Realty Income - Press Release

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

ESCONDIDO, CALIFORNIA, February 6, 2003 — Realty Income Corporation (Realty Income), The Monthly Dividend Company®, (NYSE: O) announces operating results for the fourth quarter and year ended December 31, 2002.

COMPANY HIGHLIGHTS
For the year ended December 31, 2002:

Revenue increased 13.8% to $141.0 million
Funds from Operations (FFO) increased 22.2% to $95.1 million
FFO per diluted common share increased 5.3% to $2.80 per share
Same store rents increased 1.3% to $109.97 million
Portfolio occupancy was 97.7%
Invested $133.3 million in 108 additional properties at a 10.4% lease rate
Increased the monthly dividend amount for the 21st consecutive quarter to an annual rate of $2.34 per share
Paid the 389th consecutive monthly dividend in December 2002
Provided a total return to shareholders of 26.9%

Financial Results

Revenue Increases
Realty Income's revenue for the fourth quarter ended December 31, 2002 increased 12.3% to $37.3 million as compared to $33.2 million for the same quarter in 2001.

Revenue for the year ended December 31, 2002 increased 13.8% to $141.0 million from $123.9 million for the same period in 2001.

Funds from Operations
FFO for the quarter ended December 31, 2002 increased 13.5% to $25.3 million as compared to $22.3 million for the same quarter in 2001. On a diluted per common share basis, FFO increased 2.9% to $0.72 per share compared to $0.70 per share for the same period in 2001.

For the year ended December 31, 2002, FFO increased 22.2% to $95.1 million as compared to $77.8 million in 2001. On a diluted per common share basis, FFO increased 5.3% to $2.80 per share as compared to $2.66 per share in 2001.

FFO is a widely used measure of REIT performance that excludes non-cash charges, primarily for the depreciation of real estate, and gains on sales of investment properties. FFO is an alternative non-GAAP measure of a company's cash flow and of its ability to pay dividends (See reconciliation of net income to FFO on page six).

Net Income Available to Common Stockholders
Net income available to common stockholders for the quarter ended December 31, 2002 was $17.7 million as compared to $16.0 million for the same period in 2001. On a diluted per common share basis, net income was $0.51 per share as compared to $0.50 per share for the quarter ended December 31, 2001.

The calculation to determine net income for a real estate company includes gains and losses from the sale of investment properties. The amount of gains and losses varies from quarter to quarter according to the timing of property sales. This variance can significantly impact net income.

Excluding the gain on sales of investment properties and income from discontinued operations during the fourth quarter of each year, income from operations available to common stockholders increased by $0.05 to $0.49 per share in 2002 as compared to $0.44 per share in 2001, on a diluted per common share basis.

Net income available to common stockholders, for the year ended December 31, 2002, was $69.0 million as compared to $57.8 million in 2001. On a diluted per common share basis, net income available to common stockholders was $2.03 per share as compared to $1.98 per share in 2001.

Excluding the gain on sales of investment properties and income from discontinued operations, income from operations available to common stockholders increased by $0.29 to $1.86 per share in 2002 as compared to $1.57 per share in 2001, on a diluted per common share basis.

Dividend Information
In December 2002, Realty Income announced the 21st consecutive quarterly increase in the amount of the monthly dividend on its common stock. This marked the 23rd increase in the amount of the dividend since the Company's listing on the New York Stock Exchange in 1994. The amount of the monthly dividend was increased to $0.195 per share for an annualized dividend amount of $2.34 per share. During 2002, Realty Income paid twelve monthly dividends totaling $2.3025 per common share and increased the amount of the monthly dividend four times. The Company continues its 33-year policy of declaring and paying common stock dividends every month.

During 2002 Realty Income also paid twelve monthly dividends totaling $2.375 per share on its Class C preferred stock and four quarterly dividends totaling $2.34372 per share on its Class B preferred stock.

Real Estate Portfolio Update

As of December 31, 2002 Realty Income's portfolio of freestanding, single-tenant retail properties consisted of 1,197 properties located in 48 states, leased to 79 retail chains doing business in 24 retail segments. The properties are leased under long-term, net leases with a weighted average remaining lease term of approximately 10.9 years.

