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, 2007

Commission File Number 1-13374

REALTY INCOME CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	33-0580106
(State or Other Jurisdiction of	(IRS Employer
Incorporation or Organization)	Identification Number)

600 La Terraza Boulevard, 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 Class D Preferred Stock, $1.00 Par Value Class E Preferred Stock, $1.00 Par Value 8.25% Monthly Income Senior Notes, due 2008	New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES x     NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o     NO x

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer x   Accelerated filer o  Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o     NO x

At June 30, 2007, the aggregate market value of the Registrant’s shares of common stock, $1.00 par value, held by non-affiliates of the Registrant was $2.5 billion, at the New York Stock Exchange (“NYSE”) closing price of $25.19.

At February 1, 2008, the number of shares of common stock outstanding was 101,286,217, the number of Class D preferred stock outstanding was 5,100,000, the number of Class E preferred stock outstanding was 8,800,000 and the number of outstanding 8.25% Monthly Income Senior Notes, due 2008, was 4,000,000.

DOCUMENTS INCORPORATED BY REFERENCE

Part III, Item 10, 11, 12, 13 and 14 incorporate by reference certain specific portions of the definitive proxy statement for Realty Income Corporation’s Annual Meeting to be held on May 13, 2008, 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.

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REALTY INCOME CORPORATION

Index to Form 10-K

PART I			Page
	Item 1:	Business
		The Company	4
		Recent Developments	5
		Distribution Policy	7
		Business Philosophy and Strategy	8
		Properties	13
		Forward-Looking Statements	19
	Item 1A:	Risk Factors	20
	Item 1B:	Unresolved Staff Comments	26
	Item 2:	Properties	26
	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, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
	Item 6:	Selected Financial Data	28
	Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations
		General	29
		Liquidity and Capital Resources	29
		Results of Operations	33
		Funds from Operations Available to Common Stockholders (FFO)	40
		Impact of Inflation	41
		Impact of Recent Accounting Pronouncements	42
	Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	42
	Item 8:	Financial Statements and Supplementary Data	43
	Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	69
	Item 9A:	Controls and Procedures	69
	Item 9B:	Other Information	70
PART III
	Item 10:	Directors, Executive Officers and Corporate Governance	70
	Item 11:	Executive Compensation	70
	Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	70
	Item 13:	Certain Relationships, Related Transactions and Director Independence	70
	Item 14:	Principal Accounting Fees and Services	70
PART IV
	Item 15:	Exhibits and Financial Statement Schedules	71
SIGNATURES			74

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PART I

Item 1:                      Business

THE COMPANY

Realty Income Corporation, The Monthly Dividend Company®, is a Maryland corporation organized to operate as an equity real estate investment trust, or REIT.  Our primary business objective is to generate dependable monthly cash distributions from a consistent and predictable level of funds from operations, or FFO per share.  Our monthly distributions are supported by the cash flow from our portfolio of retail properties leased to regional and national retail chains.  We have in-house acquisition, leasing, legal, retail and real estate research, portfolio management and capital markets expertise. Over the past 38 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term lease agreements (primarily 15 to 20 years).

In addition, we seek to increase distributions to common stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. Our portfolio management focus includes:

·   Contractual rent increases on existing leases;

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

·   The active management of our property portfolio, including re-leasing vacant properties and selectively selling properties.

In acquiring additional properties, we adhere to a focused strategy of primarily acquiring properties that are:

·   Freestanding, single-tenant, retail locations;

·   Leased to regional and national retail chains; and

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

At December 31, 2007, we owned a diversified portfolio:

·   Of 2,270 retail properties;

·   With an occupancy rate of 97.9%, or 2,222 properties occupied of the 2,270 properties in the portfolio;

·   With only 48 properties available for lease;

·   Leased to 115 different retail chains doing business in 30 separate retail industries;

·   Located in 49 states;

·   With over 18.5 million square feet of leasable space; and

·   With an average leasable retail space per property of approximately 8,150 square feet.

Of the 2,270 properties in the portfolio, 2,259, or 99.5%, are single-tenant, retail properties and the remaining 11 are multi-tenant, distribution and office properties. At December 31, 2007, 2,212 of the 2,259 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 13.0 years.

In addition, at December 31, 2007, our wholly-owned taxable REIT subsidiary, Crest Net Lease, Inc. (“Crest”), had invested $56.2 million in 30 properties, which are classified as held for sale.  Crest was created to buy and sell properties, primarily to individual investors who are involved in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Tax Code”).

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

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Our net-lease agreements generally:

·   Are for initial terms of 15 to 20 years;

·   Require the tenant to pay minimum monthly rent and property operating expenses (taxes, insurance and maintenance); and

·   Provide for future rent increases based on increases in the consumer price index, fixed increases, or to a lesser degree, additional rent calculated as a percentage of the tenants’ gross sales above a specified level.

We commenced operations as a REIT on August 15, 1994 through the merger of 25 public and private real estate limited partnerships with and into us. Each of the partnerships was formed between 1970 and 1989 for the purpose of acquiring and managing long-term, net-leased properties.

The eight senior officers of Realty Income owned 1.3% of our outstanding common stock with a market value of $33.2 million at February 1, 2008. The directors and eight senior officers of Realty Income, as a group, owned 2.5% of our outstanding common stock with a market value of $64.6 million at February 1, 2008.

Our common stock is listed on The New York Stock Exchange (“NYSE”) under the ticker symbol “O” with a cusip number of 756109-104. Our central index key number is 726728.

Our Class D cumulative redeemable preferred stock is listed on the NYSE under the ticker symbol “OprD” with a cusip number is 756109-609.

Our Class E cumulative redeemable preferred stock is listed on the NYSE under the ticker symbol “OprE” with a cusip number is 756109-708.

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

In February 2008, we had 75 permanent employees as compared to 70 permanent employees in February 2007.

We maintain an Internet website at www.realtyincome.com. On our website we make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file these reports with the SEC.  None of the information on our website is deemed to be part of this report.

RECENT DEVELOPMENTS

Increases in Monthly Distributions to Common Stockholders

We continue our 38-year policy of paying distributions monthly.  Monthly distributions per share were increased in April 2007 by $0.000625 to $0.127125, in July 2007 by $0.000625 to $0.12775, in September 2007 by $0.00775 to $0.1355, in October 2007 by $0.000625 to $0.136125 and in January 2008 by $0.000625 to $0.13675.  The increase in January 2008 was our 41st consecutive quarterly increase and the 47th increase in the amount of our dividend since our listing on the New York Stock Exchange, or NYSE, in 1994. In 2007, we paid the following monthly cash distributions per share: three in the amount of $0.1265, three in the amount of $0.127125, two in the amount of $0.12775, one in the amount of $0.1355 and three in the amount of $0.136125, totaling $1.56025. In December 2007 and January 2008, we declared distributions of $0.13675 per share, which were paid in January 2008 and will be paid in February 2008, respectively.

The monthly distribution of $0.13675 per share represents a current annualized distribution of $1.641 per share, and an annualized distribution yield of approximately 6.5% based on the last reported sale price of our common stock on the NYSE of $25.15 on February 1, 2008. Although we expect to continue our policy of paying monthly distributions, we cannot guarantee that we will maintain our current level of distributions, that we will continue our pattern of increasing distributions per share, or what our actual distribution yield will be in any future period.

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Acquisitions During 2007

During 2007, Realty Income and Crest invested $533.7 million, in aggregate, in 357 new retail properties and properties under development. These 357 new properties are located in 38 states, will contain over 1.9 million leasable square feet, and are 100% leased with an average lease term of 19.3 years.  As described below, Realty Income acquired 325 properties and Crest acquired 32 properties.

Included in the $533.7 million is $503.8 million invested by Realty Income in 325 new properties and properties under development, with an initial weighted average contractual lease rate of 8.6%. These 325 properties are located in 38 states, will contain over 1.8 million leasable square feet and are 100% leased with an average lease term of 19.2 years.  The 325 new properties acquired by Realty Income are net-leased to 16 different retail chains in the following nine industries: automotive service, automotive tire service, convenience store, distribution and office, drug store, grocery, health and fitness, restaurant, and sporting goods.  Also included in the $533.7 million is $29.9 million invested by Crest in 32 new restaurant properties.

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

Investments in Existing Properties

In 2007, we capitalized costs of $1.9 million on existing properties in our portfolio, consisting of $614,000 for re-leasing costs and $1.3 million for building improvements.

Issuance of 12-Year Senior Unsecured Notes

In September 2007, we issued $550 million in aggregate principal amount of 6.75% senior unsecured notes due 2019 (the “2019 Notes”).  The price to the investor for the 2019 Notes was 99.827% of the principal amount for an effective yield of 6.772%.  The net proceeds of approximately $544.4 million from this offering were used to fund certain acquisitions, repay borrowings under our acquisition credit facility and for general corporate purposes.  The remaining net proceeds, which are included in “cash and cash equivalents” on our 2007 consolidated balance sheet, will be used for general corporate purposes, which include additional property acquisitions.  Interest on the 2019 Notes is paid semiannually.

Credit Ratings Upgrade

In April 2007, Moody’s Investors Service upgraded our senior unsecured debt rating to Baa1 from Baa2 and our preferred stock rating to Baa2 from Baa3, with a stable outlook.

Standard & Poor’s MidCap 400 Index

In November 2007, we were added to the Standard & Poor’s (“S&P”) MidCap 400 Index.  The S&P MidCap 400 stock index covers companies with market capitalizations in the range of $1.5 billion to $5.5 billion and is part of a series of S&P indices.

Net Income Available to Common Stockholders

Net income available to common stockholders was $116.2 million in 2007 versus $99.4 million in 2006, an increase of $16.8 million. On a diluted per common share basis, net income was $1.16 per share in 2007 as compared to $1.11 per share in 2006.

The calculation to determine net income available to common stockholders includes the gain from the sales of properties. The amount of gains varies from period to period and can significantly impact net income available to common stockholders.

The gain recognized from the sales of investment properties during 2007 was $3.6 million, as compared to $3.0 million for 2006.

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Funds from Operations (FFO)

In 2007, our FFO increased by $33.9 million, or 21.8%, to $189.7 million versus $155.8 million in 2006.  On a diluted per common share basis, FFO was $1.89 in 2007 compared to $1.73 for 2006, an increase of $0.16, or 9.2%.

See our discussion of FFO in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report, which includes a reconciliation of net income available to common stockholders to FFO.

Crest’s Property Sales

During 2007, Crest sold 62 properties from its inventory for an aggregate of $123.6 million, which resulted in a gain of $12.3 million.  Crest’s gains are included in “income from discontinued operations, real estate acquired for resale by Crest” on our consolidated statements of income.

Crest’s Property Inventory

Crest’s property inventory at December 31, 2007 totaled $56.2 million.  These properties are included in “real estate held for sale, net” on our consolidated balance sheets.

DISTRIBUTION POLICY

Distributions are paid monthly to our common, Class D preferred and Class E preferred stockholders if, and when, declared by our Board of Directors.

In order to maintain our tax status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including net capital gains). In 2007, our cash distributions totaled $182.2 million, or approximately 113.6% of our estimated REIT taxable income of $160.4 million. Our estimated REIT taxable income reflects non-cash deductions for depreciation and amortization. We intend to continue to make distributions to our stockholders that are sufficient to meet this distribution requirement and that will reduce our exposure to income taxes. Our 2007 cash distributions to common stockholders totaled $157.7 million, representing 83.1% of our funds from operations available to common stockholders of $189.7 million.

The Class D preferred stockholders receive cumulative distributions at a rate of 7.375% per annum on the $25 per share liquidation preference (equivalent to $1.84375 per annum per share).  The Class E preferred stockholders receive cumulative distributions at a rate of 6.75% per annum on the $25 per share liquidation preference (equivalent to $1.6875 per annum per share).

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

Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend or that such amounts constitute "qualified dividend income" subject to a reduced tax rate. The maximum tax rate of non-corporate taxpayers for “qualified dividend income” has generally been reduced to 15% (until it “sunsets” or reverts to the provisions of prior law, which under current law will occur with respect to taxable years beginning after December 31, 2010). In general, dividends payable by REITs are not eligible for

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the reduced tax rate on corporate dividends, except to the extent the REIT’s dividends are attributable to dividends received from taxable corporations (such as our taxable REIT subsidiary, Crest), to income that was subject to tax at the corporate or REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year) or, as discussed above, dividends properly designated by us as “capital gain dividends.” Distributions in excess of earnings and profits generally will be treated as a non-taxable reduction in the stockholders’ basis in their stock. Distributions above that basis, generally, will be taxable as a capital gain to stockholders who hold their shares as a capital asset. Approximately 11.2% of the distributions to our common stockholders, made or deemed to have been made in 2007, were classified as a return of capital for federal income tax purposes. We are unable to predict the portion of future distributions that may be classified as a return of capital.

BUSINESS PHILOSOPHY AND STRATEGY

Investment Philosophy

We believe that owning an actively managed, diversified portfolio of retail properties under long-term, net leases produces consistent and predictable income.  Net leases typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. In addition, tenants are typically responsible for future rent increases based on increases in the consumer price index, fixed increases or, to a lesser degree, additional rent calculated as a percentage of the tenants’ gross sales above a specified level.  We believe that a portfolio of properties under long-term leases, coupled with the tenant’s responsibility for property expenses, generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.

Investment Strategy

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

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

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

·   They typically require capital to fund expansion but have more limited financing options than upper market retail chains;

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

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

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

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

·   They typically are of a higher credit quality;

·   They usually are larger public and private retailers with more commonly recognized brand names;

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

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

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

Historically, our investment focus has been on retail industries that have a service component because we believe the lease revenue from these types of businesses is more stable. Because of this investment focus, for the quarter ended December 31, 2007, approximately 84.5% of our rental revenue was derived from retailers with a service component in their business. Furthermore, we believe these service-oriented businesses would be difficult to duplicate over the Internet and that our properties continue to perform well relative to competition from Internet businesses.

Credit Strategy

We generally provide sale-leaseback financing to less than investment grade retail chains.  We typically acquire and lease back properties to regional and national retail chains and believe that within this market we can achieve an attractive risk-adjusted return on the financing we provide to retailers.  Since 1970, our overall weighted average occupancy rate at the end of each year has been 98.5%, and the occupancy rate at the end of each year has never been below 97.5%.

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

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

·   Industry, company, market conditions and credit profile;

·   Store profitability, if profitability data is available; and

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

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

·   Are located in highly visible areas,

·   Have easy access to major thoroughfares; and

·   Have attractive demographics.

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Acquisition Strategy

We seek to invest in industries in which several, well-organized, regional and national retail chains are capturing market share through service, quality control, economies of scale, advertising and the selection of prime retail locations. We execute our acquisition strategy by acting as a source of capital to regional and national retail chain store owners and operators, doing business in a variety of industries, by acquiring and leasing back retail store locations. We undertake thorough research and analysis to identify appropriate industries, tenants and property locations for investment. Our research expertise is instrumental to uncovering net-lease opportunities in markets where our real estate financing program adds value. In selecting real estate for potential investment, we generally seek to acquire properties that have the following characteristics:

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

·   Properties that are important retail locations for regional and national retail chains;

·   Properties that we deem to be profitable for the retailers;

·   Properties that are located within attractive demographic areas relative to the business of their tenants, with high visibility and easy access to major thoroughfares; and

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

Portfolio Management Strategy

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

·   The performance of various retail industries; and

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

We have an active portfolio management program that incorporates the sale of assets when we believe the reinvestment of the sales proceeds will generate higher returns, enhance the credit quality of our real estate portfolio, or extend our average remaining lease term. At December 31, 2007, we classified real estate owned by Crest with a carrying amount of $56.2 million as held for sale on our balance sheet.  Additionally, we anticipate selling investment properties in our portfolio that have not yet been specifically identified, from which we anticipate receiving between $10 million and $35 million in proceeds during the next 12 months.  We intend to invest these proceeds into new property acquisitions. However, we cannot guarantee that we will sell properties during the next 12 months.

Universal Shelf Registration

In April 2006, we filed a shelf registration statement with the SEC, which is effective for a term of three years.  In accordance with the SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed.  The securities covered by this registration statement include common stock, preferred stock, debt securities, or any combination of such securities.  We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if the securities are offered.  The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.  There is no specific limit to the dollar amount of new securities that can be issued under this new shelf registration before it expires in April 2009, and our common stock, preferred stock and notes issued after April 2006 were all issued pursuant to this universal shelf registration statement.

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Conservative Capital Structure

We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At February 1, 2008, our total outstanding credit facility borrowings and outstanding notes were $1.47 billion, or approximately 33.7% of our total market capitalization of $4.36 billion.

We define our total market capitalization at February 1, 2008 as the sum of:

·   Shares of our common stock outstanding of 101,286,217 multiplied by the last reported sales price of our common stock on the NYSE of $25.15 per share on February 1, 2008, or $2.55 billion;

·   Aggregate liquidation value (par value of $25 per share) of the Class D preferred stock of $127.5 million;

·   Aggregate liquidation value (par value of $25 per share) of the Class E preferred stock of $220 million; and

·   Outstanding notes of $1.47 billion.

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

$300 Million Acquisition Credit Facility

We have a $300 million revolving, unsecured credit facility that expires in October 2008. In April 2007, Moody’s Investors Service upgraded our credit ratings.  Effective May 2007, our  investment grade credit ratings provided for financing under the credit facility at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 60 basis points with a facility commitment fee of 15 basis points, for all-in drawn pricing of 75 basis points over LIBOR.  At February 1, 2008, we had a borrowing capacity of $300 million available on our credit facility and no outstanding balance.

We expect to use the credit facility to acquire additional retail properties and for other corporate purposes.  Any additional borrowings will increase our exposure to interest rate risk.  We have the right to request an increase in the borrowing capacity of the credit facility by up to $100 million, to a total borrowing capacity of $400 million.  Any increase in the borrowing capacity is subject to approval by the lending banks of our credit facility.

We regularly review our credit facility and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate. We have the right to extend the credit facility for an additional term of one year (to October 2009).

We use our credit facility for the short-term financing of new property acquisitions. When outstanding borrowings under the credit facility reach a certain level (generally in the range of $100 million to $200 million) and capital is available on acceptable terms, we generally seek to refinance those borrowings with the net proceeds of long-term or permanent financing, which may include the issuance of common stock, preferred stock, convertible preferred stock, debt securities or convertible debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing or that market conditions prevailing at the time of refinancing will enable us to issue equity or debt securities upon acceptable terms.

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Credit Agency Ratings

We are currently assigned investment grade corporate credit ratings, on our senior unsecured notes.  Fitch Ratings has assigned a rating of BBB+, Moody’s Investors Service has assigned a rating of Baa1 and Standard & Poor’s Ratings Group has assigned a rating of BBB to our senior notes.  The rating by Standard & Poor’s has a “positive” outlook and the ratings by Fitch and Moody’s have “stable” outlooks.

We have also been assigned investment grade credit ratings on our preferred stock. Fitch Ratings has assigned a rating of BBB, Moody’s has assigned a rating of Baa2 and Standard & Poor’s has assigned a rating of BBB- to our preferred stock.  The rating by Standard & Poor’s has a “positive” outlook and the ratings by Fitch and Moody’s have “stable” outlooks.

The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition.  These ratings are subject to ongoing evaluation by credit rating agencies and we cannot assure you that any such rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.  Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock.

Mortgage Debt

We have no mortgage debt on any of our properties.

No Off-Balance Sheet Arrangements or Unconsolidated Investments

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

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

Competitive Strategy

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

·   Size and Type of Investment Properties:  We believe smaller ($500,000 to $10,000,000) net-leased retail properties represent an attractive investment opportunity in today’s real estate environment. Due to the complexities of acquiring and managing a large portfolio of relatively small assets, we believe these types of properties have not experienced significant institutional ownership interest or the corresponding yield reduction experienced by larger income-producing properties. We believe the less intensive day-to-day property management required by net-lease agreements, coupled with the active management of a large portfolio of smaller properties, is an effective investment strategy. The tenants of our freestanding retail properties generally provide goods and services that satisfy basic consumer needs. In order to grow and expand, they generally need capital. Since the acquisition of real estate is typically the single largest capital expenditure of many of these retailers, our method of purchasing the property and then leasing it back, under a net-lease arrangement, allows the retail chain to free up capital.

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

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·   Diversification:  Diversification of the portfolio by retail industry type, tenant, and geographic location is key to our objective of providing predictable investment results for our stockholders, therefore further diversification of our portfolio is a continuing objective. At December 31, 2007, our retail property portfolio consisted of 2,270 properties located in 49 states, leased to 115 retail chains doing business in 30 industry segments. Each of the 30 industry segments, represented in our property portfolio, individually accounted for no more than 24.2% of our rental revenue for the quarter ended December 31, 2007.

·   Management Specialization:  We believe that our management’s specialization in single-tenant retail properties, operated under net-lease agreements, is important to meeting our objectives. We plan to maintain this specialization and will seek to employ and train high-quality professionals in this specialized area of real estate ownership, finance and management.

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

PROPERTIES

At December 31, 2007, we owned a diversified portfolio:

·   Of 2,270 retail properties;

·   With an occupancy rate of 97.9%, or 2,222 properties occupied of the 2,270 properties in the portfolio;

·   With only 48 properties available for lease;

·   Leased to 115 different retail chains doing business in 30 separate retail industries;

·   Located in 49 states;

·   With over 18.5 million square feet of leasable space; and

·   With an average leasable retail space per property of approximately 8,150 square feet.

In addition to our real estate portfolio, our subsidiary, Crest had invested $56.2 million in 30 properties located in 14 states at December 31, 2007. These properties are classified as held for sale.

At December 31, 2007, 2,212, or 97.4%, of our 2,270 retail properties were leased under net-lease agreements. Net leases typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. In addition, tenants are typically responsible for future rent increases based on increases in the consumer price index, fixed increases or, to a lesser degree, additional rent calculated as a percentage of the tenants’ gross sales above a specified level.

Our net-leased retail properties primarily are leased to regional and national retail chain store operators. Most buildings are single-story structures with adequate parking on site to accommodate peak retail traffic periods. The properties tend to be on major thoroughfares with relatively high traffic counts, adequate access and proximity to a sufficient population base to constitute a suitable market or trade area for the retailer’s business.

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Industry Diversification

The following table sets forth certain information regarding Realty Income’s property portfolio (excluding properties owned by Crest) classified according to the business of the respective tenants, expressed as a percentage of our total rental revenue:

	Percentage of Rental Revenue(1)
	For the Quarter			For the Years Ended
Industries	Ended December 31, 2007			Dec 31, 2007			Dec 31, 2006			Dec 31, 2005			Dec 31, 2004			Dec 31, 2003			Dec 31, 2002
Apparel stores		1.1	%		1.2	%		1.7	%		1.6	%		1.8	%		2.1	%		2.3	%
Automotive collision services		1.1			1.1			1.3			1.3			1.0			0.3			--
Automotive parts		2.0			2.1			2.8			3.4			3.8			4.5			4.9
Automotive service		5.0			5.2			6.9			7.6			7.7			8.3			7.0
Automotive tire services		6.9			7.3			6.1			7.2			7.8			3.1			2.7
Book stores		0.2			0.2			0.2			0.3			0.3			0.4			0.4
Business services		*			0.1			0.1			0.1			0.1			0.1			0.1
Child care		7.7			8.4			10.3			12.7			14.4			17.8			20.8
Consumer electronics		0.9			0.9			1.1			1.3			2.1			3.0			3.3
Convenience stores		14.1			14.0			16.1			18.7			19.2			13.3			9.1
Crafts and novelties		0.3			0.3			0.4			0.4			0.5			0.6			0.4
Distribution and office		1.1			0.6			--			--			--			--			--
Drug stores		2.6			2.7			2.9			2.8			0.1			0.2			0.2
Entertainment		1.3			1.4			1.6			2.1			2.3			2.6			2.3
Equipment rental services		0.2			0.2			0.2			0.4			0.3			0.2			--
Financial services		0.2			0.2			0.1			0.1			0.1			--			--
General merchandise		0.7			0.7			0.6			0.5			0.4			0.5			0.5
Grocery stores		0.7			0.7			0.7			0.7			0.8			0.4			0.5
Health and fitness		5.3			5.1			4.3			3.7			4.0			3.8			3.8
Home furnishings		2.4			2.6			3.1			3.7			4.1			4.9			5.4
Home improvement		2.0			2.1			3.4			1.1			1.0			1.1			1.2
Motor vehicle dealerships		3.0			3.1			3.4			2.6			0.6			--			--
Office supplies		1.0			1.1			1.3			1.5			1.6			1.9			2.1
Pet supplies and services		0.8			0.9			1.1			1.3			1.4			1.7			1.7
Private education		0.7			0.8			0.8			0.8			1.1			1.2			1.3
Restaurants		24.2			21.2			11.9			9.4			9.7			11.8			13.5
Shoe stores		--			--			--			0.3			0.3			0.9			0.8
Sporting goods		2.4			2.6			2.9			3.4			3.4			3.8			4.1
Theaters		8.4			9.0			9.6			5.2			3.5			4.1			3.9
Travel plazas		0.2			0.2			0.3			0.3			0.4			0.3			--
Video rental		1.4			1.7			2.1			2.5			2.8			3.3			3.3
Other		2.1			2.3			2.7			3.0			3.4			3.8			4.4
Totals		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

* Less than 0.1%

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

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Service Category Diversification

The following table sets forth certain information regarding the properties owned by Realty Income (excluding properties owned by Crest) at December 31, 2007, classified according to the retail business types and the level of services they provide (dollars in thousands):

Industry	Number of Properties		Rental Revenue for the Quarter Ended December 31, 2007		Percentage of Revenue
Tenants Providing Services
Automotive collision services		13	$	825		1.1	%
Automotive service		237		3,921		5.0
Child care		265		5,970		7.7
Entertainment		8		999		1.3
Equipment rental services		2		150		0.2
Financial services		8		132		0.2
Health and fitness		26		4,105		5.3
Private education		6		576		0.7
Theaters		31		6,578		8.4
Other		13		1,652		2.1
		609		24,908		32.0
Tenants Selling Goods and Services
Automotive parts (with installation)		30		583		0.7
Automotive tire services		153		5,387		6.9
Business services		2		37		*
Convenience stores		489		11,000		14.1
Distribution and office		3		827		1.1
Home improvement		1		57		0.1
Motor vehicle dealerships		19		2,323		3.0
Pet supplies and services		9		607		0.8
Restaurants		663		18,847		24.2
Travel plazas		1		170		0.2
Video rental		34		1,102		1.4
		1,404		40,940		52.5
Tenants Selling Goods
Apparel stores		6		883		1.1
Automotive parts		59		1,004		1.3
Book stores		2		156		0.2
Consumer electronics		15		683		0.9
Crafts and novelties		4		215		0.3
Drug stores		39		2,007		2.6
General merchandise		25		556		0.7
Grocery stores		8		552		0.7
Home furnishings		42		1,897		2.4
Home improvement		31		1,451		1.9
Office supplies		10		789		1.0
Pet supplies		2		37		*
Sporting goods		14		1,874		2.4
		257		12,104		15.5
Totals		2,270	$	77,952		100.0	%

* Less than 0.1%

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Lease Expirations

The following table sets forth certain information regarding Realty Income’s property portfolio (excluding properties owned by Crest) regarding the timing of the lease term expirations (excluding extension options) on our 2,212 net leased, single-tenant retail properties as of December 31, 2007 (dollars in thousands):

	Total Portfolio							Initial Expirations(3)							Subsequent Expirations(4)
Year	Total Number of Leases Expiring(1)		Rental Revenue  for the Quarter Ended 12/31/07(2)		% of Total Rental Revenue			Number of  Leases Expiring		Rental Revenue for the Quarter Ended 12/31/07		% of Total Rental Revenue			Number of Leases Expiring		Rental Revenue for the Quarter Ended 12/31/07		% of Total Rental Revenue
2008		144	$	3,023		4.0	%		70	$	1,594		2.1	%		74	$	1,429		1.9	%
2009		120		2,664		3.5			37		880		1.1			83		1,784		2.4
2010		78		1,553		2.1			34		789		1.1			44		764		1.0
2011		80		2,377		3.2			36		1,368		1.8			44		1,009		1.4
2012		101		2,425		3.2			80		2,011		2.7			21		414		0.5
2013		77		3,456		4.6			67		3,205		4.3			10		251		0.3
2014		47		1,968		2.6			34		1,714		2.3			13		254		0.3
2015		90		1,810		2.4			65		1,250		1.7			25		560		0.7
2016		112		1,909		2.5			111		1,883		2.5			1		26		*
2017		50		1,956		2.6			45		1,870		2.5			5		86		0.1
2018		24		1,093		1.5			24		1,093		1.5			--		--		--
2019		95		4,675		6.2			94		4,481		5.9			1		194		0.3
2020		82		2,980		4.0			79		2,916		3.9			3		64		0.1
2021		149		5,843		7.8			148		5,788		7.7			1		55		0.1
2022		104		3,033		4.0			103		2,985		4.0			1		48		*
2023		240		6,760		9.0			239		6,735		9.0			1		25		*
2024		64		1,919		2.5			64		1,919		2.5			--		--		--
2025		76		6,329		8.4			72		6,264		8.3			4		65		0.1
2026		217		11,719		15.6			215		11,664		15.5			2		55		0.1
2027		159		3,903		5.2			159		3,903		5.2			--		--		--
2028		44		1,262		1.7			43		1,260		1.7			1		2		*
2029		35		858		1.1			35		858		1.1			--		--		--
2030		14		714		0.9			14		714		0.9			--		--		--
2031		1		51		0.1			1		51		0.1			--		--		--
2032		1		17		*			1		17		*			--		--		--
2033		3		357		0.5			3		357		0.5			--		--		--
2034		2		230		0.3			2		230		0.3			--		--		--
2037		2		354		0.5			2		354		0.5			--		--		--
2043		1		13		*			--		--		--			1		13		*
Totals		2,212	$	75,251		100.0	%		1,877	$	68,153		90.7	%		335	$	7,098		9.3	%

*Less than 0.1%

(1) Excludes ten multi-tenant properties and 48 vacant unleased properties, one of which is a multi-tenant property.  The lease expirations for properties under construction are based on the estimated date of completion of those properties.

