Welcome to the Realty Income fourth quarter 2009 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) This conference is being recorded today, Thursday, February 11, 2010. I would now like to turn the conference over to Tom Lewis, CEO of Realty Income. Please go ahead, sir.

You bet. Thank you, Douglas. Good afternoon, everyone, and thanks for joining us today. In the room with me, as usual, is Gary Malino, our President; and Paul Meurer, our CFO; Mike Pfeiffer, General Counsel; and Terry Miller, who is Vice President, Corporate Communications. And as we always do, we’ll say that during this conference call, we will make certain statements that may be considered to be forward-looking statements under Federal Securities law, and the Company’s actual future results may differ significantly from the matters discussed in any forward-looking statements. And we’ll disclose in greater detail on the Company’s quarterly and on the Form 10-K, the factors that could cause such differences. And we’ll start with, Paul, going through the numbers. Paul?

Thanks, Tom. As usual, I’m just going to comment on our financial statements with a few brief highlights of the results for the quarter. And starting with the income statement. Total revenue remained flat at around $82 million and that’s primarily because we now own 2339 properties as compared to 2348 properties a year ago. Furthermore, all of our acquisitions this past quarter are currently in the year, in December, so they didn’t have a major impact on the 2009 revenue. Same-store rental revenue increased 0.7% for the quarterly period. On the expense side, depreciation and amortization expense increased by $190,000 in the comparative quarterly period. Interest expense decreased for the quarter to $21.4 million. And of course, this reduction reflects the retirement of $120 million of our bonds over the past year. We had only $4.6 million of borrowings on our $355 million credit facility at year-end. And on a related note, our coverage ratios remain strong, with interest coverage at 3.5 times and fixed charge coverage at 2.7 times. General and administrative or G&A expenses in the fourth quarter were $5.1 million. For the year, G&A expenses were $20.9 million or lower than 2008 by almost $700,000, finishing the year at about 6.4% of total revenues. I also want to point out that our acquisition-related costs are now included in the G&A expense line. As per FAS 141R, we are now expensing rather than capitalizing these acquisition costs. In 2009, this totaled $62,000 for the 16 properties we acquired. Property expenses decreased by $214,000 to about $1.4 million for the quarter, as these expenses have continually decreased since the beginning of the year. And of course, these are the expenses primarily associated with the taxes, maintenance, and insurance, which we are responsible for on properties that are available…

Thanks, Paul. And as usual, I’ll run through kind of the key areas of operations for the Company. And let me start with the portfolio. The portfolio continued to do really quite well in the fourth quarter, given the state of retail. And I think, generally, our tenants have continued to see their business stabilize a bit in recent quarters. And I’d say over the last couple of months or so, generally, their mood has improved. And that means either they’re getting used to the economy slower or things are indeed getting a bit better in their businesses overall. During the fourth quarter, all 118 retail chains in the portfolio paid full rent and we had no tenants in reorganization. And at the end of the quarter, if you take a look at our top 15 tenants, which comprised about 53% of our revenue, generally, the cash flow coverage at the store level or the EBITDA they have compared to the rent they pay, generally was about 2.5 times the rent they paid. So, we have a little improvement there and they continue to be well covered rents in the key tenants. And obviously, owning the more profitable stores, as we are used to talking about is what has kept I think the portfolio occupancy high. Ended the third quarter at 96.8% occupancy. That’s 75 properties available for lease and 2339 in the portfolio. That’s the same percentage at the end of the third quarter and just about 20 basis points from where we were the same period a year ago. So, given the state of retail in the last year and a lot of activity in the portfolio, we’re pleased with that result. Same-store rents on the portfolio increased 0.7% during the quarter, 0.4% for the year, so up…

Thank you, sir. (Operator instructions) Our first question comes from the line of Greg Sweitzer with Citigroup. Please go ahead. Michael Bilerman – Citigroup: Hi. I’m Michael Bilerman is on as well. Tom, you mentioned cap rates have come in a bit. How sticky do you think that the mid-9s average rate that you saw for the bigger deals will be as year progresses?

It’s hard to tell. I should have really said they came in a bit and I think they continue to come in a bit. So the discussions we’re having now are most definitely in the 9s, but we do see them coming in. And it wouldn’t surprise me even without any stronger recovery in the economy, if interest rates stay low, then you probably see them in the low 9s for the year so they could come in a bit more. But we’re still thinking in the 9% to 10% range and for now, using 9.5% as kind of our planning. Michael Bilerman – Citigroup: Okay. And then outside of the C stores and the gyms that you acquired, what types of other industries showed up in the deals that you looked at in the quarter and expect to see through this year? Is there any trend or is the pretty spread out?

