distributions are less than the sum of 85% of our ordinary income for that calendar year, 95% of our capital gain net income for the calendar year, and any amount of that income that was not distributed in prior years. We intend to continue to make distributions to our stockholders to comply with the distribution requirements of the Code and to reduce exposure to federal income taxes and the nondeductible excise tax. Differences in timing between the receipt of income and the payment of expenses to arrive at taxable income, along with the effect of required debt amortization payments, could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. DILUTION OF COMMON STOCK. Our future growth will depend in large part upon our ability to raise additional capital. If we were to raise additional capital through the issuance of equity securities, we could dilute the interests of holders of our common stock. Likewise, our Board of Directors is authorized to cause us to issue preferred stock of any class or series (with dividend, voting and other rights as determined by the Board of Directors). Accordingly, the Board of Directors may authorize the issuance of preferred stock with voting, dividend and other similar rights that could dilute, or otherwise adversely affect, the interests of holders of our common stock. REAL ESTATE OWNERSHIP RISKS. We are subject to all of the general risks associated with the ownership of real estate. In particular, we face the risk that rental revenue from the properties may be insufficient to cover all corporate operating expenses, debt service payments on indebtedness we incur and distributions on our stock. Additional real estate ownership risks include: o Adverse changes in general or local economic conditions; o Changes in supply of or demand for similar or competing properties; o Changes in interest rates and operating expenses; o Competition for tenants; o Changes in market rental rates; o Inability to lease properties upon termination of existing leases; o Renewal of leases at lower rental rates; o Inability to collect rents from tenants due to financial hardship, including bankruptcy; o Changes in tax, real estate, zoning and environmental laws that may have an adverse impact upon the value of real estate; o Uninsured property liability; o Property damage or casualty losses; o Unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state and local laws; o Acts of terrorism and war; and o Acts of God and other factors beyond the control of our management. DEPENDENCE ON KEY PERSONNEL. We depend on the efforts of our executive officers and key employees. The loss of the services of our executive officers and key employees could have a material adverse effect on our operations. 20 ITEM 2: PROPERTIES ---------- Information pertaining to our properties can be found under Item 1. ITEM 3: LEGAL PROCEEDINGS ----------------- We are subject to certain claims and lawsuits, the outcome of which cannot be determined at this time. In the opinion of management, any liability we might incur upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on our consolidated financial statements taken as a whole. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- No matters were submitted to stockholders during the fourth quarter of the fiscal year. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS --------------------------------------------------------------------- A. Our common stock is traded on the New York Stock Exchange under the ticker symbol "O." The following table shows the high and low sales prices per share for our common stock as reported by the New York Stock Exchange composite tape, and distributions declared per share of common stock by us for the periods indicated.
Price Per Share of Common Stock Distributions --------------------------------------------------------- High Low Declared(1) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- 2002 First quarter $ 33.21 $ 29.05 $ 0.57125 Second quarter 36.99 32.10 0.57500 Third quarter 37.10 26.90 0.57875 Fourth quarter 36.15 30.60 0.58250 - ---------------------------------------------------------------------------------------------------------------------- Total $ 2.30750 ====================================================================================================================== 2001 First quarter $ 26.75 $ 24.30 $ 0.55625 Second quarter 29.56 26.10 0.56000 Third quarter 29.95 26.45 0.56375 Fourth quarter 30.16 27.90 0.56750 - ---------------------------------------------------------------------------------------------------------------------- Total $ 2.24750 ====================================================================================================================== (1) Common stock distributions currently are declared monthly by us based on financial results for the prior months. At December 31, 2002 a distribution of $0.195 per common share had been declared and was paid in January 2003.
B. There were approximately 11,800 holders of record of Realty Income's shares of common stock as of March 1, 2003. 21 ITEM 6: SELECTED FINANCIAL DATA ----------------------- (not covered by Independent Auditors' Report)
As of or for the years ended December 31, 2002 2001 2000 1999 1998 (dollars in thousands, except per share data) - ------------------------------------------------------------------------------------------------------------------------ Total assets (book value) $1,080,230 $1,003,708 $934,766 $905,404 $759,234 Cash and cash equivalents 8,921 2,467 3,815 773 2,533 Lines of credit and notes payable 339,700 315,300 404,000 349,200 294,800 Total liabilities 357,775 331,915 419,197 370,573 309,025 Total stockholders' equity 722,455 671,793 515,569 534,831 450,209 Net cash provided by operating activities 124,807 90,035 56,590 72,154 64,645 Net change in cash and cash equivalents 6,454 (1,348) 3,042 (1,760) 410 Total revenue 140,980 123,909 115,794 101,730 82,727 Income from operations 72,737 55,603 46,272 43,177 39,247 Gain on sales of investment properties 340 10,478 6,712 1,301 526 Income from continuing operations 73,077 66,081 52,984 44,478 39,773 Income from discontinued operations 5,590 1,477 1,804 2,118 1,757 Extraordinary item -- -- -- (355) -- Cumulative effect of change in accounting principle -- -- -- -- (226) Net income 78,667 67,558 54,788 46,241 41,304 Preferred stock dividends (9,713) (9,712) (9,712) (5,229) -- Net income available to common stockholders 68,954 57,846 45,076 41,012 41,304 Distributions paid to common stockholders 78,042 64,871 58,262 55,925 52,301 Ratio of earnings to fixed charges(1) 4.3 times 3.5 times 2.6 times 2.7 times 3.8 times Ratio of earnings to combined fixed charges and preferred stock dividends(1) 3.0 times 2.6 times 2.0 times 2.3 times 3.8 times Basic and diluted net income per common share 2.03 1.98 1.69 1.53 1.55 Distributions paid per common share 2.3025 2.2425 2.1825 2.085 1.965 Distributions declared per common share 2.3075 2.2475 2.1875 2.095 1.975 Basic weighted average number of common shares outstanding 33,933,749 29,225,359 26,684,598 26,822,285 26,629,936 Diluted weighted average number of common shares outstanding 33,988,157 29,281,120 26,700,806 26,826,090 26,638,284 (1) Ratio of Earnings to Fixed Charges is calculated by dividing earnings by fixed charges. For this purpose, earnings consist of net income before interest expense. Fixed charges are comprised of interest costs (including capitalized interest) and the amortization of debt issuance costs.
22 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------------------------------------- GENERAL Realty Income Corporation, The Monthly Dividend Company (R), a Maryland corporation ("Realty Income," the "Company," "our" or "we") was organized to operate as an equity real estate investment trust ("REIT"). The Company's primary business objective is to generate dependable monthly distributions from a consistent and predictable level of funds from operations ("FFO") per share. Over the past 33 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term (primarily 15 to 20 year) lease agreements. The monthly distributions are supported by the cash flow from 1,197 retail properties leased to regional and national retail chains. We also seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. At December 31, 2002, we owned a diversified portfolio: o Of 1,197 retail properties; o With an occupancy rate of 97.7%, or 1,170 properties occupied of the 1,197 properties in the portfolio; o Leased to 79 different retail chains; o Doing business in 25 separate retail industries; o Located in 48 states; o With approximately 10 million square feet of leasable space; and o With an average leasable retail space of 8,400 square feet. Of the 1,197 properties in the portfolio, 1,192, or 99.6%, are single-tenant retail properties with the remaining five being multi-tenant properties. As of December 31, 2002, 1,165, or 97.7%, of the 1,192 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 10.9 years. In addition to our real estate portfolio, at December 31, 2002 our subsidiary, Crest Net Lease, Inc. ("Crest Net") had invested $4.6 million in a portfolio of four retail properties located in three states. These properties are held for sale. LIQUIDITY AND CAPITAL RESOURCES CASH RESERVES. Realty Income is organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of its net cash flow generated from leases on its retail properties. We intend to retain an appropriate amount of cash as working capital. At December 31, 2002, we had cash and cash equivalents totaling $8.9 million. We believe that our cash and cash equivalents on hand, cash provided from operating activities and borrowing capacity are sufficient to meet our liquidity needs for the foreseeable future. We intend, however, to use additional sources of capital to fund property acquisitions and to repay our credit facility. NEW $250 MILLION BANK CREDIT FACILITY. In October 2002, we entered into a new $250 million credit facility to replace our existing $200 million acquisition credit facility and our $25 million credit facility, each of which was scheduled to expire during 2003. Under the terms of the new credit facility, total funds available were increased by $25 million. Concurrent with the closing of the new facility, our previous credit facilities were canceled. At March 1, 2003, the $250 million credit facility had an outstanding balance of $107.1 million. 23 The borrowing rate on the new credit facility was reduced compared to the previous credit facilities. Realty Income's current investment grade credit ratings provide for financing at LIBOR (London Interbank Offered Rate) plus 90 basis points with a facility fee of 20 basis points, for all-in drawn pricing of 110 basis points over LIBOR, as compared to an all-in pricing of 145 basis points on our previous credit facilities. The term of the new facility extends through October 2005. The co-lead Arranger and sole Administrative Agent for the credit facility is Wells Fargo Bank, N.A., with The Bank of New York acting as co-lead Arranger and sole Documentation Agent. They are joined by the Bank of America, N.A. and Wachovia Bank, National Association as co-Syndication Agents. Five other banks are also participants in providing the credit facility: AmSouth Bank, Bank of Montreal, U.S. Bank National Association, BANK ONE, NA and Chevy Chase Bank, FSB. This credit facility 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 our exposure to interest rate risk. We have no mortgage debt on any of our properties. UNIVERSAL SHELF REGISTRATION OF $500 MILLION. In December 2002, we filed a universal shelf registration statement with the Securities and Exchange Commission ("SEC") covering up to $500 million in value of common stock, preferred stock and debt securities. This registration statement was declared effective by the SEC in January 2003. Through March 1, 2003, we have not issued any common stock, preferred stock or debt securities under the universal shelf registration statement. ISSUANCES OF COMMON STOCK IN 2002. In July 2002, we issued 1,550,000 shares of common stock at a price of $33.40 per share. The net proceeds of $48.9 million were used to repay borrowings under our $200 million acquisition credit facility. In February 2002, we issued 273,150 shares of common stock to a unit investment trust at a net price to us of $30.26 per share, based on a 5% discount to the market price at the time of issuance of $31.85 per share. The net proceeds of $8.2 million were used to repay bank borrowings under our $200 million acquisition credit facility. CONSERVATIVE CAPITAL STRUCTURE. We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At March 1, 2003, our total outstanding credit facility borrowings and outstanding notes were $337.1 million or approximately 20.4% of our total market capitalization of $1.65 billion. We define our total market capitalization as the sum of the: o Shares of our common stock outstanding multiplied by the last reported sales price of the common stock on the NYSE on March 1, 2003 of $34.66 per share; o Liquidation value of the Class B Preferred Stock; o Liquidation value of the Class C Preferred Stock; and o Outstanding borrowings on the credit facility and outstanding notes at March 1, 2003. Historically, we have met our long-term capital needs through the issuance of common stock, preferred stock and long-term unsecured notes. Over the long term, we believe that the majority of our future securities issuances should be in the form of common stock, however, we may issue additional preferred stock or debt securities from time to time. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties. In addition, we may issue common stock to permanently finance properties that were financed by our credit facility or debt securities. However, we cannot assure you that we will have access to the capital markets at terms that are acceptable to us. 24 CREDIT AGENCY RATINGS. We are currently assigned investment grade corporate credit ratings, on our senior unsecured notes, from Fitch Ratings, Moody's Investor Service, Inc. and Standard & Poor's Rating Group. Currently, Fitch Ratings has assigned a rating of BBB, Moody's has assigned a rating of Baa2 and Standard & Poor's has assigned a rating of BBB- to our senior notes. These ratings could change based upon, among other things, our results of operations and financial condition. We also have received credit ratings from the same rating agencies on our preferred stock. Fitch Ratings has assigned a rating of BBB-, Moody's Investor Service, Inc. has assigned a rating of Baa3 and Standard & Poor's Rating Group has assigned a rating of BB+. These ratings could change based upon, among other things, our results of operations and financial condition. NOTES OUTSTANDING. In January 1999, we issued $20 million of 8.0% senior notes due 2009 (the "2009 Notes"). Interest on the 2009 Notes is payable semiannually. In October 1998, we issued $100 million of 8.25% Monthly Income Senior Notes due 2008 (the "2008 Notes"). Interest on the 2008 Notes is payable monthly. In May 1997, we issued $110 million of 7.75% senior notes due 2007 (the "2007 Notes"). Interest on the 2007 Notes is payable semiannually. All of these notes contain various covenants, including: (i) a limitation on incurrence of any debt which would cause the Company's debt to total assets ratio to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause the Company's secured debt to total assets ratio to exceed 40%; (iii) a limitation on incurrence of any debt which would cause the Company's debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150% of the Company's outstanding unsecured debt. The Company has been in compliance with all of these note covenants since each of the notes were issued. NO UNCONSOLIDATED INVESTMENTS. Realty Income and its subsidiaries have no unconsolidated investments in "special purpose entities", "variable interest entities", or off-balance sheet financing, nor do we engage in trading activities involving energy or commodity contracts or other derivative instruments. PROPERTY ACQUISITIONS. In 2002, we acquired 108 properties (the "New Properties") located in 24 states and invested $133.3 million in the New Properties and properties under development, which includes investments of $3.5 million for properties acquired before 2002. We have committed to pay estimated unfunded development costs of $9.3 million on properties under construction at December 31, 2002. In 2002, we capitalized $377,000 for re-leasing costs and $642,000 for building improvements on existing properties in our portfolio. The initial weighted average annual unleveraged return on the $133.3 million invested in 2002 is estimated to be 10.4%, computed as estimated contractual net operating income (which in the case of a net-leased property is equal to the base rent or, in the case of properties under construction, the estimated base rent under the lease) for the first year of each lease, divided by the estimated total costs. Since it is possible that a tenant could default on the payment of contractual rent, we cannot assure you that the actual return on the funds invested will remain at the percentage listed above. The New Properties are expected to contain approximately 719,800 leasable square feet and are 100% leased under net leases, with an average initial lease term of 19.8 years. At December 31, 2002, six of the New Properties were leased and under construction, pursuant to contracts under which the tenants agreed to develop the properties (with development costs funded by Realty Income), with rent scheduled to begin during 2003. 25 In 2001, we acquired 91 properties (the "2001 Properties") and invested $131.8 million in the 2001 Properties and properties under development. In 2001, we also paid $401,000 for re-leasing costs and $547,000 for building improvements on existing properties in our portfolio. The initial weighted average annual unleveraged return on the $131.8 million invested in 2001 is estimated to be 11.0%, computed in the same manner as 2002's estimated initial weighted average annual unleveraged return and subject to the same possible outcome described above. These 91 properties contain approximately 877,200 leasable square feet and are 100% leased under net leases, with an average initial lease term of 20.1 years. DISTRIBUTIONS. We pay monthly cash distributions to our common stockholders. We paid aggregate distributions to our common stockholders of $78.0 million in 2002, $64.9 million in 2001 and $58.3 million in 2000. We pay quarterly cash distributions to our Class B preferred stockholders. We paid aggregate distributions to our Class B preferred stockholders of $6.4 million in each of 2002, 2001 and 2000. We pay monthly cash distributions to our Class C preferred stockholders. We paid aggregate distributions to our Class C preferred stockholders of $3.3 million in each of 2002, 2001 and 2000. CREST NET. We formed Crest Net in January 2000 to purchase, own and sell properties, primarily to buyers using tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). Realty Income owns 100% of Crest Net's stock. The financial statements of Crest Net are consolidated into Realty Income's financial statements. All material intercompany transactions have been eliminated in consolidation. In 2002, Crest Net invested $6.1 million in three retail properties. These three properties are expected to contain approximately 13,200 leasable square feet, are 100% leased and have initial lease terms averaging 18.4 years. Two of these properties were sold in 2002. In 2001, Crest Net invested $24.7 million in 26 retail properties. These 26 properties contain approximately 102,300 leasable square feet, are 100% leased and have initial lease terms averaging 20.1 years. Twenty-three of these properties were sold during 2001 and 2002. In 2002, Crest Net sold 23 properties from its inventory for $27.3 million and Realty Income recorded a gain of $3.5 million, before income taxes. At the end of 2002, Crest Net carried an inventory of $4.6 million, which is included on Realty Income's consolidated balance sheet in real estate held for sale, net. In 2002, Crest Net generated $2.7 million in funds from operations for Realty Income. The contribution, if any, to our FFO by Crest Net will depend on the timing and the number of property sales achieved by Crest Net, if any, in a given year. In 2001, Crest Net sold nine properties from its inventory for $28.9 million and we recorded a gain of $3.4 million, before income taxes. In 2001, Crest Net generated $2.4 million in funds from operations for Realty Income. STOCK AND SENIOR DEBT PURCHASE PROGRAM. In January 2000, our Board of Directors authorized the purchase of up to $10 million of our outstanding common and preferred shares and senior debt securities. From time to time since January 2000, we concluded our share price justified purchasing shares since this provided an attractive return on our investment capital. We purchased an aggregate of $6.7 million of our securities since January 2000. We did not purchase any of our securities in 2002. 26 FUNDS FROM OPERATIONS ("FFO") FFO for 2002 increased by $17.3 million, or 22.2%, to $95.1 million versus $77.8 million in 2001. FFO in 2000 was $67.2 million. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable Generally Accepted Accounting Principles ("GAAP") measure) to FFO and information regarding distributions paid and the diluted weighted average number of shares outstanding for 2002, 2001 and 2000 (dollars in thousands):
2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- Net income available to common stockholders $ 68,954 $ 57,846 $ 45,076 Depreciation and amortization: Continuing operations 30,833 28,447 28,325 Discontinued operations 394 678 678 Depreciation of furniture, fixtures and equipment (136) (115) (128) Provision for impairment losses: Continuing operations -- 1,380 -- Discontinued operations 1,320 70 -- Gain on sales of investment properties: Continuing operations (340) (10,478) (6,712) Discontinued operations (5,957) -- -- - ----------------------------------------------------------------------------------------------------------------------- Total funds from operations $ 95,068 $ 77,828 $ 67,239 ======================================================================================================================= Distributions paid to common stockholders $ 78,042 $ 64,871 $ 58,262 FFO in excess of distributions to common stockholders $ 17,026 $ 12,957 $ 8,977 Diluted weighted average number of shares outstanding 33,988,157 29,281,120 26,700,806
We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trust's definition, as net income available to common stockholders, plus depreciation and amortization of assets uniquely significant to the real estate industry, reduced by gains and increased by losses on (i) sales of investment property and provisions for impairment and (ii) extraordinary items. ADJUSTED FUNDS FROM OPERATIONS ("AFFO") We utilize AFFO as a non-GAAP measure of our cash available for distributions to our common stockholders. Most companies in our industry use a similar measurement, but they may use the term "CAD" (for Cash Available for Distribution) or "FAD" (for Funds Available for Distribution). We define AFFO as funds from operations: (i) plus certain non-cash items (including amortization of treasury lock settlements, note financing costs and stock compensation), (ii) minus capitalized expenditures on existing properties in our portfolio (such as capitalized re-leasing costs and commissions and capitalized building improvements), and (iii) plus or minus straight-line rent (which is non-cash rental revenue). 27 AFFO for 2002 increased by $17.3 million, or 22.0%, to $95.8 million versus $78.5 million in 2001. AFFO in 2000 was $67.8 million. The following is a reconciliation of FFO to AFFO for the years ended December 31, 2002, 2001 and 2000. The adjustments are for non-cash items and capitalized expenditures on existing properties in our portfolio (dollars in thousands):
2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- Funds from operations $ 95,068 $ 77,828 $ 67,239 Amortization of settlements on treasury lock agreements 756 756 756 Amortization of deferred note financing costs(1) 579 579 579 Amortization of stock compensation 595 301 194 Capitalized leasing costs and commissions (377) (401) (308) Capitalized building improvements (642) (547) (90) Straight line rent(2) (146) (12) (534) - ----------------------------------------------------------------------------------------------------------------------- Total adjusted funds from operations $ 95,833 $ 78,504 $ 67,836 ======================================================================================================================= Distributions paid to common stockholders $ 78,042 $ 64,871 $ 58,262 AFFO in excess of distributions to common stockholders $ 17,791 $ 13,633 $ 9,574 Diluted weighted average number of shares outstanding 33,988,157 29,281,120 26,700,806 (1) Amortization of deferred note financing costs includes the amortization of costs incurred and capitalized when our senior unsecured notes were issued in May 1997, October 1998 and January 1999. These costs are being amortized over the lives of these notes. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included. (2) Our straight line rent exceeded our actual cash rent collected by the amounts indicated in each of the years presented.
