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March 28, 2011

Dear Stockholder:

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of Realty Income Corporation, a Maryland corporation, to be held at 9:00 AM, local time, on May 3, 2011 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 seven directors to serve until the 2012 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, 2011.

(3) A non-binding advisory vote on executive compensation.

(4) A non-binding advisory vote on whether the frequency of future advisory votes on the compensation of our named executive officers should occur every year, every two years or every three years.

(5) 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.  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, 2011.  Our Board of Directors recommends a vote FOR the resolution to approve the compensation of our named executive officers pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and related narrative discussion in this proxy statement.  Additionally, our Board of Directors recommends that stockholders vote FOR the proposal to vote on the compensation of our named executive officers every three years.

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 stockholders of record 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

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Our common stock is traded on the New York Stock Exchange, or NYSE, under the ticker symbol “O”. On March 10, 2011, the last reported sale price for our common stock on the NYSE was $34.35 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 28, 2011.

PROPOSAL 1

PROPOSAL 2

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PROPOSAL 3

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PROPOSAL 4

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BOARD OF DIRECTORS

The following table sets forth certain information as of March 28, 2011 concerning our current directors, each of whom is a director nominee:

Board of Director Biographies

The following paragraphs provide information about each director up for nomination. The information presented includes information each director has provided to us regarding positions held, principal occupations and business experience, and the names of other companies of which he/she currently serves as a director or has served as a director during the past five years. In addition to the information presented below regarding 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 also 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.

Donald R. Cameron

Donald R. Cameron has been our director since August 1994. He is the non-executive chairman of our Board of Directors and has served in this position since February 2009. 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 has been an independent director and is an ex-officio non-voting member of each of our committees of the Board of Directors. From May 2004 through February 2009, Mr. Cameron served as our lead independent director.

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Having already served in the role of our Compensation Committee chairman and as a previous member of both our Audit Committee and Nominating/Corporate Governance Committee, Mr. Cameron provides a wealth of management and business understanding. Co-founding and running Cameron, Murphy & Spangler, Inc. has given Mr. Cameron front-line exposure to many of the issues facing real estate investment trusts, particularly on the operational, financial, investment management, capital markets, and corporate governance fronts. Mr. Cameron’s longstanding service on our Board of Directors further augments his range of knowledge, providing experience on which he can draw while serving as chairman of the 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. He is the chief executive officer of Bentall Kennedy (U.S.), LP, 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 Health Care Property Investors, Inc. (NYSE: HCP) (1987-present) where he served on the compensation committee, Bentall Kennedy (U.S.), LP (2008-present), the Tiger Woods Foundation (2006-present), The Irvine Company (1998-2008) and Hoag Hospital Foundation (1999-2008). Mr. McKee is chairman of our Compensation Committee and is a member of our Audit Committee and our Nominating/Corporate Governance Committee.

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.

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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 (2010-present) and Tiger Woods Learning Center Foundation (2005-present).  Mr. McLaughlin is a member of our Audit Committee, our Compensation 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).  More recently, Mr. Merriman was the managing director of Merriman Partners, a management advisory firm (2003-2010). 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

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 are reviewed annually. Our Board of Directors 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 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.

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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. Our Audit Committee Charter was updated in February 2011.  Our Strategic Planning Committee Charter was updated in March 2009. Our Compensation Committee and Nominating/Corporate Governance Committee Charters were updated in February 2010. Our Code of Business Ethics was updated in October 2010. 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. The information contained on our website is not incorporated by reference into and does not form a part of this Proxy Statement.

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.

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, which reflect the NYSE director independence standards, currently in effect. Our Board of Directors 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 $120,000 in direct compensation from us or any of our subsidiaries, other than director and committee fees or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

·                  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 of, 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 such other company; 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.

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COMMITTEES OF THE BOARD OF DIRECTORS

Mr. Cameron, as Chairman of the Board of Directors, is an ex officio member of each of the Committees.

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. McKee, McLaughlin and Merriman (Chairman).  Our Board of Directors has determined that Mr. Merriman, Mr. McKee 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; and

·            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.

