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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the Fiscal Year Ended December 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM
_____________ TO _______________

Commission file number 0-9109 Commission file number 0-9110
MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware Delaware
(State or other jurisdiction (State or other jurisdiction of
of incorporation or organization) incorporation or organization)
95-3520818 95-3419438
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
197 First Avenue, Suite 300 197 First Avenue, Suite 100
Needham Heights, Needham Heights,
Massachusetts 02194-9127 Massachusetts 02194-9127
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(781) 433-6000 (781) 453-8062
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class and name of each exchange Title of each class and name of each exchange
on which registered on which registered
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Common Stock $.10 Par Value, Common Stock $.10 Par Value,
New York Stock Exchange New York Stock Exchange
9% Convertible Debentures due 2002,
New York Stock Exchange
7-1/2% Convertible Debentures due 2001,
New York Stock Exchange
7.375% Notes due 2000,
New York Stock Exchange
7.6% Notes due 2001,
New York Stock Exchange
Cumulative Redeemable Preferred
Stock represented by depository shares representing 1/10th of
a share of Preferred Stock, New York Stock Exchange

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Securities registered pursuant to Section 12(g) of the Act:

None None

Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [ ]

Aggregate market value of the paired voting stock of Meditrust Corporation
and of Meditrust Operating Company held by non-affiliates as of December 31,
1998 was $2,258,552,000. The number of shares of common stock, par value $.10
per share, outstanding as of December 31, 1998 for Meditrust Corporation was
150,631,102 and Meditrust Operating Company was 149,325,725.

The following documents are incorporated by reference into the indicated
Part of this Form 10-K.

Document Part
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Definitive Proxy Statement for the June 25, 1999 Annual Meeting of
Shareholders, to be filed pursuant to Regulation 14A III

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Certain matters discussed herein constitute forward-looking statements
within the meaning of the Federal securities laws. The Meditrust Companies (the
"Companies"), consisting of Meditrust Corporation ("Realty") and Meditrust
Operating Company ("Operating"), intend such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements, and are
including this statement for purposes of complying with these safe harbor
provisions. Although the Companies believe the forward-looking statements are
based on reasonable assumptions, the Companies can give no assurance that their
expectations will be attained. Actual results and timing of certain events
could differ materially from those projected in or contemplated by the
forward-looking statements due to a number of factors, including, without
limitation, general economic and real estate conditions, the conditions of the
capital markets at the time of the proposed spin-off of the healthcare
division, the identification of satisfactory prospective buyers for the
non-strategic assets and the availability of financing for such prospective
buyers, the availability of equity and debt financing for the Companies'
capital investment program, interest rates, competition for hotel services and
healthcare facilities in a given market, the satisfaction of closing conditions
to pending transactions described in this Joint Annual Report, the enactment of
legislation further impacting the Companies' status as a paired share real
estate investment trust ("REIT") or Realty's status as a REIT, unanticipated
delays or expenses on the part of the Companies and their suppliers in
achieving year 2000 compliance and other risks detailed from time to time in
the filings of Realty and Operating with the Securities and Exchange Commission
("SEC"), including, without limitation, those risks described in the Section of
this Joint Annual Report on Form 10-K entitled "Certain Factors You Should
Consider" beginning on page 64 hereof.

Item 1. Business

THE MEDITRUST COMPANIES

General
The Meditrust Companies consists of two separate companies, Meditrust
Corporation and Meditrust Operating Company, whose shares of common stock trade
as a single unit (symbol MT) on the New York Stock Exchange (the "NYSE") under
a stock pairing arrangement. Meditrust Corporation ("Realty") is a real estate
investment trust ("REIT") and Meditrust Operating Company ("Operating") is a
taxable corporation. Realty and Operating were each incorporated in the State
of Delaware in 1979. As used herein, the terms "Realty" and "Operating" include
wholly owned subsidiaries of Realty and Operating unless the context requires
otherwise. References to "The Meditrust Companies" or "Companies" refer to
Realty and Operating, collectively. This document constitutes the Joint Annual
Report on Form 10-K for both Realty and Operating.

The Meditrust Companies maintain an organizational structure called a
"paired share structure" such that the shares of capital stock of both
companies trade and are transferable as a single unit. A predecessor of Realty
("Meditrust's Predecessor") which was organized as a Massachusetts business
trust and was known as "Meditrust", acquired the paired share structure in 1997
by acquiring, together with an affiliate of Meditrust's Predecessor, Santa
Anita Realty Enterprises Inc. and Santa Anita Operating Company (collectively,
the "Santa Anita Companies"). The Santa Anita Companies had operated under the
paired share structure since 1979. The paired share structure permitted the
shareholders of The Meditrust Companies to enjoy the economic benefits of
owning a company that owns and leases real estate, namely Realty, and a company
that operates a business that uses real estate, namely Operating. The benefits
attributable to future use of the paired share structure have been limited,
however, by Federal legislation, which is described in more detail in this
Joint Annual Report, which was adopted in July 1998.

Realty
During 1998, Realty invested in real estate in three principal areas:
healthcare related real property, lodging facilities, and golf properties. As a
REIT, Realty is not permitted to operate the businesses conducted at or with
the real estate that it owns, rather, Realty must lease its properties to the
operators of the businesses. In the case of its healthcare related real
properties, Realty (taking into account the activities of Meditrust's
Predecessor) either leases facilities that it owns or invests in, or provides
financing to, third-party operators principally of long-term care, retirement
and assisted living facilities, rehabilitation hospitals and medical office
buildings. In the case of its lodging facilities and golf

properties, Realty owns, maintains leasehold interest in or invests in real
estate that it leases to Operating. As more fully described below, Operating
operates the lodging and golf businesses conducted on the real estate that it
leases from Realty. During 1998, Realty also owned and leased to Operating
Santa Anita Park, a horse racing complex based in California, and invested in
certain related real estate. The Santa Anita real estate assets, which were
acquired at the time Meditrust's Predecessor acquired the paired share
structure, were sold by The Meditrust Companies, together with the operations
conducted thereon.

Operating
Operating operates the lodging and golf related real estate owned by
Realty. Operating does not conduct any activities related to Realty's
healthcare related real estate. The lodging portion of Operating's business is
conducted under the La Quinta[RegTM] brand name and is presently headquartered
in San Antonio, Texas. As more fully described below, the La Quinta[RegTM]
brand name, lodging facilities and operations were acquired by The Meditrust
Companies in July 1998. The golf portion of Operating's business is conducted
by the Cobblestone Golf Group, which was acquired by The Meditrust Companies in
May 1998, as more fully described below. Cobblestone is headquartered in San
Diego, California. The Meditrust Companies have entered into an agreement to
sell their subsidiaries which own the golf related real estate, together with
the operations conducted thereon. This sale is expected to close on or prior to
March 31, 1999. Operating also conducted the operating activities at Santa
Anita Park until December 1998 when the Companies sold these activities,
together with the Santa Anita real estate, to a third party.

Divisions
The Meditrust Companies conduct their businesses and make their
investments through three principal divisions: healthcare related real estate,
lodging and golf. As described above, Operating does not conduct any operations
in the healthcare related real estate business. Rather, this division, which is
headquartered in Needham, Massachusetts at the Companies' corporate
headquarters, is conducted solely through Realty. The lodging and golf
businesses, which are conducted through the La Quinta[RegTM] and Cobblestone
divisions, consist of real estate assets owned by Realty and operations
performed by Operating.

Healthcare Related Real Estate--Realty owns, invests in and provides
financing for 421 geographically dispersed healthcare facilities operated by
nearly 30 different third-party operators. In addition, Realty manages 43
medical office buildings, including all the medical office buildings owned by
Realty. As described below, during 1998 and into 1999, Realty has been selling
its interests in certain non-strategic healthcare properties.

Lodging--The Companies' lodging business is conducted under the La
Quinta[RegTM] brand name. At March 26, 1999, the La Quinta[RegTM] division owns
and operates an aggregate of 232 La Quinta[RegTM] Inns and 61 La Quinta[RegTM]
Inns & Suites in 28 states with over 37,000 hotel rooms. La Quinta[RegTM] is a
recognized brand name in the mid-priced lodging segment that appeals to many
business travelers. Realty acquired La Quinta Inns, Inc. and its subsidiaries
and its unincorporated partnership and joint venture entities (collectively,
"La Quinta") on July 17, 1998 by merging La Quinta Inns, Inc. into Realty (the
"La Quinta Merger"). Immediately prior to the La Quinta Merger, La Quinta
transferred all of its assets other than its real estate and brand name assets
to Operating to enable Operating to conduct the operating portion of La
Quinta's business.

La Quinta, which is a fully-integrated lodging company that focuses on the
ownership, operation and development of mid-priced hotels in the western and
southern regions of the United States, has continued to operate as an
independent division from its headquarters in San Antonio, Texas. On March 16,
1999, the Companies' announced that as a component of the merger with the
Meditrust Companies La Quinta's headquarters were being moved to Dallas, Texas.

Golf--The Companies' golf business is conducted under the Cobblestone
brandname. The Cobblestone division owns or leases and operates 43 golf course
facilities in 6 states. Realty acquired Cobblestone Holdings, Inc. and its
wholly owned subsidiary Cobblestone Golf Group, Inc. (together with its
subsidiaries, "Cobblestone") by merging Cobblestone Holdings, Inc. into Realty
on May 29, 1998 (the "Cobblestone Merger"). Immediately prior to the
Cobblestone Merger, Cobblestone Golf Group, Inc. and its subsidiaries
transferred all of their assets other than their real estate interests and the
Cobblestone trade name to Operating to enable Operating to conduct the golf
business at the golf course properties owned by Realty after the Cobblestone
Merger. Realty also acquired additional golf properties prior to and after the
Cobblestone Merger that are also operated by the Cobblestone Division.

As described more fully below, the Companies have entered into a
definitive agreement to sell Cobblestone's golf course properties and
operations for $393 million.

Comprehensive Restructuring Plan
The Meditrust Companies consummated the Cobblestone Merger and the La
Quinta Merger on May 29, 1998 and July 17, 1998 respectively. On July 22, 1998,
the President signed into law the Internal Revenue Service Restructuring and
Reform Act of 1998 (the "Reform Act"), which limits the Companies' ability to
continue to grow through the use of the paired share structure. While the
Companies' use of the paired share structure in connection with the Cobblestone
Merger and the La Quinta Merger were each "grandfathered" under the Reform Act,
the ability to continue to use the paired share structure to acquire real
estate and the operating businesses conducted with the real estate assets
(included in the golf and lodging industries) has been substantially limited.
In addition, during the summer of 1998, the debt and equity capital markets
available to REITs generally, and healthcare and lodging REITs specifically,
deteriorated, thus limiting the Companies' access to cost-efficient capital.

The Companies began an analysis of the impact of the Reform Act, the
Companies' limited ability to access the capital markets and the operating
strategy of the Companies' existing businesses. This analysis included advice
from outside professional advisors and presentations by management on the
different alternatives available to the Companies. The analysis culminated in
the development of a comprehensive restructuring plan (the "Plan") designed to
strengthen the Companies' financial position and clarify its investment and
operating strategy by focusing on the Companies' healthcare and lodging
business segments. The Plan was announced on November 12, 1998 and included the
following component parts:

o Pursue the separation of the Companies' primary businesses, healthcare and
lodging, by creating two separately traded publicly listed REITs. The
Companies intend to spin off the healthcare financing business into a
stand-alone REIT;

o Continue to operate the Companies' healthcare and lodging businesses using
the existing paired-share REIT structure until the healthcare spin-off
takes place;

o Sell more than $1 billion of non-strategic assets, including the portfolio
of golf-related real estate and operating properties, the Santa Anita
Racetrack and approximately $550 million of non-strategic healthcare
properties;

o Use the proceeds from these asset sales to achieve significant near-term
debt reduction;

o Settle fully the Companies' forward equity issuance transaction ("FEIT")
with certain affiliates of Merrill Lynch & Co.;

o Reduce capital investments to respond to current operating conditions in
each industry;

o Reset Realty's annual dividend to $1.84 per common share, an amount that
Realty deems sustainable and comparable to the Companies' peer groups;

During 1998 and in early 1999, the Companies made significant progress in
implementing, and in some cases completing, significant components of the Plan.
The following summarizes the status of the Plan by substantive component parts:

o Completed the sale of $613 million of the $1 billion in planned asset sales,
including: $436 million of non-strategic healthcare assets, the Santa
Anita Racetrack and the related horse racing operation, the Companies'
interest in the Santa Anita Fashion Mall and related land held for
development and artwork originally acquired in the acquisition of the
Santa Anita Companies;

o Entered into letters of intent for the sale of an additional $155 million of
healthcare assets.

o Reduced the amount of its FEIT to $103 million as of December 31, 1998 ($89
million as of March 25, 1999) from the original $277 million.

o Reduced the Companies' outstanding debt by $274 million.

o Refocused the Companies' capital investment program to respond to industry
trends by reducing planned healthcare investments to $100 million in 1999
and ceasing construction of any new hotels after completion of the 13 La
Quinta[RegTM] Inns & Suites currently under development.

o Reduced Realty's annual dividend to $1.84 per common share.
o Entered into a definitive agreement to sell Cobblestone Golf Group for
$393,000,000 and an agreement with its lenders and Merrill Lynch to settle
the FEIT.

Recent Developments
On February 11, 1999, The Meditrust Companies announced that they had
entered into a definitive agreement to sell (the "Cobblestone Sale") the
capital stock of the entities which comprise the Cobblestone golf division to
Golf Acquisitions, L.L.C., an affiliate of ClubCorp, Inc. for an aggregate
purchase price of $393 million, subject to adjustment for, among other things,
the debt of Cobblestone. The Cobblestone Sale, which is subject to customary
closing conditions, is expected to close on or prior to March 31, 1999. After
the consummation of the Cobblestone Sale, The Meditrust Companies will no
longer own, lease or operate golf course facilities and their activities will
consist of owning and investing in healthcare related real estate and owning
and operating lodging properties.

On March 10, 1999, Realty executed an agreement with its senior lenders to
amend its credit facility. The amendment, which is subject to the successful
completion of the sale of Cobblestone, permits the Companies to pay a portion
of the net cash sale proceeds from the sale of Cobblestone in further
settlement of a portion of the FEIT. The amendment also provides for, among
other things, deletion of limitations on certain healthcare investments and
reducing the borrowing availability on the credit facility's revolving portion
from $1,000,000,000 to $850,000,000. In addition, The Meditrust Companies also
entered into an agreement with Merrill Lynch and certain of its affiliates to
use the proceeds from the sale of Cobblestone in excess of $300 million to
settle the FEITs. Merrill Lynch has agreed not to sell any shares of the
existing FEIT until at least March 31, 1999 while the Companies complete the
sale of Cobblestone. At March 25, 1999, the balance of the FEITs was
approximately $89 million.

For a discussion of certain factors that could impact the financial
condition, results of operations and/or business of Realty or the successful
implementation of the Plan and each of its component parts, you are encouraged
to read the section entitled "Certain Factors You Should Consider" beginning on
page 64 of this Joint Annual Report on Form 10-K. In addition, discussions of
each of Realty's and Operating's individualized businesses commence on page 8
and 14, respectively of this Joint Annual Report on Form 10-K.

Unless otherwise specified, information regarding the Companies' business
is given as of December 31, 1998.

Capital Raising Transactions

Forward Equity Transaction

paired common shares to, or, receipts of paired common shares from, MLI. In the
event that the market price for the paired shares is not high enough to provide
MLI with the Return, the Companies would have to deliver additional paired
shares to MLI, which would have a dilutive effect on the capital stock of the
Companies. This dilutive effect increases significantly as the market price of
the paired shares declines further below the original purchase price. Moreover,
settlement of the FEIT transaction, whether at maturity or at an earlier date,
may force the Companies to issue paired shares at a depressed price, which may
heighten this dilutive effect on the capital stock of the Companies. Prior to
the settlement, MLI shall hold any paired common shares delivered by the
Companies under the Purchase Price Adjustment Agreement in a collateral account
(the "Collateral Shares"). Under the adjustment mechanism, the Companies
delivered approximately 9,700,000 Collateral Shares in 1998, all of which were
returned to the Companies when the Companies settled in cash a portion of the
adjustment transaction in December 1998.

The FEIT has been accounted for as an equity transaction with the Notional
Shares treated as outstanding from their date of issuance until the respective
date of repurchase, if any, for both basic and diluted earnings per share
purposes. For diluted earnings per share purposes, at the end of the quarterly
period, the then outstanding Reference Amount (as defined herein) is divided by
the quoted market price of a paired common share, and the excess, if
applicable, of that number of paired common shares over the Notional Shares
(the "Contingent Shares") is added to the denominator. Contingent Shares are
included in the calculation of year to date diluted earnings per share weighted
for the interim periods in which they were included in the computation of
diluted earnings per share.

The "Reference Amount" equals the Initial Reference Amount plus the Return
and net of any cash distributions on the Notional Shares or any other cash paid
or otherwise delivered to MLI under the FEIT.

Payments that reduce the Reference Amount in effect satisfy all necessary
conditions for physically settling that portion of the Reference Amount and are
accounted for in a manner similar to treasury stock. Therefore, payments that
reduce the Reference Amount are divided by the quoted market price of a paired
common share on the date of payment. The calculated number is then multiplied
by the fractional number of days in the period prior to the payment date and
the resulting number of paired common shares is included in the calculation of
diluted earnings per share for the period.

On November 11, 1998, the Companies entered into an agreement with MLI to
amend the FEIT. Under the agreement, Realty agreed to grant a mortgage on the
Santa Anita Racetrack to MLI and repurchase from MLI approximately 50% of the
FEIT with cash generated in part from the sale of certain assets, including the
Santa Anita Racetrack. Merrill Lynch agreed, subject to the terms of the
settlement agreement, not to sell any shares of the existing FEIT until
February 26, 1999. In December 1998, the Companies paid Merrill Lynch $152
million ($127 million of which was from the sale of certain assets including
the Santa Anita Racetrack) for the repurchase of 1,635,000 Notional Shares and
the release of 9,700,000 Collateral Shares. At December 31, 1998 the Notional
Shares outstanding were reduced to approximately 6,865,000 paired common shares
and there were no Contingent Shares issuable.

On March 10, 1999, the Companies entered into an agreement with MLI and
certain of its affiliates to use the proceeds from the sale of Cobblestone Golf
Group in excess of $300 million to purchase all or a portion of the remaining
Notional Shares. Merrill Lynch has agreed not to sell any shares of the
remaining Notional Shares until March 31, 1999 while the Companies complete the
sale of Cobblestone Golf Group. At March 25, 1999, the balance of the Reference
Amount is $89 million.

Series A Preferred Stock

On June 10, 1998, Realty issued 7,000,000 depositary shares. Each
depositary share represents one-tenth of a share of 9% Series A Cumulative
Redeemable Preferred Stock with a par value of $.10 per share. Net proceeds
from this issuance of approximately $168,666,000 were used by Realty primarily
to repay existing indebtedness.

New Credit Agreement

On July 17, 1998, Realty executed an agreement for an unsecured bank
facility ("New Credit Agreement") for a total of $2,250,000,000 bearing
interest at the lenders' prime rate plus .50% or LIBOR plus 1.375%. The
facility is comprised of three tranches with term loans at various maturity
dates between

July 17, 1999 and July 17, 2001 and a revolving tranche with availability of
$1,000,000,000 maturing July 17, 2001.

On November 23, 1998 Realty executed an agreement with its bank group to
amend the New Credit Agreement. The amendment provided for Realty's delivery of
cash in settlement of a portion of its FEIT, and the amendment of certain
financial covenants to accommodate asset sales by Realty, to exclude the impact
of non-recurring charges, and to provide for future operating flexibility. The
amendment also provided for an increase to the LIBOR pricing of the credit
facility by approximately 125 basis points, and the pledge of stock of the
Companies' subsidiaries. This pledge of subsidiary stock also extended on a pro
rata basis to entitled bondholders. Realty also agreed to a 25 basis point
increase to the LIBOR pricing in the event that an equity offering of at least
$100,000,000 was not consummated by February 1, 1999. On February 1, 1999 this
increase went into effect.

On March 10, 1999, Realty executed a second agreement with the bank group
to further amend its New Credit Agreement. The second amendment, which is
subject to the successful completion of the sale of Cobblestone, permits the
Companies to pay a portion of the net cash sale proceeds from the sale of
Cobblestone in further settlement of a portion of the FEIT. The second
amendment also provides for, among other things, deletion of limitations on
certain healthcare investments and reducing the borrowing availability on
Tranche A to $850,000,000.

Of the $1,000,000,000 revolving tranche, $353,000,000 was available at
December 31, 1998, bearing interest at the Base rate (8.25%) or LIBOR plus
2.625% (7.98% at December 31, 1998). As of March 5, 1999, $244,000,000 was
available on the revolving tranche.

Shelf Registration Statement

The Companies have an effective shelf registration statement on file with
the Securities and Exchange Commission (the "SEC") under which the Companies
may issue up to $1,825,000,000 of securities including common stock, preferred
stock, debt, series common stock, convertible debt and warrants to purchase
common stock, preferred stock, debt, series common stock and convertible debt.

Realty believes that various sources of capital available over the next
twelve months are adequate to finance pending acquisitions, mortgage financings
and dividends. Over the next twelve months, as Realty identifies appropriate
investment opportunities, Realty may raise additional capital through the sale
of assets, common shares or preferred shares, the issuance of additional
long-term debt or through a securitization transaction.

Capital Requirements and Availability of Financing
Realty's business is capital intensive, and it will have significant
capital requirements in the future. Realty's leverage could affect its ability
to obtain financing in the future or to undertake refinancings on terms and
subject to conditions deemed acceptable by Realty. In the event that Realty's
cash flow and working capital are not sufficient to fund Realty's expenditures
or to service its indebtedness, it would be required to raise additional funds
through the sale of additional equity securities, the refinancing of all or
part of its indebtedness, the incurrence of additional permitted indebtedness
or the sale of assets. There can be no assurance that any of these sources of
funds would be available in amounts sufficient for Realty to meet its
obligations. Moreover, even if Realty were able to meet its obligations, its
leveraged capital structure could significantly limit its ability to finance
its construction program and other capital expenditures, to compete effectively
or to operate successfully under adverse economic conditions. Additionally,
financial and operating restrictions contained in Realty's existing
indebtedness may limit Realty's ability to secure additional financing, and may
prevent Realty from engaging in transactions that might otherwise be beneficial
to Realty and to holders of Realty's common stock. Realty's ability to satisfy
its obligations will also be dependent upon its future performance, which is
subject to prevailing economic conditions and financial, business and other
factors beyond Realty's control.

Short-Term Investments
Realty invests its cash in certain short-term investments during interim
periods between the receipt of revenues and distributions to shareholders. Cash
not invested in facilities may be invested in interest-bearing bank accounts,
certificates of deposit, short-term money-market securities, short-term United

States government securities, mortgage-backed securities guaranteed by the
Government National Mortgage Association, mortgages insured by the Federal
Housing Administration or guaranteed by the Veterans Administration, mortgage
loans, mortgage loan participations, and certain other similar investments.
Realty's ability to make certain of these investments may be limited by tax
considerations. Realty's return on these short-term investments may be more or
less than its return on real estate investments.

Borrowing Policies
Realty may incur additional indebtedness when, in the opinion of the
Directors, it is advisable. For short-term purposes, Realty may, from time to
time, negotiate lines of credit, arrange for other short-term borrowings from
banks or others or issue commercial paper. Realty may arrange for long-term
borrowing from banks, insurance companies, public offerings or private
placements to institutional investors.

In addition, Realty may incur mortgage indebtedness on real estate which
it has acquired through purchase, foreclosure or otherwise. When terms are
deemed favorable, Realty may invest in properties subject to existing loans or
mortgages. Realty also may obtain financing for unleveraged properties in which
it has invested or may refinance properties acquired on a leveraged basis.
There is no limitation on the number or amount of mortgages which may be placed
on any one property, but overall restrictions on mortgage indebtedness are
provided under documents pertaining to certain existing indebtedness.

Legislative Developments
On July 22, 1998, the President signed into law the Internal Revenue
Service Restructuring and Reform Act of 1998 (the "Reform Act"). Included in
the Reform Act is a freeze on the grandfathered status of paired share REITs
such as the Companies. Under this legislation, the anti-pairing rules provided
in the Code, apply to real property interests acquired after March 26, 1998 by
the Companies, or by a subsidiary or partnership in which a ten percent or
greater interest is owned by the Companies, unless (1) the real property
interests are acquired pursuant to a written agreement that was binding on
March 26, 1998 and at all times thereafter or (2) the acquisition of such real
property interests was described in a public announcement or in a filing with
the SEC on or before March 26, 1998.

Under the Reform Act, the properties acquired in connection with the July
17, 1998 La Quinta Merger and in connection with the May 29, 1998 Cobblestone
Merger generally are not subject to these anti-pairing rules. However, any
property acquired by the Companies, La Quinta, or Cobblestone after March 26,
1998, other than property acquired pursuant to a written agreement that was
binding on March 26, 1998 or described in a public announcement or in a filing
with the SEC on or before March 26, 1998, is subject to the anti-pairing rules.
Moreover, under the Reform Act any otherwise grandfathered property will become
subject to the anti-pairing rules if a lease or renewal with respect to such
property is determined to exceed an arm's length rate. In addition, the Reform
Act also provides that a property held by the Companies that is not subject to
the anti-pairing rules will become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (A) the
undepreciated cost of the property (prior to the improvement) or (B) in the
case of property acquired where there is a substituted basis (e.g., the
properties acquired from La Quinta and Cobblestone), the fair market value of
the property on the date it was acquired by the Companies.

There is an exception for improvements placed in service before January 1,
2004 pursuant to a binding contract in effect on December 31, 1999 and at all
times thereafter. This restriction on property improvements applies to the
properties acquired from La Quinta and Cobblestone, as well as all other
properties owned by the Companies, and limits the ability of the Companies to
improve or change the use of those properties after December 31, 1999. The
Companies are considering various steps which they might take in order to
minimize the effect of the Reform Act. As part of their restructuring plan
announced in November 1998, the Companies intend to operate their healthcare
and lodging business using the paired share structure until the healthcare
spin-off takes place.

Further, restructuring the operations of Realty and Operating to comply
with the recent legislation may cause the Companies to incur substantial tax
liabilities, to recognize an impairment loss on their goodwill asset or
otherwise adversely affect the Companies.

REALTY

General
Realty is a self administered real estate investment trust which operates
under the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and is incorporated in the State of Delaware. During 1998, Realty
invested primarily in (i) healthcare facilities located throughout the United
States, (ii) an entity which invests in healthcare facilities in the United
Kingdom, (iii) lodging properties located throughout the western and southern
United States, and (iv) golf course properties located in the southern United
States. As of December 31, 1998, Realty had investments in 765 facilities
consisting of 421 healthcare facilities, 301 lodging properties and 43 golf
courses. Thirty of these facilities are presently under construction and are
expected to be completed during the next twelve months.

Realty intends to continue to make and manage its investments (including
the sale or disposition of property or other investments) and to operate
(including through its business relationships with Operating) in a manner
consistent with the requirements of the Code and the regulations thereunder in
order to qualify as a REIT. As long as Realty complies with the Code and its
regulations regarding REIT qualification requirements, Realty will not be
taxed, except in limited circumstances, under the Federal income tax laws on
that portion of its taxable income that it distributes to its shareholders.
Realty has historically distributed, and intends to continue to distribute,
substantially all of its real estate investment trust taxable income to its
shareholders.

Realty had a net increase in gross real estate investments of
$2,645,236,000 during 1998 consisting of the following:

Transactions Increasing Transactions Decreasing
Real Estate Portfolio Real Estate Portfolio
- - ---------------------------------------------- -------------------------------------------

o Acquiring lodging properties in the La o Sale of non-strategic healthcare assets
Quinta Merger
o Acquiring golf courses in the Cobblestone o Sale of Santa Anita Racetrack and Santa
Merger Anita Fashion Mall
o Entering into sale/leaseback transactions o Repayment of principal on permanent
with third-party operators of healthcare mortgage loans and development loans
properties
o Providing permanent mortgage loan and o Adjustments for real estate asset
development loan financing to third-party impairments
operators of healthcare properties

As described above, The Meditrust Companies announced a comprehensive
restructuring plan on November 12, 1998 that is designed to clarify the
Companies' investment and operating strategy by focusing on the healthcare and
lodging business segments. As a result, prior to December 31, 1998, Realty sold
its interest in a number of non-strategic real estate assets including the
Santa Anita Racetrack, the Santa Anita Fashion Mall and related land held for
development and approximately $436 million of non-strategic healthcare assets.
In addition, Realty, together with Operating, has entered into a definitive
agreement to sell all of its subsidiaries that have interests in golf course
properties. Accordingly, Realty's business, once the sale of the Cobblestone
golf entities is completed, will thereafter be focused on healthcare and
lodging related real estate.

Realty's principal executive offices are located at 197 First Avenue,
Suite 300, Needham, Massachusetts 02494, and its telephone number is (781)
433-6000.

Healthcare Related Real Estate
As of December 31, 1998, Realty had investments in 421 healthcare
facilities including 221 long-term care facilities, 157 retirement and assisted
living facilities, 34 medical office buildings, one acute

care hospital campus and eight other healthcare facilities. Of Realty's 421
healthcare facilities, 244 are directly owned by Realty. Third-party operators
lease 220 of the healthcare facilities, 24 medical office buildings are leased
to tenants of the facilities and 177 constitute investments through the
provision of permanent mortgage loan or development loan financing. Realty
generally invests in high-quality healthcare facilities that are managed by a
diverse group of experienced third party operators. Realty achieves diversity
in its healthcare property portfolio by investing in several different sectors
of the healthcare industry and in different geographic regions and by providing
financing to or leasing properties to a number of different third-party
operators. Realty's healthcare properties are located in 38 states and are
operated by 30 different operators. A private healthcare company and Sun
Healthcare Group, Inc. operate approximately 38% of Realty's healthcare real
estate investments. No other healthcare operator operates more than 10% of
Realty's healthcare real estate investments.

Investments

Sale/Leaseback Transactions--During 1998, Realty acquired 15 assisted
living facilities and 23 medical office buildings for an aggregate purchase
price of $276,075,000. In addition, during 1998, Realty provided net funding of
$54,467,000 for the construction of 17 assisted living facilities and
$1,820,000 for the construction of an addition to one of Realty's existing
long-term care facilities. Realty leases 220 of its healthcare investments to
third-party operators. Substantially all of Realty's healthcare facilities
which are the subject of sale-leaseback transactions are leased under triple
net leases which are accounted for as operating leases and generally require
that the third-party operator pay for all maintenance, repairs, insurance and
taxes on the property. Realty generally earns fixed monthly rents, although in
some circumstances Realty may also earn periodic additional rents. Generally,
multiple leases with one operator are cross-collateralized and contain
cross-default provisions tied to each of the operator's other leases with
Realty.

Permanent Mortgage Loan Financing--During 1998, Realty provided permanent
mortgage loan financing of $76,260,000 for two long-term care facilities, one
medical office building and for a 135 acre development stage property. Realty
also provided $2,945,000 in additional construction loan financing to construct
additions at facilities for which Realty already held a permanent mortgage on.
The permanent mortgage financing provided by Realty generally consists of
either construction or development loans made to a third-party operator to
construct a new healthcare facility which are converted to a permanent mortgage
loan or permanent mortgage loan financing that was put in place at the time the
third-party operator bought or refinanced an existing healthcare facility. The
permanent mortgage loans are secured by first mortgage liens on the underlying
real estate and personal property of the mortgagor.

Development Loan Financing--During 1998, Realty provided new development
funding of $33,061,000 to third-party operators for the construction of two
long-term care facilities and one medical office building. Realty also provided
$110,258,000 of development funding for ongoing construction at facilities for
which development commenced prior to January 1, 1998. Generally, Realty
provides development and construction financing with a view towards converting
the financing into a permanent mortgage loan or acquiring the developed
property and leasing it back to the third-party operator.

Repayments and Other Transactions--During 1998, Realty received an
aggregate of $407,241,000 of principal payments on permanent mortgage loans
from third-party operators of healthcare facilities. Realty also received net
proceeds of $320,135,000 from the sale of one long-term care facility, 32
assisted living facilities and nine rehabilitation facilities, which included
certain assets sold in connection with the implementation of the Companies'
comprehensive restructuring plan. In addition, Realty has also entered into
letters of intent to sell additional healthcare assets at an aggregate gross
purchase price of approximately $155 million. In the event Realty sells or
otherwise disposes of any of its properties, Realty's Directors will determine
whether and to what extent Realty will acquire additional properties or
distribute the proceeds to the shareholders.

Equity Investments--Between July 1996 and August 1998, Realty invested an
aggregate of approximately $57,204,000 to purchase 26,606,000 shares of common
stock, representing a 19.99% interest in, Nursing Home Properties plc ("NHP
plc"), a property investment group that specializes in the financing, through
sale/leaseback transactions, of nursing homes located in the United Kingdom.
Realty

does not have the right to vote in excess of 9.99% of the shares of common
stock of NHP plc. As of November 24, 1998, NHP plc had invested approximately
L377,000,000 in 200 nursing homes with a total of approximately 10,800 beds.
The facilities are leased to 24 different United Kingdom-based nursing home
operators on terms and conditions similar to those contained in Realty's leases
with its third-party operators. As of December 31, 1998, the market value of
this investment was $66,591,080 and is included in Realty's and the Companies'
financial statements. The resulting difference, $9,387,000, between the current
market value and the aggregate cost of the NHP plc shares is included in
shareholders' equity in Realty's and the Companies financial statements.

Realty also has an investment consisting of 331,000 shares of capital
stock and warrants to purchase an additional 1,008,000 shares of capital stock
in Balanced Care Corporation, a healthcare operator. This investment has a
market value of $8,688,000 at December 31, 1998 and is included in Realty's and
the Companies' financial statements. The difference of $7,584,000 between the
market value and the aggregate cost of the shares and the warrants is included
in shareholders' equity in Realty's and the Companies' financial statements.

Future Healthcare Investments--As part of the Plan, Realty has reduced its
capital investment program to respond to changing industry conditions and
demand for new healthcare facilities. Realty has historically invested in
healthcare related facilities which have included long-term care facilities,
rehabilitation hospitals, retirement and assisted living facilities, medical
office buildings, alcohol and substance abuse treatment facilities, psychiatric
hospitals, and other healthcare related facilities. Realty has also invested in
other entities which invest in similar facilities abroad. These investments
have been made primarily for the production of income. Realty will continue to
make these types of investments, though the level of capital investment will be
less than Realty's historical investment level. As part of Realty's capital
plan, it may , however, continue to diversify its portfolio in order to
minimize risks inherent in investing in healthcare related real estate industry
by broadening its geographic base, providing financing to more operators,
diversifying the type of healthcare and other facilities in its portfolio and
diversifying the types of financing methods provided.

In evaluating potential investments, Realty considers factors such as: (1)
the current and anticipated cash flow and its adequacy to meet operational
needs and other obligations and to provide a competitive market return on
equity to Realty's shareholders; (2) the geographic area, type of property and
demographic profile; (3) the location, construction quality, condition and
design of the property; (4) the potential for capital appreciation, if any; (5)
the growth and regulatory environment of the communities in which the
properties are located; (6) occupancy and demand for similar healthcare or
other facilities in the same or nearby communities; (7) for healthcare
investments, an adequate mix of private and governmental-sponsored patients;
(8) potential alternative uses of the facilities; and (9) prospects of
liquidity through financing or refinancing.

Management reviews and verifies market research for a significant amount
of potential investments on behalf of Realty. Management also reviews the value
of the property, the interest rates and debt service coverage requirements of
any debt to be assumed and the anticipated sources of repayment for such debt.

In the event Realty sells or otherwise disposes of any of its properties,
Realty's Directors will determine whether and to what extent Realty will
acquire additional properties or distribute the proceeds to the shareholders.

Competition in Healthcare Industry

For healthcare investments, Realty competes, primarily on the basis of
knowledge of the industry, economics of the transaction and flexibility of
financing structure, with real estate partnerships, other real estate
investment trusts, banks and other investors generally in the acquisition,
leasing and financing of healthcare related facilities.

The operators of the facilities compete on a local and regional basis with
other operators of comparable facilities. They compete with independent
operators as well as companies managing multiple facilities, some of which are
substantially larger and have greater resources than the operators

of the facilities. Some of these facilities are operated for profit while
others are owned by governmental agencies or tax-exempt not-for-profit
organizations.

Government Regulation

Realty recognizes a portion of revenue from percentage, supplemental
and/or additional rent or interest. This revenue can be a contractual amount or
be based on the healthcare facility operator's gross revenues, which, in most
cases, is subject to changes in the reimbursement and licensure policies of
federal, state and local governments. In addition, the acquisition of
healthcare facilities is generally subject to state and local regulatory
approval.

Medicare, Medicaid, Blue Cross and Other Payors

Certain of the third-party healthcare operators who lease facilities from
Realty or who obtained loan financing from Realty receive payments for patient
care from federal Medicare programs for elderly and disabled patients, state
Medicaid programs for medically indigent and cash grant patients, private
insurance carriers, employers and Blue Cross plans, health maintenance
organizations, preferred provider organizations and directly from patients.
Historically, Medicare payments for long-term care services, psychiatric care,
and rehabilitative care were based on allowable costs plus a return on equity
for proprietary facilities. On August 5, 1997, President Clinton signed into
law the Balanced Budget Act ("BBA") which included among other things, sweeping
changes to Medicare reimbursement for long-term care services. The new
reimbursement system is intended to reduce the growth in Medicare spending by
creating incentives for the lowest cost delivery of long-term care services.
The prospective payment system ("PPS") is being implemented over a twelve month
period (based upon each facility's year-end cost report) beginning July 1,
1998, with the majority of nursing homes converting to PPS on January 1, 1999.
Reimbursement under the new PPS rates will be phased in over the next four
years. PPS may result in reduced Medicare revenue for long-term care facilities
with significant Medicare patient populations. Success under PPS is dependent
on several factors, including the third-party operator's management team's
effectiveness.

Payments from state Medicaid programs for psychiatric care are based on
reasonable costs or are at fixed rates. Long-term care facilities are generally
paid by the various states' Medicaid programs at rates based upon cost
reimbursement principles. Reimbursement rates are typically determined by the
state from cost reports filed annually by each facility on a prospective or
retrospective basis. Most Medicare and Medicaid payments are below retail
rates. Payments from other payors are generally also below retail rates. Blue
Cross payments in different states and areas are based on costs, negotiated
rates or retail rates.

Regulation of Healthcare Properties and Third-Party Operators

Long-Term Care Facilities--Regulation of long-term care facilities is
exercised primarily through the licensing of such facilities. The particular
agency having regulatory authority and the license qualification standards vary
from state to state and, in some instances, from locality to locality.
Licensure standards are constantly under review and undergo periodic revision.
Governmental authorities generally have the power to review the character,
competence and community standing of the operator and the financial resources
and adequacy of the facility, including its plant, equipment, personnel and
standards of medical care. Long-term care facilities may be certified under the
Medicare program and are normally eligible to qualify under state Medicaid
programs, although not all participate in the Medicaid programs.

Rehabilitation Hospitals--Rehabilitation hospitals are also subject to
extensive federal, state and local legislation and regulation. Rehabilitation
hospitals are subject to periodic inspections and licensure requirements.
Inpatient rehabilitation facilities are cost-reimbursed, receiving the lower of
reasonable costs or reasonable charges. Typically, the fiscal intermediary pays
a set rate per day based on the prior year's costs for each facility. Annual
cost reports are filed with the operator's fiscal intermediary and adjustments
are made, if necessary.

Medical Office Buildings--The individual physicians, groups of physicians
and healthcare providers which occupy medical office buildings are subject to a
variety of federal, state and local regulations

applicable to their specific areas of practice. Since medical office buildings
may contain numerous types of medical services, a wide variety of regulations
may apply. In addition, medical office buildings must comply with the
requirements of municipal building codes, health codes and local fire
departments.

Acute Care Hospitals--Acute care hospitals are subject to extensive
federal, state and local legislation and regulation relating to, among other
things, the adequacy of medical care, equipment, personnel, hygiene, operating
policies and procedures, fire prevention, rate-setting and compliance with
building codes and environmental protection laws. Hospitals must maintain
strict standards in order to obtain their state hospital licenses from a
department of health or other applicable agency in each state. In granting and
renewing licenses, the department of health considers, among other things, the
physical buildings and equipment, the qualifications of the administrative
personnel and nursing staff, the quality of care and continuing compliance with
the laws and regulations relating to the operation of the facilities. State
licensing of facilities is a prerequisite to certification under the Medicare
and Medicaid programs. Various other licenses and permits also are required in
order to dispense narcotics, operate pharmacies, handle radioactive materials
and operate certain equipment. Hospital facilities are subject to periodic
inspection by governmental and other authorities to assure continued compliance
with the various standards necessary for their licensing and accreditation.

Retirement and Assisted Living--Residential communities such as retirement
and assisted living facilities are subject to varying degrees of regulation and
licensing by local and state health and social service agencies, and other
regulatory authorities specific to their location. Typically these regulations
and licensing requirements relate to fire safety, sanitation, staff training,
staffing levels and living accommodations, as well as requirements specific to
certain health related services offered. Levels of service provided and
corresponding regulation vary considerably from operator to operator as some
are similar to long-term care facilities, while others fall into the relatively
unregulated care of a retirement community.

Alcohol and Substance Abuse Treatment Facilities--Alcohol and substance
abuse treatment facilities must comply with the licensing requirements of
federal, state and local health agencies and with the requirements of municipal
building codes, health codes and local fire departments. In granting and
renewing a facility's license, a state health agency considers, among other
things, the physical buildings and equipment, the qualifications of the
administrative personnel and healthcare staff, the quality of nursing and other
services and the continuing compliance of such facility with the laws and
regulations applicable to its operations.

Psychiatric Hospitals--Psychiatric hospitals generally are subject to
extensive federal, state and local legislation and regulation. Licensing for
psychiatric hospitals is subject to periodic inspections regarding standards of
medical care, equipment and hygiene. In addition, there are specific laws
regulating civil commitment of patients and disclosure of information regarding
patients being treated for chemical dependency. Many states have adopted a
"patient's bill of rights" which sets forth standards, such as using the least
restrictive treatment, allowing patient access to the telephone and mail,
allowing the patient to see a lawyer and requiring the patient to be treated
with dignity. Insurance reimbursement for psychiatric treatment generally is
more limited than for general healthcare.

Lodging Related Real Estate
As of December 31, 1998, Realty had investments in 301 lodging facilities
including 226 La Quinta[RegTM] Inns and 57 La Quinta[RegTM] Inns & Suites which
are presently operating and wholly-owned by Realty, two presently operating La
Quinta[RegTM] Inns which Realty owns 50% or more of, three lodging properties
owned by Realty which are marketed under a brand name other than La
Quinta[RegTM], and 13 La Quinta[RegTM] Inns & Suites under construction. Realty
anticipates that these properties under construction will be completed by the
end of the second quarter of 1999. These lodging facilities, which are located
in 28 states and have an aggregate of 37,000 rooms in service, are leased by
Realty (or the respective property owning subsidiary) to a subsidiary of
Operating. A complete discussion of the lodging business and inventory is
presented in Operating's portion of the Business section of this Joint Annual
Report on Form 10-K.

La Quinta Merger

Realty acquired the real estate assets of La Quinta Inns, Inc. on July 17,
1998 by merging La Quinta Inns, Inc. with and into Realty. The real estate
assets acquired consisted of 233 La Quinta[RegTM] Inns and 47

La Quinta[RegTM] Inns & Suites in service as of the date of the La Quinta
Merger, and 23 La Quinta[RegTM] Inns & Suites under construction and additional
land held for development. The properties in service at the time of the La
Quinta Merger consisted of 280 lodging facilities, containing a total of
approximately 36,000 rooms located in 28 states, concentrated in the western
and southern regions of the United States. Substantially all of those
properties were wholly-owned by La Quinta Inns, Inc. and were operated under
the La Quinta[RegTM] Inns and La Quinta[RegTM] Inns & Suites brand names.

Lodging Properties In Service

Realty's portfolio of lodging properties consist principally of
wholly-owned lodging facilities. Realty (including through its predecessor, La
Quinta Inns, Inc.) has historically acquired either directly or with a
development partner, real estate upon which to develop a lodging facility.
Realty's hotel division generally identifies real estate that is located in
well-traveled areas in order to offer the business traveler, which is La
Quinta's principal customer type, convenient access to the facilities and
services needed to conduct his or her job. Realty (including through its
predecessor) develops and leases two types of lodging properties, La
Quinta[RegTM] Inns and La Quinta[RegTM] Inns & Suites. La Quinta[RegTM] Inns
consist of hotel properties with an average of 130 single rooms per property
and are operated in the mid-priced lodging segment. La Quinta[RegTM] Inns &
Suites consist of two room suites that contain additional room and on-site
amenities and are operated at the high-end of the mid-priced segment.

Lodging Properties in Development

During 1998, Realty's lodging division completed construction of 24 new La
Quinta[RegTM] Inns & Suites and has an additional 13 inns under construction to
be completed by June 1999.

Future Development Activities

As part of the Plan, Realty will not commence any new construction of
lodging facilities until market conditions will foster such new development and
the capital markets are more appropriately accessible to finance any such new
development. As of December 31, 1998 the 13 La Quinta[RegTM] Inns & Suites
under construction will be completed by the end of the second quarter of 1999,
although no new construction is planned or will be commenced in the near term.
Instead, Realty's lodging division will evaluate and concentrate on lodging
facilities in services in order to maximize the overall return from Realty's
lodging portfolio. Once market conditions warrant and the capital markets are
accessible at an acceptable cost to Realty, Realty intends to pursue
development opportunities for lodging facilities, including La Quinta[RegTM]
Inns and La Quinta[RegTM] Inns & Suites, when, as and if appropriate.

Golf Related Real Estate
As of December 31, 1998, Realty had investments in 43 golf courses,
including 34 golf courses that it owns either directly or through subsidiaries
and 9 golf courses that it leases from third parties. In addition, Realty is
currently developing 2 additional golf courses in Texas. All of Realty's owned
and leased golf course are leased or subleased, as the case may be, to a
subsidiary of Operating.

On February 11, 1999, Realty, together with Operating, announced that it
had entered into a definitive agreement to sell the subsidiaries that own
Realty's golf course properties, together with the operations conducted
thereon, to Golf Acquisitions, L.L.C., an affiliate of ClubCorp., Inc. for an
aggregate purchase price of approximately $393 million, subject to certain
adjustments. The transaction, which is subject to customary closing conditions,
is scheduled to close on or prior to, March 31, 1999. Upon completion of this
transaction, Realty will no longer own interests, directly or indirectly, in
any golf course properties.

Cobblestone Merger

Realty acquired the real estate assets of Cobblestone Holdings, Inc. and
its subsidiaries on May 29, 1998 by merging Cobblestone Holdings, Inc. with and
into Realty. The real estate assets acquired consisted of 25 golf courses, 19
of which were owned and 6 of which were leased. Cobblestone's properties were
concentrated primarily in the southern United States.

Additional Acquisitions of Golf Course Properties

During, 1998, Realty, through its golf division, also acquired an
additional 18 golf courses, 15 of which were owned and 3 of which were leased.
These courses were principally located in the southeastern United States.

Lease of Golf Course Properties to Operating

All of Realty's golf courses are either leased, in the case of its owned
golf courses, or subleased, in the case of its leased golf courses, to a
subsidiary of Operating. A discussion of the golf business and industry is
presented in Operating's portion of the Business section of this Joint Annual
Report on Form 10-K.

Golf Properties in Development

During 1998, Realty's golf division commenced construction of two new golf
courses. In addition, one nine-hole course that was under construction at the
beginning of 1998 was completed and put in service during 1998.

Employees
As of December 31, 1998, the operations of Realty were maintained by 83
employees. Realty has not experienced any significant labor problems and
believes that its employee relations are good.

Legal Proceedings
Realty is, and is likely in the future to be, subject to certain types of
litigation, including negligence and other tort claims. The costs and effects
of such legal and administrative cases and proceedings (whether civil or
criminal), settlements and investigations are indeterminate. The costs and
effects of any such legal proceeding could be material to Realty's operations.
For further discussion of these issues see Item 3, "Legal Proceedings".

General Real Estate Investment Risks
Realty's ownership of real property is substantial. Realty's investments
are subject to varying degrees of risk generally incident to the ownership of
real property. Real estate values and income from Realty's properties may be
adversely affected by changes in national economic conditions, changes in local
market conditions due to changes in general or local economic conditions and
neighborhood characteristics, changes in interest rates and in the
availability, cost and terms of mortgage funds, the impact of present or future
environmental legislation and compliance with environmental laws, the ongoing
need for capital improvements, changes in real estate tax rates and other
operating expenses, adverse changes in governmental rules and fiscal policies,
civil unrest, acts of God, including earthquakes and other natural disasters
(which may result in uninsured losses), acts of war, adverse changes in zoning
laws and other factors which are beyond the control of Realty. A significant
portion of revenue for third party operators of Realty's Portfolio arises from
government reimbursement of various healthcare services. Changes in
reimbursement rates could adversely affect third-party operators' cash flow and
calculating for operating expenses.

Value and Liquidity of Real Estate
Real estate investments are relatively illiquid. The ability of Realty to
vary its portfolio in response to changes in economic and other conditions is
limited. If Realty must sell an investment, there can be no assurance that
Realty will be able to dispose of it in the time period it desires or that the
sales price of any investment will recoup or exceed the amount of Realty's
investment.

Property Taxes
Each of Realty's lodging facilities is subject to real property taxes. The
real property taxes on the inns may increase or decrease as property tax rates
change and as the properties are assessed or reassessed by taxing authorities.
If property taxes increase, Realty's operations could be adversely affected.

OPERATING

General
Operating is a Delaware corporation which operates the business conducted
on Realty's lodging and golf related real estate. Operating does not operate
any businesses conducted on, or related to, Realty's healthcare related real
estate. As of December 31, 1998, Operating leased from Realty and

managed 299 lodging facilities and 43 golf courses. In addition, until it was
sold on December 10, 1998, Operating also leased from Realty and operated the
Santa Anita Racetrack, one of the United States' preeminent thoroughbred
racetracks. Operating's activities are conducted primarily on real estate
either leased or subleased from Realty. Operating neither leases real estate
from, nor manages real estate on behalf of, any third-party. Rather,
Operating's activities are currently principally intended to enhance the
Companies' shareholders participation in the income produced by Realty.

As described above, The Meditrust Companies announced a comprehensive
restructuring plan on November 12, 1998 that is designed to clarify the
Companies investment and operating strategy by focusing on the healthcare and
lodging business segments. As a result, prior to December 31, 1998, Operating,
together with Realty, sold the Santa Anita Racetrack and the Santa Anita
horseracing operations. In addition, Operating, together with Realty, has
entered into a definitive agreement to sell all of its subsidiaries that
operate the businesses conducted on Realty's golf course properties.
Accordingly, Operating's business, once the sale of the Cobblestone golf
entities is completed, will thereafter be focused on the lodging business.

Operating's principal executive offices are based at 197 First Avenue,
Suite 300, Needham, Massachusetts 02494, and its telephone number is (781)
453-8062.

For a discussion of certain factors that could impact the financial
condition, results of operations and/or business of Operating or the successful
implementation of the comprehensive restructuring plan and each of its
component parts, you are encouraged to read the section entitled "Certain
Factors You Should Consider" beginning on page 64 of this Joint Annual Report
on Form 10-K.

Lodging
The lodging portion of Operating's business is conducted under the La
Quinta[RegTM] brand name. La Quinta is one of the largest operators of hotels in
the mid-priced segment of the lodging industry in the United States. La Quinta
achieved an occupancy percentage of 67.0% and an average daily room rate ("ADR")
of $59.29 for the period subsequent to the La Quinta Merger and an occupancy
percentage of 68.7% and an ADR of $60.25 for the year ended December 31, 1998.
La Quinta has Inns located in 28 states, concentrated in the western and
southern United States. La Quinta operated Inns and Inn & Suites hotels with a
combined total of approximately 37,000 rooms at the end of 1998.

Product

La Quinta[RegTM] Inns appeal to guests who desire high-quality rooms,
convenient locations and attractive prices, but who do not require banquet and
convention facilities, in-house restaurants, cocktail lounges or room service.
By eliminating the costs of these management-intensive facilities and services,
La Quinta believes it offers its customers exceptional value by providing rooms
that are comparable in quality to full-service hotels at lower prices.

The typical La Quinta Inn contains approximately 130 spacious, quiet and
comfortably furnished guest rooms averaging 300 square feet in size. Guests at
a La Quinta Inn are offered a wide range of amenities and services, such as its
complimentary First Light[TM] breakfast program which includes cereal and fresh
fruit, free unlimited local telephone calls, a swimming pool, same-day laundry
and dry cleaning, fax services, 24-hour front desk message service and free
parking. Room amenities include new 25 inch remote control televisions with
expanded free television channel choices, movies-on-demand, interactive video
games from Nintendo[RegTM], in room coffee makers and dataport telephones for
computer connections. Additional amenities available at La Quinta Inn & Suites
include two room suites with microwaves and refrigerators, fitness centers and
courtyards with gazebos and spas. La Quinta guests typically have convenient
access to food service at adjacent free-standing restaurants, including
national chains such as Cracker Barrel, International House of Pancakes,
Denny's and Perkins. Realty has an ownership interest in 120 of these adjacent
buildings, which are generally leased to restaurant operators.

La Quinta's strategy is to continue to operate as a high-quality provider
in the mid-priced segment of the hotel industry, focusing on enhancing
revenues, cash flow and profitability. Specifically, La Quinta's strategy
centers upon:

Continued Focus on Mid-priced Segment--Hotels in this price category
provide cost-conscious business travelers with high-quality rooms and
convenient locations at a moderate price. Because La Quinta competes
primarily in the mid-priced segment, management's attention is totally
focused on meeting the needs of La Quinta's target customers.

La Quinta Ownership and Management of Inns--In contrast to many of its
competitors, La Quinta manages and has ownership interests through
Operating and Realty in all of its inns. At March 26, 1999, Realty and
Operating owned 100% of 290 La Quinta inns including 61 Inns & Suites, and
50% or more of an additional two inns. As a result, La Quinta believes it
is able to achieve a higher level of consistency in both product quality
and service than its competition. In addition, La Quinta's position as one
of the few owner-operated chains enables La Quinta to offer new services,
direct expansion, establish pricing strategy and to make other marketing
decisions on a system-wide or local basis as conditions dictate, without
consulting third-party owners, management companies or franchisees as
required of most other lodging chains. La Quinta's management of the inns
also enables it to control costs and allocate resources effectively to
provide excellent value to the consumer.

Operations

Management of the La Quinta chain is coordinated from its headquarters in
San Antonio, Texas. Centralized corporate services and functions include
marketing, financing, accounting and reporting, purchasing, quality control,
development, legal, reservations and training.

Inn operations are currently organized into Eastern, Western and Central
divisions with each division headed by a Divisional Vice President. Regional
Managers report to the Divisional Vice Presidents and are each responsible for
approximately 15 inns. Regional Managers are responsible for the service,
cleanliness and profitability of the inns in their regions.

Inn managers receive inn management training which includes an emphasis on
service, cleanliness, cost controls, sales and basic repair skills. Because La
Quinta's professionally trained managers are substantially relieved of
responsibility for food service, they are able to devote their attention to
assuring friendly guest service and quality facilities, consistent with
chain-wide standards.

At December 31, 1998, La Quinta employed approximately 8,000 persons, of
whom approximately 90% were compensated on an hourly basis. Approximately 340
individuals were employed at the corporate headquarters and 7,660 were employed
directly in inn operations. La Quinta's employees are not currently represented
by labor unions. Management believes its ongoing labor relations are good.

Customer Base and Marketing

La Quinta's combination of consistent, high-quality accommodations and
good value is attractive to business customers, who account for more than 70%
of rooms rented. These core customers typically visit a given area several
times a year, and include salespersons covering a specific territory,
government and military personnel and technicians. La Quinta also targets both
vacation travelers and senior citizens. For the convenience of these targeted
customer groups, inns are generally located near suburban office parks, major
traffic arteries or destination areas such as airports and convention centers.

La Quinta has developed a strong following among its customers. An
external industry survey shows La Quinta's heavy users are among the most loyal
of the mid-priced segment. La Quinta focuses a number of its marketing programs
on maintaining a high number of repeat customers. For example, La Quinta
promotes a "Returns[RegTM] Club" offering members preferred status and rates at
La Quinta inns, along with rewards for frequent stays. The Returns[RegTM] Club
had approximately 360,000 members as of December 31, 1998.

