March 24, 2008

Dear Stockholder:

You are cordially invited to attend the 2008 Annual Meeting of Stockholders of Realty Income Corporation, a Maryland corporation, to be held at 9:00 AM, local time, on May 13, 2008 at California Center for the Arts Escondido, 340 North Escondido Boulevard, Escondido, California 92025.

At the Annual Meeting, you will be asked to consider and vote upon:

(1) The election of ten directors to serve until the 2009 annual meeting of stockholders and until their respective successors are duly elected and qualify.

(2) The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ended December 31, 2008.

(3) The transaction of such other business as may properly come before the Annual Meeting or any adjournments or postponements of the Annual Meeting.

These proposals are more fully described in the accompanying Proxy Statement.  We urge you to carefully review the Proxy Statement.

Our Board of Directors recommends a vote FOR the election of the ten director nominees to serve until the next annual meeting and until their successors are duly elected and qualify.  Additionally, our Board of Directors recommends a vote FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ended December 31, 2008.

YOUR VOTE IS IMPORTANT TO US, WHETHER YOU OWN FEW OR MANY SHARES!

Please complete, date and sign the enclosed proxy card and return it in the accompanying postage paid envelope, even if you plan to attend the Annual Meeting. If you attend the Annual Meeting, you may, if you wish, withdraw your proxy and vote in person.

REALTY INCOME CORPORATION

A Maryland corporation

600 La Terraza Boulevard

Escondido, California  92025

TABLE OF CONTENTS

REALTY INCOME CORPORATION

600 La Terraza Boulevard

Escondido, California  92025

PROXY STATEMENT

FOR THE

ANNUAL MEETING OF STOCKHOLDERS

May 13, 2008

Beginning at 9:00 A.M. Pacific Daylight Time

and at any adjournment or postponement of the Annual Meeting

2

3

4

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “O”. On March 14, 2008, the last reported sale price for our common stock on the NYSE was $24.41 per share.

No person is authorized to make any representation with respect to the matters described in this Proxy Statement other than those contained herein and, if given or made, such information or representation must not be relied upon as having been authorized by us or any other person.

The date of this Proxy Statement is

March 24, 2008.

PROPOSAL 1

PROPOSAL 2

5

6

BOARD OF DIRECTORS

Kathleen R. Allen, Ph.D. has been our director since February 2000. She is a professor at the Marshall School of Business and the director of the Center for Technology Commercialization at the University of Southern California (1991-present). She was the co-founder and chairman of Gentech Corporation (1994-2004). Dr. Allen incorporated a non-profit institute, the National Network for Technology Entrepreneurship and Commercialization (N2TEC), in January 2006. This institute is dedicated to economic development through technology entrepreneurship and Dr. Allen is the chief executive officer and serves on its board of directors. She also serves as a consultant to two medical technology ventures, and is the author of 17 books in the field of entrepreneurship and technology, a field in which she is considered an expert. Dr. Allen is chairperson of our Strategic Planning Committee and is a member of our Audit Committee.

Donald R. Cameron has been our director since August 1994. He is a co-founder and president of Cameron, Murphy & Spangler, Inc., a securities broker-dealer firm and registered investment advisor located in Pasadena, California. Prior to founding Cameron, Murphy & Spangler in 1975, Mr. Cameron worked at the securities brokerage firm of Glore Forgan Staats, Inc. and its successors (1969-1975). Mr. Cameron is chairman of our Compensation Committee and is a member of our Nominating/Corporate Governance Committee. Since February 2004, Mr. Cameron has served as our lead independent director.

William E. Clark, Jr. is the chairman of our Board of Directors and has served in this position since 1969. Mr. Clark was a co-founder of Realty Income Corporation, and served as chief executive officer of the Company from 1969 to May 1997. Mr. Clark has been involved as a principal in commercial real estate acquisition, development, management and sales for over 40 years, specializing in land acquisitions, tenant lease negotiations, construction and sales of commercial properties for regional and national retail chain store operations throughout the United States.

Priya Cherian Huskins has been our director since December 2007.  She is senior vice president and partner at Woodruff-Sawyer & Co., a commercial insurance brokerage firm (2003-present).  Prior to joining Woodruff-Sawyer & Co., Ms. Huskins served as a corporate and securities attorney at Wilson Sonsini Goodrich & Rosati, a law firm (1997-2003).  She has served on the board of directors of the National Association of Corporate Directors, Silicon Valley Chapter since 2006.  Ms. Huskins is a member of our Nominating/Corporate Governance Committee and our Strategic Planning Committee. Mr. Cameron recommended Ms. Huskins for appointment to our Board of Directors.

Roger P. Kuppinger has been our director since August 1994. He is a self-employed investment banker and financial advisor who is an active investor in both private and public companies. Prior to March 1994, Mr. Kuppinger was a managing director at the investment banking firm of Sutro & Co., Inc. (1969-1994).  Prior to joining Sutro in 1969, Mr. Kuppinger worked at First Interstate Bank, formerly named United California Bank (1964-1969). He has served on over fourteen boards of directors for both public and private companies, and currently serves on the board of directors of BRE Properties, Inc. (NYSE: BRE) and is chairman of its Audit Committee. Mr. Kuppinger is chairman of our Audit Committee and is a member of our Compensation Committee.

Thomas A. Lewis is our chief executive officer. He is also vice chairman of our Board of Directors and has been a member of our board since September 1993. Mr. Lewis joined us in 1987 and served in a variety of executive positions, including vice president, capital markets until 1997 when he was named chief executive officer. In 2000-2001, he also held the position of president. Prior to joining us, Mr. Lewis was an executive with Johnstown Capital, a real estate investment company (1982-1987), an investment specialist with Sutro & Co., Inc., (1979-1982), and in marketing with Procter & Gamble (1974-1979). He also serves as a member of the board of directors of Sunstone Hotel Investors, Inc. (NYSE: SHO). Mr. Lewis is a director of Crest Net Lease, Inc. (“Crest”), a subsidiary of Realty Income.