Portfolio Management Activities
The Company's portfolio of retail real estate properties, owned primarily under 15- to 20-year net leases, continues to perform well and provide dependable lease revenue supporting the payment of monthly dividends. As of December 31, 2002, portfolio occupancy was 97.7% with only 27 properties available for lease out of 1,197 properties in the portfolio.

Same store rents on the 950 properties under lease during the three months ended December 31, 2002 and 2001 increased 1.0% to $28.38 million from $28.10 million in 2001. Same store rents on the same 950 properties under lease during the twelve months ended December 31, 2002 and 2001 increased 1.3% to $109.97 million compared to $108.52 million in 2001.

Property Acquisitions
During the fourth quarter, Realty Income invested $17.8 million in eight new properties and properties under development with an initial contractual lease yield of 10.7%. The new properties are located in six states and are 100% leased under net-lease agreements with an initial average lease length of 16.5 years. They are leased to seven different retail chains in five industries: automotive service, craft and novelty, health and fitness, restaurant and theater.

For the year ended December 31, 2002, the Company invested $133.3 million in 108 new properties and properties under development with an initial contractual lease yield of 10.4%. The new properties are located in 24 states and are 100% leased under net-lease agreements with an initial average lease length of 19.8 years. They are leased to 14 different retail chains in ten industries: automotive parts, automotive service, convenience store, craft and novelty, entertainment, health and fitness, office supply, restaurant, shoe store and theater.

The Company believes the acquisition market for freestanding, net-lease, retail properties remains attractive. During 2002 the Company analyzed over 78 separate transactions involving 808 properties with an approximate market value of $1.2 billion. From these opportunities, Realty Income selected the 108 properties it acquired in 11 separate transactions totaling $133.3 million. In addition, Crest Net Lease, Inc., a subsidiary of the Company, acquired three properties, in three separate transactions, totaling $6.1 million. As such, the Company and its subsidiary invested in approximately 13% of the opportunities it reviewed during 2002.

During 2003, 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 public securities. Realty Income maintains a credit facility with borrowing capacity of $250 million, which is used to fund acquisitions. The outstanding balance on the Company's acquisition credit facility at year-end was $109.7 million.

Property Dispositions
Realty Income continued to successfully execute its asset disposition program during 2002. The objective of the program is to sell assets when the Company believes the reinvestment of the sale proceeds will generate higher returns, enhance the credit quality of the Company's real estate portfolio or increase the average lease length.

During the quarter ended December 31, 2002, Realty Income sold ten properties for $4.2 million and reported a gain on sales of $813,000. These gains are included in income from discontinued operations. The properties sold consisted of child care and restaurant locations. The proceeds were, or will be used, to pay down the Company's acquisition credit facility and invest in new properties.

For the year ended December 31, 2002, the Company sold 35 properties for $20.2 million and recorded a gain on sales of $6.3 million. The properties sold were in the following industries: automotive parts, automotive service, child care, health and fitness, home furnishing, home improvement and restaurant. In accordance with Generally Accepted Accounting Principles (GAAP), these gains are primarily included in income from discontinued operations.

Other Activities

Crest Net Lease
Crest Net Lease Inc., a subsidiary of Realty Income, is focused on acquiring and subsequently marketing net-leased properties for sale. During the fourth quarter ended December 31, 2002, Crest sold six properties for $7.1 million and reported a gain on sales of $1.0 million. During the quarter Crest did not acquire any new properties.

During 2002, Crest sold 23 properties for $27.3 million and reported a gain on sales of $3.5 million. Crest also invested $6.1 million in three new properties and properties under development. As of the end of the year Crest carried an inventory of $4.6 million, which consists of four properties held for sale.

Management believes that Crest will carry an average inventory of between $20 to $25 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 the 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 Crest depends on the timing and the number of property sales achieved, if any, in a given period. During the fourth quarter and year ended December 31, 2002, Crest generated $0.02 and $0.08, respectively, per diluted common share in FFO for Realty Income, as compared to $0.03 and $0.08 in 2001.

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 2002 was a very good year for The Monthly Dividend Company®. We ended the year with record revenue, earnings, dividends and a substantial increase in the size and diversification of the Company's real estate portfolio. We also enjoyed four dividend increases and saw the price of our shares increase from $29.40 at the beginning of the year to $35.00 at the end of the year. Including dividend and share price increases, the total return to shareholders for 2002 was a healthy 26.9%.

