-----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, PUg1UL+F22bovxxi6iWNhT3XtohRUb6aNAKWMUuErtqkfsLr+3hZkSiAY9qJklE6 ahLxY6DvCfTrCI8GGri9pQ== 0000726728-99-000006.txt : 19990325 0000726728-99-000006.hdr.sgml : 19990325 ACCESSION NUMBER: 0000726728-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990324 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: SEC FILE NUMBER: 001-13374 FILM NUMBER: 99571555 BUSINESS ADDRESS: STREET 1: 220 W CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025-1707 BUSINESS PHONE: 6197412111 MAIL ADDRESS: STREET 1: 220 WEST CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025-1707 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ========= ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 Commission File Number 1-13318 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 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 ] At March 10, 1999 the aggregate market value of the Registrant's shares of common stock, $1.00 par value, held by non-affiliates of the Registrant was $561,716,000, at the New York Stock Exchange closing price of $21.75. There were 26,822,326 shares of common stock outstanding at March 10, 1999. Documents incorporated by reference: Part III, Item 10, 11 and 12 incorporate by reference certain specific portions of the definitive proxy statement for Realty Income Corporation's Annual Meeting to be held on May 5, 1999, 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 (the "Annual Report"), including documents incorporated herein by reference, contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this Annual Report, the words estimated, anticipated and similar expressions are intended to identify forward- looking statements. Such forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things: - Our anticipated growth strategies; - Our intention to acquire additional properties; - Anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single tenant retail properties; - Future expenditures for development projects; and - Availability of capital to finance our business. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. In particular, among the factors that could cause actual results to differ materially are the continued qualification as a real estate investment trust, general business and economic conditions, competition, interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters and illiquidity of real estate investments. 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. Page 2 Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this Annual Report might not occur. REALTY INCOME CORPORATION Index To Form 10-K ================== Page ---- PART I Item 1: Business......................................... 4 Item 2: Properties....................................... 25 Item 3: Legal Proceedings................................ 26 Item 4: Submission of Matters to a Vote of Security Holders......................... 26 PART II Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters........... 27 Item 6: Selected Financial Data.......................... 28 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 29 Item 7A: Quantitative and Qualitative Disclosures about Market Risk...................................... 40 Item 8: Financial Statements and Supplementary Data...... 41 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........153 PART III Item 10: Directors and Executive Officers of the Registrant................................153 Item 11: Executive Compensation...........................153 Item 12: Security Ownership of Certain Beneficial Owners and Management.................154 Item 13: Certain Relationships and Related Transactions.....................................154 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K..........................154 SIGNATURES....................................................158 EXHIBIT INDEX.................................................160
Page 3 PART I ====== ITEM 1: BUSINESS - ----------------- THE COMPANY =========== Realty Income Corporation, a Maryland corporation ("Realty Income", the "Company", "our" or "we") was organized to operate as an equity real estate investment trust ("REIT"). 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. As of December 31, 1998, we owned a diversified portfolio of 970 retail properties located in 45 states with over 7.8 million square feet of leasable space. Of the 970 properties in the portfolio, 963 are single- tenant retail properties with the remainder being multi-tenant properties. As of December 31, 1998, 958, or 99.5%, of the 963 single-tenant properties were leased with an average remaining lease term (excluding extension options) of approximately 8.6 years. Our primary business objective is to generate dependable monthly dividends from a consistent and predictable level of funds from operations ("FFO") per share. Additionally, we generally will seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. We also seek to lower the ratio of distributions to stockholders as a percentage of FFO in order to allow internal cash flow to be used to fund additional acquisitions and for other corporate purposes while paying dividends that are sufficient to maintain our status as a REIT for federal income tax purposes. Our portfolio management focus includes: - Contractual rent increases on existing leases; - Rental increases at the termination of existing leases when market conditions permit; and - The active management of the Company's property portfolio, including selective sales of properties. Our acquisition of additional properties adheres to a focused strategy of acquiring primarily: - Freestanding, single-tenant, retail properties; - Properties leased to regional and national retail chains; and - Properties under long-term, net lease agreements with initial contractual base rent which, at the time of acquisition and as a percentage of acquisition costs, is in excess of the Company's estimated cost of capital. We typically acquire, then lease back, retail store locations from chain store operators, providing capital to the operators for continued expansion and other corporate purposes. Our acquisitions and investment activities are concentrated in well-defined target markets and focus generally on middle-market retailers providing goods and services that satisfy basic consumer needs. Page 4 Our net lease agreements usually: - Are for initial terms of 10 to 20 years; - Require the tenant to pay a minimum monthly rent and property operating expenses (taxes, insurance and maintenance); and - Provide for future rent increases (typically subject to ceilings) based on increases in the consumer price index, additional rent calculated as a percentage of the tenant's gross sales above a specified level or fixed increases. Realty Income was formed on September 9, 1993 in the State of Delaware and reincorporated in Maryland in May 1997. Realty Income commenced operations as a REIT on August 15, 1994 through the merger of 25 public and private real estate limited partnerships with and into the Company. Each of the partnerships was formed between 1970 and 1989 for the purpose of acquiring and managing long-term, net leased properties. The five senior officers of the Company, who have each managed our properties and operations for between eight and 13 years, owned 0.9% of the Company's outstanding common stock with a market value of $5.4 million as of March 2, 1999. The directors and five senior officers of the Company, as a group, owned 2.9% of the Company's outstanding common stock with a market value of $17.6 million as of March 2, 1999. 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. In October 1998, we issued 8.25% Monthly Income Senior Notes due 2008, which began trading on the NYSE on November 3, 1998 under the ticker symbol "OUI". The cusip number of these notes is 756109-AA2. Realty Income has 50 employees as of March 1, 1999. RECENT DEVELOPMENTS =================== ACQUISITION OF 149 PROPERTIES DURING 1998. During 1998, we continued implementing our growth plan, which is intended to increase our funds from operations per share. As part of our plan, we acquired 149 additional properties (the "New Properties"), and selectively sold five properties, increasing the number of properties in the portfolio by 17.4% to 970 properties at December 31, 1998 from 826 properties at December 31, 1997. During 1998, we invested $193.4 million in New Properties and properties under development (excluding estimated unfunded development costs on properties under construction at December 31, 1998 of $19.7 million). The weighted average annual unleveraged return on the $193.4 million invested in 1998 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, Page 5 divided by the estimated total costs of each property. Since it is possible that a tenant could default on the payment of contractual rent, no assurance can be given that the actual return on the funds invested will not differ from the foregoing percentage. The New Properties are located in 38 states, will contain approximately 1.6 million leasable square feet and are 100% leased under net leases, with an average initial lease term of 14.9 years. Of the New Properties, 133 were occupied as of March 1, 1999 and the remaining properties were pre-leased and under construction pursuant to contracts under which the tenants have agreed to develop the properties (with development costs funded by the Company) and to begin paying rent when the premises open for business. INCREASE IN MONTHLY DISTRIBUTION. In April, July and October 1998, and January 1999, the monthly distributions were increased $0.0025 to $0.1625, $0.165, $0.1675 and $0.17 per share, respectively. Realty Income continues its policy of paying distributions monthly. During 1998, the Company paid three distributions of $0.16 per share, three distributions of $0.1625 per share, three distributions of $0.165 per share, and three distributions of $0.1675 per share. Distributions for 1998 totaled $1.965 per share. In December 1998, January 1999 and February 1999, the Company declared distributions of $0.17 per share, which were paid on January 18, 1999, February 16, 1999 and March 15, 1999, respectively. The monthly distribution of $0.17 per share represents a current annualized distribution of $2.04 per share, and an annualized distribution yield of approximately 9.0% based on the last reported sale price of the Company's Common Stock on the NYSE of $22.5625 on March 2, 1999. Although we expect to continue our policy of paying monthly distributions, there can be no assurance that the current level of distributions will be maintained by the Company or as to the actual distribution yield for any future period. UNSECURED REVOLVING CREDIT FACILITY. In November 1998, we amended our revolving credit facility agreement (the "Credit Facility") to: - Increase the amount available for borrowing from $150 million to $170 million; and - Extended the maturity date as to $118 million of credit availability from December 2000 to December 2001. The increase in the amount available for borrowing under the revolving Credit Facility should enable us to continue to implement our growth strategy of acquiring additional properties and funding expenditures for development projects. As of March 2, 1999, we had $90.9 million available for borrowing under the Credit Facility. At that time, the outstanding balance was $79.1 million with an effective interest rate of 6.0%. COMMON STOCK OFFERINGS. In March 1998, we issued 372,093 shares of common stock to a unit investment trust at a net price to the Company of $25.531 per share, based on a 5% discount to the then market price of $26.875 per share. The net proceeds of $9.5 million were used to repay borrowings of $7.9 million under the Credit Facility and to acquire additional properties. Page 6 In February 1998, we issued 751,174 shares of common stock to a unit investment trust at a net price to the Company of $25.295 per share, based on a 5% discount to the then market price of $26.625. The net proceeds of $18.9 million were used to repay borrowings under the Credit Facility. NOTES OFFERING. In January 1999, we issued $20 million of 8.00% unsecured senior notes due 2009 (the "1999 Notes"). The 1999 Notes were sold at 98.757% of par to yield 8.10%. The proceeds from the offering were used to pay down bank borrowings and for other corporate purposes. Currently, there is no formal trading market for the 1999 Notes and we have not listed and do not intend to list the 1999 Notes on any securities exchange. In October 1998, we issued $100 million of 8.25% Monthly Income Senior Notes due 2008 (the "1998 Notes"). The 1998 Notes are unsecured and were sold at par ($25.00). After taking into effect the results of an U.S. Treasury interest rate lock agreement, the effective rate to us is 9.12%. The proceeds from the offering were used to pay down $96.0 million of our bank borrowings and will allow us to continue our strategic property acquisition activities. Interest on the 1998 Notes is payable monthly on the 15th of each month. 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 a minimum 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 tenant's 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, we focus on providing expansion capital to retail chains by acquiring, then leasing back, their retail store locations. We classify retail tenants into three categories: venture, middle market, and upper market. Venture companies are those which typically offer a new retail concept in one geographic region of the country and operate between five and 50 retail outlets. Middle market retail chains are those which typically have 50 to 500 retail outlets, operations in more than one geographic region, have been successful through one or more economic cycles, 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. Page 7 Realty Income primarily focuses on acquiring properties leased to middle market retail chains which we believe are attractive for investment because: - They generally have overcome many of the operational and managerial obstacles that tend to adversely affect venture retailers; - They typically require capital to fund expansion but have more limited financing options; - They generally have provided us with attractive risk- adjusted returns over time since their financial strength has in many cases tended to improve as their businesses have matured; - Their relatively large size allows them to spread corporate expenses across a greater number of stores; and - Middle market retailers typically have the critical mass to survive if a number of locations have to be closed due to underperformance. In 1998, we expanded our investment focus to include upper market retail chains and have made some acquisitions on a selective basis. We believe upper market retail chains can be attractive for investment because: - They typically are of a higher credit quality; - They are usually larger brand name, public and private retailers; - They utilize a larger building ranging in size from 10,000 to 50,000 square feet; and - Their ability to grow because of 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 incremental investment opportunities with venture market retail chains. Periodically, venture market opportunities arise where we feel that the real estate used by the tenant is of high quality and can be purchased at prices that are favorable in the marketplace. 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. CREDIT STRATEGY. Realty Income principally provides sale leaseback financing primarily to less than investment grade retail chains. Since 1970 and through December 31, 1998, Realty Income has acquired and leased back to regional and national retail chains 944 properties (including 34 properties that have been sold) and has collected in excess of 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 that we provide to retailers. We believe that the primary 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 buildings on which the tenant conducts its retail business, we believe that the risk of default on the retailers' lease obligations is less than the Page 8 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, which 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. In addition, Realty Income believes that the risk of default on the real estate leases can be further mitigated by monitoring the performance of the retailers' individual unit locations and selling those units that are weaker performers. In order to qualify for inclusion in 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 standards. We have established a three-part analysis that examines each potential investment based on: - Industry, company, market conditions and credit profile; - Location profitability, if profitability data is available; and - Overall real estate characteristics, value, and comparative rental rates. Companies that have been approved for acquisitions are generally those with fifty or more retail stores which are located in highly visible areas, with easy access to major thoroughfares and attractive demographics. ACQUISITION STRATEGY. We seek to invest in industries in which several, well-organized, regional and national chains are capturing market share through service, quality control, economies of scale, mass media advertising, and 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. In selecting real estate for potential investment, we generally seek to acquire properties that have the following characteristics: - Freestanding, commercially zoned property with a single tenant; - Properties that are important retail locations for regional and national retail chains; - Properties that are located within attractive demographic areas relative to the business of their tenants, with high visibility and easy access to major thoroughfares; and - Properties that can be purchased with the simultaneous execution or assumption of long-term, net lease agreements, providing the opportunity for both current income and future 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 Page 9 invested. The portfolio is analyzed on an ongoing basis with a view towards optimizing performance and returns. Realty Income's investment committee is made up of our Chief Executive Officer, President and three Senior Vice Presidents. Our investment committee meets weekly to review industry research, tenant research and property due diligence, and significant portfolio management activities. This monitoring typically includes ongoing review and analysis of: - The performance of various tenant industries; - The operation, management, business planning, and financial condition of the tenants; and - The health of the individual markets in which we own properties, from both an economic and real estate standpoint. CAPITAL MARKETS STRATEGY. We have a $170 million revolving, unsecured acquisition Credit Facility. As of March 2, 1999, the outstanding balance on the Credit Facility was $79.1 million with an effective interest rate of approximately 6.0%. A commitment fee of 0.15% per annum accrues on the total credit commitment. We are and have been in compliance with the various leverage and interest coverage ratio limitations required by the Credit Facility. The Credit Facility has been and is expected to be used to acquire additional retail properties leased to regional and national retail chains under long term net lease agreements. We utilize our Credit Facility as a vehicle for the short-term financing of the acquisition of new properties. When outstanding borrowings under the Credit Facility reach a certain level (generally in the range of $75 to $150 million), we intend 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. However, there can be no assurance that we will be able to effect any such refinancing or that market conditions prevailing at the time of refinancing will enable us to issue equity or debt securities upon acceptable terms. We believe that we are best served by a conservative capital structure, with a majority of our capital consisting of equity. As of December 31, 1998, our total outstanding Credit Facility borrowings and outstanding notes were $294.8 million or approximately 30.6% of our total capitalization (defined as shares of our common stock outstanding multiplied by the last reported sales price of the common stock on the NYSE on December 31, 1998 of $24.875 per share plus the outstanding borrowings on the Credit Facility and outstanding notes at December 31, 1998). We received investment grade credit ratings from Duff & Phelps Credit Rating Company, Moody's Investor Service, Inc., and Standard & Poor's Rating Group in December 1996. Currently, Duff & Phelps has assigned a rating of BBB, Moody's has assigned a rating of Baa3, and Standard & Poor's has assigned a rating of BBB- to our senior debt. These ratings could change based upon, among other things, our results of operations and financial condition. Page 10 COMPETITIVE STRATEGY. We believe that, to utilize our investment philosophy and strategy most successfully, we must seek to maintain the following competitive advantages: - Size and Type of Investment Properties: We believe that smaller ($500,000 to $10,000,000) retail net leased properties represent an attractive investment opportunity in today's real estate environment. Due to the complexities of acquiring and managing a large portfolio of relatively small assets, we believe that these types of properties have not experienced significant institutional participation 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 by us, is an effective investment strategy. The tenants of our freestanding retail properties generally provide goods and services which satisfy basic human 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, Realty Income's method of purchasing the property and then leasing it back under a net lease arrangement allows the retail chain to free up capital. - - Investment in New Industries: Though we specialize in single-tenant properties, we will seek to further diversify our portfolio among a variety of industries. We believe that diversification will allow us to invest in industries that are currently growing and have characteristics we find attractive. These characteristics include, but are not limited to, industries dominated by local operators where regional and national chain operators can gain market share and dominance through more efficient operations, as well as industries taking advantage of major demographic shifts in the population base. For example, in the early 1970s, Realty Income targeted the fast food industry to take advantage of the country's increasing desire to dine away from home, and in the early 1980s, we targeted the child day care industry, responding to the need for professional child care as more women entered the work force. During 1998, we added eight new industries to our portfolio. The eight new industries are Business Services, Craft and Novelty, Drug Stores, General Merchandise, Grocery Stores, Health and Fitness, Home Improvement, and Private Education, bringing the total number of industries in our portfolio to 21. - - Diversification: Diversification of the portfolio by industry type, tenant and geographic location is key to our objective of providing predictable investment results for our stockholders. As we expand we will seek to further diversify our portfolio. During 1998, 20 new retail chains and two new states were added to our portfolio, bringing the total number of retail chains in our portfolio to 65 and the total number of states to 45. Page 11 - - Management Specialization: We believe that our management's specialization in single tenant retail properties operated under net lease agreements is important to meeting our objectives. We plan to maintain this specialization and will seek to employ and train high quality professionals in this specialized area of real estate ownership, finance and management. - - Technology: We intend to stay at the forefront of technology in our efforts to efficiently and economically carry out our operations. We maintain a sophisticated information system that allows 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 ========== As of January 1, 1999, we owned a diversified portfolio of 970 properties located in 45 states with over 7.8 million square feet of leasable space. At January 1, 1999, approximately 99% of the properties were 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. Our net leased retail properties are primarily leased to regional and national retail chain store operators. The average leasable retail space of the 970 properties is approximately 8,100 square feet on approximately 48,000 square feet of land. Generally, buildings are single-story properties with adequate parking on site to accommodate peak retail traffic periods. The properties tend to be on major thoroughfares with relatively high traffic counts and adequate access, egress and proximity to a sufficient population base to constitute a suitable market or trade area for the retailer's business. Page 12 The following table sets forth certain information regarding our properties as of January 1, 1999, classified according to the business of the respective tenants: Approximate Number of Leasable Annualized Industry Properties Square Feet Rent (1) =================== ========== ============ =========== Apparel Stores 5 228,900 $ 3,927,000 Automotive Parts 128 733,300 8,693,000 Automotive Service 97 309,200 6,623,000 Book Stores 1 30,000 450,000 Business Services 1 7,500 122,000 Child Care 321 2,064,200 25,640,000 Consumer Electronics 37 559,200 4,431,000 Convenience Stores 61 168,200 5,417,000 Craft and Novelty 1 28,100 152,000 Drug Stores 1 11,300 235,000 General Merchandise 10 222,200 658,000 Grocery Stores 2 67,700 789,000 Health and Fitness 2 70,700 1,202,000 Home Furnishings 35 1,016,300 6,717,000 Home Improvement 26 193,400 3,137,000 Office Supplies 8 198,400 2,476,000 Pet Supplies and Services 7 117,900 1,399,000 Private Education 5 85,400 1,530,000 Restaurants 175 876,500 14,351,000 Shoe Stores 3 44,100 890,000 Video Rental 33 244,500 4,252,000 Other 11 547,100 5,263,000 ---------- ------------ ---------- Totals 970 7,824,100 $98,354,000 ========== ============ ===========
[FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 1999 for each of the properties by 12 and adding the 1998 historical percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. Page 13 The following table represents Realty Income's rental revenue by industry: Annualized Rent as For the Year Ended of January 1, 1999 December 31, 1998 ------------------------ ----------------------- Rental(1) Percentage Rental Percentage Industry Revenue of Total Revenue of Total - -------------------- ----------- ---------- ------------ ---------- Apparel Stores $ 3,927,000 4.0% $ 3,461,000 4.1% Automotive Parts 8,693,000 8.8 6,593,000 7.8 Automotive Service 6,623,000 6.7 6,333,000 7.5 Book Stores 450,000 0.5 512,000 0.6 Business Services 122,000 0.1 20,000 * Child Care 25,640,000 26.1 24,765,000 29.2 Consumer Electronics 4,431,000 4.5 4,616,000 5.4 Convenience Stores 5,417,000 5.5 5,175,000 6.1 Craft and Novelty 152,000 0.2 1,000 * Drug Stores 235,000 0.2 59,000 0.1 General Merchandise 658,000 0.7 17,000 * Grocery Stores 789,000 0.8 34,000 * Health and Fitness 1,202,000 1.2 102,000 0.1 Home Furnishings 6,717,000 6.8 6,629,000 7.8 Home Improvement 3,137,000 3.2 9,000 * Office Supplies 2,476,000 2.5 2,543,000 3.0 Pet Supplies & Services 1,399,000 1.4 512,000 0.6 Private Education 1,530,000 1.6 759,000 0.9 Restaurants 14,351,000 14.6 13,768,000 16.2 Shoe Stores 890,000 0.9 673,000 0.8 Video Rental 4,252,000 4.3 3,185,000 3.8 Other 5,263,000 5.4 5,110,000 6.0 - -------------------- ----------- --------- ------------ -------- Totals $98,354,000 100.0% $84,876,000 100.0% ==================== =========== ========= ============ ======== * Less than 0.1%
[FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 1999 for each of the properties by 12 and adding the 1998 historical percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. Page 14 The following table represents Realty Income's rental revenue by industry: For the Year Ended For the Year Ended December 31, 1997 December 31, 1996 ---------------------- ----------------------- Rental Percentage Rental Percentage Industry Revenue of Total Revenue of Total - -------------------- ----------- ---------- ----------- ---------- Apparel Stores $ 496,000 0.7% $ -- --% Automotive Parts 6,142,000 9.1 5,966,000 10.5 Automotive Service 4,332,000 6.4 2,706,000 4.8 Book Stores 368,000 0.5 -- -- Business Services -- -- -- -- Child Care 24,284,000 35.9 23,854,000 42.0 Consumer Electronics 4,388,000 6.5 507,000 0.9 Convenience Stores 3,738,000 5.5 2,647,000 4.6 Craft and Novelty -- -- -- -- Drug Stores -- -- -- -- General Merchandise -- -- -- -- Grocery Stores -- -- -- -- Health and Fitness -- -- -- -- Home Furnishings 3,812,000 5.6 2,496,000 4.4 Home Improvement -- -- -- -- Office Supplies 1,123,000 1.7 -- -- Pet Supplies & Services 134,000 0.2 -- -- Private Education -- -- -- -- Restaurants 13,416,000 19.8 13,836,000 24.4 Shoe Stores 107,000 0.2 -- -- Video Rental 373,000 0.6 -- -- Other 4,900,000 7.3 4,765,000 8.4 - -------------------- ----------- ------- ----------- ------- Totals $67,613,000 100.0% $56,777,000 100.0% ==================== =========== ======= =========== =======
[FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 1999 for each of the properties by 12 and adding the 1998 historical percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. Of the 970 properties in the portfolio at January 1, 1999, 963 were single- tenant properties with the remaining properties being multi-tenant properties. As of January 1, 1999, 958 of the 963 single-tenant properties, or 99.5%, were net leased with an average remaining lease term (excluding extension options) of approximately 8.6 years. Page 15 The following table sets forth certain information regarding the timing of the initial lease term expirations (excluding extension options) on our 958 net leased, single-tenant retail properties as of January 1, 1999. Percent of Number of Annualized Annualized Year Leases Expiring (2) Rent (1)(2) Rent ======== ================== ================ ========== 1999 31 $ 1,585,000 1.7% 2000 37 2,026,000 2.2 2001 47 3,922,000 4.2 2002 79 6,532,000 7.0 2003 68 5,625,000 6.0 2004 111 9,297,000 9.9 2005 81 5,950,000 6.4 2006 28 2,475,000 2.7 2007 93 6,395,000 6.8 2008 63 5,469,000 5.9 2009 17 1,396,000 1.5 2010 38 2,914,000 3.1 2011 38 5,471,000 5.8 2012 52 5,872,000 6.3 2013 91 14,964,000 16.0 2014 11 1,356,000 1.5 2015 27 3,627,000 3.9 2016 13 1,985,000 2.1 2017 11 4,100,000 4.4 2018 19 1,845,000 2.0 2019 3 579,000 0.6 --------- -------------- -------- Total 958 $93,385,000 100.0% ========= ============== ========
[FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 1999 for each of the properties by 12 and adding the 1998 historic percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. (2) This table does not include seven multi-tenant properties and five vacant, unleased single-tenant properties owned by the Company. The lease expirations for properties under construction are based on the estimated date of completion of such properties. The following table sets forth certain state-by-state information regarding Realty Income's portfolio at January 1, 1999. Page 16 Approximate Percent of Number of Percent Leasable Annualized Annualized State Properties Leased Square Feet Rent (1) Rent =========== ========== ======= =========== =========== ========= Alabama 8 100% 56,600 $ 547,000 0.6% Arizona 29 99 193,500 2,681,000 2.7 Arkansas 4 100 31,100 551,000 0.6 California 61 95 1,078,600 13,396,000 13.6 Colorado 42 100 250,700 3,543,000 3.6 Connecticut 10 100 223,800 2,976,000 3.0 Delaware 1 100 5,400 72,000 0.1 Florida 69 99 678,600 7,213,000 7.3 Georgia 49 100 306,400 4,351,000 4.4 Idaho 12 100 58,500 847,000 0.9 Illinois 30 100 209,000 2,725,000 2.8 Indiana 24 100 130,000 1,723,000 1.8 Iowa 9 100 60,600 574,000 0.6 Kansas 22 100 231,000 2,438,000 2.5 Kentucky 13 100 43,500 1,089,000 1.1 Louisiana 5 100 39,600 521,000 0.5 Maryland 8 100 48,300 718,000 0.7 Massachusetts 7 100 53,000 981,000 1.0 Michigan 10 100 66,200 931,000 0.9 Minnesota 24 100 260,800 2,374,000 2.4 Mississippi 15 100 148,500 1,137,000 1.2 Missouri 31 100 184,300 2,327,000 2.4 Montana 2 100 30,000 291,000 0.3 Nebraska 9 100 93,700 1,125,000 1.1 Nevada 7 100 86,400 1,316,000 1.3 New Hampshire 1 100 6,400 127,000 0.1 New Jersey 3 100 39,800 354,000 0.4 New Mexico 4 100 23,800 265,000 0.3 New York 10 100 177,200 3,434,000 3.5 North Carolina 31 100 164,800 2,781,000 2.8 North Dakota 1 100 22,000 65,000 0.1 Ohio 66 100 331,200 5,317,000 5.4 Oklahoma 17 100 102,600 1,318,000 1.3 Oregon 17 100 92,400 1,219,000 1.2 Pennsylvania 22 100 161,600 2,195,000 2.2 South Carolina 23 100 93,000 1,538,000 1.6 South Dakota 1 100 6,100 84,000 0.1 Tennessee 22 100 202,600 2,306,000 2.3 Texas 147 99 1,190,700 11,481,000 11.7 Utah 9 100 58,200 805,000 0.8 Virginia 29 100 133,200 2,810,000 2.9 Washington 43 100 252,600 3,369,000 3.4 West Virginia 2 100 16,800 147,000 0.1 Wisconsin 17 100 160,900 2,022,000 2.1 Wyoming 4 100 20,100 270,000 0.3 ------ ------ --------- ----------- ------- Totals/Average 970 99% 7,824,100 $98,354,000 100.0% ====== ====== ========= =========== =======
Page 17 [FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 1999 for each of the properties by 12 and adding the 1998 historic percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. The following table sets forth certain information regarding the properties owned by Realty Income as of January 1, 1999, classified according to the business of the respective tenants. Percent of Number of Annualized Annualized Properties Rent (1) Rent ---------- ---------- ---------- TENANTS SELLING GOODS Apparel Stores 5 $ 3,927,000 4.0% Automotive Parts 81 4,708,000 4.8 Book Stores 1 450,000 0.5 Consumer Electronics 37 4,431,000 4.5 Craft and Novelty 1 152,000 0.2 Drug Stores 1 235,000 0.2 General Merchandise 10 658,000 0.7 Grocery Stores 2 789,000 0.8 Home Furnishings 35 6,717,000 6.8 Home Improvement 12 1,333,000 1.3 Office Supplies 8 2,476,000 2.5 Pet Supplies 2 455,000 0.5 Shoe Stores 3 890,000 0.9 ---------- ---------- ---------- 198 27,221,000 27.7 ---------- ---------- ---------- TENANTS SELLING GOODS AND SERVICES Automotive Parts 47 3,985,000 4.1 Business Services 1 122,000 0.1 Convenience Stores 61 5,417,000 5.5 Home Improvement 14 1,805,000 1.8 Pet Supplies and Services 5 943,000 1.0 Restaurants 175 14,351,000 14.6 Video Rental 33 4,252,000 4.3 ---------- ---------- ---------- 336 30,875,000 31.4 ---------- ---------- ---------- (table continued) Page 18 (continued) Percent of Number of Annualized Annualized Properties Rent (1) Rent ---------- ---------- ---------- TENANTS PROVIDING SERVICES Automotive Service 97 6,623,000 6.6 Child Care 321 25,640,000 26.1 Health and Fitness 2 1,202,000 1.2 Other 11 5,263,000 5.4 Private Education 5 1,530,000 1.6 ---------- ---------- ---------- 436 40,258,000 40.9 ---------- ---------- ---------- TOTALS 970 $98,354,000 100.0% ========== ========== ==========
[FN] (1) Annualized rent is calculated by multiplying the monthly contractual base rent as of January 1, 1999 for each of the properties by 12 and adding the 1998 historic percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. DESCRIPTION OF LEASING STRUCTURE. At January 1, 1998, approximately 99% of the Company's properties were leased pursuant to net leases. In most cases, the leases: - Were for initial terms of from 10 to 20 years and the tenant has an option to extend the initial term; - In general, the leases require the tenant to pay property taxes, insurance, and expenses of maintaining the property; - Generally 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 tenant's 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 such increases permanently become part of the base rent. Where leases provide for percentage rent, this additional rent is typically payable only if the tenant's gross sales for a given period (usually one year) exceed a specified level, and then is typically calculated as a percentage of only the amount of gross sales in excess of such level. Matters Pertaining to Certain Properties and Tenants - ---------------------------------------------------- Five of our properties were vacant as of January 1, 1999 (all of which are single-tenant properties) and available for lease. Two of the vacant properties were previously leased to Levitz Furniture (discussed below), one to a restaurant operator, one to a convenience store operator, and one Page 19 to an automotive parts store operator. One of the vacant Levitz Furniture locations was leased in January 1999. As of January 1, 1999, 32 of our properties, which were under lease, were vacant and available for sublease by the tenant. All of these tenants were current with their rent and other obligations. Our two largest tenants are Children's World Learning Centers and La Petite Academy, which accounted for approximately 16.6% and 11.1%, respectively, of our rental revenue for the year ended December 31, 1998. No other tenant comprised 10% or more of our rental revenue. In general, a downturn in the industry represented by these tenants, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in this industry, which in turn could materially adversely affect our financial position and results of operations and our ability to make distributions to stockholders and debt service payments. In addition, a substantial number of our properties are leased to middle market retail chains which generally have more limited financial and other resources than certain upper market retail chains, and therefore are more likely to be adversely affected by a downturn in their respective business or in the regional or national economy generally. Our tenants in the child care and restaurant industries accounted for approximately 29.2% and 16.2%, respectively, of our rental revenue for the year ended December 31, 1998. A downturn in any of these industries generally, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in those industries, which in turn could materially adversely affect our financial position and results of operations and our ability to make distributions to stockholders and debt service payments. On September 5, 1997, Levitz Furniture filed a voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy Code. Levitz Furniture had occupied four of our properties: two in California, one in Texas and one in Florida. Levitz elected to discontinue operations in the regions that include the states of Texas and Florida. As a result of leaving those markets, in November 1998 Levitz returned the Texas and Florida properties to us. In January 1999, two months after we regained possession, we signed a 10-year lease agreement with Fujitsu Network Communications on the Texas property. The new lease calls for immediate commencement of rent and results in a higher rent per square foot and a higher return on our total investment than the prior Levitz lease had generated. We believe that the demand in the market for the Florida property will allow us to find a suitable replacement tenant. The two California Levitz stores owned by Realty Income are currently open and operating, and Levitz continues to be current on its rental obligations to us. While Levitz Furniture has paid its most recent rental payments, there can be no assurance that Levitz Furniture will continue to pay rent for the remainder of the lease terms for the two California Levitz properties. Page 20 Development of Certain Properties - --------------------------------- Of the 149 New Properties we acquired in 1998, 133 were occupied as of March 1, 1999 and the remaining 16 were pre-leased and under construction pursuant to contracts under which tenants or developers have agreed to develop the properties (with development costs funded by us) with rent commencing when the premises open for business. In the case of development properties, we either enter into an agreement with a tenant pursuant to which the tenant retains a contractor to construct the improvements and we fund the costs of such development or we fund a developer who constructs the improvements. In either case, there is an executed lease and there is a requirement to complete the construction on a timely basis, generally within eight months after we purchase the land. Generally, the tenant or developer 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 the Company purchases the land, which generally requires that the tenant begin paying base rent, calculated as a percentage of our acquisition cost for the property, including construction costs and capitalized interest, when the premises open for business. During 1998, the Company acquired 33 development properties, 17 of which have been completed, were operating and paying rent as of March 1, 1999. We will continue to seek to acquire land for development under similar arrangements. DISTRIBUTION POLICY =================== Distributions are paid to our stockholders on a monthly basis if, as and when declared by our Board of Directors. The March 1999 distribution of $0.17 per share represents a current annualized distribution of $2.04 per share, and an annualized distribution yield of approximately 9.0% based on the last reported sale price of $22.5625 of our common stock, on the NYSE on March 2, 1999. In order to maintain our tax status as a REIT for federal income tax purposes, we are generally required to distribute dividends to our stockholders aggregating annually at least 95% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains). In 1998, our distributions totaled 104.0% of our REIT taxable income. We intend to continue to make distributions to our stockholders that are sufficient to meet this requirement. Future distributions by us will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code"), our debt service requirements and such other factors as the Board of Directors may deem relevant. In addition, the Credit Facility contains financial covenants which could limit the amount of distributions payable by the Company in the event of a deterioration in the results of operations or financial condition of the Page 21 Company, and which prohibit the payment of distributions on the common stock in the event that the Company fails to pay when due (subject to any applicable grace period) any principal or interest on borrowings under the Credit Facility. Distributions by us to the extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income. Distributions in excess of such earnings and profits generally will be treated as a non-taxable reduction in the stockholders' basis in its stock to the extent of such basis, and thereafter as a gain from the sale of such stock. Approximately 3.8% of the distributions made or deemed to have been made in 1998 were classified as a return of capital for federal income tax purposes. We are unable to predict the portion of 1999 or future distributions which may be classified as a return of capital since such amount depends on our taxable income for the entire year. OTHER ITEMS =========== COMPETITION FOR ACQUISITION OF REAL ESTATE. We face competition in the acquisition, operation and sale of property. We expect such competition from: - Businesses; - Individuals; - Fiduciary accounts and plans; and - Other entities engaged in real estate investment. Some of these competitors are larger than we are and have greater financial resources. This competition may result in a higher cost for properties that we wish to purchase. The tenants leasing our properties generally face significant competition from other operators. This competition may adversely impact: - That portion, if any, of the rental stream to be paid to us based on a tenant's revenues; and - The tenants' results of operations or financial condition. ENVIRONMENTAL LIABILITIES. Investments in real property can create a potential for environmental liability. An owner of property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We face such liability regardless of: - Our knowledge of the contamination; - The timing of the contamination; - The cause of the contamination; or - The party responsible for the contamination of the property. We are not aware of any material environmental problems at this time; however, there may be environmental problems associated with our properties Page 22 that we are unaware of. 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, utilize, or may have utilized in the past, underground tanks for the storage of petroleum-based or waste products which could create a potential for release of hazardous substances. The presence of hazardous substances on a property may adversely affect our ability to sell such 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 tenant's 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. We believe that our properties comply in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or 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, the Company has maintained an environmental insurance policy on the property portfolio. Based upon the 970 properties in the portfolio at December 31, 1998, the cost of the insurance is expected to be approximately $90,000 during 1999. The limit of the policy is $10 million for each loss and $25 million in the aggregate, with a $100,000 deductible. There is a sublimit on properties with underground storage tanks of $1 million per occurrence and $5 million in the aggregate, with a deductible of $25,000. TAXATION OF THE COMPANY. We believe that we have operated, and we intend to continue to operate, so as to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our taxable year ended December 31, 1994. Although we believe that we are in compliance with all REIT qualification rules and we are organized and operate as a REIT, we can not completely assure you that we will continue to be so organized or that we will be able to operate in a manner so as to qualify or remain so qualified. 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. Page 23 We cannot assure you that legislation, new regulations, administrative interpretations or court decisions will leave unchanged the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualifications. If we were to fail to qualify as a REIT in any taxable year: - We would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates; - We would not be allowed a deduction in computing our taxable income for amounts distributed to our stockholders; - We would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would substantially reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability for the years involved; and - We would no longer be required to make distributions to stockholders. 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, such income will be subject to a 100% tax. 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 95% of our taxable income each year. This taxable income is determined without regard to the dividends paid deduction and by excluding net capital gains. We are also subject to tax at regular corporate rates to the extent that we distribute less than 100% of our taxable income (including net capital gains) each year. In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us with respect to any calendar year are less than the sum of 85% of our ordinary income for such calendar year, 95% of our capital gain net income for the calendar year, and any amount of such 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 in arriving at taxable income and 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. Page 24 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 common stock. Likewise, our Board of Directors is authorized to cause us to issue preferred stock of any class or series (with such dividends and voting and other rights as the Board of Directors may determine). Accordingly, the Board of Directors may authorize the issuance of preferred stock with voting, dividend and other similar rights that could dilute, or otherwise adversely affect, the interests of holders of 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 will be insufficient to cover all corporate operating expenses and debt service payments on indebtedness we incur. Additional real estate ownership risks include: - Adverse changes in general or local economic conditions; - Changes in supply of or demand for similar or competing properties; - Changes in interest rates and operating expenses; - Competition for tenants; - Changes in market rental rates; - Inability to lease properties upon termination of existing leases; - Renewal of leases at lower rental rates; - Inability to collect rents from tenants due to financial hardship, including bankruptcy; - Changes in tax, real estate, zoning and environmental laws that may have an adverse impact upon the value of real estate; - Uninsured property liability; - Property damage or casualty losses; - Unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state and local laws; and - 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. ITEM 2: PROPERTIES - ------------------- Information pertaining to our properties can be found under Item 1. Page 25 ITEM 3: LEGAL PROCEEDINGS - -------------------------- The Company is subject to certain claims and lawsuits, the outcome of which are not determinable at this time. In the opinion of management, any liability that might be incurred by the Company upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on the Company's consolidated 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. Page 26 PART II ======= ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ---------------------------------------------------------- A. The stock of the Company is traded on the New York Stock Exchange under the ticker symbol "O." The following table shows the high and low sales prices per share for the Common Stock as reported by the New York Stock Exchange composite tape, and distributions declared per share of common stock by Realty Income for the periods indicated. Price Per Share of Common Stock ------------------- Distributions 1998 High Low Declared (1) - ----------------------------------------------------------------- First quarter $27.1875 $25.2500 $0.4825 Second quarter 27.2500 25.4375 0.4900 Third quarter 27.3750 23.4375 0.4975 Fourth quarter 25.6875 23.9375 0.5050 ------- $1.9750 ======= 1997 - ----------------------------------------------------------------- First quarter $26.625 $23.000 $0.4725 Second quarter 26.500 22.625 0.4725 Third quarter 27.813 25.438 0.4725 Fourth quarter 27.438 23.750 0.4775 ------- $1.8950 =======
[FN] (1) Distributions currently are declared monthly by the Company based on financial results for the prior months. At December 31, 1998 a distribution of $0.17 per share had been declared and was paid on January 18, 1999. B. There were approximately 14,500 holders of record of Realty Income's shares of common stock as of March 1, 1999, however, Realty Income believes the total number of beneficial stockholders of Realty Income to be approximately 57,000. Page 27 ITEM 6: SELECTED FINANCIAL DATA - -------------------------------- (not covered by Independent Auditors' Report) As of or for the years ended December 31, (dollars in thousands, except per share data) -------------------------------------------------- 1998 1997 1996 1995 1994 ========== ========== ========== ========== ========== Total assets (book value) $ 759,234 $ 577,021 $ 454,097 $ 417,639 $ 352,768 Cash and cash equivalents 2,533 2,123 1,559 1,650 11,673 Lines of credit and notes payable 294,800 132,600 70,000 18,597 12,616 Total liabilities 309,025 143,706 79,856 36,218 17,352 Stockholders' equity 450,209 433,315 374,241 381,421 335,416 Net cash provided by operating activities 64,645 52,692 48,073 40,312 28,460 Net change in cash and cash equivalents 410 564 (91) (10,023) (17,656) Total revenue 85,132 67,897 56,957 51,555 48,863 Consolidation costs -- -- -- -- (11,201) Income from operations 41,004 33,688 30,768 25,582 14,059 Gain on sales of properties 526 1,082 1,455 18 1,165 Cumulative effect of change in accounting principle (226) -- -- -- -- Net income 41,304 34,770 32,223 25,600 15,224 Distributions paid to stockholders/ partners 52,301 44,367 48,079 36,710 44,666 Ratio of earnings to fixed charges (1) 4:1 5:1 14:1 10:1 39:1 Basic and diluted net income per share 1.55 1.48 1.40 1.27 0.78 Distributions paid per share (2)(3) 1.965 1.893 2.093 1.825 0.600 Distributions declared per share (2)(3) 1.975 1.895 1.710 2.215 0.750 (table continued) Page 28 (continued) As of or for the years ended December 31, (dollars in thousands, except per share data) -------------------------------------------------- 1998 1997 1996 1995 1994 ========== ========== ========== ========== ========== Basic weighted Average number of shares outstanding 26,629,936 23,568,831 22,976,789 20,230,886 19,502,091 Diluted weighted Average number of shares outstanding 26,638,284 23,572,715 22,977,837 20,230,963 19,502,091
[FN] (1) Ratio of Earnings to Fixed Charges is calculated by dividing earnings by fixed charges. For this purpose, earnings consist of net income before interest expense. Fixed charges are comprised of interest costs (including capitalized interest) and the amortization of debt issuance costs. (2) The 1994 amount represents distributions paid or declared, as the case may be, after the Consolidation (see Note 1 to the consolidated financial statements). (3) 1996 distributions paid per share and 1995 distributions declared per share include a special distribution of $0.23 per share. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ---------------------------------------------------------- GENERAL - ------- Realty Income Corporation, a Maryland corporation ("Realty Income", the "Company", "us", "we" or "our") was organized to operate as an equity real estate investment trust ("REIT"). We are a fully integrated self- administered real estate company with in-house acquisition, leasing, legal, retail research, real estate research, portfolio management and capital markets expertise. As of December 31, 1998, we owned a diversified portfolio of 970 retail properties located in 45 states with over 7.8 million square feet of leasable space. Our primary business objective is to generate dependable monthly dividends from a consistent and predictable level of funds from operations ("FFO") per share. Additionally, we generally will seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. Page 29 LIQUIDITY AND CAPITAL RESOURCES =============================== Cash Reserves Realty Income is organized for the purpose of operating as an equity REIT which acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of its net cash flow generated from leases on its retail properties. We intend to retain an appropriate amount of cash as working capital reserves. At December 31, 1998, Realty Income had cash and cash equivalents totaling $2.5 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, however, we intend to utilize additional sources of capital to fund property acquisitions and to repay our acquisition credit facility. Capital Funding Realty Income has a $170 million, three-year revolving, unsecured acquisition credit facility of which $118 million expires in December 2001 and $52 million expires in December 2000. The credit facility currently bears interest at 0.85% over the London Interbank Offered Rate ("LIBOR") and offers us other interest rate options. As of March 2, 1999, $90.9 million of borrowing capacity was available to us under the acquisition credit facility. At that time, the outstanding balance was $79.1 million with an effective interest rate of 6.0%. This credit facility has been and is expected to be used to acquire additional retail properties leased to national and regional retail chains under long-term lease agreements. Any additional borrowings will increase our exposure to interest rate risk. We expect to meet our long-term capital needs for the acquisition of properties through the issuance of public or private debt or equity. In August 1997, we filed a universal shelf registration statement with the Securities and Exchange Commission covering up to $300 million in value of common stock, preferred stock and/or debt securities. Through March 2, 1999, $221.4 million in value of common stock and debt securities has been issued under the universal shelf registration statement. In March 1998, we issued 372,093 shares of common stock to a unit investment trust at a net price to the Company of $25.531 per share, based on the then market price of $26.875 per share. The net proceeds of $9.5 million were used to repay borrowings of $7.9 million under our credit facility and to acquire additional properties. In February 1998, we issued 751,174 shares of common stock to a unit investment trust at a net price to the Company of $25.295 per share, based on a 5% discount to the then market price of $26.625 per share. The net proceeds of $18.9 million were used to repay borrowings under our credit facility. Page 30 In January 1999, we issued $20 million of 8.00% senior notes due January 2009 (the "1999 Notes"). The 1999 Notes are unsecured and were sold at 98.757% of par to yield 8.10%. The proceeds from the offering were used to pay down credit facility borrowings and for other corporate purposes. Currently, there is no formal trading market for the 1999 Notes and we have not listed and do not intend to list the 1999 Notes on any securities exchange. In October 1998, we issued $100 million of 8.25% unsecured senior notes due November 2008 (the "1998 Notes"). The 1998 Notes were sold at par ($25.00). After taking into effect the results of a Treasury interest rate lock agreement, the effective interest rate to us was 9.12%. The proceeds from the offering were used to pay down $96.0 million of our credit facility borrowings and will allow us to continue our strategic property acquisition activities. Interest on the 1998 Notes is payable monthly on the 15th of each month, commencing in December 1998. The 1998 Notes commenced trading on the New York Stock Exchange on November 3, 1998 under the ticker symbol "OUI". The cusip number of the 1998 Notes is 756109-AA2. In May 1998, we entered into a treasury interest rate lock agreement to protect against the possibility of rising interest rates applicable to the 1998 Notes. Under the interest rate lock agreement, we were to receive or make a payment based on the differential between a specified interest rate, 5.726%, and the actual 10-year treasury interest rate on a notional principal amount of $100 million, at the end of six months. Based on the 10-year treasury interest rate at October 23, 1998 (the interest rate pricing date), the Company made a payment of $8.7 million in settlement of the agreement in October 1998. The payment on the agreement is being amortized over 10 years (the life of the 1998 Notes) as a yield adjustment to interest expense. We received investment grade corporate credit ratings from Duff & Phelps Rating Company, Moody's Investor Service, Inc., and Standard & Poor's Rating Group in December 1996. Currently, Duff & Phelps has assigned a rating of BBB, Moody's has assigned a rating of Baa3, and Standard & Poor's has assigned a rating of BBB- to our senior debt. These ratings could change based upon, among other things, our results of operations and financial condition. Property Acquisitions During 1998, we continued to increase the size of the portfolio through a strategic program of real estate acquisitions. We acquired 149 additional properties (the "New Properties"), and selectively sold 5 properties, increasing the number of properties in the portfolio by 17.4% to 970 properties at December 31, 1998 from 826 properties at December 31, 1997. During 1998, we invested $193.4 million in New Properties and properties under development (excluding estimated unfunded development costs on properties under construction at December 31, 1998 of $19.7 million). The weighted average annual unleveraged return on the $193.4 million invested Page 31 in 1998 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, no assurance can be given that the actual return on the funds invested will not differ from the foregoing percentage. The New Properties are located in 38 states, will contain approximately 1.6 million leasable square feet and are 100% leased under net leases, with an average initial lease term of 14.9 years. During 1998, we also paid $168,000 for lease commissions and $95,000 for building improvements on existing properties in our portfolio. Of the New Properties, 133 were occupied as of March 1, 1999 and the remaining properties were pre-leased and under construction pursuant to contracts under which the tenants or developers have agreed to develop the properties (with development costs funded by the Company) and with the tenant to begin paying rent when the premises open for business. During 1997, we invested $142.3 million in 96 properties purchased in 1997 and properties under development (excluding estimated unfunded development costs on properties under construction at December 31, 1997). The weighted average annual unleveraged return on the $142.3 million invested in 1997 is estimated to be 10.4%, computed in the same manner as 1998's estimated weighted average annual unleveraged return. These 96 properties purchased in 1997 are located in 27 states, contain approximately 1.1 million leasable square feet and are 100% leased with an average initial lease term of 14.4 years. Distributions Cash distributions paid during 1998, 1997 and 1996 were $52.3 million, $44.4 million and $48.1 million, respectively. The 1996 cash distributions include a special distribution of $5.3 million paid in January 1996. Realty Income pays distributions monthly. The following is a summary of the monthly cash distributions for the years ended December 31, 1998, 1997 and 1996, which totaled $1.965, $1.8925 and $2.0925, respectively. The January 1996 distributions include a special distribution of $0.23 per share. In December 1998, January and February 1999, we declared distributions of $0.17 per share, which were paid on January 18, 1999, February 16, 1999 and payable on March 15, 1999, respectively. The monthly distribution of $0.17 per share represents a current annualized distribution of $2.04 per share, and an annualized distribution yield of approximately 9.0% based on the last reported sale price of the Company's Common Stock on the NYSE of $22.5625 on March 2, 1999. Although the Company expects to continue its policy of paying monthly distributions, there can be no assurance that the current level of distributions will be maintained by the Company or as to the actual distribution yield for any future period. Page 32 FUNDS FROM OPERATIONS ("FFO") ============================= FFO for 1998 increased by $10.45 million or 20.0% to $62.80 million versus $52.35 million during 1997. FFO during 1996 was $47.7 million. We define FFO as net income before gain on sales of properties, plus provision for impairment losses, plus depreciation and amortization. In accordance with the recommendations of the National Association of Real Estate Investment Trusts ("NAREIT"), amortization of deferred financing costs are not added back to net income to calculate FFO. Amortization of financing costs are included in interest expense in the consolidated statements of income. The following is a reconciliation of net income to FFO and information regarding distributions paid and the diluted weighted average number of shares outstanding for 1998, 1997 and 1996 (dollars in thousands): 1998 1997 1996 -------- -------- -------- Net income $ 41,304 $ 34,770 $ 32,223 Plus depreciation and amortization 21,935 18,596 16,422 Plus provision for impairment losses -- 165 579 Less depreciation of furniture, fixtures and equipment and amortization of organization costs (140) (96) (51) Less gain on sales of properties (526) (1,082) (1,455) Plus cumulative effect of change in accounting principle 226 -- -- -------- -------- -------- Total Funds From Operations $ 62,799 $ 52,353 $ 47,718 ======== ======== ======== Regular cash distributions paid $ 52,301 $ 44,367 $ 42,794 FFO in excess of regular distributions $ 10,498 $ 7,986 $ 4,924 Special cash distributions paid $ -- $ -- $ 5,285 Diluted weighted average number of shares outstanding 26,638,284 23,572,715 22,977,837
