Money, Money, Money

Access to Capital-The Driver of Dividend Growth

Ralph Waldo Emerson once said that "the value of money depends on the skill of the spender". Ready access to money, or capital, is the fuel for Realty Income's property acquisition efforts, which are the primary driver for the growth in the Company's revenue and dividends. Consequently, the capital markets department of Realty Income spends a great deal of time building and maintaining relationships with, as well as reporting operating results to, the financial markets that are the sources of the Company's capital. Over the years Realty Income has forged solid working relationships with many of the nation's leading commercial and investment banking organizations.

For instance, the banks providing the Company's short-term financing vehicle, a $250 million dollar acquisition credit facility, are a "who's who" in the banking industry. Wells Fargo Bank, N.A. is the sole Administrative Agent and The Bank of New York is the sole Documentation Agent for the credit facility. They are joined by the Bank of America, N.A. and Wachovia Bank, National Association, as co-Syndication Agents. In addition, AmSouth Bank, Bank of Montreal, U.S. Bank, JP Morgan and Chevy Chase Bank, FSB also participate as lenders in the credit facility.

There is also an impressive array of research analysts providing investors and financial services professionals with in-depth reports on the Company's current financial condition as well as its prospects for the future. A.G. Edwards & Sons, Inc, BB&T, Bank of America Securities, Crowell Weedon and Citigroup Smith Barney all cover the Company, as do Credit Suisse First Boston, Ferris Baker Watts, JP Morgan, Merrill Lynch, Raymond James, RBC Capital Markets, R.W. Baird, Stifel Nicolas, and Wachovia Securities. All of the analysts for these companies stay on top of the Company's performance and provide the investment community with updates on Realty Income throughout the year.

The Company is also monitored by the major credit rating agencies. These agencies rate the Company's senior notes and preferred securities. It is the responsibility of Realty Income's Chief Executive Officer, Tom Lewis, and Chief Financial Officer, Paul Meurer, to regularly meet with the analysts at these agencies and inform them of the Company's current activities and latest financial profile. This information is critical to maintaining the Company's investment grade ratings on its senior notes and preferred shares outstanding. Currently, Mr. Meurer reports that the Company carries the following solid investment grade ratings: its senior notes are rated BBB by Fitch Ratings, Baa2 by Moody's Investors Services and BBB by Standard & Poor's Ratings Group, and its Preferred D shares are rated BBB- by Fitch Ratings, Baa3 by Moody's Investors Services and BBB- by Standard & Poor's Ratings Group.

Perhaps the most important activity of the capital markets department, however, is its ability to access capital to permanently fund new property acquisitions and reduce any outstanding balance on the Company's acquisition credit facility. This is in keeping with Realty Income's philosophy of quickly issuing long-term capital so that variable rate debt is kept to a minimum and exposure to interest rate risk is reduced. This prudent, long-term Company policy has been instrumental in minimizing the impact interest rates might otherwise have had on Realty Income's cash flow throughout its operating history.

The capital markets group provided the funds to finance acquisitions during 2004, by issuing both common and preferred stock. In March 2004, Realty Income issued 3.2 million shares of common stock in an offering underwritten by Merrill Lynch & Co. and A.G. Edwards & Sons, Inc. as co-lead managers, with Citigroup, RBC Capital Markets and Wachovia Securities as senior co-managers, and Raymond James as co-manager. Realty Income received gross proceeds of $72 million from this offering.

In addition, the Company issued 4 million shares of Class D Preferred shares in May 2004, raising gross proceeds of $100 million. The offering was underwritten by Citigroup, Merrill Lynch & Co., Wachovia Securities and Credit Suisse First Boston as co-lead managers, along with A.G. Edwards, Raymond James, and RBC Capital Markets as senior co-managers, and BB&T, Crowell Weedon & Co., Ferris Baker Watts, Inc., Piper Jaffray and Wells Fargo Securities, LLC as co-managers. Demand was strong for the Preferred D shares so the Company did a follow-on offering of an additional 1.1 million shares, raising another $28 million in gross proceeds during October 2004. This offering was underwritten solely by Credit Suisse First Boston.

Finally, Realty Income also redeemed all outstanding shares of its Class B and Class C preferred shares. "All in all, a busy year for the capital markets group!" concludes Mr. Meurer.