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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant  x

Filed by a Party other than the Registrant  o

Check the appropriate box:

(Name of the Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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April      , 2012

Dear Stockholder:

You are cordially invited to attend the 2012 Annual Meeting of Stockholders of Realty Income Corporation, a Maryland corporation, to be held at 9:00 AM, local time, on May 8, 2012 at the 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 the seven directors named in the accompanying Proxy Statement to serve until the 2013 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 ending December 31, 2012.

(3) A non-binding advisory proposal to approve the compensation of our named executive officers, as described in the accompanying Proxy Statement (the “say on pay vote”).

(4) A proposal to amend our Articles of Incorporation (the “Charter”) to increase the number of authorized shares of our common stock from 185,050,000 shares to 1,000,000,000 and the number of authorized shares of the our preferred stock from 34,950,000 to 100,000,000.

(5) A proposal to amend our Charter to permit a majority of the entire Board of Directors to change the number of authorized shares in its discretion from time to time, without stockholder approval.

(6) A proposal to approve the Realty Income Corporation 2012 Incentive Award Plan.

(7) 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 seven director nominees to serve until the next annual meeting and until their respective successors are duly elected and qualify; a vote FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2012; a vote FOR the say on pay vote; a vote FOR the proposal to amend the Charter to increase the number of authorized shares of common stock and preferred stock; a vote FOR the proposal to amend the Charter to permit our Board of Directors to change the number of authorized shares in its discretion from time to time, without stockholder approval; and a vote FOR the proposal to approve the Realty Income Corporation 2012 Incentive Award Plan.

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 or authorize your proxy by internet or telephone, 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.

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REALTY INCOME CORPORATION

A Maryland corporation

600 La Terraza Boulevard

Escondido, California  92025-3873

Only holders of record of our common stock at the close of business on the Record Date will be entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof.

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REALTY INCOME CORPORATION

600 La Terraza Boulevard

Escondido, California  92025-3873

PROXY STATEMENT

FOR THE

ANNUAL MEETING OF STOCKHOLDERS

May 8, 2012

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

and at any adjournment or postponement of the Annual Meeting

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PROPOSAL 1

PROPOSAL 2

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PROPOSAL 3

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PROPOSAL 4

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PROPOSAL 5

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PROPOSAL 6

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BOARD OF DIRECTORS

The following table sets forth certain information as of March 8, 2012 concerning our current directors, other than Donald R. Cameron who is retiring as of the Annual Meeting.  Each person listed below is a director nominee for re-election at the Annual Meeting.

Board of Director Biographies

The information presented below highlights each director’s specific experience, qualifications, attributes and skills that led our Board of Directors to the conclusion that he/she should serve as a director.  We believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to Realty Income and our Board of Directors. Finally, we value their significant experience on other company boards of directors and board committees.

Kathleen R. Allen, Ph.D.

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 chairwoman 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 a medical technology venture and an aerospace company 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 chairwoman of our Strategic Planning Committee and is a member of our Audit Committee and our Compensation Committee.

As a distinguished businesswoman, entrepreneur and consultant, Dr. Allen has helped our Board of Directors identify and assess the risks associated with new endeavors. She has also worked with many start-up and early growth companies to develop effective leadership and team-building skills, which she has implemented during her participation on various board committees. With her years of experience in risk management in the areas of start-up ventures and the development of new technologies, Dr. Allen brings to the Board of Directors achievement in strategic business planning, which is a key part of our overall strategy.

A. Larry Chapman

A. Larry Chapman has been our director since February 2012.  He is a retired 37-year veteran of Wells Fargo, having served most recently as Executive Vice President and the Head of Commercial Real Estate from 2006 until his retirement in June 2011, and as a member of the Wells Fargo Management Committee.  Mr. Chapman joined Wells Fargo in 1974 in its Houston Real Estate office.  In 1987, he was promoted to president of Wells Fargo Realty Advisors, a wholly-owned subsidiary of Wells Fargo & Co.  The subsidiary’s primary responsibility was managing Wells Fargo Mortgage and Equity Trust, which was formed in 1970 and sold in 1989.  He remained president of Wells Fargo Realty Advisors until it was sold and was promoted to group head of the Wells Fargo Real Estate Group in 1993.  Mr. Chapman managed the Wells Fargo Real Estate Group until his 2006 promotion to Executive Vice President and Head of Commercial Real Estate for Wells Fargo on a nationwide basis.  Mr. Chapman is a former board member of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley; past

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governor and trustee of the Urban Land Institute; former member of the National Association of Real Estate Investment Trusts; and member and past trustee of the International Council of Shopping Centers. Mr. Chapman is a member of our Audit and Compensation Committees.

Mr. Chapman’s extensive commercial real estate experience, across many industries and tenant types, provides valuable insight and expertise to the Board and our senior management team as we continue to expand our real estate portfolio. In addition, his background as a leader of a Fortune 500 company, and as a member of its management team, further enhances the quality of leadership and oversight provided by our Board of Directors.

Priya Cherian Huskins

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 the law firm of Wilson Sonsini Goodrich & Rosati (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 chairwoman of our Nominating/Corporate Governance Committee and is a member of our Strategic Planning Committee.

With her background in law, insurance and risk management, Ms. Huskins brings a focus on these areas to our Board of Directors. As a recognized expert in directors and officers liability risk and its mitigation, Ms. Huskins provides valuable insight into our risk management strategy.  In addition, she brings experience regarding corporate governance matters, including ways that corporate governance can enhance stockholder value. Ms. Huskins’s experience makes her a valuable component of a well-rounded Board of Directors and a key member of both committees on which she serves.

Thomas A. Lewis

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 of Directors since September 1993. Mr. Lewis joined us in 1987 and has served in a variety of executive positions, including senior 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 has also served as a member of the board of directors and is chairman of the compensation committee of Sunstone Hotel Investors, Inc. (NYSE: SHO) (2006-present).

As our chief executive officer, Mr. Lewis has demonstrated leadership capability and extensive knowledge of financial and operational issues facing real estate organizations. His vast understanding of real estate investment trusts and financial strategy in challenging environments has helped to guide us and the Board of Directors through the general economic turbulence of the last two years. Mr. Lewis’s knowledge of all aspects of our business and history, combined with his drive for innovation and excellence, position him well to serve as a valuable member of our Board of Directors.