We consider FFO to be an appropriate measure of the performance of an equity REIT. FFO is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distribution payments. Presentation of this information provides the reader with an additional measure to compare the performance of different REITs, although it should be noted that not all REITs calculate FFO the same way so comparisons with such REITs may not be meaningful. FFO is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of Realty Income's performance or to cash flows from operating, Page 33 investing, and financing activities as a measure of liquidity or ability to make cash distributions or to pay debt service. RESULTS OF OPERATIONS ===================== THE FOLLOWING IS A COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31, 1997. Rental revenue was $84.9 million for 1998 versus $67.6 million for 1997, an increase of $17.3 million. The increase in rental revenue was primarily due to the acquisition of 149 properties during 1998 and 96 properties during 1997. These properties generated revenue of $22.3 million in 1998 compared to $5.3 million in 1997, an increase of $17.0 million. At January 1, 1999, annualized contractual lease payments on the funds invested in properties acquired in 1998 and 1997 are approximately $33.1 million (excluding estimated rent from 19 properties under development and any percentage rents). Of the 970 properties in the portfolio as of December 31, 1998, 963 are single-tenant properties with the remaining properties being multi-tenant properties. Of the 963 single-tenant properties, 958, or 99.5%, were net leased with an average remaining lease term (excluding extension options) of approximately 8.6 years. All of our 958 leased single-tenant properties were under leases that provide for increases in rents through: - Base rent increases tied to a consumer price index with adjustment ceilings; - Overage rent based on a percentage of the tenants' gross sales; or - Fixed increases. Some leases contain more than one of these clauses. Percentage rent, which is included in rental revenue, was $1.7 million during 1998 and $1.8 million in 1997. Same store rents generated on 717 properties owned during all of both 1998 and 1997 increased by $531,000 or 0.9%, to $61.89 million from $61.36 million. At December 31, 1998, the Company had five properties that were not under lease as compared to eight at December 31, 1997 and nine at December 31, 1996. At December 31, 1998, 965, or 99.5%, of the 970 properties in the portfolio were under lease agreements with third party tenants. Depreciation and amortization was $21.9 million in 1998 versus $18.6 million in 1997. The increase in 1998 was primarily due to depreciation of the properties acquired in 1997 and 1998. Interest expense in 1998 increased by $5.5 million to $13.7 million, as compared to $8.2 million in 1997. The following is a summary of the five components of interest expense for 1998 and 1997 (dollars in thousands): Page 34 1998 1997 Net Change ------- ------- ---------- Interest on outstanding loans and notes $ 13,666 $ 8,043 $ 5,623 Amortization of settlements on treasury lock agreements 38 (75) 113 Credit facility commitment fees 232 145 87 Amortization of credit facility origination costs and deferred bond financing costs 447 281 166 Interest capitalized (660) (168) (492) -------- -------- -------- Interest Expense $ 13,723 $ 8,226 $ 5,497 ======== ======== ======== Credit facility and notes outstanding - ------------------------------------- Average outstanding balances $184,728 $108,431 $ 76,297 Average interest rates 7.42% 7.35% (after taking into effect amortization of settlements on treasury lock agreements)
Interest on outstanding loans and notes was $5.6 million higher in 1998 than in 1997 due to an increase in the average outstanding balances and a higher average interest rate. The higher average interest rate was due to interest on the notes issued in October 1998 and the effect of the treasury lock settlement paid in October 1998. General and administrative expenses increased by $1.2 million to $6.68 million in 1998 versus $5.44 million in 1997. The increase in general and administrative expenses was primarily due to an increase in property acquisition expenses and employee costs. General and administrative expenses as a percentage of revenue decreased to 7.8% in 1998 as compared to 8.0% in 1997. During 1997, we increased our number of employees to 47 from 35. The majority of the new employees were hired in the third quarter of 1997 and work primarily on new property acquisitions. As of March 1, 1999, we had 50 employees. 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, 1998, five properties were available for lease as compared to eight at December 31, 1997. Property expenses were $1.8 million in 1998 and 1997. Page 35 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. In 1997, a $165,000 charge was taken to reduce the net carrying value on three properties because they became held for sale. All of these properties have been sold. There was no provision for impairment taken in 1998. During 1998, we sold five properties (two child care centers, two restaurants and one multi-tenant location) for $2.8 million and recognized a gain of $526,000. During 1997, we sold ten properties (six restaurants, two child care centers, one automotive parts store and a multi-tenant location) for a total of $4.4 million and recognized a gain of $1.1 million. We adopted SOP 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") in October 1998. SOP 98-5 requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. Prior to October 1998, organization costs were amortized over 60 months. In October 1998, the unamortized balance of organization costs of $226,000 was expensed. This is reported on the statements of income as a cumulative effect of a change in accounting principle. In 1998, Realty Income had net income of $41.3 million versus $34.8 million in 1997. The $6.5 million increase in net income is primarily due to the increase in rental revenue from properties acquired in 1998 and 1997 of $17.0 million, which was partially offset by an increase of $10.1 million in the following expenses: - Depreciation and amortization of $3.34 million; - Interest expense of $5.50 million; and - General and administrative expense of $1.24 million. THE FOLLOWING IS A COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996. Rental revenue was $67.6 million for 1997 versus $56.8 million for 1996, an increase of $10.8 million. The increase in rental revenue was primarily due to the acquisition of 96 properties during 1997 and 62 properties during 1996. These properties generated revenue of $11.4 million in 1997 compared to $915,000 in 1996, an increase of $10.5 million. Of the 826 properties in the portfolio as of December 31, 1997, 819 are single-tenant properties with the remaining properties being multi-tenant properties. Of the 819 single-tenant properties, 812, or 99.1%, were net leased with an average remaining lease term (excluding extension options) of approximately 8.4 years at December 31, 1997. Percentage rent, which is included in rental revenue, was $1.8 million during 1997 and $1.7 million in 1996. Same store rents generated on 667 properties owned during all of both 1997 and 1996 increased by $767,000 or 1.4%, to $55.74 million from $54.97 million. Page 36 At December 31, 1997, we had eight properties (one of which is a multi- tenant property) that were not under lease as compared to nine at December 31, 1996. At December 31, 1997, 818, or 99.0%, of the 826 properties in the portfolio were under lease agreements with third party tenants. Interest and other revenue during 1997 and 1996 totaled $284,000 and $180,000, respectively, an increase of $104,000. The increase in 1997 was primarily due to interest earned on the 1997 Note proceeds in excess of the $93.7 million used to payoff the credit facility in May 1997. These proceeds were invested in new properties during May and June 1997. Depreciation and amortization was $18.6 million in 1997 versus $16.4 million in 1996. The increase in 1997 was primarily due to depreciation of the properties acquired in 1996 and 1997. Interest expense in 1997 increased by $5.9 million to $8.23 million, as compared to $2.37 million in 1996. The following is a summary of the five components of interest expense for 1997 and 1996 (dollars in thousands): 1997 1996 Net Change ------- ------- ---------- Interest on outstanding loans and notes $ 8,043 $ 2,137 $ 5,906 Amortization of settlement on a treasury lock agreement (75) -- (75) Credit facility commitment fees 145 156 (11) Amortization of credit facility origination costs and deferred bond financing costs 281 224 57 Interest capitalized (168) (150) (18) ------- ------- ------- Interest Expense $ 8,226 $ 2,367 $ 5,859 ======= ======= ======= Credit facility and notes outstanding - ------------------------------------- Average outstanding balances $108,431 $ 30,704 $ 77,727 Average interest rates 7.35% 6.96% (after taking into effect amortization of settlement on a treasury lock agreement)
Interest on outstanding loans and notes was $5.9 million higher in 1997 than in 1996 due to an increase in the average outstanding balances and a higher average interest rate. The higher average interest rate was due to interest on the Notes issued in May 1997. General and administrative expenses increased by $256,000 to $5.44 million in 1997 versus $5.18 million in 1996. The increase in general and administrative expenses was primarily due to an increase in property Page 37 acquisition expenses and employee costs. General and administrative expenses as a percentage of revenue decreased to 8.0% in 1997 as compared to 9.1% in 1996. During 1997, the Company increased its number of employees to 47 from 35. The majority of the new employees were hired in the third quarter of 1997 and work primarily on new property acquisitions. Property expenses were $1.79 million in 1997 and $1.64 million in 1996, an increase of $145,000. The increase in property expenses was primarily attributable to costs of the environmental insurance obtained in December 1996. In 1997, environmental insurance expense totaled $85,000. 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. In 1997, a $165,000 charge was taken to reduce the net carrying value on three properties because they became held for sale. In 1996, a $579,000 charge was taken to reduce the net carrying value on four properties because they became held for sale. All of these properties have been sold. During 1997, we sold ten properties (six restaurants, two child care centers, one automotive parts store and one multi-tenant location) for a total of $4.4 million and recorded a gain of $1.1 million. During 1996, we sold seven properties (five restaurants and two multi-tenant locations) for $4.4 million and recognized a gain of $1.5 million. In 1997, we had net income of $34.77 million versus $32.22 million in 1996. The $2.55 million increase in net income is primarily due to the increase in rental revenue from properties acquired in 1996 and 1997 of $10.5 million, which was partially offset by an increase of $8.3 million in the following expenses: - Depreciation and amortization of $2.17 million; - Interest expense of $5.86 million; and - General and administrative expense of $256,000. THE YEAR 2000 ISSUE =================== Some of our existing computer programs identify a year by using only two digits instead of four. This method of identification could cause these programs to fail or create erroneous results in the year 2000. This situation has been referred to generally as the Year 2000 issue. We believe that the cost of remediation associated with our corporate level computer systems will be minimal (less than $30,000). We anticipate that we will complete remediation in the second quarter of 1999. The second essential component of the Year 2000 issue is to ensure that our significant tenants are assessed for Year 2000 compliance. We have initiated discussions with our significant tenants in order to assess readiness for the Year 2000 issue. Through March 2, 1999, tenants Page 38 representing approximately 74% of our revenue have confirmed that they are Year 2000 compliant or anticipate being compliant by the end of the second quarter of 1999. Due to the nature of the tenant's businesses, we do not believe the Year 2000 issue will materially impact the tenant's ability to pay rent. However, the failure of one or more tenants as a result of the Year 2000 issue could have a material adverse effect on our results of operations or financial position. The third component of our Year 2000 compliance plan is to ensure that our significant vendors are assessed for Year 2000 compliance. We have initiated discussions with these significant vendors in order to assess their ability to successfully resolve the Year 2000 issue. Through March 2, 1999, 75% of our significant vendors have confirmed that they are Year 2000 compliant or anticipate being compliant by the end of the second quarter of 1999. Our transfer agent has advised us it is Year 2000 compliant. Upon completion of our assessment program, we will consider the necessity of implementing a contingency plan to mitigate any adverse effects associated with the Year 2000 issue. Though we do not expect the Year 2000 issue to have a material adverse effect on our results of operations or financial position, there can be no assurances of that position. IMPACT OF INFLATION =================== Tenant leases generally provide for limited increases in rent as a result of increases in the tenant's sales volumes, increases in the consumer price index, and/or fixed increases. We expect that inflation will cause these lease provisions to result in increases in rent over time. However, during times when inflation is greater than increases in rent as provided for in the leases, rent increases may not keep up with the rate of inflation. Approximately 99% of the properties in the portfolio are leased to tenants under net leases in which the tenant is responsible for property costs and expenses. These features in the leases reduce our exposure to rising property expenses due to inflation. Inflation and increased costs may have an adverse impact on the tenants if increases in the tenant's operating expenses exceed increases in revenue. IMPACT OF ACCOUNTING PRONOUNCEMENTS =================================== In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement No. 133"). Statement No. 133 establishes accounting and reporting standards for derivative instruments. Statement No. 133 is effective for all fiscal quarters beginning after June 15, 1999. Page 39 We anticipate that the adoption of Statement No. 133 will not have a material effect on the financial position, results of operations or liquidity of the Company. 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 debt 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 flows and to lower our overall borrowing costs. To achieve our objectives we borrow primarily at fixed rates and may 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 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 ---------------------- There- Fair 2001 after Total Value (2) ---- ------ ------ --------- Fixed rate debt -- $210.0(1) $210.0 $203.9 Average interest rate 7.99% 7.99% Variable rate debt $84.8 -- $ 84.8 $ 84.8 Average interest rate 6.27% -- 6.27% (/TABLE> (1) $110 million matures in 2007 and $100 million matures in 2008. (2) The fair value of the fixed rate debt is based upon the closing market price per note (i) at December 31, 1998 for the 1998 Notes and (ii) December 26, 1998 (date of the last trade made in 1998) for the 1997 Notes. The fair value of the variable rate debt approximates its carrying value because its terms are similar to those available in the market place. As the table incorporates only those exposures that exist as of December 31, 1998, 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 will depend on the exposures that arise during the period, our hedging strategies at the time, and interest rates. Page 40 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------
Table of Contents Page - ----------------- ---- A. Independent Auditors' Report...............................42 B. Consolidated Balance Sheets, December 31, 1998 and 1997...............................43 C. Consolidated Statements of Income, Years ended December 31, 1998, 1997 and 1996.............45 D. Consolidated Statements of Stockholders' Equity, Years ended December 31, 1998, 1997 and 1996.............46 E. Consolidated Statements of Cash Flows, Years ended December 31, 1998, 1997 and 1996.............48 F. Notes to Consolidated Financial Statements.................50 G. Consolidated Quarterly Financial Data, (unaudited) for 1998 and 1997............................64 H. Schedule III Real Estate and Accumulated Depreciation.............................................65
Schedules not Filed: All schedules, other than that indicated in the Table of Contents, have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. Page 41 Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders Realty Income Corporation: We have audited the consolidated financial statements of Realty Income Corporation and subsidiaries as listed in the accompanying table of contents. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule III listed in the accompanying table of contents. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Realty Income Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/KPMG LLP San Diego, California January 22, 1999 Page 42 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets =========================== December 31, 1998 and 1997 (dollars in thousands, except per share data) 1998 1997 ========= ========= ASSETS Real estate, at cost: Land $ 283,043 $ 214,342 Buildings and improvements 606,792 485,455 --------- --------- 889,835 699,797 Less - accumulated depreciation and amortization (171,555) (152,206) --------- --------- Net real estate 718,280 547,591 Cash and cash equivalents 2,533 2,123 Accounts receivable 2,973 2,888 Due from affiliates -- 348 Goodwill, net 19,977 20,901 Other assets 15,471 3,170 --------- --------- TOTAL ASSETS $ 759,234 $ 577,021 ========= ========= (continued) Page 43 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets =========================== December 31, 1998 and 1997 (dollars in thousands, except per share data) 1998 1997 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Distributions payable $ 4,559 $ 4,112 Accounts payable and accrued expenses 4,036 2,180 Other liabilities 5,630 4,814 Lines of credit payable 84,800 22,600 Notes payable 210,000 110,000 --------- --------- TOTAL LIABILITIES 309,025 143,706 --------- --------- Commitments and contingencies Stockholders' equity: Preferred stock, par value $1.00 per share, 20,000,000 shares authorized, no shares issued or outstanding -- -- Common stock, par value $1.00 per share, 100,000,000 shares authorized, 26,817,103 and 25,698,464 shares issued and outstanding in 1998 and 1997, respectively 26,817 25,698 Paid in capital in excess of par value 609,669 582,450 Accumulated distributions in excess of net income (186,277) (174,833) --------- --------- TOTAL STOCKHOLDERS' EQUITY 450,209 433,315 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 759,234 $ 577,021 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. Page 44 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Income ================================= Years Ended December 31, 1998, 1997 and 1996 (dollars in thousands, except per share data) 1998 1997 1996 ========== ========== ========== REVENUE Rental $ 84,876 $ 67,613 $ 56,777 Interest and other 256 284 180 ---------- ---------- ---------- 85,132 67,897 56,957 ---------- ---------- ---------- EXPENSES Depreciation and amortization 21,935 18,596 16,422 Interest 13,723 8,226 2,367 General and administrative 6,680 5,437 5,181 Property 1,790 1,785 1,640 Provision for impairment losses -- 165 579 ---------- ---------- ---------- 44,128 34,209 26,189 ---------- ---------- ---------- Income from operations 41,004 33,688 30,768 Gain on sales of properties 526 1,082 1,455 ---------- ---------- ---------- Income before cumulative effect of change in accounting principle 41,530 34,770 32,223 Cumulative effect of change in accounting principle (226) -- -- ---------- ---------- ---------- NET INCOME $ 41,304 $ 34,770 $ 32,223 ========== ========== ========== Basic and diluted per share amounts: Income before cumulative effect of change in accounting principle $ 1.56 $ 1.48 $ 1.40 Cumulative effect of change in accounting principle (0.01) -- -- ---------- ---------- ---------- Net income per share $ 1.55 $ 1.48 $ 1.40 ========== ========== ========== (/TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. Page 45 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Stockholders' Equity ======================================================== Years Ended December 31, 1998, 1997 and 1996 (dollars in thousands)
Accumu- Paid in lated Capital Distri- in butions Common Stock Excess in Excess ------------------- of Par of Net Shares Amount Value Income Totals ========== ======= ======== ========= ======== Balance, December 31, 1995 22,976,237 $22,976 $516,119 $(157,674) $381,421 Net income -- -- -- 32,223 32,223 Distributions paid and payable -- -- -- (39,292) (39,292) Shares issued 3,300 4 73 -- 77 Stock offering costs -- -- (188) -- (188) ---------- ------- -------- --------- -------- Balance, December 31, 1996 22,979,537 22,980 516,004 (164,743) 374,241 Net income -- -- -- 34,770 34,770 Distributions paid and payable -- -- -- (44,860) (44,860) Shares issued in stock offering, net of offering costs of $4,193 2,700,000 2,700 66,007 -- 68,707 Shares issued 22,989 22 532 -- 554 Shares forfeited (4,062) (4) (93) -- (97) ---------- ------- -------- --------- -------- Balance, December 31, 1997 25,698,464 25,698 582,450 (174,833) 433,315 (continued) Page 46 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity ======================================================== Years Ended December 31, 1998, 1997 and 1996 (dollars in thousands) Accumu- Paid in lated Capital Distri- in butions Common Stock Excess in Excess ------------------- of Par of Net Shares Amount Value Income Totals ========== ======= ======== ========= ======== Net income -- -- -- 41,304 41,304 Distributions paid and payable -- -- -- (52,748) (52,748) Shares issued in stock offering, net of offering costs of $122 1,123,267 1,123 27,256 -- 28,379 Shares issued 15,933 16 384 -- 400 Shares forfeited (20,561) (20) (421) -- (441) ---------- ------- -------- --------- -------- Balance, December 31, 1998 26,817,103 $26,817 $609,669 $(186,277) $450,209 ========== ======= ======== ========= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. Page 47 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Cash Flows ===================================== Years Ended December 31, 1998, 1997 and 1996 (dollars in thousands) 1998 1997 1996 ======== ======== ======== CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 41,304 $ 34,770 $ 32,223 Adjustments to net income: Depreciation and amortization 21,935 18,596 16,422 Provision for impairment losses -- 165 579 Gain on sales of properties (526) (1,082) (1,455) Cumulative effect of change in accounting principle 226 -- -- Changes in assets and liabilities: Accounts receivable and other assets 144 (844) (646) Accounts payable, accrued expenses and other liabilities 1,562 1,087 950 -------- -------- -------- Net cash provided by operating activities 64,645 52,692 48,073 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of properties 2,770 4,432 4,405 Acquisition of and additions to properties (192,588) (140,389) (55,705) -------- -------- -------- Net cash used in investing activities (189,818) (135,957) (51,300) -------- -------- -------- (continued) Page 48 (continued) REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements Of Cash Flows ===================================== Years Ended December 31, 1998, 1997 and 1996 (dollars in thousands) 1998 1997 1996 ======== ======== ======== CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from lines of credit 224,900 117,000 66,700 Payments of lines of credit (162,700) (164,400) (2,700) Payments of distributions (52,301) (44,367) (48,079) Proceeds from notes issued, net of costs of $12,764 and $848 in 1998 and 1997, respectively 87,236 109,152 -- Proceeds from stock offering, net of offering costs 28,379 68,707 -- Payment of notes payable -- -- (12,597) Proceeds from other stock issuances 69 246 -- Stock offering costs -- -- (188) Payments to the defined benefit pension plan -- (2,223) -- Increase in other assets -- (286) -- -------- -------- -------- Net cash provided by financing activities 125,583 83,829 3,136 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 410 564 (91) Cash and cash equivalents, beginning of year 2,123 1,559 1,650 -------- -------- -------- Cash and cash equivalents, end of year $ 2,533 $ 2,123 $ 1,559 ======== ======== ========