We consider FFO and AFFO to be appropriate Non-GAAP measures of the performance of equity REITs. Financial analysts use FFO and AFFO in evaluating REITs. FFO and AFFO can be a way to measure a REIT's ability to make cash distribution payments. Presentation of this information is intended to assist the reader in comparing the performance of different REITs, although it should be noted that not all REITs calculate FFO and AFFO the same way; therefore, comparisons with other REITs may not be meaningful. FFO and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of Realty Income's performance. In addition, FFO and AFFO should not be considered as an alternative to reviewing our cash flows from operating, investing and financing activities as a measure of liquidity, of our ability to make cash distributions or of our ability to pay interest payments. 28 FFO GENERATED BY CREST NET Crest Net generated $2.7 million in FFO for Realty Income in 2002, $2.4 million in 2001 and $0.4 million in 2000. The following is a calculation of Crest Net's FFO contribution to Realty Income for 2002, 2001 and 2000 (dollars in thousands):
2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------- Gains from the sales of real estate acquired for resale $ 3,495 $ 3,374 $ 766 Rent and other revenue 1,422 1,816 1,234 Interest expense (395) (869) (913) General and administrative expenses (410) (496) (333) Property expenses (117) -- -- Income taxes (1,247) (1,400) (332) - ------------------------------------------------------------------------------------------------------------------------- Funds from operations contributed by Crest Net $ 2,748 $ 2,425 $ 422 ========================================================================================================================= Diluted weighted average number of shares outstanding 33,988,157 29,281,120 26,700,806
RESULTS OF OPERATIONS Management is required to make a number of assumptions and estimates that directly impact the consolidated financial statements and related disclosures. Those assumptions and estimates are the basis for certain of our accounting policies described in note 2 to the consolidated financial statements. The accounting policies that are most important to the portrayal of the Company's financial condition and results of operations, and require management's most difficult, subjective or complex judgments, are considered to be critical accounting policies. Because of the uncertainties inherent in making assumptions and estimates regarding unknown future outcomes, events may result in significant differences between our estimates and actual results. Management believes that each of our assumptions and estimates are appropriate under the circumstances and represent the most likely outcome. We believe our most critical accounting policies relate to depreciable lives of our real estate assets and recoverability (impairment) of our real estate assets. THE FOLLOWING IS A COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER 31, 2001. RENTAL REVENUE was $137.1 million for 2002 versus $119.7 million for 2001, an increase of $17.4 million, or 14.5%. The increase in rental revenue is attributable to: o The 108 properties acquired in 2002, which generated revenue of $6.4 million; o The 91 properties acquired in 2001, which generated revenue of $13.9 million in 2002 compared to $2.9 million in 2001, an increase of $11.0 million; o Properties owned by Crest Net, which generated revenue of $1.4 million in 2002 compared to $1.8 million in 2001, a decrease of $0.4 million; o Properties sold during 2002 and 2001, which generated rental revenue of $44,000 in 2002 as compared to $1.87 million in 2001, a decrease of $1.83 million (excluding rental revenue included in discontinued operations); o Development properties acquired before 2001 that started paying rent in 2001, properties that were vacant during part of 2002 or 2001, straight-line rent and lease termination settlements that generated revenue of $5.3 million in 2002 as compared to $4.6 million in 2001, an increase of $0.7 million; and o Same store rents generated on 950 leased properties owned in all of both 2002 and 2001 increased by $1.45 million, or 1.3%, to $109.97 million from $108.52 million. 29 Of the 1,197 properties in the portfolio at December 31, 2002, 1,192, or 99.6%, are single-tenant properties with the remaining properties being multi-tenant properties. Of the 1,192 single-tenant properties, 1,165, or 97.7%, were net leased with a weighted average remaining lease term (excluding extension options) of approximately 10.9 years at December 31, 2002. Of our 1,165 leased single-tenant properties, 1,102, or 94.6%, were under leases that provide for increases in rents through: o Base rent increases tied to a consumer price index with adjustment ceilings; o Overage rent based on a percentage of the tenants' gross sales; o Fixed increases; or o A combination of two or more of the above rent provisions. Percentage rent, which is included in rental revenue, was $1.6 million in 2002 and $1.7 million in 2001. Our portfolio of retail real estate, owned under net leases, continues to perform well and provide dependable lease revenue supporting the payment of monthly dividends. At December 31, 2002, our property portfolio consisting of 1,197 retail properties, was 97.7% leased with only 27 properties available for lease. Transactions to lease or sell 13 of the 27 properties available for lease or sale at December 31, 2002 were underway or completed as of March 1, 2003. We anticipate these transactions to be completed during the next six months, although we cannot guarantee that all of these properties can be sold or leased within this period. It has been our experience that approximately 1% to 3% of our property portfolio will be available for lease at any given time; however, we cannot assure you that the number of properties available for lease will not exceed these levels. GAIN ON SALES OF REAL ESTATE ACQUIRED FOR RESALE. In 2002, Crest Net sold 23 properties for $27.3 million and Realty Income recognized a gain on the sales of $3.5 million, before income taxes. In 2001, Crest Net sold nine properties for $28.9 million and Realty Income recognized a gain on the sales of $3.4 million, before income taxes. At December 31, 2002, Crest Net had $4.6 million invested in four properties, which are held for sale. It is Crest Net's intent to carry an average inventory of between $20 million to $25 million in real estate. We anticipate Crest Net's level of inventory increasing during 2003. Crest Net generates an earnings spread on the difference between the lease payments it receives and the cost of capital used to acquire its properties. This earnings spread on Crest Net's inventory covers the ongoing operating expenses of Crest Net. INTEREST EXPENSE. The following is a summary of the five components of interest expense for 2002 and 2001 (dollars in thousands):
2002 2001 Net Change - ---------------------------------------------------------------------------------------------------------------------- Interest on outstanding loans and notes $ 21,221 $ 24,479 $ (3,258) Amortization of settlements on treasury lock agreements 756 756 -- Credit facility commitment fees 514 513 1 Amortization of credit facility origination costs and deferred note financing costs 1,556 1,103 453 Interest capitalized (511) (385) (126) - ---------------------------------------------------------------------------------------------------------------------- Interest expense $ 23,536 $ 26,466 $ (2,930) ====================================================================================================================== Credit facilities and notes outstanding (dollars in thousands): 2002 2001 Net Change - ---------------------------------------------------------------------------------------------------------------------- Average outstanding balances $326,107 $326,050 $ 57 Average interest rates 6.51% 7.51% (1.00%)
30 Interest on outstanding loans and notes was $3.3 million lower in 2002 than in 2001 primarily due to a decrease of 100 basis points in our average interest rate. The average interest rate on our credit facilities decreased to 2.96% in 2002 from 6.36% in 2001. Over the past two years, the Federal Reserve decreased the federal funds rate 12 times. Correspondingly, the average borrowing rate on our credit facilities declined during the same period. Unamortized fees of $406,000 relating to our canceled credit facilities were charged to interest expense in October 2002. At March 1, 2003, the weighted average interest rate on our: o Credit facility borrowings of $107.1 million was 2.43%; o Notes payable of $230 million was 7.99%; and o Combined outstanding credit facility and notes of $337.1 million was 6.22%. INTEREST COVERAGE RATIO. Our interest rate coverage for 2002 was 5.5 times and for 2001 was 4.4 times. Interest coverage ratio is calculated as: EBITDA divided by interest expense. EBITDA is calculated as follows: net income plus interest expense, income taxes, depreciation, amortization and impairment losses less gain on sales of investment properties. Our EBITDA for the years ended December 31, 2002 and 2001 was $130.2 million and $115.9 million, respectively. This information should not be considered as an alternative to any GAAP performance measures. Our calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. The following is a reconciliation of net income to EBITDA for 2002 and 2001 (dollars in thousands):
2002 2001 ----------------------------------------------------------------------------------------------------------- Net income $ 78,667 $ 67,558 Interest 23,536 26,466 Income taxes 1,744 1,792 Depreciation: Continuing operations 30,833 28,447 Discontinued operations 394 678 Impairment losses: Continuing operations -- 1,380 Discontinued operations 1,320 70 Gain on sales of investment properties: Continuing operations (340) (10,478) Discontinued operations (5,957) -- -------------------------------------------------------------------------------------------------------- EBITDA $ 130,197 $ 115,913 ===========================================================================================================
FIXED COVERAGE RATIO. Our fixed coverage ratio for 2002 was 3.9 times and for 2001 was 3.2 times. Fixed coverage ratio is calculated as follows: EBITDA divided by the sum of interest expense and preferred stock dividends. This information should not be considered as an alternative to GAAP performance measures. DEPRECIATION AND AMORTIZATION was $30.8 million in 2002 versus $28.4 million in 2001. The increase in depreciation and amortization was due to the acquisition of properties in 2001 and 2002, which was offset by property sales in 2001 and 2002. Depreciation of buildings and improvements is computed using the straight-line method over an estimated useful life of 25 years. If we used a shorter or longer estimated useful life it could have a material impact on our results of operations and financial position. We believe that 25 years is an appropriate estimate of useful life. No depreciation has been recorded on Crest Net's properties because they are held for sale. 31 Amortization expense related to goodwill for 2001 was $924,000. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 2002, our goodwill is no longer amortized, but instead will be tested for impairment at least annually. If goodwill is determined to be impaired, a provision for impairment will be recorded to reduce the carrying value to its fair value. During the second quarter of 2002, we completed the transitional impairment testing of our goodwill and found that our goodwill was not impaired. GENERAL AND ADMINISTRATIVE EXPENSES increased by $1.7 million to $9.5 million in 2002 versus $7.8 million in 2001. General and administrative expenses as a percentage of total revenue increased to 6.7% in 2002 as compared to 6.3% in 2001. Included in general and administrative expenses are $410,000 and $496,000 of expenses attributable to Crest Net in 2002 and 2001, respectively. General and administrative expenses, excluding expenses attributable to Crest Net, increased primarily due to increases in corporate insurance, payroll costs and staffing. We had 56 employees at March 1, 2003 compared to 53 employees at March 1, 2002. PROPERTY EXPENSES are broken down into costs associated with non-net leased multi-tenant properties, unleased single-tenant properties and general portfolio expenses. Expenses related to the multi-tenant and unleased single-tenant properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections, bad debt expense and legal fees. General portfolio costs include, but are not limited to, insurance, legal, property inspections and title search fees. At December 31, 2002, 27 properties were available for lease, as compared to 20 at December 31, 2001. Property expenses were $2.7 million in 2002 and $2.4 million in 2001. The $300,000 increase in property expenses is primarily attributable to an increase in portfolio property insurance and costs associated with properties available for lease. OTHER EXPENSES were $1.7 million in 2002 and $1.8 million in 2001. The following is a summary of our other expenses in 2002 and 2001 (dollars in thousands):
2002 2001 Net Change - ---------------------------------------------------------------------------------------------------------------------- Realty Income state and local income taxes $ 497 $ 392 $ 104 Crest Net income taxes 1,247 1,400 (152) - ---------------------------------------------------------------------------------------------------------------------- Other expenses $ 1,744 $ 1,792 $ (48) ======================================================================================================================
A PROVISION FOR IMPAIRMENT LOSS of $1.3 million was recorded in 2002, and is included in discontinued operations. A provision for impairment loss of $1.5 million was recorded in 2001. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Generally, a provision is made for impairment loss if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value. Impairment losses are measured as the amount by which the current book value of the asset exceeds the fair value of the asset. The carrying value of our real estate is the largest component of our consolidated balance sheet. If events should occur that required us to reduce the carrying value of our real estate by recording provisions for impairment losses, it could have a material impact on our results of operations or financial position. GAIN ON SALES OF INVESTMENT PROPERTIES. In 2002, we sold or exchanged 35 properties for a total of $20.2 million and recognized a gain of $6.3 million. Of this gain, $6.0 million is included in income from discontinued operations. In 2001, we sold 35 properties for a total of $39.5 million and recognized a gain of $10.5 million. The gain recognized from property sales in 2002 was $4.2 million less than the gain recognized from property sales in 2001. 32 INCOME FROM DISCONTINUED OPERATIONS. In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Effective January 1, 2002, Statement No. 144 superseded Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Statement No. 144 requires long-lived assets to be disposed of to be measured at the lower of carrying amount or fair value less cost to sell on our balance sheet. It also broadened the reporting requirements of discontinued operations to include a component of an entity rather than a segment of a business. Statement No. 144 states that a component of an entity comprises operations and cash flows that clearly can be distinguished, operationally and for financial reporting purposes, from the rest of the entity. In accordance with Statement No. 144, we report each individual property as a reporting component for determining discontinued operations. Four properties listed as held for sale at December 31, 2002, plus 32 properties sold during 2002 were reported as discontinued operations. As required by Statement No. 144, three other properties reported as held for sale at December 31, 2001, that were sold during 2002, were not reported as discontinued operations. The following is a summary of our income from discontinued operations for 2002 and 2001 (dollars in thousands):
2002 2001 Net Change - -------------------------------------------------------------------------------------------------------------------- Rental revenue $ 1,536 $ 2,348 $ (812) Interest and other revenue 2 14 (12) Gain on sales of investment properties 5,957 -- 5,957 Depreciation and amortization (394) (678) 284 Property expenses (191) (137) (54) Provision for impairment losses (1,320) (70) (1,250) - -------------------------------------------------------------------------------------------------------------------- Income from discontinued operations $ 5,590 $ 1,477 $ 4,113 ====================================================================================================================
We have an active portfolio management program that incorporates the sale of assets when we believe the reinvestment of the sale proceeds will generate higher returns, enhance the credit quality of our real estate portfolio or extend our average remaining lease term. At December 31, 2002, we classified real estate with a carrying amount of $6.5 million as held for sale, which includes $4.6 million in properties owned by Crest Net. Additionally, we anticipate selling investment properties from our portfolio that have not yet been specifically identified. We anticipate we will receive between $15 million and $30 million in proceeds from the sale of investment properties during the next 12 months. We intend to invest these proceeds into new property acquisitions. PREFERRED STOCK DIVIDENDS. We paid preferred stock dividends of $9.7 million in both 2002 and 2001. NET INCOME AVAILABLE TO COMMON STOCKHOLDERS in 2002 increased by $11.2 million, or 19.4%, to $69.0 million versus $57.8 million in 2001. The calculation to determine net income available to common stockholders includes gains and losses from the sale of investment properties. The amount of gains and losses varies from year to year based on the timing of property sales and can significantly impact net income available to common stockholders. The gain recognized from the sales of investment properties during 2002 was $6.3 million. This was $4.2 million less than the gain recognized from investment property sales during 2001. Excluding the gain on sales of investment properties, net income available to common stockholders increased by $15.4 million, or 32.6%. 33 THE FOLLOWING IS A COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31, 2000. RENTAL REVENUE was $119.7 million for 2001 versus $114.7 million for 2000, an increase of $5.0 million, or 4.4%. The increase in rental revenue is attributable to: o The 91 properties acquired in 2001, which generated revenue of $2.9 million; o The 13 properties acquired in 2000, which generated revenue of $6.0 million in 2001 compared to $1.7 million in 2000, an increase of $4.3 million; o Properties owned by Crest Net, which generated revenue of $1.8 million in 2001 compared to $1.2 million in 2000, an increase of $588,000; o Properties sold during 2000 and 2001, which generated revenue of $1.4 million in 2001 as compared to $7.0 million in 2000, a decrease of $5.6 million; o Net rental increase of $900,000 on development properties acquired before 2000 that started paying rent in 2000 and properties that were vacant during part of 2000 or 2001; and o Same store rents generated on 977 leased properties owned in all of both 2001 and 2000 increased by $1.8 million, or 1.8%, to $105.24 million from $103.41 million. Percentage rent, which is included in rental revenue, was $1.7 million in 2001 and $2.0 million in 2000. GAIN ON SALES OF REAL ESTATE ACQUIRED FOR RESALE. In 2001, Crest Net sold nine properties for $28.9 million and we recognized a gain of $3.4 million, before income taxes. In 2000, Crest Net sold two properties for $6.2 million and we recognized a gain of $766,000, before income taxes. INTEREST EXPENSE. The following is a summary of the five components of interest expense for 2001 and 2000 (dollars in thousands):
2001 2000 Net Change - ---------------------------------------------------------------------------------------------------------------------- Interest on outstanding loans and notes $ 24,479 $ 30,259 $ (5,780) Amortization of settlements on treasury lock agreements 756 756 -- Credit facility commitment fees 513 508 5 Amortization of credit facility origination costs and deferred bond financing costs 1,103 1,072 31 Interest capitalized (385) (1,048) 663 - ---------------------------------------------------------------------------------------------------------------------- Interest expense $ 26,466 $ 31,547 $ (5,081) ====================================================================================================================== Credit facilities and notes outstanding (dollars in thousands): 2001 2000 Net Change - ---------------------------------------------------------------------------------------------------------------------- Average outstanding balances $326,050 $384,921 $(58,871) Average interest rates 7.51% 7.86% (0.35%)
Interest on outstanding loans and notes was $5.8 million lower in 2001 than in 2000 primarily due to a decrease of $58.9 million in the average outstanding balances and a decrease of 35 basis points in our average interest rate. The average interest rate on our credit facilities decreased to 6.36% in 2001 from 7.67% in 2000. The majority of our credit facilities interest rate reductions in 2001 occurred during the second half of the 2001. In 2001, the Federal Reserve decreased the federal funds rate 11 times by an aggregate total of 475 basis points. Correspondingly, the average borrowing rate on our credit facilities declined during the same period. 34 INTEREST COVERAGE RATIO. Our interest coverage ratio for 2001 was 4.4 times and for 2000 was 3.5 times. Our EBITDA (as defined above) for the years ended December 31, 2001 and 2000 was $115.9 million and $109.4 million, respectively. The following is a reconciliation of net income to EBITDA for 2001 and 2000 (dollars in thousands):
2001 2000 ----------------------------------------------------------------------------------------------------------- Net income $ 67,558 $ 54,788 Interest 26,466 31,547 Income taxes 1,792 807 Depreciation: Continuing operations 28,447 28,325 Discontinued operations 678 678 Impairment losses: Continuing operations 1,380 -- Discontinued operations 70 -- Gain on sales of investment properties: Continuing operations (10,478) (6,712) Discontinued operations -- -- ----------------------------------------------------------------------------------------------------------- EBITDA $ 115,913 $ 109,433 ===========================================================================================================
FIXED COVERAGE RATIO. Our fixed coverage ratio (as defined above) for 2001 was 3.2 times and for 2000 was 2.7 times. DEPRECIATION AND AMORTIZATION was $28.4 million in 2001 versus $28.3 million in 2000. Amortization of goodwill for each of the years 2001 and 2000 was $924,000. GENERAL AND ADMINISTRATIVE EXPENSES increased by $996,000 to $7.8 million in 2001 versus $6.8 million in 2000. General and administrative expenses as a percentage of revenue increased to 6.3% in 2001 as compared to 5.9% in 2000. Included in general and administrative expenses are $496,000 and $333,000 of expenses attributable to Crest Net in 2001 and 2000, respectively. General and administrative expenses, excluding expenses attributable to Crest Net, increased primarily due to increases in the cost of living, which includes increases in payroll costs. We had 53 employees at March 1, 2002 compared to 49 employees at March 1, 2001. PROPERTY EXPENSES were $2.4 million in 2001 and $2.0 million in 2000. The $400,000 increase in property expenses is primarily attributable to an increase in portfolio property insurance and costs associated with properties available for lease. OTHER EXPENSES were $1.8 million in 2001 and $807,000 in 2000. The increase in 2001 is primarily attributable to an increase in Crest Net income taxes. The following is a summary of our other expenses in 2001 and 2000 (dollars in thousands):
2001 2000 Net Change - ---------------------------------------------------------------------------------------------------------------------- Realty Income state and local income taxes $ 392 $ 475 $ (83) Crest Net income taxes 1,400 332 1,068 - ---------------------------------------------------------------------------------------------------------------------- Other expenses $ 1,792 $ 807 $ 985 ======================================================================================================================
35 A PROVISION FOR IMPAIRMENT LOSS of $1.5 million was recorded in 2001. No provision for impairment loss was recorded in 2000. GAIN ON SALES OF INVESTMENT PROPERTIES. In 2001, we sold 35 properties for a total of $39.5 million and recognized a gain of $10.5 million. In 2000, we sold 21 properties for a total of $45.2 million and recognized a gain of $6.7 million. Included in the 21 properties sold in 2000, are two properties, valued at $22.7 million, leased by one of our tenants that we exchanged for two other properties owned by that tenant. The gain recognized from property sales in 2001 was $10.5 million, or $3.8 million greater than the gain recognized from property sales in 2000 of $6.7 million. INCOME FROM DISCONTINUED OPERATIONS. Four properties listed as held for sale at December 31, 2002, plus 32 properties sold during 2002 were reported as discontinued operations. The following is a summary of our income from discontinued operations for 2001 and 2000 (dollars in thousands):
2001 2000 Net Change - -------------------------------------------------------------------------------------------------------------------- Rental revenue $ 2,348 $ 2,515 $ (167) Interest and other revenue 14 -- 14 Gain on sales of investment properties -- -- -- Depreciation and amortization (678) (678) -- Property expenses (137) (33) (104) Provision for impairment loss (70) -- (70) - -------------------------------------------------------------------------------------------------------------------- Income from discontinued operations $ 1,477 $ 1,804 $ (327) ====================================================================================================================
PREFERRED STOCK DIVIDENDS. We paid preferred stock dividends of $9.7 million in both 2001 and 2000. NET INCOME AVAILABLE TO COMMON STOCKHOLDERS in 2001 increased by $12.7 million to $57.8 million versus $45.1 million in 2000. IMPACT OF INFLATION Tenant leases generally provide for limited increases in rent as a result of increases in the tenants' sales volumes, increases in the consumer price index, and/or fixed increases. We expect that inflation will cause these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation. Approximately 97.3%, or 1,165, of the 1,197 properties in the portfolio are leased to tenants under net leases where the tenant is responsible for property costs and expenses. These lease features reduce our exposure to rising property expenses due to inflation. Inflation and increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed their increases in revenue. IMPACT OF ACCOUNTING PRONOUNCEMENTS A. In November 2002, the FASB issued FIN No. 45, Accounting and Disclosure for Guarantees. FIN No. 45 addresses certain guarantees and the initial recognition, measurement and disclosure at inception of the guarantee. The impact of adopting FIN No. 45 is not expected to have a material effect on our financial position or results of operations. 36 B. In January 2003, the FASB issued FIN No. 46, Consolidation of Certain Variable Interest Entities. FIN No. 46 requires consolidation of a variable interest entity by an enterprise that holds a controlling financial interest. The impact of adopting FIN No. 46 is not expected to have a material effect on our financial position or results of operations. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- We are exposed to interest rate changes primarily as a result of our credit facility and long-term notes used to maintain liquidity and expand our real estate investment portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flow and to lower our overall borrowing costs. To achieve these objectives we issue long-term notes, primarily at fixed rates, and may selectively enter into derivative financial instruments such as interest rate lock agreements, interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We were not a party to any derivative financial instruments at December 31, 2002. We do not enter into any transactions for speculative or trading purposes. Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts, weighted average interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in table in millions):
Expected Maturity Data ------------------------------------------ 2005 2007 Thereafter Total Fair Value(4) ---- ---- ---------- ----- ------------- Fixed rate debt -- $110.0(2) $120.0(3) $230.0 $250.6 Average interest rate 7.75% 8.21% 7.99% Variable rate debt $109.7(1) -- -- $109.7 $109.7 Average interest rate 2.45% 2.45% (1) The credit facility expires in October 2005. (2) $110 million matures in May 2007. (3) $100 million matures in October 2008 and $20 million matures in January 2009. (4) We base the fair value of the fixed rate debt at December 31, 2002 on the closing market price or indicative price per each note. The fair value of the variable rate debt approximates its carrying value because its terms are similar to those available in the market place.
The table incorporates only those exposures that exist as of December 31, 2002; it does not consider those exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss, with respect to interest rate fluctuations, would depend on the exposures that arise during the period, our hedging strategies at the time, and interest rates. 37 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
TABLE OF CONTENTS PAGE A. Independent Auditors' Report............................................................. 39 B. Consolidated Balance Sheets, December 31, 2002 and 2001............................................................... 40 C. Consolidated Statements of Income, Years ended December 31, 2002, 2001 and 2000............................................. 41 D. Consolidated Statements of Stockholders' Equity, Years ended December 31, 2002, 2001 and 2000............................................. 42 E. Consolidated Statements of Cash Flows, Years ended December 31, 2002, 2001 and 2000............................................. 43 F. Notes to Consolidated Financial Statements............................................... 44 G. Consolidated Quarterly Financial Data (unaudited) for 2001 and 2000............................................................ 57 H. Schedule III Real Estate and Accumulated Depreciation
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. 38 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Realty Income Corporation: We have audited the consolidated financial statements of Realty Income Corporation and subsidiaries as listed in the accompanying table of contents. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule III as listed in the accompanying table of contents. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Realty Income Corporation and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP San Diego, California January 24, 2003, except as to the third paragraph of Note 5, which is as of March 1, 2003 39 REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ----------------------------------------- December 31, 2002 and 2001 (dollars in thousands, except per share data)
2002 2001 - -------------------------------------------------------------------------------------------------------------------- ASSETS Real estate, at cost: Land $ 467,488 $ 412,455 Buildings and improvements 818,412 765,707 - -------------------------------------------------------------------------------------------------------------------- 1,285,900 1,178,162 Less accumulated depreciation and amortization (254,250) (233,848) - -------------------------------------------------------------------------------------------------------------------- Net real estate held for investment 1,031,650 944,314 Real estate held for sale, net 6,528 23,356 - -------------------------------------------------------------------------------------------------------------------- Net real estate 1,038,178 967,670 Cash and cash equivalents 8,921 2,467 Accounts receivable 4,408 4,857 Goodwill, net 17,206 17,206 Other assets 11,517 11,508 - -------------------------------------------------------------------------------------------------------------------- Total assets $ 1,080,230 $ 1,003,708 ==================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Distributions payable $ 6,801 $ 6,238 Accounts payable and accrued expenses 5,047 5,834 Other liabilities 6,227 4,543 Lines of credit payable 109,700 85,300 Notes payable 230,000 230,000 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 357,775 331,915 - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies Stockholders' equity Preferred stock and paid in capital, par value $1.00 per share, 20,000,000 shares authorized, 4,125,700 shares issued and outstanding 99,368 99,368 Common stock and paid in capital, par value $1.00 per share, 100,000,000 shares authorized, 34,874,827 and 32,829,111 shares issued and outstanding in 2002 and 2001, respectively 855,818 795,505 Distributions in excess of net income (232,731) (223,080) - -------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 722,455 671,793 - -------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,080,230 $ 1,003,708 ==================================================================================================================== The accompanying notes to consolidated financial statements are an integral part of these statements.
40 REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME -------------------------------------------------- Years Ended December 31, 2002, 2001 and 2000 (dollars in thousands, except per share data)
2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------- REVENUE Rental $ 137,138 $ 119,713 $ 114,675 Gain on sales of real estate acquired for resale 3,495 3,374 766 Interest and other 347 822 353 - --------------------------------------------------------------------------------------------------------------------- 140,980 123,909 115,794 - --------------------------------------------------------------------------------------------------------------------- EXPENSES Interest 23,536 26,466 31,547 Depreciation and amortization 30,833 28,447 28,325 General and administrative 9,454 7,840 6,844 Property 2,676 2,381 1,999 Other 1,744 1,792 807 Provision for impairment losses -- 1,380 -- - --------------------------------------------------------------------------------------------------------------------- 68,243 68,306 69,522 - --------------------------------------------------------------------------------------------------------------------- Income from operations 72,737 55,603 46,272 Gain on sales of investment properties 340 10,478 6,712 - --------------------------------------------------------------------------------------------------------------------- Income from continuing operations 73,077 66,081 52,984 Income from discontinued operations 5,590 1,477 1,804 - --------------------------------------------------------------------------------------------------------------------- Net income 78,667 67,558 54,788 Preferred stock dividends (9,713) (9,712) (9,712) - --------------------------------------------------------------------------------------------------------------------- Net income available to common stockholders $ 68,954 $ 57,846 $ 45,076 ====================================================== == ================= === ================ === ================ Income from continuing operations per common share: Basic $ 1.87 $ 1.93 $ 1.62 Diluted $ 1.86 $ 1.93 $ 1.62 Net income available to common stockholders per common share: Basic and diluted $ 2.03 $ 1.98 $ 1.69 The accompanying notes to consolidated financial statements are an integral part of these statements.
41 REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ----------------------------------------------- Years Ended December 31, 2002, 2001 and 2000 (dollars in thousands)
Shares of Preferred Common ----------------------------- Stock and stock and Distributions Preferred Common paid in paid in in excess of Stock Stock capital capital net income Total -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 4,140,000 26,822,164 99,679 $ 636,611 $ (201,459) $ 534,831 Net income -- -- -- -- 54,788 54,788 Distributions paid and payable -- -- -- -- (68,060) (68,060) Shares purchased (14,300) (284,500) (276) (6,223) -- (6,499) Shares issued -- 27,800 -- 593 -- 593 Shares forfeited -- (1,945) -- (49) -- (49) Stock offering costs -- -- (35) -- -- (35) -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 4,125,700 26,563,519 99,368 630,932 (214,731) 515,569 Net income -- -- -- -- 67,558 67,558 Distributions paid and payable -- -- -- -- (75,907) (75,907) Shares issued in stock offerings, net of offering costs of $9,044 -- 5,900,000 -- 157,041 -- 157,041 Shares purchased -- (6,800) -- (169) -- (169) Shares issued -- 380,527 -- 9,340 -- 9,340 Shares forfeited -- (8,135) -- (202) -- (202) Deferred stock compensation, net of forfeitures and amortization -- -- -- (1,437) -- (1,437) -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2001 4,125,700 32,829,111 99,368 795,505 (223,080) 671,793 Net income -- -- -- -- 78,667 78,667 Distributions paid and payable -- -- -- -- (88,318) (88,318) Shares issued in stock offerings, net of offering costs of $2,957 -- 1,823,150 -- 57,079 -- 57,079 Shares issued -- 222,828 -- 5,927 -- 5,927 Shares forfeited -- (262) -- (7) -- (7) Deferred stock compensation, net of forfeitures and amortization -- -- -- (2,686) -- (2,686) -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2002 4,125,700 34,874,827 99,368 $ 855,818 $ (232,731) $ 722,455 ================================================================================================================================ The accompanying notes to consolidated financial statements are an integral part of these statements.
42 REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------------------------- Years Ended December 31, 2002, 2001 and 2000 (dollars in thousands)
2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 78,667 $ 67,558 $ 54,788 Adjustments to net income: Depreciation and amortization 30,833 28,447 28,325 Provision for impairment losses -- 1,380 -- Income from discontinued operations (5,590) (1,477) (1,804) Cash from discontinued operations 1,347 2,225 2,482 Investments in real estate acquired for resale (6,724) (24,535) (28,577) Proceeds from sales of real estate acquired for resale 27,287 28,912 6,215 Gain on sales of real estate acquired for resale (3,495) (3,374) (766) Gain on sales of investment properties (340) (10,478) (6,712) Amortization of deferred stock compensation 595 301 194 Changes in assets and liabilities: Accounts receivable and other assets 202 1,125 291 Accounts payable, accrued expenses and other liabilities 2,025 (49) 2,154 - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 124,807 90,035 56,590 - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of investment properties: From continuing operations 1,198 39,543 22,536 From discontinued operations 18,530 -- -- Acquisition of and additions to investment properties (134,427) (132,291) (56,142) Increase in other assets -- -- (450) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (114,699) (92,748) (34,056) - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from lines of credit 332,700 196,300 157,700 Payments under lines of credit (308,300) (285,000) (102,900) Distributions to common stockholders (78,042) (64,871) (58,262) Distributions to preferred stockholders (9,713) (9,712) (9,712) Proceeds from common stock offerings, net of offering costs 57,079 157,041 -- Proceeds from other stock issuances 2,622 7,776 216 Proceeds from preferred stock offerings, net of offering costs -- -- (35) Shares purchased -- (169) (6,499) - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (3,654) 1,365 (19,492) - ----------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 6,454 (1,348) 3,042 Cash and cash equivalents, beginning of year 2,467 3,815 773 - ----------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 8,921 $ 2,467 $ 3,815 ============================================================================================================================= For supplemental disclosures, see note 14. The accompanying notes to consolidated financial statements are an integral part of these statements.
43 REALTY INCOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------------- December 31, 2002, 2001 and 2000 1. ORGANIZATION AND OPERATION Realty Income Corporation ("Realty Income," the "Company," "we" or "our") is organized as a Maryland corporation. We invest in commercial retail real estate and have elected to be taxed as a real estate investment trust ("REIT"). At December 31, 2002, we owned 1,197 properties in 48 states containing approximately 10 million leasable square feet, excluding four properties owned by our subsidiary, Crest Net Lease, Inc. ("Crest Net"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES FEDERAL INCOME TAXES. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended ("IRS Code"). We believe Realty Income 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 those distributions at the Company's level. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of Crest Net, which totaled $1.0 million, $1.2 million and $264,000 in 2002, 2001 and 2000, respectively, and which are included in other expenses. EARNINGS AND PROFITS, which determine the taxability of distributions to stockholders, differ from net income reported for financial reporting purposes due to differences for IRS Code purposes in the estimated useful lives and methods used to compute depreciation and the carrying value (basis) on the investments in properties, among other things. The following reconciles our net income available to common stockholders to taxable income for the year ended December 31, 2002 (dollars in thousands) (unaudited): Net income available to common stockholders $ 68,954 Tax loss on the sale of real estate less than book gain (8,850) Elimination of net revenue and expenses from Crest Net (2,586) Dividends received from Crest Net 2,300 Preferred dividends not deductible for tax 9,713 Depreciation and amortization timing differences 10,085 Impairment losses 1,320 Other adjustments 1,117 - -------------------------------------------------------------------------------- Estimated taxable net income $ 82,053 ================================================================================ NET INCOME PER COMMON SHARE. Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing the amount of net income available to common stockholders for the period by the number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. 44 The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation, for the years ended December 31:
2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- Weighted average shares used for Basic net income per share computation 33,933,749 29,225,359 26,684,598 Incremental shares from the assumed exercise of stock options 54,408 55,761 16,208 - ----------------------------------------------------------------------------------------------------------------------- Adjusted weighted average shares used for diluted net income per share computation 33,988,157 29,281,120 26,700,806 =======================================================================================================================
In 2002 and 2001, no stock options were anti-dilutive. In 2000, 296,653 stock options were anti-dilutive and therefore excluded from the incremental shares from the assumed exercise of stock options. DISCONTINUED OPERATIONS. In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Effective January 1, 2002, Statement No. 144 superseded Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Statement No. 144 requires long-lived assets to be disposed of to be measured on our balance sheet at the lower of carrying amount or fair value less costs to sell. It also broadened the reporting requirements of discontinued operations to include a component of an entity rather than a segment of a business. Statement No. 144 states that a component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In accordance with Statement No. 144, we report each individual property as a reporting component for determining discontinued operations. The operations of four properties listed as held for sale at December 31, 2002, plus 32 properties sold during 2002 were reported as income from discontinued operations in 2002, and their respective 2001 and 2000 results of operations were reclassified to income from discontinued operations. As required by Statement No. 144, three other properties reported as held for sale at December 31, 2001 that were sold during 2002 were not reported as discontinued operations. The following is a summary of our income from discontinued operations for the years ended December 31, 2002, 2001 and 2000 (dollars in thousands):
2002 2001 2000 ---------------------------------------------------------------------------------------------------- Rental revenue $ 1,536 $ 2,348 $ 2,515 Interest and other revenue 2 14 -- Gain on sales of investment properties 5,957 -- -- Depreciation and amortization (394) (678) (678) Property expenses (191) (137) (33) Provision for impairment loss (1,320) (70) -- ---------------------------------------------------------------------------------------------------- Income from discontinued operations $ 5,590 $ 1,477 $ 1,804 ==================================================================================================== Income from discontinued operations per common share Basic and diluted $ 0.16 $ 0.05 $ 0.07
45 LEASES. All leases are accounted for as operating leases. Under this method, lease payments that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. Any rent revenue contingent upon a tenant's sales is recognized only after the tenants exceed their sales breakpoint. Rental increases based upon changes in the consumer price indexes are recognized only after the changes in the indexes have occurred, and then applied according to the lease agreements. PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial statements include the accounts of Realty Income, Crest Net and other entities for which we make operational and financial decisions (control), after elimination of all material inter company balances and transactions. CASH EQUIVALENTS. We consider all short-term, highly liquid investments that are readily convertible to cash and have an original maturity of three months or less at the time of purchase to be cash equivalents. DEPRECIATION AND AMORTIZATION. Depreciation of buildings and improvements and amortization of goodwill are computed using the straight-line method over an estimated useful life of 25 years. MAINTENANCE AND REPAIRS. Expenditures for maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. PROVISION FOR IMPAIRMENT LOSSES. We review 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) plus estimated disposition proceeds (undiscounted) are less than the current book value. Impairment loss is measured as the amount by which the current book value of the asset exceeds the fair value of the asset. If a property is held for sale, it is carried at the lower of cost or estimated fair value, less cost to sell. Provisions for impairment losses of $1.3 million and $1.5 million were recorded in 2002 and 2001, respectively. No provision for impairment loss was recorded in 2000. STOCK OPTION PLAN. Prior to 2002 we accounted for our stock option plan in accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issues to Employees and related interpretations. No stock option-based compensation cost was reflected in 2001 or 2000 net income, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2002, we adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, and beginning in 2002 started expensing the costs for all stock option awards granted, modified, or settled after January 1, 2002. Stock option awards under the plan vest over periods ranging from one to five years. Therefore, the cost related to stock option-based compensation included in the determination of net income available to common stockholders is less than that which would have been recognized if the fair value based method had been applied to all stock option awards since the original effective date of Statement No. 123. The following table illustrates the effect on net income available to common stockholders and earnings per share if the fair based method had been applied to all outstanding and unvested awards in each period (dollars in thousands, except per share amounts).
