This quarterly report on Form 10-Q, including documents incorporated by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in this quarterly report, the words "estimated", "anticipated", "expect", "believe", "intend" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things:

? Our anticipated growth strategies;

? Our intention to acquire additional properties and the timing of these acquisitions;

? Our intention to sell properties and the timing of these property sales;

? Our intention to re-lease vacant properties;

? Anticipated trends in our business, including trends in the market for long-term net-leases of freestanding, single-tenant retail properties;

? Future expenditures for development projects; and

? Profitability of our subsidiary, Crest Net Lease, Inc. ("Crest").

Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. In particular, some of the factors that could cause actual results to differ materially are:

? Our continued qualification as a real estate investment trust;

? General business and economic conditions;

? Access to debt and equity capital markets;

? Continued volatility and uncertainty in the credit markets and broader financial markets;

? Other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters;

? Impairments in the value of our real estate assets;

? The outcome of any legal proceedings to which we are a party; and

? Acts of terrorism and war.

Additional factors that may cause risks and uncertainties include those discussed in the sections entitled "Business", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that this quarterly report was filed with the Securities and Exchange Commission, or SEC. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this quarterly report might not occur.

Realty Income Corporation, The Monthly Dividend CompanyŽ, is a Maryland corporation organized to operate as an equity real estate investment trust, or REIT. Our primary business objective is to generate dependable monthly cash distributions from a consistent and predictable level of funds from operations, or FFO per share. Our monthly distributions are supported by the cash flow from our portfolio of retail properties leased to regional and national retail chains. We have in-house acquisition, leasing, legal, retail research, real estate research, portfolio management and capital markets expertise. Over the past 40 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term lease agreements (primarily 15 to 20 years).

In addition, we seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. Our portfolio management focus includes:

? Contractual rent increases on existing leases;

? Rent increases at the termination of existing leases, when market conditions permit; and

? The active management of our property portfolio, including re-leasing vacant properties, and selectively selling properties, thereby mitigating our exposure to certain tenants and markets.

In acquiring additional properties, we adhere to a focused strategy of primarily acquiring properties that are:

? Freestanding, single-tenant, retail locations;

? Leased to regional and national retail chains; and

? Leased under long-term, net-lease agreements.

At June 30, 2009, we owned a diversified portfolio:

? Of 2,338 retail properties;

? With an occupancy rate of 96.6%, or 2,259 properties occupied;

? With only 79 properties available for lease;

? Leased to 118 different retail chains doing business in 30 separate retail industries;

? Located in 49 states;

? With over 19.0 million square feet of leasable space; and

? With an average leasable retail space per property of approximately 8,100 square feet.

Of the 2,338 properties in the portfolio, 2,327, or 99.5%, are single-tenant, retail properties and the remaining 11 are multi-tenant, distribution and office properties. At June 30, 2009, 2,249 of the 2,327 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 11.6 years.

In addition, at June 30, 2009, our wholly-owned taxable REIT subsidiary, Crest, had an inventory of five properties valued at $5.7 million, which are classified as held for sale. Crest was created to buy and sell properties, primarily to individual investors who are involved in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Tax Code"). In addition to the five properties, Crest also holds notes receivable of $22.3 million at June 30, 2009. We anticipate Crest will not acquire any properties during the remainder of 2009.

We typically acquire retail store properties under long-term leases with retail chain store operators. These transactions generally provide capital to owners of retail real estate and retail chains for expansion or other corporate purposes. Our acquisition and investment activities are concentrated in well-defined target markets and generally focus on retail chains providing goods and services that satisfy basic consumer needs.

Our net-lease agreements generally:

? Are for initial terms of 15 to 20 years;

? Require the tenant to pay minimum monthly rent and property operating expenses (taxes, insurance and maintenance); and

? Provide for future rent increases based on increases in the consumer price index (typically subject to ceilings), fixed increases, or to a lesser degree, additional rent calculated as a percentage of the tenants' gross sales above a specified level.

Investment Philosophy
We believe that owning an actively managed, diversified portfolio of retail properties under long-term, net leases produces consistent and predictable income. Net leases typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. In addition, tenants are typically responsible for future rent increases based on increases in the consumer price index (typically subject to ceilings), fixed increases or, to a lesser degree, additional rent calculated as a percentage of the tenants' gross sales above a specified level. We believe that a portfolio of properties under long-term leases, coupled with the tenant's responsibility for property expenses, generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.