For supplemental disclosures, see note 11. The accompanying notes to consolidated financial statements are an integral part of these statements. Page 49 REALTY INCOME CORPORATION AND SUBSIDIARIES Notes To Consolidated Financial Statements ========================================== December 31, 1998, 1997 and 1996 1. Organization and Operation Realty Income Corporation ("Realty Income", the "Company", "we" or "our") was organized in the State of Delaware in September 1993 to facilitate the merger, which was effected on August 15, 1994 (the "Consolidation"), of 10 private and 15 public real estate limited partnerships with and into the Company. In August 1995, the Company became self-administered and self- managed after acquiring R.I.C. Advisor, Inc. (the "Advisor"). In May 1997, we reincorporated as a Maryland corporation pursuant to a merger of the Company into a wholly-owned Maryland subsidiary and the conversion of each outstanding share of common stock of the Company into one share of common stock of the surviving corporation. We invest in commercial retail real estate and have elected to be taxed as a real estate investment trust ("REIT"). As of December 31, 1998, we owned 970 properties in 45 states containing over 7.8 million leasable square feet. 2. Summary of Significant Accounting Policies and Procedures Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Realty Income and partnerships we control (subsidiaries) after elimination of all material intercompany 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. Amortization of goodwill for the years ended December 31, 1998, 1997 and 1996 was $924,000, $924,000 and $916,000, respectively. Leases - All leases are accounted for as operating leases. Under this method, lease payments are recognized as revenue over the term of the lease on a straight-line basis. Federal Income Taxes - We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. 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 such distributions at the Company's level. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements. Distributions Paid and Payable - Realty Income pays distributions monthly. The following is a summary of the regular monthly cash distributions for Page 50 2. Summary of Significant Accounting Policies (continued) the years ended December 31, 1998, 1997 and 1996. In January 1996, we also paid a special distribution of $0.23 per share. Including this special distribution, the 1996 distributions totaled $2.0925 per share. Month 1998 1997 1996 (1) - ----- ------- ------- ------ January $0.1600 $0.1575 $0.3100 (2) February 0.1600 0.1575 -- March 0.1600 0.1575 0.1550 April 0.1625 0.1575 0.1550 May 0.1625 0.1575 0.1550 June 0.1625 0.1575 0.1550 July 0.1650 0.1575 0.1550 August 0.1650 0.1575 0.1550 September 0.1650 0.1575 0.1550 October 0.1675 0.1575 0.1550 November 0.1675 0.1575 0.1550 December 0.1675 0.1600 0.1575 ------- ------- ------- Total $1.9650 $1.8925 $1.8625 ======= ======= =======
[FN] (1) Excludes a special distribution of $0.23 per share paid in January 1996. (2) Two regular distributions of $0.155 per share applicable to each of January and February 1996 were paid in January 1996. The following presents the federal income tax characterization of distributions paid or deemed to be paid to stockholders for the years ended December 31: 1998 1997 1996 ------- ------- ------- Ordinary income $1.8895 $1.7937 $1.6913 Return of capital 0.0755 0.0988 0.2570 ------- ------- ------- Totals $1.9650 $1.8925 $1.9483 ======= ======= =======
For federal income tax purposes, a portion of the distributions payable at December 31, 1995 and paid in 1996, in the amount of $0.1442 per share, was deemed to be paid in 1995. Page 51 2. Summary of Significant Accounting Policies (continued) 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) over a long-term holding period plus estimated disposition proceeds (undiscounted) are less than the current book value. If a property is held for sale, it is carried at the lower of cost or estimated fair value, less costs to sell. For the years ended December 31, 1998, 1997 and 1996, provisions for impairment losses of zero, $165,000 and $579,000, respectively, were charged to operations to reduce the net carrying value of three properties held for sale in 1997 and four properties held for sale in 1996. All of these properties have been sold. Net Income Per Share - Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted net income per share is computed by dividing the amount of net income for the period by each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period. The following is a reconciliation of the denominator of the basic net income per share computation to the denominator of the diluted net income per share computation (net income was available to common stockholders for all periods presented): 1998 1997 1996 ---------- ---------- ---------- Weighted average shares used for basic net income per share computation 26,629,936 23,568,831 22,976,789 Incremental shares from the assumed conversion of stock options 8,348 3,884 1,048 ---------- ---------- ---------- Adjusted weighted average shares used for diluted net income per share computation 26,638,284 23,572,715 22,977,837 ========== ========== ==========
In 1998, 25,000 stock options that were anti-dilutive have been excluded in calculating the incremental shares from the assumed conversion of stock options. No stock options were anti-dilutive in 1997 and 1996. Stock Option Plan - We account for our stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Page 52 2. Summary of Significant Accounting Policies (continued) "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), permits entities to recognize as expense over the vesting period the fair value of all stock- based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value based method defined in SFAS No. 123 had been applied. We have elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Derivative Financial Instrument - In two instances, we used interest rate treasury lock agreements to hedge the effect of interest rate fluctuations. These instruments each met the requirement for hedge accounting, including a high correlation to a specific transaction. Accordingly, the amount received and paid under the terms of the agreements is recognized in income when interest expense related to the hedge item is recognized. Change in Accounting Principle - In October 1998, we adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98- 5"). SOP 98-5 requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. Prior to October 1998, organization costs were amortized over 60 months. In October 1998, the unamortized balances of organization costs were written off. Pro forma amounts assuming the adoption of SOP 98-5 is applied as of January 1, 1996: 1998 1997 1996 ------- ------- ------- Net income (in thousands) $41,569 $34,528 $32,200 Basic and diluted net income per share 1.56 1.46 1.40
Segment Reporting - During 1998, we adopted the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). This statement establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. See note 15 for our segment disclosures. Page 53 2. Summary of Significant Accounting Policies (continued) Use of Estimates - The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 3. Credit Facility Available for Acquisitions Realty Income has a $170 million, three-year, revolving, unsecured acquisition credit facility, of which $52 million expires in December 2000 and $118 million expires in December 2001. The credit facility is from The Bank of New York, as agent, and several U.S. and non-U.S. banks. As of December 31, 1998 and 1997, the outstanding balances on the credit facility and line of credit were $84.8 million and $22.6 million, respectively, with an effective interest rate of approximately 6.27% and 6.66%, respectively. The credit facility currently bears interest at 0.85% over the London Interbank Offered Rate ("LIBOR") and offers us other interest rate options. A facility fee of 0.15%, per annum, accrues on the total commitment of the credit facility. The credit facility is subject to various leverage and interest coverage ratio limitations. The Company is and has been in compliance with these limitations. In 1998, 1997 and 1996, interest of $660,000, $168,000 and $150,000, respectively, was capitalized on properties under development. 4. Notes Payable In October 1998, we issued $100 million of 8.25% Monthly Income Senior Notes due 2008 (the "1998 Notes"). The 1998 Notes are unsecured and were sold at par ($25.00). After taking into effect the results of a treasury interest rate lock agreement (see note 5), the effective rate to us on the 1998 Notes is 9.12%. Interest on the 1998 Notes is payable monthly on the 15th of each month, commencing in December 1998. Interest incurred on the 1998 Notes for the year ended December 31, 1998 was $1.4 million. In May 1997, we issued $110 million of 7.75% senior notes due 2007 (the "1997 Notes"). The 1997 Notes are unsecured and were sold at 99.929% of par to yield 7.76%. After taking into effect results of a treasury interest rate lock agreement (see note 5), the effective interest rate to us on the 1997 Notes is 7.62%. Interest on the 1997 Notes is payable semiannually each May and November. Interest incurred on the 1997 Notes for the year ended December 31, 1998 and 1997 was $8.5 million and $5.5 million, respectively. On March 29, 1996, we redeemed, at par, the $12.6 million principal amount of notes issued at the time of the Consolidation to investors in the Page 54 4. Notes Payable (continued) partnerships. Interest incurred on the notes for the year ended December 31, 1996 was $217,000. 5. Derivative Financial Instruments In May 1998, we entered into a treasury interest rate lock agreement to protect against the possibility of rising interest rates applicable to the 1998 Notes (see note 4). Under the interest rate lock agreement, we were to receive or make a payment based on the differential between a specified interest rate, (5.726%), and the actual 10-year treasury interest rate on a notional principal amount of $100 million, at the end of six months. Based on the 10-year treasury interest rate at October 23, 1998 (the interest rate pricing date), we made a payment of $8.7 million in settlement of the agreement in October 1998. The payment on the agreement is being amortized over 10 years (the life of the 1998 Notes) as a yield adjustment to interest expense. In December 1996, we entered into a treasury interest rate lock agreement to hedge against rising interest rates applicable to the 1997 Notes (see note 4). Under the terms of the interest rate lock agreement, we were to receive or make a payment based on the differential between a specified interest rate (6.537%) and the actual 10-year treasury interest rate on a notional principal amount of $90 million, at the end of six months. Based on the 10-year treasury interest rate at May 1, 1997 (the interest rate pricing date), we received $1.1 million in settlement of the agreement in June 1997. The payment received on the agreement is being amortized over 10 years (the life of the 1997 Notes) as a yield adjustment to interest expense. Our only involvement with derivative financial instruments was the two aforementioned treasury interest rate lock agreements and we have not used derivative financial instruments for trading purposes. 6. Common Stock Offerings A. In March 1998, we issued 372,093 shares of common stock to a unit investment trust at a net price to us of $25.531 per share, based on a 5% discount to the then market price of $26.875 per share. The net proceeds of $9.5 million were used to repay borrowings of $7.9 million under the acquisition credit facility and to acquire additional properties. B. In February 1998, we issued 751,174 shares of common stock to a unit investment trust at a net price to us of $25.295 per share, based on a 5% discount to the then market price of $26.625 per share. The net proceeds of $18.9 million were to be used to repay borrowings under the credit facility. C. In October 1997, we issued 2.7 million shares of common stock at a price of $27.00 per share. The net proceeds of $68.7 million were used to repay borrowings of $62.6 million under the credit facility and to acquire properties. Page 55 7. Operating Leases A. General - At December 31, 1998, the Company owned 970 properties in 45 states. Of these 970 properties, 963 are single-tenant and the remainder are multi-tenant. At December 31, 1998, five properties were vacant and available for lease or sale. Substantially all leases are net leases whereby the tenant pays property taxes and assessments, maintains the interior and exterior of the building, and carries insurance coverage for public liability, property damage, fire, and extended coverage. Percentage rent for 1998, 1997 and 1996 was $1.7 million, $1.8 million and $1.7 million, respectively. At December 31, 1998, minimum annual rents to be received on the operating leases are as follows (dollars in thousands): Minimum annual rents for the years ending December 31, ====================================================== 1999 $ 93,651 2000 91,319 2001 89,955 2002 85,495 2003 77,438 Thereafter 518,799 --------- TOTAL $ 956,657 =========
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, 1998, 1997 or 1996 (dollars in thousands): Tenants 1998 1997 1996 ========================= ======= ======= ======= Children's World, Inc. $14,111 $13,809 $13,460 La Petite Academy, Inc. 9,445 9,311 9,339 Golden Corral Corporation N/A(1) 6,899 7,017
[FN] (1) Rental revenue from Golden Corral Corporation represents less than 10% of our total revenue for 1998. Page 56 8. Property Acquisitions During 1998, we invested $193.4 million in 149 new retail properties and properties under development with an initial contractual lease rate of 10.4%. These 149 properties are located in 38 states, will contain approximately 1.6 million leasable square feet and are 100% leased with an average initial lease term of 14.9 years. During 1997, we invested $142.3 million in 96 new retail properties and properties under development with an initial contractual lease rate of 10.4%. These 96 properties are located in 27 states, contain approximately 1.1 million leasable square feet and are 100% leased with an average initial lease term of 14.4 years. 9. Gain on Sales of Properties In 1998, we sold five properties (two child care centers, two restaurants and a multi-tenant location) for $2.8 million and recognized a gain of $526,000. In 1997, we sold ten properties (six restaurants, two child care centers, one automotive parts store and a multi-tenant location) for a total of $4.4 million and recognized a gain of $1.1 million. In 1996, we sold seven properties (five restaurants and two multi-tenant locations) for a total of $4.4 million and recognized a gain of $1.5 million. 10. Fair Value of Financial Instruments We believe that the carrying values reflected in the consolidated balance sheets at December 31, 1998 and 1997 reasonably approximate the fair values for cash and cash equivalents, accounts receivable, due from affiliates and all liabilities except the lines of credit payable and notes payable. In making such assessments, we utilized 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, 1998 is estimated to be $203.9 million based upon the closing market price per note (i) at December 31, 1998 for the 1998 Notes and (ii) December 26, 1998 (date of the last trade made in 1998) for the 1997 Notes. The fair value of the notes payable at December 31, 1997 approximates their carrying value. 11. Supplemental Disclosure of Cash Flow Information Interest paid during 1998, 1997 and 1996 was $12.5 million, $6.9 million and $2.0 million, respectively. Page 57 11. Supplemental Disclosure of Cash Flow Information (continued) The following non-cash investing and financing activities are included in the accompanying consolidated financial statements: A. In 1998 and 1997, the acquisition properties resulted in the following non-cash changes (dollars in thousands): 1998 1997 ------ ------ Increases in: Land $ -- $1,724 Building 1,347 227 Other liabilities 1,347 1,951
B. In 1998, the former shareholders of the Advisor returned 20,279 shares to the Company. This fulfilled the Advisor shareholders obligation to the Company under an indemnification agreement entered into by both parties (see note 12A). This transaction resulted in the following non- cash changes (dollars in thousands): Decrease in: Due from affiliates $ 350 Common stock 20 Paid in capital in excess of par value 413 Increase in: Interest revenue $ 83
C. In 1996, pursuant to the assumption of the defined benefit pension plan by the Company (see note 12A), the Company recorded a due from affiliate and a liability (included in other liabilities) of $73,000. This represents the amount of the increase in the liability to the plan, of which the Company is indemnified by the former shareholders of the Advisor. 12. Employee Benefit Plan A. As a result of the merger with the Advisor in 1995 (the "Merger"), the Company assumed a defined benefit pension plan (the "Plan") covering substantially all of its employees. The Plan was terminated on January 2, 1996 and final disbursement of the Plan's assets occurred on February 24, 1997. In connection with the Merger, Realty Income assumed a benefit obligation of $1.9 million. The Merger agreement provides for indemnification by the former shareholders of the Advisor with respect to increases in the benefit obligation. A receivable from the Advisor's former shareholders has been recorded as of December 31, 1997 for $348,000 and is included as due from affiliates in the accompanying consolidated balance sheets (see note 11B). Page 58 12. Employee Benefit Plan (continued) B. In August 1996, the Company initiated a 401(k) plan. Under the 401(k) plan, employees may elect to make contributions to the plan, and the Company matches 50% of such contributions up to 6% of each participant's compensation. 13. Stock Incentive Plan In September 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 such 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. At no time may the total number of shares granted under the Stock Plan exceed 1,950,308. 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 10 years from the date they are granted and vest over service periods of one, three, four and five years. Prior to December 31, 1998, 495,113 stock options and 28,600 restricted shares of common stock had been granted under the Stock Plan. The following table summarizes our stock option activity for the years ended December 31, 1998, 1997, and 1996: 1998 1997 ----------------------- ----------------------- Weighted Weighted Average Average Number Exercise Number Exercise of shares Price of Shares Price - ----------------------------------------------------------------------- Outstanding, beginning of year 139,500 $23.09 73,000 $21.64 Options granted 305,413 25.54 116,700 24.29 Options exercised (2,933) 23.62 (10,489) 23.47 Options canceled (3,376) 25.44 (39,711) 23.85 --------- ------- --------- ------- Outstanding, end of year 438,604 $24.77 139,500 $23.09 ========= ======= ========= ======= Options exercisable, end of year 196,397 56,300 Weighted average fair value of each option granted during the year $ 2.58 $2.29 Page 59 13. Stock Incentive Plan (continued) (table continued) 1996 ----------------------- Weighted Average Options Number Exercise Outstanding of shares Price - ----------------------------------------- Outstanding, beginning of year 30,000 $20.00 Options granted 43,000 22.78 Options exercised -- Options canceled -- ------ ------ Outstanding, end of year 73,000 $21.64 ====== ====== Options exercisable, end of year 26,000 Weighted average fair value of each option granted during the year $2.29
At December 31, 1998, the options exercisable under the Stock Plan had exercise prices ranging from $20.00 to $25.44 with a weighted average price of $24.03, and expiration dates ranging from August 2004 to December 2007 with a weighted average remaining term of 8 years. The fair value of each stock option grant were estimated at the date of grant using the binomial option-pricing model with the following assumptions: 1998 1997 1996 ------------- -------- -------- Expected dividend yield 8.86% 9.71% 9.92% Risk-free interest rate 5.75% 6.70% 6.50% Volatility 17.90% 17.40% 18.50% Expected life of options 10 years 10 years 10 years
The Company applies APB Opinion No. 25 in accounting for its Stock Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income and diluted net income per share would have been as follows: Page 60 13. Stock Incentive Plan (continued) 1998 1997 1996 -------- -------- -------- Net income (dollars in thousands) As reported $ 41,304 $ 34,770 $ 32,223 Pro forma 40,914 34,722 32,206 Diluted net income per share As reported $ 1.55 $ 1.48 $ 1.40 Pro forma 1.54 1.47 1.40
14. Stockholder Rights Plan In June 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 (the "Preferred Stock"), for each share of common stock owned on or issued after July 1, 1998. Initially, the Rights will not be exercisable and will not trade separately from our common stock. Under certain circumstances, stockholders will be able to exercise their Rights if a person or group initiates an unsolicited takeover of the Company by acquiring 15% of our common stock or by making a tender offer to acquire 15% or more of our common stock. If an unsolicited acquirer gains control of the Company, stockholders other than the acquirer would be able to purchase either our common stock or the acquirer's stock at a 50% discount. The dividend, liquidation, and voting rights, and the non-redemption feature of the Preferred Stock are designed so that the value of the one one-hundredth interest in a share of the new Preferred Stock that can be purchased with each Right will approximate what our board of directors believes to be the long-term value of one share of our common stock. 15. Segment Information We evaluate performance and make resource allocation decisions on a property by property basis. For financial reporting purposes, we have grouped our operating segments into seven reportable segments. Our segments combine properties into groups based upon the business of our tenants. All of the properties have been acquired separately and are incorporated into one of the applicable segments. Revenue is the only component of segment profit and loss we measure. Since our revenue is primarily from net leases, expenditures for additions to long-lived assets were to acquire additional properties. The accounting policies of the segments are the same as those described in note 2. Page 61 15. Segment Information (continued) The following tables set forth certain information regarding the properties owned by us as of December 31, 1998 classified according the business of the respective tenants (dollars in thousands): Revenue ---------------------------------- For the years ended December 31, 1998 1997 1996 -------- -------- -------- Segment rental revenue: Automotive parts $ 6,593 $ 6,142 $ 5,966 Automotive service 6,333 4,332 2,706 Child care 24,765 24,284 23,854 Consumer electronics 4,616 4,388 507 Convenience stores 5,175 3,738 2,647 Home furnishings 6,629 3,812 2,496 Restaurants 13,768 13,416 13,836 Other non-reportable segments 16,997 7,501 4,765 Reconciling items -interest and other 256 284 180 -------- -------- -------- Total revenue $ 85,132 $ 67,897 $ 56,957 ======== ======== ======== Assets --------------------- As of December 31, 1998 1997 -------- -------- Segment net real estate: Automotive parts $ 65,847 $ 42,880 Automotive service 46,731 45,765 Child care 138,875 139,273 Consumer electronics 40,447 41,652 Convenience stores 43,986 37,430 Home furnishings 76,920 47,528 Restaurants 87,682 85,139 Other non-reportable segments 217,792 107,924 ------- ------- Total segment net real estate 718,280 547,591 Reconciling items 40,954 29,430 -------- -------- Total assets $759,234 $577,021 ======== ========
16. 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 the business of the Company. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated statements taken as a whole. Page 62 17. Subsequent Event In January 1999, we issued $20 million of 8.00% unsecured senior notes due 2009 (the "1999 Notes"). The 1999 Notes were sold at 98.757% of par to yield 8.10%. The proceeds from the offering were used to pay down credit facility borrowings and for other corporate purposes. Page 63 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 ======= ======= ======= ======= ======= 1998 ==== Total revenue $19,222 $20,367 $21,969 $23,574 $85,132 Depreciation and amortization expense 5,084 5,369 5,630 5,852 21,935 Interest expense 2,491 2,864 3,682 4,686 13,723 Other expenses 1,938 2,137 2,164 2,231 8,470 Income from operations 9,709 9,997 10,493 10,805 41,004 Cumulative effect of change in accounting principle -- -- -- (226) (226) Net income 9,924 10,308 10,493 10,579 41,304 Basic and diluted net income per share 0.38 0.38 0.39 0.40 1.55 Dividends paid per share 0.4800 0.4875 0.4950 0.5025 1.9650 1997 ==== Total revenue $15,480 $16,123 $16,843 $19,451 $67,897 Depreciation and amortization expense 4,464 4,484 4,706 4,942 18,596 Provision for impairment losses -- 70 70 25 165 Interest expense 1,312 2,009 2,450 2,455 8,226 Other expenses 1,744 1,694 1,747 2,037 7,222 Income from operations 7,960 7,866 7,870 9,992 33,688 Net income 8,185 8,068 8,466 10,051 34,770 Basic and diluted net income per share 0.36 0.35 0.37 0.40 1.48 Dividends paid per share 0.4725 0.4725 0.4725 0.4750 1.8925
Page 64 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Apparel Stores - -------------- Danbury CT 1,083,296 6,217,688 None None Manchester CT 771,660 3,653,539 None None Manchester CT 1,250,464 5,917,037 None None Staten Island NY 4,202,093 3,385,021 None None Westbury NY 6,333,590 3,952,773 None None Automotive Parts - ---------------- Montgomery AL 254,465 502,293 None None Blytheville AR 137,913 509,447 None None Osceola AR 88,759 520,047 None None Phoenix AZ 231,000 513,057 None None Phoenix AZ 71,750 159,359 None None Phoenix AZ 222,950 495,178 None None Tucson AZ 194,250 431,434 None None Tucson AZ 178,297 396,005 None None Yuma AZ 120,750 268,190 None None Fullerton CA 47,325 66,522 None None Grass Valley CA 325,000 384,955 None None Jackson CA 300,000 390,849 None None Sacramento CA 210,000 466,419 None None Turlock CA 222,250 493,627 None None Aurora CO 221,691 492,382 None None Canon City CO 66,500 147,699 None None Colorado Springs CO 280,193 622,317 None None Colorado Springs CO 192,988 433,542 None None Denver CO 141,400 314,056 None None Denver CO 315,000 699,623 None None Denver CO 283,500 629,666 None None Littleton CO 252,925 561,759 None None Smyrna DE 232,273 472,855 None None Lakeland FL 500,000 645,244 None None Tampa FL 427,395 471,807 None None Council Bluffs IA 194,355 431,668 None None Page 65 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Apparel Stores - -------------- Danbury CT 1,083,296 6,217,688 7,300,984 Manchester CT 771,660 3,653,539 4,425,199 Manchester CT 1,250,464 5,917,037 7,167,501 Staten Island NY 4,202,093 3,385,021 7,587,114 Westbury NY 6,333,590 3,952,773 10,286,363 Automotive Parts - ---------------- Montgomery AL 254,465 502,293 756,758 Blytheville AR 137,913 509,447 647,360 Osceola AR 88,759 520,047 608,806 Phoenix AZ 231,000 513,057 744,057 Phoenix AZ 71,750 159,359 231,109 Phoenix AZ 222,950 495,178 718,128 Tucson AZ 194,250 431,434 625,684 Tucson AZ 178,297 396,005 574,302 Yuma AZ 120,750 268,190 388,940 Fullerton CA 47,325 66,522 113,847 Grass Valley CA 325,000 384,955 709,955 Jackson CA 300,000 390,849 690,849 Sacramento CA 210,000 466,419 676,419 Turlock CA 222,250 493,627 715,877 Aurora CO 221,691 492,382 714,073 Canon City CO 66,500 147,699 214,199 Colorado Springs CO 280,193 622,317 902,510 Colorado Springs CO 192,988 433,542 626,530 Denver CO 141,400 314,056 455,456 Denver CO 315,000 699,623 1,014,623 Denver CO 283,500 629,666 913,166 Littleton CO 252,925 561,759 814,684 Smyrna DE 232,273 472,855 705,128 Lakeland FL 500,000 645,244 1,145,244 Tampa FL 427,395 471,807 899,202 Council Bluffs IA 194,355 431,668 626,023 Page 66 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Apparel Stores - -------------- Danbury CT 320,647 09/30/97 300 Manchester CT 115,652 03/26/98 300 Manchester CT 187,312 03/26/98 300 Staten Island NY 107,128 03/26/98 300 Westbury NY 203,551 09/29/97 300 Automotive Parts - ---------------- Montgomery AL 10,886 06/30/98 300 Blytheville AR 11,041 06/30/98 300 Osceola AR 11,271 06/30/98 300 Phoenix AZ 205,099 11/09/87 300 Phoenix AZ 63,705 11/19/87 300 Phoenix AZ 166,206 11/02/89 300 Tucson AZ 173,703 10/30/87 300 Tucson AZ 129,068 01/19/90 300 Yuma AZ 87,410 01/23/90 300 Fullerton CA 66,522 08/21/72 234 Grass Valley CA 145,452 05/20/88 300 Jackson CA 143,848 05/17/88 300 Sacramento CA 186,454 11/25/87 300 Turlock CA 195,918 12/30/87 300 Aurora CO 160,480 01/29/90 300 Canon City CO 59,044 11/12/87 300 Colorado Springs CO 202,829 01/23/90 300 Colorado Springs CO 100,826 05/20/93 300 Denver CO 125,545 11/18/87 300 Denver CO 267,684 05/16/88 300 Denver CO 240,917 05/27/88 300 Littleton CO 219,746 02/12/88 300 Smyrna DE 7,096 08/07/98 300 Lakeland FL 7,672 06/04/98 12/31/97 300 Tampa FL 5,631 06/12/98 12/05/97 300 Council Bluffs IA 165,162 05/19/88 300 Page 67 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Parts - ---------------- Boise ID 158,400 351,813 None None Boise ID 190,080 422,172 None None Coeur D'Alene ID 165,900 368,468 None None Lewiston ID 138,950 308,612 None None Moscow ID 117,250 260,417 None None Nampa ID 183,743 408,101 None None Twin Falls ID 190,080 422,172 None None Kansas City KS 185,955 413,014 None None Kansas City KS 222,000 455,881 None None Lansing MI 132,500 205,412 None None Sturgis MI 109,558 548,674 None None Eagan MN 902,443 845,536 None None Blue Springs MO 222,569 494,334 None None Grandview MO 347,150 711,024 None None Independence MO 210,643 467,845 None None Kansas City MO 210,070 466,571 None None Kansas City MO 168,350 373,910 None None Kansas City MO 248,500 551,927 None None Batesville MS 190,124 485,670 None None Horn Lakes MS 142,702 514,779 None None Missoula MT 163,100 362,249 None None Kearney NE 173,950 344,393 None None Omaha NE 196,000 435,321 None None Omaha NE 199,100 412,042 None None Cherry Hill NJ 1,074,640 1,032,304 None None Albuquerque NM 80,500 178,794 None None Rio Rancho NM 211,577 469,923 None None Sante Fe NM 70,000 155,473 None None Las Vegas NV 161,000 357,585 None None Reno NV 456,000 562,344 None None Canton OH 396,560 597,553 None None Hamilton OH 91,500 116,315 None None Hubbard OH 147,043 481,217 None None Oklahoma City OK 509,370 75,987 None None Oklahoma City OK 404,815 35,127 None None Albany OR 152,250 338,153 None None Page 68 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Parts - ---------------- Boise ID 158,400 351,813 510,213 Boise ID 190,080 422,172 612,252 Coeur D'Alene ID 165,900 368,468 534,368 Lewiston ID 138,950 308,612 447,562 Moscow ID 117,250 260,417 377,667 Nampa ID 183,743 408,101 591,844 Twin Falls ID 190,080 422,172 612,252 Kansas City KS 185,955 413,014 598,969 Kansas City KS 222,000 455,881 677,881 Lansing MI 132,500 205,412 337,912 Sturgis MI 109,558 548,674 658,232 Eagan MN 902,443 845,536 1,747,979 Blue Springs MO 222,569 494,334 