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In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”), which addresses alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. Effective January 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), prospectively to all employee awards granted, modified or settled after January 1, 2003 pursuant to the transition and disclosure guidance under SFAS 148. The cost related to stock-based employee compensation included in the determina- tion of net income for 2002 and 2001 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective dates of SFAS 123. See Note 11, Stock Option Plans and Stock Grants. 

In April 2002, FASB issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”), which requires any gain or loss on early extinguish- ment of debt that was classified as an extraordinary item that does not meet certain criteria, be reclassified from extraordinary item to continuing operations. In accordance with SFAS 145, the extraordinary loss on early extinguishment of debt recognized in 2002 was reclassified to continuing operations in 2003. 

## NOTE 3: RENTAL PROPERTIES AND PROPERTIES UNDER DEVELOPMENT 

Rental properties consist of the following (in thousands): 

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As of December 31, 2003, 39 of our rental properties are encumbered by deeds of trust and assignments of rents and leases associat- ed with the properties (see Note 6). The net book value of encumbered properties as of December 31, 2003 and 2002 is $369,731,000 and $354,895,000, respectively. 

We lease space under noncancelable leases with remaining terms of one to 15 years. 

As of December 31, 2003, approximately 88% of our leases (on a square footage basis) require that the lessee pay substantially all taxes, maintenance, insurance and certain other operating expenses applicable to the leased properties. 

Included in rental properties as of December 31, 2003 are ten properties in our redevelopment program that contained a total of 770,000 square feet. Of this total, 359,000 square feet are under redevelopment and currently vacant, and the remaining 411,000 square feet are currently leased. The allocated net book value of the portion of these properties undergoing redevelopment as of December 31, 2003 was $65,559,000. Depreciation ceases on the portion of a property undergoing redevelopment during the period of redevelopment. 

We capitalize interest to properties under development or redevelopment during the period the asset is undergoing activities to prepare it for its intended use. Total interest capitalized for the years ended December 31, 2003, 2002 and 2001 was $13,941,000, $13,519,000 and $11,371,000, respectively. Total interest incurred for the years ended December 31, 2003, 2002 and 2001 was $41,571,000, $40,294,000 and $40,840,000, respectively. 

Minimum lease payments to be received under the terms of the operating lease agreements, excluding expense reimbursements, as of December 31, 2003, are as follows (in thousands): 

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