Michael D. McKee

Michael D. McKee has been our director since August 1994. Since February 2012, Mr. McKee has served as the chairman of our Board of Directors. He is the chief executive officer of Bentall Kennedy (U.S.), a registered real estate investment advisor (February 2010-present). He was the vice chairman (1999-2008) and chief executive officer (2007-2008) of The Irvine Company, a privately-held real estate investment company, as well as 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). He has served on the board of directors of HCP, Inc. (NYSE: HCP) (1987-present) where he serves as Lead Director, Bentall Kennedy (U.S.) (2008-present), First American Financial Corporation (NYSE: FAF) (2011-present), the Tiger Woods Foundation (2006-present), The Irvine Company (1998-2008) and Hoag Hospital Foundation (1999-2008). In addition to being the chairman of our Board of Directors, Mr. McKee is a member of our Compensation Committee and our Nominating/Corporate Governance Committee.

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Mr. McKee’s 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. Additionally, he has been exposed to various compliance issues as they relate to real estate investment trusts. With his knowledge of the complex issues facing real estate companies today and his understanding of what makes businesses work effectively and efficiently, Mr. McKee provides valuable insight to our Board of Directors.

Gregory T. McLaughlin

Gregory T. McLaughlin has been our director since June 2007.  Mr. McLaughlin is currently the president and chief executive officer of the Tiger Woods Foundation in Irvine, California (1999-present).  Prior to joining the Tiger Woods Foundation, Mr. McLaughlin was vice president of business development and events of the Western Golf Association/Evans Scholars Foundation (1993-1999) and director of the Los Angeles Junior Chamber of Commerce (1988-1993).  He is currently a member of the board of directors of the Tiger Woods Foundation (2005-present).  Mr. McLaughlin is chairman of the Compensation Committee and is a member of our Audit Committee and our Strategic Planning Committee.

Mr. McLaughlin’s business and legal experience includes tax exempt organizations and financing as well as capital campaigns and program development.  Additionally, he has proven leadership skills in managing non-profit organizations and brings financial reporting expertise, especially as it relates to audit and tax matters. His experience in working with various types of people has exposed him to many different issues, which have enabled him to work effectively as a valuable member of our Board of Director committees. With his diverse background, Mr. McLaughlin offers a unique perspective to the Board of Directors on a variety of business and legal matters.

Ronald L. Merriman

Ronald L. Merriman has been our director since July 2005. He is a retired vice chairman and partner of KPMG LLP, a global accounting and consulting firm (1967-1997).  At KPMG LLP, Mr. Merriman served as vice chairman of the Executive Management Committee.  More recently, Mr. Merriman was the managing director of Merriman Partners, a management advisory firm (2003-2011). 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) and president of Ambassador Performance Group, Inc. (1997-1999).  Mr. Merriman has served on the board of directors and is the chairman of the audit committee of the following public companies: Aircastle Limited (NYSE: AYR)(2006-present), Pentair, Inc. (NYSE: PNR)(2005-present) and Haemonetics Corporation (NYSE: HAE)(2005-present). He also serves on the board of directors and is the chairman of the audit committee of the privately-held Preferred Hotel Group, Inc. (2004-present). Mr. Merriman is chairman of our Audit Committee and is a member of our Nominating/Corporate Governance Committee and our Strategic Planning Committee.

Mr. Merriman is an experienced financial leader with the skills necessary to lead our Audit Committee. Throughout his career, he has been exposed to various issues involving accounting and auditing standards, business law and corporate ethics. His professional background and experience on other audit committees make him a valuable asset, both on our Board of Directors and as the Chairman of our Audit Committee. Mr. Merriman’s positions have provided him with a wealth of knowledge in addressing financial and accounting matters. The depth and breadth of his exposure to complex financial issues makes him a skilled advisor to the Board of Directors.

Corporate Governance

Nothing is more important to us than a reputation for integrity and to serve as a responsible fiduciary for our stockholders.  Our Board of Directors, senior management and employees have a corporate responsibility to manage the company for the benefit of our stockholders and this commitment is demonstrated in the corporate governance initiatives outlined below.

We have adopted a Code of Business Ethics that applies to our employees and directors.  The Board of Directors adopted the Code of Business Ethics to codify and formalize certain of our long-standing policies and principles that help ensure our business is conducted in accordance with the highest

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standards of moral and ethical behavior.  Our Code of Business Ethics covers all areas of professional conduct, including conflicts of interest, insider trading and confidentiality, as well as requiring strict adherence to all laws and regulations applicable to our business and industry.  We conduct annual training of employees regarding ethical behavior and require all employees to acknowledge the terms of, and abide by, our Code of Business Ethics.

Our Board of Directors has adopted a charter for each of the Audit Committee, the Compensation Committee, the Nominating/Corporate Governance Committee and the Strategic Planning Committee. Each of our charters is reviewed annually. Our Board of Directors may, from time to time, establish certain other committees to facilitate our management. We have also adopted Corporate Governance Guidelines that promote the functioning of the Board of Directors and its committees and sets forth expectations as to how the Board of Directors should perform its functions. The guidelines include information about the composition of the Board of Directors, orientation and continuing education, director compensation, Board of Directors meetings, Board of Directors committees, management succession, evaluation and compensation of senior officers, expectations of directors and information regarding the annual performance evaluation of the Board of Directors.

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  92025-3873. During 2011, in accordance with the terms of each of our Committee Charters, each of our respective committees reviewed its charter.  In response to its annual charter review process, the Audit Committee updated its charter in February 2011 to reflect minor changes in accounting terminology.  Each of our Strategic Planning Committee, Compensation Committee and Nominating/Corporate Governance Committee determined that no updates to their respective charters were needed in 2011. We intend to disclose future amendments to or waivers of certain provisions of our Code of Business Ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller and individuals performing similar functions on our website at www.realtyincome.com within five business days following such waiver or as otherwise required by the SEC or the NYSE.

Our Board of Directors has adopted a “whistleblower” policy, which outlines a procedure for all interested parties, including employees, to submit confidential complaints, concerns, unethical business practices, violations or suspected violations for any and all matters pertaining to accounting, internal control or auditing.

We are committed to promoting responsible corporate citizenship within our company and recently implemented a Corporate Responsibility program focused on reducing our environmental footprint and maintaining high ethical standards in our business. More information on our corporate responsibility efforts can be found at http://www.realtyincome.com/invest/investing-resources/corporate-responsibility.shtml.

