<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
                   For the fiscal year ended December 31, 2003
                                       or
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
           For the transition period from____________ to ____________.

                         Commission File Number: 0-15753

                         SHELBOURNE PROPERTIES II, INC.
             (Exact name of registrant as specified in its charter)



<TABLE>
<S>                                                                 <C>
                       Delaware                                                        04-3502382
-------------------------------------------------------             --------------------------------------------------
           (State or other jurisdiction of                                (I.R.S. Employer Identification No.)
            incorporation or organization)

             7 Bulfinch Place - Suite 500
                      Boston, MA                                                          02114
-------------------------------------------------------             --------------------------------------------------
       (Address of principal executive offices)                                        (Zip Code)

                                                      (617) 570-4600
                                      ------------------------------------------------
                                    (Registrant's telephone number, including area code)


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                    TITLE OF EACH CLASS                                NAME OF EXCHANGE ON WHICH REGISTERED
               Common Stock, $0.01 par value                                 American Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                    TITLE OF EACH CLASS                                NAME OF EXCHANGE ON WHICH REGISTERED
                           None                                                        None
</TABLE>

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least 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 registrant's 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. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Exchange Act Rule 12b-2). Yes [ ] No [X]



                                       1
<PAGE>


As of March 1, 2004, there were 894,792 common shares of beneficial interest
outstanding

At June 30, 2003, the aggregate market value of the common shares of beneficial
interest held by non-affiliates was $15,976,243.


                       DOCUMENTS INCORPORATED BY REFERENCE

None.





















                                       2
<PAGE>


                         SHELBOURNE PROPERTIES II, INC.
                    CROSS REFERENCE SHEET PURSUANT TO ITEM G,
                        GENERAL INSTRUCTIONS TO FORM 10-K

<TABLE>
<CAPTION>
    ITEM OF FORM 10-K                                                                            PAGE

                                     PART I
<S>                                                                                              <C>
    1.      Business                                                                                       5
    2.      Properties                                                                                    19
    3.      Legal Proceedings                                                                             21
    4.      Submission of Matters to a Vote of Security Holders                                           21

                                     PART II

    5.      Market for Corporation's Common Equity and Related Stockholder Matters                        22
    6.      Selected Financial Data                                                                       24
    7.      Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                                                   26
    7A.     Quantitative and Qualitative Disclosures Regarding Market Risk                                36
    8.      Financial Statements                                                                          36
    8A.     Controls and Procedures                                                                       36
    9.      Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                                                         36

                                    PART III

    10.     Directors and Executive Officers of the Corporation                                          37
    11.     Executive Compensation                                                                       39
    12.     Security Ownership of Certain Beneficial Owners and Management                               40
    13.     Certain Relationships and Related Transactions                                               41
    14.     Principal Accountant Fees and Services                                                       44

                                     PART IV

    15.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K                            45
            (a) Financial Statements and Financial Statement Schedules
            (b) Reports on Form 8-K
            (c) Exhibits

            Signatures                                                                                  47
            Exhibit Index                                                                               48
</TABLE>

                           FORWARD-LOOKING STATEMENTS

         This Form 10-K contains forward-looking statements relating to our
business and financial outlook, which are based on our current expectations,
estimates, forecasts and projections. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These forward-looking statements are not guarantees of future
performance and involve risks, uncertainties, estimates and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from those expressed in these forward-looking statements. You should
not place undue reliance on any of these forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which it is made,
and we undertake no obligation to update any such statement to reflect new
information, the occurrence of future events or circumstances or otherwise.



                                       3
<PAGE>
         A number of important factors could cause actual results to differ
materially from those indicated by the forward-looking statements, including,
but not limited to, the risks described under "Item 1. Business - Risk Factors"
in this Form 10-K.
















                                       4
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

         In this Form 10-K, the terms "we," "us," "our" and "our company" refer
either to the combined operations of all of Shelbourne Properties II, Inc.,
Shelbourne Properties II GP LLC and Shelbourne Properties II L.P. or to
Shelbourne Properties II, Inc., independently, as the context requires.

                                    OVERVIEW

         Our company, Shelbourne Properties II, Inc., a Delaware corporation
(the "Corporation"), was formed on February 8, 2001 and is engaged in the
business of operating and holding for investment previously acquired
income-producing properties. As of March 24, 2004, we operate and hold one
office building, a 50% interest in an office building and one shopping center.
In addition, the Corporation owns an interest in 20 motel properties that are
triple-net leased to an affiliate of Accor S.A. See "Corporate History-The
Accotel Transaction" and "Item 2. Properties" for a description of our
properties.