2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------ Net income available to common stockholders, as reported $ 68,954 $ 57,846 $ 45,076 Add: Stock option-based compensation expense included in reported net income 12 -- -- Deduct: Total stock option-based compensation expense determined under fair value method for all awards, net of related tax effects (106) (216) (93) - ------------------------------------------------------------------------------------------------------------------ Pro forma net income available to common stockholders $ 68,860 $ 57,630 $ 44,983 ==================================================================================================================
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2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------ Earnings per common share: As reported - basic and diluted $ 2.03 $ 1.98 $ 1.69 Pro forma - basic 2.03 1.97 1.69 Pro forma - diluted 2.03 1.97 1.68
GOODWILL. In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets. This statement changed the accounting for goodwill from an amortization method to an impairment-only approach. Under Statement No. 142, goodwill will be tested for impairment annually and also whenever events or circumstances occur that indicate that our goodwill might be impaired. We adopted the provisions of Statement No. 142 on January 1, 2002 and ceased amortizing our goodwill, which totaled $17.2 million. During the second quarter of 2002, we completed the transitional impairment testing of our goodwill and found that our goodwill was not impaired. We did not have any new goodwill or record an impairment loss on our existing goodwill during 2002. Amortization of goodwill for each of the years 2001 and 2000 was $924,000. We do not have any intangible assets as contemplated under Statement No. 142 or unamortized negative goodwill. The following table reconciles reported net income available to common stockholders to adjusted net income available to common stockholders. It excludes the effect of goodwill amortization expense that is no longer amortized under Statement No. 142 (in thousands, except per share data):
2002 2001 2000 - ------------------------------------------------------------------------------------------------------------- Net income available to common stockholders, as reported $68,954 $57,846 $45,076 Goodwill amortization -- 924 924 - ------------------------------------------------------------------------------------------------------------- Adjusted net income available to common stockholders $68,954 $58,770 $46,000 ============================================================================================================= Basic and diluted earnings per common share Net income available to common stockholders, as reported $ 2.03 $ 1.98 $ 1.69 Goodwill amortization -- 0.03 0.03 - ------------------------------------------------------------------------------------------------------------- Adjusted net income available to common stockholders $ 2.03 $ 2.01 $ 1.72 =============================================================================================================
USE OF ESTIMATES. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management believes that the estimates and assumptions that are most important to the portrayal of the Company's financial condition and results of operations, in that they require management's most difficult, subjective or complex judgments, form the basis of the accounting policies deemed to be most critical to the Company. These critical accounting policies relate to depreciable lives of our real estate assets and recoverability (impairment) of our real estate assets. We believe our estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial condition or results of operations. RECLASSIFICATIONS. Certain of the 2001 and 2000 balances have been reclassified to conform to the 2002 presentation. 47 3. PROPERTY ACQUISITIONS A. In 2002, we invested $133.3 million in 108 new retail properties and properties under development with an average initial contractual lease rate of 10.4%. We have committed to pay estimated unfunded development costs of $9.3 million on properties under construction at December 31, 2002. In 2001, we invested $131.8 million in 91 new retail properties and properties under development with an average initial contractual lease rate of 11.0%. B. In 2002, Crest Net invested $6.1 million in three new retail properties and properties under development. In 2001, Crest Net invested $24.7 million in 26 new retail properties and properties under development. At December 31, 2002 and 2001, investments in properties owned by Crest Net, totaled $4.6 million and $22.3 million, respectively, and are included in real estate held for sale, net, on our consolidated balance sheets. 4. INVESTMENT IN SUBSIDIARY In January 2000, we acquired 95% of the common stock of Crest Net, all of which is non-voting, and certain members of our management and Crest Net management acquired 5% of the common stock, all of which is voting stock. In May 2001, we acquired the 5% of common stock of Crest Net owned by certain members of our management and management of Crest Net for $507,000. The acquisition of the 5% of common stock was accounted for under the purchase method of accounting. After this transaction, Realty Income owns 100% of the stock of Crest Net. Crest Net was created to buy, own and sell properties, primarily to buyers using tax-deferred exchanges, under Section 1031 of the IRS Code. 5. CREDIT FACILITIES In October 2002, we entered into a new $250 million credit facility to replace our existing $200 million acquisition credit facility and our $25 million credit facility, each of which was scheduled to expire in 2003. Under the terms of the new credit facility, total funds available were increased by $25 million. Concurrent with the closing of the new $250 million credit facility, our previous $225 million credit facilities were canceled. Unamortized fees of $406,000 relating to our canceled credit facilities were charged to interest expense in 2002. The borrowing rate on the new $250 million credit facility was reduced compared to the previous credit facilities. As of December 31, 2002, Realty Income's investment grade credit ratings provide for financing at LIBOR (London Interbank Offered Rate) plus 100 basis points with a facility fee of 20 basis points, for all-in drawn pricing of 120 basis points over LIBOR as compared to an all-in pricing of 145 basis points on our previous credit facilities. The term of the new facility extends through October 2005. Effective March 1, 2003, Realty Income's investment grade credit ratings provide for financing at a reduced rate of LIBOR plus 90 basis points with a facility fee of 20 basis points. The average borrowing rate on our credit facilities during 2002 was 3.0% or 340 basis points lower than our average borrowing rate during 2001 of 6.4%. Our current credit facility and previous credit facilities are subject to various leverage and interest coverage ratio limitations. The Company is and has been in compliance with these covenants. In 2002, 2001 and 2000, interest of $511,000, $385,000 and $1.0 million, respectively, was capitalized with respect to properties under development. 6. NOTES PAYABLE In January 1999, we issued $20 million of 8.0% senior notes due 2009 (the "2009 Notes"). The 2009 Notes are unsecured and were sold at 98.757% of par. Interest on the 2009 Notes is payable semiannually. 48 In October 1998, we issued $100 million of 8.25% Monthly Income Senior Notes due 2008 (the "2008 Notes"). The 2008 Notes are unsecured and were sold at par ($25.00). In May 1998, we entered into a treasury interest rate lock agreement associated with the 2008 Notes. In settlement of the agreement, we made a payment of $8.7 million in 1998. The payment on the agreement is being amortized over 10 years (the life of the 2008 Notes) as a yield adjustment to interest expense. After taking into effect the results of a treasury interest rate lock agreement, the effective rate to us on the 2008 Notes is 9.12%. Interest on the 2008 Notes is payable monthly. In May 1997, we issued $110 million of 7.75% senior notes due 2007 (the "2007 Notes"). The 2007 Notes are unsecured and were sold at 99.929% of par. In December 1996, we entered into a treasury interest rate lock agreement associated with the 2007 Notes. In settlement of the agreement, we received $1.1 million in 1997. The payment received on the agreement is being amortized over 10 years (the life of the 2007 Notes) as a yield adjustment to interest expense. After taking into effect the results of a treasury interest rate lock agreement, the effective interest rate to us on the 2007 Notes is 7.62%. Interest on the 2007 Notes is payable semiannually. Interest incurred on the 2009 Notes, 2008 Notes and 2007 Notes collectively for each of the years ended December 31, 2002, 2001 and 2000 was $18.4 million. 7. DISTRIBUTIONS PAID AND PAYABLE A. We pay monthly cash distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the years ended December 31:
Month 2002 2001 2000 ------------------------------------------------------------------------------------------------------------ January $0.19000 $0.18500 $0.18000 February 0.19000 0.18500 0.18000 March 0.19000 0.18500 0.18000 April 0.19125 0.18625 0.18125 May 0.19125 0.18625 0.18125 June 0.19125 0.18625 0.18125 July 0.19250 0.18750 0.18250 August 0.19250 0.18750 0.18250 September 0.19250 0.18750 0.18250 October 0.19375 0.18875 0.18375 November 0.19375 0.18875 0.18375 December 0.19375 0.18875 0.18375 ------------------------------------------------------------------------------------------------------------ Total $2.30250 $2.24250 $2.18250 ============================================================================================================
The following presents the federal income tax characterization of distributions paid or deemed to be paid to common stockholders for the years ended December 31:
2002 2001 2000 - -------------------------------------------------------------------------------------------------------------- Ordinary income $2.16843 $1.94838 $1.76796 Return of capital 0.13407 0.29412 0.41454 Capital gain -- -- -- - -------------------------------------------------------------------------------------------------------------- Totals $2.30250 $2.24250 $2.18250 ==============================================================================================================
At December 31, 2002, a distribution of $0.195 per common share was payable and was paid in January 2003. At December 31, 2001, a distribution of $0.19 per common share was payable and was paid in January 2002. 49 B. In May 1999, we issued 2,760,000 shares of 9 3/8% Class B cumulative redeemable preferred stock (the "Class B Preferred"), of which 2,745,700 shares are outstanding. Beginning May 25, 2004, the Class B Preferred shares are redeemable at our option at $25.00 per share. Dividends on the Class B Preferred are paid quarterly in arrears. For each of the years ended December 31, 2002, 2001 and 2000, dividends of $6.4 million were paid on our Class B Preferred. The following presents the federal income tax characterization of dividends paid or deemed to be paid to Class B Preferred stockholders for the years ended December 31:
2002 2001 2000 - ------------------------------------------------------------------------------------------------------------- Ordinary income $2.34372 $2.34360 $2.34360 Capital gain -- -- --
C. In July 1999, we issued 1,380,000 shares of 9 1/2% Class C cumulative redeemable preferred stock (the "Class C Preferred"), all of which are outstanding. Beginning July 30, 2004, the Class C Preferred shares are redeemable at our option at $25.00 per share. Dividends on the Class C Preferred are paid monthly in arrears. For each of the years ended December 31, 2002, 2001 and 2000, dividends of $3.3 million were paid on our Class C Preferred. The following presents the federal income tax characterization of dividends paid or deemed to be paid to Class C Preferred stockholders for the years ended December 31:
2002 2001 2000 - ------------------------------------------------------------------------------------------------------------- Ordinary income $2.37497 $2.37480 $2.37480 Capital gain -- -- --
8. COMMON STOCK OFFERINGS A. In July 2002, we issued 1,550,000 shares of common stock at a price of $33.40 per share. The net proceeds of $48.9 million were used to repay a portion of our $200 million acquisition credit facility. B. In February 2002, we issued 273,150 shares of common stock to a unit investment trust at a net price to us of $30.26 per share, based on a 5% discount to the market price at the time of issuance of $31.85 per share. The net proceeds of $8.2 million were used to repay a portion of our $200 million acquisition credit facility. C. In October 2001, we issued 2,600,000 shares of common stock at a price of $28.50 per share. In November 2001, 350,000 additional shares were issued when the underwriters exercised their over-allotment option. The net proceeds of $79.5 million were used to repay borrowings under our $200 million acquisition credit facility and for other general corporate purposes. D. In May 2001, we issued 2,850,000 shares of common stock at a price of $27.80 per share. We issued an additional 100,000 shares in May 2001 when the underwriters exercised their over-allotment option. The net proceeds of $77.5 million were used to repay borrowings under our $200 million acquisition credit facility and for other general corporate purposes. 50 9. PURCHASES OF REALTY INCOME SECURITIES In January 2000, our Board of Directors authorized the purchase of up to $10 million of our outstanding common stock, preferred stock and senior debt securities. We purchased an aggregate of $6.7 million of our securities from January 2000 through December 2001. No securities were purchased in 2002. In 2001, we invested $169,000 to purchase 6,800 shares of our common stock at an average price of $24.82 per share. In 2000, we invested $6.5 million to purchase 284,500 shares of common stock at an average price of $21.87 per share and 14,300 shares of our Class B preferred stock at an average price of $19.27 per share. 10. OPERATING LEASES A. At December 31, 2002, we owned 1,197 properties in 48 states, excluding properties owned by Crest Net. Of these 1,197 properties, 1,192 are single-tenant and the remainder are multi-tenant. At December 31, 2002, 27 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 leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage. Percentage rent for 2002, 2001 and 2000 was $1.6 million, $1.7 million and $2.0 million, respectively. At December 31, 2002, minimum annual rents to be received on the operating leases are as follows (dollars in thousands): For the years ending December 31, ----------------------------------------------------------------------- 2003 $ 136,043 2004 126,854 2005 117,367 2006 110,590 2007 103,937 Thereafter 908,958 ----------------------------------------------------------------------- TOTAL $ 1,503,749 ======================================================================= B. Major Tenants - The following schedule presents rental revenue, including percentage rents, from tenants representing more than 10% of our total revenue for the years ended December 31, 2002, 2001 or 2000 (dollars in thousands):
Tenants 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------- Children's World Learning Centers, Inc. $14,720 $14,661 $14,496 La Petite Academy, Inc.(1) -- -- 11,938 (1) Rental revenue from La Petite Academy, Inc. represented less than 10% of our total revenue for 2002 and 2001.
11. GAIN ON SALES OF REAL ESTATE ACQUIRED FOR RESALE In 2002, Crest Net sold 23 properties for $27.3 million. We recognized a gain of $3.5 million, before income taxes, on the sales of these properties. In 2001, Crest Net sold nine properties for $28.9 million. We recognized a gain of $3.4 million, before income taxes, on the sales of these properties. 51 In 2000, Crest Net sold two properties for $6.2 million. We recognized a gain of $766,000, before income taxes, on the sales of these properties. 12. GAIN ON SALES OF INVESTMENT PROPERTIES In 2002, we sold or exchanged 35 properties for $20.2 million and recognized a gain of $6.3 million. Included in the 35 properties was one property leased by one of our tenants that we exchanged for another property owned by that tenant (see note 14B). In 2001, we sold 35 properties for $39.5 million and recognized a gain of $10.5 million. In 2000, we sold or exchanged 21 properties for $45.2 million and recognized a gain of $6.7 million. Included in the 21 properties were two properties leased by one of our tenants that we exchanged for two other properties owned by that tenant for no gain (see note 14B). 13. FAIR VALUE OF FINANCIAL INSTRUMENTS We believe that the carrying values reflected in the consolidated balance sheets at December 31, 2002 and 2001 reasonably approximate the fair values for cash and cash equivalents, accounts receivable, and all liabilities, due to their short-term nature, except for lines of credit payable and notes payable. In making these assessments, we used estimates. The fair value of the lines of credit payable approximates its carrying value because its terms are similar to those available in the market place. The fair value of the notes payable at December 31, 2002 and 2001 is estimated to be $250.6 million and $230.1 million, respectively, based upon the closing market price per note or indicative price per each note at December 31, 2002 and 2001, respectively. 14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid in 2002, 2001 and 2000 was $21.4 million, $25.3 million and $29.8 million, respectively. Income taxes paid by Realty Income and Crest Net in 2002, 2001 and 2000 were $1.7 million, $1.8 million and $807,000, respectively. The following non-cash investing and financing activities are included in the accompanying consolidated financial statements (dollars in thousands): A. Additions to properties resulted in the following: 2001 ---- Buildings $ 421 Real estate held for sale, net 183 Other liabilities 604 B. In 2002, we exchanged one property leased by one of our tenants for another property owned by that tenant. In 2000, we exchanged two properties leased by one of our tenants for two other properties owned by that tenant. These transactions resulted in the following: 2002 2000 ---- ---- Land $ (23) $ (2,031) Buildings 22 1,386 Accumulated depreciation 3 645 Gain on sale (2) -- 52 C. In 2001, acquisition of the 5% of Crest Net common stock not previously owned by Realty Income resulted in the following: Accounts receivable $(450) Accounts payable and accrued expenses (450) D. In 2001, we reclassified unamortized amounts of restricted stock grants included in other assets to deferred stock compensation (reported as a component of common stock and paid in capital), which resulted in the following: Other assets $(376) Deferred stock compensation 376 E. Restricted stock grants resulted in the following:
2002 2001 2000 ---- ---- ---- Other assets $ -- $ -- $ 377 Common stock and paid in capital 3,305 1,564 377 Deferred stock compensation (3,305) (1,564) --
F. Restricted stock forfeitures resulted in the following: 2000 ---- Other assets $ (49) Common stock and paid in capital (49) 15. EMPLOYEE BENEFIT PLAN We have a 401(k) plan covering substantially all of our employees. Under our 401(k) plan, employees may elect to make contributions to the plan up to a maximum of 15% of their compensation, subject to limits under the IRS Code. We match 50% of our employee's contributions, up to 3% of the employee's compensation. Our aggregate matching contributions each year has been immaterial to our results of operations. 16. STOCK INCENTIVE PLAN In 1993, our Board of Directors approved a stock incentive plan (the "Stock Plan") designed to attract and retain directors, officers and employees of the Company by enabling those individuals to participate in the ownership of the Company. The Stock Plan authorizes the issuance in each calendar year of up to 3% of the total shares outstanding at the end of such year. The Stock Plan provides for grants of up to 1,950,308 shares. The Stock Plan provides for the award (subject to ownership limitations) of a broad variety of stock-based compensation alternatives such as nonqualified stock options, incentive stock options, restricted stock and performance awards. Stock options are granted with an exercise price equal to the underlying stock's fair market value at the date of grant. Stock options expire ten years from the date they are granted and vest over service periods of one, three, four and five years. In 2002, 2001 and 2000, the Company issued 110,572 shares, 61,500 shares and 17,800 shares of restricted stock, respectively, which vest over periods ranging from five years to ten years. The weighted average fair market values of the restricted stock issued in 2002, 2001 and 2000 were $29.89, $25.43 and $21.15, respectively. 53 The following table summarizes our stock option activity for the years 2002, 2001 and 2000:
2002 2001 2000 -------------------------- -------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Shares Price Shares Price Shares Price - ----------------------------------------------------------------------------------------------------------------------- Outstanding, beginning of year 275,063 $23.16 618,186 $23.77 647,848 $24.73 Options granted 36,184 29.40 -- -- 142,000 20.65 Options exercised (112,256) 23.36 (319,027) 24.38 (10,000) 21.63 Options canceled (8,751) 27.90 (24,096) 22.50 (161,662) 25.02 - ---------------------------------------------- ---------------- ----------------- Outstanding, end of year 190,240 24.02 275,063 23.16 618,186 23.77 ============================================== ================ ================= Options exercisable, end of year 160,397 229,875 438,437 Weighted average fair value of each option granted during the year $2.60 -- $1.65
At December 31, 2002, the options outstanding under the Stock Plan had exercise prices ranging from $20.00 to $29.40 with a weighted average price of $24.02, and expiration dates ranging from August 2004 to December 2011 with a weighted average remaining term of 5.2 years. At December 31, 2002, the options exercisable under the Stock Plan had exercise prices ranging from $20.00 to $29.40 with a weighted average price of $23.13. The fair value of each stock option grant was estimated at the date of grant using the binomial option-pricing model with the following assumptions: 2002 2000 ---------------------------------------- Expected dividend yield 9.76% 9.70% Risk-free interest rate 5.09% 6.30% Volatility 18.18% 15.00% Expected life of options 10 years 10 years 17. STOCKHOLDER RIGHTS PLAN In 1998, our Board of Directors adopted a Stockholder Rights Plan (the "Rights Plan") that will expire in July 2008. The Rights Plan assigns one right (a "Right") to purchase one one-hundredth (1/100th) of a share of our Class A Junior Participating Preferred Stock, par value $1.00 per share, for each share of common stock owned on or issued after July 1, 1998. Currently, the Rights are not exercisable and do not trade separately from our common stock. Under specified circumstances, stockholders will be able to exercise their Rights if a person or group acquires 15% of our common stock or makes a tender offer to acquire 15% or more of our common stock. In these circumstances, stockholders other than the acquirer would be able to exercise the Rights to purchase our common stock or, in some situations, the acquirer's stock at a 50% discount. 54 18. SEGMENT INFORMATION We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial reporting purposes, we have grouped our tenants into 12 reportable industry segments, except for properties owned by Crest Net that are grouped together and included in "other non-reportable segments." All of the properties are incorporated into one of the applicable segments. Because almost all of our leases require the tenant to pay operating expenses, revenue is the only component of segment profit and loss we measure. The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective tenants as of December 31, 2002 (dollars in thousands):
Revenue -------------------------------------------------------- For the years ended December 31, 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- Segment rental revenue: Automotive parts $ 10,316 $ 9,837 $ 9,437 Automotive service 9,555 6,893 6,864 Child care 28,331 28,206 27,929 Consumer electronics 4,572 4,734 5,728 Convenience stores 12,457 10,137 9,679 Entertainment 3,187 2,182 2,277 Health and fitness 5,221 4,280 2,781 Home furnishings 7,130 6,840 6,403 Restaurants 17,571 13,446 13,039 Sporting goods 5,593 1,116 -- Theaters 5,340 5,209 3,175 Video rental 4,573 4,465 4,514 Other non-reportable segments(1) 23,292 22,368 22,849 Reconciling items: Gain on sales of real estate acquired for resale 3,495 3,374 766 Interest and other 347 822 353 - ---------------------------------------------------------------------------------------------------------------------- Total revenue $140,980 $123,909 $115,794 ====================================================================================================================== (1) Includes 13 retail industry segments and Crest Net.
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Assets ---------------------------------------- As of December 31, 2002 2001 - ---------------------------------------------------------------------------------------------------------------------- Segment net real estate: Automotive parts $ 72,831 $ 72,932 Automotive service 91,634 44,438 Child care 133,985 142,163 Consumer electronics 34,950 35,950 Convenience stores 124,394 81,701 Entertainment 38,850 27,043 Health and fitness 46,863 43,549 Home furnishings 64,455 69,008 Restaurants 123,233 130,076 Sporting goods 49,165 50,506 Theaters 53,755 47,273 Video rental 36,572 37,719 Other non-reportable segments(1) 167,491 185,312 - ---------------------------------------------------------------------------------------------------------------------- Total net real estate 1,038,178 967,670 Non-real estate assets 42,052 36,038 - ---------------------------------------------------------------------------------------------------------------------- Total assets $1,080,230 $1,003,708 ====================================================================================================================== (1) Includes 13 retail industry segments and Crest Net.
19. COMMITMENTS AND CONTINGENCIES In the ordinary course of our business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated statements taken as a whole. 56 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 - --------------------------------------------------------------------------------------------------------------------- 2002 Total revenue $ 33,307 $ 34,371 $ 36,038 $ 37,264 $ 140,980 Interest expense 5,605 5,803 5,919 6,209 23,536 Depreciation and amortization expense 7,342 7,501 7,893 8,097 30,833 Other expenses 3,282 3,551 3,583 3,458 13,874 Income from operations 17,078 17,516 18,643 19,500 72,737 Income from discontinued operations 889 928 3,166 607 5,590 Net income 18,294 18,445 21,820 20,108 78,667 Net income available to common stockholders 15,866 16,017 19,392 17,679 68,954 Basic and diluted net income per common share 0.48 0.48 0.56 0.51 2.03 Dividends paid per common share 0.57000 0.57375 0.57750 0.58125 2.30250 2001 Total revenue $ 30,965 $ 29,333 $ 30,387 $ 33,224 $ 123,909 Interest expense 8,059 6,587 6,080 5,740 26,466 Depreciation and amortization expense 7,040 6,988 7,065 7,354 28,447 Other expenses 3,751 2,862 3,282 3,498 13,393 Income from operations 12,115 12,896 13,960 16,632 55,603 Income from discontinued operations 408 414 421 234 1,477 Net income 18,473 13,476 17,186 18,423 67,558 Net income available to common stockholders 16,045 11,048 14,758 15,995 57,846 Basic and diluted net income per common share(1) 0.60 0.39 0.50 0.50 1.98 Dividends paid per common share 0.55500 0.55875 0.56250 0.56625 2.24250 (1) Net income per share is computed independently for each quarter and the full year based on the respective weighted average shares outstanding. Therefore, the sum of the quarterly net income per common share amounts may not equal the annual amount reported.