La Quinta focuses on reaching its target markets through advertising,
direct sales, repeat traveler incentive programs and other marketing programs
targeted at specific customer segments. It advertises through television, radio
and print advertisements which focus on quality and value. La Quinta uses the
same campaign concept throughout the country with minor modifications made to
address regional

differences. La Quinta also uses billboard advertisements posted along major
highways to advertise the existence and location of La Quinta inns or Inn &
Suites hotels in the proximity.

La Quinta markets directly to companies and other organizations through
its direct sales force of over 90 sales representatives and managers. This
sales force calls on companies which have a significant number of individuals
traveling in the regions in which La Quinta operates and which are capable of
producing a high volume of room nights.

La Quinta provides a central reservation system, "teLQuik[RegTM]," which
currently accounts for advance reservations for approximately 34% of room
nights. The teLQuik[RegTM] system allows customers to make reservations by
dialing 1-800-NUROOMS (1-800-687-6667) or 1-800-531-5900 toll free, or from
reservations phones placed in all La Quinta inns. These phones enable guests to
make their next night's reservation from their previous night's La Quinta inn.
In addition, approximately 40% of room nights reflect advance reservations made
directly with individual inns and forwarded to the central reservation system.
In total, advance reservations account for approximately 74% of room nights. La
Quinta operates two reservation centers with state-of-the-art technology in
processing reservations as one virtual center. La Quinta, through its national
sales managers, markets its reservation services to travel agents and corporate
travel planners who may access teLQuik[RegTM] through five major airline
reservation systems.

Information regarding inn locations, services and amenities, as well as
reservation capabilities and a virtual reality tour of the new Gold Medal
rooms, is available on La Quinta's Travel Web site at http://www.laquinta.com.

Competition

Each La Quinta inn competes in its market area with numerous full service
lodging brands, especially in the mid-priced segment, and with numerous other
hotels, motels and other lodging establishments. Chains such as Hampton Inns,
Fairfield Inns and Drury Inns are direct competitors of La Quinta. Other
competitors include Holiday Inns, Ramada Inns, Red Roof Inns and Comfort Inns.
There is no single competitor or group of competitors of La Quinta that is
dominant in the lodging industry. Competitive factors in the industry include
reasonableness of room rates, quality of accommodations, service level and
convenience of locations.

The profitability of inns operated by La Quinta is subject to general
economic conditions, competition, the desirability of particular locations, the
relationship between supply of and demand for hotel rooms and other factors. La
Quinta generally operates inns in markets that contain numerous competitors,
and the continued success of its inns will be dependent, in large part, upon
the ability of these facilities to compete in such areas as reasonableness of
room rates, quality of accommodations, service level and convenience of
locations. There can be no assurance that demographic, geographic or other
changes in markets will not adversely affect the convenience or desirability of
the locations of La Quinta's inns. Furthermore, there can be no assurance that,
in the markets in which La Quinta inns operate, competing hotels will not
provide greater competition for guests than currently exists, and that new
hotels will not enter such markets.

The lodging industry in general, including La Quinta, may be adversely
affected by national and regional economic conditions and government
regulations. The demand for accommodations at a particular inn may be adversely
affected by many factors including changes in travel and weather patterns,
local and regional economic conditions and the degree of competition with other
lodging establishments in the area.

Seasonality

The lodging industry is seasonal in nature. Generally, La Quinta's inn
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenue, profit margins and net earnings of La Quinta.

Supply and Demand

In some years, construction of lodging facilities in the United States
resulted in an excess supply of available rooms, and the oversupply had an
adverse effect on occupancy levels and room rates in

the industry. Although the relationship between supply and demand has been
favorable in recent years, the lodging industry may be adversely affected in
the future by (i) an oversupply of available rooms, (ii) national and regional
economic conditions, (iii) changes in travel patterns, (iv) taxes and
government regulations which influence or determine wages, prices, interest
rates, construction procedures and costs, and (v) the availability of credit.

Employment and Other Governmental Regulation

La Quinta's business is subject to extensive federal, state and local
regulatory requirements, including building and zoning requirements, all of
which can prevent, delay, make uneconomic or significantly increase the cost of
constructing additional lodging facilities. In addition, La Quinta is subject
to laws governing its relationship with employees, including minimum wage
requirements, overtime pay, working conditions, work permit requirements and
discrimination claims. An increase in the minimum wage rate, employee benefit
costs or other costs associated with employees could adversely affect La
Quinta. Under the Americans with Disabilities Act of 1990 (the "ADA"), all
public accommodations are required to meet certain federal requirements related
to access and use by disabled persons. While La Quinta believes that its inns
are substantially in compliance with these requirements, a determination that
La Quinta is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. These and other initiatives
could adversely affect La Quinta as well as the lodging industry in general.

Employees

La Quinta's future success will depend, in part, on its continuing ability
to attract, retain and motivate highly qualified personnel, who are in great
demand.

Lodging Industry Operating Risks

La Quinta is subject to all operating risks common to the lodging
industry. These risks include, among other things, (i) competition for guests
from other hotels, a number of which may have greater marketing and financial
resources than La Quinta, (ii) increases in operating costs due to inflation
and other factors, which increases may not have been offset in recent years,
and may not be offset in the future, by increased room rates, (iii) dependence
on business and commercial travelers and tourism, which business may fluctuate
and be seasonal, (iv) increases in energy costs and other expenses of travel,
which may deter travelers, and (v) adverse effects of general and local
economic conditions.

Construction

La Quinta may from time to time experience shortages of materials or
qualified tradespeople or volatile increases in the cost of certain
construction materials, resulting in longer than normal construction and
remodeling periods, loss of revenue and increased costs. La Quinta relies
heavily on local contractors, who may be inadequately capitalized or
understaffed. The inability or failure of one or more local contractors to
perform may result in construction delays, increased cost and loss of revenue.

Golf Course Operations
As of December 31, 1998, Operating operated 43 golf courses in 7 states.
Operating leases or subleases, as the case may be, these golf course properties
from Realty. Operating directly manages these golf courses through its
Cobblestone golf division, which is headquartered in San Diego, California.
Cobblestone's individual golf course properties are locally managed, although
regional managers, each of whom report to Cobblestone's senior management team,
are responsible for oversight of a number of Cobblestone's golf course
facilities.

On February 11, 1999, Operating, together with Realty, announced that it
had entered into a definitive agreement to sell the subsidiaries that conduct
the golf businesses at the golf courses owned and leased by Realty, together
with the golf course related real estate owned and/or leased by Realty, to Golf
Acquisitions, L.L.C., an affiliate of ClubCorp., Inc. for an aggregate purchase
price of approximately $393 million, subject to certain adjustments. The
transaction, which is subject to customary closing conditions, is scheduled to
close on or prior to, March 31, 1999. Upon completion of this transaction,
Operating will no longer operate a golf course related business.

Income Tax Matters
Operating pays ordinary corporate income taxes on its taxable income. Any
income, net of taxes, will be available for retention in Operating's business
or for distribution to shareholders as dividends. Any dividends distributed by
Operating will be subject to tax at ordinary rates and generally will be
eligible for the dividends received deduction for corporate shareholders to the
extent of Operating's current or accumulated earnings and profits. However,
there is no tax provision which requires Operating to distribute any of its
after-tax earnings and Operating does not expect to pay cash dividends in the
foreseeable future.

Legal Proceedings
Operating is, and is likely in the future to be, subject to certain types
of litigation, including negligence and other tort claims. The costs and
effects of such legal and administrative cases and proceedings (whether civil
or criminal), settlements and investigations are indeterminate. The costs and
effects of any such legal proceeding could be material to Operating's
operations. For further discussion of these issues see Item 3, "Legal
Proceedings".

Item 2. Properties
The following table sets forth certain information as of December 31, 1998
regarding the Companies' healthcare, golf and hotel facilities:

Annual
Purchase Base Rent
Number Number Price See or
of of or Mortgage References Interest
Location Facilities Beds/Rooms (1) Amount (2) Below Payment (3)
- - ----------------------- ------------ ---------------- ------------------------ ------------ -----------------------
(dollars in thousands) (dollars in thousands)

LONG-TERM CARE
FACILITIES
Alabama 1 230 $ 7,759 $ 941
Arkansas 1 94 8,392 881
Arizona 6 1,054 41,957 (4) 978
California 10 919 78,837 (5) 6,571
Colorado 15 1,432 70,484 (4) 6,957
Connecticut 14 1,980 109,779 (6) 13,547
Florida 17 2,111 120,154 (7) 14,133
Georgia 1 83 2,474 (4) 10,817
Idaho 4 808 43,113 (4) 2,159
Indiana 13 1,723 71,264 (8) 2,739
Kansas 3 379 8,440 (4)
Kentucky 2 283 15,380 (9) 1,599
Massachusetts 31 4,785 318,573 (10) 33,583
Maryland 1 170 18,188 1,910
Michigan 4 458 23,044 (11) 2,658
Missouri 19 2,526 83,444 (12) 10,178
North Carolina 1 118 2,011 (4)
Nebraska 3 413 12,564 (4)
New Hampshire 7 642 46,598 3,657
New Jersey 8 1,423 123,841 (13) 12,743
New Mexico 1 206 12,763 (4) 1,162
Nevada 3 564 29,887 (4) 2,227
New York 5 512 51,044 (14) 900
Ohio 8 956 44,502 (15) 4,016
Pennsylvania 3 381 18,392 (16) 2,192
Rhode Island 2 332 14,936 (4) 1,519
South Carolina 1 88 3,907 (4) 389
Tennessee 10 1,321 45,855 (4) 2,387
Texas 5 660 40,375 (17) 3,284
Utah 2 240 7,902 (4)
Washington 10 1,267 58,120 (18) 12,999
Wisconsin 1 119 13,888 1,035
West Virginia 7 615 29,406 (19) 2,906
Wyoming 2 312 14,527 (4) 1,720
-- ----- ---------- --------
TOTAL LONG TERM CARE 221 29,204 $1,591,800 $162,787
--- ------ ---------- --------

Annual
Purchase Base Rent
Number Number Price See or
of of or Mortgage References Interest
Location Facilities Beds/Rooms (1) Amount (2) Below Payment (3)
- - -------------------------- ------------ ---------------- ------------------------ ------------ -----------------------
(dollars in thousands) (dollars in thousands)

ASSISTED LIVING
Arkansas 5 255 $ 20,143 $ 1,986
Arizona 3 215 13,196 590
California 2 196 16,100 1,504
Colorado 1 62 5,273 (4) 459
Connecticut 1 115 12,718 622
Florida 24 1,790 167,004 (20) 14,167
Idaho 4 250 18,721 (21) 1,894
Kansas 5 144 7,925 903
Massachusetts 1 57 5,423 526
Maryland 1 110 2,814 81
Michigan 15 802 72,619 (22) 6,268
Minnesota 6 119 7,211 659
North Carolina 4 232 22,945 2,097
New York 2 180 10,490 863
Ohio 9 651 33,097 2,483
Oklahoma 2 59 3,335 174
Oregon 1 53 3,050 303
Pennsylvania 14 856 57,609 4,534
South Carolina 3 225 18,540 1,776
Tennessee 3 226 4,744 140
Texas 22 915 47,670 4,930
Virginia 3 239 8,111 500
Washington 4 339 18,827 (23) 1,821
Wisconsin 18 384 21,507 1,994
West Virginia 1 66 4,090 183
-- ----- --------- --------
TOTAL ASSISTED LIVING 154 8,540 $ 603,162 $ 51,457
--- ----- --------- --------
REHABILITATON HOSPITALS
Kansas 1 80 $ 11,649 $ 752
--- ----- --------- --------
MEDICAL OFFICE BUILDINGS
Arizona 2 $ 38,453 (24) $ 3,014
California 3 48,022 4,354
Florida 18 164,621 (25) 16,490
Massachusetts 2 1,850 268
New Jersey 2 44,055 (26) 4,092
Nevada 1 2,771 (27) 281
Tennessee 2 32,880 (4) 2,599
Texas 4 51,194 5,734
--- --------- --------
TOTAL MEDICAL OFFICE
BUILDINGS 34 $ 383,846 $ 36,832
--- --------- --------
ACUTE CARE HOSPITAL
Arizona 1 492 $ 65,650 $ 7,222
--- ----- --------- --------

Annual
Purchase Base Rent
Number Number Price See or
of of or Mortgage References Interest
Location Facilities Beds/Rooms (1) Amount (2) Below Payment (3)
- - -------------------------- ------------ ---------------- ------------------------ ------------ -----------------------
(dollars in thousands) (dollars in thousands)

RETIREMENT LIVING FACILITIES
North Carolina 1 190 $ 5,380 (4) $ 477
Ohio 1 104 6,624 (4) 644
Utah 1 287 8,921 (4) 986
- --- ---------- --------
TOTAL RETIREMENT LIVING 3 581 $ 20,925 $ 2,107
- --- ---------- --------
PSYCHIATRIC HOSPITALS AND
ALCOHOL AND SUBSTANCE ABUSE
California 1 61 $ 5,750 $ 719
Florida, New York and
Oklahoma 5 524 32,345 (4) 3,575
Texas 1 99 4,689 400
- --- ---------- --------
TOTAL PSYCHIATRIC AND
ALCOHOL AND
SUBSTANCE ABUSE 7 684 $ 42,784 $ 4,694
- --- ---------- --------
TOTAL HEALTHCARE 421 39,581 $2,719,816 $265,851
--- ------ ---------- --------
GOLF COURSES
Arizona 4 $ 33,636 $ 1,558
California 6 64,107 4,192
Florida 4 33,425 1,445
Georgia 4 33,247 1,323
North Carolina 6 39,101 2,102
Texas 16 142,964 8,238
Virginia 3 24,477 825
--- ---------- --------
TOTAL GOLF COURSES 43 $ 370,957 $ 19,683
--- ---------- --------
LAND UNDER DEVELOPMENT
California $ 330
Florida 13,508 (4) 1,366
---------- --------
TOTAL LAND UNDER
DEVELOPMENT $ 13,838 $ 1,366
---------- --------
OTHER
California $ 5,273 (4) $ 710
---------- --------
HOTELS
Alabama 8 1,002 $ 60,636
Arkansas 5 603 30,486 (29) $ 8
Arizona 12 1,555 116,360
California 17 2,436 193,270 (29) 75
Colorado 15 1,868 155,986
Florida 34 4,502 336,359
Georgia 17 2,169 114,723
Illinois 7 913 57,557
Indiana 3 365 19,552

Annual
Purchase Base Rent
Number Number Price See or
of of or Mortgage References Interest
Location Facilities Beds/Rooms (1) Amount (2) Below Payment (3)
- - ---------------------------- ------------ ---------------- ------------------------ ------------ -----------------------
(dollars in thousands) (dollars in thousands)

Kansas 2 228 $ 10,790 (29) $ 30
Kentucky 1 129 6,251
Louisiana 15 2,058 153,007 (29) 197
Missouri 2 235 12,893
Mississippi 2 245 8,419
North Carolina 10 1,309 86,501
Nebraska 1 130 4,845
New Mexico 7 834 60,315
Nevada 4 625 31,550 (29) 365
Ohio 1 122 5,049
Oklahoma 8 963 61,664
Pennsylvania 1 128 6,653
South Carolina 6 713 37,080
Tennessee 11 1,402 76,648
Texas 102 13,212 856,687 (29) 54
Utah 4 467 37,369
Virginia 4 511 17,944
Washington 3 418 33,016
Wyoming 1 105 3,346
--- ------ ---------- --------
TOTAL HOTELS 303 39,247 $2,594,956 729
--- ------ ---------- --------
TOTAL ALL FACILITIES (28) 767 78,828 $5,704,840 $288,339
=== ====== ========== ========

Other Healthcare Investments

At various dates between July, 1996 and August 1998, Realty invested
approximately $57,204,000 in exchange for 26,606,000 shares of common stock,
representing 19.99% of NHP Plc, a property investment group that specializes in
the financing, through sale and leaseback transactions, of nursing homes
located in the United Kingdom. Realty does not have the right to vote more than
9.99% of the shares of NHP Plc. As of November 24, 1998, NHP Plc had invested
or committed to invest approximately L377,000,000 in 200 nursing homes,
totaling 10,841 beds. The facilities are leased to 24 nursing home operators in
the United Kingdom with terms and conditions similar to those contained in
Realty's leases.

(1) Includes 39,581 total beds for healthcare facilities and 39,247 rooms for
hotels. The La Quinta hotels have an average occupany of 67.0%. Based upon
information provided by the operators of the healthcare facilities, the
average occupancy of Realty's portfolio of operating healthcare
facilities, including start-up facilities, for the nine months ended
September 30, 1998, was as follows: 84% long-term care facilities, 50%
rehabilitation hospitals, 76% alcohol and substance abuse treatment
facilities, 68% assisted living, 92% retirement living facilities, and 57%
acute care hospitals. Generally, average occupancy rates are determined by
dividing the number of patient days in each period by the average number
of licensed bed days during such period.

(2) Represents purchase price or mortgage amount at December 31, 1998 for
operating facilities and the funded loan amounts for facilities under
construction.

(3) The annual base rentals/interest payments under the healthcare leases or
mortgages are generally projected to be approximately 9%-13% of the
purchase price or mortgage amount, in accordance with the terms of the
respective agreements. Base rent excludes additional and percentage rent
and interest. Additional and percentage rent and interest for the year
ended December 31, 1998 was an aggregate of $12,401,000 for all of the
facilities. Additional and percentage rent and interest are calculated
based upon a percentage of a facility's revenues over an agreed upon base
amount or an automatic annual escalation.

(4) Permanent mortgage loans

(5) Includes permanent mortgage loans of $52,278,000

(6) Includes permanent mortgage loans of $30,570,000

(7) Includes permanent mortgage loans of $45,374,000 and construction loans of
$24,995,000

(8) Includes permanent mortgage loans of $63,937,000

(9) Includes permanent mortgage loans of $5,380,000

(10) Includes permanent mortgage loans of $148,897,000

(11) Includes permanent mortgage loans of $7,739,000

(12) Includes permanent mortgage loans of $74,646,000

(13) Includes permanent mortgage loans of $55,184,000

(14) Includes a permanent mortgage loan of $218,000

(15) Includes a construction loan of $7,035,000

(16) Includes a permanent mortgage loan of $6,860,000

(17) Includes permanent mortgage loans of $33,816,000

(18) Includes permanent mortgage loans of $52,259,000

(19) Includes a permanent mortgage loan of $12,206,000

(20) Includes permanent mortgage loans of $98,598,000

(21) Includes a permanent mortgage loan of $3,744,000

(22) Includes a permanent mortgage loan of $4,574,000 and construction loans of
$4,558,000

(23) Includes a permanent mortgage loan of $3,365,000

(24) Includes a permanent mortgage loan of $30,123,000

(25) Includes permanent mortgage loans of $6,173,000

(26) Includes a construction loan of $20,298,000

(27) Includes a permanent mortgage loan of $2,771,000

(28) Investments by Realty in facilities operated by Life Care Centers of
America, Inc., Sun Healthcare Group, Inc., and Alternative Living Services
represented 12%, 8%, and 4%, respectively, of Realty's total portfolio as
of December 31, 1998.

(29) Represents annual base rent on ground operating leases.

Long-Term Care Facilities. The long-term care facilities offer
restorative, rehabilitative and custodial nursing care for patients not
requiring more extensive and sophisticated treatment available at acute care
hospitals. The facilities are designed to provide custodial care and to
supplement hospital care and many have transfer agreements with one or more
acute care hospitals.

Assisted Living Facilities. The assisted living facility provides a
combination of housing, supportive services, personalized assistance and
healthcare designed to respond to individual needs for daily living and
instrumental activities. Support services are generally available 24 hours a
day to meet scheduled and unscheduled needs.

Retirement Living Facilities. The retirement living facilities offer
specially designed residential units for active and ambulatory elderly
residents and provide various ancillary services. They may contain nursing
facilities to provide a continuum of care. The retirement living facilities
offer their residents an opportunity for an independent lifestyle with a range
of social and health services.

Rehabilitation Hospitals. The rehabilitation hospitals provide treatment
to restore physical, psycho-social, educational, vocational and economic
usefulness and independence to disabled persons. Rehabilitation concentrates on
physical disabilities and impairments and utilizes a coordinated
multidisciplinary team approach to help patients attain measurable goals.

Medical Office Buildings. Medical office building facilities contain
individual physician, physician group and other healthcare provider offices for
the administration and treatment of patients, usually in close proximity to the
general service acute care hospital to which the physicians are affiliated. The
types of services provided in a medical office building may include outpatient
therapy, clinics, examination facilities and the provision of other medical
services in a non-hospital setting.

Acute Care Hospitals. Acute care hospitals provide services that include,
among others, general surgery, internal medicine, obstetrics, emergency room
care, radiology, diagnostic services, coronary care, pediatric services and
psychiatric services. On an outpatient basis, the services include, among
others, same day surgery, diagnostic radiology (e.g. magnetic resonance
imaging, CT scanning, X-ray), rehabilitative therapy, clinical laboratory
services, pharmaceutical services and psychiatric services.

Alcohol and Substance Abuse Treatment Facilities. These facilities provide
inpatient treatment for alcohol and substance abuse, including medical
evaluation, detoxification and rehabilitation. Specialized programs offer
treatment for adults, adolescents, families and chronic abusers.

Psychiatric Hospitals. The psychiatric hospitals offer comprehensive,
multidisciplinary adult, adolescent and substance abuse psychiatric programs.
Patients are evaluated upon admission and an individualized treatment plan is
developed. Elements of the treatment plan include individual, group and family
therapy, activity therapy, educational programs and career and vocational
planning.

Golf Courses. These facilities include private country clubs, semi-private
clubs and daily fee courses. Revenue is generated from the following sources --
initiation dues at private and semi-private golf courses, which are amortized
over the expected life of the memberships, and from green fees, golf cart
rentals, driving range fees, retail merchandise, food and beverage concessions
and lodging fees.

Lodging Properties. La Quinta inns appeal to guests who desire
high-quality rooms, convenient locations and attractive prices, but who do not
require banquet and convention facilities, in-house restaurants, cocktail
lounges or room service.

The new Inn & Suites hotels offer rooms designed to accommodate the needs
of the guest irrespective of the purpose or length of the stay. The King Plus
Extra rooms and deluxe two-room suites include features that may be desirable
for longer stays. In addition, the Inn & Suites hotels offer fitness centers
and courtyards with gazebos and spas. Typically, food service for La Quinta
guests is provided by adjacent, free-standing restaurants.

To maintain the overall quality of La Quinta's inns, each inn undergoes
refurbishments and capital improvements as needed. Historically, refurbishing
has been provided at intervals of between five and seven years, based on an
annual review of the condition of each inn. La Quinta spent approximately
$11,975,000 in capital improvements to existing inns during the period
subsequent to the July 17, 1998 merger. La Quinta has made approximately
$301,175,000 in investments in La Quinta Inns during the period 1995-1998. As a
result of these expenditures, La Quinta believes it has been able to maintain a
chainwide quality of rooms and common areas at its properties unmatched by any
other national mid-priced hotel chain.

LEASES

Healthcare Facilities
Generally, each healthcare facility (which includes the land, buildings,
improvements, related easements, and rights and fixtures (the "Leased
Properties") that is owned by Realty is leased pursuant to a long-term triple
net lease (collectively, the "Leases") which typically contains terms as
outlined below. Leased Properties usually do not include major movable
equipment.

The Leases generally have a fixed term of approximately 10 years and
contain multiple renewal options. Some Leases are subject to earlier
termination upon the occurrence of certain contingencies described in the
Lease.

Realty's Leased Properties aggregated approximately $1,893,259,000 of
gross real estate investments at December 31, 1998. The base rents range from
approximately 7.56% to 13.75% per annum of Realty's equity investment in the
Leased Properties. The base rents for the renewal periods are generally fixed
rents for the initial renewal periods and market rates for later renewal
periods. All Leases provide for either an automatic fixed annual rent
escalation or additional variable rents in addition to the base rent, based on
revenues exceeding specified base revenues. Realty typically also charges a
lease commitment fee at the initiation of the sale/leaseback transaction.

Each Lease is a triple net lease requiring the lessee to pay rent and all
additional charges incurred in the operation of the Leased Property. The
lessees are required to repair, rebuild and maintain the Leased Properties.

The obligations under the Leases are generally guaranteed by the parent
corporation of the lessee, if any, or affiliates or individual principals of
the lessee. Some obligations are further backed by letters of credit, cash
collateral or pledges of certificates of deposit from various financial
institutions which may cover up to one full year's lease payments and which
remain in effect until the expiration of a fixed time period or the fulfillment
of certain performance criteria.

Realty also obtains other credit enhancement devices similar to those it
may obtain with respect to permanent mortgage loans. See "Permanent Mortgage
Loans" for description.

With respect to two of the facilities, Realty leases the land pursuant to
ground leases and in turn subleases the land to the operator of the facility.
Such subleases contain terms substantially similar to those found in the
Leases.

Hotel Facilities
Generally, each hotel facility (including land, easements and rights,
buildings, improvements, furniture, fixtures and equipment) that is owned by
Realty is leased to the Operating Company pursuant to long-term lease
arrangements.

The lease agreements have fixed terms of 5 years. Realty's gross real
estate investment in the leased hotel facilities aggregate approximately
$2,575,251,000 at December 31, 1998. The base rents range from 3.53% to 19.27%
per annum of Realty's equity investment in the leased hotel facilities. The
hotel facility lease arrangements between Realty and Operating Company include
quarterly base or minimum rents plus contingent or percentage rents based on
quarterly gross revenue thresholds for each facility.

Operating Company is required to pay rent and all operating expenses of
the hotel facilities while Realty assumes costs attributable to real estate
taxes and insurance. Operating Company is required to provide for all repairs,
replacements and alterations to the leased facilities which are not considered
capital additions or material structural work, as defined in the lease
agreements. Realty will provide for all capital additions and material
structural work.

PERMANENT MORTGAGE LOANS

Realty's permanent mortgage loan program is comprised of secured loans
which are structured to provide Realty with interest income, additional
interest based upon the revenue growth of the operating facility or a fixed
rate increase, principal amortization and commitment fees. Virtually all of the
approximately $1,216,625,000 of permanent mortgage loans at face value as of
December 31, 1998 are first mortgage loans.

The interest rates on Realty's investments in permanent mortgage loans for
operating facilities range from approximately 7.6% to 12.5% per annum on the
outstanding balances. The yield to Realty on permanent mortgage loans depends
upon a number of factors, including the stated interest rate, average principal
amount outstanding during the term of the loan, the amount of the commitment
fee charged at the inception of the loan, the interest rate adjustments and the
additional interest earned.

The permanent mortgage loans for operating facilities made through
December 31, 1998 are generally subject to 10-year terms with up to 20 to
30-year amortization schedules that provide for a balloon payment of the
outstanding principal balance at the end of the tenth year. Some of the
mortgages

include an interest adjustment in the fifth year which generally provides for
interest to be charged at the greater of the current interest rate or 300 to
400 basis points over the five-year United States Treasury securities' yield at
the time of adjustment.

Realty generally requires a variety of additional forms of security and
collateral beyond that which is provided by the lien of the mortgage. For
example, Realty requires one or more of the following items: (a) a guaranty of
the complete payment and performance of all obligations associated with each
mortgage loan from the borrower's parent corporation, if any, other affiliates
of the borrower and/or one or more of the individual principals controlling
such borrower; (b) a collateral assignment from the borrower of the leases and
the rents relating to the mortgaged property; (c) a collateral assignment from
the borrower of all permits, licenses, approvals and contracts relating to the
operation of the mortgaged property; (d) a pledge of all, or substantially all,
of the equity interest held in the borrower; (e) cash collateral or a pledge of
a certificate of deposit, for a negotiated dollar amount typically equal to
three months to one year's principal and interest on the loan (which cash
collateral or pledge of certificate of deposit typically remains in effect
until the later to occur of (i) three years after the closing of the mortgage
loan or (ii) the achievement by the facility of an agreed-upon cash flow debt
coverage ratio for three consecutive fiscal quarters and, in the event that
after the expiration of the letter of credit or pledge of certificate of
deposit, the agreed-upon financial covenants are not maintained throughout the
loan term, the borrower is often required to reinstate the cash collateral or
pledge of certificate of deposit); (f) an agreement by any affiliate of the
borrower or operator of the facility to subordinate all payments due to it from
the borrower to all payments due to Realty under the mortgage loan; and (g) a
security interest in all of the borrower's personal property, including, in
some instances, the borrower's accounts receivable. In addition, the mortgage
loans are generally cross-defaulted and cross-collateralized with any other
mortgage loans, leases or other agreements between the borrower or any
affiliate of the borrower and Realty.

DEVELOPMENT INVESTMENTS AND LOANS

Realty makes development investments or loans, which by their terms are,
or convert into, sale/
leaseback transactions or permanent mortgage loans upon the completion of the
facilities. Generally, the interest or yield rates on the outstanding balances
of Realty's developments are up to 125-200 basis points over the prime rate of
a specified financial institution. Realty also typically charges a commitment
fee at the commencement of the project. The development period generally
commences upon the funding of such investments or loans and terminates upon the
earlier of the completion of development of the applicable facility or a
specific date. This period is generally 12 to 18 months. During the development
term, funds are advanced pursuant to draw requests in accordance with the terms
and conditions of the applicable agreement which require a site visit prior to
the advancement of funds. Monthly payments based on an interest or yield rate
only, are made on the total amount of the investment or loan proceeds advanced
during the development period.

At December 31, 1998 Realty had outstanding development financing of
$180,286,000 and was committed to providing additional financing of
approximately $161,000,000, of which $119,000,000 relates to healthcare
transactions. As with Realty's sale/leaseback transactions or permanent
mortgage financing programs, the developments generally include a variety of
additional forms of security and collateral. See "Leases" and "Permanent
Mortgage Loans." During the development period, Realty generally requires
additional security and collateral in the form of either payment and
performance completion bonds or completion guarantees by either one, or a
combination of, the lessee's or borrower's parent entity, other affiliates, or
one or more of the individual principals..

As a further safeguard during the development period, Realty generally
will retain a portion of the funding equal to 10% of the transaction amount
until it has received satisfactory evidence that the project has been fully
completed in accordance with the applicable plans and specifications and the
period during which liens may be perfected with respect to any work performed,
or labor or materials supplied, in connection with the construction of the
project has expired. Realty also monitors the progress of the development of
each project, the construction budget and the accuracy of the borrower's draw
requests by having its own inspector perform on-site inspections of the project
prior to the release of any requested funds.

ENVIRONMENTAL MATTERS

Under various federal, state and local laws, ordinances and regulations,
an owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The costs
of investigation, removal or remediation of such substances may be substantial,
and the presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances may also be
liable for the costs of removal or remediation of a release of such substances
at a disposal treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials ("ACMs") into the air and third
parties may seek recovery from owners or operators of real properties for
personal injury associated with ACMs. In connection with the ownership (direct
or indirect), operation, management and development of real properties, the
Companies may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic substances
and therefore, potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.

Item 3. Legal Proceedings
A purported class action complaint that had been filed by Barbara J.
Gignac in October 1996 in the Superior Court of Los Angeles County, California,
naming as defendants the Companies, certain of their officers and directors and
Colony Capital, Inc. was dismissed.

On January 8, 1998 the Companies received notice that they were named as a
defendant in an action entitled, Lynn Robbins v. William J. Razzouk, et al;
Civil Action No. 98CI-00192 filed January 7, 1998 in the District Court of
Bexar County, Texas and on January 20 , 1998 the Companies received notice that
they were named as a defendant in an action entitled, Adele Brody v. William J.
Razzouk, et al., Civil Action No. 98CI-00456 filed January 12,1998 in the
District Court of Bexar County, Texas. The complaints which are almost
identical (i) allege, in part, that La Quinta and its directors violated their
fiduciary duty, duty of care and loyalty to La Quinta shareholders by entering
into a merger agreement with the Companies without having first invited other
bidders, and the Companies aided and abetted La Quinta and its directors in the
alleged breaches, and (ii) seek injunctive relief enjoining the merger with La
Quinta and compensatory damages.

The parties negotiated and entered into an agreement in principle to
settle the actions, dated on or about May 8, 1998 (the "Memorandum of
Understanding"). The Memorandum of Understanding set forth the principal bases
for the settlement, which included the issuance of a series of press releases
prior to the meetings of the shareholders of the Companies and La Quinta to
consider the La Quinta merger agreement, and the inclusion of a section in the
joint proxy statement/prospectus prepared for the shareholder meetings which
described the Forward Equity Issuance Transaction with MLI.

The parties negotiated and entered into a Stipulation and Agreement of
Compromise, Settlement and Release (the "Stipulation" or "Settlement"), dated
on or about October 8, 1998. On October 8, 1998, the Texas Court entered an
Order Re: Preliminary Approval ("Order") which, among other things, (i)
preliminarily approved the Settlement; (ii) conditionally approved the
Settlement Class; (iii) approved the Notice of Pendency and Settlement of Class
Action for mailing to the Settlement Class; and (iv) scheduled a Settlement
Hearing. On November 9, 1998, the Texas Court entered an amended Order which
set the date for the Settlement Hearing to January 19, 1999. At the Settlement
Hearing on January 19, 1999, a Final Judgement was entered, (i) finally
approving the Settlement; (ii) declaring the Action and the Settlement Claims
(as defined in the Stipulation) to be finally and fully compromised and
settled; (iii) deeming the Representative Plaintiffs, the Settlement Class and
the Settlement Class Members fully, finally and forever settled and releasing
any and all Settled Claims against the Released Parties (as defined in the
Stipulation); and (iv) dismissing the Action on the merits and with prejudice.
Pursuant to the Settlement, La Quinta on February 22, 1999 paid the class
plaintiffs attorney's fees totaling $700,000 which were awarded by the Texas
court.

The Companies are also a party to a number of other claims and lawsuits
arising out of the normal course of business; the Companies believe that none
of these claims or pending lawsuits, either individually or in the aggregate,
will have a material adverse affect on the Companies' business or on their
consolidated financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders
None

Item 4a. Executive Officers of the Registrants
The following information relative to Realty's executive officers is given
as of March 30, 1999:

Name Age Position with Realty
- - --------------------- ----- -----------------------------------------------------

Thomas M. Taylor 56 Chairman
David F. Benson 49 Chief Executive Officer, President and Director
Michael F. Bushee 41 Chief Operating Officer
Michael S. Benjamin 41 Senior Vice President, Secretary and General Counsel
Laurie T. Gerber 41 Chief Financial Officer
John G. Demeritt 39 Controller
Stephen C. Mecke 36 Vice President of Acquisitions
Debora A. Pfaff 35 Vice President of Operations
Richard W. Pomroy 41 Vice President of Development

Thomas M. Taylor has been Acting Chairman of the Board of Realty since
August 1998. Prior to that he was Chairman of the Board of La Quinta Inns, Inc.
from 1994 to 1998, and President of Thomas M. Taylor & Co. (an investment
consulting firm) since 1985, President of TMT-FW (a diversified investment
firm) since September 1989. Mr. Taylor is also Director of Kirby Corporation,
MacMillan Bloedel Limited, Moore Corporation, Agrium Inc., Loewen Group, Inc.
and John Wiley & Sons, Inc., and Chairman of the Board of Encal Energy, Ltd.

David F. Benson has been Acting Chief Executive Officer of Realty since
August 1998, President of Realty since September 1991 and Treasurer since 1996.
Prior to that, he was Treasurer of Realty from January 1986 to May 1992. He was
Treasurer of Mediplex from January 1986 through June 1987. He was previously
associated with Coopers & Lybrand, independent accountants, from 1979 to 1985.
Mr. Benson is also a Trustee of Mid-Atlantic Realty Trust, a shopping center
REIT, traded on the American Stock Exchange, a Director of Harborside
Healthcare Corporation, a long-term care company, and a Director of Nursing
Home Properties, Plc, a UK company specializing in the purchase and leasing of
purpose-built nursing homes.

Michael F. Bushee has been Chief Operating Officer of Realty since
September 1994. He was Senior Vice President of Operations of Realty from
November 1993 through August 1994, Vice President from December 1989 to October
1993, Director of Development from January 1988 to December 1989 and has been
associated with Realty since April 1987. He was previously associated with The
Stop & Shop Companies, Inc., a retailer of food products and general
merchandise, for three years and Wolf & Company, P.C., independent accountants,
for four years.

Michael S. Benjamin has been Senior Vice President, Secretary and General
Counsel of Realty since October 1993. He was Vice President, Secretary and
General Counsel from May 1992 to October 1993, Secretary and General Counsel
from December 1990 to May 1992 and Assistant Counsel to Realty from November
1989 to December 1990. His previous association was with the law firm of Brown,
Rudnick, Freed & Gesmer, from 1983 to 1989.

Laurie T. Gerber, a Certified Public Accountant, joined Realty in December
1996 as Chief Financial Officer. Prior to joining Realty, she was a partner in
the accounting firm of Coopers & Lybrand, L.L.P., where she worked for 14
years.

John G. Demeritt, a Certified Public Accountant, has been Controller of
Realty since October 1995. Prior to that, he was Corporate Controller of CMG
Information Services, Inc., an information service provider, from 1994 to 1995.
He was Vice President of Finance and Treasurer of Salem Sportswear

Corporation, a manufacturer and marketer of licensed sports apparel, from June
1991 to November 1993. He was Controller of Scitex America Corporation, a
manufacturer and distributor of electronic prepress equipment, from August 1986
to June 1991, and was previously associated with Laventhol & Horwath,
independent accountants, from 1983 to 1986.

Stephen C. Mecke has been Vice President of Acquisitions since October
1995 and has been Realty's Director of Acquisitions since June 1992. He was
previously the Manager of Underwriting at Continental Realty Credit Inc., a
commercial mortgage company, from October 1988 to June 1992.

Debora A. Pfaff has been Vice President of Operations since October 1995
and has been Realty's Director of Operations since September 1992. Ms. Pfaff
was previously a Senior Manager with KPMG Peat Marwick where she worked from
1985 to 1992.

Richard W. Pomroy has been Vice President of Development since October
1997 and has been Director of Development since 1994. Prior to joining Realty,
he was a project manager responsible for the management and development of
construction projects at Continuum Care Corporation, an operator of nursing
homes, subacute healthcare centers, and rehabilitation facilities. Mr. Pomroy
began his career in the real estate industry as an architectural project
manager, and gained additional property management experience as senior project
manager, and later as vice president of construction, for several Boston area
general contracting firms.

The following information relative to Operating and Lodging executive
officers is given as of March 30, 1999:

Name Age Position with Operating
- - ---------------------- ----- -------------------------------------------------------

Thomas M. Taylor 56 Chairman
William C. Baker 66 President
Lodging:
Ezzat S. Coutry 54 Chief Executive Officer, La Quinta Inns
John F. Schmutz 51 Senior Vice President and General Counsel
William S. McCalmont 43 Senior Vice President and Chief Financial Officer
Steven T. Schultz 52 Executive Vice President and Chief Development Officer
Thomas J. Chevins 42 Senior Vice President
Vito Stellato 46 Senior Vice President
Thomas Hall 51 Senior Vice President-Operations

Thomas M. Taylor has been Acting Chairman of the Board of Operating since
August 1998. Prior to that he was Chairman of the Board of La Quinta Inns, Inc.
from 1994 to 1998, and President of Thomas M. Taylor & Co. (an investment
consulting firm) since 1985, President of TMT-FW (a diversified investment
firm) since September 1989. Mr. Taylor is also Director of Kirby Corporation,
MacMillan Bloedel Limited, Moore Corporation, Agrium Inc., Loewen Group, Inc.
and John Wiley & Sons, Inc., and Chairman of the Board of Encal Energy, Ltd.

William C. Baker has been the President of Operating since August 1998 and
a Director of Operating since November 1997. Prior to such date, he served as
Chairman of the Board of Santa Anita Realty Enterprises, Inc., and Chairman of
the Board and Chief Executive Officer of Santa Anita Operating Company from
August 1996 through the completion of the Santa Anita Mergers and as a Director
from 1991 through the completion of the Santa Anita Mergers. Mr. Baker was
Chief Executive Officer of Santa Anita Realty Enterprises from April 1996 to
August 1996. Mr. Baker was the President of Red Robin International, Inc.
(restaurant company) from 1993 to 1995, a private investor from 1988 to 1992
and Chairman of the Board and Chief Executive Officer of Del Taco, Inc.
(restaurant franchises) from 1976 to 1988. He has also served as Chairman of
the Board of Coast Newport Properties (real estate brokers) since 1991. Mr.
Baker is a Director of Callaway Golf Company (golf equipment) and Public
Storage, Inc. (REIT)

Ezzat S. Coutry has been Chief Executive Officer of Lodging since July
1998. Prior to that he was Executive Vice President and Chief Operating Officer
of La Quinta Inns, Inc. since November 1996. He

served as Regional Vice President of the Midwest Region for Marriott Hotels,
Resorts & Suites from July 1990 to October 1996. He served as Senior Vice
President of Sales for Marriott Hotels, Resorts & Suites from July 1989 to June
1990 and Senior Vice President of Rooms Operations for Marriott Hotels, Resorts
& Suites from January 1989 to June 1989.

John F. Schmutz has been Senior Vice President and General Counsel of
Lodging since July 1998. Prior to that he was Vice President-General Counsel
and Secretary of La Quinta Inns, Inc. since June 1992. He served as Vice
President-General Counsel of Sbarro, Inc. from May 1991 to June 1992. He served
as Vice President-Legal of Hardee's Food Systems, Inc. from April 1983 to May
1991.

William S. McCalmont has been Senior Vice President and Chief Financial
Officer of Lodging since July 1998. Prior to that he was Senior Vice President
and Chief Financial Officer of La Quinta Inns, Inc. since October 1997. He
served as Senior Vice President and Chief Financial Officer of FelCor Suite
Hotels from July 1996 to October 1997. He served as Vice President-Treasurer of
Harrah's Entertainment from June 1995 to July 1996. He served as Vice
President-Treasurer of The Promus Companies from November 1991 to June 1995.

Steven T. Schultz has been Executive Vice President and Chief Development
Officer of Lodging since July 1998. Prior to that he was Executive Vice
President and Chief Development Officer of La Quinta Inns, Inc. since December
1997. He served as Senior Vice President-Development of La Quinta Inns, Inc.
from June 1992 to December 1997. He served as Senior Vice President-Development
of Embassy Suites from October 1986 to June 1992.

Thomas J. Chevins is the Senior Vice President - Marketing of Lodging
since January, 1999. Prior to joining La Quinta, he was Regional Vice
President, Sales and Marketing for Marriott Lodging, Midwest Region. He also
served as Regional Director of Sales and Marketing in Marriott's Midwest
region.

Vito Stellato is the Senior Vice President - Human Resources of Lodging
since December of 1998. Prior to that, he was Vice President of Human Resources
for Harrah's Entertainment, Inc. at their Las Vegas and New Orleans properties.
He was Vice President of Human Resources for Embassy Suites Hotels and has also
held positions with Holiday Inns and U.S. Office of Personnel Management.

Thomas Hall is the Senior Vice President-Operations of Lodging since
December 1998. Prior to that he held various Senior Executive positions with
Harrah's Entertainment, Inc. Prior to Harrah's he held senior level positions
within Promus Companies as Vice President Operations for Embassy Suites'
Eastern Region and Vice President Operations for Hampton Inns Inc.

PART II

Item 5a. Market for Registrants' Common Equity and Related Stockholder Matters

Paired Shares of Common Stock
Market Information. The Companies' Shares are paired and trade together on
the New York Stock Exchange under the symbol MT. The following table sets
forth, for the periods shown, the high and low sales prices for the Shares (as
reported on the New York Stock Exchange Composite Tape) as adjusted for the
Mergers:

1998 1997
- - --------------------------------------- -------------------------------------
Quarter High Low Quarter High Low
- - ----------- ----------- ----------- --------- ----------- -----------

First $ 36.75 $ 29.19 First $ 33.81 $ 30.48
Second $ 31.56 $ 25.13 Second $ 33.19 $ 29.54
Third $ 27.50 $ 13.69 Third $ 34.54 $ 31.21
Fourth $ 18.94 $ 11.81 Fourth $ 39.00 $ 34.59

Holders. There were approximately 14,396 holders of record of the
Companies' Shares as of March 9, 1999. Included in the number of shareholders
of record are Shares held in "nominee" or "street" name.

Dividends. Realty has declared the following distributions on the Shares
during its two most recent fiscal years. The 1997 distributions have been
adjusted for the exchange of Shares pursuant to the Mergers. Pursuant to
Internal Revenue Code Section 857 (b) (3) (C), for the year ended December 31,
1998, Realty designates the following cash distributions to holders of Shares
as capital gains dividends, in the amounts set forth below:

Common Shares
CUSIP 58501T306
25% 20% Non-taxable
Date Date of Per Share Ordinary Capital Capital Return of
Declared Record Pay Date Amount Income Gain Gain Capital
- - ---------------- ----------- ----------- ------------- ------------- ------------- ------------- ------------

9-Jan-98 30-Jan-98 13-Feb-98 $ 0.60625 $ 0.36016 $ 0.03845 $ 0.18284 $ 0.02480
14-Apr-98 30-Apr-98 15-May-98 0.61125 0.36313 0.03876 0.18434 0.02502
9-Jul-98 31-Jul-98 14-Aug-98 0.61625 0.36610 0.03908 0.18585 0.02522
17-Jul-98 28-Aug-98 11-Sep-98 0.88361 0.52493 0.05603 0.26648 0.03617
15-Oct-98 30-Oct-98 13-Nov-98 0.62125 0.36907 0.03940 0.18736 0.02542
--------- ---------- ---------- ---------- ----------
Total $ 3.33861 $ 1.98339 $ 0.21172 $ 1.00687 $ 0.13663
========= ========== ========== ========== ==========

Percentage 100% 59.40794% 6.34157% 30.15842% 4.09207%
========= ========== ========== ========== ==========

Pursuant to Internal Revenue Code Section 857 (b) (3) (C), for the year
ended December 31, 1997, Realty designates the following cash distributions to
holders of Shares as dividends in the amounts set forth below:

Common Shares
CUSIP 58501T306
Non-taxable
Date Date of Per Share Ordinary Return of
Declared Record Pay Date Amount Income Capital
- - ---------------- ----------- ----------- ----------- ----------- ------------

10-Jan-97 31-Jan-97 14-Feb-97 $ 0.5888 $ 0.4023 $ 0.1865
8-Apr-97 30-Apr-97 15-May-97 0.5930 0.4052 0.1878
8-Jul-97 31-Jul-97 15-Aug-97 0.5971 0.4080 0.1891
7-Oct-97 31-Oct-97 14-Nov-97 0.6013 0.4109 0.1904
-------- -------- --------
Total $ 2.3802 $ 1.6264 $ 0.7538
======== ======== ========

Percentage 100% 68.33 % 31.67 %
======== ======== ========

Realty intends to distribute to its shareholders on a quarterly basis a
majority of cash flow from operating activities available for distribution.
Cash flow from operating activities available for distribution to shareholders
of Realty will be derived primarily from the rental payments and interest
payments derived from its real estate investments. All distributions will be
made by Realty at the discretion of the Board of Directors and will depend on
the earnings of Realty, its financial condition and such other factors as the
Directors deem relevant. The distribution of $0.88361 per share represented a
special distribution that was made to the holders of stock of Realty in order
to comply with the requirements that Realty distribute the profits and earnings
it inherited from LaQuinta when it acquired LaQuinta on July 17, 1998. In order
to qualify for the beneficial tax treatment accorded to real estate investment
trusts by Sections 856 to 860 of the Internal Revenue Code, Realty is required
to make distributions to holders of its Shares of at least 95% of its "real
estate investment trust taxable income".

Series A Preferred Stock
Market Information. On June 10, 1998, Realty issued 7,000,000 depositary
shares (the "Series A Depositary Shares"). Each Series A Depositary Share
represents one-tenth of a share of 9% Series A Cumulative Redeemable Preferred
Stock with a par value of $.10 per share ("Series A Preferred Stock"). Net
proceeds from this issuance of approximately $168,666,000 were used by Realty
primarily to repay existing indebtedness.

1998
- - --------------------------------------
Quarter High Low
- - ---------- ----------- -----------

First -- --
Second $ 25.25 $ 25.00
Third $ 25.38 $ 19.13
Fourth $ 23.00 $ 19.00

Holders. There were approximately 209 holders of record of Realty's Series
A Depositary Shares as of March 9, 1999. Included in the number of holders of
record are Series A Depositary Shares held in "nominee" or "street" name.

Dividends. Realty has declared the following distributions on its Series A
Preferred Stock (adjusted to reflect amounts per Series A Depositary Share)
during 1998 and no distributions during 1997 as the Series A Preferred Stock
was issued during 1998. Pursuant to Internal Revenue Code Section 857
(b)(3)(C), for the year ended December 31, 1998, Realty designates the
following cash distributions to its holders of Series A Depositary Shares as
capital gains dividends, in the amount set forth below:

Preferred Shares
CUSIP 58501T405
25% 20%
Date Date of Per Share Ordinary Capital Capital
Declared Record Pay Date Amount Income Gain Gain
- - ----------------- ----------- ----------- -------------- -------------- -------------- --------------

8-Sep-98 15-Sep-98 30-Sep-98 $ 0.64375 $ 0.39876 $ 0.04256 $ 0.20243
1-Dec-98 15-Dec-98 31-Dec-98 0.56250 0.34843 0.03719 0.17688
---------- ---------- ---------- ----------
Total $ 1.20625 $ 0.74719 $ 0.07975 $ 0.37931
========== ========== ========== ==========

Percentage 100% 61.94268% 6.61214% 31.44518%
========== ========== ========== ==========

Item 6. Selected Financial Information
The following data sets forth certain financial information for the
Companies, Realty, and Operating Company. This information is based and should
be read in conjunction with the financial statements and the notes thereto
appearing elsewhere in this joint annual report.

For the Combined Meditrust Companies
1998 1997 1996 1995 1994
(In thousands except per share data) ------------- ----------- ----------- ----------- -----------

Operating Data:
Revenue ................................ $ 639,377 $289,038 $254,024 $209,369 $172,993
---------- -------- -------- -------- --------
Expenses:
Hotel operations ...................... 125,246
Depreciation and amortization ......... 87,228 26,838 21,651 16,620 15,615
Amortization of goodwill .............. 13,265 2,349 1,556 1,556 1,556
Interest expense ...................... 178,458 87,412 64,216 64,163 67,479
Rental property operating
expenses ............................. 15,638 210
General and administrative expenses 21,436 10,257 8,625 7,058 7,883
Other ................................. 111,215
(Income) Loss from
unconsolidated joint venture ......... (906) 10
Gain on sale of assets and
securities, net ...................... (48,483)
---------- -------- -------- -------- --------
Total expenses ..................... 503,097 127,076 96,048 89,397 92,533
---------- -------- -------- -------- --------
Income (Loss) from continuing
operations before benefit of
income taxes .......................... 136,280 161,962 157,976 119,972 80,460
Income tax benefit ..................... 4,800
---------- -------- -------- -------- --------
Income (Loss) from continuing
operations ............................ 141,080 161,962 157,976 119,972 80,460
Discontinued operations, net ........... (294,227) 450
---------- -------- -------- -------- --------
Net income (loss) before
extraordinary item .................... (153,147) 162,412 157,976 119,972 80,460
Loss on prepayment of debt ............. 33,454
---------- -------- -------- -------- --------
Net income (loss) ...................... (153,147) 162,412 157,976 86,518 80,460
Preferred stock dividends .............. (8,444)
---------- -------- -------- -------- --------
Net income (loss) available to Paired
Common shareholders ................... $ (161,591) $162,412 $157,976 $ 86,518 $ 80,460
========== ======== ======== ======== ========

For the Combined Meditrust Companies

1998 1997 1996 1995 1994
(In thousands except per share data) --------------- -------------- -------------- -------------- --------------

Per Share Data:
Basic earnings (loss) per Paired
Common Share:
Income (Loss) from continuing
operations ............................... $ 1.17 $ 2.13 $ 2.21 $ 2.10 $ 1.90
Discontinued operations, net .............. (2.44) 0.01 -- --
------------ ---------- ---------- ---------- ----------
Net income (loss) before
extraordinary item ....................... (1.27) 2.14 2.21 2.10 1.90
Loss on prepayment of debt ................ ( 0.59) --
------------ ---------- ---------- ---------- ----------
Net income (loss) ......................... (1.27) 2.14 2.21 1.51 1.90
Preferred stock dividends ................. (0.07)
------------ ---------- ---------- ---------- ----------
Net income (loss) available to Paired
Common shareholders ...................... $ (1.34) $ 2.14 $ 2.21 $ 1.51 $ 1.90
============ ========== ========== ========== ==========
Diluted earnings (loss) per Paired
Common Share:
Income (Loss) from continuing
operations ............................... $ 1.12 $ 2.12 $ 2.20 $ 2.09 $ 1.89
Discontinued operations, net .............. (2.35)
------------ ---------- ---------- ---------- ----------
Net income (loss) before
extraordinary item ....................... (1.23) 2.12 2.20 2.09 1.89
Loss on prepayment of debt ................ ( 0.58) --
------------ ---------- ---------- ---------- ----------
Net income (loss) ......................... (1.23) 2.12 2.20 1.51 1.89
Preferred stock dividends ................. (0.06)
------------ ---------- ---------- ---------- ----------
Net income (loss) available to Paired
Common shareholders ...................... $ (1.29) $ 2.12 $ 2.20 $ 1.51 $ 1.89
============ ========== ========== ========== ==========
Weighted average shares
outstanding:
Basic ..................................... 120,515 76,070 71,445 57,152 42,433
------------ ---------- ---------- ---------- ----------
Diluted ................................... 125,508 76,524 71,751 57,457 42,564
------------ ---------- ---------- ---------- ----------
Distributions paid ........................ $ 3.34 $ 2.38 $ 2.31 $ 2.25 $ 2.18
------------ ---------- ---------- ---------- ----------
Cash Flow Data:
Cash provided by operating
activities ............................... $ 176,171 $ 184,412 $ 188,551 $ 149,997 $ 100,819
Cash used in investing activities ......... (1,104,060) (571,325) (437,150) (310,135) (284,996)
Cash provided by financing activities 1,189,613 387,919 247,077 164,449 207,808

December 31,
----------------------------------------------------------------------------
(In thousands) 1998 1997 1996 1995 1994
------------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Real estate investments, net .............. $ 5,086,736 $2,935,772 $2,188,078 $1,777,798 $1,484,229
Total assets .............................. 6,459,551 3,280,283 2,316,875 1,891,852 1,595,130
Indebtedness .............................. 3,301,722 1,377,438 858,760 762,291 765,752
Total liabilities ......................... 3,508,623 1,454,544 931,934 830,097 824,983
Total shareholders' equity ................ 2,950,928 1,825,739 1,384,941 1,061,755 770,147

For Meditrust Corporation

1998 1997 1996 1995 1994
(In thousands except per share data) ------------- ------------- ------------- ------------- -------------

Operating Data:
Revenue ................................ $ 518,872 $ 289,119 $ 254,024 $ 209,369 $ 172,993
---------- --------- --------- --------- ---------
Expenses:
Hotel operations ...................... 1,063
Depreciation and amortization ......... 84,327 26,838 21,651 16,620 15,615
Amortization of goodwill .............. 12,505 2,214 1,556 1,556 1,556
Interest expense ...................... 178,374 87,412 64,216 64,163 67,479
Rental property operating
expenses ............................. 15,638 210
General and administrative
expenses ............................. 19,371 10,111 8,625 7,058 7,883
Other ................................. 96,052
(Income) Loss from
unconsolidated joint venture ......... (906) 10
Gain on sale of assets and
securities, net ...................... (48,483)
---------- --------- --------- --------- ---------
Total expenses ..................... 357,941 126,795 96,048 89,397 92,533
---------- --------- --------- --------- ---------
Income (Loss) from continuing
operations before benefit of
income taxes .......................... 160,931 162,324 157,976 119,972 80,460
Income tax benefit .....................
Income (Loss) from continuing
operations ............................ 160,931 162,324 157,976 119,972 80,460
---------- --------- --------- --------- ---------
Discontinued operations, net ........... (295,875) 688
---------- --------- --------- --------- ---------
Net income (loss) before
extraordinary item .................... (134,944) 163,012 157,976 119,972 80,460
Loss on prepayment of debt ............. 33,454
---------- --------- --------- --------- ---------
Net income (loss) ...................... (134,944) 163,012 157,976 86,518 80,460
Preferred stock dividends .............. (8,444)
---------- --------- --------- --------- ---------
Net income (loss) available to Paired
Common shareholders ................... $ (143,388) $ 163,012 $ 157,976 $ 86,518 $ 80,460
========== ========= ========= ========= =========
Per Share Data:
Basic earnings (loss) per Paired
Common Share:
Income (Loss) from continuing
operations ............................ $ 1.32 $ 2.13 $ 2.21 $ 2.10 $ 1.90
Discontinued operations, net ........... ( 2.43) 0.01 -- -- --
---------- --------- --------- --------- ---------
Net income (loss) before
extraordinary item .................... ( 1.11) 2.14 2.21 2.10 1.90
Loss on prepayment of debt ............. -- -- 0.59 --
---------- --------- --------- --------- ---------
Net income (loss) ...................... ( 1.11) 2.14 2.21 1.51 1.90
Preferred stock dividends .............. ( 0.07) -- -- -- --
---------- --------- --------- --------- ---------
Net income (loss) available to Paired
Common shareholders ................... $ (1.18) $ 2.14 $ 2.21 $ 1.51 $ 1.90
========== ========= ========= ========= =========

For Meditrust Corporation

1998 1997 1996 1995 1994
(In thousands except per share data) --------------- ------------- ------------- ------------- -------------

Diluted earnings (loss) per Paired
Common Share:
Income (Loss) from continuing
operations ............................... $ 1.27 $ 2.11 $ 2.20 $ 2.09 $ 1.89
Discontinued operations, net .............. ( 2.33) 0.01
------------ ---------- ---------- ---------- ----------
Net income (loss) before
extraordinary item ....................... ( 1.06) 2.12 2.20 2.09 1.89
Loss on prepayment of debt ................ 0.58 --
------------ ---------- ---------- ---------- ----------
Net income (loss) ......................... ( 1.06) 2.12 2.20 1.51 1.89
Preferred stock dividends ................. ( 0.07)
------------ ---------- ---------- ---------- ----------
Net income (loss) available to Paired
Common shareholders ...................... $ (1.13) $ 2.12 $ 2.20 $ 1.51 $ 1.89
============ ========== ========== ========== ==========
Weighted average shares
outstanding:
Basic ..................................... 121,820 76,274 71,445 57,152 42,433
------------ ---------- ---------- ---------- ----------
Diluted ................................... 126,813 77,007 71,751 57,457 42,564
------------ ---------- ---------- ---------- ----------
Distributions paid ........................ $ 3.34 $ 2.38 $ 2.31 $ 2.25 $ 2.18
------------ ---------- ---------- ---------- ----------
Cash Flow Data:
Cash provided by operating
activities ............................... $ 187,606 $ 185,195 $ 188,551 $ 149,997 $ 100,819
Cash used in investing activities ......... (1,128,412) (580,560) (437,150) (310,135) (284,996)
Cash provided by financing activities 1,209,441 376,698 247,077 164,449 207,808

December 31,
----------------------------------------------------------------------------------
(In thousands) 1998 1997 1996 1995 1994
------------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Real estate investments, net .............. $ 5,067,217 $2,935,772 $2,188,078 $1,777,798 $1,484,229
Total assets .............................. 6,320,985 3,215,928 2,316,875 1,891,852 1,595,130
Indebtedness .............................. 3,301,722 1,377,438 858,760 762,291 765,752
Total liabilities ......................... 3,447,632 1,423,688 931,934 830,097 824,983
Total shareholders' equity ................ 2,873,353 1,792,240 1,384,941 1,061,755 770,147

For Meditrust Operating Company

Year Initial Period
Ended Ended
December 31, December 31,
1998 1997
-------------- ---------------
(In thousands, except per share data)

Operating Data:
Revenue ................................................................ $ 253,249 $ 48
Expenses:
Hotel operations ...................................................... 124,183
Depreciation and amortization ......................................... 2,901
Amortization of goodwill .............................................. 760 135
Interest expense ...................................................... 796 129
General and administrative expenses ................................... 2,065 146
Royalty to Meditrust Corporation ...................................... 6,326
Rent to Meditrust Corporation ......................................... 125,706
Other ................................................................. 15,163
---------- ---------
Total expenses ......................................................... 277,900 410
---------- ---------
Loss from continuing operations before benefit of income taxes ......... (24,651) (362)
Income tax benefit ..................................................... (4,800)
---------- ---------
Loss from continuing operations ........................................ (19,851) (362)
Discontinued operations ................................................ 1,648 (238)
---------- ---------
Net loss ............................................................... $ (18,203) $ (600)
========== =========
Per Share Data:
Basic earnings (loss) per common share:
Loss from continuing operations ........................................ $ (0.16) $ (0.01)
Discontinued operations, net ........................................... 0.01 --
---------- ---------
Net loss ............................................................... $ (0.15) $ (0.01)
========== =========
Diluted earnings (loss) per common share:
Loss from continuing operations ........................................ $ (0.16) $ (0.01)
Discontinued operations, net ........................................... 0.01 --
---------- ---------
Net loss ............................................................... $ (0.15) $ (0.01)
========== =========
Weighted average shares outstanding
Basic .................................................................. 120,515 82,490
Diluted ................................................................ 120,515 82,490
Cash Flow Data:
Cash used in operating activities ...................................... $ 11,435 $ 783
Cash provided by (used in) investing activities ........................ 24,352 (34,427)
Cash provided by (used in) financing activities ........................ (19,828) 54,883

December 31,
-------------------------------
(In thousands) 1998 1997
------------ ---------
Balance Sheet Data:
Total assets ........................................................... $ 198,190 $ 120,426
Total liabilities ...................................................... 119,683 63,338
Total shareholders' equity ............................................. 78,507 57,088

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

Overview
The basis of presentation includes Management's Discussion and Analysis of
Financial Condition and Results of Operations for the combined and separate SEC
registrants. Management of the Companies believes that the combined
presentation is most beneficial to the reader. However, it should be noted that
combined results of operations for the year ended December 31, 1997 are
principally related to the activity of Realty, as Operating commenced
operations on October 3, 1997.

