Good afternoon, ladies and gentlemen. Thank you so for much for standing by and welcome to the Realty Income Fourth Quarter Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) As a reminder, this conference is being recorded today on Thursday, February 12, 2009. I will now turn the conference over to Mr. Tom Lewis, CEO of Realty Income. Please go ahead, sir.

Thank you very much, Michael and good afternoon, everyone. Thanks for joining us for our review of operations and results for the fourth quarter and 2008 overall. In the room with me today is Paul Meurer, our Executive Vice President and Chief Financial Officer, Gary Malino, our President and Chief Operating Officer; Mike Pfeiffer, our Executive Vice President and General Counsel. And as always, during this conference call, we will make certain statements that may be considered to be forward-looking statements under Federal Securities law. The company’s actual future results may differ significantly from the matters discussed in any forward-looking statements, and we will disclose in greater detail on the company’s quarterly and on Form 10-K the factors that may cause such differences. Anyway, as we normally do, we will have Paul start with a review of the numbers and then we will come back trying to give some color for what went on in the fourth quarter. Paul?

Thanks, Tom. As usual, let me comment on the financial statements, and provide some highlights of those financial results for the quarter, and starting with the income statement. Total revenue increased 3.2% for the quarter and 12.2% for the year. Rental revenue for the quarter was approximately $82.6 million for an annualized run rate now of about $331 million. Same-store rental revenue increased only 0.4% for the quarterly period. However, excluding Buffets, same-store rental growth was healthier at 1.5% for the quarter. Other income was only $83,000 for the quarter. On the expense side, interest expense remained flat for the quarter at around $22.7 million. We had zero borrowings on our credit facility throughout the entire year of 2008. On a related note, our interest coverage ratio finished the year strong at 3.2 times, while our fixed-charge coverage ratio was 2.6 times. Our coverage ratios will likely be even stronger in 2009 because of the recent retirement of the $120 million of bond which we paid off in the past two months. Depreciation and amortization expense increased by just under $2 million in the comparative quarterly period, as depreciation expense naturally has increased as the portfolio has grown over time. General and administrative expenses, or G&A, expenses for the fourth quarter were under $5.1 million, a reduction of over $400,000 from last year. For the year, G&A was down about $1.1 million. G&A represented only 6.1% of total revenues for the quarter and 6.5% for the year. We expect G&A expenses in 2009 to remain at only about 6.5% to 7% maximum of total revenues. Property expenses increased by $855,000 for the quarter and by $2.3 million for the year. These expenses are primarily associated with the taxes, maintenance, and insurance expenses, which we are responsible for on properties available…

Thanks, Paul. I will start with the portfolio. Obviously, it is doing pretty well today, especially given the state of the world. I would like, before I go through the numbers to say with that said, obviously retail is a tough place today and all of our tenants operate in the same economy that everybody else does and certainly, it is challenging for some of them. We have worked with a few of them to get through this period. But to date, to be frank, we have dodged a lot of bullets relative to the filings that you have seen out there with retailers. And in a few cases where we have had tenants that have had to file, we either have had just a property or two or three or we loan them more profitable properties and so to date, we haven't had a meaningful impact on our occupancy or on the operations. In all of our calls over the years, I think we have talked a lot about owning the more profitable properties or profitable stores of our tenants and that our high cash flow coverage of the rent repaid at store level is certainly our kind of margin of safety. If an industry or a tenant goes through a period where their revenues are dropping or their margins are impacted and I think that is just especially true today. Our 15 largest tenants today account for about 53.5% of our revenue and if you look at the average cash flow coverage, I know that we do this every quarter, for those of you who listen and on a regular basis. And last quarter, you will recall at the end of the third quarter, the cash flow coverage at the store level for the top 15, an average…

So we will begin the question-and-answer session at this time. (Operator instructions) Our first question is from the line of Michael Bilerman with Citigroup. Please go ahead. Michael Bilerman – Citigroup: Hi there.

I’m sorry.

I’m sorry, Mr. Bilerman.

Did you have a question?

Maybe we’ll move on with it. We’ll move on. If Michael wants to get any, he can queue back up. Sorry about that.