Credit Strategy
We generally provide sale-leaseback financing to less than investment grade retail chains. We typically acquire and lease back properties to regional and national retail chains and believe that within this market we can achieve an attractive risk-adjusted return on the financing we provide to retailers. Since 1970, our overall weighted average occupancy rate at the end of each year has been 98.4%, and the occupancy rate at the end of each year has never been below 97%.

Acquisition Strategy
We seek to invest in industries in which several, well-organized, regional and national retail chains are capturing market share through service, quality control, economies of scale, advertising and the selection of prime retail locations. We execute our acquisition strategy by acting as a source of capital to regional and national retail chain store owners and operators, doing business in a variety of industries, by acquiring and leasing back retail store locations. We undertake thorough research and analysis to identify appropriate industries, tenants and property locations for investment. Our research expertise is instrumental to uncovering net-lease opportunities in markets where our real estate financing program adds value. In selecting real estate for potential investment, we generally seek to acquire properties that have the following characteristics:

? Freestanding, commercially-zoned property with a single tenant;

? Properties that are important retail locations for regional and national retail chains;

? Properties that we deem to be profitable for the retailers;

? Properties that are located within attractive demographic areas relative to the business of their tenants, with high visibility and easy access to major thoroughfares; and

? Properties that can be purchased with the simultaneous execution or assumption of long-term, net-lease agreements, offering both current income and the potential for rent increases.

Impact of Real Estate and Credit Markets In the commercial retail real estate market, property prices continued to decline and lease rates rose throughout 2008 and during the first six months of 2009. Likewise, the United States (U.S.) credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have impacted our access to and cost of capital. We continue to monitor the commercial retail real estate and U.S. credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly. See our discussion of "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008.

Increases in Monthly Distributions to Common Stockholders We continue our 40-year policy of paying distributions monthly. Monthly distributions per share increased in July 2009 by $0.0003125 to $0.142375. The increase in July 2009 was our 47th consecutive quarterly increase and the 54th increase in the amount of our dividend since our listing on the New York Stock Exchange, or NYSE, in 1994. In the first six months of 2009, we paid three monthly cash distributions per share in the amount of $0.14175 and three in the amount of $0.1420625, totaling $0.8514375. In June 2009 and July 2009, we declared distributions of $0.142375 per share, which were paid in July 2009 and will be paid in August 2009, respectively.

The monthly distribution of $0.142375 per share represents a current annualized distribution of $1.7085 per share, and an annualized distribution yield of approximately 7.6% based on the last reported sale price of our common stock on the NYSE of $22.56 on July 21, 2009. Although we expect to continue our policy of paying monthly distributions, we cannot guarantee that we will maintain our current level of distributions, that we will continue our pattern of increasing distributions per share, or what our actual distribution yield will be in any future period.

Universal Shelf Registration
In March 2009, we filed a shelf registration statement with the SEC, which is effective for a term of three years, to replace our prior shelf registration statement which was set to expire in April 2009. Our new shelf registration expires in March 2012. In accordance with the SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit. The securities covered by this registration statement include common stock, preferred stock, debt securities, or any combination of such securities. We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

Note Redemption
Upon their maturity in January 2009, we redeemed, using cash on hand, the $20 million outstanding principal amount of our 8% Notes ("2009 Notes"). The 2009 Notes were redeemed at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest. We have no debt maturities until March 2013.

Retirement of Board of Directors Members William E. Clark, our previous non-executive chairman, retired from the Board of Directors in February 2009. Our Corporate Governance and Nominating Committee recommended, and the Board of Directors elected, Donald R. Cameron as the new non-executive chairman, effective upon Mr. Clark's retirement. Mr. Clark had served as our Chairman of the Board since the inception of Realty Income.

Roger P. Kuppinger and Willard H Smith Jr retired from the Board of Directors in May 2009. Ronald L. Merriman became the chairman of the Audit Committee upon the retirement of Mr. Kuppinger.

Acquisitions during the First Six Months of 2009 During the first six months of 2009, Realty Income invested $1.3 million in previously acquired properties. Our 2008 and 2009 portfolio acquisitions are lower than in recent years primarily due to uncertainty in the commercial retail real estate market. Property prices continued to decline and lease rates rose throughout 2008 and during the first six months of 2009. We continue to monitor the acquisition market carefully. We are beginning to see a more attractive environment that could lead to investment activity in the remainder of 2009. We will acquire properties for long-term investment when we believe the transactions are accretive to our results of operations.

