Monthly Lease Revenue = Monthly Dividends

Proactive Portfolio Management

"In portfolio management, we know who we're working for!" comments Mark Selman, Senior Vice President of Portfolio Management. "We know that our shareholders rely upon the lease revenue we receive every month to support the monthly dividend payment they receive every month." His team knows that to keep generating this lease revenue like clockwork, Realty Income must effectively manage its real estate assets so that occupancy remains high. And, for dividend safety, the Company must also make sure that the lease revenue is diversified across many different retail industries, chains and geographic locations.

Realty Income's management team is pleased to report that the retail chains leasing the Company's properties are generally performing well. As of December 31, 2004 portfolio occupancy was 97.9% and there were just 32 properties available for lease out of 1,533 properties in the portfolio. The Company also enjoyed same store rent increases in the portfolio of 1.8% during the year. In addition, the lease revenue is diversified across 30 retail industries, 93 retail chains and 48 different states. This is impressive performance for the portfolio management team Realty Income has assembled.

Another important aspect of managing the Company's real estate assets well is to know if a particular property should be sold. This is not only a strategic option during investment performance analysis, but is also another source of capital for the Company's portfolio acquisitions. Property sales occur when management believes sale proceeds can be reinvested at higher returns, the sale of a property enhances portfolio credit quality or selling a property increases the average remaining lease term in the portfolio. During 2004 Realty Income sold 43 properties for $35.4 million, all of which met this criteria.

The success of the Company's real estate portfolio management activities are particularly noteworthy considering the large number of lease expirations during 2004. Throughout the course of the year 124 leases came up for renewal and were efficiently handled by Realty Income's portfolio management team. The successful management of these lease expirations contributed to the strong performance of the property portfolio throughout the year.

The primary reason that the portfolio management department has enjoyed such strong performance is because they proactively manage the property portfolio. Instead of waiting for a lease to expire to discover a retailer's intentions, they enter into discussions considerably in advance of the expiration date. The team also monitors the markets where Realty Income owns properties, with leases that are scheduled to expire, to gauge whether or not it would be advantageous to sell the property upon lease expiration. The portfolio management team also stays on top of the operations of all 1,533 properties in the portfolio and how well the properties are performing so that any unpleasant surprises can be minimized.

This combination of expertise and foresight has proved to be a winning equation in the management of Realty Income's real estate assets in 2004. But as proficient as this team has been in keeping portfolio occupancy strong, the Company has also been fortunate that its retailers have performed well during a volatile consumer environment in 2004. Management attributes this to the fact that the majority of its retailers provide basic human needs goods and services that consumers use every day. However, the portfolio management team wants shareowners and investors to know that there is always the possibility a tenant could encounter financial difficulties and struggle to pay rent no matter how "recession-proof" their retail business may seem to be. This has happened in the past and will most likely happen again in the future. They remind our readers that this is "business as usual" and goes with the territory of owning a large portfolio of properties.

Fortunately, in Realty Income's 36-year history, portfolio occupancy has been in excess of 97%. This demonstrates that the Company has successfully managed the property portfolio throughout a variety of retail, consumer and economic environments. "With hard work and vigilance our goal is to be able to make that statement 36 years from now" concludes Mr. Selman.