Anthony Polini with JP Morgan. Please go ahead. Anthony Polini – JP Morgan: Okay, thanks. Good afternoon.

Hi. Anthony Polini – JP Morgan: All right. I was looking – if I look at your annualized revenues divided by the occupied number of stores, about $140,000 a year per store it seems. Can you give us a sense as to – if a store goes dark, obviously, you lose the $140,000 but how much expenses would you be on the hope for?

Yes. It obviously varies, which I’m sure you know, but our kind of ballpark around the shop, if you lose a buck of rent, you probably want to add on $0.20 or so in expenses. And that’s a pretty good rule of thumb and then it just depends on the property and age, and what is going on in the part of the country it is in and whether it is a theater or a convenience store. But that is a good ballpark, if you lose a buck of rent you probably want to add on another $0.20 in expenses. Anthony Polini – JP Morgan: Okay, great. And then, I was wondering if you could put some parameters around your auto dealership exposure in terms of maybe brands or domestics versus imports, things like that.

Sure. Obviously, we don’t get into great GPL relative to the individual tenants, but the dealership is primarily one tenant, so it is a good-sized guy. He’s kind one of the largest, most successful in his business. Fortunately, he’s got a fairly strong service business and fair retail running off that because sales throughout the dealership industry whether it is cars, boat, RVs, almost anything, any durable goods is just really severely impacted. So that is the one if you look, at in the third quarter, where I said the range from cash flow coverages was 1.77 to the mid-fours, that’s the one that’s down at 1.22. The good news, if you can call it good news, is the 1.22, I think that’s pretty much assuming no sales, and all of the revenue coming from the other sides of the business. But that’s an impacted one. We’re also fortunate that it’s also somebody who has an extraordinarily good balance sheet. Anthony Polini – JP Morgan: Okay. And then just last question, along the same lines, just movie theaters and how you are feeling about those and their performance these days.

Yes, we feel very good about movie theaters. That has turned out to be as – it’s been speculated sometimes to be cheap entertainment and while people are doing a lot of whatever is required spending in basic human need, low price point, people don’t stop entertaining themselves. And so, I think if you look at people cocooning a little more, but they’re also getting out and when they get out, they’re staying away from very expensive stuff. But the theaters are doing pretty good. If you look last year, I think, they were off a little bit relative to traffic but up in price, and it has been a pretty good slide of movies out there and content always drives the box office. So the numbers we’re getting from our theaters are pretty good and we also had a group of theaters that have particularly high coverage, so I don’t think we have any issues there, Tony. Anthony Polini – JP Morgan: Okay. Thank you.

Thank you. Our next question is from the line if Justin Tissell [ph] of Banc of America. Please go ahead. Justin Tissell – Banc of America: Hi, thanks. Good afternoon, guys.

Hi, Justin. Justin Tissell – Banc of America: Tom, can you just maybe put some numbers around that vacancy loss assumption that you guys have in the guidance for us? And in the last quarter, you mentioned I think 100 basis points. Does that still sound about right or –?

Yes, we widened it out a little bit.

It is a full 1% and really up to 2%, so it is kind of a 1% to 2% bandwidth. You know, when we go to the 2% in kind of our model, if you will, that may assume a few acquisitions on the back end. So if you look at zero acquisitions, then we are looking at kind of 1% to 1.5% occupancy loss. Does that make sense? Justin Tissell – Banc of America: If you look at zero, you’re looking at 1% and 1.5%. Okay, I’m just trying to figure out if you take – to get to the guidance stage, if you take the run rate from this quarter and you annualize it, you essentially get to the low end of the guidance range. So with no acquisitions and vacancy loss, I’m just trying to figure it out.

We have some vacancy lost. We have some, thanks to our rent growth. We have less interest expense, etc.

Our numbers internally at – with zero – get us a little higher. Justin Tissell – Banc of America: Okay. And then when you look at those coverages that you mentioned earlier on, I mean, at what point – when you look at the, I guess, the midpoint of that, that two four in the low end, I mean it looks like the midpoint was down about 15% in the low end, 30%. I mean, at what point do you guys start to get concerned about potentially tenants coming back to try and – either renegotiate leases or on the low end, bankruptcy-type scenarios, I mean have you had increase in levels of concern there, any increasing conversations with your tenants recently?

