FOCUSED INVESTMENT STRATEGY The retail chains leasing Realty Income’s properties are generally performing well. The retail chains we lease to are primarily middle market retailers providing goods and services, with low price points, that consumers use every day. In addition, our acquisition focus is on a very specific type of retail real estate—freestanding, single-tenant properties leased under long-term, net leases where the tenant pays the property taxes, maintenance and insurance.

Over the past 33 years, our experience has been that by investing in these types of properties and retail tenants, we have been less subject to fluctuations in the economy and real estate markets.

CONSISTENT REAL ESTATE PERFORMANCE The Company continues to strive to build a portfolio of properties that generates dependable lease revenue. Each retail industry, retail chain and real estate location is carefully researched prior to acquiring the property. This focus on research, one of our primary competitive advantages, is directly responsible for sound portfolio performance in this economy.

As of December 31, 2001, we had just 20 properties available for lease out of 1,124 properties. This high occupancy rate is a direct result of our retail and real estate research that leads to the execution of long-term lease agreements with recognized regional and national retail store operators in quality real estate locations.

Same store rents on our core portfolio of properties increased 1.8% during 2001.

We are extremely pleased with the performance of our portfolio and the increasing rents it generated during a year of economic turmoil.

PROACTIVE PROPERTY DISPOSITIONS Our portfolio disposition program focuses on selling properties 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 terms. The portfolio disposition program made excellent progress in 2001, selling 35 properties for $39.5 million. This provided us with an additional source of capital for new investments during the year.

SUBSIDIARY CONTRIBUTIONS Crest Net Lease also had a very good year in 2001.

Crest was formed to capitalize on the opportunities to acquire and sell properties for a profit. During 2001, Crest acquired 26 properties in nine separate transactions for $24.7 million. Crest also sold nine properties during the year for $28.9 million. The subsidiary’s after-tax profit for the year was over $2.4 million and it contributed $0.08 per share to Realty Income’s FFO in 2001.