2.	Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements

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

B. We have elected to be taxed as a real estate investment trust, or REIT, under the 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 the federal income taxes of Crest, which are included in discontinued operations. The income taxes recorded on our consolidated statements of income represent amounts paid by Realty Income for city and state income and franchise taxes.

C. 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 collectability of accounts receivable and appropriate allowances to record. The allowance for doubtful accounts was $1.1 million at June 30, 2011 and December 31, 2010.

	June 30,		December 31,
D. Other assets consist of the following (dollars in thousands) at:	2011		2010
Value of in-place and above market leases, net	$	106,551	$	26,221
Deferred bond financing costs, net		23,224		14,203
Notes receivable issued in connection with Crest property sales		22,002		22,075
Prepaid expenses		8,926		8,431
Restricted escrow deposits		5,999		6,361
Credit facility origination costs, net		3,874		4,619
Corporate assets, net of accumulated depreciation and amortization		767		827
Deferred financing costs on assumed mortgages payable, net		583		--
Other items		2,288		1,861
	$	174,214	$	84,598

	June 30,		December 31,
E. Distributions payable consist of the following declared distributions (dollars in thousands) at:	2011		2010
Common stock distributions	$	18,380	$	17,030
Preferred stock dividends		2,021		2,021
	$	20,401	$	19,051

	June 30,		December 31,
F. Accounts payable and accrued expenses consist of the following (dollars in thousands) at:		2011		2010
Bond interest payable	$	32,943	$	33,240
Other items		19,020		13,779
	$	51,963	$	47,019

	June 30,		December 31,
G. Other liabilities consist of the following (dollars in thousands) at:	2011		2010
Rent received in advance	$	8,595	$	14,564
Security deposits		4,370		4,539
Value of in-place below-market leases, net		5,125		3,452
	$	18,090	$	22,555

H. 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. During our test for impairment of goodwill during the second quarters of 2011 and 2010, we determined that the estimated fair values of our reporting units exceeded their carrying values. We did not record any impairment on our existing goodwill in 2011 or 2010.

I. Impact of Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. Effective for periods beginning after December 15, 2011, ASU No. 2011-04 clarifies how a principal market is determined, addresses the fair value measurement of instruments with offsetting market or counterparty credit risks and the concept of valuation premise and highest and best use, extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and requires additional disclosures. ASU No. 2011-04 will apply only to our disclosures in note 8 related to the fair value of assets and liabilities and is not expected to have a significant impact on our footnote disclosures.