Compensation Committee

The Compensation Committee of our Board of Directors is comprised of Dr. Allen and Messrs. McKee (Chairman) and McLaughlin.  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

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·            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); 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 and management, from an outside 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 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.

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Strategic Planning Committee

The Strategic Planning Committee of our Board of Directors is comprised of Dr. Allen (Chairwoman),

Ms. Huskins and Messrs. McLaughlin and Merriman.  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.

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. 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.

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.

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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 may also 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 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 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 October 30, 2011 or after November 29, 2011 (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 2012 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.

Board Leadership

The Nominating/Corporate Governance Committee also evaluates Board of Directors leadership structure. Currently, the positions of our chairman of the Board of Directors and chief executive officer have been separated.  Mr. Cameron serves as the non-executive Chairman of the Board of Directors and Mr. Lewis serves as our Chief Executive Officer and as a member of our Board of Directors. The Board of Directors believes this is the most appropriate structure at this time because it makes the best use of both Mr. Cameron’s and Mr. Lewis’s leadership skills.

Board Risk Oversight

Our Board of Directors has overall responsibility for risk oversight with a focus on the more significant risks facing us. During the year, 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, policies and processes for monitoring and mitigating those risks;

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·                  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.

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.

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.  Employees are compensated on a fixed salary basis and have not been awarded any bonuses or other compensation that might 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 13 times during 2010. In 2010, the Audit Committee met seven times, the Compensation Committee met five times, the Nominating/Corporate Governance Committee met three 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 2010 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 executive session. The Board of Directors met in executive session four times during 2010.

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.

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Compensation of the Company’s Directors for 2010

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, 2010:

(1)                 Fees earned or paid in cash include retainers and Board of Director meeting fees.  Retainers include (i) an annual fee retainer of $15,000 for each Board of Director member ($30,000 for the chairman of our Board of Directors), (ii) an Audit Committee chair retainer of $15,000, (iii) a Compensation Committee chair retainer of $10,000, (iv) a Nominating/Corporate Governance Committee chair retainer of $5,000 and (v) a Strategic Planning Committee chair retainer of $5,000. Board of Director meeting fees are $1,000 per meeting in person ($1,500 for the chairman of our Board of Directors) and $500 for telephonic attendance ($750 for the chairman of our Board of Directors). Committee meeting fees are $500 per meeting in person ($1,000 for the chairperson of the committee) and $250 for telephonic attendance ($500 for the chairperson of the committee).

(2)                 On May 12, 2010, each non-employee director received 4,000 shares of restricted stock with a grant date fair value of $130,840, which is calculated by multiplying the 4,000 shares by the closing market price of our common stock on May 12, 2010 of $32.71, 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, 2010. Additionally, Mr. Cameron’s amount includes his annual fee retainer of $10,000 as a director of Crest Net Lease, Inc. (Crest), a wholly owned subsidiary of Realty Income.

(4)                 As of December 31, 2010, the non-employee directors did not hold any stock options, but held the following number of shares of unvested restricted stock:

(5)                 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.

Increase in Cash Compensation of the Company’s Directors for 2011

In September 2010, FPL Associates, LP, was retained by the Nominating/Corporate Governance Committee of our Board of Directors to review the compensation program for our directors compared to other public real estate companies, including our peer groups.  Based on the results of this analysis, the Nominating/Corporate Governance Committee recommended to our Board of Directors and the Board of Directors approved that the compensation for our directors be revised effective January 1, 2011, as follows:

·            (i) An annual fee retainer of $15,000 for each Board of Director member, excluding the chairman of our Board of Directors,  (ii) an annual fee retainer of $50,000 (previously $30,000) for the chairman of our Board of Directors, (iii) an Audit Committee chair retainer of $18,000 (previously $15,000), (iv) a Compensation Committee chair retainer of $12,500 (previously $10,000), (v) a Nominating/Corporate Governance Committee chair retainer of $7,500 (previously $5,000) and (vi) a Strategic Planning Committee chair retainer of $7,500 (previously $5,000);

·            In person Board of Director meeting and committee fees are $1,000 per meeting (previously, committee meeting fees were $500); and

·            Telephonic Board of Director meeting and committee fees are $500 (previously, committee meeting fees were $250) per meeting.