(2) Excludes revenue of $2,701 from ten multi-tenant properties and from 48 vacant and unleased properties at December 31, 2007.

(3) Represents leases to the initial tenant of the property that are expiring for the first time.

(4) Represents lease expirations on properties in the portfolio, which have previously been renewed, extended or re-tenanted.

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State Diversification

The following table sets forth certain state-by-state information regarding Realty Income’s property portfolio (excluding properties owned by Crest) as of December 31, 2007 (dollars in thousands):

State (49)	Number of Properties		Percent Leased			Approximate Leasable Square Feet		Rental Revenue for the Quarter Ended December 31, 2007		Percentage of Rental Revenue
Alabama		61		98	%		413,700	$	1,885		2.4	%
Alaska		2		100			128,500		277		0.4
Arizona		79		99			394,100		2,426		3.1
Arkansas		18		100			98,500		436		0.6
California		63		98			1,124,700		4,072		5.2
Colorado		54		98			451,000		1,943		2.5
Connecticut		26		100			282,300		1,324		1.7
Delaware		17		100			33,300		372		0.5
Florida		168		98			1,450,800		6,706		8.6
Georgia		132		98			926,900		3,972		5.1
Idaho		14		100			91,900		373		0.5
Illinois		74		99			867,600		4,076		5.2
Indiana		82		98			694,400		2,971		3.8
Iowa		20		95			140,900		439		0.6
Kansas		33		97			573,500		1,109		1.4
Kentucky		22		100			111,500		701		0.9
Louisiana		33		100			190,400		970		1.2
Maine		3		100			22,500		54		0.1
Maryland		28		100			256,500		1,470		1.9
Massachusetts		69		100			587,900		2,586		3.3
Michigan		51		100			246,200		1,235		1.6
Minnesota		21		100			392,100		1,328		1.7
Mississippi		72		97			359,600		1,482		1.9
Missouri		62		98			640,100		2,121		2.7
Montana		2		100			30,000		77		0.1
Nebraska		19		100			196,300		630		0.8
Nevada		15		100			191,000		847		1.1
New Hampshire		14		100			109,900		544		0.7
New Jersey		36		100			266,100		1,905		2.4
New Mexico		8		100			56,400		193		0.2
New York		44		95			508,100		2,544		3.3
North Carolina		63		98			454,400		2,098		2.7
North Dakota		6		100			36,600		71		0.1
Ohio		128		97			813,900		3,044		3.9
Oklahoma		25		100			145,900		609		0.8
Oregon		18		94			289,100		858		1.1
Pennsylvania		97		100			630,000		2,940		3.8
Rhode Island		4		100			14,500		87		0.1
South Carolina		59		98			250,700		1,569		2.0
South Dakota		9		100			24,900		100		0.1
Tennessee		135		99			635,500		3,018		3.9
Texas		215		94			2,282,500		7,950		10.2
Utah		6		83			35,100		91		0.1
Vermont		4		100			12,700		122		0.1
Virginia		103		100			622,400		3,085		4.0
Washington		36		89			235,100		756		1.0
West Virginia		2		50			23,200		45		0.1
Wisconsin		17		94			157,400		409		0.5
Wyoming		1		100			4,200		32		*
Totals/Average		2,270		98	%		18,504,800	$	77,952		100.0	%

* Less than 0.1%

-17-

Description of Leasing Structure

At December 31, 2007, 2,212 single tenant and certain other retail properties, or 97.4%, of our 2,270 properties were net leased. In most cases, the leases:

·   Are for initial terms of 15 to 20 years;

·   Require the tenant to pay minimum monthly rents and property operating expenses (taxes, insurance and maintenance); and

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

Matters Pertaining to Certain Properties and Tenants

Of the 48 properties available for lease or sale at December 31, 2007, all are single-tenant properties except one.  As of February 1, 2008, transactions to lease or sell 17 of the 48 properties were underway or completed.  At December 31, 2007, 25 of our properties under lease were unoccupied and available for sublease by the tenants, all of which were current with their rent and other obligations.  During 2007, each of our tenants accounted for less than 10% of our rental revenue.

For 2007, our tenants in the convenience store and restaurant industries accounted for approximately 14.0% and 21.2%, respectively, of our rental revenue.  A downturn in any of these industries, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in these industries, which in turn could have a material adverse affect on our financial position, results of operations and our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions on our common stock and preferred stock.  Individually, each of the other industries in our property portfolio accounted for less than 10% of our rental revenue for 2007.

In addition, a substantial number of our properties are leased to middle-market retail chains that generally have more limited financial and other resources than certain upper-market retail chains, and therefore they are more likely to be adversely affected by a downturn in their respective businesses or in the regional or national economy.  Some of our tenants have incurred substantial debt and therefore are more likely to be adversely affected by a downturn in their respective businesses.

Realty Income owns 116 properties and Crest owns three properties, all leased to subsidiaries of Buffets, Inc. (Buffets) and guaranteed by Buffets.  Buffets is a subsidiary of Buffets Holding, Inc. (“Buffets Holdings”). On January 22, 2008, Buffets Holdings, together with each of its subsidiaries, filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.  As of February 12, 2008, Buffets’ lease payments to us are current.  Based on our analysis of the Buffets’ locations owned by Realty Income, we believe that the Chapter 11 filing will not have a material adverse affect on our operations or financial position.

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Certain Properties Under Development

Of the 325 properties Realty Income acquired in 2007, four were development properties, all of which were occupied at December 31, 2007.  In the case of development properties, we either enter into an agreement with a retail chain where the retailer retains a contractor to construct the building and we fund the costs of that development, or we fund a developer who constructs the building. In either case, there is an executed lease with a retail tenant at the time of the land purchase (with a fixed rent commencement date) and there is a requirement to complete the construction in a timely basis and within a specific budget, typically within eight months after we purchase the land. The tenant or developer generally is required to pay construction cost overruns to the extent that they exceed the construction budget by more than a predetermined amount. We also enter into a lease with the tenant at the time we purchase the land, which generally requires the tenant to begin paying base rent when the store opens for business. The base rent is calculated by multiplying a predetermined capitalization rate by our total investment in the property including the land cost for the property, construction costs and capitalized interest.  Crest did not acquire any development property in 2007.  Both Realty Income and Crest will continue to pursue development opportunities under similar arrangements in the future.

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K, including documents incorporated by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this annual report, the words “estimated”, “anticipated”, “expect”, “believe”, “intend” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things:

·   Our anticipated growth strategies;

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

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

·   Our intention to re-lease vacant properties;

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

·   Future expenditures for development projects; and

·   Profitability of our subsidiary, Crest Net Lease, Inc. (“Crest”).

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

·   Our continued qualification as a real estate investment trust;

·   General business and economic conditions;

·   Competition;

·   Fluctuating interest rates;

·   Access to debt and equity capital markets;

·   Continued uncertainty in the credit markets;

·   Other risks inherent in the real estate business including tenant defaults, potential liability relating to

environmental matters, illiquidity of real estate investments, and potential damages from natural disasters;

·   Impairments in the value of our real estate assets;

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

·   The outcome of any legal proceedings to which we are a party; and

·   Acts of terrorism and war.

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

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

Item 1A:                      Risk Factors

As used under this caption “Risk Factors,” references to our capital stock include our common stock and any class or series of our preferred stock and references to our stockholders include holders of our common stock or any class or series of our preferred stock, in each case unless otherwise expressly stated or the context otherwise requires.

In order to grow we need to continue to acquire investment properties which may be subject to competitive pressures.

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

·   Businesses;

·   Individuals;

·   Fiduciary accounts and plans; and

·   Other entities engaged in real estate investment and financing.

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

Our tenants’ creditworthiness and ability to pay rent may be affected by competition within their industries from other operators.

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

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

·   The tenants’ results of operations or financial condition.

Further, the occurrence of a tenant bankruptcy or insolvency could diminish the income we receive from that tenant’s lease or leases.  In addition, a bankruptcy court might authorize the tenant to terminate its leases with us.  If that happens, our claim against the bankrupt tenant for unpaid future rent would be subject to statutory limitations that might be substantially less than the remaining rent we are owed under the leases.  In addition, any claim we have for unpaid past rent, if any, may not be paid in full.

As a property owner, we may be subject to unknown environmental liabilities.

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

·   Our knowledge of the contamination;

·   The timing of the contamination;

·   The cause of the contamination; or

·   The party responsible for the contamination of the property.

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

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

In addition, several of our properties were built during the period when asbestos was commonly used in building construction and other buildings with asbestos may be acquired by the Company in the future.  Environmental laws govern the presence, maintenance and removal of asbestos-containing materials, or ACMs, and require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, that they adequately inform or train those who may come into contact with asbestos and that they undertake special precautions, including removal or other abatement in the event that asbestos is disturbed during renovation or demolition of a building.  These laws may impose fines and penalties on building owners or operators for failure to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers.

It is also possible that some of our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediation of the problem.  When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of mold to which our tenants or their employees could be exposed at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property, which would reduce our cash available for distribution. In addition, exposure to mold by our tenants or others could expose us to liability if property damage or health concerns arise.

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

Insurance and Indemnity.  In June 2005, we entered into a seven-year environmental insurance policy on our property portfolio which replaced the previous five-year environmental insurance policy.  The limits on our current policy are $10 million per occurrence, and $50 million in the aggregate, subject to a $40,000 self insurance retention, per occurrence, for properties with underground storage tanks and a $100,000 self insurance retention, per occurrence, for all other properties.  It is possible that our insurance could be insufficient to address any particular environmental situation and that, in the future, we could be unable to obtain insurance for environmental matters at a reasonable cost, or at all.

Our tenants are generally responsible for, and indemnify us against, liabilities for environmental matters that occur on our properties.  For properties that have underground storage tanks, in addition to providing an indemnity in our favor, the tenants generally obtain environmental insurance or rely upon the state funds in the states where these properties are located.

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If we fail to qualify as a real estate investment trust, the amount of dividends we are able to pay would decrease, which could adversely affect the market price of our capital stock and could adversely affect the value of our debt securities.

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

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

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

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

If we fail to satisfy all of the requirements for qualifications as a REIT, we may be subject to certain penalty taxes or, in some circumstances, we may fail to qualify as a REIT.  If we were to fail to qualify as a REIT in any taxable year:

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

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

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

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

·   This treatment would substantially reduce amounts available for investment or distribution to stockholders because of the additional tax liability for the years involved, which could have a material adverse effect on the market price of our capital stock and the value of our debt securities.

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

Distributions requirements imposed by law limit our flexibility.

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

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

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We intend to continue to make distributions to our stockholders to comply with the distribution requirements of the Code as well as to reduce our exposure to federal income taxes and the nondeductible excise tax. Differences in timing between the receipt of income and the payment of expenses to arrive at taxable income, along with the effect of required debt amortization payments, could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.

Future issuances of equity securities could dilute the interest of holders of our common stock.

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

We are subject to risks associated with debt and capital stock financing.

We intend to incur additional indebtedness in the future, including borrowings under our $300 million acquisition credit facility.  At February 1, 2008, we had no borrowings outstanding under our $300 million acquisition credit facility and a total of $1.47 billion aggregate principal amount of outstanding unsecured senior debt securities. To the extent that new indebtedness is added to our current debt levels, the related risks that we now face would increase. As a result, we are and will be subject to risks associated with debt financing, including the risk that our cash flow could be insufficient to meet required payments on our debt.  We also face variable interest rate risk as the interest rate on our $300 million credit facility is variable and could therefore increase over time.  We also face the risk that we may be unable to refinance or repay our debt as it comes due. In addition, our $300 million credit facility contains financial covenants that could limit the amount of distributions payable by us on our common stock and preferred stock in the event of deterioration in our results of operations or financial condition, and our $300 million credit facility provides that, in the event of a failure to pay principal of or interest on borrowings there under when due (subject to any applicable grace period), we and our subsidiaries may not pay any dividends on our capital stock, including our outstanding common and preferred stock. If this were to occur, it would likely have a material adverse effect on the market price of our outstanding common and preferred stock and on the value of our debt securities.

Our indebtedness could also have other important consequences to holders of our common and preferred stock, including:

·   Increasing our vulnerability to general adverse economic and industry conditions;

·   Limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;

·   Requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, capital expenditures and general corporate requirements;

·   Limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and

·   Putting us at a disadvantage compared to our competitors with less indebtedness.

Our business operations may not generate the cash needed to make distributions on our capital stock or to service our indebtedness.

Our ability to make distributions on our common stock and preferred stock and payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future.  We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make distributions on our common stock and preferred stock, to pay our indebtedness or to fund our other liquidity needs.

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The market value of our capital stock and debt securities could be substantially affected by various factors.

The market value of our capital stock and debt securities will depend on many factors, which may change from time to time, including:

·   Prevailing interest rates, increases in which may have an adverse effect on the market value of our capital stock and our debt securities;

·   The market for similar securities issued by other REITs;

·   General economic and financial market conditions;

·   The financial condition, performance and prospects of us, our tenants and our competitors;

·   Changes in financial estimates or recommendations by securities analysts with respect to us, our competitors or our industry;

·   Changes in our credit ratings; and

·   Actual or anticipated variations in quarterly operating results.

As a result of these and other factors, investors who purchase our capital stock and debt securities may experience a decrease, which could be substantial, in the market value of our capital stock and debt securities, including decreases unrelated to our operating performance or prospects.

Real estate ownership is subject to particular economic conditions that may have a negative impact on our revenue.

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 our properties may be insufficient to cover all corporate operating expenses, debt service payments on indebtedness we incur and distributions on our stock. Additional real estate ownership risks include:

·   Adverse changes in general or local economic conditions;

·   Changes in supply of, or demand for, similar or competing properties;

·   Changes in interest rates and operating expenses;

·   Competition for tenants;

·   Changes in market rental rates;

·   Inability to lease properties upon termination of existing leases;

·   Renewal of leases at lower rental rates;

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

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

·   Uninsured property liability;

·   Property damage or casualty losses;

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

·   Acts of terrorism and war; and

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

An uninsured loss or a loss that exceeds the policy limits on our properties could subject us to lost capital or revenue on those properties.

Under the terms and conditions of the leases currently in force on our properties, tenants generally are required to indemnify and hold us harmless from liabilities resulting from injury to persons, air, water, land or property, due to activities conducted on the properties, except for claims arising from the negligence or intentional misconduct of us or our agents. Additionally, tenants are generally required, at the tenant's expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies. The insurance policies our tenants are required to maintain for property damage are generally in amounts not less than the full replacement cost of the improvements less slab, foundations, supports and other customarily excluded improvements. Our tenants are generally required to maintain general liability coverage varying between $1,000,000 and $10,000,000 depending on the tenant and the industry in which it operates.

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In addition to the indemnities and required insurance policies identified above, many of our properties are also covered by flood and earthquake insurance policies (subject to substantial deductibles) obtained and paid for by the tenants as part of their risk management programs. Additionally, we have obtained blanket liability, flood and earthquake (subject to substantial deductibles) and property damage insurance policies to protect us and our properties against loss should the indemnities and insurance policies provided by the tenants fail to restore the properties to their condition prior to a loss. However, should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our results of operations or financial condition and on our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions to our stockholders.

Compliance with the Americans With Disabilities Act of 1990 and fire, safety, and other regulations may require us to make unintended expenditures that could adversely impact our results of operation.

Our properties are generally required to comply with the Americans with Disabilities Act of 1990, or the ADA. The ADA has separate compliance requirements for "public accommodations" and "commercial facilities," but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants. The retailers to whom we lease properties are obligated by law to comply with the ADA provisions, and we believe that these retailers may be obligated to cover costs associated with compliance. If required changes involve greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these retailers to cover costs could be adversely affected and we could be required to expend our own funds to comply with the provisions of the ADA, which could materially adversely affect our results of operations or financial condition and our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions to our stockholders. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties. We may be required to make substantial capital expenditures to comply with those requirements and these expenditures could materially adversely affect our results of operations or financial condition and our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions to our stockholders.

Property taxes may increase without notice.

The real property taxes on our properties and any other properties that we develop or acquire in the future may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities.

We depend 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 results of operations or financial condition and on our ability to pay the principal and interest on our debt securities and other indebtedness and to make distributions to our stockholders.  It is possible that we will not be able to recruit additional personnel with equivalent experience in the retail, net-lease industry.

Terrorist attacks and other acts of violence or war may affect the value of our debt and equity securities, the markets in which we operate and our results of operations.

Terrorist attacks may negatively affect our operations and your investment.  There can be no assurance that there will not be further terrorist attacks against the United States or United States businesses. These attacks, or armed conflicts, may directly impact our physical facilities or the businesses of our tenants.

Such events could cause consumer confidence and spending to decrease or result in increased volatility in the U.S. and worldwide financial markets and economy. They also could result in or prolong an economic recession in the U.S. or abroad. Any of these occurrences could have a significant adverse impact on our operating results and revenues and on the market price of our capital stock and on the value of our debt securities.  It could also have an adverse effect on our ability to pay principal and interest on our debt securities or other indebtedness and to make distributions to our stockholders.

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Recent disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have other adverse effects on us.

The United States credit markets have recently experienced significant dislocations and liquidity disruptions which have caused the spreads on prospective debt financings to widen considerably.  These circumstances have materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive, and, in certain cases, have resulted in the unavailability of certain types of debt financing.  Continued uncertainty in the credit markets may negatively impact our ability to make acquisitions.  A prolonged downturn in the credit markets could cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly.  In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing.  These events in the credit markets have also had an adverse effect on other financial markets in the United States, which may make it more difficult or costly for us to raise capital through the issuance of our common stock or preferred stock.  These disruptions in the financial markets also may have other unknown adverse effects on us or the economy generally.

Item 1B:                   Unresolved Staff comments

There are no unresolved staff comments.

Item 2:                      Properties

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

Item 3:                      Legal Proceedings

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

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.

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PART II

Item 5: Market For The Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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

	Price Per Share
	of Common Stock				Distributions
	High		Low		Declared(1)
2007
First quarter	$	30.36	$	26.02	$	0.380125
Second quarter		29.13		24.53		0.382000
Third quarter		28.79		22.87		0.399375
Fourth quarter		30.70		26.31		0.409000
Total					$	1.570500
2006
First quarter	$	24.93	$	21.57	$	0.349375
Second quarter		24.06		21.25		0.351250
Third quarter		25.10		21.65		0.368625
Fourth quarter		28.43		24.40		0.378250
Total					$	1.447500

(1) Common stock cash distributions currently are declared monthly by us based on financial results for the prior months.  At December 31, 2007, a distribution of $0.13675 per common share had been declared and was paid in January 2008.

There were 9,356 registered holders of record of our common stock as of December 31, 2007. We estimate that our total number of shareholders is approximately 80,000 when we include both registered and beneficial holders of our common stock.

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Item 6:                      Selected Financial Data

(not covered by Report of Independent Registered Public Accounting Firm)

As of or for the years ended December 31,	2007			2006			2005			2004			2003
(dollars in thousands, except for per share data)
Total assets (book value)	$	3,077,352		$	2,546,508		$	1,920,988		$	1,442,315		$	1,360,257
Cash and cash equivalents		193,101			10,573			65,704			2,141			4,837
Lines of credit and notes payable		1,470,000			920,000			891,700			503,600			506,400
Total liabilities		1,539,260			970,516			931,774			528,580			532,491
Total stockholders’ equity		1,538,092			1,575,992			989,214			913,735			827,766
Net cash provided by operating activities		318,169			86,945			109,557			178,337			73,957
Net change in cash and cash equivalents		182,528			(55,131	)		63,563			(2,696	)		(4,084	)
Total revenue		296,513			239,529			195,453			172,711			142,296
Income from continuing operations		127,383			105,718			88,403			81,400			70,685
Income from discontinued operations		13,026			5,063			10,716			21,997			15,750
Net income		140,409			110,781			99,119			103,397			86,435
Preferred stock cash dividends		(24,253	)		(11,362	)		(9,403	)		(9,455	)		(9,713	)
Excess of redemption value over carrying value of preferred shares redeemed		--			--			--			(3,774	)		--
Net income available to common   stockholders		116,156			99,419			89,716			90,168			76,722
Cash distributions paid to common   stockholders		157,659			129,667			108,575			97,420			83,842
Ratio of earnings to fixed charges (1)	2.9 times			2.9 times			3.2 times			3.9 times			4.1 times
Ratio of earnings to combined   fixed charges and preferred   stock cash dividends (1)	2.2 times			2.4 times			2.6 times			3.1 times			3.0 times
Basic and diluted net income per
common share		1.16			1.11			1.12			1.15			1.08
Cash distributions paid per common share		1.56025			1.43725			1.34625			1.24125			1.18125
Cash distributions declared per   common share		1.57050			1.44750			1.35250			1.25125			1.18375
Basic weighted average number of   common shares outstanding		100,195,031			89,766,714			79,950,255			78,518,296			71,128,282
Diluted weighted average number   of common shares outstanding		100,333,966			89,917,554			80,208,593			78,598,788			71,222,628

 (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, including the amortization of debt issuance costs and interest classified to discontinued operations. Fixed charges are comprised of interest costs (including capitalized interest), the amortization of debt issuance costs and interest classified to discontinued operations.  In computing the ratio of earnings to combined fixed charges and preferred stock cash dividends, preferred stock cash dividends consist of dividends on our Class B preferred stock, Class C preferred stock and our outstanding Class D and Class E preferred stock.  We redeemed our Class B preferred stock in June 2004 and our Class C preferred stock in July 2004.  We issued 4,000,000 shares of our 7.375% Class D preferred stock in May 2004, 1,100,000 shares of our 7.375% Class D preferred stock in October 2004, and 8,800,000 shares of our 6.75% Class E preferred stock in December 2006.

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

and Results of Operations

GENERAL

Realty Income Corporation, The Monthly Dividend Company®, is a Maryland corporation organized to operate as an equity real estate investment trust, or REIT.  Our primary business objective is to generate dependable monthly cash distributions from a consistent and predictable level of funds from operations, or FFO per share.  The monthly distributions are supported by the cash flow from our portfolio of retail properties leased to regional and national retail chains.  We have in-house acquisition, leasing, legal, retail research, real estate research, portfolio management and capital markets expertise. Over the past 38 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term lease agreements (primarily 15 to 20 years).

In addition, we seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. At December 31, 2007, we owned a diversified portfolio:

·   Of 2,270 retail properties;

·   With an occupancy rate of 97.9%, or 2,222 properties occupied of the 2,270 properties in the portfolio;

·   With only 48 properties available for lease;

·   Leased to 115 different retail chains doing business in 30 separate retail industries;

·   Located in 49 states;

·   With over 18.5 million square feet of leasable space; and

·   With an average leasable retail space per property of approximately 8,150 square feet.

Of the 2,270 properties in the portfolio, 2,259, or 99.5%, are single-tenant, retail properties and the remaining 11 are multi-tenant, distribution and office properties. At December 31, 2007, 2,212, or 97.9%, of the 2,259 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 13.0 years.

In addition, at December 31, 2007, our wholly-owned taxable REIT subsidiary, Crest Net Lease, Inc. (“Crest”), had invested $56.2 million in 30 properties, which are classified as held for sale.  Crest was created to buy and sell properties, primarily to individual investors who are involved in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Tax Code”).

LIQUIDITY AND CAPITAL RESOURCES

Cash Reserves

We are organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from leases on our retail properties. We intend to retain an appropriate amount of cash as working capital. At December 31, 2007, we had cash and cash equivalents totaling $193.1 million, which represents a portion of the proceeds from the September 2007 issuance of $550 million of 6.75% senior unsecured notes.

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

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$300 Million Acquisition Credit Facility

We have a $300 million revolving, unsecured credit facility that expires in October 2008. In April 2007, Moody’s Investors Service upgraded our credit ratings.  Since May 2007, our investment grade credit ratings provided for financing under the credit facility at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 60 basis points with a facility fee of 15 basis points, for all-in drawn pricing of 75 basis points over LIBOR.  At February 1, 2008, we had a borrowing capacity of $300 million available on our credit facility and no outstanding balance.

We expect to use the credit facility to acquire additional retail properties and for other corporate purposes.  Any additional borrowings will increase our exposure to interest rate risk.  We have the right to request an increase in the borrowing capacity of the credit facility by up to $100 million, to a total borrowing capacity of $400 million.  Any increase in the borrowing capacity is subject to approval by the lending banks on our credit facility.

We regularly review our credit facility and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate. We have the right to extend the credit facility for an additional term of one year (to October 2009).

Mortgage Debt

We have no mortgage debt on any of our properties.

Universal Shelf Registration

In April 2006, we filed a shelf registration statement with the SEC, which is effective for a term of three years. In accordance with the SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed. The securities covered by this registration statement include common stock, preferred stock, debt securities, or any combination of such securities.  We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.  There is no specific limit to the dollar amount of new securities that can be issued under this new shelf registration before it expires in April 2009, and our common stock, preferred stock and notes issued after April 2006 were all issued pursuant to this universal shelf registration statement.

Conservative Capital Structure

We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At February 1, 2008, our total outstanding credit facility borrowings and outstanding notes were $1.47 billion or approximately 33.7% of our total market capitalization of $4.36 billion.

We define our total market capitalization at February 1, 2008 as the sum of:

·   Shares of our common stock outstanding of 101,286,217 multiplied by the last reported sales price of our common stock on the NYSE of $25.15 per share on February 1, 2008, or $2.55 billion;

·   Aggregate liquidation value (par value of $25 per share) of the Class D preferred stock of $127.5 million;

·   Aggregate liquidation value (par value of $25 per share) of the Class E preferred stock of $220 million; and

·   Outstanding notes of $1.47 billion.

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

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Credit Agency Ratings

We are currently assigned investment grade corporate credit ratings, on our senior unsecured notes.  Fitch Ratings has assigned a rating of BBB+, Moody’s Investors Service has assigned a rating of Baa1 and Standard & Poor’s Ratings Group has assigned a rating of BBB to our senior notes.  The rating by Standard & Poor’s has a “positive” outlook and the ratings by Fitch and Moody’s have “stable” outlooks.

We have also been assigned investment grade credit ratings on our preferred stock. Fitch Ratings has assigned a rating of BBB, Moody’s has assigned a rating of Baa2 and Standard & Poor’s has assigned a rating of BBB- to our preferred stock.  The rating by Standard & Poor’s has a “positive” outlook and the ratings by Fitch and Moody’s have “stable” outlooks.

The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition.  These ratings are subject to ongoing evaluation by credit rating agencies and we cannot assure you that any such rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.  Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock.

Notes Outstanding

Our senior unsecured note obligations consist of the following as of December 31, 2007, sorted by maturity date (dollars in millions):

8.25% notes, issued in October 1998 and due in November 2008	$	100.0
8% notes, issued in January 1999 and due in January 2009		20.0
5.375% notes, issued in March 2003 and due in March 2013		100.0
5.5% notes, issued in November 2003 and due in November 2015		150.0
5.95% notes, issued in September 2006 and due in September 2016		275.0
5.375% notes, issued in September 2005 and due in September 2017		175.0
6.75% notes, issued in September 2007 and due in August 2019		550.0
5.875% bonds, issued in March 2005 and due in March 2035		100.0
	$	1,470.0

All of our outstanding notes and bonds have fixed interest rates.

Interest on all of the senior note obligations is paid semiannually, with the exception of the interest on the 8.25% senior notes issued in October 1998, which is paid monthly.  All of these notes contain various covenants, including: (i) a limitation on incurrence of any debt which would cause our debt to total adjusted assets ratio to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause our secured debt to total adjusted assets ratio to exceed 40%; (iii) a limitation on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150% of our outstanding unsecured debt. We have been in compliance with these covenants since each of the notes were issued.

The following is a summary of the key financial covenants to our senior unsecured notes, as defined and calculated per the terms of our notes.  These calculations, which are not based on GAAP measurements, are presented to investors to show our ability to incur additional debt under the terms of our notes only and are not measures of our liquidity or performance.  The actual amounts as of December 31, 2007 are:

Note Covenants	Required	Actual
Limitation on incurrence of total debt	≤ 60%		41.9	%
Limitation on incurrence of secured debt	≤ 40%		0.0	%
Debt service coverage	≥ 1.5 x		4.2	x
Maintenance of total unencumbered assets	≥ 150% of unsecured debt		239	%

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The following table summarizes the maturity of each of our obligations as of December 31, 2007 (dollars in millions):

Table of Obligations

							Ground		Ground
							Leases		Leases
							Paid by		Paid by
Year of	Credit						Realty		Our
Maturity	Facility (1)		Notes		Interest (2)		Income(3)		Tenants(4)		Other (5)		Totals
2008	$	--	$	100.0	$	91.2	$	0.1	$	1.8	$	8.6	$	201.7
2009		--		20.0		82.5		0.1		1.8		--		104.4
2010		--		--		82.4		0.1		1.7		--		84.2
2011		--		--		82.4		0.1		1.7		--		84.2
2012		--		--		82.4		0.1		1.6		--		84.1
Thereafter		--		1,350.0		505.9		1.0		16.5		--		1,873.4
Totals	$	--	$	1,470.0	$	926.8	$	1.5	$	25.1	$	8.6	$	2,432.0

  (1) There was no outstanding credit facility balance on February 1, 2008.