Board Independence

Our Board of Directors has determined that each of our current directors, except for Mr. 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 and NYSE director independence standards. Our Board of Directors established and employed categorical standards in determining whether a relationship is material and thus would disqualify such director from being independent.  Our categorical standards of independence mirror NYSE independence requirements, except that our categorical standards additionally consider a director to be not independent if:

·            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 such other company; and

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·            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 (as of the record date)

Mr. McKee has been the Chairman of the Board of Directors since February 21, 2012.  Don Cameron, who served as the Chairman of the Board of Directors through February 20, 2012, will retire from the Board of Directors effective as of our Annual Meeting.  Mr. Cameron served as an ex-officio, non-voting member of each of our Board committees during 2011 and until February 20, 2012.

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, as amended, or the Exchange Act, and is comprised of Dr. Allen and Messrs. Chapman, McLaughlin and Merriman (Chairman).  Mr. Cameron served as an ex-officio member of our Audit Committee during 2011 and through his February 21, 2012 announcement to retire effective as of our Annual Meeting.  Our Board of Directors has determined that Mr. Merriman and Mr. McLaughlin qualify as audit committee financial experts, 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 as Chairman of our Audit Committee.

The Audit Committee’s principal responsibilities include:

·            Compliance with legal and regulatory requirements;

·            The integrity of our financial statements;

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

o           The scope and results of the audit engagement with the independent registered public accounting firm, including the independent registered public accounting firm’s letters to the Audit Committee;

o           The independence and qualifications of the independent registered public accounting firm;

o           The effectiveness and efficiency of our internal accounting function; and

o           Any proposed significant accounting changes; and

·            As necessary, meeting with the Compensation Committee regarding the performance goals for key financial, internal control and risk management personnel.

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Compensation Committee

The Compensation Committee of our Board of Directors is comprised of Dr. Allen and Messrs. Chapman, McKee and McLaughlin (Chairman).  Mr. Cameron served as an ex-officio member of our Compensation Committee during 2011 and through his February 21, 2012 announcement to retire effective as of our Annual Meeting.  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, are “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act, and are “outside directors” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended, or 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 strategies and principles to ensure that they (i) are aligned with our business strategies and objectives, (ii) encourage high performance, (iii) promote accountability and (iv) assure that employee interests are aligned with the interests of our stockholders. In addition, the Compensation Committee:

·            Conducts an annual review of our compensation philosophy, including a review of our company-wide incentive programs to assess whether the incentive programs encourage desirable behavior as it relates to our long-term growth and reflect our risk management philosophies, policies and processes;

·            Conducts an annual review of 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 strategies and objectives and determines and approves the compensation of the chief executive officer based on such evaluation;

·            Conducts an annual review of and approves all compensation for all other officers (as such term is defined in Rule 16a-1 promulgated under the Exchange Act), all of our other employees and 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);

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

·            As necessary, meets with the Audit Committee and/or senior management regarding the role risk management plays in setting appropriate performance objectives and incentives.

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 and management, from an outside independent compensation consultant it selects and retains and, as appropriate, in consultation 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, LP, a nationally-known executive compensation and benefits consulting firm specializing in real estate companies, 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

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Committee member’s questions and to management’s need for advice and counsel as further described in the “Compensation Discussion and Analysis” section. The consultant does not perform any other services for the Company.

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 Named Executive Officers. 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 of each executive’s performance in relation to the guidelines established at the commencement of the year, compensation for similar positions at peer companies and the company’s performance for that year.

Nominating/Corporate Governance Committee

The Nominating/Corporate Governance Committee of our Board of Directors is comprised of Ms. Huskins (Chairwoman) and Messrs. McKee and Merriman. Mr. Cameron served as an ex-officio member of our Nominating/Corporate Governance Committee during 2011 and through his February 21, 2012 announcement to retire effective as of our Annual Meeting.  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 previously discussed. The Nominating/Corporate Governance Committee’s principal purpose is to provide counsel to our Board of Directors on the broad range of issues surrounding the composition and operation of the Board of Directors, including:

·            Development and review of the qualifications and competencies required for membership on our Board of Directors;

·            Reviewing and interviewing qualified candidates to serve on our Board of Directors;

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

·            Succession planning for our executive management.

The Nominating/Corporate Governance Committee also provides recommendations to the Board of Directors in the areas of committee selection and rotation practices, evaluation of the overall effectiveness of the Board of Directors and management, review of Board of Director compensation, and review and consideration of developments in corporate governance practices.  The Nominating/Corporate Governance Committee retains the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms.  On an annual basis, the Nominating/Corporate Governance Committee solicits input from the full Board of Directors and conducts a review of the effectiveness of the operation of the Board of Directors and all committees thereof, including reviewing governance and operating practices and the Corporate Governance Guidelines for Operation of the Board of Directors.

Strategic Planning Committee

The Strategic Planning Committee of our Board of Directors is comprised of Dr. Allen (Chairwoman), Ms. Huskins and Messrs. McLaughlin, Merriman and Lewis.  Mr. Cameron served as an ex-officio member of our Strategic Planning Committee during 2011 and through his February 21, 2012 announcement to retire effective as of our Annual Meeting.  With the exception of Mr. Lewis, our chief executive officer, all of the members of the Strategic Planning Committee are “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards as previously discussed.  The Strategic Planning Committee works with management to review initiatives designed to achieve our continued growth and to enhance stockholder value.  The Strategic Planning Committee also assists management in looking beyond traditional quarterly and annual perspectives in considering our longer-term goals.

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Director Qualifications

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

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

·            Experience in our industry and a general business understanding of major issues facing public companies;

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

·            Personal and professional integrity, ethics, values and absence of conflicts of interest;

·            Ability to fairly and equally represent all stockholders of the Company and time to devote to being a director;

·            Practical and mature business judgment, including the ability to make independent analytical inquiries and function effectively in an oversight role;

·            Academic expertise in an area of our operations and achievement in one or more applicable fields;

·            Background in financial and accounting matters; and

·            Diversity in terms of background, expertise, perspective, age, gender and ethnicity.

Identifying and Evaluating Nominees for Directors

The Nominating/Corporate Governance Committee identifies nominees for directors by first evaluating the current members of our Board of Directors willing to continue in service. Current members with qualifications and skills that are consistent with the Nominating/Corporate Governance Committee’s criteria for Board of Directors service are re-nominated. As to new candidates, the Nominating/Corporate Governance Committee will generally poll members of our Board of Directors and members of management for their recommendations. The Nominating/Corporate Governance Committee recently retained a search firm to assist with identifying new candidates for membership on our Board of Directors, and in the future may hire a search firm if deemed appropriate. An initial slate of candidates will be presented to the chairwoman 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 one or more members of the Nominating/Corporate Governance Committee. 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 of Directors. 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.