It was pretty spread out. There were some theater transactions that we worked on, a couple of those that came through the door. There was a fair amount of C store. There was health and fitness. There were a lot of restaurant properties that we just don’t even include the numbers we looked at, because we’re not doing that right now. So, it’s interesting. As long as I’ve been in this business, there were always a lot of restaurants, that’s true. In the last ten years, it’s become more a lot of volume C store, that’s true. Movie theaters, I think were the theme for the quarter. And then the other theme was people are showing us a lot of newly developed properties, which we’re just not spending any time on. But other than that, no real industry theme that I can think of. Michael Bilerman – Citigroup: Okay, great. And then just one more. Any new insight or changes that you’ve seen that you could share from a tenant or industry standpoint? Any tenants that you perhaps have more comfort over or any new ones you’ve started to watch?

Yes, the list relative to industries remains the same. The top of it is, obviously, the RV business because it’s a big ticket, consumer durable, needs to be financed. And that was an industry that just really got hit the last two years. It’s unusual for us to have this type of industry in the portfolio. And I’m just pleased the tenant held up through this. There is some good news. But if you look at what happened to the RV business, I was looking up the numbers earlier and trying to get the forecast for this year. And in 2008, I think there were about 239,000 RV shipped in the U.S. That was down 33% from 2007. And 2009 it looks like it’s going to be about 159,000 that were shipped, which is down another 33%. But interestingly, the fourth quarter, the run rate was back up over 200,000. And they’re projecting that it will be over 200,000 in 2010, so there’s some very strong movement in the fourth quarter. The other thing I saw is a good example is that Thor Industries, which is one of the major manufacturers, was talking about in their most recent quarter that shipments, RVs out of their stores were up about 148% for the year over period. So, there’s been some help come out of the government on that end of the industry, with some tax advantages for buying a new RV. And that industry did have a turnaround in the fourth quarter and we noticed the cash flow coverages that we have there moved up pretty dramatically in the fourth quarter. Now they’ve gone down pretty dramatically, but there was some comfort there. The second area really is in restaurants. That’s still a very tough business. Casual dining, as we all…

You bet.

Jeffrey Donnelly – Wells Fargo: Good afternoon, guys, it’s nice of you to make it in with a lot of snow hitting the coast. So, actually, Tom, I guess I’ll start with you. You mentioned in your comments that you’re not expecting a radically better economy. So this is an easy question to start off. I guess, what is your view the economy and interest rates, as you look forward two years or three years? And what implications does that hold for your decision to maybe recycle capital a bit more aggressively through sales and acquisitions and then and even your leverage policy?

Sure. It’s funny, we run scenario planning on the economy and read everything everybody publishes. And if you go back two years, three years ago, our scenario for things getting very rough, we felt very strongly about, took a lot of action on it and it served us well. And as we sit around and talk today, you sit and go, okay, what can happen? The whole economy can come back. The great moderation will continue and things are going to be just peachy, but we don’t have much of a weighting at all on that one. You can say, okay, moderate growth over time and we come back and okay, we’ll weigh that a third and then you get kind of the things don’t pick-up, but don’t get meaningful worse, a la Japan, the last decade give that a third. And then we double dip and it doesn’t get great and we give that a third. So it’s a long-winded way of saying. We don’t have a lot of conviction of thinking we know right now. And the thoughts on acquisitions is that cap rates have moved up. The spreads over cost of capital are good. And there’s opportunity because there’s fewer people out there with capital than there has been in the past. And we would stop acquiring on a dime if at some point the spreads weren’t there or we didn’t like the quality of it. But our sense is, is that we can add to revenue now on assets that we’re going to want to hold a long time with substantial cash flow coverages and it’s a good time to go do that. So that really laid it out there. And then in terms of the capital that we would use, lately, as you’ve witnessed in the REIT industry, obviously, debt has been extremely attractively priced. It’s moderated a little bit, but still well-priced. The preferred markets come back and debt on our balance sheet is only about 29%. Preferreds down in the mid-single digit, so both of those could be added to the balance sheet comfortably. And then as you know there’s been a prejudice for equity and the equity has traded pretty well. Given we don’t have a really strong conviction of a snap back; I don’t think I’d want to add dramatic leverage to the portfolio. We’re laddered out pretty good with our debt now and I wouldn’t want to do anything short-term, but we haven’t made really a decision, but we think as long as capital is available at good prices, we’ll keep acquiring and we’ll try and keep leverage low. Jeffrey Donnelly – Wells Fargo: Do you think this increases your desire to maybe sell assets and use that as a source of proceeds?