  (2) Interest on the credit facility and notes has been calculated based on outstanding balances as of December 31, 2007 through their respective maturity dates.

  (3) Realty Income currently pays the ground lessor directly for the rent under the ground lease. A majority of this rent is reimbursed to Realty Income as additional rent from our tenant.

  (4) Our tenants, who are generally sub-tenants under the ground leases, are responsible for paying the rent under these ground leases. In the event a tenant fails to pay the ground lease rent, we are primarily responsible.

  (5) Other consists of $7.9 million of commitments under construction contracts and $743,000 of contingent payments for tenant improvements and leasing costs.

Our credit facility and note obligations are unsecured.  Accordingly, we have not pledged any assets as collateral for these obligations.

We anticipate paying off the notes due in 2008 and 2009 by one or more of the following; using cash on hand, utilizing our credit facility or issuing new securities.

Preferred Stock Outstanding

In 2004, we issued 5.1 million shares of 7.375% Class D cumulative redeemable preferred stock.  Beginning May 27, 2009, shares of Class D preferred stock are redeemable at our option for $25 per share, plus any accrued and unpaid dividends.  Dividends on shares of Class D preferred stock are paid monthly in arrears.

In December 2006, we issued 8.8 million shares of 6.75% Class E cumulative redeemable preferred stock.  Beginning December 7, 2011, shares of Class E preferred stock are redeemable at our option for $25 per share, plus any accrued and unpaid dividends.  Dividends on shares of Class E preferred stock are paid monthly in arrears.

No Off-Balance Sheet Arrangements or Unconsolidated Investments

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

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

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Acquisitions During 2007

During 2007, Realty Income and Crest invested $533.7 million, in aggregate, in 357 new retail properties and properties under development. These 357 new properties are located in 38 states, will contain over 1.9 million leasable square feet, and are 100% leased with an average lease term of 19.3 years.  As described below, Realty Income acquired 325 properties and Crest acquired 32 properties.

Included in the $533.7 million is $503.8 million invested by Realty Income in 325 new properties and properties under development, with an initial weighted average contractual lease rate of 8.6%. These 325 properties are located in 38 states, will contain over 1.8 million leasable square feet and are 100% leased with an average lease term of 19.2 years.  The 325 new properties acquired by Realty Income are net-leased to 16 different retail chains in the following nine industries: automotive service, automotive tire service, convenience store, distribution and office, drug store, grocery, health and fitness, restaurant and sporting goods.  Also included in the $533.7 million is $29.9 million invested by Crest in 32 new restaurant properties.

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

Increases in Monthly Distributions to Common Stockholders

We continue our 38-year policy of paying distributions monthly.  Monthly distributions per share were increased in April 2007 by $0.000625 to $0.127125, in July 2007 by $0.000625 to $0.12775, in September 2007 by $0.00775 to $0.1355, in October 2007 by $0.000625 to $0.136125 and in January 2008 by $0.000625 to $0.13675.  The increase in January 2008 was our 41st consecutive quarterly increase and the 47th increase in the amount of our dividend since our listing on the New York Stock Exchange, or NYSE, in 1994. In 2007, we paid the following monthly cash distributions per share: three in the amount of $0.1265, three in the amount of $0.127125, two in the amount of $0.12775, one in the amount of $0.1355 and three in the amount of $0.136125, totaling $1.56025. In December 2007 and January 2008, we declared distributions of $0.13675 per share, which were paid in January 2008 and will be paid in February 2008, respectively.

The monthly distribution of $0.13675 per share represents a current annualized distribution of $1.641 per share, and an annualized distribution yield of approximately 6.5% based on the last reported sale price of our common stock on the NYSE of $25.15 on February 1, 2008. Although we expect to continue our policy of paying monthly distributions, we cannot guarantee that we will maintain our current level of distributions, that we will continue our pattern of increasing distributions per share, or what our actual distribution yield will be in any future period.

RESULTS OF OPERATIONS

Critical Accounting Policies

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

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

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

The following is a comparison of our results of operations for the years ended December 31, 2007, 2006 and 2005.

Rental Revenue

Rental revenue was $290.2 million for 2007 versus $237.5 million for 2006, an increase of $52.7 million, or 22.2%. Rental revenue was $195.1 million in 2005. The increase in rental revenue in 2007 compared to 2006 is primarily attributable to:

·   The 325 retail properties acquired by Realty Income in 2007, which generated $13.6 million of rent in 2007;

·   The 322 retail properties acquired by Realty Income in 2006, which generated $53.4 million of rent in 2007 compared to $15.7 million in 2006, an increase of $37.7 million;

·   Same store rents generated on 1,505 properties during the entire years of 2007 and 2006 increased by $2.9 million, or 1.4%, to $204.2 million from $201.3 million; net of

·   A decrease of $1.2 million relating to the aggregate of (i) development properties acquired before 2006 that started paying rent in 2006, (ii) properties that were vacant during part of 2007 or 2006 and (iii) lease termination settlements.  These items totaled $17.74 million in aggregate in 2007 compared to $18.96 million in 2006; and

·   A decrease in straight-line rent and other non-cash adjustments to rent of $274,000 in 2007 as compared to 2006.

Of the 2,270 properties in the portfolio at December 31, 2007, 2,259, or 99.5%, are single-tenant properties and the remaining 11 are multi-tenant properties. Of the 2,259 single-tenant properties, 2,212, or 97.9%, were net leased with a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 13.0 years at December 31, 2007. Of our 2,212 leased single-tenant properties, 1,999 or 90.4%, were under leases that provide for increases in rents through:

·   Primarily base rent increases tied to a consumer price index;

·   Fixed increases;

·   To a lesser degree, overage rent based on a percentage of the tenants’ gross sales; or

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

Percentage rent, which is included in rental revenue, was $836,000 in 2007, $1.1 million in 2006 and $1.1 million in 2005. Percentage rent in 2007 was less than 1% of rental revenue and we anticipate percentage rent to be less than 1% of rental revenue in 2008.

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Our portfolio of retail real estate, leased primarily to regional and national chains under net leases, continues to perform well and provide dependable lease revenue supporting the payment of monthly dividends to our stockholders.  At December 31, 2007, our portfolio of 2,270 retail properties was 97.9% leased with 48 properties available for lease, one of which is a multi-tenant property.

As of February 1, 2008, transactions to lease or sell 17 of the 48 properties available for lease at December 31, 2007 were underway or completed. We anticipate these transactions will be completed during the next several months, although we cannot guarantee that all of these properties can be leased or sold within this period. It has been our experience that approximately 1% to 3% of our property portfolio will be unleased at any given time; however, we cannot assure you that the number of properties available for lease will not exceed these levels.

Depreciation and Amortization

Depreciation and amortization was $77.2 million in 2007 versus $59.3 million in 2006 and $46.0 million in 2005. The increases in depreciation and amortization in 2007 and 2006 were due to the acquisition of properties in 2007, 2006 and 2005, which were partially offset by property sales in these years.  As discussed in the section entitled “Funds from Operations Available to Common Stockholders,” depreciation and amortization is a non-cash item that is excluded from our calculation of FFO.

Interest Expense

Interest expense was $13.0 million higher in 2007 than in 2006. Interest expense increased in 2007 primarily due to higher average outstanding balances, which were partially offset by slightly lower interest rates related to our average outstanding borrowings, and Crest’s larger investment in real estate, which contributed to the increase in interest expense included in discontinued operations.  We issued $550 million of 12-year notes in September 2007 and $275 million of 10-year notes in September 2006, which contributed to the increase in average outstanding balances and slightly lower average interest rates on our debt.

The following is a summary of the components of our interest expense (dollars in thousands):

	2007			2006			2005
Interest on our credit facility and notes	$	67,964		$	54,068		$	40,968
Interest included in discontinued operations
from real estate acquired for resale by Crest		(6,201	)		(3,708	)		(1,139	)
Amortization of settlements on treasury lock agreement		870			717			756
Credit facility commitment fees		456			456			498
Amortization of credit facility origination costs and deferred
bond financing costs		2,235			2,014			1,752
Interest capitalized		(993	)		(2,184	)		(1,886	)
Interest expense	$	64,331		$	51,363		$	40,949

Credit facility and notes outstanding	2007			2006			2005
Average outstanding balances (dollars in thousands)	$	1,111,914		$	881,669		$	647,301
Average interest rates		6.11	%		6.13	%		6.33	%

At February 1, 2008, the weighted average interest rate on our notes payable of $1.47 billion was 6.28% and the average interest rate on our credit line was 3.78%.  There was no outstanding balance on our credit line at February 1, 2008.

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Interest Coverage Ratio

Our interest coverage ratio for 2007 was 4.1 times, for 2006 was 4.1 times and for 2005 was 4.4 times.  Interest coverage ratio is calculated as: the interest coverage amount (as calculated in the following table) divided by interest expense, including interest recorded to discontinued operations. We consider interest coverage ratio to be an appropriate supplemental measure of a company’s ability to meet its interest expense obligations. Our calculation of interest coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures.

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

	2007			2006			2005
Net cash provided by operating activities	$	318,169		$	86,945		$	109,557
Interest expense		64,331			51,363			40,949
Interest expense included in discontinued operations(1)		6,201			3,708			1,139
Income taxes		1,392			747			813
Income taxes included in discontinued operations(1)		3,039			494			943
Investment in real estate acquired for resale(1)(2)		29,886			113,166			55,890
Proceeds from sales of real estate acquired for resale(1)		(119,790	)		(22,405	)		(22,195	)
Collection of a note receivable by Crest(1)		(651	)		(1,333	)		--
Crest provisions for impairment(1)		--			(1,188	)		--
Gain on sales of real estate acquired for resale(1)		12,319			2,219			3,291
Amortization of share-based compensation		(3,857	)		(2,951	)		(2,167	)
Changes in assets and liabilities:
Accounts receivable and other assets		49			(4,418	)		3,292
Accounts payable, accrued expenses and other liabilities		(21,675	)		(3,208	)		(8,290	)
Interest coverage amount	$	289,413		$	223,139		$	183,222
Divided by interest expense(3)	$	70,532		$	55,071		$	42,088
Interest coverage ratio		4.1			4.1			4.4

  (1) Crest activities.

  (2) The 2005 amount includes intangibles recorded in connection with acquisitions of real estate acquired for resale.

  (3) Includes interest expense recorded to “income from discontinued operations, real estate acquired for resale by Crest” on our consolidated statements of income.

Fixed Charge Coverage Ratio

Our fixed charge coverage ratio for 2007 was 3.1 times, for 2006 was 3.4 times and for 2005 was 3.6 times. Fixed charge coverage ratio is calculated in exactly the same manner as interest coverage ratio, except that preferred stock dividends are also added to the denominator. We consider fixed charge coverage ratio to be an appropriate supplemental measure of a company’s ability to make its interest and preferred stock dividend payments. Our calculation of the fixed charge coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures or information presented in Exhibit 12.1 to this Annual Report.

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

	2007		2006		2005
Interest coverage amount	$	289,413	$	223,139	$	183,222
Divided by interest expense plus preferred stock dividends (1)	$	94,785	$	66,433	$	51,491
Fixed charge coverage ratio		3.1		3.4		3.6

  (1) Includes interest expense recorded to “income from discontinued operations, real estate acquired for resale by Crest” on our consolidated statements of income.

General and Administrative Expenses

General and administrative expenses increased by $5.2 million to $22.7 million in 2007 versus $17.5 million in 2006.  General and administrative expenses were $15.4 million in 2005.  In 2007, general and administrative expenses as a percentage of total revenue were 7.7% as compared to 7.3% in 2006 and 7.9% in 2005.  General and administrative expenses increased in 2007 primarily due to increases in employee and director compensation costs. During 2007, we added two new directors to our board of directors.  We anticipate that in 2008, general and administrative expenses as a percentage of total revenue will be flat or decrease.

In February 2008, we had 75 permanent employees as compared to 70 permanent employees in February 2007.  As our property portfolio has grown and continues to grow, we have increased, and anticipate that we will continue to gradually increase the level of our staffing.

Property Expenses

Property expenses are broken down into costs associated with non-net leased multi-tenant properties, unleased single-tenant properties and general portfolio expenses. Expenses related to the multi-tenant and unleased single-tenant properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections, bad debt expense and legal fees. General portfolio costs include, but are not limited to, insurance, legal, bad debt expense, property inspections and title search fees. At December 31, 2007, 48 properties were available for lease, as compared to 26 at December 31, 2006 and 25 at December 31, 2005.

Property expenses were $3.5 million in 2007, $3.3 million in 2006 and $3.9 million in 2005. Property expenses include provisions for impairment of $138,000 recorded for one property in 2007 and $151,000 recorded for two properties in 2005.

Income Taxes

Income taxes were $1.4 million in 2007 as compared to $747,000 in 2006 and $813,000 in 2005.  These amounts are for city and state income taxes paid by Realty Income.  The increase in 2007 is due primarily to an increase in rental revenue resulting in higher city and state income tax expense and higher state tax rates.

In addition, Crest incurred state and federal income taxes of $3.0 million in 2007 as compared to $494,000 in 2006 and $943,000 in 2005.  The increase in Crest’s 2007 income taxes over the 2006 and 2005 income taxes is due to higher taxable income, primarily attributable to higher rental revenue and higher gain on sales of real estate acquired for resale.  These amounts are included in “income from discontinued operations, real estate acquired for resale by Crest” on our consolidated statements of income.

Loss on Extinguishment of Debt

In September 2006, we redeemed all of our outstanding $110 million, 7.75%, unsecured notes due May 2007 (the “2007 Notes”).  The 2007 Notes were redeemed at a redemption price equal to 100% of the principal amount of the 2007 Notes, plus accrued and unpaid interest of $3.2 million, as well as a make-whole payment of $1.6 million.  We recorded a loss on extinguishment of debt totaling $1.6 million related to the make-whole payment associated with the 2007 Notes.  For 2006, the make-whole payment represented approximately $0.017 per share.

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Discontinued Operations

Crest acquires properties with the intention of reselling them rather than holding them as investments and operating the properties.  Consequently, we classify properties acquired by Crest as held for sale at the date of acquisition and do not depreciate them.  The operation of Crest’s properties is classified as “income from discontinued operations, real estate acquired for resale by Crest” on our consolidated statements of income.

The following is a summary of Crest’s “income from discontinued operations, real estate acquired for resale” on our consolidated statements of income (dollars in thousands, except per share data):

Crest’s income from discontinued operations, real estate acquired for resale	2007			2006			2005
Gain on sales of real estate acquired for resale	$	12,319		$	2,219		$	3,291
Rental revenue		8,165			5,065			2,083
Other revenue		190			15			2
Interest expense		(6,201	)		(3,708	)		(1,139	)
General and administrative expense		(691	)		(440	)		(453	)
Property expenses		(40	)		(67	)		(60	)
Provisions for impairment		--			(1,188	)		--
Income taxes		(3,039	)		(494	)		(943	)
Income from discontinued operations,   real estate acquired for resale by Crest	$	10,703		$	1,402		$	2,781
Per common share, basic and diluted	$	0.11		$	0.02		$	0.03

Realty Income’s operations from properties sold in 2007, 2006 and 2005 have been classified as discontinued operations.  No investment properties were classified as held for sale at December 31, 2007.  The following is a summary of Realty Income’s “income from discontinued operations, real estate held for investment” on our consolidated statements of income (dollars in thousands, except per share data):

Realty Income’s income from discontinued operations, real estate held for investment	2007			2006			2005
Gain on sales of investment properties	$	1,724		$	3,036		$	6,573
Rental revenue		881			1,063			2,296
Other revenue		2			34			2
Depreciation and amortization		(130	)		(320	)		(662	)
Property expenses		(20	)		(136	)		(239	)
Provisions for impairment		(134	)		(16	)		(35	)
Income from discontinued operations,   real estate held for investment	$	2,323		$	3,661		$	7,935

Per common share, basic and diluted $ 0.02 $ 0.04 $ 0.10

The following is a summary of our total income from discontinued operations (dollars in thousands, except per share data):

	2007		2006		2005
Real estate acquired for resale by Crest	$	10,703	$	1,402	$	2,781
Real estate held for investment		2,323		3,661		7,935
Income from discontinued operations	$	13,026	$	5,063	$	10,716
Per common share, basic and diluted	$	0.13	$	0.06	$	0.13

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Crest’s Property Sales

In 2007, Crest sold 62 properties for $123.6 million, which resulted in a gain of $12.3 million. For two property sales during 2007, Crest provided the buyers partial financing for a total of $3.8 million, of which $619,000 was paid in full in November 2007.  In 2006, Crest sold 13 properties for $22.4 million, which resulted in a gain of $2.2 million.  In 2005, Crest sold 12 properties for $23.5 million, which resulted in a gain of $3.3 million.  In 2005, Crest provided a buyer partial financing of $1.3 million for one property sale, which was paid in full in February 2006.  Crest’s gains on sales are reported before income taxes and are included in discontinued operations.

Crest’s Property Inventory

At December 31, 2007, Crest had $56.2 million invested in 30 properties, which are held for sale. At December 31, 2006, Crest’s property inventory totaled $137.5 million in 60 properties.  Crest generally carries real estate inventory in excess of $20 million. Crest generates an earnings spread on the difference between the lease payments it receives on the properties held in inventory and the cost of capital used to acquire properties.  It is our belief that at this level of inventory, rental revenue will exceed the ongoing operating expenses of Crest without any property sales.

Gain on Sales of Investment Properties, Improvements and Land by Realty Income

In 2007, we sold ten investment properties for $7.0 million, which resulted in a gain of $1.7 million.  This gain is included in discontinued operations.  In addition, we sold excess land and improvements from five properties for an aggregate of $4.4 million, which resulted in a gain of $1.8 million.  This gain from the land and improvements sales is reported in “other revenue” on our consolidated statements of income because these improvements and excess land were associated with properties that continue to be owned as part of our core operations.  In 2006, we sold or exchanged 13 investment properties for $10.7 million, which resulted in a gain of $3.0 million, which is included in discontinued operations.  In 2005, we sold 23 investment properties and sold a portion of the land from two properties for $23.4 million and recognized a gain on sales of $6.6 million, which is included in discontinued operations, except for $18,000 that is included in “other revenue” on our consolidated statements of income.

We have an active portfolio management program that incorporates the sale of assets when we believe the reinvestment of the sale proceeds will generate higher returns, enhance the credit quality of our real estate portfolio or extend our average remaining lease term. At December 31, 2007, we classified real estate owned by Crest with a carrying amount of $56.2 million as held for sale on our balance sheet.  Additionally, we anticipate selling investment properties from our portfolio that have not yet been specifically identified, from which we anticipate receiving between $10 million and $35 million in proceeds during the next 12 months.  We intend to invest these proceeds into new property acquisitions. However, we cannot guarantee that we will sell properties during the next 12 months.

Provisions for Impairment on Real Estate Acquired for Resale by Crest

In 2007 and 2005, no provisions for impairment were recorded by Crest.  In 2006, provisions for impairment of $1.2 million were recorded by Crest on three properties.  One of the three properties was sold in 2007.  Crest’s properties are held for sale and the provisions for impairment recorded in 2006 reduced the carrying costs to the estimated fair-market value of those properties, net of estimated selling costs.

Provisions for Impairment on Realty Income Investment Properties

In 2007, we recorded a provision for impairment of $134,000 on one property, which is included in “income from discontinued operations, real estate held for investment” on our consolidated statement of income, as the property was subsequently sold.  Additionally, we recorded a provision for impairment of $138,000 on one property in 2007, which is included in property expense on our consolidated statement of income.  In 2006, we recorded a provision for impairment of $16,000 on one property.  In 2005, we recorded provisions for impairment totaling $186,000 on four properties. The 2006 and 2005 provisions are included in “income from discontinued operations, real estate held for investment” except for $151,000 in 2005, which is included in property expense on our consolidated statement of income.

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Preferred Stock Dividends

Preferred stock cash dividends totaled $24.3 million in 2007 as compared to $11.4 million in 2006 and $9.4 million in 2005.

Net Income Available to Common Stockholders

Net income available to common stockholders was $116.2 million in 2007, an increase of $16.8 million as compared to $99.4 million in 2006. Net income available to common stockholders in 2005 was $89.7 million.

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

During 2007, the gain recognized from the sales of investment properties was $3.6 million as compared to $3.0 million during 2006 and $6.6 million in 2005.  Crest’s gain recognized from the sale of properties during 2007 was $12.3 million as compared to $2.2 million during 2006 and $3.3 million during 2005.

FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO)

FFO for 2007 increased by $33.9 million, or 21.8%, to $189.7 million as compared to $155.8 million in 2006 and $129.6 million in 2005. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts):

	2007			2006			2005
Net income available to common stockholders	$	116,156		$	99,419		$	89,716
Depreciation and amortization:
Continuing operations		77,192			59,288			46,002
Discontinued operations		130			320			662
Depreciation of furniture, fixtures and equipment		(244	)		(192	)		(142	)
Gain on sales of land and investment properties:
Continuing operations		(1,835	)		--			(18	)
Discontinued operations		(1,724	)		(3,036	)		(6,573	)
FFO available to common stockholders	$	189,675		$	155,799		$	129,647
FFO per common share:
Basic	$	1.89		$	1.74		$	1.62
Diluted	$	1.89		$	1.73		$	1.62
Distributions paid to common stockholders	$	157,659		$	129,667		$	108,575
FFO in excess of distributions paid to
common stockholders	$	32,016		$	26,132		$	21,072
Weighted average number of common shares
used for computation per share:
Basic		100,195,031			89,766,714			79,950,255
Diluted		100,333,966			89,917,554			80,208,593

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

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

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

Other Non-Cash Items and Capitalized Expenditures

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

(dollars in thousands)	2007			2006			2005
Amortization of settlements on treasury lock agreements(1)	$	870		$	717		$	756
Amortization of deferred note financing costs(2)		1,494			1,287			1,034
Amortization of share-based compensation		3,857			2,951			2,167
Capitalized leasing costs and commissions		(614	)		(761	)		(570	)
Capitalized building improvements		(1,258	)		(203	)		(1,017	)
Straight-line rent(3)		(1,217	)		(1,515	)		(1,360	)
Provisions for impairment		272			16			186
Crest provisions for impairment		--			1,188			--
Crest gain on sale, previously reported as impairment		(271	)		--			--
Gain on reinstatement of property carrying value		--			(716	)		--

(1) The settlements on the treasury lock agreements resulted from an interest rate risk prevention strategy that we used in 1997 and 1998, which correlated to pending issuances of senior note securities.  We have not employed this strategy since 1998.

(2) Amortization of deferred note financing costs includes the amortization of costs incurred and capitalized when our notes were issued in May 1997, October 1998, January 1999, March 2003, November 2003, March 2005, September 2005, September 2006 and September 2007. These costs are being amortized over the lives of these notes. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included.

(3) A negative amount indicates that our straight-line rent was greater than our actual cash rent collected.

IMPACT OF INFLATION

Tenant leases generally provide for limited increases in rent as a result of increases in the tenants’ sales volumes, increases in the consumer price index, and/or fixed increases. We expect that inflation will cause these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.

Approximately 97.4%, or 2,212, of the 2,270 properties in the portfolio are leased to tenants under net leases where the tenant is responsible for property expenses. Net leases tend to reduce our exposure to rising property expenses due to inflation. Inflation and increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue.

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IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

For information on the impact of recent accounting pronouncements on our business, see note 2 of the Notes to Consolidated Financial Statements.

Item 7A:      Quantitative and Qualitative Disclosures about Market Risk

We are exposed to interest rate changes primarily as a result of our credit facility and long-term notes used to maintain liquidity and expand our real estate investment portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flow and to lower our overall borrowing costs. To achieve these objectives we issue long-term notes, primarily at fixed rates, and may selectively enter into derivative financial instruments, such as interest rate lock agreements, interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We were not a party to any derivative financial instruments at December 31, 2007. We do not enter into any derivative transactions for speculative or trading purposes.

Our interest rate risk is monitored using a variety of techniques. The following table presents by year of expected maturity, the principal amounts, average interest rates and fair values as of December 31, 2007.  This information is presented to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in millions):

Expected Maturity Data

Year of maturity	Fixed rate debt	Average interest rate on fixed rate debt	Variable rate debt	Average interest rate on variable rate debt
2008(1)(2)	$   100.0	8.25%	$   --	--%
2009(3)	20.0	8.00	--	--
2010	--	--	--	--
2011	--	--	--	--
2012	--	--	--	--
Thereafter(4)	1,350.0	6.10%	--	--
Totals	$ 1,470.0	6.28%	$   --	--%
Fair Value(5)	$ 1,412.5		$   --

(1) $100 million matures in November 2008.

(2) The credit facility expires in October 2008.  There was no outstanding credit facility balance as of February 1, 2008.

(3) $20 million matures in January 2009.

(4) $100 million matures in March 2013, $150 million matures in November 2015, $275 million matures in September 2016, $175 million matures in September 2017, $550 million matures in August 2019 and $100 million matures in March 2035.

(5) We base the fair value of the fixed rate debt at December 31, 2007 on the closing market price or indicative price per each note.

The table incorporates only those exposures that exist as of December 31, 2007. It does not consider those exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss, with respect to interest rate fluctuations, would depend on the exposures that arise during the period, our hedging strategies at the time, and interest rates.

All of our outstanding notes and bonds have fixed interest rates.  Our credit facility interest rate is variable.  At December 31, 2007, our credit facility balance was zero; however, we intend to borrow funds on our credit facility in the future.  Based on a hypothetical credit facility borrowing of $50 million, a 1% change in interest rates would change our interest costs by $500,000 per year.