Stockholder Recommendations

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 of Directors and how the candidate satisfies our Board of Director’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 and as is required by our Bylaws. 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 and must also comply with the advance notice provisions of our Bylaws. All communications are to be directed to the chairwoman of the Nominating/Corporate Governance Committee, c/o Corporate Secretary, Realty Income Corporation, 600 La Terraza Boulevard, Escondido, CA  92025-3873. Recommendations received before November     , 2012 or after December     , 2012 (more than 150 days or less than 120 days prior to the first anniversary of the date of the Proxy Statement for the previous year’s annual meeting of stockholders) will not be considered timely for consideration at next year’s annual meeting of stockholders. See “Stockholder Proposals for 2013 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.

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Board Leadership

The Nominating/Corporate Governance Committee also evaluates Board of Directors leadership structure. During 2011 and currently, the positions of our Chairman of the Board of Directors and Chief Executive Officer have been separated in recognition of the differences between the two roles. Prior to February 21, 2012, Mr. Cameron served as our Chairman of the Board and effective as of February 21, 2012, Mr. McKee serves as the Chairman of the Board of Directors. Mr. Lewis serves as our chief executive officer and as the Vice Chairman of our Board of Directors. The Board of Directors believes this is the most appropriate structure at this time because it enables the independent directors to participate meaningfully in the leadership of our Board of Directors while utilizing most efficiently of the leadership skills of both Mr. McKee and Mr. Lewis. In addition, separating the roles of Chairman and Chief Executive Officer allows our Chairman to serve as a liaison between the Board of Directors and management, while providing our chief executive officer with the flexibility and focus needed to oversee our operations.

Board Risk Oversight

Our Board of Directors has overall responsibility for risk oversight with a focus on the more significant risks facing us. The Board of Directors reviews and oversees our enterprise risk management, or ERM, program, which is a company-wide program designed to enable effective and efficient identification of and management visibility into critical company risks and to facilitate the incorporation of risk considerations into decision making.  The ERM program was established to clearly define risk management roles and responsibilities, bring together senior management to discuss risk, promote visibility and constructive dialogue around risk at the senior management and Board of Director levels, and facilitate appropriate risk response strategies.  During the year, as part of the ERM program, management and the Board of Directors jointly discuss major risks that they feel face our business. Throughout the year, the Board of Directors, and the committees to which it has delegated responsibility, dedicate a portion of their meetings to review and discuss specific risk topics in greater detail.  Strategic and operational risks are presented and discussed in the context of the chief executive officer’s report on operations to the Board of Directors at regularly scheduled Board of Directors meetings and at presentations to the Board of Directors and its committees by senior management.  The Board of Directors has delegated responsibility for the oversight of specific risks to Board of Directors committees as follows:

·                  The Audit Committee oversees our risk policies and processes relating to the financial statements and financial reporting processes, as well as key credit risks, liquidity risks, market risks and compliance, and the guidelines, internal controls, policies and processes for monitoring and mitigating those risks;

·                  The Strategic Planning Committee monitors the risks associated with meeting long-term goals, including evaluating the impact that future initiatives may have on risk decisions;

·                 The Nominating/Corporate Governance Committee oversees the risk related to our governance structure and processes and risks arising from related party transactions; and

·                  The Compensation Committee monitors the risks associated with management resources and structure, including evaluating the effect the compensation structure may have on risk decisions.

Compensation Risk Assessment

The Compensation Committee reviews our company-wide incentive programs to assess whether the incentive programs encourage desirable behavior as it relates to our long-term growth and reflect our risk management philosophies, policies and processes. The total compensation of our executive officers is established after consideration of performance metrics and is compared to peer groups by the Compensation Committee.  Our incentive program metrics include absolute and relative performance, single year and multi-year performance and a diversification and balance of metrics across financial, portfolio and value creation goals.

In addition to the compensation awarded to management, which is authorized by the Compensation Committee, management monitors incentive awards made to our staff and reviews those awards in light of the risks to which we may be subject. Our investor relations team receives bonuses based on their communications with financial advisors, and their time is monitored and approved by the vice president, corporate communications. Our portfolio management team receives bonuses based on the releasing and sales of properties in our portfolio. All of these transactions are approved by the executive vice president, portfolio management.

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We do not believe that our compensation programs give rise to any risks that are reasonably likely to have a material adverse effect on us.  Non-management employees are largely compensated on a fixed salary basis.  Any additional bonuses or other compensation awards are unlikely to encourage the taking of unnecessary or excessive risks that threaten our long-term value. The Compensation Committee has sought to align the interests of our employees with that of our stockholders through grants of restricted stock awards, thereby giving employees additional incentives to protect our long-term value.

Meetings and Attendance

Our Board of Directors met 16 times during 2011. In 2011, the Audit Committee met seven times, the Compensation Committee met five times, the Nominating/Corporate Governance Committee met eight times and the Strategic Planning Committee met two 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 of Directors 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 of Director members’ attendance at our annual meeting of stockholders, it is customary for, and we expect, all Board of Director members to attend. All of our directors attended the 2011 annual meeting of stockholders.

To ensure free and open discussion among the independent directors of our Board of Directors, only independent directors attend executive sessions of our Board of Directors. As the non-executive chairman of our Board of Directors, Mr. Cameron presided at each of the four executive sessions held during 2011.

Communications with the Board

Stockholders and other interested parties may communicate with the chairman of our Board of Directors or with the non-employee directors, as a group, by sending an email to mpfeiffer@realtyincome.com or by regular mail addressed to the Chairman of the Board of Directors, c/o the Corporate Secretary, Realty Income Corporation, 600 La Terraza Boulevard, Escondido, CA  92025-3873. All correspondence will be forwarded promptly by the corporate Secretary to the chairman of our Board of Directors.

Compensation of the Company’s Directors for 2011

Mr. Lewis is our only director who is a member of management, and does not receive any compensation for serving as a member of our Board of Directors or any of its committees. Our non-employee directors, other than Mr. Chapman, who was appointed as a director on February 21, 2012, received the following aggregate amounts of compensation for the year ended December 31, 2011:

(1)      Fees earned or paid in cash include retainers and Board of Director meeting fees.  Fees include (i) an annual retainer of $15,000 for each Board of Director member, other than the chairman of our Board of Directors, who receives a $50,000 annual retainer, (ii) an Audit Committee chair retainer of $18,000, (iii) a Compensation Committee chair retainer of $12,500, (iv) a Nominating/Corporate Governance Committee chair retainer of $7,500 and (v) a Strategic Planning Committee chair retainer of $7,500. Board of Director and committee meeting fees are $1,000 per meeting attended in person and $500 for telephonic attendance.