Investments in Existing Properties
In the second quarter of 2009, we capitalized costs of $604,000 on existing properties in our portfolio, consisting of $204,000 for re-leasing costs and $400,000 for building improvements.

In the first six months of 2009, we capitalized costs of $1.5 million on existing properties in our portfolio, consisting of $610,000 for re-leasing costs and $840,000 for building improvements.

Net Income Available to Common Stockholders Net income available to common stockholders was $26.5 million in the second quarter of 2009 versus $27.0 million in the second quarter of 2008, a decrease of $491,000. On a diluted per common share basis, net income was $0.26 in the second quarter of 2009, compared to $0.27 in the second quarter of 2008.

Net income available to common stockholders was $50.5 million in the first six months of 2009 versus $50.7 million in the same period of 2008, a decrease of $168,000. On a diluted per common share basis, net income was $0.49 in the first six months of 2009 compared to $0.50 in the first six months of 2008.

The calculation to determine net income available to common stockholders includes gains from the sale of properties. The amount of gains varies from period to period based on the timing of property sales and can significantly impact net income available to common stockholders.

The gain from the sale of properties during the second quarter of 2009 was $2.2 million, as compared to $3.1 million during the second quarter of 2008. The gain from the sale of properties during the first six months of 2009 was $2.4 million, as compared to $3.7 million during the first six months of 2008.

Funds from Operations Available to Common Stockholders (FFO) In the second quarter of 2009, our FFO increased by $368,000, or 0.9%, to $47.2 million versus $46.8 million in the second quarter of 2008. On a diluted per common share basis, FFO was $0.46 in the second quarter of 2009 compared to $0.47 in the second quarter of 2008, a decrease of $0.01, or 2.1%.

In the first six months of 2009, our FFO increased by $1.2 million, or 1.3%, to $93.9 million versus $92.7 million in the first six months of 2008. On a diluted per common share basis, FFO was $0.91 in the first six months of 2009 compared to $0.92 in the first six months of 2008, a decrease of $0.01, or 1.1%.

See our discussion of FFO later in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," which includes a reconciliation of net income available to common stockholders to FFO.

Crest
During the first six months of 2009, Crest did not sell any properties. Crest had an inventory of five properties valued at $5.7 million, at June 30, 2009, and $6.0 million at December 31, 2008, which is included in "real estate held for sale, net" on our consolidated balance sheets.

Buffets Emerges from Reorganization
On April 28, 2009, Buffets Holdings, Inc. ("Buffets") announced that it had emerged from Chapter 11 reorganization. In its press release, Buffets noted that "in addition to strengthening its balance sheet and reducing its debt, Buffets has also used the Chapter 11 process to right-size its organization, including streamlining its portfolio of restaurants and reducing operating expenses across the business." Buffets remains Realty Income's largest tenant, representing approximately 6.0% of Realty Income's annualized rental revenue.

Cash Reserves
We are organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from leases on our retail properties. We intend to retain an appropriate amount of cash as working capital. At June 30, 2009, we had cash and cash equivalents totaling $35.8 million.

We believe that our cash and cash equivalents on hand, cash provided from operating activities and borrowing capacity is sufficient to meet our liquidity needs for the foreseeable future. We intend, however, to use additional sources of capital to fund property acquisitions and to repay future borrowings under our credit facility.

Historically, we have met our long-term capital needs through the issuance of common stock, preferred stock and long-term unsecured notes and bonds. Over the long term, we believe that common stock should be the majority of our capital structure. However, we may issue additional preferred stock or debt securities from time to time. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties. In addition, we may issue common stock to permanently finance properties that were financed by our credit facility or debt securities. However, we cannot assure you that we will have access to the capital markets at terms that are acceptable to us.

$355 Million Acquisition Credit Facility In May 2008, we entered into a $355 million revolving, unsecured credit facility that replaced our previous $300 million acquisition credit facility. The term of our credit facility is for three years, until May 2011, plus, two, one-year extension options. Under our credit facility, our investment grade credit ratings provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 100 basis points with a facility fee of 27.5 basis points, for all-in drawn pricing of 127.5 basis points over LIBOR. We also have other interest rate options available to us. At July 21, 2009, we had a borrowing capacity of $355 million available on our credit facility and no outstanding balance.