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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. The vesting schedule for 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.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information as of March 28, 2011 concerning our executive officers:

Executive Officer Biographies

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

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).

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

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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.

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 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.

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.

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.

Executive Summary

2010 proved to be a strong performance year for us, with the company achieving a number of its financial and operational objectives.  Highlights included:

·            Improving stockholder returns, with a 0.9% increase in dividends compared to 2009 and a 32.0% increase in our common stock price from December 31, 2009 to December 31, 2010, resulting in a total return to stockholders of 38.6%, based on the year-over-year increase in stock price of $8.29 and dividends of $1.721625 per share, or a total return to stockholders that was 10% ahead of the NAREIT Equity Index;

·            Increasing revenue by 6.1% compared to 2009;

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·            Raising $678.7 million in capital to permanently fund 2010 real estate acquisitions, despite continued challenges in overall economic conditions; and

·            A 1.7% increase in funds from operations available to common stockholders (FFO) compared to 2009.

During 2010, our compensation decisions continued to be driven by our financial performance as a company, thus strengthening the relationship between our most senior executives’ pay and our financial success. In particular, we:

·            Increased base salaries of certain of our officers in order to bring their total compensation levels closer to our peer group and appropriately reflect our financial performance relative to our peer group;

·            Paid annual cash bonuses for 2010 at levels slightly above the targeted base salary multiple for the year, in recognition of the Compensation Committee’s determination that we performed at “excellent” and “outstanding” levels for each of the company-wide performance measures that were assessed;

·            Increased the value of long-term equity incentive awards paid to our named executive officers, also in recognition of the strong financial performance discussed above; and

·            Achieved our target of having the total compensation for our named executive officers approximate 90% to 110% of our peer group median.

Overview of Compensation Philosophy and Programs

In 2010, as in the prior year, the Compensation Committee reviewed the design and competitiveness of our compensation programs with the assistance of an outside compensation consultant. In connection with this review, the Compensation Committee re-affirmed its belief 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 mainly 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.

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Compensation Decision Process

Compensation Consultant

To assist in its efforts to meet the objectives outlined above, the Compensation Committee has retained FPL Associates, LP (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 2010, 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:

·            Reviewing 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 2010 through January 2011, the Compensation Committee reviewed peer group data to assist in its determination regarding bonuses and equity awards to be earned for 2010 performance, as well as any salary increases for 2011. A similar process was conducted at the end of 2009 for the salaries established for 2010 and for the equity awards granted on January 5, 2010.  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, 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 2010, 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, which are consistent with the peer groups utilized in 2009, are all public real estate companies and are divided into two groups based on size and geography, consistent with prior years, as listed below:

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·             Size-Based Peer Group.  This peer group consists of 17 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 $2.7 billion to $10.2 billion (as of November 15, 2010).  Companies were selected so that our total capitalization approximates the median.

·             Geographic-Based Peer Group.  This peer group consists of 11 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 $16.7 billion (as of November 15, 2010).

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.

Components of Executive Compensation

Overview

As part of its review of our compensation programs and levels that occurred in late 2009 and early 2010, the Compensation Committee determined that our compensation program should achieve the following objectives:

·                  For compensation payable for the fiscal year 2010, and thereafter, target having the aggregate of the total remuneration for our top five executive officers as a group approximate 90% to 110% of our peer group median;

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

·                  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 to the seventy-fifth percentile of our peer group, depending upon our performance;

·                  Base the individual salaries for the top five executives on their position, responsibilities, tenure, long-term success in their position and peer compensation; and

·                  The Compensation Committee retains discretion in all compensation matters.