57 Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE --------------------------------------------------------------- We have had no disagreements with our independent auditors on accountancy or financial disclosure. PART III Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information set forth under the captions "Director Nominees" and "Officers of the Company" and "Compliance With Federal Securities Laws" in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 6, 2003, to be filed pursuant to Regulation 14A. Item 11: EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 6, 2003, 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 Stockholders presently scheduled to be held on May 6, 2003, to be filed pursuant to Regulation 14A. Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Transactions" in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 6, 2003, to be filed pursuant to Regulation 14A. 58 PART IV Item 14. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURE. We maintain disclosure controls and procedures (as defined in Securities Exchange Act 1934 Rules 13a-14(c) and 15d-14(c)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Within 90 days prior to the date of this annual report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective. CHANGES IN INTERNAL CONTROLS. There have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore no corrective actions were taken. Item 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. The following documents are filed as part of this report. 1. Financial Statements (see Item 8) a. Independent Auditors' Report b. Consolidated Balance Sheets, December 31, 2002 and 2001 c. Consolidated Statements of Income, Years ended December 31, 2002, 2001 and 2000 d. Consolidated Statements of Stockholders' Equity, Years ended December 31, 2002, 2001 and 2000 e. Consolidated Statements of Cash Flows, Years ended December 31, 2002, 2001 and 2000 f. Notes to Consolidated Financial Statements g. Consolidated Quarterly Financial Data, (unaudited) for 2001 and 2000 59 2. Financial Statement Schedule. Reference is made to page F-1 of this report for Schedule III Real Estate and Accumulated Depreciation. Schedules not Filed: All schedules, other than those indicated in the Table of Contents, have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 3. Exhibits 2.1 Agreement and Plan of Merger dated as of May 15, 1997 between Realty Income Corporation, a Delaware corporation, and Realty Income Maryland, Inc., a Maryland corporation (incorporated by reference to the Company's Form 8-B12B dated July 29, 1997 ("Form 8-B") and incorporated herein by reference). 3.1 Articles of Incorporation of the Company (filed as Appendix B to the Company's Proxy Statement dated March 28, 1997 ("1997 Proxy Statement") and incorporated herein by reference). 3.2 Bylaws of the Company (filed as Appendix C to the Company's 1997 Proxy Statement and incorporated herein by reference). 3.3 Articles Supplementary of the Class A Junior Participating Preferred Stock of Realty Income Corporation (filed as an exhibit to Realty Income's registration statement on Form 8-A, dated June 26, 1998, and incorporated herein by reference). 3.4 Articles Supplementary to the Articles of Incorporation of Realty Income Corporation classifying and designating the Class B Preferred Stock (filed as exhibit 4.1 to the Company's Form 8-K dated May 24, 1999 and incorporated herein by reference). 3.5 Articles Supplementary to the Articles of Incorporation of Realty Income Corporation classifying and designating the Class C Preferred Stock (filed as exhibit 4.1 to the Company's Form 8-K dated July 29, 1999 and incorporated herein by reference). 4.1 Pricing Committee Resolutions and Form of 7.75% Notes due 2007 (filed as Exhibit 4.2 to the Company's Form 8-K dated May 5, 1997 and incorporated herein by reference). 4.2 Indenture dated as of May 6, 1997 between the Company and The Bank of New York (filed as Exhibit 4.1 to the Company's Form 8-K dated May 5, 1997 and incorporated herein by reference). 4.3 First Supplemental Indenture dated as of May 28, 1997, between the Company and The Bank of New York (filed as Exhibit 4.3 to the Company's Form 8-B and incorporated herein by reference). 4.4 Rights Agreement, dated as of June 25, 1998, between Realty Income Corporation and The Bank of New York (filed as an exhibit to the Company's registration statement on Form 8-A, dated June 26, 1998, and incorporated herein by reference). 4.5 Pricing Committee Resolutions (filed as an exhibit to Realty Income's Form 8-K, dated October 27, 1998 and incorporated herein by reference). 4.6 Form of 8.25% Notes due 2008 (filed as exhibit 4.3 to Realty Income's Form 8-K, dated October 27, 1998 and incorporated herein by reference). 60 3. Exhibits (continued) 4.7 Indenture dated as of October 28, 1998 between Realty Income and The Bank of New York (filed) as an exhibit to Realty Income's Form 8-K, dated October 27, 1998 and incorporated herein by reference). 4.8 Pricing Committee Resolutions and Form of 8% Notes due 2009 (filed as exhibit 4.2 to Realty Income's Form 8-K, dated January 21, 1999 and incorporated herein by reference). 10.1 $250 million Credit Agreement dated October 28, 2002 (filed as exhibit 10.1 to the Company's Form 10-Q dated September 30, 2002 and incorporated herein by reference). 10.2 1994 Stock Option and Incentive Plan (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (registration number 33-95708) and incorporated herein by reference). 10.3 First Amendment to the 1994 Stock Option and Incentive Plan, dated June 12, 1997 (filed as Exhibit 10.9 to the Company's Form 8-B and incorporated herein by reference). 10.4 Second Amendment to the 1994 Stock Option and Incentive Plan, dated December 16, 1997, (filed as Exhibit 10.9 to the Company's Form 10-K dated December 31, 1997 and incorporated herein by reference). 10.5 Management Incentive Plan, filed as Exhibit 10.10 to the Company's Form 10-K dated December 31, 1997 and incorporated herein by reference). 10.6 Form of Nonqualified Stock Option Agreement for Independent Directors, (filed as Exhibit 10.11 to the Company's Form 10-K dated December 31, 1997 and incorporated herein by reference). 10.7 Form of Indemnification Agreement entered into between the Company and the executive officers of the Company (filed as Exhibit 10.1 to the Company's Form 8-K dated November 21, 1997 and incorporated herein by reference). 10.8 Form of Indemnification Agreement entered into between the Company and each director on the Board of Directors of the Company (filed as Exhibit 10.2 to the Company's Form 8-K dated November 21, 1997 and incorporated herein by reference). 10.9 Form of Employment Agreement between the Company and its Executive Officers (incorporated by reference to the Company's Form 8-B12B dated July 29, 1997 and incorporated herein by reference). 12.1 Statement re computation of ratios, filed herein. 21.1 Subsidiaries of the Company as of January 1, 2003, filed herein. 23.1 Independent Auditors' Consent, filed herein. B. The Registrant filed one report on Form 8-K during the last quarter of the period covered by this report. The Form 8-K was in filed on October 30, 2002 reporting that the Company entered into a new $250 million, three-year, revolving, unsecured credit facility, which expires in October 2005. Simultaneously with the execution of the $250 million credit facility, the Company's $200 million acquisition credit facility and $25 million credit facility were cancelled. 61 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REALTY INCOME CORPORATION By: /s/THOMAS A. LEWIS ----------------------------------- Thomas A. Lewis Vice Chairman of the Board of Directors, Chief Executive Officer Date: March 4, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/WILLIAM E. CLARK ----------------------------------- William E. Clark Chairman of the Board of Directors Date: March 4, 2003 By: /s/THOMAS A. LEWIS ----------------------------------- Thomas A. Lewis Vice Chairman of the Board of Directors, Chief Executive Officer (Principal Executive Officer) Date: March 4, 2003 By: /s/DONALD R. CAMERON ---------------------------- Donald R. Cameron Director Date: March 4, 2003 By: /s/ROGER P. KUPPINGER ----------------------- Roger P. Kuppinger Director Date: March 4, 2003 By: /s/MICHAEL D. MCKEE --------------------- Michael D. McKee Director Date: March 4, 2003 62 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/WILLARD H. SMITH JR ---------------------------- Willard H. Smith Jr Director Date: March 4, 2003 By: /s/KATHLEEN R. ALLEN, Ph.D. ----------------------------- Kathleen R. Allen, Ph.D. Director Date: March 4, 2003 By: /s/PAUL M. MEURER ---------------------------- Paul M. Meurer Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: March 4, 2003 By: /s/GREGORY J. FAHEY ---------------------------- Gregory J. Fahey Vice President, Controller (Principal Accounting Officer) Date: March 4, 2003 63 OFFICER CERTIFICATIONS I, Thomas A. Lewis, certify that: 1. I have reviewed this annual report on Form 10-K of Realty Income Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 4, 2003 /s/ THOMAS A. LEWIS ----------------------------------- Thomas A. Lewis Chief Executive Officer and Vice Chairman of the Board 64 I, Paul M. Meurer, certify that: 1. I have reviewed this annual report on Form 10-K of Realty Income Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 4, 2003 /s/ PAUL M. MEURER ----------------------------------- Paul M. Meurer Executive Vice President, Chief Financial Officer and Treasurer 65 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 12.1 Statement re computation of ratios 21.1 Subsidiaries of the Company as of January 1, 2003 23.1 Independent Auditors' Consent 66 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Apparel Stores - -------------- Mesa AZ 619,035 867,013 None 43,447 619,035 910,460 1,529,495 139,075 02/11/99 300 Danbury CT 1,083,296 6,217,688 40,544 None 1,083,296 6,258,232 7,341,528 1,317,867 09/30/97 300 Manchester CT 771,660 3,653,539 None None 771,660 3,653,539 4,425,199 700,052 03/26/98 300 Manchester CT 1,250,464 5,917,037 None None 1,250,464 5,917,037 7,167,501 1,133,806 03/26/98 300 Staten Isl.NY 4,202,093 3,385,021 None 866 4,202,093 3,385,887 7,587,980 648,484 03/26/98 300 Automotive Parts - ---------------- Millbrook AL 108,000 518,741 None 65 108,000 518,806 626,806 81,978 12/10/98 01/21/99 300 Montgomery AL 254,465 502,350 None None 254,465 502,350 756,815 91,258 06/30/98 300 BlythevilleAR 137,913 509,447 6,000 None 137,913 515,447 653,360 93,998 06/30/98 300 Osceola AR 88,759 520,047 None None 88,759 520,047 608,806 94,474 06/30/98 300 Wynne AR 70,000 547,576 None None 70,000 547,576 617,576 84,756 11/10/98 02/24/99 300 Phoenix AZ 231,000 513,057 None None 231,000 513,057 744,057 294,147 11/09/87 300 Phoenix AZ 71,750 159,359 None None 71,750 159,359 231,109 91,363 11/19/87 300 Phoenix AZ 222,950 495,178 None None 222,950 495,178 718,128 249,960 11/02/89 300 Tucson AZ 194,250 431,434 None None 194,250 431,434 625,684 248,679 10/30/87 300 Tucson AZ 178,297 396,004 None 150 178,297 396,154 574,451 195,802 01/19/90 300 Yuma AZ 120,750 268,190 None None 120,750 268,190 388,940 132,605 01/23/90 300 Grass Vly. CA 325,000 384,955 None None 325,000 384,955 709,955 212,290 05/20/88 300 Jackson CA 300,000 390,849 None None 300,000 390,849 690,849 212,779 05/17/88 300 Sacramento CA 210,000 466,419 None None 210,000 466,419 676,419 267,408 11/25/87 300 Turlock CA 222,250 493,627 None None 222,250 493,627 715,877 281,487 12/30/87 300 Arvada CO 301,489 931,092 None None 301,489 931,092 1,232,581 79,180 09/22/00 11/18/99 300 Aurora CO 221,691 492,382 None None 221,691 492,382 714,073 243,456 01/29/90 300 Aurora CO 353,283 1,135,051 None None 353,283 1,135,051 1,488,334 81,382 01/03/01 03/10/00 300 Canon City CO 66,500 147,699 None None 66,500 147,699 214,199 84,679 11/12/87 300 Colorado Springs CO 280,193 622,317 None None 280,193 622,317 902,510 307,701 01/23/90 300 Colorado Springs CO 192,988 433,542 None None 192,988 433,542 626,530 171,733 05/20/93 300 Denver CO 141,400 314,056 None None 141,400 314,056 455,456 180,054 11/18/87 300 Denver CO 315,000 699,623 None None 315,000 699,623 1,014,623 388,225 05/16/88 300 Denver CO 283,500 629,666 None None 283,500 629,666 913,166 349,405 05/27/88 300 Denver CO 688,292 1,200,007 None None 688,292 1,200,007 1,888,299 105 In Prog. 05/30/02 300 Littleton CO 252,925 561,758 None None 252,925 561,758 814,683 316,886 02/12/88 300 WestminsterCO 526,620 1,099,523 None None 526,620 1,099,523 1,626,143 78,834 01/12/01 01/18/00 300 Smyrna DE 232,273 472,855 None None 232,273 472,855 705,128 82,750 08/07/98 300 Lakeland FL 500,000 645,402 None None 500,000 645,402 1,145,402 110,983 06/04/98 12/31/97 300 Tampa FL 427,395 472,030 None None 427,395 472,030 899,425 81,192 06/10/98 12/05/97 300 Conyers GA 531,935 1,180,296 None None 531,935 1,180,296 1,712,231 33,127 03/28/02 11/13/01 300 Council Bluffs IA 194,355 431,668 None 6 194,355 431,674 626,029 239,536 05/19/88 300 Boise ID 158,400 351,812 None None 158,400 351,812 510,212 195,223 05/06/88 300
F-1
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Parts - ---------------- Boise ID 190,080 422,172 None None 190,080 422,172 612,252 234,265 05/06/88 300 Coeur D'Alene ID 165,900 368,468 None None 165,900 368,468 534,368 213,523 09/21/87 300 Lewiston ID 138,950 308,612 None None 138,950 308,612 447,562 178,837 09/16/87 300 Moscow ID 117,250 260,417 None None 117,250 260,417 377,667 150,909 09/14/87 300 Nampa ID 183,743 408,101 None 119 183,743 408,220 591,963 226,458 05/06/88 300 Sioux FallsID 332,979 498,108 None None 332,979 498,108 831,087 87,183 06/01/99 02/27/98 300 Twin Falls ID 190,080 422,172 None None 190,080 422,172 612,252 234,265 05/06/88 300 Brazil IN 183,952 453,831 None None 183,952 453,831 637,783 68,825 03/31/99 300 Princeton IN 134,209 560,113 None None 134,209 560,113 694,322 84,945 03/31/99 300 Vincennes IN 185,312 489,779 None None 185,312 489,779 675,091 74,278 03/31/99 300 Kansas CityKS 185,955 413,014 None None 185,955 413,014 598,969 229,185 05/13/88 300 Kansas CityKS 222,000 455,881 None None 222,000 455,881 677,881 252,909 05/16/88 300 Billerica MA 399,043 462,240 None None 399,043 462,240 861,283 105,447 04/02/97 300 Alma MI 155,000 600,282 None None 155,000 600,282 755,282 86,980 04/29/99 02/10/99 300 Lansing MI 265,000 574,931 None None 265,000 574,931 839,931 89,147 04/30/99 12/03/98 300 Sturgis MI 109,558 550,274 None None 109,558 550,274 659,832 88,938 12/30/98 300 Eagan MN 902,443 845,536 None None 902,443 845,536 1,747,979 147,994 02/20/98 300 Blue Springs MO 222,569 494,333 None None 222,569 494,333 716,902 253,320 07/31/89 300 Grandview MO 347,150 711,024 None None 347,150 711,024 1,058,174 122,092 08/20/98 02/20/98 300 Independ. MO 210,643 467,844 None None 210,643 467,844 678,487 239,745 07/31/89 300 Kansas CityMO 210,070 466,571 None None 210,070 466,571 676,641 258,903 05/13/88 300 Kansas CityMO 168,350 373,910 None None 168,350 373,910 542,260 207,485 05/26/88 300 Batesville MS 190,124 485,670 None None 190,124 485,670 675,794 86,611 07/27/98 300 Horn Lake MS 142,702 514,779 None None 142,702 514,779 657,481 93,517 06/30/98 300 Jackson MS 248,483 572,522 None None 248,483 572,522 821,005 71,577 11/16/99 300 Richland MS 243,565 558,645 None None 243,565 558,645 802,210 67,983 12/21/99 300 Missoula MT 163,100 362,249 None None 163,100 362,249 525,349 208,802 10/30/87 300 Kearney NE 173,950 344,393 None None 173,950 344,393 518,343 166,170 05/01/90 300 Omaha NE 196,000 435,321 None None 196,000 435,321 631,321 241,563 05/26/88 300 Omaha NE 199,100 412,042 None 6 199,100 412,048 611,148 227,353 05/27/88 300 Omaha NE 253,128 810,922 None None 253,128 810,922 1,064,050 106,820 07/22/99 03/04/99 300 AlbuquerqueNM 80,500 178,794 None None 80,500 178,794 259,294 103,058 10/29/87 300 Rio Rancho NM 211,577 469,923 None None 211,577 469,923 681,500 265,081 02/26/88 300 Sante Fe NM 70,000 155,473 None None 70,000 155,473 225,473 89,616 10/29/87 300 Las Vegas NV 161,000 357,585 None None 161,000 357,585 518,585 206,113 10/29/87 300 Reno NV 456,000 562,344 None None 456,000 562,344 1,018,344 311,964 05/26/88 300 Canton OH 396,560 597,553 None None 396,560 597,553 994,113 104,573 08/14/98 300 Hamilton OH 183,000 515,727 None None 183,000 515,727 698,727 76,619 04/07/99 12/03/98 300 Hubbard OH 147,043 481,217 None None 147,043 481,217 628,260 87,420 06/30/98 300 Oklahoma City OK 509,370 752,691 None None 509,370 752,691 1,262,061 106,802 04/14/99 09/24/98 300 Oklahoma City OK 404,815 771,625 None None 404,815 771,625 1,176,440 109,469 04/09/99 10/16/98 300
F-2
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Parts - ---------------- Albany OR 152,250 338,153 None 3 152,250 338,156 490,406 197,002 08/24/87 300 Beaverton OR 210,000 466,419 None 3 210,000 466,422 676,422 271,727 08/26/87 300 Oak Grove OR 180,250 400,336 None 3 180,250 400,339 580,589 233,228 08/06/87 300 Portland OR 190,750 423,664 None 3 190,750 423,667 614,417 246,819 08/12/87 300 Portland OR 147,000 326,493 None 3 147,000 326,496 473,496 190,209 08/26/87 300 Portland OR 210,000 466,412 None 3 210,000 466,415 676,415 270,282 09/01/87 300 Salem OR 136,500 303,170 None 3 136,500 303,173 439,673 176,620 08/20/87 300 Butler PA 339,929 633,078 5,684 None 339,929 638,762 978,691 112,637 08/07/98 300 Dover PA 265,112 593,341 None None 265,112 593,341 858,453 107,789 06/30/98 300 Enola PA 220,228 546,026 None None 220,228 546,026 766,254 90,100 11/10/98 300 Hanover PA 132,500 719,511 None None 132,500 719,511 852,011 97,294 07/26/99 05/13/99 300 Harrisburg PA 327,781 608,291 None None 327,781 608,291 936,072 110,505 06/30/98 300 Harrisburg PA 283,417 352,473 None None 283,417 352,473 635,890 60,512 09/30/98 300 Lancaster PA 199,899 774,838 10,913 None 199,899 785,751 985,650 136,386 08/14/98 300 New Castle PA 180,009 525,774 3,860 None 180,009 529,634 709,643 96,769 06/30/98 300 Reading PA 379,000 658,722 None None 379,000 658,722 1,037,722 93,464 06/09/99 12/04/98 300 Columbia TN 273,120 431,716 None None 273,120 431,716 704,836 61,158 06/30/99 300 Hermitage TN 560,443 1,011,799 None None 560,443 1,011,799 1,572,242 16,659 10/15/01 05/09/01 300 Memphis TN 197,708 507,647 None None 197,708 507,647 705,355 87,150 09/30/98 300 Amarillo TX 140,000 419,734 None None 140,000 419,734 559,734 227,578 09/12/88 300 Austin TX 185,454 411,899 None None 185,454 411,899 597,353 202,430 02/06/90 300 Dallas TX 191,267 424,811 None None 191,267 424,811 616,078 210,045 01/26/90 300 El Paso TX 66,150 146,922 None None 66,150 146,922 213,072 84,686 10/27/87 300 El Paso TX 56,350 125,156 None None 56,350 125,156 181,506 72,140 10/27/87 300 Garland TX 242,887 539,461 None None 242,887 539,461 782,348 266,733 01/19/90 300 Harlingen TX 134,599 298,948 None None 134,599 298,948 433,547 147,813 01/17/90 300 Houston TX 151,018 335,417 None None 151,018 335,417 486,435 165,845 01/25/90 300 Leon ValleyTX 178,221 395,834 None None 178,221 395,834 574,055 195,718 01/17/90 300 Lubbock TX 42,000 93,284 None None 42,000 93,284 135,284 53,768 10/26/87 300 Lubbock TX 49,000 108,831 None None 49,000 108,831 157,831 62,731 10/29/87 300 Midland TX 45,500 101,058 None None 45,500 101,058 146,558 58,249 10/27/87 300 Odessa TX 50,750 112,718 None 250 50,750 112,968 163,718 64,970 10/26/87 300 Pasadena TX 107,391 238,519 None None 107,391 238,519 345,910 117,934 01/24/90 300 Plano TX 187,564 417,157 700 None 187,564 417,857 605,421 206,094 01/18/90 300 San AntonioTX 245,164 544,518 None None 245,164 544,518 789,682 267,605 02/14/90 300 Bountiful UT 183,750 408,115 None 143 183,750 408,258 592,008 201,790 01/30/90 300 Provo UT 125,395 278,507 None 143 125,395 278,650 404,045 137,706 01/25/90 300 Bellevue WA 185,500 411,997 None 108 185,500 412,105 597,605 240,021 08/06/87 300 Bellingham WA 168,000 373,133 None None 168,000 373,133 541,133 217,379 08/20/87 300 Bothell WA 199,500 443,098 None 108 199,500 443,206 642,706 258,141 08/20/87 300 Hazel Dell WA 168,000 373,135 None None 168,000 373,135 541,135 204,158 05/23/88 300
F-3
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Parts - ---------------- Kennewick WA 161,350 358,365 None None 161,350 358,365 519,715 208,777 08/26/87 300 Kent WA 199,500 443,091 None None 199,500 443,091 642,591 258,136 08/06/87 300 Lacey WA 171,150 380,125 None None 171,150 380,125 551,275 221,453 08/13/87 300 Marysville WA 168,000 373,135 None None 168,000 373,135 541,135 217,382 08/20/87 300 Moses Lake WA 138,600 307,831 None None 138,600 307,831 446,431 179,336 08/12/87 300 Pasco WA 161,700 359,142 None None 161,700 359,142 520,842 209,229 08/18/87 300 Puyallup WA 173,250 384,795 None 108 173,250 384,903 558,153 222,986 09/15/87 300 Redmond WA 196,000 435,317 None 108 196,000 435,425 631,425 252,263 09/17/87 300 Renton WA 185,500 412,003 None 108 185,500 412,111 597,611 238,751 09/15/87 300 Richland WA 161,700 359,142 None None 161,700 359,142 520,842 209,229 08/13/87 300 Seattle WA 162,400 360,697 None 108 162,400 360,805 523,205 210,136 08/20/87 300 Silverdale WA 183,808 419,777 None None 183,808 419,777 603,585 243,256 09/16/87 300 Spanaway WA 189,000 419,777 None None 189,000 419,777 608,777 244,553 08/25/87 300 Spokane WA 66,150 146,921 None None 66,150 146,921 213,071 84,233 11/18/87 300 Tacoma WA 191,800 425,996 None 108 191,800 426,104 617,904 248,177 08/18/87 300 Tacoma WA 196,000 435,324 None None 196,000 435,324 631,324 250,922 10/15/87 300 Tacoma WA 187,111 415,579 None 108 187,111 415,687 602,798 205,481 01/25/90 300 Vancouver WA 180,250 400,343 None None 180,250 400,343 580,593 233,232 08/20/87 300 Walla WallaWA 170,100 377,793 None None 170,100 377,793 547,893 220,095 08/06/87 300 Wenatchee WA 148,400 329,602 None None 148,400 329,602 478,002 192,021 08/25/87 300 Brown Deer WI 257,408 802,141 None None 257,408 802,141 1,059,549 129,742 12/15/98 07/16/98 300 Delafield WI 324,574 772,702 None None 324,574 772,702 1,097,276 101,084 07/29/99 02/26/99 300 Madison WI 452,630 811,977 None None 452,630 811,977 1,264,607 136,739 10/20/98 04/07/98 300 Oak Creek WI 420,465 852,408 None None 420,465 852,408 1,272,873 143,548 08/07/98 03/20/98 300 Automotive Service - ------------------ Flagstaff AZ 144,821 417,485 None None 144,821 417,485 562,306 72,645 09/30/98 08/29/97 300 Mesa AZ 210,620 475,072 None None 210,620 475,072 685,692 11,873 05/14/02 300 Phoenix AZ 189,341 546,984 None None 189,341 546,984 736,325 13,675 05/14/02 300 Phoenix AZ 384,608 279,824 None None 384,608 279,824 664,432 6,994 05/14/02 300 Sierra Vista AZ 175,114 345,508 None None 175,114 345,508 520,622 8,636 05/14/02 300 Tucson AZ 226,596 437,972 None None 226,596 437,972 664,568 10,947 05/14/02 300 BakersfieldCA 65,165 206,927 None None 65,165 206,927 272,092 5,171 05/14/02 300 Chula VistaCA 313,293 409,654 None 16 313,293 409,670 722,963 108,558 05/01/96 01/19/96 300 Culver CityCA 580,446 158,876 None None 580,446 158,876 739,322 3,970 05/14/02 300 Dublin CA 415,620 1,153,928 None None 415,620 1,153,928 1,569,548 28,846 05/14/02 300 Folsom CA 471,813 325,610 None None 471,813 325,610 797,423 8,138 05/14/02 300 Indio CA 264,956 265,509 None None 264,956 265,509 530,465 6,636 05/14/02 300 Oxnard CA 186,980 198,236 None None 186,980 198,236 385,216 4,954 05/14/02 300 Santa Cruz CA 374,612 801,826 None None 374,612 801,826 1,176,438 20,044 05/14/02 300 Simi ValleyCA 213,920 161,012 None None 213,920 161,012 374,932 4,023 05/14/02 300
F-4