We expect to use our credit facility to acquire additional retail properties and for other corporate purposes. Any additional borrowings will increase our exposure to interest rate risk. We have the right to request an increase in the borrowing capacity of the credit facility by up to $100 million, to a total borrowing capacity of $455 million. Any increase in the borrowing capacity is subject to approval by the lending banks participating in our credit facility.

Mortgage Debt
We have no mortgage debt on any of our properties.

Conservative Capital Structure
We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At July 21, 2009, our total outstanding borrowings were $1.35 billion of senior unsecured notes, or approximately 33.3% of our total market capitalization of $4.05 billion. There were no outstanding borrowings on our credit facility at July 21, 2009.

We define our total market capitalization at July 21, 2009 as the sum of:

? Shares of our common stock outstanding of 104,281,597 multiplied by the last reported sales price of our common stock on the NYSE of $22.56 per share on July 21, 2009, or $2.35 billion;

? Aggregate liquidation value (par value of $25 per share) of the Class D preferred stock of $127.5 million;

? Aggregate liquidation value (par value of $25 per share) of the Class E preferred stock of $220 million; and

? Outstanding notes of $1.35 billion.

Credit Agency Ratings
We are currently assigned investment grade corporate credit ratings on our senior unsecured notes. Fitch Ratings has assigned a rating of BBB+, Moody's Investors Service has assigned a rating of Baa1 and Standard & Poor's Ratings Group has assigned a rating of BBB to our senior notes. All of these ratings have "stable" outlooks.

We have also been assigned credit ratings on our preferred stock. Fitch Ratings has assigned a rating of BBB, Moody's has assigned a rating of Baa2 and Standard & Poor's has assigned a rating of BB+ to our preferred stock. All of these ratings have "stable" outlooks.

The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies and we cannot assure you that any rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock.

Notes Outstanding
Our senior unsecured note obligations consist of the following as of June 30,
2009, sorted by maturity date (dollars in millions):

  5.375% notes, issued in March 2003 and due in March 2013           $   100.0
  5.5% notes, issued in November 2003 and due in November 2015           150.0
  5.95% notes, issued in September 2006 and due in September 2016        275.0
  5.375% notes, issued in September 2005 and due in September 2017       175.0
  6.75% notes, issued in September 2007 and due in August 2019           550.0
  5.875% bonds, issued in March 2005 and due in March 2035               100.0
                                                                     $ 1,350.0

All of our outstanding notes and bonds have fixed interest rates.

Interest on all of our senior note obligations is paid semiannually. All of these notes contain various covenants, including: (i) a limitation on incurrence of any debt which would cause our debt to total adjusted assets ratio to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause our secured debt to total adjusted assets ratio to exceed 40%; (iii) a limitation on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150% of our outstanding unsecured debt. We have been in compliance with these covenants since each of the notes was issued.

The following is a summary of the key financial covenants for our senior unsecured notes, as defined and calculated per the terms of our notes. These calculations, which are not based on GAAP measurements, are presented to investors to show our ability to incur additional debt under the terms of our notes only and are not measures of our liquidity or performance. The actual amounts as of June 30, 2009 are:

Note Covenants                             Required                    Actual
Limitation on incurrence of total debt     ? 60%                         38.7 %
Limitation on incurrence of secured debt   ? 40%                          0.0 %

The following table summarizes the maturity of each of our obligations as of June 30, 2009 (dollars in millions):

Table of Obligations                                                      Ground            Ground
                                                                          Leases            Leases
                                                                         Paid by           Paid by
Year of                   Credit                                          Realty               Our
Maturity            Facility (1)         Notes      Interest (2)       Income(3)        Tenants(4)       Other (5)        Totals
2009               $          --     $      --     $        41.2     $        --     $         1.9     $       1.4     $    44.5
2010                          --            --              82.4             0.1               3.7              --          86.2
2011                          --            --              82.4             0.1               3.6              --          86.1
2012                          --            --              82.4             0.1               3.5              --          86.0
2013                          --         100.0              78.1             0.1               3.4              --         181.6
Thereafter                    --       1,250.0             427.9             0.9              40.4              --       1,719.2
Totals             $          --     $ 1,350.0     $       794.4     $       1.3     $        56.5     $       1.4     $ 2,203.6

(1) There was no outstanding credit facility balance on July 21, 2009.

(2) Interest on the credit facility and notes has been calculated based on outstanding balances as of June 30, 2009 through their respective maturity dates.

. . .