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The Compensation Committee revisited and reaffirmed these objectives in the fall of 2010, which influenced the decisions to increase 2011 base salaries, grant restricted stock awards in January 2011 for 2010 performance, grant bonuses in 2011 for 2010 performance, and establish parameters for awarding bonuses and equity to be implemented for 2011, as discussed below.

In November 2010, FPL provided the Compensation Committee with information on total remuneration for our peer group, which covers the 2009 performance year.  The total remuneration for the Named Executive Officers as a group for our 2009 performance was approximately 106% of the peer group median.  Based on guidance provided by FPL relating to the REIT marketplace and the peer group companies, the Compensation Committee then incorporated a 15% upward adjustment to the 2009 peer group data to extrapolate estimated peer group data relating to expected compensation for the 2010 performance year.  The aggregate remuneration for the Named Executive Officers as a group for our 2010 performance was approximately 107% of the peer group median, based on the extrapolated 2010 peer group data, which was in line with the objectives set by the Compensation Committee, especially considering the excellent performance for the year.

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.

Commencing January 1, 2010, the Compensation Committee determined to increase the base salaries paid to Messrs. Lewis, Malino, Meurer and Pfeiffer. These salary increases were implemented after consideration of the comparison salary information provided by FPL.  The Compensation Committee felt that increases were warranted for Messrs. Lewis, Malino, Meurer and Pfeiffer based on a review of our financial performance in 2009 and anticipated performance in 2010, the comparison salaries for similarly situated positions and largely because Mr. Lewis’s salary had remained constant since 2001 and Messrs. Malino’s, Meurer’s and Pfeiffer’s salaries had remained constant since 2006.  Mr. Case began his employment on April 26, 2010 at a base salary of $300,000.

In connection with its review of fiscal 2010 performance and setting of compensation in January 2011, the Compensation Committee determined to increase the base salaries paid to Messrs. Pfeiffer and Case commencing on January 1, 2011. The Compensation Committee felt that increases were warranted for Messrs. Pfeiffer and Case based on a review of the comparison salary information provided by FPL for similarly situated positions and because of individual performance metrics. In addition, the 2011 salary increases resulted in greater parity among our named executive officers. The market data reviewed for Messrs. Lewis, Malino and Meurer 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 2010, 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 guideline performance metrics, their weightings and the Compensation Committee’s ultimate assessment based on the scale described above are as follows:

The primary factors considered by the Compensation Committee in assessing 2010 company performance were as follows:

·                 Common Stockholder Returns – We paid twelve regular monthly dividends during 2010 in the aggregate amount of $1.721625 per share. The dividend was increased four times, which equated to a 0.9% increase over 2009. Based on an opening stock price for the year of $25.91 and dividends of $1.721625 per share, our stockholders received a yield of 6.6% during 2010. The price of our shares increased in 2010 from $25.91 at December 31, 2009 to $34.20 at December 31, 2010, an increase of $8.29 per share or 32.0%. The 2010 total return to stockholders was 38.6% based on a share price increase of $8.29 and dividends of $1.721625 per share. As of December 31, 2010, compared to our peer groups, our total one-year, three-year and five-year return to stockholders was at the 95th, above the 100th, and 85th percentile, respectively, compared to the geography peer group and at the 75th, 94th and 92nd percentile compared to the size peer group.  Overall, the Compensation Committee concurred that this was an outstanding total return for stockholders and an outstanding increasing dividend income to our stockholders, comparing very favorably to the market and our peer groups.

·                  Funds From Operations – FFO increased by $3.3 million, or 1.7%, to $193.7 million in 2010 from $190.4 million in 2009.  The dollar percentage increase in 2010 FFO was due to increases in revenue, primarily due to our $304.1 million acquisition and lease-back of winery and vineyard properties from Diageo Chateau & Estates Winery Company and our $247.6 million acquisition of 135 SuperAmerica convenience stores and one support facility, partially offset by increases in interest expense, from our issuance of $250 million of 5.75% senior unsecured notes in June 2010, and increases in general and administrative expenses, primarily because of increases in employee costs,

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particularly in the acquisitions and research departments.  On a per share basis, FFO decreased 0.5% to $1.83, primarily due to the increase in the total shares outstanding as a result of common stock offerings in September 2010 and December 2010. As of December 31, 2010, compared to our peer groups, our one-year, three-year and five-year FFO per share growth was at the 79th, 64th and 64th percentile, respectively, compared to the geography peer group and at the 64th, 59th and 73rd percentile compared to the size peer group. Overall, the Compensation Committee concurred that the 1.7% increase in FFO and the $1.83 in FFO per share in 2010 was excellent considering the market conditions and was excellent in comparison to the FFO growth of our peer groups on a one-year, three-year and five-year basis.