7

Michael D. McKee has been our director since August 1994. He is vice chairman (July 1999-present) and chief executive officer (2007-present) of The Irvine Company and was chief operating officer (2001-2007), chief financial officer (1997-2001) and executive vice president (1994-1999) of The Irvine Company. Prior to joining The Irvine Company, Mr. McKee was a partner in the law firm of Latham & Watkins (1986-1994). His business and legal experience includes numerous acquisition and disposition transactions, as well as a variety of public and private offerings of equity and debt securities. He is currently a member of the board of directors of The Irvine Company and Health Care Property Investors, Inc. (NYSE: HCP). Mr. McKee is chairman of our Nominating/Corporate Governance Committee.

Gregory T. McLaughlin has been our director since June 2007.  He is president of the Tiger Woods Foundation in Irvine, California (1999-present).  Prior to joining the Tiger Woods Foundation, Mr. McLaughlin was executive director of the Western Golf Association/Evans Scholars Foundation (1993-1999) and the Los Angeles Junior Chamber of Commerce (1988-1993).  His business and legal experience includes tax exempt organizations and financing as well as capital campaigns and program development.  He is currently a member of the board of directors of the Tiger Woods Foundation and Learning Center.  Mr. McLaughlin is a member of our Compensation Committee and our Strategic Planning Committee. Mr. McKee recommended Mr. McLaughlin for appointment to our Board of Directors.

Ronald L. Merriman has been our director since July 2005. He is the managing director of Merriman Partners, a management advisory firm (2003-present). Prior to founding Merriman Partners, Mr. Merriman served as a managing director of O’Melveny & Myers law firm (2000-2003), executive vice president of Carlson Wagonlit Travel (1999-2000), president of Ambassador Performance Group, Inc. (1997-1999), and was employed by the accounting firm of KPMG (1967-1997).  He served as vice chairman of KPMG’s Management Committee. Mr. Merriman serves on the board of directors and is the Audit Committee chairman of Aircastle Limited (NYSE: AYR), Pentair, Inc. (NYSE: PNR) and Haemonetics Corporation (NYSE: HAE). Mr. Merriman is a member of our Audit Committee, our Nominating/Corporate Governance Committee and our Strategic Planning Committee.

Willard H. Smith Jr has been our director since July 1996. He was a managing director, Equity Capital Markets Division, of Merrill Lynch & Co. from 1983 until his retirement in 1996. Prior to joining Merrill Lynch in 1979, he was employed by F. Eberstadt & Co. (1971-1979). Mr. Smith serves on the board of directors of the Cohen & Steers Family of Funds and Essex Property Trust (NYSE: ESS). Mr. Smith also serves as a director of Crest. Mr. Smith is a member of our Audit Committee and our Compensation Committee.

Corporate Governance Guidelines

Our board has adopted a charter for each of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee. Our board may, from time to time, establish certain other committees to facilitate our management. We have adopted a Code of Business Ethics that applies to our employees and directors. We have also adopted Corporate Governance Guidelines. The Committee Charters, Code of Business Ethics and Corporate Governance Guidelines are posted on our website at www.realtyincome.com and will be provided without charge upon request to the corporate Secretary, Realty Income Corporation, 600 La Terraza Boulevard, Escondido, CA  92025. The information contained on our website is not incorporated by reference into and does not form a part of this Proxy Statement.

Board Independence

Our board has determined that each of our current directors, except for Messrs. Clark and Lewis, has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) and is “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards, currently in effect. Our board established and employed the following categorical standards in determining whether a relationship is material and thus would disqualify such director from being independent:

·             The director is, or has been within the last three years, our employee or an employee of any of our subsidiaries;

·             An immediate family member of the director is, or has been within the last three years, our executive officer or an executive officer of any of our subsidiaries;

·             The director (or an immediate family member of the director) received during any twelve-month period within the last three years, more than $100,000 in direct compensation from us or any of our subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

8

·             The director was affiliated with or employed within the last three years by our present or former (internal or external) auditor or an immediate family member of the director was affiliated with or employed within the last three years in a professional capacity by our present or former (internal or external) auditor;

·             The director (or an immediate family member of the director) is, or has been within the last three years, employed as an executive officer of another company where any of our executives served on that company's compensation committee;

·             The director is a current employee, or an immediate family member of the director is a current executive officer of another company that made payments to, or received payments from us or any of our subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or two percent (2%) of such other company's consolidated gross revenues;

·             The director (or an immediate family member of the director) was, within the last three years, an affiliate or executive officer of another company which was indebted to us, or to which we were indebted, where the total amount of either company's indebtedness to the other was five percent (5%) or more of our total consolidated assets or the total consolidated assets of the company he or she served as an affiliate or executive officer; and

·             The director (or an immediate family member of the director) was, within the last three years, an officer, director or trustee of a charitable organization where our (or an affiliated charitable foundation's) annual discretionary charitable contributions to the charitable organization exceeded the greater of $1 million, or five percent (5%) of that organization's consolidated gross revenues.

“Affiliate” includes any person beneficially owning in excess of 10% of the voting power of, or a general partner or managing member of, a company.

COMMITTEES OF THE BOARD OF DIRECTORS

Audit Committee

The Audit Committee of our Board of Directors was established in accordance with Section 10A-3 of the Securities Exchange Act of 1934 and is comprised of Dr. Allen and Messrs. Kuppinger (Chairman), Merriman and Smith. Our board has determined that each of Messrs. Kuppinger and Merriman qualify as an audit committee financial expert, as defined in Item 407(d) of Regulation S-K and that all members of the Audit Committee are financially literate under the current listing standards of the NYSE. All of the members of the Audit Committee are “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards, as discussed above, and the audit committee requirements of the SEC. Additionally, our Board of Directors has considered Mr. Merriman's concurrent service on the audit committees of more than three public companies and has determined that such simultaneous service does not impair his ability to effectively serve on our Audit Committee. 