I don’t know that they’re increasing. We had a lot of discussions with them last year too. But I – it’s interesting, I mentioned earlier, we’ve done 900 lease rollovers and that’s when you get to the end of the lease and the tenants has got to put on the property. So we’ve got a big data base and almost all of the time, if it was less than a 1 to 1, we got it back. If it was a 1 to 1.25, they’re going to want a rent cut or we’re getting it back. At about 1.35, they start going, I’d really need a rent cut. I’d really like one. Gee, this is my put opportunity. But that’s when they start going. I just don’t want to give up that EBITDA because it’s positive. And at 1.5, you’re feeling okay. That can give you a huge margin of safety on the downside, but you’re feeling okay. So sitting up at 2.4 today, and we’ve done a bunch of sensitivities, we took the cash flow coverage in the top 15 that averages 2.4. And then, add the research part and say, “If you took a full another turn of 10% drop in revenue out.” And by the way, a 10% drop in revenue impacts each industry dramatically different. In some, a 10% drop of revenue can take a 2.0 to 1.2. In another industry, a 10% drop takes a 2.0 to 1.8. But if you average it all out, if after the first quarter you had another in 10% drop of revenue, the 2.4 goes to about a 2.0. And it’s really – at 2.0, we’re still very comfortable. And the reason we’ve never underwritten the 2.0 and we wanted it higher is to give us the margin of safety, and now we are using it. But as long as we’re up around 2.0 then I’m comfortable. It gets below that, I get a little more uncomfortable. But at a 1.5, the majority of the stores, somebody is not going to walk away from. What happens though, obviously, is all of these you have a bell curve. And if your bell curve is a 2.4 at the peak, and a 3.77 on the right and a 1.22 on the left, when you do sit out with a retailer, the ones on the left side of the bell curve, you’re going to be talking about a handful of properties with somebody. And that’s been absolutely typical over the years. But at 2.4, we’re still really high. Justin Tissell – Banc of America: Okay. Thank you.

Thank you. Your next question is from the line of Jeff Donnelly with Wachovia Securities. Please go ahead. Jeff Donnelly – Wachovia Securities: Good afternoon, guys.

Hey, Jeff. Jeff Donnelly – Wachovia Securities: I guess continuing that line of questioning, it used to be that you couldn’t help try to avoid retailers or financial institutions that (inaudible) lead counter was on the stores should be attractive not a little economic. But then it go – and what we’re hearing from other landlords, not necessarily just net lease landlords, is that retailers these days seem to be much more arbitrary around their decisions for closing stores because it’s more of a credit than liquidity for them. I’m not sure that’s inventory driven or just balance sheet capacity driven, but is that in your experience of late, have you found it to be less orderly?

You know, it has been a little less orderly and strangely enough, the law of unintended consequences, the new bankruptcy law really tightened up the time they have to make those decisions. So, on the margin, as the time gets close, where they used to sit around and really hem and hob about properties and you’d get there at some point now, they do have to make a decision, and it does cause them maybe to let a few go away where they had before. And we’ve seen a few of those in our numbers. The other thing, Jeff, that comes up today is obviously – and it kind of come in two phases. First which a lot of people filed, and then what happen is the DIP financing or debtor in possession market went away. You went from about 14 lenders out there to two or three, and there had been a couple of cases you’ve seen out there where people couldn’t get DIP financing and went right to chapter seven. What happened now is that has eased up a little and then you’ve had some, I’d say more aggressive individuals enter that market and kind of DIP to own so that has eased up a bit. But it is been a little bit less orderly than it might have been in the past. There are probably a few or some profitable properties went away because somebody couldn’t get financing. But, generally, absent closing a region where you’ll get a few, it still is high casual coverage and you end up in pretty good shape. But you’re making a good point. It is a little more messy today than it has been in the past years. Jeff Donnelly – Wachovia Securities: And I’m curious much of you are able to do this. But if you have to guess where industry wide occupancy was, I guess, for the net lease business, say at year-end 2008, where do you guess, staying where we are today, where do you guess that goes at year-end ’09 and say year-end 2010?