716,903 Grandview MO 347,150 711,024 1,058,174 Independence MO 210,643 467,845 678,488 Kansas City MO 210,070 466,571 676,641 Kansas City MO 168,350 373,910 542,260 Kansas City MO 248,500 551,927 800,427 Batesville MS 190,124 485,670 675,794 Horn Lakes MS 142,702 514,779 657,481 Missoula MT 163,100 362,249 525,349 Kearney NE 173,950 344,393 518,343 Omaha NE 196,000 435,321 631,321 Omaha NE 199,100 412,042 611,142 Cherry Hill NJ 1,074,640 1,032,304 2,106,944 Albuquerque NM 80,500 178,794 259,294 Rio Rancho NM 211,577 469,923 681,500 Sante Fe NM 70,000 155,473 225,473 Las Vegas NV 161,000 357,585 518,585 Reno NV 456,000 562,344 1,018,344 Canton OH 396,560 597,553 994,113 Hamilton OH 91,500 116,315 207,815 Hubbard OH 147,043 481,217 628,260 Oklahoma City OK 509,370 75,987 585,357 Oklahoma City OK 404,815 35,127 439,942 Albany OR 152,250 338,153 490,403 Page 69 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Parts - ---------------- Boise ID 134,608 05/06/88 300 Boise ID 161,527 05/06/88 300 Coeur D'Alene ID 149,408 09/21/87 300 Lewiston ID 125,138 09/16/87 300 Moscow ID 105,595 09/14/87 300 Nampa ID 156,145 05/06/88 300 Twin Falls ID 161,527 05/06/88 300 Kansas City KS 158,025 05/13/88 300 Kansas City KS 174,339 05/16/88 300 Lansing MI 139 In Process 12/03/98 300 Sturgis MI 939 12/30/98 300 Eagan MN 12,790 02/20/98 300 Blue Springs MO 169,490 07/31/89 300 Grandview MO 8,381 08/20/98 02/20/98 300 Independence MO 160,407 07/31/89 300 Kansas City MO 178,516 05/13/88 300 Kansas City MO 143,062 05/26/88 300 Kansas City MO 202,952 10/25/88 300 Batesville MS 8,909 07/27/98 300 Horn Lakes MS 11,157 06/30/98 300 Missoula MT 145,849 10/30/87 300 Kearney NE 108,367 05/01/90 300 Omaha NE 166,559 05/26/88 300 Omaha NE 155,860 05/27/88 300 Cherry Hill NJ 139,361 01/26/95 300 Albuquerque NM 71,986 10/29/87 300 Rio Rancho NM 183,821 02/26/88 300 Sante Fe NM 62,597 10/29/87 300 Las Vegas NV 143,971 10/29/87 300 Reno NV 215,042 05/26/88 300 Canton OH 8,967 08/14/98 300 Hamilton OH 154 In Process 12/03/98 300 Hubbard OH 10,429 06/30/98 300 Oklahoma City OK 137 In Process 09/24/98 300 Oklahoma City OK 124 In Process 10/16/98 300 Albany OR 138,087 08/24/87 300 Page 70 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Parts - ---------------- Beaverton OR 210,000 466,419 None None Corvallis OR 152,250 338,153 None None Eugene OR 194,880 432,837 None None Oak Grove OR 180,250 400,336 None None Portland OR 190,750 423,664 None None Portland OR 147,000 326,493 None None Portland OR 210,000 466,412 None None Salem OR 136,500 303,170 None None Tigard OR 164,500 365,361 None None Butler PA 339,929 633,078 None None Dover PA 265,112 593,341 None None Enola PA 220,228 546,026 None None Harrisburg PA 327,781 608,291 None None Harrisburg PA 283,417 352,473 None None Lancaster PA 199,899 774,838 None None New Castle PA 180,009 525,774 None None Reading PA 189,500 44,054 None None Sioux Falls SD 332,979 498,102 None None Memphis TN 197,708 507,647 None None Amarillo TX 140,000 419,734 None None Austin TX 185,454 411,899 None None Dallas TX 191,267 424,811 None None El Paso TX 66,150 146,922 None None El Paso TX 56,350 125,156 None None Garland TX 242,887 539,461 None None Harlingen TX 134,599 298,948 None None Houston TX 151,018 335,417 None None Leon Valley TX 178,221 395,834 None None Lubbock TX 42,000 93,284 None None Lubbock TX 49,000 108,831 None None Midland TX 45,500 101,058 None None Odessa TX 50,750 112,718 None None Pasadena TX 107,391 238,518 None None Plano TX 187,564 417,158 700 None San Antonio TX 245,164 544,518 None None Bountiful UT 183,750 408,115 None None Page 71 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Parts - ---------------- Beaverton OR 210,000 466,419 676,419 Corvallis OR 152,250 338,153 490,403 Eugene OR 194,880 432,837 627,717 Oak Grove OR 180,250 400,336 580,586 Portland OR 190,750 423,664 614,414 Portland OR 147,000 326,493 473,493 Portland OR 210,000 466,412 676,412 Salem OR 136,500 303,170 439,670 Tigard OR 164,500 365,361 529,861 Butler PA 339,929 633,078 973,007 Dover PA 265,112 593,341 858,453 Enola PA 220,228 546,026 766,254 Harrisburg PA 327,781 608,291 936,072 Harrisburg PA 283,417 352,473 635,890 Lancaster PA 199,899 774,838 974,737 New Castle PA 180,009 525,774 705,783 Reading PA 189,500 44,054 233,554 Sioux Falls SD 332,979 498,102 831,081 Memphis TN 197,708 507,647 705,355 Amarillo TX 140,000 419,734 559,734 Austin TX 185,454 411,899 597,353 Dallas TX 191,267 424,811 616,078 El Paso TX 66,150 146,922 213,072 El Paso TX 56,350 125,156 181,506 Garland TX 242,887 539,461 782,348 Harlingen TX 134,599 298,948 433,547 Houston TX 151,018 335,417 486,435 Leon Valley TX 178,221 395,834 574,055 Lubbock TX 42,000 93,284 135,284 Lubbock TX 49,000 108,831 157,831 Midland TX 45,500 101,058 146,558 Odessa TX 50,750 112,718 163,468 Pasadena TX 107,391 238,518 345,909 Plano TX 187,564 417,158 605,422 San Antonio TX 245,164 544,518 789,682 Bountiful UT 183,750 408,115 591,865 Page 72 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Parts - ---------------- Beaverton OR 190,464 08/26/87 300 Corvallis OR 138,087 08/12/87 300 Eugene OR 169,315 02/10/88 300 Oak Grove OR 163,479 08/06/87 300 Portland OR 173,006 08/12/87 300 Portland OR 133,325 08/26/87 300 Portland OR 189,124 09/01/87 300 Salem OR 123,800 08/20/87 300 Tigard OR 149,198 08/26/87 300 Butler PA 9,501 08/07/98 300 Dover PA 12,858 06/30/98 300 Enola PA 2,741 11/10/98 300 Harrisburg PA 13,183 06/30/98 300 Harrisburg PA 4,124 09/30/98 300 Lancaster PA 11,626 08/14/98 300 New Castle PA 11,394 06/30/98 300 Reading PA 136 In Process 12/04/98 300 Sioux Falls SD 7,531 02/27/98 300 Memphis TN 5,931 09/30/98 300 Amarillo TX 155,519 09/12/88 300 Austin TX 133,088 02/06/90 300 Dallas TX 138,457 01/26/90 300 El Paso TX 59,153 10/27/87 300 El Paso TX 50,390 10/27/87 300 Garland TX 175,824 01/19/90 300 Harlingen TX 97,435 01/17/90 300 Houston TX 109,320 01/25/90 300 Leon Valley TX 129,013 01/17/90 300 Lubbock TX 37,557 10/26/87 300 Lubbock TX 43,818 10/29/87 300 Midland TX 40,687 10/27/87 300 Odessa TX 45,381 10/26/87 300 Pasadena TX 77,740 01/24/90 300 Plano TX 135,793 01/18/90 300 San Antonio TX 175,938 02/14/90 300 Bountiful UT 133,015 01/30/90 300 Page 73 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Parts - ---------------- Provo UT 125,395 278,507 None None Bellevue WA 185,500 411,997 None None Bellingham WA 168,000 373,133 None None Bothell WA 199,500 443,098 None None Everett WA 367,500 816,227 None None Hazel Dell WA 168,000 373,135 None None Kennewick WA 161,350 358,365 None None Kent WA 199,500 443,091 None None Lacey WA 171,150 380,125 None None Marysville WA 168,000 373,135 None None Moses Lake WA 138,600 307,831 None None Pasco WA 161,700 359,142 None None Puyallup WA 173,250 384,795 None None Redmond WA 196,000 435,317 None None Renton WA 185,500 412,003 None None Richland WA 161,700 359,142 None None Seattle WA 162,400 360,697 None None Silverdale WA 183,808 419,777 None None Spanaway WA 189,000 419,777 None None Spokane WA 66,150 146,921 None None Tacoma WA 191,800 425,996 None None Tacoma WA 196,000 435,324 None None Tacoma WA 187,111 415,579 None None Vancouver WA 180,250 400,343 None None Walla Walla WA 170,100 377,793 None None Wenatchee WA 148,400 329,602 None None Woodinville WA 171,500 380,908 None None Brown Deer WI 257,408 802,110 None None Madison WI 452,630 811,964 None None Oak Creek WI 420,465 852,402 None None Automotive Service - ------------------ Flagstaff AZ 144,821 381,432 None None Chula Vista CA 313,293 409,654 None None Arvada CO 201,565 339,038 None None Arvada CO 241,044 344,753 None None Page 74 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Parts - ---------------- Provo UT 125,395 278,507 403,902 Bellevue WA 185,500 411,997 597,497 Bellingham WA 168,000 373,133 541,133 Bothell WA 199,500 443,098 642,598 Everett WA 367,500 816,227 1,183,727 Hazel Dell WA 168,000 373,135 541,135 Kennewick WA 161,350 358,365 519,715 Kent WA 199,500 443,091 642,591 Lacey WA 171,150 380,125 551,275 Marysville WA 168,000 373,135 541,135 Moses Lake WA 138,600 307,831 446,431 Pasco WA 161,700 359,142 520,842 Puyallup WA 173,250 384,795 558,045 Redmond WA 196,000 435,317 631,317 Renton WA 185,500 412,003 597,503 Richland WA 161,700 359,142 520,842 Seattle WA 162,400 360,697 523,097 Silverdale WA 183,808 419,777 603,585 Spanaway WA 189,000 419,777 608,777 Spokane WA 66,150 146,921 213,071 Tacoma WA 191,800 425,996 617,796 Tacoma WA 196,000 435,324 631,324 Tacoma WA 187,111 415,579 602,690 Vancouver WA 180,250 400,343 580,593 Walla Walla WA 170,100 377,793 547,893 Wenatchee WA 148,400 329,602 478,002 Woodinville WA 171,500 380,908 552,408 Brown Deer WI 257,408 802,110 1,059,518 Madison WI 452,630 811,964 1,264,594 Oak Creek WI 420,465 852,402 1,272,867 Automotive Service - ------------------ Flagstaff AZ 144,821 381,432 526,253 Chula Vista CA 313,293 409,654 722,947 Arvada CO 201,565 339,038 540,603 Arvada CO 241,044 344,753 585,797 Page 75 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Parts - ---------------- Provo UT 90,772 01/25/90 300 Bellevue WA 168,240 08/06/87 300 Bellingham WA 152,369 08/20/87 300 Bothell WA 180,942 08/20/87 300 Everett WA 326,292 11/17/87 300 Hazel Dell WA 138,748 05/23/88 300 Kennewick WA 146,341 08/26/87 300 Kent WA 180,937 08/06/87 300 Lacey WA 155,224 08/13/87 300 Marysville WA 152,372 08/20/87 300 Moses Lake WA 125,704 08/12/87 300 Pasco WA 146,657 08/18/87 300 Puyallup WA 156,030 09/15/87 300 Redmond WA 176,516 09/17/87 300 Renton WA 167,060 09/15/87 300 Richland WA 146,657 08/13/87 300 Seattle WA 147,293 08/20/87 300 Silverdale WA 170,213 09/16/87 300 Spanaway WA 171,417 08/25/87 300 Spokane WA 58,732 11/18/87 300 Tacoma WA 173,958 08/18/87 300 Tacoma WA 175,271 10/15/87 300 Tacoma WA 135,448 01/25/90 300 Vancouver WA 163,481 08/20/87 300 Walla Walla WA 154,273 08/06/87 300 Wenatchee WA 134,596 08/25/87 300 Woodinville WA 155,545 08/20/87 300 Brown Deer WI 1,442 12/15/98 07/16/98 300 Madison WI 6,882 10/20/98 04/07/98 300 Oak Creek WI 7,226 08/07/98 03/20/98 300 Automotive Service - ------------------ Flagstaff AZ 5,977 In Process 08/29/97 300 Chula Vista CA 43,014 05/01/96 01/19/96 300 Arvada CO 32,209 08/28/96 04/09/96 300 Arvada CO 26,629 01/03/97 07/10/96 300 Page 76 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Service - ------------------ Broomfield CO 154,930 503,626 None None Denver CO 341,726 433,341 None None Denver CO 79,717 369,586 None None Thornton CO 276,084 415,464 None None Hartford CT 248,540 482,460 None None Southington CT 225,882 672,910 None None Ft. Lauderdale FL 254,090 465,890 None None Jacksonville FL 76,585 355,066 None None Lauderdale Lakes FL 65,987 305,931 None None Seminole FL 68,000 315,266 None None Sunrise FL 80,253 372,069 None None Tampa FL 70,000 324,538 None None Tampa FL 67,000 310,629 None None Tampa FL 86,502 401,041 None None Atlanta GA 55,840 258,889 None None Atlanta GA 78,646 364,625 None None Bogart GA 66,807 309,732 None None Duluth GA 222,275 316,925 None None Gainesville GA 53,589 248,452 None None Marietta GA 60,900 293,461 None None Marietta GA 69,561 346,024 None None Riverdale GA 58,444 270,961 None None Rome GA 56,454 261,733 None None Anderson IN 232,170 385,661 None None Indianapolis IN 231,384 428,307 None None Olathe KS 217,995 367,055 None None Louisville KY 56,054 259,881 None None Newport KY 323,511 289,017 None None Billerica MA 399,043 462,240 None None Clinton MD 70,880 328,620 None None Minneapolis MN 58,000 268,903 None None Independence MO 297,641 233,152 None None Concord NC 237,688 357,976 None None Durham NC 354,676 361,203 None None Durham NC 55,074 255,336 None None Fayetteville NC 224,326 257,733 None None Page 77 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Service - ------------------ Broomfield CO 154,930 503,626 658,556 Denver CO 341,726 433,341 775,067 Denver CO 79,717 369,586 449,303 Thornton CO 276,084 415,464 691,548 Hartford CT 248,540 482,460 731,000 Southington CT 225,882 672,910 898,792 Ft. Lauderdale FL 254,090 465,890 719,980 Jacksonville FL 76,585 355,066 431,651 Lauderdale Lakes FL 65,987 305,931 371,918 Seminole FL 68,000 315,266 383,266 Sunrise FL 80,253 372,069 452,322 Tampa FL 70,000 324,538 394,538 Tampa FL 67,000 310,629 377,629 Tampa FL 86,502 401,041 487,543 Atlanta GA 55,840 258,889 314,729 Atlanta GA 78,646 364,625 443,271 Bogart GA 66,807 309,732 376,539 Duluth GA 222,275 316,925 539,200 Gainesville GA 53,589 248,452 302,041 Marietta GA 60,900 293,461 354,361 Marietta GA 69,561 346,024 415,585 Riverdale GA 58,444 270,961 329,405 Rome GA 56,454 261,733 318,187 Anderson IN 232,170 385,661 617,831 Indianapolis IN 231,384 428,307 659,691 Olathe KS 217,995 367,055 585,050 Louisville KY 56,054 259,881 315,935 Newport KY 323,511 289,017 612,528 Billerica MA 399,043 462,240 861,283 Clinton MD 70,880 328,620 399,500 Minneapolis MN 58,000 268,903 326,903 Independence MO 297,641 233,152 530,793 Concord NC 237,688 357,976 595,664 Durham NC 354,676 361,203 715,879 Durham NC 55,074 255,336 310,410 Fayetteville NC 224,326 257,733 482,059 Page 78 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Service - ------------------ Broomfield CO 47,845 08/22/96 03/15/96 300 Denver CO 20,854 09/25/97 06/12/97 300 Denver CO 228,097 10/08/85 300 Thornton CO 32,287 12/31/96 10/31/96 300 Hartford CT 44,226 09/30/96 300 Southington CT 41,337 06/06/97 300 Ft. Lauderdale FL 10,136 05/13/98 12/24/97 300 Jacksonville FL 215,154 12/23/85 300 Lauderdale Lakes FL 182,945 02/19/86 300 Seminole FL 191,036 12/23/85 300 Sunrise FL 223,722 02/14/86 300 Tampa FL 196,655 12/27/85 300 Tampa FL 188,227 12/27/85 300 Tampa FL 231,807 07/23/86 300 Atlanta GA 157,904 11/27/85 300 Atlanta GA 220,946 12/18/85 300 Bogart GA 187,684 12/20/85 300 Duluth GA 12,551 10/24/97 06/20/97 300 Gainesville GA 150,549 12/19/85 300 Marietta GA 177,822 12/26/85 300 Marietta GA 202,542 06/03/86 300 Riverdale GA 163,112 01/15/86 300 Rome GA 158,596 12/19/85 300 Anderson IN 16,047 12/19/97 300 Indianapolis IN 39,261 09/27/96 300 Olathe KS 23,854 04/22/97 11/11/96 300 Louisville KY 157,476 12/17/85 300 Newport KY 14,856 09/17/97 300 Billerica MA 31,465 04/02/97 300 Clinton MD 201,512 11/15/85 300 Minneapolis MN 162,943 12/18/85 300 Independence MO 19,041 12/20/96 300 Concord NC 6,615 05/27/98 11/05/97 300 Durham NC 18,587 08/29/97 03/31/97 300 Durham NC 156,576 11/13/85 300 Fayetteville NC 10,692 12/03/97 300 Page 79 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Service - ------------------ Garner NC 218,294 319,334 None None Greensboro NC 287,474 316,108 None None Matthews NC 295,580 338,472 None None Pineville NC 254,460 355,606 None None Raleigh NC 89,145 413,301 None None Raleigh NC 398,694 263,621 None None Akron OH 139,126 460,334 None None Beaver Creek OH 205,000 492,538 None None Centerville OH 305,000 420,448 None None Cincinnati OH 293,005 201,340 None None Columbus OH 71,098 329,626 None None Columbus OH 75,761 351,246 None None Columbus OH 245,036 470,468 None None Dayton OH 70,000 324,538 None None Eastlake OH 321,347 459,774 None None Fairfield OH 323,408 235,024 None None Findlay OH 283,515 397,004 None None Hamilton OH 252,608 413,279 None None Huber Heights OH 282,000 449,381 None None Miamisburg OH 63,996 296,701 None None Milford OH 353,324 269,997 None None Mt. Vernon OH 216,115 375,357 None None Northwood OH 65,978 263,912 None None Norwalk OH 200,205 366,000 None None Sandusky OH 264,708 404,011 None None Springboro OH 191,911 522,902 None None Toledo OH 91,655 366,621 None None Toledo OH 73,408 293,632 None None Midwest City OK 106,312 333,551 None None The Village OK 143,655 295,422 None None Bethel Park PA 299,595 331,264 None None Bethlehem PA 275,328 389,067 None None Bethlehem PA 229,162 310,526 None None Philadelphia PA 858,500 877,745 None None Springfield Twp. PA 82,740 383,601 None None York PA 249,436 347,424 None None Page 80 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Service - ------------------ Garner NC 218,294 319,334 537,628 Greensboro NC 287,474 316,108 603,582 Matthews NC 295,580 338,472 634,052 Pineville NC 254,460 355,606 610,066 Raleigh NC 89,145 413,301 502,446 Raleigh NC 398,694 263,621 662,315 Akron OH 139,126 460,334 599,460 Beaver Creek OH 205,000 492,538 697,538 Centerville OH 305,000 420,448 725,448 Cincinnati OH 293,005 201,340 494,345 Columbus OH 71,098 329,626 400,724 Columbus OH 75,761 351,246 427,007 Columbus OH 245,036 470,468 715,504 Dayton OH 70,000 324,538 394,538 Eastlake OH 321,347 459,774 781,121 Fairfield OH 323,408 235,024 558,432 Findlay OH 283,515 397,004 680,519 Hamilton OH 252,608 413,279 665,887 Huber Heights OH 282,000 449,381 731,381 Miamisburg OH 63,996 296,701 360,697 Milford OH 353,324 269,997 623,321 Mt. Vernon OH 216,115 375,357 591,472 Northwood OH 65,978 263,912 329,890 Norwalk OH 200,205 366,000 566,205 Sandusky OH 264,708 404,011 668,719 Springboro OH 191,911 522,902 714,813 Toledo OH 91,655 366,621 458,276 Toledo OH 73,408 293,632 367,040 Midwest City OK 106,312 333,551 439,863 The Village OK 143,655 295,422 439,077 Bethel Park PA 299,595 331,264 630,859 Bethlehem PA 275,328 389,067 664,395 Bethlehem PA 229,162 310,526 539,688 Philadelphia PA 858,500 877,745 1,736,245 Springfield Twp. PA 82,740 383,601 466,341 York PA 249,436 347,424 596,860 Page 81 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Service - ------------------ Garner NC 12,666 01/05/98 06/20/97 300 Greensboro NC 19,408 06/09/97 01/31/97 300 Matthews NC 2,915 08/28/98 02/27/98 300 Pineville NC 18,304 08/28/97 04/16/97 300 Raleigh NC 253,725 10/28/85 300 Raleigh NC 12,662 10/01/97 300 Akron OH 23,716 09/18/97 300 Beaver Creek OH 35,298 02/13/97 09/09/96 300 Centerville OH 41,344 07/24/96 06/28/96 300 Cincinnati OH 10,305 09/17/97 300 Columbus OH 203,436 10/02/85 300 Columbus OH 215,630 10/24/85 300 Columbus OH 57,240 12/22/95 300 Dayton OH 199,233 10/31/85 300 Eastlake OH 55,939 12/22/95 300 Fairfield OH 12,057 09/17/97 300 Findlay OH 16,519 12/24/97 300 Hamilton OH 25,481 03/31/97 10/04/96 300 Huber Heights OH 35,201 12/03/96 07/18/96 300 Miamisburg OH 183,115 10/08/85 300 Milford OH 13,870 09/18/97 300 Mt. Vernon OH 15,617 12/30/97 300 Northwood OH 216,701 09/12/86 180 Norwalk OH 15,228 12/19/97 300 Sandusky OH 16,812 12/19/97 300 Springboro OH 37,347 03/07/97 300 Toledo OH 301,036 09/12/86 180 Toledo OH 241,104 09/12/86 180 Midwest City OK 5,059 08/06/98 08/08/97 300 The Village OK 8,376 03/06/98 07/29/97 300 Bethel Park PA 13,784 12/19/97 300 Bethlehem PA 16,194 12/19/97 300 Bethlehem PA 12,916 12/24/97 300 Philadelphia PA 237,121 05/19/95 12/05/94 300 Springfield Twp. PA 229,392 02/28/86 300 York PA 14,454 12/30/97 300 Page 82 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Automotive Service - ------------------ Charleston SC 217,250 294,079 None None Columbia SC 343,785 295,001 None None Columbia SC 267,622 298,594 None None Greenville SC 221,946 315,163 None None Lexington SC 241,434 201,143 None None North Charleston SC 174,980 341,466 None None Brentwood TN 305,546 505,728 None None Nashville TN 342,960 227,440 None None Dallas TX 234,604 325,951 None None Houston TX 285,000 369,694 None None Houston TX 233,406 154,337 None None Houston TX 195,000 57,757 None None Lewisville TX 199,942 324,736 None None San Antonio TX 198,828 437,422 None None Richmond VA 149,780 399,415 None None Roanoke VA 349,628 322,545 None None Virginia Beach VA 287,675 382,125 None None Bremerton WA 261,172 373,080 None None Milwaukee WI 173,005 499,244 None None Milwaukee WI 152,509 475,480 None None New Berlin WI 188,491 466,268 None None Book Stores - ----------- Tampa FL 998,250 3,696,707 None None Business Services - ----------------- Jackson MI 552,972 316,980 None None Child Care - ---------- Birmingham AL 63,800 295,791 None None Huntsville AL 28,600 197,165 None None Mobile AL 78,400 237,671 None None Mobile AL 63,000 292,084 None None Avondale AZ 242,723 9,169 None None Chandler AZ 144,083 668,080 None None Chandler AZ 291,720 647,923 None None Page 83 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Automotive Service - ------------------ Charleston SC 217,250 294,079 511,329 Columbia SC 343,785 295,001 638,786 Columbia SC 267,622 298,594 566,216 Greenville SC 221,946 315,163 537,109 Lexington SC 241,434 201,143 442,577 North Charleston SC 174,980 341,466 516,446 Brentwood TN 305,546 505,728 811,274 Nashville TN 342,960 227,440 570,400 Dallas TX 234,604 325,951 560,555 Houston TX 285,000 369,694 654,694 Houston TX 233,406 154,337 387,743 Houston TX 195,000 57,757 252,757 Lewisville TX 199,942 324,736 524,678 San Antonio TX 198,828 437,422 636,250 Richmond VA 149,780 399,415 549,195 Roanoke VA 349,628 322,545 672,173 Virginia Beach VA 287,675 382,125 669,800 Bremerton WA 261,172 373,080 634,252 Milwaukee WI 173,005 499,244 672,249 Milwaukee WI 152,509 475,480 627,989 New Berlin WI 188,491 466,268 654,759 Book Stores - ----------- Tampa FL 998,250 3,696,707 4,694,957 Business Services - ----------------- Jackson MI 552,972 316,980 869,952 Child Care - ---------- Birmingham AL 63,800 295,791 359,591 Huntsville AL 28,600 197,165 225,765 Mobile AL 78,400 237,671 316,071 Mobile AL 63,000 292,084 355,084 Avondale AZ 242,723 9,169 251,892 Chandler AZ 144,083 668,080 812,163 Chandler AZ 291,720 647,923 939,643 Page 84 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Automotive Service - ------------------ Charleston SC 16,096 07/14/97 03/13/97 300 Columbia SC 18,056 05/27/97 02/07/97 300 Columbia SC 8,469 03/31/98 11/05/97 300 Greenville SC 15,178 09/05/97 03/31/97 300 Lexington SC 143 In Process 09/24/98 300 North Charleston SC 5,190 08/06/98 03/12/98 300 Brentwood TN 19,338 03/13/98 05/28/97 300 Nashville TN 11,670 09/17/97 300 Dallas TX 30,965 08/09/96 02/19/96 300 Houston TX 17,783 08/08/97 08/08/97 300 Houston TX 126 In Process 03/26/98 300 Houston TX 120 In Process 06/12/98 300 Lewisville TX 30,850 08/02/96 02/14/96 300 San Antonio TX 57,594 09/15/95 300 Richmond VA 32,619 12/26/96 300 Roanoke VA 13,417 12/19/97 300 Virginia Beach VA 29,680 01/07/97 09/27/96 300 Bremerton WA 31,319 03/19/97 07/24/96 300 Milwaukee WI 60,741 12/22/95 300 Milwaukee WI 43,585 09/27/96 300 New Berlin WI 56,729 12/22/95 300 Book Stores - ----------- Tampa FL 264,890 03/11/97 300 Business Services - ----------------- Jackson MI 161 In Process 09/25/98 300 Child Care - ---------- Birmingham AL 201,975 10/31/84 300 Huntsville AL 197,165 06/15/82 180 Mobile AL 237,671 10/15/82 180 Mobile AL 190,439 04/25/85 300 Avondale AZ 73 In Process 07/28/98 300 Chandler AZ 372,753 12/17/86 300 Chandler AZ 257,110 12/11/87 300 Page 85 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Chandler AZ 271,695 603,446 None None Glendale AZ 115,000 285,172 None None Mesa AZ 297,500 660,755 None None Mesa AZ 276,770 590,417 None None Peoria AZ 281,750 625,779 None None Phoenix AZ 318,500 707,397 None None Phoenix AZ 264,504 587,471 None None Phoenix AZ 260,719 516,181 None None Scottsdale AZ 291,993 648,530 None None Tempe AZ 292,200 648,989 None None Tempe AZ 294,000 638,977 None None Tucson AZ 304,500 676,303 None None Tucson AZ 283,500 546,878 None None Calabasas CA 156,430 725,248 None None Carmichael CA 131,035 607,507 None None Chino CA 155,000 634,071 None None Chula Vista CA 350,563 778,614 None None Corona CA 144,856 671,585 None None El Cajon CA 157,804 731,621 None None Encinitas CA 320,000 710,729 None None Escondido CA 276,286 613,638 None None Folsom CA 281,563 625,363 None None Mission Viejo CA 353,891 744,367 None None Moreno Valley CA 304,489 676,214 None None Oceanside CA 145,568 674,889 None None Palmdale CA 249,490 554,125 None None Rancho Cordova CA 276,328 613,733 None None Rancho Cucamonga CA 471,733 1,047,739 None None Roseville CA 297,343 660,412 None None Sacramento CA 290,734 645,731 None None Santee CA 248,418 551,748 None None Simi Valley CA 208,585 967,055 None None Valencia CA 301,295 669,185 None None Walnut CA 217,365 1,007,753 None None Aurora CO 141,811 657,497 None None Aurora CO 287,000 637,440 None None Page 86 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Chandler AZ 271,695 603,446 875,141 Glendale AZ 115,000 285,172 400,172 Mesa AZ 297,500 660,755 958,255 Mesa AZ 276,770 590,417 867,187 Peoria AZ 281,750 625,779 907,529 Phoenix AZ 318,500 707,397 1,025,897 Phoenix AZ 264,504 587,471 851,975 Phoenix AZ 260,719 516,181 776,900 Scottsdale AZ 291,993 648,530 940,523 Tempe AZ 292,200 648,989 941,189 Tempe AZ 294,000 638,977 932,977 Tucson AZ 304,500 676,303 980,803 Tucson AZ 283,500 546,878 830,378 Calabasas CA 156,430 725,248 881,678 Carmichael CA 131,035 607,507 738,542 Chino CA 155,000 634,071 789,071 Chula Vista CA 350,563 778,614 1,129,177 Corona CA 144,856 671,585 816,441 El Cajon CA 157,804 731,621 889,425 Encinitas CA 320,000 710,729 1,030,729 Escondido CA 276,286 613,638 889,924 Folsom CA 281,563 625,363 906,926 Mission Viejo CA 353,891 744,367 1,098,258 Moreno Valley CA 304,489 676,214 980,703 Oceanside CA 145,568 674,889 820,457 Palmdale CA 249,490 554,125 803,615 Rancho Cordova CA 276,328 613,733 890,061 Rancho Cucamonga CA 471,733 1,047,739 1,519,472 Roseville CA 297,343 660,412 957,755 Sacramento CA 290,734 645,731 936,465 Santee CA 248,418 551,748 800,166 Simi Valley CA 208,585 967,055 1,175,640 Valencia CA 301,295 669,185 970,480 Walnut CA 217,365 1,007,753 1,225,118 Aurora CO 141,811 657,497 799,308 Aurora CO 287,000 637,440 924,440 Page 87 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Chandler AZ 239,550 12/14/87 300 Glendale AZ 283,587 02/08/84 180 Mesa AZ 245,285 09/29/88 300 Mesa AZ 219,177 09/29/88 300 Peoria AZ 243,001 03/30/88 300 Phoenix AZ 262,600 09/29/88 300 Phoenix AZ 183,204 06/29/90 300 Phoenix AZ 152,276 12/26/90 300 Scottsdale AZ 257,397 12/14/87 300 Tempe AZ 252,015 03/10/88 300 Tempe AZ 200,426 09/27/90 300 Tucson AZ 251,058 09/28/88 300 Tucson AZ 203,012 09/29/88 300 Calabasas CA 448,103 09/26/85 300 Carmichael CA 348,716 08/22/86 300 Chino CA 634,071 10/06/83 180 Chula Vista CA 313,486 10/30/87 300 Corona CA 452,911 12/19/84 300 El Cajon CA 443,326 12/19/85 300 Encinitas CA 282,084 12/29/87 300 Escondido CA 243,547 12/31/87 300 Folsom CA 253,053 10/23/87 300 Mission Viejo CA 184,240 06/24/93 300 Moreno Valley CA 287,804 02/11/87 300 Oceanside CA 408,948 12/23/85 300 Palmdale CA 205,702 09/14/88 300 Rancho Cordova CA 217,377 03/22/89 300 Rancho Cucamonga CA 415,842 12/30/87 300 Roseville CA 267,225 10/21/87 300 Sacramento CA 259,983 10/05/87 300 Santee CA 226,893 07/23/87 300 Simi Valley CA 585,990 12/20/85 300 Valencia CA 254,132 06/23/88 300 Walnut CA 578,462 08/22/86 300 Aurora CO 390,555 03/25/86 300 Aurora CO 252,995 12/31/87 300 Page 88 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Aurora CO 301,455 655,609 None None Broomfield CO 107,000 403,080 None None Broomfield CO 155,306 344,941 None None Colorado Springs CO 115,542 535,700 None None Colorado Springs CO 58,400 271,217 None None Colorado Springs CO 92,570 241,413 None None Englewood CO 131,216 608,372 None None Englewood CO 158,651 735,571 None None Fort Collins CO 117,105 542,950 None None Fort Collins CO 137,734 638,594 None None Fort Collins CO 55,200 256,356 None 3,600 Greeley CO 58,400 270,755 None None Littleton CO 287,000 637,435 None None Littleton CO 299,250 664,642 None None Littleton CO 161,617 358,956 None None Longmont CO 115,592 535,931 None None Louisville CO 58,089 269,313 None None Parker CO 153,551 341,043 None None Westminster CO 306,387 695,737 None None Bradenton FL 160,060 355,501 None None Clearwater FL 42,223 269,380 None None Jacksonville FL 38,500 228,481 None None Jacksonville FL 48,000 243,060 None None Jacksonville FL 184,800 410,447 None None Jupiter FL 78,000 360,088 None None Margate FL 66,686 309,183 None None Melbourne FL 256,439 549,345 None None Niceville FL 73,696 341,688 None None Orlando FL 68,001 313,922 None None Orlando FL 159,177 353,538 None None Orlando FL 245,249 544,704 None None Orlando FL 190,050 422,107 None None Oviedo FL 166,409 369,598 None None Panama City FL 69,500 244,314 None None Pensacola FL 147,000 326,492 None None Royal Palm Beach FL 194,193 431,309 None None Page 89 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Aurora CO 301,455 655,609 957,064 Broomfield CO 107,000 403,080 510,080 Broomfield CO 155,306 344,941 500,247 Colorado Springs CO 115,542 535,700 651,242 Colorado Springs CO 58,400 271,217 329,617 Colorado Springs CO 92,570 241,413 333,983 Englewood CO 131,216 608,372 739,588 Englewood CO 158,651 735,571 894,222 Fort Collins CO 117,105 542,950 660,055 Fort Collins CO 137,734 638,594 776,328 Fort Collins CO 55,200 259,956 315,156 Greeley CO 58,400 270,755 329,155 Littleton CO 287,000 637,435 924,435 Littleton CO 299,250 664,642 963,892 Littleton CO 161,617 358,956 520,573 Longmont CO 115,592 535,931 651,523 Louisville CO 58,089 269,313 327,402 Parker CO 153,551 341,043 494,594 Westminster CO 306,387 695,737 1,002,124 Bradenton FL 160,060 355,501 515,561 Clearwater FL 42,223 269,380 311,603 Jacksonville FL 38,500 228,481 266,981 Jacksonville FL 48,000 243,060 291,060 Jacksonville FL 184,800 410,447 595,247 Jupiter FL 78,000 360,088 438,088 Margate FL 66,686 309,183 375,869 Melbourne FL 256,439 549,345 805,784 Niceville FL 73,696 341,688 415,384 Orlando FL 68,001 313,922 381,923 Orlando FL 159,177 353,538 512,715 Orlando FL 245,249 544,704 789,953 Orlando FL 190,050 422,107 612,157 Oviedo FL 166,409 369,598 536,007 Panama City FL 69,500 244,314 313,814 Pensacola FL 147,000 326,492 473,492 Royal Palm Beach FL 194,193 431,309 625,502 Page 90 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Aurora CO 269,852 09/27/89 300 Broomfield CO 403,080 01/12/83 180 Broomfield CO 133,948 03/15/88 300 Colorado Springs CO 300,687 12/04/86 300 Colorado Springs CO 271,217 12/22/82 180 Colorado Springs CO 241,413 08/31/83 180 Englewood CO 341,478 12/05/86 300 Englewood CO 410,409 12/29/86 300 Fort Collins CO 322,513 03/25/86 300 Fort Collins CO 379,327 03/25/86 300 Fort Collins CO 256,716 12/22/82 180 Greeley CO 183,785 11/21/84 300 Littleton CO 236,629 09/29/88 300 Littleton CO 246,730 09/29/88 300 Littleton CO 142,464 12/10/87 300 Longmont CO 318,345 03/25/86 300 Louisville CO 188,234 06/22/84 300 Parker CO 137,997 10/19/87 300 Westminster CO 260,849 09/27/89 300 Bradenton FL 136,019 05/05/88 300 Clearwater FL 269,380 12/22/81 180 Jacksonville FL 228,481 12/22/81 180 Jacksonville FL 243,060 12/22/81 180 