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Item 8:         Financial Statements and Supplementary Data

Table of Contents

A. Report of Independent Registered Public Accounting Firm

B. Consolidated Balance Sheets,

December 31, 2007 and 2006

C. Consolidated Statements of Income,

Years ended December 31, 2007, 2006 and 2005

D. Consolidated Statements of Stockholders’ Equity,

Years ended December 31, 2007, 2006 and 2005

E. Consolidated Statements of Cash Flows,

Years ended December 31, 2007, 2006 and 2005

F. Notes to Consolidated Financial Statements

G. Consolidated Quarterly Financial Data

(unaudited) for 2007 and 2006

H. Schedule III Real Estate and Accumulated Depreciation

Schedules not filed:  All schedules, other than that indicated in the Table of Contents, have been omitted as the required information is either not material, inapplicable or the information is presented in the financial statements or related notes.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Realty Income Corporation:

We have audited the accompanying consolidated financial statements of Realty Income Corporation and subsidiaries (the Company) as listed in the accompanying table of contents. In connection with our audits of the consolidated financial statements, we also have audited the financial statement Schedule III as listed in the accompanying table of contents. We also have audited Realty Income Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company’s management is responsible for these consolidated financial statements, financial statement schedule, for maintaining effective internal control over financial reporting, and for their assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements, financial statement schedule, and on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.  Additionally, in our opinion, the related financial statement schedule, 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. Also in our opinion, Realty Income Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ KPMG

San Diego, California

February 12, 2008

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REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2007 and 2006

(dollars in thousands, except per share data)

	2007			2006
ASSETS
Real estate, at cost:
Land	$	1,110,897		$	958,770
Buildings and improvements		2,127,897			1,785,203
		3,238,794			2,743,973
Less accumulated depreciation and amortization		(470,695	)		(396,854	)
Net real estate held for investment		2,768,099			2,347,119
Real estate held for sale, net		56,156			137,962
Net real estate		2,824,255			2,485,081
Cash and cash equivalents		193,101			10,573
Accounts receivable		7,142			5,953
Goodwill		17,206			17,206
Other assets, net		35,648			27,695
Total assets	$	3,077,352		$	2,546,508
LIABILITIES AND STOCKHOLDERS’ EQUITY
Distributions payable	$	15,844		$	15,096
Accounts payable and accrued expenses		38,112			27,004
Other liabilities		15,304			8,416
Line of credit payable		--			--
Notes payable		1,470,000			920,000
Total liabilities		1,539,260			970,516
Commitments and contingencies
Stockholders’ equity:
Preferred stock and paid in capital, par value $1.00 per share,
20,000,000 shares authorized, 13,900,000 shares issued
and outstanding in 2007 and 2006		337,790			337,781
Common stock and paid in capital, par value $1.00 per share,
200,000,000 shares authorized, 101,082,717 and 100,746,226
shares issued and outstanding in 2007 and 2006, respectively		1,545,037			1,540,365
Distributions in excess of net income		(344,735	)		(302,154	)
Total stockholders’ equity		1,538,092			1,575,992
Total liabilities and stockholders’ equity	$	3,077,352		$	2,546,508

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

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REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Statements Of Income

Years Ended December 31, 2007, 2006 and 2005

(dollars in thousands, except per share data)

	2007			2006			2005
REVENUE
Rental	$	290,159		$	237,487		$	195,099
Other		6,354			2,042			354
		296,513			239,529			195,453
EXPENSES
Depreciation and amortization		77,192			59,288			46,002
Interest		64,331			51,363			40,949
General and administrative		22,694			17,539			15,421
Property		3,521			3,319			3,865
Income taxes		1,392			747			813
Loss on extinguishment of debt		--			1,555			--
		169,130			133,811			107,050
Income from continuing operations		127,383			105,718			88,403
Income from discontinued operations:
Real estate acquired for resale by Crest		10,703			1,402			2,781
Real estate held for investment		2,323			3,661			7,935
		13,026			5,063			10,716
Net income		140,409			110,781			99,119
Preferred stock cash dividends		(24,253	)		(11,362	)		(9,403	)
Net income available to common stockholders	$	116,156		$	99,419		$	89,716
Amounts available to common stockholders per common share:
Income from continuing operations:
Basic	$	1.03		$	1.05		$	0.99
Diluted	$	1.03		$	1.05		$	0.98
Net income, basic and diluted	$	1.16		$	1.11		$	1.12
Weighted average common shares outstanding:
Basic		100,195,031			89,766,714			79,950,255
Diluted		100,333,966			89,917,554			80,208,593

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

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REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Statements Of Stockholders' Equity

Years Ended December 31, 2007, 2006 and 2005

(dollars in thousands)

				Preferred		Common
	Shares of	Shares of		stock and		stock and		Distributions
	Preferred	Common		paid in		paid in		in excess of
	stock	stock		capital		capital		net income			Total
Balance, December 31, 2004	5,100,000	79,301,630	$	123,787	$	1,038,973	$	(249,025	)	$	913,735
Net income	--	--		--		--		99,119			99,119
Distributions paid and payable	--	--		--		--		(118,984	)		(118,984	)
Shares issued in stock offerings, net of offering costs of $4,980	--	4,100,000		17		92,659		--			92,676
Share-based compensation	--	295,017		--		2,668		--			2,668
Balance, December 31, 2005	5,100,000	83,696,647		123,804		1,134,300		(268,890	)		989,214
Net income	--	--		--		--		110,781			110,781
Distributions paid and payable	--	--		--		--		(144,045	)		(144,045	)
Shares issued in stock offerings, net of offering costs of $20,911	--	16,815,000		--		402,745		--			402,745
Shares issued in stock offering, net of offering costs of $6,023	8,800,000	--		213,977		--		--			213,977
Share-based compensation	--	234,579		--		3,320		--			3,320
Balance, December 31, 2006	13,900,000	100,746,226		337,781		1,540,365		(302,154	)		1,575,992
Net income	--	--		--		--		140,409			140,409
Distributions paid and payable	--	--		--		--		(182,990	)		(182,990	)
Preferred stock issuance cost	--	--		9		--		--			9
Share-based compensation	--	336,491		--		4,672		--			4,672
Balance, December 31, 2007	13,900,000	101,082,717	$	337,790	$	1,545,037	$	(344,735	)	$	1,538,092

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

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REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Statements Of Cash Flows

Years Ended December 31, 2007, 2006 and 2005

(dollars in thousands)

	2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	140,409		$	110,781		$	99,119
Adjustments to net income:
Depreciation and amortization		77,192			59,288			46,002
Income from discontinued operations:
Real estate acquired for resale		(10,703	)		(1,402	)		(2,781	)
Real estate held for investment		(2,323	)		(3,661	)		(7,935	)
Gain on sales of land and improvements		(1,835	)		--			(18	)
Gain on reinstatement of property carrying value		--			(716	)		--
Amortization of share-based compensation		3,857			2,951			2,167
Provisions for impairment on real estate held
for investment		138			--			151
Cash provided by (used in) discontinued operations:
Real estate acquired for resale		(1,610	)		371			(510	)
Real estate held for investment		863			961			2,059
Investment in real estate acquired for resale		(29,886	)		(113,166	)		(54,110	)
Intangibles acquired in connection with acquisition of
real estate acquired for resale		--			--			(1,780	)
Proceeds from sales of real estate acquired for resale		119,790			22,405			22,195
Collection of notes receivable by Crest		651			1,333			--
Change in assets and liabilities:
Accounts receivable and other assets		(49	)		4,418			(3,292	)
Accounts payable, accrued expenses and
other liabilities		21,675			3,382			8,290
Net cash provided by operating activities		318,169			86,945			109,557
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment properties:
Continuing operations		4,370			2			109
Discontinued operations		7,014			9,804			22,191
Acquisition of and improvements to investment properties		(506,360	)		(654,149	)		(417,347	)
Restricted escrow funds acquired in connection with
acquisitions of investment properties		(2,648	)		--			--
Intangibles acquired in connection with acquisitions of
investment properties		(997	)		(937	)		(9,494	)
Net cash used in investing activities		(498,621	)		(645,280	)		(404,541	)

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REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Statements Of Cash Flows

(Continued)

Years Ended December 31, 2007, 2006 and 2005

(dollars in thousands)

	2007			2006			2005
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from lines of credit		407,800			523,200			400,300
Payments under lines of credit		(407,800	)		(659,900	)		(287,200	)
Proceeds from common stock offerings, net		--			402,745			92,659
Proceeds from notes issued, net		544,397			271,883			270,266
Principal payment on notes		--			(110,000	)		--
Proceeds from preferred stock offerings, net		9			213,977			--
Cash distributions to common stockholders		(157,659	)		(129,667	)		(108,575	)
Cash dividends to preferred stockholders		(24,583	)		(9,403	)		(9,403	)
Proceeds from other stock issuances		816			369			500
Net cash provided by financing activities		362,980			503,204			358,547
Net increase (decrease) in cash and cash equivalents		182,528			(55,131	)		63,563
Cash and cash equivalents, beginning of year		10,573			65,704			2,141
Cash and cash equivalents, end of year	$	193,101		$	10,573		$	65,704

For supplemental disclosures, see note 13.

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

-49-

REALTY INCOME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements

December 31, 2007, 2006 and 2005

1.           Organization and Operation

Realty Income Corporation (“Realty Income,” the “Company,” “we” or “our”) is organized as a Maryland corporation. We invest in commercial retail real estate and have elected to be taxed as a real estate investment trust (“REIT”).

At December 31, 2007, we owned 2,270 properties, located in 49 states, containing over 18.5 million leasable square feet, along with 30 properties owned by our wholly-owned taxable REIT subsidiary, Crest Net Lease, Inc. (“Crest”). Crest was created to buy and sell properties, primarily to individual investors who are involved in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Tax Code”).

Information with respect to number of properties, square feet, average initial lease term and weighted average contractual lease rate is unaudited.

2.           Summary of Significant Accounting Policies and Procedures

Federal Income Taxes.  We have elected to be taxed as a real estate investment trust (“REIT”) under the Tax Code. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct distributions paid to our stockholders and generally will not be required to pay federal corporate income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of Crest, which totaled $2.5 million in 2007, $396,000 in 2006 and $760,000 in 2005 and are included in discontinued operations.

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

The following reconciles our net income available to common stockholders to taxable income for 2007 (dollars in thousands) (unaudited):

Net income available to common stockholders	$	116,156
Tax loss on the sale of real estate less than book gains		(3,839	)
Elimination of net revenue and expenses from Crest		(6,677	)
Dividends received from Crest		3,300
Preferred dividends not deductible for tax		24,583
Depreciation and amortization timing differences		22,668
Adjustment for straight-line rent		(1,217	)
Adjustment for an increase in prepaid rent		5,608
Other adjustments		(164	)
Estimated taxable net income, before our dividends paid deduction	$	160,418

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.  Interpretation No. 48 applies to all tax positions accounted for under Statement No. 109 and clarifies the accounting for uncertainty in income taxes by defining criteria that a tax position on an individual matter must meet before that position is recognized in the financial statements.  The adoption of Interpretation No. 48 in January 2007 did not impact our financial position or results of operations and we do not have any material unrecognized tax benefits or liabilities.

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Absent an election to the contrary, if a REIT acquires property that is or has been owned by a C corporation in a transaction in which the tax basis of the property in the hands of the REIT is determined by reference to the tax basis of the property in the hands of the C Corporation, and the REIT recognizes gain on the disposition of such property during the 10 year period beginning on the date on which it acquired the property, then the REIT will be required to pay tax at the highest regular corporate tax rate on this gain to the extent of the excess of the fair market value of the property over the REIT’s adjusted basis in the property, in each case determined as of the date the REIT acquired the property.  In August 2007, we acquired 100% of the stock of a C corporation that owned real property. At the time of acquisition, the C corporation became a Qualified REIT Subsidiary, was deemed to be liquidated for Federal income tax purposes, and the real property was deemed to be transferred to us with a carryover tax basis.  As of December 31, 2007, we have built-in gains of $59 million with respect to such property.  We do not expect that we will be required to pay income tax on the built-in gains in these properties during the ten-year period ending August 28, 2017.  It is our intent, and we have the ability, to defer any dispositions of these properties to periods when the related gains would not be subject to the built-in gain income tax or otherwise to defer the recognition of the built-in gain related to these properties.  However, our plans could change and it may be necessary to dispose of one or more of these properties in a taxable transaction before August 28, 2017, in which case we would be required to pay corporate level tax with respect to the built-in gains on these properties as described above.

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

The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation:

	2007		2006		2005
Weighted average shares used for the
basic net income per share computation		100,195,031		89,766,714		79,950,255
Incremental shares from share-based
compensation		138,935		150,840		258,338
Adjusted weighted average shares used for
diluted net income per share computation		100,333,966		89,917,554		80,208,593
Nonvested shares from share-based
compensation that were anti-dilutive		243,631		235,035		305,476

No stock options were anti-dilutive in 2007, 2006 or 2005.

Discontinued Operations.  In accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), Realty Income’s operations from investment properties sold in 2007, 2006 and 2005 are reported as discontinued operations.  Their respective results of operations have been reclassified to “income from discontinued operations, real estate held for investment” on our consolidated statements of income.  We do not depreciate properties that are classified as held for sale.  No investment properties were classified as held for sale at December 31, 2007.

Crest acquires properties with the intention of reselling them rather than holding them for investment and operating the properties.  Consequently, we classify properties acquired by Crest as held for sale at the date of acquisition and do not depreciate them.  In accordance with SFAS 144, the operations of Crest’s properties are classified as “income from discontinued operations, real estate acquired for resale by Crest” on our consolidated statements of income.

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No debt was assumed by buyers of our investment properties or repaid as a result of our investment property sales and we do not allocate interest expense to discontinued operations related to real estate held for investment. We allocate interest expense related to borrowings specifically attributable to Crest’s properties.  The interest expense amounts allocated to the Crest properties are included in “income from discontinued operations, real estate acquired for resale by Crest” on our consolidated statements of income.

The following is a summary of Crest’s “income from discontinued operations, real estate acquired for resale” on our consolidated statements of income (dollars in thousands):

Crest’s income from discontinued operations, real estate acquired for resale	2007			2006			2005
Gain on sales of real estate acquired for resale	$	12,319		$	2,219		$	3,291
Rental revenue		8,165			5,065			2,083
Other revenue		190			15			2
Interest expense		(6,201	)		(3,708	)		(1,139	)
General and administrative expense		(691	)		(440	)		(453	)
Property expenses		(40	)		(67	)		(60	)
Provisions for impairment		--			(1,188	)		--
Income taxes		(3,039	)		(494	)		(943	)
Income from discontinued operations,   real estate acquired for resale by Crest	$	10,703		$	1,402		$	2,781

The following is a summary of Realty Income’s “income from discontinued operations, from real estate held for investment” on our consolidated statements of income (dollars in thousands):

Realty Income’s income from discontinued operations, real estate held for investment	2007			2006			2005
Gain on sales of investment properties	$	1,724		$	3,036		$	6,573
Rental revenue		881			1,063			2,296
Other revenue		2			34			2
Depreciation and amortization		(130	)		(320	)		(662	)
Property expenses		(20	)		(136	)		(239	)
Provisions for impairment		(134	)		(16	)		(35	)
Income from discontinued operations,   real estate held for investment	$	2,323		$	3,661		$	7,935

The following is a summary of our total income from discontinued operations (dollars in thousands, except per share data):

	2007		2006		2005
Real estate acquired for resale by Crest	$	10,703	$	1,402	$	2,781
Real estate held for investment		2,323		3,661		7,935
Income from discontinued operations	$	13,026	$	5,063	$	10,716
Per common share, basic and diluted	$	0.13	$	0.06	$	0.13

The per share amounts for “income from discontinued operations” above and the “income from continuing operations” and “net income” reported on the consolidated statements of income have each been calculated independently.

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

We recognize an allowance for doubtful accounts relating to accounts receivable for amounts deemed uncollectible.  We consider tenant specific issues such as financial stability and ability to pay rent when determining collectibility of accounts receivable and appropriate allowances to record.  The allowance for doubtful accounts was $795,000 at December 31, 2007 and $705,000 at December 31, 2006.

Other revenue includes non operating interest earned from investments in money market funds and other notes of $3.6 million in 2007, $1.2 million in 2006 and $171,000 in 2005.

Principles of Consolidation.  The accompanying consolidated financial statements include the accounts of Realty Income, Crest and other entities for which we make operating and financial decisions (control), after elimination of all material intercompany balances and transactions.  All of Realty Income’s and Crest’s subsidiaries are wholly-owned.  We have no unconsolidated or off-balance sheet investments in variable interest entities.

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.  Our cash equivalents are primarily investments in United States Treasury or government money market funds.

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

Depreciation and Amortization.  Land, buildings and improvements are recorded and stated at cost.  Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred.  Buildings and improvements that are under redevelopment, or are being developed, are carried at cost and no depreciation is recorded on these assets.  Additionally, amounts essential to the development of the property, such as pre-construction, development, construction, interest and any other costs incurred during the period of development are capitalized.  We cease capitalization when the property is available for occupancy upon substantial completion of tenant improvements, but in any event no later than one year from the completion of major construction activity.

Properties are depreciated using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives are as follows:

Buildings                                                                                     25 years

Building improvements                                                                  4 to 15 years

Tenant improvements and lease commissions                                The shorter of the term of the related lease or useful life

Acquired in-place operating leases                                                 Remaining terms of the respective leases

Provisions for Impairment.  We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Generally, a provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value. Impairment loss is measured as the amount by which the current book value of the asset exceeds the fair value of the asset. If a property is held for sale, it is carried at the lower of cost or estimated fair value, less estimated cost to sell.

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In 2007, we recorded a provision for impairment of $134,000 on one retail investment property in the motor vehicle industry.  This provision for impairment is included in “income from discontinued operations, real estate held for investment” on our consolidated statement of income (“Discontinued Operations”).  In 2007, we also recorded a provision for impairment of $138,000 on one retail investment property in the consumer electronics industry.  This provision for impairment is included in property expense on our consolidated statements of income.

In 2006, we recorded a provision for impairment of $16,000 on one retail investment property in the restaurant industry.  In 2005, we recorded provisions for impairment of $186,000 on four retail properties, of which two have been sold.  These properties were classified in the following industries: one in child care and three in restaurant.

The provisions for impairment recorded on investment properties in 2006 and 2005 are included in Discontinued Operations, except for $151,000 in 2005 which is included in property expense on our consolidated statements of income.

In 2006, Crest recorded provisions for impairment of $1.2 million on three retail properties, which were held for resale at December 31, 2006. One of the three properties was sold in 2007.  No provision for impairment was recorded by Crest in 2007 or 2005.  Provisions for impairment recorded by Crest are included in “income from discontinued operations, real estate acquired for resale by Crest” on our consolidated statements of income.

Acquired In-place Leases.  In accordance with FASB Statement No. 141, Business Combinations (“SFAS 141”), the fair value of the real estate acquired with in-place operating leases is allocated to the acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases and tenant relationships, based in each case on their fair values.

The fair value of the tangible assets of an acquired property (which includes land and buildings/improvements) is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings/improvements based on our determination of the relative fair value of these assets.  Our determinations are based on a real estate appraisal for each property, generated by an independent appraisal firm, and consider estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases.  In allocating the fair value to identified intangibles for above-market or below-market leases, an amount is recorded based on the present value of the difference between (i) the contractual amount to be paid pursuant to the in-place lease and (ii) our estimate of fair market lease rate for the corresponding in-place lease, measured over a period equal to the remaining term of the lease.

Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.

The aggregate value of other acquired intangible assets consists of the value of in-place leases and tenant relationships.  These are measured by the excess of the purchase price paid for a property, after adjusting for above or below-market lease value, less the estimated fair value of the property “as if vacant,” determined as set forth above.  The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense as appropriate.

Share-Based Compensation

Effective January 1, 2006, we adopted FASB Statement No. 123R, Share-Based Payments.  Statement No. 123R requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees.  Effective January 1, 2002, we adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, and starting January 1, 2002 expensed costs for all stock option awards granted, modified, or settled.

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Goodwill.  Goodwill is tested for impairment during the second quarter of each year as well as when events or circumstances occur indicating that our goodwill might be impaired.  We did not record any new goodwill or impairment on our existing goodwill during 2007, 2006 or 2005.

Other Assets.  Other assets consist of the following (in thousands):

December 31,	2007		2006
Deferred bond financing costs, net	$	14,940	$	10,868
Value of in-place and above-market leases, net		11,211		10,430
Prepaid expenses		3,803		3,271
Corporate assets, net of accumulated depreciation and amortization		1,356		463
Settlements on treasury lock agreements		759		1,629
Unamortized credit line fees, net		434		954
Other items		3,145		80
	$	35,648	$	27,695

Accounts Payable and Accrued Expenses.  Accounts payable and accrued expenses consist of the following (in thousands):

December 31,	2007		2006
Bond interest payable	$	24,987	$	12,888
Other items		13,125		14,116
	$	38,112	$	27,004

Other Liabilities.  Other liabilities consist of the following (in thousands):

December 31,	2007		2006
Rent received in advance	$	10,626	$	4,878
Security deposits		2,818		2,291
Value of in-place below-market leases, net		1,860		1,247
	$	15,304	$	8,416

Sales Taxes.  We collect and remit sales taxes assessed by different governmental authorities that are both imposed on and concurrent with a revenue-producing transaction between us and our tenants.  We report the collection of these taxes on a net basis (excluded from revenues).  The amounts of these taxes are not significant to our financial position or results of operations.

Use of Estimates.  The consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles, which 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.

Impact of Recent Accounting Pronouncements.  In September 2006, the FASB issued Statement No. 157, Fair Value Measurements.  Statement No. 157 sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. Statement No. 157 becomes effective for us at the beginning of 2008.  The impact of adopting Statement No. 157 is not expected to have a material effect on our financial position or results of operations.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an Amendment of FASB Statement No. 115.  Statement No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. We have elected not to use the fair value measurement provisions of Statement No. 159.

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In December 2007, the FASB issued Statement No. 141R (revised 2007), Business Combinations.  Statement No. 141R will change the accounting for business combinations.  Under Statement No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions.  Statement No. 141R will change the accounting treatment and disclosures for certain specific items in a business combination.  Statement No. 141R becomes effective for us at the beginning of 2009.  We are still evaluating the impact of Statement No. 141R on our financial position or results of operations.

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interest in Consolidated Financial Statements.  Statement No. 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  This statement also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest.  In addition, this statement establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that does not result in deconsolidation and requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated.  Statement No. 160 becomes effective for us at the beginning of 2009.  This statement will be applied prospectively, except for the presentation and disclosure requirements, which will be applied retrospectively for all periods presented.  We currently do not have any minority or noncontrolling interests in a subsidiary and we do not expect Statement No. 160 to have an impact on our consolidated financial statements; however, transactions between now and the adoption date of Statement No. 160 could have an impact on our consolidated financial statements.

Reclassifications.  Certain of the 2006 and 2005 balances have been reclassified to conform to the 2007 presentation.

3.           Retail Properties Acquired

We acquire land, buildings and improvements that are used by retail operators.

A.  During 2007, Realty Income and Crest invested $533.7 million, in aggregate, in 357 new retail properties and properties under development. These 357 properties are located in 38 states, will contain over 1.9 million leasable square feet, and are 100% leased with an average lease term of 19.3 years.

In comparison, during 2006, Realty Income and Crest invested $769.9 million, in aggregate, in 378 new retail properties and properties under development. These 378 retail properties are located in 30 states, contain over 3.8 million leasable square feet, and are 100% leased with an average lease term of 17.1 years.

B.  Of the $533.7 million invested during 2007, Realty Income invested $503.8 million in 325 new retail properties and properties under development with an initial weighted average contractual lease rate of 8.6%. These 325 properties are located in 38 states, will contain over 1.8 million leasable square feet, and are 100% leased with an average lease term of 19.2 years.  The initial weighted average contractual lease rate is computed by dividing the estimated aggregate base rent for the first year of each lease by the estimated total cost of the properties.

In comparison, during 2006, Realty Income invested $656.7 million in 322 new retail properties and properties under development, with an initial weighted average contractual lease rate of 8.6%. These 322 properties are located in 30 states, contain over 3.3 million leasable square feet and are 100% leased with an average lease term of 16.7 years.

C.  During 2007, Crest invested $29.9 million in 32 new retail properties.  In comparison, during 2006, Crest invested $113.2 million in 56 retail properties.

D.  Crest’s property inventory at December 31, 2007 consisted of 30 properties with a total investment of $56.2 million and at December 31, 2006 consisted of 60 properties with a total investment of $137.5 million.  These amounts are included on our consolidated balance sheets in “real estate held for sale, net.”

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E.  Of the $533.7 million invested in 2007, $14.7 million was used to acquire five properties with existing leases already in-place with retail tenants.  In accordance with SFAS 141, Realty Income recorded $1.8 million as the intangible value of the in-place leases and $784,000 as the intangible value of below-market rents. These amounts are recorded to “other assets” and “other liabilities,” respectively, on our consolidated balance sheet at December 31, 2007 and are amortized over the life of the respective leases.

Of the $769.9 million invested in 2006, $6.0 million was used to acquire one property with an existing lease already in-place with a retail tenant.  In accordance with SFAS 141, Realty Income recorded $1.6 million as the intangible value of the in-place lease and $628,000 as the intangible value of below-market rents.  These amounts were recorded to “other assets” and “other liabilities”, respectively, on our consolidated balance sheet and are amortized over the life of the respective lease.

4.           Credit Facility

We have a $300 million acquisition credit facility that expires in October 2008, unless extended as provided for in the credit facility agreement. We have the right to extend the credit facility for an additional term of one year (to October 2009). Since May 2007, our investment grade credit ratings provided for financing under the credit facility at LIBOR (London Interbank Offered Rate) plus 60 basis points with a facility commitment fee of 15 basis points, for all-in drawn pricing of 75 basis points over LIBOR.

The average borrowing rate on our credit facilities during 2007 was 6.0%, compared to 5.7% in 2006 and 4.3% in 2005 on our previous $250 million credit facility, which expired in October 2005. The increase in the average borrowing rate is due to an increase in LIBOR since the beginning of 2005.  The effective borrowing rate at December 31, 2007 was 5.2% and at December 31, 2006 was 6.0%.  Our current credit facility is subject to various leverage and interest coverage ratio limitations. We are and have been in compliance with these covenants.

Our credit facility is unsecured and accordingly, we have not pledged any assets as collateral for this obligation.  We regularly review our credit facility and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate.

5.           Notes Payable

Our senior unsecured note obligations consist of the following as of December 31, 2007, sorted by maturity date (dollars in millions):

8.25% notes, issued in October 1998 and due in November 2008	$	100.0
8% notes, issued in January 1999 and due in January 2009		20.0
5.375% notes, issued in March 2003 and due in March 2013		100.0
5.5% notes, issued in November 2003 and due in November 2015		150.0
5.95% notes, issued in September 2006 and due in September 2016		275.0
5.375% notes, issued in September 2005 and due in September 2017		175.0
6.75% notes, issued in September 2007 and due in August 2019		550.0
5.875% bonds, issued in March 2005 and due in March 2035		100.0
	$	1,470.0

Interest incurred on all of the notes for 2007 was $67.1 million, for 2006 was $49.6 million and for 2005 was $39.5 million.  In addition, when our 7.75% senior unsecured notes due 2007 were redeemed in September 2006, we paid a $1.6 million make-whole payment, which is classified as “loss on extinguishment of debt” on our consolidated statements of income.  The interest rate on each of these notes is fixed.

Our outstanding notes are unsecured and accordingly, we have not pledged any assets as collateral for these or any other obligations.  Interest on all of the senior note obligations is paid semiannually, with the exception of the interest on the 8.25% senior notes issued in October 1998 which is paid monthly.

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

In September 2007, we issued $550 million in aggregate principal amount of 6.75% senior unsecured notes due 2019 (the “2019 Notes”).  The price to the investor for the 2019 Notes was 99.827% of the principal amount for an effective yield of 6.772%.  The net proceeds of approximately $544.4 million from this offering were used to fund certain property acquisitions, repay borrowings under our acquisition credit facility and for general corporate purposes.  The remaining net proceeds, which are included in “cash and cash equivalents” on our 2007 consolidated balance sheet, will be used for general corporate purposes, which include additional property acquisitions.

In September 2006, we issued $275 million in aggregate principal amount of 5.95% senior unsecured notes due 2016 (the “2016 Notes”).  The price to the investor for the 2016 Notes was 99.74% of the principal amount for an effective yield of 5.985%.  The net proceeds of approximately $271.9 million from this offering were used for general corporate purposes and to redeem the outstanding $110 million 7.75% unsecured notes due May 2007 (the “2007 Notes”), which were issued in May 1997.

In September 2006, we redeemed all of our outstanding 2007 Notes at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest of $3.2 million and a make-whole payment of $1.6 million.  We recorded a loss on extinguishment of debt totaling $1.6 million related to the make-whole payment associated with the 2007 Notes.  For 2006, the make-whole payment represented approximately $0.017 per share.

In September 2005, we issued $175 million in aggregate principal amount of 5.375% senior unsecured notes due 2017 (the “2017 Notes”).  The price to the investor for the 2017 Notes was 99.974% of the principal amount for an effective yield of 5.378%.  The net proceeds of approximately $173.2 million from this offering were used to repay borrowings under our unsecured acquisition credit facility, to fund new property acquisitions and for other general corporate purposes.

In March 2005, we issued $100 million in aggregate principal amount of 5.875% senior unsecured bonds due 2035 (the “2035 Bonds”).  The price to the investor for the 2035 Bonds was 98.296% of the principal amount for an effective yield of 5.998%.  The net proceeds of approximately $97 million from this offering were used to repay borrowings under our acquisition credit facility and for other general corporate purposes. 

In May 1998, we entered into a treasury interest rate lock agreement associated with the 8.25% senior notes issued in October 1998 (the “2008 Notes”). In settlement of the agreement, we made a payment of $8.7 million in 1998. The payment on the agreement is being amortized over 10 years (the life of the notes) as a yield adjustment to interest expense.  After taking into effect the results of the treasury lock settlement, the effective rate to us on the 2008 Notes is 9.12%.

The following table summarizes the maturity of our notes payable as of December 31, 2007 (dollars in millions):

Year of Maturity(1)	Notes
2008	$	100.0
2009		20.0
After 2012		1,350.0
Totals	$	1,470.0

(1) There are no maturities in 2010, 2011 and 2012.

We anticipate paying off the notes due in 2008 and 2009 by one or more of the following; using cash on hand, utilizing our credit facility or issuing new securities.

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6.           Common Stock Offerings

A.           In October and November 2006, we issued an aggregate of 6.9 million shares of common stock at a price of $26.40 per share.  The net proceeds of approximately $173.2 million were used to fund new property acquisitions and for other general corporate purposes.

B.           In September 2006, we issued 4.715 million shares of common stock at a price of $24.32 per share.  The net proceeds of approximately $109 million from this offering were used to fund new property acquisitions, repay borrowings under our credit facility and for other general corporate purposes.

C.           In March 2006, we issued 5.2 million shares of common stock at a price of $24.39 per share.  The net proceeds of approximately $120.5 million were used to fund new property acquisitions and for other general corporate purposes.

D.           In September 2005, we issued 4.1 million shares of common stock at a price of $23.79 per share.  The net proceeds of $92.7 million were used to fund new property acquisitions and for other general corporate purposes.

7.           Preferred Stock

A.           In December 2006, we issued 8.8 million shares of 6.75% Monthly Income Class E cumulative redeemable preferred stock.  The net proceeds of $214 million from this issuance were used to repay borrowings under our credit facility and for other general corporate purposes.  Beginning December 7, 2011, the Class E preferred shares are redeemable, at our option, for $25 per share.  During 2007, we paid twelve monthly dividends to holders of our Class E preferred stock totaling $1.725 per share, or $15.2 million, and at

December 31, 2007 a monthly dividend of $0.140625 per share was payable and was paid in January 2008.  In January 2007, we paid the first Class E preferred dividend of $0.178125, which covered a period of 38 days.

B.           In 2004, we issued 5.1 million shares of 7.375% Monthly Income Class D cumulative redeemable preferred stock.  The net proceeds of $123.8 million from this issuance were used to redeem a portion of the outstanding Class B and Class C preferred stock, repay borrowings outstanding under our acquisition credit facility and for other general corporate purposes.  Beginning May 27, 2009, the Class D preferred shares are redeemable, at our option, for $25 per share.  During 2007, 2006 and 2005, we paid twelve monthly dividends to holders of our Class D preferred stock totaling $1.8437508, or $9.4 million, and at December 31, 2007 a monthly dividend of $0.1536459 was payable and was paid in January 2008.

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8.           Distributions Paid and Payable

A.           Common Stock

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

Month	2007		2006		2005
January	$	0.126500	$	0.116250	$	0.110000
February		0.126500		0.116250		0.110000
March		0.126500		0.116250		0.110000
April		0.127125		0.116875		0.110625
May		0.127125		0.116875		0.110625
June		0.127125		0.116875		0.110625
July		0.127750		0.117500		0.111250
August		0.127750		0.117500		0.111250
September		0.135500		0.125250		0.115000
October		0.136125		0.125875		0.115625
November		0.136125		0.125875		0.115625
December		0.136125		0.125875		0.115625
Total	$	1.560250	$	1.437250	$	1.346250

The following presents the federal income tax characterization of distributions paid or deemed to be paid per common share for the years (unaudited):

	2007		2006		2005
Ordinary income	$	1.3847719	$	1.2945466	$	1.210091
Nontaxable distributions		0.1754781		0.1427034		0.136159
Capital gain		--		--		--
Totals	$	1.5602500	$	1.4372500	$	1.346250

At December 31, 2007, a distribution of $0.13675 per common share was payable and was paid in January 2008.  At December 31, 2006, a distribution of $0.1265 per common share was payable and was paid in January 2007.