On November 5, 1997, Meditrust merged with Santa Anita Realty Enterprises,
Inc., with Santa Anita Realty Enterprises, Inc. as the surviving corporation,
and Meditrust Acquisition Company merged with Santa Anita Operating Company,
with Santa Anita Operating Company as the surviving corporation (hereafter
referred to as the "Santa Anita Merger" or "Santa Anita Mergers"). Upon
completion of the Santa Anita Mergers, Santa Anita Realty Enterprises, Inc.
changed its corporate name to "Meditrust Corporation" and Santa Anita Operating
Company changed its corporate name to "Meditrust Operating Company." The Santa
Anita Mergers were accounted for as reverse acquisitions whereby Meditrust and
Meditrust Acquisition Company were treated as the acquirers for accounting
purposes. Accordingly, the financial history is that of Meditrust and Meditrust
Acquisition Company prior to the Santa Anita Mergers. For the year ended
December 31, 1996, all share and per share amounts have been retroactively
adjusted to reflect the 1.2016 exchange of shares of beneficial interest for
paired common shares of the Companies.

After completing the Santa Anita Merger, the Companies began pursuing a
strategy of diversifying into additional new businesses. Implementation of this
strategy included the evaluation of numerous potential acquisition targets. On
January 3, and January 11, 1998, Realty entered into definitive merger
agreements for La Quinta Inns, Inc. and its wholly owned subsidiaries and its
unincorporated partnership and joint venture (collectively "La Quinta" and "La
Quinta Merger") and Cobblestone Holdings, Inc. and its wholly owned subsidiary
(collectively "Cobblestone" and "Cobblestone Merger"), respectively. In
February 1998, legislation was proposed which limited the ability of the
Companies to utilize the paired share structure. Accordingly, the Companies
began a process of evaluating its healthcare portfolio and ceased any further
evaluation of potential merger candidates.

The Companies consummated the Cobblestone Merger and the La Quinta Merger
on May 29, 1998 and July 17, 1998 respectively. On July 22, 1998, President
William J. Clinton signed into law the Internal Revenue Service Restructuring
and Reform Act of 1998 (the "Reform Act"), which limits the Companies'

ability to grow through use of the paired share structure. While the Companies'
use of the paired share structure in connection with the Cobblestone Merger and
the La Quinta Merger was "grandfathered" under the Reform Act, the ability to
use the paired share structure to acquire additional real estate and operating
businesses conducted with the real estate assets (including the golf and
lodging industries) was substantially limited. In addition, during the summer
of 1998, the debt and equity capital markets available to REITs deteriorated,
thus limiting the Companies' access to cost-efficient capital.

The Companies began an analysis of the impact of the Reform Act, the
Companies' limited ability to access the capital markets, and the operating
strategy of the Companies' existing businesses. This analysis included advice
from outside professional advisors and presentations by management on the
different alternatives available to the Companies. The analysis culminated in
the development of a comprehensive restructuring plan (the "Plan") designed to
strengthen the Companies' financial position and clarify its investment and
operating strategy by focusing on the healthcare and lodging business segments.
The Plan was announced on November 12, 1998 and included the following
components:

o Continue to operate the Companies' healthcare and lodging businesses using
the existing paired share REIT structure until the healthcare spin-off
takes place;

o Sell more than $1 billion of non-strategic assets, including the portfolio
of golf-related real estate and operating properties ("Cobblestone Golf
Group"), the Santa Anita Racetrack and approximately $550 million of
non-strategic healthcare properties;

o Use the proceeds from these asset sales to achieve significant near-term
debt reduction;

o Settle fully the Companies' forward equity issuance transaction ("FEIT")
with Merrill Lynch;

o Reduce capital investments to reflect the current operating condition in
each industry;

o Reset Realty's annual dividend to $1.84 per common share, an amount that
Realty deems sustainable and comparable to its peer groups:

o Completed the sale of $613 million of $1 billion in planned asset sales,
including: $436 million of non-strategic healthcare assets, the Santa Anita
Racetrack and the related horseracing operation, its interest in the Santa
Anita Fashion Mall and related land held for development and artwork
originally acquired in the acquisition of the Santa Anita Companies;

o Entered into letters of intent for the sale of an additional $155 million
of healthcare assets.

o Reduced the amount of the FEIT to $103 million as of December 31, 1998 ($89
million as of March 25, 1999) from the original $277 million.

o Reduced the Companies' outstanding debt by $274 million.

o Reduced Realty's annual dividend to $1.84 per common share.

o Entered into a definitive agreement to sell Cobblestone Golf Group for
$393,000,000 and an agreement with its lenders and Merrill Lynch to settle
the FEIT.

As part of the comprehensive restructuring plan, the Companies classified
golf and horseracing activities as discontinued operations for financial
reporting purposes. Accordingly, management's

discussion and analysis of the results of operations are focused on the
Companies primary businesses, healthcare and lodging.

The Meditrust Companies--Combined Results of Operations

Year ended December 31, 1998 vs. Year ended December 31, 1997
Revenue for the year ended December 31, 1998 was $639,377,000 compared to
$289,038,000 for the year ended December 31, 1997, an increase of $350,339,000.
Revenue growth was primarily attributable to the addition of hotel operating
revenue of $258,423,000 and increased rental and interest income of $55,929,000
as a result of additional real estate investments made over the last year net
of the affect of mortgage repayments and asset sales. Other non-recurring
income for the year ended December 31, 1998 of $35,987,000 included prepayment
and lease breakage fees arising from early mortgage repayments and asset sales.
Hotel operating revenue includes the post-acquisition period from July 17, 1998
through December 31, 1998. Hotel operating revenue generally are measured as a
function of the average daily rate ("ADR") and occupancy. The ADR for the
period July 17, 1998 through December 31, 1998 increased to $59.29 as compared
to ADR in the second half of 1997 of $56.69, an increase of $2.60 or 4.6%.
Occupancy percentage decreased 1.8 percentage points to 67.0% from 68.8% for
the same periods. Revenue per available room (RevPAR), which is a product of
the occupancy percentage and ADR, increased 1.6% in the 1998 post-merger period
over the second half of 1997.

For the year ended December 31, 1998, total recurring operating expenses
increased by $151,853,000. This increase was primarily attributable to the
addition of operating expenses from hotel operations of $125,246,000. Hotel
operating expenses include costs associated with the operation such as salaries
and wages, utilities, repair and maintenance, credit card discounts and room
supplies as well as corporate expenses, such as the costs of general
management, office rent, training and field supervision of hotel managers and
other marketing and administrative expenses. During the year ended December 31,
1998, rental property operating expenses were $15,638,000, $8,439,000 of which
is related to the lodging segment and $7,199,000 of which is related to the
healthcare business. Rental property operating expenses for the year ended
December 31, 1998 related to the healthcare business increased by $6,989,000
compared to the year ended December 31, 1997. The increase arose primarily from
expenses related to the management and operation of medical office buildings
that were purchased in 1998. Rental property operating costs attributed to the
lodging segment which were incurred during the post acquisition period from
July 17, 1998 through December 31, 1998, principally consist of property taxes
on hotel facilities. General and administrative expenses increased by
$11,179,000 primarily due to a higher level of operating costs associated with
the management and activity of the portfolio and as a result of the mergers.

The Companies consider contribution from each primary business in
evaluating performance. Contribution includes revenue from each business,
excluding non-recurring or unusual income, less operating expenses, rental
property operating expenses and general and administrative expenses. The
combined contribution of the healthcare and lodging businesses was $441,070,000
for the year ended December 31, 1998 and $278,571,000 for the healthcare
business for the year ended December 31, 1997.

The healthcare contribution for the year ended December 31, 1998 was
$316,332,000 compared to $278,571,000 for the year ended December 31, 1997. The
increase is primarily due to increased rental and interest income as a result
of real estate investments made over the last year, net of the effect of
mortgage repayments and asset sales. These increases were partially offset by a
higher level of operating costs associated with the management and activity of
the portfolio, and from expenses related to management of medical office
buildings that were purchased in 1998.

The lodging contribution for the post-merger period of July 17, 1998
through December 31, 1998 was $124,738,000 or 48% of lodging revenues during
the same period, compared to 47% for the second half of 1997. This improvement
is reflective of a greater number of Inn & Suites hotels which generally
operate at higher margins than La Quinta Inns and a continuing focus on cost
controls and reduced corporate overhead.

Interest expense increased by $91,046,000 due to increases in debt
outstanding resulting from additional real estate investments made over the
past year and the acquisitions of La Quinta and

Cobblestone. Depreciation and amortization increased by $71,306,000 which was
primarily a result of increased real estate investments and amortization of
goodwill from the La Quinta Merger completed on July 17, 1998 and the Santa
Anita Merger completed in 1997.

Goodwill associated with the Santa Anita Merger primarily relates to the
value of the paired-share structure and, due to the permanent nature of the
structure, is being amortized over a 40 year period. Accordingly, the goodwill
recorded as part of the Santa Anita Merger is expected to remain even though
the Santa Anita Racetrack was sold in 1998, as long as the Companies continue
to utilize the paired share structure.

Asset Sales

During the year ended December 31, 1998, Realty realized gains on the sale
of real estate assets of $52,642,000. Sale of healthcare properties, pursuant
to the comprehensive restructuring plan accounted for $52,096,000 of the total
and included one long-term care facility, 32 assisted living facilities and
nine rehabilitation facilities. Realty also sold a 50% interest in a joint
venture holding a fashion mall, as well as the land where the fashion mall is
located, that resulted in a net gain of $546,000. Realty also sold securities
resulting in a loss of $4,159,000.

Other Expenses

During the three months ended March 31, 1998, the Companies pursued a
strategy of diversifying into new business lines including lodging and golf.
Consistent with this strategy, Realty commenced a reevaluation of its
intentions with respect to certain existing healthcare real estate facilities
and other assets. This process included review of the valuation of facilities
in the portfolio, including those with deteriorating performance, and other
assets and receivables that were unrelated to its historical primary business.
As a result of this on-going analysis Realty identified assets which would be
held for sale and recorded provisions to adjust the carrying value of certain
facilities, other assets and receivables and a valuation reserve for certain
mortgage loans receivable. Following the quarter ended March 31, 1998 one
facility was sold and certain other assets and receivables were written off.

On July 22, 1998, the President signed into law the Internal Revenue
Service Restructuring and Reform Act of 1998 (the "Reform Act"), which limits
the Companies' ability to continue to grow through use of the paired share
structure. While the Companies' use of the paired share structure in connection
with the Cobblestone Merger and the La Quinta Merger was "grandfathered" under
the Reform Act, the ability to continue to use the paired share structure to
acquire additional real estate and operating businesses conducted with the real
estate assets (including the golf and lodging industries) was substantially
limited. In addition, during the summer of 1998, the debt and equity capital
markets available to REITs deteriorated, thus limiting the Companies' access to
cost-efficient capital.

As a result of these events, the Companies commenced a strategic
evaluation of their business which included an extensive review of their
healthcare properties and mortgage loan portfolio, an analysis of the impact of
the Reform Act, the Companies' limited ability to access the capital markets,
and the operating strategy of the Companies' existing businesses. The analysis
culminated in the development of a comprehensive restructuring plan, which was
announced on November 12, 1998, which included the sale of approximately $550
million of non-strategic healthcare assets.

Based upon the analysis described above, other expenses were recorded for
the year ended December 31, 1998, as follows:

(In thousands)
Comprehensive restructuring plan:
Employee severance ..................................... 7,149
Write-off of capitalized pre-development costs ......... 8,720
External consulting fees ............................... 11,882
--------
Subtotal ............................................... 27,751
Other
Costs of transactions not consummated .................. 3,110
--------
Total .................................................. $111,215
========

As a result of continued deteriorating performance at five healthcare
facilities, management committed to a plan to sell these facilities as soon as
practicable. As of December 31, 1998, Realty had recorded a provision, net of
one facility that was sold prior to the end of the year, of $33,218,000 to
reduce the carrying value of these facilities to estimated fair value less
expected costs of sale. Management expects that the remaining assets will be
disposed of during 1999.

As part of the review of the healthcare portfolio, management identified
four properties where recent events or changes in circumstances, including
physical plant and licensure issues, indicated that the carrying value of the
assets may not be recoverable. Management determined that the estimated
undiscounted future cash flows for these assets was below the carrying value
and, accordingly, Realty reduced the carrying value of these assets by
$14,700,000 to estimated fair value.

Management also identified one mortgage loan collateralized by a
rehabilitation facility where continued eroding margins and an expiring
guarantee indicated that the Companies will likely not be able to collect all
amounts due according to the contractual terms of the loan agreement.
Accordingly, the Companies provided a loan loss for this asset of approximately
$8,000,000. In addition, Realty has also provided for the establishment of an
additional $8,036,000 mortgage loan valuation reserve primarily in response to
the implementation of new government reimbursement regulations impacting many
of its third-party operators during the second half of 1998.

Realty also held working capital and other receivables that were unrelated
to its historical primary business of healthcare financing. Management
determined that certain of these accounts were uncollectible and protracted
collection efforts for these assets would be an inefficient use of its
resources and therefore recorded provisions of approximately $16,400,000 and
then wrote off these assets.

Pursuant to its comprehensive restructuring plan, the Companies announced
plans to refocus their capital investment program by reducing healthcare
investments and ceasing development of any new hotels other than the completion
of those La Quinta[RegTM] Inns and Suites currently under construction.
Accordingly, the Companies recorded non recurring costs of $8,720,000 for the
write-off of certain previously capitalized costs associated with lodging
development, and $7,149,000 for severance related costs attributable to
workforce reductions of 87 employees at the Companies' lodging and healthcare
divisions.

The Companies have also recorded $11,882,000 in costs incurred for various
consultants engaged to assist in the development and implementation of the
comprehensive restructuring plan.

The Companies also incurred approximately $3,110,000 in costs related to
the evaluation of certain acquisition targets, which the Companies are no
longer pursuing.

Discontinued operations

During the latter part of 1997 and the first half of 1998, the Companies
pursued a strategy of diversifying into new businesses including horseracing,
golf and lodging. During the third quarter of 1998, the Companies reassessed
these business segments. In addition, a review of investment and operating
strategies for the Companies was initiated. As a result, on November 11, 1998,
the Companies approved a comprehensive restructuring plan including the
disposal of the horseracing and golf segments as well as the sale of certain
healthcare and other non-strategic assets.

Accordingly, the Companies have classified approximately $10,721,000 of
income from the horseracing and golf segments as discontinued during the year
ended December 31, 1998, and $450,000 of income from the horseracing segment
during the year ended December 31, 1997. The horseracing segment was sold on
December 10, 1998, resulting in a net loss on disposal of $67,913,000. The
Companies have also recorded a provision for loss on disposal, based upon the
estimated proceeds to be realized upon sale, of the Cobblestone Golf Group, of
approximately $237,035,000. Subsequent to the end of 1998, The Companies
entered into a definitive agreement to sell the Cobblestone Golf Group for
$393,000,000 and expect the transaction to close in early 1999 which should not
change the estimated loss on disposal presented herein.

Net Loss

The resulting net loss available for common shareholders, after deducting
preferred share dividends, for the year ended December 31, 1998, was
$161,591,000 compared to net income of $162,412,000 for the year ended December
31, 1997. The net loss per paired common share for the year ended December 31,
1998 was $1.34 compared to net income per paired common share of $2.14 for the
year ended December 31, 1997. The per paired common share amount decreased
primarily due to the provisions for impairment and discontinued operations,
loss on sale of assets and restructuring charges, and additional paired common
shares being issued to consummate mergers. In connection with the Cobblestone
and La Quinta mergers, 8,177,000 and 43,280,000 additional paired common shares
are now outstanding, respectively.

Year ended December 31, 1997 vs. Year ended December 31, 1996
Revenues and expenses for the years ended December 31, 1997 and 1996 are
principally related to healthcare related real estate activities.

Revenue for the year ended December 31, 1997 was $289,038,000 compared to
$254,024,000 for the year ended December 31, 1996, an increase of $35,014,000
or 14%. Revenue growth was primarily attributed to increased rental income of
$28,749,000 and increased interest income of $6,265,000. These increases
resulted from additional real estate investments in healthcare facilities made
over the last twelve months.

For the year ended December 31, 1997, total expenses increased by
$31,028,000. Interest expense increased by $23,196,000 due to increases in debt
outstanding resulting from additional real estate investments made over the
past twelve months. This increase was partially offset by lower interest rates
compared to 1996. Depreciation and amortization increased by $5,187,000, as a
result of increased real estate investments and associated debt issuance costs.
General and administrative and other expenses increased by $1,852,000
principally due to a higher level of operating costs associated with portfolio
growth. Amortization of goodwill increased by $793,000 as a result of
amortization of the excess purchase price over the fair value of assets
acquired in the Santa Anita Merger.

On November 11, 1998, the Companies approved a comprehensive restructuring
plan including the disposal of the horseracing segment. Accordingly, the
Companies have classified approximately $450,000 of income from the horseracing
segment as discontinued during the year ended December 31, 1997. Prior to 1997,
the Companies were not engaged in horseracing.

Net income for the year ended December 31, 1997 was $162,412,000 compared
to $157,976,000 for the year ended December 31, 1996, an increase of $4,436,000
or 3%. Net income per paired common share decreased to $2.14 for the year ended
December 31, 1997 compared to $2.21 for the year ended December 31, 1996, a
decrease of $.07 or 3%. The per share decrease was primarily due to dilution
caused by the Santa Anita Merger. Per share amounts have been restated to
reflect the exchange of

Meditrust Shares of Beneficial Interest for paired common shares of the
Companies pursuant to the Santa Anita Merger.

The Meditrust Companies -- Combined Liquidity and Capital Resources

Cash flows from operating activities

The principal source of cash to be used to fund the Companies' future
operating expenses, interest expense, recurring capital expenditures and
distribution payments will be cash flow provided by operating activities. The
Companies' anticipate that cash flow provided by operating activities will
provide the necessary funds on a short and long-term basis to meet operating
cash requirements including all distributions to shareholders.

Cash flows from investing and financing activities

The Companies provide funding for new investments and costs associated
with the restructuring through a combination of long-term and short-term
financing including, both debt and equity, as well as the sale of assets. The
Companies obtain long-term financing through the issuance of shares, long-term
unsecured notes, convertible debentures and the assumption of mortgage notes.
The Companies obtain short-term financing through the use of bank lines of
credit, which are replaced with long-term financing as appropriate. From time
to time, the Companies may utilize interest rate caps or swaps to attempt to
hedge interest rate volatility. It is the Companies' objective to match
mortgage and lease terms with the terms of their borrowings. The Companies
attempt to maintain an appropriate spread between their borrowing costs and the
rate of return on their investments. When development loans convert to sale/
leaseback transactions or permanent mortgage loans, the base rent or interest
rate, as appropriate, is fixed at the time of such conversion. There is,
however, no assurance that the Companies will satisfactorily achieve, if at
all, the objectives set forth in this paragraph.

On February 26, 1998, the Companies entered into transactions (the
"Forward Equity Issuance Transaction" or "FEIT") with Merrill Lynch
International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co., Inc.
(collectively with its agent and successor in interest, "MLI"). Pursuant to the
terms of a Stock Purchase Agreement, MLI purchased 8,500,000 shares of Series A
Non-Voting Convertible Common Stock par value $.10 per share from each of the
Companies at a purchase price of $32.625 per share (collectively with the
paired common shares the shares of Series A non-voting convertible common stock
are convertible into, the "Notional Shares"). The Series A Non-Voting
Convertible Common Stock converted on a one to one basis to paired common stock
of the Companies on June 18, 1998. Total proceeds from the issuance were
approximately $277,000,000 (the "Initial Reference Amount"). Net proceeds from
the issuance were approximately $272,000,000, and were used by the Companies to
repay existing indebtedness. The Companies and MLI also entered into a Purchase
Price Adjustment Agreement under which the Companies would, within one year
from the date of MLI's purchase, on a periodic basis, adjust the purchase price
based on the market price of the paired common stock at the time of any interim
or final adjustments, so as to provide MLI with a guaranteed return of LIBOR
plus 75 basis points (the "Return"). The paired common shares issued receive
the same dividend as the Companies' paired common stock; however, the
difference between LIBOR plus 75 basis points and the dividend payments
received by MLI will be included as an additional adjustment under the Purchase
Price Adjustment Agreement. Such adjustments were to be effected by deliveries
of additional paired common shares to, or, receipts of paired common shares
from, MLI. In the event that the market price for the paired shares is not high
enough to provide MLI with the Return, the Companies would have to deliver
additional paired shares to MLI, which would have a dilutive effect on the
capital stock of the Companies. This dilutive effect increases significantly as
the market price of the paired shares declines further below the original
purchase price. Moreover, settlement of the FEIT transaction, whether at
maturity or at an earlier date, may force the Companies to issue paired shares
at a depressed price, which may heighten this dilutive effect on the capital
stock of the Companies. Prior to the settlement, MLI shall hold any paired
common shares delivered by the Companies under the Purchase Price Adjustment
Agreement in a collateral account (the "Collateral Shares"). Under the
adjustment mechanism, the Companies delivered approximately 9,700,000
Collateral Shares in 1998, all of which were returned to the Companies when the
Companies settled in cash a portion of the adjustment transaction in December
1998.

diluted earnings per share purposes. For diluted earnings per share purposes,
at the end of the quarterly period, the then outstanding Reference Amount (as
defined herein) is divided by the quoted market price of a paired common share,
and the excess, if applicable, of that number of paired common shares over the
Notional Shares (the "Contingent Shares") is added to the denominator.
Contingent shares are included in the calculation of year to date diluted
earnings per share weighted for the interim periods in which they were included
in the computation of diluted earnings per share.

On November 11, 1998, the Companies entered into an agreement with MLI to
amend the FEIT. Under the agreement, Realty agreed to grant a mortgage of the
Santa Anita Racetrack to MLI and repurchase from MLI approximately 50% of the
FEIT with cash generated in part from the sale of certain assets, including the
Santa Anita Racetrack. Merrill Lynch agreed, subject to the terms of the
settlement agreement, not to sell any shares of the existing FEIT until
February 26, 1999. In December 1998, the Companies paid Merrill Lynch $152
million ($127 million of which was from the sale of certain assets including
the Santa Anita Racetrack) for the repurchase of 1,635,000 Notional Shares and
the release of 9,700,000 Collateral Shares. At December 31, 1998 the Notional
Shares outstanding were reduced to approximately 6,865,000 paired common shares
and there were no Contingent Shares issuable.

On May 29, 1998, Realty completed its merger with Cobblestone and each
share of common stock of Cobblestone was converted into the right to receive
3.867 paired common shares and each share of preferred stock of Cobblestone was
converted into the right to receive .2953 paired common shares. The total
number of paired common shares issued in connection with the Cobblestone Merger
was approximately 8,177,000, with an aggregate market value of approximately
$230,000,000 plus the issuance of approximately 452,000 options valued at
$10,863,000. In addition, Realty advanced monies in order for Cobblestone to
satisfy approximately $170,000,000 of Cobblestone's debt and associated costs.
The total consideration paid in connection with the Cobblestone Merger was
approximately $455,467,000. The excess of the purchase price, including costs
of the Cobblestone Merger, over the fair value of the net assets acquired
approximated $152,031,000 and is being amortized over 20 years.

On July 17, 1998, Realty completed its merger with La Quinta and each
share of common stock of La Quinta was converted into the right to receive
0.736 paired common shares, reduced by the amount to be received in an earnings
and profits distribution. Approximately 43,280,000 paired common shares, with
an aggregate market value of approximately $1,172,636,000, and approximately
$956,054,000 in cash were exchanged in order to consummate the La Quinta
Merger. In addition, $851,479,000 of La Quinta's debt and associated costs were
assumed. Accordingly, the operations of La Quinta are included in the combined
and consolidated financial statements since consummation of the La Quinta
Merger. The total consideration paid in connection with the La Quinta Merger
was approximately $2,980,169,000.

The excess of the purchase price, including costs of the La Quinta Merger, over
the fair value of the net assets acquired approximated $301,977,000, and is
being amortized over 20 years.

On November 23, 1998, Realty reached an agreement with its bank group to
amend its New Credit Agreement. The amendment provided for Realty's cash
repayment of a portion of its FEIT and the amendment of certain financial
covenants to accommodate asset sales, to exclude the impact of non-recurring
charges, and to provide for future operating flexibility. The amendment also
provided for an increase to the LIBOR pricing of the credit facility by
approximately 125 basis points, and the pledge of stock of the Companies'
subsidiaries. This pledge of subsidiary stock will also extend on a pro rata
basis to entitled bondholders. Realty also agreed to a 25 basis point increase
to the LIBOR pricing in the event that an equity offering of at least
$100,000,000 had not been issued by February 1, 1999. On February 1, 1999 this
increase went into effect.

On November 11, 1998 the Boards of Directors of Realty and Operating
approved a comprehensive restructuring plan. Significant components of the
restructuring plan include the sale of Cobblestone Golf Group, the Santa Anita
Racetrack, and certain healthcare properties. In conjunction with this plan,
the assets related to horseracing operations at the Santa Anita Racetrack, as
well as adjacent land, were sold on December 10, 1998 for $126,000,000.
Additionally, a 50% ownership in a joint venture holding a fashion mall, as
well as the land on which the fashion mall is located, were sold for
$40,000,000. Also in response to the plan, healthcare assets were sold in the
fourth quarter for $314,645,000 and mortgage investments of $122,645,000 were
repaid. On February 11, 1999, the Companies signed a definitive agreement to
sell the Cobblestone Golf Group real estate and operations for aggregate
consideration, including assumed debt, of approximately $393,000,000. The
transaction is expected to close by the end of the first quarter of 1999. Also,
the Companies have entered into letters of intent for the sale of an additional
$155,000,000 of healthcare assets.

As of December 31, 1998, the Companies' gross real estate investments
totaled approximately $5,333,883,000 consisting of 221 long-term care
facilities, 157 retirement and assisted living facilities, 34 medical office
buildings, one acute care hospital campus, eight other healthcare facilities
and 303 hotel facilities. As of December 31, 1998, the Companies' outstanding
commitments for additional financing totaled approximately $161,000,000 for the
completion of 11 assisted living facilities, five long-term care facilities,
one medical office building and 13 hotel facilities currently under
construction and additions to existing facilities in the portfolio.

On March 10, 1999, Realty reached a second agreement with its bank group
to amend its New Credit Agreement. The second amendment, which is effective
upon the successful completion of the sale of Cobblestone Golf Group, provides
for a portion of the sale proceeds to be applied to the FEIT. The second
amendment also provides for, among other things, eliminating certain limits on
healthcare investments and lowering the commitment on the revolving tranche to
$850,000,000.

Of the $1,000,000,000 revolving tranche commitment, $353,000,000 was
available at December 31, 1998, at Realty's option of the base rate (8.25%) or
LIBOR plus 2.625% (7.98% at December 31, 1998). As of March 15, 1999,
$244,000,000 of the revolving tranche commitment was available.

On August 17, 1998, Realty redeemed $100,000,000 of Remarketed Reset Notes
due August 15, 2002 at par value. On September 11, 1998, Realty redeemed
$120,000,000 of 9-1/4% Senior Subordinated Notes due 2003 at 103.46% of par.
Realty's credit facility was used to finance both redemptions.

The Companies had shareholders' equity of $2,950,928,000 and debt
constituted 53% of the Companies' total capitalization as of December 31, 1998.

On January 14, 1999, Realty declared a common dividend of $0.46 per share
payable on February 16, 1999 to common shareholders of record on January 29,
1999. This dividend relates to the quarter ended December 31, 1998.

On March 5, 1999, Realty declared a dividend of $.5625 per depository
share on its 9% Series A Cumulative Redeemable Preferred Stock to shareholders
of record on March 15, 1999. This dividend will be paid on March 31, 1999.

The Companies have an effective shelf registration statement on file with
the SEC under which the Companies may issue $1,825,000,000 of securities
including paired common shares, preferred shares, debt, series common stock,
convertible debt and warrants to purchase shares, preferred shares, debt,
series common stock and convertible debt.

The Companies believe that their various sources of capital are adequate
to finance their operations as well as their existing commitments, including
the acquisition and/or mortgage financing of certain healthcare facilities, the
completion of the La Quinta Inn & Suites currently under development and
repayment of the debt maturing during 1999.

Combined funds from operations

Combined Funds from Operations of the Companies was $277 million and $192
million for the years ended December 31, 1998 and 1997, respectively.

Management considers Funds from Operations to be a key external
measurement of REIT performance. Funds from Operations represents net income or
loss available to common shareholders (computed in accordance with generally
accepted accounting principles), excluding real estate related depreciation,
amortization of goodwill and certain intangible assets, gains and losses from
the sale of assets and non-recurring income and expenses. For 1998,
non-recurring income primarily consists of gains attributable to the prepayment
of loans and lease breakage fees, while non-recurring expenses include charges
related to the sale of discontinued operations, asset impairments and
comprehensive restructuring costs. Funds from Operations should not be
considered an alternative to net income or other measurements under generally
acceptable accounting principals as an indicator of operating performance or to
cash flows from operating, investing, or financing activities as a measure of
liquidity. Funds from Operations does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on indebtedness.

The following reconciliation of net income and loss available to common
shareholders to Funds from Operations illustrates the difference between the
two measures of operating performance for the years ended December 31, 1998 and
1997. Certain reconciling items include amounts reclassified from income from
operations of discontinued operations and, accordingly, do not necessarily
agree to revenue and expense captions in the Companies' financial statements.

Year ended December 31,
1998 1997
(In thousands) -------------- -----------

Net income (loss) available to common shareholders ............... $ (161,591) $162,412
Depreciation of real estate and intangible amortization ......... 106,272 29,099
Provision for loss on sale of discontinued operations ........... 237,809
Other capital gains and losses .................................. 19,562
Other income .................................................... (35,987)
Other expenses .................................................. 111,215
---------- --------
Funds from Operations ............................................ $ 277,280 $191,511
---------- --------
Weighted average paired common shares outstanding:
Basic ............................................................ 120,515 71,445
---------- --------
Diluted .......................................................... 125,508 71,751
---------- --------

Realty--Results of Operations

Year ended December 31, 1998 vs. Year ended December 31, 1997
Revenue for the year ended December 31, 1998 was $518,872,000 compared to
$289,119,000 for the year ended December 31, 1997, an increase of $229,753,000.
Revenue growth was primarily

attributable to the addition of rent and royalty income and interest of
$132,744,000 and other income of $5,781,000 from Operating, related to hotel
facilities acquired in the La Quinta Merger. Revenue growth also arose from
increased rental and interest income of $55,370,000 due to additional real
estate investments made over the last year, net of the effect of mortgage
prepayments and asset sales. Other non-recurring income for the year ended
December 31, 1998 of $35,987,000 included prepayment and lease breakage fees
resulting from early mortgage repayments and asset sales.

For the year ended December 31, 1998, total recurring expenses increased
by $183,577,000. Interest expense increased $90,962,000 due to increases in
debt outstanding resulting from additional real estate investments made over
the past year and the acquisitions of La Quinta and Cobblestone. Depreciation
and amortization increased by $67,780,000 which was primarily a result of
increased real estate investments and amortization of goodwill from the La
Quinta acquisition completed on July 17, 1998 and the Santa Anita Merger
completed in 1997.

General and administrative and other expenses increased by $8,344,000
primarily due to a higher level of operating costs associated with the
management and activity of the portfolio and as a result of the La Quinta
Merger. Rental and hotel property operating expenses increased by $16,491,000
primarily due to property taxes incurred at hotel facilities and expenses
related to the management and operation of medical office buildings that were
purchased in 1998.

Asset Sales

During the year ended December 31, 1998, Realty realized gains on sale of
assets of $52,642,000. Sale of healthcare properties, pursuant to the
comprehensive restructuring plan accounted for $52,906,000 of the total and
included one long-term care facility, 32 assisted living facilities and nine
rehabilitation facilities. Realty also sold its 50% interest in a joint venture
holding a fashion mall, as well as the land where the fashion mall is located,
that resulted in a net gain of $546,000. Realty also sold securities resulting
in a loss of $4,159,000.

Other expenses

development of a comprehensive restructuring plan, which was announced on
November 12, 1998, which included the sale of approximately $550 million of
non-strategic healthcare assets.

Based upon the analysis described above, other expenses were recorded on
the books of Realty for the year ended December 31, 1998, as follows:

Asset related: (In thousands)
Provision for assets held for sale ...................................... $33,218
Provision for real estate assets ........................................ 14,700
Provision for loss on real estate mortgage and loans receivable ......... 16,036
Provision for loss on working capital and other receivables ............. 16,400
-------
Subtotal ................................................................ 80,354
Comprehensive restructuring plan:
Employee severance ....................................................... 706
External consulting fees ................................................. 11,882
-------
Subtotal ................................................................ 12,588
Other
Costs of transactions not consummated ................................... 3,110
-------
Total ................................................................... $96,052
=======

Management also identified one mortgage loan collateralized by a
rehabilitation facility where continued eroding margins and an expiring
guarantee indicated that the Companies will likely not be able to collect all
amounts due according to the contractual terms of the loan agreement.
Accordingly, the Companies provided a loan loss for this asset of approximately
$8,000,000. In addition, Realty has also provided for the establishment of an
additional $8,036,000 mortgage loan valuation allowance primarily in response
to the implementation of new government reimbursement regulations impacting
many of its operators during the second half of 1998.

Pursuant to its comprehensive restructuring plan, the Companies announced
plans to refocus their capital investment program by reducing new healthcare
investments for 1999 and ceasing development of any hotels other than the
completion of those Inns and Suites currently under construction. Accordingly,
Realty recorded non-recurring costs of $12,588,000 during 1998. These costs
included severance attributable to workforce reductions of approximately 11
employees, primarily from Realty property management, marketing and acquisition
departments of $706,000. In addition, Realty recorded $11,882,000 in costs
associated incurred for various consultants engaged to assist in the
development and implementation of the comprehensive restructuring plan.

Realty also incurred $3,110,000 in costs related to the evaluation of
certain acquisition targets, which Realty is no longer pursuing.

Discontinued operations

Accordingly, Realty has classified approximately $14,635,000 of income
from the horseracing and golf segments as discontinued during the year ended
December 31, 1998 and $688,000 of income from the horseracing segment during
the year ended December 31, 1997. The horseracing segment was sold on December
10, 1998, resulting in a net loss on disposal of $82,953,000. Realty also
recorded a provision for loss on disposal of approximately $227,557,000, based
upon the estimated proceeds to be realized upon sale, of the golf-related
assets. Subsequent to the end of 1998, The Companies entered into a definitive
agreement to sell the Cobblestone Golf Group for $393,000,000 and expect the
transaction to close in early 1999 which should not change the estimated loss
on disposal presented herein.

Net Loss

The resulting net loss available for common shareholders, after deducting
preferred share dividends, for the year ended December 31, 1998, was
$143,388,000 compared to net income of $163,012,000 for the year ended December
31, 1997. The net loss available per common share for the year ended December
31, 1998 was $1.18 compared to net income per common share of $2.14 for the
year ended December 31, 1997. The per common share amount decreased primarily
due to the provisions for impairment and discontinued operations, loss on sale
of assets and restructuring charges, and additional common shares being issued
to consummate mergers. In connection with the Cobblestone and La Quinta
mergers, 8,177,000 and 43,280,000 additional paired common shares are now
outstanding, respectively.

Year ended December 31, 1997 vs. Year ended December 31, 1996
Revenue for the year ended December 31, 1997 was $289,119,000 compared to
$254,024,000 for the year ended December 31, 1996, an increase of $35,095,000
or 14%. Revenue growth was primarily attributed to increased rental income of
$28,749,000 and increased interest income of $6,346,000. These increases
resulted primarily from additional real estate investments made over the last
twelve months.

For the year ended December 31, 1997, total expenses increased by
$30,747,000. Interest expense increased by $23,196,000 due to increases in debt
outstanding resulting from additional real estate investments made over the
past twelve months. This increase was partially offset by lower interest rates
compared to 1996. Depreciation and amortization increased by $5,187,000, as a
result of increased real estate investments and associated debt issuance costs.
General and administrative and other expenses increased by $1,706,000
principally due to a higher level of operating costs associated with portfolio
growth. Amortization of goodwill increased by $658,000 as a result of
amortization of the excess purchase price over the fair value of assets
acquired in the Santa Anita Merger.

On November 11, 1998, the Companies approved a comprehensive restructuring
plan including the disposal of the horseracing segment. Accordingly, Realty has
classified approximately $688,000 of income from the horseracing segment as
discontinued during the year ended December 31, 1997. Prior to 1997, The
Companies were not engaged in horseracing

Net income for the year ended December 31, 1997 was $163,012,000 compared
to $157,976,000 for the year ended December 31, 1996, an increase of $5,036,000
or 3%. Net income per common share

decreased to $2.14 for the year ended December 31, 1997 compared to $2.21 for
the year ended December 31, 1996, a decrease of $.07 or 3%. The per common
share decrease was primarily due to dilution caused by the Santa Anita Merger.
Per share amounts have been restated to reflect the exchange of Meditrust
Shares of Beneficial Interest for paired common shares of the Companies
pursuant to the Santa Anita Merger.

Realty--Liquidity and Capital Resources

Cash flows from operating activities

The principal source of cash to be used to fund Realty's future operating
expenses, interest expense, recurring capital expenditures and distribution
payments will be cash flow provided by operating activities. Realty anticipates
that cash flow provided by operating activities will provide the necessary
funds on a short and long-term basis to meet operating cash requirements
including all distributions to shareholders.

Cash flows from investing and financing activities

Realty provides funding for new investments and costs associated with the
restructuring through a combination of long-term and short-term financing
including, both debt and equity, as well as the sale of assets. Realty obtains
long-term financing through the issuance of shares, long-term unsecured notes,
convertible debentures and the assumption of mortgage notes. Realty obtains
short-term financing through the use of bank lines of credit, which are
replaced with long-term financing as appropriate. From time to time, Realty may
utilize interest rate caps or swaps to attempt to hedge interest rate
volatility. It is Realty's objective to match mortgage and lease terms with the
terms of their borrowings. Realty attempts to maintain an appropriate spread
between its borrowing costs and the rate of return on its investments. When
development loans convert to sale/leaseback transactions or permanent mortgage
loans, the base rent or interest rate, as appropriate, is fixed at the time of
such conversion. There is, however, no assurance that Realty will
satisfactorily achieve, if at all, the objectives set forth in this paragraph.

to the Companies when the Companies settled in cash a portion of the adjustment
transaction in December 1998.

The FEIT has been accounted for as an equity transaction with the Notional
Shares treated as outstanding from their date of issuance until the respective
date of repurchase, if any, for both basic and diluted earnings per share
purposes. For diluted earnings per share purposes, at the end of the quarterly
period, the then outstanding Reference Amount (as defined herein) is divided by
the quoted market price of a paired common share, and the excess, if
applicable, of that number of paired common shares over the Notional Shares
(the "Contingent Shares") is added to the denominator. Contingent shares are
included in the calculation of year to date diluted earnings per share weighted
for the interim periods in which they were included in the computation of
diluted earnings per share.

exchanged in order to consummate the La Quinta Merger. In addition,
$851,479,000 of La Quinta's debt and associated costs were assumed.
Accordingly, the operations of La Quinta are included in the combined and
consolidated financial statements since consummation of the La Quinta Merger.
The total consideration paid in connection with the La Quinta Merger was
approximately $2,980,169,000. The excess of the purchase price, including costs
of the La Quinta Merger, over the fair value of the net assets acquired
approximated $301,977,000, and is being amortized over 20 years.

As of December 31, 1998, Realty's gross real estate investments totaled
approximately $5,314,178,000 consisting of 221 long-term care facilities, 157
retirement and assisted living facilities, 34 medical office buildings, one
acute care hospital campus, eight other healthcare facilities and 288 hotel
facilities in service with 13 more under construction. As of December 31, 1998,
Realty's outstanding commitments for additional financing totaled approximately
$161,000,000 for the completion of 11 assisted living facilities, five
long-term care facilities, one medical office building and 13 hotel facilities
currently under construction and additions to existing facilities in the
portfolio.

On March 10, 1999, Realty reached a second agreement with its bank group
to amend its New Credit Agreement. The second amendment, which is effective
upon the successful completion of the sale of Cobblestone Golf Group, provides
for a portion of the sale proceeds to be applied to the FEIT. The second
amendment also provides for, among other things upon the sale of Cobblestone
Golf Group, elimination of limitations on certain healthcare investments and
lowering the commitment on the revolving tranche to $850,000,000.

On August 17, 1998, Realty redeemed $100,000,000 of Remarketed Reset Notes
due August 15, 2002 at par value. On September 11, 1998, Realty redeemed
$120,000,000 of 91/4% Senior Subordinated Notes due 2003 at 103.46% of par.
Realty's credit facility was used to finance both redemptions.

Realty had shareholders' equity of $2,873,353,000 and debt constituted 53%
of the Companies' total capitalization as of December 31, 1998.

Realty believes that various sources of capital are adequate to finance
operations as well as existing commitments, including the acquisition and/or
mortgage financing of certain healthcare facilities, the completion of the La
Quinta Inn & Suites currently under development and repayment of the debt
maturing during 1999.

Operating--Results of Operations

Year Ended December 31, 1998 vs. Year Ended December 31, 1997
Operating derived its revenue primarily from hotel operations during the
post-acquisition period from July 17, 1998 through December 31, 1998. Hotel
revenues for this period were $252,642,000. Approximately $241,868,000 or 96%
of hotel revenues were derived from room rentals. Hotel operating revenues
generally are measured as a function of the ADR and occupancy percentage. The
ADR for the period July 17, 1998 through December 31, 1998 increased to $59.29
as compared to ADR in the second half of 1997 of $56.69, an increase of $2.60
or 4.6%. Occupancy percentage decreased 1.8 percentage points to 67.0% from
68.8% for the same periods. RevPAR, which is a product of the occupancy
percentage and ADR, increased 1.6% in the 1998 post-merger period over the
second half of 1997. Other sources of hotel revenues during the post merger
period included guest services revenue of approximately $5,699,000 derived from
charges to guests for long distance service, fax use and laundry service.
Commission revenue of approximately $1,271,000 was earned on phone, movie and
vending services.

At the merger date, La Quinta operated 280 hotels (including 233 Inns and
47 Inn & Suites) with approximately 36,000 rooms. During the post-merger
period, 10 new Inn & Suites were opened adding over 1,400 rooms.

Interest and other income was $607,000 for the year ended December 31,
1998 compared to $48,000 for the year ended December 31, 1997. Prior to July
17, 1998, Operating derived its revenue from horseracing and golf course
operations, which are now classified as discontinued operations (see below) and
thus are not included in revenue in 1998 or 1997.

For the year ended December 31, 1998, total recurring expenses were
$262,737,000. Expenses were primarily attributable to hotel operating expenses,
interest, rent and royalties paid to Realty. Hotel operating costs of
$124,183,000 were incurred during the La Quinta post-merger period from July
17, 1998 to December 31, 1998. Salaries, wages and related costs, represent
approximately 41.3% of operating expenses. Other major categories of lodging
operating expense include utilities, supplies, advertising and administrative
costs. Interest, royalty and rent expenses paid to Realty of $132,744,000 were
also incurred during the post-merger period. General and administrative and
other expenses were $2,149,000, which arose from unallocated overhead expenses
related to the management of Operating's businesses during 1998. Depreciation
and amortization expense increased to $3,661,000, which was primarily related
to depreciation of furniture and fixtures and other intangible assets acquired
in the La Quinta Merger and a full year of amortization of goodwill, which
resulted from the excess purchase price over the fair value of assets acquired
in the Santa Anita Merger.

Other Expenses:

As a result of these events, the Companies' began an analysis of the
impact of the Reform Act, the Companies' limited ability to access the capital
markets, and the operating strategy of the Companies' existing businesses. The
analysis culminated in the development of a comprehensive restructuring plan,
which was announced on November 12, 1998, designed to strengthen the Companies'
financial position and clarify its investment and operating strategy by
focusing on the healthcare and lodging business segments.

Other expenses, which arose from the comprehensive restructuring plan,
that were recorded on the books of Operating for the year ended December 31,
1998, are as follows:

Comprehensive restructuring plan: (In thousands)
Employee severance ..................................... $ 6,443
Write-off of capitalized pre-development costs ......... 8,720
-------
Total .................................................. $15,163
-------

Pursuant to the comprehensive restructuring plan, Operating incurred
approximately $15,163,000 of non-recurring costs during 1998. These costs
included the write-off of certain costs associated with discontinuing lodging
development of $8,720,000 and severance of $6,443,000 attributable to workforce
reductions of approximately 76 employees, primarily from the Operating's
construction, marketing and acquisition departments.

Discontinued operations

Accordingly, Operating has classified approximately $3,914,000 of losses
from the horseracing and golf segments as discontinued during the year ended
December 31, 1998 and $238,000 of income from the horseracing segment during
the year ended December 31, 1997. The horseracing segment was sold on December
10, 1998, resulting in a net gain on disposal of $15,040,000. Operating has
also recorded a provision for loss on disposal, based upon the estimated
proceeds to be realized upon sale, of the golf-related assets and operations,
of approximately $9,478,000. Subsequent to the end of 1998, The Companies
entered into a definitive agreement to sell Cobblestone Golf Group for
$393,000,000 and expect the transaction to close in early 1999 which should not
result in a change in the estimated loss on disposal provided herein.

Net Loss

The resulting net loss available for common shareholders for the year
ended December 31, 1998, was $18,203,000 compared $600,000 for the year ended
December 31, 1997. The net loss per common

share for the year ended December 31, 1998 was $0.15 compared to $0.01 for the
year ended December 31, 1997. The per common share amount decreased primarily
due to the comprehensive restructuring charges, and additional common shares
being issued to consummate mergers. In connection with the Cobblestone and La
Quinta mergers, 8,177,000 and 43,280,000 additional common shares are now
outstanding, respectively.

Operating--Liquidity and Capital Resources

Cash flows from operating activities

The principal source of cash to be used to fund Operating's future
operating expenses and recurring capital expenditures will be cash flow
provided by operating activities. Operating anticipates that cash flow provided
by operating activities will provide the necessary funds on a short and
long-term basis to meet operating cash requirements.

Cash flows from investing and financing activities

Operating provides funding for costs associated with the restructuring
through a combination of long-term and short-term financing including, both
debt and equity, as well as the sale of assets. Operating obtains long-term
financing through the issuance of common shares and unsecured notes. Operating
obtains short-term financing through borrowings from Realty. There is, however,
no assurance that the Companies will satisfactorily achieve, if at all, the
objectives set forth in this paragraph.

On February 26, 1998, the Companies entered into transactions (the
"Forward Equity Issuance Transaction" or "FEIT") with Merrill Lynch
International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co., Inc.
(collectively with its agent and successor in interest, "MLI"). Pursuant to the
terms of a Stock Purchase Agreement, MLI purchased 8,500,000 shares of Series A
Non-Voting Convertible Common Stock par value $.10 per share from each of the
Companies at a purchase price of $32.625 per share (collectively with the
paired common shares the shares of Series A non-voting convertible common stock
are convertible into, the "Notional Shares"). The Series A Non-Voting
Convertible Common Stock converted on a one to one basis to paired common stock
of the Companies on June 18, 1998. Total proceeds from the issuance were
approximately $277,000,000 (the "Initial Reference Amount"). Net proceeds from
the issuance were approximately $272,000,000, and were used by the Companies to
repay existing indebtedness. The Companies and MLI also entered into a Purchase
Price Adjustment Agreement under which the Companies would, within one year
from the date of MLI's purchase, on a periodic basis, adjust the purchase price
based on the market price of the paired common stock at the time of any interim
or final adjustments, so as to provide MLI with a guaranteed return of LIBOR
plus 75 basis points (the "Return"). The paired common shares issued receive
the same dividend as the Companies' paired common stock; however, the
difference between LIBOR plus 75 basis points and the dividend payments
received by MLI will be included as an additional adjustments under the
Purchase Price Adjustment Agreement. Such adjustments were to be effected by
deliveries of additional paired common shares to, or, receipts of paired common
shares from, MLI. In the event that the market price for the paired shares is
not high enough to provide MLI with the Return, the Companies would have to
deliver additional paired shares to MLI, which would have a dilutive effect on
the capital stock of the Companies. This dilutive effect increases
significantly as the market price of the paired shares declines further below
the original purchase price. Moreover, settlement of the FEIT transaction,
whether at maturity or at an earlier date, may force the Companies to issue
paired shares at a depressed price, which may heighten this dilutive effect on
the capital stock of the Companies. Prior to the settlement, MLI shall hold any
paired common shares delivered by the Companies under the Purchase Price
Adjustment Agreement in a collateral account (the "Collateral Shares"). Under
the adjustment mechanism, the Companies delivered approximately 9,700,000
Collateral Shares in 1998, all of which were returned to the Companies when the
Companies settled in cash a portion of the adjustment transaction in December
1998.

the Notional Shares (the "Contingent Shares") is added to the denominator.
Contingent shares are included in the calculation of year to date diluted
earnings per share weighted for the interim periods in which they were included
in the computation of diluted earnings per share.

Payments that reduce the Reference Amount in effect satisfy all necessary
conditions for physically settling that portion of the Reference Amount and are
accounted for in a manner similar to a treasury transaction. Therefore,
payments that reduce the Reference Amount are divided by the quoted market
price of a paired common share on the date of payment. The calculated number is
then multiplied by the fractional number of days in the period prior to the
payment date and the resulting number of paired common shares is included in
the calculation of diluted earnings per share for the period.

On July 17, 1998, Realty completed its merger with La Quinta and each
share of common stock of La Quinta was converted into the right to receive
0.736 paired common shares, reduced by the amount to be received in an earnings
and profits distribution. Approximately 43,280,000 paired common shares, with
an aggregate market value of approximately $1,172,636,000, and approximately
$956,054,000 were exchanged in order to consummate the La Quinta Merger. In
addition, $851,479,000 of La Quinta's debt and associated costs were assumed.
Accordingly, the operations of La Quinta are included in the combined and
consolidated financial statements since consummation of the La Quinta Merger.
The total consideration paid in connection with the La Quinta Merger was
approximately $2,980,169,000. The excess of the purchase price, including costs
of the La Quinta Merger, over the fair value of the net assets acquired
approximated $301,977,000, and is being amortized over 20 years.

On November 11, 1998 the Boards of Directors of Realty and Operating
approved a comprehensive restructuring plan. Significant components of the
restructuring plan include the sale of Cobblestone Golf

Group, the Santa Anita Racetrack, and certain healthcare properties. In
conjunction with this plan, the assets related to horseracing operations at the
Santa Anita Racetrack, as well as adjacent land, were sold on December 10, 1998
for $126,000,000. Additionally, a 50% ownership in a joint venture holding a
fashion mall, as well as the land on which the fashion mall is located, were
sold for $40,000,000. Also in response to the plan, healthcare assets were sold
in the fourth quarter for $314,645,000 and mortgage investments of $122,645,000
were repaid. On February 11, 1999, the Companies signed a definitive agreement
to sell the Cobblestone Golf Group real estate and operations for aggregate
consideration, including assumed debt, of approximately $393,000,000. The
transaction is expected to close by the end of the first quarter of 1999. Also,
the Companies have entered into letters of intent for the sale of an additional
$155,000,000 of healthcare assets.

Operating had shareholders' equity of $78,507,000 as of December 31, 1998.

The Companies have an effective shelf registration statement on file with
the SEC under which the Companies may issue $1,825,000,000 of securities
including shares, preferred stock, debt, series common stock, convertible debt
and warrants to purchase shares, preferred shares, debt, series common stock
and convertible debt.