Jacksonville FL 145,375 03/30/89 300 Jupiter FL 223,628 09/11/85 300 Margate FL 172,509 12/16/86 300 Melbourne FL 137,820 04/16/93 300 Niceville FL 191,782 12/03/86 300 Orlando FL 194,957 09/04/85 300 Orlando FL 145,382 07/02/87 300 Orlando FL 216,187 12/10/87 300 Orlando FL 149,505 03/30/89 300 Oviedo FL 147,742 11/20/87 300 Panama City FL 244,314 06/15/82 180 Pensacola FL 115,640 03/28/89 300 Royal Palm Beach FL 157,660 11/15/88 300 Page 91 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Spring Hill FL 146,939 326,356 None None St. Augustine FL 44,800 213,040 None None Sunrise FL 69,400 246,671 None None Sunrise FL 245,000 533,280 None None Tallahassee FL 66,000 232,010 None None Tampa FL 53,385 199,846 None None Douglasville GA 54,000 250,356 None None Dunwoody GA 318,500 707,399 None None Ellenwood GA 119,678 275,414 None None Fayetteville GA 148,400 329,601 None None Lawrenceville GA 141,449 314,161 None None Lilburn GA 116,350 539,488 None None Lithia Springs GA 187,444 363,358 None None Lithonia GA 239,715 524,459 None None Marietta GA 231,000 513,061 None None Marietta GA 273,000 619,076 None None Marietta GA 292,250 649,095 None None Marietta GA 295,750 596,299 None None Marietta GA 301,000 668,529 None None Marietta GA 148,620 330,090 None None Martinez GA 141,153 313,504 None None Smyrna GA 274,750 610,229 None None Stockbridge GA 168,700 374,688 None None Stone Mountain GA 316,750 703,512 None None Stone Mountain GA 65,000 301,357 None None Valdosta GA 73,561 341,059 None None Cedar Rapids IA 194,950 427,085 None None Iowa City IA 186,900 408,910 None None Johnston IA 186,996 347,278 None None Addison IL 125,780 583,146 None None Algonquin IL 241,500 509,629 None None Aurora IL 165,679 398,739 None None Bartlett IL 120,824 560,166 None None Bolingbrook IL 60,000 409,024 None None Carol Stream IL 122,831 586,416 None None Elk Grove VillageIL 126,860 588,175 None None Page 92 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Spring Hill FL 146,939 326,356 473,295 St. Augustine FL 44,800 213,040 257,840 Sunrise FL 69,400 246,671 316,071 Sunrise FL 245,000 533,280 778,280 Tallahassee FL 66,000 232,010 298,010 Tampa FL 53,385 199,846 253,231 Douglasville GA 54,000 250,356 304,356 Dunwoody GA 318,500 707,399 1,025,899 Ellenwood GA 119,678 275,414 395,092 Fayetteville GA 148,400 329,601 478,001 Lawrenceville GA 141,449 314,161 455,610 Lilburn GA 116,350 539,488 655,838 Lithia Springs GA 187,444 363,358 550,802 Lithonia GA 239,715 524,459 764,174 Marietta GA 231,000 513,061 744,061 Marietta GA 273,000 619,076 892,076 Marietta GA 292,250 649,095 941,345 Marietta GA 295,750 596,299 892,049 Marietta GA 301,000 668,529 969,529 Marietta GA 148,620 330,090 478,710 Martinez GA 141,153 313,504 454,657 Smyrna GA 274,750 610,229 884,979 Stockbridge GA 168,700 374,688 543,388 Stone Mountain GA 316,750 703,512 1,020,262 Stone Mountain GA 65,000 301,357 366,357 Valdosta GA 73,561 341,059 414,620 Cedar Rapids IA 194,950 427,085 622,035 Iowa City IA 186,900 408,910 595,810 Johnston IA 186,996 347,278 534,274 Addison IL 125,780 583,146 708,926 Algonquin IL 241,500 509,629 751,129 Aurora IL 165,679 398,739 564,418 Bartlett IL 120,824 560,166 680,990 Bolingbrook IL 60,000 409,024 469,024 Carol Stream IL 122,831 586,416 709,247 Elk Grove VillageIL 126,860 588,175 715,035 Page 93 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Spring Hill FL 130,456 11/24/87 300 St. Augustine FL 213,040 12/22/81 180 Sunrise FL 246,671 06/15/82 180 Sunrise FL 190,459 05/25/89 300 Tallahassee FL 232,010 06/15/82 180 Tampa FL 199,846 12/22/81 180 Douglasville GA 170,964 10/23/84 300 Dunwoody GA 258,580 11/16/88 300 Ellenwood GA 100,673 11/16/88 300 Fayetteville GA 116,741 03/29/89 300 Lawrenceville GA 118,411 07/07/88 300 Lilburn GA 301,005 12/23/86 300 Lithia Springs GA 125,476 12/28/89 300 Lithonia GA 173,638 08/20/91 300 Marietta GA 199,231 03/18/88 300 Marietta GA 238,631 04/26/88 300 Marietta GA 235,425 12/02/88 300 Marietta GA 216,276 12/30/88 300 Marietta GA 242,472 12/30/88 300 Marietta GA 122,620 09/16/88 300 Martinez GA 124,425 12/31/87 300 Smyrna GA 223,061 11/15/88 300 Stockbridge GA 132,710 03/28/89 300 Stone Mountain GA 257,160 11/16/88 300 Stone Mountain GA 189,773 06/19/85 300 Valdosta GA 191,426 12/03/86 300 Cedar Rapids IA 122,934 09/24/92 300 Iowa City IA 119,748 09/24/92 300 Johnston IA 94,673 08/19/91 300 Addison IL 346,391 03/25/86 300 Algonquin IL 160,757 07/10/90 300 Aurora IL 144,620 12/21/88 300 Bartlett IL 332,740 03/25/86 300 Bolingbrook IL 409,024 10/18/82 180 Carol Stream IL 348,334 03/25/86 300 Elk Grove VillageIL 349,379 03/26/86 300 Page 94 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Elk Grove VillageIL 214,845 477,180 None None Glendale Heights IL 318,500 707,399 None None Hoffman Estates IL 318,500 707,399 None None Hoffman Estates IL 211,082 468,818 None None Lockport IL 189,477 442,018 None None O'Fallon IL 141,250 313,722 None None Orland Park IL 218,499 485,295 None None Palatine IL 121,911 565,233 None None Roselle IL 297,541 561,036 None None Schaumburg IL 218,798 485,956 None None Vernon Hills IL 132,523 614,430 None None Westmont IL 124,742 578,330 None None Carmel IN 217,565 430,742 None None Fishers IN 212,118 419,959 None None Highland IN 220,460 436,476 None None Indianapolis IN 245,000 544,153 None None Noblesville IN 60,000 278,175 None None Zionsville IN 127,568 319,770 None None Lenexa KS 318,500 707,399 None None Olathe KS 304,500 676,308 None None Overland Park KS 305,691 707,397 None None Shawnee KS 315,000 699,629 None None Shawnee KS 288,246 793,002 None None Topeka KS 58,000 268,903 None None Wichita KS 209,890 415,549 None None Wichita KS 108,569 401,828 None None Lexington KY 210,427 420,883 None None Acton MA 315,533 700,813 None None Marlborough MA 352,765 776,487 None None Westborough MA 359,412 773,877 None None Ellicott City MD 219,368 630,839 None None Frederick MD 203,352 1,017,109 None None Olney MD 342,500 760,701 None None Waldorf MD 130,430 604,702 None None Waldorf MD 237,207 526,844 None None Canton MI 55,000 378,848 None None Page 95 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Elk Grove VillageIL 214,845 477,180 692,025 Glendale Heights IL 318,500 707,399 1,025,899 Hoffman Estates IL 318,500 707,399 1,025,899 Hoffman Estates IL 211,082 468,818 679,900 Lockport IL 189,477 442,018 631,495 O'Fallon IL 141,250 313,722 454,972 Orland Park IL 218,499 485,295 703,794 Palatine IL 121,911 565,233 687,144 Roselle IL 297,541 561,036 858,577 Schaumburg IL 218,798 485,956 704,754 Vernon Hills IL 132,523 614,430 746,953 Westmont IL 124,742 578,330 703,072 Carmel IN 217,565 430,742 648,307 Fishers IN 212,118 419,959 632,077 Highland IN 220,460 436,476 656,936 Indianapolis IN 245,000 544,153 789,153 Noblesville IN 60,000 278,175 338,175 Zionsville IN 127,568 319,770 447,338 Lenexa KS 318,500 707,399 1,025,899 Olathe KS 304,500 676,308 980,808 Overland Park KS 305,691 707,397 1,013,088 Shawnee KS 315,000 699,629 1,014,629 Shawnee KS 288,246 793,002 1,081,248 Topeka KS 58,000 268,903 326,903 Wichita KS 209,890 415,549 625,439 Wichita KS 108,569 401,828 510,397 Lexington KY 210,427 420,883 631,310 Acton MA 315,533 700,813 1,016,346 Marlborough MA 352,765 776,487 1,129,252 Westborough MA 359,412 773,877 1,133,289 Ellicott City MD 219,368 630,839 850,207 Frederick MD 203,352 1,017,109 1,220,461 Olney MD 342,500 760,701 1,103,201 Waldorf MD 130,430 604,702 735,132 Waldorf MD 237,207 526,844 764,051 Canton MI 55,000 378,848 433,848 Page 96 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Elk Grove VillageIL 183,937 04/08/88 300 Glendale Heights IL 258,580 11/16/88 300 Hoffman Estates IL 250,552 03/31/89 300 Hoffman Estates IL 154,121 12/08/89 300 Lockport IL 177,955 10/29/87 300 O'Fallon IL 126,300 10/30/87 300 Orland Park IL 195,380 10/28/87 300 Palatine IL 335,750 03/25/86 300 Roselle IL 203,487 12/30/88 300 Schaumburg IL 192,870 12/17/87 300 Vernon Hills IL 364,972 03/25/86 300 Westmont IL 343,529 03/25/86 300 Carmel IN 127,072 12/27/90 300 Fishers IN 123,891 12/27/90 300 Highland IN 128,762 12/26/90 300 Indianapolis IN 169,695 06/29/90 300 Noblesville IN 181,370 04/30/85 300 Zionsville IN 128,736 10/28/87 300 Lenexa KS 250,552 03/31/89 300 Olathe KS 251,059 09/28/88 300 Overland Park KS 262,600 09/28/88 300 Shawnee KS 257,727 10/27/88 300 Shawnee KS 79 In Process 08/24/98 300 Topeka KS 175,325 04/16/85 300 Wichita KS 122,590 12/26/90 300 Wichita KS 206,860 12/16/86 300 Lexington KY 133,110 08/20/91 300 Acton MA 260,157 09/30/88 300 Marlborough MA 283,833 11/04/88 300 Westborough MA 282,877 11/01/88 300 Ellicott City MD 228,801 12/19/88 300 Frederick MD 18,651 07/06/98 300 Olney MD 301,916 12/18/87 300 Waldorf MD 415,353 09/26/84 300 Waldorf MD 209,098 12/31/87 300 Canton MI 378,848 10/06/82 180 Page 97 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Apple Valley MN 113,523 526,319 None None Bloomington MN 124,113 575,416 None None Brooklyn Park MN 118,111 547,586 None None Brooklyn Park MN 112,823 523,073 None None Eagan MN 112,127 519,844 None None Eden Prairie MN 124,286 576,243 None None Maple Grove MN 111,691 517,822 None None Maple Grove MN 313,250 660,149 None None Minnetonka MN 146,847 680,842 None None Plymouth MN 134,221 622,350 None None W. Bloomington MN 40,000 468,484 None None White Bear Lake MN 260,750 579,133 None None White Bear Lake MN 242,165 537,855 None None Florissant MO 318,500 707,399 None None Florissant MO 181,300 402,672 None None Gladstone MO 294,000 652,987 None None Lee's Summit MO 239,627 532,220 None None Liberty MO 65,400 303,211 None None Manchester MO 287,000 637,435 None None North Kansas CityMO 307,784 738,647 None None St. Charles MO 259,000 575,246 None None Pearl MS 121,801 270,525 None None Cary NC 75,200 262,973 None None Chapel Hill NC 77,000 356,992 None None Charlotte NC 27,551 247,000 None None Charlotte NC 134,582 268,222 None None Concord NC 32,441 190,859 None None Durham NC 220,728 429,380 None None Durham NC 238,000 471,201 None None Hendersonville NC 32,748 186,152 None None Kernersville NC 162,216 316,299 None None Morrisville NC 175,700 390,234 None None Bellevue NE 60,568 280,819 None None Omaha NE 60,500 280,491 None None Omaha NE 53,000 245,720 None None Omaha NE 142,867 317,315 None None Page 98 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Apple Valley MN 113,523 526,319 639,842 Bloomington MN 124,113 575,416 699,529 Brooklyn Park MN 118,111 547,586 665,697 Brooklyn Park MN 112,823 523,073 635,896 Eagan MN 112,127 519,844 631,971 Eden Prairie MN 124,286 576,243 700,529 Maple Grove MN 111,691 517,822 629,513 Maple Grove MN 313,250 660,149 973,399 Minnetonka MN 146,847 680,842 827,689 Plymouth MN 134,221 622,350 756,571 W. Bloomington MN 40,000 468,484 508,484 White Bear Lake MN 260,750 579,133 839,883 White Bear Lake MN 242,165 537,855 780,020 Florissant MO 318,500 707,399 1,025,899 Florissant MO 181,300 402,672 583,972 Gladstone MO 294,000 652,987 946,987 Lee's Summit MO 239,627 532,220 771,847 Liberty MO 65,400 303,211 368,611 Manchester MO 287,000 637,435 924,435 North Kansas CityMO 307,784 738,647 1,046,431 St. Charles MO 259,000 575,246 834,246 Pearl MS 121,801 270,525 392,326 Cary NC 75,200 262,973 338,173 Chapel Hill NC 77,000 356,992 433,992 Charlotte NC 27,551 247,000 274,551 Charlotte NC 134,582 268,222 402,804 Concord NC 32,441 190,859 223,300 Durham NC 220,728 429,380 650,108 Durham NC 238,000 471,201 709,201 Hendersonville NC 32,748 186,152 218,900 Kernersville NC 162,216 316,299 478,515 Morrisville NC 175,700 390,234 565,934 Bellevue NE 60,568 280,819 341,387 Omaha NE 60,500 280,491 340,991 Omaha NE 53,000 245,720 298,720 Omaha NE 142,867 317,315 460,182 Page 99 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Apple Valley MN 312,636 03/26/86 300 Bloomington MN 341,800 03/27/86 300 Brooklyn Park MN 325,268 03/26/86 300 Brooklyn Park MN 310,708 03/27/86 300 Eagan MN 308,789 03/31/86 300 Eden Prairie MN 342,291 03/27/86 300 Maple Grove MN 307,589 03/26/86 300 Maple Grove MN 209,113 07/11/90 300 Minnetonka MN 382,154 12/12/86 300 Plymouth MN 349,321 12/12/86 300 W. Bloomington MN 468,484 06/18/82 180 White Bear Lake MN 229,853 12/23/87 300 White Bear Lake MN 164,708 08/30/90 300 Florissant MO 250,552 03/30/89 300 Florissant MO 142,621 03/29/89 300 Gladstone MO 242,403 09/29/88 300 Lee's Summit MO 178,333 09/27/89 300 Liberty MO 190,939 06/18/85 300 Manchester MO 252,993 12/22/87 300 North Kansas CityMO 1,226 In Process 08/21/98 300 St. Charles MO 228,312 12/23/87 300 Pearl MS 99,044 11/15/88 300 Cary NC 262,973 01/25/84 180 Chapel Hill NC 232,759 04/17/85 300 Charlotte NC 247,000 12/23/81 180 Charlotte NC 98,042 11/16/88 300 Concord NC 190,859 12/23/81 180 Durham NC 152,368 12/29/89 300 Durham NC 128,457 08/20/91 300 Hendersonville NC 186,152 12/23/81 180 Kernersville NC 114,079 12/14/89 300 Morrisville NC 138,215 03/29/89 300 Bellevue NE 156,682 12/16/86 300 Omaha NE 194,920 08/01/84 300 Omaha NE 168,613 10/11/84 300 Omaha NE 125,937 12/09/87 300 Page 100 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Londonderry NH 335,467 745,082 None None Clementon NJ 279,851 554,060 None None Henderson NV 82,000 380,173 None None Las Vegas NV 201,250 446,983 None None Sparks NV 244,752 543,604 None None Beavercreek OH 179,552 398,786 None None Centerville OH 174,519 387,613 None None Cincinnati OH 165,910 368,486 None None Dublin OH 84,000 389,446 None None Englewood OH 74,000 343,083 None None Forest Park OH 170,778 379,305 None None Gahanna OH 86,000 398,718 None None Huber Heights OH 245,000 544,153 None None Loveland OH 206,136 457,829 None None Maineville OH 173,105 384,469 None None Pickerington OH 87,580 406,055 None None Westerville OH 294,350 646,557 None None Westerville OH 82,000 380,173 None None Broken Arrow OK 78,705 220,434 None None Midwest City OK 67,800 314,338 None None Oklahoma City OK 50,800 214,474 None None Oklahoma City OK 79,000 366,261 None None Yukon OK 61,000 282,812 None None Beaverton OR 135,148 626,647 None None Beaverton OR 115,232 534,301 None None Charleston SC 125,593 278,946 None None Charleston SC 140,700 312,498 None None Columbia SC 58,160 269,643 None None Elgin SC 160,831 313,600 None None Goose Creek SC 61,635 192,905 None None Ladson SC 31,543 177,457 None None Lexington SC 55,869 274,742 None None Mt. Pleasant SC 40,700 180,400 None None Summerville SC 44,400 174,500 None None Sumter SC 56,010 268,903 None None Memphis TN 238,263 504,897 None None Page 101 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Londonderry NH 335,467 745,082 1,080,549 Clementon NJ 279,851 554,060 833,911 Henderson NV 82,000 380,173 462,173 Las Vegas NV 201,250 446,983 648,233 Sparks NV 244,752 543,604 788,356 Beavercreek OH 179,552 398,786 578,338 Centerville OH 174,519 387,613 562,132 Cincinnati OH 165,910 368,486 534,396 Dublin OH 84,000 389,446 473,446 Englewood OH 74,000 343,083 417,083 Forest Park OH 170,778 379,305 550,083 Gahanna OH 86,000 398,718 484,718 Huber Heights OH 245,000 544,153 789,153 Loveland OH 206,136 457,829 663,965 Maineville OH 173,105 384,469 557,574 Pickerington OH 87,580 406,055 493,635 Westerville OH 294,350 646,557 940,907 Westerville OH 82,000 380,173 462,173 Broken Arrow OK 78,705 220,434 299,139 Midwest City OK 67,800 314,338 382,138 Oklahoma City OK 50,800 214,474 265,274 Oklahoma City OK 79,000 366,261 445,261 Yukon OK 61,000 282,812 343,812 Beaverton OR 135,148 626,647 761,795 Beaverton OR 115,232 534,301 649,533 Charleston SC 125,593 278,946 404,539 Charleston SC 140,700 312,498 453,198 Columbia SC 58,160 269,643 327,803 Elgin SC 160,831 313,600 474,431 Goose Creek SC 61,635 192,905 254,540 Ladson SC 31,543 177,457 209,000 Lexington SC 55,869 274,742 330,611 Mt. Pleasant SC 40,700 180,400 221,100 Summerville SC 44,400 174,500 218,900 Sumter SC 56,010 268,903 324,913 Memphis TN 238,263 504,897 743,160 Page 102 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Londonderry NH 253,355 08/18/89 300 Clementon NJ 149,497 09/09/91 300 Henderson NV 247,872 04/17/85 300 Las Vegas NV 139,392 06/29/90 300 Sparks NV 214,198 01/29/88 300 Beavercreek OH 165,136 06/30/87 300 Centerville OH 159,396 07/23/87 300 Cincinnati OH 154,709 04/29/87 300 Dublin OH 240,353 10/08/85 300 Englewood OH 210,617 10/23/85 300 Forest Park OH 154,804 09/28/87 300 Gahanna OH 243,188 11/26/85 300 Huber Heights OH 165,108 09/27/90 300 Loveland OH 193,537 03/20/87 300 Maineville OH 162,525 03/06/87 300 Pickerington OH 227,908 12/11/86 300 Westerville OH 202,075 09/26/90 300 Westerville OH 234,630 10/08/85 300 Broken Arrow OK 220,434 01/27/83 180 Midwest City OK 196,705 08/14/85 300 Oklahoma City OK 214,474 06/15/82 180 Oklahoma City OK 249,852 11/14/84 300 Yukon OK 183,236 05/02/85 300 Beaverton OR 349,634 12/17/86 300 Beaverton OR 298,111 12/22/86 300 Charleston SC 106,728 05/26/88 300 Charleston SC 110,684 03/28/89 300 Columbia SC 183,941 11/14/84 300 Elgin SC 113,105 12/14/89 300 Goose Creek SC 192,905 12/22/81 180 Ladson SC 177,457 12/22/81 180 Lexington SC 187,418 11/13/84 300 Mt. Pleasant SC 180,400 12/22/81 180 Summerville SC 174,500 12/22/81 180 Sumter SC 169,337 06/18/85 300 Memphis TN 187,426 09/29/88 300 Page 103 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Memphis TN 238,000 528,608 None None Memphis TN 221,501 491,962 None None Nashville TN 274,298 609,223 None None Allen TX 177,637 394,537 None None Arlington TX 82,109 380,678 None None Arlington TX 238,000 528,604 None None Arlington TX 241,500 550,559 None None Arlington TX 70,000 324,538 None None Arlington TX 195,650 387,355 None None Austin TX 134,383 623,103 None None Austin TX 236,733 528,608 None None Austin TX 238,000 528,604 None None Austin TX 103,600 230,532 None None Austin TX 88,872 222,684 None None Austin TX 188,144 417,872 None None Austin TX 191,636 425,629 None None Austin TX 224,878 499,461 None None Austin TX 217,878 483,913 None None Bedford TX 241,500 550,559 None None Carrollton TX 277,850 617,113 None None Cedar Park TX 168,857 375,036 None None Colleyville TX 68,000 315,266 None None Converse TX 217,000 481,963 None None Coppell TX 139,224 645,551 None None Coppell TX 208,641 463,398 None None Desoto TX 86,000 398,715 None None Duncanville TX 93,000 431,172 None None Euless TX 234,111 519,962 None None Flower Mound TX 202,773 442,846 None None Fort Worth TX 238,000 528,608 None None Fort Worth TX 85,518 396,495 None None Fort Worth TX 210,007 444,460 None None Fort Worth TX 216,160 427,962 None None Garland TX 211,050 468,749 None None Grand Prairie TX 167,164 371,275 None None Houston TX 219,100 486,631 None None Page 104 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Memphis TN 238,000 528,608 766,608 Memphis TN 221,501 491,962 713,463 Nashville TN 274,298 609,223 883,521 Allen TX 177,637 394,537 572,174 Arlington TX 82,109 380,678 462,787 Arlington TX 238,000 528,604 766,604 Arlington TX 241,500 550,559 792,059 Arlington TX 70,000 324,538 394,538 Arlington TX 195,650 387,355 583,005 Austin TX 134,383 623,103 757,486 Austin TX 236,733 528,608 765,341 Austin TX 238,000 528,604 766,604 Austin TX 103,600 230,532 334,132 Austin TX 88,872 222,684 311,556 Austin TX 188,144 417,872 606,016 Austin TX 191,636 425,629 617,265 Austin TX 224,878 499,461 724,339 Austin TX 217,878 483,913 701,791 Bedford TX 241,500 550,559 792,059 Carrollton TX 277,850 617,113 894,963 Cedar Park TX 168,857 375,036 543,893 Colleyville TX 68,000 315,266 383,266 Converse TX 217,000 481,963 698,963 Coppell TX 139,224 645,551 784,775 Coppell TX 208,641 463,398 672,039 Desoto TX 86,000 398,715 484,715 Duncanville TX 93,000 431,172 524,172 Euless TX 234,111 519,962 754,073 Flower Mound TX 202,773 442,846 645,619 Fort Worth TX 238,000 528,608 766,608 Fort Worth TX 85,518 396,495 482,013 Fort Worth TX 210,007 444,460 654,467 Fort Worth TX 216,160 427,962 644,122 Garland TX 211,050 468,749 679,799 Grand Prairie TX 167,164 371,275 538,439 Houston TX 219,100 486,631 705,731 Page 105 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Memphis TN 196,230 09/30/88 300 Memphis TN 150,654 08/31/90 300 Nashville TN 215,779 03/30/89 300 Allen TX 144,212 11/21/88 300 Arlington TX 258,148 12/13/84 300 Arlington TX 196,228 09/26/88 300 Arlington TX 253,298 09/22/89 300 Arlington TX 210,270 05/08/85 300 Arlington TX 112,101 02/07/91 300 Austin TX 347,658 12/23/86 300 Austin TX 196,230 09/27/88 300 Austin TX 185,728 04/06/89 300 Austin TX 230,532 10/29/82 180 Austin TX 222,684 01/12/83 180 Austin TX 159,883 05/11/88 300 Austin TX 154,372 12/22/88 300 Austin TX 179,736 01/03/89 300 Austin TX 167,285 06/22/89 300 Bedford TX 253,298 09/22/89 300 Carrollton TX 244,928 12/11/87 300 Cedar Park TX 137,084 11/21/88 300 Colleyville TX 204,263 05/01/85 300 Converse TX 178,914 09/28/88 300 Coppell TX 360,182 12/17/86 300 Coppell TX 183,919 12/11/87 300 Desoto TX 272,252 10/24/84 300 Duncanville TX 279,357 05/08/85 300 Euless TX 216,811 05/08/87 300 Flower Mound TX 185,927 04/20/87 300 Fort Worth TX 196,230 09/26/88 300 Fort Worth TX 222,543 12/03/86 300 Fort Worth TX 146,273 02/01/90 300 Fort Worth TX 123,852 02/07/91 300 Garland TX 154,099 12/12/89 300 Grand Prairie TX 134,658 12/13/88 300 Houston TX 180,648 09/30/88 300 Page 106 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- Houston TX 219,100 486,628 None None Houston TX 149,109 323,314 None None Houston TX 58,000 268,901 None None Houston TX 60,000 278,175 None None Houston TX 102,000 472,898 None None Houston TX 139,125 308,997 None None Houston TX 139,125 308,997 None None Houston TX 141,296 313,824 None None Houston TX 294,582 385,334 None None Katy TX 309,898 857,102 None None Lewisville TX 192,777 428,121 None None Lewisville TX 192,218 426,922 None None Lewisville TX 79,000 366,264 None None Mansfield TX 181,375 402,838 None None Mesquite TX 85,000 394,079 None None Mesquite TX 139,466 326,525 None None Missouri City TX 221,025 437,593 None None N. Richland HillsTX 238,000 528,608 None None Pasadena TX 60,000 278,173 None None Plano TX 261,912 581,658 None None Plano TX 250,514 556,399 None None Plano TX 259,000 575,246 None None Round Rock TX 80,525 373,347 None None Round Rock TX 186,380 413,957 None None San Antonio TX 130,833 606,595 None None San Antonio TX 234,500 520,831 None None San Antonio TX 217,000 481,967 None None San Antonio TX 220,500 447,108 None None San Antonio TX 102,512 475,289 None None San Antonio TX 81,530 378,007 None None San Antonio TX 139,125 308,997 None None San Antonio TX 181,412 402,923 None None San Antonio TX 162,161 360,166 None None San Antonio TX 182,868 406,155 None None Southlake TX 228,279 511,750 None None Sugarland TX 193,800 430,436 None None Page 107 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- Houston TX 219,100 486,628 705,728 Houston TX 149,109 323,314 472,423 Houston TX 58,000 268,901 326,901 Houston TX 60,000 278,175 338,175 Houston TX 102,000 472,898 574,898 Houston TX 139,125 308,997 448,122 Houston TX 139,125 308,997 448,122 Houston TX 141,296 313,824 455,120 Houston TX 294,582 385,334 679,916 Katy TX 309,898 857,102 1,167,000 Lewisville TX 192,777 428,121 620,898 Lewisville TX 192,218 426,922 619,140 Lewisville TX 79,000 366,264 445,264 Mansfield TX 181,375 402,838 584,213 Mesquite TX 85,000 394,079 479,079 Mesquite TX 139,466 326,525 465,991 Missouri City TX 221,025 437,593 658,618 N. Richland HillsTX 238,000 528,608 766,608 Pasadena TX 60,000 278,173 338,173 Plano TX 261,912 581,658 843,570 Plano TX 250,514 556,399 806,913 Plano TX 259,000 575,246 834,246 Round Rock TX 80,525 373,347 453,872 Round Rock TX 186,380 413,957 600,337 San Antonio TX 130,833 606,595 737,428 San Antonio TX 234,500 520,831 755,331 San Antonio TX 217,000 481,967 698,967 San Antonio TX 220,500 447,108 667,608 San Antonio TX 102,512 475,289 577,801 San Antonio TX 81,530 378,007 459,537 San Antonio TX 139,125 308,997 448,122 San Antonio TX 181,412 402,923 584,335 San Antonio TX 162,161 360,166 522,327 San Antonio TX 182,868 406,155 589,023 Southlake TX 228,279 511,750 740,029 Sugarland TX 193,800 430,436 624,236 Page 108 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- Houston TX 177,881 11/16/88 300 Houston TX 126,780 06/26/89 300 Houston TX 184,521 10/11/84 300 Houston TX 180,231 05/01/85 300 Houston TX 306,392 05/01/85 300 Houston TX 128,842 05/22/87 300 Houston TX 128,842 05/22/87 300 Houston TX 129,053 07/24/87 300 Houston TX 72 In Process 08/14/98 300 Katy TX 74 In Process 08/21/98 300 Lewisville TX 183,095 01/07/87 300 Lewisville TX 154,843 12/29/88 300 Lewisville TX 230,647 06/26/85 300 Mansfield TX 132,432 12/20/89 300 Mesquite TX 269,088 10/24/84 300 Mesquite TX 116,023 10/08/92 300 Missouri City TX 129,092 12/13/90 300 N. Richland HillsTX 196,230 09/26/88 300 Pasadena TX 189,945 10/23/84 300 Plano TX 249,236 01/06/87 300 Plano TX 220,830 12/10/87 300 Plano TX 213,543 09/27/88 300 Round Rock TX 208,308 12/16/86 300 Round Rock TX 145,445 04/19/89 300 San Antonio TX 360,320 03/24/86 300 San Antonio TX 206,713 12/29/87 300 San Antonio TX 177,547 10/14/88 300 San Antonio TX 158,361 03/30/89 300 San Antonio TX 266,770 12/03/86 300 San Antonio TX 212,166 12/11/86 300 San Antonio TX 128,842 05/22/87 300 San Antonio TX 165,691 07/07/87 300 San Antonio TX 148,110 07/07/87 300 San Antonio TX 147,310 12/06/88 300 Southlake TX 148,141 03/10/93 300 Sugarland TX 177,007 07/31/87 300 Page 109 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Child Care - ---------- The Woodlands TX 193,801 430,441 None None Watauga TX 165,914 368,502 None None Layton UT 136,574 269,009 None None Sandy UT 168,089 373,330 None None Centreville VA 371,000 824,003 None None Chesapeake VA 190,050 422,107 None None Glen Allen VA 74,643 346,060 None None Portsmouth VA 171,575 381,072 None None Richmond VA 269,500 598,567 None None Richmond VA 71,001 327,771 None None Virginia Beach VA 124,988 579,496 None None Virginia Beach VA 69,080 320,270 None None Woodbridge VA 358,050 795,239 None None Everett WA 120,000 540,363 None None Federal Way WA 150,785 699,100 None None Federal Way WA 261,943 581,782 None None Kent WA 128,300 539,141 None None Kent WA 140,763 678,809 None None Kirkland WA 301,000 668,534 None None Puyallup WA 195,552 434,327 None None Redmond WA 279,830 621,512 None None Renton WA 111,183 515,490 None None Appleton WI 196,000 424,038 None None Brookfield WI 233,100 461,500 None None Waukesha WI 215,950 427,546 None None Cheyenne WY 59,856 277,506 None None Consumer Electronics - -------------------- Oxford AL 323,085 406,655 None None Tuscaloosa AL 204,790 585,115 None None Thousand Oaks CA 2,703,726 6,125,829 None None Bradenton FL 174,948 240,928 None None MaryEsther FL 149,696 363,263 None None Melbourne FL 269,697 522,414 None None Merritt Island FL 309,652 482,459 None None Ocala FL 339,690 543,504 None None Page 110 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Child Care - ---------- The Woodlands TX 193,801 430,441 624,242 Watauga TX 165,914 368,502 534,416 Layton UT 136,574 269,009 405,583 Sandy UT 168,089 373,330 541,419 Centreville VA 371,000 824,003 1,195,003 Chesapeake VA 190,050 422,107 612,157 Glen Allen VA 74,643 346,060 420,703 Portsmouth VA 171,575 381,072 552,647 Richmond VA 269,500 598,567 868,067 Richmond VA 71,001 327,771 398,772 Virginia Beach VA 124,988 579,496 704,484 Virginia Beach VA 69,080 320,270 389,350 Woodbridge VA 358,050 795,239 1,153,289 Everett WA 120,000 540,363 660,363 Federal Way WA 150,785 699,100 849,885 Federal Way WA 261,943 581,782 843,725 Kent WA 128,300 539,141 667,441 Kent WA 140,763 678,809 819,572 Kirkland WA 301,000 668,534 969,534 Puyallup WA 195,552 434,327 629,879 Redmond WA 279,830 621,512 901,342 Renton WA 111,183 515,490 626,673 Appleton WI 196,000 424,038 620,038 Brookfield WI 233,100 461,500 694,600 Waukesha WI 215,950 427,546 643,496 Cheyenne WY 59,856 277,506 337,362 Consumer Electronics - -------------------- Oxford AL 323,085 406,655 729,740 Tuscaloosa AL 204,790 585,115 789,905 Thousand Oaks CA 2,703,726 6,125,829 8,829,555 Bradenton FL 174,948 240,928 415,876 MaryEsther FL 149,696 363,263 512,959 Melbourne FL 269,697 522,414 792,111 Merritt Island FL 309,652 482,459 792,111 Ocala FL 339,690 543,504 883,194 Page 111 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Child Care - ---------- The Woodlands TX 175,772 08/11/87 300 Watauga TX 151,536 07/07/87 300 Layton UT 96,136 02/01/90 300 Sandy UT 120,626 02/01/90 300 Centreville VA 277,864 09/29/89 300 Chesapeake VA 149,505 03/28/89 300 Glen Allen VA 241,874 06/20/84 300 Portsmouth VA 138,213 12/21/88 300 Richmond VA 212,004 03/28/89 300 Richmond VA 203,559 09/04/85 300 Virginia Beach VA 344,223 03/25/86 300 Virginia Beach VA 218,479 11/15/84 300 Woodbridge VA 295,210 09/29/88 300 Everett WA 540,363 11/22/82 180 Federal Way WA 390,061 12/17/86 300 Federal Way WA 212,656 11/21/88 300 Kent WA 539,141 06/03/83 180 Kent WA 378,740 12/17/86 300 Kirkland WA 259,604 03/31/88 300 Puyallup WA 157,526 12/06/88 300 Redmond WA 255,582 07/27/87 300 Renton WA 306,202 03/24/86 300 Appleton WI 135,031 07/10/90 300 Brookfield WI 136,144 12/13/90 300 Waukesha WI 126,129 12/13/90 300 Cheyenne WY 188,367 11/20/84 300 Consumer Electronics - -------------------- Oxford AL 34,566 11/26/96 300 Tuscaloosa AL 49,735 11/26/96 300 Thousand Oaks CA 561,531 09/27/96 300 Bradenton FL 20,479 11/26/96 300 MaryEsther FL 30,877 11/26/96 300 Melbourne FL 44,405 11/26/96 300 Merritt Island FL 41,009 11/26/96 300 Ocala FL 46,198 11/26/96 300 Page 112 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Consumer Electronics - -------------------- Pensacola FL 419,842 1,899,287 None None Tallahassee FL 319,807 502,697 None None Titusville FL 176,459 579,793 None None Venice FL 259,686 362,562 None None Rome GA 254,902 486,812 None None Smyrna GA 1,094,058 3,090,236 None None Council Bluffs IA 255,217 117,792 None None Des Moines IA 188,520 367,614 None None Peoria IL 193,868 387,737 None None Rockford IL 159,587 618,398 None None Springfield IL 219,859 630,595 None None Anderson IN 180,628 653,038 None None Muncie IN 148,901 645,235 None None Richmond IN 93,999 193,753 None None Topeka KS 974,960 3,472,226 None None Columbus MS 144,908 463,707 None None Greenville MS 144,588 433,764 None None Gulfport MS 299,464 502,326 None None Hattiesburg MS 198,659 457,379 None None Jackson MS 405,360 656,296 None None Meridian MS 181,156 515,598 None None Tupelo MS 121,697 637,691 None None Vicksburg MS 494,532 174,541 None None Lakewood NY 144,859 