B.           Preferred Stock

Dividends of $0.1536459 per share are paid monthly in arrears on the Class D preferred stock.  We declared dividends to holders of our Class D preferred stock totaling $9.4 million in 2007, $9.8 million in 2006, and $9.4 million in 2005.  The dividends paid per share to our Class D preferred stockholders for 2007, 2006 and 2005 of $1.84375 were characterized for federal income tax purposes as ordinary income.

Dividends of $0.140625 per share are paid monthly in arrears on the Class E preferred stock.  We declared dividends to holders of our Class E preferred stock totaling $14.9 million in 2007 and $1.6 million in 2006.  The first Class E dividend was paid in January 2007.  The dividends paid per share to our Class E preferred stockholders for 2007 of $1.725 were characterized for federal income tax purposes as ordinary income.

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9.           Operating Leases

A.           At December 31, 2007, we owned 2,270 properties in 49 states, excluding 30 properties owned by Crest. Of these 2,270 properties, 2,259, or 99.5%, are single-tenant, retail properties and the remaining 11 are multi-tenant, distribution and office properties. At December 31, 2007, 48 properties were vacant and available for lease or sale.

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

Rent based on a percentage of a tenants’ gross sales (percentage rents) for 2007 was $851,000, for 2006 was $1.1 million and for 2005 was $1.2 million, including amounts recorded to discontinued operations.

At December 31, 2007, minimum future annual rents to be received on the operating leases for the next five years and thereafter are as follows (dollars in thousands):

2008	$	307,983
2009		295,745
2010		286,809
2011		279,163
2012		269,310
Thereafter		2,668,430
Total	$	4,107,440

B.           Major Tenants – No individual tenant’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the years ended December 31, 2007, 2006 or 2005.

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

In 2007, Crest sold 62 properties for $123.6 million, which resulted in a gain of $12.3 million.  For two property sales during 2007, Crest provided the buyers partial financing for a total of $3.8 million, of which $619,000 was paid in full in November 2007.  In 2006, Crest sold 13 properties for $22.4 million, which resulted in a gain of $2.2 million.  In 2005, Crest sold 12 properties for $23.5 million, which resulted in a gain of $3.3 million.  In 2005, Crest provided a buyer partial financing of $1.3 million for one property, which was paid in full in February 2006.  Crest’s gains on sales are reported before income taxes and are included in discontinued operations.

11.           Gain on Sales of Investment Properties, Improvements and Land by Realty Income

In 2007, we sold ten investment properties for $7.0 million, which resulted in a gain of $1.7 million.  This gain is included in discontinued operations.  In addition, we sold excess land and improvements from five properties for an aggregate of $4.4 million, which resulted in a gain of $1.8 million.  This gain from the land and improvements sales is reported in “other revenue” on our consolidated statements of income because these improvements and excess land were associated with properties that continue to be owned as part of our core operations.

In 2006, we sold or exchanged 13 investment properties for $10.7 million, which resulted in a gain of $3.0 million that is included in discontinued operations.

In 2005, we sold 23 investment properties and sold a portion of the land from two properties for $23.4 million, which resulted in a gain of $6.6 million.  This gain is included in discontinued operations, except for $18,000 that is included in “other revenue” on our consolidated statements of income.

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12.           Fair Value of Financial Instruments

We believe that the carrying values reflected in the consolidated balance sheets at December 31, 2007 and 2006 reasonably approximate the fair values for cash and cash equivalents, accounts receivable, and all liabilities, due to their short-term nature, except for notes payable. In making these assessments, we used estimates. The estimated fair value of the notes payable at December 31, 2007 is $1.413 billion and at December 31, 2006 is $921.9 million, based upon the closing market price per note or indicative price per each note at December 31, 2007 and 2006, respectively.

13.           Supplemental Disclosures of Cash Flow Information

Interest paid in 2007 was $56.7 million, in 2006 was $52.4 million and in 2005 was $36.4 million.

Interest capitalized to properties under development in 2007 was $993,000, in 2006 was $2.2 million and in 2005 was $1.9 million.

Income taxes paid by Realty Income and Crest in 2007 were $4.3 million, in 2006 were $775,000 and in 2005 were $1.4 million.

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

A.   Share-based compensation expense for 2007 was $3.9 million, for 2006 was $3.0 million and for 2005 was $2.2 million.

B.   See “Provisions for Impairment” in note 2 for a discussion of impairments recorded by Realty Income and Crest.

C.   In 2007, Crest sold two properties for an aggregate of $5.5 million and received notes totaling $3.8 million from the buyers, of which $619,000 was paid in full in November 2007.   The remaining note is included in “other assets” on our December 31, 2007 consolidated balance sheet.

D.   In connection with the acquisition of seven properties during 2007, we acquired restricted escrow funds totaling $2.6 million.  During 2007, all of these funds were invested in improvements to these properties.

E.   In accordance with FASB Statement No. 143, Accounting for Asset Retirement Obligations, we recorded an additional $239,000 of estimated legal obligations related to asset retirement obligations on two land leases in 2007.  In 2005, an asset retirement obligation was originally established for $402,000 to account for the difference between our obligations to the landlord under the two land leases and our subtenant’s obligations to us under the subleases.

F.   In 2006, we exchanged one of our properties for a different property that was leased to the same tenant.  As part of this transaction, accumulated depreciation was reduced by $67,000 and a gain of $67,000 was recorded.  The original cost of and the value received for the property exchanged was $900,000.  This transaction had no impact on land or building and improvements.

G.   In 2006, we received shares of a public company as settlement of a bankruptcy claim associated with a former tenant.  We recorded a value of $207,000, which is in “other revenue” on our consolidated income statement, based on the closing market price of these shares on December 31, 2006 and included them in “other assets” on our consolidated balance sheet at December 31, 2006.  The shares were sold in January 2007.

H.   In 2005, Crest sold a property for $2.8 million and issued a note of $1.3 million, which was paid in full in 2006 and is included in “other assets” on our December 31, 2005 consolidated balance sheet.

I.   Accrued costs on properties under development resulted in an increase in buildings and improvements and accounts payable of $1.7 million in 2006. In 2005, non-cash additions to properties resulted in an increase in buildings of $5.4 million and an increase in accounts payable of $5.1 million.

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J.   Distributions payable on our balance sheets is comprised of the following declared distributions (dollars in thousands):

	12/31/07		12/31/06
Common stock distributions	$	13,823	$	12,745
Preferred stock dividends		2,021		2,351

K.   In 2004, we recorded an impairment of $716,000 on one property to reduce its carrying value to zero.  This loss was the result of a dispute with the original owner and tenant in their bankruptcy proceeding.  Our title insurance company failed to timely record the deed on this property upon our original acquisition, which resulted in a claim by the bankruptcy trustee that Realty Income did not have legal title to the property.  In the second quarter of 2006, this issue was resolved and we obtained title to the property.  At that time we reinstated the original carrying value adjusted for depreciation on our balance sheet and recorded other revenue of $716,000.  We also reversed accrued liabilities and property expenses of $133,000 associated with this property.  As part of the settlement, these costs became the responsibility of the title insurance company.

14.           Employee Benefit Plan

We have a 401(k) plan covering substantially all of our employees. Under our 401(k) plan, employees may elect to make contributions to the plan up to a maximum of 60% of their compensation, subject to limits under the IRS Code. We match 50% of our employee’s contributions, up to 3% of the employee’s compensation. Our aggregate matching contributions each year have been immaterial to our results of operations.

15.           Common Stock Incentive Plan

In 2003, our Board of Directors adopted, and stockholders approved, the 2003 Incentive Award Plan of Realty Income Corporation (the “Stock Plan”) to enable us to attract and retain the services of directors, employees and consultants, considered essential to our long-term success, by offering them an opportunity to own stock in Realty Income and/or rights that will reflect our growth, development and financial success.  The Stock Plan was amended and restated by our Board of Directors in February 2006 and in May 2007.  Under the terms of this plan, the aggregate number of shares of our common stock subject to options, stock purchase rights (SPR), stock appreciation rights (SAR) and other awards will be no more than 3,428,000 shares. The maximum number of shares that may be subject to options, stock purchase rights, stock appreciation rights and other awards granted under the plan to any individual in any calendar year may not exceed 1,600,000 shares. This plan has a term of 10 years from the date it was adopted by our Board of Directors, which was March 12, 2003.  To date, we have not issued any SPR or SAR.

The amount of share-based compensation costs charged against income during 2007 were $3.9 million, during 2006 were $3.0 million and during 2005 were $2.2 million.

No stock options were granted after January 1, 2002 and all outstanding options were fully vested as of December 31, 2006.  Stock options were granted with an exercise price equal to the underlying stock’s fair market value at the date of grant. Stock options expire ten years from the date they are granted and vested over service periods of one, three, four or five years.

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The following table summarizes our stock option activity for the years:

	2007					2006					2005
	Number of shares			Weighted average exercise price		Number of shares			Weighted average exercise price		Number of shares			Weighted average exercise price
Outstanding options,   beginning of year		106,368		$	13.06		135,348		$	13.02		176,130		$	13.01
Options exercised		(61,361	)		13.32		(28,696	)		12.86		(40,352	)		12.93
Options forfeited		--			--		(284	)		14.70		(430	)		14.70
Outstanding options,   end of year		45,007		$	12.71		106,368		$	13.06		135,348		$	13.02

Outstanding exercisable,   end of year 45,007 $ 12.71 106,368 $ 13.06 119,924 $ 12.87

At December 31, 2007, the options outstanding and exercisable had exercise prices ranging from $10.63 to $14.70, with a weighted average price of $12.71, and expiration dates ranging from May 2008 to December 2011 with a weighted average remaining term of 3.1 years.

The intrinsic value of a stock option is the amount by which the market value of the underlying stock at December 31 of each year exceeds the exercise price of the option.  The market value of the Company’s stock was $27.02, $27.70 and $21.62 at December 31, 2007, 2006 and 2005, respectively. The total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005 was $904,000, $268,000 and $377,000, respectively.  The total intrinsic value of options vested during the years ended December 31, 2006 and 2005 was $143,000 and $67,000, respectively.  The aggregate intrinsic value of options outstanding was $644,000, $1.6 million and $1.2 million at December 31, 2007, 2006 and 2005, respectively.  The aggregate intrinsic value of options exercisable at December 31, 2007, 2006 and 2005 was $644,000, $1.6 million and $1.1 million, respectively.

The following table summarizes our common stock grant activity under our Stock Plan for the years 2007, 2006 and 2005.  Our common stock grants vest over periods ranging from immediately to 10 years.

	2007					2006					2005
	Number of shares			Weighted average price(1)		Number of shares			Weighted average price(1)		Number of shares			Weighted average price(1)
Outstanding nonvested    shares, beginning of year		868,726		$	17.96		788,722		$	17.83		626,868		$	14.98
Shares granted		276,631			27.64		210,332			21.72		306,241			25.20
Shares vested		(149,284	)		20.94		(125,879	)		20.39		(92,811	)		16.69
Shares forfeited		(1,501	)		24.81		(4,449	)		21.35		(51,576	)		17.31
Outstanding nonvested   shares, end of year		994,572		$	19.46		868,726		$	17.96		788,722		$	17.83

 (1) Grant date fair value.

During 2007, we issued 276,631 shares of common stock under our Stock Plan.  These shares vest over the following service periods: 20,000 vested upon issuance, 4,000 vest over a service period of one year, 12,000 vest over a service period of three years, 19,000 vest over a service period of five years and 221,631 vest over a service period of 10 years.

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Our Stock Plan was amended on May 15, 2007. For grants made on or after May 15, 2007 the vesting schedule for shares granted to non-employee directors was amended to the following schedule:

· Shares vest in 33.33% increments on each of the first three anniversaries of the date the shares of stock are granted to directors with less than five years of service at the date of grant;

· Shares vest in 50% increments on each of the first two anniversaries of the date the shares of stock are granted to directors with six years of service at the date of grant;

· Shares are 100% vested on the first anniversary of the date the shares of stock are granted to directors with seven years of service at the date of grant; and

· There is immediate vesting as of the date the shares of stock are granted to directors with eight or more years of service at the date of grant.

On May 15, 2007, our Board of Directors also approved a new vesting schedule for shares granted to employees on or after May 15, 2007, which is as follows:

· For employees age 49 and below at the grant date, shares vest in 10% increments on each of the first ten anniversaries of the grant date;

· For employees age 50 through 55 at the grant date, shares vest in 20% increments on each of the first five anniversaries of the grant date;

· For employees age 56 at the grant date, shares vest in 25% increments on each of the first four anniversaries of the grant date;

· For employees age 57 at the grant date, shares vest in 33.33% increments on each of the first three anniversaries of the grant date;

· For employees age 58 at the grant date, shares vest in 50% increments on each of the first two anniversaries of the grant date;

· For employees age 59 at the grant date, shares are 100% vested on the first anniversary of the grant date; and

· For employees age 60 and above at the grant date, shares vest immediately on the grant date.

In addition, after they have been employed for six full months, all non-executive employees receive 200 shares of nonvested stock which vests over a five year period.

As of December 31, 2007, the remaining unamortized share-based compensation expense totaled $19.4 million, which is being amortized on a straight-line basis over the service period of each applicable award.  The amount of share-based compensation is based on the fair value of the stock at the grant date.  We define the grant date as the date the recipient and the Company have a mutual understanding of the key terms and condition of the award and the recipient of the grant begins to benefit from, or be adversely affected by subsequent changes in the price of the shares.

The effect of pre-vesting forfeitures on our recorded expense has historically been negligible.  Any future pre-vesting forfeitures are also expected to be negligible and we will record the benefit related to such forfeitures as they occur.  Under the terms of our Stock Plan, we pay non-refundable dividends to the holders of our nonvested shares.  Under Statement No. 123R, the dividends paid to holders of these nonvested shares should be charged as compensation expense to the extent that they relate to nonvested shares that do not or are not expected to vest.  Given the negligible historical and prospective forfeiture rate determined by us, we did not record any amount to compensation expense related to dividends paid in 2007, 2006 or 2005, nor do we expect to record any amounts in future periods.

16.           Segment Information

We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial reporting purposes, we have grouped our tenants into 31 industry and activity segments (including properties owned by Crest that are grouped together). All of the properties are incorporated into one of the applicable segments. Because almost all of our leases require the tenant to pay operating expenses, revenue is the only component of segment profit and loss we measure.

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The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective tenants as of December 31, 2007 (dollars in thousands):

	Revenue
For the years ended December 31,	2007		2006		2005
Segment rental revenue(1):
Automotive parts	$	6,347	$	6,066	$	6,077
Automotive service		14,849		16,495		15,083
Automotive tire services		21,235		14,501		13,821
Child care		24,323		24,649		24,819
Convenience stores		40,727		38,283		36,711
Drug stores		7,830		6,986		5,593
Health and fitness		14,874		10,212		7,212
Home furnishings		7,797		7,623		7,552
Home improvement		6,116		7,127		2,152
Motor vehicle dealerships		9,540		7,890		4,747
Restaurants		60,908		28,191		17,888
Sporting goods		7,443		6,829		6,747
Theaters		26,120		22,906		10,139
17 non-reportable segments		42,050		39,729		36,558
Total rental revenue		290,159		237,487		195,099
Other revenue		6,354		2,042		354
Total revenue	$	296,513	$	239,529	$	195,453

  (1) Crest’s revenue appears in “income from discontinued operations, real estate acquired for resale by Crest” and is not included in this table, which covers revenue but does not include revenue classified as part of income from discontinued operations.

Assets, as of December 31:	2007		2006
Segment net real estate:
Automotive parts	$	42,555	$	36,026
Automotive service		101,238		104,089
Automotive tire services		212,746		211,760
Child care		91,219		96,263
Convenience stores		408,119		334,839
Drug stores		100,154		78,347
Health and fitness		169,109		102,718
Home furnishings		54,508		56,286
Home improvement		59,497		61,301
Motor vehicle dealerships		101,886		104,122
Restaurants		776,973		540,093
Sporting goods		57,135		56,291
Theaters		267,423		272,135
Crest		56,156		137,506
17 other non-reportable segments		325,537		293,305
Total segment net real estate		2,824,255		2,485,081
Other intangible assets – Drug stores		6,988		7,629
Other intangible assets – Theaters		2,496		2,801
Other intangible assets – Automotive tire services		765		--
Other intangible assets – Grocery stores		962		--
Other corporate assets		241,886		50,997
Total assets	$	3,077,352	$	2,546,508

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17.           Commitments and Contingencies

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

At December 31, 2007, we have committed $7.9 million under construction contracts.  These costs are expected to be paid in the next 12 months.  In addition, we also have contingent payments for tenant improvements and leasing costs of $743,000.

We have certain properties that are subject to ground leases which are accounted for as operating leases.  At December 31, 2007, minimum future rental payments for the next five years and thereafter are as follows (dollars in thousands):

	Ground leases paid by Realty Income(1)		Ground leases paid by our tenants(2)		Total
2008	$	137	$	1,844	$	1,981
2009		92		1,778		1,870
2010		82		1,701		1,783
2011		69		1,668		1,737
2012		69		1,591		1,660
Thereafter		969		16,485		17,454
Total	$	1,418	$	25,067	$	26,485

  (1) Realty Income currently pays the ground lessor directly for the rent under the ground lease. A majority of this rent is reimbursed to Realty Income as additional rent from our tenant.

  (2) Our tenants, who are generally sub-tenants under the ground leases, are responsible for paying the rent under these ground leases. In the event a tenant fails to pay the ground lease rent, we are primarily responsible.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Quarterly Financial Data

(dollars in thousands, except per share data)

(not covered by Report of Independent Registered Public Accounting Firm)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter			Year(2)
2007(1)
Total revenue	$	71,198	$	70,589	$	74,080	$	80,646		$	296,513
Depreciation and amortization expense		18,083		18,475		19,559		21,075			77,192
Interest expense		12,420		13,029		16,163		22,719			64,331
Other expenses		6,207		7,151		7,458		6,791			27,607
Income from continuing operations		34,488		31,934		30,900		30,061			127,383
Income from discontinued operations		1,835		5,002		3,073		3,115			13,026
Net income		36,323		36,936		33,973		33,176			140,409
Net income available to    common stockholders		30,260		30,873		27,910		27,113			116,156
Net income per common share:
Basic		0.30		0.31		0.28		0.27			1.16
Diluted		0.30		0.31		0.28		0.27			1.16
Dividends paid per common share		0.379500		0.381375		0.391000		0.408375			1.56025
2006(1)
Total revenue	$	55,015	$	56,366	$	59,154	$	68,995		$	239,529
Depreciation and amortization expense		13,461		14,740		14,581		16,505			59,288
Interest expense		13,198		11,930		12,530		13,706			51,363
Other expenses		5,335		5,268		6,520		6,037			23,160
Income from continuing operations		23,021		24,428		25,523		32,747			105,718
Income (loss) from discontinued operations		1,867		2,212		1,035		(51	)		5,063
Net income		24,888		26,640		26,558		32,696			110,781
Net income available to    common stockholders		22,537		24,289		24,207		28,386			99,419
Net income per common share:
Basic		0.27		0.28		0.27		0.29			1.11
Diluted		0.27		0.27		0.27		0.29			1.11
Dividends paid per common share		0.348750		0.350625		0.360250		0.377625			1.437250

(1)   The consolidated quarterly financial data includes revenues and expenses from our continuing and discontinued operations.  The results of operations related to certain properties, that have been classified as held for sale or have been disposed of, have been reclassified to income from discontinued operations.  Therefore, some of the information may not agree to our previously filed 10-Qs.

     (2) Amounts for each period are calculated independently.  The sum of the quarters may differ from the annual amount.

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

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

Item 9A:           Controls and Procedures

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

As of and for the year ended December 31, 2007, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level.

Management's Report on Internal Control Over Financial Reporting.

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Management has used the framework set forth in the report entitled "Internal Control--Integrated Framework" published by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission to evaluate the effectiveness of the Company's internal control over financial reporting. Management has concluded that the Company's internal control over financial reporting was effective as of the end of the most recent fiscal year.  KPMG LLP has issued an attestation report on the effectiveness of the Company's internal control over financial reporting.

Submitted on February 12, 2008 by,

Thomas A Lewis, Chief Executive Officer and Vice Chairman

Paul M. Meurer, Chief Financial Officer, Executive Vice President and Treasurer

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

Limitations on the Effectiveness of Controls.  Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Item 9B:                      Other Information

None.

PART III

Item 10:                      Directors, Executive Officers and Corporate Governance

The information set forth under the captions “Director Nominees” and “Officers of the Company” and “Compliance with Federal Securities Laws” will be included in the definitive proxy statement for the 2008 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A.  The Annual Meeting of Stockholders is presently scheduled to be held on May 13, 2008.

Item 11:                      Executive Compensation

The information set forth under the caption “Executive Compensation” will be included in the definitive proxy statement for the 2008 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A.

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

The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” will be included in the definitive proxy statement for the 2008 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A.

Item 13:                      Certain Relationships, Related Transactions and Director Independence

The information set forth under the caption “Certain Transactions” will be included in the definitive proxy statement for the 2008 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A.

Item 14:                      Principal Accounting Fees and Services

The information set forth under the caption “Independent Registered Public Accounting Firm Fees and Services” will be included in the definitive proxy statement for the 2008 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A.

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PART IV

Item 15:                      Exhibits and Financial Statement Schedules

A.           The following documents are filed as part of this report.

1.       Financial Statements (see Item 8)

a.      Reports of Independent Registered Public Accounting Firm

b.      Consolidated Balance Sheets,

December 31, 2007 and 2006

c.      Consolidated Statements of Income,

Years ended December 31, 2007, 2006 and 2005

d.      Consolidated Statements of Stockholders’ Equity,

Years ended December 31, 2007, 2006 and 2005

e.      Consolidated Statements of Cash Flows,

Years ended December 31, 2007, 2006 and 2005

f.       Notes to Consolidated Financial Statements

g.      Consolidated Quarterly Financial Data,

(unaudited) for 2007 and 2006

2. Financial Statement Schedule.  Reference is made to page F-1 of this report for Schedule III Real Estate and Accumulated Depreciation (electronically filed with the Securities and Exchange Commission, but not included herein).

Schedules not Filed:  All schedules, other than those indicated in the Table of Contents, have been omitted as the required information is either not material, inapplicable or the information is presented in the financial statements or related notes.

3.      Exhibits

Articles of Incorporation and By-Laws

    Exhibit No.       Description

3.1 Articles of Incorporation of the Company, as amended by amendment No. 1 dated May 10, 2005 and amendment No. 2 dated May 10, 2005 (filed as exhibit 3.1 to the Company’s Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).

3.2 Bylaws of the Company, as amended by amendment No. 1 dated March 20, 2000, amendment No. 2 dated June 15, 2005, and as amended and restated on December 12, 2007 (filed as exhibit 3.1 to the Company’s Form 8-K dated December 12, 2007, and incorporated herein by reference).

3.3 Articles Supplementary to the Articles of Incorporation of the Company classifying and designating the 7.375% Monthly Income Class D Cumulative Redeemable Preferred Stock (filed as exhibit 3.8 to the Company’s Form 8-A filed on May 25, 2004 and incorporated herein by reference).

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3.4   Articles Supplementary to the Articles of Incorporation of the Company classifying and designating additional shares of the 7.375% Monthly Income Class D Cumulative Redeemable Preferred Stock (filed as exhibit 3.2 to the Company’s Form 8-K filed on October 19, 2004 and incorporated herein by reference).

3.5 Articles Supplementary to the Articles of Incorporation of the Company classifying and designating the 6.75% Class E Cumulative Redeemable Preferred Stock (filed as exhibit 3.5 to the Company’s Form 8-A filed on December 5, 2006 and incorporated herein by reference).

Instruments defining the rights of security holders, including indentures

4.1 Pricing Committee Resolutions (filed as exhibit 4.2 to the Company’s Form 8-K, dated October 27, 1998 and incorporated herein by reference).

4.2 Form of 8.25% Notes due 2008 (filed as exhibit 4.3 to the Company’s Form 8-K, dated October 27, 1998 and incorporated herein by reference).

4.3 Indenture dated as of October 28, 1998 between the Company and The Bank of New York (filed as exhibit 4.1 to the Company’s Form 8-K, dated October 27, 1998 and incorporated herein by reference).

4.4 Pricing Committee Resolutions and Form of 8% Notes due 2009 (filed as exhibit 4.2 to the Company’s Form 8-K, dated January 21, 1999 and incorporated herein by reference).

4.5 Form of 5.375% Senior Notes due 2013 (filed as exhibit 4.2 to the Company’s Form 8-K, dated March 5, 2003 and incorporated herein by reference).

4.6 Officer’s Certificate pursuant to sections 201, 301 and 303 of the Indenture dated October 28, 1998 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled 5.375% Senior Notes due 2013 (filed as exhibit 4.3 to the Company’s Form 8-K, dated March 5, 2003 and incorporated herein by reference).

4.7 Form of 5.50% Senior Notes due 2015 (filed as exhibit 4.2 to the Company’s Form 8-K, dated November 19, 2003 and incorporated herein by reference).

4.8 Officer’s Certificate pursuant to sections 201, 301 and 303 of the Indenture dated October 28, 1998 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled 5.50% Senior Notes due 2015 (filed as exhibit 4.3 to the Company’s Form 8-K, dated November 19, 2003 and incorporated herein by reference).

4.9 Form of 5.875% Senior Notes due 2035 (filed as exhibit 4.2 to the Company’s Form 8-K, dated March 8, 2005 and incorporated herein by reference).

4.10 Officer’s Certificate pursuant to sections 201, 301 and 303 of the Indenture dated October 28, 1998 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled 5.875% Senior Debentures due 2035 (filed as exhibit 4.3 to the Company’s Form 8-K, dated March 8, 2005 and incorporated herein by reference).

4.11 Form of 5.375% Senior Notes due 2017 (filed as exhibit 4.2 to the Company’s Form 8-K, dated September 8, 2005 and incorporated herein by reference).

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4.12      Officer’s Certificate pursuant to sections 201, 301 and 303 of the Indenture dated October 28, 1998 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled 5.375% Senior Notes due 2017 (filed as exhibit 4.3 to the Company’s Form 8-K, dated September 8, 2005 and incorporated herein by reference).

4.13   Form of 5.95% Senior Notes due 2016 (filed as exhibit 4.2 to the Company’s Form 8-K, dated September 6, 2006 and incorporated herein by reference).

4.14   Officer’s Certificate pursuant to sections 201, 301 and 303 of the Indenture dated October 28, 1998 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled 5.95% Senior Notes due 2016 (filed as exhibit 4.3 to the Company’s Form 8-K, dated September 6, 2006 and incorporated herein by reference).

4.15   Form of 6.75% Notes due 2019 (filed as exhibit 4.2 to Company’s Form 8-K, dated August 30, 2007 and incorporated herein by reference).

4.16   Officer’s Certificate pursuant to sections 201, 301 and 303 of the Indenture dated October 28, 1998 between the Company and The Bank of New York Trust Company, N.A., as Trustee, establishing a series of securities entitled 6.75% Senior Notes due 2019 (filed as exhibit 4.3 to the Company’s Form 8-K, dated August 30, 2007 and incorporated herein by reference).

Material Contracts

10.1 $300 million Credit Agreement dated June 17, 2005 (filed as exhibit 10.1 to the Company’s Form 8-K filed on June 20, 2005 and incorporated herein by reference).

10.2 Form indemnification agreement between the Company and each executive officer and each director of the Board of Directors of the Company (filed as exhibit 10.1 to the Company’s Form 8-K filed on August 26, 2005 and incorporated herein by reference).

10.3 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), dated August 11, 1995, and incorporated herein by reference).

10.4 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 filed on July 29, 1997 and incorporated herein by reference).

10.5 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 for the year ended December 31, 1997 and incorporated herein by reference).

10.6 Management Incentive Plan (filed as Exhibit 10.10 to the Company’s Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.7 Form of Nonqualified Stock Option Agreement for Independent Directors (filed as Exhibit 10.11 to the Company’s Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).

10.8 Form of Employment Agreement between the Company and its Executive Officers (incorporated by reference to the Company’s Form 8-B12B filed on  July 29, 1997 and incorporated herein by reference).

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10.9 Form of Restricted Stock Agreement between the Company and Executive Officers (filed as exhibit 10.11 to the Company’s Form 8-K dated January 1, 2005 and incorporated herein by reference).

10.10 2003 Stock Incentive Award Plan of Realty Income Corporation, as amended and restated February 21, 2006 (filed as exhibit 10.10 to the Company’s Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).

10.20   First Amendment to Credit Agreement dated October 16, 2006 to the $300 million Credit Agreement dated June 17, 2005 (filed as exhibit 10.1 to the Company’s Form 8-K filed on November 3, 2006 and incorporated herein by reference).

10.30 Amendment dated May 15, 2007 to the Amended and Restated 2003 Stock Incentive Award Plan of Realty Income Corporation (filed as exhibit 10.1 to the Company’s Form 10-Q, for the quarter ended June 30, 2007 and incorporated herein by reference).

10.40 Form of Restricted Stock Agreement (filed as exhibit 10.2 to the Company’s Form 10-Q, for the quarter ended June 30, 2007 and incorporated herein by reference).

Statement of Ratios

*12.1 Statements re computation of ratios.

Subsidiaries of the Registrant

*21.1 Subsidiaries of the Company as of February 4, 2008.