(2)      On May 3, 2011, the date of our 2011 Annual Meeting of Stockholders, each non-employee director received 4,000 shares of restricted stock with a grant date fair value of $142,240, which is calculated by multiplying the 4,000 shares by the closing market price of our common stock on May 3, 2011 of $35.56, as prescribed by Accounting Standards Codification Topic 718. All of these stock grants vest according to the vesting schedule described below under “Stock Awards for Directors” and all shares, including shares of restricted stock, are eligible to receive distributions from the date of grant.

(3)      For all directors, amounts represent distributions paid on shares of restricted stock during the year ended December 31, 2011. Additionally, Mr. Cameron’s amount includes his annual retainer of $10,000 as a director of Crest Net Lease, Inc., or Crest, a wholly owned subsidiary of Realty Income.  Effective as of February 21, 2012, Mr. Cameron retired as director of Crest and was replaced by Mr. McLaughlin.

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(4)      As of December 31, 2011, the non-employee directors did not hold any stock options, but held the following number of shares of unvested restricted stock:

(5)      Mr. Cameron served as the  Chairman of the Board of Directors and was an ex officio member of each of the Committees through February 20, 2012.  He will retire from the Board of Directors effective as of our Annual Meeting.  Mr. McKee became Chairman of the Board of Directors effective as of February 21, 2012.

(6)      Mr. Lewis, our Chief Executive Officer, does not receive any compensation for his services on our Board of Directors or as a director of Crest.  His compensation is reflected as part of the “Summary Compensation Table” on page 42.

Stock Awards for Directors

Our 2003 Incentive Award Plan, as amended, provides that upon the initial election to our Board of Directors and at each annual meeting of stockholders thereafter, if the director continues to serve as a director after the meeting, each director who is not a Realty Income officer is automatically granted 4,000 shares of restricted stock. Our proposed 2012 Plan similarly provides for these automatic grants and vesting schedules.  See Proposal 6, “Approval of the Realty Income Corporation 2012 Incentive Award Plan.” The vesting schedule for restricted shares granted to non-employee directors is as follows:

·            For directors with less than six years of service at the date of grant, shares vest in 33.33% increments on each of the first three anniversaries of the date the shares of stock are granted;

·            For directors with six years of service at the date of grant, shares vest in 50% increments on each of the first two anniversaries of the date the shares of stock are granted;

·            For directors with seven years of service at the date of grant, shares are 100% vested on the first anniversary of the date the shares of stock are granted; and

·            For directors with eight or more years of service at the date of grant, there is immediate vesting as of the date the shares of stock are granted.

Other Payments for Directors

The members of our Board of Directors are also entitled to reimbursement of their travel expenses incurred in connection with attendance at Board of Director and committee meetings and conferences with our senior management, in accordance with our travel policy.  Additionally, our Board of Director members are reimbursed for expenses incurred in connection with attending continuing education programs sponsored by educational institutions to assist them in remaining abreast of developments in corporate governance and other critical issues relating to the operation of public company boards.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information as of the record date of March 8, 2012 concerning our executive officers:

Executive Officer Biographies

Thomas A. Lewis’s biographical information is set forth above under Board of Director Biographies.

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Gary M. Malino is our president, 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, 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).

John P. Case is our executive vice president and chief investment officer. He joined us in April 2010. Prior to joining us, Mr. Case was a real estate investment banker in New York for 19 years, most recently as Co-Head of Real Estate Investment Banking for RBC Capital Markets from 2009 to 2010 where he also served on the firm’s Global Investment Banking Management Committee. Additionally, Mr. Case was Co-Head of Americas Real Estate Investment Banking at UBS from 2006 to 2009 and began his career in Real Estate Investment Banking at Merrill Lynch where he worked for 15 years and was named a Managing Director in 2000. Mr. Case was a member of the Board of Directors of the National Multi-Housing Council (NMHC) from 2001 to 2009, serving on the Executive Committee from 2002 to 2004, and is also a member of the President’s Council of The Real Estate Roundtable.

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).

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 is a licensed Real Estate Broker in California and holds the real estate officer license for us.

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).

Robert J. Israel is our senior vice president, research.  He joined us in 1997 and served as senior research director, associate vice president and vice president of research prior to being promoted to this current position in 2006.  Prior to joining us, Mr. Israel was a vice president of corporate banking for First National Bank and a corporate banker for City National Bank.

Laura S. King is our senior vice president, assistant general counsel and assistant secretary.  Prior to being promoted to this position in December 2008, she was our vice president, assistant general counsel and assistant secretary.  She joined us in 1985 and held various investor services and legal positions until her promotion to vice president, assistant general counsel in 1998.  Prior to joining us, Ms. King held various accounting positions with Southern California Savings and Loan Associations.  She is a licensed attorney and member of the State Bar of California.

Sumit Roy is our senior vice president, acquisitions.  He joined us in September 2011.  Prior to joining us, Mr. Roy was an Executive Director, Global Real Estate, Lodging & Leisure, for UBS Investment Bank in New York (UBS).  Prior to working at UBS, Mr. Roy was a Manager in the Corporate Finance Group at Meadwestvaco (2003-2004), an Associate in the Technology Investment Banking Group at Merrill Lynch (2001-2003), and a Principal at Cap Gemini Ernst & Young LLP (1994-1999).

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis 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 certain other officers. The Compensation Committee regularly reviews and approves our executive compensation principles and programs to ensure that they are aligned with our business strategies and objectives, encourage high performance, promote accountability, minimize risk, and assure that management’s interests are aligned with the interests of our stockholders.

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Overview of Compensation Philosophy

The Compensation Committee’s philosophy is that executive compensation should reflect the value created for our stockholders, while supporting our business strategies, long-range plans, the markets we serve, and that such compensation should assist us in attracting and retaining key executives critical to our long-term success. To this end, our compensation programs:

·            Stress financial and operational achievements;

·            Strengthen the relationship between pay and performance by providing annual cash bonuses and equity awards that are determined after consideration of the level of our success, particularly in certain identified areas of performance;

·            Are designed to reward executive officers for long-term strategic management of our performance 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

·            Are competitive with companies in the real estate investment trust (REIT) industry with which we compete for executive talent and are designed to retain key members of management.