         We own our property portfolio through our directly and indirectly
wholly owned subsidiary, Shelbourne Properties II L.P. (the "Operating
Partnership"), a Delaware limited partnership. The Operating Partnership owns
our property portfolio directly or through joint ventures with affiliated
entities (Shelbourne Properties I L.P. and Shelbourne Properties III L.P.). The
general partner of the Operating Partnership is Shelbourne Properties II GP LLC,
a Delaware limited liability company that is wholly-owned by the Corporation.

         Our primary business objective is to maximize the value of our common
stock. Prior to October 29, 2002, we sought to achieve this objective by
managing our existing properties, making capital improvements to and/or selling
properties and by making additional real estate-related investments. On October
29, 2002, the stockholders of the Corporation adopted a plan of liquidation.
Accordingly, on such date the Corporation was dissolved and has been seeking to
liquidate its assets. Since October 29, 2002, the Corporation has sold its
properties located in Raleigh, North Carolina; Hilliard, Ohio; New York, New
York; Melrose Park, Illinois; San Diego, California; Grove City, Ohio and
Orange, Ohio. It is expected that the remaining properties will be sold at such
time as market conditions enable the Corporation to maximize the sale price. See
"Corporate History-The HX Transaction; The Plan of Liquidation" below.

         Our Board of Directors currently consists of six directors. See
"Employees" below for information relating to the provision by affiliates of
property management services, asset management services, investor relation
services and accounting services to us.

         The Corporation has operated with the intention of qualifying as a real
estate investment trust for U.S. Federal Income Tax purposes ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986 as amended. Under those
sections, a REIT which pays at least 90% of its ordinary taxable income as a
dividend to its stockholders each year and which meets certain other conditions
will not be taxed on that portion of its taxable income which is distributed to
its stockholders.

         We have adopted a plan of liquidation that requires us to liquidate all
of our assets and liabilities by October 29, 2004. Dividends paid during our
liquidation generally will not be taxable to the stockholder until the dividends
paid exceed the adjusted tax basis in the stockholder's shares, and then will be
taxable as long-term capital gain assuming the shares as capital assets have
been held for more than 12 months when the stockholder receives the dividend as
a result of the adoption of the plan of liquidation. As a result of the sale of
substantially all of our assets and in light of the costs associated with
maintaining public company, it is expected that our remaining assets will be
transferred to a liquidating trust as early as April 2004 and in lieu of owning
shares, each stockholder will own a beneficial interest of an equivalent
percentage in the liquidating trust. In this regard, on March 17, 2004, the
holder of the Class A Units agreed to retain its beneficial ownership of the
motel properties and relinquish its right to require the acquisition of other
properties, thereby enabling the Corporation to set up liquidating trusts to
complete its liquidation as early as April 16, 2004. See, "Property
Sales/Acquistions-The Accotel Transaction" below. Accordingly, at such time as
the assets of the Corporation are distributed to a liquidating trust, which is
presently expected to be April 16, 2004, the transferability of interests in the
trust will be significantly restricted as compared


                                       5
<PAGE>

to the shares in the Corporation, and the stockholders, as holders of beneficial
interests, will be required to include in their own income their pro rata share
of the trust's taxable income whether or not that amount is actually distributed
by the trust in that year. Further, for federal income tax purposes, on April
16, 2004, each stockholder of the Corporation on the Record Date will be deemed
to have received a pro rata share of the assets of the Corporation to be
transferred to the Liquidating Trust, reduced by such stockholder's pro rata
share of the liabilities of the Corporation assumed by the Liquidating Trust.
Based on the estimates used by management to determine net realizable value of
the Corporation's assets at December 31, 2003, the estimated net realizable
value of the Corporation is approximately $17.4 million or $17.04 per common
share. The foregoing estimate is based on the carrying values of the current
assets of the Corporation as well as the current account payables of the
Corporation and estimates as to future costs associated with transferring the
assets to the Liquidating Trust, maintaining the Liquidating Trust and insurance
coverage. Accordingly, the ultimate value realized may be significantly less or
more than the estimated amount.