That’s a pretty good guess and calls for a big macro call on the economy, which I don’t have. Fourth quarter was absolute mess, which we all know, albeit really centered around those more consumer durable and non-discretionary. First quarter, actually, January to date, I think things haven’t gotten materially worse, but they haven’t gotten better. And so, then it is your macro call. And I really – I would say it’s almost impossible for me to tell. If you see the economy really start moving soft, again, another round of job cuts takes it in the opposite direction, then you are probably going to see that down at around – I would say our (inaudible) is higher than the industry in general. If it were at 97, I’d put the industry profit around 93, 92 and I’m guessing here. And if you have another good couple of bad turns in the economy, and then I think the whole market might be around 93, 92 and 91. And I would assume we will be a couple of points or something higher. Jeff Donnelly – Wachovia Securities: But I guess what I generally mean – do you think that it’s possible for the industry to shed 300 or 400 basis points for occupancy in a year or just that seems dramatic to you?

The answer is the generic industry, yes. Okay? I think its income is down. This underwriting to cash flow coverage is fairly unusual, although it may not seem to those who follow the rates because it’s talked about. We started doing it about 13, 14 years, 15 years ago. And to my knowledge, the guys at FFCA Spirit did it very effectively, and then a couple of other people in the last few years. But I would say probably 90% of all of the net leases that are in existence, the landlord does not have the ability to look through and understand what the profitability of the unit is, so it’s rather unusual. We’ve underwritten to it, which has been very helpful. So I could very much see another 200 to 300, 400 basis points generically, but I think it would bifurcate off if you knew upfront when you’re underwriting how profitable the properties are and you ought to do a little better. Jeff Donnelly – Wachovia Securities: Are you willing to share at this point, maybe, what’s happened with its income to occupancy in the first 45 days of the year?

No, we report at the end of the quarter, as always. Quite frankly, I thought it might tick down 10 basis points last quarter. We had nine properties go vacant last quarter and much to my surprise, our leasing people had a very active quarter and leased 12 and therein lies the difference between 96.9 and 97. So, I wouldn’t be surprised to see it tick down a bit, but nothing dramatic as of this point. And again, I’m very pleased with the efforts of the people in our Leasing Department over the last few months in this market and I think I’ll continue to be. It is making a huge difference. Again, on our part when we put together, basically, deal with lease rollover, I’m glad that we have it. Jeff Donnelly – Wachovia Securities: So, one last question and maybe this is just looking down the road, which I don’t know how long it is. Clearly, I know we’re not through this predicament yet in the economy and hopefully, there are another side to this chasm, but when we get to that point, are there operating or financing lessons that you guys have gleaned right now from your experiences thus far that maybe incorporate it at that future view?

Yes. It is just for being a little bit shell-shocked through a hundred-year flood, you don’t have some lessons that you’ll hang on to, you’re probably not human. So, while we’ve always thought we wanted high cash flow coverages, I’d think that I’d want them equal or higher; but on the low end, we would do deals in kind of at the 1.75 closeout at the low end for just a few properties that we really like them and I probably wouldn’t do that again, but that’s minor in nature. We’ve always really concentrated on the unsecured underwriting. If we thought that they did get in trouble from balance sheet perspective, then it’d definitely be an 11 and not a 7, and I’d probably look at that even a little bit harder as we’ve seen what’s happened this time with those. Also, you sit there and you say we do basic human needs and low price points and that’s a vast majority of everything we do, and then you always have two or three transactions you did in the seven-year period were outworking. And to be perfectly frank, there’s one that kind of didn’t fit the mold, but we had a good reason and the good reason held up and then there are two where we now sit there and hit ourselves in the forehead and go, “Wait a minute. Didn’t this have two things against if and somehow, because of one property, we bought his one and somehow we did it again.” And so you just – I think if we just go back and be even more strict than what we did, then overall, I’d say I’m pretty pleased thus far in how well it has held up. Jeff Donnelly – Wachovia Securities: Aside from credit, any buys and towards geography or even by industry like restaurants or Hawaii?