To achieve our goals, the Compensation Committee offers executive officers a compensation package that is primarily comprised of the elements described in the table below.  We believe that each of these elements and their combination are necessary to support our overall compensation objectives.

Guidelines.  As part of its review of our compensation programs that occurred in late 2010 and early 2011, the Compensation Committee determined that our compensation program for our Named Executive Officers should be guided by the following:

·                  Target aggregate total direct compensation (salary, bonus and equity) for our top five executive officers as a group to approximate 90% to 110% of our peer group median (calculated by taking the average of both peer group statistics);

·                 Employ companywide metrics for consideration by the Compensation Committee in granting cash bonuses and long term incentive awards;

·                  Employ targeted multiples of salary for determination of cash bonuses and equity award values when performance approximates targeted (or good) performance and pay in excess of these multiples for excellent or outstanding performance;

·                  As a market check, have the aggregate of cash bonuses and long-term incentive awards for our Named Executive Officers as a group range between the twenty-fifth percentile and the seventy-fifth percentile of our peer group, depending upon our performance;

·                  Base individual salaries on their position, responsibilities, tenure, long-term success in their position and peer compensation; and

·                  The Compensation Committee to retain discretion in all compensation matters.

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The Compensation Committee revisited and generally reaffirmed these guidelines in the fall of 2011, which influenced the decisions to increase 2012 base salaries, grant restricted stock awards in January 2012 for 2011 performance, grant bonuses in 2012 for 2011 performance, and establish parameters for awarding bonuses and equity to be implemented for 2012, as discussed below.

In November 2011, the Compensation Committee’s independent consultant provided the Compensation Committee with information on total remuneration for our peer group, which covered the 2010 performance year.  The total remuneration for the Named Executive Officers as a group for our 2010 performance was approximately 107% of the peer group median, which was in line with the objectives set by the Compensation Committee, especially considering the strong performance for the year.

After reviewing the overall compensation objectives described above, in December 2011, the Compensation Committee revisited the narrow target range of 90% to 110% of our peer group median established for aggregate total direct compensation for our Named Executive Officers.  In an effort to provide itself with greater latitude to reward our Named Executive Officers for an exceptional year, or to reduce compensation in a lower performing year, the Compensation Committee revised the target range for aggregate total direct compensation to 70% to 130% of our peer group median.

Compensation Decision Process

Compensation Consultant

To assist in its efforts to meet the objectives outlined above, the Compensation Committee has retained FPL Associates, LP, or FPL, a nationally-known executive compensation and benefits consulting firm specializing in real estate companies, to provide general executive compensation consulting services and to respond to any Compensation Committee member’s questions. In addition, the consultant performs special executive compensation projects and consulting services from time to time, as directed by the Compensation Committee. In 2011, as in the prior year, the Compensation Committee continued to review its program designs and guidelines, and conducted its annual review of the competitiveness of its compensation program and the market practices of our peer groups. The consulting services provided by FPL in connection with these reviews included:

·                  Evaluating the current compensation program in place for the Named Executive Officers and structuring a compensation program that meets the objectives outlined by the Compensation Committee;

·                  Benchmarking the compensation for the Named Executive Officers against appropriate peer groups;

·                  Identifying the appropriate mix between compensation components, including base salary, annual incentives, long-term incentive compensation and total remuneration;

·                  Discussing market-based incentive programs, including performance metrics and targets, within the peer group companies, and providing guidance and recommendations for design modifications to program elements; and

·                  Reviewing an overview of industry trends as it relates to human capital across the entire real estate industry.

FPL reports to the chairman of the Compensation Committee and the other committee members and works with management as directed by the Compensation Committee.  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 as it deems necessary.

Peer Group Data

The Compensation Committee uses comparison data from various companies in certain peer groups as a guide in its review and determination of base salaries, annual cash bonuses and restricted stock awards. From November 2011 through January 2012, the Compensation Committee reviewed peer group data to assist in its determination regarding bonuses and equity awards to be earned for 2011 performance, as well as any salary increases for 2012. A similar process was conducted at the end of 2010 for the salaries established for 2011 and for the equity awards granted on January 7, 2011.  The

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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, in light of our performance relative to our peers and in light of each executive officer’s contribution to our performance. This approach 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.

The Compensation Committee, with the help of the compensation consultant, periodically reviews the composition of our peer groups and the criteria and data used in compiling our peer group lists, and considers modifications to this group. During November and December 2011, the Compensation Committee reviewed data provided by FPL 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 groups. The peer groups recommended by our consultant and used by the Compensation Committee are all public real estate companies and are divided into two groups based on size and geography, consistent with prior years, as listed below:

·            Size-Based Peer Group.  This peer group consists of 15 public real estate companies that focus on a variety of asset classes and are similar in size to us in terms of total capitalization (common and preferred stock, convertible partnership units and balance sheet long term debt).  This peer group has total capitalization ranging from approximately $3.2 billion to $11.2 billion.  Companies were selected so that our total capitalization approximates the median.

·            Geographic-Based Peer Group.  This peer group consists of 10 public real estate companies, 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 $1.1 billion to $23.2 billion.

The peer groups listed above differ slightly from the peer groups we used in 2010.  In November 2011, the Compensation Committee decided to add two companies (Macerich Company and Regency Centers Corporation) to, and remove four companies (Equity One, Inc.; Health Care REIT, Inc.; Mid-America Apartment Communities, Inc.; and Nationwide Health Properties, Inc.) from, the size-based peer group due to variability in company size and a merger (Ventas REIT Inc. acquired Nationwide Health Properties, Inc.). The geographic-based peer group was updated to remove Nationwide Health Properties as a result of the aforementioned merger.  The reconstitution of the size-based peer group was intended to maintain our criteria of having our total capitalization approximate the median of the peer group.

As part of its November 2011 review, FPL provided compensation information for an additional group of peers referred to as the “Supplemental Peer Group,” comprised of four net-lease operated companies comprised of Entertainment Properties Trust, Getty Realty Corporation, Lexington Realty Trust and National Retail Properties, Inc., for review by the Compensation Committee.  The purpose of the Supplemental Peer Group is to provide additional context for our compensation review, in that these four companies represent other real estate investment trusts with equity-based net-leased structures; however, it is not intended to be a primary comparator group.  FPL has utilized the Supplemental Peer Group as a comparator group in prior years, excluding 2010.