Operating believes that various sources of capital available over the next
twelve months are adequate to finance operations as well as pending
acquisitions. Over the next twelve months, as Operating identifies appropriate
operating or investment opportunities, Operating may raise additional capital
through the sale of shares, series common stock or preferred stock, or through
the issuance of long-term debt.

Recent Legislative Developments
On July 22, 1998, the President of the United States signed into law the
Internal Revenue Service Restructuring and Reform Act of 1998 (the "Reform
Act"). Included in the Reform Act is a freeze on the grandfathered status of
paired share REITs such as the Companies. Under this legislation, the anti-
pairing rules provided in the Internal Revenue Code of 1986, as amended (the
"Code"), apply to real property interests acquired after March 26, 1998 by the
Companies, or by a subsidiary or partnership in which a ten percent or greater
interest is owned by the Companies, unless (1) the real property interests are
acquired pursuant to a written agreement that was binding on March 26, 1998 and
at all times thereafter or (2) the acquisition of such real property interests
was described in a public announcement or in a filing with the SEC on or before
March 26, 1998.

Under the Reform Act, the properties acquired in connection with the July
17, 1998 La Quinta Merger and in connection with the May 29, 1998 Cobblestone
Merger generally are not subject to these anti-pairing rules. However, any
property acquired by the Companies after March 26, 1998, other than property
acquired pursuant to a written agreement that was binding on March 26, 1998 or
described in a public announcement or in a filing with the SEC on or before
March 26, 1998, is subject to the anti-pairing rules. Moreover, under the
Reform Act any otherwise grandfathered property will become subject to the
anti-pairing rules if a lease or renewal with respect to such property is
determined to exceed an arm's length rate. In addition, the Reform Act also
provides that a property held by the Companies that is not subject to the
anti-pairing rules will become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (A) the
undepreciated cost of the property (prior to the improvement) or (B) in the
case of property acquired where there is a substituted basis (e.g., the
properties acquired from La Quinta and Cobblestone), the fair market value of
the property on the date it was acquired by the Companies.

In its Fiscal Year 2000 Budget released on February 1, 1999, the Clinton
Administration proposed legislation that could significantly affect the use of
taxable subsidiaries by The Meditrust Companies.

Under the proposed legislation, a REIT would be prohibited from owning more
than 10 percent by vote or value of the securities of an issuer, other than
qualified REIT subsidiaries or a new category of subsidiaries termed "taxable
REIT subsidiaries." Under the Administration proposal, stock in taxable REIT
subsidiaries could not exceed 15 percent of a REIT's assets, and of this 15
percent amount, no more than 5 percent of the REIT's assets could consist of
stock of subsidiaries that provide services to the REIT's tenants. In contrast,
the current law 10 percent ownership limitation is on a vote rather than a vote
or value basis, and the total value of interests in taxable subsidiaries is
limited only by the overall limitation of non-real estate assets to 25 percent
of a REIT's total assets. The Administration proposal would also eliminate all
interest deductions to a taxable REIT subsidiary on debt funded directly or
indirectly by the REIT and would impose a 100 percent excise tax on excess
payments to ensure arm's length (1) pricing for services provided to REIT
tenants and (2) allocation of shared expenses between the REIT and the taxable
REIT subsidiary. As proposed, the legislation would be effective after the date
of enactment but would apply to existing arrangements, and it could limit the
ability of The Meditrust Companies to acquire and operate through taxable
subsidiaries non-grandfathered property subject to the anti-pairing rules. It
is unclear whether, or in what form, this proposed legislation will be enacted.

Restructuring the operations of Realty and Operating to comply with the
recent legislation may cause the Companies to incur substantial tax
liabilities, to recognize an impairment loss on their goodwill asset or
otherwise adversely affect the Companies.

Other Events
On November 11, 1998, the Boards of Directors of Realty and Operating
unanimously approved a comprehensive restructuring plan designed to strengthen
the Companies' financial position and clarify their investment and operating
strategy by focusing on the healthcare and lodging business segments.

The comprehensive plan includes pursuing the separation of its primary
businesses, healthcare and lodging, by creating two separately-listed,
publicly-traded REITs to be accomplished by a spin-off of the healthcare
financing business into a stand-alone REIT during the latter part of 1999. The
plan contemplates continuation of operation of the healthcare and lodging
businesses using the existing paired-share structure until the healthcare
spin-off takes place.

The plan also contemplates that the Companies will sell over
$1,000,000,000 of non-strategic assets, including the Cobblestone Golf Group,
the Santa Anita Racetrack and approximately $550,000,000 of non-strategic
healthcare properties. Proceeds from the sales of these assets will be used to
achieve significant near-term debt reduction. During the fourth quarter, the
Companies made significant progress towards achieving these goals. On December
10, 1998, the Santa Anita Racetrack was sold for $126,000,000. Additionally,
healthcare assets were sold for $314,645,000, mortgage investments of
$122,645,000 were repaid, and a 50% interest in a joint venture which holds a
fashion mall, as well as the land on which the fashion mall is located, was
sold for $40,000,000. On February 11, 1999, the Companies signed a definitive
agreement to sell the Cobblestone Golf Group real estate and operations for
aggregate consideration, including assumed debt of approximately $393,000,000.
The transaction is expected to close by the end of the first quarter of 1999.
Also, the Companies have entered into letters of intent for the sale of an
additional $155,000,000 of healthcare assets.

The comprehensive restructuring plan also includes goals related to
reducing capital investments to reflect current industry operating conditions
and resetting the annual dividend amount to $1.84 per paired common share, an
amount that is considered sustainable and represents a comparable payout ratio
to that of its peer groups.

On November 11, 1998, the Companies entered into an agreement with MLI and
certain of its affiliates to settle the FEIT. Under the agreement, Realty
agreed to grant a mortgage of the Santa Anita Racetrack to Merrill Lynch and
repay Merrill Lynch approximately 50% of the FEIT in cash generated in part
from the sale of certain assets. It is anticipated that the remaining FEIT will
be discharged from the proceeds of the sale of equity securities of the
Companies which, if offered publicly will be offered pursuant to a prospectus.
Merrill Lynch agreed, subject to the terms of the settlement agreement, not to
sell any shares of the existing FEIT until February 28, 1999 while the
Companies complete the sale of equity securities and certain assets.

On August 3, 1998, Abraham D. Gosman resigned his position as Director and
Chairman of the Boards of Directors of the Companies and Chief Executive
Officer and Treasurer of Operating. In connection with his resignation, Mr.
Gosman is seeking severance payments and the Companies are evaluating whether
certain severance or other payments should be made to Mr. Gosman. As part of
this evaluation, the Companies are considering the applicability of Mr.
Gosman's employment contract and whether such severance or other payments are
appropriate. The results of the Companies' evaluation are currently uncertain
and depending upon the results of this evaluation and the results of ongoing
discussions with Mr. Gosman, Mr. Gosman may initiate litigation against the
Companies.

The ultimate outcome of this matter is not predictable and management is
not able to make a meaningful estimate of the amount or range of loss that
could result from an unfavorable outcome. It is possible that an unfavorable
outcome of this matter could have a material adverse effect on the Companies'
results of operations in a particular quarter or annual period. However, the
Companies believe any such claim, even if materially adverse to the Companies'
results of operations, should not have a material adverse effect on the
Companies' financial position.

Newly Issued Accounting Standards
Financial Accounting Standards Board Statement No. 133 ("SFAS 133"):
"Accounting for Derivative Instruments and Hedging Activities" is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999, although
early application is encouraged. SFAS 133 requires that all derivative
investments be recorded in the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or
comprehensive income depending on whether a derivative is designated as part of
a hedge transaction, and if it is the type of hedge transactions. The Companies
anticipate that due to its limited use of derivative instruments the adoption
of SFAS 133 implementation will not have a material effect on the financial
statements.

Year 2000
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998. This "Year 2000 problem" is due to the fact that many
existing computer programs and embedded chip technology systems were developed
using only the last two digits to indicate a year. Thus, such systems may not
have the capability of recognizing a year that begins with "20" as opposed to
"19." As a consequence, these systems could fail altogether, or produce
erroneous results.

The Companies' State of Readiness. The Companies have developed a
five-phase plan to address their Year 2000 issues (their "Year 2000 Plan"). The
five phases are: (i) Awareness, (ii) Assessment, (iii) Remediation, (iv)
Testing and (v) Implementation.

Awareness. The Companies have implemented a program to insure the relevant
employees are aware of the Year 2000 issue and have collected information from
such employees regarding systems that might be affected. Management has
assembled a Year 2000 Steering Committee to determine and assess the risks of
the Year 2000 issue, plan and implement necessary upgrades or changes to make
the Companies Year 2000 compliant or institute mitigating actions to minimize
those risks and oversee the Companies' progress with respect to the
implementation of their Year 2000 Plan.

Assessment. The Companies have substantially completed an assessment of
their internally and externally developed computer information systems.
Operating is in the process of obtaining written verification from vendors to
the effect that externally developed computer information systems acquired from
such vendors correctly distinguish dates before the Year 2000. Operating
expects to obtain such verifications, or a commitment from the relevant vendors
to provide a solution, by no later than the second quarter of 1999. In
addition, the Companies have engaged outside consultants to review the plan and
assessment. Realty is in the process of obtaining written verification from its
externally developed general ledger information system and payroll service
provider to ensure that the system correctly distinguishes dates before the
Year 2000.

The Companies are currently evaluating and assessing their other
electronic systems that include embedded technology, such as
telecommunications, security, HVAC, elevator, fire and safety systems,

and expect that the assessment will be completed by the second quarter of 1999.
The Companies are aware that such systems contain embedded chips that are often
difficult to identify and test and may require complete replacement because
they cannot be repaired. Failure of the Companies to identify or remediate any
embedded chips (either on an individual or aggregate basis) on which
significant business operations depend, such as phone systems, could have a
material adverse impact on the Companies' business, financial condition and
results of operations. To the extent such issues impact property level systems
the Companies may be required to fund capital expenditures for upgraded
equipment and software if necessary. In addition to the Companies' systems and
those of its vendors and suppliers, there exist others that could have a
material impact on the Companies' businesses if not Year 2000 compliant. Such
systems could affect airline operations and other segments of the lodging and
travel industries. These systems are outside of the Companies' control and
their compliance is not verifiable by the Companies.

The Companies' primary financial service providers are its primary bank,
credit card and payroll processors each of which will be required to provide
written verification to the Companies that they will be Year 2000 compliant.
For the foregoing reasons, the Companies do not believe that there is a
significant risk related to the failure of vendors or third-party service
providers to prepare for the Year 2000; however, the costs and timing of
third-party Year 2000 compliance is not within the Companies' control and no
assurances can be given with respect to the cost or timing of such efforts or
the potential effects of any failure to comply.

Remediation. Operating's primary uses of software systems are the hotel
reservation and front desk system, accounting, payroll and human resources
software. Upgrades to the hotel reservation system to address some Year 2000
compliance issues were installed and implemented during the fourth quarter of
1997 through the second quarter of 1998. Testing of various airline interfaces
with the hotel reservation system was completed by December 1998. Operating
plans to implement a new hotel front desk system by the end of 1999, for which
it has assurance that it is Year 2000 compliant. Operating is in the process of
testing Year 2000 compliant releases of existing accounting, payroll and human
resource systems. Implementation of these Year 2000 compliant upgrades is
expected by the end of the second quarter of 1999. In addition, Operating has
engaged outside consultants to assist in this process with respect to certain
Year 2000 compliance efforts. Operating has received written verification from
the vendors of accounting and payroll and human resource systems that the
general releases currently available are Year 2000 compliant.

Testing. To attempt to confirm that their computer systems are Year 2000
compliant, the Companies expect to perform limited testing of their computer
information systems and their other computer systems that do not relate to
information technology but include embedded technology; however, unless Year
2000 issues arise in the course of their limited testing, the Companies will
rely on the written verification received from each vendor of their computer
systems that the relevant system is Year 2000 compliant. Nevertheless, there
can be no assurance that the computer systems on which the Companies' business
relies will correctly distinguish dates before the Year 2000 from dates in and
after the Year 2000. Any such failures could have a material adverse effect on
the Companies' business, financial condition and results of operations. The
Companies currently anticipate that testing will commence no later than the
first quarter of 1999 and expect that their testing will be complete by the end
of the third quarter of 1999.

Implementation. The Companies have begun implementation of Year 2000
compliant software and software upgrades and expect to have them completed by
December, 1999.

Costs to Address the Companies' Year 2000 Issues. Based on current
information from their review to date, the Companies budgeted $1,100,000 for
the cost of repairing, updating and replacing their standard computer
information systems. The Companies anticipate that the primary cost of Year
2000 compliance will be the cost of consultants and payroll and related
expenses. The Companies currently expect that the installation of above
mentioned upgrades and software will cost approximately $1,100,000, and as of
the end of fiscal year 1998, the Companies have spent approximately $200,000 in
connection therewith. In addition, the Companies expect that they will spend
approximately $200,000 to address other Year 2000 related issues, including
upgrades of certain systems with embedded technology. Because the Companies'
Year 2000 assessment is ongoing and additional funds may be required as a
result of future findings, the Companies are not currently able to estimate the
final aggregate

cost of addressing the Year 2000 issue. While these efforts will involve
additional costs, the Companies believe, based on available information, that
these costs will not have a material adverse effect on their business,
financial condition or results of operations. The Companies expect to fund the
costs of addressing the Year 2000 issue from cash flows resulting from
operations. While the Companies believe that they will be Year 2000 compliant
by December 31, 1999, if these efforts are not completed on time, or if the
costs associated with updating or replacing the Companies' computer systems
exceed the Companies' estimates, the Year 2000 issue could have a material
adverse effect on the Companies' business, financial condition and results of
operations.

Risks Presented by Year 2000 Issues. The Companies are still in the
process of evaluating potential disruptions or complications that might result
from Year 2000 related problems; however, at this time the Companies have not
identified any specific business functions that will suffer material disruption
as a result of Year 2000 related events. It is possible, however, that the
Companies may identify business functions in the future that are specifically
at risk of Year 2000 disruption. The absence of any such determination at this
point represents only the Companies' current status of evaluating potential
Year 2000 related problems and facts presently known to the Companies, and
should not be construed to mean that there is no risk of Year 2000 related
disruption. Moreover, due to the unique and pervasive nature of the Year 2000
issue, it is impracticable to anticipate each of the wide variety of Year 2000
events, particularly outside of the Companies, that might arise in a worst case
scenario which might have a material adverse impact on the Companies' business,
financial condition and results of operations.

The Companies' Contingency Plans. The Companies intend to develop
contingency plans for significant business risks that might result from Year
2000 related events. Because the Companies have not identified any specific
business function that will be materially at risk of significant Year 2000
related disruptions, and because a full assessment of the Companies risk from
potential Year 2000 failures is still in process, the Companies have not yet
developed detailed contingency plans specific to Year 2000 problems.
Development of these contingency plans is currently scheduled to occur by the
second quarter of 1999 and as otherwise appropriate. As a part of their
contingency planning, the Companies are analyzing the most reasonably likely
worst-case scenario that could result from Year 2000-related failures. Failures
by third parties to achieve Year 2000 compliance might result in short-term
disruptions in travel patterns, and potential temporary disruptions in the
supply of utility, telecommunications and financial services, most likely
regional or local in scope. These events could cause temporary disruptions in
the operations of hotel properties, and/or lead travelers to postpone travel,
or to cancel travel plans, thereby affecting lodging patterns and occupancy.

The preceding "Year 2000 readiness disclosure" contains various
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements represent the
Companies' beliefs or expectations regarding future events. All forward-looking
statements involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results. Factors that
may cause these differences include, but are not limited to, the availability
of qualified personnel and other information technology resources; the ability
to identify and remediate all date sensitive lines of computer code or to
replace embedded computer chips in affected systems or equipment; and the
actions of governmental agencies or other third parties with respect to Year
2000 problems.

Seasonality
The lodging industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
This seasonality can be expected to cause quarterly fluctuations in revenue,
profit margins and net earnings. In addition, opening of new construction
hotels and/or timing of hotel acquisitions may cause variation of revenue from
quarter to quarter.

CERTAIN FACTORS YOU SHOULD CONSIDER

Presented below are certain factors that you should consider with respect
to investing in the Companies' securities.

With respect to investing in the Companies' securities, you should be
aware that there are various risks, including those described below, which may
materially impact your investment in the Companies securities or may in the
future, and, in some cases, already do, materially affect us and our business,
financial condition and results of operations. You should consider carefully
these risk factors with respect to investing in our securities. This section
includes or refers to certain forward-looking statements; you should read the
explanation of the qualifications and limitations on such forward-looking
statements discussed on page 71.

Tax Risks Related to Real Estate Investment Trusts
Dependence on Qualification as a REIT; General. Realty operates and
intends to operate in the future so as to qualify as a real estate investment
trust for federal income tax purposes. However, there is no assurance that
Realty has satisfied the requirements for REIT qualification in the past or
will qualify as a REIT in the future. Qualification as a REIT involves the
application of highly technical and complex provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), for which there are only limited
judicial or administrative interpretations. The complexity of these provisions
is greater in the case of a paired share REIT such as Realty. Qualification as
a REIT also involves the determination of various factual matters and
circumstances not entirely within Realty's control. In addition, Realty's
ability to qualify as a REIT is dependent upon its continued exemption from the
anti-pairing rules of Section 269B(a)(3) of the Code, which would ordinarily
prevent Realty from qualifying as a REIT. Subject to the discussion below of
recent legislation, the "grandfathering" rules governing Section 269B generally
provide, however, that Section 269B(a)(3) does not apply to a paired share REIT
if the REIT and its paired operating company were paired on June 30, 1983. On
June 30, 1983, Realty (which was then known as Santa Anita Realty Enterprises,
Inc. ("Santa Anita Realty")) was paired with the Operating Company (which was
then known as Santa Anita Operating Company ("SAOC," and together with Santa
Anita Realty, "Santa Anita")). There are, however, no judicial or
administrative authorities interpreting this "grandfathering" rule. Moreover,
if for any reason Realty failed to qualify as a REIT in 1983, the benefit of
the "grandfathering" rule would not be available to Realty, in which case
Realty would not qualify as a REIT for any taxable year from and after 1983.
Failure of Realty to qualify as a REIT would have a material adverse effect on
the Companies and their ability to make distributions to their shareholders and
to pay amounts due on their indebtedness.

Legislation, as well as regulations, administrative interpretations or
court decisions, also could change the tax law with respect to Realty's
qualification as a REIT and the federal income tax consequence of such
qualification. See "--Recent Legislation May Curb Use of Paired Share
Structure" below. Such legislation, regulations or administrative
interpretations or court decisions could have a material adverse effect on the
Companies and their ability to make distributions to shareholders and to pay
amounts due on their indebtedness. In addition, this legislation prevents the
Companies from growing as originally intended at the time of the Santa Anita
Mergers (as defined below).

If Realty were to fail to qualify as a REIT, it would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. Failure to qualify as a REIT would result in
additional tax liability to Realty for the year or years involved. In addition,
the failure to qualify as a REIT would also constitute a default under certain
debt obligations of Realty, which would generally allow the holders thereof to
demand the immediate repayment of such indebtedness, which could have a
material adverse effect on the Companies and their ability to make
distributions to shareholders and to pay amounts due on their indebtedness.

Recent Legislation Curbs Use of Paired Share Structure. On July 22, 1998,
the President signed into law the Internal Revenue Service Restructuring and
Reform Act of 1998 (the "Reform Act"). Included in the Reform Act is a freeze
on the grandfathered status of paired share REITs such as the Companies. Under
this legislation, the anti-pairing rules provided in the Code apply to real
property interests acquired after March 26, 1998 by the Companies, or by a
subsidiary or partnership in which a ten percent or greater interest is owned
by the Companies, unless (1) the real property interests are acquired pursuant
to a

written agreement that was binding on March 26, 1998 and at all times
thereafter or (2) the acquisition of such real property interests was described
in a public announcement or in a filing with the SEC on or before March 26,
1998.

The restrictions on the activities of a grandfathered REIT provided in the
Reform Act may in the future make it impractical or undesirable for the
Companies to continue to maintain their paired share structure. Restructuring
the operations of Realty and Operating to comply with the rules provided by the
Reform Act could cause the Companies to incur tax liabilities, to recognize an
impairment loss on their goodwill assets, or otherwise materially adversely
affect the Companies and their ability to make distributions to shareholders
and to pay amounts due on their indebtedness.

Adverse Effects of REIT Minimum Distribution Requirements. In order to
qualify as a REIT Realty is generally required each year to distribute to its
shareholders at least 95% of its taxable income (excluding any net capital
gain). In addition, if Realty were to dispose of assets acquired in certain
acquisitions during the ten-year period following the acquisition, Realty would
be required to distribute at least 95% of the amount of any "built-in gain"
attributable to such assets that Realty recognizes in the disposition, less the
amount of any tax paid with respect to such recognized built-in gain. Realty
generally is subject to a 4% nondeductible excise tax on the amount, if any, by
which certain distributions paid by it with respect to any calendar year are
less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of
its capital gain net income for that year, and (iii) 100% of its undistributed
income from prior years.

Risks Related to the Implementation and Effects of the Comprehensive
Restructuring Plan

We believe that the successful implementation of the comprehensive
restructuring plan, which includes pursuing the separation of the Companies'
healthcare and lodging businesses, is in the best long-term interests of the
Companies and their stockholders. However, there are a number of potentially
negative or adverse factors that you should be aware of in connection with both
the implementation of the comprehensive restructuring plan, as well as the
effects of the comprehensive restructuring plan.

Implementation. The comprehensive restructuring plan involves a number of
component parts that require a substantial commitment of our resources to
implement. In order to successfully implement each part of the comprehensive
restructuring plan, a significant amount of the available time and effort of
the management of The Meditrust Companies must be utilized. For example, each
transaction involving the sale of a non-strategic asset requires that the
personnel who oversee that asset or group of assets not only continue to
operate or monitor that asset consistent with past practice, but also that they
prepare it for sale, meet with potential buyers, negotiate, and/or assist in
the negotiation with the ultimate buyer. In addition, The Meditrust Companies
have expended, and will continue to expend significant financial resources to
implement the comprehensive restructuring plan. Each transaction of the type
described above generally involves the payment of fees and expenses of outside
professionals, including investment bankers, attorneys, independent accountants
and consultants.

Our ability to successfully implement the comprehensive restructuring plan
is also impacted by external factors, such as: (i) the performance of the
economy generally and real estate markets in particular, (ii) the ability of
The Meditrust Companies to access the capital markets, (iii) changes in
applicable law and (iv) the identification of satisfactory buyers of
non-strategic assets. After the spin-off, each of the lodging and health care
business segments will need to separately access the capital markets to the
extent that additional capital is required. However, we can not be certain that
the capital markets, will be amenable to the spin-off and the creation of the
two distinct, separately traded entities. In addition, changes in the capital
markets, which are beyond our control, may materially impact our ability to
successfully implement the spin-off, as well as other component parts of the
comprehensive restructuring plan.

Effects: The structure of The Meditrust Companies will be significantly
altered from our structure today and from our structure six months ago. Today,
each holder of paired shares of The Meditrust Companies owns interests in a
combined business which owns and invests in health care properties, owns and
operates lodging properties and owns and operates golf related properties.
Until recently, The Meditrust Companies also owned and operated a horse racing
facility and related property. After completion of the comprehensive
restructuring plan, and assuming a shareholder continues to hold the

securities issued to the shareholders in the spin-off, shareholders will own an
equity interest in a lodging business and in a separate health care financing
business. The lodging business and the health care financing business will be
operated independently, they will be financed separately and their securities
will be traded independently on the New York Stock Exchange. A shareholder will
no longer hold an interest in either the horse racing or golfing businesses as
these businesses have been, or will be sold. On February 11, 1999, the
Companies entered into a definitive agreement to sell the subsidiaries that
conduct the golf businesses at the golf courses owned and leased by Realty
together with the golf course related real estate owned and/or leased by
Realty, to Golf Acquisitions, L.L.C., an affiliate of ClubCorp., Inc. The
transaction, which is subject to customary closing conditions, is scheduled to
close on or prior to March 31, 1999. In addition, the health care financing
business will be somewhat smaller than it has been historically, as certain
non-strategic assets, most of which relate to the health care business, have
been sold and the funding of new health care investments has been reduced as
part of our reduction of capital expenditures.

Substantial Leverage Risks
Realty has substantial leverage. In that regard, on July 17, 1998, Realty
entered into the Credit Agreement, which provides Realty with up to $2.25
billion in credit facilities. The degree of leverage of Realty could have
important consequences to investors, including the following: (i) Realty's
ability to obtain additional financing may be impaired, both currently and in
the future; (ii) a substantial portion of Realty's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to Realty for other purposes; (iii) as
described below, certain of Realty's borrowings are and will continue to be at
variable rates of interest, which will expose Realty to the risk of increased
interest rates; (iv) Realty may be substantially more leveraged than certain of
its competitors, which may place Realty at a competitive disadvantage; and (v)
Realty's substantial degree of leverage may limit its flexibility to adjust to
changing market conditions, reduce its ability to withstand competitive
pressures and make it more vulnerable to a downturn in general economic
conditions or its business.

The foregoing risks associated with the debt obligations of the Companies
may adversely affect the market price of securities issued by the Companies and
may inhibit the ability of the Companies to raise capital in both the public
and private markets.

Health Care Industry Risks
Operating Risks. One of Realty's primary businesses is that of buying,
selling, financing and leasing health care related properties. The risks of
this business include, among other things: competition for tenants; competition
from other health care financing providers, a number of which may have greater
marketing, financial and other resources and experience than Realty; changes in
government regulation of health care; changes in the availability and cost of
insurance coverage; increases in operating costs due to inflation and other
factors; changes in interest rates; the availability of financing; and adverse
effects of general and local economic conditions.

Concentration of Company Operators in Long-term Care Industry. The
long-term care businesses of the third-party operators of Realty's health care
related real estate, and the health care industry generally, are subject to
extensive federal, state and local regulation governing the licensing and
conduct of operations at health care facilities, certain capital expenditures,
the quality of services provided, the manner in which the services are
provided, financial and other arrangements between health care providers and
reimbursement for services rendered. The failure of any third-party operator to
comply with such laws, requirements and regulations could adversely affect its
ability to operate the facility or facilities and could adversely affect such
operator's ability to make payments to Realty, thereby adversely affecting the
Companies.

Concentration of Credit Risks; Reliance on Major Operators. As of December
31, 1998, long-term care facilities comprised 28% of Realty's real estate
investments and Realty's investments in facilities of its two largest health
care operators totaled approximately 20% of Realty's total real estate
investments. Such a concentration in specific types of facilities, as well as
in these operators, could have a material adverse effect on the Companies.

Realty's third-party operators manage long-term care facilities on each of
Realty's properties. The financial position of Realty may be adversely affected
by financial difficulties experienced by any of such operators, or any other
major operator of Realty, including a bankruptcy, insolvency or general
downturn in the business of any such operator, or in the event any such
operator does not renew its leases as they expire and Realty can not lease
these facilities to other operators on comparable terms.

Government Regulation May Increase. The health care industry is subject to
changing political, economic, regulatory and demographic influences that may
affect the operations of health care facilities and providers. During the past
several years, the health care industry has been subject to changes in
government regulation of, among other things, reimbursement rates and certain
capital expenditures. Some elected officials have announced that they intend to
examine certain aspects of the United States health care system including
proposals which may further increase governmental involvement in health care.
For example, the President and Congress have in the past, and may in the
future, propose health care reforms which could impose additional regulations
on Realty and its operators (including Operating) or limit the amounts that
operators may charge for services. Realty's operators of its health care
facilities are and will continue to be subject to varying degrees of regulation
and licensing by health or social service agencies and other regulatory
authorities in the various states and localities in which they operate or in
which they will operate.

Health Care Reform. The Balanced Budget Act of 1997, which was signed by
the President on August 5, 1997 (the "1997 Act"), enacted significant changes
to the Medicare and Medicaid programs designed to modernize payment and health
care delivery systems while achieving substantial budgetary savings. In seeking
to limit Medicare reimbursement for long term care services, the 1997 Act
mandated the establishment of a prospective payment system for skilled nursing
facilities to replace the current cost-based reimbursement system. The
cost-based system reimburses skilled nursing facilities for reasonable direct
and indirect allowable costs incurred in providing "routine services" as well
as capital costs and ancillary costs, subject to limits fixed for the
particular geographic area served by the skilled nursing facility. Under the
prospective payment system, skilled nursing facilities will be paid a federal
per diem rate for covered services. The per diem payment will cover routine
service, ancillary, and capital-related costs. The prospective payment system
will be phased in over a four year period beginning on or after July 1, 1998.
Under provisions of the 1997 Act, states will be provided additional
flexibility in managing their Medicaid program. Among other things, the 1997
Act repealed a federal law's payment standard, which had required states to pay
"reasonable and adequate" payments to cover the costs of efficiently and
economically operated hospitals, nursing facilities and certain intermediate
care facilities. These health care reforms may reduce reimbursement to levels
that are insufficient to cover the cost of providing patient care, which could
adversely affect the revenues of Realty's third-party borrowers and lessees and
thereby adversely affect those borrowers' and lessees' abilities to make their
loan or lease payments to Realty. Failure of the borrowers or lessees to make
their loan or lease payments would have a direct and material adverse impact on
the Companies.

Reliance on Third-Party Payors; Availability of Reimbursement. The cost of
many of the services offered by the current operators of Realty's health care
facilities are reimbursed or paid for by third-party payors such as Medicare
and Medicaid programs for elderly, low income and disabled patients and state
Medicaid programs for managed care organizations. No assurance can be given
that third-party reimbursement for Realty's operators will continue to be
available or when reimbursement will be offered or that reimbursement rates
will not be reduced. The increase in the number of providers contracting to
provide per person fixed cost health care to a patient population has increased
pressure on third-party payors to lower costs.

A significant portion of the revenue from the third-party operators who
lease or receive financing from Realty is derived from governmentally-funded
reimbursement programs, such as Medicare and Medicaid. These programs are
highly regulated and subject to frequent and substantial changes resulting from
legislation, adoption of rules and regulations, and administrative and judicial
interpretations of existing law. In recent years, there have been fundamental
changes in the Medicare program which have resulted in reduced levels of
payment for a substantial portion of health care services. Moreover, health
care facilities have experienced increasing pressures from private payers

such as health maintenance organizations attempting to control health care
costs. Reimbursement from private payers has in many cases effectively been
reduced to levels approaching those of government payers. Concern regarding
health care costs may result in significant reductions in payment to health
care facilities, and there can be no assurance that future payment rates from
either governmental or private health care plans will be sufficient to cover
cost increases in providing services to patients. In many instances, revenues
from Medicaid programs are already insufficient to cover the actual costs
incurred in providing care to those patients. Any changes in reimbursement
policies which reduce reimbursement to levels that are insufficient to cover
the cost of providing patient care could adversely affect revenues from the
third-party operators who lease or receive financing from Realty and thereby
adversely affect those entities' ability to make their lease or loan payments
to Realty. Failure of these entities to make their lease or loan payments would
have a direct and material adverse impact on the Company.

Fraud and Abuse Enforcement. In the past several years, due to rising
health care costs, there has been an increased emphasis on detecting and
eliminating fraud and abuse in the Medicare and Medicaid programs. Payment of
any remuneration to induce the referral of Medicare and Medicaid patients is
generally prohibited by federal and state statutes. Both federal and state
self-referral statutes severely restrict the ability of physicians to refer
patients to entities in which they have a financial interest. The 1997 Act
provided the federal government with expanded enforcement powers to combat
waste, fraud and abuse in the delivery of health care services. In addition,
the Office of Inspector General and the Health Care Financing Administration
now have increased investigation and enforcement activity of fraud and abuse,
specifically targeting nursing homes, home health providers and medical
equipment suppliers. Failure to comply with the foregoing fraud and abuse laws
or government program integrity regulations may result in sanctions including
the loss of licensure or eligibility to participate in reimbursement programs
(including Medicare and Medicaid), asset forfeitures and civil and criminal
penalties.

It is anticipated that the trend toward increased investigation and
informant activity in the area of fraud and abuse, as well as self-referral,
will continue in future years. In the event that any borrower or lessee were to
be found in violation of the applicable laws regarding fraud, abuse or
self-referral, that borrower's or lessee's license or certification to
participate in government reimbursement programs could be jeopardized, or that
borrower or lessee could be subject to civil and criminal fines and penalties.
Either of these occurrences could have a material adverse affect on the
Companies by adversely affecting the borrower's or lessee's ability to make
debt or lease payments to Realty.

The foregoing factors could adversely affect the ability of the operators
of Realty's health care facilities to generate revenues and make payments to
Realty. This, in turn, could materially adversely affect the Companies and
their ability to make distributions to shareholders and to pay amounts due on
their indebtedness.

Lodging Industry Risks
The Companies, through their acquisition of La Quinta, have made a
significant investment in hotels and related lodging facilities. La Quinta is
operated by a subsidiary of Operating and its real estate assets are owned by
Realty or a subsidiary of Realty.

Competition. The results of operations of La Quinta hotels are subject to
general economic conditions, competition, the desirability of particular
locations, the relationship between supply of and demand for hotel rooms and
other factors. La Quinta hotels generally operate in markets that contain
numerous competitors, including wide range of lodging facilities offering
full-service, limited-service and all-suite lodging options to the public. The
continued success of La Quinta's hotels will be dependent, in large part, upon
their ability to compete in such areas as reasonableness of room rates, quality
of accommodations, name recognition, service level and convenience of
locations. Additionally, an increasing supply of hotel rooms in La Quinta's
market segment and recent consolidations in the lodging industry generally
resulting in the creation of several large, multi-branded hotel chains with
diversified operations may adversely impact La Quinta's financial condition,
results of operations and business. No assurance can be given that demographic,
geographic or other changes in markets will not adversely

affect the convenience or desirability of the locations of La Quinta's hotels.
Furthermore, no assurance can be given that, in the markets in which La
Quinta's hotels operate, competing hotels will not provide greater competition
for guests than currently exists, and that new hotels will not enter such
markets.

Geographic Concentration. La Quinta's hotels are concentrated in the
western and southern regions of the United States. As a result, La Quinta is
sensitive to economic and competitive conditions in those regions.

Extensive Employment and Other Governmental Regulations. The hotel
business is subject to extensive federal, state and local regulatory
requirements, including building and zoning requirements, all of which can
prevent, delay, make uneconomical or significantly increase the cost of
developing additional lodging facilities. In addition, La Quinta's hotels and
Operating are subject to laws governing their relationship with employees,
including minimum wage requirements, overtime, working conditions, work permit
requirements and discrimination claims. An increase in the minimum wage rate,
employee benefit costs or other costs associated with employees could adversely
affect the Companies.

Fluctuations in Operating Results. The lodging industry may be adversely
affected by, among other things, changes in economic conditions, changes in
local market conditions, oversupply of hotel space, a reduction in demand for
hotel space in specific areas, changes in travel patterns, weather conditions,
changes in governmental regulations that influence or determine wages, prices
or construction costs, changes in interest rates, the availability of financing
for operating or capital needs, and changes in real estate tax rates and other
operating expenses. Room supply and demand historically have been sensitive to
shifts in gross domestic product growth, which has resulted in cyclical changes
in average daily room and occupancy rates. Due in part to the strong
correlation between the lodging industry's performance and economic conditions,
the lodging industry is subject to cyclical changes in revenues. In that
regard, there can be no assurance that the recent strength in the lodging
industry generally, or in the segment of the industry in which La Quinta
operates, will not decline in the future. Furthermore, the lodging industry is
seasonal in nature, with revenues typically higher in summer periods than in
winter periods.

Construction. If Realty resumes La Quinta's historical strategy of growing
through new construction, Realty may from time to time experience shortages of
materials or qualified tradespeople or volatile increases in the cost of
certain construction materials or labor, resulting in longer than normal
construction and remodeling periods, loss of revenue and increased costs.
Realty will rely heavily on local contractors, who may be inadequately
capitalized or understaffed. The inability or failure of one or more local
contractors to perform may result in construction or remodeling delays,
increased cost and loss of revenue.

The foregoing factors could adversely affect La Quinta's operations which,
in turn, could materially adversely affect the Companies and their ability to
make distributions to shareholders and to pay amounts due on their
indebtedness.

Real Estate Investment Risks
General Risks. Realty's investments will be subject to the risks inherent
in owning real estate. The underlying value of Realty's real estate investments
and the Companies' results of operations and ability to make distributions to
their shareholders and pay amounts due on their indebtedness will depend on the
ability of the lessees, the operators and Operating to operate Realty's
properties in a manner sufficient to maintain or increase revenues and to
generate sufficient revenues in excess of operating expenses to make rent
payments under their leases or loan payments in respect of their loans from
Realty.

Results of operations of Realty's properties may also be adversely
affected by, among other things:

o changes in national economic conditions, changes in local market
conditions due to changes in general or local economic conditions and
neighborhood characteristics;

o changes in interest rates and in the availability, cost and terms of
financing;

o the impact of present or future environmental legislation and
compliance with environmental laws and other regulatory requirements;

o the ongoing need for capital improvements, particularly in older
structures;

o changes in real estate tax rates and assessments and other operating
expenses;

o adverse changes in governmental rules and fiscal policies;

o adverse changes in zoning and other land use laws; and

o civil unrest, earthquakes and other natural disasters (which may
result in uninsured losses) and other factors which are beyond its
control.

Dependence on Rental Income from Real Property. Realty's cash flow,
results of operations and value of its assets would be adversely affected if a
significant number of third-party operators of the Realty's properties fail to
meet their lease obligations. The bankruptcy or insolvency of a major operator
may have an adverse effect on a property. At any time, an operator also may
seek protection under the bankruptcy laws, which could result in rejection and
termination of such operator's lease and thereby cause a reduction in the cash
flow of the property. If an operator rejects its lease, the owner's claim for
breach of the lease would (absent collateral securing the claim) be treated as
a general unsecured claim. Generally, the amount of the claim would be capped
at the amount owed for unpaid pre-petition lease payments unrelated to the
rejection, plus the greater of one year's lease payments or 150% of the
remaining lease payments payable under the lease (but not to exceed the amount
of three years' lease payments).

Environmental Matters. The obligation to pay for the cost of complying
with existing environmental laws, ordinances and regulations, as well as the
cost of complying with future legislation, may affect the operating costs of
Realty and Operating. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of
hazardous or toxic substances on or under the property. Environmental laws
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances and whether
or not such substances originated from the property. In addition, the presence
of hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect Realty's ability to borrow by using such real
property as collateral.

Persons who arrange for the transportation, disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of hazardous or toxic substances at the disposal or treatment
facility, whether or not such facility is or ever was owned or operated by such
person. Certain environmental laws and common law principles could be used to
impose liability for releases of hazardous materials, including
asbestos-containing materials or "ACMs", into the environment. In addition,
third parties may seek recovery from owners or operators of real properties for
personal injury associated with exposure to released ACMs or other hazardous
materials. Environmental laws may also impose restrictions on the use or
transfer of property, and these restrictions may require expenditures. In
connection with the ownership and operation of any of Realty's properties,
Realty, Operating and the other lessees or operators of these properties may be
liable for any such costs. The cost of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could materially adversely affect the Companies and their ability to make
distributions to shareholders and to pay amounts due on their indebtedness.

Compliance with the ADA May Affect Expected Distributions to the
Companies' Shareholders. Under the Americans with Disabilities Act of 1990 (the
"ADA"), all public accommodations are required to meet certain federal
requirements related to access and use by disabled persons. A determination
that Realty or Operating is not in compliance with the ADA could result in the
imposition of fines and/or an award of damages to private litigants. If Realty
or Operating were required to make modifications to comply with the ADA, there
could be a material adverse effect on the Companies and their ability to make
distributions to shareholders and to pay amounts due on their indebtedness.

Uninsured and Underinsured Losses. Each of Realty's leases and mortgage
loans typically specifies that comprehensive insurance is to be maintained on
each of the applicable properties, including liability, fire and extended
coverage. Leases and loan documents for new investments (including those leased
to Operating) typically contain similar provisions. However, there are certain
types of losses, generally of a catastrophic nature, such as earthquakes and
floods, that may be uninsurable or not economically insurable. Realty will use
its discretion in determining amounts, coverage

limits and deductibility provisions of insurance, with a view to maintaining
appropriate insurance coverage on the investments of Realty and Operating at a
reasonable cost and on suitable terms. This may result in insurance coverage
that, in the event of a substantial loss, would not be sufficient to pay the
full current market value or current replacement cost of the lost investment
and also may result in certain losses being totally uninsured. Inflation,
changes in building codes, zoning or other land use ordinances, environmental
considerations, lender imposed restrictions and other factors also might make
it infeasible to use insurance proceeds to replace the property after such
property has been damaged or destroyed. Under such circumstances, the insurance
proceeds, if any, received by Realty or Operating might not be adequate to
restore its economic position with respect to such property.

Real Estate Financing Risks
Financing and Maturities. Realty is subject to the normal risks associated
with debt and preferred stock financing, including the risk that Realty's cash
flow will be insufficient to meet required payments of principal and interest
and dividends, the risk that indebtedness on its properties, or unsecured
indebtedness, will not be able to be renewed, repaid or refinanced when due or
that the terms of any renewal or refinancing will not be as favorable as the
terms of such indebtedness. If Realty were unable to refinance the indebtedness
on acceptable terms, or at all, Realty might be forced to dispose of one or
more of its properties on disadvantageous terms, which might result in losses
to Realty, which losses could have a material adverse effect on Realty and its
ability to make distributions to shareholders and to pay amounts due on its
indebtedness. Furthermore, if a property is mortgaged to secure payment of
indebtedness and Realty is unable to meet mortgage payments, the mortgagee
could foreclose upon the property, appoint a receiver and receive an assignment
of rents and leases or pursue other remedies, all with a consequent loss of
revenues and asset value to Realty. Foreclosures could also create taxable
income without accompanying cash proceeds, thereby hindering Realty's ability
to meet the REIT distribution requirements of the Code.

Risk of Rising Interest Rates. Realty has incurred and expects in the
future to incur indebtedness which bears interest at variable rates.
Accordingly, increases in interest rates would increase Realty's interest costs
(to the extent that the related indebtedness was not protected by interest rate
protection arrangements), which could have a material adverse effect on Realty
and its ability to make distributions to shareholders and to pay amounts due on
its indebtedness or cause Realty to be in default under certain debt
instruments (including its Debt Securities). In addition, an increase in market
interest rates may lead holders of the Shares to demand a higher yield on their
Shares from distributions by the Companies, which could adversely affect the
market price for the Shares and could also adversely affect the market price of
any Preferred Stock issued by either of the Companies.

Cautionary Statements Concerning Forward-Looking Statements
Any statements included in this Joint Annual Report on Form 10-K that are
not strictly historical are forward-looking statements within the meaning of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Any such forward-looking statements contained or incorporated by
reference herein or in the accompanying Prospectus Supplement should not be
relied upon as predictions of future events. Certain such forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative
thereof or other variations thereof or comparable terminology, or by
discussions of strategy, plans, intentions or anticipated or projected events,
results or conditions. Such forward-looking statements are necessarily
dependent on assumptions, data or methods that may be incorrect or imprecise
and they may be incapable of being realized. Such forward-looking statements
include statements with respect to (i) the declaration or payment of
distributions by the Companies, (ii) the ownership, management and operation of
hotels, golf courses, health care related facilities, race tracks and other
properties, including the integration of the acquisitions effected or proposed
by the Companies, (iii) potential acquisitions or dispositions of properties,
assets or other public or private companies by the Companies, (iv) the policies
of the Companies, Cobblestone and La Quinta regarding investments,
acquisitions, dispositions, financings, conflicts of interest and other
matters, (v) the qualification of Realty and Realty's Predecessor as a REIT
under the Code and the "grandfathering" rules under Section 269B of the Code,
(vi) the health care, real estate, golf and lodging industries and real estate
markets in general, (vii) the availability of debt and equity financing, (viii)
interest rates, (ix) general economic conditions, (x) supply and customer
demand, (xi) trends affecting the Companies', Cobblestone's and La Quinta's
financial condition or results

of operations, (xii) the effect of acquisitions (including the Cobblestone and
La Quinta acquisitions) on results of operations (including funds from
operations, margins, and cash flow), financial condition (including market
capitalization) and financial flexibility, (xiii) the anticipated performance
of the Companies and of acquired properties and businesses, including, without
limitation, statements regarding anticipated revenues, cash flows, funds from
operations, EBITDA, operating or profit margins and sensitivity to economic
downturns or anticipated growth or improvements in any of the foregoing, (xiv)
conditions or prospects in the lodging and other industries, including
anticipated growth or profitability, and the sensitivity of certain segments of
those industries to economic downturns, (xv) the ability of the Companies and
of acquired properties and businesses to grow (including La Quinta's ability to
renovate hotels and open new hotels as planned), and (xvi) Realty's funds from
operations payout ratio after giving effect to anticipated acquisitions.
Shareholders are cautioned that, while forward-looking statements reflect the
respective Companies' good faith beliefs, they are not guarantees of future
performance and they involve known and unknown risks and uncertainties and
there can be no assurance that the events, results or conditions reflected in
such forward-looking statements will occur. Actual results may differ
materially from those in the forward-looking statements as a result of various
factors. The information contained in this Joint Annual Report on Form 10-K,
including, without limitation, the information set forth in "Certain Factors
You Should Consider," identifies important factors that could cause such
differences. The Companies undertake no obligations to publicly release the
results of any revisions to these forward-looking statements that may reflect
any future events or circumstances.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The table below provides information about the Companies' derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations.

For fixed rate debt obligations, the table presents principal cash flows
and related weighted average interest rates by expected maturity dates. For
variable rate debt obligations, the table presents principal cash flows by
expected maturity date and contracted interest rates as of the report date. For
the interest rate swap the table presents notional amount and interest rate by
the expected (contractual) maturity date. Notional amounts are used to
calculate the contractual payments to be exchanged under the contract. The
variable interest rate represents the contractual LIBOR rate as of the
reporting date.

- - ----------------------------------------------------------------------------------------------------------------------------
There- Face Fair
(In thousands) 1999 2000 2001 2002 2003 after Value Value
- - ----------------------------------------------------------------------------------------------------------------------------

Debt Obligations
- - ----------------------------------------------------------------------------------------------------------------------------
Long Term Debt:
- - ----------------------------------------------------------------------------------------------------------------------------
Fixed Rate 28,785 219,422 248,639 92,659 207,301 686,676 1,483,482 1,454,784
- - ----------------------------------------------------------------------------------------------------------------------------
Average interest rate 7.547% 7.569% 7.644% 7.770% 7.354% 7.367% 7.470%
- - ----------------------------------------------------------------------------------------------------------------------------
Variable rate 750,000 1,108,000 1,858,000 1,839,162
- - ----------------------------------------------------------------------------------------------------------------------------
Average interest rate 7.980% 7.980% 7.980%
- - ----------------------------------------------------------------------------------------------------------------------------
Interest rate derivatives
- - ----------------------------------------------------------------------------------------------------------------------------
Interest rate swap:
- - ----------------------------------------------------------------------------------------------------------------------------
Notional amount 500,000 250,000 500,000 1,250,000 11,323
- - ----------------------------------------------------------------------------------------------------------------------------
Pay rate 5.680% 5.685% 5.700% 5.689%
- - ----------------------------------------------------------------------------------------------------------------------------
Receive rate (a) (a) (a) (a)
- - ----------------------------------------------------------------------------------------------------------------------------

(a) The Receive rate is based on LIBOR rates at the time of each
borrowing.

Realty
All indebtedness, including notes payable, convertible debentures, bank
notes payable and bonds and mortgages payable are liabilities on Realty. See
quantitative and qualitative disclosures about the Companies' market risk
above.

Operating
Operating is a guarantor of all of the obligations of Realty under the New
Credit Agreement.

Item 8. Financial Statements and Supplementary Data

THE MEDITRUST COMPANIES

COMBINED CONSOLIDATED BALANCE SHEETS

December 31,
-----------------------------
1998 1997
(In thousands, except per share amounts) ------------- -------------

Assets
Real estate investments, net .................................... $5,086,736 $2,935,772
Cash and cash equivalents ....................................... 305,456 43,732
Fees, interest and other receivables ............................ 54,712 23,650
Goodwill, net ................................................... 486,051 194,893
Net assets of discontinued operations ........................... 305,416 --
Other assets, net ............................................... 221,180 82,236
---------- ----------
Total assets ................................................... $6,459,551 $3,280,283
========== ==========
Liabilities and Shareholders' Equity
Indebtedness:
Notes payable, net .............................................. $1,155,837 $ 900,594
Convertible debentures, net ..................................... 185,013 234,000
Bank notes payable, net ......................................... 1,831,336 179,527
Bonds and mortgages payable, net ................................ 129,536 63,317
---------- ----------
Total indebtedness ............................................. 3,301,722 1,377,438
Accounts payable, accrued expenses and other liabilities ......... 206,901 77,106
---------- ----------
Total liabilities .............................................. 3,508,623 1,454,544
========== ==========
Commitments and contingencies .................................... -- --
Shareholders' equity:
Meditrust Corporation Series A Preferred Stock, $.10 par value;
6,000 shares authorized; 700 shares issued and outstanding in
1998; stated liquidation preference of $250 per share ......... 70 --
Paired Common Stock, $.20 combined par value; 270,000 shares
authorized; 149,326 and 88,128 paired shares issued and
outstanding in 1998 and 1997, respectively .................... 29,865 17,626
Additional paid-in-capital ...................................... 3,891,987 1,997,517
Treasury stock at cost, 1,635 paired shares in 1998 ............. (163,326) --
Unearned compensation ........................................... (6,718) --
Accumulated other comprehensive income .......................... 16,971 3,569
Distributions in excess of earnings ............................. (817,921) (192,973)
---------- ----------
Total shareholders' equity ...................................... 2,950,928 1,825,739
---------- ----------
Total liabilities and shareholders' equity ..................... $6,459,551 $3,280,283
========== ==========

The accompanying notes are an integral part of these financial statements

THE MEDITRUST COMPANIES

COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS

For the year ended December 31,
---------------------------------------------
1998 1997 1996
(In thousands, except per share amounts) ------------- ------------- -------------

Revenue:
Rental .............................................. $ 191,874 $ 137,868 $ 109,119
Interest ............................................ 153,093 151,170 144,905
Hotel ............................................... 258,423 -- --
Other ............................................... 35,987 -- --
---------- --------- ---------
639,377 289,038 254,024
---------- --------- ---------
Expenses:
Interest ............................................ 178,458 87,412 64,216
Depreciation and amortization ....................... 87,228 26,838 21,651
Amortization of goodwill ............................ 13,265 2,349 1,556
General and administrative .......................... 21,436 10,257 8,625
Hotel operations .................................... 125,246 -- --
Rental property operations .......................... 15,638 210 --
Loss on sale of securities .......................... 4,159 -- --
Gain on sale of assets .............................. (52,642) -- --
Income from unconsolidated joint venture ............ (906) 10 --
Other ............................................... 111,215 -- --
---------- --------- ---------
503,097 127,076 96,048
---------- --------- ---------
Income from continuing operations before benefit for
income taxes ........................................ 136,280 161,962 157,976
Income tax benefit ................................... (4,800) -- --
---------- --------- ---------
Income from continuing operations .................... 141,080 161,962 157,976
Discontinued operations:
Income from operations, net ......................... 10,721 450 --
Loss on disposal of Santa Anita, net ................ (67,913) -- --
Provision for loss on disposition of Cobblestone Golf
Group, net .......................................... (237,035) -- --
---------- --------- ---------
Net income (loss) .................................... (153,147) 162,412 157,976
Preferred stock dividends ............................ (8,444) -- --
---------- --------- ---------
Net income (loss) available to Paired
Common shareholders ................................. $ (161,591) $ 162,412 $ 157,976
========== ========= =========
Basic earnings per Paired Common Share:
Income from continuing operations ................... $ 1.10 $ 2.13 $ 2.21
Discontinued operations ............................. (2.44) .01 --
---------- --------- ---------
Net income (loss) ................................... $ (1.34) $ 2.14 $ 2.21
========== ========= =========
Diluted earnings per Paired Common Share:
Income from continuing operations ................... $ 1.06 $ 2.12 $ 2.20
Discontinued operations ............................. (2.35) -- --
---------- --------- ---------
Net income (loss) ................................... $ (1.29) $ 2.12 $ 2.20
========== ========= =========

The accompanying notes are an integral part of these financial statements

THE MEDITRUST COMPANIES

COMBINED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996

Shares of
Beneficial Interest
or Paired
Common Shares
------------------------
Additional
Preferred Paid-in Treasury
Shares Amount Stock Capital Stock
(In thousands) -------- --------------- ----------- ------------ ----------

Balance, December 31, 1995 61,494 $ 1,192,612
Proceeds from issuance of
shares of beneficial
interest, net of offering
costs of $16,316 ............... 11,055 296,484
Issuance of shares of
beneficial interest for:
Conversion of debentures,
net of unamortized issue
costs of $259 ................. 644 15,707
Employee compensation
and stock options ............. 524 13,123
Distributions paid ..............
Net income for the year
ended December 31, 1996
Change in market value of
equity investment in
excess of cost ................. ------ --------- ----------- ----------- -----------
Balance, December 31, 1996 73,717 1,517,926
Distribution of MAC shares to
Meditrust shareholders ......... 43,662
Effect of merger with The
Santa Anita Companies .......... 12,366 (1,544,370) $1,939,426
Issuance of Paired Common
Shares for:
Conversion of debentures,
net of unamortized issue
costs of $168 ................. 1,589 318 47,675

Accumulated
Other Distributions
Unearned Comprehensive in Excess of Comprehensive
Compensation Income Earnings Total Income (loss)
(In thousands) -------------- --------------- -------------- ------------- --------------

Balance, December 31, 1995 $ (130,857) $1,061,755
Proceeds from issuance of
shares of beneficial
interest, net of offering
costs of $16,316 ............... 296,484
Issuance of shares of
beneficial interest for:
Conversion of debentures,
net of unamortized issue
costs of $259 ................. 15,707
Employee compensation
and stock options ............. 13,123
Distributions paid .............. (162,632) (162,632)
Net income for the year
ended December 31, 1996 157,976 157,976 $157,976
Change in market value of
equity investment in
excess of cost ................. $2,528 2,528 2,528
-------------- ------ ---------- ---------- --------
Balance, December 31, 1996 2,528 (135,513) 1,384,941 $160,504
========
Distribution of MAC shares to
Meditrust shareholders ......... (43,662)
Effect of merger with The
Santa Anita Companies .......... 395,056
Issuance of Paired Common
Shares for:
Conversion of debentures,
net of unamortized issue
costs of $168 ................. 47,993

Shares of
Beneficial
Interest
or Paired
Common Shares
-----------------
Additional
Preferred Paid-in Treasury
Shares Amount Stock Capital Stock
(In thousands) -------- -------- ----------- ------------ --------------

Employee compensation
and stock options ............ 456 90 10,416
Distributions paid .............
Net income for the year
ended December 31, 1997
Change in market value of
equity investment in
excess of cost ................
Balance, December 31, 1997 88,128 17,626 1,997,517
------ ------ --------- --------- -----------
Proceeds from issuance of
Paired Common Shares,
net of offering costs of
$5,874 ........................ 8,500 1,700 269,738
Proceeds from issuance of
Preferred Stock, net of
offering costs of $6,334 ...... $70 168,596
Purchase of treasury stock ..... $(163,326)
Effect of merger with
Cobblestone ................... 8,177 1,636 239,510
Effect of merger with La
Quinta ........................ 43,280 8,656 1,163,980
Issuance of restricted stock
grants ........................ 315 63 7,026
Issuance of Paired Common
Shares for:
Conversion of debentures,
net of unamortized issue
costs of $1 ................... 284 56 7,110
Employee compensation
and stock options ............. 642 128 5,348
Dividends ......................
Property dividend .............. 33,162
Net loss for the year ended
December 31, 1998 .............