Consents of Experts and Counsel

*23.1 Consent of Independent Registered Public Accounting Firm.

Certifications

*31.1 Rule 13a-14(a) Certifications as filed by the Chief Executive Officer pursuant to SEC release No. 33-8212 and 34-47551.

*31.2 Rule 13a-14(a) Certifications as filed by the Chief Financial Officer pursuant to SEC release No. 33-8212 and 34-47551.

*32 Section 1350 Certifications as furnished by the Chief Executive Officer and the Chief Financial Officer pursuant to SEC release No. 33-8212 and 34-47551.

* Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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                                                      Date: February 12, 2008

Thomas A. Lewis

Vice Chairman of the Board of Directors,

Chief Executive Officer

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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                                                      Date: February 12, 2008

William E. Clark

Chairman of the Board of Directors

By:       /s/THOMAS A. LEWIS                                                      Date: February 12, 2008

Thomas A. Lewis

Vice Chairman of the Board of Directors,

Chief Executive Officer

(Principal Executive Officer)

By:       /s/KATHLEEN R. ALLEN, Ph.D.                                                     Date: February 12, 2008

Kathleen R. Allen, Ph.D.

Director

By:       /s/DONALD R. CAMERON                                                            Date: February 12, 2008

Donald R. Cameron

Director

By:       /s/PRIYA CHERIAN HUSKINS                                                       Date: February 12, 2008

Priya Cherian Huskins

Director

By:       /s/ROGER P. KUPPINGER                                                           Date: February 12, 2008

Roger P. Kuppinger

Director

By:       /s/MICHAEL D. MCKEE                                                                Date: February 12, 2008

Michael D. McKee

Director

By:       /s/GREGORY T. MCLAUGHLIN                                                     Date: February 12, 2008

Gregory T. McLaughlin

Director

By:       /s/RONALD L. MERRIMAN                                                           Date: February 12, 2008

Ronald L. Merriman

Director

By:       /s/WILLARD H. SMITH JR                                                             Date: February 12, 2008

Willard H. Smith Jr

Director

By:       /s/PAUL M. MEURER                                                       Date: February 12, 2008

Paul M. Meurer

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

By:       /s/GREGORY J. FAHEY                                                               Date: February 12, 2008

Gregory J. Fahey

Vice President, Controller

(Principal Accounting Officer)

-75-

REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Apparel Stores
Little Rock	AR	$1,079,232	$2,594,956	$34,285	$52,746	$1,079,232	$2,681,987	$3,761,219	$1,003,494		07/21/98	300
Mesa	AZ	619,035	867,013	1,760	43,447	619,035	912,220	1,531,255	333,457		02/11/99	300
Danbury	CT	1,083,296	6,217,688	40,544	6	1,083,296	6,258,238	7,341,534	2,581,512		09/30/97	300
Manchester	CT	771,660	3,653,539	1,661	None	771,660	3,655,200	4,426,860	1,431,027		03/26/98	300
Manchester	CT	1,250,464	5,917,037	3,555	None	1,250,464	5,920,592	7,171,056	2,317,786		03/26/98	300
Staten Island	NY	4,202,093	3,385,021	None	898	4,202,093	3,385,919	7,588,012	1,326,384		03/26/98	300
Automotive Collision Services
Highlands Ranch	CO	583,289	2,139,057	None	None	583,289	2,139,057	2,722,346	316,583	07/10/07	08/11/03	300
Littleton	CO	601,388	2,169,898	None	None	601,388	2,169,898	2,771,286	174,379	02/02/06	11/12/04	300
Parker	CO	678,768	2,100,854	None	None	678,768	2,100,854	2,779,622	317,675	02/20/04	07/03/03	300
Thornton	CO	693,323	1,896,616	None	None	693,323	1,896,616	2,589,939	228,781	10/05/04	10/15/03	300
Cumming	GA	661,624	1,822,363	None	None	661,624	1,822,363	2,483,987	308,095	09/18/03	12/31/02	300
Douglasville	GA	679,868	1,935,515	None	None	679,868	1,935,515	2,615,383	332,969	08/11/03	12/30/02	300
Morrow	GA	725,948	1,846,315	None	None	725,948	1,846,315	2,572,263	323,040	07/07/03	08/30/02	300
Peachtree City	GA	1,190,380	689,284	None	None	1,190,380	689,284	1,879,664	137,551	12/16/02	09/19/02	300
Ham Lake	MN	192,610	1,930,958	None	None	192,610	1,930,958	2,123,568	235,146	07/01/04	10/31/03	300
Cary	NC	610,389	1,492,235	None	None	610,389	1,492,235	2,102,624	96,995		05/25/06	300
Durham	NC	680,969	1,323,140	None	None	680,969	1,323,140	2,004,109	86,004		05/25/06	300
Wilmington	NC	378,813	1,150,679	None	None	378,813	1,150,679	1,529,492	112,198	07/15/05	12/21/04	300
Bartlett	TN	648,526	1,960,733	None	None	648,526	1,960,733	2,609,259	238,778	08/03/04	10/27/03	300
Automotive Parts
Millbrook	AL	108,000	518,741	None	276	108,000	519,017	627,017	185,825	12/10/98	01/21/99	300
Montgomery	AL	254,465	502,350	None	211	254,465	502,561	757,026	191,762		06/30/98	300
Blytheville	AR	137,913	509,447	6,000	None	137,913	515,447	653,360	200,437		06/30/98	300
Osceola	AR	88,759	520,047	None	None	88,759	520,047	608,806	198,483		06/30/98	300
Wynne	AR	70,000	547,576	26,595	None	70,000	574,171	644,171	220,205	11/10/98	02/24/99	300
Phoenix	AZ	231,000	513,057	None	88	231,000	513,145	744,145	405,513		11/09/87	300
Phoenix	AZ	71,750	159,359	None	88	71,750	159,447	231,197	125,993		11/19/87	300
Phoenix	AZ	222,950	495,178	None	88	222,950	495,266	718,216	354,709		11/02/89	300
Tucson	AZ	194,250	431,434	None	176	194,250	431,610	625,860	342,531		10/30/87	300
Grass Valley	CA	325,000	384,955	None	None	325,000	384,955	709,955	295,837		05/20/88	300
Jackson	CA	300,000	390,849	None	None	300,000	390,849	690,849	298,942		05/17/88	300
Sacramento	CA	210,000	466,419	None	127	210,000	466,546	676,546	368,623		11/25/87	300
Turlock	CA	222,250	493,627	None	None	222,250	493,627	715,877	388,448		12/30/87	300
Aurora	CO	231,314	430,495	None	None	231,314	430,495	661,809	5,022		09/04/07	300
Denver	CO	239,024	444,785	None	None	239,024	444,785	683,809	5,189		09/04/07	300
Denver	CO	315,000	699,623	None	None	315,000	699,623	1,014,623	538,902		05/16/88	300
Denver	CO	283,500	629,666	None	None	283,500	629,666	913,166	485,015		05/27/88	300
Denver	CO	141,400	314,056	None	146	141,400	314,202	455,602	248,244		11/18/87	300
Lakewood	CO	70,422	132,296	None	None	70,422	132,296	202,718	1,543		09/04/07	300
Littleton	CO	252,925	561,758	None	146	252,925	561,904	814,829	438,364		02/12/88	300
Longmont	CO	87,385	163,169	None	None	87,385	163,169	250,554	1,903		09/04/07	300
Smyrna	DE	232,273	472,855	None	None	232,273	472,855	705,128	177,321		08/07/98	300
Council Bluffs	IA	194,355	431,668	None	6	194,355	431,674	626,029	332,509		05/19/88	300
Boise	ID	158,400	351,812	None	259	158,400	352,071	510,471	271,108		05/06/88	300
Boise	ID	190,080	422,172	None	259	190,080	422,431	612,511	325,304		05/06/88	300

F-1

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Lewiston	ID	138,950	308,612	None	None	138,950	308,612	447,562	245,962		09/16/87	300
Moscow	ID	117,250	260,417	None	None	117,250	260,417	377,667	207,551		09/14/87	300
Nampa	ID	183,743	408,101	None	378	183,743	408,479	592,222	314,585		05/06/88	300
Twin Falls	ID	190,080	422,172	None	131	190,080	422,303	612,383	325,281		05/06/88	300
Peoria	IL	193,868	387,737	19,808	230	193,868	407,775	601,643	172,938		11/26/96	300
Brazil	IN	183,952	453,831	None	173	183,952	454,004	637,956	159,596		03/31/99	300
Muncie	IN	148,901	645,660	45,635	28,972	148,901	720,267	869,168	291,858		11/26/96	300
Princeton	IN	134,209	560,113	None	None	134,209	560,113	694,322	196,967		03/31/99	300
Vincennes	IN	185,312	489,779	None	173	185,312	489,952	675,264	172,237		03/31/99	300
Kansas City	KS	185,955	413,014	None	146	185,955	413,160	599,115	318,142		05/13/88	300
Kansas City	KS	222,000	455,881	None	146	222,000	456,027	678,027	351,128		05/16/88	300
Topeka	KS	32,022	60,368	None	None	32,022	60,368	92,390	704		09/04/07	300
Bethesda	MD	282,717	525,928	None	None	282,717	525,928	808,645	6,136		09/04/07	300
Alma	MI	155,000	600,282	None	None	155,000	600,282	755,282	207,036	04/29/99	02/10/99	300
Lansing	MI	265,000	574,931	33,210	None	265,000	608,141	873,141	210,705	04/30/99	12/03/98	300
Sturgis	MI	109,558	550,274	None	None	109,558	550,274	659,832	198,993		12/30/98	300
Independence	MO	210,643	467,844	None	239	210,643	468,083	678,726	338,992		07/31/89	300
Kansas City	MO	210,070	466,571	None	239	210,070	466,810	676,880	359,461		05/13/88	300
Kansas City	MO	168,350	373,910	None	239	168,350	374,149	542,499	288,086		05/26/88	300
Batesville	MS	190,124	485,670	None	211	190,124	485,881	676,005	183,779		07/27/98	300
Horn Lake	MS	142,702	514,779	None	211	142,702	514,990	657,692	196,506		06/30/98	300
Jackson	MS	248,483	572,522	None	211	248,483	572,733	821,216	186,115		11/16/99	300
Richland	MS	243,565	558,645	None	211	243,565	558,856	802,421	179,746		12/21/99	300
Missoula	MT	163,100	362,249	None	None	163,100	362,249	525,349	287,493		10/30/87	300
Fargo	ND	53,973	100,262	None	None	53,973	100,262	154,235	1,170		09/04/07	300
Kearney	NE	173,950	344,393	None	None	173,950	344,393	518,343	238,422		05/01/90	300
Omaha	NE	196,000	435,321	None	None	196,000	435,321	631,321	335,317		05/26/88	300
Omaha	NE	199,100	412,042	None	6	199,100	412,048	611,148	316,725		05/27/88	300
Scottsbluff	NE	33,307	63,355	None	None	33,307	63,355	96,662	739		09/04/07	300
Cherry Hill	NJ	463,808	862,240	None	None	463,808	862,240	1,326,048	10,059		09/04/07	300
Pleasantville	NJ	77,105	144,693	None	None	77,105	144,693	221,798	1,688		09/04/07	300
Rio Rancho	NM	211,577	469,923	None	None	211,577	469,923	681,500	366,655		02/26/88	300
Las Vegas	NV	161,000	357,585	260,000	None	161,000	617,585	778,585	344,458		10/29/87	300
Reno	NV	456,000	562,344	None	None	456,000	562,344	1,018,344	433,115		05/26/88	300
Bethpage	NY	334,120	621,391	None	None	334,120	621,391	955,511	7,249		09/04/07	300
Commack	NY	400,427	744,533	None	None	400,427	744,533	1,144,960	8,686		09/04/07	300
Freeport	NY	134,828	251,894	None	None	134,828	251,894	386,722	2,939		09/04/07	300
Queens Village	NY	242,775	451,749	None	None	242,775	451,749	694,524	5,270		09/04/07	300
Riverhead	NY	143,929	268,795	None	None	143,929	268,795	412,724	3,136		09/04/07	300
Canton	OH	396,560	597,553	None	None	396,560	597,553	994,113	224,083		08/14/98	300
Hamilton	OH	183,000	515,727	2,941	None	183,000	518,668	701,668	179,997	04/07/99	12/03/98	300
Hubbard	OH	147,043	481,217	None	None	147,043	481,217	628,260	183,663		06/30/98	300
Tulsa	OK	133,648	249,702	None	None	133,648	249,702	383,350	2,913		09/04/07	300
Albany	OR	152,250	338,153	None	218	152,250	338,371	490,621	270,706		08/24/87	300
Beaverton	OR	210,000	466,419	None	218	210,000	466,637	676,637	373,365		08/26/87	300
Milwaukie	OR	180,250	400,336	None	218	180,250	400,554	580,804	320,475		08/06/87	300
Portland	OR	190,750	423,664	None	218	190,750	423,882	614,632	339,146		08/12/87	300
Portland	OR	147,000	326,493	None	218	147,000	326,711	473,711	261,374		08/26/87	300
Salem	OR	136,500	303,170	None	218	136,500	303,388	439,888	242,706		08/20/87	300
Butler	PA	339,929	633,078	5,684	None	339,929	638,762	978,691	243,089		08/07/98	300
Dover	PA	265,112	593,341	None	None	265,112	593,341	858,453	226,458		06/30/98	300

F-2

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Enola	PA	220,228	546,026	None	None	220,228	546,026	766,254	199,306		11/10/98	300
Hanover	PA	132,500	719,511	None	None	132,500	719,511	852,011	241,196	07/26/99	05/13/99	300
Harrisburg	PA	327,781	608,291	None	None	327,781	608,291	936,072	232,163		06/30/98	300
Harrisburg	PA	283,417	352,473	None	None	283,417	352,473	635,890	131,007		09/30/98	300
Lancaster	PA	199,899	774,838	10,913	None	199,899	785,751	985,650	294,991		08/14/98	300
New Castle	PA	180,009	525,774	3,860	None	180,009	529,634	709,643	204,529		06/30/98	300
Reading	PA	379,000	658,722	10,100	None	379,000	668,822	1,047,822	228,576	06/09/99	12/04/98	300
Sioux Falls	SD	48,833	91,572	None	None	48,833	91,572	140,405	1,068		09/04/07	300
Columbia	TN	273,120	431,716	None	None	273,120	431,716	704,836	147,502		06/30/99	300
Memphis	TN	197,708	507,647	None	248	197,708	507,895	705,603	188,751		09/30/98	300
Amarillo	TX	140,000	419,734	None	None	140,000	419,734	559,734	317,651		09/12/88	300
El Paso	TX	66,150	146,922	None	295	66,150	147,217	213,367	116,636		10/27/87	300
Lubbock	TX	49,000	108,831	None	None	49,000	108,831	157,831	86,372		10/29/87	300
Bellevue	WA	185,500	411,997	None	225	185,500	412,222	597,722	329,885		08/06/87	300
Bellingham	WA	168,000	373,133	None	117	168,000	373,250	541,250	298,671		08/20/87	300
Hazel Dell	WA	168,000	373,135	None	None	168,000	373,135	541,135	285,921		05/23/88	300
Kenmore	WA	199,500	443,098	None	225	199,500	443,323	642,823	354,777		08/20/87	300
Kennewick	WA	161,350	358,365	None	364	161,350	358,729	520,079	286,939		08/26/87	300
Kent	WA	199,500	443,091	None	117	199,500	443,208	642,708	354,663		08/06/87	300
Lakewood	WA	191,800	425,996	None	225	191,800	426,221	618,021	341,089		08/18/87	300
Marysville	WA	168,000	373,135	None	122	168,000	373,257	541,257	298,674		08/20/87	300
Moses Lake	WA	138,600	307,831	None	None	138,600	307,831	446,431	246,377		08/12/87	300
Pasco	WA	161,700	359,142	None	364	161,700	359,506	521,206	287,561		08/18/87	300
Renton	WA	185,500	412,003	None	225	185,500	412,228	597,728	328,501		09/15/87	300
Seattle	WA	162,400	360,697	None	225	162,400	360,922	523,322	288,827		08/20/87	300
Silverdale	WA	183,808	419,777	None	117	183,808	419,894	603,702	334,589		09/16/87	300
Tacoma	WA	109,127	202,691	None	None	109,127	202,691	311,818	2,365		09/04/07	300
Tacoma	WA	196,000	435,324	None	117	196,000	435,441	631,441	345,517		10/15/87	300
Vancouver	WA	180,250	400,343	None	215	180,250	400,558	580,808	320,477		08/20/87	300
Walla Walla	WA	170,100	377,793	None	1,804	170,100	379,597	549,697	302,422		08/06/87	300
Wenatchee	WA	148,400	329,602	None	None	148,400	329,602	478,002	263,803		08/25/87	300
Automotive Service
Flagstaff	AZ	144,821	417,485	None	None	144,821	417,485	562,306	156,142	04/11/02	08/29/97	300
Mesa	AZ	210,620	475,072	None	None	210,620	475,072	685,692	106,887		05/14/02	300
Phoenix	AZ	189,341	546,984	None	None	189,341	546,984	736,325	123,071		05/14/02	300
Phoenix	AZ	384,608	279,824	None	None	384,608	279,824	664,432	62,958		05/14/02	300
Sierra Vista	AZ	175,114	345,508	None	None	175,114	345,508	520,622	77,737		05/14/02	300
Tucson	AZ	226,596	437,972	None	None	226,596	437,972	664,568	98,542		05/14/02	300
Bakersfield	CA	65,165	206,927	None	None	65,165	206,927	272,092	46,557		05/14/02	300
Chula Vista	CA	313,293	409,654	None	16	313,293	409,670	722,963	190,505	05/01/96	01/19/96	300
Dublin	CA	415,620	1,153,928	None	None	415,620	1,153,928	1,569,548	259,632		05/14/02	300
Folsom	CA	471,813	325,610	None	None	471,813	325,610	797,423	73,260		05/14/02	300
Indio	CA	264,956	265,509	None	None	264,956	265,509	530,465	59,738		05/14/02	300
Los Angeles	CA	580,446	158,876	None	None	580,446	158,876	739,322	35,745		05/14/02	300
Oxnard	CA	186,980	198,236	None	None	186,980	198,236	385,216	44,601		05/14/02	300
Simi Valley	CA	213,920	161,012	None	None	213,920	161,012	374,932	36,226		05/14/02	300
Vacaville	CA	358,067	284,931	None	None	358,067	284,931	642,998	64,107		05/14/02	300
Broomfield	CO	154,930	503,626	None	450	154,930	504,076	659,006	229,600	08/22/96	03/15/96	300
Denver	CO	79,717	369,587	None	41	79,717	369,628	449,345	336,496		10/08/85	300

F-3

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Thornton	CO	276,084	415,464	None	205	276,084	415,669	691,753	182,160	12/31/96	10/31/96	300
Hartford	CT	248,540	482,460	None	None	248,540	482,460	731,000	217,911		09/30/96	300
Southington	CT	225,882	672,910	None	None	225,882	672,910	898,792	283,633		06/06/97	300
Vernon	CT	81,529	300,518	None	None	81,529	300,518	382,047	66,615		06/27/02	300
Carol City	FL	163,239	262,726	None	None	163,239	262,726	425,965	58,238		06/27/02	300
Jacksonville	FL	76,585	355,066	6,980	124	76,585	362,170	438,755	321,705		12/23/85	300
Lauderdale Lakes	FL	65,987	305,931	None	None	65,987	305,931	371,918	274,549		02/19/86	300
Orange City	FL	99,613	139,008	None	None	99,613	139,008	238,621	31,275		05/14/02	300
Seminole	FL	68,000	315,266	None	124	68,000	315,390	383,390	284,943		12/23/85	300
Sunrise	FL	80,253	372,070	None	None	80,253	372,070	452,323	334,215		02/14/86	300
Tampa	FL	67,000	310,629	None	124	67,000	310,753	377,753	280,754		12/27/85	300
Tampa	FL	86,502	401,041	None	141	86,502	401,182	487,684	353,745		07/23/86	300
Tampa	FL	70,000	324,538	None	162	70,000	324,700	394,700	293,336		12/27/85	300
Atlanta	GA	55,840	258,889	None	130	55,840	259,019	314,859	234,802		11/27/85	300
Bogart	GA	66,807	309,733	None	None	66,807	309,733	376,540	279,861		12/20/85	300
Douglasville	GA	214,771	129,519	None	None	214,771	129,519	344,290	29,140		05/14/02	300
Duluth	GA	290,842	110,056	None	None	290,842	110,056	400,898	24,760		05/14/02	300
Duluth	GA	222,275	316,925	None	151	222,275	317,076	539,351	126,829	10/24/97	06/20/97	300
Gainesville	GA	53,589	248,452	None	None	53,589	248,452	302,041	224,490		12/19/85	300
Kennesaw	GA	266,865	139,425	None	None	266,865	139,425	406,290	31,369		05/14/02	300
Marietta	GA	60,900	293,461	None	124	60,900	293,585	354,485	265,250		12/26/85	300
Marietta	GA	69,561	346,024	None	356	69,561	346,380	415,941	306,733		06/03/86	300
Norcross	GA	244,124	151,831	None	None	244,124	151,831	395,955	34,160		05/14/02	300
Riverdale	GA	58,444	270,961	None	None	58,444	270,961	329,405	243,999		01/15/86	300
Rome	GA	56,454	261,733	None	None	56,454	261,733	318,187	236,490		12/19/85	300
Snellville	GA	253,316	132,124	None	None	253,316	132,124	385,440	29,726		05/14/02	300
Tucker	GA	78,646	364,625	None	5,237	78,646	369,862	448,508	332,066		12/18/85	300
Arlington Hts	IL	441,437	215,983	None	None	441,437	215,983	657,420	48,594		05/14/02	300
Chicago	IL	329,076	255,294	None	None	329,076	255,294	584,370	57,439		05/14/02	300
Round Lake Beach	IL	472,132	236,585	None	None	472,132	236,585	708,717	53,230		05/14/02	300
Westchester	IL	421,239	184,812	None	None	421,239	184,812	606,051	41,581		05/14/02	300
Anderson	IN	232,170	385,661	None	163	232,170	385,824	617,994	154,946		12/19/97	300
Indianapolis	IN	231,384	428,307	None	None	231,384	428,307	659,691	193,452		09/27/96	300
Michigan City	IN	392,638	297,650	-3,065	None	392,638	294,585	687,223	66,970		05/14/02	300
Warsaw	IN	140,893	228,116	None	None	140,893	228,116	369,009	51,324		05/14/02	300
Olathe	KS	217,995	367,055	None	None	217,995	367,055	585,050	155,995	04/22/97	11/11/96	300
Louisville	KY	56,054	259,881	None	64	56,054	259,945	315,999	234,846		12/17/85	300
Newport	KY	323,511	289,017	None	None	323,511	289,017	612,528	118,923		09/17/97	300
Billerica	MA	399,043	462,240	None	None	399,043	462,240	861,283	197,895		04/02/97	300
East Falmouth	MA	191,302	340,539	None	None	191,302	340,539	531,841	76,620		05/14/02	300
East Wareham	MA	149,680	278,669	None	None	149,680	278,669	428,349	62,698		05/14/02	300
Fairhaven	MA	138,957	289,294	None	None	138,957	289,294	428,251	65,089		05/14/02	300
Gardner	MA	138,990	289,361	None	None	138,990	289,361	428,351	65,104		05/14/02	300
Hyannis	MA	180,653	458,522	None	None	180,653	458,522	639,175	101,639		06/27/02	300
Lenox	MA	287,769	535,273	None	None	287,769	535,273	823,042	188,226		03/31/99	300
Newburyport	MA	274,698	466,449	None	None	274,698	466,449	741,147	103,396		06/27/02	300
North Reading	MA	180,546	351,161	None	None	180,546	351,161	531,707	79,009		05/14/02	300
Orleans	MA	138,212	394,065	None	None	138,212	394,065	532,277	88,662		05/14/02	300
Aberdeen	MD	223,617	225,605	None	None	223,617	225,605	449,222	50,009		06/27/02	300
Capital Heights	MD	547,173	219,979	-12,319	None	547,173	207,660	754,833	49,492		05/14/02	300
Clinton	MD	70,880	328,620	11,440	459	70,880	340,519	411,399	298,739		11/15/85	300

F-4

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Lexington Park	MD	111,396	335,288	-7,600	None	111,396	327,688	439,084	75,436		05/14/02	300
Kalamazoo	MI	391,745	296,975	-2,196	None	391,745	294,779	686,524	66,818		05/14/02	300
Portage	MI	402,409	286,441	-2,112	None	402,409	284,329	686,738	64,447		05/14/02	300
Southfield	MI	275,952	350,765	None	None	275,952	350,765	626,717	78,920		05/14/02	300
Troy	MI	214,893	199,299	None	None	214,893	199,299	414,192	44,841		05/14/02	300
Minneapolis	MN	58,000	268,903	None	479	58,000	269,382	327,382	243,211		12/18/85	300
St. Cloud	MN	203,338	258,626	None	None	203,338	258,626	461,964	57,329		06/27/02	300
Independence	MO	297,641	233,152	None	None	297,641	233,152	530,793	102,976		12/20/96	300
Asheville	NC	441,746	242,565	None	None	441,746	242,565	684,311	54,575		05/14/02	300
Charlotte	NC	508,100	457,295	None	None	508,100	457,295	965,395	84,600		05/27/03	300
Concord	NC	237,688	357,976	None	5,668	237,688	363,644	601,332	138,435		11/05/97	300
Durham	NC	55,074	255,336	None	121	55,074	255,457	310,531	231,768		11/13/85	300
Durham	NC	354,676	361,203	3,400	351	354,676	364,954	719,630	150,780	08/29/97	03/31/97	300
Fayetteville	NC	224,326	257,733	None	205	224,326	257,938	482,264	103,526		12/03/97	300
Greensboro	NC	286,068	244,606	None	None	286,068	244,606	530,674	55,028		05/14/02	300
Matthews	NC	295,580	338,472	10,000	16,390	295,580	364,862	660,442	143,151	08/28/98	02/27/98	300
Pineville	NC	254,460	355,630	None	356	254,460	355,986	610,446	146,531	08/28/97	04/16/97	300
Raleigh	NC	398,694	263,621	None	None	398,694	263,621	662,315	107,610		10/01/97	300
Raleigh	NC	89,145	413,301	None	94	89,145	413,395	502,540	376,018		10/28/85	300
Raleigh	NC	218,294	319,334	3,905	1,295	218,294	324,534	542,828	130,804	08/01/02	06/20/97	300
Salisbury	NC	235,614	150,592	None	None	235,614	150,592	386,206	33,881		05/14/02	300
Lincoln	NE	337,138	316,958	None	None	337,138	316,958	654,096	71,313		05/14/02	300
Edison	NJ	448,936	238,773	None	None	448,936	238,773	687,709	53,720		05/14/02	300
Glassboro	NJ	182,013	312,480	None	None	182,013	312,480	494,493	69,266		06/27/02	300
Hamilton Square	NJ	422,477	291,555	None	None	422,477	291,555	714,032	65,596		05/14/02	300
Hamilton Township	NJ	265,238	298,167	None	None	265,238	298,167	563,405	67,084		05/14/02	300
Randolph	NJ	452,629	390,163	None	None	452,629	390,163	842,792	87,784		05/14/02	300
Westfield	NJ	705,337	288,720	None	None	705,337	288,720	994,057	64,957		05/14/02	300
Woodbury	NJ	212,788	320,283	None	None	212,788	320,283	533,071	72,060		05/14/02	300
Las Vegas	NV	326,879	359,101	None	None	326,879	359,101	685,980	80,796		05/14/02	300
Las Vegas	NV	316,441	369,768	None	None	316,441	369,768	686,209	83,196		05/14/02	300
Las Vegas	NV	252,169	562,715	None	None	252,169	562,715	814,884	126,609		05/14/02	300
Sparks	NV	326,813	306,311	None	None	326,813	306,311	633,124	68,918		05/14/02	300
Albion	NY	170,589	317,424	None	None	170,589	317,424	488,013	111,619		03/31/99	300
Dansville	NY	181,664	337,991	None	None	181,664	337,991	519,655	118,852		03/31/99	300
East Amherst	NY	260,708	484,788	None	None	260,708	484,788	745,496	170,476		03/31/99	300
East Syracuse	NY	250,609	466,264	None	None	250,609	466,264	716,873	163,958		03/31/99	300
Johnson City	NY	242,863	451,877	None	None	242,863	451,877	694,740	158,899		03/31/99	300
Wellsville	NY	161,331	300,231	None	None	161,331	300,231	461,562	105,573		03/31/99	300
West Amherst	NY	268,692	499,619	None	None	268,692	499,619	768,311	175,691		03/31/99	300
Akron	OH	139,126	460,334	None	None	139,126	460,334	599,460	189,466		09/18/97	300
Beaver Creek	OH	349,091	251,127	None	None	349,091	251,127	600,218	33,065		09/17/04	300
Beavercreek	OH	205,000	492,538	None	None	205,000	492,538	697,538	212,611	02/13/97	09/09/96	300
Canal Winchester	OH	443,751	825,491	None	None	443,751	825,491	1,269,242	164,768	12/19/02	08/21/02	300
Centerville	OH	305,000	420,448	None	None	305,000	420,448	725,448	192,706	07/24/96	06/28/96	300
Cincinnati	OH	293,005	201,340	None	None	293,005	201,340	494,345	82,815		09/17/97	300
Cincinnati	OH	211,185	392,210	None	None	211,185	392,210	603,395	64,715		11/03/03	300
Cincinnati	OH	305,556	244,662	None	None	305,556	244,662	550,218	32,213		09/17/04	300
Cincinnati	OH	589,286	160,932	None	None	589,286	160,932	750,218	21,189		09/17/04	300
Cincinnati	OH	159,375	265,842	None	None	159,375	265,842	425,217	35,002		09/17/04	300
Cincinnati	OH	350,000	300,217	None	None	350,000	300,217	650,217	36,526		12/20/04	300