CORPORATE HISTORY

         Predecessor Partnership. Prior to the merger described below, the owner
of the Corporation's properties was High Equity Partners L.P. - Series 86, a
Delaware limited partnership (the "Predecessor Partnership"). The Predecessor
Partnership was formed as of November 14, 1985. Prior to November 3, 1994, the
Predecessor Partnership's General Partners ("Predecessor General Partners") were
owned and controlled by Integrated Resources, Inc. On November 3, 1994, Presidio
Capital Corporation ("Presidio") acquired the Predecessor General Partners.
Effective July 31, 1998, NorthStar Capital Investment Corp., a Maryland
corporation, acquired control of Presidio.

         In 1986 and 1987, the Predecessor Partnership offered 800,000 units of
limited partnership interests (the "Units"). Upon final admission of limited
partners, the Predecessor Partnership had accepted subscriptions for 588,010
units for an aggregate of $147,002,500 in gross proceeds, resulting in net
proceeds from the offering of $142,592,500 (gross proceeds of $147,002,500 less
organization and offering costs of $4,410,000). Subsequent to the conversion
discussed below, the Units were converted into shares of the Corporation on a
two for one basis. Throughout the rest of this document, rather than referring
to Units, we will refer to shares on a converted basis. The Predecessor
Partnership invested substantially all of its total adjusted net proceeds, after
establishing a working capital reserve, in real estate.

         In April 1999, the California Superior Court approved the terms of the
settlement of a class action and derivative litigation involving the Predecessor
Partnership. Under the terms of the settlement, the Predecessor General Partners
agreed to take the actions described below subject to first obtaining the
consent of limited partners to amendments to the Agreement of Limited
Partnership of the Predecessor Partnership (the "Predecessor Partnership
Agreement") summarized below. The settlement became effective in August 1999
following approval of the amendments.

         As amended, the Predecessor Partnership Agreement (a) provided for a
Partnership Asset Management Fee payable to the Predecessor General Partners or
their affiliates commencing with the year ended December 31, 2000 equal to 1.25%
of the Gross Asset Value of the Predecessor Partnership (as defined in that
agreement) and a fixed 1999 Partnership Asset Management Fee of $973,293
($312,139 less than the amount that would have been paid under the pre-amendment
formula) and (b) fixed the amount that the Predecessor General Partners would be
liable to pay to limited partners upon liquidation of the Predecessor
Partnership as repayment of fees previously received (the "Fee Give-Back
Amount"). As amended, the Predecessor Partnership Agreement provided that, upon
a reorganization of the Predecessor Partnership into a REIT or other public
entity, the Predecessor General Partners would have no further liability to pay
the Fee Give-Back Amount. As a result of the conversion of the Predecessor
Partnership into a REIT on April 17, 2001, as described below, the Predecessor
General Partners' liability to pay the Fee Give-Back Amount was extinguished.

         As required by the settlement, an affiliate of the Predecessor General
Partners, Millennium Funding III, LLC, made a tender offer to limited partners
to acquire up to 39,596 Units (representing approximately 6.7% of the
outstanding Units) at a price of $103.05 per Unit. The offer closed in January
2000 and all 39,569 Units were acquired in the offer. On a post-conversion
basis, the tender offer was for the equivalent of 79,138 shares at a price of
$51.53 per share.



                                       6
<PAGE>

         The final requirement of the settlement obligated the Predecessor
General Partners to use their best efforts to reorganize the Predecessor
Partnership into a REIT or other entity whose shares were listed on a national
securities exchange or on the NASDAQ National Market System. A Registration
Statement was filed with the Securities and Exchange Commission on February 11,
2000 with respect to the restructuring of the Predecessor Partnership into a
publicly traded REIT. On or about February 15, 2001 a prospectus/consent
solicitation statement was mailed to the limited partners of the Predecessor
Partnership seeking consent to the reorganization of the Predecessor Partnership
into a REIT.

         The consent of limited partners was sought to approve the conversion of
the Predecessor Partnership into the Operating Partnership. The consent
solicitation expired April 16, 2001 and holders of a majority of the Units
approved the conversion.

         On April 17, 2001, the conversion was accomplished by merging the
Predecessor Partnership into the Operating Partnership. Pursuant to the merger,
each limited partner of the Predecessor Partnership received two shares of stock
of the Corporation for each Unit they owned and the Predecessor General Partners
received an aggregate of 61,896 shares of stock in the Corporation in exchange
for their general partner interests in the Predecessor Partnership. In
connection with the merger, the Company entered into an advisory agreement (the
"Advisory Agreement") with Shelbourne Management, LLC ("Shelbourne Management")
to provide accounting, asset management, treasury, cash management and investor
related services management to the Company. Shelbourne Management is a
wholly-owned subsidiary of Presidio Capital Investment Company, LLC ("PCIC"),
which was also the sole stockholder of Presidio. The Advisory Agreement had a
term of 10 years and provided for fees payable to Shelbourne Management of (1)
the Asset Management Fee previously payable to the Predecessor General Partners
or their affiliates, (2) $200,000 for non-accountable expenses and (3)
reimbursement of expenses incurred in connection with performance of its
services. In addition, Shelbourne Management was entitled to receive a property
management fee equal to up to 6% of property revenues.