The Audit Committee’s principal responsibilities include: 

·             Compliance with legal and regulatory requirements;

·             The integrity of our financial statements; and

9

·             The selection, approval and engagement of our independent registered public accounting firm, approving any special assignments given to the independent registered public accounting firm and reviewing:

Compensation Committee

The Compensation Committee of our Board of Directors is comprised of Messrs. Cameron (Chairman), Kuppinger, McLaughlin and Smith. Mr. McKee was on the Compensation Committee until February 12, 2008 and Mr. McLaughlin joined the Compensation Committee on that date.  All of the members of the Compensation Committee are “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards as discussed above, and are “non-employee directors” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and are “outside directors” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).  The Compensation Committee’s principal responsibilities include:

·             Establishing remuneration levels for our officers;

·             Reviewing management organization and development;

·             Reviewing significant employee benefits programs; and

·             Establishing and administering executive compensation programs, including bonus plans, stock option and other equity-based programs, deferred compensation plans and any other cash or stock incentive programs.

The Compensation Committee regularly reviews and approves our executive compensation strategy and principles to ensure that they are aligned with our business strategy and objectives, encourages high performance, promotes accountability and assures that employee interests are aligned with the interests of our stockholders. The Compensation Committee:

·             Conducts an annual review of our compensation philosophy;

·             Conducts an annual review and approves the goals and objectives relating to the compensation of the chief executive officer, evaluates the performance of the chief executive officer in light of our business strategy and objectives and determines and approves the compensation of the chief executive officer based on such evaluation;

·             Conducts an annual review and approves all compensation for all other officers (as such term is defined in Rule 16a-1 promulgated under the 1934 Act), directors and all of our other employees or the employees of our subsidiaries with a base salary greater than or equal to $200,000;

·             Reviews and approves all officers’ employment agreements and severance arrangements;

·             Manages and annually reviews executive annual bonus and long-term incentive compensation;

·             Manages and annually reviews employee pension and welfare benefit plans (including 401(k) and other plans); and

·             Sets performance targets under all annual bonus and long-term incentive compensation plans as appropriate.

The Compensation Committee’s charter reflects these various responsibilities, and the Compensation Committee periodically reviews and revises its charter. To assist in carrying out its responsibilities, the Compensation Committee regularly receives reports and recommendations from the chief executive officer, management, and from an outside compensation consultant it selects and retains and, as appropriate, consults with its own legal or other advisors, all in accordance with the authority granted to the Compensation Committee in its charter.

To assist in its efforts to meet the objectives outlined above, the Compensation Committee has retained FPL Associates Compensation, a division of FPL Associates, LP, a nationally-known executive compensation and benefits consulting firm, to advise it on a regular basis on the amount and form of our executive compensation and benefit programs. The Compensation Committee engaged the consultant to provide general executive compensation consulting services and to respond to any Compensation Committee member’s questions and to management’s need for advice and counsel as further described in the “Compensation Discussion and Analysis” section.

10

The Compensation Committee has the authority to determine and approve the individual elements of total compensation paid to the chief executive officer and other executives holding the title of vice president or higher. The Compensation Committee reviews the performance and compensation of the chief executive officer, and all of the executive officers named in this Proxy Statement. The chief executive officer as well as the president, chief operating officer, annually assist in the review of the compensation of our other executive officers and members of senior management. The chief executive officer makes recommendations with respect to salary adjustments, annual bonuses and restricted stock awards to the Compensation Committee based on his review and on market data.

Nominating/Corporate Governance Committee

The Nominating/Corporate Governance Committee of our Board of Directors is comprised of Ms. Huskins and Messrs. Cameron, McKee (Chairman) and Merriman. Mr. McLaughlin and Ms. Huskins were appointed to the Nominating/Corporate Governance Committee on June 13, 2007 and December 12, 2007, respectively. On February 12, 2008, Mr. McLaughlin resigned from the Nominating/Corporate Governance Committee and was appointed to the Compensation Committee and the Strategic Planning Committee.  All of the members of the Nominating/Corporate Governance Committee are “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards, as discussed above. The Corporate Governance Committee’s principal purpose is to provide counsel to our Board of Directors with respect to:

·             Organization, membership and function of our Board of Directors;

·             Structure and membership of the committees of our Board of Directors; and

·             Succession planning for our executive management.

Director Qualifications

The director qualifications developed to date focus on what the Nominating/Corporate Governance Committee believe to be essential competencies to effectively serve on the board.  In reviewing and considering potential nominees for the board, the Nominating/Corporate Governance Committee looks at the following qualities, skills and attributes:

·             Experience in corporate governance, such as an officer or former officer of a publicly-held company;

·             Experience in our industry;

·             Experience as a board member of another publicly-held company;

·             Personal and professional integrity, ethics and values;

·             Practical and mature business judgment, including the ability to make independent analytical inquiries;

·             Academic expertise in an area of our operations; and

·             Background in financial and accounting matters.

Identifying and Evaluating Nominees for Directors

The Nominating/Corporate Governance Committee identifies nominees for directors by first evaluating the current members of our board willing to continue in service. Current members with qualifications and skills that are consistent with the Nominating/Corporate Governance Committee’s criteria for board service are re-nominated. As to new candidates, the Nominating/Corporate Governance Committee will generally poll our board members and members of management for their recommendations. The Nominating/Corporate Governance Committee may also hire a search firm if deemed appropriate. An initial slate of candidates will be presented to the chairman of the Nominating/Corporate Governance Committee, who will then make an initial determination as to the qualification and fit of each candidate. Final candidates will be interviewed by the chief executive officer and a Nominating/Corporate Governance Committee member. The Nominating/Corporate Governance Committee will then approve final director candidates and, after review and deliberation of all feedback and data, will make its recommendation to our board. Recommendations received by stockholders will be considered and processed and are subject to the same criteria as are candidates nominated by the Nominating/Corporate Governance Committee. 