·                  Acquisitions – The level of our acquisitions for 2010 was $713.5 million versus $57.9 million in 2009.  The cap rates or yields in 2010 averaged 7.9% as compared to 9.7% in 2009. The Compensation Committee concurred that the increased level of acquisitions, partially offset by the decline in cap rates which was a function of market conditions and improved credit quality, represented outstanding performance.

·                  Portfolio Management – Occupancy at year end was 96.6% or 84 properties available for lease at December 31, 2010 versus 96.8% or 75 properties available for lease at December 31, 2009. For 2010, we sold 20 vacant properties and leased 31 vacant properties to new tenants.  During these difficult economic times, we averaged about one property sold or leased to a new tenant per week.  In addition, during 2010, we renewed 66 leases to existing tenants, experienced 27 lease expirations that were not renewed and had 33 lease defaults. Considering the increase in the number of properties experiencing lease expiration and the properties returned to us being among our toughest properties to release, the Compensation Committee concurred that our occupancy level was excellent performance given the market conditions. During 2010, same store rents on 2,131 properties under lease increased by $1.8 million, or 0.6%, as compared to 2009, which was also considered excellent performance given the general economy.

·                  Balance Sheet – At December 31, 2010, our total outstanding borrowings were $1.6 billion of senior unsecured notes, or approximately 26.7% of our total market capitalization of $6.0 billion.  Likewise, for 2010, our debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio was 5.1 times, our interest coverage ratio was 3.3 times and our fixed charge coverage ratio was 2.7 times. We currently have a strong balance sheet in the REIT industry and the Compensation Committee concurred that performance in this area was excellent.

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 2010, 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 may, at its discretion, deviate from 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.

The guideline percentages for 2010, which are the same percentages to be utilized in 2011, and the actual percentages paid for 2010, are as follows:

(1)                 The bonuses shown for 2010 were paid in January 2011 to each of the Named Executive Officers based on 2010 performance.

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Based on our performance, 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 Compensation Committee approved cash bonuses in January 2011 for the 2010 year, consistent with the amounts recommended by our chief executive officer.  Bonuses awarded for the 2010 year exceeded targeted amounts in order to appropriately reward our named executive officers for our strong financial performance under each of our performance metrics.  In addition, the additional amounts provided greater parity among the named executive officers. The amount of Mr. Lewis’s bonus was also based upon the Compensation Committee’s observation that our performance for 2010 was strong relative to our peer groups, as outlined above.

Equity Based Long-Term Incentive Awards

The Compensation Committee grants restricted stock awards on an annual basis 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.  Consistent with the prior year methodology, restricted stock awards to our executive officers are approved by the Compensation Committee at their meeting in January of each year based on their review of the prior year performance.

The determination of the amount of restricted stock awards granted each January is based on how we performed under our performance metrics as previously discussed and on market data that year.  While the restricted stock is not awarded until January of the succeeding year, the Compensation Committee considers these awards as earned based on our performance for the prior year.  Thus, the restricted stock awards shown in the Grants of Plan Based Award table for 2010 were granted in January 2010 based on 2009 performance.

As part of its process of implementing its objectives to target total remuneration 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 2010 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 2010 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 2011.  In light of our relatively strong performance for 2010, the Compensation Committee determined to increase the number of shares of restricted stock awarded to our executive officers. The increased shares also provide greater parity among the named executive officers.  The Compensation Committee may, in its discretion, choose to grant shares either below or above this multiple, which remains the same for 2011 performance.