Employee compensation
and stock options ............ 10,506
Distributions paid ............. (176,210) (176,210)
Net income for the year
ended December 31, 1997 162,412 162,412 $ 162,412
Change in market value of
equity investment in
excess of cost ................ 1,041 1,041 1,041
----- -------- -------- ----------
Balance, December 31, 1997 3,569 (192,973) 1,825,739 $ 163,453
==========
Proceeds from issuance of
Paired Common Shares,
net of offering costs of
$5,874 ........................ 271,438
Proceeds from issuance of
Preferred Stock, net of
offering costs of $6,334 ...... 168,666
Purchase of treasury stock ..... (163,326)
Effect of merger with
Cobblestone ................... 241,146
Effect of merger with La
Quinta ........................ 1,172,636
Issuance of restricted stock
grants ........................ $(6,718) 371
Issuance of Paired Common
Shares for:
Conversion of debentures,
net of unamortized issue
costs of $1 ................... 7,166
Employee compensation
and stock options ............. 5,476
Dividends ...................... (438,639) (438,639)
Property dividend .............. (33,162)
Net loss for the year ended
December 31, 1998 ............. (153,147) (153,147) $ (153,147)

Shares of
Beneficial Interest
or Paired
Common Shares
--------------------
Additional
Preferred Paid-in Treasury
Shares Amount Stock Capital Stock
(In thousands) --------- ---------- ----------- ------------ --------------

Change in market value of
equity investments in
excess of cost ...............
------- ------- --- ---------- ----------
Balance, December 31, 1998 149,326 $29,865 $70 $3,891,987 $ (163,326)
======= ======= === ========== ==========

Change in market value of
equity investments in
excess of cost ............... 13,402 13,402 13,402
-------- ------- ---------- ---------- ----------
Balance, December 31, 1998 $ (6,718) $16,971 $ (817,921) $2,950,928 $ (139,745)
======== ======= ========== ========== ==========

The accompanying notes are an integral part of these financial statements

THE MEDITRUST COMPANIES

COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the year ended December 31,
----------------------------------------------
1998 1997 1996
(In thousands) -------------- ------------- -------------

Cash Flows from Operating Activities:
Net income (loss) ...................................................... $ (153,147) $ 162,412 $ 157,976
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation of real estate ........................................... 90,446 26,750 21,269
Goodwill amortization ................................................. 15,826 2,349 1,557
Loss on sale of assets ................................................ 19,430 -- --
Shares issued for compensation ........................................ 438 1,994 2,039
Equity in income of joint venture, net of dividends received .......... 544 -- --
Other depreciation, amortization and other items, net ................. 19,777 1,538 1,211
Other non cash expenses ............................................... 326,064 -- --
------------ ---------- ----------
Cash Flows from Operating Activities Available for Distribution ......... 319,378 195,043 184,052
Net change in other assets and liabilities of discontinued
operations ............................................................. (18,331) -- --
Net change in other assets and liabilities .............................. (124,876) (10,631) 4,499
------------ ---------- ----------
Net cash provided by operating activities ........................... 176,171 184,412 188,551
------------ ---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of paired common and Realty preferred
stock ................................................................. 456,713 -- 312,800
Purchase of treasury stock ............................................. (163,326) -- --
Proceeds from borrowings on bank notes payable ......................... 2,445,000 1,078,000 476,000
Repayment of bank notes payable ........................................ (767,000) (512,015) (370,000)
Repayment of notes payable ............................................. (220,000) -- --
Equity offering and debt issuance costs ................................ (47,393) (5,896) (19,235)
Repayment of convertible debentures .................................... (43,152) -- --
Principal payments on bonds and mortgages payable ...................... (37,625) (5,098) (940)
Dividends/distributions to shareholders ................................ (438,639) (176,210) (162,632)
Proceeds from exercise of stock options ................................ 5,035 9,138 11,084
------------ ---------- ----------
Net cash provided by financing activities ........................... 1,189,613 387,919 247,077
------------ ---------- ----------
Cash Flows from Investing Activities:
Acquisition of real estate and development funding ..................... (636,989) (292,607) (325,789)
Investment in real estate mortgages and development funding ............ (222,524) (299,861) (265,084)
Prepayment proceeds and principal payments received on real
estate mortgages ...................................................... 407,241 54,618 162,247
Proceeds from sale of assets ........................................... 484,467 6,173 4,701
Proceeds from sale of securities ....................................... 3,606 -- --
Payment of Santa Anita merger related costs ............................ -- (16,979) --
Cash acquired from Santa Anita merger .................................. -- 30,249 --
Acquisition of Cobblestone ............................................. (178,523) -- --
Acquisition of La Quinta ............................................... (956,054) -- --
Cash acquired in Cobblestone merger .................................... 723 -- --
Cash acquired in La Quinta merger ...................................... 18,004 -- --
Working capital and notes receivable advances, net of
repayments and collections ............................................ 6,211 (210) 284
Investment in equity securities ........................................ (30,222) (52,708) (13,509)
------------ ---------- ----------
Net cash used in investing activities ............................... (1,104,060) (571,325) (437,150)
------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents ................ 261,724 1,006 (1,522)
Cash and cash equivalents at:
Beginning of year ...................................................... 43,732 42,726 44,248
------------ ---------- ----------
End of year ............................................................ $ 305,456 $ 43,732 $ 42,726
============ ========== ==========

The accompanying notes are an integral part of these financial statements

MEDITRUST CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31,
-----------------------------
1998 1997
(In thousands, except per share amounts) ------------- -------------

Assets
Real estate investments, net ..................................... $5,067,217 $2,935,772
Cash and cash equivalents ........................................ 292,694 24,059
Fees, interest and other receivables ............................. 42,039 21,070
Goodwill, net .................................................... 451,672 162,408
Due from Meditrust Operating Company ............................. -- 18,490
Net assets of discontinued operations ............................ 280,330 --
Other assets, net ................................................ 187,033 54,129
---------- ----------
Total assets .................................................. $6,320,985 $3,215,928
========== ==========
Liabilities and Shareholders' Equity
Indebtedness:
Notes payable, net .............................................. $1,155,837 $ 900,594
Convertible debentures, net ..................................... 185,013 234,000
Bank notes payable, net ......................................... 1,831,336 179,527
Bonds and mortgages payable, net ................................ 129,536 63,317
---------- ----------
Total indebtedness ............................................ 3,301,722 1,377,438
---------- ----------
Due to Meditrust Operating Company ............................... 29,169 --
Accounts payable, accrued expenses and other liabilities ......... 116,741 46,250
---------- ----------
Total liabilities ............................................. 3,447,632 1,423,688
---------- ----------
Commitments and contingencies -- --
Shareholders' equity:
Series A Preferred Stock, $.10 par value; 6,000 shares authorized;
700 shares issued and outstanding in 1998; stated liquidation
preference of $250 per share.................................... 70 --
Common Stock, $.10 par value; 270,000 shares authorized; 150,631
and 89,433 shares issued and outstanding in 1998 and 1997,
respectively ................................................... 15,063 8,943
Additional paid-in-capital ....................................... 3,820,436 1,985,229
Treasury stock at cost 1,635 shares in 1998 ...................... (160,223) --
Unearned compensation ........................................... (6,718) --
Accumulated other comprehensive income .......................... 16,971 3,569
Distributions in excess of earnings .............................. (799,118) (192,373)
---------- ----------
2,886,481 1,805,368
Note receivable--Meditrust Operating Company ..................... (13,128) (13,128)
---------- ----------
Total shareholders' equity ..................................... 2,873,353 1,792,240
---------- ----------
Total liabilities and shareholders' equity .................... $6,320,985 $3,215,928
========== ==========

The accompanying notes are an integral part of these financial statements

MEDITRUST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the year ended December 31,
---------------------------------------------
1998 1997 1996
(In thousands, except per share amounts) ------------- ------------- -------------

Revenue:
Rental ............................................ $ 191,874 $ 137,868 $ 109,119
Interest .......................................... 152,486 151,122 144,905
Rent from Meditrust Operating Company ............. 125,706 -- --
Interest from Meditrust Operating Company ......... 712 129 --
Royalty from Meditrust Operating Company .......... 6,326 -- --
Hotel operating revenue ........................... 5,781 -- --
Other ............................................. 35,987 -- --
---------- --------- ---------
518,872 289,119 254,024
---------- --------- ---------
Expenses:
Interest .......................................... 178,374 87,412 64,216
Depreciation and amortization ..................... 84,327 26,838 21,651
Amortization of goodwill .......................... 12,505 2,214 1,556
General and administrative ........................ 19,371 10,111 8,625
Hotel operations .................................. 1,063 -- --
Rental property operations ........................ 15,638 210 --
Loss on sale of securities ........................ 4,159 -- --
Gain on sale of assets ............................ (52,642) -- --
Income from unconsolidated joint venture .......... (906) 10 --
Other ............................................. 96,052 -- --
---------- --------- ---------
357,941 126,795 96,048
---------- --------- ---------
Income from continuing operations .................. 160,931 162,324 157,976
Discontinued operations:
Income from operations, net ....................... 14,635 688 --
Loss on disposal of Santa Anita, net .............. (82,953) -- --
Provision for loss on disposition of
Cobblestone Golf Group, net ...................... (227,557) -- --
---------- --------- ---------
Net income (loss) .................................. (134,944) 163,012 157,976
Preferred stock dividends .......................... (8,444) -- --
---------- --------- ---------
Net income (loss) available to Common
shareholders ...................................... $ (143,388) $ 163,012 $ 157,976
========== ========= =========
Basic earnings per Common Share: ...................
Income (loss) from continuing operations .......... $ 1.25 $ 2.13 $ 2.21
Discontinued operations ........................... (2.43) .01 --
---------- --------- ---------
Net income (loss) ................................. $ (1.18) $ 2.14 $ 2.21
========== ========= =========
Diluted earnings per Common Share: .................
Income (loss) from continuing operations .......... $ 1.20 $ 2.11 $ 2.20
Discontinued operations ........................... (2.33) .01 --
---------- --------- ---------
Net income (loss) ................................. $ (1.13) $ 2.12 $ 2.20
========== ========= =========

The accompanying notes are an integral part of these financial statements

MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996

Shares of
Beneficial
Interest or
Common Stock
------------------------
Additional
Preferred Paid-in Treasury
Shares Amount Stock Capital Stock
(In thousands) -------- --------------- ----------- ------------ ----------

Balance, December 31, 1995 61,494 $ 1,192,612
Proceeds from issuance of
shares of beneficial
interest, net of offering
costs of $16,316 ............... 11,055 296,484
Issuance of shares of
beneficial interest for:
Conversion of debentures,
net of unamortized issue
costs of $259 ................. 644 15,707
Employee compensation
and stock options ............. 524 13,123
Distributions paid ..............
Net income for the year
ended December 31, 1996
Change in market value of
equity investment in
excess of cost .................
------ ---------- ---------- --------- ----------
Balance, December 31, 1996 73,717 1,517,926
Distribution of MAC shares to
Meditrust shareholders .........
Effect of merger with Santa
Anita Realty ................... 13,671 (1,509,187) $1,927,790
Issuance of shares of
Common Stock for:
Conversion of debentures,
net of unamortized issue
costs of $165 ................. 1,589 159 47,023
Employee compensation
and stock options ............. 456 45 10,416

Accumulated
Other Distributions
Unearned Compre- in Excess Note Comprehensive
Compen- hensive of Receivable Income
sation Income Earnings Operating Total (loss)
(In thousands) ---------- ------------ -------------- ------------ ------------- --------------

Balance, December 31, 1995 $ (130,857) $1,061,755
Proceeds from issuance of
shares of beneficial
interest, net of offering
costs of $16,316 ............... 296,484
Issuance of shares of
beneficial interest for:
Conversion of debentures,
net of unamortized issue
costs of $259 ................. 15,707
Employee compensation
and stock options ............. 13,123
Distributions paid .............. (162,632) (162,632)
Net income for the year
ended December 31, 1996 157,976 157,976 $157,976
Change in market value of
equity investment in
excess of cost ................. $2,528 2,528 2,528
---------- ------ --------- ---------- ---------- --------
Balance, December 31, 1996 2,528 (135,513) 1,384,941 $160,504
========
Distribution of MAC shares to
Meditrust shareholders ......... (43,662) (43,662)
Effect of merger with Santa
Anita Realty ................... $(13,128) 405,475
Issuance of shares of
Common Stock for:
Conversion of debentures,
net of unamortized issue
costs of $165 ................. 47,182
Employee compensation
and stock options ............. 10,461

MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996

Shares of
Beneficial
Interest or
Common Stock
-----------------
Additional
Preferred Paid-in Treasury
Shares Amount Stock Capital Stock
(In thousands) -------- -------- ----------- ------------ --------------

Distributions paid .............
Net income for the year
ended December 31, 1997
Change in market value of
equity investment in
excess of cost ................
------ ------ ---------- ---------- ---------
Balance, December 31, 1997 89,433 8,943 1,985,229
Proceeds from issuance of
Common Stock, net of
offering costs of $5,769 ...... 8,500 850 265,425
Proceeds from issuance of
Preferred Stock, net of
offering costs of $6,334 ...... $70 168,596
Purchase of treasury stock ..... $(160,223)
Effect of merger with
Cobblestone ................... 8,177 818 235,928
Effect of merger with La
Quinta ........................ 43,280 4,328 1,146,028
Issuance of restricted stock
grants ........................ 315 32 6,921
Issuance of shares of
Common Stock for:
Conversion of debentures,
net of unamortized issue
costs of $1 .................. 284 28 7,002
Employee compensation
and stock options ............ 642 64 5,307
Dividends paid .................
Property distribution ..........

Accumulated
Other Distributions
Unearned Compre- in Excess Note Comprehensive
Compen- hensive of Receivable Income
sation Income Earnings Operating Total (loss)
(In thousands) ------------ ------------ -------------- ------------ ------------- --------------

Distributions paid ............. (176,210) (176,210)
Net income for the year
ended December 31, 1997 163,012 163,012 $163,012
Change in market value of
equity investment in
excess of cost ................ 1,041 1,041 1,041
---------- ----- -------- ------- -------- --------
Balance, December 31, 1997 3,569 (192,373) (13,128) 1,792,240 $164,053
========
Proceeds from issuance of
Common Stock, net of
offering costs of $5,769 ...... 266,275
Proceeds from issuance of
Preferred Stock, net of
offering costs of $6,334 ...... 168,666
Purchase of treasury stock ..... (160,223)
Effect of merger with
Cobblestone ................... 236,746
Effect of merger with La
Quinta ........................ 1,150,356
Issuance of restricted stock
grants ........................ $(6,718) 235
Issuance of shares of
Common Stock for:
Conversion of debentures,
net of unamortized issue
costs of $1 .................. 7,030
Employee compensation
and stock options ............ 5,371
Dividends paid ................. (438,639) (438,639)
Property distribution .......... (33,162) (33,162)

MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996

Shares of
Beneficial
Interest or
Common Stock
--------------------
Additional
Preferred Paid-in
Shares Amount Stock Capital
(In thousands) --------- ---------- ----------- ------------

Net loss for the year ended
December 31, 1998 .......................................
Change in market value of
equity investment in
excess of cost ..........................................
Balance, December 31, 1998 150,631 $15,063 $70 $3,820,436
======= ======= === ==========

Accumulated
Other Distributions
Unearned Compre- in Excess Note
Treasury Compen- hensive of Receivable
Stock sation Income Earnings Operating
(In thousands) -------------- ------------ ------------ -------------- ------------

Net loss for the year ended
December 31, 1998 ....................................... (134,944)
Change in market value of
equity investment in
excess of cost .......................................... 13,402
------
Balance, December 31, 1998 $ (160,223) $ (6,718) $16,971 $ (799,118) $ (13,128)
========== ======== ======= ========== =========

Comprehensive
Income
Total (loss)
(In thousands) ------------- --------------

Net loss for the year ended
December 31, 1998 ....................................... (134,944) $ (134,944)
Change in market value of
equity investment in
excess of cost .......................................... 13,402 13,402
-------- ----------
Balance, December 31, 1998 $2,873,353 $ (121,542)
========== ==========

The accompanying notes are an integral part of the financial statements

MEDITRUST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the year ended December 31,
----------------------------------------------
1998 1997 1996
(In thousands) -------------- ------------- -------------

Cash Flows from Operating Activities:
Net income (loss) ...................................................... $ (134,944) $ 163,012 $ 157,976
Adjustments to reconcile net income (loss) to net cash
provided by continuing operations
Depreciation of real estate ........................................... 86,395 26,750 21,269
Goodwill amortization ................................................. 15,066 2,214 1,557
Loss on sale of assets ................................................ 34,470 -- --
Shares issued for compensation ........................................ 430 1,994 2,039
Equity in income of joint venture, net of dividends received .......... 544 -- --
Other depreciation, amortization and other items, net ................. 15,749 1,367 1,211
Other non cash expenses ............................................... 309,612 -- --
------------ ---------- ----------
Cash Flows from Operating Activities Available for Distribution ......... 327,322 195,337 184,052
Net change in other assets and liabilities .............................. (139,716) (10,142) 4,499
------------ ---------- ----------
Net cash provided by operating activities ........................... 187,606 185,195 188,551
------------ ---------- ----------
Cash Flows from Financing Activities: ...................................
Proceeds from issuance of common and preferred stock ................... 447,044 -- 312,800
Purchase of treasury stock ............................................. (160,223) -- --
Proceeds from borrowings on bank notes payable ......................... 2,445,000 1,078,000 476,000
Repayment of bank notes payable ........................................ (767,000) (512,015) (370,000)
Repayment of notes payable ............................................. (220,000) -- --
Equity offering and debt issuance costs ................................ (47,288) (5,896) (19,235)
Intercompany lending, net .............................................. 26,385 (11,175) --
Repayment of convertible debentures .................................... (43,152) -- --
Principal payments on bonds and mortgages payable ...................... (37,625) (5,098) (940)
Distributions to shareholders .......................................... (438,639) (176,210) (162,632)
Proceeds from exercise of stock options ................................ 4,939 9,092 11,084
------------ ---------- ----------
Net cash provided by financing activities ........................... 1,209,441 376,698 247,077
------------ ---------- ----------
Cash Flows from Investing Activities:
Acquisition of real estate and development funding ..................... (636,707) (292,607) (325,789)
Investment in real estate mortgages and development funding ............ (222,524) (299,861) (265,084)
Prepayment proceeds and principal payments received on real
estate mortgages ...................................................... 407,241 54,618 162,247
Proceeds from sale of real estate ...................................... 459,833 6,173 4,701
Proceeds from sale of securities ....................................... 3,606 -- --
Payment of Santa Anita merger related costs ............................ -- (16,979) --
Cash acquired from Santa Anita merger .................................. -- 25,944 --
Acquisition of Cobblestone ............................................. (178,523) -- --
Acquisition of La Quinta ............................................... (956,054) -- --
Cash acquired from Cobblestone merger .................................. 723 -- --
Cash acquired from La Quinta merger .................................... 18,004 -- --
Working capital and notes receivable advances, net of
repayments and collections ............................................ 6,211 (134) 284
Investment in MAC ...................................................... -- (43,662) --
Investment in equity securities ........................................ (30,222) (14,052) (13,509)
------------ ---------- ----------
Net cash used in investing activities ............................... (1,128,412) (580,560) (437,150)
------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents ................ 268,635 (18,667) (1,522)
Cash and cash equivalents at:
Beginning of year ...................................................... 24,059 42,726 44,248
------------ ---------- ----------
End of year ............................................................ $ 292,694 $ 24,059 $ 42,726
============ ========== ==========

The accompanying notes are an integral part of these financial statements

MEDITRUST OPERATING COMPANY

CONSOLIDATED BALANCE SHEETS

December 31,
---------------------------
1998 1997
(In thousands, except per share amounts) ------------ ------------

Assets
Cash and cash equivalents ...................................... $ 12,762 $ 19,673
Fees, interest and other receivables ........................... 12,673 2,580
Due from Meditrust Corporation ................................. 46,874 --
Other current assets, net ...................................... 10,423 3,078
--------- --------
Total current assets ........................................ 82,732 25,331
Investment in common stock of Meditrust Corporation ............ 37,581 37,581
Goodwill, net .................................................. 34,379 32,485
Property, plant and equipment, less accumulated depreciation
of $760 and 171, respectively ................................. 30,895 10,529
Artwork ........................................................ -- 14,500
Other non-current assets ....................................... 12,603 --
--------- --------
Total assets ................................................ $ 198,190 $120,426
========= ========
Liabilities and Shareholders' Equity
Accounts payable ............................................... $ 18,349 $ 9,981
Accrued payroll and employee benefits .......................... 33,457 9,312
Accrued expenses and other current liabilities ................. 30,980 9,713
Due to Meditrust Corporation ................................... -- 19,354
--------- --------
Total current liabilities ................................... 82,786 48,360
Note payable to Meditrust Corporation .......................... 13,128 13,128
Deferred revenue ............................................... -- 1,349
Other non-current liabilities .................................. 7,629 501
Net liabilities of discontinued operations ..................... 16,140 --
--------- --------
Total liabilities ........................................... 119,683 63,338
--------- --------
Commitments and contingencies -- --
Shareholders' equity:
Common Stock, $.10 par value; 270,000 shares authorized; 149,326
and 88,128 shares issued and outstanding in 1998 and 1997,
respectively .................................................. 14,933 8,813
Additional paid-in-capital ..................................... 109,001 49,739
Treasury stock at cost, 1,635 shares in 1998 ................... (3,103) --
Retained earnings (deficit) .................................... (18,803) (600)
--------- --------
102,028 57,952
Due from Meditrust Corporation ................................. (23,521) (864)
--------- --------
Total shareholders' equity ................................... 78,507 57,088
--------- --------
Total liabilities and shareholders' equity .................. $ 198,190 $120,426
========= ========

The accompanying notes are an integral part of these financial statements

MEDITRUST OPERATING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the For the initial
year ended period ended
December 31, December 31,
1998 1997
(In thousands, except per share amounts) -------------- ----------------

Revenue:
Hotel ................................................................... $ 252,642 $ --
Interest ................................................................ 607 48
--------- ------
253,249 48
--------- ------
Expenses:
Hotel operations ........................................................ 124,183 --
Depreciation and amortization ........................................... 2,901 --
Amortization of goodwill ................................................ 760 135
Interest and other ...................................................... 84 --
Interest to Meditrust Corporation ....................................... 712 129
General and administrative .............................................. 2,065 146
Royalty to Meditrust Corporation ........................................ 6,326 --
Rent to Meditrust Corporation ........................................... 125,706 --
Other ................................................................... 15,163 --
--------- ------
277,900 410
--------- ------
Loss from continuing operations before benefit for income taxes .......... (24,651) (362)
Income tax benefit ....................................................... (4,800) --
--------- ------
Loss from continuing operations .......................................... (19,851) (362)
Discontinued operations:
Loss from operations, net ............................................... (3,914) (238)
Gain on disposal of Santa Anita, net .................................... 15,040 --
Provision for loss on disposition of Cobblestone Golf Group, net ........ (9,478) --
--------- ------
Net loss ................................................................. $ (18,203) $ (600)
========= ======
Basic earnings per Common Share:
Loss from continuing operations ......................................... $ (.16) $ (.01)
Discontinued operations ................................................. .01 --
--------- ------
Net loss ................................................................ $ (.15) $ (.01)
========= ======
Diluted earnings per Common Share:
Loss from continuing operations ......................................... $ (.16) $ (.01)
Discontinued operations ................................................. .01 --
--------- ------
Net loss ................................................................ $ (.15) $ (.01)
========= ======

The accompanying notes are an integral part of these financial statements

MEDITRUST OPERATING COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Year Ended December 31,1998 and the Initial Period Ended December 31,
1997

Shares of
Beneficial Interest
or Common Stock
---------------------- Due from
Additional Treasury Meditrust Retained
Shares Amount Paid-in Capital Stock Corporation Earnings Total
(In thousands) ---------- ----------- ---------------- ---------- ------------ ----------- ---------

Proceeds from issuance of shares of
beneficial interest ......................... 74,161 $ 43,662 $ 43,662
Effect of merger with Santa Anita Operating
Company ..................................... 12,366 (35,009) $ 49,035 14,026
Issuance of shares of beneficial interest for:
Employee compensation and stock
options .................................... 175 17 36 $ (53) --
Conversion of debentures, net of
unamortized issue costs of $3 .............. 1,426 143 668 (811) --
Net loss for the initial period ended
December 31, 1997 ........................... -- $ (600) (600)
------- -------- -------- ------- -------- -------- --------
Balance, December 31, 1997 ................... 88,128 8,813 49,739 (864) (600) 57,088
Proceeds from issuance of Common Stock,
net of offering costs of $105 ............... 8,500 850 4,313 5,163
Purchase of treasury stock ................... $(3,103) (3,103)
Effect of merger with Cobblestone ............ 8,177 818 3,582 4,400
Effect of merger with La Quinta .............. 43,280 4,328 17,952 (22,280) --
Issuance of restricted stock grants .......... 315 32 104 (136) --
Issuance of shares of common stock for:
Conversion of debentures .................... 284 28 108 (136) --
Employee compensation and stock
options .................................... 642 64 41 (105) --
Property contribution ........................ 33,162 33,162
Net loss for the year ended December 31,
1998 ........................................ (18,203) (18,203)
------- -------- -------- ------- -------- -------- --------
Balance, December 31, 1998 ................... 149,326 $ 14,933 $109,001 $(3,103) $(23,521) $(18,803) $ 78,507
======= ======== ======== ======= ======== ======== ========

The accompanying notes are an integral part of these financial statements

MEDITRUST OPERATING COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

For the For the initial
year ended period ended
December 31, December 31,
1998 1997
(In thousands, except per share amounts) -------------- --------------

Cash Flows from Operating Activities:
Net loss ............................................................. $(18,203) $ (600)
Goodwill amortization ................................................ 760 135
Gain on sale of assets ............................................... (15,040) --
Shares issued for compensation ....................................... 8 --
Other depreciation and amortization .................................. 8,079 171
Other items .......................................................... 16,452 --
Net change in other assets and liabilities of discontinued operations (6,852) --
Net change in other assets and liabilities ........................... 3,361 (489)
-------- -------
Net cash used in operating activities ............................. (11,435) (783)
-------- -------
Cash Flows from Financing Activities:
Proceeds from issuance of stock ...................................... 9,669 43,662
Purchase of treasury stock ........................................... (3,103) --
Equity offering costs ................................................ (105) --
Intercompany lending, net ............................................ (26,385) 11,175
Proceeds from stock option exercises ................................. 96 46
-------- -------
Net cash provided by (used in) financing activities ............... (19,828) 54,883
-------- -------
Cash Flows from Investing Activities:
Capital improvements to real estate .................................. (282) --
Proceeds from sale of assets ......................................... 24,634 --
Cash acquired from Santa Anita merger ................................ -- 4,305
Collection of receivables and repayment of working capital advances -- (76)
Investment in equity securities ...................................... -- (38,656)
-------- -------
Net cash provided by (used in) investing activities ............... 24,352 (34,427)
-------- -------
Net increase (decrease) in cash and cash equivalents .............. (6,911) 19,673
Cash and cash equivalents at:
Beginning of year or at inception .................................... 19,673 --
-------- -------
End of year .......................................................... $ 12,762 $19,673
======== =======

The accompanying notes are an integral part of these financial statements

1. Summary of Significant Accounting Policies

Business
Meditrust Corporation ("Realty") and Meditrust Operating Company and
subsidiaries ("Operating Company") (collectively the "Companies" or "The
Meditrust Companies") are two separate companies, the stocks of which trade as
a single unit under a stock pairing arrangement on the New York Stock Exchange.

Realty is a self administered real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended, and invests primarily in
healthcare facilities and lodging facilities.

The healthcare facilities include nursing homes, assisted living
facilities, medical office buildings, rehabilitation hospitals and other
healthcare related facilities. These facilities are located throughout the
United States and are operated by regional and national healthcare providers.
Realty also invests in an entity which invests in similar facilities abroad.
The lodging facilities include hotels located in the western and southern
regions of the United States.

Realty leases each of its hotels to Operating Company, who is responsible
for operating the hotels, or to other third party lessees (the "Lessees"). At
December 31, 1998, Realty leased 286 of its hotel investments to Operating
Company for a 5 year term, pursuant to separate participating leases providing
for the payment of the greater of base or participating rent, plus certain
additional charges, as applicable (the "Participating Hotel Facility Leases").

Operating Company is currently engaged in hotel operations previously
conducted by La Quinta Inns, Inc. and its wholly owned subsidiaries and its
unincorporated partnership and joint venture ("La Quinta") which lease the
respective facilities and license the La Quinta tradename from Realty and its
subsidiaries. La Quinta is a fully-integrated lodging company that focuses on
the operation and development of hotels. As of December 31, 1998, La Quinta
operated 290 hotels, with over 37,000 rooms located in the western and southern
regions of the United States.

On November 11, 1998, the Boards of Directors of Realty and Operating
Company approved a comprehensive restructuring plan designed to strengthen the
Companies' financial position and clarify their investment and operating
strategy by focusing on the heathcare and lodging businesses. Significant
components of the restructuring plan include selling more than $1,000,000,000
of non-strategic assets, including their portfolio of golf-related real estate
and operating properties ("Cobblestone Golf Group"), the Santa Anita Racetrack
and adjacent property, and approximately $550,000,000 of non-strategic
healthcare properties.

Basis of Presentation and Consolidation
Separate financial statements have been presented for Realty and for
Operating Company. Combined Realty and Operating Company financial statements
have been presented as The Meditrust Companies. All significant intercompany
and inter-entity balances and transactions have been eliminated in combination.
The Meditrust Companies and Realty use an unclassified balance sheet
presentation.

The consolidated financial statements of Realty and Operating Company
include the accounts of the respective entity and its majority-owned
partnerships after the elimination of all significant intercompany accounts and
transactions.

On July 17, 1998, the Companies acquired La Quinta and its related
operations. This transaction was accounted for under the purchase method of
accounting. Accordingly, the financial statements include, among other things,
the results of operations and cash flows of La Quinta from July 17, 1998
through the date of the financial statements.

As a result of the restructuring plan, the Companies have reflected the
Cobblestone Golf Group and Santa Anita Racetrack as discontinued operations and
certain healthcare properties as assets held for sale, in the accompanying
financial statements.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.

The Companies' more significant accounting policies follow:

Real Estate Investments
Land, buildings and improvements are stated at cost. Depreciation is
provided for on a straight-line basis over 20 to 40 years, the expected useful
lives of the buildings and major improvements. Hotel equipment, furniture and
fixtures are recorded at cost. Depreciation is provided using the straight-line
method over 3 to 15 years, the estimated useful lives of the related assets.
Leasehold improvements are recorded at cost and depreciated over the shorter of
the lease term or the estimated useful life.

Expenditures which materially increase the property's life are
capitalized. The cost of maintenance and repairs is charged to expense as
incurred. When depreciable property is retired or disposed of, the related cost
and accumulated depreciation is removed from the accounts and any gain or loss
is reflected in current operations.

Property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. For each asset not held for sale, the sum of expected future
cash flows, undiscounted and without interest charges, of the asset is compared
to the net book value of the asset. If the sum of expected future cash flows,
undiscounted and without interest charges, is less than the net book value of
the asset, the excess of the net book value over the estimated fair value is
charged to current earnings. When an asset is identified by management as held
for sale, the Companies discontinue depreciating the asset and the carrying
value is reduced, if necessary to the estimated fair value less costs to sell.
Fair value is determined based upon discounted cash flows of the assets at
rates deemed reasonable for the type of property and prevailing market
conditions, appraisals and, if appropriate, current estimated net sales
proceeds from pending offers. A gain or loss is recorded to the extent the
amounts ultimately received for the sale of assets differ from the adjusted
book values of the assets. Gains and losses on sales of assets are recognized
at the time the assets are sold provided there is reasonable assurance of the
collectibility of the sales price and any future activities to be performed by
the Companies relating to the assets sold are expected to be insignificant.

Hotel construction in progress is carried at cost. All costs associated
with, or allocable to, hotel construction are capitalized. All pre-opening and
start-up costs are expensed as incurred.

Loans are classified and accounted for as impaired loans when based on
current information and events, it is probable that the Companies will be
unable to collect all principal and interest due on the loan in accordance with
the original contractual terms. Upon determination that an impairment has
occurred, the amount of the impairment is recognized as a valuation allowance
based upon an analysis of the net realizable value of the underlying property
collateralizing the loan. Payments of interest on impaired loans received by
the Companies are recorded as interest income provided the amount does not
exceed that which would have been earned at the historical effective interest
rate.

Capitalized Acquisition and Interest Costs
Realty capitalizes pre-acquisition costs, development costs and other
indirect costs. Additionally, Realty capitalizes the interest cost associated
with developing new facilities. The amount capitalized is based upon a rate of
interest which approximates the Companies' cost of financing.

Cash and Cash Equivalents
Cash and cash equivalents consist of certificates of deposit and other
investments with less than 90-day original maturities and are stated at cost
which approximates fair market value.

Goodwill
Goodwill represents the excess of cost over the fair value of assets
acquired and is being amortized using the straight-line method over periods
ranging from 10 to 40 years. The Companies assess the recoverability of
goodwill whenever adverse events or changes in circumstances or business
climate indicate that the expected future cash flows (undiscounted and without
interest charges) for individual business segments may not be sufficient to
support recorded goodwill. If undiscounted cash flows are not sufficient to
support the recorded asset, an impairment would be recognized to reduce the
carrying value of the goodwill based on the expected discounted cash flows of
the business segment. Expected cash flows would be discounted at a rate
commensurate with the risk involved.

Goodwill associated with the Santa Anita merger primarily relates to the
value of the paired-share structure and, due to the permanent nature of the
structure, is being amortized over a 40 year period. Accordingly, the goodwill
recorded as part of the Santa Anita merger is expected to remain even though
the Santa Anita Racetrack has been sold, as long as the Companies continue to
utilize the paired share structure. Goodwill also includes amounts associated
with the acquisition of La Quinta and Realty's previous investment advisor
which are being amortized on a straight-line basis over 20 and 10 year periods,
respectively.

Investments in Equity Securities
Investments in equity securities have been classified as
available-for-sale and recorded at current market value. The difference between
market value and cost (unrealized holding gains and losses) is recorded in
shareholders' equity. Gains and losses on sales of investments are calculated
based on the specific identification method and are recognized at the time the
investments are sold.

Intangible Assets
Intangible assets, consisting of La Quinta's tradename, reservation system
and assembled workforce, are included in other assets and are amortized on a
straight-line basis using lives ranging from 3 to 20 years based on
management's assessment of the fair value of the intangible assets. The
Companies evaluate the carrying values of intangible assets in the same manner
that they evaluate the carrying values of real estate assets.

Debt Issuance Costs
Debt issuance costs have been deferred and are amortized on a
straight-line basis (which approximates the effective interest method) over the
term of the related borrowings.

Deferred Revenue
Realty's deferred revenue, which is a component of other liabilities,
consists primarily of fees which are being amortized over the term of the
related investment.

Self-Insurance Programs
The hotel operation uses a paid loss retrospective insurance plan for
general and auto liability and workers' compensation whereby the operation is
effectively self-insured. Predetermined loss limits have been arranged with
insurance companies to limit the per occurrence cash outlay.

Hotel employees and their dependents are covered by a self-insurance
program for major medical and hospitalization coverage which is partially
funded by payroll deductions. Payments for major medical and hospitalization to
individual participants below specified amounts are self-insured by the
Companies.

Shareholders' Equity
The outstanding shares of Realty's common stock and Operating Company's
common stock are only transferable and tradable in combination as a paired unit
consisting of one share of Realty's common stock and one share of Operating
Company's common stock.

Realty's Revenue Recognition
Realty's rental income from operating leases is recognized on a
straight-line basis over the life of the respective lease agreements. Interest
income on real estate mortgages is recognized on the accrual basis, which
approximates the effective interest method.

Operating Company's Revenue and Seasonalilty
Hotel revenues are derived from room rentals and other sources such as
charges to guests for long-distance telephone service, fax machine use, movie
and vending commissions, meeting and banquet room revenue and laundry services.
Hotel revenues are recognized as earned.

The hotel industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
This seasonality can be expected to cause quarterly fluctuations in revenue,
profit margins and net earnings. In addition, the opening of new construction
hotels and or the timing of hotel acquisitions may cause variation of revenue
from quarter to quarter.

Earnings Per Share
The Companies have adopted Financial Accounting Standards Board Statement
No. 128 "Earnings Per Share" ("SFAS 128") for the year ended December 31, 1997.
SFAS 128 specifies the computation, presentation and disclosure requirements
for basic earnings per share and diluted earnings per share. Earnings per share
disclosures for all periods presented have been calculated in accordance with
requirements of SFAS 128. Basic earnings per share is computed based upon the
weighted average number of shares of common stock outstanding during the period
presented. Diluted earnings per share is computed based upon the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding during the period presented. The diluted earnings per share
computations also include options to purchase common stock which were
outstanding during the period. The number of shares outstanding related to the
options has been calculated by application of the "treasury stock" method. See
Note 17 for more detailed disclosure regarding the applicable numerators and
denominators used in the earnings per share calculations.

Stock Based Compensation
During 1996, the Companies adopted Financial Accounting Standards Board
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which
provides companies an alternative to accounting for stock-based compensation as
prescribed under Accounting Principles Board Opinion No. 25 ("APB 25"). SFAS
123 encourages, but does not require companies to recognize expense for
stock-based awards based on their fair value at date of grant. SFAS 123 allows
companies to follow existing accounting rules (intrinsic value method under APB
25) provided that pro-forma disclosures are made of what net income and
earnings per share would have been had the new fair value method been used. The
Companies have elected to adopt the disclosure requirements of SFAS 123, but
will continue to account for stock-based compensation under APB 25.

Fair Value of Financial Instruments
Management has estimated the fair value of its financial instruments using
available market information and various valuation methodologies. Considerable
judgment is required in interpreting market data to develop estimates of fair
value. Accordingly, the estimated values for Realty and Operating Company as of
December 31, 1998 and 1997 are not necessarily indicative of the amounts that
could be realized in current market exchanges.

Income Taxes
Realty has elected to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended, and believes it has met all the requirements for
qualification as such. Accordingly, Realty will not be subject to federal
income taxes on amounts distributed to shareholders, provided it distributes
annually at least 95% of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. Therefore, no provision for federal
income taxes is believed necessary in the financial statements of Realty.

Operating Company's income tax expense (benefit) is based on reported
earnings before income taxes. Deferred income taxes reflect the temporary
differences between assets and liabilities recognized for financial reporting
and such amounts recognized for tax purposes which requires recognition of
deferred tax liabilities and assets. Deferred tax liabilities and assets are
determined based on the differences between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. A valuation allowance is
recognized if it is anticipated that some or all of a deferred tax asset may
not be realized.

Concentrations
As of December 31, 1998, lodging facilities, all of which are operated by
Operating Company, comprised approximately 49% of the Companies real estate
investments. A private healthcare company and Sun Healthcare Group Inc.,
operate approximately 20% of the total real estate investments. The remainder
of the Companies real estate investments is comprised of healthcare facilities.

The lodging industry is highly competitive. Each hotel competes for guests
primarily with other similar hotels in its vicinity. The Companies believe that
brand recognition, location, quality of the hotel

and services provided, and price are the principal competitive factors
affecting their lodging investments.

Derivatives
The Companies enter into interest rate swap agreements to manage interest
rate exposure. The differential to be paid or received is accrued consistent
with the terms of the agreements and market interest rates, and is recognized
in interest expense over the term of the related debt using a method which
approximates the effective interest method. The related amounts payable to or
receivable from financial institutions are included in other liabilities or
assets. The fair value of the swap agreements and changes in the fair value as
a result of changes in market interest rates are not recognized in the
financial statements.

Newly Issued Accounting Standards
In 1998, the Companies adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for the reporting and display of comprehensive income and
its components.

In 1998, the Companies adopted Financial Accounting Standards Board
Statement No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 supersedes SFAS 14, "Financial Reporting
for Segments of a Business Enterprise," replacing the "industry segment"
approach with the "management" approach. The management approach designates the
internal organization that is used by management for making operating decisions
and assessing performance as the source of the Companies' reportable segments.
SFAS 131 also requires disclosure about products and services, geographic
areas, and major customers. The adoption of SFAS 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information (see Note 20).

Financial Accounting Standards Board Statement No. 133: "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999, although
early application is encouraged. SFAS 133 requires that all derivative
investments be recorded in the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or
comprehensive income depending on whether a derivative is designated as part of
a hedge transaction, and the type of hedge transaction. The Companies
anticipate that due to their limited use of derivative instruments, the
adoption of SFAS 133 will not have a material effect on the financial
statements.

Reclassification
Certain reclassifications have been made to the 1997 presentation to
conform to the 1998 presentation.

2. Supplemental Cash Flow Information
Details of the net change in other assets and liabilities for the
Companies (excluding noncash items, deferred income recognized in excess of
cash received, and changes in restricted cash and related liabilities) follow:

For the year ended December 31,
--------------------------------------------
1998 1997 1996
(In thousands) ------------- ------------- ------------

Change in fees, interest and other receivables ........... $ 24,946 $ (10,581) $ (6,956)
Change in other assets ................................... (6,544) (1,657) (2,834)
Change in accrued expenses and other liabilities ......... (143,278) 1,607 14,289
---------- --------- --------
$ (124,876) $ (10,631) $ 4,499
========== ========= ========

Details of interest and income taxes paid and non-cash investing and
financing transactions follow:

The Meditrust Companies:

For the year ended December 31,
-------------------------------------------
1998 1997 1996
(In thousands) ------------- ------------ ------------

Interest paid during the period .............................. $ 166,452 $ 75,936 $ 56,666
Interest capitalized during the period ....................... 13,480 4,627 3,711
Non-cash investing and financing transactions:
Value of real estate acquired:
Land, land improvements and buildings ....................... 11,493 36,486
Retirements and write-offs of project costs ................. (20,651)
Accumulated depreciation of buildings sold .................. 33,161 389
Increase (reduction) in real estate mortgages net of
participation reduction .................................... (31,483) 256 (29,642)
Change in market value of equity securities in
excess of cost ............................................. 13,402 1,041 2,528
Value of shares issued for conversion of debentures ......... 7,167 48,161 15,966
In connection with the Cobblestone merger:
Fair value of assets acquired ............................... 302,713
Excess purchase consideration over estimated fair
market value of assets acquired ............................ 152,031
Liabilities assumed ......................................... (35,769)
Cash, net ................................................... (177,800)
Value of the issuance of Paired Common Shares ............... 241,175
In connection with the La Quinta merger:
Fair value of assets acquired ............................... 2,660,188
Excess purchase consideration over estimated fair
market value of assets acquired ............................ 301,977
Liabilities assumed ......................................... (851,479)
Cash, net ................................................... (938,050)
Value of the issuance of Paired Common Shares ............... 1,172,636
In connection with the Santa Anita merger:
Fair value of assets acquired ............................... 234,375
Excess purchase consideration over estimated fair
market value of assets acquired ............................ 176,922
Liabilities assumed ......................................... (46,490)
Value of the issuance of Paired Common Shares ............... 395,056

Meditrust Corporation:

For the year ended December 31,
-------------------------------------------
1998 1997 1996
(In thousands) ------------- ------------ ------------

Interest paid during the period .............................. $ 166,181 $ 75,936 $ 56,666
Interest capitalized during the period ....................... 13,480 4,627 3,711
Non-cash investing and financing transactions:
Value of real estate acquired: ..............................
Land, land improvements and buildings ....................... 11,493 36,486
Retirements and write-offs of project costs ................. (20,651)
Accumulated depreciation of buildings sold .................. 33,161 389
Increase (reduction) in real estate mortgages net of
participation reduction .................................... (31,483) 256 (29,642)
Change in market value of equity securities in
excess of cost ............................................. 13,402 1,041 2,528
Value of shares issued for conversion of debentures ......... 7,031 47,347 15,966
Property distribution ....................................... (33,162)
Stock dividend of MAC shares ................................ 43,662
In connection with the Cobblestone merger:
Fair value of assets acquired ............................... 272,463
Excess purchase consideration over estimated fair
market value of assets acquired ............................ 152,031
Liabilities assumed ......................................... (9,919)
Cash, net ................................................... (177,800)
Value of the issuance of common shares ...................... 236,775
In connection with the La Quinta merger:
Fair value of assets acquired ............................... 2,426,339
Excess purchase consideration over estimated fair
market value of assets acquired ............................ 301,977
Liabilities assumed ......................................... (639,910)
Cash, net ................................................... (938,050)
Value of the issuance of common shares ...................... 1,150,356
In connection with the Santa Anita merger:
Fair value of assets acquired ............................... 252,626
Excess purchase consideration over estimated fair
market value of assets acquired ............................ 148,735
Liabilities assumed ......................................... (21,830)
Value of the issuance of common shares ...................... 405,475

Meditrust Operating Company:

For the For the initial
year ended period ended
December 31, December 31,
-------------- ----------------
1998 1997
(In thousands) -------------- ----------------

Interest paid during the period .................................. $ 324 $ --
Non-cash investing and financing transactions:
Value of shares issued for conversion of debentures ............. 136 814
Property contribution ........................................... 33,162
In connection with the Cobblestone merger:
Fair value of assets acquired ................................... 30,250
Liabilities assumed ............................................. (25,850)
Value of the issuance of common shares .......................... 4,400
In connection with the La Quinta merger:
Fair value of assets acquired ................................... 233,849
Liabilities assumed ............................................. (211,569)
Value of the issuance of common shares .......................... 22,280
In connection with the Santa Anita merger:
Fair value of assets acquired ................................... 19,322
Excess purchase consideration over estimated fair market value of
assets acquired ................................................ 28,187
Liabilities assumed ............................................. (24,660)
Value of the issuance of common shares .......................... 27,154

3. La Quinta Merger
On July 17, 1998, Realty completed its merger with La Quinta (the "La
Quinta Merger") whereby La Quinta merged with and into Realty, with Realty as
the surviving corporation.

Upon the closing of the La Quinta Merger, each share of common stock of La
Quinta was converted into the right to receive 0.736 paired common shares,
reduced by the amount to be received in an earnings and profits distribution.
Approximately 43,280,000 paired common shares, with an aggregate market value
of approximately $1,172,636,000, and approximately $956,054,000 in cash were
exchanged in order to consummate the La Quinta Merger. In addition,
approximately $851,479,000 of La Quinta's debt and associated costs were
assumed. In accordance with the La Quinta Merger Agreement, on September 10,
1998, the Companies made a special distribution of profits inherited in the
merger of approximately $128,618,000.

As a result of plans contemplated at the time of the La Quinta Merger,
management is committed to relocate certain functions of the La Quinta
corporate headquarters, including marketing, legal, development, human
resources, finance and executive, to Dallas, Texas from San Antonio, Texas. The
accounting, information systems and reservation functions of La Quinta will
remain in San Antonio. It is anticipated that the relocation will be completed
by the end of the third quarter of 1999 and will affect approximately 100
employees. A provision for the estimated cost of relocation of approximately
$10,100,000, including certain lease termination costs, severance and related
employment costs, and office and employee relocation costs, has been included
in the acquisition costs as liabilities assumed. Management has finalized the
employee relocation plan and located appropriate office space in the Dallas
area. Subsequent adjustments to management's estimate of the costs associated
with the planned relocation will be made as an adjustment to goodwill.

The operations of La Quinta are included in the combined and consolidated
financial statements since consummation of the La Quinta Merger. The total
consideration paid in connection with the La Quinta Merger was approximately
$2,980,169,000. The excess of the purchase price, including costs of the La
Quinta Merger, over the fair value of the net assets acquired approximated
$301,977,000, and is being amortized over 20 years.

The following unaudited pro forma condensed combined consolidated results
of operations of Realty and Operating Company have been prepared as if the La
Quinta Merger had occurred on January 1, 1997:

For the year ended December
31,
---------------------------
1998 1997
(Unaudited in thousands, except per share amounts) ------------- -------------

Revenue ................................................... $923,813 $791,607
Net income from continuing operations ..................... 151,837 172,661
Basic earnings per paired common share .................... 1.20 1.27
Weighted average paired common shares outstanding ......... 144,111 119,350

The pro forma condensed combined consolidated results for the year ended
December 31, 1998 include approximately $111,215,000 of other expenses related
to nonrecurring write-offs, provisions and restructuring charges further
described in Note 12, a $4,159,000 realized loss on the sale of securities and
a $52,642,000 realized gain on the sale of assets.

The pro forma condensed combined consolidated results do not purport to be
indicative of results that would have occurred had the La Quinta Merger been in
effect for the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.

4. Other Mergers
On May 29, 1998, Realty completed its merger with Cobblestone Holdings,
Inc. ("Cobblestone") pursuant to an Agreement and Plan of Merger dated as of
January 11, 1998, as amended by a First Amendment thereto dated as of March 16,
1998 (as amended, the "Cobblestone Merger Agreement"). Cobblestone was engaged
in the ownership, leasing, operation and management of 27 golf courses and
related facilities. Under the terms of the Cobblestone Merger Agreement,
Cobblestone merged with and into Realty, with Realty as the surviving
corporation (the "Cobblestone Merger"). Upon the closing of the Cobblestone
Merger, each share of common stock of Cobblestone was converted into the right
to receive 3.867 paired common shares and each share of preferred stock of
Cobblestone was converted into the right to receive .2953 paired common shares.
The total number of paired common shares issued in connection with the
Cobblestone Merger was approximately 8,177,000, with an aggregate market value
of approximately $230,000,000, plus the issuance of approximately 452,000
options valued at $10,863,000. In addition, Realty advanced monies in order for
Cobblestone to satisfy approximately $170,000,000 of its long-term debt and
associated costs. Accordingly, the operations of Cobblestone are included in
the combined and consolidated financial statements since consummation of the
Cobblestone Merger. The total consideration paid in connection with the
Cobblestone Merger was approximately $455,467,000. The excess of the purchase
price, including costs associated with the merger, over the fair value of the
net assets acquired approximated $152,000,000.

On November 5, 1997, Meditrust merged into Santa Anita Realty Enterprises,
Inc. and Meditrust Acquisition Company ("MAC") merged into Santa Anita
Operating Company (collectively, "The Santa Anita Merger"). Santa Anita Realty
Enterprises, Inc. changed its corporate name to "Meditrust Corporation," and
Santa Anita Operating Company changed its corporate name to "Meditrust
Operating Company". The Santa Anita Merger was accounted for as a reverse
acquisition whereby Meditrust and MAC were treated as the acquirers for
accounting purposes. The operations of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company are included in the combined and consolidated
financial statements since the Santa Anita Merger date. The aggregate purchase
price of approximately $412,000,000, which includes costs of the Santa Anita
Merger, has been allocated among the assets of the Santa Anita Companies, based
on their respective fair market values. The excess of the purchase price,
including costs of the Santa Anita Merger, over the fair value of the net
assets acquired approximated $196,000,000 and is being amortized over forty
years.

5. Discontinued Operations
On November 11, 1998, the Boards of Directors of Realty and Operating
Company approved a comprehensive restructuring plan. Significant components of
the restructuring plan include the sale of Cobblestone Golf Group, which
consists of 43 golf properties and related operations, and the Santa Anita
Racetrack and adjacent property. Accordingly, operating results for Cobblestone
Golf Group and the Santa Anita Racetrack have been reclassified and reported as
discontinued operations.

On December 10, 1998, the Companies sold certain assets, leases, and
licenses used in connection with the horseracing business conducted at Santa
Anita Racetrack and recorded a loss on sale of $67,913,000.

The Companies recorded a provision for loss on the disposition of
Cobblestone Golf Group of approximately $237,035,000, which included estimated
income taxes of $56,848,000, as of December 31, 1998 based upon the estimated
proceeds to be realized upon sale. At December 31, 1998, the net assets subject
to sale totaled $305,416,000 and have been classified as net assets of
discontinued operations on the combined consolidated balance sheet. On February
11, 1999, the Companies signed a definitive agreement to sell the Cobblestone
Golf Group (see Note 20).

Operating results, for the nine months ended September 30, 1998,
(exclusive of any corporate charges or interest expense) of discontinued golf
and racetrack operations are as follows:

Cobblestone
Golf Group Santa Anita Total
(In thousands) ------------ ------------- ----------

Revenue ............ $43,278 $55,421 $98,699
Net income ......... 1,963 8,758 10,721

Revenue and net income from the measurement date of September 30, 1998
through December 31, 1998 are as follows:

Cobblestone
Golf Group Santa Anita Total
(In thousands) ------------ ------------- ----------

Revenue ............ $28,849 $7,741 $36,590
Net income ......... 1,763 132 1,895

6. Real Estate Investments
The following is a summary of real estate investments:

December 31,
-----------------------------
1998 1997
(In thousands) ------------- -------------

Land .......................................................... $ 475,376 $ 249,852
Buildings and improvements, net of accumulated depreciation and
other provisions of $186,594 and $124,582 .................... 3,381,392 1,223,255
Real estate mortgages and loans receivable, net of a valuation
allowance of $18,991 and $0 at December 31, 1998 and 1997,
respectively ................................................. 1,197,634 1,432,825
Investment in unconsolidated joint venture, net of accumulated
depreciation of $250 ......................................... -- 29,840
Assets held for sale, net of accumulated depreciation and other
provisions of $41,562 ........................................ 32,334 --
---------- ----------
$5,086,736 $2,935,772
========== ==========

During 1998, Realty acquired 15 assisted living facilities and 23 medical
office buildings for $276,075,000. Realty also acquired 16 golf facilities for
$121,976,000. In addition, during the year ended December 31, 1998, Realty
provided net funding of $54,467,000 for the construction of 17 assisted living
facilities and two golf facilities, and also provided $1,820,000 for an
addition to a long-term care facility already in the portfolio. Realty and
Operating Company also provided net funding of $182,369,000 and $282,000,
respectively, for ongoing construction of facilities it currently owns which
were in the portfolio prior to 1998 or for construction and capital
improvements to hotels and golf courses acquired in the mergers with
Cobblestone and La Quinta.

Also during the year ended December 31, 1998, Realty provided permanent
mortgage financing of $76,260,000 for two long-term care facilities, one
medical office building and for a 135 acre development stage property. Realty
also provided $2,945,000 in additions to permanent mortgages already in the
portfolio.

Realty commenced new development funding of $33,061,000 relating to two
long-term care facilities and one medical office building. Realty also provided
$110,258,000 for ongoing construction of mortgaged facilities already in the
portfolio.

As a result of the merger with Cobblestone, Realty acquired 21 golf
facilities and leasehold interests in four golf facilities and recorded them at
appraised values of $224,434,000 and $23,641,000, respectively. Since these
courses, as well as the 18 courses noted above, are components of Cobblestone
Golf Group, they are included as net assets of discontinued operations as of
December 31, 1998.

Realty also acquired 280 operating hotels, 23 hotels under construction
and land held for development and recorded them at appraised values of
$2,503,264,000 as a result of the La Quinta Merger.

During the year ended, December 31, 1998, Realty distributed $19,423,000
in real estate assets to Operating Company as part of a property distribution.

During the year ended December 31, 1998, Realty received net proceeds of
$320,135,000 from the sale of one long-term care facility, 32 assisted living
facilities and nine rehabilitation facilities. Realty realized a net gain on
these sales of $52,096,000. Realty also received net proceeds of $39,843,000
from the sale of a 50% ownership in a joint venture holding a fashion mall, as
well as the land on which the fashion mall is located. A net gain of $546,000
was realized on the sale. In connection with the disposition of the racetrack
operations, Realty received net proceeds of $99,855,000 from the sale of the
Santa Anita Racetrack and adjacent land held for development. A net loss on the
sale of $77,838,000 was realized and is included in the loss on disposal of
discontinued operations. In connection with these sales, $1,909,000 in lease
breakage fees were received and have been included as other income in the
consolidated statements of income.

During the year ended December 31, 1998, Realty received principal
payments of $407,241,000 on real estate mortgages. Included in this amount were
$212,032,000 prepayments of mortgage investments for which prepayment fees and
make-whole gains of $34,078,000 were recognized and have been classified as
other income in the consolidated statements of income.

At December 31, 1998, Realty was committed to provide additional financing
of approximately $161,000,000 relating to one medical office building, five
long-term care facilities, 11 assisted living facilities and 13 hotel
facilities currently under construction as well as additions to existing
facilities in the portfolio.

Realty had entered into transactions with entities in which the Companies'
Former Chairman and Chief Executive Officer owned or was expected to own a
controlling equity interest or a minority interest. As of December 31, 1998,
Realty had funded $287,335,000 related to these transactions. During 1998 and
1997, Realty recognized interest income of $19,199,000 and $16,490,000 and
rental income of $1,492,000 and $5,174,000 from investments with these
entities, respectively. All of the terms and conditions of such transactions
were subject to approval by the independent Directors of Realty. On August 3,
1998, the Companies' former Chairman resigned as Chairman and as a Director of
Realty, and as Chief Executive Officer and Treasurer of Operating Company (see
Note 14).

Minority interests in partnerships relating to Realty's investments in two
rehabilitation facilities (seven facilities at December 31, 1997) were $669,000
and $2,071,000 as of December 31, 1998 and 1997, respectively, and are included
in accrued expenses and other liabilities in the consolidated financial
statements. Realty has a 94% equity interest in these partnerships. Also
included in accrued expenses and other liabilities at December 31, 1998 is
$3,019,000 which represents amounts payable to the minority interests in five
rehabilitation facilities sold in 1998.