F-5

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Cleveland	OH	215,111	216,517	None	None	215,111	216,517	431,628	47,995		06/27/02	300
Columbus	OH	245,036	470,468	None	None	245,036	470,468	715,504	226,609		12/22/95	300
Columbus	OH	432,110	386,553	None	None	432,110	386,553	818,663	71,511		05/27/03	300
Columbus	OH	466,696	548,133	None	None	466,696	548,133	1,014,829	101,404		05/27/03	300
Columbus	OH	337,679	272,484	None	None	337,679	272,484	610,163	35,877		09/17/04	300
Columbus	OH	190,000	260,162	None	None	190,000	260,162	450,162	34,254		09/17/04	300
Columbus	OH	371,429	278,734	None	None	371,429	278,734	650,163	36,700		09/17/04	300
Columbus	OH	214,737	85,425	None	None	214,737	85,425	300,162	11,247		09/17/04	300
Columbus	OH	75,761	351,247	None	168	75,761	351,415	427,176	319,650		10/24/85	300
Columbus	OH	71,098	329,627	None	195	71,098	329,822	400,920	300,249		10/02/85	300
Cuyahoga Falls	OH	253,750	271,400	None	None	253,750	271,400	525,150	35,734		09/17/04	300
Dayton	OH	63,996	296,701	5,985	190	63,996	302,876	366,872	270,146		10/08/85	300
Dayton	OH	70,000	324,538	None	271	70,000	324,809	394,809	295,387		10/31/85	300
Dublin	OH	437,887	428,046	None	None	437,887	428,046	865,933	79,187		05/27/03	300
Eastlake	OH	321,347	459,774	None	None	321,347	459,774	781,121	221,458		12/22/95	300
Fairfield	OH	323,408	235,024	None	None	323,408	235,024	558,432	96,693		09/17/97	300
Fairlawn	OH	280,000	270,150	None	None	280,000	270,150	550,150	35,569		09/17/04	300
Findlay	OH	283,515	397,004	None	None	283,515	397,004	680,519	159,467		12/24/97	300
Hamilton	OH	252,608	413,279	None	None	252,608	413,279	665,887	174,263	03/31/97	10/04/96	300
Huber Heights	OH	282,000	449,381	None	None	282,000	449,381	731,381	196,978	12/03/96	07/18/96	300
Lima	OH	241,132	114,085	None	None	241,132	114,085	355,217	15,021		09/17/04	300
Marion	OH	100,000	275,162	None	None	100,000	275,162	375,162	33,478		12/20/04	300
Mason	OH	310,990	405,373	None	None	310,990	405,373	716,363	74,993		05/27/03	300
Middleburg Hghts	OH	317,308	307,842	None	None	317,308	307,842	625,150	40,532		09/17/04	300
Milford	OH	353,324	269,997	None	None	353,324	269,997	623,321	111,108		09/18/97	300
Mt. Vernon	OH	216,115	375,357	None	None	216,115	375,357	591,472	150,769		12/30/97	300
Northwood	OH	65,978	263,912	None	1,179	65,978	265,091	331,069	264,490		09/12/86	180
Norwalk	OH	200,205	366,000	None	None	200,205	366,000	566,205	147,009		12/19/97	300
Parma	OH	268,966	381,184	None	None	268,966	381,184	650,150	50,189		09/17/04	300
Reynoldsburg	OH	267,750	497,371	None	None	267,750	497,371	765,121	65,487		09/15/04	300
Reynoldsburg	OH	374,000	176,162	None	None	374,000	176,162	550,162	23,194		09/17/04	300
S. Euclid	OH	337,593	451,944	None	None	337,593	451,944	789,537	83,610		05/27/03	300
Sandusky	OH	264,708	404,011	None	None	264,708	404,011	668,719	162,282		12/19/97	300
Solon	OH	794,305	222,797	None	None	794,305	222,797	1,017,102	41,218		05/27/03	300
Springboro	OH	191,911	522,902	None	None	191,911	522,902	714,813	225,560		03/07/97	300
Springfield	OH	320,000	280,217	None	None	320,000	280,217	600,217	36,895		09/17/04	300
Springfield	OH	189,091	136,127	None	None	189,091	136,127	325,218	17,923		09/17/04	300
Stow	OH	310,000	415,150	None	None	310,000	415,150	725,150	54,661		09/17/04	300
Toledo	OH	120,000	230,217	None	None	120,000	230,217	350,217	30,312		09/17/04	300
Toledo	OH	250,000	175,217	None	None	250,000	175,217	425,217	23,070		09/17/04	300
Toledo	OH	320,000	280,217	None	None	320,000	280,217	600,217	36,895		09/17/04	300
Toledo	OH	250,000	530,217	None	None	250,000	530,217	780,217	69,812		09/17/04	300
Toledo	OH	91,655	366,621	None	1,179	91,655	367,800	459,455	367,199		09/12/86	180
Toledo	OH	73,408	293,632	None	1,179	73,408	294,811	368,219	294,209		09/12/86	180
West Chester	OH	446,449	768,644	None	None	446,449	768,644	1,215,093	136,179	06/27/03	03/11/03	300
Zanesville	OH	125,000	300,162	None	None	125,000	300,162	425,162	39,521		09/17/04	300
Midwest City	OK	106,312	333,551	None	None	106,312	333,551	439,863	125,163	08/06/98	08/08/97	300
The Village	OK	143,655	295,422	None	None	143,655	295,422	439,077	114,737	03/06/98	07/29/97	300
Portland	OR	251,499	345,952	None	None	251,499	345,952	597,451	72,649		09/26/02	300
Salem	OR	337,711	253,855	None	None	337,711	253,855	591,566	57,116		05/14/02	300
Bethel Park	PA	299,595	331,264	None	None	299,595	331,264	630,859	133,065		12/19/97	300

F-6

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Bethlehem	PA	229,162	310,526	None	None	229,162	310,526	539,688	124,724		12/24/97	300
Bethlehem	PA	275,328	389,067	None	457	275,328	389,524	664,852	156,339		12/19/97	300
Bridgeville	PA	275,000	375,150	None	None	275,000	375,150	650,150	49,394		09/17/04	300
Coraopolis	PA	225,000	375,150	None	None	225,000	375,150	600,150	49,394		09/17/04	300
Harrisburg	PA	131,529	220,317	-2,515	None	131,529	217,802	349,331	49,568		05/14/02	300
Monroeville	PA	275,000	250,150	None	None	275,000	250,150	525,150	32,936		09/17/04	300
Philadelphia	PA	858,500	877,744	None	None	858,500	877,744	1,736,244	506,857	05/19/95	12/05/94	300
Pittsburgh	PA	378,715	685,374	None	None	378,715	685,374	1,064,089	141,998	08/22/02	01/17/02	300
Pittsburgh	PA	219,938	408,466	None	None	219,938	408,466	628,404	67,397		11/03/03	300
Pittsburgh	PA	175,000	300,150	None	None	175,000	300,150	475,150	39,519		09/17/04	300
Pittsburgh	PA	243,750	406,400	None	None	243,750	406,400	650,150	53,509		09/17/04	300
Pittsburgh	PA	208,333	416,817	None	None	208,333	416,817	625,150	54,880		09/17/04	300
Pittsburgh	PA	121,429	303,721	None	None	121,429	303,721	425,150	39,990		09/17/04	300
Warminster	PA	323,847	216,999	-3,929	None	323,847	213,070	536,917	48,821		05/14/02	300
Wexford	PA	284,375	240,775	None	None	284,375	240,775	525,150	31,702		09/17/04	300
York	PA	249,436	347,424	None	None	249,436	347,424	596,860	139,550		12/30/97	300
Charleston	SC	217,250	294,079	None	151	217,250	294,230	511,480	122,145	07/14/97	03/13/97	300
Columbia	SC	267,622	298,594	None	7,027	267,622	305,621	573,243	119,815	03/31/98	11/05/97	300
Greenville	SC	221,946	315,163	None	8,684	221,946	323,847	545,793	133,867	09/05/97	03/31/97	300
Lexington	SC	241,534	342,182	None	544	241,534	342,726	584,260	119,680		09/24/98	300
North Charleston	SC	174,980	341,466	None	15,458	174,980	356,924	531,904	141,898	08/06/98	03/12/98	300
Brentwood	TN	305,546	505,728	None	None	305,546	505,728	811,274	201,441	03/13/98	05/28/97	300
Hendersonville	TN	175,764	327,096	None	None	175,764	327,096	502,860	64,874		01/21/03	300
Hermitage	TN	560,443	1,011,799	None	None	560,443	1,011,799	1,572,242	219,019	10/15/01	05/09/01	300
Hermitage	TN	204,296	172,695	None	None	204,296	172,695	376,991	38,854		05/14/02	300
Madison	TN	175,769	327,068	None	None	175,769	327,068	502,837	64,868		01/21/03	300
Memphis	TN	108,094	217,079	None	None	108,094	217,079	325,173	48,840		05/14/02	300
Memphis	TN	214,110	193,591	None	None	214,110	193,591	407,701	43,555		05/14/02	300
Memphis	TN	215,017	216,794	None	None	215,017	216,794	431,811	48,056		06/27/02	300
Murfreesboro	TN	150,411	215,528	None	None	150,411	215,528	365,939	48,492		05/14/02	300
Nashville	TN	342,960	227,440	None	None	342,960	227,440	570,400	93,579		09/17/97	300
Carrollton	TX	174,284	98,623	None	None	174,284	98,623	272,907	22,188		05/14/02	300
Carrolton	TX	177,041	199,088	None	None	177,041	199,088	376,129	44,793		05/14/02	300
Dallas	TX	234,604	325,951	None	None	234,604	325,951	560,555	148,308	08/09/96	02/19/96	300
Fort Worth	TX	83,530	111,960	None	None	83,530	111,960	195,490	25,189		05/14/02	300
Houston	TX	285,000	369,697	None	None	285,000	369,697	654,697	150,920	08/08/97	08/08/97	300
Humble	TX	257,169	325,652	None	None	257,169	325,652	582,821	73,270		05/14/02	300
Lake Jackson	TX	197,170	256,376	None	None	197,170	256,376	453,546	57,683		05/14/02	300
Lewisville	TX	199,942	324,736	None	None	199,942	324,736	524,678	147,755	08/02/96	02/14/96	300
Lewisville	TX	130,238	207,683	None	None	130,238	207,683	337,921	46,037		06/27/02	300
San Antonio	TX	198,828	437,422	None	142	198,828	437,564	636,392	215,071		09/15/95	300
Richmond	VA	403,549	876,981	None	None	403,549	876,981	1,280,530	137,795	07/08/04	10/17/02	300
Roanoke	VA	349,628	322,545	None	203	349,628	322,748	672,376	129,633		12/19/97	300
Warrenton	VA	186,723	241,173	None	None	186,723	241,173	427,896	54,260		05/14/02	300
Bremerton	WA	261,172	373,080	None	None	261,172	373,080	634,252	165,628	03/19/97	07/24/96	300
Milwaukee	WI	173,005	499,244	None	None	173,005	499,244	672,249	240,469		12/22/95	300
Milwaukee	WI	152,509	475,480	None	None	152,509	475,480	627,989	214,758		09/27/96	300
New Berlin	WI	188,491	466,268	None	None	188,491	466,268	654,759	224,586		12/22/95	300
Racine	WI	184,002	114,167	None	None	184,002	114,167	298,169	25,686		05/14/02	300

F-7

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Automotive Tire Services
Athens	AL	760,031	1,413,494	None	None	760,031	1,413,494	2,173,525	63,603		11/22/06	300
Auburn	AL	660,210	1,228,112	None	None	660,210	1,228,112	1,888,322	55,261		11/22/06	300
Birmingham	AL	635,111	1,180,909	None	None	635,111	1,180,909	1,816,020	53,137		11/22/06	300
Daphne	AL	876,139	1,629,123	None	None	876,139	1,629,123	2,505,262	73,307		11/22/06	300
Decatur	AL	635,111	1,181,499	None	None	635,111	1,181,499	1,816,610	53,163		11/22/06	300
Foley	AL	870,031	1,617,357	None	None	870,031	1,617,357	2,487,388	72,777		11/22/06	300
Gardendale	AL	610,055	1,134,554	None	None	610,055	1,134,554	1,744,609	50,341		11/22/06	300
Hoover	AL	504,396	938,299	None	None	504,396	938,299	1,442,695	42,219		11/22/06	300
Hoover	AL	620,270	1,153,493	None	None	620,270	1,153,493	1,773,763	51,903		11/22/06	300
Huntsville	AL	499,843	929,863	None	None	499,843	929,863	1,429,706	41,840		11/22/06	300
Huntsville	AL	635,111	1,181,499	None	None	635,111	1,181,499	1,816,610	53,163		11/22/06	300
Madison	AL	635,111	1,181,532	None	None	635,111	1,181,532	1,816,643	53,164		11/22/06	300
Mobile	AL	635,111	1,181,499	None	None	635,111	1,181,499	1,816,610	53,163		11/22/06	300
Mobile	AL	525,750	977,810	None	None	525,750	977,810	1,503,560	43,997		11/22/06	300
Orange Beach	AL	630,244	1,172,036	None	None	630,244	1,172,036	1,802,280	52,738		11/22/06	300
Pelham	AL	635,111	1,180,909	None	None	635,111	1,180,909	1,816,020	53,137		11/22/06	300
Phenix City	AL	630,244	1,172,024	None	None	630,244	1,172,024	1,802,268	52,737		11/22/06	300
Tucson	AZ	178,297	396,004	None	338	178,297	396,342	574,639	279,509		01/19/90	300
Arvada	CO	301,489	931,092	None	None	301,489	931,092	1,232,581	265,399	09/22/00	11/18/99	300
Aurora	CO	221,691	492,382	None	None	221,691	492,382	714,073	347,175		01/29/90	300
Aurora	CO	353,283	1,135,051	None	None	353,283	1,135,051	1,488,334	308,392	01/03/01	03/10/00	300
Colorado Springs	CO	280,193	622,317	None	None	280,193	622,317	902,510	438,791		01/23/90	300
Colorado Springs	CO	192,988	433,542	None	None	192,988	433,542	626,530	260,368		05/20/93	300
Denver	CO	688,292	1,331,224	None	None	688,292	1,331,224	2,019,516	266,020	01/10/03	05/30/02	300
Westminster	CO	526,620	1,099,523	None	None	526,620	1,099,523	1,626,143	298,738	01/12/01	01/18/00	300
Destin	FL	1,034,411	1,922,591	None	None	1,034,411	1,922,591	2,957,002	86,513		11/22/06	300
Ft. Walton Bch	FL	635,111	1,181,032	None	None	635,111	1,181,032	1,816,143	53,142		11/22/06	300
Ft. Walton Bch	FL	635,111	1,181,032	None	None	635,111	1,181,032	1,816,143	53,142		11/22/06	300
Lakeland	FL	500,000	645,402	None	None	500,000	645,402	1,145,402	240,063	06/04/98	12/31/97	300
Milton	FL	635,111	1,181,145	None	None	635,111	1,181,145	1,816,256	53,148		11/22/06	300
Niceville	FL	920,803	1,711,621	None	None	920,803	1,711,621	2,632,424	77,019		11/22/06	300
Orlando	FL	635,111	1,181,076	None	None	635,111	1,181,076	1,816,187	53,144		11/22/06	300
Orlando	FL	630,244	1,172,023	None	None	630,244	1,172,023	1,802,267	52,737		11/22/06	300
Oviedo	FL	971,996	1,806,780	None	None	971,996	1,806,780	2,778,776	81,301		11/22/06	300
Pace	FL	630,244	1,171,993	None	None	630,244	1,171,993	1,802,237	52,736		11/22/06	300
Panama City Bch	FL	635,111	1,181,076	None	None	635,111	1,181,076	1,816,187	53,144		11/22/06	300
Pensacola	FL	308,067	573,708	None	None	308,067	573,708	881,775	25,813		11/22/06	300
Pensacola	FL	635,111	1,181,063	None	None	635,111	1,181,063	1,816,174	53,144		11/22/06	300
Pensacola	FL	588,305	1,094,130	None	None	588,305	1,094,130	1,682,435	49,232		11/22/06	300
Sanford	FL	630,244	1,172,023	None	None	630,244	1,172,023	1,802,267	52,737		11/22/06	300
St. Cloud	FL	525,207	976,968	None	None	525,207	976,968	1,502,175	43,960		11/22/06	300
Tallahassee	FL	419,902	781,405	None	None	419,902	781,405	1,201,307	35,159		11/22/06	300
Tallahassee	FL	611,916	1,137,986	None	None	611,916	1,137,986	1,749,902	51,205		11/22/06	300
Tampa	FL	427,395	472,030	None	None	427,395	472,030	899,425	175,598	06/10/98	12/05/97	300
Union Park	FL	1,004,103	1,866,287	None	None	1,004,103	1,866,287	2,870,390	83,979		11/22/06	300
Alpharetta	GA	630,244	1,171,870	None	None	630,244	1,171,870	1,802,114	52,730		11/22/06	300
Columbus	GA	630,244	1,171,988	None	None	630,244	1,171,988	1,802,232	52,735		11/22/06	300
Conyers	GA	531,935	1,180,296	None	None	531,935	1,180,296	1,712,231	269,186	03/28/02	11/13/01	300
Conyers	GA	635,111	1,181,027	None	None	635,111	1,181,027	1,816,138	53,142		11/22/06	300

F-8

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Duluth	GA	638,509	1,186,594	None	None	638,509	1,186,594	1,825,103	195,784		11/29/03	300
Hiram	GA	635,111	1,181,017	None	None	635,111	1,181,017	1,816,128	53,142		11/22/06	300
Kennesaw	GA	519,903	967,180	None	None	519,903	967,180	1,487,083	43,519		11/22/06	300
Lawrenceville	GA	635,111	1,181,137	None	None	635,111	1,181,137	1,816,248	53,147		11/22/06	300
Marietta	GA	500,293	930,657	None	None	500,293	930,657	1,430,950	41,876		11/22/06	300
Mcdonough	GA	635,111	1,181,032	None	None	635,111	1,181,032	1,816,143	53,142		11/22/06	300
Norcross	GA	503,773	937,121	None	None	503,773	937,121	1,440,894	42,166		11/22/06	300
Peachtree City	GA	625,316	1,162,827	None	None	625,316	1,162,827	1,788,143	52,323		11/22/06	300
Roswell	GA	515,617	959,138	None	None	515,617	959,138	1,474,755	43,157		11/22/06	300
Sandy Springs	GA	586,211	1,090,241	None	None	586,211	1,090,241	1,676,452	49,057		11/22/06	300
Stockbridge	GA	632,128	1,175,478	None	None	632,128	1,175,478	1,807,606	52,892		11/22/06	300
Aurora	IL	513,204	953,885	None	None	513,204	953,885	1,467,089	157,387		11/29/03	300
Joliet	IL	452,267	840,716	None	None	452,267	840,716	1,292,983	138,714		11/29/03	300
Niles	IL	366,969	682,306	None	None	366,969	682,306	1,049,275	112,576		11/29/03	300
Orland Park	IL	663,087	1,232,240	None	None	663,087	1,232,240	1,895,327	203,315		11/29/03	300
Vernon Hills	IL	524,948	975,668	None	None	524,948	975,668	1,500,616	160,981		11/29/03	300
Village of Lombar	IL	428,170	795,965	None	2,000	428,170	797,965	1,226,135	131,617		11/29/03	300
West Dundee	IL	530,835	986,628	None	None	530,835	986,628	1,517,463	162,789		11/29/03	300
Overland Park	KS	1,101,841	2,047,067	None	None	1,101,841	2,047,067	3,148,908	337,762		11/29/03	300
Allston	MA	576,505	1,071,520	None	None	576,505	1,071,520	1,648,025	176,795		11/29/03	300
Shrewsbury	MA	721,065	1,339,913	None	None	721,065	1,339,913	2,060,978	221,082		11/29/03	300
Waltham	MA	338,955	630,279	None	None	338,955	630,279	969,234	103,992		11/29/03	300
Weymouth	MA	752,234	1,397,799	None	None	752,234	1,397,799	2,150,033	230,633		11/29/03	300
Woburn	MA	676,968	1,258,018	None	None	676,968	1,258,018	1,934,986	207,569		11/29/03	300
Annapolis	MD	780,806	1,450,860	None	None	780,806	1,450,860	2,231,666	239,388		11/29/03	300
Bowie	MD	734,558	1,364,970	None	None	734,558	1,364,970	2,099,528	225,216		11/29/03	300
Capital Heights	MD	701,705	1,303,958	None	None	701,705	1,303,958	2,005,663	215,149		11/29/03	300
Germantown	MD	808,296	1,501,913	None	None	808,296	1,501,913	2,310,209	247,812		11/29/03	300
Waldorf	MD	427,033	793,854	None	None	427,033	793,854	1,220,887	130,982		11/29/03	300
Eagan	MN	902,443	845,536	None	300	902,443	845,836	1,748,279	317,382	08/01/98	02/20/98	300
Ferguson	MO	386,112	717,856	None	None	386,112	717,856	1,103,968	118,442		11/29/03	300
Grandview	MO	347,150	711,024	None	None	347,150	711,024	1,058,174	264,297	08/20/98	02/20/98	300
Independence	MO	721,020	1,339,829	None	None	721,020	1,339,829	2,060,849	221,068		11/29/03	300
Charlotte	NC	181,662	338,164	None	None	181,662	338,164	519,826	55,793		11/29/03	300
Clemmons	NC	630,000	1,100,160	None	None	630,000	1,100,160	1,730,160	5,501		11/09/07	300
Jamestown	NC	650,000	857,823	None	None	650,000	857,823	1,507,823	4,289		11/09/07	300
Matthews	NC	489,063	909,052	None	None	489,063	909,052	1,398,115	149,990		11/29/03	300
Omaha	NE	253,128	810,922	None	None	253,128	810,922	1,064,050	269,004	07/22/99	03/04/99	300
Manchester	NH	722,532	1,342,636	None	None	722,532	1,342,636	2,065,168	221,531		11/29/03	300
Newington	NH	690,753	1,283,624	None	None	690,753	1,283,624	1,974,377	211,794		11/29/03	300
Salem	NH	597,833	1,111,059	None	None	597,833	1,111,059	1,708,892	183,321		11/29/03	300
Deptford	NJ	619,376	1,151,062	None	None	619,376	1,151,062	1,770,438	189,921		11/29/03	300
Maple Shade	NJ	508,285	944,750	None	None	508,285	944,750	1,453,035	155,880		11/29/03	300
Akron	OH	242,133	450,467	None	None	242,133	450,467	692,600	74,323		11/29/03	300
Cambridge	OH	103,368	192,760	None	7	103,368	192,767	296,135	31,805		11/29/03	300
Canton	OH	337,161	626,948	None	None	337,161	626,948	964,109	103,442		11/29/03	300
Cleveland	OH	582,107	1,081,848	None	None	582,107	1,081,848	1,663,955	178,501		11/29/03	300
Columbus	OH	385,878	717,422	None	None	385,878	717,422	1,103,300	118,371		11/29/03	300
Oklahoma City	OK	509,370	752,691	None	None	509,370	752,691	1,262,061	257,340	04/14/99	09/24/98	300
Oklahoma City	OK	404,815	771,625	None	None	404,815	771,625	1,176,440	263,794	04/09/99	10/16/98	300
Greensburg	PA	594,891	1,105,589	None	None	594,891	1,105,589	1,700,480	182,418		11/29/03	300

F-9

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Lancaster	PA	431,050	801,313	None	None	431,050	801,313	1,232,363	132,212		11/29/03	300
Mechanicsburg	PA	455,854	847,377	None	None	455,854	847,377	1,303,231	139,813		11/29/03	300
Monroeville	PA	723,660	1,344,733	None	None	723,660	1,344,733	2,068,393	221,877		11/29/03	300
Philadelphia	PA	334,939	622,821	None	None	334,939	622,821	957,760	102,761		11/29/03	300
Pittsburgh	PA	384,756	715,339	None	None	384,756	715,339	1,100,095	118,027		11/29/03	300
York	PA	389,291	723,760	None	None	389,291	723,760	1,113,051	119,416		11/29/03	300
Columbia	SC	343,785	295,001	183,130	25,941	343,785	504,072	847,857	210,421	05/27/97	02/07/97	300
Sioux Falls	SD	332,979	498,108	None	None	332,979	498,108	831,087	186,805	06/01/99	02/27/98	300
Goodlettsville	TN	601,306	1,117,504	None	None	601,306	1,117,504	1,718,810	184,384		11/29/03	300
Arlington	TX	599,558	1,114,256	None	None	599,558	1,114,256	1,713,814	183,848		11/29/03	300
Austin	TX	185,454	411,899	None	None	185,454	411,899	597,353	289,107		02/06/90	300
Austin	TX	710,485	1,320,293	None	None	710,485	1,320,293	2,030,778	217,843		11/29/03	300
Austin	TX	590,828	1,098,073	None	None	590,828	1,098,073	1,688,901	181,177		11/29/03	300
Austin	TX	569,909	1,059,195	None	None	569,909	1,059,195	1,629,104	174,763		11/29/03	300
Austin	TX	532,497	989,715	None	None	532,497	989,715	1,522,212	163,299		11/29/03	300
Carrollton	TX	568,401	1,056,394	None	None	568,401	1,056,394	1,624,795	174,301		11/29/03	300
Conroe	TX	396,068	736,346	None	None	396,068	736,346	1,132,414	121,493		11/29/03	300
Dallas	TX	191,267	424,811	None	15,209	191,267	440,020	631,287	308,149		01/26/90	300
Fort Worth	TX	543,950	1,010,984	None	None	543,950	1,010,984	1,554,934	166,808		11/29/03	300
Garland	TX	242,887	539,461	None	None	242,887	539,461	782,348	380,370		01/19/90	300
Harlingen	TX	134,599	298,948	None	None	134,599	298,948	433,547	210,786		01/17/90	300
Houston	TX	392,113	729,002	None	None	392,113	729,002	1,121,115	120,281		11/29/03	300
Houston	TX	1,030,379	1,914,353	None	None	1,030,379	1,914,353	2,944,732	315,864		11/29/03	300
Houston	TX	619,101	1,150,551	None	None	619,101	1,150,551	1,769,652	189,837		11/29/03	300
Houston	TX	642,495	1,193,997	None	None	642,495	1,193,997	1,836,492	197,005		11/29/03	300
Houston	TX	872,866	1,621,829	None	None	872,866	1,621,829	2,494,695	267,598		11/29/03	300
Houston	TX	151,018	335,417	None	141	151,018	335,558	486,576	236,605		01/25/90	300
Humble	TX	612,414	1,138,132	None	None	612,414	1,138,132	1,750,546	187,788		11/29/03	300
Leon Valley	TX	178,221	395,834	None	None	178,221	395,834	574,055	279,100		01/17/90	300
Leon Valley	TX	529,967	985,046	None	None	529,967	985,046	1,515,013	162,528		11/29/03	300
Mesquite	TX	591,538	1,099,363	None	None	591,538	1,099,363	1,690,901	181,391		11/29/03	300
N. Richland Hills	TX	509,861	947,707	None	None	509,861	947,707	1,457,568	156,367		11/29/03	300
Pasadena	TX	107,391	238,519	None	141	107,391	238,660	346,051	168,284		01/24/90	300
Plano	TX	187,564	417,157	700	None	187,564	417,857	605,421	293,961		01/18/90	300
Plano	TX	494,407	918,976	None	None	494,407	918,976	1,413,383	151,627		11/29/03	300
Richardson	TX	555,188	1,031,855	None	None	555,188	1,031,855	1,587,043	170,252		11/29/03	300
San Antonio	TX	245,164	544,518	None	None	245,164	544,518	789,682	382,190		02/14/90	300
San Antonio	TX	688,249	1,278,967	None	None	688,249	1,278,967	1,967,216	211,026		11/29/03	300
Stafford	TX	706,786	1,313,395	None	None	706,786	1,313,395	2,020,181	216,706		11/29/03	300
Waco	TX	401,999	747,362	None	None	401,999	747,362	1,149,361	123,311		11/29/03	300
Webster	TX	600,261	1,115,563	None	None	600,261	1,115,563	1,715,824	184,064		11/29/03	300
Bountiful	UT	183,750	408,115	None	143	183,750	408,258	592,008	287,902		01/30/90	300
Alexandria	VA	542,791	1,008,832	None	None	542,791	1,008,832	1,551,623	166,453		11/29/03	300
Alexandria	VA	592,698	1,101,517	None	None	592,698	1,101,517	1,694,215	181,746		11/29/03	300
Chesapeake	VA	770,000	1,112,334	None	None	770,000	1,112,334	1,882,334	5,562		11/09/07	300
Lynchburg	VA	342,751	637,329	None	None	342,751	637,329	980,080	105,155		11/29/03	300
Virginia Beach	VA	780,000	1,026,384	None	None	780,000	1,026,384	1,806,384	5,132		11/09/07	300
Woodbridge	VA	774,854	1,439,806	None	None	774,854	1,439,806	2,214,660	237,564		11/29/03	300
Tacoma	WA	187,111	415,579	None	108	187,111	415,687	602,798	293,129		01/25/90	300
Brown Deer	WI	257,408	802,141	None	None	257,408	802,141	1,059,549	290,170	12/15/98	07/16/98	300
Delafield	WI	324,574	772,702	None	None	324,574	772,702	1,097,276	255,625	07/29/99	02/26/99	300