11

Stockholder Nominations

The Nominating/Corporate Governance Committee’s policy is to consider candidates recommended by stockholders. The stockholder must submit a detailed resume of the candidate and an explanation of the reasons why the stockholder believes the candidate is qualified for service on our board and how the candidate satisfies our board’s criteria. The stockholder must also provide such other information about the candidate as would be required by the SEC rules to be included in a Proxy Statement. In addition, the stockholder must include the consent of the candidate and describe any arrangements or undertakings between the stockholder and the candidate regarding the nomination. The stockholder must submit proof of Realty Income stockholdings. The stockholder must also comply with the advance notice provisions of our Bylaws. All communications are to be directed to the chairman of the Nominating/Corporate Governance Committee, c/o Secretary, Realty Income Corporation, 600 La Terraza Boulevard, Escondido, CA  92025. Recommendations received less than 120 days or more than 150 days prior to the anniversary of the mailing of the Proxy Statement for the previous year’s annual meeting of stockholders will not be considered timely for consideration at the current year’s annual meeting of stockholders. See “Stockholder Proposals for 2009 Annual Meeting” in this Proxy Statement. Properly submitted stockholder recommendations will be evaluated by the Nominating/Corporate Governance Committee using the same criteria used to evaluate other director candidates.

Strategic Planning Committee

The Strategic Planning Committee of our Board of Directors is comprised of Dr. Allen (Chairman), Ms. Huskins and Messrs. McLaughlin and Merriman and was formed in February 2008.  The Strategic Planning Committee will work with management to review initiatives designed to achieve our continued growth and to enhance stockholder value.  The Strategic Planning Committee will also assist management in looking beyond traditional quarterly and annual perspectives in considering our longer-term goals.

Meetings and Attendance

Our Board of Directors met 12 times during 2007. In 2007, the Audit Committee met seven times, the Compensation Committee met four times and the Nominating/Corporate Governance Committee met three times. All directors attended at least 75% of the aggregate of (i) the total number of meetings of our Board of Directors while they were on our board and (ii) the total number of meetings of the committees of our Board of Directors on which such directors served. Although we have no policy with regard to board members’ attendance at our annual meeting of stockholders, it is customary for, and we expect, all board members to attend. All of our directors then in office attended the 2007 annual meeting of stockholders.

To ensure free and open discussion among the independent directors of our board, only independent directors attend executive sessions of our board. The independent directors have nominated Mr. Cameron to serve as presiding lead independent director at each executive session. The board met in executive session four times during 2007.

Communications with the Board

Stockholders and other interested parties may communicate with our lead independent director or with the non-management directors, as a group, by sending an email to mpfeiffer@realtyincome.com or by regular mail addressed to the Lead Independent Director, c/o the Corporate Secretary, Realty Income Corporation, 600 La Terraza Boulevard, Escondido, CA  92025. All correspondence will be forwarded promptly by the corporate secretary to the lead independent director.

12

Compensation of the Company’s Directors

None of our officers receive or will receive any compensation for serving as a member of our Board of Directors or any of its committees. Our directors received the following aggregate amounts of compensation for the year ended December 31, 2007:

Stock Awards for Directors

Our 2003 Incentive Award Plan provides that upon the initial election to our Board of Directors and at each annual meeting of stockholders thereafter, if the director is still serving as a director, each director who is not a Realty Income officer is automatically granted 4,000 shares of our common stock. Our 2003 Incentive Award Plan was amended on May 15, 2007 and the vesting schedule for shares granted to non-employee directors after that date is as follows:

13

For stock grants made before May 15, 2007, the vesting schedule for shares granted to non-employee directors is based on the following schedule:

Other Payments for Directors

The members of our Board of Directors are also entitled to reimbursement of their expenses incurred in connection with attendance at board and committee meetings and conferences with our senior management, in accordance with our travel policy.

EXECUTIVE OFFICERS OF THE COMPANY

Biographical information with respect to Mr. Lewis is set forth above under Board of Directors.

Gary M. Malino is our president and chief operating officer. He joined us in 1985 and served in various executive positions until 1994 when he was named chief financial officer and treasurer. During 2001, Mr. Malino was promoted to president and chief operating officer. Prior to joining Realty Income, he was a certified public accountant for a Los Angeles based accounting firm (1981-1985) and assistant controller with McMillin Development Company, a real estate development company (1979-1981). Mr. Malino also serves as an officer of Crest.

Paul M. Meurer is our executive vice president, chief financial officer and treasurer, positions he has held since joining us in 2001. Prior to joining us, he was a director in Merrill Lynch & Co.'s Real Estate Investment Banking Group (1992-2001), a real estate consultant with General Atlantic Partners (1991) and worked in the Real Estate Investment Banking Department at Goldman Sachs & Co. (1987-1990). Mr. Meurer also serves as an officer of Crest.

Michael R. Pfeiffer is our executive vice president, general counsel and secretary. He joined us in 1990 and served as corporate counsel until 1995 when he was named general counsel and secretary. Mr. Pfeiffer left us in September 2001 and served as executive vice president and general counsel for Westfield Corporation, Inc., a retail shopping mall owner, until May 2002, at which time he returned to us as executive vice president, general counsel and secretary. Prior to 1990, Mr. Pfeiffer was in private practice with a law firm specializing in real estate transactional law and served as associate counsel with First American Title Insurance Company. He is a licensed attorney and member of the State Bar of California and Florida. Mr. Pfeiffer also serves as an officer of Crest.