Realty has investments in certain hotel facilities, which are held by an
unincorporated partnership and a joint venture. Realty has a 60% and 50%
interest in each of these investments, respectively. These investments total
$7,337,000 at December 31, 1998, and partner's equity in the partnership and
joint venture of approximately $6,125,000 are also included in accrued expenses
and other liabilities in the consolidated financial statements.

7. Other Assets
Other assets include primarily La Quinta intangible assets, investments in
equity securities classified as available-for-sale, furniture, fixtures and
equipment, and other receivables.

The investment in equity securities includes approximately 26,606,000
shares of Nursing Home Properties Plc, a property investment group which
specializes in the financing, through sale leaseback transactions, of nursing
homes located in the United Kingdom. These shares were acquired at various
dates between July, 1996 and August, 1998 for an aggregate cost of $57,204,000.
At December 31, 1998, the market value of this investment was $66,591,000. The
difference between market value and cost, $9,387,000, is included in
shareholders' equity in the accompanying balance sheet. The investment in
equity securities also includes 331,000 shares of stock and warrants to
purchase 1,006,000 shares of stock in Balanced Care Corporation, a healthcare
operator. This investment has a market value of $8,688,000 at December 31,
1998. The difference between market value and cost, $7,584,000, is included in
shareholders' equity in the accompanying balance sheet.

La Quinta's intangible assets consist of its tradename, reservation
system, and assembled workforce with net book values at December 31, 1998, of
$95,866,000, $4,293,000 and $7,943,000, respectively, which were acquired as a
result of the La Quinta Merger.

Realty provides for a valuation allowance against its assets on a periodic
basis. As of December 31, 1998 and 1997 the valuation allowance provided
against other assets aggregated approximately $500,000 and $8,992,000,
respectively.

8. Shares of Beneficial Interest/Common Shares
Cash flows from operating activities available for distribution differ
from net income primarily due to depreciation and amortization, as well as
other noncash expenses. Distributions in excess of earnings, as reflected on
Realty's and the Companies' consolidated balance sheets, are primarily a result
of an accumulation of this difference. All shares participate equally in
distributions and in net assets available for distribution to shareholders on
liquidation or termination of Realty. The Directors of Realty have the
authority to effect certain share redemptions or prohibit the transfer of
shares under certain circumstances.

Total distributions to shareholders during the years ended December 31,
1998, 1997, and 1996 included a return of capital per share of 4.1%, 31.7%, and
5.25%, respectively. The 1998 and 1996 distributions also include long-term
capital gain distributions of 30.2% and .23% per share, respectively. The 1998
distribution also includes unrecaptured Internal Revenue Code Section 1250
depreciation from real property of 6.3% per share.

During 1998, Realty issued 7,000,000 depository shares of Meditrust
Corporation. Each depository share represents one-tenth of a share of 9% Series
A Cumulative Redeemable Preferred Stock (the "Preferred Stock") with a par
value of $.10 per share. Net proceeds from this issuance were approximately
$168,666,000 and were primarily used to repay existing indebtedness. Total
distributions to preferred shareholders during the year ended December 31, 1998
included long term capital gain distributions of 31.4% per share and
unrecaptured Internal Revenue Code Section 1250 depreciation from real property
of 6.6% per share. On and after June 17, 2003, the Preferred Stock may be
redeemed for cash at the option of Realty, in whole or from time to time in
part, at a redemption price of $250 per share, plus accrued and unpaid
dividends, if any, to the redemption date.

The following classes of Preferred Stock, Excess Stock and Series Common
Stock are authorized as of December 31, 1998; no shares were issued or
outstanding at December 31, 1998 and 1997:

Meditrust Operating Company Preferred Stock $.10 par value; 6,000,000
shares authorized;

Meditrust Corporation Excess Stock $.10 par value; 25,000,000 shares
authorized;

Meditrust Operating Company Excess Stock $.10 par value; 25,000,000 shares
authorized;

Meditrust Corporation Series Common Stock $.10 par value; 30,000,000
shares authorized;

Meditrust Operating Company Series Common Stock $.10 par value; 30,000,000
shares authorized.

9. Fair Value of Financial Instruments
Fair value estimates are subjective in nature and are dependent on a
number of significant assumptions associated with each financial instrument or
group of financial instruments. Because of a

100

variety of permitted calculations and assumptions regarding estimates of future
cash flows, risks, discount rates and relevant comparable market information,
reasonable comparisons of the Companies' fair value information with other
companies cannot necessarily be made.

The following methods and assumptions were used for real estate mortgages
and long term indebtedness to estimate the fair value of financial instruments
for which it is practicable to estimate value:

The fair value of real estate mortgages has been estimated by discounting
future cash flows using current interest rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. The fair value of real estate mortgages amounted to approximately
$1,177,368,000 and $1,429,077,000 as of December 31, 1998 and 1997,
respectively. The carrying value of these mortgages is $1,197,634,000 and
$1,432,825,000 as of December 31, 1998 and 1997, respectively.

The quoted market price for the Companies' publicly traded convertible
debentures and rates currently available to the Companies for debt with similar
terms and remaining maturities were used to estimate fair value of existing
debt. The fair value of the Companies' indebtedness amounted to approximately
$3,293,946,000 and $1,434,412,000 as of December 31, 1998 and 1997,
respectively. The carrying value of these convertible debentures and other debt
is $3,307,947,000 and $1,377,438,000 as of December 31, 1998 and 1997,
respectively.

The fair value of the interest rate swap is based on quoted market prices
and approximated $11,323,000 at December 31, 1998.

10. Indebtedness
Indebtedness at December 31, 1997 and 1998 is as follows:

1998 1997
(In thousands, except per share amounts) ----------- -----------

Notes payable, net:
Principal payments aggregating $118,500 due from August 1999 to
August 2015, bearing interest at rates between 7.25% and
8.625% ........................................................ $117,950 $117,804
Principal payments aggregating $125,000 due in July 2000, bearing
interest at 7.375% ............................................ 124,508 124,370
Principal payments aggregating $80,000 due in July 2001, bearing
interest at 7.6% .............................................. 79,685 79,464
Principal payments aggregating $50,000 due in October 2001,
bearing interest at 7.11% ..................................... 50,000 --
Principal payments aggregating $100,000 due in August 2002,
bearing interest at LIBOR plus .45% ........................... -- 99,322
Principal payments aggregating $100,000 due in March 2004,
bearing interest at 7.25% ..................................... 100,880 --
Principal payments aggregating $100,000 due in September 2005,
bearing interest at 7.40% ..................................... 99,936 --
Principal payments aggregating $50,000 due in February 2007,
bearing interest at 7.27% ..................................... 50,000 --
Principal payments aggregating $160,000 due in August 2007,
bearing interest at 7% ........................................ 157,316 157,003
Principal payments aggregating $50,000 due in April 2008, bearing
interest at 7.33% ............................................. 50,000 --
Principal payments aggregating $150,000 due in August 2011,
bearing interest at 7.114% .................................... 148,947 148,759

101

1998 1997
(In thousands, except per share amounts) ------------ -------------

Principal payments aggregating $175,000 due in September 2026,
(redeemable September 2003 at the option of the note holder),
bearing interest at 7.82% ............................................. 174,115 173,872
Other ................................................................... 2,500 --
------- -------
1,155,837 900,594
--------- -------
Convertible debentures, net:
7% interest, convertible at $25.487 per share, due March 1998............ -- 5,037
6-7/8% interest, convertible at $30.896 per share, due November
1998 .................................................................. -- 43,553
8.54% interest, convertible at $27.15 per share, due July 2000........... 41,999 41,749
7-1/2% interest, convertible at $30.11 per share, due March 2001 ........ 89,406 88,951
9% interest, convertible at $22.47 per share, due January 2002 .......... 2,351 3,741
8.56% interest, convertible at $27.15 per share, due July 2002........... 51,257 50,969
--------- -------
185,013 234,000
--------- -------
Bank notes payable, net:

Revolving credit agreement expiring September 23, 1999 .................. -- 179,527
Revolving credit agreement expiring July 17, 2001 ....................... 594,625 --
Term loans, due July 17, 1999 ........................................... 743,398 --
Term loan, due July 17, 2001 ............................................ 493,313 --
--------- -------
1,831,336 179,527
--------- -------
Bonds and mortgages payable, net:

Mortgage notes, interest ranging from 7.9% to 12.2%, monthly
principal and interest payments ranging from $7 to $78 and
maturing from February 1998 through March 2033, collateralized
by thirteen facilities ................................................ -- 59,962
Mortgage notes, interest ranging from 7.72% to 12.75%, monthly
principal and interest payments ranging from $4 to $78 and
maturing from February 1999 through March 2033, collateralized
by ten facilities ..................................................... 44,186 --
Manatee County, Florida Industrial Revenue Bonds, Series 1983,
annual principal payments ranging from $80 to $90 due in 1999
through 2000, $345 due in December 2003, and $2,770 due in
December 2013, interest ranging from 13.0% to 13.5%,
collateralized by one facility ........................................ 3,285 3,355
Mortgage loans maturing July 2000 through November 2001, 8.67%
weighted average effective interest rate .............................. 48,292 --
Industrial development revenue bonds, maturing July 1999 through
February 2012, 3.53% weighted average effective interest rate ......... 33,773 --
--------- -------
129,536 63,317
--------- -------
$3,301,722 $1,377,438
========== ==========

The notes payable, convertible debentures, bank notes payable, bonds and
mortgages payable are presented net of unamortized debt issuance costs of
$33,535,000 and $10,610,000 at December 31, 1998 and 1997, respectively.
Amortization expense associated with the debt issuance costs amounted to
$12,264,000, $2,692,000 and $2,636,000 for the years ended December 31, 1998,
1997 and 1996, respectively, and is reflected in interest expense.

Notes Payable

On August 7, 1997, Realty completed the sale of $160,000,000 of 7% notes
due August 15, 2007. Realty also completed the sale of $100,000,000 Remarketed
Reset Notes due August 15, 2002 bearing

102

interest at LIBOR plus .45%. Such interest is subject to reset quarterly during
the first year of the loan. Subsequent to the first year of the loan, the
character and duration of the interest rate will be determined periodically by
Realty and the underwriter. On August 17, 1998 Realty redeemed the $100,000,000
Remarketed Reset Notes at par value.

During 1997, Realty completed the sale of $150,000,000 of 7.114% notes due
August 15, 2011. The notes were sold to a trust from which exercisable put
option securities due August 15, 2004, each representing a fractional undivided
beneficial interest in the trust, were issued. The trust has entered a call
option pursuant to which the callholder has the right to purchase the notes
from the trust on August 15, 2004 at par value. The trust also has a put
option, which it is required to exercise if the callholder does not exercise
the call option, pursuant to which Realty must repurchase the notes at par
value on August 15, 2004. A portion of the net proceeds from the sale of the
notes described above was used to repay the outstanding balance on the
unsecured revolving line of credit and other unsecured short-term borrowings.

In conjunction with the La Quinta Merger on July 17, 1998, Realty assumed
La Quinta's notes payable, which approximated $473,000,000. In September 1998,
Realty redeemed $120,000,000, 9.25% senior unsecured subordinated notes
originally due 2003.

Convertible Debentures

The 7% debentures issued in February 1993 matured in March 1998. During
1998, prior to maturity, $5,027,000 of debentures were converted into 197,251
paired common shares. The remaining principal was repaid at maturity. During
the year ended December 31, 1997, $3,095,000 of debentures were converted into
111,306 paired common shares.

The 67/8% debentures issued in November 1993 matured in November 1998.
During 1998, prior to maturity, $665,000 of debentures were converted into
21,521 paired common shares. The remaining principal was repaid at maturity.
During the year ended December 31, 1997, $42,433,000 of debentures were
converted into 1,373,394 paired common shares.

The 8.54% debentures issued in July 1995 are subject to redemption by the
Companies at 100% of the principal amount plus accrued interest. During the
year ended December 31, 1997, $1,000,000 of debentures were converted into
36,830 paired common shares.

The 71/2% debentures issued in March 1994 are subject to redemption by the
Companies at 100% of the principal amount plus accrued interest. During the
years ended December 31, 1998 and 1997, $65,000 and $443,000 of debentures were
converted into 2,158 and 14,706 paired common shares, respectively.

The 9% convertible debentures issued in April 1992 are subject to
redemption by the Companies at 100% of the principal amount plus accrued
interest. During the years ended December 31, 1998 and 1997, $1,410,000 and
$1,190,000 of debentures were converted into 62,746 and 52,949 paired common
shares, respectively.

The 8.56% debentures issued in July 1995 are subject to redemption by the
Companies at 100% of the principal amount plus accrued interest to the extent
necessary to preserve Realty's status as a REIT.

Bank Notes Payable

On July 17, 1998, Realty entered into a new credit agreement (the "New
Credit Agreement") which provides Realty with up to $2,250,000,000 in credit
facilities, replacing Realty's existing $365,000,000 revolving credit
facilities. The New Credit Agreement provides for borrowings in four separate
tranches (each a "Tranche"): Tranche A, a $1,000,000,000 revolving loan,
amounts of which if repaid may be reborrowed, which matures July 17, 2001;
Tranche B, a term loan in the amount of $500,000,000, amounts of which if
repaid may not be reborrowed, which matures July 17, 1999 with a $250,000,000
mandatory principal payment on April 17, 1999; Tranche C, a term loan in the
amount of $250,000,000, amounts of which if repaid may not be reborrowed, which
matures July 17, 1999 with a six month extension option;

103

and Tranche D, a term loan in the amount of $500,000,000, amounts of which if
repaid may not be reborrowed, which matures July 17, 2001. Borrowings under the
New Credit Agreement include LIBOR, base rate and money market borrowings.
Pricing on the loan commitments, lines and letters of credit under the New
Credit Agreement varies according to the pricing level commensurate with the
credit quality of Realty. Events of default under the New Credit Agreement
include, among other things, failure to pay any principal or reimbursement
obligation when due, failure to meet any of the covenants of the New Credit
Agreement, failure of the representations and warranties to be true in any
material respect, and default under other debt instruments of the Companies or
their subsidiaries. The New Credit Agreement includes covenants with respect to
maintaining certain financial benchmarks, limitations on the types and
percentage of investments in certain business lines, limitations on dividends
of Realty and Operating Company, and other restrictions. In addition, Operating
Company is a guarantor of all of the obligations of Realty under the New Credit
Agreement.

On November 23, 1998, Realty amended its New Credit Agreement to provide
for Realty's settlement of a portion of its forward equity issuance
transaction, the amendment of certain financial covenants to accommodate asset
sales, to exclude the impact of non-recurring charges in certain covenant
calculations, and to provide for future operating flexibility. The amendment
also provided for an increase to the LIBOR pricing of the credit facility by
approximately 125 basis points, and the pledge of stock of the Companies'
subsidiaries. This pledge of subsidiary stock will also extend on a pro rata
basis to entitled bondholders. Realty also agreed to a 25 basis point increase
to the LIBOR pricing in the event that an equity offering of at least
$100,000,000 had not been issued by February 1, 1999. On February 1, 1999 this
increase went into effect.

Of the $1,000,000,000 revolving loan, $353,000,000 was available at
December 31, 1998, bearing interest at the base rate (8.25%) or LIBOR plus
2.625% (7.98% at December 31, 1998).

During July 1998, Realty entered into an interest rate swap agreement to
reduce the impact of fluctuating interest rates on $1,250,000,000 of its New
Credit Agreement. Realty agreed with the counterparty to exchange, on a monthly
basis, the difference between Realty's fixed pay rate and the counterparty's
variable pay rate of one month LIBOR. During the period from July to December,
1998, Realty paid a fixed rate of approximately 5.7% and received an average
variable rate of approximately 5.5%. Differentials in the swapped amounts are
recorded as adjustments to interest expense of Realty. Total interest expense
related to the swap agreement was approximately $995,000 for the period from
July to December 1998.

At December 31, 1997, Realty had unsecured revolving lines of credit
expiring September 23, 1999 in the amount of $365,000,000, of which
$181,000,000 was available, bearing interest at approximately 6.8%. In July
1998, these revolving lines were refinanced with the New Credit Agreement.

Bonds and Mortgages Payable

Realty is obligated by agreements relating to sixteen issues of Industrial
Revenue Bonds ("IRBs"), in an aggregate amount of $32,370,000, to purchase the
bonds at face value prior to maturity under certain circumstances. The bonds
have floating interest rates which are indexed periodically. Bondholders may,
when the rate is changed, put the bonds to the designated remarketing agent. If
the remarketing agent is unable to resell the bonds, it may draw upon an
irrevocable letter of credit which secures the IRBs. In such event, Realty
would be required to repay the funds drawn on the letters of credit within 24
months. As of December 31, 1998, no draws had been made upon any such letters
of credit. The schedule of annual maturities shown below includes these IRBs as
if they will not be subject to repayment prior to maturity. Assuming all bonds
under such IRB arrangements are presented for payment prior to December 31,
1999 and the remarketing agents are unable to resell such bonds, the maturities
of long-term debt shown below would increase by $8,835,000 for the year ending
December 31, 2001.

104

The aggregate maturities of notes payable, convertible debentures, bank
notes payable and bonds and mortgages payable, for the five years subsequent to
December 31, 1998, are as follows:

(In thousands)

1999 ................ $ 778,784
2000 ................ 219,422
2001 ................ 1,356,639
2002 ................ 92,659
2003 ................ 207,301
Thereafter .......... 646,917
----------
$3,301,722
==========

11. Forward Equity Issuance Transaction
On February 26, 1998, the Companies entered into transactions (the
"Forward Equity Issuance Transaction" or "FEIT") with Merrill Lynch
International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co., Inc.
(collectively with its agent and successor in interest, "MLI"). Pursuant to the
terms of a Stock Purchase Agreement, MLI purchased 8,500,000 shares of Series A
Non-Voting Convertible Common Stock par value $.10 per share from each of the
Companies at a purchase price of $32.625 per share (collectively with the
paired common shares the shares of Series A non-voting convertible common stock
are convertible into, the "Notional Shares"). The Series A Non-Voting
Convertible Common Stock converted on a one to one basis to paired common stock
of the Companies on June 18, 1998. Total proceeds from the issuance were
approximately $277,000,000 (the "Initial Reference Amount"). Net proceeds from
the issuance were approximately $272,000,000, and were used by the Companies to
repay existing indebtedness. The Companies and MLI also entered into a Purchase
Price Adjustment Agreement under which the Companies would, within one year
from the date of MLI's purchase, on a periodic basis, adjust the purchase price
based on the market price of the paired common stock at the time of any interim
or final adjustments, so as to provide MLI with a guaranteed return of LIBOR
plus 75 basis points (the "Return"). The paired common shares issued receive
the same dividend as the Companies' paired common stock; however, the
difference between LIBOR plus 75 basis points and the dividend payments
received by MLI will be included as an additional adjustments under the
Purchase Price Adjustment Agreement. Such adjustments were to be effected by
deliveries of additional paired common shares to, or, receipts of paired common
shares from, MLI. In the event that the market price for the paired shares is
not high enough to provide MLI with the Return, the Companies would have to
deliver additional paired shares to MLI, which would have a dilutive effect on
the capital stock of the Companies. This dilutive effect increases
significantly as the market price of the paired shares declines further below
the original purchase price. Moreover, settlement of the FEIT transaction,
whether at maturity or at an earlier date, may force the Companies to issue
paired shares at a depressed price, which may heighten this dilutive effect on
the capital stock of the Companies. Prior to the settlement, MLI shall hold any
paired common shares delivered by the Companies under the Purchase Price
Adjustment Agreement in a collateral account (the "Collateral Shares"). Under
the adjustment mechanism, the Companies delivered approximately 9,700,000
Collateral Shares in 1998, all of which were returned to the Companies when the
Companies settled in cash a portion of the adjustment transaction in December
1998.

The FEIT has been accounted for as an equity transaction with the Notional
Shares treated as outstanding from their date of issuance until the respective
date of repurchase, if any, for both basic and diluted earnings per share
purposes. For diluted earnings per share purposes, at the end of each quarterly
period, the then outstanding Reference Amount (as defined herein) is divided by
the quoted market price of a paired common share, and the excess, if
applicable, of that number of paired common shares over the Notional Shares
(the "Contingent Shares") is added to the denominator. Contingent shares are
included in the calculation of year to date diluted earnings per share weighted
for the interim periods in which they were included in the computation of
diluted earnings per share.

105

Payments that reduce the Reference Amount in effect satisfy all necessary
conditions for physically settling that portion of the Reference Amount and are
accounted for in a manner similar to a treasury stock transaction. Therefore,
payments that reduce the Reference Amount are divided by the quoted market
price of a paired common share on the date of payment. The calculated number is
then multiplied by the fractional number of days in the period prior to the
payment date and the resulting number of paired common shares is included in
the calculation of diluted earnings per share for the period.

12. Other Expenses:
During the three months ended March 31, 1998, the Companies pursued a
strategy of diversifying into new business lines including lodging and golf.
Consistent with this strategy, Realty commenced a reevaluation of its
intentions with respect to certain existing healthcare real estate facilities
and other assets. This process included review of the valuation of facilities
in the portfolio, including those with deteriorating performance, and other
assets and receivables that were unrelated to its historical primary business.
As a result of this on-going analysis Realty identified assets which would be
held for sale and recorded provisions to adjust the carrying value of certain
facilities, other assets and receivables and a valuation reserve for certain
mortgage loans receivable. Following the quarter ended March 31, 1998 one
facility was sold and certain other assets and receivables were written off.

Based upon the analysis described above, other expenses were recorded for
the year ended December 31, 1998, as follows:

106

(In thousands)
External consulting fees ...................... 11,882
--------
Subtotal ...................................... 27,751
Other
Costs of transactions not consummated ......... 3,110
--------
Total ......................................... $111,215
========

Management also identified one mortgage loan collateralized by a
rehabilitation facility where continued eroding margins and an expiring
guarantee indicated that the Companies will likely not be able to collect all
amounts due according to the contractual terms of the loan agreement.
Accordingly, the Companies provided a loan loss for this asset of approximately
$8,000,000. In addition, Realty has also provided for the establishment of an
additional $8,036,000 mortgage loan valuation allowance primarily in response
to the implementation of new government reimbursement regulations impacting
many of its operators during the second half of 1998.

Pursuant to its comprehensive restructuring plan, the Companies announced
plans to refocus their capital investment program by reducing healthcare
investments and ceasing development of any new hotels other than the completion
of those Inns and Suites currently under construction. Accordingly, the
Companies recorded non recurring costs of $8,720,000 for the write-off of
certain previously capitalized costs associated with lodging development, and
$7,149,000 for severance related costs attributable to workforce reductions of
87 employees at the Companies' lodging and healthcare divisions.

The Companies have also recorded $11,882,000 in costs incurred for various
consultants engaged to assist in the development and implementation of the
comprehensive restructuring plan.

The Companies also incurred approximately $3,110,000 in costs related to
the evaluation of certain acquisition targets, which the Companies are no
longer pursuing.

The total amount of the comprehensive restructuring plan charges that were
unpaid at December 31, 1998 was $16,518,000.

13. Lease Commitments

Healthcare

Realty's healthcare related land and facilities are generally leased
pursuant to non-cancelable, fixed-term operating leases expiring from 1999 to
2012. The leases ordinarily provide multiple, five-year renewal options and the
right of first refusal or the option to purchase the facilities at the greater
of the fair market value or Realty's investment at the end of the initial term
of the lease or at various times during the lease.

107

The healthcare related lessees are required to pay aggregate base rent
during the lease term and applicable debt service payments as well as
percentage, supplemental and additional rent (as defined in the lease
agreements). The majority of the healthcare related leases are triple net which
generally requires the lessees to pay all taxes, insurance, maintenance and
other operating costs of the land and facilities.

Future minimum rents, expected to be received by Realty during the initial
term of the healthcare related leases for the years subsequent to December 31,
1998, are as follows:

Year (In thousands)

1999 ......................... $146,993
2000 ......................... 143,400
2001 ......................... 137,809
2002 ......................... 133,559
2003 ......................... 131,919
2004 and thereafter .......... 433,138

Lodging

The Participating Hotel Facility Leases between Realty and Operating
Company are generally long-term and provide for quarterly base or minimum rents
plus contingent or percentage rents based on quarterly gross revenue thresholds
for each hotel facility. Operating Company is generally responsible for paying
all operating expenses of the hotel facilities while Realty is responsible for
costs attributable to real estate taxes and insurance. The leases are accounted
for as operating leases. Total rental expense paid by Operating Company to
Realty under such leases was approximately $125,706,000 for the year ended
December 31, 1998 of which approximately $29,494,000 was contingent rent.

Realty's future minimum rents at December 31, 1998 receivable from
Operating Company under non-cancelable Participating Hotel Facility Leases for
the years ending December 31, are as follows:

Year (In thousands)

1999 .......... $224,589
2000 .......... 227,036
2001 .......... 227,036
2002 .......... 227,036
2003 .......... 113,518

Realty also leases restaurants it owns to third parties. These leases are
accounted for as operating leases and expire over a period from 1999 to 2018
and provide for minimum rentals and contingent rentals based on a percentage of
annual sales in excess of stipulated amounts. Total restaurant rental income
for 1998 was $3,382,000, which consisted of $2,812,000 minimum rent and
$570,000 of contingent rent.

Realty's future minimum rents at December 31, 1998 to be received under
non-cancelable operating restaurant leases for the years ending December 31 are
as follows:

Year (In thousands)

1999 ......................... $ 6,050
2000 ......................... 5,646
2001 ......................... 5,015
2002 ......................... 4,305
2003 ......................... 3,404
2004 and thereafter .......... 13,238

Realty is also committed to third parties for certain ground lease
arrangements which contain contingent rent provisions based upon revenues and
also certain renewal options at fair market value at the conclusion of the
initial lease terms. The leases extend for varying periods through 2014. Future
minimum rental payments required under operating ground leases that have
initial or remaining non-

108

cancelable lease terms in excess of one year at December 31, 1998 follow:

Year (In thousands)

1999 ......................... $ 364
2000 ......................... 356
2001 ......................... 356
2002 ......................... 294
2003 ......................... 272
2004 and thereafter .......... 1,337

Total rent for ground leases was $297,000 for 1998.

Operating Company leases certain non-hotel, real estate and equipment for
the hotels' operations under various lease agreements. The leases extend for
varying periods through 2003 and generally are for a fixed amount each month.
Total rent expense for operating leases was approximately $1,561,000 for the
period from July 17, 1998 to December 31, 1998.

Operating Company's future minimum rents at December 31, 1998 payable
under non-hotel non-cancelable operating leases for the years ending December
31 are as follows (in thousands):

Year (In thousands)

1999 ......................... $3,033
2000 ......................... 2,800
2001 ......................... 2,220
2002 ......................... 1,977
2003 ......................... 1,787
2004 and thereafter .......... 298

14. Contingencies

Litigation

On January 8, 1998 the Companies received notice that they were named as
defendants in an action entitled Lynn Robbins v. William J. Razzouk, et al.,
Civil Action No. 98CI-00192 filed January 7, 1998 in the District Court of
Bexar County, Texas (the "Texas Court"), and on January 20, 1998 the Companies
received notice that they were named as defendants in an action entitled Adele
Brody v. William J. Razzouk, et al., Civil Action No. 98CI-00456 filed January
12, 1998 in the Texas Court. The complaints, which were consolidated into one
action (the "Action"), (i) alleged, in part, that La Quinta and its directors
violated their fiduciary duties of care and loyalty to La Quinta shareholders
by entering into a merger agreement with the Companies without having first
invited other bidders, and that the Companies aided and abetted La Quinta and
its directors in the alleged breaches, and (ii) sought injunctive relief
enjoining the merger with La Quinta and compensatory damages. The parties
negotiated and entered into an agreement in principle to settle the Action,
dated on or about May 8, 1998 (the "Memorandum of Understanding"). The
Memorandum of Understanding set forth the principal bases for the settlement,
which included the issuance of a series of press releases prior to the meetings
of the shareholders of the Companies and La Quinta to consider the La Quinta
Merger agreement, and the inclusion of a section in the joint proxy
statement/prospectus prepared for the shareholder meetings which described the
FEIT with MLI.

The parties have negotiated and entered into a Stipulation and Agreement
of Compromise, Settlement and Release (the "Stipulation" or "Settlement"),
dated on or about October 8, 1998, which contains the terms of settlement of
the Action. On October 8, 1998, the Texas Court entered an Order Re:
Preliminary Approval ("Order") which, among other things, (i) preliminarily
approved the Settlement; (ii) conditionally approved the Settlement Class;
(iii) approved the Notice of Pendency and Settlement of Class Action for
mailing to the Settlement Class; and (iv) scheduled a Settlement Hearing. On
November 9, 1998, the Texas Court entered an amended Order which set the date
for the Settlement Hearing to January 19, 1999. The Texas Court has the right
to change the date of the Settlement Hearing without further notice to the
Settlement Class. The Settlement is contingent upon Final Court Approval

109

of the Settlement (as defined in the Stipulation). At the Settlement Hearing,
the parties will ask the Texas Court to enter a Final Judgment which will,
among other things, (i) finally approve the Settlement; (ii) declare that the
Action and the Settled Claims (as defined in the Stipulation) are finally and
fully compromised and settled; (iii) deem that the Representative Plaintiffs,
the Settlement Class and the Settlement Class Members have fully, finally and
forever settled and released any and all Settled Claims against the Released
Parties (as defined in the Stipulation); and (iv) dismiss the Action on the
merits and with prejudice. Pursuant to the settlement, La Quinta on February
22, 1999, paid the class plaintiffs attorney's fees totaling $700,000 which
were awarded by the Texas court.

The Companies are a party to a number of other claims and lawsuits arising
out of the normal course of business; the Companies believe that none of these
claims or pending lawsuits, either individually or in the aggregate, will have
a material adverse affect on the Companies' business or on their consolidated
financial position or results of operations.

Paired Share REIT Legislation

On July 22, 1998, the President of the United States of America signed
into law the Internal Revenue Service Restructuring and Reform Act of 1998 (the
"Reform Act"). Included in the Reform Act is a freeze on the grandfathered
status of paired share REITs such as the Companies. Under this legislation, the
anti-pairing rules provided in the Internal Revenue Code of 1986, as amended
(the "Code"), apply to real property interests acquired after March 26, 1998 by
the Companies, or by a subsidiary or partnership in which a ten percent or
greater interest is owned by the Companies, unless (1) the real property
interests are acquired pursuant to a written agreement that was binding on
March 26, 1998 and at all times thereafter or (2) the acquisition of such real
property interests was described in a public announcement or in a filing with
the SEC on or before March 26, 1998.

Under the Reform Act, the properties acquired in connection with the July
17, 1998 La Quinta Merger and in connection with the merger on May 29, 1998
with Cobblestone generally are not subject to these anti-pairing rules.
However, any property acquired by the Companies, La Quinta, or Cobblestone
after March 26, 1998, other than property acquired pursuant to a written
agreement that was binding on March 26, 1998 or described in a public
announcement or in a filing with the SEC on or before March 26, 1998, is
subject to the anti-pairing rules. Moreover, under the Reform Act any otherwise
grandfathered property will become subject to the anti-pairing rules if the
rent on a lease or renewal with respect to such property is determined to
exceed an arm's length rate. In addition, the Reform Act also provides that a
property held by the Companies that is not subject to the anti-pairing rules
will become subject to such rules in the event of an improvement placed in
service after December 31, 1999 that changes the use of the property and the
cost of which is greater than 200 percent of (A) the undepreciated cost of the
property (prior to the improvement) or (B) in the case of property acquired
where there is a substituted basis (e.g., the properties acquired from La
Quinta and Cobblestone), the fair market value of the property on the date it
was acquired by the Companies.

Other Events

110

evaluation, the Companies are considering the applicability of Mr. Gosman's
employment contract and whether such severance or other payments are
appropriate. The results of the Companies' evaluation are currently uncertain
and depending upon the results of this evaluation and the results of ongoing
discussions with Mr. Gosman, Mr. Gosman may initiate litigation against the
Companies.

The ultimate outcome of this matter is not predictable and management is
not able to make a meaningful estimate of the amount or range of loss that
could result from an unfavorable outcome of this matter. It is possible that an
unfavorable outcome of this matter could have a material adverse effect on the
Companies' results of operations in a particular quarter or annual period.
However, the Companies believe any such claim, even if materially adverse to
the Companies' results of operations, should not have a material adverse effect
on the Companies' financial position.

15. Stock Option and Benefit Plans
The Meditrust Corporation Amended and Restated 1995 Share Award Plan (the
"Meditrust Corporation Plan") provides that the maximum number of common shares
(the "Meditrust Corporation Shares") that may be issued under the plan shall
not exceed the sum of 3,616,741 plus an amount equal to 5% of the Meditrust
Corporation Shares outstanding from time to time. The Meditrust Operating
Company Amended and Restated 1995 Share Award Plan (the "Meditrust Operating
Plan" and together with the Meditrust Corporation Plan, the "Plans") provides
that the maximum number of common shares (the "Meditrust Operating Shares")
that may be issued under the plan shall not exceed an amount equal to 5% of the
Meditrust Operating Shares outstanding from time to time.

Under each of the Plans, the maximum number of options and stock
appreciation rights that may be granted to an eligible person during any one
year period shall not exceed 450,000 subject to certain adjustments. Also under
each of the Plans, awards are to be issued either as Options, Dividend
Equivalents, Stock Appreciation Rights, Restricted Stock Awards, Performance
Share Awards or Stock Bonuses (each, an "Award"). At December 31, 1998, under
the Meditrust Corporation Plan and the Meditrust Operating Plan, 9,387,000 and
5,334,000 shares, respectively, were available for future grant.

Each Award expires on such date as determined by management and the
Compensation Committee of the Board of Directors (the "Committee"), but in the
case of options or other rights to acquire paired common shares, not later than
10 years after the date of the Award. Options granted under each of the Plans
vest according to a schedule determined by the Committee. The Committee may
authorize the deferral of any payment of cash or issuance of paired common
shares under each of the Plans at the election and request of a participant. Up
to 4,000,000 shares are available under each of the Plans to be issued as
incentive stock options. Directors, officers, employees and individual
consultants, advisors or agents who render or who have rendered bona fide
services to the corporation are eligible to participate in the plan for such
corporation.

The Committee is provided discretion to accelerate or extend the
exercisability or vesting of any or all such outstanding Awards within the
maximum 10 year period, including in the event of retirement, death or
termination of employment. Options outstanding at December 31, 1998 expire in
2001 through 2008.

Under each of the Meditrust Corporation Plan and the Meditrust Operating
Plan, a like number of shares of the Meditrust Corporation Shares or Meditrust
Operating Shares, as the case may be, shall be purchased from the other
corporation or arrangements shall be made with such other corporation for the
simultaneous issuance by the other corporation of the same number of common
shares as the number of common shares issued in connection with an Award. Under
each of the Plans, the option price shall not be less than the par value of the
Meditrust Corporation Shares and the Meditrust Operating Shares subject to the
Award. In the event of a "change in control," as defined in each of the Plans,
all options outstanding will become fully vested.

During 1998, 315,000 restricted shares of the Companies' stock were issued
to key employees under the Plans. Restrictions generally limit the sale or
transfer of shares during a restricted period, not exceeding eight years.
Participants vest in the amounts granted on the earliest of eight years after
the date of issuance, upon achieving the performance goals as defined, or as
the Boards of Directors may determine.

111

Unearned compensation was charged for the market value of the restricted
shares on the date of grant and is being amortized over the restricted period.
The unamortized unearned compensation value is shown as a reduction of
shareholders' equity in the accompanying consolidated and combined balance
sheets.

The Companies apply APB 25 and related Interpretations in accounting for
these Plans. Accordingly, no compensation cost has been recognized for the
fixed stock option plans.

Options to purchase 864,000 Meditrust Corporation Shares and 168,000
Meditrust Operating Shares were exercisable as of December 31, 1998.

Had compensation cost for the Companies' stock option-based compensation
plans been determined based on the fair value at the grant dates for Awards
under those plans consistent with the method pursuant to SFAS 123, the
Companies' net income and earnings per share would have been reduced to the pro
forma amounts indicated below:

For the year ended December 31,
----------------------------------------------
1998 1997 1996
(In thousands, except per share amounts) -------------- ------------- -------------

Net income (loss) available to paired common
shareholders:
As reported ............................... $ (161,591) $ 162,412 $ 157,976
Pro forma* ................................ (162,120) 160,586 157,209
Earnings (loss) per paired common share:
Basic as reported ......................... $ (1.34) $ 2.14 $ 2.21
Diluted as reported ....................... (1.29) 2.12 2.20
Basic pro forma* .......................... (1.35) 2.11 2.20
Diluted pro forma* ........................ (1.29) 2.09 2.19

* The pro forma effect of compensation costs determined using the fair value
based method are not indicative of future amounts when the new method will
apply to all outstanding vested and non-vested Awards.

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996,
respectively. Dividend yield of 14.1, 7.9 and 8.2 percent, and expected
volatility of 33, 16 and 16 percent for each year, respectively. Risk-free
interest rates of 4.4 percent in 1998, and ranging from 5.9 to 6.7 percent in
1997, and 5.9 to 6.6 percent for 1996; and an expected life of four years for
each grant.

112

A summary of the Companies' stock option activity and related information
follows:

For the year ended December 31,
-------------------------------------------------------------------------
1998 1997 1996
------------------------ ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
Fixed options ----------- ---------- --------- ---------- --------- ---------

Outstanding at
beginning of year .......... 3,811 $ 30 1,171 $ 25 1,593 $ 24
Granted ..................... 2,934 13 2,639 33
Options from merger ......... 452 4 288 17 127 27
Exercised ................... (611) 8 (272) 24 (477) 25
Forfeited ................... (1,564) 31 (15) 25 (72) 27
------ ------ ----- ------ ----- ------
Outstanding at
end of year ................ 5,022 $ 20 3,811 $ 30 1,171 $ 25
------ ------ ----- ------ ----- ------
Options exercisable
at year end ................ 1,032 1,225 509
------ ----- -----
Weighted average fair
value of options granted
during the year ............ $ 1.44 $ 2.71 $ 2.52
------ ------ ------

The weighted-average exercise price equals the weighted-average grant date
fair value as all options were granted at fair market value on the date of
grant.

The following table summarizes information about fixed stock options
outstanding at December 31, 1998:

Options Outstanding Options Exercisable
--------------------------------------------- -------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Outstanding Remaining Exercise Exercisable Exercise
at 12/31/98 Contractual Life Price at 12/31/98 Price
Range of exercise prices ------------- ------------------ ------------ ------------- -----------

$21.85.................... 18,872 2.81 $ 21.85 18,872 $ 21.85
$27.46.................... 8,813 5.70 27.46 8,813 27.46
$25.07-$25.17............. 401,743 6.22 25.08 401,743 25.08
$24.97-$29.44............. 84,327 7.53 27.53 84,327 27.53
$30.58-$36.46............. 1,407,678 8.61 32.80 350,266 32.80
$12.625-$29............... 150,600 4.82 17.90 150,600 17.90
$3.95-$4.42............... 17,364 8.47 4.20 17,364 4.20
$13.44.................... 2,933,500 9.95 13.44
--------- ---- -------- --------- - -----
5,022,897 9.04 $ 20.19 1,031,985 $ 26.49
========= ==== ======== ========= ========

Retirement and Other Benefits

Realty entered into a non-qualified Trustee Retirement Plan (the "Plan")
during 1996. The Plan provides eligible Trustees defined retirement benefits
based on Trustee fees and years of service. At December 31, 1998 and 1997, the
present value of the accumulated benefit obligation was $1,802,000 and
$1,616,000, respectively. Retirement expense, including prior amortization cost
and a current provision for the Plan, totaled $1,214,000, $346,000 and $350,000
in the accompanying income statements for 1998, 1997 and 1996, respectively.

On December 10, 1998, the Board of Directors of Meditrust Corporation
voted to accept the recommendations of the Compensation Committee to make a
payment, pursuant to the Meditrust Corporation Plan, of unrestricted stock of
The Meditrust Companies to certain Directors that previously qualified under
the Meditrust Trustee Retirement Plan, in an amount equal to the present value
of each individual's accumulated benefit.

113

During 1995, Realty entered into a Split-Dollar Life Insurance Agreement
with a trust established by the then Chairman and Chief Executive Officer,
pursuant to which Realty has agreed to advance policy premiums on life
insurance policies paying a death benefit to the trust. Realty is entitled to
reimbursement of the amounts advanced, without interest, which right is
collateralized by an assignment of the life insurance policies and a personal
guarantee of the former Chairman in the amount of the excess, if any, of the
premiums paid by Realty over the cash surrender value of the insurance
policies.

The Companies have savings plans which qualify under Section 401(K) of the
Internal Revenue Code under which eligible employees are entitled to
participate up to a specified annual maximum contribution level. The Companies
match a portion of such contributions which amounted to $320,000, $106,000 and
$90,000, for the years ended December 31, 1998, 1997 and 1996, respectively.

The La Quinta Retirement Plan is a defined benefit pension plan covering
all La Quinta employees. Benefits accruing under this plan are determined
according to a career average benefit formula which is integrated with Social
Security benefits. For each year of service as a participant in this plan, an
employee accrues a benefit equal to one percent of his or her annual
compensation plus .65 percent of compensation in excess of the Social Security
covered compensation amount. The Companies' funding policy for this plan is to
annually contribute the minimum amount required by federal law.

The following table sets forth the funded status and amounts recognized in
the Companies' combined financial statements for the La Quinta Retirement Plan
at December 31, 1998:

(In thousands)

Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $12,836 .... $ (14,952)
=========
Projected benefit obligation for services rendered to date .............. $ (18,802)
Plan assets at fair value, primarily marketable securities .............. 19,020
---------
Projected plan assets in excess of benefit obligation ................... 218
Unrecognized net gain from past experiences different from those assumed (1,281)
Prior service costs ..................................................... (1,122)
---------
Accrued pension costs ................................................... $ (2,185)
=========

The assumptions used in the calculations shown above were:

1998
----------------

Discount rate ........................................ 6.75%
Expected long-term rate of return on assets .......... 8.00%
Rate of increase in compensation levels .............. 5.00%--6.00%

The net periodic pension cost for the La Quinta Retirement Plan was
approximately $1,100,000 for the period July 18, 1998 to December 31, 1998. The
net periodic pension cost for the La Quinta Retirement Plan included the
following components for the year ended December 31, 1998:

(In thousands)

Service cost (benefits earned during the period) .......... $ 1,960
Interest cost on projected benefit obligation ............. 1,218
Actual return on plan assets .............................. (3,087)
Net amortization and deferral ............................. 186
Net deferred asset gain ................................... 1,879
--------
Net periodic pension cost ................................. $ 2,156
========

Effective January 1, 1999, the Companies converted their existing
retirement plan to a cash balance pension plan. Existing accrued benefits under
the existing retirement plan were converted into a beginning account balance as
of January 1, 1999. Under the new cash balance pension plan, the Companies will
make quarterly contributions to the account balances calculated as a percentage
of quarterly employee compensation based on years of service. Interest credits
to the account balances will be based on one year U.S. Treasury Securities. The
account balances will be made available to employees after they reach age 55.

114

La Quinta maintained a trust account intended for use in settling benefits
due under the Supplemental Retirement Plan and Trust ("SERP") which covered a
select group of management employees. As a result of the La Quinta Merger, a
"Potential Change in Control", as defined in the SERP document, occurred. This
event required the Companies to make a contribution to the trust sufficient to
meet funding obligations as described in the SERP document within 90 days of
signing the La Quinta Merger documents. On April 3,1998, La Quinta deposited
$2,520,000 into the trust account to meet the initial funding requirement
defined under the provisions of the SERP document. On December 31,1998, the
trustee paid all benefits due under this plan to the management employees
covered.

16. Income Taxes
As a REIT, Realty is taxed only on undistributed REIT income. During the
year ended December 31, 1998, Realty distributed at least 95% of its REIT
taxable earnings to its shareholders.

Section 382 of the Internal Revenue Code of 1986, as amended, restricts a
corporation's ability to use its net operating loss ("NOL") carryforwards
following certain "ownership changes." Operating Company determined that such
an ownership change occurred as a result of the Santa Anita, Cobblestone and La
Quinta Mergers, respectively, and accordingly the amount of NOL carryforwards
available for use in any particular taxable year will be limited. To the extent
that Operating Company does not utilize the full amount of the annual NOL
limit, the unused amount may be used to offset taxable income in future years.
NOL carryforwards expire 15 years after the tax year in which they arise, and
the last of Operating Company's NOL carryforwards will expire in 2013. A
valuation allowance is provided for the full amount of the NOL's as the
realization of tax benefits from such NOL's is not assured.

Operating Company recorded a deferred tax asset of $11,156,000 and a
deferred tax liability of $5,485,000 as a result of the La Quinta Merger. A
valuation allowance is provided for $11,156,000 of the deferred tax asset, as
realization of such asset is not assured.

Operating Company has provided a valuation allowance with respect to
certain post-La Quinta Merger increases in deferred tax assets as realization
of these amounts are not assured.

Components of deferred income taxes for Operating Company as of December
31, 1998 and 1997 are as follows:

Deferred tax assets for continuing operations:

December 31, December 31,
1998 1997
(In thousands) -------------- -------------

Federal net operating loss carryovers ............................. $ 11,099 $ 7,270
State net operating loss carryovers ............................... 1,488 1,160
Self-insurance deductible when paid ............................... 8,821
Vacation pay deductible when paid ................................. 1,391
Pension plan ...................................................... 592
Restructuring accruals deductible when paid ....................... 782
Other ............................................................. 442
Valuation allowance ............................................... (20,460) (8,430)
--------- --------
Total deferred tax assets ........................................ $ 4,155 $ --
--------- --------
Deferred tax liabilities for continuing operations:
Amortization of workforce-in-place and reservation system ......... $ 4,650
---------
Total deferred tax liabilities ................................... $ 4,650
---------

A reconciliation of Operating Company's total income tax provision
(benefit) for calendar year 1998 and the initial period ended December 31, 1997
to the statutory federal corporation income tax rate of 35% and applicable
state tax rates as follows:

115

December 31, December 31,
1998 1997
(In thousands) ------------- --------------

Computed "expected" tax provision .................. $ (8,628) $ --
State tax provision, net of federal effect ......... (887)
Nondeductible compensation ......................... 878
Nondeductible meals and entertainment .............. 79
Nondeductible amortization ......................... 304
Valuation allowance ................................ 873
Gain from discontinued operations .................. 2,581 --
-------- ------
Total income tax benefit ........................... $ (4,800) $ --
-------- ------

17. Earnings Per Share

Combined consolidated earnings per share is computed as follows:

For the year ended December 31,
(In thousands, except per share amounts) -------------------------------------------
1998 1997 1996
----------- ------------- -------------

Income from continuing operations ......................... $141,080 $ 161,962 $ 157,976
Preferred stock dividends ................................. (8,444) -- --
-------- --------- ---------
Income from continuing operations available to
common shareholders ...................................... $132,636 $ 161,962 $ 157,976
======== ========= =========
Average outstanding shares of paired common stock ......... 120,515 76,070 71,445
Dilutive effect of:
Contingently issuable shares ............................. 4,757
Stock options ............................................ 236 454 306
-------- --------- ---------
Dilutive potential paired common stock .................... 125,508 76,524 71,751
======== ========= =========
Earnings per share:
Basic .................................................... $ 1.10 $ 2.13 $ 2.21
======== ========= =========
Diluted .................................................. $ 1.06 $ 2.12 $ 2.20
======== ========= =========

Options to purchase 3,471,000, 27,000 and 17,000 paired common shares at
prices ranging from $27.98 to $43.81 were outstanding during the years ended
December 31, 1998, 1997 and 1996 respectively, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. The options, which expire on
dates ranging from October 2006 to October 2007, were still outstanding at
December 31, 1998.

Convertible debentures outstanding for the years ended December 31, 1998,
1997 and 1996 of 6,579,000, 9,600,000 and 10,289,000, respectively, are not
included in the computation of diluted EPS because the inclusion would result
in an antidilutive effect.

Meditrust Corporation earnings per share is computed as follows:

For the year ended December 31,
(In thousands, except per share amounts) ---------------------------------------
1998 1997 1996
----------- ----------- -----------

Income from continuing operations .................. $160,931 $162,324 $157,976
Preferred stock dividends .......................... (8,444) -- --
-------- -------- --------
Income from continuing operations available to
common shareholders ............................... $152,487 $162,324 $157,976
======== ======== ========
Average outstanding shares of common stock ......... 121,820 76,274 71,445
Dilutive effect of:
Contingently issuable shares ...................... 4,757
Stock options ..................................... 236 733 306
-------- -------- --------
Dilutive potential common stock .................... 126,813 77,007 71,751
======== ======== ========

116

For the year ended December 31,
(In thousands, except per share amounts) ------------------------------------
Earnings per share:

Basic ................................... $ 1.25 $ 2.13 $ 2.21
====== ====== ======
Diluted ................................. $ 1.20 $ 2.11 $ 2.20
====== ====== ======

Options to purchase 3,471,000, 27,000 and 17,000 paired common shares at
prices ranging from $27.98 to $43.81 were outstanding during the years ended
December 31, 1998, 1997 and 1996, respectively, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. The options, which expire on
dates ranging from October 2006 to October 2007, were still outstanding at
December 31, 1998.

Meditrust Operating Company earnings per share is computed as follows:

For the year ended December
31,
(In thousands, except per share amounts) --------------------------
1998 1997
------------- ----------

Loss from continuing operations .................... $ (19,851) $ (362)
Preferred stock dividends .......................... -- --
--------- -------
Loss from continuing operations available to
common shareholders ............................... $ (19,851) $ (362)
========= =======
Average outstanding shares of common stock ......... 120,515 82,490
Dilutive effect of:
Contingently issuable shares ...................... --
Stock options ..................................... -- --
--------- -------
Dilutive potential common stock .................... 120,515 82,490
========= =======
Earnings per share:
Basic ............................................. $ (0.16) $ (0.01)
========= =======
Diluted ........................................... $ (0.16) $ (0.01)
========= =======

Options to purchase 18,000 paired common shares at $29.00 were outstanding
during the year ended December 31, 1998, but were not included in the
computation of diluted EPS because the options' exercise price was greater then
the average market price of the common shares. The options, which expire in
December 1999, were still outstanding at December 31, 1998.

Operating Company holds common shares of Realty which are unpaired
pursuant to a stock option plan approved by the shareholders. The common shares
held totaled 1,305,000 as of December 31, 1998. These shares affect the
calculations of Realty's net income per common share but are eliminated in the
calculation of net income per paired common share for The Meditrust Companies.

18. Transactions between Realty and Operating Company
Operating Company leases hotel facilities from Realty and its
subsidiaries. The Participating Hotel Facilities Lease arrangements between
Operating Company and Realty include base and additional rent provisions and
require Realty to assume costs attributable to property taxes and insurance.

Operating Company has entered into a royalty arrangement with Realty for
the use of the La Quinta tradename at a rate of approximately 2.5% of gross
revenues, as defined in the agreement.

Subsequent to the La Quinta Merger, Realty distributed certain assets,
including two newly constructed lodging facilities, to Operating Company with
an established value of $33,162,000. Realty and Operating Company accounted for
this transaction as a property distribution and contribution, respectively.

117

During the year, Realty and Operating Company issued shares under the
Plans. Amounts due from Realty and Operating Company in connection with Awards
of shares under the Plans are shown as a reduction of shareholders' equity in
the accompanying consolidated balance sheets of Realty and Operating Company,
respectively.

In connection with certain acquisitions, Operating Company issued shares
to Realty and recorded a receivable. Due to the affiliation of Realty and
Operating Company, the receivable from Realty has been classified in Operating
Company's shareholders' equity.

Operating Company delivered a note to Realty for $13,128,000 on November
5, 1997. The purpose of the note was to adjust the relative values of Meditrust
and Meditrust Acquisition Company in order to ensure that the Santa Anita
Merger qualified as a tax free reorganization. This transaction is eliminated
in the combined consolidated financial statements. However, due to the
affiliation of Realty and Operating Company, the note has been classified in
shareholders' equity in Realty and a note payable has been recorded in
Operating Company. The note is due on November 1, 2009 and bears interest at
6.42%. Interest is payable quarterly in arrears.

As of December 31, 1998, net liabilities of discontinued operations of
Operating Company include an intercompany payable to Realty of $41,226,000.
This intercompany balance bears interest at 6.42%. In addition, there are
intercompany balances related to working capital items that are not interest
bearing.

Operating Company owns 1,305,377 shares of Realty as a result of
acquisition activity.

Realty provides certain services to Operating Company primarily related to
general tax preparation and consulting, legal, accounting, and certain aspects
of human resources. In the opinion of management, the costs associated with
these services were not material and have been excluded from the financial
statements.

19. Quarterly Financial Information (Unaudited)
The following quarterly financial data summarizes the unaudited quarterly
results for the Companies for the years ended December 31, 1998 and 1997.

Quarter Ended 1998
(In thousands, except per share amounts) ------------------------------------------------------------
March 31 June 30 September 30 December 31
------------- ------------ -------------- ------------

Revenue ....................................... $ 108,576 $ 87,629 $ 216,202 $226,970
Income (loss) from continuing operations ...... 44,266 45,893 (18,453) 69,374
Discontinued operations ....................... 7,355 2,510 (176,338) (127,754)
Net income (loss) ............................. 51,621 48,403 (194,791) (58,380)
Basic earnings per Paired Common Share:
Income (loss) from continuing operations ..... 0.48 0.45 ( .16) 0.44
Discontinued operations ...................... 0.08 0.03 (1.26) (.86)
Net income (loss) ............................ 0.56 0.48 (1.42) (.42)
Diluted earnings per Paired Common Share:
Income (loss) from continuing operations ..... 0.48 0.44 ( .16) 0.42
Discontinued operations ...................... 0.08 0.03 (1.26) (.81)
Net income (loss) ............................ 0.56 0.47 (1.42) (.39)

Quarter Ended 1997
(In thousands, except per share amounts) -----------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ------------ -------------- ------------

Revenue .................................... $ 67,965 $ 71,014 $ 74,744 $ 75,315
Income from continuing operations .......... 41,053 41,947 42,052 36,910
Discontinued operations .................... -- -- -- 450
Net income ................................. 41,053 41,947 42,052 37,360
Basic earnings per Paired Common Share:
Income from continuing operations ......... 0.56 0.57 0.57 0.44
Discontinued operations ................... -- -- -- 0.01
Net income ................................ 0.56 0.57 0.57 0.45
Diluted earnings per Paired Common Share:
Income from continuing operations ......... 0.55 0.56 0.56 0.44

118

Quarter Ended 1997
(In thousands, except per share amounts) ---------------------------------------------

Discontinued operations ................. -- -- -- 0.01
Net income .............................. 0.55 0.56 0.56 0.45

20. Segment reporting
The following is provided pursuant to SFAS. 131:

Description of the types of products and services from which each reportable
segment derives its revenues
The Companies have two reportable segments: Healthcare and Lodging. The
Healthcare segment generally invests in healthcare facilities throughout the
United States by providing financing to healthcare operators. This financing
takes the form of mortgages, development loans, and sale/leaseback
transactions. The Lodging segment essentially includes the ownership,
development and operation of hotels in the mid-priced segment of the lodging
industry under the brand name La Quinta, which is concentrated in the western
and southern United States. La Quinta Inns appeal to guests who desire
high-quality rooms, convenient locations and attractive prices, but who do not
require banquet and convention facilities, in-house restaurants, cocktail
lounges or room service. There is no single competitor or group of competitors
of La Quinta that is dominant in the lodging industry. Competitive factors in
the industry include reasonableness of room rates, quality of accommodations,
service level and convenience of locations.

Measurement of segment profit or loss and segment assets
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Companies evaluate
performance based on contribution from each reportable segment. Contribution is
defined by the Companies as income from operations before interest expense,
depreciation, amortization, gains and losses on sales of assets, provisions for
losses on disposal or impairment of assets, income or loss from unconsolidated
entities, income taxes and nonrecurring income and expenses. The measurement of
each of these segments is made on a combined basis with revenue from external
customers, and excludes lease income between Realty and Operating Company. The
Companies account for Realty and Operating Company transactions as if the
transactions were to third parties, that is, at current market prices.

Factors management used to identify the enterprise's reportable segments
The Companies reportable segments are strategic business segments
operating in different industries and offering different products and services.
They are managed separately because each business requires different skill
levels and marketing strategies. The Lodging segment was acquired as a unit,
and the management at the time of the acquisition was retained. As described in
Note 5, the Golf and Horseracing segments have been reported as discontinued
operations in the accompanying financial statements.

The following table presents information used by management by reported
segment. The Companies do not allocate interest expense, income taxes or
unusual items to segments.

