As we begin 2004, we find ourselves in the midst of a recovering economy with competition in our market that is both cut-throat and price sensitive. To sum up today's landscape, the field is crowded, price sensitive and demanding.

How have we reacted to this new operating reality? During 2003, we turned a critical eye to this competitive market and asked ourselves how we could compete and add value to our customers. Our search to add value led us to focus on a new market, real estate investment banking, where our competitive strengths help retail chains and private equity firms use real estate to finance retail chain acquisitions or recapitalizations. This resulted in a record number of property acquisitions at attractive lease rates for Realty Income during the year. It also brought many of our strengths to bear for the benefit of our customers. These strengths include:

• Quick reflexes: Reacting quickly to an opportunity greatly increases the odds of successfully completing a transaction. Our acquisition officers, retail research, real estate research and legal staff are a major strength of our organization. Their ability to analyze opportunities and act quickly is vital to a quick decision and immediate action by our Investment Committee. Using our systems, controls and experience to act quickly adds value for our customers.

• Creative Structuring: Over the last 35 years we've learned there are a variety of ways to structure a transaction. Our Investment Committee, in concert with our acquisition staff and legal team, seek to creatively structure potential transactions in a manner that will add the greatest value to our customers.

• Financial Resources: Our ability to commit large amounts of capital to a transaction is critical to our ability to access new acquisitions in a competitive market. Realty Income has received investment grade corporate credit ratings from Fitch Credit Rating Services, Moody's Investors Services and Standard & Poor's. These ratings, coupled with our conservative capital structure, have allowed us to assemble sizable resources to fund potential transactions. The Company initially funds its property acquisitions with a $250 million unsecured acquisition credit facility provided by Wells Fargo Bank, N.A., The Bank of New York, Bank of America, N.A., Wachovia Bank, National Association, AmSouth Bank, Bank of Montreal, U.S. Bank National Association, BANKONE, N.A., and Chevy Chase Bank, FSB. When the balance on our credit facility reaches $100 to $150 million, our capital markets professionals, working with our investment bankers, generally seek to issue common equity, preferred equity or unsecured notes in just a few days, to permanently finance a transaction and clear our credit facility for future purchases. Because of our consistent access to large amounts of capital at attractive rates, our customers know that Realty Income has the ability to immediately fund time-sensitive transactions when we commit to them.

• Ability to Close Quickly: A significant benefit to accessing capital quickly is our ability to also complete a transaction quickly. In a merger or acquisition transaction, the ability to perform within a specific time frame is crucial. We have a sizable in-house legal staff with years of experience in working through detailed lease agreements and closing documents. In many cases, a retailer's favorable experience with our legal staff has led to additional transactions.

• No Financing Contingencies: Our ability to commit to a transaction without financing contingencies is very important to our customers. We are able to do this because we are turning a retailer's real estate assets into cash when we purchase their properties, as opposed to providing public or private debt financing. This avoids costly loan fees, third party approvals, legal review, and other transaction expenses that may be incurred when using other forms of capital to finance a transaction.

• Ease of Transaction: Realty Income maintains strong working relationships with appraisal, title, environmental, and other professional organizations that allow us to take over most of the aspects of a transaction for a customer. In every acquisition opportunity, our goal is for the first transaction to begin a long-term business relationship. Thirty-five years of experience, as well as the quality of our staff of professionals in real estate acquisitions, corporate finance, legal, retail research and real estate research, allows us to provide excellent service to our customers. Though this may not be readily apparent at the preliminary stages of a new relationship, during the ensuing discussions and day-to-day contact with members of our firm, we strive to demonstrate the ease of doing business with us to our customers.

• Perform as Promised: During the search for new business and the intense negotiations of a transaction, there can be a tendency for many companies to "over promise and under deliver" to their customers. Our team seeks to deliver on all of its promises and complete transactions in a manner that leads to additional business with our existing customers.