"We were also gratified with the Company's continued access to the public capital markets during 2002. We completed two equity offerings over the course of the year, which 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 low 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 subsidiary, Crest Net Lease, performed well and produced a contribution of over $2.7 million, or $0.08 per share, to Realty Income's funds from operations.

"Looking forward to 2003, 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 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 2003.

"We are fortunate that, as The Monthly Dividend Company® we have continued to offer a dependable source of monthly income to our shareholders throughout market swings and economic uncertainties. We continue to grow our FFO faster than dividends, providing solid dividend coverage and a reduced FFO payout ratio which adds to dividend safety."

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, lease rollovers, the general real estate market, the economy, and the operations of Crest Net Lease.

2002 Estimates
Management estimates that FFO per common share for 2003 should range from $2.93 to $2.95, which would equate to an increase of approximately 4.6% to 5.4% over 2002 FFO per share of $2.80.

Management estimates Crest Net Lease, Inc. will generate between $0.06 to $0.08 per share of FFO during 2003. Crest's primary business is the purchase and sale of properties at a profit. These sales may occur at various 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 any 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 future results 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, 2002, the Company had paid 389 consecutive monthly dividends throughout its 33-year operating history. The monthly income is supported by the cash flows from approximately 1,200 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 the three months and years ended December 31, 2002 and 2001
(dollars in thousands, except per share amounts)

	Three Months Ended 12/31/02	Three Months Ended 12/31/01	Year Ended 12/31/02	Year Ended 12/31/01

REVENUE
Rental	$ 36,188	$ 32,116	$ 137,138	$ 119,713
Gain on sales of real estate aquired for resale	1,035	1,001	3,495	3,374
Interest and other	41	107	347	822

	37,264	33,224	140,980	123,909

EXPENSES
Interest	6,209	5,740	23,536	26,466
Depreciation and amortization	8,097	7,353	30,833	28,447
General and administrative	2,405	2,020	9,454	7,840
Property	699	669	2,676	2,381
Other	354	479	1,744	1,792
Provision for impairment losses	--	330	--	1,380

	17,764	16,591	68,243	68,306

Income from operations	19,500	16,633	72,737	55,603
Gain on sales of investment properties	--	1,556	340	10,478

Income from continuing operations	19,500	18,189	73,077	66,081
Income from discontinued operations	607	234	5,590	1,477

Net Income	20,107	18,423	78,667	67,558
Preferred stock dividends	(2,428)	(2,428)	(9,713)	(9,712)

Net income available to common stockholders	$ 17,679	$ 15,995	$ 68,954	$ 57,846

Funds from operations (FFO)	$ 25,294	$ 22,331	$ 95,068	$ 77,828
Per share information for common stockholders:
FFO
Basic	$ 0.73	$ 0.70	$ 2.80	$ 2.66
Diluted	0.72	0.70	2.80	2.66
Income from operations
Basic and diluted	0.49	0.44	1.86	1.57
Net Income
Basic and diluted	0.51	0.50	2.03	1.98
Cash dividends paid	0.581	0.566	2.303	2.243

FUNDS FROM OPERATIONS
For the three months and years ended December 31, 2002 and 2001
(dollars in thousands, except per share amounts)

Three Months Ended
12/31/02

Three Months Ended
12/31/01

Year Ended
12/31/02

Year Ended
12/31/01

Net income available to common stockholders   $ 17,679   $ 15,995   $ 68,954   $ 57,846

Depreciation and amortization:
   Continuing operations 8,097 7,353 30,833 28,447

   Discontinued operations 23 169 394 678

Depreciation of furniture,
   fixtures and equipment (32) (30) (136) (115)

Provision for impairment losses:
   Continuing operations --   330 --   1,380

   Discontinued operations 340 70 1,320 70

Gain on sales of
   investment properties:
   Continuing operations --   (1,556) (340) (10,478)

   Discontinued operations (813) --   (5,957) --

Funds from operations   $ 25,294   $ 22,331   $ 95,068   $ 77,828

Dividends paid to
   common stockholders   $ 20,269   $ 17,966   $ 78,042   $ 64,871