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Management Involvement

In setting compensation for our executive officers, the Compensation Committee solicits appropriate input from our chief executive officer and our president, chief operating officer, concerning each of our other executive officers. In addition, from time to time, the Compensation Committee will direct management to work with its consultant in providing proposals, program design, and compensation recommendations.  Each year our chief executive officer provides the Compensation Committee with a report regarding our performance for the past fiscal year under various performance metrics and discusses his assessment of individual performance, as requested.  In addition, at the request of the Compensation Committee, our chief executive officer makes recommendations regarding salary, bonus and equity awards for each executive officer other than himself.  The Compensation Committee considers these recommendations and other factors as discussed below in making the final determinations.

Elements of Compensation

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, recognize their tenure and are used to attract and retain highly qualified individuals. The Compensation Committee annually reviews and determines the base salaries of our executive officers at the commencement of each year. 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 relative to other similarly situated executive officers at our peer companies.

In order to achieve greater parity in base salaries among our Named Executive Officers and based on the recommendation of our Chief Executive Officer, the Compensation Committee determined to increase the base salaries paid to Messrs. Pfeiffer and Case effective January 1, 2011, as set forth in the table below.

In connection with its review of fiscal 2011 performance and setting of compensation in January 2012, the Compensation Committee determined to increase the base salaries paid to Messrs. Lewis and Case commencing on January 1, 2012. The Compensation Committee felt that increases were warranted for Messrs. Lewis and Case based on a review of the comparison salary information provided by FPL for similarly situated positions and because of individual contributions related to the achievement of record 2011 acquisition levels. The market data reviewed for Messrs. Malino, Meurer and Pfeiffer showed that their compensations did not warrant an increase at this time.

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Performance Metrics

At the end of each year, our chief executive officer provides the Compensation Committee with a report regarding our performance for the year and an evaluation based on a scale of “poor,” “average,” “good”, “excellent” and “outstanding.” The Compensation Committee evaluates our actual performance under these metrics and considers this evaluation in determining the executive officer’s annual cash bonuses and equity awards.

In early 2011, the Compensation Committee established certain general performance metrics and weightings to provide a more formal structure to guide management in its performance and to guide the Compensation Committee in its determinations.  The Compensation Committee did not establish any specified targets, goals or objectives within these metrics and based its determinations on its year-end assessment of our absolute and relative performance under these metrics, and the challenges faced by us.  The 2011 guideline performance metrics, their weightings and the Compensation Committee’s ultimate assessment at the end of 2011 based on 2011 performance are as follows:

The primary factors considered by the Compensation Committee in assessing 2011 company performance and establishing 2011 bonuses and 2012 equity awards were as follows:

·                  Common Stockholder Returns – “Good Performance”

o                 We paid twelve regular monthly dividends during 2011 in the aggregate amount of $1.736625 per share. The dividend was increased four times, which equated to a 0.9% increase over 2010.

o                 Based on an opening stock price for the year of $34.20 and dividends of $1.736625 per share, our stockholders received a yield of 5.1% during 2011.

o                 The 2011 total return to stockholders was 7.3% based on a share price increase of $0.76 and dividends of $1.736625 per share.  As of December 31, 2011, our total one-year, three-year and five-year return to stockholders was at the 39th, 67th and 92nd percentile, respectively, compared to the geography peer group and at the 55th, 44th and 94th percentile, respectively, compared to the size peer group.  While our ranking among our peers was considered strong, the Compensation Committee believed it important to strive for a better relative and absolute total return to stockholders.

·                  Balance Sheet –  “Excellent Performance”

o                 At December 31, 2011, our total outstanding borrowings were comprised of $1.75 billion of senior unsecured notes, $237.4 million of outstanding borrowings on our revolving credit facility and $67.8 million of mortgages payable, for total debt of $2.06 billion, or approximately 29.1% of our total market capitalization of $7.06 billion.

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o                 For 2011, our debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio was 5.4 times, our debt to equity ratio was 0.91 times, our interest coverage ratio was 3.5 times and our fixed charge coverage ratio was 2.9 times.

o                 As of December 31, 2011: (i) our debt to equity ratio was at the 48th percentile compared to the geography peer group and at the 20th percentile compared to the size peer group; and (ii) our interest coverage ratio was at the 75th percentile compared to the geography peer group and above the 100th percentile compared to the size peer group.

·                  Funds From Operations – “Excellent Performance”

o                 FFO increased by $55.5 million, or 28.6%, to $249.4 million in 2011 from 2010.  This increase was due to increases in revenue, primarily due to our $1.02 billion investment in new properties and properties under development during 2011, partially offset by increases in interest expense, and increases in general and administrative expenses, primarily because of increases in employee costs and higher acquisition transaction costs.

o                 On a diluted per share basis, 2011 FFO increased 8.2% to $1.98 as compared to $1.83 in 2010. As of December 31, 2011, our one-year, three-year and five-year FFO per share growth was at the 45th, 67th and 83rd percentile, respectively, compared to the geography peer group and at the 56th, 60th and 83rd percentile, respectively, compared to the size peer group.

·                  Portfolio Management – “Excellent Performance”

o                 2011 was marked by an increase in the number of properties experiencing lease expiration, in accordance with their terms, and the properties returned to us being among our toughest properties to re-lease.  Nonetheless, during these difficult economic times, we averaged over one property sold or leased to a new tenant per week.  Occupancy at December 31, 2011 was 96.7% or 87 properties available for lease versus 96.6% or 84 properties available for lease at December 31, 2010. For 2011, we sold 21 vacant properties and leased 37 vacant properties to new tenants. In addition, during 2011, we renewed 73 leases to existing tenants, experienced 39 lease expirations that were not renewed and had 22 lease defaults.

o                 During 2011, same store rents on 2,116 properties under lease increased by $4.3 million, or 1.3%, as compared to 2010, which was particularly meaningful improvement given the general economy and rent reductions due to tenant defaults.

·                  Acquisitions – “Outstanding Performance”

o                 The level of our acquisitions for 2011 was $1.02 billion versus $713.5 million in 2010, the highest in our company history. The new properties are located in 26 states and are 100% leased with an initial average lease term of 13.4 years and an initial average lease yield of 7.8%.

o                 The cap rates or yields in 2011 averaged 7.8% as compared to 7.9% in 2010, which was a function of market conditions and improved credit quality.

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. For 2011, the Compensation Committee established targeted cash bonus payments, expressed as a percentage of base salary, to guide it in its determinations regarding the amount of bonus to be paid to each executive officer. The Compensation Committee, in its discretion, may pay higher or lower than these targeted bonus amounts based on company performance, the status of our industry, market conditions, individual performance, peer group practices and such other factors as it deems relevant.