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Service - ------------------ Vacaville CA 358,067 284,931 None None 358,067 284,931 642,998 7,121 05/14/02 300 Broomfield CO 154,930 503,626 None 450 154,930 504,076 659,006 128,425 08/22/96 03/15/96 300 Denver CO 79,717 369,587 None None 79,717 369,587 449,304 276,264 10/08/85 300 Denver CO 341,726 433,341 None 274 341,726 433,615 775,341 90,511 09/25/97 06/12/97 300 Thornton CO 276,084 415,464 None 205 276,084 415,669 691,753 98,861 12/31/96 10/31/96 300 Hartford CT 248,540 482,460 None None 248,540 482,460 731,000 121,419 09/30/96 300 SouthingtonCT 225,882 672,910 None None 225,882 672,910 898,792 149,051 06/06/97 300 Vernon CT 81,529 300,518 None None 81,529 300,518 382,047 6,511 06/27/02 300 Carol City FL 163,239 262,726 None None 163,239 262,726 425,965 5,692 06/27/02 300 Jackson- ville FL 76,585 355,066 None None 76,585 355,066 431,651 262,118 12/23/85 300 Lauderdale Lakes FL 65,987 305,931 None None 65,987 305,931 371,918 223,658 02/19/86 300 Orange CityFL 99,613 139,008 None None 99,613 139,008 238,621 3,473 05/14/02 300 Seminole FL 68,000 315,266 None None 68,000 315,266 383,266 232,735 12/23/85 300 Sunrise FL 80,253 372,070 None None 80,253 372,070 452,323 272,830 02/14/86 300 Tampa FL 70,000 324,538 None None 70,000 324,538 394,538 239,581 12/27/85 300 Tampa FL 67,000 310,629 None None 67,000 310,629 377,629 229,313 12/27/85 300 Tampa FL 86,502 401,041 None None 86,502 401,041 487,543 285,962 07/23/86 300 Atlanta GA 55,840 258,889 None None 55,840 258,889 314,729 192,039 11/27/85 300 Atlanta GA 78,646 364,625 None None 78,646 364,625 443,271 269,174 12/18/85 300 Bogart GA 66,807 309,733 None None 66,807 309,733 376,540 228,652 12/20/85 300 Cumming GA 661,624 3,701 None None 661,624 3,701 665,325 6 In Prog. 12/31/02 300 Douglas- ville GA 214,771 129,519 None None 214,771 129,519 344,290 3,236 05/14/02 300 Douglas- ville GA 679,868 3,244 None None 679,868 3,244 683,112 5 In Prog. 12/30/02 300 Duluth GA 222,275 316,925 None 151 222,275 317,076 539,351 63,293 10/24/97 06/20/97 300 Duluth GA 290,842 110,056 None None 290,842 110,056 400,898 2,749 05/14/02 300 GainesvilleGA 53,589 248,452 None None 53,589 248,452 302,041 183,411 12/19/85 300 Kennesaw GA 266,865 139,425 None None 266,865 139,425 406,290 3,483 05/14/02 300 Marietta GA 60,900 293,461 None None 60,900 293,461 354,361 216,638 12/26/85 300 Marietta GA 69,561 346,024 None None 69,561 346,024 415,585 248,764 06/03/86 300 Morrow GA 725,948 419,100 None None 725,948 419,100 1,145,048 7 In Prog. 08/30/02 300 Norcross GA 244,124 151,831 None None 244,124 151,831 395,955 3,794 05/14/02 300 Peachtree City GA 1,190,380 563,793 None None 1,190,380 563,793 1,754,173 5 In Prog. 09/19/02 300 Riverdale GA 58,444 270,961 None None 58,444 270,961 329,405 199,061 01/15/86 300 Rome GA 56,454 261,733 None None 56,454 261,733 318,187 193,216 12/19/85 300 Snellville GA 253,316 132,124 None None 253,316 132,124 385,440 3,301 05/14/02 300 Arlington Heights IL 441,437 215,983 None None 441,437 215,983 657,420 5,398 05/14/02 300 Chicago IL 329,076 255,294 None None 329,076 255,294 584,370 6,381 05/14/02 300 Round Lake Beach IL 472,132 236,585 None None 472,132 236,585 708,717 5,913 05/14/02 300 WestchesterIL 421,239 184,812 None None 421,239 184,812 606,051 4,619 05/14/02 300 Anderson IN 232,170 385,661 None None 232,170 385,661 617,831 77,778 12/19/97 300 Indiana- polis IN 231,384 428,307 None None 231,384 428,307 659,691 107,791 09/27/96 300
F-5
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Service - ------------------ Michigan City IN 392,638 297,650 None None 392,638 297,650 690,288 7,440 05/14/02 300 Warsaw IN 140,893 228,116 None None 140,893 228,116 369,009 5,701 05/14/02 300 Olathe KS 217,995 367,055 None None 217,995 367,055 585,050 82,584 04/22/97 11/11/96 300 Louisville KY 56,054 259,881 None None 56,054 259,881 315,935 191,849 12/17/85 300 Newport KY 323,511 289,017 None None 323,511 289,017 612,528 61,120 09/17/97 300 E. FalmouthMA 191,302 340,539 None None 191,302 340,539 531,841 8,512 05/14/02 300 E. Wareham MA 149,680 278,669 None None 149,680 278,669 428,349 6,964 05/14/02 300 Fairhaven MA 138,957 289,294 None None 138,957 289,294 428,251 7,230 05/14/02 300 Gardner MA 138,990 289,361 None None 138,990 289,361 428,351 7,232 05/14/02 300 Hyannis MA 180,653 458,522 None None 180,653 458,522 639,175 9,935 06/27/02 300 Lenox MA 287,769 535,273 None None 287,769 535,273 823,042 81,172 03/31/99 300 NewburyportMA 274,698 466,449 None None 274,698 466,449 741,147 10,106 06/27/02 300 N. Reading MA 180,546 351,161 None None 180,546 351,161 531,707 8,777 05/14/02 300 Orleans MA 138,212 394,065 None None 138,212 394,065 532,277 9,849 05/14/02 300 Aberdeen MD 223,617 225,605 None None 223,617 225,605 449,222 4,888 06/27/02 300 Capital Heights MD 547,173 219,979 None None 547,173 219,979 767,152 5,496 05/14/02 300 Clinton MD 70,880 328,620 None None 70,880 328,620 399,500 244,478 11/15/85 300 Lexington Park MD 111,396 335,288 None None 111,396 335,288 446,684 8,379 05/14/02 300 Kalamazoo MI 391,745 296,975 None None 391,745 296,975 688,720 7,423 05/14/02 300 Portage MI 402,409 286,441 None None 402,409 286,441 688,850 7,159 05/14/02 300 Southfield MI 275,952 350,765 None None 275,952 350,765 626,717 8,767 05/14/02 300 Troy MI 214,893 199,299 None None 214,893 199,299 414,192 4,981 05/14/02 300 MinneapolisMN 58,000 268,903 None 182 58,000 269,085 327,085 198,510 12/18/85 300 St. Cloud MN 203,338 258,626 None None 203,338 258,626 461,964 5,604 06/27/02 300 Indepen- dence MO 297,641 233,152 None None 297,641 233,152 530,793 56,345 12/20/96 300 Asheville NC 441,746 242,565 None None 441,746 242,565 684,311 6,062 05/14/02 300 Concord NC 237,688 357,976 None 5,517 237,688 363,493 601,181 64,905 11/05/97 300 Durham NC 55,074 255,336 None None 55,074 255,336 310,410 189,960 11/13/85 300 Durham NC 354,676 361,203 None 151 354,676 361,354 716,030 76,412 08/29/97 03/31/97 300 Fayette- ville NC 224,326 257,733 None None 224,326 257,733 482,059 51,959 12/03/97 300 Garner NC 218,294 319,334 3,905 1,040 218,294 324,279 542,573 64,091 08/01/02 06/20/97 300 Greensboro NC 286,068 244,606 None None 286,068 244,606 530,674 6,107 05/14/02 300 Matthews NC 295,580 338,472 None 571 295,580 339,043 634,623 57,407 08/28/98 02/27/98 300 Pineville NC 254,460 355,630 None 151 254,460 355,781 610,241 75,233 08/28/97 04/16/97 300 Raleigh NC 89,145 413,301 None None 89,145 413,301 502,446 308,049 10/28/85 300 Raleigh NC 398,694 263,621 None None 398,694 263,621 662,315 54,886 10/01/97 300 Salisbury NC 235,614 150,592 None None 235,614 150,592 386,206 3,763 05/14/02 300 Lincoln NE 337,138 316,958 None None 337,138 316,958 654,096 7,921 05/14/02 300 Edison NJ 448,936 238,773 None None 448,936 238,773 687,709 5,966 05/14/02 300 Glassboro NJ 182,013 312,480 None None 182,013 312,480 494,493 6,770 06/27/02 300 Hamilton Square NJ 422,477 291,555 None None 422,477 291,555 714,032 7,285 05/14/02 300
F-6
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Service - ------------------ Hamilton Township NJ 265,238 298,167 None None 265,238 298,167 563,405 7,451 05/14/02 300 Randolph NJ 452,629 390,163 None None 452,629 390,163 842,792 9,752 05/14/02 300 Westfield NJ 705,337 288,720 None None 705,337 288,720 994,057 7,213 05/14/02 300 Woodbury NJ 212,788 320,283 None None 212,788 320,283 533,071 8,003 05/14/02 300 Las Vegas NV 326,879 359,101 None None 326,879 359,101 685,980 8,976 05/14/02 300 Las Vegas NV 316,441 369,768 None None 316,441 369,768 686,209 9,242 05/14/02 300 Las Vegas NV 252,169 562,715 None None 252,169 562,715 814,884 14,066 05/14/02 300 Sparks NV 326,813 306,311 None None 326,813 306,311 633,124 7,656 05/14/02 300 Albion NY 170,589 317,424 None None 170,589 317,424 488,013 48,134 03/31/99 300 Dansville NY 181,664 337,991 None None 181,664 337,991 519,655 51,254 03/31/99 300 E. Amherst NY 260,708 484,788 None None 260,708 484,788 745,496 73,518 03/31/99 300 E. SyracuseNY 250,609 466,264 None None 250,609 466,264 716,873 70,705 03/31/99 300 Johnson City NY 242,863 451,877 None None 242,863 451,877 694,740 68,523 03/31/99 300 Wellsville NY 161,331 300,231 None None 161,331 300,231 461,562 45,527 03/31/99 300 W. Amherst NY 268,692 499,619 None None 268,692 499,619 768,311 75,767 03/31/99 300 Akron OH 139,126 460,334 None None 139,126 460,334 599,460 97,399 09/18/97 300 BeavercreekOH 205,000 492,538 None None 205,000 492,538 697,538 114,104 02/13/97 09/09/96 300 Canal WinchesterOH 443,751 641,558 None None 443,751 641,558 1,085,309 6 In Prog. 08/21/02 300 CentervilleOH 305,000 420,448 None None 305,000 420,448 725,448 108,616 07/24/96 06/28/96 300 Cinncinati OH 293,005 201,340 None None 293,005 201,340 494,345 42,547 09/17/97 300 Cleveland OH 215,111 216,517 None None 215,111 216,517 431,628 4,691 06/27/02 300 Columbus OH 71,098 329,627 None None 71,098 329,627 400,725 246,394 10/02/85 300 Columbus OH 75,761 351,247 None None 75,761 351,247 427,008 261,797 10/24/85 300 Columbus OH 245,036 470,468 None None 245,036 470,468 715,504 132,515 12/22/95 300 Dayton OH 70,000 324,538 None None 70,000 324,538 394,538 241,890 10/31/85 300 Eastlake OH 321,347 459,774 None None 321,347 459,774 781,121 129,503 12/22/95 300 Fairfield OH 323,408 235,024 None None 323,408 235,024 558,432 49,689 09/17/97 300 Findlay OH 283,515 397,004 None None 283,515 397,004 680,519 80,066 12/24/97 300 Hamilton OH 252,608 413,279 None None 252,608 413,279 665,887 91,607 03/31/97 10/04/96 300 Huber Heights OH 282,000 449,381 None None 282,000 449,381 731,381 107,102 12/03/96 07/18/96 300 Miamisburg OH 63,996 296,701 None None 63,996 296,701 360,697 221,783 10/08/85 300 Milford OH 353,324 269,997 None None 353,324 269,997 623,321 57,108 09/18/97 300 Mt. Vernon OH 216,115 375,357 None None 216,115 375,357 591,472 75,697 12/30/97 300 Northwood OH 65,978 263,912 None None 65,978 263,912 329,890 263,912 09/12/86 180 Norwalk OH 200,205 366,000 None None 200,205 366,000 566,205 73,809 12/19/97 300 Sandusky OH 264,708 404,011 None None 264,708 404,011 668,719 81,479 12/19/97 300 Springboro OH 191,911 522,902 None None 191,911 522,902 714,813 120,980 03/07/97 300 Toledo OH 91,655 366,621 None None 91,655 366,621 458,276 366,621 09/12/86 180 Toledo OH 73,408 293,632 None None 73,408 293,632 367,040 293,632 09/12/86 180 Midwest City OK 106,312 333,551 None None 106,312 333,551 439,863 58,453 08/06/98 08/08/97 300 The VillageOK 143,655 295,422 None None 143,655 295,422 439,077 55,653 03/06/98 07/29/97 300
F-7
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Service - ------------------ Portland OR 251,499 345,952 None None 251,499 345,952 597,451 3,458 09/26/02 300 Salem OR 337,711 253,855 None None 337,711 253,855 591,566 6,344 05/14/02 300 Bethel ParkPA 299,595 331,264 None None 299,595 331,264 630,859 66,812 12/19/97 300 Bethlehem PA 275,328 389,067 None None 275,328 389,067 664,395 78,468 12/19/97 300 Bethlehem PA 229,162 310,526 None None 229,162 310,526 539,688 62,619 12/24/97 300 Harrisburg PA 131,529 220,317 None None 131,529 220,317 351,846 5,504 05/14/02 300 Philadel- phia PA 858,500 877,744 None None 858,500 877,744 1,736,244 357,003 05/19/95 12/05/94 300 Pittsburgh PA 378,715 562,633 None None 378,715 562,633 941,348 5,130 08/22/02 01/17/02 300 Springfield Twp. PA 82,740 383,601 None None 82,740 383,601 466,341 280,440 02/28/86 300 Warminster PA 323,847 216,999 None None 323,847 216,999 540,846 5,421 05/14/02 300 York PA 249,436 347,424 None None 249,436 347,424 596,860 70,065 12/30/97 300 Charleston SC 217,250 294,079 None 151 217,250 294,230 511,480 63,178 07/14/97 03/13/97 300 Columbia SC 343,785 295,001 None 151 343,785 295,152 638,937 65,298 05/27/97 02/07/97 300 Columbia SC 267,622 298,594 None None 267,622 298,594 566,216 56,283 03/31/98 11/05/97 300 Greenville SC 221,946 315,163 None 297 221,946 315,460 537,406 65,630 09/05/97 03/31/97 300 Lexington SC 241,534 342,182 None 302 241,534 342,484 584,018 50,958 09/24/98 300 North CharlestonSC 174,980 341,466 None 151 174,980 341,617 516,597 59,773 08/06/98 03/12/98 300 Brentwood TN 305,546 505,728 None None 305,546 505,728 811,274 100,295 03/13/98 05/28/97 300 Hermitage TN 204,296 172,695 None None 204,296 172,695 376,991 4,315 05/14/02 300 Memphis TN 108,094 217,079 None None 108,094 217,079 325,173 5,424 05/14/02 300 Memphis TN 214,110 193,591 None None 214,110 193,591 407,701 4,837 05/14/02 300 Memphis TN 215,017 216,794 None None 215,017 216,794 431,811 4,697 06/27/02 300 Murfrees- boro TN 150,411 215,528 None None 150,411 215,528 365,939 5,386 05/14/02 300 Nashville TN 342,960 227,440 None None 342,960 227,440 570,400 48,091 09/17/97 300 Carrollton TX 174,284 98,623 None None 174,284 98,623 272,907 2,464 05/14/02 300 Carrolton TX 177,041 199,088 None None 177,041 199,088 376,129 4,975 05/14/02 300 Dallas TX 234,604 325,951 None None 234,604 325,951 560,555 83,118 08/09/96 02/19/96 300 Fort Worth TX 83,530 111,960 None None 83,530 111,960 195,490 2,797 05/14/02 300 Houston TX 285,000 369,697 None None 285,000 369,697 654,697 76,981 08/08/97 08/08/97 300 Houston TX 195,000 424,651 6,405 4,077 195,000 435,133 630,133 58,854 02/01/02 06/12/98 300 Humble TX 257,169 325,652 None None 257,169 325,652 582,821 8,139 05/14/02 300 Lake Jackson TX 197,170 256,376 None None 197,170 256,376 453,546 6,407 05/14/02 300 Lewisville TX 199,942 324,736 None None 199,942 324,736 524,678 82,808 08/02/96 02/14/96 300 Lewisville TX 130,238 207,683 None None 130,238 207,683 337,921 4,500 06/27/02 300 San AntonioTX 198,828 437,422 None None 198,828 437,422 636,250 127,581 09/15/95 300 Richmond VA 403,549 38,980 None None 403,549 38,980 442,529 5 In Prog. 10/17/02 300 Roanoke VA 349,628 322,545 None None 349,628 322,545 672,173 65,052 12/19/97 300 Warrenton VA 186,723 241,173 None None 186,723 241,173 427,896 6,026 05/14/02 300 Bremerton WA 261,172 373,080 None None 261,172 373,080 634,252 91,012 03/19/97 07/24/96 300 Milwaukee WI 173,005 499,244 None None 173,005 499,244 672,249 140,620 12/22/95 300 Milwaukee WI 152,509 475,480 None None 152,509 475,480 627,989 119,662 09/27/96 300
F-8
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Service - ------------------ New Berlin WI 188,491 466,268 None None 188,491 466,268 654,759 131,332 12/22/95 300 Racine WI 184,002 114,167 None None 184,002 114,167 298,169 2,852 05/14/02 300 Book Stores - ----------- Tampa FL 998,250 3,696,707 None None 998,250 3,696,707 4,694,957 856,337 03/11/97 300 Matthews NC 768,222 843,401 None 126 768,222 843,527 1,611,749 136,402 12/31/98 300 Business Services - ----------------- Jackson MI 550,162 571,590 None None 550,162 571,590 1,121,752 88,720 01/15/99 09/25/98 300 Child Care - ---------- Birmingham AL 63,800 295,791 None None 63,800 295,791 359,591 236,884 10/31/84 300 Mobile AL 78,400 237,671 None 411 78,400 238,082 316,482 237,948 10/15/82 180 Avondale AZ 242,723 1,129,139 None None 242,723 1,129,139 1,371,862 160,048 04/20/99 07/28/98 300 Chandler AZ 144,083 668,079 None 1,515 144,083 669,594 813,677 464,208 12/17/86 300 Chandler AZ 291,720 647,923 None 102 291,720 648,025 939,745 369,440 12/11/87 300 Chandler AZ 271,695 603,446 None 102 271,695 603,548 875,243 344,142 12/14/87 300 Mesa AZ 297,500 660,755 None 2 297,500 660,757 958,257 358,595 09/29/88 300 Mesa AZ 276,770 590,417 None 2 276,770 590,419 867,189 320,424 09/29/88 300 Mesa AZ 308,951 1,025,612 None None 308,951 1,025,612 1,334,563 135,076 07/26/99 01/13/99 300 Peoria AZ 281,750 625,779 None 2 281,750 625,781 907,531 351,080 03/30/88 300 Phoenix AZ 115,000 285,172 None 158 115,000 285,330 400,330 285,330 02/08/84 180 Phoenix AZ 318,500 707,397 None 2 318,500 707,399 1,025,899 383,909 09/29/88 300 Phoenix AZ 264,504 587,471 None None 264,504 587,471 851,975 281,705 06/29/90 300 Phoenix AZ 260,719 516,181 None None 260,719 516,181 776,900 238,323 12/26/90 300 Scottsdale AZ 291,993 648,529 None None 291,993 648,529 940,522 369,818 12/14/87 300 Tempe AZ 292,200 648,989 None None 292,200 648,989 941,189 364,102 03/10/88 300 Tempe AZ 294,000 638,977 None 2 294,000 638,979 932,979 305,678 09/27/90 300 Tucson AZ 304,500 676,303 None 135 304,500 676,438 980,938 367,034 09/28/88 300 Tucson AZ 283,500 546,878 None 135 283,500 547,013 830,513 296,794 09/29/88 300 Calabasas CA 156,430 725,248 None None 156,430 725,248 881,678 543,124 09/26/85 300 Carmichael CA 131,035 607,507 None None 131,035 607,507 738,542 430,980 08/22/86 300 Chino CA 155,000 634,071 None 5 155,000 634,076 789,076 634,071 10/06/83 180 Chula VistaCA 350,563 778,614 None None 350,563 778,614 1,129,177 448,796 10/30/87 300 Corona CA 144,856 671,584 None None 144,856 671,584 816,440 533,035 12/19/84 300 El Cajon CA 157,804 731,621 None None 157,804 731,621 889,425 540,096 12/19/85 300 Encinitas CA 320,000 710,729 None None 320,000 710,729 1,030,729 405,287 12/29/87 300 Escondido CA 276,286 613,638 None None 276,286 613,638 889,924 349,920 12/31/87 300 Folsom CA 281,563 625,363 None 199 281,563 625,562 907,125 361,361 10/23/87 300 Mission Viejo CA 353,891 744,367 None None 353,891 744,367 1,098,258 303,764 06/24/93 300
F-9
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Child Care - ---------- Moreno Valley CA 304,489 676,214 None None 304,489 676,214 980,703 406,553 02/11/87 300 Oceanside CA 145,568 674,889 None None 145,568 674,889 820,457 498,215 12/23/85 300 Palmdale CA 249,490 554,125 None None 249,490 554,125 803,615 300,727 09/14/88 300 Rancho Cordova CA 276,328 613,733 None None 276,328 613,733 890,061 321,910 03/22/89 300 Rancho Cucamonga CA 471,733 1,047,739 None None 471,733 1,047,739 1,519,472 597,465 12/30/87 300 Roseville CA 297,343 660,411 None 199 297,343 660,610 957,953 381,607 10/21/87 300 Sacramento CA 290,734 645,732 None None 290,734 645,732 936,466 372,201 10/05/87 300 Santee CA 248,418 551,748 None None 248,418 551,748 800,166 323,146 07/23/87 300 Simi ValleyCA 208,585 967,055 None None 208,585 967,055 1,175,640 713,900 12/20/85 300 Valencia CA 301,295 669,185 None None 301,295 669,185 970,480 369,291 06/23/88 300 Walnut CA 217,365 1,007,753 None None 217,365 1,007,753 1,225,118 714,925 08/22/86 300 Aurora CO 141,811 657,497 None None 141,811 657,497 799,308 478,317 03/25/86 300 Aurora CO 287,000 637,440 None None 287,000 637,440 924,440 363,494 12/31/87 300 Aurora CO 301,455 655,610 None None 301,455 655,610 957,065 370,235 09/27/89 300 Broomfield CO 107,000 403,080 None None 107,000 403,080 510,080 403,080 01/12/83 180 Broomfield CO 155,306 344,941 None None 155,306 344,941 500,247 193,522 03/15/88 300 Colorado Springs CO 58,400 271,217 None None 58,400 271,217 329,617 271,217 12/22/82 180 Colorado Springs CO 92,570 241,413 None None 92,570 241,413 333,983 241,413 08/31/83 180 Colorado Springs CO 115,542 535,700 None None 115,542 535,700 651,242 373,465 12/04/86 300 Englewood CO 131,216 608,372 None None 131,216 608,372 739,588 424,129 12/05/86 300 Englewood CO 158,651 735,572 None 1,189 158,651 736,761 895,412 511,104 12/29/86 300 Ft. CollinsCO 55,200 256,356 None 3,600 55,200 259,956 315,156 258,156 12/22/82 180 Ft. CollinsCO 117,105 542,950 None None 117,105 542,950 660,055 394,985 03/25/86 300 Ft. CollinsCO 137,734 638,593 None None 137,734 638,593 776,327 464,565 03/25/86 300 Greeley CO 58,400 270,755 None 227 58,400 270,982 329,382 216,095 11/21/84 300 Littleton CO 161,617 358,956 None 292 161,617 359,248 520,865 204,689 12/10/87 300 Littleton CO 287,000 637,435 None None 287,000 637,435 924,435 345,940 09/29/88 300 Littleton CO 299,250 664,642 None None 299,250 664,642 963,892 360,706 09/29/88 300 Longmont CO 115,592 535,931 None None 115,592 535,931 651,523 389,880 03/25/86 300 Louisville CO 58,089 269,313 None 292 58,089 269,605 327,694 219,368 06/22/84 300 Parker CO 153,551 341,042 None 292 153,551 341,334 494,885 197,065 10/19/87 300 WestminsterCO 306,387 695,737 None None 306,387 695,737 1,002,124 374,827 09/27/89 300 Bradenton FL 160,060 355,501 None 134 160,060 355,635 515,695 197,270 05/05/88 300 Clearwater FL 42,223 269,380 None None 42,223 269,380 311,603 269,380 12/22/81 180 Jackson- ville FL 48,000 243,060 None 226 48,000 243,286 291,286 243,060 12/22/81 180 Jackson- ville FL 184,800 410,447 None None 184,800 410,447 595,247 215,284 03/30/89 300 Margate FL 66,686 309,183 None None 66,686 309,183 375,869 214,833 12/16/86 300 Melbourne FL 256,439 549,345 None None 256,439 549,345 805,784 226,723 04/16/93 300 Niceville FL 73,696 341,688 None None 73,696 341,688 415,384 238,204 12/03/86 300 Orlando FL 68,001 313,922 None None 68,001 313,922 381,923 235,745 09/04/85 300 Orlando FL 159,177 353,538 None 134 159,177 353,672 512,849 207,058 07/02/87 300
F-10
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Child Care - ---------- Orlando FL 245,249 544,704 None 134 245,249 544,838 790,087 310,611 12/10/87 300 Orlando FL 190,050 422,107 None None 190,050 422,107 612,157 221,400 03/30/89 300 Oviedo FL 166,409 369,598 None 134 166,409 369,732 536,141 211,893 11/20/87 300 Panama City FL 69,500 244,314 None 2,113 69,500 246,427 315,927 244,542 06/15/82 180 Pensacola FL 147,000 326,492 None None 147,000 326,492 473,492 171,249 03/28/89 300 Royal Palm Beach FL 194,193 431,309 None 134 194,193 431,443 625,636 231,453 11/15/88 300 Spring HillFL 146,939 326,356 None 134 146,939 326,490 473,429 187,101 11/24/87 300 St. Augustine FL 44,800 213,040 None 134 44,800 213,174 257,974 213,040 12/22/81 180 Sunrise FL 69,400 246,671 None 404 69,400 247,075 316,475 246,671 06/15/82 180 Sunrise FL 245,000 533,280 None None 245,000 533,280 778,280 279,890 05/25/89 300 Tampa FL 53,385 199,846 None 134 53,385 199,980 253,365 199,846 12/22/81 180 Duluth GA 310,000 1,040,008 None None 310,000 1,040,008 1,350,008 133,517 08/25/99 06/07/99 300 Dunwoody GA 318,500 707,399 None None 318,500 707,399 1,025,899 379,610 11/16/88 300 Ellenwood GA 119,678 275,414 None 151 119,678 275,565 395,243 147,794 11/16/88 300 Fayette- ville GA 148,400 329,601 None 264 148,400 329,865 478,265 172,880 03/29/89 300 Lawrence- ville GA 141,449 314,161 None None 141,449 314,161 455,610 172,411 07/07/88 300 Lilburn GA 116,350 539,488 None 288 116,350 539,776 656,126 374,858 12/23/86 300 Lithia Springs GA 187,444 363,358 None None 187,444 363,358 550,802 186,606 12/28/89 300 Lithonia GA 239,715 524,459 None None 239,715 524,459 764,174 256,760 08/20/91 300 Marietta GA 231,000 513,061 None 615 231,000 513,676 744,676 287,842 03/18/88 300 Marietta GA 273,000 619,076 None 615 273,000 619,691 892,691 345,423 04/26/88 300 Marietta GA 148,620 330,090 None 178 148,620 330,268 478,888 179,309 09/16/88 300 Marietta GA 292,250 649,095 None 177 292,250 649,272 941,522 346,353 12/02/88 300 Marietta GA 295,750 596,299 None 177 295,750 596,476 892,226 318,182 12/30/88 300 Marietta GA 301,000 668,529 None 177 301,000 668,706 969,706 356,722 12/30/88 300 Smyrna GA 274,750 610,229 None None 274,750 610,229 884,979 327,466 11/15/88 300 StockbridgeGA 168,700 374,688 None None 168,700 374,688 543,388 196,528 03/28/89 300 Stone Mountain GA 65,000 301,357 None 573 65,000 301,930 366,930 228,868 06/19/85 300 Stone Mountain GA 316,750 703,512 None None 316,750 703,512 1,020,262 377,524 11/16/88 300 Cedar Rapids IA 194,950 427,085 None None 194,950 427,085 622,035 190,977 09/24/92 300 Iowa City IA 186,900 408,910 None None 186,900 408,910 595,810 184,695 09/24/92 300 Johnston IA 186,996 347,278 None None 186,996 347,278 534,274 152,138 08/19/91 300 Addison IL 125,780 583,146 None None 125,780 583,146 708,926 424,229 03/25/86 300 Algonquin IL 241,500 509,629 None None 241,500 509,629 751,129 245,332 07/10/90 300 Aurora IL 165,679 398,738 None 406 165,679 399,144 564,823 212,763 12/21/88 300 Aurora IL 468,000 1,259,926 None None 468,000 1,259,926 1,727,926 153,382 10/26/99 06/14/99 300 Bartlett IL 120,824 560,166 None None 120,824 560,166 680,990 407,510 03/25/86 300 BolingbrookIL 60,000 409,024 None 199 60,000 409,223 469,223 409,024 10/18/82 180 Carol Stream IL 122,831 586,416 None None 122,831 586,416 709,247 426,607 03/25/86 300 Crystal Lake IL 400,000 1,259,424 None None 400,000 1,259,424 1,659,424 157,509 09/28/99 05/14/99 300 Elk Grove Village IL 126,860 588,175 None None 126,860 588,175 715,035 427,887 03/26/86 300
F-11