526,301 None None Defiance OH 97,978 601,863 None None Kettering OH 229,246 488,393 None None Bristol TN 344,365 468,719 None None Clarksville TN 290,775 395,870 None None Vienna WV 324,797 526,670 None None Convenience Stores - ------------------ Fullerton CA 29,170 41,003 None 11,934 Manchester CT 118,262 305,510 None None Vernon CT 179,646 319,372 None None Westbrook CT 98,247 373,340 None None Dunwoody GA 545,462 724,254 None None Page 113 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Consumer Electronics - -------------------- Pensacola FL 419,842 1,899,287 2,319,129 Tallahassee FL 319,807 502,697 822,504 Titusville FL 176,459 579,793 756,252 Venice FL 259,686 362,562 622,248 Rome GA 254,902 486,812 741,714 Smyrna GA 1,094,058 3,090,236 4,184,294 Council Bluffs IA 255,217 117,792 373,009 Des Moines IA 188,520 367,614 556,134 Peoria IL 193,868 387,737 581,605 Rockford IL 159,587 618,398 777,985 Springfield IL 219,859 630,595 850,454 Anderson IN 180,628 653,038 833,666 Muncie IN 148,901 645,235 794,136 Richmond IN 93,999 193,753 287,752 Topeka KS 974,960 3,472,226 4,447,186 Columbus MS 144,908 463,707 608,615 Greenville MS 144,588 433,764 578,352 Gulfport MS 299,464 502,326 801,790 Hattiesburg MS 198,659 457,379 656,038 Jackson MS 405,360 656,296 1,061,656 Meridian MS 181,156 515,598 696,754 Tupelo MS 121,697 637,691 759,388 Vicksburg MS 494,532 174,541 669,073 Lakewood NY 144,859 526,301 671,160 Defiance OH 97,978 601,863 699,841 Kettering OH 229,246 488,393 717,639 Bristol TN 344,365 468,719 813,084 Clarksville TN 290,775 395,870 686,645 Vienna WV 324,797 526,670 851,467 Convenience Stores - ------------------ Fullerton CA 29,170 52,937 82,107 Manchester CT 118,262 305,510 423,772 Vernon CT 179,646 319,372 499,018 Westbrook CT 98,247 373,340 471,587 Dunwoody GA 545,462 724,254 1,269,716 Page 114 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Consumer Electronics - -------------------- Pensacola FL 161,439 11/26/96 300 Tallahassee FL 42,729 11/26/96 300 Titusville FL 49,283 11/26/96 300 Venice FL 30,818 11/26/96 300 Rome GA 41,379 11/26/96 300 Smyrna GA 190,349 06/09/97 300 Council Bluffs IA 10,012 11/26/96 300 Des Moines IA 31,247 11/26/96 300 Peoria IL 32,958 11/26/96 300 Rockford IL 52,564 11/26/96 300 Springfield IL 53,601 11/26/96 300 Anderson IN 55,508 11/26/96 300 Muncie IN 54,845 11/26/96 300 Richmond IN 16,469 11/26/96 300 Topeka KS 283,559 12/27/96 300 Columbus MS 39,415 11/26/96 300 Greenville MS 36,870 11/26/96 300 Gulfport MS 42,698 11/26/96 300 Hattiesburg MS 38,877 11/26/96 300 Jackson MS 55,785 11/26/96 300 Meridian MS 43,826 11/26/96 300 Tupelo MS 54,204 11/26/96 300 Vicksburg MS 14,836 11/26/96 300 Lakewood NY 44,736 11/26/96 300 Defiance OH 51,158 11/26/96 300 Kettering OH 41,513 11/26/96 300 Bristol TN 39,841 11/26/96 300 Clarksville TN 33,649 11/26/96 300 Vienna WV 44,767 11/26/96 300 Convenience Stores - ------------------ Fullerton CA 48,163 11/08/72 234 Manchester CT 46,336 03/03/95 300 Vernon CT 48,438 03/09/95 300 Westbrook CT 56,623 03/09/95 300 Dunwoody GA 44,555 06/27/97 300 Page 115 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Convenience Stores - ------------------ Lithonia GA 386,784 776,436 None None Mabelton GA 491,069 355,957 None None Norcross GA 384,162 651,273 None None Stone Mountain GA 529,383 532,429 None None Godfrey IL 374,586 733,190 None None Granite City IL 362,287 737,255 None None Madison IL 173,812 625,030 None None New Albany IN 181,459 289,353 None None New Albany IN 262,465 331,796 None None Berea KY 252,077 360,815 None None Elizabethtown KY 286,106 286,106 None None Henderson KY 225,000 515,000 None None Lebanon KY 158,052 316,105 None None Louisville KY 198,926 368,014 None None Louisville KY 216,849 605,697 None None Mt. Washington KY 327,245 479,593 None None Owensboro KY 360,000 590,000 None None Seekonk MA 298,354 268,518 None None Flint MI 194,492 476,504 None None Cary NC 450,000 825,000 None None Greenville NC 330,000 515,000 None None Greenville NC 225,000 405,000 None None Jacksonville NC 150,000 530,000 None None Kinston NC 550,000 1,057,833 None None Kingston NY 257,763 456,042 None None Atwater OH 118,555 266,748 None None Columbus OH 147,296 304,411 None None Columbus OH 273,085 471,693 None None Cuyahoga Falls OH 297,982 357,579 None None Galion OH 138,981 327,597 None None Groveport OH 277,198 445,497 None None Perrysburg OH 211,678 390,680 None None Streetsboro OH 402,988 484,716 None None Tipp City OH 355,009 588,111 None None Triffin OH 117,017 273,040 None None Wadsworth OH 266,507 496,917 None None Page 116 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Convenience Stores - ------------------ Lithonia GA 386,784 776,436 1,163,220 Mabelton GA 491,069 355,957 847,026 Norcross GA 384,162 651,273 1,035,435 Stone Mountain GA 529,383 532,429 1,061,812 Godfrey IL 374,586 733,190 1,107,776 Granite City IL 362,287 737,255 1,099,542 Madison IL 173,812 625,030 798,842 New Albany IN 181,459 289,353 470,812 New Albany IN 262,465 331,796 594,261 Berea KY 252,077 360,815 612,892 Elizabethtown KY 286,106 286,106 572,212 Henderson KY 225,000 515,000 740,000 Lebanon KY 158,052 316,105 474,157 Louisville KY 198,926 368,014 566,940 Louisville KY 216,849 605,697 822,546 Mt. Washington KY 327,245 479,593 806,838 Owensboro KY 360,000 590,000 950,000 Seekonk MA 298,354 268,518 566,872 Flint MI 194,492 476,504 670,996 Cary NC 450,000 825,000 1,275,000 Greenville NC 330,000 515,000 845,000 Greenville NC 225,000 405,000 630,000 Jacksonville NC 150,000 530,000 680,000 Kinston NC 550,000 1,057,833 1,607,833 Kingston NY 257,763 456,042 713,805 Atwater OH 118,555 266,748 385,303 Columbus OH 147,296 304,411 451,707 Columbus OH 273,085 471,693 744,778 Cuyahoga Falls OH 297,982 357,579 655,561 Galion OH 138,981 327,597 466,578 Groveport OH 277,198 445,497 722,695 Perrysburg OH 211,678 390,680 602,358 Streetsboro OH 402,988 484,716 887,704 Tipp City OH 355,009 588,111 943,120 Triffin OH 117,017 273,040 390,057 Wadsworth OH 266,507 496,917 763,424 Page 117 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Convenience Stores - ------------------ Lithonia GA 47,791 06/27/97 300 Mabelton GA 21,876 06/27/97 300 Norcross GA 40,069 06/27/97 300 Stone Mountain GA 32,738 06/27/97 300 Godfrey IL 45,113 06/27/97 300 Granite City IL 45,366 06/27/97 300 Madison IL 38,475 06/27/97 300 New Albany IN 43,885 03/03/95 300 New Albany IN 50,323 03/06/95 300 Berea KY 54,724 03/08/95 300 Elizabethtown KY 43,393 03/03/95 300 Henderson KY 69,525 08/25/95 300 Lebanon KY 47,942 03/03/95 300 Louisville KY 55,815 03/03/95 300 Louisville KY 61,445 06/18/96 11/17/95 300 Mt. Washington KY 40,811 10/28/96 05/31/96 300 Owensboro KY 79,650 08/25/95 300 Seekonk MA 40,725 03/03/95 300 Flint MI 57,975 12/21/95 300 Cary NC 111,375 08/25/95 300 Greenville NC 69,525 08/25/95 300 Greenville NC 54,675 08/25/95 300 Jacksonville NC 71,550 08/25/95 300 Kinston NC 50,988 10/24/97 300 Kingston NY 67,646 04/06/95 300 Atwater OH 40,457 03/03/95 300 Columbus OH 46,169 03/03/95 300 Columbus OH 57,389 12/21/95 300 Cuyahoga Falls OH 54,233 03/03/95 300 Galion OH 49,686 03/06/95 300 Groveport OH 54,202 12/21/95 300 Perrysburg OH 32,255 01/10/96 09/01/95 300 Streetsboro OH 18,056 01/27/97 09/03/96 300 Tipp City OH 22,524 01/31/97 06/27/96 300 Triffin OH 41,411 03/07/95 300 Wadsworth OH 25,845 11/26/96 07/01/96 300 Page 118 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Convenience Stores - ------------------ Tulsa OK 126,545 508,266 None None Columbia SC 150,000 450,000 None None John's Isle SC 170,000 350,000 None None Lexington SC 255,000 545,000 None None Myrtle Beach SC 140,000 590,000 None None N. Charleston SC 400,000 650,000 None None Summerville SC 115,000 515,000 None None La Vergne TN 340,000 650,000 None None Shelbyville TN 200,000 465,000 None None Hampton VA 433,985 459,108 None None Midlothian VA 325,000 302,872 None None Newport News VA 490,616 205,304 None None Richmond VA 700,000 400,740 None None Richmond VA 700,000 440,965 None None Richmond VA 400,000 250,875 None None Richmond VA 1,000,000 740 None None Richmond VA 700,000 100,695 None None Stafford VA 271,865 601,997 None None Warrenton VA 515,971 649,125 None None Yorktown VA 309,435 447,144 None None Crafts and Novelties - -------------------- Cutler Ridge FL 743,498 657,485 None None Drug Stores - ----------- Casselberry FL -- 1,664,284 None None General Merchandise - ------------------- Monte Vista CO 47,652 582,159 None None Garnett KS 59,690 518,121 None None Caledonia MN 89,723 559,300 None None Long Prairie MN 88,892 553,997 None None Paynesville MN 49,483 525,406 None None Spring Valley MN 69,785 579,238 None None Warroad MN 70,000 580,000 None None Mayville ND 59,333 565,558 None None Page 119 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Convenience Stores - ------------------ Tulsa OK 126,545 508,266 634,811 Columbia SC 150,000 450,000 600,000 John's Isle SC 170,000 350,000 520,000 Lexington SC 255,000 545,000 800,000 Myrtle Beach SC 140,000 590,000 730,000 N. Charleston SC 400,000 650,000 1,050,000 Summerville SC 115,000 515,000 630,000 La Vergne TN 340,000 650,000 990,000 Shelbyville TN 200,000 465,000 665,000 Hampton VA 433,985 459,108 893,093 Midlothian VA 325,000 302,872 627,872 Newport News VA 490,616 205,304 695,920 Richmond VA 700,000 400,740 1,100,740 Richmond VA 700,000 440,965 1,140,965 Richmond VA 400,000 250,875 650,875 Richmond VA 1,000,000 740 1,000,740 Richmond VA 700,000 100,695 800,695 Stafford VA 271,865 601,997 873,862 Warrenton VA 515,971 649,125 1,165,096 Yorktown VA 309,435 447,144 756,579 Craft and Novelties - ------------------- Cutler Ridge FL 743,498 657,485 1,400,983 Drug Stores - ----------- Casselberry FL -- 1,664,284 1,664,284 General Merchandise - ------------------- Monte Vista CO 47,652 582,159 629,811 Garnett KS 59,690 518,121 577,811 Caledonia MN 89,723 559,300 649,023 Long Prairie MN 88,892 553,997 642,889 Paynesville MN 49,483 525,406 574,889 Spring Valley MN 69,785 579,238 649,023 Warroad MN 70,000 580,000 650,000 Mayville ND 59,333 565,558 624,891 Page 120 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Convenience Stores - ------------------ Tulsa OK 31,278 06/27/97 300 Columbia SC 60,750 08/25/95 300 John's Isle SC 47,250 08/25/95 300 Lexington SC 73,575 08/25/95 300 Myrtle Beach SC 79,650 08/25/95 300 N. Charleston SC 87,750 08/25/95 300 Summerville SC 69,525 08/25/95 300 La Vergne TN 87,750 08/25/95 300 Shelbyville TN 62,775 08/25/95 300 Hampton VA 13,009 04/17/98 300 Midlothian VA 16,587 08/21/97 300 Newport News VA 5,818 04/17/98 300 Richmond VA 11,354 04/17/98 300 Richmond VA 12,495 04/17/98 300 Richmond VA 7,108 04/17/98 300 Richmond VA 21 04/17/98 300 Richmond VA 2,853 04/17/98 300 Stafford VA 49,162 12/20/96 300 Warrenton VA 53,012 12/20/96 300 Yorktown VA 12,670 04/17/98 300 Craft and Novelties - ------------------- Cutler Ridge FL 1,120 12/31/98 300 Drug Stores - ----------- Casselberry FL 19,488 09/30/98 300 General Merchandise - ------------------- Monte Vista CO 992 12/23/98 300 Garnett KS 885 12/23/98 300 Caledonia MN 960 12/23/98 300 Long Prairie MN 948 12/23/98 300 Paynesville MN 900 12/23/98 300 Spring Valley MN 994 12/23/98 300 Warroad MN 967 12/23/98 300 Mayville ND 994 12/23/98 300 Page 121 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ General Merchandise - ------------------- Bloomfield NM 59,559 616,252 None None Colorado City TX 92,535 505,276 None None Grocery - ------- Boulder CO 426,675 1,199,508 18,000 91,455 Sheboygan WI 1,513,216 392,928 None None Health and Fitness - ------------------ Diamond Bar CA 3,038,879 276,637 None None Coral Springs FL 891,496 2,789,489 None None Home Furnishings - ---------------- Cathedral City CA 1,006,923 2,293,077 None None Concord CA 4,162,500 3,037,500 None None Danbury CT 630,171 3,621,163 None None Brandon FL 430,000 1,020,608 None None Tampa FL 685,000 885,624 None None Winter Park FL 2,404,598 3,382,402 None None Davenport IA 270,000 930,689 None None Joilet IL 440,000 910,689 None None Wichita KS 430,000 740,725 None None Alexandria LA 400,000 810,608 None None Monroe LA 450,000 835,608 None None Shreveport LA 525,000 725,642 None None Battle Creek MI 485,000 895,689 None None Hattiesburg MS 300,000 660,608 None None Ridgeland MS 281,867 769,890 None None Omaha NE 1,956,296 3,949,402 None None Henderson NV 1,268,655 3,109,995 None None Staten Island NY 3,190,883 2,569,802 None None Lancaster OH 250,000 830,689 None None Altoona PA 455,000 745,694 None None Erie PA 510,000 900,689 None None Muncy PA 315,000 835,648 None None Whitehall PA 515,525 1,146,868 None None Columbia SC 600,000 900,725 None None Page 122 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- General Merchandise - ------------------- Bloomfield NM 59,559 616,252 675,811 Colorado City TX 92,535 505,276 597,811 Grocery - ------- Boulder CO 426,675 1,308,963 1,735,638 Sheboygan WI 1,513,216 392,928 1,906,144 Health and Fitness - ------------------ Diamond Bar CA 3,038,879 276,637 3,315,516 Coral Springs FL 891,496 2,789,489 3,680,985 Home Furnishings - ---------------- Cathedral City CA 1,006,923 2,293,077 3,300,000 Concord CA 4,162,500 3,037,500 7,200,000 Danbury CT 630,171 3,621,163 4,251,334 Brandon FL 430,000 1,020,608 1,450,608 Tampa FL 685,000 885,624 1,570,624 Winter Park FL 2,404,598 3,382,402 5,787,000 Davenport IA 270,000 930,689 1,200,689 Joilet IL 440,000 910,689 1,350,689 Wichita KS 430,000 740,725 1,170,725 Alexandria LA 400,000 810,608 1,210,608 Monroe LA 450,000 835,608 1,285,608 Shreveport LA 525,000 725,642 1,250,642 Battle Creek MI 485,000 895,689 1,380,689 Hattiesburg MS 300,000 660,608 960,608 Ridgeland MS 281,867 769,890 1,051,757 Omaha NE 1,956,296 3,949,402 5,905,698 Henderson NV 1,268,655 3,109,995 4,378,650 Staten Island NY 3,190,883 2,569,802 5,760,685 Lancaster OH 250,000 830,689 1,080,689 Altoona PA 455,000 745,694 1,200,694 Erie PA 510,000 900,689 1,410,689 Muncy PA 315,000 835,648 1,150,648 Whitehall PA 515,525 1,146,868 1,662,393 Columbia SC 600,000 900,725 1,500,725 Page 123 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- General Merchandise - ------------------- Bloomfield NM 1,049 12/23/98 300 Colorado City TX 864 12/23/98 300 Grocery - ------- Boulder CO 844,058 01/05/84 180 Sheboygan WI 1,072 In Process 08/24/98 300 Health and Fitness - ------------------ Diamond Bar CA 956 In Process 09/29/98 300 Coral Springs FL 22,745 In Process 03/30/98 300 Home Furnishings - ---------------- Cathedral City CA 332,496 05/26/95 300 Concord CA 440,438 05/31/95 300 Danbury CT 186,656 09/30/97 300 Brandon FL 22,118 06/26/98 300 Tampa FL 19,193 06/26/98 300 Winter Park FL 490,448 05/31/95 300 Davenport IA 20,170 06/26/98 300 Joilet IL 19,737 06/26/98 300 Wichita KS 16,054 06/26/98 300 Alexandria LA 17,568 06/26/98 300 Monroe LA 18,110 06/26/98 300 Shreveport LA 15,727 06/26/98 300 Battle Creek MI 19,412 06/26/98 300 Hattiesburg MS 14,318 06/26/98 300 Ridgeland MS 47,344 06/27/97 300 Omaha NE 269,656 04/04/97 300 Henderson NV 160,309 09/26/97 300 Staten Island NY 81,330 03/26/98 300 Lancaster OH 18,003 06/26/98 300 Altoona PA 16,162 06/26/98 300 Erie PA 19,520 06/26/98 300 Muncy PA 18,111 06/26/98 300 Whitehall PA 24,854 06/30/98 300 Columbia SC 19,521 06/26/98 300 Page 124 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Home Furnishings - ---------------- Jackson TN 380,000 750,608 None None Memphis TN 804,262 1,432,520 None None Abilene TX 400,000 680,616 None None Arlington TX 475,069 1,374,167 None None Cedar Park TX 253,591 827,237 None None Houston TX 867,767 687,042 None None Plano TX 565,000 5,835,000 None None Spring TX 1,794,872 1,810,069 None None Webster TX 283,604 538,002 None None Eau Claire WI 260,000 820,689 None None La Crosse WI 372,883 877,812 None None Home Improvement - ---------------- Lawndale CA 667,007 1,238,755 None None Los Angeles CA 902,494 1,676,089 None None Los Angeles CA 163,668 303,982 None None Van Nuys CA 750,293 1,393,430 None None West Covina CA 311,040 577,674 None None Clearwater FL 476,179 724,497 None None Jacksonville FL 478,314 617,822 None None Seminole FL 593,304 766,658 None None Tampa FL 494,763 767,211 None None Tampa FL 347,794 904,591 None None West Palm Beach FL 698,664 1,222,978 None None West Palm Beach FL 347,651 705,555 None None Broadview IL 345,166 641,705 None None Baltimore MD 171,320 318,850 None None Matthews NC 768,222 842,875 None None Pineville NC 567,864 839,758 None None Albuquerque NM 684,036 873,882 None None Rochester NY 158,168 294,424 None None Reading PA 201,569 375,024 None None Pasadena TX 147,535 274,359 None None Plano TX 363,851 676,087 None None San Antonio TX 367,890 683,588 None None San Antonio TX 432,389 815,755 None None Page 125 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Home Furnishings - ---------------- Jackson TN 380,000 750,608 1,130,608 Memphis TN 804,262 1,432,520 2,236,782 Abilene TX 400,000 680,616 1,080,616 Arlington TX 475,069 1,374,167 1,849,236 Cedar Park TX 253,591 827,237 1,080,828 Houston TX 867,767 687,042 1,554,809 Plano TX 565,000 5,835,000 6,400,000 Spring TX 1,794,872 1,810,069 3,604,941 Webster TX 283,604 538,002 821,606 Eau Claire WI 260,000 820,689 1,080,689 La Crosse WI 372,883 877,812 1,250,695 Home Improvement - ---------------- Lawndale CA 667,007 1,238,755 1,905,762 Los Angeles CA 902,494 1,676,089 2,578,583 Los Angeles CA 163,668 303,982 467,650 Van Nuys CA 750,293 1,393,430 2,143,723 West Covina CA 311,040 577,674 888,714 Clearwater FL 476,179 724,497 1,200,676 Jacksonville FL 478,314 617,822 1,096,136 Seminole FL 593,304 766,658 1,359,962 Tampa FL 494,763 767,211 1,261,974 Tampa FL 347,794 904,591 1,252,385 West Palm Beach FL 698,664 1,222,978 1,921,642 West Palm Beach FL 347,651 705,555 1,053,206 Broadview IL 345,166 641,705 986,871 Baltimore MD 171,320 318,850 490,170 Matthews NC 768,222 842,875 1,611,097 Pineville NC 567,864 839,758 1,407,622 Albuquerque NM 684,036 873,882 1,557,918 Rochester NY 158,168 294,424 452,592 Reading PA 201,569 375,024 576,593 Pasadena TX 147,535 274,359 421,894 Plano TX 363,851 676,087 1,039,938 San Antonio TX 367,890 683,588 1,051,478 San Antonio TX 432,389 815,755 1,248,144 Page 126 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Home Furnishings - ---------------- Jackson TN 16,268 06/26/98 300 Memphis TN 88,128 06/30/97 300 Abilene TX 14,751 06/26/98 300 Arlington TX 98,353 03/26/97 300 Cedar Park TX 59,203 03/10/97 300 Houston TX 50,025 03/07/97 300 Plano TX 846,075 05/26/95 300 Spring TX 93,198 09/29/97 300 Webster TX 33,091 06/12/97 300 Eau Claire WI 17,787 06/26/98 300 La Crosse WI 19,024 06/26/98 300 Home Improvement - ---------------- Lawndale CA 2,066 12/31/98 300 Los Angeles CA 2,794 12/31/98 300 Los Angeles CA 508 12/31/98 300 Van Nuys CA 2,323 12/31/98 300 West Covina CA 964 12/31/98 300 Clearwater FL 1,216 12/31/98 300 Jacksonville FL 1,030 12/31/98 300 Seminole FL 1,286 12/31/98 300 Tampa FL 1,287 12/31/98 300 Tampa FL 1,516 12/31/98 300 West Palm Beach FL 2,047 12/31/98 300 West Palm Beach FL 1,184 12/31/98 300 Broadview IL 1,088 12/31/98 300 Baltimore MD 550 12/31/98 300 Matthews NC 1,413 12/31/98 300 Pineville NC 1,408 12/31/98 300 Albuquerque NM 1,459 12/31/98 300 Rochester NY 510 12/31/98 300 Reading PA 644 12/31/98 300 Pasadena TX 468 12/31/98 300 Plano TX 1,137 12/31/98 300 San Antonio TX 1,150 12/31/98 300 San Antonio TX 1,362 12/31/98 300 Page 127 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Home Improvement - ---------------- San Antonio TX 323,451 637,214 None None Layton UT 408,989 662,311 None None Riverdale UT 346,861 693,835 None None Office Supplies - --------------- Lakewood CA 1,398,387 3,098,607 None None Riverside CA 1,410,177 1,659,850 None None Hutchinson KS 269,964 1,704,013 None None Salina KS 240,423 1,829,837 None None Helena MT 564,241 1,503,118 None None Asheboro NC 465,557 2,175,829 None None Westbury NY 3,808,076 2,377,932 None None New Philadelphia OH 726,636 1,650,672 None None Pet Supplies and Services - ------------------------- Duluth GA 254,100 841,329 None None Marrietta GA 350,000 604,520 None None Sudbury MA 385,000 430,258 None None Tyngsborough MA 312,204 1,222,522 None None Matthews NC 610,177 1,394,743 None None North Plainfield NJ -- 1,038,855 None None Dickson City PA 659,790 1,880,722 None None Private Education - ----------------- Coconut Creek FL 310,111 8,118 None None North Lauderdale FL 1,050,000 2,567,224 None None Las Vegas NV 1,080,444 3,346,772 None None Centerville VA 688,917 1,208,993 None None University Place WA 255,000 718,614 25,362 24,142 Restaurants - ----------- Siloam Springs AR 190,000 352,808 None None Douglas AZ 75,000 347,719 None None Glendale AZ 624,761 895,976 None None Tucson AZ 107,393 497,904 None None Yuma AZ 236,121 541,651 None None Page 128 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Home Improvement - ---------------- San Antonio TX 323,451 637,214 960,665 Layton UT 408,989 662,311 1,071,300 Riverdale UT 346,861 693,835 1,040,696 Office Supplies - --------------- Lakewood CA 1,398,387 3,098,607 4,496,994 Riverside CA 1,410,177 1,659,850 3,070,027 Hutchinson KS 269,964 1,704,013 1,973,977 Salina KS 240,423 1,829,837 2,070,260 Helena MT 564,241 1,503,118 2,067,359 Asheboro NC 465,557 2,175,829 2,641,386 Westbury NY 3,808,076 2,377,932 6,186,008 New Philadelphia OH 726,636 1,650,672 2,377,308 Pet Supplies and Services - ------------------------- Duluth GA 254,100 841,329 1,095,429 Marrietta GA 350,000 604,520 954,520 Sudbury MA 385,000 430,258 815,258 Tyngsborough MA 312,204 1,222,522 1,534,726 Matthews NC 610,177 1,394,743 2,004,920 North Plainfield NJ -- 1,038,855 1,038,855 Dickson City PA 659,790 1,880,722 2,540,512 Private Education - ----------------- Coconut Creek FL 310,111 8,118 318,229 North Lauderdale FL 1,050,000 2,567,224 3,617,224 Las Vegas NV 1,080,444 3,346,772 4,427,216 Centerville VA 688,917 1,208,993 1,897,910 University Place WA 255,000 768,118 1,023,118 Restaurants - ----------- Siloam Springs AR 190,000 352,808 542,808 Douglas AZ 75,000 347,719 422,719 Glendale AZ 624,761 895,976 1,520,737 Tucson AZ 107,393 497,904 605,297 Yuma AZ 236,121 541,651 777,772 Page 129 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Home Improvement - ---------------- San Antonio TX 1,065 12/31/98 300 Layton UT 1,107 12/31/98 300 Riverdale UT 1,159 12/31/98 300 Office Supplies - --------------- Lakewood CA 242,663 01/29/97 300 Riverside CA 85,621 09/17/97 300 Hutchinson KS 104,949 06/25/97 300 Salina KS 112,697 06/25/97 300 Helena MT 92,485 06/09/97 300 Asheboro NC 68,880 03/27/98 300 Westbury NY 122,424 09/29/97 300 New Philadelphia OH 107,135 05/30/97 300 Pet Supplies and Services - ------------------------- Duluth GA 176 In Process 09/29/98 300 Marrietta GA 199 In Process 09/29/98 300 Sudbury MA 239 In Process 09/30/98 300 Tyngsborough MA 26,504 06/12/98 300 Matthews NC 25,598 07/17/98 300 North Plainfield NJ 12,284 09/24/98 300 Dickson City PA 115,626 06/20/97 300 Private Education - ----------------- Coconut Creek FL 187 In Process 12/01/98 300 North Lauderdale FL 81,276 03/30/98 300 Las Vegas NV 105,962 03/04/98 300 Centerville VA 245 In Process 09/30/98 300 University Place WA 492,228 11/06/84 300 Restaurants - ----------- Siloam Springs AR 15,836 11/20/97 300 Douglas AZ 212,083 11/27/85 300 Glendale AZ 100,051 03/06/96 300 Tucson AZ 301,469 01/17/86 300 Yuma AZ 13,544 05/28/98 300 Page 130 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Barstow CA 689,842 690,204 None None Chino CA 26,729 51,555 None None Diamond Bar CA 76,117 183,052 None 15,000 Fullerton CA 36,296 51,020 None 14,628 Hemet CA 106,164 199,179 None None Livermore CA 662,161 823,242 None None Rancho Cucamonga CA 230,733 481,225 None None Rancho Cucamonga CA 95,192 441,334 None None Red Bluff CA 136,740 633,984 None None Riverside CA 90,000 170,394 None None Sacramento CA 386,793 417,290 None None San Dimas CA 240,562 445,521 None None San Ramon CA 406,000 1,126,930 None None Colorado Springs CO 152,000 704,736 None None Colorado Springs CO 313,250 695,730 None None Montrose CO 217,595 483,284 None None Sterling CO 95,320 441,928 None None Westminster CO 338,940 1,571,401 20,000 13,440 Casselberry FL 403,900 897,075 None None Green Cove Sprgs FL 86,240 399,828 None None Jacksonville FL 143,299 664,373 None None Jacksonville FL 150,210 693,446 None None Orlando FL 230,000 1,066,339 None None Orlando FL 209,800 972,679 None None Orlando FL 339,500 746,333 None None Orlando FL 600,000 128,343 None None Palm Bay FL 330,000 231,584 None None Garden City GA 197,225 438,043 None None Hinesville GA 89,220 413,644 None None Hinesville GA 172,611 383,376 None None Lithonia GA 89,220 413,647 None None Savannah GA 143,993 345,548 None None Savannah GA 165,409 367,379 None None Statesboro GA 201,250 446,983 None None Stone Mountain GA 215,940 1,001,188 None None Ankeny IA 100,000 349,218 None None Page 131 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Barstow CA 689,842 690,204 1,380,046 Chino CA 26,729 51,555 78,284 Diamond Bar CA 76,117 198,052 274,169 Fullerton CA 36,296 65,648 101,944 Hemet CA 106,164 199,179 305,343 Livermore CA 662,161 823,242 1,485,403 Rancho Cucamonga CA 230,733 481,225 711,958 Rancho Cucamonga CA 95,192 441,334 536,526 Red Bluff CA 136,740 633,984 770,724 Riverside CA 90,000 170,394 260,394 Sacramento CA 386,793 417,290 804,083 San Dimas CA 240,562 445,521 686,083 San Ramon CA 406,000 1,126,930 1,532,930 Colorado Springs CO 152,000 704,736 856,736 Colorado Springs CO 313,250 695,730 1,008,980 Montrose CO 217,595 483,284 700,879 Sterling CO 95,320 441,928 537,248 Westminster CO 338,940 1,604,841 1,943,781 Casselberry FL 403,900 897,075 1,300,975 Green Cove Sprgs FL 86,240 399,828 486,068 Jacksonville FL 143,299 664,373 807,672 Jacksonville FL 150,210 693,446 843,656 Orlando FL 230,000 1,066,339 1,296,339 Orlando FL 209,800 972,679 1,182,479 Orlando FL 339,500 746,333 1,085,833 Orlando FL 600,000 128,343 728,343 Palm Bay FL 330,000 231,584 561,584 Garden City GA 197,225 438,043 635,268 Hinesville GA 89,220 413,644 502,864 Hinesville GA 172,611 383,376 555,987 Lithonia GA 89,220 413,647 502,867 Savannah GA 143,993 345,548 489,541 Savannah GA 165,409 367,379 532,788 Statesboro GA 201,250 446,983 648,233 Stone Mountain GA 215,940 1,001,188 1,217,128 Ankeny IA 100,000 349,218 449,218 Page 132 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Barstow CA 8,058 09/24/98 300 Chino CA 51,286 06/23/75 300 Diamond Bar CA 176,285 09/25/78 300 Fullerton CA 57,846 11/08/72 234 Hemet CA 187,502 04/15/77 300 Livermore CA 9,614 09/23/98 300 Rancho Cucamonga CA 481,225 04/03/81 180 Rancho Cucamonga CA 267,427 12/20/85 300 Red Bluff CA 353,731 12/18/86 300 Riverside CA 162,065 12/09/76 300 Sacramento CA 7,654 07/31/98 300 San Dimas CA 445,521 03/12/81 180 San Ramon CA 1,126,930 12/08/83 180 Colorado Springs CO 401,698 09/30/86 300 Colorado Springs CO 294,105 03/10/87 300 Montrose CO 191,811 12/17/87 300 Sterling CO 298,186 12/27/84 300 Westminster CO 1,127,475 06/28/84 300 Casselberry FL 287,645 12/29/89 300 Green Cove Sprgs FL 269,780 12/19/84 300 Jacksonville FL 404,760 12/13/85 300 Jacksonville FL 430,660 09/13/85 300 Orlando FL 650,388 11/18/85 300 Orlando FL 561,566 08/15/86 300 Orlando FL 291,947 02/03/88 300 Orlando FL 199 In Process 12/18/98 300 Palm Bay FL 145 In Process 12/29/98 300 Garden City GA 153,909 04/20/89 300 Hinesville GA 279,099 12/20/84 300 Hinesville GA 152,160 12/22/87 300 Lithonia GA 278,827 01/04/85 300 Savannah GA 137,146 12/22/87 300 Savannah GA 145,811 12/22/87 300 Statesboro GA 148,205 11/14/89 300 Stone Mountain GA 566,658 10/30/86 300 Ankeny IA 349,218 07/28/83 180 Page 133 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Boone IA 76,000 386,170 None None Boise ID 190,894 423,981 None None Boise ID 161,352 334,041 None None Nampa ID 74,156 343,821 None None Rexburg ID 90,760 420,787 None None Alton IL 225,785 419,315 None None Dixon IL 230,090 511,036 None None Salem IL 213,815 474,892 None None Anderson IN 197,523 438,707 None None Bedford IN 311,815 692,543 None None Decatur IN 181,020 385,618 None None Goshen IN 115,000 533,165 None None Muncie IN 136,400 632,380 8,000 13,335 Muncie IN 67,156 149,157 None None New Castle IN 246,192 320,572 None None Shelbyville IN 128,820 597,263 None None South Bend IN 133,200 617,545 None 19,211 Westfield IN 213,341 477,300 None None Derby KS 96,060 445,359 None None El Dorado KS 87,400 405,206 None None Great Bend KS 95,800 444,154 None None Wichita KS 98,000 454,350 None None Lexington KY 122,200 490,200 None None Alexandria LA 143,000 662,985 None 15,000 Jennings LA 107,120 496,636 None None La Plata MD 120,140 557,000 None None Albion MI 143,280 694,578 None 12,341 Flint MI 827,853 -- None None Sturgis MI 210,560 467,659 None None Albert Lea MN 213,150 473,412 None None Red Wing MN 248,325 551,541 None None Roseville MN 281,600 1,305,560 None None Belton MO 89,328 418,187 None None Blue Springs MO 111,440 516,665 None None Carthage MO 85,020 394,175 None None Chillicothe MO 81,080 375,908 None None Page 134 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Boone IA 76,000 386,170 462,170 Boise ID 190,894 423,981 614,875 Boise ID 161,352 334,041 495,393 Nampa ID 74,156 343,821 417,977 Rexburg ID 90,760 420,787 511,547 Alton IL 225,785 419,315 645,100 Dixon IL 230,090 511,036 741,126 Salem IL 213,815 474,892 688,707 Anderson IN 197,523 438,707 636,230 Bedford IN 311,815 692,543 1,004,358 Decatur IN 181,020 385,618 566,638 Goshen IN 115,000 533,165 648,165 Muncie IN 136,400 653,715 790,115 Muncie IN 67,156 149,157 216,313 New Castle IN 246,192 320,572 566,764 Shelbyville IN 128,820 597,263 726,083 South Bend IN 133,200 636,756 769,956 Westfield IN 213,341 477,300 690,641 Derby KS 96,060 445,359 541,419 El Dorado KS 87,400 405,206 492,606 Great Bend KS 95,800 444,154 539,954 Wichita KS 98,000 454,350 552,350 Lexington KY 122,200 490,200 612,400 Alexandria LA 143,000 677,985 820,985 Jennings LA 107,120 496,636 603,756 La Plata MD 120,140 557,000 677,140 Albion MI 143,280 706,919 850,199 Flint MI 827,853 -- 827,853 Sturgis MI 210,560 467,659 678,219 Albert Lea MN 213,150 473,412 686,562 Red Wing MN 248,325 551,541 799,866 Roseville MN 281,600 1,305,560 1,587,160 Belton MO 89,328 418,187 507,515 Blue Springs MO 111,440 516,665 628,105 Carthage MO 85,020 394,175 479,195 Chillicothe MO 81,080 375,908 456,988 Page 135 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Boone