Patrick Harden

Realty Income: Follow-Up on Barron's Article

In reference to the dividend growth, it's important to note that 18.8% of the 2008 distributions made to common stockholders were classified as a return of capital for federal income tax purposes. In other words, Realty Income distributed more than the amount necessary to achieve the full taxation benefit available to it as a REIT.

Realty Income's preference for exceeding its REIT distribution requirements has grown over time:

2006: O's cash distributions totaled $139.1 million, or approximately 113.3% of its estimated REIT taxable income of $122.8 million. [source: Realty Income 2006 10-K]

2007: O's cash distributions totaled $182.2 million, or approximately 113.6% of its estimated REIT taxable income of $160.4 million. [source: Realty Income 2007 10-K]

2008: O's cash distributions totaled $193.9 million, or approximately 122.7% of its estimated REIT taxable income of $158.0 million. [source: Realty Income 2008 10-K]

Instead of retaining the excess capital for share repurchases or strategic activities that provide a return ON investment, Realty Income chooses to provide shareholder dividends that are, in part, a return OF shareholder investment.