Realty Income - Press Release

REALTY INCOME ANNOUNCES RECORD FOURTH QUARTER AND YEAR-END OPERATING RESULTS

ESCONDIDO, CALIFORNIA, FEBRUARY 6, 2002 — Realty Income Corporation (Realty Income), "The Monthly Dividend Company," (NYSE: O) today announced operating results for the fourth quarter and year ended December 31, 2001.

COMPANY HIGHLIGHTS:
(For the year ended December 31, 2001)

Revenue increased 6.8% to $126.3 million
Funds from Operations (FFO) increased 15.8% to $77.8 million
FFO per common share increased 5.6% to $2.66 per share
Portfolio occupancy averaged 98%
The Company invested $131.8 million into additional properties at 11.0% initial average lease yields
Crest Net Lease, Inc. generated $0.08 per common share in FFO for Realty Income
Realty Income paid its 376th consecutive monthly dividend
The monthly dividend amount was increased for the 17th consecutive quarter

Financial Results

Revenue Increases
Realty Income's revenue for the fourth quarter ended December 31, 2001 increased 7.0% to $33.8 million as compared to $31.6 million for the same quarter in 2000.

Revenue for the year ended December 31, 2001 increased 6.8% to $126.3 million from $118.3 million for the same period in 2000.

Funds from Operations
FFO for the quarter ended December 31, 2001 increased 25.3% to $22.3 million as compared to $17.8 million for the same quarter in 2000. On a diluted per common share basis, FFO increased 4.5% to $0.70 per share compared to $0.67 per share for the same period in 2000.

FFO for the year ended December 31, 2001 increased 15.8% to $77.8 million as compared to $67.2 million for the same period one year ago. On a diluted per common share basis, FFO increased 5.6% to $2.66 per share from $2.52 per share for the same period in 2000.

FFO is a widely used measure of REIT performance that excludes non-cash charges for the depreciation of real estate and gains on sales of investment properties. FFO is one measure of a company's cash flow and of its ability to pay dividends.

Net Income Available to Common Stockholders
Net income available to common stockholders for the quarter ended December 31, 2001 increased to $16.0 million as compared to $14.2 million for the same period in 2000. On a diluted per common share basis, net income was $0.50 per share as compared to $0.54 per share for the three months ended December 31, 2000.

Net income available to common stockholders for the year ended December 31, 2001 increased to $57.8 million as compared to $45.1 million in 2000. On a diluted per common share basis, this represented an increase of 17.2% to $1.98 per share as compared to $1.69 per share in 2000.

The calculation to determine net income includes gains and losses from the sale of investment properties. The amount of gains and losses varies from quarter to quarter based on the timing of property sales and can significantly impact net income. Excluding gain on the sales of investment properties, on a diluted per common share basis, operating net income increased by $0.10 during the fourth quarter of 2001 versus the same quarter in 2000 and by $0.18 for the year ended December 31, 2001 versus 2000.

Dividend Information
On December 13, 2001, Realty Income announced the 17th consecutive quarterly increase in the amount of the monthly dividend on its common stock. This marked the 19th increase in the amount of the dividend since 1995. The amount of the monthly dividend was increased to $0.19 per share, which equates to an annualized dividend amount of $2.28 per share. During 2001, Realty Income paid twelve monthly dividends totaling $2.2425 per common share. The Company continues its 32-year policy of declaring and paying common stock dividends on a monthly rather than a quarterly basis.

During 2001 Realty Income also paid twelve monthly dividends totaling $2.3748 per share on its Class C preferred stock and four quarterly dividends totaling $2.3436 per share on its Class B preferred stock.

Real Estate Portfolio Update

As of December 31, 2001, Realty Income's portfolio of freestanding, single-tenant retail properties consisted of 1,124 properties located in 48 states, leased to 78 retail chains doing business in 24 retail segments.

Portfolio Management Activities
The Company's portfolio of retail real estate properties owned under 10- to 20-year net leases continues to perform well and provide dependable lease revenue supporting the payment of monthly dividends. As of December 31, 2001, portfolio occupancy was 98.2% with only 20 properties available for lease out of 1,124 properties in the portfolio.

Same store rents on the 977 properties under lease during the three months ended December 31, 2001 and 2000 increased 1.0% to $27.21 million from $26.93 million in 2000. Same store rents on the same 977 properties under lease during the twelve months ended December 31, 2001 and 2000 increased 1.8% to $105.24 million compared to $103.41 million in 2000.