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Child Care - ---------- Elk Grove Village IL 214,845 477,181 None 435 214,845 477,616 692,461 266,251 04/08/88 300 Glendale Heights IL 318,500 707,399 None None 318,500 707,399 1,025,899 379,610 11/16/88 300 Hoffman Estates IL 318,500 707,399 None None 318,500 707,399 1,025,899 371,039 03/31/89 300 Hoffman Estates IL 211,082 468,818 None 1,050 211,082 469,868 680,950 233,207 12/08/89 300 Lake in the Hills IL 375,000 1,127,678 None None 375,000 1,127,678 1,502,678 141,037 09/03/99 05/14/99 300 Lockport IL 189,477 442,018 None 406 189,477 442,424 631,901 254,774 10/29/87 300 Naperville IL 425,000 1,230,654 None None 425,000 1,230,654 1,655,654 149,813 10/06/99 05/19/99 300 O'Fallon IL 141,250 313,722 None 468 141,250 314,190 455,440 180,823 10/30/87 300 Orland ParkIL 218,499 485,296 None 406 218,499 485,702 704,201 279,719 10/28/87 300 Oswego IL 380,000 1,165,818 None 1,182 380,000 1,167,000 1,547,000 149,667 08/18/99 06/30/99 300 Palatine IL 121,911 565,232 None None 121,911 565,232 687,143 411,196 03/25/86 300 Roselle IL 297,541 561,037 None None 297,541 561,037 858,578 299,366 12/30/88 300 Schaumburg IL 218,798 485,955 None 406 218,798 486,361 705,159 277,110 12/17/87 300 Vernon Hills IL 132,523 614,430 None None 132,523 614,430 746,953 446,986 03/25/86 300 Westmont IL 124,742 578,330 None None 124,742 578,330 703,072 420,724 03/25/86 300 Carmel IN 217,565 430,742 None None 217,565 430,742 648,307 198,875 12/27/90 300 Fishers IN 212,118 419,958 None None 212,118 419,958 632,076 193,896 12/27/90 300 Highland IN 220,460 436,476 None None 220,460 436,476 656,936 201,522 12/26/90 300 Indiana- polis IN 245,000 544,153 None None 245,000 544,153 789,153 260,933 06/29/90 300 NoblesvilleIN 60,000 278,175 None None 60,000 278,175 338,175 215,790 04/30/85 300 Zionsville IN 127,568 319,770 None None 127,568 319,770 447,338 184,309 10/28/87 300 Lenexa KS 318,500 707,399 None None 318,500 707,399 1,025,899 371,039 03/31/89 300 Olathe KS 304,500 676,308 None None 304,500 676,308 980,808 367,036 09/28/88 300 Overland Park KS 305,691 707,397 None None 305,691 707,397 1,013,088 383,909 09/28/88 300 Overland Park KS 357,500 1,115,171 None None 357,500 1,115,171 1,472,671 146,868 07/23/99 05/14/99 300 Shawnee KS 315,000 699,629 None None 315,000 699,629 1,014,629 377,565 10/27/88 300 Shawnee KS 288,246 935,875 None None 288,246 935,875 1,224,121 145,101 12/29/98 08/24/98 300 Wichita KS 108,569 401,829 None None 108,569 401,829 510,398 264,887 12/16/86 300 Wichita KS 209,890 415,549 None None 209,890 415,549 625,439 191,861 12/26/90 300 Lexington KY 210,427 420,883 None None 210,427 420,883 631,310 199,053 08/20/91 300 Acton MA 315,533 700,813 None None 315,533 700,813 1,016,346 380,335 09/30/88 300 MarlboroughMA 352,765 776,488 None None 352,765 776,488 1,129,253 416,684 11/04/88 300 WestboroughMA 359,412 773,877 None None 359,412 773,877 1,133,289 415,281 11/01/88 300 Ellicott City MD 219,368 630,839 None None 219,368 630,839 850,207 336,610 12/19/88 300 Frederick MD 203,352 1,017,109 None None 203,352 1,017,109 1,220,461 181,384 07/06/98 300 Olney MD 342,500 760,701 None None 342,500 760,701 1,103,201 433,782 12/18/87 300 Waldorf MD 130,430 604,702 None None 130,430 604,702 735,132 486,359 09/26/84 300 Waldorf MD 237,207 526,844 None None 237,207 526,844 764,051 300,426 12/31/87 300 Canton MI 55,000 378,848 None None 55,000 378,848 433,848 378,848 10/06/82 180 Apple Valley MN 113,523 526,319 None 165 113,523 526,484 640,007 382,888 03/26/86 300 Brooklyn Park MN 118,111 547,587 None 165 118,111 547,752 665,863 398,359 03/26/86 300
F-12
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Child Care - ---------- Eagan MN 112,127 519,845 None 165 112,127 520,010 632,137 378,177 03/31/86 300 Eden Prairie MN 124,286 576,243 None 165 124,286 576,408 700,694 419,207 03/27/86 300 Maple GroveMN 313,250 660,149 None 7 313,250 660,156 973,406 318,455 07/11/90 300 Minnetonka MN 146,847 680,842 None 1,471 146,847 682,313 829,160 474,651 12/12/86 300 Plymouth MN 134,221 622,350 None 417 134,221 622,767 756,988 433,872 12/12/86 300 W. Bloom- ington MN 40,000 468,484 None 1,463 40,000 469,947 509,947 468,484 06/18/82 180 White Bear Lake MN 260,750 579,133 None 254 260,750 579,387 840,137 330,245 12/23/87 300 White Bear Lake MN 242,165 537,856 None 7 242,165 537,863 780,028 254,713 08/30/90 300 Florissant MO 181,300 402,672 None None 181,300 402,672 583,972 211,206 03/29/89 300 Florissant MO 318,500 707,399 None None 318,500 707,399 1,025,899 371,039 03/30/89 300 Gladstone MO 294,000 652,987 None None 294,000 652,987 946,987 354,380 09/29/88 300 Lee's Summit MO 313,740 939,367 None None 313,740 939,367 1,253,107 120,599 09/08/99 06/30/99 300 Lee's Summit MO 239,627 532,220 None None 239,627 532,220 771,847 268,688 09/27/89 300 Lee's Summit MO 330,000 993,787 None None 330,000 993,787 1,323,787 130,878 07/26/99 06/17/99 300 Liberty MO 65,400 303,211 None None 65,400 303,211 368,611 230,275 06/18/85 300 Manchester MO 287,000 637,435 None 21 287,000 637,456 924,456 363,491 12/22/87 300 N. Kansas City MO 307,784 910,401 None None 307,784 910,401 1,218,185 146,661 09/28/99 08/21/98 300 St. CharlesMO 259,000 575,246 None None 259,000 575,246 834,246 328,029 12/23/87 300 Pearl MS 121,801 270,524 None 282 121,801 270,806 392,607 145,286 11/15/88 300 Cary NC 75,200 262,973 None 228 75,200 263,201 338,401 263,144 01/25/84 180 Charlotte NC 27,551 247,000 None 228 27,551 247,228 274,779 247,068 12/23/81 180 Charlotte NC 134,582 268,222 None 151 134,582 268,373 402,955 143,934 11/16/88 300 Concord NC 32,441 190,859 None 151 32,441 191,010 223,451 190,859 12/23/81 180 Durham NC 175,700 390,234 None None 175,700 390,234 565,934 204,682 03/29/89 300 Durham NC 220,728 429,380 None None 220,728 429,380 650,108 222,805 12/29/89 300 Durham NC 238,000 471,201 None None 238,000 471,201 709,201 206,427 08/20/91 300 Henderson- ville NC 32,748 186,152 None 228 32,748 186,380 219,128 186,323 12/23/81 180 Kerners- ville NC 162,216 316,300 None None 162,216 316,300 478,516 164,899 12/14/89 300 Bellevue NE 60,568 280,819 None None 60,568 280,819 341,387 195,124 12/16/86 300 Omaha NE 60,500 280,491 None None 60,500 280,491 340,991 227,519 08/01/84 300 Omaha NE 53,000 245,720 None None 53,000 245,720 298,720 197,304 10/11/84 300 Omaha NE 142,867 317,315 None None 142,867 317,315 460,182 180,944 12/09/87 300 LondonderryNH 335,467 745,082 None None 335,467 745,082 1,080,549 379,574 08/18/89 300 Clementon NJ 279,851 554,060 None None 279,851 554,060 833,911 241,096 09/09/91 300 Las Vegas NV 201,250 446,983 None None 201,250 446,983 648,233 214,338 06/29/90 300 Sparks NV 244,752 543,605 None None 244,752 543,605 788,357 308,314 01/29/88 300 BeavercreekOH 179,552 398,786 None None 179,552 398,786 578,338 234,796 06/30/87 300 CentervilleOH 174,519 387,613 None None 174,519 387,613 562,132 227,016 07/23/87 300 Cincinnati OH 165,910 368,486 None 1,388 165,910 369,874 535,784 219,245 04/29/87 300 Dublin OH 84,000 389,446 None 176 84,000 389,622 473,622 291,108 10/08/85 300 Englewood OH 74,000 343,083 None 176 74,000 343,259 417,259 255,712 10/23/85 300
F-13
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Child Care - ---------- Forest ParkOH 170,778 379,305 None None 170,778 379,305 550,083 220,512 09/28/87 300 Gahanna OH 86,000 398,718 None 2,346 86,000 401,064 487,064 295,762 11/26/85 300 Huber Heights OH 245,000 544,153 None None 245,000 544,153 789,153 256,079 09/27/90 300 Loveland OH 206,136 457,829 None None 206,136 457,829 663,965 273,828 03/20/87 300 Maineville OH 173,105 384,468 None None 173,105 384,468 557,573 229,951 03/06/87 300 Pickering- ton OH 87,580 406,055 None 176 87,580 406,231 493,811 283,076 12/11/86 300 WestervilleOH 82,000 380,173 None 176 82,000 380,349 462,349 284,177 10/08/85 300 WestervilleOH 294,350 646,557 None None 294,350 646,557 940,907 308,751 09/26/90 300 Broken Arrow OK 78,705 220,434 None 1,700 78,705 222,134 300,839 220,712 01/27/83 180 Midwest City OK 67,800 314,338 None 279 67,800 314,617 382,417 237,705 08/14/85 300 Oklahoma City OK 50,800 214,474 None 3,013 50,800 217,487 268,287 215,880 06/15/82 180 Oklahoma City OK 79,000 366,261 None 461 79,000 366,722 445,722 293,078 11/14/84 300 Yukon OK 61,000 282,812 None 379 61,000 283,191 344,191 218,380 05/02/85 300 Beaverton OR 135,148 626,647 None 3 135,148 626,650 761,798 435,419 12/17/86 300 Beaverton OR 115,232 534,301 None 7,786 115,232 542,087 657,319 371,254 12/22/86 300 Charleston SC 125,593 278,947 None 151 125,593 279,098 404,691 154,789 05/26/88 300 Charleston SC 140,700 312,498 None None 140,700 312,498 453,198 163,909 03/28/89 300 Columbia SC 58,160 269,643 None 1,042 58,160 270,685 328,845 216,210 11/14/84 300 Elgin SC 160,831 313,600 None None 160,831 313,600 474,431 163,491 12/14/89 300 Goose CreekSC 61,635 192,905 None 292 61,635 193,197 254,832 192,993 12/22/81 180 Ladson SC 31,543 177,457 None 1,242 31,543 178,699 210,242 177,749 12/22/81 180 Mt. Pleasant SC 40,700 180,400 None None 40,700 180,400 221,100 180,400 12/22/81 180 SummervilleSC 44,400 174,500 None None 44,400 174,500 218,900 174,500 12/22/81 180 Sumter SC 56,010 268,903 None 1,007 56,010 269,910 325,920 204,473 06/18/85 300 Memphis TN 238,263 504,897 None 378 238,263 505,275 743,538 274,009 09/29/88 300 Memphis TN 238,000 528,608 None 378 238,000 528,986 766,986 286,879 09/30/88 300 Memphis TN 221,501 491,962 None None 221,501 491,962 713,463 232,979 08/31/90 300 Nashville TN 274,298 609,223 None None 274,298 609,223 883,521 319,544 03/30/89 300 Allen TX 177,637 394,538 None 208 177,637 394,746 572,383 211,715 11/21/88 300 Arlington TX 82,109 380,677 None None 82,109 380,677 462,786 303,044 12/13/84 300 Arlington TX 238,000 528,604 None None 238,000 528,604 766,604 286,876 09/26/88 300 Arlington TX 241,500 550,559 None None 241,500 550,559 792,059 329,195 09/22/89 300 Arlington TX 195,650 387,355 None None 195,650 387,355 583,005 176,551 02/07/91 300 Atascocita TX 278,915 1,034,868 None None 278,915 1,034,868 1,313,783 136,288 07/19/99 05/14/99 300 Austin TX 103,600 230,532 None 2,030 103,600 232,562 336,162 230,607 10/29/82 180 Austin TX 88,872 222,684 None 75 88,872 222,759 311,631 222,740 01/12/83 180 Austin TX 134,383 623,103 None 357 134,383 623,460 757,843 432,957 12/23/86 300 Austin TX 188,144 417,872 None 10 188,144 417,882 606,026 231,880 05/11/88 300 Austin TX 236,733 528,608 None 10 236,733 528,618 765,351 286,879 09/27/88 300 Austin TX 191,636 425,629 None 10 191,636 425,639 617,275 227,112 12/22/88 300 Austin TX 224,878 499,460 None 49 224,878 499,509 724,387 264,996 01/03/89 300
F-14
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Child Care - ---------- Austin TX 238,000 528,604 None None 238,000 528,604 766,604 275,662 04/06/89 300 Austin TX 217,878 483,913 None None 217,878 483,913 701,791 249,437 06/22/89 300 Bedford TX 241,500 550,559 None None 241,500 550,559 792,059 329,195 09/22/89 300 Carrollton TX 277,850 617,113 None None 277,850 617,113 894,963 351,903 12/11/87 300 Cedar Park TX 168,857 375,036 None None 168,857 375,036 543,893 201,251 11/21/88 300 ColleyvilleTX 250,000 1,070,360 None None 250,000 1,070,360 1,320,360 137,408 08/17/99 05/14/99 300 Converse TX 217,000 481,963 None 10 217,000 481,973 698,973 261,564 09/28/88 300 Coppell TX 139,224 645,550 None 1,077 139,224 646,627 785,851 448,554 12/17/86 300 Coppell TX 208,641 463,398 None 41 208,641 463,439 672,080 264,248 12/11/87 300 Corinth TX 285,000 1,041,626 None None 285,000 1,041,626 1,326,626 140,614 06/04/99 05/19/99 300 DeSoto TX 86,000 398,715 29,103 2,924 86,000 430,742 516,742 323,627 10/24/84 300 DuncanvilleTX 93,000 431,172 11,610 1,622 93,000 444,404 537,404 333,616 05/08/85 300 Euless TX 234,111 519,962 None None 234,111 519,962 754,073 307,756 05/08/87 300 Flower Mound TX 202,773 442,845 None None 202,773 442,845 645,618 263,487 04/20/87 300 Flower Mound TX 281,735 1,099,726 None None 281,735 1,099,726 1,381,461 155,767 04/23/99 01/13/99 300 Fort Worth TX 85,518 396,495 None None 85,518 396,495 482,013 276,412 12/03/86 300 Fort Worth TX 238,000 528,608 None None 238,000 528,608 766,608 286,879 09/26/88 300 Fort Worth TX 210,007 444,460 None None 210,007 444,460 654,467 221,157 02/01/90 300 Fort Worth TX 216,160 427,962 None None 216,160 427,962 644,122 195,058 02/07/91 300 Garland TX 211,050 468,749 None None 211,050 468,749 679,799 233,173 12/12/89 300 Grand Prairie TX 167,164 371,276 None None 167,164 371,276 538,440 198,109 12/13/88 300 Houston TX 60,000 278,175 None 155 60,000 278,330 338,330 214,800 05/01/85 300 Houston TX 102,000 472,898 None 155 102,000 473,053 575,053 365,205 05/01/85 300 Houston TX 139,125 308,997 None 155 139,125 309,152 448,277 182,889 05/22/87 300 Houston TX 141,296 313,824 None 183 141,296 314,007 455,303 183,800 07/24/87 300 Houston TX 219,100 486,631 None None 219,100 486,631 705,731 264,098 09/30/88 300 Houston TX 219,100 486,628 None None 219,100 486,628 705,728 261,139 11/16/88 300 Houston TX 149,109 323,314 None None 149,109 323,314 472,423 177,772 06/26/89 300 Houston TX 294,582 919,276 None None 294,582 919,276 1,213,858 139,472 01/11/99 08/14/98 300 Katy TX 309,898 983,041 None None 309,898 983,041 1,292,939 155,673 11/30/98 08/21/98 300 Lewisville TX 79,000 366,264 20,305 1,439 79,000 388,008 467,008 278,727 06/26/85 300 Lewisville TX 192,777 428,121 None None 192,777 428,121 620,898 258,027 01/07/87 300 Lewisville TX 192,218 426,922 None None 192,218 426,922 619,140 227,803 12/29/88 300 Mansfield TX 181,375 402,839 None None 181,375 402,839 584,214 200,388 12/20/89 300 Mesquite TX 85,000 394,079 None 124 85,000 394,203 479,203 315,596 10/24/84 300 Mesquite TX 139,466 326,525 None None 139,466 326,525 465,991 162,185 10/08/92 300 Missouri City TX 221,025 437,593 None None 221,025 437,593 658,618 202,039 12/13/90 300 N. Richland Hills TX 238,000 528,608 None None 238,000 528,608 766,608 286,879 09/26/88 300 Pasadena TX 60,000 278,173 None 155 60,000 278,328 338,328 222,864 10/23/84 300 Plano TX 261,912 581,658 None None 261,912 581,658 843,570 351,520 01/06/87 300 Plano TX 250,514 556,399 None None 250,514 556,399 806,913 317,281 12/10/87 300
F-15
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Child Care - ---------- Plano TX 259,000 575,246 None None 259,000 575,246 834,246 312,189 09/27/88 300 Round Rock TX 80,525 373,347 None 156 80,525 373,503 454,028 259,417 12/16/86 300 Round Rock TX 186,380 413,957 None None 186,380 413,957 600,337 215,875 04/19/89 300 San AntonioTX 130,833 606,596 None 139 130,833 606,735 737,568 441,287 03/24/86 300 San AntonioTX 102,512 475,288 None 139 102,512 475,427 577,939 331,343 12/03/86 300 San AntonioTX 81,530 378,007 None 139 81,530 378,146 459,676 263,523 12/11/86 300 San AntonioTX 139,125 308,997 None 239 139,125 309,236 448,361 182,889 05/22/87 300 San AntonioTX 181,412 402,923 None 340 181,412 403,263 584,675 235,982 07/07/87 300 San AntonioTX 162,161 360,166 None 1,630 162,161 361,796 523,957 210,941 07/07/87 300 San AntonioTX 234,500 520,831 None 340 234,500 521,171 755,671 296,999 12/29/87 300 San AntonioTX 217,000 481,967 None None 217,000 481,967 698,967 260,101 10/14/88 300 San AntonioTX 182,868 406,155 None 10 182,868 406,165 589,033 216,721 12/06/88 300 San AntonioTX 220,500 447,108 None None 220,500 447,108 667,608 234,514 03/30/89 300 Southlake TX 228,279 511,750 None None 228,279 511,750 740,029 228,402 03/10/93 300 Sugarland TX 193,800 430,437 None 1,230 193,800 431,667 625,467 252,097 07/31/87 300 Sugarland TX 339,310 1,000,876 None None 339,310 1,000,876 1,340,186 138,453 05/30/99 01/13/99 300 The Woodlands TX 193,801 430,440 None 2,074 193,801 432,514 626,315 250,767 08/11/87 300 Layton UT 136,574 269,008 None 143 136,574 269,151 405,725 139,661 02/01/90 300 Sandy UT 168,089 373,330 None 143 168,089 373,473 541,562 183,475 02/01/90 300 CentrevilleVA 371,000 824,003 None None 371,000 824,003 1,195,003 417,304 09/29/89 300 Chesapeake VA 190,050 422,107 None None 190,050 422,107 612,157 221,400 03/28/89 300 Glen Allen VA 74,643 346,060 None None 74,643 346,060 420,703 281,882 06/20/84 300 Portsmouth VA 171,575 381,073 None None 171,575 381,073 552,648 203,337 12/21/88 300 Richmond VA 71,001 327,771 None 7,651 71,001 335,422 406,423 246,146 09/04/85 300 Richmond VA 269,500 598,567 None None 269,500 598,567 868,067 313,955 03/28/89 300 Virginia Beach VA 69,080 320,270 None 656 69,080 320,926 390,006 256,063 11/15/84 300 Woodbridge VA 358,050 795,239 None None 358,050 795,239 1,153,289 431,581 09/29/88 300 Everett WA 120,000 540,363 None None 120,000 540,363 660,363 540,363 11/22/82 180 Federal WayWA 150,785 699,101 None 108 150,785 699,209 849,994 485,764 12/17/86 300 Federal WayWA 261,943 581,782 None None 261,943 581,782 843,725 312,195 11/21/88 300 Kent WA 128,300 539,141 None None 128,300 539,141 667,441 539,141 06/03/83 180 Kent WA 140,763 678,809 None 108 140,763 678,917 819,680 471,664 12/17/86 300 Kirkland WA 301,000 668,534 None 108 301,000 668,642 969,642 375,067 03/31/88 300 Puyallup WA 195,552 434,327 None None 195,552 434,327 629,879 231,752 12/06/88 300 Redmond WA 279,830 621,513 None 108 279,830 621,621 901,451 364,006 07/27/87 300 Renton WA 111,183 515,490 None 108 111,183 515,598 626,781 375,009 03/24/86 300 Appleton WI 196,000 424,038 None None 196,000 424,038 620,038 205,094 07/10/90 300 Waukesha WI 233,100 461,500 None None 233,100 461,500 694,600 213,076 12/13/90 300 Waukesha WI 215,950 427,546 None None 215,950 427,546 643,496 197,400 12/13/90 300 Cheyenne WY 59,856 277,506 None 6,703 59,856 284,209 344,065 221,478 11/20/84 300
F-16
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Electronics - -------------------- Oxford AL 323,085 406,655 None None 323,085 406,655 729,740 99,630 11/26/96 300 Tuscaloosa AL 204,790 585,115 None None 204,790 585,115 789,905 143,353 11/26/96 300 Bradenton FL 174,948 240,928 None 134 174,948 241,062 416,010 59,027 11/26/96 300 Mary EstherFL 149,696 363,263 None 134 149,696 363,397 513,093 88,999 11/26/96 300 Melbourne FL 269,697 522,414 None 134 269,697 522,548 792,245 127,991 11/26/96 300 Merritt Island FL 309,652 482,459 None 134 309,652 482,593 792,245 118,202 11/26/96 300 Ocala FL 339,690 543,504 None 134 339,690 543,638 883,328 133,158 11/26/96 300 Pensacola FL 419,842 1,899,287 None 134 419,842 1,899,421 2,319,263 465,325 11/26/96 300 TallahasseeFL 319,807 502,697 None 134 319,807 502,831 822,638 123,161 11/26/96 300 Titusville FL 176,459 579,793 None 134 176,459 579,927 756,386 142,049 11/26/96 300 Rome GA 254,902 486,812 None None 254,902 486,812 741,714 119,269 11/26/96 300 Smyrna GA 1,094,058 3,090,236 None 411 1,094,058 3,090,647 4,184,705 684,888 06/09/97 300 Council Bluffs IA 255,217 117,792 None None 255,217 117,792 373,009 28,859 11/26/96 300 Des Moines IA 188,520 367,614 None 16 188,520 367,630 556,150 90,066 11/26/96 300 Peoria IL 193,868 387,737 None None 193,868 387,737 581,605 94,996 11/26/96 300 Rockford IL 159,587 618,398 None None 159,587 618,398 777,985 151,508 11/26/96 300 SpringfieldIL 219,859 630,595 None None 219,859 630,595 850,454 154,496 11/26/96 300 Anderson IN 180,628 653,162 None None 180,628 653,162 833,790 160,019 11/26/96 300 Muncie IN 148,901 645,235 None None 148,901 645,235 794,136 158,083 11/26/96 300 Richmond IN 93,999 193,753 None None 93,999 193,753 287,752 47,469 11/26/96 300 Columbus MS 144,908 463,707 None None 144,908 463,707 608,615 113,608 11/26/96 300 Greenville MS 144,588 433,764 None None 144,588 433,764 578,352 106,272 11/26/96 300 Gulfport MS 299,464 502,326 None None 299,464 502,326 801,790 123,070 11/26/96 300 HattiesburgMS 198,659 457,379 None None 198,659 457,379 656,038 112,058 11/26/96 300 Jackson MS 405,360 656,296 None None 405,360 656,296 1,061,656 160,793 11/26/96 300 Meridian MS 181,156 515,598 None None 181,156 515,598 696,754 126,322 11/26/96 300 Tupelo MS 121,697 637,691 None None 121,697 637,691 759,388 156,234 11/26/96 300 Vicksburg MS 494,532 174,541 None None 494,532 174,541 669,073 42,762 11/26/96 300 Pineville NC 567,864 840,284 None 36,071 567,864 876,355 1,444,219 143,662 12/31/98 300 Lakewood NY 144,859 526,301 None None 144,859 526,301 671,160 128,944 11/26/96 300 Westbury NY 6,333,590 3,952,773 None None 6,333,590 3,952,773 10,286,363 836,282 09/29/97 300 Defiance OH 97,978 601,863 None None 97,978 601,863 699,841 147,456 11/26/96 300 Kettering OH 229,246 488,393 None 67 229,246 488,460 717,706 119,656 11/26/96 300 Bristol TN 344,365 468,719 None None 344,365 468,719 813,084 114,836 11/26/96 300 ClarksvilleTN 290,775 395,870 None None 290,775 395,870 686,645 96,988 11/26/96 300 Vienna WV 324,797 526,670 None None 324,797 526,670 851,467 129,034 11/26/96 300 Convenience Stores - ------------------ Manchester CT 118,262 305,510 None None 118,262 305,510 423,772 95,217 03/03/95 300 Vernon CT 179,646 319,372 None None 179,646 319,372 499,018 99,537 03/09/95 300 Westbrook CT 98,247 373,340 None None 98,247 373,340 471,587 116,358 03/09/95 300
F-17
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Convenience Stores - ------------------ Archer FL 296,238 578,145 None 51 296,238 578,196 874,434 83,830 05/07/99 300 Gainesville FL 515,834 873,187 None None 515,834 873,187 1,389,021 126,611 05/07/99 300 Gainesville FL 480,318 600,633 None None 480,318 600,633 1,080,951 87,090 05/07/99 300 Gainesville FL 347,310 694,859 None None 347,310 694,859 1,042,169 100,753 05/07/99 300 Gainesville FL 339,263 658,807 None None 339,263 658,807 998,070 95,526 05/07/99 300 Gainesville FL 351,921 552,557 None None 351,921 552,557 904,478 80,119 05/07/99 300 Gainesville FL 500,032 850,291 None None 500,032 850,291 1,350,323 123,291 05/07/99 300 Jacksonville Beach FL 522,188 371,885 None None 522,188 371,885 894,073 53,922 05/07/99 300 Orange Park FL 425,820 416,154 None 134 425,820 416,288 842,108 60,341 05/07/99 300 Augusta GA 320,000 382,323 None None 320,000 382,323 702,323 52,884 07/22/99 300 Augusta GA 620,000 383,232 None None 620,000 383,232 1,003,232 53,009 07/22/99 300 Augusta GA 540,000 337,853 None None 540,000 337,853 877,853 46,732 07/22/99 300 Augusta GA 510,000 392,929 None None 510,000 392,929 902,929 54,351 07/22/99 300 Augusta GA 180,000 422,020 None None 180,000 422,020 602,020 58,376 07/22/99 300 Augusta GA 260,000 392,171 None None 260,000 392,171 652,171 54,247 07/22/99 300 Dunwoody GA 545,462 724,254 None None 545,462 724,254 1,269,716 160,474 06/27/97 300 Hephzibah GA 580,000 523,535 None None 580,000 523,535 1,103,535 72,417 07/22/99 300 Lithonia GA 386,784 776,436 None None 386,784 776,436 1,163,220 172,053 06/27/97 300 Mableton GA 491,069 355,957 None None 491,069 355,957 847,026 78,856 06/27/97 300 Martinez GA 450,000 402,777 None None 450,000 402,777 852,777 55,713 07/22/99 300 Norcross GA 384,162 651,273 None None 384,162 651,273 1,035,435 144,305 06/27/97 300 Stone Mountain GA 529,383 532,429 None None 529,383 532,429 1,061,812 117,961 06/27/97 300 Godfrey IL 374,586 733,190 None None 374,586 733,190 1,107,776 162,459 06/27/97 300 Granite CityIL 362,287 737,255 None None 362,287 737,255 1,099,542 163,362 06/27/97 300 Madison IL 173,812 625,030 None None 173,812 625,030 798,842 138,504 06/27/97 300 New Albany IN 181,459 289,353 None None 181,459 289,353 470,812 90,182 03/03/95 300 New Albany IN 262,465 331,796 None None 262,465 331,796 594,261 103,410 03/06/95 300 Berea KY 252,077 360,815 None None 252,077 360,815 612,892 112,454 03/08/95 300 Elizabeth- town KY 286,106 286,106 None None 286,106 286,106 572,212 89,170 03/03/95 300 Henderson KY 225,000 515,000 None None 225,000 515,000 740,000 151,925 08/25/95 300 Lebanon KY 158,052 316,105 None None 158,052 316,105 474,157 98,519 03/03/95 300 Louisville KY 198,926 368,014 None None 198,926 368,014 566,940 114,698 03/03/95 300 Louisville KY 216,849 605,697 None None 216,849 605,697 822,546 158,357 06/18/96 11/17/95 300 Mt. Washington KY 327,245 479,593 None None 327,245 479,593 806,838 117,532 12/06/96 05/31/96 300 Owensboro KY 360,000 590,000 None None 360,000 590,000 950,000 174,050 08/25/95 300 Seekonk MA 298,354 268,518 None None 298,354 268,518 566,872 83,688 03/03/95 300 La Plata MD 1,454,643 2,702,405 None None 1,454,643 2,702,405 4,157,048 40,375 08/06/02 300 Mechanics- ville MD 1,540,335 2,860,928 None None 1,540,335 2,860,928 4,401,263 61,927 06/27/02 300 Millers- ville MD 1,451,660 2,696,245 None None 1,451,660 2,696,245 4,147,905 58,465 06/27/02 300 Flint MI 194,492 476,504 None None 194,492 476,504 670,996 134,215 12/21/95 300 Aberdeen NC 600,000 300,625 None None 600,000 300,625 900,625 23,526 01/25/01 300
F-18