IA 386,170 12/27/83 180 Boise ID 162,221 05/17/88 300 Boise ID 123,053 10/07/88 300 Nampa ID 191,834 12/31/86 300 Rexburg ID 256,650 11/25/85 300 Alton IL 154,467 10/18/88 300 Dixon IL 202,809 12/28/87 300 Salem IL 191,201 10/30/87 300 Anderson IN 166,604 03/25/88 300 Bedford IN 284,790 07/15/87 300 Decatur IN 163,010 03/31/87 300 Goshen IN 309,949 07/07/86 300 Muncie IN 377,661 03/18/86 300 Muncie IN 57,921 03/30/88 300 New Castle IN 135,753 01/07/87 300 Shelbyville IN 333,241 12/18/86 300 South Bend IN 375,085 04/28/86 300 Westfield IN 154,751 12/21/89 300 Derby KS 273,404 10/29/85 300 El Dorado KS 240,418 04/10/86 300 Great Bend KS 299,686 12/26/84 300 Wichita KS 262,313 08/08/86 300 Lexington KY 275,148 12/03/86 300 Alexandria LA 409,850 01/17/86 300 Jennings LA 304,884 10/17/85 300 La Plata MD 339,345 12/03/85 300 Albion MI 422,900 03/06/86 300 Flint MI -- 04/13/95 300 Sturgis MI 186,949 11/12/87 300 Albert Lea MN 187,909 12/16/87 300 Red Wing MN 218,875 12/30/87 300 Roseville MN 880,908 12/18/84 300 Belton MO 282,167 12/18/84 300 Blue Springs MO 348,613 12/28/84 300 Carthage MO 240,145 12/03/85 300 Chillicothe MO 253,640 12/26/84 300 Page 136 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Fulton MO 210,199 466,861 None None Hannibal MO 266,011 590,822 None None Hazelwood MO 157,117 725,327 None 12,930 Jackson MO 210,199 466,860 None None Mt. Vernon MO 160,000 282,586 None None Nevada MO 222,552 494,296 None None Ozark MO 140,000 292,482 None None Sedalia MO 269,798 599,232 None None St. Charles MO 695,121 1,001,878 None None St. Charles MO 175,413 809,790 None 10,000 St. Joseph MO 107,648 496,958 None None Sullivan MO 85,500 396,400 None None Clinton MS 100,000 337,371 None None Southaven MS 263,900 582,303 None None Fayetteville NC 116,240 538,919 None None Wilkesboro NC 183,050 406,562 None None Omaha NE 629,592 1,051,244 None None Amherst NY 935,355 896,819 None None Fulton NY 294,009 653,006 None None Watertown NY 139,199 645,355 None None Akron OH 723,347 17 None None Ashland OH 120,740 559,801 None None Celina OH 207,060 459,841 None None Lebanon OH 210,134 466,717 None None Stow OH 317,546 712,455 None None Troy OH 130,540 605,238 None None Wash. Courthouse OH 123,120 570,836 None None Wilmington OH 119,320 553,217 None None Broken Arrow OK 245,000 369,002 None None Norman OK 734,335 -- None None Oklahoma City OK 759,826 -- None None Owasso OK 247,450 549,597 None None Ponca City OK 234,990 521,923 None None Corvallis OR 172,788 383,766 None None Hermiston OR 85,560 396,675 None None Lake Oswego OR 175,899 815,509 None None Page 137 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Fulton MO 210,199 466,861 677,060 Hannibal MO 266,011 590,822 856,833 Hazelwood MO 157,117 738,257 895,374 Jackson MO 210,199 466,860 677,059 Mt. Vernon MO 160,000 282,586 442,586 Nevada MO 222,552 494,296 716,848 Ozark MO 140,000 292,482 432,482 Sedalia MO 269,798 599,232 869,030 St. Charles MO 695,121 1,001,878 1,696,999 St. Charles MO 175,413 819,790 995,203 St. Joseph MO 107,648 496,958 604,606 Sullivan MO 85,500 396,400 481,900 Clinton MS 100,000 337,371 437,371 Southaven MS 263,900 582,303 846,203 Fayetteville NC 116,240 538,919 655,159 Wilkesboro NC 183,050 406,562 589,612 Omaha NE 629,592 1,051,244 1,680,836 Amherst NY 935,355 896,819 1,832,174 Fulton NY 294,009 653,006 947,015 Watertown NY 139,199 645,355 784,554 Akron OH 723,347 17 723,364 Ashland OH 120,740 559,801 680,541 Celina OH 207,060 459,841 666,901 Lebanon OH 210,134 466,717 676,851 Stow OH 317,546 712,455 1,030,001 Troy OH 130,540 605,238 735,778 Wash. Courthouse OH 123,120 570,836 693,956 Wilmington OH 119,320 553,217 672,537 Broken Arrow OK 245,000 369,002 614,002 Norman OK 734,335 -- 734,335 Oklahoma City OK 759,826 -- 759,826 Owasso OK 247,450 549,597 797,047 Ponca City OK 234,990 521,923 756,913 Corvallis OR 172,788 383,766 556,554 Hermiston OR 85,560 396,675 482,235 Lake Oswego OR 175,899 815,509 991,408 Page 138 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Fulton MO 191,985 07/30/87 300 Hannibal MO 242,960 07/30/87 300 Hazelwood MO 452,577 08/28/85 300 Jackson MO 191,985 07/30/87 300 Mt. Vernon MO 12,679 11/20/97 300 Nevada MO 203,267 07/30/87 300 Ozark MO 13,126 11/20/97 300 Sedalia MO 209,445 07/31/89 300 St. Charles MO 121,191 12/22/95 03/16/95 300 St. Charles MO 505,640 08/28/85 300 St. Joseph MO 308,627 09/04/85 300 Sullivan MO 267,464 12/27/84 300 Clinton MS 337,371 07/28/83 180 Southaven MS 242,805 05/11/87 300 Fayetteville NC 363,628 12/20/84 300 Wilkesboro NC 167,189 07/24/87 300 Omaha NE 148,926 06/02/95 02/24/95 300 Amherst NY 111,056 12/21/95 05/31/95 300 Fulton NY 258,240 12/24/87 300 Watertown NY 370,441 08/18/86 300 Akron OH 1 12/22/94 300 Ashland OH 312,339 12/19/86 300 Celina OH 197,039 01/02/87 300 Lebanon OH 191,925 07/31/87 300 Stow OH 281,990 12/31/87 300 Troy OH 339,718 12/05/86 300 Wash. Courthouse OH 318,496 12/19/86 300 Wilmington OH 308,667 12/31/86 300 Broken Arrow OK 15,330 12/12/97 300 Norman OK -- 09/29/95 06/05/95 300 Oklahoma City OK -- 07/06/95 300 Owasso OK 218,132 12/28/87 300 Ponca City OK 207,148 12/30/87 300 Corvallis OR 152,314 12/22/87 300 Hermiston OR 267,650 12/18/84 300 Lake Oswego OR 573,264 05/16/84 300 Page 139 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Milwaukie OR 179,174 830,689 None None Salem OR 198,540 440,964 None None Connellsville PA 264,670 587,843 None None Waynesburg PA 222,285 493,704 None None Pierre SD 251,790 559,232 None None Memphis TN 405,274 1,060,680 None None Nashville TN 484,975 1,192,627 20,000 31,098 Athens TX 245,245 544,700 None None Bedford TX 919,303 98,231 None None Beeville TX 250,490 556,349 None None Brownwood TX 288,225 640,160 None None Crockett TX 90,780 420,880 None None Dallas TX 742,507 -- None None Dallas TX 242,025 479,170 None None El Campo TX 98,060 454,631 None None Ennis TX 173,250 384,793 None None Fort Worth TX 223,195 492,067 None None Ft. Worth TX 423,281 382,059 None None Gainesville TX 89,220 413,644 None None Hillsboro TX 75,992 352,316 None None Houston TX 194,994 386,056 None None Houston TX 184,175 364,636 None None Killeen TX 262,500 583,014 None 14,398 League City TX 126,822 588,000 None None Lufkin TX 105,904 490,998 None None Mesquite TX 729,596 120,820 None None Mesquite TX 134,940 625,612 None None Mexia TX 93,620 434,046 None None New Braunfels TX 185,500 411,997 None None Orange TX 93,560 433,768 None None Plainview TX 125,000 350,767 None None Port Lavaca TX 244,759 543,619 None None Porter TX 227,067 333,031 None None Rowlett TX 126,933 585,986 None None Santa Fe TX 304,414 623,331 None None Sealy TX 197,871 391,754 None None Page 140 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Milwaukie OR 179,174 830,689 1,009,863 Salem OR 198,540 440,964 639,504 Connellsville PA 264,670 587,843 852,513 Waynesburg PA 222,285 493,704 715,989 Pierre SD 251,790 559,232 811,022 Memphis TN 405,274 1,060,680 1,465,954 Nashville TN 484,975 1,243,725 1,728,700 Athens TX 245,245 544,700 789,945 Bedford TX 919,303 98,231 1,017,534 Beeville TX 250,490 556,349 806,839 Brownwood TX 288,225 640,160 928,385 Crockett TX 90,780 420,880 511,660 Dallas TX 742,507 -- 742,507 Dallas TX 242,025 479,170 721,195 El Campo TX 98,060 454,631 552,691 Ennis TX 173,250 384,793 558,043 Fort Worth TX 223,195 492,067 715,262 Ft. Worth TX 423,281 382,059 805,340 Gainesville TX 89,220 413,644 502,864 Hillsboro TX 75,992 352,316 428,308 Houston TX 194,994 386,056 581,050 Houston TX 184,175 364,636 548,811 Killeen TX 262,500 597,412 859,912 League City TX 126,822 588,000 714,822 Lufkin TX 105,904 490,998 596,902 Mesquite TX 729,596 120,820 850,416 Mesquite TX 134,940 625,612 760,552 Mexia TX 93,620 434,046 527,666 New Braunfels TX 185,500 411,997 597,497 Orange TX 93,560 433,768 527,328 Plainview TX 125,000 350,767 475,767 Port Lavaca TX 244,759 543,619 788,378 Porter TX 227,067 333,031 560,098 Rowlett TX 126,933 585,986 712,919 Santa Fe TX 304,414 623,331 927,745 Sealy TX 197,871 391,754 589,625 Page 141 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Milwaukie OR 586,709 05/08/84 300 Salem OR 151,129 05/23/89 300 Connellsville PA 240,049 08/17/87 300 Waynesburg PA 201,605 08/17/87 300 Pierre SD 221,955 12/01/87 300 Memphis TN 146,728 06/30/95 03/17/95 300 Nashville TN 1,220,991 05/20/83 180 Athens TX 216,188 12/01/87 300 Bedford TX 98,231 12/27/94 300 Beeville TX 228,785 07/31/87 300 Brownwood TX 253,956 12/28/87 300 Crockett TX 255,035 12/17/85 300 Dallas TX -- 04/13/95 300 Dallas TX 133,307 06/25/91 300 El Campo TX 277,292 11/25/85 300 Ennis TX 152,722 12/28/87 300 Fort Worth TX 146,101 06/26/91 300 Ft. Worth TX 59,219 02/10/95 300 Gainesville TX 279,099 12/18/84 300 Hillsboro TX 244,834 08/01/84 300 Houston TX 107,403 06/25/91 300 Houston TX 101,443 06/25/91 300 Killeen TX 245,845 05/29/87 300 League City TX 328,072 12/30/86 300 Lufkin TX 303,028 10/08/85 300 Mesquite TX 120,820 12/23/94 300 Mesquite TX 371,616 03/20/86 300 Mexia TX 263,013 12/18/85 300 New Braunfels TX 174,162 03/26/87 300 Orange TX 264,267 12/10/85 300 Plainview TX 350,767 01/24/84 180 Port Lavaca TX 223,551 07/30/87 300 Porter TX 51,620 02/09/95 300 Rowlett TX 363,919 09/06/85 300 Santa Fe TX 19,727 03/23/98 300 Sealy TX 108,988 06/25/91 300 Page 142 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Restaurants - ----------- Stafford TX 214,024 423,732 None None Temple TX 302,505 291,414 None None Vidor TX 90,618 420,124 None None Waxahachie TX 326,935 726,137 None None Cedar City UT 130,000 296,544 None None Orem UT 516,129 1,004,608 None None Sandy UT 635,945 884,792 None None Norfolk VA 251,207 575,250 None 12,983 Virginia Beach VA 314,790 699,161 None None Auburn WA 301,595 669,852 None None Marysville WA 276,273 613,613 None None Oak Harbor WA 275,940 612,874 None None Redmond WA 610,334 1,262,103 None None Spokane WA 479,531 646,719 None None Tacoma WA 198,857 921,947 None None Grafton WI 149,778 332,664 None None Monroe WI 193,130 428,947 None None Portage WI 199,605 443,328 None None Shawano WI 205,730 456,932 None None Sturgeon Bay WI 214,865 477,221 None None Oak Hill WV 85,860 398,069 None None Laramie WY 210,000 466,417 None None Riverton WY 216,685 481,267 None None Sheridan WY 117,160 543,184 None None Shoe Stores - ----------- Little Rock AR 1,079,232 2,594,956 None None Houston TX 1,096,376 2,300,690 None None Midland TX 544,075 1,322,431 None None Video Rental - ------------ Birmingham AL 392,795 865,115 None None Southington CT 399,562 1,009,125 None None Port St. Lucie FL 612,695 701,730 None None Tampa FL 401,874 933,768 None None Atlanta GA 652,551 763,360 None None Page 143 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Restaurants - ----------- Stafford TX 214,024 423,732 637,756 Temple TX 302,505 291,414 593,919 Vidor TX 90,618 420,124 510,742 Waxahachie TX 326,935 726,137 1,053,072 Cedar City UT 130,000 296,544 426,544 Orem UT 516,129 1,004,608 1,520,737 Sandy UT 635,945 884,792 1,520,737 Norfolk VA 251,207 588,233 839,440 Virginia Beach VA 314,790 699,161 1,013,951 Auburn WA 301,595 669,852 971,447 Marysville WA 276,273 613,613 889,886 Oak Harbor WA 275,940 612,874 888,814 Redmond WA 610,334 1,262,103 1,872,437 Spokane WA 479,531 646,719 1,126,250 Tacoma WA 198,857 921,947 1,120,804 Grafton WI 149,778 332,664 482,442 Monroe WI 193,130 428,947 622,077 Portage WI 199,605 443,328 642,933 Shawano WI 205,730 456,932 662,662 Sturgeon Bay WI 214,865 477,221 692,086 Oak Hill WV 85,860 398,069 483,929 Laramie WY 210,000 466,417 676,417 Riverton WY 216,685 481,267 697,952 Sheridan WY 117,160 543,184 660,344 Shoe Stores - ----------- Little Rock AR 1,079,232 2,594,956 3,674,188 Houston TX 1,096,376 2,300,690 3,397,066 Midland TX 544,075 1,322,431 1,866,506 Video Rental - ------------ Birmingham AL 392,795 865,115 1,257,910 Southington CT 399,562 1,009,125 1,408,687 Port St. Lucie FL 612,695 701,730 1,314,425 Tampa FL 401,874 933,768 1,335,642 Atlanta GA 652,551 763,360 1,415,911 Page 144 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Restaurants - ----------- Stafford TX 117,885 06/26/91 300 Temple TX 45,169 02/09/95 300 Vidor TX 291,953 08/01/84 300 Waxahachie TX 288,135 12/29/87 300 Cedar City UT 296,544 08/04/83 180 Orem UT 122,227 12/13/95 300 Sandy UT 107,650 12/22/95 300 Norfolk VA 237,089 10/15/87 300 Virginia Beach VA 283,501 09/03/87 300 Auburn WA 265,859 12/16/87 300 Marysville WA 250,572 08/27/87 300 Oak Harbor WA 252,028 07/16/87 300 Redmond WA 1,262,104 12/10/82 180 Spokane WA 20,469 03/27/98 300 Tacoma WA 648,084 05/29/84 300 Grafton WI 133,937 10/29/87 300 Monroe WI 170,245 12/17/87 300 Portage WI 175,937 12/23/87 300 Shawano WI 181,338 12/17/87 300 Sturgeon Bay WI 189,406 12/01/87 300 Oak Hill WV 268,592 12/28/84 300 Laramie WY 147,838 03/12/90 300 Riverton WY 191,011 12/01/87 300 Sheridan WY 329,145 12/31/85 300 Shoe Stores - ----------- Little Rock AR 47,576 07/21/98 300 Houston TX 118,695 09/05/97 300 Midland TX 46,244 02/02/98 300 Video Rental - ------------ Birmingham AL 44,581 09/30/97 300 Southington CT 1,688 12/29/98 300 Port St. Lucie FL 257 12/09/98 09/08/98 300 Tampa FL 38,844 12/23/97 300 Atlanta GA 1,306 12/18/98 300 Page 145 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Video Rental - ------------ Brunswick GA 290,369 788,880 None None Norcross GA 431,284 724,037 None None Plainfield IN 453,645 908,485 None None Topeka KS 285,802 966,286 None None Wichita KS 289,714 797,856 None None Winchester KY 355,474 929,177 None None Warren MI 356,348 903,351 None None Centerville OH 601,408 758,192 None None Dayton OH 401,723 698,872 None None Forest Park OH 328,187 921,232 None None Franklin OH 337,572 777,943 None None Springboro OH 261,916 897,489 None None Oklahoma City OK 307,658 474,071 None None Tulsa OK 318,441 1,004,663 None None Clarksville TN 499,885 840,869 None None Columbia TN 466,469 716,723 None None Hendersonville TN 333,677 938,592 None None Jackson TN 381,076 857,261 None None Memphis TN 381,265 900,580 None None Murfreesboro TN 406,056 886,293 None None Smyrna TN 302,372 836,214 None None Austin TX 407,910 885,113 None None Beaumont TX 293,919 832,154 None None Hurst TX 373,084 871,163 None None Lubbock TX 266,805 857,492 None None Woodway TX 372,487 835,198 None None Hampton VA 373,499 836,071 None None Virginia Beach VA 551,588 797,260 None None Other - ----- Mesa AZ 271,754 1,259,910 27,961 7,173 Phoenix AZ 322,708 1,496,143 203,268 10,462 Chino CA 53,271 102,748 None None Fresno CA 428,900 3,434,562 None None Paramount CA 86,400 278,827 None None San Diego CA 3,745,000 8,885,351 None 26,544 Page 146 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Video Rental - ------------ Brunswick GA 290,369 788,880 1,079,249 Norcross GA 431,284 724,037 1,155,321 Plainfield IN 453,645 908,485 1,362,130 Topeka KS 285,802 966,286 1,252,088 Wichita KS 289,714 797,856 1,087,570 Winchester KY 355,474 929,177 1,284,651 Warren MI 356,348 903,351 1,259,699 Centerville OH 601,408 758,192 1,359,600 Dayton OH 401,723 698,872 1,100,595 Forest Park OH 328,187 921,232 1,249,419 Franklin OH 337,572 777,943 1,115,515 Springboro OH 261,916 897,489 1,159,405 Oklahoma City OK 307,658 474,071 781,729 Tulsa OK 318,441 1,004,663 1,323,104 Clarksville TN 499,885 840,869 1,340,754 Columbia TN 466,469 716,723 1,183,192 Hendersonville TN 333,677 938,592 1,272,269 Jackson TN 381,076 857,261 1,238,337 Memphis TN 381,265 900,580 1,281,845 Murfreesboro TN 406,056 886,293 1,292,349 Smyrna TN 302,372 836,214 1,138,586 Austin TX 407,910 885,113 1,293,023 Beaumont TX 293,919 832,154 1,126,073 Hurst TX 373,084 871,163 1,244,247 Lubbock TX 266,805 857,492 1,124,297 Woodway TX 372,487 835,198 1,207,685 Hampton VA 373,499 836,071 1,209,570 Virginia Beach VA 551,588 797,260 1,348,848 Other - ----- Mesa AZ 271,754 1,259,044 1,566,798 Phoenix AZ 322,708 1,709,873 2,032,581 Chino CA 53,271 102,748 156,019 Fresno CA 428,900 3,434,562 3,863,462 Paramount CA 86,400 278,827 365,227 San Diego CA 3,745,000 8,911,895 12,656,895 Page 147 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Video Rental - ------------ Brunswick GA 32,810 12/31/97 300 Norcross GA 34,866 10/01/97 300 Plainfield IN 34,772 01/30/98 300 Topeka KS 40,217 12/19/97 300 Wichita KS 4,017 11/23/98 300 Winchester KY 20,140 06/30/98 300 Warren MI 34,578 01/09/98 300 Centerville OH 16,435 06/30/98 300 Dayton OH 15,146 06/29/98 300 Forest Park OH 41,380 11/14/97 300 Franklin OH 32,339 12/30/97 300 Springboro OH 10,492 09/21/98 300 Oklahoma City OK 13,434 04/23/98 300 Tulsa OK 51,797 09/26/97 300 Clarksville TN 7,023 10/02/98 300 Columbia TN 36,931 09/26/97 300 Hendersonville TN 39,060 12/10/97 300 Jackson TN 44,195 09/26/97 300 Memphis TN 28,506 03/31/98 300 Murfreesboro TN 45,689 09/26/97 300 Smyrna TN 43,105 09/02/97 300 Austin TX 36,820 12/01/97 300 Beaumont TX 42,904 09/05/97 300 Hurst TX 15,995 07/29/98 300 Lubbock TX 47,048 08/29/97 300 Woodway TX 34,753 12/16/97 300 Hampton VA 34,780 12/19/97 300 Virginia Beach VA 27,868 02/23/98 300 Other - ----- Mesa AZ 743,716 06/30/86 300 Phoenix AZ 899,852 06/30/86 300 Chino CA 102,213 01/07/75 300 Fresno CA 3,434,562 10/29/82 180 Paramount CA 278,827 11/22/83 180 San Diego CA 5,110,470 03/08/86 03/25/86 300 Page 148 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Cost Capitalized Subsequent Initial Cost to Company to Acquisition ----------------------- ---------------------- Buildings, Improvements and Description Acquisition Carrying (Note 1) Land Fees Improvements Costs - ------------------- --------- ----------- ------------ ------ Other - ----- San Diego CA 2,485,160 8,697,822 None 20,213 San Diego CA 5,797,411 15,473,497 None 42,170 Humble TX 106,000 545,518 10,422 5,990 Chesapeake VA 144,014 649,869 None 11,754 Other -- 398,427 None 28,079 ----------- ----------- ------- ------- 283,043,253 605,990,855 333,713 467,880 =========== =========== ======= ======= Page 149 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Amount at Which Carried at Close of Period (Notes 2, 3 and 5) Buildings, Improvements and Description Acquisition (Note 1) Land Fees Total - ------------------- ------------ ------------ ---------- Other - ----- San Diego CA 2,485,160 8,718,035 11,203,195 San Diego CA 5,797,411 15,515,667 21,313,078 Humble TX 106,000 561,930 667,930 Chesapeake VA 144,014 661,623 805,637 Other -- 426,506 426,506 ----------- ----------- ----------- 283,043,253 606,792,448 889,835,701 =========== =========== =========== Page 150 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Life on which in latest Income Accumulated Statement Description Depreciation Date of Date is Computed (Note 1) (Note 4) Construction Acquired (in Months) - ------------------- ------------ ------------ -------- ----------- Video Rental - ------------ Other - ----- San Diego CA 3,599,709 01/23/89 09/19/86 300 San Diego CA 5,959,553 01/20/89 08/05/87 300 Humble TX 420,969 03/25/86 300 Chesapeake VA 375,603 12/22/86 300 Other 291,251 ----------- 171,555,267 ===========
Page 151 REALTY INCOME CORPORATION AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Note 1. Nine hundred sixty six of the properties are single unit retail outlets. One grocery property located in Sheboygan, WI 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 $825,315,627. Note 3. Reconciliation of total real estate carrying value for the three years ended December 31, 1998 are as follows: 1998 1997 1996 ----------- ----------- ----------- Balance at beginning of period 699,797,446 564,539,993 515,425,548 Additions during period: Acquisitions 193,436,163 142,286,618 55,667,447 Equipment 14,685 -- 58,000 Improvements, etc. 79,790 16,683 37,303 Other (leasing costs) 168,425 36,266 -- ----------- ----------- ----------- Total additions 193,699,063 142,339,567 55,762,750 ----------- ----------- ----------- Deductions during period: Cost of real estate sold 3,520,108 6,917,114 6,054,238 Cost of equipment sold 58,000 -- -- Other (fully amortized commissions) 82,700 -- 15,067 Other (provision for impairment losses) -- 165,000 579,000 ----------- ----------- ----------- Total deductions 3,660,808 7,082,114 6,648,305 ----------- ----------- ----------- Balance at close of period: 889,835,701 699,797,446 564,539,993 =========== =========== =========== Note 4. Reconciliation of accumulated depreciation for the three years ended December 31, 1998 are as follows: (table continued) Page 152 (continued) 1998 1997 1996 ----------- ----------- ----------- Balance at beginning of period: 152,206,136 138,307,408 126,062,055 Additions during period - provision for depreciation 20,766,430 17,465,979 15,364,936 Deductions during period: Accumulated depreciation of real estate and equipment sold 1,334,599 3,567,251 3,104,516 Other (fully amortized commissions) 82,700 -- 15,067 ----------- ----------- ----------- Balance at close of period 171,555,267 152,206,136 138,307,408 =========== =========== ===========
Note 5. In 1997, a provision for impairment loss was made on two vacant properties in Riverside, CA and Irving, TX and a restaurant property in McMinnville, OR which was sold in 1997. In 1996, a provision for impairment loss was made on a restaurant property in Lexington, SC, and on other properties located in Phoenix, AZ; Glendale, AZ and Spring, TX. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - --------------------------------------------------------- The corporation has had no disagreements with its independent auditors' on accountancy or financial disclosure. PART III ======== ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information set forth under the captions Director Nominees and Officers Of The Company and Compliance With Federal Securities Laws in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 5, 1999, 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 Page 153 scheduled to be held on May 5, 1999, 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 5, 1999, to be filed pursuant to Regulation 14A. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Not applicable. PART IV ======= ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ---------------------------------------------------------------- A. The following documents are filed as part of this report. 1. Financial Statements (see Item 8) a. Independent Auditors' Report b. Consolidated Balance Sheets, December 31, 1998 and 1997 c. Consolidated Statements of Income, Years ended December 31, 1998, 1997 and 1996 d. Consolidated Statements of Stockholders' Equity, Years ended December 31, 1998, 1997 and 1996 e. Consolidated Statements of Cash Flows, Years ended December 31, 1998, 1997 and 1996 f. Notes to Consolidated Financial Statements g. Consolidated Quarterly Financial Data, (unaudited) for 1998 and 1997 2. Financial Statement Schedule (see Item 8) Schedule III - Real Estate and Accumulated Depreciation Schedules not Filed: All schedules, other than those indicated in the Table of Contents, have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. Page 154 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). 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 an exhibit to Realty Income's Form 8-K, dated October 27, 1998 and incorporated herein by reference). Page 155 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). 10.1 Revolving Credit Agreement (filed as Exhibit 99.2 to the Company's Form 8-K dated December 16, 1994 and incorporated herein by reference). 10.2 First Amendment to the Revolving Credit Agreement (filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference). 10.3 Second Amendment to the Revolving Credit Agreement (filed as Exhibit 99.2 to the Company's Form 8-K dated December 19, 1995 and incorporated herein by reference). 10.4 Third Amendment to the Revolving Credit Agreement(filed as Exhibit 10.4 to the Company's Form 10-K dated December 31, 1996 and incorporated herein by reference). 10.5 Fourth Amendment to the Revolving Credit Agreement(filed as Exhibit 10.5 to the Company's Form 10-Q dated March 31, 1997 and incorporated herein by reference). 10.6 Amended and Restated Revolving Credit Agreement, dated as of November 29, 1994 and restated as of December 30, 1997 (filed as Exhibit 10.1 to the Company's Form 10-Q dated June 30, 1998 and incorporated herein by Reference). 10.7 1994 Stock Option and Incentive Plan (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (registration number 33-95708) and incorporated herein by reference). 10.8 First Amendment to the 1994 Stock Option and Incentive Plan, dated June 12, 1997 (filed as Exhibit 10.9 to the Company's Form 8-B and incorporated herein by reference). 10.9 Second Amendment to the 1994 Stock Option and Incentive Plan, dated December 16, 1997, (filed as Exhibit 10.9 to the Company's Form 10-K dated December 31, 1997 and incorporated herein by reference). Page 156 10.10 Management Incentive Plan, filed as Exhibit 10.10 to the Company's Form 10-K dated December 31, 1997 and incorporated herein by reference). 10.11 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). 10.12 Form of Indemnification Agreement entered into between the Company and the executive officers of the Company (filed as Exhibit 10.1 to the Company's Form 8-K dated November 21, 1997 and incorporated herein by reference). 10.13 Form of Indemnification Agreement entered into between the Company and each director on the board of directors of the Company (filed as Exhibit 10.2 to the Company's Form 8-K dated November 21, 1997 and incorporated herein by reference). 10.14 Form of Employment Agreement between the Company and its Executive Officers (incorporated by reference to the Company's Form 8-B12B dated July 29, 1997 and incorporated herein by reference). 12.1 Statement re computation of ratios, filed herein. 21.1 Subsidiaries of the Company as of January 1, 1998, filed herein. 23.1 Consent of KPMG LLP, filed herein. 27 Financial Data Schedule, filed herein. B. The Registrant two reports on Form 8-K during the last quarter of the period covered by this report. A report on Form 8-K was dated October 27, 1998 and filed on October 28, 1998 reporting the issuance of $100.0 million, 8.25%, 10-year notes due in November 2008. A report on Form 8-K was dated October 15, 1998 and filed on October 16, 1998 setting forth risks associated with the Company. Page 157 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REALTY INCOME CORPORATION By: /s/THOMAS A. LEWIS ------------------------------------ Thomas A. Lewis Vice Chairman of the Board of Directors and Chief Executive Officer Date: March 17, 1999 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 17, 1999 By: /s/THOMAS A. LEWIS ------------------------------------ Thomas A. Lewis Vice Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) Date: March 17, 1999 By: /s/DONALD R. CAMERON ------------------------------------ Donald R. Cameron Director SIGNATURES (continued) Date: March 19, 1999 Page 158 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/ROGER P. KUPPINGER ------------------------------------ Roger P. Kuppinger Director Date: March 17, 1999 By: /s/MICHAEL D. MCKEE ------------------------------------ Michael D. McKee Director Date: March 17, 1999 By: /s/WILLARD H. SMITH JR ------------------------------------ Willard H. Smith Jr Director Date: March 17, 1999 By: /s/RICHARD J. VANDERHOFF ------------------------------------ Richard J. VanDerhoff Director, President and Chief Operating Officer Date: March 17, 1999 By: /s/GARY MALINO ------------------------------------ Gary Malino Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: March 17, 1999 Page 159 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/GREGORY J. FAHEY ------------------------------------ Gregory J. Fahey Vice President, Controller Date: March 17, 1999 EXHIBIT INDEX ============= Exhibit No. Description - ----------- ----------- 12.1 Statement re computation of ratios 21.1 Subsidiaries of the Company as of January 1, 1999 23.1 Consent of KPMG LLP 27 Financial Data Schedule Page 160 EX-12.1 2 Exhibit 12.1 REALTY INCOME CORPORATION STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (dollars in thousands) Years ended December 31, ----------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- Net income $41,304 $34,770 $32,223 $25,600 $15,224 ------- ------- ------- ------- ------- Fixed Charges: Interest 13,044 7,800 1,987 2,186 354 Amortization of fees 679 426 380 456 42 Interest capitalized 660 168 150 217 -- ------- ------- ------- ------- ------- Fixed charges 14,383 8,394 2,517 2,859 396 ------- ------- ------- ------- ------- Net income before fixed charges 55,027 42,996 34,590 28,242 15,620 Divided by fixed charges 14,383 8,394 2,517 2,859 396 ------- ------- ------- ------- ------- Ratio of earnings to fixed charges 4 5 14 10 39 ======= ======= ======= ======= =======
Page 1 EX-21.1 3 Exhibit 21.1 ============ Subsidiaries of the Company as of January 1, 1999 - ------------------------------------------------- Realty Income Texas Properties, L.P. a Delaware limited partnership Realty Income Texas Properties, Inc. a Delaware corporation Page 1 EX-23.1 4 EXHIBIT 23.1 The Board of Directors Realty Income Corporation: We consent to incorporation by reference in Registration Statement Nos. 333-10431 and 333-34311, each on Form S-3 of Realty Income Corporation and to incorporation by reference in Registration Statement No. 33-95708 on Form S-8 of Realty Income Corporation, of our report dated January 22, 1999, with respect to the consolidated balance sheets of Realty Income Corporation as of December 31, 1998 and 1997, 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, 1998, and the related Schedule III, which report appears in the December 31, 1998, annual report on Form 10-K of Realty Income Corporation. /s/ KPMG LLP San Diego, California March 22, 1999 Page 1 EX-27 5
5 This Schedule contains summary financial information extracted from the registrant's Balance Sheet as of December 31, 1998 and Income Statement for the 12 months ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 1 12-MOS DEC-31-1998 DEC-31-1998 2,533,000 0 2,973,000 0 0 0 889,835,000 171,555,000 759,234,000 0 294,800,000 26,817,000 0 0 423,392,000 759,234,000 0 85,132,000 0 0 30,405,000 0 13,723,000 41,530,000 0 41,530,000 0 0 (226,000) 41,304,000 1.55 1.55 Current assets and current liabilities are not applicable to the Company under current industry standards.
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