For the years ended December 31,
(In thousands, except per share amounts) ---------------------------------------
1998 1997 1996
----------- ----------- -----------

Healthcare:
Rental income (a) ........................... $191,874 $137,868 $109,119
Interest income ............................. 153,093 151,170 144,905
Rental property operating costs ............. (7,199) (210) --
General and administrative expenses ......... (21,436) (10,257) (8,625)
--------- --------- --------
Healthcare Contribution ..................... $316,332 $278,571 $245,399
--------- --------- --------
Lodging:
Room revenue ................................ $241,868 -- --
Guest services and other .................... 16,555 -- --

119

For the years ended December 31,
(In thousands, except per share amounts) ----------------------------------------
Operating expenses ................................... (125,246) -- --

Rental property operating costs ...................... (8,439) -- --
------ -- --
Lodging Contribution ................................. $ 124,738 -- --
---------- -- --
Combined Contribution ................................ 441,070 278,571 245,399
---------- ------- -------
Reconcilation to Combined Consolidated
Financial Statements:
Interest expense ..................................... 178,458 87,412 64,216
Depreciation and amortization ........................ 87,228 26,838 21,651
Amortization of goodwill ............................. 13,265 2,349 1,556
Loss on sale of securities ........................... 4,159 -- --
Gain on sale of assets ............................... (52,642) -- --
Income from unconsolidated joint venture ............. (906) 10 --
Other income ......................................... (35,987) -- --
Other expenses ....................................... 111,215 -- --
---------- ------- -------
304,790 116,609 87,423
---------- ------- -------
Income from continuing operations before benefit for
income taxes ........................................ 136,280 161,962 157,976
Income tax benefit ................................... (4,800)
---------- ------- -------
Income from continuing operations .................... 141,080 161,962 157,976
Discontinued operations (Note 5):
Income from discontinued operations ................. 10,721 450
Loss on disposal of discontinued operations ......... (67,913)
Provision for loss on disposition of discontinued
operations ......................................... (237,035)
---------- ------- -------
Net income (loss) .................................... (153,147) 162,412 157,976
Preferred stock dividends ............................ (8,444)
---------- ------- -------
Net income (loss) available to Paired Common
shareholders ........................................ $ (161,591) $162,412 $157,976
========== ======== ========

- - ------------
(a) Revenue from segments below the quantitative thresholds are attributable to
two operating segments of the Companies. Those segments include a property
management business, which manages medical office buildings not owned by
the Healthcare segment, and rents received from restaurant properties
leased to third parties included in the Lodging segment. None of those
segments have ever met any of the quantitative thresholds for determining
reportable segments.

The following table presents assets by reported segment and in the aggregate.

December 31,
-----------------------------
1998 1997
(In thousands, except per share amounts) ------------- -------------

Healthcare gross real estate investments .............................. $2,738,927 $3,060,604
Lodging gross real estate investments ................................. 2,594,956
Accumulated depreciation, valuation allowances and provisions ......... (247,147) (124,832)
---------- ----------
Net real estate by reportable segment ................................. 5,086,736 2,935,772
Other assets:
Cash and cash equivalents ............................................. 305,456 43,732
Fees, interest and other receivables .................................. 54,712 23,650
Goodwill, net ......................................................... 486,051 194,893
Net assets of discontinued operations ................................. 305,416

120

December 31,
-----------------------------
221,180 82,236
Other assets, net ......... ------------- -------------

Total assets .............. $6,459,551 $3,280,283
========== ==========

The following table reconciles revenue to the accompanying financial
statements.

For the years ended December 31,
---------------------------------------
1998 1997 1996
(In thousands, except per share amounts) ----------- ----------- -----------

Healthcare:
Rental income ............................ $191,874 $137,868 $109,119
Interest income .......................... 153,093 151,170 144,905
-------- -------- --------
Total healthcare revenue ................. 344,967 289,038 254,024
Total lodging revenue .................... 258,423 -- --
Other income ............................. 35,987 -- --
-------- -------- --------
Total revenue ............................ $639,377 $289,038 $254,024
======== ======== ========

21. Subsequent Events
On January 14, 1999, the Board of Directors of Realty declared a dividend
of $0.46 per share of common stock payable on February 16, 1999 to shareholders
of record on January 29, 1999. This dividend relates to the quarter ended
December 31, 1998.

On February 11, 1999, the Companies signed a definitive agreement to sell
the Cobblestone Golf Group for aggregate consideration, including assumed debt,
of approximately $393,000,000. The transaction is expected to close by the end
of the first quarter of 1999.

On March 10, 1999, Realty reached a second agreement with its bank group
to amend its New Credit Agreement. The second amendment, which is subject to
the successful completion of the sale of Cobblestone Golf Group, provides for a
portion of the sale proceeds to be applied to settle a portion of the FEIT. The
second amendment also provides for, among other things, deletion of limitations
on certain healthcare investments and lowering the Tranche A loan commitments
to $850,000,000.

In addition, on March 10, 1999, the Companies entered into an agreement
with MLI and certain of its affiliates which stated that the proceeds from the
sale of Cobblestone Golf Group in excess of $300,000,000 will be used to
purchase all or a portion of the Notional Shares outstanding. Merrill Lynch has
agreed not to sell any Notional Shares until March 31, 1999 while the Companies
complete the sale of Cobblestone Golf Group.

121

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Boards of Directors of
Meditrust Corporation and Meditrust Operating Company:

In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of The Meditrust Companies, Meditrust
Corporation, and Meditrust Operating Company at December 31, 1998 and 1997, and
the results of The Meditrust Companies and Meditrust Corporation's operations
and their cash flows for each of the three years in the period ended December
31, 1998, and the results of Meditrust Operating Company's operations and its
cash flows for the year ended December 31, 1998 and the initial period ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Companies' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

February 8, 1999, except for Note 21, as to which the date is March 10, 1999.

122

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

To the Shareholders and Directors of The Meditrust Companies:

Our report on the financial statements of The Meditrust Companies, Meditrust
Corporation and Meditrust Operating Company, is included in this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in the index to this Form 10-K.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.

/s/ PricewaterhouseCoopers LLP

February 8, 1999

123

MEDITRUST CORPORATION
SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Additions
Charged as Additions &
Revenue Adjustments
Balance at Reductions or Charged Balance at
Beginning of Costs and To/From Other End of
Description Period Expenses Accounts Deductions Period
- - -------------------- -------------- --------------- ---------------------- --------------------- -------------

Valuation allowance
included in Other
Assets for the year
ended December 31:
1996 ............... $4,232,523 (3,075,328)(B) $1,157,195
1997 ............... $1,157,195 $ 7,779,772 $ 8,054,572(A) (8,000,000)(B) $8,991,539
1998 ............... $8,991,539 $16,400,000 $ (2,955,000)(C) $ 21,936,412(B) $ 500,127

(A) Reclassified from valuation allowance included in Accrued Expenses and
Other Liabilities.
(B) Relates to receivables and working capital loans charged off.
(C) Reclassified to Loan Valuation allowance.

Additions
Balance at Charged to Additions Balance at
Beginning of Costs and Charged To End of
Description Period Expenses Other Accounts Deductions Period
- - ------------------------- -------------- ------------ ---------------- ---------------------- --------------

Valuation allowance
included in Accrued
Expenses and Other
Liabilities for the year
ended December 31:
1996 .................... $ 9,714,572 $(1,690,000)(B) $ 8,054,572
1997 .................... $ 8,054,572 $(8,054,572)(A) --
1998 .................... $ -- $ --

(A) Includes $8,054,572 reclassified as a reduction to Other Assets.
(B) Relates to receivables charged off.

124

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------ -------------- ------------- ------------ --------- ---------- ------------ ------ -------

Alcohol and Substance
Abuse Treatment Centers
and Psychiatric Facilities
Hollywood, CA ............ $ 4,035,000 $ 4,035,000(6) $1,715,000 $ 5,750,000 $1,104,723 1957 5/88
College Station, TX ...... 3,708,894 3,708,894(6) 980,185 4,689,079 1,865,900 1987 5/93
Acute Care Hospital
Phoenix, AZ .............. 63,960,000 63,960,000 1,690,000 65,650,000 6,262,750 1954 2/95
Assisted Living
Blytheville, AR .......... 3,756,249 3,756,249 130,000 3,886,249 86,086 1996 4/96
Maumelle, AR ............. 3,848,620 3,848,620 320,000 4,168,620 88,121 1996 11/96
Mountain Home, AR ........ 3,787,872 3,787,872 170,000 3,957,872 76,111 1996 11/96
Pocahontas, AR ........... 3,701,500 3,701,500 50,000 3,751,500 87,188 1996 11/96
Sherwood, AR ............. 3,929,170 3,929,170 450,000 4,379,170 102,845 1996 11/96
Flagstaff, AZ ............ 3,222,513 3,222,513 3,222,513 9,814
Phoenix, AZ .............. 6,051,282 6,051,282 6,051,282 163,953 1997 12/97
Scottsdale, AZ ........... 3,922,447 3,922,447 3,922,447 113,283 1998 3/98
Folsom, CA ............... 9,280,000 9,280,000 620,000 9,900,000 268,254 1997 1/98
Palm Desert, CA .......... 5,415,920 5,415,920 784,080 6,200,000 295,560 1996 2/87
Trumbull, CT ............. 12,717,665 12,717,665 12,717,665 190,708 1998 1/98
Brandon, FL .............. 5,404,280 5,404,280 290,000 5,694,280 382,806 1991 3/96
Deland, FL ............... 2,615,000 2,615,000 275,000 2,890,000 87,168 1996 9/97
Fort Myers, FL ........... 3,252,481 3,252,481 513,000 3,765,481 169,400 1996 3/96
Fort. Myers, FL .......... 3,012,558 3,012,558 620,000 3,632,558 213,384 1982 12/96
Jacksonville, FL ......... 3,348,171 3,348,171 380,000 3,728,171 111,082 1996 11/97
Lakeland, FL ............. 6,076,053 6,076,053 600,000 6,676,053 430,372 1991 3/96
Leesburg, FL ............. 2,420,000 2,420,000 180,000 2,600,000 110,924 1996 3/97
Ocala, FL ................ 2,555,000 2,555,000 175,000 2,730,000 119,215 1996 6/97
Ormond Beach, FL ......... 2,580,000 2,580,000 310,000 2,890,000 89,031 1996 10/97
Port Orange, FL .......... 2,435,000 2,435,000 295,000 2,730,000 114,465 1996 6/97

125

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------ -------------- ------------- ------------ ---------- ---------- ------------- ----- --------

Port Richey, FL .......... $ 4,602,955 $ 4,602,955 $1,322,045 $ 5,925,000 $253,344 1996 2/97
Sarasota, FL ............. 7,841,931 7,841,931 7,841,931 202,870 1982 3/96
Stuart, FL ............... 2,380,000 2,380,000 270,000 2,650,000 118,992 1996 6/96
Tampa, FL ................ 3,366,481 3,366,481 399,000 3,765,481 175,350 1997 12/96
Tequesta, FL ............. 2,420,000 2,420,000 380,000 2,800,000 115,966 1998 12/97
Tequesta, FL ............. 2,636,499 2,636,499 2,636,499 95,597 1998 12/97
West Melbourne, FL ....... 2,460,000 2,460,000 240,000 2,700,000 123,000 1998 10/97
West Melbourne, FL ....... 2,751,181 2,751,181 2,751,181 50,144 1998 10/97
Pocatello, ID ............ 3,200,000 3,200,000 160,000 3,360,000 180,009 1996 10/96
Abilene, KS .............. 1,720,000 1,720,000 120,000 1,840,000 50,162 1996 6/97
4 facilities in KS,
1 facility in OK ........ 6,762,000 6,762,000 748,000 7,510,000 535,433 1993 3/96
Tewksbury, MA ............ 4,943,256 4,943,256 480,000 5,423,256 350,166 1987 3/96
Hagerstown, MD ........... 2,813,866 2,813,866 2,813,866 17,837 1998 4/98
Ann Arbor, MI ............ 2,797,488 2,797,488 280,800 3,078,288 443,406 1995 12/96
Davison, MI .............. 1,336,648 1,336,648 89,000 1,425,648 16,710 1998 7/98
Delta, MI ................ 3,520,133 3,520,133 494,000 4,014,133 44,003 1998 7/98
Delta, MI ................ 1,337,736 1,337,736 260,000 1,597,736 16,722 1998 7/98
Farmington Hills, MI ..... 3,205,250 3,205,250 215,600 3,420,850 166,950 1995 12/96
Farmington Hills, MI ..... 3,504,592 13,504,592 246,400 3,750,992 182,525 1995 12/96
2 facilities in Holly, MI 13,154,821 3,154,821 13,154,821 109,624 1998 7/98
Haslett (Lansing),MI ..... 6,518,771 6,518,771 436,000 6,954,771 215,190 1997 11/97
Sterling Heights,MI ...... 8,920,000 18,920,000 460,000 9,380,000 479,847 1987 12/95
2 facilities in Troy, MI . 13,355,257 3,355,257 13,355,257 111,294 1998 7/98
Utica, MI ................ 3,077,414 3,077,414 277,200 3,354,614 160,275 1995 12/96
Faribault, MN ............ 1,125,390 1,125,390 60,000 1,185,390 37,102 1997 11/97
Mankato, MN .............. 1,198,173 1,198,173 86,000 1,284,173 39,571 1997 11/97
Owatonna, MN ............. 1,230,173 1,230,173 54,000 1,284,173 40,509 1997 11/97
Sauk Rapids, MN .......... 905,825 905,825 82,000 987,825 29,977 1997 11/97
Willmar, MN .............. 1,123,390 1,123,390 62,000 1,185,390 37,031 1997 11/97
Winona, MN ............... 1,200,173 1,200,173 84,000 1,284,173 39,627 1997 11/97

126

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Charlotte, NC ........ $4,546,973 $4,546,973 $ 624,000 $ 5,170,973 $151,254 1997 11/97
Charlotte, NC ........ 6,515,381 6,515,381 504,000 7,019,381 215,328 1997 11/97
Greensboro, NC ....... 3,553,509 3,553,509 304,000 3,857,509 117,541 1997 11/97
Greensboro, NC ....... 6,321,281 6,321,281 576,000 6,897,281 209,217 1997 11/97
Lakewood Village,NY .. 1,370,399 1,370,399 1,370,399 7,220 1987 12/95
Manlius, NY .......... $963,000 8,610,000 8,610,000 510,000 9,120,000 395,583 1994 5/97
Chubbock, ID ......... 4,472,363 4,472,363 90,000 4,562,363 286,741 1996 8/96
Coeur d'Alene, ID .... 6,712,071 6,712,071 340,000 7,052,071 223,744 1997 6/96
Barberton, OH ........ 2,160,000 2,160,000 240,000 2,400,000 45,000 1997 3/98
Bowling Green, OH .... 1,845,000 1,845,000 200,000 2,045,000 57,660 1997 10/97
Colerain Township,OH . 6,872,605 6,872,605 604,395 7,477,000 371,920 1987 12/95
Englewood, OH ........ 2,100,000 2,100,000 240,000 2,340,000 48,125 1998 2/98
Lima, OH ............. 3,830,666 3,830,666 3,830,666 75,491 1997 10/97
Mansfield, OH ........ 2,350,000 2,350,000 210,000 2,560,000 48,958 1997 10/97
Mansfield, OH ........ 4,290,601 4,290,601 4,290,601 97,824 1997 10/97
Marion, OH ........... 2,515,000 2,515,000 270,000 2,785,000 41,917 1998 5/98
Xenia, OH ............ 5,368,305 5,368,305 5,368,305 83,892 1997 10/97
Bartlesville, OK ..... 1,800,000 1,800,000 110,000 1,910,000 52,500 1997 11/97
Ontario, OR .......... 2,940,000 2,940,000 110,000 3,050,000 136,353 1985 5/97
Beaver Falls, PA ..... 2,964,368 2,964,368 2,964,368 53,172 1998 2/98
Berwick, PA .......... 2,577,105 2,577,105 2,577,105 57,027 1998 2/98
Dillsburg, PA ........ 3,682,609 3,682,609 3,682,609 98,914 1998 2/98
Duncanville, PA ...... 3,349,018 3,349,018 288,000 3,637,018 76,747 1997 11/96
Lewisburg, PA ........ 2,536,515 2,536,515 2,536,515 75,464 1998 2/98
Lewistown, PA ........ 2,491,416 2,491,416 2,491,416 51,653 1998 2/98
North Wales, PA ...... 4,487,033 4,487,033 480,000 4,967,033 233,700 1997 7/97
North Wales, PA ...... 5,831,013 5,831,013 5,831,013 145,710 1997 7/97
Reading, PA .......... 3,845,940 3,845,940 372,000 4,217,940 94,083 1997 2/97
Richboro, PA ......... 9,624,115 9,624,115 1,212,000 10,836,115 501,250 1990 2/96
Scranton, PA ......... 3,156,603 3,156,603 3,156,603 52,227 1997 12/97

127

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

State College, PA .. $ 3,277,006 $ 3,277,006 $360,000 $ 3,637,006 $109,232 1996 8/96
Peckville, PA ...... 2,073,206 2,073,206 2,073,206 33,890 1998 2/98
Yardley, PA ........ 4,494,920 4,494,920 504,000 4,998,920 234,100 1996 12/96
(Irmo) Columbia, SC 3,562,784 3,562,784 231,800 3,794,584 117,594 1997 11/97
Anderson, SC ....... 10,499,705 10,499,705 170,000 10,669,705 637,240 1987 10/97
Charleston, SC ..... 3,676,366 3,676,366 399,000 4,075,366 121,910 1997 11/97
Hendersonville, TN . 1,453,758 1,453,758 1,453,758 11,006 1998 7/98
Kingsport, TN ...... 1,539,264 1,539,264 1,539,264 12,401 1998 7/98
Knoxville, TN ...... 1,750,755 1,750,755 1,750,755 9,944 1998 7/98
Abilene, TX ........ 2,134,231 2,134,231 150,000 2,284,231 84,474 1996 6/96
Big Springs, TX .... 2,037,899 2,037,899 10,000 2,047,899 80,674 1996 6/97
2 facilities in TX . 4,257,036 4,257,036 222,000 4,479,036 172,274 1996 6/97
Kerrville, TX ...... 1,766,000 1,766,000 195,000 1,961,000 73,580 1996 5/97
Lancaster, TX ...... 1,500,000 1,500,000 175,000 1,675,000 46,875 1996 10/97
Lubbock, TX ........ 5,362,195 5,362,195 220,000 5,582,195 212,254 1996 4/96
3 facilities in TX . 5,456,834 5,456,834 240,000 5,696,834 215,992 1996 6/97
3 facilities in TX . 4,968,892 4,968,892 230,000 5,198,892 289,856 1996 9/96
New Braunfels, TX .. 1,960,000 1,960,000 155,000 2,115,000 77,626 1996 6/97
San Antonio, TX .... 2,450,000 2,450,000 250,000 2,700,000 96,976 1997 6/97
6 facilities in TX . 11,155,104 11,155,104 625,000 11,780,104 743,680 1996 5/96
Temple, TX ......... 1,900,000 1,900,000 250,000 2,150,000 119,198 1996 3/97
Chesterfield, VA ... 2,053,993 2,053,993 2,053,993 10,830 1998 7/98
Stafford, VA ....... 3,135,835 3,135,835 470,000 3,605,835 45,731 1970 6/98
Staunton, VA ....... 2,451,654 2,451,654 2,451,654 9,718 1998 7/98
Bellingham, WA ..... 3,327,423 3,327,423 350,000 3,677,423 202,609 1996 10/96
Federal Way, WA .... 5,185,000 5,185,000 590,000 5,775,000 400,455 1996 4/96
Moses Lake, WA ..... 5,770,000 5,770,000 240,000 6,010,000 267,322 1996 5/97
Brown Deer, WI ..... 635,266 635,266 72,000 707,266 33,100 1995 12/96
Eau Claire, WI ..... 1,208,173 1,208,173 76,000 1,284,173 39,865 1996 11/97
Plover, WI ......... 2,093,924 2,093,924 140,000 2,233,924 71,483 1996 11/97

128

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Kenosha, WI ........... $ 1,299,524 $ 1,299,524 $ 100,000 $ 1,399,524 $ 16,244 1998 7/98
Manitowoc, WI ......... 1,016,608 1,016,608 70,000 1,086,608 33,567 1996 11/97
Medford, WI ........... 860,802 860,802 70,000 930,802 29,441 1996 11/97
Menomonie, WI ......... 912,000 912,000 57,000 969,000 36,100 1996 11/97
Middleton, WI ......... 1,405,738 1,405,738 76,000 1,481,738 46,345 1996 11/97
Neenah, WI ............ 1,312,955 1,312,955 70,000 1,382,955 43,273 1996 11/97
New Richmond, WI ...... 696,000 696,000 54,000 750,000 27,550 1996 11/97
Onalaska, WI .......... 1,205,931 1,205,931 84,000 1,289,931 62,800 1995 12/96
Oshkosh, WI ........... 1,016,608 1,016,608 70,000 1,086,608 33,567 1996 11/97
Plymouth, WI .......... 706,000 706,000 54,000 760,000 27,949 1996 11/97
Sun Prairie, WI ....... 1,113,390 1,113,390 72,000 1,185,390 36,751 1996 11/97
Sussex, WI ............ 874,824 874,824 86,000 960,824 45,575 1995 12/96
Wausau, WI ............ 1,535,443 1,535,443 140,000 1,675,443 52,597 1996 11/97
Wisconsin Rapids, WI .. 956,000 956,000 64,000 1,020,000 37,848 1996 11/97
Wisconsin Rapids, WI .. 1,233,123 1,233,123 70,000 1,303,123 42,042 1997 6/97
Martinsburg, WV ....... 4,089,923 4,089,923 4,089,923 73,142 1987 12/95
Golf Courses
Phoenix, AZ ........... 5,471,479 5,471,479 2,510,904 7,982,383 82,394 1993 5/98
Phoenix, AZ ........... 4,446,011 4,446,011 2,969,990 7,416,001 68,428 1973 5/98
Phoenix, AZ ........... 7,322,042 7,322,042 2,554,778 9,876,820 93,924 1977 5/98
Mesa, AZ .............. $ 242,595 4,989,975 4,989,975 3,371,036 8,361,011 76,771 5/98
Escondido, CA ......... 6,596,324 6,596,324 3,857,897 10,454,221 101,676 5/98
Oceanside, CA ......... 7,703,840 $529,049 8,232,889 2,911,762 11,144,651 114,016 5/98
San Diego, CA ......... 20,013,170 719,206 20,732,376 7,447,839 28,180,215 284,779 5/98
San Diego, CA ......... 991,165 991,165 145,468 1,136,633 18,849 1986 5/98
Escondido, CA ......... 5,515,457 8,573,825 8,573,825 1,922,187 10,496,012 155,429 5/98
Ventura, CA ........... 2,626,084 2,626,084 69,017 2,695,101 68,877 1931 5/98
Jacksonville, FL ...... 3,480,927 3,480,927 1,961,147 5,442,074 59,505 6/98
Orlando, FL ........... 4,204,273 287,814 4,492,087 1,505,228 5,997,315 61,815 1993 5/98
Oldsmar, FL ........... 10,574,785 52,577 10,627,362 5,473,299 16,100,661 166,909 1974 5/98

129

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Tampa, FL .......... $ 4,287,344 $ 112,871 $ 4,400,215 $1,484,656 $ 5,884,871 $ 53,705 1993 5/98
Atlanta, GA ........ 4,147,675 269,457 4,417,132 1,465,326 5,882,458 62,128 5/98
Snellville, GA ..... 4,658,179 222,611 4,880,790 2,817,105 7,697,895 73,669 1996 5/98
Atlanta, GA ........ 6,421,620 6,421,620 3,536,965 9,958,585 46,716 8/98
Atlanta, GA ........ 6,192,743 6,192,743 3,515,270 9,708,013 202,210 3/98
Nags Head, NC ...... 7,657,934 7,657,934 4,175,255 11,833,189 85,188 8/98
Holly Springs, NC .. 5,486,374 5,486,374 2,962,875 8,449,249 61,223 8/98
Gary, NC ........... 4,594,088 4,594,088 2,498,465 7,092,553 52,366 8/98
Clayton, NC ........ 2,641,510 2,641,510 1,433,367 4,074,877 29,848 8/98
Advance, NC ........ 1,135,037 1,135,037 608,293 1,743,330 12,882 8/98
Corolla, NC ........ 3,826,611 3,826,611 2,080,832 5,907,443 43,714 8/98
Austin, TX ......... 12,630,609 158,773 12,789,382 6,938,328 19,727,710 190,732 1980 5/98
Austin, TX ......... 2,844,629 2,844,629 1,346,813 4,191,442 44,676 1965 5/98
Richmond, TX ....... 7,533,834 143,480 7,677,314 3,259,218 10,936,532 105,478 1994 5/98
McKinney, TX ....... 6,674,770 3,408,567 10,083,337 5,742,408 15,825,745 146,559 1988 5/98
McKinney, TX ....... 6,587,050 40,384 6,627,434 3,510,826 10,138,260 95,944 1988 5/98
Trophy Club, TX .... 14,292,555 63,545 14,356,100 7,334,397 21,690,497 219,448 1979 5/98
Grand Prairie, TX .. 2,357,821 2,357,821 1,059,194 3,417,015 36,140 5/98
Yaupon,TX .......... 4,423,988 4,423,988 2,485,313 6,909,301 65,224 5/98
Frisco, TX ......... 680,735 680,735 71,964 752,699 5/98
Houston, TX ........ 9,313,085 9,313,085 9,313,085 238,975 1957 5/98
Benbrook, TX ....... 479,595 479,595 157,895 637,490 8/98
Aledo, TX .......... 4,513,589 4,513,589 2,456,089 6,969,678 123,474 3/98
DeSoto, TX ......... 3,274,219 3,274,219 1,770,914 5,045,133 89,617 3/98
Plano, TX .......... 7,586,553 7,586,553 4,150,499 11,737,052 208,167 3/98
Plano, TX .......... 5,830,724 5,830,724 3,154,700 8,985,424 160,069 3/98
San Antonio, TX .... 4,349,568 4,349,568 2,338,105 6,687,673 115,629 3/98
Gainesville, VA .... 4,667,000 4,667,000 2,360,999 7,027,999 88,854 5/98
Midlothian, VA ..... 6,374,273 53,228 6,427,501 4,094,469 10,521,970 100,568 1977 5/98
Williamsburg, VA ... 4,394,351 4,394,351 2,532,201 6,926,552 54,061 5/98

130

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Cost
Capitalized/
Building & Adjusted
Improvements Subsequent to
Encumbrances at Acquisition Acquisitions
-------------- ---------------- ---------------

Long Term Care
Alabaster, AL .............. $ 7,609,000
Benton, AR ................. 8,257,410
Kentfield, CA .............. 9,650,000
Fresno, CA ................. $7,469,068 14,469,580
Cheshire, CT ............... 6,770,000
Ansonia, CT ................ 7,750,000
Danbury, CT ................ 5,295,000
Darien, CT ................. 4,202,477
Milford, CT ................ 10,000,000
Milford, CT ................ 3,224,151
Newington, CT .............. 8,970,000
Southbury, CT .............. 5,538,590
Westport, CT ............... 4,970,000
Wethersfield, CT ........... 19,083,219
Bradenton, FL .............. 3,285,000 9,900,000
Naples, FL ................. 6,528,616
Palm Beach, FL ............. 12,300,000
Sarasota, FL ............... 4,447,012
Venice, FL ................. 8,592,203
Indianapolis, IN ........... 2,455,612
New Haven, IN .............. 4,628,541
Bowling Green, KY .......... 10,000,000
Beverly, MA ................ 6,300,000
Concord, MA ................ 8,762,000
New Bedford, MA ............ 7,492,000
East Longmeadow,MA ......... 15,995,928
Holyoke, MA ................ 12,664,918
Lexington, MA .............. 11,210,000
Lowell, MA ................. 10,492,351

Total
Building & Accumulated Const. Date
Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
-------------- ------------- ------------- --------------- -------- ---------

Long Term Care
Alabaster, AL .............. $ 7,609,000 $ 150,000 $ 7,759,000 $1,970,323 1971 8/87
Benton, AR ................. 8,257,410 135,000 8,392,410 1,180,467
Kentfield, CA .............. 9,650,000 350,000 10,000,000 2,593,418 1963 3/88
Fresno, CA ................. 14,469,580 2,088,920 16,558,500 2,914,496 1991 3/91
Cheshire, CT ............... 6,770,000 455,000 7,225,000 2,235,492 1975 10/85
Ansonia, CT ................ 7,750,000 750,000 8,500,000 1,001,050 1993 11/96
Danbury, CT ................ 5,295,000 305,000 5,600,000 1,748,421 1976 10/85
Darien, CT ................. 4,202,477 45,000 4,247,477 490,280 1975 6/94
Milford, CT ................ 10,000,000 10,000,000 1,145,815 1971 6/94
Milford, CT ................ 3,224,151 1,020,000 4,244,151 369,435 1992 6/94
Newington, CT .............. 8,970,000 430,000 9,400,000 2,961,953 1978 10/85
Southbury, CT .............. 5,538,590 5,538,590 611,567 1975 6/94
Westport, CT ............... 4,970,000 400,000 5,370,000 1,641,114 1965 10/85
Wethersfield, CT ........... 19,083,219 19,083,219 4,503,563 1965 8/86
Bradenton, FL .............. 9,900,000 4,100,000 14,000,000 2,744,255 1985 12/87
Naples, FL ................. 6,528,616 26,775 6,555,391 733,194 1969 1/96
Palm Beach, FL ............. 12,300,000 2,700,000 15,000,000 2,076,795 1996 4/96
Sarasota, FL ............... 4,447,012 1,060,800 5,507,812 333,540 1982 1/96
Venice, FL ................. 8,592,203 128,500 8,720,703 644,400 1985 1/96
Indianapolis, IN ........... 2,455,612 114,700 2,570,312 184,176 1973 1/96
New Haven, IN .............. 4,628,541 128,100 4,756,641 343,560 1982 1/96
Bowling Green, KY .......... 10,000,000 10,000,000 1,145,817 1992 6/94
Beverly, MA ................ 6,300,000 645,000 6,945,000 2,080,315 1972 10/85
Concord, MA ................ 8,762,000 3,538,000 12,300,000 711,907 1995 11/95
New Bedford, MA ............ 7,492,000 1,008,000 8,500,000 608,712 1995 11/95
East Longmeadow,MA ......... 15,995,928 400,000 16,395,928 3,847,068 1986 9/87
Holyoke, MA ................ 12,664,918 121,600 12,786,518 1,986,193 1973 9/92
Lexington, MA .............. 11,210,000 590,000 11,800,000 3,459,605 1965 8/86
Lowell, MA ................. 10,492,351 500,000 10,992,351 1,644,880 1975 9/92

131

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building &
Encumbrances at Acquisition Acquisitions Improvements
-------------- ---------------- --------------- --------------

Lynn, MA .................... $14,163,515 $14,163,515
Millbury, MA ................ 10,233,000 10,233,000
New Bedford, MA ............. 10,859,303 10,859,303
Newton, MA .................. 12,430,000 12,430,000
Northampton, MA ............. 2,709,612 2,709,612
Peabody, MA ................. 7,245,315 7,245,315
Randolph, MA ................ 9,014,760 9,014,760
Weymouth, MA ................ 10,719,932 10,719,932
Wilmington, MA .............. 6,689,925 6,689,925
Montgomery Village,MD ....... 16,888,000 16,888,000
Grand Blanc, MI ............. 7,363,800 7,363,800
Battle Creek, MI ............ 7,674,443 7,674,443
Kansas City, MO ............. 8,559,900 8,559,900
Bedford, NH ................. $7,290,672 12,691,500 12,691,500
Effingham Falls, NH ......... 11,984,845 11,984,845
Milford, NH ................. 3,195,288 3,195,288
Milford, NH ................. 4,222,545 4,222,545
Peterborough, NH ............ 4,779,992 4,779,992
Keene, NH ................... 3,688,917 3,688,917
Winchester, NH .............. 3,363,325 3,363,325
Bound Brook, NJ ............. 1,624,000 1,624,000
Bridgewater, NJ ............. 12,678,944 12,678,944
Camden, NJ .................. 8,334,780 8,334,780
New Milford, NJ ............. 11,110,000 11,110,000
Oradell, NJ ................. 14,986,000 14,986,000
Marlton, NJ ................. 14,060,000 14,060,000
Cortland, NY ................ 27,812,817 27,812,817
Niskayuna, NY ............... 10,542,539 10,542,539
Rensselaer, NY .............. 1,400,000 1,400,000
Troy, NY .................... 10,459,237 10,459,237

Accumulated Const. Date
Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------- -------------- --------------- -------- ---------

Lynn, MA .................... $1,206,734 $15,370,249 $2,039,091 1960 4/93
Millbury, MA ................ 467,000 10,700,000 377,340 1996 6/97
New Bedford, MA ............. 10,859,303 1,219,213 1995 11/95
Newton, MA .................. 630,000 13,060,000 4,104,511 1977 10/85
Northampton, MA ............. 187,500 2,897,112 310,475 1974 6/94
Peabody, MA ................. 805,035 8,050,350 2,298,681 1987 10/90
Randolph, MA ................ 1,001,640 10,016,400 1,859,319 1987 10/90
Weymouth, MA ................ 850,000 11,569,932 1,228,315 1994 6/94
Wilmington, MA .............. 743,325 7,433,250 2,153,214 1987 10/90
Montgomery Village,MD ....... 1,300,000 18,188,000 1,372,139 1994 11/95
Grand Blanc, MI ............. 120,000 7,483,800 1,899,236 1970 5/88
Battle Creek, MI ............ 146,970 7,821,413 1,098,958 1933 4/93
Kansas City, MO ............. 238,000 8,797,900 2,300,458 1965 3/88
Bedford, NH ................. 808,500 13,500,000 962,698 1920 6/94
Effingham Falls, NH ......... 1,478,800 13,463,645 1,675,916 1985 4/93
Milford, NH ................. 52,000 3,247,288 239,652 1900 1/96
Milford, NH ................. 82,000 4,304,545 316,692 1972 1/96
Peterborough, NH ............ 128,700 4,908,692 600,786 1976 1/96
Keene, NH ................... 87,000 3,775,917 276,660 1965 1/96
Winchester, NH .............. 35,000 3,398,325 252,252 1987 1/96
Bound Brook, NJ ............. 1,176,000 2,800,000 487,155 1963 12/86
Bridgewater, NJ ............. 1,193,400 13,872,344 928,387 1971 1/96
Camden, NJ .................. 450,250 8,785,030 2,500,411 1984 12/86
New Milford, NJ ............. 1,090,000 12,200,000 3,055,271 1971 12/87
Oradell, NJ ................. 1,714,000 16,700,000 1,217,619 1995 11/95
Marlton, NJ ................. 240,000 14,300,000 1,142,388 1995 11/95
Cortland, NY ................ 263,000 28,075,817 3,740,224 1971 8/93
Niskayuna, NY ............... 292,000 10,834,539 1,527,969 1976 3/93
Rensselaer, NY .............. 1,400,000 145,850 1975 11/94
Troy, NY .................... 56,100 10,515,337 1,412,255 1972 8/93

132

Bellbrook, OH ............... $ 2,787,134
Huber Heights, OH ........... 3,593,360
Medina, OH .................. 12,367,785
New London, OH .............. 2,110,837
Swanton, OH ................. 5,500,000
Troy, OH .................... 6,206,197
West Carrolton, OH .......... 3,483,669
Erie, PA .................... 5,128,000
Greensburg, PA .............. 5,544,012
DeSoto, TX .................. 5,709,730
MountlakeTerrace,WA ......... 4,831,020
Waterford, WI ............... 13,608,228
4 facilities in WV .......... 16,299,400
Medical Office Buildings
Tempe, AZ ................... 8,239,068
Lakewood, CA ................ 8,317,585
Los Gatos, CA ............... 13,453,194
Arcadia, CA ................. $7,675,842 10,764,952
Boca Raton, FL .............. 17,968,149
Boca Raton, FL .............. 8,847,282
Boynton Beach, FL ........... 3,108,793
Boynton Beach, FL ........... 4,414,510
Hollywood, FL ............... 8,200,012
Jupiter, FL ................. 4,410,569
Loxahatchee, FL ............. 2,590,922 3,483,338
Loxahatchee, FL ............. 2,387,386 3,009,294
Loxahatchee, FL ............. 2,584,023 3,281,910
Palm Bay, FL ................ 3,115,229
Palm Beach,FL ............... 43,408,996
Plantation, FL .............. 8,230,445

Total
Building & Accumulated Const. Date
Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------------ ------------- ------------- --------------- -------- ---------

Bellbrook, OH ............... $ 2,787,134 $ 212,000 $ 2,999,134 $ 573,341 1981 12/90
Huber Heights, OH ........... 3,593,360 174,000 3,767,360 738,134 1984 12/90
Medina, OH .................. 12,367,785 232,000 12,599,785 2,848,165 1954 4/88
New London, OH .............. 2,110,837 22,600 2,133,437 434,379 1985 12/90
Swanton, OH ................. 5,500,000 350,000 5,850,000 554,245 1950 4/95
Troy, OH .................... 6,206,197 210,600 6,416,797 443,906 1970 1/96
West Carrolton, OH .......... 3,483,669 216,400 3,700,069 716,415 1983 12/90
Erie, PA .................... 5,128,000 335,000 5,463,000 1,397,040 1977 12/87
Greensburg, PA .............. 5,544,012 525,000 6,069,012 1,003,023 1991 6/90
DeSoto, TX .................. 5,709,730(7) 849,270 6,559,000 1,519,578 1988 1/88
MountlakeTerrace,WA ......... 4,831,020 1,029,980 5,861,000 557,238 1987 5/93
Waterford, WI ............... 13,608,228(6) 280,000 13,888,228 1,926,696 1968 4/93
4 facilities in WV .......... 16,299,400 900,600 17,200,000 1,258,285 1987 12/95
Medical Office Buildings
Tempe, AZ ................... 8,239,068 555,000 8,794,068 284,804 1997 1/98
Lakewood, CA ................ 8,317,585 8,317,585 328,855 1997 1/98
Los Gatos, CA ............... 13,453,194 13,453,194 512,952 1997 1/98
Arcadia, CA ................. 10,764,952 3,500,000 14,264,952 307,779 11/97
Boca Raton, FL .............. 17,968,149 17,968,149 661,149 1997 1/98
Boca Raton, FL .............. 8,847,282 3,900,000 12,747,282 53,508 1985 10/98
Boynton Beach, FL ........... 3,108,793 390,000 3,498,793 123,030 1997 1/98
Boynton Beach, FL ........... 4,414,510 455,000 4,869,510 181,082 1997 1/98
Hollywood, FL ............... 8,200,012 8,200,012 317,935 1997 1/98
Jupiter, FL ................. 4,410,569 695,000 5,105,569 172,292 1997 1/98
Loxahatchee, FL ............. 3,483,338 880,000 4,363,338 131,463 1997 1/98
Loxahatchee, FL ............. 3,009,294 560,000 3,569,294 109,074 1997 1/98
Loxahatchee, FL ............. 3,281,910 3,281,910 122,364 1997 1/98
Palm Bay, FL ................ 3,115,229 390,000 3,505,229 114,306 1997 1/98
Palm Beach,FL ............... 43,408,996 43,408,996 1997 1/98
Plantation, FL .............. 8,230,445 1,090,000 9,320,445 327,800 1997 5/98

133

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building &
Encumbrances at Acquisition Acquisitions Improvements
-------------- ----------------- ----------------- -----------------

Plantation, FL ................... $ 7,906,570 $ 11,762,977 $ 11,762,977
Delray Beach, FL ................. 19,615,626 19,615,626
Palm Spring, FL .................. 4,900,274 4,900,274
West Palm Beach, FL .............. 7,318,439 7,318,439
Concord, MA ......................
Voorhees, NJ ..................... 20,436,273 20,436,273
Dallas, TX ....................... 16,189,492 16,189,492
Edinburg, TX ..................... 10,788,524 10,788,524
El Paso, TX ...................... 16,804,249 16,804,249
Victoria, TX ..................... 10,282,627 10,282,627
Rehabilitation
Topeka, KS ....................... 4,847,654 10,353,830 10,353,830
Land
Temecula, CA ..................... 480,000
----------- --------------- --------- ---------------
Subtotal ........................ 53,238,189 1,670,308,873 6,061,562 1,676,370,435
----------- --------------- --------- ---------------
Hotels
Unallocated Dev & Const Costs 23,490,528 $ (23,490,528) --
Birmingham, AL ................... 4,139,503 48,417 4,187,920
Birmingham, AL ................... 8,568,797 3,158 8,571,955
Birmingham, AL ................... 7,891,894 5,787 7,897,681
Huntsville, AL ................... 7,117,420 4,165 7,121,586
Huntsville, AL ................... 6,906,010 15,168 6,921,178
Mobile, AL ....................... 5,075,001 23,011 5,098,012
Montgomery, AL ................... 8,236,093 49,225 8,285,318
Tuscaloosa, AL ................... 3,472,470 47,580 3,520,050
Little Rock, AR .................. 4,850,805 3,567 4,854,373
Little Rock, AR .................. 3,116,595 82,417 3,199,013

Accumulated Const. Date
Land (2) Total (5) Deprec.(4)(5) Date Acquired
--------------- ------------------- --------------- -------- ---------

Plantation, FL ................... $ 1,100,000 $ 12,862,977 $ 195,544 1997 1/98
Delray Beach, FL ................. 19,615,626 781,067 1997 1/98
Palm Spring, FL .................. 4,900,274 151,219 1997 1/98
West Palm Beach, FL .............. 820,000 8,138,439 285,927 1997 1/98
Concord, MA ...................... 1,850,000 1,850,000 1997 1/98
Voorhees, NJ ..................... 4,750,000 25,186,273 732,004 1997 1/98
Dallas, TX ....................... 220,000 16,409,492 639,049 1997 1/98
Edinburg, TX ..................... 95,000 10,883,524 371,694 1997 1/98
El Paso, TX ...................... 16,804,249 557,703 1997 1/98
Victoria, TX ..................... 10,282,627 349,279 1997 1/98
Rehabilitation
Topeka, KS ....................... 1,295,499 11,649,329 2,551,321 1989 2/89
Land
Temecula, CA ..................... 330,000 330,000(6)
------------- ---------------- -------------
Subtotal ........................ 216,889,096 1,893,259,531 145,464,498
------------- ---------------- -------------
Hotels
Unallocated Dev & Const Costs -- -- -- -- --
Birmingham, AL ................... 728,062 4,915,982 83,639 1985 7/98
Birmingham, AL ................... 1,512,123 10,084,078 135,550 1996 7/98
Birmingham, AL ................... 1,367,572 9,265,253 125,227 1997 7/98
Huntsville, AL ................... 1,253,577 8,375,163 126,285 1983 7/98
Huntsville, AL ................... 1,216,269 8,137,447 121,974 1985 7/98
Mobile, AL ....................... 893,150 5,991,162 93,264 1979 7/98
Montgomery, AL ................... 1,450,990 9,736,308 151,225 1982 7/98
Tuscaloosa, AL ................... 610,351 4,130,401 67,972 1982 7/98
Little Rock, AR .................. 853,586 5,707,959 88,852 1983 7/98
Little Rock, AR .................. 547,549 3,746,562 61,508 1975 7/98

134

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Little Rock, AR ........ $ 7,403,968 $ 20,758 $ 7,424,727 $1,303,986 $ 8,728,713 $130,539 1980 7/98
Little Rock, AR ........ 3,824,783 32,054 3,856,837 672,523 4,529,360 78,821 1993 7/98
North Little Rock, AR .. 6,605,396 4,708 6,610,105 1,163,220 7,773,325 118,973 1983 7/98
Chandler, AZ ........... 6,078,484 457,913 6,536,397 951,803 7,488,199 88,046 1998 7/98
Flagstaff, AZ .......... 6,570,932 1,776 6,572,708 1,159,576 7,732,284 102,006 1996 7/98
Mesa, AZ ............... 7,370,306 164,120 7,534,426 1,327,392 8,861,818 120,347 1997 7/98
Peoria, AZ ............. 6,013,092 166,476 6,179,568 963,994 7,143,562 95,403 1998 7/98
Phoenix, AZ ............ 8,894,259 19,403 8,913,662 1,567,137 10,480,799 158,133 1973 7/98
Phoenix, AZ ............ 7,884,309 306,341 8,190,651 1,388,910 9,579,561 147,751 1993 7/98
Phoenix, AZ ............ 7,036,272 104,562 7,140,835 821,636 7,962,470 110,441 1997 7/98
Scottsdale, AZ ......... 12,352,538 14,000 12,366,538 2,179,860 14,546,398 199,609 1996 7/98
Tempe, AZ .............. 12,584,021 27,755 12,611,777 2,218,271 14,830,048 175,807 1982 7/98
Tucson, AZ ............. 8,901,960 56,587 8,958,548 1,568,496 10,527,044 159,829 1991 7/98
Tucson, AZ ............. 7,789,754 30,310 7,820,065 1,372,224 9,192,289 140,556 1973 7/98
Tucson, AZ ............. 6,811,360 1,778 6,813,138 1,202,005 8,015,143 106,629 1996 7/98
Bakersfield, CA ........ 5,756,768 26,682 5,783,451 1,013,462 6,796,913 102,470 1986 7/98
Chula Vista, CA ........ 14,703,759 27,355 14,731,114 2,592,343 17,323,457 202,999 1986 7/98
Costa Mesa, CA ......... 7,592,769 29,737 7,622,506 1,337,462 8,959,968 137,357 1980 7/98
Fremont, CA ............ 4,495,925 4,547,941 9,043,866 2,486,143 11,530,009 -- 1999 7/98
Fresno, CA ............. 3,965,010 9,781 3,974,791 697,269 4,672,060 75,038 1986 7/98
Irvine, CA ............. 10,816,163 25,196 10,841,359 1,906,297 12,747,656 200,064 1987 7/98
La Palma, CA ........... 11,057,877 130,241 11,188,118 1,948,952 13,137,070 196,904 1994 7/98
Mission Valley, CA ..... -- -- -- 3,611,225 3,611,225 -- N/A 7/98
Ontario, CA ............ 6,250,091 4,454,527 10,704,617 1,464,145 12,168,762 30,777 1998 7/98
Redding, CA ............ 6,704,273 106,594 6,810,867 1,180,669 7,991,536 129,324 1993 7/98
Sacramento, CA ......... 10,521,578 20,745 10,542,323 -- 10,542,323 304,094 1985 7/98
Sacramento, CA ......... 9,148,634 36,262 9,184,896 1,612,009 10,796,905 171,450 1993 7/98
San Bernardino, CA ..... 10,729,322 32,931 10,762,254 1,890,972 12,653,226 187,539 1983 7/98
San Buenaventura, CA ... 5,873,995 29,527 5,903,522 1,034,149 6,937,671 107,948 1988 7/98
San Diego, CA .......... 5,173,136 33,200 5,206,336 910,468 6,116,804 95,628 1987 7/98

135

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------ -------------- -------------- ------------ ---------- ----------- ------------- ------ --------

South San Francisco, CA $19,630,626 $ 37,691 $19,668,317 $3,461,790 $23,130,107 $270,076 1987 7/98
Stockton, CA ........... 11,762,912 27,681 11,790,593 2,073,370 13,863,963 206,373 1984 7/98
Valencia, CA ........... -- -- -- 2,487,486 2,487,486 -- N/A 7/98
Vista, CA .............. 6,608,756 30,363 6,639,119 1,163,813 7,802,932 118,688 1987 7/98
Aurora, CO ............. 10,090,478 2,810 10,093,288 1,778,234 11,871,522 176,699 1982 7/98
Colorado Springs, CO ... 6,143,464 6,950 6,150,415 1,081,702 7,232,117 110,382 1985 7/98
Colorado Springs, CO ... 7,591,836 (260,138) 7,331,698 1,238,742 8,570,440 128,180 1998 7/98
Denver, CO ............. 11,755,008 35,579 11,790,587 2,071,975 13,862,562 205,457 1974 7/98
Denver, CO ............. 6,500,817 184,649 6,685,466 1,144,765 7,830,231 117,871 1974 7/98
Denver, CO ............. 7,894,924 66,315 7,961,239 1,390,784 9,352,023 140,596 1980 7/98
Denver, CO ............. 13,981,316 69,837 14,051,153 2,467,291 16,518,444 228,027 1996 7/98
Denver, CO ............. 10,627,274 13,056 10,640,330 1,512,646 12,152,977 66,043 1998 7/98
Grand Junction, CO ..... 6,687,464 60,001 6,747,465 466,163 7,213,628 120,162 1997 7/98
Lakewood, CO ........... 7,571,644 851,707 8,423,352 1,106,781 9,530,132 130,628 1998 7/98
Lewisville, CO ......... 7,845,924 87,345 7,933,269 1,475,795 9,409,064 122,463 1997 7/98
Pueblo, CO ............. 7,280,369 (470,750) 6,809,619 742,076 7,551,695 119,996 1998 7/98
Westminister, CO ....... 8,880,218 36,371 8,916,589 1,564,659 10,481,248 157,977 1986 7/98
Westminister, CO ....... 9,863,738 58,759 9,922,498 1,738,221 11,660,719 175,933 1986 7/98
Wheat Ridge, CO ........ 10,793,362 54,044 10,847,406 1,902,273 12,749,679 188,832 1985 7/98
Altamonte Springs, FL .. 7,431,923 22,474 7,454,398 1,309,077 8,763,475 131,533 1987 7/98
Brandon, FL ............ 8,192,791 18,258 8,211,049 1,208,344 9,419,393 131,509 1997 7/98
Clearwater, FL ......... 6,852,662 48,657 6,901,319 1,206,855 8,108,174 123,509 1988 7/98
Coral Springs, FL ...... 7,888,175 67,541 7,955,716 1,389,593 9,345,309 144,046 1994 7/98
Daytona Beach, FL ...... 7,201,071 36,684 7,237,755 1,268,339 8,506,094 131,960 1991 7/98
Deerfield Beach, FL .... 6,432,943 62,649 6,495,593 1,132,787 7,628,380 116,429 1986 7/98
Fort Lauderdale, FL .... 12,286,111 26,068 12,312,180 2,165,699 14,477,879 200,847 1995 7/98
Fort Lauderdale, FL .... 9,039,567 538,445 9,578,012 1,416,013 10,994,025 164,703 1998 7/98
Fort Lauderdale, FL .... -- -- -- 648,808 648,808 -- N/A 7/98
Fort Myers, FL ......... 7,471,064 23,080 7,494,144 1,315,985 8,810,129 132,353 1984 7/98
Gainesville, FL ........ 8,137,122 30,698 8,167,821 1,433,525 9,601,346 143,838 1989 7/98

136

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquire
------------ -------------- ------------- ------------- ---------- ----------- ------------- ------ -------

Jacksonville, FL ..... $ 6,408,732 $ 22,532 $ 6,431,264 $1,128,515 $ 7,559,779 $114,797 1980 7/98
Jacksonville, FL ..... 6,923,144 14,994 6,938,138 1,219,293 8,157,431 122,310 1986 7/98
Jacksonville, FL ..... 7,413,329 16,939 7,430,268 1,305,796 8,736,064 130,254 1982 7/98
Jacksonville, FL ..... 7,987,537 91,145 8,078,682 1,343,005 9,421,687 130,752 1997 7/98
Lake Mary, FL ........ 7,511,096 408,865 7,919,961 1,020,912 8,940,872 137,678 1998 7/98
Lakeland, FL ......... 7,973,877 125,672 8,099,549 1,189,768 9,289,317 129,322 1997 7/98
Miami, FL ............ 13,206,890 85,864 13,292,755 2,328,189 15,620,944 228,491 1986 7/98
Miami, FL ............ 8,948,658 1,141,346 10,090,004 1,537,039 11,627,043 126,534 1998 7/98
Ocala, FL ............ 6,882,908 229,922 7,112,829 891,376 8,004,205 123,006 1998 7/98
Orlando, FL .......... 6,656,415 1,395,162 8,051,577 1,011,827 9,063,404 73,280 1998 7/98
Orlando, FL .......... 2,230,894 4,797,302 7,028,196 1,339,955 8,368,151 -- 1999 7/98
Orlando, FL .......... 1,570,657 5,460,020 7,030,677 2,590,302 9,620,979 -- 1999 7/98
Orlando, FL .......... 10,251,049 20,532 10,271,582 1,806,570 12,078,152 180,877 1987 7/98
Orlando, FL .......... 15,422,958 37,380 15,460,338 2,719,260 18,179,598 263,787 1994 7/98
Panama City, FL ...... 6,802,665 98,484 6,901,149 1,097,320 7,998,469 115,778 1997 7/98
Pensacola, FL ........ 8,957,428 29,297 8,986,725 1,578,284 10,565,009 155,841 1985 7/98
Pinellas Park, FL .... 6,623,817 37,495 6,661,312 1,166,470 7,827,782 116,278 1985 7/98
Plantation, FL ....... 6,824,583 2,502,305 9,326,889 1,378,533 10,705,421 -- 1998 7/98
St. Petersburg, FL ... 5,792,905 22,185 5,815,091 1,019,839 6,834,930 108,049 1987 7/98
Tallahassee, FL ...... 13,048,829 18,928 13,067,757 2,300,296 15,368,053 226,907 1979 7/98
Tallahassee, FL ...... 8,149,524 44,412 8,193,937 1,435,713 9,629,650 143,665 1986 7/98
Tampa, FL ............ 3,659,646 60,646 3,720,293 643,382 4,363,675 69,082 1984 7/98
Tampa, FL ............ 11,881,605 43,125 11,924,730 2,094,316 14,019,046 164,139 1983 7/98
Tampa, FL ............ 6,869,201 46,061 6,915,263 1,160,882 8,076,145 111,043 1997 7/98
Alpharetta, GA ....... 7,423,945 (8,091) 7,415,854 1,632,105 9,047,959 121,271 1997 7/98
Atlanta, GA .......... 6,461,075 1,788,405 8,249,480 2,196,386 10,445,867 25,936 1998 7/98
Atlanta, GA .......... 5,784,092 2,402,354 8,186,446 1,366,704 9,553,150 -- 1998 7/98
Augusta, GA .......... 4,852,929 44,749 4,897,678 853,961 5,751,639 88,286 1985 7/98
Austell, GA .......... 4,373,863 22,370 4,396,233 769,420 5,165,653 80,926 1986 7/98
College Park, GA ..... 2,929,266 126,292 3,055,559 514,491 3,570,050 62,287 1979 7/98

137

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------- -------------- ------------- ------------ ----------- ----------- ------------- ------ ---------

College Park, GA ..... $ 3,110,554 $ 9,170 $ 3,119,725 $ 546,483 $ 3,666,208 $ 51,569 1995 7/98
Columbus, GA ......... 6,123,710 33,180 6,156,890 1,078,216 7,235,106 115,560 1980 7/98
Conyers, GA .......... 6,853,690 893,917 7,747,607 1,263,029 9,010,636 116,068 1998 7/98
Lithonia, GA ......... 3,625,380 24,137 3,649,517 637,335 4,286,852 70,269 1985 7/98
Macon, GA ............ 6,601,559 4,511 6,606,070 1,164,981 7,771,051 100,110 1996 7/98
Marietta, GA ......... 6,051,123 57,742 6,108,865 1,065,407 7,174,272 107,482 1984 7/98
Norcross, GA ......... 4,392,960 13,913 4,406,874 772,790 5,179,664 79,572 1986 7/98
Norcross, GA ......... 4,462,376 58,443 4,520,820 785,040 5,305,860 85,521 1983 7/98
Savannah, GA ......... 9,292,087 9,665 9,301,752 1,637,342 10,939,094 161,426 1982 7/98
Savannah, GA ......... 4,462,501 14,049 4,476,551 785,062 5,261,613 72,818 1995 7/98
Tucker, GA ........... 4,545,700 12,393 4,558,094 799,744 5,357,838 82,076 1987 7/98
Arlington Heights, IL 8,371,126 72,221 8,443,348 1,474,819 9,918,167 153,826 1989 7/98
Champaign, IL ........ 2,645,580 135,679 2,781,258 447,686 3,228,944 70,810 1982 7/98
Elk Grove Village, IL 8,987,067 76,370 9,063,438 1,583,515 10,646,953 165,212 1985 7/98
Hoffman Estates, IL .. 9,254,248 30,316 9,284,564 1,630,664 10,915,228 167,012 1989 7/98
Moline, IL ........... 2,257,510 38,326 2,295,836 395,911 2,691,747 83,399 1986 7/98
Oakbrook Terrace, IL . 8,738,589 93,467 8,832,056 1,539,666 10,371,722 159,120 1984 7/98
Schaumburg, IL ....... 8,309,673 10,362 8,320,035 1,463,975 9,784,010 149,998 1982 7/98
Indianapolis, IN ..... 9,561,210 69,123 9,630,333 1,684,834 11,315,167 163,526 1980 7/98
Indianapolis, IN ..... 3,530,754 16,056 3,546,810 602,589 4,149,399 109,256 1981 7/98
Merrillville, IN ..... 3,323,615 189,142 3,512,757 574,980 4,087,737 75,071 1979 7/98
Lenexa, KS ........... 5,758,096 75,485 5,833,581 1,013,679 6,847,260 129,742 1978 7/98
Wichita, KS .......... 3,479,512 463,411 3,942,923 -- 3,942,923 399,852 1978 7/98
Lexington, KY ........ 5,300,151 18,229 5,318,380 932,883 6,251,263 88,077 1982 7/98
Alexandria, LA ....... 6,814,270 (40,054) 6,774,216 995,042 7,769,257 116,289 1997 7/98
Baton Rouge, LA ...... 9,845,427 26,402 9,871,829 1,734,990 11,606,819 174,286 1984 7/98
Bossier City, LA ..... 10,601,965 5,506 10,607,471 1,868,497 12,475,968 186,574 1982 7/98
Gretna, LA ........... 8,561,779 23,158 8,584,937 1,508,464 10,093,401 150,666 1985 7/98
Kenner, LA ........... 14,984,662 42,956 15,027,619 2,641,914 17,669,533 257,869 1993 7/98
Lafayette, La, LA .... 7,540,154 10,278 7,550,432 1,328,177 8,878,609 136,499 1969 7/98