F-10

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Madison	WI	452,630	811,977	None	None	452,630	811,977	1,264,607	299,134	10/20/98	04/07/98	300
Oak Creek	WI	420,465	852,408	None	None	420,465	852,408	1,272,873	314,030	08/07/98	03/20/98	300
Book Stores
Tampa	FL	998,250	3,696,707	None	None	998,250	3,696,707	4,694,957	1,595,678		03/11/97	300
Matthews	NC	768,222	843,401	21,654	501	768,222	865,556	1,633,778	310,606		12/31/98	300
Business Services
Jackson	MI	550,162	571,590	None	602	550,162	572,192	1,122,354	203,637	01/15/99	09/25/98	300
Midland	TX	45,500	101,058	None	299	45,500	101,357	146,857	80,240		10/27/87	300
Child Care
Birmingham	AL	63,800	295,791	None	96	63,800	295,887	359,687	280,608		10/31/84	300
Mobile	AL	78,400	237,671	25,000	411	78,400	263,082	341,482	242,819		10/15/82	180
Avondale	AZ	242,723	1,129,139	None	None	242,723	1,129,139	1,371,862	385,876	04/20/99	07/28/98	300
Chandler	AZ	291,720	647,923	None	102	291,720	648,025	939,745	509,953		12/11/87	300
Chandler	AZ	271,695	603,446	None	114	271,695	603,560	875,255	474,998		12/14/87	300
Mesa	AZ	308,951	1,025,612	None	None	308,951	1,025,612	1,334,563	340,199	07/26/99	01/13/99	300
Peoria	AZ	281,750	625,779	None	141	281,750	625,920	907,670	486,289		03/30/88	300
Phoenix	AZ	264,504	587,471	None	88	264,504	587,559	852,063	404,889		06/29/90	300
Phoenix	AZ	318,500	707,397	None	97	318,500	707,494	1,025,994	535,638		09/29/88	300
Phoenix	AZ	260,719	516,181	None	195	260,719	516,376	777,095	345,967		12/26/90	300
Phoeniz	AZ	115,000	285,172	7,119	11,462	115,000	303,753	418,753	285,961		02/08/84	180
Scottsdale	AZ	291,993	648,529	None	None	291,993	648,529	940,522	510,345		12/14/87	300
Tempe	AZ	292,200	648,989	None	None	292,200	648,989	941,189	504,210		03/10/88	300
Tucson	AZ	283,500	546,878	None	135	283,500	547,013	830,513	414,155		09/29/88	300
Tucson	AZ	304,500	676,303	None	242	304,500	676,545	981,045	512,169		09/28/88	300
Calabasas	CA	156,430	725,248	14,490	474	156,430	740,212	896,642	662,226		09/26/85	300
Carmichael	CA	131,035	607,507	None	127	131,035	607,634	738,669	533,835		08/22/86	300
Chino	CA	155,000	634,071	None	83	155,000	634,154	789,154	634,152		10/06/83	180
Chula Vista	CA	350,563	778,614	None	None	350,563	778,614	1,129,177	617,933		10/30/87	300
Corona	CA	144,856	671,584	None	91	144,856	671,675	816,531	633,251		12/19/84	300
El Cajon	CA	157,804	731,621	None	122	157,804	731,743	889,547	661,100		12/19/85	300
Encinitas	CA	320,000	710,729	None	None	320,000	710,729	1,030,729	559,291		12/29/87	300
Escondido	CA	276,286	613,638	None	14	276,286	613,652	889,938	482,888		12/31/87	300
Folsom	CA	281,563	625,363	None	199	281,563	625,562	907,125	496,946		10/23/87	300
Mission Viejo	CA	353,891	744,367	12,500	20,183	353,891	777,050	1,130,941	484,220		06/24/93	300
Moreno Valley	CA	304,489	676,214	None	78	304,489	676,292	980,781	555,001		02/11/87	300
Oceanside	CA	145,568	674,889	11,000	22,105	145,568	707,994	853,562	620,172		12/23/85	300
Palmdale	CA	249,490	554,125	9,864	None	249,490	563,989	813,479	423,787		09/14/88	300
Rancho Cordova	CA	276,328	613,733	24,967	None	276,328	638,700	915,028	459,676		03/22/89	300
Rancho Cucamonga	CA	471,733	1,047,739	None	None	471,733	1,047,739	1,519,472	824,494		12/30/87	300
Roseville	CA	297,343	660,411	27,496	199	297,343	688,106	985,449	532,789		10/21/87	300
Sacramento	CA	290,734	645,732	None	127	290,734	645,859	936,593	512,496		10/05/87	300
Santee	CA	248,418	551,748	None	15	248,418	551,763	800,181	443,473		07/23/87	300
Simi Valley	CA	208,585	967,055	22,800	75,675	208,585	1,065,530	1,274,115	893,029		12/20/85	300
Valencia	CA	301,295	669,185	25,000	None	301,295	694,185	995,480	519,412		06/23/88	300
Walnut	CA	217,365	1,007,753	1,200	51,312	217,365	1,060,265	1,277,630	886,515		08/22/86	300
Aurora	CO	141,811	657,497	None	146	141,811	657,643	799,454	588,072		03/25/86	300
Aurora	CO	287,000	637,440	None	155	287,000	637,595	924,595	501,770		12/31/87	300

F-11

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Broomfield	CO	155,306	344,941	25,000	80	155,306	370,021	525,327	275,391		03/15/88	300
Broomfield	CO	107,000	403,080	16,438	21,163	107,000	440,681	547,681	420,107		01/12/83	180
Colorado Springs	CO	115,542	535,700	None	146	115,542	535,846	651,388	464,491		12/04/86	300
Colorado Springs	CO	58,400	271,217	25,000	159	58,400	296,376	354,776	277,555		12/22/82	180
Englewood	CO	131,216	608,372	None	146	131,216	608,518	739,734	527,496		12/05/86	300
Fort Collins	CO	117,105	542,950	None	146	117,105	543,096	660,201	485,629		03/25/86	300
Fort Collins	CO	55,200	256,356	None	3,600	55,200	259,956	315,156	259,956		12/22/82	180
Fort Collins	CO	137,734	638,593	None	22,196	137,734	660,789	798,523	574,843		03/25/86	300
Greeley	CO	58,400	270,755	25,000	382	58,400	296,137	354,537	263,822		11/21/84	300
Littleton	CO	161,617	358,956	None	438	161,617	359,394	521,011	282,816		12/10/87	300
Longmont	CO	115,592	535,931	None	146	115,592	536,077	651,669	479,353		03/25/86	300
Louisville	CO	58,089	269,313	None	438	58,089	269,751	327,840	258,632		06/22/84	300
Parker	CO	153,551	341,042	None	438	153,551	341,480	495,031	271,244		10/19/87	300
Westminster	CO	306,387	695,737	None	155	306,387	695,892	1,002,279	517,452		09/27/89	300
Bradenton	FL	160,060	355,501	25,000	134	160,060	380,635	540,695	283,887		05/05/88	300
Clearwater	FL	42,223	269,380	None	124	42,223	269,504	311,727	269,463		12/22/81	180
Jacksonville	FL	184,800	410,447	22,872	124	184,800	433,443	618,243	308,156		03/30/89	300
Jacksonville	FL	48,000	243,060	None	233	48,000	243,293	291,293	243,292		12/22/81	180
Margate	FL	66,686	309,183	None	184	66,686	309,367	376,053	267,802		12/16/86	300
Melbourne	FL	256,439	549,345	None	None	256,439	549,345	805,784	337,852		04/16/93	300
Niceville	FL	73,696	341,688	None	None	73,696	341,688	415,384	296,232		12/03/86	300
Orlando	FL	190,050	422,107	None	124	190,050	422,231	612,281	311,377		03/30/89	300
Orlando	FL	68,001	313,922	None	309	68,001	314,231	382,232	286,876		09/04/85	300
Orlando	FL	159,177	353,538	None	319	159,177	353,857	513,034	284,349		07/02/87	300
Oviedo	FL	166,409	369,598	None	319	166,409	369,917	536,326	292,279		11/20/87	300
Panama City	FL	69,500	244,314	14,500	2,113	69,500	260,927	330,427	252,589		06/15/82	180
Pensacola	FL	147,000	326,492	None	96	147,000	326,588	473,588	240,850		03/28/89	300
Royal Palm Beach	FL	194,193	431,309	25,000	134	194,193	456,443	650,636	327,856		11/15/88	300
Spring Hill	FL	146,939	326,356	None	138	146,939	326,494	473,433	258,046		11/24/87	300
St. Augustine	FL	44,800	213,040	None	134	44,800	213,174	257,974	213,174		12/22/81	180
Sunrise	FL	245,000	533,280	None	1,338	245,000	534,618	779,618	392,053		05/25/89	300
Tampa	FL	53,385	199,846	None	134	53,385	199,980	253,365	199,980		12/22/81	180
Duluth	GA	310,000	1,040,008	None	None	310,000	1,040,008	1,350,008	341,519	08/25/99	06/07/99	300
Ellenwood	GA	119,678	275,414	None	363	119,678	275,777	395,455	206,873		11/16/88	300
Lawrenceville	GA	141,449	314,161	3,766	13,877	141,449	331,804	473,253	253,039		07/07/88	300
Lithia Springs	GA	187,444	363,358	None	240	187,444	363,598	551,042	261,949		12/28/89	300
Lithonia	GA	239,715	524,459	None	356	239,715	524,815	764,530	360,853		08/20/91	300
Marietta	GA	292,250	649,095	None	177	292,250	649,272	941,522	485,191		12/02/88	300
Marietta	GA	295,750	596,299	None	177	295,750	596,476	892,226	445,741		12/30/88	300
Marietta	GA	301,000	668,529	None	177	301,000	668,706	969,706	499,712		12/30/88	300
Marietta	GA	148,620	330,090	25,000	383	148,620	355,473	504,093	257,732		09/16/88	300
Smyrna	GA	274,750	610,229	None	100	274,750	610,329	885,079	458,055		11/15/88	300
Stockbridge	GA	168,700	374,688	24,894	93	168,700	399,675	568,375	283,274		03/28/89	300
Stone Mountain	GA	65,000	301,357	None	729	65,000	302,086	367,086	278,367		06/19/85	300
Cedar Rapids	IA	194,950	427,085	None	None	194,950	427,085	622,035	276,030		09/24/92	300
Iowa City	IA	186,900	408,910	None	None	186,900	408,910	595,810	265,878		09/24/92	300
Johnston	IA	186,996	347,278	None	None	186,996	347,278	534,274	223,968		08/19/91	300
Addison	IL	125,780	583,146	None	241	125,780	583,387	709,167	521,635		03/25/86	300
Algonquin	IL	241,500	509,629	None	20,382	241,500	530,011	771,511	356,595		07/10/90	300
Aurora	IL	468,000	1,259,926	None	None	468,000	1,259,926	1,727,926	405,367	10/26/99	06/14/99	300

F-12

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Aurora	IL	165,679	398,738	6,580	406	165,679	405,724	571,403	299,588		12/21/88	300
Bartlett	IL	120,824	560,166	None	241	120,824	560,407	681,231	501,083		03/25/86	300
Carol Stream	IL	122,831	586,416	None	241	122,831	586,657	709,488	524,560		03/25/86	300
Crystal Lake	IL	400,000	1,259,424	None	None	400,000	1,259,424	1,659,424	409,394	09/28/99	05/14/99	300
Elk Grove Village	IL	126,860	588,175	None	241	126,860	588,416	715,276	526,133		03/26/86	300
Glendale Heights	IL	318,500	707,399	None	None	318,500	707,399	1,025,899	530,897		11/16/88	300
Hoffman Estates	IL	318,500	707,399	None	None	318,500	707,399	1,025,899	521,648		03/31/89	300
Lake in the Hills	IL	375,000	1,127,678	None	None	375,000	1,127,678	1,502,678	366,573	09/03/99	05/14/99	300
Lockport	IL	189,477	442,018	None	557	189,477	442,575	632,052	351,255		10/29/87	300
Naperville	IL	425,000	1,230,654	None	None	425,000	1,230,654	1,655,654	395,944	10/06/99	05/19/99	300
O'Fallon	IL	141,250	313,722	None	468	141,250	314,190	455,440	249,444		10/30/87	300
Oswego	IL	380,000	1,165,818	None	1,182	380,000	1,167,000	1,547,000	384,012	08/18/99	06/30/99	300
Palatine	IL	121,911	565,232	None	241	121,911	565,473	687,384	505,614		03/25/86	300
Roselle	IL	297,541	561,037	None	None	297,541	561,037	858,578	419,215		12/30/88	300
Schaumburg	IL	218,798	485,955	3,130	4,551	218,798	493,636	712,434	385,163		12/17/87	300
Vernon Hills	IL	132,523	614,430	None	241	132,523	614,671	747,194	549,613		03/25/86	300
Westmont	IL	124,742	578,330	None	241	124,742	578,571	703,313	517,328		03/25/86	300
Carmel	IN	217,565	430,742	None	289	217,565	431,031	648,596	288,823		12/27/90	300
Fishers	IN	212,118	419,958	None	453	212,118	420,411	632,529	281,633		12/27/90	300
Highland	IN	220,460	436,476	None	226	220,460	436,702	657,162	292,643		12/26/90	300
Indianapolis	IN	245,000	544,153	None	154	245,000	544,307	789,307	375,061		06/29/90	300
Noblesville	IN	60,000	278,175	None	289	60,000	278,464	338,464	259,007		04/30/85	300
Lenexa	KS	318,500	707,399	14,200	4,208	318,500	725,807	1,044,307	529,147		03/31/89	300
Olathe	KS	304,500	676,308	37,904	9,137	304,500	723,349	1,027,849	514,854		09/28/88	300
Overland Park	KS	357,500	1,115,171	None	None	357,500	1,115,171	1,472,671	369,902	07/23/99	05/14/99	300
Shawnee	KS	288,246	935,875	None	None	288,246	935,875	1,224,121	332,276	12/29/98	08/24/98	300
Shawnee	KS	315,000	699,629	None	200	315,000	699,829	1,014,829	527,507		10/27/88	300
Wichita	KS	108,569	401,829	None	167	108,569	401,996	510,565	337,477		12/16/86	300
Wichita	KS	209,890	415,549	25,699	24,162	209,890	465,410	675,300	282,325		12/26/90	300
Lexington	KY	210,427	420,883	None	None	210,427	420,883	631,310	281,483		08/20/91	300
Acton	MA	315,533	700,813	None	None	315,533	700,813	1,016,346	530,559		09/30/88	300
Marlborough	MA	352,765	776,488	None	387	352,765	776,875	1,129,640	583,070		11/04/88	300
Westborough	MA	359,412	773,877	None	333	359,412	774,210	1,133,622	581,082		11/01/88	300
Ellicott City	MD	219,368	630,839	26,550	None	219,368	657,389	876,757	476,839		12/19/88	300
Frederick	MD	203,352	1,017,109	None	None	203,352	1,017,109	1,220,461	384,806		07/06/98	300
Olney	MD	342,500	760,701	None	None	342,500	760,701	1,103,201	598,615		12/18/87	300
Waldorf	MD	237,207	526,844	None	399	237,207	527,243	764,450	414,826		12/31/87	300
Waldorf	MD	130,430	604,702	None	453	130,430	605,155	735,585	575,385		09/26/84	300
Canton	MI	55,000	378,848	None	None	55,000	378,848	433,848	378,848		10/06/82	180
Apple Valley	MN	113,523	526,319	None	498	113,523	526,817	640,340	471,043		03/26/86	300
Brooklyn Park	MN	118,111	547,587	None	498	118,111	548,085	666,196	490,063		03/26/86	300
Eagan	MN	112,127	519,845	None	498	112,127	520,343	632,470	465,253		03/31/86	300
Eden Prairie	MN	124,286	576,243	None	498	124,286	576,741	701,027	515,691		03/27/86	300
Maple Grove	MN	313,250	660,149	None	189	313,250	660,338	973,588	455,262		07/11/90	300
Plymouth	MN	134,221	622,350	None	673	134,221	623,023	757,244	540,173		12/12/86	300
White Bear Lake	MN	242,165	537,856	None	189	242,165	538,045	780,210	367,349		08/30/90	300
Florissant	MO	181,300	402,672	None	230	181,300	402,902	584,202	297,140		03/29/89	300
Florissant	MO	318,500	707,399	None	230	318,500	707,629	1,026,129	521,851		03/30/89	300
Gladstone	MO	294,000	652,987	None	327	294,000	653,314	947,314	494,604		09/29/88	300
Lee's Summit	MO	330,000	993,787	None	None	330,000	993,787	1,323,787	329,635	07/26/99	06/17/99	300
Lee's Summit	MO	313,740	939,367	None	None	313,740	939,367	1,253,107	308,472	09/08/99	06/30/99	300

F-13

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Lee's Summit	MO	239,627	532,220	None	169	239,627	532,389	772,016	381,778		09/27/89	300
Liberty	MO	65,400	303,211	25,000	169	65,400	328,380	393,780	287,663		06/18/85	300
North Kansas City	MO	307,784	910,401	None	None	307,784	910,401	1,218,185	328,741	09/28/99	08/21/98	300
Pearl	MS	121,801	270,524	18,837	12,287	121,801	301,648	423,449	214,838		11/15/88	300
Cary	NC	75,200	262,973	None	322	75,200	263,295	338,495	263,266		01/25/84	180
Charlotte	NC	134,582	268,222	24,478	297	134,582	292,997	427,579	207,795		11/16/88	300
Charlotte	NC	27,551	247,000	None	367	27,551	247,367	274,918	247,252		12/23/81	180
Concord	NC	32,441	190,859	None	290	32,441	191,149	223,590	191,034		12/23/81	180
Durham	NC	175,700	390,234	26,312	94	175,700	416,640	592,340	295,950		03/29/89	300
Durham	NC	220,728	429,380	None	101	220,728	429,481	650,209	309,875		12/29/89	300
Durham	NC	238,000	471,201	None	232	238,000	471,433	709,433	303,978		08/20/91	300
Kernersville	NC	162,216	316,300	None	93	162,216	316,393	478,609	228,488		12/14/89	300
Bellevue	NE	60,568	280,819	None	167	60,568	280,986	341,554	243,233		12/16/86	300
Omaha	NE	60,500	280,491	None	146	60,500	280,637	341,137	268,384		08/01/84	300
Omaha	NE	53,000	245,720	None	146	53,000	245,866	298,866	233,284		10/11/84	300
Omaha	NE	142,867	317,315	None	312	142,867	317,627	460,494	249,765		12/09/87	300
Londonderry	NH	335,467	745,082	None	54	335,467	745,136	1,080,603	537,375		08/18/89	300
Clementon	NJ	279,851	554,060	None	399	279,851	554,459	834,310	355,835		09/09/91	300
Las Vegas	NV	201,250	446,983	None	None	201,250	446,983	648,233	308,020		06/29/90	300
Sparks	NV	244,752	543,605	13,833	None	244,752	557,438	802,190	426,698		01/29/88	300
Beavercreek	OH	179,552	398,786	None	151	179,552	398,937	578,489	321,913		06/30/87	300
Centerville	OH	174,519	387,613	None	151	174,519	387,764	562,283	311,584		07/23/87	300
Dublin	OH	84,000	389,446	None	176	84,000	389,622	473,622	354,728		10/08/85	300
Englewood	OH	74,000	343,083	None	503	74,000	343,586	417,586	312,340		10/23/85	300
Forest Park	OH	170,778	379,305	None	151	170,778	379,456	550,234	302,689		09/28/87	300
Huber Heights	OH	245,000	544,153	None	222	245,000	544,375	789,375	369,964		09/27/90	300
Loveland	OH	206,136	457,829	None	174	206,136	458,003	664,139	374,239		03/20/87	300
Maineville	OH	173,105	384,468	None	151	173,105	384,619	557,724	314,276		03/06/87	300
Pickerington	OH	87,580	406,055	None	176	87,580	406,231	493,811	352,213		12/11/86	300
Westerville	OH	294,350	646,557	None	115	294,350	646,672	941,022	442,176		09/26/90	300
Westerville	OH	82,000	380,173	None	344	82,000	380,517	462,517	346,430		10/08/85	300
Broken Arrow	OK	78,705	220,434	None	1,700	78,705	222,134	300,839	222,134		01/27/83	180
Midwest City	OK	67,800	314,338	None	403	67,800	314,741	382,541	289,086		08/14/85	300
Oklahoma City	OK	79,000	366,261	17,659	461	79,000	384,381	463,381	355,431		11/14/84	300
Oklahoma City	OK	50,800	214,474	None	3,013	50,800	217,487	268,287	217,487		06/15/82	180
Yukon	OK	61,000	282,812	27,000	379	61,000	310,191	371,191	270,493		05/02/85	300
Beaverton	OR	135,148	626,647	None	218	135,148	626,865	762,013	542,710		12/17/86	300
Charleston	SC	140,700	312,498	25,000	109	140,700	337,607	478,307	237,786		03/28/89	300
Charleston	SC	125,593	278,947	None	290	125,593	279,237	404,830	215,040		05/26/88	300
Columbia	SC	58,160	269,643	None	1,435	58,160	271,078	329,238	256,373		11/14/84	300
Elgin	SC	160,831	313,600	None	63	160,831	313,663	474,494	226,493		12/14/89	300
Goose Creek	SC	61,635	192,905	None	292	61,635	193,197	254,832	193,197		12/22/81	180
Mt. Pleasant	SC	40,700	180,400	None	202	40,700	180,602	221,302	180,471		12/22/81	180
Summerville	SC	44,400	174,500	None	63	44,400	174,563	218,963	174,547		12/22/81	180
Sumter	SC	56,010	268,903	None	1,351	56,010	270,254	326,264	248,626		06/18/85	300
Memphis	TN	221,501	491,962	None	344	221,501	492,306	713,807	336,048		08/31/90	300
Memphis	TN	238,263	504,897	None	719	238,263	505,616	743,879	382,774		09/29/88	300
Memphis	TN	238,000	528,608	None	719	238,000	529,327	767,327	400,726		09/30/88	300
Nashville	TN	274,298	609,223	None	96	274,298	609,319	883,617	449,340		03/30/89	300
Arlington	TX	195,650	387,355	None	None	195,650	387,355	583,005	257,113		02/07/91	300

F-14

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
Arlington	TX	82,109	380,677	None	54	82,109	380,731	462,840	359,193		12/13/84	300
Arlington	TX	238,000	528,604	None	384	238,000	528,988	766,988	400,361		09/26/88	300
Arlington	TX	241,500	550,559	None	13,389	241,500	563,948	805,448	429,320		09/22/89	300
Atascocita	TX	278,915	1,034,868	None	None	278,915	1,034,868	1,313,783	343,262	07/19/99	05/14/99	300
Austin	TX	238,000	528,604	None	99	238,000	528,703	766,703	388,176		04/06/89	300
Austin	TX	217,878	483,913	29,469	99	217,878	513,481	731,359	361,438		06/22/89	300
Austin	TX	191,636	425,629	15,530	252	191,636	441,411	633,047	323,935		12/22/88	300
Austin	TX	134,383	623,103	None	786	134,383	623,889	758,272	540,078		12/23/86	300
Austin	TX	88,872	222,684	20,452	15,346	88,872	258,482	347,354	224,123		01/12/83	180
Austin	TX	103,600	230,532	8,750	15,557	103,600	254,839	358,439	248,560		10/29/82	180
Austin	TX	236,733	640,023	36,746	24,331	236,733	701,100	937,833	430,631		09/27/88	300
Bedford	TX	241,500	550,559	None	None	241,500	550,559	792,059	424,065		09/22/89	300
Carrollton	TX	277,850	617,113	None	157	277,850	617,270	895,120	485,644		12/11/87	300
Cedar Park	TX	168,857	375,036	5,200	242	168,857	380,478	549,335	282,903		11/21/88	300
Colleyville	TX	250,000	1,070,360	None	None	250,000	1,070,360	1,320,360	351,480	08/17/99	05/14/99	300
Converse	TX	217,000	481,963	None	153	217,000	482,116	699,116	364,891		09/28/88	300
Coppell	TX	208,641	463,398	None	120	208,641	463,518	672,159	364,738		12/11/87	300
Corinth	TX	285,000	1,041,626	None	None	285,000	1,041,626	1,326,626	348,940	06/04/99	05/19/99	300
Denton	TX	192,777	428,121	None	237	192,777	428,358	621,135	351,752		01/07/87	300
Duncanville	TX	93,000	431,172	28,378	11,063	93,000	470,613	563,613	414,678		05/08/85	300
Euless	TX	234,111	519,962	None	144	234,111	520,106	754,217	421,460		05/08/87	300
Flower Mound	TX	281,735	1,099,726	None	None	281,735	1,099,726	1,381,461	375,712	04/23/99	01/13/99	300
Flower Mound	TX	202,773	442,845	8,877	9,358	202,773	461,080	663,853	361,100		04/20/87	300
Fort Worth	TX	238,000	528,608	None	None	238,000	528,608	766,608	400,190		09/26/88	300
Fort Worth	TX	210,007	444,460	None	None	210,007	444,460	654,467	313,847		02/01/90	300
Fort Worth	TX	216,160	427,962	None	None	216,160	427,962	644,122	284,066		02/07/91	300
Fort Worth	TX	85,518	396,495	24,625	116	85,518	421,236	506,754	350,127		12/03/86	300
Garland	TX	211,050	468,749	None	124	211,050	468,873	679,923	332,058		12/12/89	300
Grand Prairie	TX	167,164	371,276	30,086	22,064	167,164	423,426	590,590	282,240		12/13/88	300
Houston	TX	294,582	919,276	None	None	294,582	919,276	1,213,858	323,327	01/11/99	08/14/98	300
Houston	TX	219,100	486,631	None	124	219,100	486,755	705,855	368,451		09/30/88	300
Houston	TX	219,100	486,628	None	141	219,100	486,769	705,869	365,316		11/16/88	300
Houston	TX	102,000	472,898	None	278	102,000	473,176	575,176	438,813		05/01/85	300
Houston	TX	60,000	278,175	None	297	60,000	278,472	338,472	258,213		05/01/85	300
Houston	TX	139,125	308,997	19,128	10,583	139,125	338,708	477,833	255,385		05/22/87	300
Houston	TX	149,109	323,314	None	13,986	149,109	337,300	486,409	247,356		06/26/89	300
Houston	TX	141,296	313,824	12,442	15,893	141,296	342,159	483,455	253,601		07/24/87	300
Katy	TX	309,898	983,041	None	None	309,898	983,041	1,292,939	352,282	11/30/98	08/21/98	300
Mansfield	TX	181,375	402,839	None	124	181,375	402,963	584,338	285,373		12/20/89	300
Mesquite	TX	139,466	326,525	None	89	139,466	326,614	466,080	219,924		10/08/92	300
Mesquite	TX	85,000	394,079	None	141	85,000	394,220	479,220	373,862		10/24/84	300
Pasadena	TX	60,000	278,173	None	295	60,000	278,468	338,468	264,071		10/23/84	300
Plano	TX	250,514	556,399	None	None	250,514	556,399	806,913	437,845		12/10/87	300
Plano	TX	259,000	575,246	None	240	259,000	575,486	834,486	435,651		09/27/88	300
Plano	TX	261,912	581,658	10,338	9,279	261,912	601,275	863,187	479,690		01/06/87	300
Round Rock	TX	186,380	413,957	30,800	99	186,380	444,856	631,236	312,393		04/19/89	300
Round Rock	TX	80,525	373,347	None	441	80,525	373,788	454,313	323,578		12/16/86	300
San Antonio	TX	182,868	406,155	18,940	110	182,868	425,205	608,073	311,456		12/06/88	300
San Antonio	TX	130,833	606,596	None	139	130,833	606,735	737,568	542,636		03/24/86	300
San Antonio	TX	81,530	378,007	None	139	81,530	378,146	459,676	327,859		12/11/86	300
San Antonio	TX	217,000	481,967	None	261	217,000	482,228	699,228	363,430		10/14/88	300

F-15

				Cost  Capitalized								Life on
				Subsequent		Gross Amount at Which Carried						which
		Initial Cost to Company		to Acquisition		at Close of Period (Notes 2, 3, 5, 6, 7 and 8)						depreciation
			Buildings,				Buildings,					in latest
			Improvements				Improvements					Income
			and				and		Accumulated			Statement
Description			Acquisition		Carrying		Acquisition		Depreciation	Date of	Date	is computed
(Note 1)		Land	Fees	Improvements	Costs	Land	Fees	Total	(Note 4)	Construction	Acquired	(in Months)
San Antonio	TX	220,500	447,108	None	261	220,500	447,369	667,869	329,841		03/30/89	300
San Antonio	TX	102,512	475,288	None	443	102,512	475,731	578,243	412,245		12/03/86	300
San Antonio	TX	139,125	308,997	None	543	139,125	309,540	448,665	250,732		05/22/87	300
San Antonio	TX	181,412	402,923	None	644	181,412	403,567	584,979	324,232		07/07/87	300
San Antonio	TX	234,500	520,831	None	644	234,500	521,475	755,975	410,241		12/29/87	300
Southlake	TX	228,279	511,750	None	None	228,279	511,750	740,029	328,729		03/10/93	300
Sugar Land	TX	339,310	1,000,876	None	None	339,310	1,000,876	1,340,186	338,628	05/30/99	01/13/99	300
Layton	UT	136,574	269,008	None	143	136,574	269,151	405,725	193,539		02/01/90	300
Sandy	UT	168,089	373,330	None	143	168,089	373,473	541,562