Richard G. Collins is our executive vice president, portfolio management. He joined us in 1990 and has served in a variety of positions, including vice president, portfolio management and senior vice president, portfolio acquisitions. He was promoted to his current position in August 2005. Prior to becoming executive vice president, portfolio management, Mr. Collins served as the president of our subsidiary, Crest. Prior to joining us, he was involved as a principal in the acquisition and sale of land and commercial real estate, as a general partner for land and commercial real estate partnerships (1979-1990) and as a leasing and sales specialist in the Office Properties Division for Grubb & Ellis Commercial Real Estate Services (1974-1979). Mr. Collins also serves as a director and officer of Crest.

14

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis section discusses the compensation policies and programs for our executive officers, including our Named Executive Officers, as such term is defined in the Summary Compensation Table in this Proxy Statement. The Compensation Committee administers the compensation policies and programs for our executive officers and regularly reviews and approves our executive compensation strategy and principles to ensure that they are aligned with our business strategy and objectives, encourages high performance, promotes accountability and assures that management’s interests are aligned with the interests of our stockholders.

Overview of Compensation Philosophy and Program. The Compensation Committee believes that compensation should reflect the value created for our stockholders, while supporting our business strategies and long-range plans and the markets we serve, and that such compensation should assist us in attracting and retaining key executives critical to our long-term success. In doing so, our compensation programs reflect the following:

·             A compensation program that stresses both financial performance and the individual performance of each executive officer;

·             A compensation program that strengthens the relationship between pay and performance by providing annual cash bonuses and equity awards that are determined after consideration of the level of success in meeting specified company and individual performance metrics;

·             A compensation program that is designed to reward executive officers for long-term strategic management and the enhancement of stockholder value by providing equity awards that align the financial interests of the executive officers with those of our stockholders; and

·             A compensation program that is competitive with companies in the real estate investment trust (“REIT”) industry with which we compete for executive talent and is designed to retain key members of management.

To achieve our goals, the Compensation Committee offers executive officers a compensation package that is mainly comprised of the following: (1) a base salary, which provides our officers with a degree of financial certainty and security and rewards them for performing their core job duties and recognizes their individual achievements and contributions; (2) an annual incentive bonus, payable in cash, which the Compensation Committee determines after consideration of the company’s performance and individual performance relative to certain performance metrics and other past achievements; (3) long-term incentive awards in the form of restricted stock awards, which support our long-term performance and are designed to strengthen the mutuality of interests between our executive officers and our stockholders; and (4) severance payments and other benefits payable upon termination of an officer’s employment by us without cause or subsequent to a change of control of us, which promote executive retention and efforts toward the best interests of our stockholders in the event of an actual or threatened change of control. We believe that each of these elements and their combination is necessary to support our overall compensation objectives.

Compensation Consultant and Peer Comparisons. To assist in its efforts to meet the objectives outlined above, the Compensation Committee has retained FPL Associates Compensation, a division of FPL Associates, LP, a nationally-known executive compensation and benefits consulting firm to advise it on the amount and form of our executive compensation and benefit programs. The Compensation Committee engaged the consultant to provide general executive compensation consulting services, to respond to any Compensation Committee member’s questions, and to address management’s need for advice and counsel. In addition, the consultant performs special executive compensation projects and consulting services from time to time, as directed by the Compensation Committee. In 2007, consulting services related to executive compensation included recommending to the Compensation Committee an updated list of peers and providing advice on the Compensation Committee’s recommended levels of compensation for 2007.

The consultant reports to the chairman of the Compensation Committee and the Compensation Committee retains the right to terminate or replace the consultant at any time. Pursuant to the Compensation Committee’s charter, the Compensation Committee has the power to engage such consultants and other advisors.

15

While the Compensation Committee does not benchmark any element of our executives’ compensation relative to the companies in our peer group, the Compensation Committee uses comparison data as a guide in its review and determination of base salaries, annual cash bonuses and restricted stock awards. The Compensation Committee evaluates our performance and determines whether the compensation elements and levels that we provide to our executive officers are generally appropriate relative to the compensation elements and levels provided to their counterparts at our peer companies and in light of each executive officer’s contribution to our performance. This enables us to respond to dynamics in the labor market and provides us with flexibility in maintaining and enhancing our executive officers’ engagement, focus, motivation and enthusiasm for the future. In addition to reviewing the executive officers’ compensation against the companies in our peer group, the Compensation Committee, in setting executive compensation levels, also solicits appropriate input from our chief executive officer and our president, chief operating officer, regarding the amount of total direct compensation (base salary, annual cash bonus and equity awards) for each of our other executive officers. The Compensation Committee believes that the total direct compensation paid to each of our executive officers for 2007 was generally within the range of the total compensation paid to executive officers of our peer group companies, as described more specifically under “Components of Compensation.”

The Compensation Committee, with the help of its compensation consultant, periodically reviews the composition of the peer group and the criteria and data used in compiling the peer group list, and considers modifications to this group. During 2007, the Compensation Committee reviewed data provided by the consultant regarding the appropriate companies to include in the peer group and the effect any change in the peer group would have on our standing within the peer group. The peer groups recommended by our consultant and used by the Compensation Committee are listed below:

·    Asset-Based Peer Group. This peer group consists of four public REITs that primarily focus on net-leased properties and are similar in size to us, in terms of total capitalization (market value of common stock, preferred stock, operating partnership units, and long-term debt). The companies in this peer group include Entertainment Properties Trust; Getty Realty Corp.; Lexington Realty Trust and National Retail Properties, Inc.

·    Size-Based Peer Group. This peer group consists of 13 public REITs and one public real estate operating company that focus on a variety of asset classes and are similar in size to us, in terms of total capitalization. This peer group has total capitalization ranging from approximately $2.2 billion to $6.4 billion (as of September 30, 2007). The companies in this peer group include BioMed Realty Trust, Inc.; Choice Hotels International, Inc.; Corporate Office Properties Trust; Cousins Properties Incorporated; Equity One, Inc.; First Industrial Realty Trust, Inc.; Glimcher Realty Trust; Health Care REIT, Inc.; Home Properties, Inc.; Mid-America Apartment Communities, Inc.; Nationwide Health Properties, Inc.; Pennsylvania Real Estate Investment Trust; Post Properties, Inc.; and Washington Real Estate Investment Trust.