138

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------ -------------- -------------- ------------ ----------- ----------- ------------- -------- -------

Metairie, LA ..... $10,786,292 $ 73,550 $10,859,842 $ -- $10,859,842 $683,251 1967 7/98
Metairie, LA ..... 15,458,306 15,847 15,474,153 -- 15,474,153 694,626 1985 7/98
Monroe, LA ....... 5,384,339 5,381 5,389,720 947,739 6,337,459 98,986 1984 7/98
New Orleans, LA .. 4,354,349 48,964 4,403,314 765,976 5,169,290 80,790 1985 7/98
New Orleans, LA .. 7,135,565 34,317 7,169,882 1,256,779 8,426,661 125,732 1985 7/98
New Orleans, LA .. 5,307,196 6,213,888 11,521,084 1,223,302 12,744,386 -- 1999 7/98
Shreveport, LA ... 6,505,540 (55,955) 6,449,585 664,699 7,114,284 107,803 1997 7/98
Slidell, LA ...... 6,451,551 68,363 6,519,914 1,136,071 7,655,985 118,134 1993 7/98
Sulphur, LA ...... 9,120,039 4,618 9,124,657 1,606,980 10,731,637 159,636 1985 7/98
Hazelwood, MO .... 2,240,543 26,589 2,267,133 392,775 2,659,908 81,010 1977 7/98
St Louis, MO ..... 9,461,134 (94,739) 9,366,396 867,193 10,233,589 150,453 1997 7/98
Jackson, MS ...... 2,896,382 49,830 2,946,212 508,688 3,454,900 62,034 1974 7/98
Jackson, MS ...... 4,212,283 42,066 4,254,349 709,949 4,964,298 69,785 1993 7/98
Cary, NC ......... 13,293,656 (55,763) 13,237,893 2,345,939 15,583,832 196,437 1996 7/98
Cary, NC ......... 8,728,546 (367,174) 8,361,372 1,653,827 10,015,199 221,880 1998 7/98
Charlotte, NC .... 5,439,007 2,392,286 7,831,293 1,227,118 9,058,411 -- 1998 7/98
Charlotte, NC .... 6,860,195 32,041 6,892,237 1,208,184 8,100,421 122,750 1985 7/98
Charlotte, NC .... 4,462,651 15,453 4,478,104 783,722 5,261,826 82,767 1986 7/98
Durham, NC ....... 690,651 4,118,626 4,809,277 1,147,248 5,956,525 -- 1999 7/98
Greensboro, NC ... 91,528 4,090,360 4,181,888 1,241,004 5,422,892 -- 1999 7/98
Greensboro, NC ... -- -- -- 289,698 289,698 -- N/A 7/98
Raleigh, NC ...... 1,381,047 6,114,382 7,495,429 1,244,653 8,740,082 -- 1999 7/98
Raleigh, NC ...... 9,240,392 121,089 9,361,482 1,484,478 10,845,960 148,371 1997 7/98
Winston-Salem, NC 1,516,141 4,002,848 5,518,988 1,707,220 7,226,208 -- 1999 7/98
Omaha, NE ........ 4,063,807 74,738 4,138,545 706,438 4,844,983 89,518 1981 7/98
Albuquerque, NM .. 6,979,226 22,423 7,001,649 1,229,190 8,230,839 125,185 1970 7/98
Albuquerque, NM .. 9,657,110 9,379 9,666,490 1,701,758 11,368,248 169,154 1985 7/98
Albuquerque, NM .. 7,419,168 34,142 7,453,310 1,306,827 8,760,137 131,066 1982 7/98
Albuquerque, NM .. 7,061,635 707,073 7,768,708 815,418 8,584,126 111,657 1997 7/98
Farmington, NM ... 5,354,541 27,357 5,381,899 1,037,151 6,419,050 98,082 1983 7/98

139

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------ --------------- ------------- ------------ ----------- ----------- ------------- ------ --------

Las Cruces, NM ...... $ 3,887,580 $ 12,977 $ 3,900,557 $ 683,605 $ 4,584,162 $ 73,904 1990 7/98
Santa Fe, NM ........ 10,482,425 38,475 10,520,900 1,847,401 12,368,301 181,345 1986 7/98
Las Vegas, NV ....... 4,095,884 3,895,557 7,991,441 1,418,487 9,409,928 -- 1999 7/98
Las Vegas, NV ....... -- -- -- -- -- -- Leased 7/98
Las Vegas, NV ....... 10,831,428 1,983,925 12,815,353 1,899,819 14,715,172 214,320 1994 7/98
Reno, NV ............ 6,292,389 24,382 6,316,772 1,107,983 7,424,755 114,115 1981 7/98
Columbus, OH ........ 4,261,818 37,333 4,299,151 749,647 5,048,798 121,846 1980 7/98
Del City, OK ........ 5,994,389 12,223 6,006,612 1,055,395 7,062,007 107,797 1985 7/98
Norman, OK .......... 6,512,329 (26,934) 6,485,395 974,479 7,459,874 105,907 1997 7/98
Oklahoma City, OK ... 2,431,771 4,322,216 6,753,986 1,325,810 8,079,796 -- 1999 7/98
Oklahoma City, OK ... 7,521,155 83,859 7,605,015 1,324,824 8,929,839 134,718 1979 7/98
Oklahoma City, OK ... 12,707,607 59,460 12,767,067 2,240,080 15,007,147 213,575 1996 7/98
Tulsa, OK ........... 3,764,727 41,662 3,806,389 661,925 4,468,314 71,130 1974 7/98
Tulsa, OK ........... 4,816,485 24,065 4,840,551 847,530 5,688,081 88,254 1985 7/98
Tulsa, OK ........... 4,210,223 17,848 4,228,071 740,542 4,968,613 77,851 1990 7/98
Moon Township, PA ... 5,617,668 46,154 5,663,821 988,897 6,652,718 108,695 1985 7/98
Anderson, SC ........ 3,482,009 21,922 3,503,931 612,034 4,115,965 56,141 1995 7/98
Columbia, SC ........ 3,225,225 55,986 3,281,211 566,719 3,847,930 63,495 1980 7/98
Greensboro, SC ...... 5,980,091 22,028 6,002,119 1,052,872 7,054,991 109,817 1981 7/98
Greenville, SC ...... 991,210 4,516,697 5,507,907 852,127 6,360,034 -- 1999 7/98
Myrtle Beach, SC .... 7,317,710 275,349 7,593,059 1,841,290 9,434,349 117,881 1996 7/98
North Charleston, SC 5,307,416 25,370 5,332,786 934,165 6,266,951 96,527 1981 7/98
Chattanooga, TN ..... 5,721,768 13,860 5,735,628 1,007,285 6,742,913 92,497 1995 7/98
Kingsport, TN ....... 5,113,764 (50,615) 5,063,149 889,325 5,952,474 96,533 1995 7/98
Knoxville, TN ....... 5,550,237 25,654 5,575,891 977,015 6,552,906 101,349 1986 7/98
Knoxville, TN ....... 3,878,194 13,380 3,891,574 681,949 4,573,523 80,208 1995 7/98
Memphis, TN ......... 3,336,592 3,947,805 7,284,398 1,514,027 8,798,424 -- 1998 7/98
Memphis, TN ......... 5,745,873 13,826 5,759,700 1,011,539 6,771,239 108,386 1979 7/98
Memphis, TN ......... 3,519,797 57,170 3,576,967 618,702 4,195,669 67,594 1983 7/98
Memphis, TN ......... 6,051,153 24,867 6,076,020 1,065,412 7,141,432 110,110 1986 7/98

140

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Nashville-South, TN .. $ 8,235,038 $ 24,347 $ 8,259,386 $1,450,804 $ 9,710,190 $148,121 1982 7/98
Nashville-South, TN .. 4,992,812 38,776 5,031,588 878,646 5,910,234 98,104 1979 7/98
Nashville-South, TN .. 8,741,098 17,693 8,758,791 1,540,108 10,298,899 154,335 1993 7/98
Abilene, TX .......... 4,621,327 8,450 4,629,777 813,090 5,442,867 84,747 1979 7/98
Addison, TX .......... 12,293,005 16,588 12,309,593 2,169,354 14,478,947 196,782 1996 7/98
Amarillo, TX ......... 6,732,642 29,486 6,762,128 1,185,675 7,947,803 122,300 1983 7/98
Amarillo, TX ......... 5,386,670 2,377 5,389,047 948,151 6,337,198 95,991 1986 7/98
Arlington, TX ........ 13,933,240 141,841 14,075,081 2,456,369 16,531,450 259,369 1989 7/98
Arlington, TX ........ 8,267,633 13,618 8,281,251 1,471,857 9,753,108 130,832 1997 7/98
Austin, TX ........... 3,412,522 4,200,001 7,612,523 2,946,105 10,558,628 -- 1998 7/98
Austin, TX ........... 1,041,028 5,195,294 6,236,321 1,212,401 7,448,722 -- 1999 7/98
Austin, TX ........... 9,775,256 2,836 9,778,092 1,722,589 11,500,681 170,692 1983 7/98
Austin, TX ........... 8,439,970 12,607 8,452,577 1,486,968 9,939,545 149,252 1972 7/98
Austin, TX ........... 10,532,391 51,775 10,584,166 1,856,219 12,440,385 150,227 1975 7/98
Austin, TX ........... 9,870,999 32,117 9,903,116 1,739,503 11,642,619 172,766 1977 7/98
Austin, TX ........... 11,881,356 65,534 11,946,891 2,094,272 14,041,163 210,366 1993 7/98
Austin, TX ........... 15,276,708 43,101 15,319,809 2,695,890 18,015,699 225,808 1996 7/98
Balcones Heights, TX . 133,941 2,028 135,969 -- 135,969 2,808 1968 7/98
Baytown, TX .......... 5,344,949 35,116 5,380,065 940,788 6,320,853 96,932 1984 7/98
Beaumont, TX ......... 7,210,109 24,503 7,234,612 1,269,934 8,504,546 128,572 1979 7/98
Bedford, TX .......... 4,794,865 16,092 4,810,958 843,697 5,654,655 93,549 1991 7/98
Clute, TX ............ 4,402,811 26,462 4,429,273 774,528 5,203,801 84,207 1977 7/98
College Station, TX .. 11,461,417 23,378 11,484,796 2,020,165 13,504,961 202,645 1980 7/98
Corpus Christi, TX ... 8,802,172 72,723 8,874,896 1,550,886 10,425,782 155,715 1983 7/98
Corpus Christi, TX ... 5,521,350 24,124 5,545,474 971,918 6,517,392 101,463 1973 7/98
Dallas, TX ........... 5,551,202 13,086 5,564,288 977,185 6,541,473 111,294 1971 7/98
Dallas, TX ........... 7,544,290 10,413 7,554,704 1,603,738 9,158,442 131,978 1975 7/98
Dallas, TX ........... 8,225,565 10,760 8,236,325 1,449,132 9,685,457 144,264 1974 7/98
Dallas, TX ........... 4,737,976 2,477 4,740,453 833,675 5,574,128 83,819 1974 7/98
Dallas, TX ........... 7,045,322 3,955 7,049,278 1,240,854 8,290,132 122,091 1978 7/98

141

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------ -------------- -------------- ------------ ----------- ----------- ------------- ------ ---------

Del Rio, TX ........ $ 2,774,995 $ 15,724 $ 2,790,720 $ 487,267 $ 3,277,987 $ 54,967 1993 7/98
Denton, TX ......... 4,732,766 56,899 4,789,666 832,756 5,622,422 87,639 1992 7/98
Eagle Pass, TX ..... 6,068,832 10,109 6,078,942 1,068,532 7,147,474 109,889 1982 7/98
El Paso, TX ........ 1,993,099 1,533,248 3,526,348 349,285 3,875,633 42,337 1989 7/98
El Paso, TX ........ 6,435,249 32,428 6,467,677 1,133,194 7,600,871 114,839 1980 7/98
El Paso, TX ........ 6,701,217 25,309 6,726,527 1,180,130 7,906,657 120,900 1969 7/98
El Paso, TX ........ 6,166,588 10,507 6,177,095 1,085,783 7,262,878 111,279 1984 7/98
Euless, TX ......... 6,665,600 6,421 6,672,021 1,173,844 7,845,865 120,335 1981 7/98
Farmers Branch, TX . 7,087,609 10,975 7,098,584 1,248,316 8,346,900 123,333 1990 7/98
Fort Stockton, TX .. 3,736,240 6,086 3,742,326 656,898 4,399,224 67,166 1994 7/98
Fort Worth, TX ..... 9,224,663 12,253 9,236,916 1,627,882 10,864,798 147,814 1996 7/98
Fort Worth, TX ..... 7,974,545 159,330 8,133,875 1,196,924 9,330,799 138,014 1997 7/98
Galveston, TX ...... 6,842,408 65,872 6,908,280 1,205,045 8,113,325 131,978 1988 7/98
Garland, TX ........ 7,129,797 6,042 7,135,839 1,255,761 8,391,600 125,526 1979 7/98
Georgetown, TX ..... 4,808,723 29,132 4,837,855 846,160 5,684,015 84,021 1994 7/98
Grand Prairie, TX .. 5,233,559 32,708 5,266,267 921,131 6,187,398 94,468 1980 7/98
Harlingen, TX ...... 7,120,695 49,035 7,169,730 1,254,155 8,423,885 129,477 1982 7/98
Houston, TX ........ 1,617,173 4,622,710 6,239,883 1,501,567 7,741,449 -- 1999 7/98
Houston, TX ........ 8,821,421 74,646 8,896,068 1,554,283 10,450,351 160,902 1969 7/98
Houston, TX ........ 4,420,603 8,406 4,429,009 636,698 5,065,707 87,605 1973 7/98
Houston, TX ........ 5,890,076 16,021 5,906,097 1,036,987 6,943,084 108,023 1977 7/98
Houston, TX ........ 6,273,192 71,646 6,344,838 1,104,595 7,449,433 113,998 1978 7/98
Houston, TX ........ 6,642,552 37,318 6,679,870 1,169,777 7,849,647 121,034 1985 7/98
Houston, TX ........ 10,399,067 31,742 10,430,809 1,832,691 12,263,500 182,455 1986 7/98
Houston, TX ........ 6,018,910 21,551 6,040,461 1,059,722 7,100,183 108,890 1989 7/98
Houston, TX ........ 2,274,304 8,038 2,282,342 398,909 2,681,251 54,367 1989 7/98
Houston, TX ........ 3,695,447 2,751 3,698,198 649,699 4,347,897 73,246 1976 7/98
Houston, TX ........ 6,076,965 24,937 6,101,903 1,069,967 7,171,870 110,169 1977 7/98
Houston, TX ........ 4,067,389 17,350 4,084,739 715,336 4,800,075 75,994 1980 7/98
Houston, TX ........ 7,007,505 19,742 7,027,247 1,234,180 8,261,427 125,260 1981 7/98

142

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Houston, TX ............. $ 7,426,052 $ (45,019) $ 7,381,033 $ 873,698 $ 8,254,731 $ 118,669 1997 7/98
Houston, TX ............. 12,152,069 386,205 12,538,274 2,755,165 15,293,438 208,069 1998 7/98
Huntsville, TX .......... 6,758,618 26,842 6,785,460 1,190,259 7,975,719 112,665 1996 7/98
Irving, TX .............. 8,641,754 5,127 8,646,882 1,522,577 10,169,459 156,923 1974 7/98
Irving, TX .............. 11,014,227 13,919 11,028,146 1,943,687 12,971,833 177,453 1996 7/98
Killeen, TX ............. 5,932,179 4,208 5,936,386 1,044,191 6,980,577 108,749 1976 7/98
La Marque, TX ........... 2,205,750 (39,445) 2,166,305 389,250 2,555,555 -- 1990 7/98
La Porte, TX ............ 7,485,670 6,796 7,492,466 1,318,562 8,811,028 132,262 1985 7/98
Laredo, TX .............. 10,698,219 45,637 10,743,856 1,885,483 12,629,339 194,601 1969 7/98
Lewisville, TX .......... 6,832,961 15,209 6,848,170 1,203,378 8,051,548 121,621 1984 7/98
Live Oak, TX ............ 6,889,107 10,531 6,899,638 1,213,286 8,112,924 125,221 1986 7/98
Longview, TX ............ 5,944,128 15,093 5,959,222 1,046,525 7,005,747 106,274 1983 7/98
Lubbock, TX ............. 7,098,710 11,440 7,110,151 1,250,275 8,360,426 128,845 1976 7/98
Lubbock, TX ............. 5,815,970 127,162 5,943,133 1,023,909 6,967,042 112,195 1994 7/98
Lufkin, TX .............. 5,887,501 43,602 5,931,104 1,036,533 6,967,637 106,236 1984 7/98
Mesquite, TX ............ -- -- -- 341,446 341,446 -- N/A 7/98
Midland, TX ............. 4,982,957 24,901 5,007,859 876,907 5,884,766 94,158 1983 7/98
Nacogdoches, TX ......... 3,352,383 32,951 3,385,334 589,159 3,974,493 63,307 1984 7/98
North Richland Hills, TX 5,707,616 7,993 5,715,609 1,004,788 6,720,397 99,960 1993 7/98
Odessa, TX .............. 6,327,946 33,590 6,361,537 1,114,258 7,475,795 113,565 1981 7/98
Plano, TX ............... 4,370,769 67,958 4,438,727 768,874 5,207,601 80,306 1980 7/98
Plano, TX ............... 9,439,404 (459,088) 8,980,316 1,269,573 10,249,889 155,317 1997 7/98
Round Rock, TX .......... 10,234,147 49,912 10,284,060 1,803,588 12,087,648 183,930 1991 7/98
San Angelo, TX .......... 5,962,114 21,409 5,983,523 1,049,699 7,033,222 114,787 1986 7/98
San Antonio, TX ......... 20,288,264 73,140 20,361,404 3,577,844 23,939,248 314,471 1968 7/98
San Antonio, TX ......... 9,913,036 7,550 9,920,586 1,746,921 11,667,507 1,259,770 1968 7/98
San Antonio, TX ......... 6,526,296 24,876 6,551,172 1,149,261 7,700,433 118,533 1970 7/98
San Antonio, TX ......... 9,172,066 67,996 9,240,062 1,616,162 10,856,224 167,771 1975 7/98
San Antonio, TX ......... 5,697,351 3,596 5,700,947 1,002,977 6,703,924 722,890 1975 7/98
San Antonio, TX ......... 5,627,889 34,285 5,662,175 990,719 6,652,894 103,906 1981 7/98

143

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building & Accumulated Const. Date
Encumbrances at Acquisition Acquisitions Improvements Land (2) Total (5) Deprec.(4)(5) Date Acquired
------------ -------------- -------------- ------------ ---------- ----------- ------------- ----- -------

San Antonio, TX ...... $10,806,800 $ 34,395 $10,841,195 $1,904,644 $12,745,839 $154,217 1982 7/98
San Antonio, TX ...... 12,794,370 4,917 12,799,287 2,255,392 15,054,679 224,861 1984 7/98
San Antonio, TX ...... 3,284,488 26,366 3,310,854 577,177 3,888,031 63,674 1974 7/98
San Antonio, TX ...... 5,311,012 22,211 5,333,224 934,799 6,268,023 99,057 1976 7/98
San Antonio, TX ...... -- -- -- 1,432,542 1,432,542 -- N/A 7/98
San Marcos, TX ....... 7,024,196 30,615 7,054,811 1,237,126 8,291,937 120,636 1995 7/98
Shenandoah, TX ....... 9,129,561 40,777 9,170,338 1,608,643 10,778,981 158,531 1986 7/98
Shermann, TX ......... 7,584,039 (68,288) 7,515,751 954,414 8,470,164 124,825 1997 7/98
Stafford, TX ......... 9,515,881 14,469 9,530,351 1,676,835 11,207,186 169,928 1990 7/98
Temple, TX ........... 4,846,042 1,400 4,847,443 852,745 5,700,188 85,758 1984 7/98
Texarkana, TX ........ 4,948,588 50,127 4,998,715 870,842 5,869,557 92,109 1982 7/98
Texas City, TX ....... 4,027,610 3,766 4,031,376 708,316 4,739,692 71,245 1978 7/98
Tyler, TX ............ 9,253,152 4,279 9,257,431 1,630,453 10,887,884 161,047 1983 7/98
Victoria, TX ......... 7,226,090 18,363 7,244,453 1,272,754 8,517,207 128,596 1984 7/98
Waco, TX ............. 6,689,172 4,977 6,694,150 1,292,751 7,986,901 124,851 1971 7/98
White Settlement, TX . 6,233,038 2,793 6,235,832 1,097,492 7,333,324 110,828 1980 7/98
Wichita Falls, TX .... 5,020,159 5,209 5,025,368 883,472 5,908,840 92,949 1973 7/98
Layton, UT ........... 3,669,799 10,653 3,680,452 645,173 4,325,625 74,157 1988 7/98
Midvale, UT .......... 5,820,947 104,811 5,925,759 1,024,752 6,950,511 121,664 1978 7/98
Ogden, UT ............ 8,909,631 (270,496) 8,639,136 791,871 9,431,007 132,904 1997 7/98
Salt Lake City, UT ... -- -- -- 6,577,985 6,577,985 -- N/A 7/98
Salt Lake City, UT ... 8,538,608 14,981 8,553,589 1,530,439 10,084,028 132,464 1997 7/98
Bristol, VA .......... 3,808,727 4,367 3,813,094 669,690 4,482,784 67,945 1995 7/98
Hampton, VA .......... 4,507,663 28,888 4,536,551 793,032 5,329,583 85,261 1985 7/98
Richmond, VA ......... 3,173,648 30,033 3,203,682 557,617 3,761,299 63,947 1987 7/98
Virginia Beach, VA ... 3,702,148 17,685 3,719,833 650,882 4,370,715 74,786 1984 7/98
Kirkland, WA ......... 11,147,010 149,368 11,296,378 1,951,151 13,247,529 220,549 1986 7/98

144

THE MEDITRUST COMPANIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Cost
Capitalized/
Building & Adjusted Total
Improvements Subsequent to Building &
Encumbrances at Acquisition Acquisitions Improvements
-------------- ---------------- --------------- ----------------

Sea-Tac, WA ............................ $ 7,647,560 $ 170,337 $ 7,817,897
Tacoma, WA ............................. 8,956,029 99,004 9,055,032
Cheyenne, WY ........................... 2,793,345 67,132 2,860,477
-------------- ----------- --------------
Subtotal .............................. -- 2,124,497,074 78,822,780 2,203,319,854
-- -------------- ----------- --------------
Grand Total ........................... $53,238,189 $3,794,805,947 $84,884,342 $3,879,690,289
=========== ============== =========== ==============

Accumulated Const. Date
Land (2) Total (5) Deprec.(4)(5) Date Acquired
--------------- ---------------- --------------- -------- ---------

Sea-Tac, WA ............................ $ 1,332,999 $ 9,150,896 $ 165,440 1987 7/98
Tacoma, WA ............................. 1,562,329 10,617,361 186,377 1988 7/98
Cheyenne, WY ........................... 485,089 3,345,566 72,301 1981 7/98
------------ -------------- ------------
Subtotal .............................. 391,636,281 2,594,956,135 38,946,635
------------ -------------- ------------
Grand Total ........................... $608,525,377 $4,488,215,666 $184,411,133
============ ============== ============

145

THE MEDITRUST COMPANIES
SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

(1) Facility classifications are Long-Term Care (LTC), Retirement Living (RL),
Psychiatric Hospital (Psych), Rehabilitation Hospital (Rehab), Assisted
Living (AL), and Medical Office Buildings (MOB), Golf Courses (GC) and
land under development (LND).

(2) Gross amount at which land is carried at close of period also represents
initial cost to Realty.

(3) Cost for federal income tax purposes.

(4) Depreciation is calculated using a 40-year life for healthcare and lodging
facilities and a 30-year life for all golf course buildings and a 20-year
life for golf course improvements.

(5) Real estate and accumulated depreciation reconciliations for the three
years ended December 31, 1998 are as follows:

Accumulated
Real Estate Depreciation
------------- -------------
(In thousands)

Balance at close of year--December 31, 1995 ................... $ 746,379 $ 77,203
Additions during the period:
Acquisitions ................................................ 325,789
Value of real estate acquired ............................... 36,875
Additions to existing properties ............................
Provision for depreciation .................................. 21,269
Deductions:
Sale of real estate ......................................... (4,701) (390)
---------- ---------
Balance at close of year--December 31, 1996 ................... 1,104,342 98,082
Additions during the period:
Acquisitions ................................................ 292,607
Value of real estate acquired in merger ..................... 237,003
Provision for depreciation .................................. 26,750
Deductions:
Sale of real estate ......................................... (6,173)
----------
Balance at close of year--December 31, 1997 ................... 1,627,779 124,832
Additions during the period:
Acquisitions ................................................ 636,989
Value of real estate acquired in mergers .................... 2,751,339
Provision for depreciation .................................. 86,395
Other ....................................................... 6,344
Deductions:
Sale of real estate ......................................... (518,190) (33,161)
Income from joint venture net of dividends received ......... (544)
Other ....................................................... (9,158)
----------
Balance at close of year--December 31, 1998 ................... 4,488,215 184,410
Provision for impairment ...................................... 47,918
Included in net assets of discontinued operations ............. (370,957) (4,172)
---------- ---------
Balance per financial statements .............................. $4,117,258 $ 228,156
========== =========

(6) Real estate investments reserved against due to impairment.

(7) Real estate assets held for sale that were written down to fair value less
costs to sell.

146

MEDITRUST CORPORATION
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
Interest Final Maturity
Description (A) Rate Date
- - ------------------------------------------------------------------------ ---------- -------------------

Individual mortgages in excess of 3% of the total carrying
amount:
7 long-term care facilities located in Missouri ........................ 10.70% August 1, 2006
10 long-term care facilities located in Texas, Missouri, and 10.95% November 17, 2001
Nebraska ..............................................................
18 long-term care facilities located in Colorado, Florida, Indiana, 10.85% August 23, 2005
Kansas, Missouri, Nebraska, North Carolina, Tennessee and
Washington ............................................................
17 long-term care facilities located in Arizona, Colorado, Florida, 10.75% May 21, 2003
Georgia, Indiana, Kansas, Tennessee and Utah ..........................

Periodic Face
Payment Amount of
Description (A) Terms Mortgages
- - ------------------------------------------------------------------------ ---------------------------- --------------

Individual mortgages in excess of 3% of the total carrying
amount:
7 long-term care facilities located in Missouri ........................ Monthly payments of $ 41,385,000
principal and interest of
$384,767, balloon
payment of
$38,544,000 due at
maturity
10 long-term care facilities located in Texas, Missouri, and Monthly payments of 40,803,800
Nebraska .............................................................. principal and interest of
$381,767, balloon
payment of
$39,087,000 due at
maturity
18 long-term care facilities located in Colorado, Florida, Indiana, Monthly payments of 87,940,000
Kansas, Missouri, Nebraska, North Carolina, Tennessee and principal and interest of
Washington ............................................................ $825,488, balloon
payment of
$80,961,000 due at
maturity
17 long-term care facilities located in Arizona, Colorado, Florida, Monthly payments of 103,073,000
Georgia, Indiana, Kansas, Tennessee and Utah .......................... principal and interest of
$968,000, balloon
payment of
$95,501,000 due at
maturity

Carrying
Amount of
Description (A) Mortgages (D)
- - ------------------------------------------------------------------------ --------------

Individual mortgages in excess of 3% of the total carrying
amount:
7 long-term care facilities located in Missouri ........................ $ 41,132,940
10 long-term care facilities located in Texas, Missouri, and 40,060,019
Nebraska ..............................................................
18 long-term care facilities located in Colorado, Florida, Indiana, 86,474,955
Kansas, Missouri, Nebraska, North Carolina, Tennessee and
Washington ............................................................
17 long-term care facilities located in Arizona, Colorado, Florida, 100,494,835
Georgia, Indiana, Kansas, Tennessee and Utah ..........................

147

Mortgages individually less than 3% of total carrying amount:
Long-term care facilities, 62 mortgages, face amounts ranging From 8.20% From August 1999
from $525,000 to $29,158,000, located in Arizona, California, to 12.50% to March 2012
Colorado, Connecticut, Florida, Idaho, Indiana,
Massachusetts, Michigan, Missouri, New Jersey, New Mexico,
Nevada, New York, North Carolina, Ohio, Pennsylvania, Rhode
Island, South Carolina, Tennessee, Texas, Utah, Washington,
West Virginia and Wyoming .........................................
Retirement living facilities, 3 mortgages, face amounts ranging From 8.83% From January 2000
from $5,500,000 to $12,100,000, located in North Carolina, to 10.90% to January 2007
Ohio and Utah .....................................................
Alcohol and substance abuse treatment facility, face amount of 11.00% September 29, 2005
$33,300,000, located in New York ..................................
Medical office buildings, 6 mortgages, face amounts ranging From 7.6% From March 2000
from $2,697,298 to $30,122,543, located in Arizona, Florida, to 9.75% to October 2008
Nevada and Tennessee ..............................................
Assisted living facilities, 9 mortgages, face amounts ranging From 8.84% From September 2005
from $3,387,878 to $26,450,000, located in Florida, Michigan, to 9.85% to June 2012
Washington, Colorado, Idaho .......................................
Land under development, 1 loan, located in Florida ................. 9.25% March 4, 2004
Other notes secured by real estate in California ................... From 8.50%
to 10.52%
Construction Loans:
Long-term care facilities, 4 loans, amounts ranging from 9.25% (C)
$6,112,079 to $12,232,034, located in Florida and Ohio ............
Medical office building, 1 loan, located in New Jersey ............. 9.75% (C)
Assisted living facility, 1 loan, located in Michigan .............. 9.25% (C)

Periodic Face Carrying
Payment Amount of Amount of
Description (A) Terms Mortgages Mortgages (D)
- - -------------------------------------------------------------------- ---------- ----------- -----------------------

Mortgages individually less than 3% of total carrying amount:
Long-term care facilities, 62 mortgages, face amounts ranging (E) $ 632,021,956(F)
from $525,000 to $29,158,000, located in Arizona, California,
Colorado, Connecticut, Florida, Idaho, Indiana,
Massachusetts, Michigan, Missouri, New Jersey, New Mexico,
Nevada, New York, North Carolina, Ohio, Pennsylvania, Rhode
Island, South Carolina, Tennessee, Texas, Utah, Washington,
West Virginia and Wyoming .........................................
Retirement living facilities, 3 mortgages, face amounts ranging (E) 20,925,150
from $5,500,000 to $12,100,000, located in North Carolina,
Ohio and Utah .....................................................
Alcohol and substance abuse treatment facility, face amount of (E) 32,344,743
$33,300,000, located in New York ..................................
Medical office buildings, 6 mortgages, face amounts ranging (E) 71,945,990
from $2,697,298 to $30,122,543, located in Arizona, Florida,
Nevada and Tennessee ..............................................
Assisted living facilities, 9 mortgages, face amounts ranging (E) 115,555,997
from $3,387,878 to $26,450,000, located in Florida, Michigan,
Washington, Colorado, Idaho .......................................
Land under development, 1 loan, located in Florida ................. (E) 13,508,402
Other notes secured by real estate in California ................... (E) 5,272,903
Construction Loans:
Long-term care facilities, 4 loans, amounts ranging from 32,030,410
$6,112,079 to $12,232,034, located in Florida and Ohio ............
Medical office building, 1 loan, located in New Jersey ............. 20,298,282
Assisted living facility, 1 loan, located in Michigan .............. 4,558,418
----------------
$ 1,216,625,000(B)
================

- - --------
(A) Virtually all mortgage loans on real estate are first mortgage loans.
(B) The aggregate cost for federal income tax purposes.

(D) No mortgage loan is subject to delinquent principal or interest.

(E) Monthly payments of principal and interest normally payable at a level
amount, with a balloon payment at maturity.

(F) Includes a mortgage loan collateralized by a rehabilitation facility where
eroding margins and an expiring guarantee indicate that the Companies will
not likely collect all amounts due. Accordingly, the Companies provided a
loan loss for this asset of approximately $8,000,000.

148

MEDITRUST CORPORATION
SCHEDULE IV

MORTGAGE LOANS ON REAL ESTATE
December 31, 1998

Reconciliation of carrying amount of mortgage loans for the three years
ended December 31, 1997 is as follows:

(In thousands)
- - ----------------------------------------------

Balance at December 31, 1995 ................. $1,108,623
Additions during period:
New mortgage loans ......................... 137,686
Construction loan advances ................. 117,495
Other ...................................... 9,903
Deductions during period:
Collection of principal .................... (33,962)
Non-cash deductions ........................ (29,642)
Prepayment of mortgage loans ............... (128,285)
----------
Balance at December 31, 1996 ................. 1,181,818
Additions during period:
New mortgage loans ......................... 139,304
Construction loan advances ................. 160,557
Other ...................................... 5,764
Deductions during period:
Collection of principal .................... (7,629)
Prepayment of mortgage loans ............... (46,989)
----------
Balance at December 31, 1997 ................. 1,432,825
Additions during period:
New mortgage loans ......................... 76,260
Construction loan advances ................. 146,264
Deductions during period:
Collection of principal .................... (9,125)
Non-cash deduction ......................... (31,483)
Prepayment of mortgage loans ............... (398,116)
----------
Balance at December 31, 1998 ................. $1,216,625
==========
Reserve for loan loss ....................... (16,036)
Reallocation of valuation allowance ......... (2,955)
----------
Balance per financial statements ............ 1,197,634

149

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

NOT APPLICABLE.

PART III

Item 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference to Item 4a above and the table and the
information appearing in the first subsection of the section entitled "Election
of Directors of The Meditrust Companies"and the section entitled "The Companies
- - --Executive Officers and Directors" contained in the Companies' Joint Proxy
Statement for their Annual Meetings of Shareholders ("Annual Meetings Proxy
Statement"), to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended ("Regulation 14A"). There are no family
relationships among any of the Directors or executive officers of the
Companies.

Incorporated by reference to the section entitled "Certain Transactions"
contained in the Companies' Annual Meetings Proxy Statement, to be filed
pursuant to Regulation 14A.

Item 11.

EXECUTIVE COMPENSATION

Incorporated by reference to the section entitled "Executive Compensation"
contained in the Companies' Annual Meeting Proxy Statement, to be filed
pursuant to Regulation 14A.

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to the table appearing in the first subsection
of the section entitled "Election of Directors of The Meditrust Companies" and
the section entitled "Principal and Management Shareholders of The Meditrust
Companies" contained in the Companies' Annual Meeting Proxy Statement, to be
filed pursuant to Regulation 14A.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the section entitled "Certain Transactions"
contained in the Companies' Annual Meeting Proxy Statement, to be filed
pursuant to Regulation 14A.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements

2. Financial Statement Schedules

Page(s)
----------

Report of Independent Accountants on Financial Statement Schedules 126
II. Valuation and Qualifying Accounts ............................ 127-148
III. Real Estate and Accumulated Depreciation ..................... 149-151
IV. Mortgage Loans on Real Estate .................................

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable

150

or have been disclosed in the notes to consolidated financial statements, and
therefore, have been omitted.

3. Exhibits

Exhibits required as part of this report are listed in the index appearing
on Pages 154 through 159.

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

Meditrust Corporation -- Incorporated by reference to Exhibit 4.1 to Joint
Amended and Restated 1995 Registration Statement on Form S-8 of Meditrust
Share Award Plan Corporation and Meditrust Operating Company (File
Nos. 333-39771 and 333-39771-01)

Meditrust Operating Company -- Incorporated by reference to Exhibit 4.2 to Joint
Amended and Restated 1995 Registration Statement on Form S-8 of Meditrust
Share Award Plan Corporation and Meditrust Operating Company (File
Nos. 333-39771 and 333-39771-01)

Employment Agreement with -- Incorporated by reference to Exhibit 10.1 to the Joint
Abraham D. Gosman Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998

(b) Reports on Form 8-K. The Meditrust Companies filed one joint current
report on Form 8-K, event date November 12, 1998, during the quarter
ended December 31, 1998.

151

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

MEDITRUST CORPORATION

By: /s/ Laurie T. Gerber
------------------------------------------
Chief Financial Officer
(and Principal Financial and Accounting
Officer)

Dated: March 31, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Name Title Date
- - --------------------------- ------------------------------------ ---------------

/s/ Thomas M. Taylor Chairman of the Board of Directors March 31, 1999
- - -------------------------
Thomas M. Taylor

/s/ David F. Benson Director, President and Treasurer March 31, 1999
- - ------------------------- (Principal Executive Officer)
David F. Benson

/s/ Donald J. Amaral Director March 31, 1999
- - -------------------------
Donald J. Amaral

/s/ Edward W. Brooke Director March 31, 1999
- - -------------------------
Edward W. Brooke

/s/ James P. Conn Director March 31, 1999
- - -------------------------
James P. Conn

/s/ John C. Cushman Director March 31, 1999
- - -------------------------
John C. Cushman

/s/ C. Gerald Goldsmith Director March 31, 1999
- - -------------------------
C. Gerald Goldsmith

/s/ Thomas J. Magovern Director March 31, 1999
- - -------------------------
Thomas J. Magovern

/s/ Gerald Tsai, Jr. Director March 31, 1999
- - -------------------------
Gerald Tsai, Jr.

/s/ Stephen E. Merrill Director March 31, 1999
- - -------------------------
Stephen E. Merrill

/s/ Nancy Goodman Brinker Director March 31, 1999
- - -------------------------
Nancy Goodman Brinker

152

SIGNATURES

MEDITRUST OPERATING COMPANY

By: /s/ William C. Baker
------------------------------------
President

Dated: March 31, 1999

Name Title Date
- - --------------------------- ------------------------------------ ---------------

/s/ Thomas M. Taylor Chairman of the Board of Directors March 31, 1999
- - -------------------------
Thomas M. Taylor

/s/ William C. Baker President, Director, (Principal March 31, 1999
- - ------------------------- Executive, Financial and Accounting
William C. Baker Officer)

/s/ Donald J. Amaral Director March 31, 1999
- - -------------------------
Donald J. Amaral

/s/ David F. Benson Director March 31, 1999
- - -------------------------
David F. Benson

/s/ Edward W. Brooke Director March 31, 1999
- - -------------------------
Edward W. Brooke

/s/ C. Gerald Goldsmith Director March 31, 1999
- - -------------------------
C. Gerald Goldsmith

/s/ William G. Byrnes Director March 31, 1999
- - -------------------------
William G. Byrnes

/s/ Nancy Goodman Brinker Director March 31, 1999
- - -------------------------
Nancy Goodman Brinker

/s/ Thomas J. Magovern Director March 31, 1999
- - -------------------------
Thomas J. Magovern

/s/ Gerald Tsai, Jr. Director March 31, 1999
- - -------------------------
Gerald Tsai, Jr.

153

EXHIBITS INDEX

Exhibit
No Title Method of Filing

2.1 Agreement and Plan of Merger, dated as of Incorporated by reference to Exhibit 10.1 to
January 3, 1998 by and among La Quinta the Joint Current Report on Form 8-K of
Inns, Inc., Meditrust Corporation and Meditrust Corporation and Meditrust
Meditrust Operating Company Operating Company, event date January 8,
1998

2.2 Agreement and Plan of Merger dated as of Incorporated by reference to Exhibit 2 to the
January 11, 1998 among Meditrust Joint Current Report on Form 8-K of
Corporation, Meditrust Operating Company Meditrust Corporation and Meditrust
and Cobblestone Holdings, Inc. Operating Company, event date January 11,
1998

2.3 First Amendment to Agreement and Plan of Incorporated by reference to Exhibit 2 to the
Merger among Meditrust Corporation, Joint Current Report on Form 8-K of
Meditrust Operating Company and Meditrust Corporation and Meditrust
Cobblestone Holdings, Inc., dated as of Operating Company, event date March 16,
March 16, 1998 1998

3.1 Restated Certificate of Incorporation of Incorporated by reference to Exhibit 3.2 to
Meditrust Corporation filed with the the Joint Registration Statement on Form
Secretary of State of Delaware on March 2, S-4 of Meditrust Corporation and Meditrust
1998 Operating Company (File Nos. 333-47737
and 333-47737-01)

3.2 Certificate of Amendment of Restated Incorporated by reference to Exhibit 3.8 to
Certificate of Incorporation of Meditrust the Joint Quarterly Report on form 10-Q for
Corporation filed with the Secretary of State the Quarter ended June 30, 1998
of Delaware on July 17, 1998

3.3 Restated Certificate of Incorporation of Incorporated by reference to Exhibit 3.4 to
Meditrust Operating Company filed with the the Joint Registration Statement on Form
Secretary of State of Delaware on March 2, S-4 of Meditrust Corporation and Meditrust
1998 Operating Company (File Nos. 333-47737
and 333-47737-01)

3.4 Certificate of Amendment of Restated Incorporated by reference to Exhibit 3.9 to
Certificate of Incorporation of Meditrust the Joint Quarterly Report on form 10-Q for
Operating Company filed with the Secretary the Quarter ended June 30, 1998
of State of Delaware on July 17, 1998

3.5 Certificate of Designation for the 9% Series Incorporated by reference to Exhibit 4.1 to
A Cumulative Redeemable Preferred Stock Joint Current Report on Form 8-K of
of Meditrust Corporation filed with the Meditrust Corporation and Meditrust
Secretary of State of Delaware on June 12, Operating Company, event date June 10,
1998 1998

3.6 Amended and Restated By-laws of Incorporated by reference to Exhibit 3.5 to
Meditrust Corporation the Joint Registration Statement on Form
S-4 of Meditrust Corporation and Meditrust
Operating Company (File Nos. 333-47737
and 333-47737-01)

154

Exhibit
No Title Method of Filing

3.7 Amended and Restated By-Laws of Incorporated by reference to Exhibit 3.6 to
Meditrust Operating Company the Joint Registration Statement on Form
S-4 of Meditrust Corporation and Meditrust
Operating Company (File Nos. 333-47737
and 333-47737-01)

4.1 Pairing Agreement by and between Incorporated by reference to Exhibit 5 to
Meditrust Corporation (formerly known as Joint Registration Statement on Form 8-A of
Santa Anita Realty Enterprises, Inc.) and Santa Anita Operating Company filed
Meditrust Operating Company (formerly February 5, 1980
known as Santa Anita Operating Company)
dated as of December 20, 1979

4.2 First Amendment to Pairing Agreement, by Incorporated by reference to Exhibit 4.4 to
and between Meditrust Corporation and Joint Registration Statement on Form S-8 of
Meditrust Operating Company, dated Meditrust Corporation and Meditrust
November 6, 1997 Operating Company (File Nos. 333-39771
and 333-39771-01)

4.3 Second Amendment to Pairing Agreement, Incorporated by reference to Exhibit 4.3 to
by and between Meditrust Corporation and the Joint Registration Statement on Form
Meditrust Operating Company, dated S-4 of Meditrust Corporation and Meditrust
February 6, 1998 Operating Company (File Nos. 333-47737
and 333-47737-01)

4.4 Third Amendment to Pairing Agreement, by Filed herewith
and between Meditrust Corporation and
Meditrust Operating Company, dated July
17, 1998

4.5 Rights Agreement, dated June 15, 1989, Incorporated by reference to Exhibit 2.1 to
among Meditrust Corporation (formerly Joint Registration Statement on Form 8-A of
known as Santa Anita Realty Enterprises, Santa Anita Realty Enterprises, Inc., filed
Inc.), Meditrust Operating Company June 19, 1989
(formerly known as Santa Anita Operating
Company), and Boston EquiServe, as
Rights Agent

4.6 Appointment of Boston EquiServe as Rights Incorporated by reference to Exhibit 4.6 to
Agent, dated October 24, 1997 Joint Registration Statement on Form S-8 of
Meditrust Corporation and Meditrust
Operating Company (File Nos. 333-39771
and 333-39771-01)

4.7 Meditrust Corporation Amended and Incorporated by reference to Exhibit 4.1 to
Restated 1995 Share Award Plan Joint Registration Statement on Form S-8 of
Meditrust Corporation and Meditrust
Operating Company (File Nos. 333-39771
and 333-39771-01)

4.8 Meditrust Operating Company Amended Incorporated by reference to Exhibit 4.2 to
and Restated 1995 Share Award Plan Joint Registration Statement on Form S-8 of
Meditrust Corporation and Meditrust
Operating Company (File Nos. 333-39771
and 333-39771-01)

155

Exhibit
No Title Method of Filing

4.9 Form of Fiscal Agency Agreement dated Incorporated by reference to Exhibit 4.7 to
November 15, 1993 between Meditrust and Form 10-K of Meditrust for the fiscal year
Fleet National Bank as fiscal agent ended December 31, 1993

4.10 Form of Indenture dated April 23, 1992 Incorporated by reference to Exhibit 4 to the
between Meditrust and Fleet National Bank, Registration Statement on Form S-3 of
as trustee Meditrust (File No. 33-45979)

4.11 Form of 9% Convertible Debenture due Incorporated by reference to Exhibit 4.1 to
2002 the Registration Statement on Form S-3 of
Meditrust (File No. 33-45979)

4.12 Form of Indenture dated March 9, 1994 Incorporated by reference to Exhibit 4 to the
between Meditrust and Shawmut Bank as Registration Statement on Form S-3 of
Trustee Meditrust (File No. 33-50835)

4.13 Form of 7 1/2% Convertible Debenture due Incorporated by reference to Exhibit 4 to the
2001 Registration Statement on Form S-3 of
Meditrust (File No. 33-50835)

4.14 Form of First Supplemental Indenture dated Incorporated by reference to Exhibit 4.1 to
as of July 26, 1995, to Indenture dated as of the Current Report on Form 8-K of Meditrust
July 26, 1995 between Meditrust and Fleet dated July 13, 1995
National Bank

4.15 Form of 8.54% Convertible Senior Note due Incorporated by reference to Exhibit 4.1 to
July 1, 2000 the Current Report on Form 8-K of Meditrust
dated July 27, 1995

4.16 Form of 8.56% Convertible Senior Note due Incorporated by reference to Exhibit 4.1 to
July 1, 2002 the Current Report on Form 8-K of Meditrust
dated July 27, 1995

4.17 Form of Second Supplemental Indenture Incorporated by reference to Exhibit 4.1 to
dated as of July 28, 1995, to Indenture the Current Report on Form 8-K of Meditrust
dated as of July 26, 1995 between dated July 27, 1995
Meditrust and Fleet National Bank, as
trustee

4.18 Form of Fixed Rate Senior Medium-term Incorporated by reference to Exhibit 4.3 to
Note the Current Report on Form 8-K of Meditrust
dated August 8, 1995

4.19 Form of Floating Rate Medium-term Note Incorporated by reference to Exhibit 4.4 to
the Current Report on Form 8-K of Meditrust
dated August 8, 1995

4.20 Form of Third Supplemental Indenture dated Incorporated by reference to Exhibit 4.2 to
as of August 10, 1995, to Indenture dated the Current Report on Form 8-K of Meditrust
as of July 26, 1995 between Meditrust and dated August 8, 1995
Fleet National Bank

4.21 Form of 7.375% Note due July 15, 2000 Incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K of Meditrust
dated July 13, 1995

156

Exhibit
No Title Method of Filing

4.22 Form of 7.60% Note due July 15, 2001 Incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K of Meditrust
dated July 13, 1995

4.23 Form of Fourth Supplemental Indenture Incorporated by reference to Exhibit 4.1 to
dated as of September 5, 1996, to the Current Report on Form 8-K of Meditrust
Indenture dated as of July 26, 1995 dated September 6, 1996
between Meditrust and Fleet National Bank

4.24 Form of 7.82% Note due September 10, Incorporated by reference to Exhibit 4.1 to
2026 the Current Report on Form 8-K of Meditrust
dated September 6, 1996

4.25 Form of Fifth Supplemental Indenture dated Filed herewith
as of August 12, 1997, to Indenture dated
as of July 26, 1995 between Meditrust and
Fleet National Bank (State Street Bank and
Trust Company, as Successor Trustee)

4.26 Form of Remarketed Reset Note due August Filed herewith
15, 2002

4.27 Form of Sixth Supplemental Indenture dated Filed herewith
as of August 12, 1997, to Indenture dated
as of July 26, 1995 between Meditrust and
State Street Bank and Trust Company

4.28 Form of 7% Notes due August 15, 2007 Filed herewith

4.29 Form of Seventh Supplemental Indenture Filed herewith
dated August 12, 1997, to Indenture dated
as of July 26, 1995 between Meditrust and
State Street Bank and Trust Company

4.30 Form of 7.114% Note due August 15, 2011 Filed herewith

4.31 Form of Deposit Agreement, among Incorporated by reference to Exhibit 4.3 to
Meditrust Corporation and State Street Bank Joint Current Report on Form 8-K of
and Trust Company and all holders from Meditrust Corporation and Meditrust
time to time of Receipts for Depositary Operating Company, event date June 16,
Shares, including form of Depositary 1998
Receipts

10.1 Credit Agreement dated as of July 17, 1998 Incorporated by reference to Joint Quarterly
among Meditrust Corporation, Morgan Report on Form 10-Q for the Quarter ended
Guaranty Trust Company of New York and June 30, 1998
the other Banks set forth therein

10.2 Amended and Restated Lease Agreement Incorporated by reference to Exhibit 2.2 to
between Mediplex of Queens, Inc. and the Form 8-K of Meditrust dated January 13,
QPH, Inc. dated December 30, 1986 1987

157

Exhibit
No Title Method of Filing

10.3 Employment Agreement dated as of July 17, Incorporated by reference to Exhibit 10.1 to
1998 by and between Meditrust Operating the Joint Quarterly Report on Form 10-Q for
Company and Abraham D. Gosman the Quarter ended September 30, 1998

10.4 Registration Rights Agreement, dated as of Incorporated by reference to Exhibit 10.3 to
January 3, 1998 by and among Meditrust Joint Current Report on Form 8-K of
Corporation, Meditrust Operating Company Meditrust Corporation and Meditrust
and certain other parties signatory thereto Operating Company, event date January 8,
1998

10.5 Shareholders Agreement, dated as of Incorporated by reference to Exhibit 10.2 to
January 3, 1998, by and among Meditrust Joint Current Report of Form 8-K of
Corporation, Meditrust Operating Company, Meditrust Corporation and Meditrust
certain shareholders of La Quinta Inns, Inc., Operating Company, event date January 8,
and solely for purposes of Section 3.6 of 1998
such Agreement, La Quinta Inns, Inc.

10.6 Shareholders Agreement, dated as of Incorporated by reference to Exhibit 10 to
January 11, 1998 among Meditrust the Joint Current Report on Form 8-K of
Corporation, Meditrust Operating Company Meditrust Corporation and Meditrust
and Certain Shareholders of Cobblestone Operating Company, event date January 11,
Holdings, Inc. 1998

10.7 First Amendment to Shareholders Incorporated by reference to Annex D-1 to
Agreement dated April 30, 1998, by and the Joint Proxy Statement/Prospectus on
among Meditrust Corporation, Meditrust Form S-4/A of Meditrust Corporation and
Operating Company and certain Meditrust Operating Company (File Nos.
shareholders of La Quinta Inns, Inc., and 333-47737 and 333-47737-01)
solely for the pursposes of Section 3.6 of
such Agreement, La Quinta Inns, Inc.

10.8 First Amendment to Shareholders Incorporated by reference to Exhibit 10 to
Agreement among Meditrust Corporation, the Joint Current Report on Form 8-K of
Meditrust Operating Company and Certain Meditrust Corporation and Meditrust
Shareholders of Cobblestone Holdings, Inc., Operating Company, event date March 16,
dated as of March 16, 1998 1998

10.9 Purchase Agreement dated as of February Incorporated by reference to Exhibit 4.28 to
26, 1998 among Meditrust Corporation, the Joint Registration Statement on Form
Meditrust Operating Company, Merrill Lynch S-4/A of Meditrust Corporation and
International and Merrill Lynch, Pierce, Meditrust Operating Company (File Nos.
Fenner & Smith Incorporated 333-47737 and 333-47737-01)

10.10 Amendment Agreement to Purchase Incorporated by reference to Exhibit 99.3 to
Agreement dated as of July 16, 1998 the Joint Quarterly Report on Form 10-Q for
among Meditrust Corporation, Meditrust the Quarter ended June 30, 1998
Operating Company, Merrill Lynch
International and Merrill Lynch, Pierce,
Fenner & Smith Incorporated

158

Exhibit
No Title Method of Filing

10.11 Amendment Agreement to Purchase Incorporated by reference to Exhibit 99.4 to
Agreement dated as of July 31, 1998 the Joint Quarterly Report on Form 10-Q for
among Meditrust Corporation, Meditrust the Quarter endedJune 30, 1998
Operating Company, Merrill Lynch
International and Merrill Lynch, Pierce,
Fenner & Smith Incorporated

10.12 Amendment Agreement to Purchase Incorporated by reference to Exhibit 99.5 to
Agreement dated as of September 11, 1998 the Joint Registration Statement on Form
among Meditrust Corporation, Meditrust S-3/A of Meditrust Corporation and
Operating Company, Merrill Lynch Meditrust Operating Company (File Nos.
International and Merrill Lynch, Pierce, 333-40055 and 333-40055-01)
Fenner & Smith Incorporated

10.13 Amendment Agreement to Purchase Filed herewith
Agreement dated as of November 11, 1998
among Meditrust Corporation, Meditrust
Operating Company, Merrill Lynch
International and Merrill Lynch, Pierce,
Fenner & Smith Incorporated

10.14 Unsecured Purchase Price Adjustment Filed herewith
Mechanism Agreement among Meditrust
Corporation, Meditrust Operating Company,
Merrill Lynch International and Merrill Lynch,
Pierce, Fenner & Smith Incorporated as a
partial amendment and restatement of that
certain Purchase Price Adjustment
Mechanism Agreement dated as of
February 26, 1998

10.15 Amended and Restated Settlement Filed herewith
Agreement dated as of November 11, 1998
among Meditrust Corporation, Meditrust
Operating Company, Merrill Lynch
International and Merrill Lynch, Pierce,
Fenner & Smith Incorporated

10.16 Amendment to Credit Agreement dated as Filed herewith
November 23, 1998 among Meditrust
Corporation, Morgan Guaranty Trust
Company of New York and the other Banks
set forth therein

11 Statement Regarding Computation of Per Filed herewith
Share Earnings

21 Subsidiaries of the Registrant Filed herewith

23 Consent of PricewaterhouseCoopers L.L.P. Filed herewith

27 Financial Data Schedule Filed herewith

159

Exhibit 11

THE MEDITRUST COMPANIES

STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)

Years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------- -------------

Basic:
Weighted average number of shares outstanding ......... 120,515 76,070 71,445
Net income from continuing operations ................. $141,080 $161,962 $157,976
Preferred stock dividends ............................. (8,444) -- --
Income from continuing operations available to
common shareholders .................................. $132,636 $161,962 $157,976
Per share amounts:
Net income per share .................................. (A) $ 1.10 $ 2.13 $ 2.21
Diluted:
Weighted average number of shares used in Basic
calculation .......................................... 120,515 76,070 71,445
Dilutive effect of:
Contingently issuable shares .......................... 4,757 -- --
Stock options ......................................... 236 454 306
Diluted weighted average shares and equivalent
shares outstanding ................................... (B) 125,508 76,524 71,751
Net income from continuing operations ................. $141,080 $161,962 $157,976
Preferred stock dividends ............................. (8,444) -- --
Income from continuing operations available to
common shareholders .................................. $132,636 $161,962 $157,976
Per share amounts:
Net income per share .................................. (A) $ 1.06 $ 2.12 $ 2.20

- - ------------
(A) This calculation is submitted in accordance with Regulation S-K item 601(b)
(11)

(B) Convertible debentures are not included due to their antidilutive effect.

160