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Convenience Stores - ------------------ Cary NC 450,000 825,000 None None 450,000 825,000 1,275,000 243,375 08/25/95 300 Goldsboro NC 460,000 740,625 None None 460,000 740,625 1,200,625 57,993 01/25/01 300 Greensboro NC 700,000 655,000 None None 700,000 655,000 1,355,000 84,058 10/27/99 300 Greenville NC 330,000 515,000 None None 330,000 515,000 845,000 151,925 08/25/95 300 Greenville NC 225,000 405,000 None None 225,000 405,000 630,000 119,475 08/25/95 300 JacksonvilleNC 150,000 530,000 None None 150,000 530,000 680,000 156,350 08/25/95 300 Kinston NC 550,000 1,057,833 None None 550,000 1,057,833 1,607,833 220,308 10/24/97 300 Galloway NJ 1,367,872 2,540,604 None None 1,367,872 2,540,604 3,908,476 55,003 06/27/02 300 Hamilton NJ 1,539,117 2,858,630 None None 1,539,117 2,858,630 4,397,747 62,830 06/27/02 300 MillVille NJ 953,891 1,771,782 None None 953,891 1,771,782 2,725,673 38,379 06/27/02 300 Toms River NJ 1,265,861 2,351,154 None None 1,265,861 2,351,154 3,617,015 51,296 06/27/02 300 Toms River NJ 982,526 1,824,961 None None 982,526 1,824,961 2,807,487 39,189 06/27/02 300 Wall NJ 1,459,957 2,712,264 None None 1,459,957 2,712,264 4,172,221 40,645 08/06/02 300 Kingston NY 257,763 456,042 None None 257,763 456,042 713,805 140,613 04/06/95 300 Atwater OH 118,555 266,748 None None 118,555 266,748 385,303 83,137 03/03/95 300 Columbus OH 147,296 304,411 None None 147,296 304,411 451,707 94,875 03/03/95 300 Columbus OH 273,085 471,693 None None 273,085 471,693 744,778 132,860 12/21/95 300 Cuyahoga Falls OH 297,982 357,579 None None 297,982 357,579 655,561 111,445 03/03/95 300 Galion OH 138,981 327,597 None 7 138,981 327,604 466,585 102,101 03/06/95 300 Groveport OH 277,198 445,497 None None 277,198 445,497 722,695 125,482 12/21/95 300 Perrysburg OH 211,678 390,680 None None 211,678 390,680 602,358 94,766 01/10/96 09/01/95 300 Streetsboro OH 402,988 533,349 None None 402,988 533,349 936,337 101,336 01/27/97 09/03/96 300 Tipp City OH 355,009 588,111 None None 355,009 588,111 943,120 116,634 01/31/97 06/27/96 300 Triffin OH 117,017 273,040 None None 117,017 273,040 390,057 85,097 03/07/95 300 Wadsworth OH 266,507 496,917 None None 266,507 496,917 763,424 105,346 11/26/96 07/01/96 300 Tulsa OK 126,545 508,266 None None 126,545 508,266 634,811 112,624 06/27/97 300 Aiken SC 320,000 432,527 None None 320,000 432,527 752,527 59,829 07/22/99 300 Aiken SC 330,000 472,679 None None 330,000 472,679 802,679 65,383 07/22/99 300 Aiken SC 560,000 543,588 None None 560,000 543,588 1,103,588 75,191 07/22/99 300 Aiken SC 360,000 542,982 None None 360,000 542,982 902,982 75,108 07/22/99 300 Aiken SC 540,000 388,058 None None 540,000 388,058 928,058 53,677 07/22/99 300 Aiken SC 250,000 251,770 None None 250,000 251,770 501,770 34,826 07/22/99 300 Belvedere SC 490,000 463,080 None None 490,000 463,080 953,080 64,055 07/22/99 300 Columbia SC 150,000 450,000 None None 150,000 450,000 600,000 132,750 08/25/95 300 Greenville SC 390,000 462,847 None None 390,000 462,847 852,847 64,023 07/22/99 300 Greenville SC 300,000 402,392 None None 300,000 402,392 702,392 55,661 07/22/99 300 Greenville SC 370,000 432,695 None None 370,000 432,695 802,695 59,852 07/22/99 300 Greenville SC 620,000 483,604 None None 620,000 483,604 1,103,604 66,893 07/22/99 300 Greenville SC 720,000 534,059 None None 720,000 534,059 1,254,059 73,872 07/22/99 300 Greenville SC 680,000 423,604 None None 680,000 423,604 1,103,604 58,593 07/22/99 300 Greer SC 400,000 502,879 None None 400,000 502,879 902,879 69,560 07/22/99 300
F-19
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Convenience Stores - ------------------ Jackson SC 170,000 632,626 None None 170,000 632,626 802,626 87,509 07/22/99 300 John's Isle SC 170,000 350,000 None None 170,000 350,000 520,000 103,250 08/25/95 300 Lexington SC 255,000 545,000 None None 255,000 545,000 800,000 160,775 08/25/95 300 Lexington SC 640,000 563,891 None None 640,000 563,891 1,203,891 77,999 07/22/99 300 Lexington SC 540,000 563,588 None None 540,000 563,588 1,103,588 77,957 07/22/99 300 Lexington SC 360,000 843,891 None None 360,000 843,891 1,203,891 116,732 07/22/99 300 Mauldin SC 490,000 412,879 None None 490,000 412,879 902,879 57,110 07/22/99 300 Myrtle BeachSC 140,000 590,000 None None 140,000 590,000 730,000 174,050 08/25/95 300 N. Augusta SC 400,000 452,777 None None 400,000 452,777 852,777 62,630 07/22/99 300 North Charleston SC 400,000 650,000 None None 400,000 650,000 1,050,000 191,750 08/25/95 300 N. Augusta SC 350,000 352,323 None None 350,000 352,323 702,323 48,734 07/22/99 300 SimpsonvilleSC 530,000 573,485 None None 530,000 573,485 1,103,485 79,326 07/22/99 300 Spartanburg SC 470,000 432,879 None None 470,000 432,879 902,879 59,877 07/22/99 300 Summerville SC 115,000 515,000 None None 115,000 515,000 630,000 151,925 08/25/95 300 W. Columbia SC 410,000 693,574 None None 410,000 693,574 1,103,574 95,939 07/22/99 300 West Aiken SC 400,000 402,665 None None 400,000 402,665 802,665 55,698 07/22/99 300 La Vergne TN 340,000 650,000 None None 340,000 650,000 990,000 191,750 08/25/95 300 Shelbyville TN 200,000 465,000 None None 200,000 465,000 665,000 137,175 08/25/95 300 Hampton VA 433,985 459,108 None None 433,985 459,108 893,093 86,454 04/17/98 300 Midlothian VA 325,000 302,872 None None 325,000 302,872 627,872 65,071 08/21/97 300 Newport NewsVA 490,616 605,304 None None 490,616 605,304 1,095,920 84,656 04/17/98 300 Richmond VA 700,000 400,740 None None 700,000 400,740 1,100,740 75,465 04/17/98 300 Richmond VA 700,000 440,965 None None 700,000 440,965 1,140,965 83,039 04/17/98 300 Richmond VA 400,000 250,875 None None 400,000 250,875 650,875 47,239 04/17/98 300 Richmond VA 1,000,000 740 None None 1,000,000 740 1,000,740 132 04/17/98 300 Richmond VA 700,000 100,695 None None 700,000 100,695 800,695 18,957 04/17/98 300 Richmond VA 1,809,041 3,360,572 None None 1,809,041 3,360,572 5,169,613 48,779 08/22/02 300 Stafford VA 271,865 601,997 None None 271,865 601,997 873,862 145,482 12/20/96 300 Virginia Beach VA 1,194,560 2,218,773 None None 1,194,560 2,218,773 3,413,333 48,058 06/27/02 300 Warrenton VA 515,971 649,125 None None 515,971 649,125 1,165,096 156,872 12/20/96 300 WilliamsburgVA 838,172 1,556,910 None None 838,172 1,556,910 2,395,082 33,657 06/27/02 300 Yorktown VA 309,435 447,144 None None 309,435 447,144 756,579 84,196 04/17/98 300 Craft and Novelty - ----------------- Cutler RidgeFL 743,498 657,485 68,215 35,192 743,498 760,892 1,504,390 119,271 12/31/98 300 Stony Brook NY 980,000 1,801,586 None None 980,000 1,801,586 2,781,586 285,240 01/11/99 300 Pleasant Hills PA 631,084 1,172,563 None None 631,084 1,172,563 1,803,647 5,861 11/01/02 300 Drug Stores - ----------- Casselberry FL 1,075,020 1,664,284 None None 1,075,020 1,664,284 2,739,304 285,730 09/30/98 300
F-20
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Entertainment - ------------- Riverside CA 4,000,000 130 None None 4,000,000 130 4,000,130 -- 07/05/02 300 Vista CA 2,300,000 22 None None 2,300,000 22 2,300,022 3 03/31/99 300 Dania FL 8,272,080 1,713 None None 8,272,080 1,713 8,273,793 237 03/31/99 300 Marietta GA 1,500,000 768 None None 1,500,000 768 1,500,768 32 06/29/01 300 Norcross GA 1,600,000 768 None None 1,600,000 768 1,600,768 32 06/29/01 300 Roswell GA 3,383,780 4,126 28,826 56,505 3,383,780 89,457 3,473,237 23,990 06/30/99 300 Greensboro NC 7,800,000 463 None None 7,800,000 463 7,800,463 1 07/05/02 300 Flanders NJ 2,222,205 890 None 1,208 2,222,205 2,098 2,224,303 291 06/29/99 300 Brookhaven NY 1,500,000 745 None None 1,500,000 745 1,500,745 103 07/23/99 300 Riverhead NY 6,200,000 744 None None 6,200,000 744 6,200,744 103 07/23/99 300 Health and Fitness - ------------------ Paradise Valley AZ 2,608,389 3,418,783 None None 2,608,389 3,418,783 6,027,172 119,623 06/06/02 06/26/01 300 Diamond Bar CA 3,038,879 4,338,722 None None 3,038,879 4,338,722 7,377,601 556,282 03/21/00 09/29/98 300 Norco CA 1,247,243 3,807,569 None None 1,247,243 3,807,569 5,054,812 423,171 12/13/00 06/29/99 300 Coral Springs FL 891,496 2,798,204 None 25 891,496 2,798,229 3,689,725 469,985 11/03/98 03/30/98 300 Miami FL 3,115,101 4,439,526 None 25 3,115,101 4,439,551 7,554,652 457,829 05/19/00 06/07/99 300 Oakland ParkFL 2,800,000 2,196,080 None None 2,800,000 2,196,080 4,996,080 36,807 07/06/01 03/27/01 300 Orlando FL 2,144,764 188,612 None None 2,144,764 188,612 2,333,376 15 In Prog. 11/26/02 300 Pembroke Pines FL 1,714,388 4,387,824 None 25 1,714,388 4,387,849 6,102,237 366,922 12/11/00 10/01/99 300 Fort Worth TX 1,445,901 5,277,886 None None 1,445,901 5,277,886 6,723,787 542,479 06/30/99 300 Home Furnishings - ---------------- Colorado Springs CO 313,250 695,730 40,500 22,804 313,250 759,034 1,072,284 421,120 03/10/87 300 Danbury CT 630,171 3,621,163 39,456 None 630,171 3,660,619 4,290,790 768,308 09/30/97 300 Brandon FL 430,000 1,020,608 None None 430,000 1,020,608 1,450,608 185,408 06/26/98 300 Casselberry FL 1,979,598 3,382,852 1,354 17,406 1,979,598 3,401,612 5,381,210 1,042,486 05/31/95 300 Jupiter FL 1,698,316 3,209,801 None None 1,698,316 3,209,801 4,908,117 336,985 05/03/00 300 Tampa FL 685,000 885,624 None None 685,000 885,624 1,570,624 160,886 06/26/98 300 Tampa FL 494,763 767,737 71,880 1,870 494,763 841,487 1,336,250 151,452 12/31/98 300 West Palm Beach FL 347,651 706,081 69,111 32,435 347,651 807,627 1,155,278 125,089 12/31/98 300 Davenport IA 270,000 930,689 None None 270,000 930,689 1,200,689 169,073 06/26/98 300 Joilet IL 440,000 910,689 None None 440,000 910,689 1,350,689 165,440 06/26/98 300 Wichita KS 430,000 740,725 None None 430,000 740,725 1,170,725 134,563 06/26/98 300 Alexandria LA 400,000 810,608 None None 400,000 810,608 1,210,608 147,258 06/26/98 300 Monroe LA 450,000 835,608 None None 450,000 835,608 1,285,608 151,800 06/26/98 300 Shreveport LA 525,000 725,642 None None 525,000 725,642 1,250,642 131,823 06/26/98 300 Battle CreekMI 485,000 895,689 None None 485,000 895,689 1,380,689 162,715 06/26/98 300 Eden PrairieMN 500,502 1,055,244 None None 500,502 1,055,244 1,555,746 163,526 02/26/99 300
F-21
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Home Furnishings - ---------------- Hattiesburg MS 300,000 660,608 None None 300,000 660,608 960,608 120,008 06/26/98 300 Ridgeland MS 281,867 769,890 None None 281,867 769,890 1,051,757 170,574 06/27/97 300 Omaha NE 1,956,296 3,949,402 None None 1,956,296 3,949,402 5,905,698 901,555 04/04/97 300 Henderson NV 1,268,655 3,109,995 None None 1,268,655 3,109,995 4,378,650 658,076 09/26/97 300 Staten Island NY 3,190,883 2,569,802 None 862 3,190,883 2,570,664 5,761,547 492,318 03/26/98 300 Lancaster OH 250,000 830,689 None None 250,000 830,689 1,080,689 150,906 06/26/98 300 Altoona PA 455,000 745,694 None None 455,000 745,694 1,200,694 135,465 06/26/98 300 Erie PA 510,000 900,689 None None 510,000 900,689 1,410,689 163,623 06/26/98 300 Muncy PA 315,000 835,648 None None 315,000 835,648 1,150,648 151,807 06/26/98 300 Whitehall PA 515,525 1,146,868 None None 515,525 1,146,868 1,662,393 208,345 06/30/98 300 Columbia SC 600,000 900,725 None None 600,000 900,725 1,500,725 163,629 06/26/98 300 Jackson TN 380,000 750,608 None None 380,000 750,608 1,130,608 136,358 06/26/98 300 Memphis TN 804,262 1,432,520 None 400 804,262 1,432,920 2,237,182 317,406 06/30/97 300 Abilene TX 400,000 680,616 None None 400,000 680,616 1,080,616 123,643 06/26/98 300 Arlington TX 475,069 1,374,167 None None 475,069 1,374,167 1,849,236 318,219 03/26/97 300 Cedar Park TX 253,591 827,237 None None 253,591 827,237 1,080,828 191,566 03/10/97 300 Houston TX 867,767 687,042 None None 867,767 687,042 1,554,809 159,042 03/07/97 300 San Antonio TX 323,451 637,991 47,914 34,151 323,451 720,056 1,043,507 126,871 12/31/98 300 Spring TX 1,794,872 1,810,069 None None 1,794,872 1,810,069 3,604,941 382,946 09/29/97 300 Webster TX 283,604 538,002 2,470 None 283,604 540,472 824,076 119,456 06/12/97 300 Eau Claire WI 260,000 820,689 None None 260,000 820,689 1,080,689 149,090 06/26/98 300 La Crosse WI 372,883 877,812 None None 372,883 877,812 1,250,695 159,467 06/26/98 300 General Merchandise - ------------------- Monte Vista CO 47,652 582,159 None None 47,652 582,159 629,811 94,129 12/23/98 300 Groveland FL 101,782 189,258 None None 101,782 189,258 291,040 28,701 03/31/99 300 Garnett KS 59,690 518,121 None None 59,690 518,121 577,811 83,776 12/23/98 300 Caledonia MN 89,723 559,300 None None 89,723 559,300 649,023 90,437 12/23/98 300 Long Prarie MN 88,892 553,997 None None 88,892 553,997 642,889 89,578 12/23/98 300 Paynesvile MN 49,483 525,406 None None 49,483 525,406 574,889 84,955 12/23/98 300 Spring Valley MN 69,785 579,238 None None 69,785 579,238 649,023 93,661 12/23/98 300 Warroad MN 70,000 580,000 None None 70,000 580,000 650,000 93,767 12/23/98 300 Mayville ND 59,333 565,562 None None 59,333 565,562 624,895 91,464 12/23/98 300 Bloomfield NM 59,559 616,252 None None 59,559 616,252 675,811 99,641 12/23/98 300 Colorado City TX 92,535 505,276 None None 92,535 505,276 597,811 81,700 12/23/98 300 Grocery Stores - -------------- Boulder CO 426,675 1,199,508 None 91,660 426,675 1,291,168 1,717,843 912,024 01/05/84 180 Sheboygan WI 1,513,216 4,427,968 None 1,040 1,513,216 4,429,008 5,942,224 598,186 06/03/99 08/24/98 300
F-22
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Home Improvement - ---------------- Lawndale CA 667,007 1,238,841 None None 667,007 1,238,841 1,905,848 200,278 12/31/98 300 Los Angeles CA 902,494 1,676,204 None None 902,494 1,676,204 2,578,698 270,984 12/31/98 300 Los Angeles CA 163,668 304,097 None None 163,668 304,097 467,765 49,160 12/31/98 300 Van Nuys CA 750,293 1,393,545 None None 750,293 1,393,545 2,143,838 225,288 12/31/98 300 West Covina CA 311,040 577,733 None None 311,040 577,733 888,773 93,399 12/31/98 300 Clearwater FL 476,179 725,023 None 2,237 476,179 727,260 1,203,439 117,205 12/31/98 300 JacksonvilleFL 478,314 618,348 None 280 478,314 618,628 1,096,942 99,994 12/31/98 300 Seminole FL 593,304 427,184 None 1,571 593,304 428,755 1,022,059 116,349 12/31/98 300 Des Moines IA 225,771 682,604 None None 225,771 682,604 908,375 108,071 01/29/99 300 Broadview IL 345,166 641,739 None None 345,166 641,739 986,905 103,758 12/31/98 300 IndianapolisIN 350,000 671,472 None 723 350,000 672,195 1,022,195 97,334 03/29/99 01/29/99 300 Baltimore MD 171,320 318,882 None None 171,320 318,882 490,202 51,563 12/31/98 300 Rochester NY 158,168 294,456 None None 158,168 294,456 452,624 47,614 12/31/98 300 Reading PA 201,569 375,056 None None 201,569 375,056 576,625 60,645 12/31/98 300 Pasadena TX 147,535 274,521 None None 147,535 274,521 422,056 44,383 12/31/98 300 Plano TX 363,851 676,249 None None 363,851 676,249 1,040,100 109,329 12/31/98 300 San Antonio TX 367,890 683,750 None None 367,890 683,750 1,051,640 110,542 12/31/98 300 Chesapeake VA 144,014 649,869 None 11,754 144,014 661,623 805,637 463,158 12/22/86 300 Office Supplies - --------------- Lakewood CA 1,398,387 3,098,607 None None 1,398,387 3,098,607 4,496,994 738,426 01/29/97 300 Riverside CA 1,410,177 1,659,850 None None 1,410,177 1,659,850 3,070,027 351,269 09/17/97 300 Hutchinson KS 269,964 1,704,013 None None 269,964 1,704,013 1,973,977 377,643 06/25/97 300 Salina KS 240,423 1,829,837 None None 240,423 1,829,837 2,070,260 405,526 06/25/97 300 Sikeston MO 409,114 2,005,416 None None 409,114 2,005,416 2,414,530 76,862 01/24/02 300 Helena MT 564,241 1,503,118 None None 564,241 1,503,118 2,067,359 333,057 06/09/97 300 Asheboro NC 465,557 2,176,416 None None 465,557 2,176,416 2,641,973 417,015 03/27/98 300 Westbury NY 3,808,076 2,377,932 None None 3,808,076 2,377,932 6,186,008 503,081 09/29/97 300 New Phila- delphia OH 726,636 1,650,672 None None 726,636 1,650,672 2,377,308 371,293 05/30/97 300 Pet Supplies and Services - ------------------------- Tampa FL 347,794 905,248 46,000 13,826 347,794 965,074 1,312,868 150,812 12/31/98 300 Duluth GA 361,058 1,591,629 None None 361,058 1,591,629 1,952,687 192,766 01/27/99 09/29/98 300 Marrietta GA 495,412 1,526,370 None None 495,412 1,526,370 2,021,782 168,208 05/28/99 09/29/98 300 IndianapolisIN 427,000 1,296,901 None None 427,000 1,296,901 1,723,901 136,982 03/10/00 01/19/99 300 Sudbury MA 543,038 2,477,213 None None 543,038 2,477,213 3,020,251 242,661 11/12/99 09/30/98 300 TyngsboroughMA 312,204 1,222,522 None None 312,204 1,222,522 1,534,726 222,085 06/12/98 300 Matthews NC 610,177 1,394,743 None None 610,177 1,394,743 2,004,920 248,729 07/17/98 300 North Plainfield NJ -- 1,590,447 None None -- 1,590,447 1,590,447 205,018 09/24/98 300 Albuquerque NM 684,036 874,914 300,000 42,875 684,036 1,217,789 1,901,825 159,722 12/31/98 300
F-23
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Pet Supplies and Services - ------------------------- Dickson CityPA 659,790 1,880,722 None None 659,790 1,880,722 2,540,512 416,659 06/20/97 300 Private Education - ----------------- Coconut Creek FL 310,111 1,243,682 None None 310,111 1,243,682 1,553,793 168,184 08/02/99 12/01/98 300 North Lauderdale FL 1,050,000 2,567,811 None None 1,050,000 2,567,811 3,617,811 492,036 03/30/98 300 Las Vegas NV 1,080,444 3,346,772 None None 1,080,444 3,346,772 4,427,216 641,368 03/04/98 300 Chantilly VA 688,917 3,208,607 None None 688,917 3,208,607 3,897,524 396,882 05/07/99 09/30/98 300 Kingstowne VA 300,000 1,191,396 None None 300,000 1,191,396 1,491,396 121,427 08/22/00 11/08/99 300 Restaurants - ----------- Atmore AL 272,044 505,636 None None 272,044 505,636 777,680 27,805 08/31/01 300 Clanton AL 230,036 427,391 None None 230,036 427,391 657,427 23,504 08/31/01 300 Demopolis AL 251,349 466,972 None None 251,349 466,972 718,321 25,681 08/31/01 300 Fort Payne AL 303,056 563,001 None None 303,056 563,001 866,057 30,963 08/31/01 300 Gardendale AL 398,669 740,568 None None 398,669 740,568 1,139,237 40,729 08/31/01 300 Hoover AL 251,434 467,185 None None 251,434 467,185 718,619 25,692 08/31/01 300 Bentonville AR 377,086 700,582 None None 377,086 700,582 1,077,668 38,528 08/31/01 300 Hope AR 288,643 536,715 None None 288,643 536,715 825,358 29,511 08/31/01 300 Little Rock AR 317,000 589,377 None None 317,000 589,377 906,377 32,407 08/31/01 300 Siloam Springs AR 190,000 352,808 None None 190,000 352,808 542,808 72,315 11/20/97 300 Douglas AZ 75,000 347,719 None 2,407 75,000 350,126 425,126 257,932 11/27/85 300 Glendale AZ 624,761 895,976 None 5 624,761 895,981 1,520,742 243,407 03/06/96 300 Tucson AZ 107,393 497,904 None 133 107,393 498,037 605,430 369,275 01/17/86 300 Yuma AZ 236,121 541,651 None None 236,121 541,651 777,772 100,202 05/28/98 300 Barstow CA 689,842 690,204 None None 689,842 690,204 1,380,046 118,487 09/24/98 300 Livermore CA 662,161 823,242 None None 662,161 823,242 1,485,403 141,327 09/23/98 300 Northridge CA -- -- None None -- -- -- -- 04/01/70 N/A Rancho Cucamonga CA 95,192 441,334 None None 95,192 441,334 536,526 325,801 12/20/85 300 Riverside CA 90,000 181,295 124,400 47 90,000 305,742 395,742 170,601 12/09/76 300 Sacramento CA 386,793 417,290 None None 386,793 417,290 804,083 74,417 07/31/98 300 San Dimas CA 240,562 445,521 None None 240,562 445,521 686,083 445,521 03/12/81 180 San Ramon CA 406,000 1,126,930 None None 406,000 1,126,930 1,532,930 1,126,930 12/08/83 180 Colorado Springs CO 152,000 704,736 None 262 152,000 704,998 856,998 497,394 09/30/86 300 Lakewood CO 1,606,511 520 None None 1,606,511 520 1,607,031 1 In Prog. 12/31/02 300 Sterling CO 95,320 441,928 None None 95,320 441,928 537,248 350,855 12/27/84 300 Westminster CO 338,940 1,571,401 20,000 13,645 338,940 1,605,046 1,943,986 1,313,423 06/28/84 300 Danbury CT 548,459 284,639 None None 548,459 284,639 833,098 11,858 12/19/01 300 Glastonbury CT 452,291 293,214 None None 452,291 293,214 745,505 12,216 12/19/01 300 Manchester CT 458,386 458,639 None None 458,386 458,639 917,025 19,108 12/19/01 300 Unionville CT 167,740 316,672 None None 167,740 316,672 484,412 13,193 12/19/01 300
F-24
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Restaurants - ----------- Waterbury CT 521,021 705,163 None None 521,021 705,163 1,226,184 29,380 12/19/01 300 Casselberry FL 403,900 897,075 None 134 403,900 897,209 1,301,109 440,801 12/29/89 300 Chipley FL 270,439 502,655 None None 270,439 502,655 773,094 27,641 08/31/01 300 DeFuniak FL 269,554 501,010 None None 269,554 501,010 770,564 27,550 08/31/01 300 Green Cove Springs FL 86,240 399,828 None 226 86,240 400,054 486,294 317,431 12/19/84 300 JacksonvilleFL 150,210 693,445 None None 150,210 693,445 843,655 520,758 09/13/85 300 JacksonvilleFL 143,299 664,373 None None 143,299 664,373 807,672 491,903 12/13/85 300 Orlando FL 230,000 1,066,339 None 134 230,000 1,066,473 1,296,473 790,991 11/18/85 300 Orlando FL 209,800 972,679 None 134 209,800 972,813 1,182,613 692,251 08/15/86 300 Orlando FL 600,000 949,489 None None 600,000 949,489 1,549,489 137,897 05/27/99 12/18/98 300 Oviedo FL 204,200 911,338 None None 204,200 911,338 1,115,538 101,920 08/24/99 300 Palm Bay FL 330,000 556,668 None None 330,000 556,668 886,668 84,549 02/17/99 12/29/98 300 Garden City GA 197,225 438,043 None 384 197,225 438,427 635,652 228,436 04/20/89 300 Hinesville GA 89,220 413,644 None 233 89,220 413,877 503,097 328,398 12/20/84 300 Hinesville GA 172,611 383,376 None 233 172,611 383,609 556,220 218,618 12/22/87 300 Lithonia GA 89,220 413,647 None 987 89,220 414,634 503,854 327,852 01/04/85 300 Savannah GA 143,993 345,548 None 233 143,993 345,781 489,774 197,046 12/22/87 300 Savannah GA 165,409 367,380 None 233 165,409 367,613 533,022 209,495 12/22/87 300 Statesboro GA 201,250 446,983 None None 201,250 446,983 648,233 223,685 11/14/89 300 Stone Mountain GA 215,940 1,001,188 None 1,533 215,940 1,002,721 1,218,661 702,981 10/30/86 300 Washington GA 292,628 543,862 None None 292,628 543,862 836,490 29,907 08/31/01 300 Ankeny IA 100,000 349,218 None 289 100,000 349,507 449,507 349,218 07/28/83 180 Boone IA 76,000 386,170 None 289 76,000 386,459 462,459 386,170 12/27/83 180 Boise ID 190,894 423,981 None 119 190,894 424,100 614,994 235,270 05/17/88 300 Boise ID 161,352 334,041 None 119 161,352 334,160 495,512 180,269 10/07/88 300 Nampa ID 74,156 343,820 None 119 74,156 343,939 418,095 238,901 12/31/86 300 Rexburg ID 90,760 420,787 None None 90,760 420,787 511,547 312,133 11/25/85 300 Alton IL 225,785 419,315 None 207 225,785 419,522 645,307 226,290 10/18/88 300 Dixon IL 230,090 511,036 None 2,029 230,090 513,065 743,155 291,401 12/28/87 300 Lincoln IL 206,532 383,970 None None 206,532 383,970 590,502 21,113 08/31/01 300 Salem IL 213,815 474,892 None 1,470 213,815 476,362 690,177 273,729 10/30/87 300 Anderson IN 197,523 438,706 None None 197,523 438,706 636,229 242,100 03/25/88 300 Goshen IN 115,000 533,165 None 1,242 115,000 534,407 649,407 381,408 07/07/86 300 Muncie IN 136,400 632,380 8,000 13,335 136,400 653,715 790,115 467,472 03/18/86 300 Muncie IN 67,156 149,157 None None 67,156 149,157 216,313 83,681 03/30/88 300 New Castle IN 246,192 320,572 None None 246,192 320,572 566,764 190,514 01/07/87 300 South Bend IN 133,200 617,545 None 19,211 133,200 636,756 769,956 465,442 04/28/86 300 Westfield IN 213,341 477,300 None None 213,341 477,300 690,641 235,810 12/21/89 300 Derby KS 96,060 445,359 None None 96,060 445,359 541,419 331,942 10/29/85 300 El Dorado KS 87,400 405,206 None None 87,400 405,206 492,606 294,226 04/10/86 300 Great Bend KS 95,800 444,154 None None 95,800 444,154 539,954 352,620 12/26/84 300
F-25