·             Geographic-Based Peer Group. This peer group consists of nine public REITs, each with corporate headquarters located within the state of California. This peer group focuses on a variety of asset classes and has total capitalization ranging from approximately $1.6 billion to $7.0 billion (as of September 30, 2007). The companies in this peer group include Alexandria Real Estate Equities, Inc.; BioMed Realty Trust, Inc.; Digital Realty Trust, Inc.; Essex Property Trust, Inc.; Maguire Properties, Inc.; Mission West Properties, Inc.; Nationwide Health Properties, Inc.; PS Business Parks, Inc.; and Sunstone Hotel Investors, Inc.

The peer groups listed above differ slightly from the peer group we used in 2006 as several companies were eliminated due to consolidations in our industry.  In November 2007, the Compensation Committee decided to add four companies to the size-based peer group (First Industrial Realty Trust, Health Care REIT, Inc., Home Properties, Inc., and Pennsylvania Real Estate Investment Trust) to replace the companies eliminated due to the consolidations in our industry.

In making its 2007 compensation determinations, the Compensation Committee also reviewed and considered survey data from SNL Executive Compensation Review for real estate public companies, published by SNL Financial, which contains data from 151 public real estate companies, and the NAREIT Survey, which contains data from 103 NAREIT member companies.

Performance Metrics. The Compensation Committee establishes performance metrics at the beginning of each year for assessing company performance and the individual performance of each executive officer. The Compensation Committee evaluates the company’s performance and each executive officer’s performance in light of these metrics and considers this evaluation in determining the executive officer’s annual cash bonuses and equity awards. The Compensation Committee also considers other factors, including other company-related or individual past achievements, in its determination of compensation levels. Annual cash bonuses and equity awards historically have not been based on attainment of specific performance goals or objectives.

16

The general methodologies for assessing company performance included an assessment of the following metrics for 2007:

·            Shareholder Returns. This includes the payment of dividends, stock price performance and total shareholder return. The Compensation Committee also reviews comparative returns and how we rank compared to other net lease REITs, other REITs in general, other stock indexes, and also undertakes a subjective analysis of the relative risk taken by peer companies.

·            Company Operations. This includes revenue, expense control, funds from operation, access to capital, debt levels, occupancy levels and resolution, credit quality, acquisition levels, property investment yields, internal rates of return, asset diversification, employee turnover, trading multiples, dividend yields and increases, and new initiatives suggested and implemented.

·            Industry Compensation Levels. This includes what other companies are paying for similar positions in our geographic region and in the real estate industry, the employee’s other employment alternatives, the employee’s value to us, the employee’s future prospects, the difficulty in replacing the employee, the compensation cost of the employee, and the current versus past performance of the employee.

The general methodologies for assessing individual performance included an assessment of the following metrics for 2007:

·            The specific performance metrics reviewed by the Compensation Committee for Mr. Lewis included an analysis of our funds from operation growth per share, our dividend growth, access to capital, his participation in our Investment Committee and our investment decisions, and the profitability of Crest.

·            The specific performance metrics reviewed by the Compensation Committee for Mr. Malino included an analysis of our funds from operation growth per share, his supervisory performance of overseeing the various departments and operations within the company, his ability to monitor and insure operational compliance with the Sarbanes-Oxley Act of 2002, Section 404 (“SOX 404”) and monitor internal controls, his ability to oversee expense controls and personnel and his participation in our Investment Committee and our investment decisions.

·    The specific performance metrics reviewed by the Compensation Committee for Mr. Meurer included an analysis of his ability to provide timely filing and providing accurate financial statements and other information required by various regulatory agencies, his overseeing and insuring compliance with all requirements of SOX 404, our ability to access long-term capital and bank capital, his ability to insure that we are in compliance with all aspects of the Code as it relates to REIT compliance, the implementation of new systems that improve the efficiency and effectiveness of the company, and his participation in our Investment Committee and our investment decisions.

·            The specific performance metrics reviewed by the Compensation Committee for Mr. Pfeiffer included his ability to manage the legal department, including the timing, accuracy and performance of the legal department in its relationship with our other departments, his ability to oversee all transactions and litigation, his responsiveness and administration of corporate legal matters, his ability to oversee and insure the operational compliance within the legal department for SOX 404, his corporate secretary duties, including interaction with the Board of Directors, compliance with our transfer agent and the New York Stock Exchange and his participation in our Investment Committee and our investment decisions.

·   The specific performance metrics reviewed by the Compensation Committee for Mr. Collins included a determination of the portfolio performance, including rent collections, management of tenant obligations and additional revenue creation, management of the portfolio, including releasing, property dispositions, occupancy rates and time to release unleased properties, cost controls, maintenance management, staff development, firm initiatives relating to new business opportunities, acquisition leads and tenant relationship management.

Tally Sheets. At least annually, the Compensation Committee reviews tally sheets setting forth the value of the compensation paid to each executive officer, including base salaries, annual cash bonuses and restricted stock awards since fiscal year 2000 (the first year in which our current stock program was put into place) and through fiscal year 2014.  For future years, the tally sheets assume the same base salary, estimate a cash bonus, and estimate the grant of restricted stock awards at the middle of the range for each individual. In its most recent review of tally sheets in November 2007, the Compensation Committee determined that the annual compensation amounts for our named executive officers remained consistent with the Compensation Committee’s expectations. The tally sheets served as a useful check on total annual compensation amounts, but did not affect any specific decision relating to the named executive officers’ compensation.

17

Components of Executive Compensation

Overview. In reviewing compensation, the Compensation Committee focuses on total compensation paid, including base salary, annual cash bonuses, restricted stock awards and the dividends paid on the restricted stock awards.