FFO in excess of dividends   $ 5,025   $ 4,365   $ 17,026   $ 12,957

FFO per common share:
   Basic   $ 0.73   $ 0.70   $ 2.80   $ 2.66

   Diluted    0.72    0.70    2.80    2.66

Weighted average number of common shares used for:

Computation per share
   Basic 34,871,485 32,077,535 33,933,749 29,225,359

   Diluted 34,928,294 32,129,601 33,988,157 29,281,120

FUNDS FROM OPERATIONS GENERATED BY CREST NET LEASE
For the three months and years ended December 31, 2002 and 2001
(dollars in thousands, except per share amounts)

Gains from the sales of real
   estate acquired for resale   $ 1,035   $ 1,001   $ 3,495   $ 3,374

Rent and other revenue 161 524 1,422 1,816

Interest expense (76) (196) (395) (869)

General and administrative
   expense (70) (79) (410) (496)

Property expenses (13) --   (117) --

Income taxes (230) (431) (1,247) (1,400)

Funds from operations
   contributed by Crest Net   $ 807   $ 819   $ 2,748   $ 2,425

FFO per common share
   Basic and diluted   $ 0.02   $ 0.03   $ 0.08   $ 0.08

CONSOLIDATED BALANCE SHEETS
As of December 31, 2002 and 2001
(dollars in thousands, except per share amounts)

2002
2001

ASSETS

Real estate, at cost:

    Land $    467,488 $    412,455

    Buildings and improvements 818,412 765,707

1,285,900 1,178,162

    Less accumulated depreciation
       and amortization (254,250) (233,848)

    Net real estate held for investment 1,031,650 944,314

    Real estate held for sale, net 6,528 23,356

       Net real estate 1,038,178 967,670

Cash and cash equivalents 8,921 2,467

Accounts receivable 4,408 4,857

Goodwill, net 17,206 17,206

Other assets 11,517 11,508

     Total assets $ 1,080,230 $ 1,003,708

LIABILITIES AND STOCKHOLDERS' EQUITY

Distributions payable $       6,801 $       6,238

Accounts payable and accrued expenses 5,047 5,834

Other liabilities 6,227 4,543

Lines of credit payable 109,700 85,300

Notes payable 230,000 230,000

    Total liabilities 357,775 331,915

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

Common stock and paid in capital, par
    value $1.00 per share, 100,000,000
    shares authorized, 34,874,827 and
    32,829,111 shares issued and
    outstanding in 2002 and 2001,
    respectively 855,818 795,505

Distributions in excess of net income (232,731) (223,080)

    Total stockholders’ equity 722,455 671,793

    Total liabilities and stockholders’ equity $ 1,080,230 $ 1,003,708

Industry Diversifcation

The following table sets forth certain information regarding our properties classified according to the business of the respective tenants, expressed as a percentage of our total rental revenue:

Percentage of Rental Revenue⁽¹⁾

Annualized⁽²⁾ Rent as of Dec 31, 2002 For the Years Ended

Industry
Dec 31, 2002

Dec 31, 2001

Dec 31, 2000

Dec 31, 1999

Dec 31, 1998

Dec 31, 1997

Dec 31, 1996

Apparel Stores 2.2% 2.3% 2.4% 2.4% 3.8% 4.1% 0.7% --%

Automotive Parts 7.2    7.6    8.3    8.3    8.6    7.8    9.1    10.5

Automotive Service 8.9    7.0    5.7    5.8    6.6    7.5    6.4    4.8

Book Stores 0.4    0.4    0.4    0.5    0.5    0.6    0.5    --

Business Services 0.1    0.1    0.1    0.1    0.1    *    --    --

Child Care 19.5    20.8    23.9    24.7    25.3    29.2    35.9    42.0

Consumer Electronics 3.2    3.3    4.0    4.9    4.4    5.4    6.5    0.9

Convenience Stores 10.3    9.1    8.4    8.4    7.2    6.1    5.5    4.6

Craft and Novelty 0.5    0.4    0.4    0.4    0.4    *    --    --

Drug Stores 0.2    0.2    0.2    0.2    0.2    0.1    --    --

Entertainment 2.7    2.3    1.8    2.0    1.2    --    --    --

General Merchandise 0.5    0.5    0.6    0.6    0.6    *    --    --

Grocery Stores 0.5    0.5    0.6    0.6    0.5    *    --    --

Health and Fitness 4.1    3.8    3.6    2.4    0.6    0.1    --    --

Home Furnishings 5.1    5.4    6.0    5.8    6.5    7.8    5.6    4.4

Home Improvement 1.1    1.2    1.3    2.0    3.6    *    --    --

Office Supplies 2.0    2.1    2.2    2.3    2.6    3.0    1.7    --

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

Private Education 1.2    1.3    1.5    1.4    1.2    0.9    --    --

Restaurants 12.6    13.5    12.2    12.3    13.3    16.2    19.8    24.4

Shoe Stores 0.9    0.8    0.7    0.8    1.1    0.8    0.2    --

Sporting Goods 3.9    4.1    0.9    --    --    --    --    --

Theaters 4.2    3.9    4.3    2.7    0.6    --    --    --

Video Rental 3.3    3.3    3.7    3.9    4.3    3.8    0.6    --

Other 3.8    4.4    5.2    6.0    5.7    6.0    7.3    8.4

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

* Less than 0.1%
(1) The table does not include properties owned by our subsidiary, Crest Net Lease.
(2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of December 31, 2002 for each of the properties by 12, and adding the previous 12 month's historic percentage rent on properties owned at December 31, 2002, which totaled $1.6 million (i.e., percentage rent is calculated as a percentage of the tenants' 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.

Segmentation by Category

The following table sets forth certain information regarding properties owned by Realty Income at December 31, 2002, classified according to the retail business types and the level of services they provide (dollars in thousands):

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

TENANTS PROVIDING SERVICES

Automotive Service 182 $ 12,809 8.9 %

Child Care 315 27,987 19.5

Entertainment 10 3,862 2.7

Health and Fitness 9 5,961 4.1

Private Education 5 1,738 1.2

Theaters 11 5,996 4.2

Other 9 5,487 3.8

541 63,840 44.4

TENANTS SELLING GOODS AND SERVICES

Automotive Parts (with
installation) 65 6,074 4.2

Business Services 1 124 0.1

Convenience Stores 117 14,828 10.3

Home Improvement 5 187 0.1

Pet Supplies and Services 6 1,570 1.1

Restaurants 216 18,193 12.6

Video Rental 34 4,715 3.3

444 45,691 31.7

TENANTS SELLING GOODS

Apparel Stores 5 3,103 2.2

Automotive Parts 73 4,292 3.0

Book Stores 2 610 0.4

Consumer Electronics 36 4,660 3.2

Craft and Novelty 3 745 0.5

Drug Stores 1 235 0.2

General Merchandise 11 687 0.5

Grocery Stores 2 734 0.5

Home Furnishings 38 7,289 5.1

Home Improvement 13 1,377 1.0

Office Supplies 9 2,846 2.0

Pet Supplies 4 761 0.5

Shoe Stores 4 1,254 0.9

Sporting Goods 11 5,611 3.9

212 34,204 23.9

Totals 1,197 $ 143,735 100.0 %

(1) The table does not include properties owned by our subsidiary, Crest Net Lease.
(2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of December 31, 2002 for each of the properties by 12, and adding the previous 12 month's historic percentage rent on properties owned at December 31, 2002, which totaled $1.6 million (i.e., percentage rent is calculated as a percentage of the tenants' 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.

Lease Expiration

The following table sets forth certain information regarding the timing of the initial lease term expirations (excluding extension options) on our 1,165 net leased, single-tenant retail properties as of December 31, 2002 (dollars in thousands):

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

2003 89 $ 7,812 5.7 %

2004 123 10,519 7.6

2005 88 6,855 5.0

2006 75 6,657 4.8

2007 117 8,584 6.2

2008 64 5,831 4.2

2009 29 2,801 2.0

2010 42 3,697 2.7

2011 35 5,356 3.9

2012 51 6,223 4.5

2013 70 12,355 9.0

2014 36 6,546 4.7

2015 32 3,428 2.5

2016 14