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Restaurants - ----------- Wichita KS 98,000 454,350 None None 98,000 454,350 552,350 323,358 08/08/86 300 Lexington KY 122,200 490,200 None None 122,200 490,200 612,400 341,745 12/03/86 300 Alexandria LA 143,000 662,985 None 15,150 143,000 678,135 821,135 499,895 01/17/86 300 Jennings LA 107,120 496,636 None None 107,120 496,636 603,756 370,161 10/17/85 300 NatchitochesLA 291,675 541,890 None None 291,675 541,890 833,565 29,801 08/31/01 300 Shreveport LA 359,268 667,417 None None 359,268 667,417 1,026,685 36,705 08/31/01 300 Attleboro MA 369,815 693,655 None None 369,815 693,655 1,063,470 28,901 12/19/01 300 Brockton MA 298,359 272,297 None None 298,359 272,297 570,656 11,344 12/19/01 300 Hanover MA 397,203 281,202 None None 397,203 281,202 678,405 11,715 12/19/01 300 Palmer MA 141,524 598,480 None None 141,524 598,480 740,004 24,935 12/19/01 300 Peabody MA 529,555 222,590 None None 529,555 222,590 752,145 9,273 12/19/01 300 Pittsfield MA 286,241 950,022 None None 286,241 950,022 1,236,263 39,583 12/19/01 300 S. Weymouth MA 351,472 296,284 None None 351,472 296,284 647,756 12,344 12/19/01 300 Springfield MA 280,920 337,325 None None 280,920 337,325 618,245 14,054 12/19/01 300 Springfield MA 230,030 865,572 None None 230,030 865,572 1,095,602 36,064 12/19/01 300 Springfield MA 227,207 958,444 None None 227,207 958,444 1,185,651 39,934 12/19/01 300 Stoneham MA 397,544 191,717 None None 397,544 191,717 589,261 7,987 12/19/01 300 Swansea MA 173,853 488,699 None None 173,853 488,699 662,552 20,361 12/19/01 300 Westboro MA 335,191 424,534 None None 335,191 424,534 759,725 17,687 12/19/01 300 Weymouth MA 360,727 194,556 None None 360,727 194,556 555,283 8,105 12/19/01 300 La Plata MD 120,140 557,000 None None 120,140 557,000 677,140 412,404 12/03/85 300 Flint MI 827,853 -- None None 827,853 -- 827,853 -- 04/13/95 300 Sturgis MI 210,560 467,659 None 2,212 210,560 469,871 680,431 268,118 11/12/87 300 Roseville MN 281,600 1,305,560 None 7 281,600 1,305,567 1,587,167 1,036,506 12/18/84 300 Belton MO 89,328 418,187 None 234 89,328 418,421 507,749 332,006 12/18/84 300 Blue SpringsMO 111,440 516,665 None 504 111,440 517,169 628,609 410,189 12/28/84 300 Bolivar MO 237,094 440,596 None None 237,094 440,596 677,690 24,229 08/31/01 300 Carthage MO 85,020 394,175 None None 85,020 394,175 479,195 291,847 12/03/85 300 Chillicothe MO 81,080 375,908 None 234 81,080 376,142 457,222 298,440 12/26/84 300 Fulton MO 210,199 466,861 None None 210,199 466,861 677,060 273,429 07/30/87 300 Hannibal MO 266,011 590,822 None 1,577 266,011 592,399 858,410 346,346 07/30/87 300 Hazelwood MO 157,117 725,327 None 25,030 157,117 750,357 907,474 554,511 08/28/85 300 Jackson MO 210,199 466,860 None None 210,199 466,860 677,059 273,429 07/30/87 300 Mt. Vernon MO 160,000 282,586 None None 160,000 282,586 442,586 57,920 11/20/97 300 Nevada MO 222,552 494,296 None 1,642 222,552 495,938 718,490 289,865 07/30/87 300 Ozark MO 140,000 292,482 None None 140,000 292,482 432,482 59,949 11/20/97 300 Sedalia MO 269,798 599,231 None None 269,798 599,231 869,029 310,035 07/31/89 300 St. Charles MO 175,413 809,791 None 10,000 175,413 819,791 995,204 619,252 08/28/85 300 St. Charles MO 695,121 1,001,878 None 1,001 695,121 1,002,879 1,698,000 281,658 12/22/95 03/16/95 300 St. Joseph MO 107,648 496,958 None None 107,648 496,958 604,606 373,198 09/04/85 300 St. Robert MO 329,242 611,728 None None 329,242 611,728 940,970 33,641 08/31/01 300
F-26
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Restaurants - ----------- Sullivan MO 85,500 396,400 None 252 85,500 396,652 482,152 314,708 12/27/84 300 Clinton MS 100,000 337,371 None 282 100,000 337,653 437,653 337,371 07/28/83 180 Fulton MS 239,686 445,337 None None 239,686 445,337 685,023 24,491 08/31/01 300 Greenville MS 311,324 578,378 None None 311,324 578,378 889,702 31,808 08/31/01 300 Indianola MS 270,639 502,822 None None 270,639 502,822 773,461 27,652 08/31/01 300 Newton MS 284,350 528,311 None None 284,350 528,311 812,661 29,054 08/31/01 300 Pearl MS 334,822 621,994 None None 334,822 621,994 956,816 34,207 08/31/01 300 FayettevilleNC 116,240 538,919 None None 116,240 538,919 655,159 427,857 12/20/84 300 Wilkesboro NC 183,050 406,562 None None 183,050 406,562 589,612 238,114 07/24/87 300 Winston- Salem NC 353,239 656,427 None None 353,239 656,427 1,009,666 36,098 08/31/01 300 Keene NH 253,769 310,470 None None 253,769 310,470 564,239 12,935 12/19/01 300 Laconia NH 330,520 467,594 None None 330,520 467,594 798,114 19,481 12/19/01 300 Manchester NH 266,337 486,676 None None 266,337 486,676 753,013 20,277 12/19/01 300 North ConwayNH 473,031 607,020 None None 473,031 607,020 1,080,051 25,291 12/19/01 300 Rochester NH 262,059 695,771 None None 262,059 695,771 957,830 28,989 12/19/01 300 Bloomfield NJ 556,520 260,498 None None 556,520 260,498 817,018 10,852 12/19/01 300 Bricktown NJ 297,264 243,581 None None 297,264 243,581 540,845 10,148 12/19/01 300 Fairlawn NJ 341,922 198,320 None None 341,922 198,320 540,242 8,262 12/19/01 300 HackettstownNJ 307,186 525,142 None None 307,186 525,142 832,328 21,879 12/19/01 300 Hillsdale NJ 398,221 204,106 None None 398,221 204,106 602,327 8,503 12/19/01 300 Midland ParkNJ 476,002 254,594 None None 476,002 254,594 730,596 10,606 12/19/01 300 Morris Plains NJ 366,982 188,123 None None 366,982 188,123 555,105 7,837 12/19/01 300 Amherst NY 935,355 896,819 5,342 61,914 935,355 964,075 1,899,430 268,425 05/31/95 300 Carmel NY 266,619 707,819 None None 266,619 707,819 974,438 29,491 12/19/01 300 Fulton NY 294,009 653,006 None 2,095 294,009 655,101 949,110 371,705 12/24/87 300 Glenville NY 156,724 246,502 None None 156,724 246,502 403,226 10,269 12/19/01 300 Middletown NY 242,459 796,905 None None 242,459 796,905 1,039,364 33,203 12/19/01 300 Mt. Kisco NY 164,973 385,189 None None 164,973 385,189 550,162 16,048 12/19/01 300 Watertown NY 139,199 645,355 None None 139,199 645,355 784,554 457,831 08/18/86 300 Akron OH 723,347 17 None 67 723,347 84 723,431 3 12/22/94 300 Stow OH 317,546 712,455 None 1,904 317,546 714,359 1,031,905 405,717 12/31/87 300 Troy OH 130,540 605,238 None 2,080 130,540 607,318 737,858 421,944 12/05/86 300 Wilmington OH 119,320 553,217 None 1,404 119,320 554,621 673,941 384,399 12/31/86 300 Broken ArrowOK 245,000 369,002 None None 245,000 369,002 614,002 74,413 12/12/97 300 Idabel OK 214,244 398,545 None None 214,244 398,545 612,789 21,911 08/31/01 300 Norman OK 734,335 -- None None 734,335 -- 734,335 -- 09/29/95 06/05/95 300 Oklahoma City OK 759,826 -- None None 759,826 -- 759,826 -- 07/06/95 300 Owasso OK 327,043 607,645 None None 327,043 607,645 934,688 33,417 08/31/01 300 Tulsa OK 295,993 549,981 None None 295,993 549,981 845,974 30,245 08/31/01 300 Corvallis OR 152,250 338,153 None 81 152,250 338,234 490,484 197,002 08/12/87 300 Hermiston OR 85,560 396,675 None None 85,560 396,675 482,235 314,926 12/18/84 300
F-27
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Restaurants - ----------- Lake Oswego OR 175,899 815,508 None 3 175,899 815,511 991,410 667,036 05/16/84 300 Milwaukie OR 179,174 830,689 None 3 179,174 830,692 1,009,866 681,153 05/08/84 300 Salem OR 198,540 440,964 None 3 198,540 440,967 639,507 226,738 05/23/89 300 Connells- ville PA 264,670 587,843 None 1,334 264,670 589,177 853,847 342,522 08/17/87 300 Gettysburg PA 289,040 809,676 None None 289,040 809,676 1,098,716 33,735 12/19/01 300 Lancaster PA 170,304 413,960 None None 170,304 413,960 584,264 17,247 12/19/01 300 Lancaster PA 276,251 460,784 None None 276,251 460,784 737,035 19,198 12/19/01 300 Lansdale PA 255,864 256,229 None None 255,864 256,229 512,093 10,675 12/19/01 300 Warminster PA 294,111 343,494 None None 294,111 343,494 637,605 14,311 12/19/01 300 Waynesburg PA 222,285 493,704 None 1,268 222,285 494,972 717,257 287,622 08/17/87 300 Westerly RI 485,230 569,890 None None 485,230 569,890 1,055,120 23,744 12/19/01 300 Brownsville TN 289,379 538,081 None None 289,379 538,081 827,460 29,586 08/31/01 300 Memphis TN 405,274 1,060,680 None 25,185 405,274 1,085,865 1,491,139 318,745 06/30/95 03/17/95 300 Millington TN 285,613 530,630 None None 285,613 530,630 816,243 29,182 08/31/01 300 Ripley TN 231,552 430,232 None None 231,552 430,232 661,784 23,660 08/31/01 300 Allen TX 165,000 306,771 None None 165,000 306,771 471,771 42,437 07/09/99 05/28/99 300 Bedford TX 919,303 98,231 None None 919,303 98,231 1,017,534 98,231 12/27/94 300 Brownwood TX 288,225 640,160 None 1,665 288,225 641,825 930,050 364,961 12/28/87 300 Crockett TX 90,780 420,880 None None 90,780 420,880 511,660 310,703 12/17/85 300 Dallas TX 242,025 479,170 None None 242,025 479,170 721,195 212,740 06/25/91 300 Dallas TX 742,507 -- None None 742,507 -- 742,507 -- 04/13/95 300 El Campo TX 98,060 454,631 None None 98,060 454,631 552,691 337,238 11/25/85 300 Ennis TX 173,250 384,793 None None 173,250 384,793 558,043 219,425 12/28/87 300 Fort Worth TX 223,195 492,067 None None 223,195 492,067 715,262 228,259 06/26/91 300 Ft. Worth TX 423,281 382,059 None None 423,281 382,059 805,340 120,349 02/10/95 300 Gainesville TX 89,220 413,644 None None 89,220 413,644 502,864 328,398 12/18/84 300 Hillsboro TX 75,992 352,316 None 156 75,992 352,472 428,464 285,780 08/01/84 300 Houston TX 194,994 386,056 None None 194,994 386,056 581,050 171,400 06/25/91 300 Houston TX 184,175 364,636 None None 184,175 364,636 548,811 161,890 06/25/91 300 Killeen TX 262,500 583,014 None 14,398 262,500 597,412 859,912 350,748 05/29/87 300 Lufkin TX 105,904 490,998 None None 105,904 490,998 596,902 367,018 10/08/85 300 Mesquite TX 134,940 625,612 None None 134,940 625,612 760,552 455,121 03/20/86 300 Mesquite TX 729,596 120,820 None None 729,596 120,820 850,416 120,820 12/23/94 300 Mexia TX 93,620 434,046 None None 93,620 434,046 527,666 320,423 12/18/85 300 New Braunfels TX 185,500 411,997 None 191 185,500 412,188 597,688 246,415 03/26/87 300 Orange TX 93,560 433,768 None None 93,560 433,768 527,328 321,163 12/10/85 300 Plainview TX 125,000 350,767 None None 125,000 350,767 475,767 350,767 01/24/84 180 Plano TX 841,775 1,564,044 None None 841,775 1,564,044 2,405,819 33,888 06/27/02 300 Porter TX 227,067 333,031 None None 227,067 333,031 560,098 104,905 02/09/95 300 Rowlett TX 126,933 585,986 None None 126,933 585,986 712,919 440,056 09/06/85 300 Santa Fe TX 304,414 623,331 None None 304,414 623,331 927,745 119,414 03/23/98 300
F-28
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Restaurants - ----------- Sealy TX 197,871 391,753 None None 197,871 391,753 589,624 173,929 06/25/91 300 Stafford TX 214,024 423,733 None None 214,024 423,733 637,757 188,127 06/26/91 300 Temple TX 302,505 291,414 None None 302,505 291,414 593,919 91,795 02/09/95 300 Texarkana TX 311,263 578,266 None None 311,263 578,266 889,529 31,802 08/31/01 300 Vidor TX 90,618 420,124 None None 90,618 420,124 510,742 340,780 08/01/84 300 Waxahachie TX 326,935 726,137 None 156 326,935 726,293 1,053,228 414,028 12/29/87 300 Cedar City UT 130,000 296,544 None 1,708 130,000 298,252 428,252 296,544 08/04/83 180 Orem UT 516,129 1,004,608 None 264 516,129 1,004,872 1,521,001 282,965 12/13/95 300 Sandy UT 635,945 884,792 None 148 635,945 884,940 1,520,885 249,217 12/22/95 300 Colonial Heights VA 350,000 425,146 None None 350,000 425,146 775,146 709 12/26/02 300 Bennington VT 118,823 673,551 None None 118,823 673,551 792,374 28,063 12/19/01 300 Auburn WA 301,595 669,851 None 1,675 301,595 671,526 973,121 381,977 12/16/87 300 Oak Harbor WA 275,940 612,874 None 1,927 275,940 614,801 890,741 358,945 07/16/87 300 Spokane WA 479,531 646,719 None None 479,531 646,719 1,126,250 123,902 03/27/98 300 Tacoma WA 198,857 921,947 None 1,860 198,857 923,807 1,122,664 754,291 05/29/84 300 Grafton WI 149,778 332,664 None None 149,778 332,664 482,442 191,749 10/29/87 300 Shawano WI 205,730 456,932 None 573 205,730 457,505 663,235 260,550 12/17/87 300 Sturgeon BayWI 214,865 477,221 None 1,535 214,865 478,756 693,621 272,131 12/01/87 300 Oak Hill WV 85,860 398,069 None None 85,860 398,069 483,929 316,034 12/28/84 300 Laramie WY 210,000 466,417 None None 210,000 466,417 676,417 226,662 03/12/90 300 Riverton WY 216,685 481,267 None 1,594 216,685 482,861 699,546 274,438 12/01/87 300 Sheridan WY 117,160 543,184 None None 117,160 543,184 660,344 400,990 12/31/85 300 Shoe Stores - ----------- Little Rock AR 1,079,232 2,594,956 None None 1,079,232 2,594,956 3,674,188 462,767 07/21/98 300 Maplewood MN 785,023 2,715,629 None 2,210 785,023 2,717,839 3,502,862 402,813 04/02/99 300 Houston TX 1,096,376 2,300,690 None None 1,096,376 2,300,690 3,397,066 486,895 09/05/97 300 Mesquite TX 1,049,287 1,949,085 None None 1,049,287 1,949,085 2,998,372 61,717 03/28/02 300 Midland TX 544,075 1,322,431 None None 544,075 1,322,431 1,866,506 257,761 02/02/98 300 Sporting Goods - -------------- Anchorage AK 1,486,000 5,045,244 None None 1,486,000 5,045,244 6,531,244 243,845 10/17/01 300 Fresno CA 1,650,000 3,321,244 None None 1,650,000 3,321,244 4,971,244 160,518 10/17/01 300 Fort Meyers FL 1,695,000 2,025,554 None None 1,695,000 2,025,554 3,720,554 97,898 10/17/01 300 Gainesville FL 1,296,000 2,234,554 None None 1,296,000 2,234,554 3,530,554 108,000 10/17/01 300 Melbourne FL 994,000 4,076,554 None None 994,000 4,076,554 5,070,554 197,030 10/17/01 300 Orlando FL 1,197,000 2,573,554 None None 1,197,000 2,573,554 3,770,554 124,385 10/17/01 300 Geneva IL 2,082,000 1,838,888 None None 2,082,000 1,838,888 3,920,888 88,874 10/17/01 300 Bowie MD 2,084,000 3,046,888 None None 2,084,000 3,046,888 5,130,888 147,260 10/17/01 300 Mechanics- burg PA 2,101,415 3,902,912 None None 2,101,415 3,902,912 6,004,327 175,630 11/08/01 300
F-29
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Sporting Goods - -------------- El Paso TX 700,000 2,501,244 None None 700,000 2,501,244 3,201,244 120,885 10/17/01 300 Fredericks- burg VA 1,941,000 2,979,888 None None 1,941,000 2,979,888 4,920,888 144,022 10/17/01 300 Theaters - -------- Fairbanks AK 2,586,879 9,575 None None 2,586,879 9,575 2,596,454 782 09/27/00 300 Huntsville AL 2,810,868 14,308 None None 2,810,868 14,308 2,825,176 1,168 09/27/00 300 Naples FL 2,618,441 8,979,199 None None 2,618,441 8,979,199 11,597,640 823,073 09/27/00 300 Chamblee GA 4,329,404 14,942 None None 4,329,404 14,942 4,344,346 1,032 09/27/00 300 Akron OH 1,511,018 1,386 None None 1,511,018 1,386 1,512,404 113 09/27/00 300 Columbus OH 2,103,351 5,160,800 None None 2,103,351 5,160,800 7,264,151 25,796 11/01/02 300 Hillsboro OR 4,915,032 16,377 None None 4,915,032 16,377 4,931,409 1,337 09/27/00 300 Portland OR 2,793,001 9,942 None None 2,793,001 9,942 2,802,943 812 09/27/00 300 Glen Allen VA 1,314,065 9,748,457 None None 1,314,065 9,748,457 11,062,522 893,572 09/27/00 300 Sterling VA 4,546,305 33,325 None None 4,546,305 33,325 4,579,630 2,160 09/27/00 300 Marysville WA 1,988,142 -- None None 1,988,142 -- 1,988,142 -- 07/27/00 300 Video Rental - ------------ Birmingham AL 392,795 865,115 None None 392,795 65,115 1,257,910 183,057 09/30/97 300 Southington CT 399,562 1,009,125 None None 399,562 1,009,125 1,408,687 163,146 12/29/98 300 Port St. Lucie FL 612,695 701,759 None None 612,695 701,759 1,314,454 111,289 12/09/98 09/08/98 300 Tampa FL 401,874 933,768 None None 401,874 933,768 1,335,642 188,308 12/23/97 300 Atlanta GA 652,551 763,360 None None 652,551 763,360 1,415,911 123,430 12/18/98 300 Brunswick GA 290,369 788,880 None None 290,369 788,880 1,079,249 159,085 12/31/97 300 Norcross GA 431,284 724,037 None None 431,284 724,037 1,155,321 150,777 10/01/97 300 Plainfield IN 453,645 908,485 None None 453,645 908,485 1,362,130 180,068 01/30/98 300 Topeka KS 285,802 966,286 None None 285,802 966,286 1,252,088 194,866 12/19/97 300 Wichita KS 289,714 797,856 None None 289,714 797,856 1,087,570 131,661 11/23/98 300 Winchester KY 355,474 929,177 None None 355,474 929,177 1,284,651 168,797 06/30/98 300 Warren MI 356,348 903,351 None None 356,348 903,351 1,259,699 179,057 01/09/98 300 Centerville OH 601,408 758,192 None None 601,408 758,192 1,359,600 137,735 06/30/98 300 Dayton OH 401,723 698,872 None None 401,723 698,872 1,100,595 126,960 06/29/98 300 Forest Park OH 328,187 921,232 None None 328,187 921,232 1,249,419 188,835 11/14/97 300 Franklin OH 337,572 777,943 None None 337,572 777,943 1,115,515 156,808 12/30/97 300 Springboro OH 261,916 897,489 None None 261,916 897,489 1,159,405 154,077 09/21/98 300 Tulsa OK 318,441 1,004,663 None None 318,441 1,004,663 1,323,104 212,595 09/26/97 300 Bartlett TN 420,000 674,437 None 750 420,000 675,187 1,095,187 96,071 05/12/99 02/23/99 300 Clarksville TN 499,885 840,869 None None 499,885 840,869 1,340,754 141,554 10/02/98 300 Columbia TN 466,469 716,723 None None 466,469 716,723 1,183,192 151,650 09/26/97 300 Henderson- ville TN 333,677 938,592 None None 333,677 938,592 1,272,269 189,281 12/10/97 300 Jackson TN 381,076 857,261 None None 381,076 857,261 1,238,337 181,407 09/26/97 300
F-30
Life on Cost Capitalized Gross Amount at Which Carried which Initital Cost Subsequent at Close of Period depre- to Company to Acquisition (Notes 2, 3 and 5) ciation ------------- ----------------- --------------------------------- in latest Buildings, Buildings, Income Improve- Improve- State- ments ments Accumu- ment is and and lated Date of Com- Acqui- Acqui- Depre- Con- puted Description sition Improve- Carrying sition ciation struc- Date (in (Note 1) Land Fees ments Costs Land Fees Total (Note 4) tion Acquired Months) - ------------------------------------------------------------------------------------------------------------------------------------ Video Rental - ------------ Memphis TN 381,265 900,580 None None 381,265 900,580 1,281,845 172,550 03/31/98 300 MurfreesboroTN 406,056 886,293 None None 406,056 886,293 1,292,349 187,543 09/26/97 300 MurfreesboroTN 385,437 782,396 None None 385,437 782,396 1,167,833 118,635 03/11/99 300 Smyrna TN 302,372 836,214 None None 302,372 836,214 1,138,586 176,951 09/02/97 300 Austin TX 407,910 885,113 None None 407,910 885,113 1,293,023 178,495 12/01/97 300 Beaumont TX 293,919 832,154 None None 293,919 832,154 1,126,073 176,093 09/05/97 300 Hurst TX 373,084 871,163 None None 373,084 871,163 1,244,247 155,357 07/29/98 300 Lubbock TX 266,805 857,492 None None 266,805 857,492 1,124,297 184,294 08/29/97 300 Woodway TX 372,487 835,198 None None 372,487 835,198 1,207,685 168,432 12/16/97 300 Hampton VA 373,499 836,071 None None 373,499 836,071 1,209,570 168,605 12/19/97 300 Virginia Beach VA 551,588 797,260 None None 551,588 797,260 1,348,848 155,368 02/23/98 300 Other - ----- Escondido CA -- -- 13,900 None -- 13,900 13,900 1,830 08/01/92 N/A Fresno CA 428,900 3,434,562 None 8,512 428,900 3,443,074 3,871,974 3,434,562 10/29/82 180 San Diego CA 3,745,000 8,885,351 74,694 29,094 3,745,000 8,989,139 12,734,139 6,400,764 03/08/86 03/25/86 300 San Diego CA 2,485,160 8,697,822 64,255 35,957 2,485,160 8,798,034 11,283,194 5,264,433 01/23/89 09/19/86 300 San Diego CA 5,797,411 15,473,497 128,570 52,155 5,797,411 15,654,222 21,451,633 8,849,284 01/20/89 08/05/87 300 Deerfield Beach FL 475,000 869,092 None 20,982 475,000 890,074 1,365,074 136,906 01/29/99 300 Venice FL 259,686 362,562 4,535 None 259,686 367,097 626,783 89,168 11/26/96 300 Humble TX 106,000 545,518 18,061 9,953 106,000 573,532 679,532 472,479 03/25/86 300 Crest Net Lease 1,982,725 2,641,997 None None 1,982,725 2,641,997 4,624,722 -- N/A Miscellaneous Investments -- 398,245 None 87,190 -- 485,435 485,435 347,086 Various ----------- ----------- --------- --------- ----------- ----------- ------------- ----------- 470,574,659 820,533,854 1,316,512 1,038,286 470,574,659 822,888,652 1,293,463,311 255,289,362 =========== =========== ========= ========= =========== =========== ============= ===========
F-31 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Note 1. One thousand one hundred ninety-two of the properties are single unit retail outlets. One property located in Sheboygan, WI, one property located in Humble, TX and three other properties located in San Diego, CA are multi-tenant commercial properties. 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 $1,222,869,499. Note 3. The following is a reconciliation of total real estate carrying value for the years ended December 31:
2002 2001 2000 ----------------------------------------- Balance at Beginning of Period 1,202,756,116 1,111,481,809 1,062,479,130 Additions During Period: Acquisitions 139,432,916 156,471,835 98,558,750 Equipment -- -- -- Improvements, Etc. 641,553 547,000 90,502 Other (Leasing Costs) 376,818 401,000 307,556 ------------------------------------------------------------------------------------------------------------------------ Total Additions 140,451,287 157,419,835 98,956,808 ------------------------------------------------------------------------------------------------------------------------ Deductions During Period: Cost of Real Estate Sold 48,262,111 64,305,657 49,850,903 Cost of Equipment Sold 57,500 18,000 -- Other (Fully Amortized Commissions) 104,481 371,871 103,226 Other (Provision for Impairment Losses) 1,320,000 1,450,000 -- ------------------------------------------------------------------------------------------------------------------------ Total Deductions 49,744,092 66,145,528 49,954,129 ------------------------------------------------------------------------------------------------------------------------ Balance at Close of Period 1,293,463,311 1,202,756,116 1,111,481,809 ======================================================================================================================== Note 4. The following is a reconciliation of accumulated depreciation for the years ended: Balance at Beginning of Period 235,086,623 217,204,145 195,386,310 Additions During Period - Provision for Depreciation 30,977,786 27,974,195 27,845,368 Deductions During Period: Accumulated Depreciation of Real Estate and Equipment Sold 10,670,566 9,719,846 5,924,307 Other (Fully Amortized Commissions) 104,481 371,871 103,226 ------------------------------------------------------------------------------------------------------------------------ Balance at Close of Period 255,289,362 235,086,623 217,204,145 ======================================================================================================================== Note 5. In 2002, a provision for impairment loss was recorded on five properties which became held for sale. In 2001, A provision for impairment loss was recorded on six properties. No provision for impairment loss was recorded in 2000. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
F-32 EX-12.1 3 exh12-110k2002.txt STATEMENT OF COMPUTATION OF RATIOS EXHIBIT 12.1
Statement of Computation of Ratios of Earnings to Fixed Charges (dollars in thousands) Years ended December 31, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Net income $78,667 $67,558 $54,788 $46,241 $41,304 Fixed charges: Interest 21,466 24,850 29,967 23,367 13,044 Amortization of fees 2,070 1,616 1,580 1,106 679 Interest capitalized 511 385 1,048 1,644 660 ----------------------------------------------------------------------------- Fixed charges 24,047 26,851 32,595 26,117 14,383 ----------------------------------------------------------------------------- Net income before fixed charges 102,203 94,024 86,335 70,714 55,027 Divided by fixed charges 24,047 26,851 32,595 26,117 14,383 ----------------------------------------------------------------------------- Ratio of earnings to fixed charges 4.3 3.5 2.6 2.7 3.8 ============================================================================= Ratio of earnings to combined fixed charges and preferred stock dividends 3.0 2.6 2.0 2.3 3.8 ============================================================================= Preferred stock dividends 9,713 9,712 9,712 5,229 --
EX-21.1 4 exh21-110k2002.txt Exhibit 21.1 Subsidiaries of the Company at January 1, 2003 - ---------------------------------------------- Realty Income Texas Properties, L.P. a Delaware limited partnership Realty Income Texas Properties, Inc. a Delaware corporation Crest Net Lease, Inc. a Delaware corporation EX-23 5 exh23-110k2002.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Realty Income Corporation: We consent to the incorporation by reference in Registration Statement Nos. 333-80821 and 333-102073 on Form S-3 of Realty Income Corporation and to the incorporation by reference in Registration Statement Nos. 033-95708 and 333-102080 on Form S-8 of Realty Income Corporation of our report dated January 24, 2003, except as to the third paragraph of Note 5, which is as of March 1, 2003, with respect to the consolidated balance sheets of Realty Income Corporation and subsidiaries as of December 31, 2002 and 2001, 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, 2002, and the related Schedule III, which report appears in the December 31, 2002, annual report on Form 10-K of Realty Income Corporation. /s/ KPMG LLP ------------------------------------------ KPMG LLP San Diego, California March 4, 2003 -----END PRIVACY-ENHANCED MESSAGE-----