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(1)       The grants of restricted stock on January 7, 2011 represent the awards to each of the Named Executive Officers based on 2010 performance.

(2)       The actual base salary multiple represents the value of the January 7, 2011 award of restricted stock, calculated by multiplying the number of shares awarded times the closing price of our common stock on such date, as a percentage of the base salary paid to the respective executive officer in 2010.

Mr. Case was awarded a grant of 75,000 shares of restricted stock on April 26, 2010, the date he commenced employment with us, in order to incentivize him to join our Company and to ensure that he continued to receive a competitive compensation package commensurate with his prior employment.

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.  During 2010, we paid Mr. Case $125,000 to assist with his relocation from New York City, New York, to our corporate headquarters in Escondido, California, and $90,500 for tax gross-ups on these relocation expenses.  The Compensation Committee reviews such perquisites and other benefits provided to our executive officers as part of its overall review of executive compensation. The Compensation Committee has determined the type and amount paid in perquisites to be within the appropriate range of competitive compensation practices.

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. 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.  We do not provide any tax-gross up payments.

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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 2010 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 2010 did not satisfy the “performance based” compensation requirements of Section 162(m).  As a result, compensation of $2.9 million, in aggregate, was not deductible from a tax perspective for 2010.

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 2011 Annual Meeting of stockholders and in Realty Income’s 2010 Annual Report on Form 10-K.

Submitted on March 15, 2011 by the members of the Compensation Committee of Realty Income’s Board of Directors.

Kathleen R. Allen, Ph.D.

Michael D. McKee, Chairman

Gregory T. McLaughlin

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.

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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, 2010, 2009 and 2008.

(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 2010 were paid in January 2011, the bonuses shown for 2009 were paid in January 2010 and the bonuses shown for 2008 were paid in January 2009.

(3)                For Messrs. Lewis, Malino, Meurer and Pfeiffer, represents the grant date fair value of restricted stock grants, which is calculated by multiplying the applicable shares by the closing market price of our common stock on January 5, 2010, of $26.54, as prescribed by Accounting Standards Codification Topic 718. For Mr. Case, represents the grant date fair value of his initial hire restricted stock grant, which is calculated by multiplying the applicable shares by the closing market price of our common stock on April 26, 2010 of $33.57, as prescribed by Accounting Standards Codification Topic 718.

(4)                The stock awards shown reflect the grants of restricted stock during each of the fiscal years presented above. Because we believe that the information is relevant to our investors, we have chosen to present supplemental disclosure regarding the grant of restricted stock on January 7, 2011, which represents the award to each of the Named Executive Officers based on their 2010 performance. See footnote 3 to the “Grants of Plan-Based Awards Table.”

(5)                The following table sets forth distributions paid on restricted stock, relocation benefits, matching contributions by us to the Named Executive Officer’s 401(k) savings account and the cost of term life premiums paid by us. During 2010, we paid Mr. Case $125,000 to assist with his relocation from New York City, New York, to our corporate headquarters in Escondido, California, and $90,500 for tax gross-ups on these relocation expenses, as listed in the below table:

(6)              Mr. Case’s employment with us began on April 26, 2010.  The amount shown in the table above represents the pro-rated portion of his base salary of $300,000, as actually paid to him.

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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 2010 fiscal year.

(1)                For Messrs. Lewis, Malino, Meurer and Pfeiffer, the grant date fair value has been calculated by multiplying the closing market price of our common stock at January 5, 2010 of $26.54 by the number of restricted stock awarded, as prescribed under Accounting Standards Codification Topic 718.  For Mr. Case, the grant date fair value has been calculated by multiplying the closing market price of our common stock at April 26, 2010 of $33.57 by the number of his restricted stock awarded, as prescribed under Accounting Standards Codification Topic 718.