Base Salaries. Base salaries provide our executive officers with a degree of financial certainty and stability, reward them for performing their core job duties and responsibilities, and are used to attract and retain highly qualified individuals. The Compensation Committee annually reviews and determines the base salaries of our executive officers. Base salaries are also evaluated at the time of a promotion or other significant change in responsibilities. Increases in base salaries are based on the Compensation Committee’s evaluation of such factors as an executive officer’s level of responsibility and development potential, the results previously achieved by the executive officer, and the level of pay of the executive officer in question relative to other similarly situated executive officers at our peer companies, each as specifically discussed below.

In January 2007, each of our Named Executive Officers entered into an employment agreement with us, pursuant to which Messrs. Lewis, Malino, Meurer, Pfeiffer and Collins receive base salaries of no less than $350,000, $325,000, $300,000, $275,000 and $220,000, respectively, which are the same amounts awarded to them in 2006. The Named Executive Officers’ base salaries were not increased for 2007 based on the Compensation Committee’s belief that their 2007 total compensation amounts were competitive. Each Named Executive Officer’s 2006 total compensation amount, as disclosed in the Summary Compensation Table, was below the peer group median and average for his position. Messrs. Lewis’, Malino’s and Pfeiffer’s 2007 total compensation amounts were each slightly above the peer group median and average for their positions, largely due to an increase in their annual cash bonuses as compared to 2006 and higher SFAS 123R compensation expense for 2007 and prior year stock awards. Messrs. Meurer’s and Collins’ 2007 total compensation amounts were between the peer group median and average for their positions, also, largely due to an increase in their annual cash bonuses as compared to 2006 and higher SFAS 123R compensation expense for 2007 and prior year stock awards.

Annual Cash Bonuses. Annual cash bonuses are designed to supplement the pay of our executive officers (and other key management personnel) so that their total compensation is competitive and properly rewards the executive officers for their efforts in achieving our objectives.

In February 2007, the Compensation Committee established company and individual performance metrics that were assessed for the payment of 2007 annual bonuses to each of our executive officers. The performance metrics evaluated by the Compensation Committee in its determination of the amount of cash bonuses to be paid to our executive officers varied considerably in detail and subject matter depending on the executive officer’s position, and included such performance goals as funds from operations growth, our access to long term capital, expense control, and the performance of individual departments as more fully described in the “Performance Metrics” section of this Compensation Discussion and Analysis.

In determining actual bonus amounts, the Compensation Committee also considers the level of total compensation (salary, bonus and equity awards) of each executive officer compared to other similarly situated executives at the peer companies, as described above. While the Compensation Committee reviews company performance and each individual’s actual performance relative to the pre-established company and individual objectives and performance levels, actual bonus amounts have not been historically tied to the attainment of specific performance goals or objectives. The Compensation Committee, with input from our chief executive officer with respect to the other executive officers, uses its discretion in determining actual bonus amounts. Bonuses were approved by the Compensation Committee in December 2007 and paid in January 2008.

For 2007, Messrs. Lewis, Malino, Meurer, Pfeiffer and Collins received bonus awards of $1,274,000, $785,000, $532,000, $425,000, and $262,000, respectively. While these bonus amounts were not tied to the attainment of specific performance goals or objectives, the Compensation Committee noted successful achievements relating to nearly all of the performance metrics. The bonus amounts supplemented the pay of our executive officers so that their total compensation was competitive.

Long-Term Incentive Compensation Awards. The Compensation Committee grants restricted stock awards to our executive officers under our 2003 Incentive Award Plan. These stock awards are designed to increase executive officers’ stock ownership, motivate our executive officers to improve long-term dividend performance, encourage long-term dedication and to operate as an executive officer retention mechanism for key members of our management.

18

In May 2007, our Board of Directors approved a new vesting schedule for shares granted to employees after May 15, 2007. The reason for this change was to provide a shorter vesting period for employees who were closer to the age of retirement. The new vesting schedule is as follows:

·    For employees age 49 and below at the grant date, shares vest in 10% increments on each of the first ten anniversaries of the grant date;

·    For employees age 50 through 55 at the grant date, shares vest in 20% increments on each of the first five anniversaries of the grant date;

·    For employees age 56 at the grant date, shares vest in 25% increments on each of the first four anniversaries of the grant date;

·    For employees age 57 at the grant date, shares vest in 33.33% increments on each of the first three anniversaries of the grant date;

·    For employees age 58 at the grant date, shares vest in 50% increments on each of the first two anniversaries of the grant date;

·    For employees age 59 at the grant date, shares are 100% vested on the first anniversary of the grant date; and

·    For employees age 60 and above at the grant date, shares vest immediately on the grant date.

The 2007 restricted stock awards granted on January 1, 2008 to Messrs. Lewis and Malino vest over five years, for Messrs. Meurer and Pfeiffer vest over ten years and for Mr. Collins vest in full on the first anniversary of the grant date. Distributions are paid on the total grant amount from the date of the grant. At the beginning of 2007, the Compensation Committee determined a range of stock awards to be granted to each executive officer. Actual awards within this range would depend on each executive officer’s performance in accordance with the performance metrics as more fully described in the “Performance Metrics” section of this Proxy Statement or any other factors in the Compensation Committee’s discretion. The range of stock awards to be granted to the chief executive officer was 20,000-60,000 shares, to the president and chief operating officer was 20,000-30,000 shares, to the executive vice president, chief financial officer and executive vice president, general counsel was 10,000-20,000 shares, and to the executive vice president, portfolio management was 8,000-16,000 shares. The range of stock awards was designed to supplement the pay of our executive officers so that their 2007 total compensation was competitive. The Compensation Committee may, in its discretion, choose to grant shares outside these ranges. The Compensation Committee made a determination to grant 50,000, 30,000, 20,000, 20,000, and 16,000 shares of restricted stock to Messrs. Lewis, Malino, Meurer, Pfeiffer and Collins, respectively. In making this determination, the Compensation Committee noted the same corporate and individual achievements and results it had considered in making its 2007 bonus determinations, as discussed above under “Performance Metrics.”