Property Acquisitions
During the fourth quarter, Realty Income acquired 54 retail properties for $88.4 million. The Company also funded $2.3 million for properties under development, for total acquisitions during the quarter of $90.3 million. The 54 properties acquired are located in 16 states, are 100% leased under triple-net leases, have an average lease length of 20.0 years and an initial contractual lease yield of 11.0%.

For the year ended December 31, 2001, the Company acquired 91 retail properties and invested $131.8 million into additional real estate investments. The 91 new properties are located in 25 states, are all 100% leased under long-term, triple-net leases, have an average lease length of 20.1 years and an initial contractual lease yield of 11.0%.

The Company believes the acquisition market for freestanding, net-lease, retail properties remains attractive. During 2001 the Company analyzed over 100 separate transactions involving 555 properties with an approximate market value of just under $1 billion. From these opportunities, Realty Income selected the 91 properties it acquired in 13 separate transactions totaling $131.8 million. In addition, Crest Net Lease, Inc., a subsidiary of the Company, acquired 26 properties, in 9 separate transactions, totaling $24.7 million. As such, the Company and its subsidiary invested in approximately 16% of the opportunities it reviewed during 2001.

During 2002, the Company anticipates it will acquire additional properties utilizing its acquisition credit facility, the proceeds from property dispositions, internally generated cash flow and the proceeds from the potential offering of additional securities. Realty Income maintains credit facilities with borrowing capacity of $225 million, which are used to fund acquisitions and the operations of its subsidiary, Crest Net Lease, Inc. The outstanding balance on the Company's acquisition credit facility at year-end was $63.7 million. The outstanding balance on the credit facility used to fund Crest's operations was $21.6 million.

Property Dispositions
Realty Income continued to successfully execute its asset disposition program during 2001. The objective of the program is to sell assets when the Company believes the reinvestment of the sales proceeds will generate higher returns, enhance the credit quality of the Company's real estate portfolio or increase the average lease length.

During the fourth quarter ended December 31, 2001, Realty Income sold 12 properties for $9.9 million. For the year ended December 31, 2001, the Company sold 35 properties for $39.5 million.

Other Activities

Crest Net Lease
Crest Net Lease Inc., a subsidiary formed by Realty Income, is focused on acquiring and subsequently marketing net-leased properties for sale. During the fourth quarter ended December 31, 2001, Crest sold three properties for $10.1 million and reported a gain on sales of $1.0 million. During the quarter Crest also invested $6.0 million in seven new properties and properties under development. As of the end of the year Crest carried an inventory of $22.3 million, which consists of 24 properties held for sale.

During 2001, Crest sold nine properties for $28.9 million and reported a gain on sales of $3.4 million. Crest also invested $24.7 million in 26 properties and properties under development.

Management believes that Crest will carry an average inventory of between $20 to $30 million in properties. The subsidiary 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 management's belief that at this level of inventory these earnings will more than cover the ongoing operating expenses of Crest. The contribution to Realty Income's FFO by the subsidiary depends on the timing and the number of property sales achieved, if any, in any given quarter. During the fourth quarter and year ended December 31, 2001, Crest generated $0.03 and $0.08 in FFO per common share, respectively, for Realty Income.

CEO Comments on 2001 Operating Results

Commenting on Realty Income's financial results and real estate operations, Tom A. Lewis, Chief Executive Officer stated, "We are pleased to report that 2001 was a very good year for The Monthly Dividend Company. We ended the year with record revenues, earnings, dividends and a substantial increase in the size of the Company's real estate portfolio. We also enjoyed four dividend increases and saw the price of our shares increase from $24.88 at the beginning of the year to $29.40 at the end of the year. Including dividend and share price increases, our total return to shareholders for the year was a healthy 27.2%.

"We were also gratified with the Company's continued access to the public capital markets during 2001. The two equity offerings we completed over the course of the year allowed us to generate capital to continue our growth while maintaining one of the most conservative balance sheets in our industry. At the same time, we were very pleased with both the level of acquisitions and the yields we were able to negotiate in a rapidly declining interest rate environment. In addition, the Company's core portfolio of real estate continued to perform well. We believe this is due to our continued focus on acquiring properties leased to retailers that sell basic human needs goods and services at relatively low price points. Finally, our new subsidiary, Crest Net Lease, substantially exceeded our expectations for the year by producing an after-tax contribution of over $2.4 million to our earnings, generating $0.08 per share of Realty Income's funds from operations.