(2)                The Compensation Committee awards grants of restricted stock awards in accordance with the provisions of our 2003 Incentive Award Plan, as amended. The vesting schedule is as follows: (i) for employees age 55 and below at the grant date, shares vest in 20% increments on each of the first five anniversaries of the grant date; (ii) for employees age 56 at the grant date, shares vest in 25% increments on each of the first four anniversaries of the grant date; (iii) 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; (iv) for employees age 58 at the grant date, shares vest in 50% increments on each of the first two anniversaries of the grant date; (v) for employees age 59 at the grant date, shares are 100% vested on the first anniversary of the grant date; and (vi) for employees age 60 and above at the grant date, shares vest immediately on the grant date. Restricted stock is eligible to receive distributions from the date of grant.

(3)               The stock awards shown in the table above reflect the grants of restricted stock during the 2010 fiscal year based on 2009 performance. Because we believe that the information is relevant to our investors, we have chosen to present supplemental disclosure regarding the grants of restricted stock on January 7, 2011, which represent the awards to each of the Named Executive Officers based on their 2010 performance. The grant date fair value in the following chart has been calculated by multiplying the closing market price of our common stock at January 7, 2011 of $33.81, by the number of restricted stock awarded, as prescribed under Accounting Standards Codification Topic 718:

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 December 31, 2010. None of the Named Executive Officers held any exercisable or unexercisable options as of December 31, 2010.

(1)             The amounts in this column represent the portion of the stock awards that were granted from January 1, 2001 through April 26, 2010 to the Named Executive Officers and that were unvested at December 31, 2010.

(2)             Market value has been calculated by multiplying the closing market price of our common stock at December 31, 2010 of $34.20 by the outstanding restricted stock awards for each Named Executive Officer.

(3)             The restricted stock awards for Mr. Lewis vest according to the following schedule: 68,100 shares vest on 1/1/11, 64,300 shares vest on 1/1/12, 58,300 shares vest on 1/1/13, 43,000 shares vest on 1/1/14, 20,500 shares vest on 1/1/15, 11,500 shares vest on 1/1/16 and 6,000 shares vest on 1/1/17.

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(4)                The restricted stock awards for Mr. Malino vest according to the following schedule: 37,200 shares vest on 1/1/11, 35,700 shares vest on 1/1/12, 33,300 shares vest on 1/1/13, 24,300 shares vest on 1/1/14, 16,800 shares vest on 1/1/15, 6,300 shares vest on 1/1/16 and 3,550 shares vest on 1/1/17.

(5)                The restricted stock awards for Mr. Meurer vest according to the following schedule: 21,900 shares vest on each of: 1/1/11 and 1/1/12, 19,900 shares vest on 1/1/13, 18,000 shares vest on 1/1/14, 13,500 shares vest on 1/1/15, 6,500 shares vest on 1/1/16, 4,500 shares vest on 1/1/17 and 2,000 shares vest on 1/1/18.

(6)                The restricted stock awards for Mr. Pfeiffer vest according to the following schedule: 19,200 shares vest on each of: 1/1/11, 1/1/12 and 1/1/13, 18,000 shares vest on 1/1/14, 13,500 shares vest on 1/1/15, 6,500 shares vest on 1/1/16, 4,500 shares vest on 1/1/17 and 2,000 shares vest on 1/1/18. Pursuant to a domestic relations order, Mr. Pfeiffer’s ex-wife is entitled to 15,794 shares of his 102,100 restricted stock awards.

(7)                The restricted stock awards for Mr. Case vest according to the following schedule: 15,000 shares vest on each of: 4/26/11, 4/26/12, 4/26/13, 4/26/14 and 4/26/15.

(8)                The outstanding stock awards information is as of December 31, 2010 and does not include the awards granted to the Named Executive Officers as of January 7, 2011 based on their performance for the 2010 fiscal year. Because we believe that the information is relevant to our investors, we have chosen to present supplemental disclosure regarding the outstanding stock award information as of January 7, 2011:

(a)                    The amounts in this column represent the portion of the stock awards that were granted from January 1, 2001 through January 7, 2011 to the Named Executive Officers and that were unvested at January 7, 2011. None of the Named Executive Officers held any options at January 7, 2011.