In 2007, no stock options were granted to the Named Executive Officers. In 2001, we discontinued our practice of granting stock options in favor of only granting stock awards. We believe that stock is a more appropriate incentive to our executive officers given the focus of our business on monthly dividends.

Equity Grant Practices. Stock awards are granted to our executive officers at the Compensation Committee’s meeting in November or December of each year. Such stock awards are effective as of January 1 of the following year. Board and committee meetings are generally scheduled at least a year in advance.

Severance and Change in Control Arrangements. We have entered into severance and change of control arrangements with each of our Named Executive Officers, and other executive officers, which provide for severance payments and other benefits to the officers if their employment is terminated by us without cause or following a change of control of us. The payments and benefit levels under the employment agreements did not influence and were not influenced by other elements of compensation. The agreements were designed to help attract key employees, preserve employee morale and productivity and retain our executive officers and provide continuity of management in the event of an actual or threatened change in the control of us. These benefits allow executives to assess takeover bids objectively without regard to the potential impact on his/her own job security. A description of the material terms of our severance and change of control arrangements can be found under “Potential Payments upon Termination or Change in Control” in this Proxy Statement.

19

Tax Considerations

Section 162(m) of the Internal Revenue Code of 1986, as Amended. Section 162(m) of the Code limits the deductibility of compensation paid to our chief executive officer and our three other most highly compensated executive officers, other than the chief financial officer. To qualify for deductibility under Section 162(m), compensation (including base salary, annual bonus, stock option exercises, compensation attributable to vesting of stock grants and nonqualified benefits) in excess of $1,000,000 per year paid to each of these executive officers generally must be “performance based” compensation as determined under Section 162(m). While the Compensation Committee regularly discusses whether to structure compensation so that it satisfies the “performance based” compensation requirements under Section 162(m), the Compensation Committee balances the costs and burdens involved in doing so against the value to us and our stockholders of the tax benefits to be obtained by us. Accordingly, the Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be fully deductible as a result of Section 162(m).

Despite the fact that our incentive bonuses and stock-related awards for 2007 were determined by taking into consideration certain financial and strategic goals, the Compensation Committee did not apply these factors on a strict formulaic basis. As a result, our incentive bonuses and stock-related awards granted or earned in 2007 did not satisfy the “performance based” compensation requirements of Section 162(m).

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for the 2008 Annual Meeting of stockholders and our 2007 Annual Report on Form 10-K.

Submitted on March 18, 2008 by the members of the Compensation Committee of our Board of Directors.

Donald R. Cameron, Chairman

Roger P. Kuppinger

Gregory T. McLaughlin

Willard H. Smith Jr

The above report of the Compensation Committee will not be deemed to be incorporated by reference into any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates the same by reference.

20

Summary Compensation Table

The following table sets forth information concerning the compensation earned by our chief executive officer, our chief financial officer, and our three other most highly compensated executive officers (collectively, the “Named Executive Officers”) for the fiscal years ended December 31, 2007 and 2006.

(1)    The amounts shown include amounts earned, but a portion of which may be deferred, at the election of the officer under our 401(k) retirement plan.

(2)    The bonuses shown for 2007 were paid in January 2008 and the bonuses shown for 2006 were paid in January 2007.

(3)    For 2007, the amounts shown represent the compensation cost recognized by us related to the grants of restricted stock during 2007 and prior years in accordance with SFAS 123R. For a discussion of valuation assumptions used to determine the compensation cost in 2007, see Note 15 to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2007.

(4)    The Compensation Committee awards grants of restricted stock in accordance with the provisions of our 2003 Incentive Award Plan. On May 15, 2007 our Board of Directors approved a new vesting schedule for shares granted to employees on or after May 15, 2007, which is as follows: (i) for employees age 49 and below at the grant date, shares vest in 10% increments on each of the first ten anniversaries of the grant date; (ii) For employees age 50 through 55 at the grant date, shares vest in 20% increments on each of the first five anniversaries of the grant date; (iii) For employees age 56 at the grant date, shares vest in 25% increments on each of the first four anniversaries of the grant date; (iv) For employees age 57 at the grant date, shares vest in 33.33% increments on each of the first three anniversaries of the grant date; (v) For employees age 58 at the grant date, shares vest in 50% increments on each of the first two anniversaries of the grant date; (vi) For employees age 59 at the grant date, shares are 100% vested on the first anniversary of the grant date; and (vii) For employees age 60 and above at the grant date, shares vest immediately on the grant date. Prior to May 15, 2007, the grant of any new shares of restricted stock vested; (i) over ten years if the Named Executive Officer was under the age of 55 and (ii) vested over five years if the Named Executive Officer was 55 years of age or older. Restricted stock is eligible to receive distributions from the date of grant.

(5)    The following table sets forth distributions paid on restricted stock, matching contributions by us to the Named Executive Officer’s 401(k) savings account and the cost of term life premiums paid by us:

21

Grants of Plan-Based Awards Table

The following table sets forth summary information concerning all grants of plan-based awards made to the Named Executive Officers for the 2007 fiscal year. It does not include stock awards granted on January 1, 2007 and instead includes stock awards granted on January 1, 2008. Stock awards granted on January 1, 2007 are reported in our 2007 proxy statement filed with the SEC on March 23, 2007 (the “2007 proxy statement”).

Outstanding Equity Awards Table

The following table sets forth summary information concerning outstanding equity awards held by each of the Named Executive Officers as of January 1, 2008, since this date includes awards granted to the Named Executive Officers on January 1, 2008 for the 2007 fiscal year. During the year ended December 31, 2007, no stock options were granted to the Named Executive Officers and none of the Named Executive Officers exercised stock options. In addition, none of the Named Executive Officers held any exercisable or unexercisable options at the end of the 2007 fiscal year.