"Looking forward to 2002, we are optimistic about the Company's operations and financial performance for the year ahead. We enter the year with strong portfolio occupancy, a clean and uncomplicated balance sheet and ready access to capital to fund our growth. We believe there will be adequate acquisition opportunities to continue to add to our portfolio of retail properties. As such, we should be able to continue to deliver solid operational performance during 2002."

Earnings Commentary

Realty Income's FFO per common share has historically tended to be stable and fairly predictable because of the long-term leases that are the primary source of the Company's revenue. There are, however, several factors that can impact changes in FFO per common share from levels that have been anticipated by the Company. These factors include, but are not limited to, changes in interest rates, occupancy rates, periodically accessing the capital markets, the level of property acquisitions and dispositions, and the operations of Crest Net Lease.

2002 Estimates
Management estimates that FFO per common share for 2002 should range from $2.80 to $2.82 which would equate to an increase of 5.3% to 6.0% over 2001 FFO per share of $2.66.

Management estimates Crest Net Lease, Inc. will generate between $0.06 to $0.08 per share of FFO during 2002. Crest's primary business is the purchase and sale of properties at a profit. These sales may occur at various of times during the course of the year, which could cause FFO in certain quarters to fluctuate from normal levels.

The Company does not intend to provide quarterly estimates of FFO. Absent changes in annual FFO guidance, at the end of each quarter, it may be presumed that the Company's overall estimate for the year has not changed.

Forward-Looking Statements

Statements in this press release, which are not strictly historical, are "forward-looking" statements. Forward-looking statements involve known and unknown risks, which may cause the Company's actual results in the future to differ materially from expected results. These risks include, among others, general economic conditions, local real estate conditions, the availability of capital to finance planned growth, and the profitability of the Company's subsidiary, Crest Net Lease, as described in the Company's filings with the Securities and Exchange Commission. Consequently, such forward-looking statements should be regarded solely as reflections of the Company's current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this press release. The Company undertakes 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 these statements were made.

Realty Income is "The Monthly Dividend Company," a New York Stock Exchange real estate company dedicated to providing shareholders with dependable monthly income. As of December 31, 2001 the Company had paid 376 consecutive monthly dividend payments throughout its 33-year operating history. The monthly income is supported by the cash flows from 1,124 retail properties owned under long-term lease agreements with leading regional and national retail chains. The Company is an active buyer of net-leased retail properties nationwide.

Note to Editors:
Realty Income press releases are available at no charge by calling our toll-free investor hotline number: 888-811-2001, or through the internet at http://www.realtyincome.com/Investing/News.html

CONSOLIDATED STATEMENTS OF INCOME

For three months and years ended December 31, 2001 and 2000 (dollars in thousands, except per share amounts)
(unaudited)

	Three Months Ended 12/31/01	Three Months Ended 12/31/00	Year Ended 12/31/01	Year Ended 12/31/00

REVENUE
Rental	$ 32,665	$ 31,331	$ 122,061	$ 117,190
Gain on sales of real estate aquired for resale	1,001	208	3,374	766
Interest and other	107	90	836	354

	33,773	31,629	126,271	118,310

EXPENSES
Interest	5,740	8,734	26,466	31,547
Depreciation and amortization	7,523	8,498	29,125	29,003
General and administrative	2,016	1,847	7,836	6,839
Property	745	515	2,518	2,032
Other	483	254	1,796	813
Provision for impairment losses	400	--	1,450	--

	16,907	19,848	69,191	70,234

Income from operations	16,866	11,781	57,080	48,076
Gain on sales of investment properties	1,557	4,881	10,478	6,712

Net Income	18,423	16,662	67,558	54,788
Preferred stock dividends	(2,428)	(2,428)	(9,712)	(9,712)

Net income available to common stockholders	$ 15,995	$ 14,234	$ 57,846	$ 45,076

Funds from operations (FFO)	$ 22,331	$ 17,822	$ 77,828	$ 67,239
Per share information for common stockholders:
FFO
Basic	$ 0.70	$ 0.67	$ 2.66	$ 2.52
Diluted	0.70	0.67	2.66	2.52
Income from operations
Basic	0.45	0.35	1.62	1.44
Diluted	0.45	0.35	1.62	1.44
Net Income
Basic	0.50	0.54	1.98	1.69
Diluted	0.50	0.54	1.98	1.69
Cash dividends paid	0.566	0.551	2.243	2.183

Segmentation by Category

FUNDS FROM OPERATIONS
For the three months and years ended December 31, 2001 and 2000
(dollars in thousands, except per share amounts)

Three Months Ended
12/31/01

Three Months Ended
12/31/00

Year Ended
12/31/01

Year Ended
12/31/00

Net income available to
   common stockholders $ 15,995 $ 14,234 $ 57,846 $ 45,076