That something we’ve been talking about and it looks really good. And as you model it out though it cuts into FFO, a fair amount. But I think if we were able to achieve FFO growth up above the 2%, 3%, 4% range over the next year or so because of acquisitions or the portfolio does well, we might take the opportunity to bring that back down a little bit and use it as an opportunity to sell some assets and move into some things where either like the cash flow coverages better or we like the industry better. And then also where we think that in our lease structures that we can get a little more inflation protection, because that’s one of the risks out in the future, given money supply growth if the economy does snap back. Jeffrey Donnelly – Wells Fargo: And you sounded a little more, I’ll say, optimistic on the acquisition front. What are the odds that you maybe meet your 2010 acquisition goal in the first half of the year?

I don’t think I’ll go there with you, but I think there’s a greater chance of it substantially than I felt 90 days ago, just by the number of transactions coming over and that some of them have some pretty good quality. I don’t know about the first six months, it’s going to ebb and flow. You’ll be sitting here for a month and you’ll have some things to work on and then five things come in the door, and you think, man here comes the deluge. And then three weeks will go by, you don’t see another. So I don’t know how it’s going to come. In our modeling, we’re keeping it at the end of each quarter and pretty equally distributed among the four quarters. And I’ll have a better feel as we go. But it’s hard to say, but I do feel much better than I did 90 days ago about the volume. Jeffrey Donnelly – Wells Fargo: And just a quick question or two for Paul. It might not be a meaningful enough change to really make a material difference, but since you do have a lot of assets in your portfolio that are probably a fairly low book value, to the extent, you guys do begin to recycle your asset base a little bit more and you’re effectively buying at today’s prices and you’re selling assets that have a low book value. Does that benefit your credit metrics from the standpoint of lenders I think they look at you guys, because your sort of book based leverage metrics would obviously be improving? Is that encouraging to them? Or is that really not a significant focus right now?

I think if you do the technical math on that, you could make an argument that there might be a slight benefit as it relates to some of those ratios that as you know, were built into some of the agreements. But the reality is I don’t think we can’t foresee a scenario where we would uptick that sort of activity to a point where it would make a material difference. If you look back to 2002, just to give you a couple of statistics, we’ve sold anywhere from 10 properties to 43 properties a year, ranging from $7 million a year to $35 million a year. As the 10-K comes out, you’ll see we make a prediction in there of a general range of $10 million to $35 million of sales for 2010. That’s really our best guess. Even for on the high end of that or even if we enter a strategy where we agree with you and say, gee, let’s recycle some more capital, you’re not talking about that much where it would have that much of a material impact on what you’re describing. So if you’re talking about $35 million, let’s say, plus of sales, it really wouldn’t affect it that much.

The other thing, Jeff, is, is one of the nuances of the net lease small property businesses, when we buy properties, we tend to buy them in bulk in transactions. But when you sell them, you tend to sell them one-by-one. So the operational difficulty of a large number of sales in the portfolio is, A) expensive, and B) takes a lot of manpower to execute. So it is a little different than some other industries. And that’s why it does. I think hit the FFO a little harder just to go through those transactions. Jeffrey Donnelly – Wells Fargo: Just wanted to be sure you weren’t thinking about something more dramatic. Just last question, really more of a nitpicky one, but I think your occupancy has traditionally been calculated on a, I guess call it a percentage of properties vacant basis. But I don’t expect it would, but would it vary much if you looked at it on either a square footage or even a percentage of, I guess I’ll call it revenue potential?

I look at that about once a year just to make sure it’s not getting too far away. And it’s amazing to me how close it stays, where if you looked at it on a revenue basis or whether you looked at it on a number of properties or square footage. It can vary a little bit quarter-to-quarter, but it’s been unusual if it’s been more than 10 bps or 20 bps away, no matter how you calculate it. Jeffrey Donnelly – Wells Fargo: Okay, thanks, guys.

Chris Lucas – Robert W. Baird: Good afternoon, guys.

Hey, Chris. Chris Lucas – Robert W. Baird: Just a quick technical question. What’s the inventory for Crest at this point?

It’s a grand total of three properties with a cost of –

$3.8 million in book value. And those are three Ryan Steakhouses properties.