(b)                    Market value has been calculated by multiplying the closing market price of our common stock at January 7, 2011 of $33.81 by the outstanding restricted stock awards for each Named Executive Officer.

(c)                    The restricted stock awards for Mr. Lewis vest according to the following schedule: 83,766 shares vest on 1/1/12, 77,767 shares vest on 1/1/13, 62,467 shares vest on 1/1/14, 20,500 shares vest on 1/1/15, 11,500 shares vest on 1/1/16 and 6,000 shares vest on 1/1/17.

(d)                    The restricted stock awards for Mr. Malino vest according to the following schedule: 41,548 shares vest on 1/1/12, 39,148 shares vest on 1/1/13, 30,148 shares vest on 1/1/14, 22,648 shares vest on 1/1/15, 12,148 shares vest on 1/1/16 and 3,550 shares vest on 1/1/17.

(e)                    The restricted stock awards for Mr. Meurer vest according to the following schedule: 25,993 shares vest on 1/1/12, 23,994 shares vest on 1/1/13, 22,093 shares vest on 1/1/14, 17,594 shares vest on 1/1/15, 10,594 shares vest on 1/1/16, 4,500 shares vest on 1/1/17 and 2,000 shares vest on 1/1/18.

(f)                      The restricted stock awards for Mr. Pfeiffer vest according to the following schedule: 23,293 shares vest on 1/1/12, 23,294 shares vest on 1/1/13, 22,093 shares vest on 1/1/14, 17,594 shares vest on 1/1/15, 10,594 shares vest on 1/1/16, 4,500 shares vest on 1/1/17 and 2,000 shares vest on 1/1/18. Pursuant to a domestic relations order, Mr. Pfeiffer’s ex-wife is entitled to 11,618 shares of his 103,368 restricted stock awards.

(g)                    The restricted stock awards for Mr. Case vest according to the following schedule: 15,000 shares vest on 4/26/11, 19,093 shares vest on 1/1/12, 19,094 shares vest on 1/1/13, 19,093 shares vest on 1/1/14, 19,094 shares vest on 1/1/15 and 4,094 shares vest on 1/1/16.

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Stock Vested Table

The following table sets forth summary information concerning the vesting of stock awards for each of the Named Executive Officers during the year ended December 31, 2010. During the year ended December 31, 2010, none of the Named Executive Officers exercised any stock options.

(1)                 The amounts in this column represent the portion of the stock awards that vested on January 1, 2010, the only vesting date in 2010. Mr. Case started his employment with us on April 26, 2010 and no stock awards vested for him in 2010.

(2)                 The number of shares acquired on vesting includes the following number of shares which each applicable Named Executive Officer elected to withhold to pay his federal and state income taxes: 20,394 shares for Mr. Lewis, 11,444 shares for Mr. Malino, 6,565 shares for Mr. Meurer and 5,575 shares for Mr. Pfeiffer.  Pursuant to a domestic relations order, a portion of Mr. Pfeiffer’s shares that vested on January 1, 2010 were subsequently transferred to  Mr. Pfeiffer’s ex-wife.

(3)                 This column represents the value realized on vesting as calculated by multiplying the closing market price of our common stock on December 31, 2009 (i.e. the business day immediately preceding the vesting date) of $25.91, by the number of shares that vested.

No Pension Benefits or Nonqualified Deferred Compensation

We do not currently sponsor any qualified or non-qualified defined benefit plans, any non-qualified defined contribution plans or deferred compensation plans. The Compensation Committee may elect to adopt such benefits if they determine that doing so is in our best interest.

Potential Payments upon Termination or Change in Control

Each of the Named Executive Officers has the right to receive severance compensation upon the occurrence of certain events as specified in their employment agreements. The employment agreements provide that the employees will be entitled to receive severance payments upon termination by us without cause or termination resulting from a change in control of us within 12 months prior to, or 12 months after a change in control.

Termination by Us Without Cause. For termination by us without cause, each of our Named Executive Officers is entitled to receive the following:

·            a severance payment equal to twelve months’ base salary;