Plus:

   Depreciation and
       amortization 7,523 8,498 29,125 29,003

   Provision for impairment
       losses on properties
       held for sale 400 -- 1,450 --

Less:

   Depreciation of furniture,
       fixtures and equipment (30) (29) (115) (128)

   Gain on sales of investment
       properties (1,557) (4,881) (10,478) (6,712)

Funds from operations $ 22,331 $ 17,822 $ 77,828 $ 67,239

Dividends paid to
   common stockholders $ 17,966 $ 14,650 $ 64,871 $ 58,262

FFO in excess of dividends $ 4,365 $ 3,172 $ 12,957 $ 8,977

Basic and diluted
   FFO per common share $ 0.70 $ 0.67 $ 2.66 $ 2.52

Weighted average number of
   common shares used for:

   Basic per share
       computation 32,077,535 26,571,992 29,225,359 26,684,598

   Diluted per share
       computation 32,129,601 26,595,574 29,281,120 26,700,806

CONSOLIDATED BALANCE SHEETS
As of December 31, 2001 and December 31, 2000
(dollars in thousands, except per share data)

2001
2000

ASSETS

Real estate, at cost:

    Land $ 412,455 $ 368,057

    Buildings and improvements 765,707 705,470

1,178,162 1,073,527

    Less accumulated depreciation and
       amortization (233,848) (212,379)

    Net real estate held for investment 944,314 861,148

    Real estate held for sale, net 23,356 33,130

    Net real estate 967,670 894,278

Cash and cash equivalents 2,467 3,815

Accounts receivable 4,857 5,053

Goodwill, net 17,206 18,130

Other assets 11,508 13,490

     Total assets $ 1,003,708 $ 934,766

LIABILITIES AND STOCKHOLDERS' EQUITY

Distributions payable $    6,238 $    4,914

Accounts payable and accrued expenses 5,834 5,969

Other liabilities 4,543 4,314

Lines of credit payable 85,300 174,000

Notes payable 230,000 230,000

    Total liabilities 331,915 419,197

Stockholders’ equity

Preferred stock and paid in capital, par
    value $1.00 per share, 20,000,000
    shares authorized, 4,125,700 shares
    issued and outstanding 99,368 99,368

Common stock and paid in capital, par
    value $1.00 per share, 100,000,000
    shares authorized, 32,829,111 and
    26,563,519 shares issued and
    outstanding in 2001 and 2000,
    respectively 795,505 630,932

Distributions in excess of net income (223,080) (214,731)

    Total stockholders’ equity 671,793 515,569

    Total liabilities and stockholders’ equity $ 1,003,708 $ 934,766

The following table sets forth certain information regarding our properties classified according to the business of the respective tenants (dollars in thousands):

Industry Diversifcation

REALTY INCOME CORPORATION

Tenants by Industry
Percentage of Rental Revenue⁽¹⁾

Annualized Rent as of(2) For the Years Ended

Industry
Dec 31,
2001(2)