Yes, that we have all impaired down to that value also. We did that a little over a year ago. That’s down from about $138 million of inventory two years ago. Chris Lucas – Robert W. Baird: Very good. And then, Tom, you were talking about the cap rates coming down a little bit here. That sounds to me like it’s getting more competitive. Is that the case? And if you could maybe give some color as to maybe who your competitors are right now in the marketplace.

Yes, there aren’t a lot of competitors. There’s really just a couple that you see out there anymore. And obviously one is another public REIT. And then there’s a private REIT. And then as always, there’s a couple of other guys that show up that you don’t know really who they are and they buy something occasionally. But I think it’s more reflective of financing costs have come in generally for our tenants. So, if you look at the spreads on less investment grade bonds, they’ve really tightened. And that means that the debt side of the balance sheet for them is attractive. And they’re looking at relative financing costs. So I think more than competition, which there’s very little of right now, compared to a few years ago, it’s really financing costs coming in. And when you see them come in, you can assume that there’ll be some lagging cap rate movement in. And when you see them gap out, then there’s probably some lagging cap rate moving up in the net lease business, maybe a little more than some of the other real estate categories. Chris Lucas – Robert W. Baird: I guess just kind of thinking about, maybe I’m not sure you really answered Jeff’s question on your expectations for interest rate. Does it give you pause, given where rates are and the tremendous compression we’ve seen in corporate bond rates? And just generally across the board, in terms of how you’re proceeding at this point, given maybe your outlook for the out years on rates?

Yes, it does give me pause and I’m surprised how quickly spreads came back in. And that’s pretty much not just on real estate but for all companies. And I think people got excited here. I’m very surprised they came in as much as they did and I think the potential to have them gap out is there. And so, one of the things I think you really want to do is be careful. We’re fortunate right now with cash on hand and the lines unused, so essentially what we bought was bought with cash on hand. But I don’t think I would let large substantial amounts of money build up on short-term credit lines as a very good strategy. I think you want to very quickly put the permanent capital onto the permanent cap rate in this environment. Everybody watches and they’re starting to talk about how they do it when they do it. But at some point, absent a double dip, it wouldn’t surprise me to see rates go up. So we’re going to want to finance fairly quickly if we start seeing some bulk transactions come through that we want to act on. I think it would be risky in this environment to hold a lot on the line. It’s short-term very accretive, but it’s financing a long-term asset with short-term variable rate financing.

And what’s interesting, Chris, about this is that while our cost of capital could increase a little bit, we do feel like there’s plenty of room there to maintain a pretty healthy spread relative to lease yields and what we’re doing. To the extent that high yield debt spreads gapped out a bit, that would be wonderful. So, while the investment grade bond market, which we all follow on the REIT sector, spreads have come in significantly. To some extent, it’s been almost more surprising to watch high yield debt spreads contract so much. And that, if you will, is one of our competitors out there. So, beyond just the other equity net lease providers, it’s really the high yield debt product and the type of retailer that we’re doing business with considering that financing product. And so, in a rising interest rate environment, while our current cost of capital on our balance sheet for the debt piece of what we do may go up a bit, I actually think that on the acquisition side, we could actually benefit a little bit to the extent the high yield debt becomes a little bit more expensive out there.

A widening credit spread is very good for us. Chris Lucas – Robert W. Baird: Very good. And then my last question, I’m trying to understand, Kerasotes is one of your larger tenants. They sold, I guess, a large portfolio to AMC. How does that impact, if at all, your view to their credit at this point?

It is a positive. They are now, as part of AMC, AMC already is the second largest theater company in the United States. And so we will have a larger, more varied tenant less Midwest geographic exposure. And I believe S&P put Kerasotes debt on a credit watch positive. So that’s how we view it as a positive. We know AMC, we haven’t done business with them before, but we’ve talked to them over the years and they’re a good operator. So, we view it as a net small positive. Chris Lucas – Robert W. Baird: Okay, thanks a lot, guys.

Thanks, Chris.

Thank you. This concludes today’s conference call. I will now turn the call over to management for concluding remarks.

Thank you very much, everybody. A good quarter. I’ll tell you though here in the first quarter, I want everybody to know, there’s been a lot of work to do in portfolio management and leasing. And this is in an environment we’re all going to watch where the economy goes. But it’s nice to be acquiring again. That makes things a little easier than just relying on the portfolio as it sits there. And so we hope the spreads hold up. Thank you very much for your time.

Ladies and gentlemen, this concludes the conference call. We thank you for your participation and you may now disconnect.