Based on our performance, as discussed above, our chief executive officer made recommendations to the Compensation Committee regarding the amount of cash bonus to be paid to the executive officers, other than himself.  The Compensation Committee reviewed our performance, the targeted base salary multiple above, the recommendations of our chief executive officer, past bonus payments and the market data in determining the final bonus payment for each executive officer.

The guideline percentages for 2011, which are the same percentages to be utilized in 2012, and the actual percentages paid for 2011, are as follows:

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(1)      The bonuses shown for 2011 were paid in January 2012 to each of the Named Executive Officers based on 2011 performance.

Equity Based Long-Term Incentive Awards

The Compensation Committee grants restricted stock awards on an annual basis, generally in January, in recognition of individual executive and company performance for the prior fiscal year.  The restricted stock awards are designed to increase executive officers’ common stock ownership, motivate our executive officers to improve long-term common stock dividend performance, encourage long-term dedication and operate as a retention mechanism for key members of our management.

The determination of the amount of restricted stock awards granted each January is based on how we performed under our performance metrics and taking into consideration market data for the just completed fiscal year.  The Compensation Committee considers these awards as earned based on our performance for the prior year.  SEC disclosure rules require that the restricted stock awards shown in the Grants of Plan Based Award table for 2011 reflect those shares granted in the most recently completed fiscal year which, in our case, is January 2011 (though reflective of the 2010 performance year).  As such, to provide a more complete and relevant disclosure of compensation for the 2011 performance year, we have provided supplemental information in the footnotes to the table regarding restricted stock earned based on 2011 performance and granted in 2012 as discussed below.

As part of its process of implementing its objectives to target aggregate total direct compensation at or around the median of our peer groups, and to increase the percentage of compensation that is variable, at risk and tied to the interests of our stockholders, for 2011 the Compensation Committee determined a targeted base salary multiple for the restricted stock awards to be granted to each executive officer based on the executive officer’s base salary. Actual awards depend on our performance in accordance with the performance metrics reviewed by the Compensation Committee at the close of each year and such other factors as the Compensation Committee determines are relevant. The targeted base salary multiples for the grants made for our 2011 performance to our Named Executive Officers are set forth in the table below, along with the actual base salary multiple granted to such officers in early 2012.  The Compensation Committee may, in its discretion, choose to grant shares either below or above this multiple. These guidelines remain the same for 2012 performance.

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The value of the equity based long-term incentive awards delivered to our Named Executive Officers in 2012 based on 2011 performance had substantially the same values as the awards granted in 2011 based on 2010 performance, with the exception of Messrs. Lewis and Case.  The Compensation Committee increased the value of Messrs. Lewis and Case’s equity awards granted with respect to 2011 performance to reflect their respective leadership roles in the company’s financial successes during the fiscal year, particularly with respect to our high level of acquisition activity.

Analysis of Actual 2011 Annual Cash Bonuses and Equity Based Long-Term Incentive Awards

The Compensation Committee approved cash bonuses and equity based long-term incentive awards in January 2012 for the 2011 year.  Bonuses and grants of restricted stock awarded for the 2011 year exceeded targeted amounts in order to appropriately reward our Named Executive Officers for our strong financial performance under each of our performance metrics, including, in particular, our outstanding level of acquisitions.  In addition, the higher cash bonus amounts provided greater parity among the Named Executive Officers and reflects the relative contributions to the success of our business operations by the various positions within management. With respect to Mr. Case, the substantial increase over his targeted base salary multiple for his equity based long-term incentive award, and bonus, was intended to appropriately reward his role in 2011 in helping us to achieve the highest annual level of acquisitions (in dollar amount) in our company history.

Perquisites and Other Benefits

We provide medical and other benefits to our Named Executive Officers that are similar to those benefits offered to our full-time employees, including employer matching contributions to their 401(k) savings accounts and coverage under a health and disability insurance program.

When the Compensation Committee believes that it is necessary to successfully compete for executive talent, we will occasionally supply perquisites to a Named Executive Officer.  The Compensation Committee reviews such perquisites and other benefits provided to our executive officers as part of its overall review of executive compensation. In 2011, the Named Executive Officers did not receive any perquisites.

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Severance and Change in Control Arrangements

We have entered into employment agreements 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.  We do not provide any tax gross-up payments.

In general, the employment agreements provide that in the event of a change in control and a qualifying termination within 12 months after the change in control, we will provide severance equal to 18 months of base salary plus the average bonus paid over the past three years, and we will provide continued medical insurance for 18 months following termination.  In the event a qualifying termination occurs prior to or later than 12 months following a change of control, the benefits equal 12 months of base salary plus the average bonus paid over the past three years, and we will provide continued medical insurance for 12 months following termination.  In addition, upon a change of control the vesting of all unvested shares of restricted stock accelerates.

The Compensation Committee believes these benefit levels are reasonable.  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 and retain key employees, preserve employee morale and productivity and promote continuity of management in the event of an actual or threatened change in the control of us.  These change in control benefits allow executives to assess takeover bids objectively without regard to the potential impact on his/her own job security.

Tax Considerations

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 considers 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 2011 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 2011 did not satisfy the “performance based” compensation requirements of Section 162(m).  As a result, compensation of $4.9 million, in aggregate, was not deductible from a tax perspective for 2011.  We believe that we qualify as a REIT under the Code and generally are not subject to federal income taxes, provided we distribute to our stockholders at least 90% of our taxable income each year. As a result of the Company’s tax status as a REIT, the loss of this deduction did not affect the amount of Federal income tax payable by the Company for its 2011 taxable year. However, the loss of this deduction increased the portion of the Company’s 2011 distributions that were taxed as dividends to its stockholders and reduced the portion of such distributions treated as a return of capital. The Compensation Committee will continue to evaluate the advisability of providing performance–based compensation under Section 162(m).

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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 the Board of Directors of Realty Income Corporation, a Maryland corporation, or Realty Income, that the Compensation Discussion and Analysis be included in this Proxy Statement for the 2012 Annual Meeting of stockholders and in Realty Income’s 2011 Annual Report on Form 10-K.

Submitted on March 12, 2012 by the members of the Compensation Committee of Realty Income’s Board of Directors.

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, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates the same by reference.  A. Larry Chapman has been a member of the Compensation Committee since his appointment to the Board of Directors on February 21, 2012, but did not participate in any of the activities covered by this Compensation Committee Report.

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, or collectively, the Named Executive Officers, for the fiscal years ended December 31, 2011, 2010 and 2009.

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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 during the 2011 fiscal year.