Dec 31, 2001

Dec 31, 2000

Dec 31, 1999

Dec 31, 1998

Dec 31, 1997

Dec 31, 1996

Apparel Stores 2.4% 2.4% 2.4% 3.8% 4.1% 0.7% --%

Automotive Parts 7.8 8.3 8.3 8.6 7.8 9.1 10.5

Automotive Service 5.2 5.7 5.8 6.6 7.5 6.4 4.8

Book Stores 0.5 0.4 0.5 0.5 0.6 0.5 --

Business Services 0.1 0.1 0.1 0.1 * -- --

Child Care 21.9 23.9 24.7 25.3 29.2 35.9 42.0

Consumer Electronics 3.5 4.0 4.9 4.4 5.4 6.5 0.9

Convenience Stores 7.7 8.4 8.4 7.2 6.1 5.5 4.6

Craft and Novelty 0.4 0.4 0.4 0.4 * -- --

Drug Stores 0.2 0.2 0.2 0.2 0.1 -- --

Entertainment 2.0 1.8 2.0 1.2 -- -- --

General Merchandise 0.5 0.6 0.6 0.6 * -- --

Grocery Stores 0.5 0.6 0.6 0.5 * -- --

Health and Fitness 4.2 3.6 2.4 0.6 0.1 -- --

Home Furnishings 5.5 6.0 5.8 6.5 7.8 5.6 4.4

Home Improvement 1.2 1.3 2.0 3.6 * -- --

Office Supplies 1.9 2.2 2.3 2.6 3.0 1.7 --

Pet Supplies and Services 1.7 1.6 1.5 1.1 0.6 0.2 --

Private Education 1.3 1.5 1.4 1.2 0.9 -- --

Restaurants 14.5 12.2 12.3 13.3 16.2 19.8 24.4

Shoe Stores 0.7 0.7 0.8 1.1 0.8 0.2 --

Sporting Goods 4.2 0.9 -- -- -- -- --

Theaters 3.9 4.3 2.7 0.6 -- -- --

Video Rental 3.4 3.7 3.9 4.3 3.8 0.6 --

Other 4.8 5.2 6.0 5.7 6.0 7.3 8.4

Totals 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

* Less than 0.1%
(1) The table does not include rental revenue from properties owned by our subsidiary Crest Net Lease.
(2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of December 31, 2001 for each of the properties by 12, and adding the previous twelve month's historic percentage rent, which totaled $1.7 million, (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property.

The following table sets forth certain information regarding the 1,124 properties owned by Realty Income as of December 31, 2001, classified according to the retail business types and the level of services they provide (dollars in thousands):

REALTY INCOME CORPORATION

Segmentation by Category

(As of December 31, 2001)

Industry
Number of Properties (1) Annualized Rent (1)(2) Percent of Annualized Rent

TENANTS PROVIDING SERVICES

Automotive Service 98 $ 6,972 5.3%

Child Care 327 28,899 21.9

Entertainment 8 2,594 2.0

Health and Fitness 9 5,479 4.2

Private Education 5 1,738 1.3

Theaters 10 5,209 3.9

Other 8 6,397 4.8

465 57,288 43.4

TENANTS SELLING GOODS AND SERVICES

Automotive Parts (with
installation) 64 5,816 4.4

Business Services 1 124 0.1

Convenience Stores 105 10,231 7.7

Home Improvement 2 187 0.1

Pet Supplies and Services 6 1,561 1.2

Restaurants 231 19,224 14.6

Video Rental 34 4,501 3.4

443 41,644 31.5

TENANTS SELLING GOODS

Apparel Stores 5 3,103 2.3

Automotive Parts 75 4,390 3.3

Book Stores 2 606 0.5

Consumer Electronics 36 4,639 3.5

Craft and Novelty 2 502 0.4

Drug Stores 1 235 0.2

General Merchandise 11 687 0.5

Grocery Stores 2 726 0.6

Home Furnishings 38 7,279 5.5

Home Improvement 18 1,377 1.0

Office Supplies 8 2,540 1.9

Pet Supplies 3 644 0.5

Shoe Stores 4 890 0.7

Sporting Goods 11 5,584 4.2

216 33,202 25.1

Totals 1,124 $ 132,134 100.0%

(1) The table does not include rental revenue from properties owned by our subsidiary Crest Net Lease.
(2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of December 31, 2001 for each of the properties by 12, and adding the previous twelve month's historic percentage rent, which totaled $1.7 million, (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property.

The following table sets forth certain information regarding the timing of the lease term expirations (excluding extension options) on our 1,099 net leased, single-tenant retail properties as of December 31, 2001 (dollars in thousands):

Year
Number of Leases Expiring(1) Annualized Rent(1(2) Percent of Annualized Rent

2002 88 $ 7,115 5.6%

2003 78 6,596 5.2

2004 118 10,161 8.1

2005 84 6,574 5.2

2006 75 6,723 5.3

2007 92 6,348 5.0

2008 63 5,670 4.5

2009 28 2,488 2.0

2010 44 3,798 3.0

2011 35 5,302 4.2

2012 48 5,690 4.5

2013 70 12,348 9.8

2014 35 6,287 5.0

2015 36 4,291 3.4

2016 14 1,497 1.2

2017 13 4,592 3.6

2018 16 1,702 1.3

2019 49 8,241 6.5

2020 10 3,664 2.9

2021 95 14,487 11.5

2023 2 341 0.3

2026 2 372 0.3

2033 2 1,118 0.9

2034 2 834 0.7

Totals 1,099 $126,239 100.0%

(1) This table does not include five multi-tenant properties and 20 vacant, unleased single-tenant properties owned by the Company and properties owned by our subsidiary Crest Net Lease. The lease expirations for properties under construction are based on the estimated date of completion of such properties.
(2) Annualized rent is calculated by multiplying the monthly contractual base rent as of December 31, 2001 for each of the properties by 12 and adding the previous 12 month's historic percentage rent, which totaled $1.7 million (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property.

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