I have a definite prejudice for Hawaii and I think it’ll take some due diligence on a senior level in a short-term basis like Maui. But geographically, it’s funny we both stayed a little bit of concentration in the south, in the west, in the east, because you get economic growth and it bails you out of some dumb decisions, and then you get a housing crisis in the area that you were looking at that had the economic growth has the reverse of it and you’re glad that you stayed very well-diversified all the way around. And as long as you’re stating a basic human need, there are people up in the mid west and that’s actually the most stable part of the portfolio right now. As we’ve identified, we continue to see. You don’t want to get too rural, I guess, unless you’re in a convenient on two state routes, so staying close to SMAs, those are all little lessons of the margin stuff we knew, but maybe you could be a little more disciplined in the future then you were in the past. Jeff Donnelly – Wachovia Securities: Okay. Thank you, guys.

All right. Thank you, Michael. Michael Bilerman with Citigroup. Please go ahead. Michael Bilerman – Citigroup: My phone working now?

There we go. Michael Bilerman – Citigroup: There we go.

We can hear you. Michael Bilerman – Citigroup: Greg Schweitzer is on with me as well. Tom, when you look at the expiries this year, you have a much bigger percentage of guys who are on their subsequent expiration that had never renewed in the past versus the initial. Can you drill down a little bit in looking at your expirations this year and time that with 100, 150 basis points and occupancy for those coming up with report the.

Thank God that the two-thirds are of more second rolls in this market. The second roll has always been better. These are properties that have been launched and they wanted them because they make them a lot of money, and we think that’s the case. We just went through this in portfolio management. We think it’s breakeven. There may be down a point. We think we’re going to retain the vast majority and we don’t look at that as really where the occupancy change might come. I think if it comes, it’s going to be under rollover and we feel very good about rollover. Michael Bilerman – Citigroup: And then, and so this is 4% of – how much of square footage does that actually represent?

It’s probably a little less than that. Michael Bilerman – Citigroup: Less than 4% square footage, so they’re above market rate?

No, no. They’re just smaller buildings. Greg Schweitzer – Citigroup: Is it the kind of way to look at them? Michael Bilerman – Citigroup: Yes, I think Greg has some questions also.

Sure. Greg Schweitzer – Citigroup: I know you guys all keep talking about tenant specifics, but just touching on (inaudible), there’s a lot going on in Australia right now with ABC Learning. About 25% of the assets are – their (inaudible) are looking at non-binding office to buy out those properties. Could you just provide a bit of color on what’s happening with the US assets and maybe, specifically, your exposure?

Yes. As we went through in some detail last year when ABC went up, there was a lot of misconceptions relative to what was going there in the US. The US units that we own are fairly strong. I don’t have a concern about them. And last year, ABC sold the majority interest in the US Company, so they are no longer the owner of it, they are a minority owner. Greg Schweitzer – Citigroup: And any color that you can provide on how your assets are performing, maybe cash flow coverages?

We don’t give them out for individual tenants, but they’re performing adequately. They’ve been in the portfolio now for, in most cases, for over 20 years; so, those were properties that were purchased at very low prices many years ago. Gary, do you remember what the average cost of those is?

Yes, the average cost of our units – this is really important, it was about $400,000, $500,000, where replacement cost today for a newer unit, you’d be looking at $1 million, $1.2 million, $1.3 million. So, even with some rent increases, you’re really looking at those being on the very low end of the rents they pay and amazingly enough, there’s pretty good correlation between profitability and low rent. So, I can just tell you that coverages are probably not up to our average, but they’re very comfortable. Greg Schweitzer – Citigroup: Okay, thanks. And just one more, any tenant that you put on the watch list that you’re a little bit concerned about?

Well, we have a couple of tenants on the watch list, but nobody eminent. And what we’ve done, although we don’t know if there’s going to be an impact, we put what we thought what would be the impact in guidance and then added some more in; but nobody eminent that I’m aware of today that would have a meaningful impact on us outside of what we’ve got in guidance. Greg Schweitzer – Citigroup: Okay, thanks.

