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## Rental Income 

Rental income from leases with scheduled rent increases, free rent and other rent adjustments are rec- ognized on a straight-line basis over the respective lease terms.We include amounts currently recognized as income, and expected to be received in later years, in deferred rent in the accompanying consolidat- ed balance sheets.Amounts received currently, but recognized as income in future years, are included as unearned rent in accounts payable, accrued expenses and tenant security deposits in the accompanying consolidated balance sheets. Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the appli- cable expenses are incurred. 

We maintain an allowance for estimated losses that may result from the inability of our tenants to make required payments. If a tenant fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the amount of unpaid rent and unre- alized deferred rent. As of December 31, 2004 and 2003, we had no allowance for doubtful accounts. 

## Interest Income 

Interest income was $181,000, $108,000 and $298,000 in 2004, 2003 and 2002, respectively, and is included in other income in the accompanying consolidated statements of income. 

## Fair Value of Financial Instruments 

The carrying amounts of cash and cash equivalents, tenant receivables, unsecured line of credit and unse- cured term loan, and accounts payable, accrued expenses and tenant security deposits approximate fair value. 

The fair value of our secured notes payable was estimated using discounted cash flows analyses based on borrowing rates we believe we could obtain with similar terms and maturities. As of December 31, 2004 and 2003, the fair value of our secured notes payable was approximately $652,100,000 and $338,620,000, respectively. 

## Net Income Per Share and Preferred Stock Redemption Cost 

The following table shows the computation of net income per common share, and dividends declared per common share: 

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Emerging Issues Task Force Topic D-42, “The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock” (“EITF Topic D-42”) provides, among other things, that any excess of (1) the fair value of the consideration transferred to the holders of preferred stock redeemed over (2) the carrying amount of the preferred stock, should be subtracted from net earn- ings to determine net income available to common stockholders in the calculation of earnings per share. The cost to issue our preferred stock was recorded as a reduction to additional paid-in capital in the years that the preferred stock was issued. Upon any redemption of our preferred stock, the respective offering costs, representing the excess of the fair value of the consideration transferred to the holders over the carrying amount of the preferred stock, will be recognized as a dividend to preferred stock- holders. During 2004, we recorded a charge of approximately $1,876,000 to net income available to common stockholders for costs related to the redemption of our 9.5% Series A cumulative redeemable 