All right, thank you. Our next question is from the line of Scott Coleman with Conseco Capital Management. Please go ahead. Scott Coleman – Conseco Capital Management: Asked and answered. Thank you.

All right, thank you. (Operator instructions) Tom Coleman with Kensico Capital Management. Please go ahead. Tom Coleman – Kensico Capital Management: All the properties you have for sale in Crest, are they all vacant?

No. We only have five. We’ve had up to 120. Three of them are former Buffets. They’re vacant, but for those of you who will recall, a couple of quarters ago, we impaired them by over 50% in value. So, those are vacant, but we wrote them down by half. The other two are fully occupied, paying rents, and pretty good properties; so, there are only five. Tom Coleman – Kensico Capital Management: And then the properties that you offer for sale that are vacant that aren’t in Crest. What does that mean? They’re just on the balance sheet – how are they presented differently in the financial statements?

They are just properties in the portfolio.

Yes. You would find them just in our real estate portfolio on the balance sheet because in actuality, they are consistently marketed for sale or for lease with a preference towards lease. We’d like to generate income to pay our dividends. So when you look at our balance sheet, you’re not going to find them in the for sale category. That’s going to be the Crest up at the moment. There might be one or two from the lease where it’s clear. That’s what it is, a for sale property. Maybe, there’s an LLI place we’re moving forward with and it would fall into that, but otherwise, you’re going to find the lease vacant properties in the real estate held for investment.

Yes. If you look at the 12 that – you see, there were 12 that went out of the vacant category, and nine were released and three were sold. And if you look in the sales last year, the majority was not vacant properties. They were occupied properties. Tom Coleman – Kensico Capital Management: And the prices that you have, the prices that you’re offering those at, do they relate in any way to the GAAP value of that property?

We have tended to sell the properties at a GAAP gain and that has been the case this year too.

Yes. Tom Coleman – Kensico Capital Management: Okay. Thank you.

All right, thank you. And our next question is from the line of Rich Moore with RBC Capital Markets. Please go ahead. Rich Moore – RBC Capital Markets: Hi, guys. Good afternoon. I’m curious on this, the credit market has come roaring back suddenly or cap rates shoot was higher, how quickly do you actually begin closing on things? Are you actively reviewing a lot of portfolios or how is that working right now?

Realistically or probably, it could be inside but I would say I think 60 to 90. We have transactions that are coming over the trends. We have things downstairs we’re looking at right now. They get reviewed, so it’s merely a decision to say, “Here’s the cap rate and yes, we’re buying,” and we would be at the right price. But last year, as an example, we stopped buying in the second quarter and we bought $189 million. We still had $5 billion go through the committee last year, so the number of transactions reviewed last year was roughly equivalent to what it was the year before when we bought $533 million. So, we keep the flow going through. What we do is we cut it off about halfway through because we don’t want people to think that we’re going to close when we’re not, but we are actively reviewing. If the prices were right, would we actively go? But I think if I said today, “Boy, look at where cap rate’s got and we’d want to go,” I think you’d be looking at 60 to 90 days as a good guess. Rich Moore – RBC Capital Markets: Okay. And then you mentioned that maybe nine to ten is what you’re seeing at the moment and I assume that’s some kind of average. Are you seeing anything at all that’s attractive in the 11% range or is there nothing up there yet?

No. How was that? Rich Moore – RBC Capital Markets: Yes, that’s fair. That’s very fair. And I certainly know where interest rates are and financing cost, so anyway, great. Thank you guys very much.

All right, thank you. Mr. Lewis, there are no further questions at this time. Please continue with any closing comments.

Okay. Well, thank you everybody. I think, again, with reports from this quarter, we’ll all watch the economy and we operate the same way as everyone else. We manage portfolio and see how we sit next quarter. It’s a dynamic environment. Thank you all very much.

Thank you. Ladies and gentlemen, this concludes the Realty Income fourth quarter earnings conference call. You may now disconnect. Have a very pleasant rest of your day.