         The Presidio Transaction. On February 14, 2002, the Corporation,
Shelbourne Properties I, Inc. and Shelbourne Properties III, Inc. (together the
"Companies") announced the consummation of a transaction (the "Transaction")
whereby the Companies (i) purchased their respective Advisory Agreement and (ii)
repurchased all of the shares of capital stock in the Companies held by
subsidiaries of PCIC (the "PCIC Shares").

         Pursuant to the Transaction, for the Advisory Agreements and the PCIC
Shares, the Companies paid PCIC an aggregate of $44,000,000 in cash, issued
preferred partnership interests in their respective operating partnerships with
an aggregate liquidation preference of $2,500,000, and issued notes with a
stated amount between approximately $54,300,000 and $58,300,000, depending upon
the timing of the repayment of the notes. These notes were subsequently
satisfied for $54,300,000 from the proceeds of the Hypo Loan described below.

         Pursuant to the Transaction, the Corporation paid PCIC approximately
$17,900,000 in cash and the Operating Partnership issued preferred partnership
interests (the "Class A Units") with an aggregate liquidation preference of
$1,015,148 and a note with an aggregate stated amount between approximately
$22,000,000 and $23,600,000, depending upon the timing of the repayment of the
note. This note was subsequently satisfied for approximately $22,000,000 from
the proceeds of the Hypo Loan described below.

         The Transaction was unanimously approved by the Boards of Directors of
each of the Companies at such time after recommendation by their respective
Special Committees comprised of the Companies' three independent directors.

         Houlihan Lokey Howard & Zukin Capital served as financial advisor to
the Special Committees of the Companies and rendered a fairness opinion to the
Special Committees with respect to the Transaction.

         The foregoing description of the Transaction does not purport to be
complete, and it is qualified in its entirety by reference to the Purchase and
Contribution Agreement, dated as of February 14, 2002, the Secured Promissory
Note, dated February 14, 2002 and the Partnership Unit Designations of Class A
Preferred Partnership Units of Shelbourne Properties II L.P., copies of which
are attached as exhibits to our current report on form 8-K filed on February 14,
2002, and are incorporated by reference herein.

                                       7
<PAGE>

         The HX Transaction; Plan of Liquidation. On July 1, 2002, the
Corporation entered into a settlement agreement with respect to certain
outstanding litigation brought by HX Investors, L.P. ("HX Investors") in the
Chancery Court of Delaware against the Companies. At the same time, the
Companies entered into a letter agreement settling other outstanding litigation
brought by stockholders against the Companies, subject to approval by the court
of a stipulation of settlement. In connection with the settlements, the
Corporation entered into a stock purchase agreement (the "Stock Purchase
Agreement") with HX Investors and Exeter Capital Corporation ("Exeter"), the
general partner of HX Investors, pursuant to which HX Investors, the then owner
of approximately 12% of the outstanding common stock of the Corporation, was
granted a waiver by the Corporation from the stock ownership limitation (8% of
the outstanding shares) set forth in the Corporation's Certificate of
Incorporation to permit HX Investors to acquire up to 42% of the outstanding
shares of the Corporation's common stock and HX Investors agreed to conduct a
tender offer for up to an additional 30% of the Corporation's outstanding stock
at a price per share of $62.00 (the "HX Investors Offer"). The tender offer
commenced on July 5, 2002 following the filing of the required tender offer
documents with the Securities and Exchange Commission by HX Investors. In
addition, pursuant to the terms of the settlement, Shelbourne Management agreed
to pay to HX Investors 42% of the amounts paid to Shelbourne Management with
respect to the Class A Units.

         Pursuant to the Stock Purchase Agreement, the board of directors of the
Corporation approved a plan of liquidation for the Corporation (the "Plan of
Liquidation") and agreed to submit the Plan of Liquidation to its stockholders
for approval. HX Investors agreed to vote all of its shares in favor of the Plan
of Liquidation. Under the Plan of Liquidation, HX Investors was to receive an
incentive payment (the "Incentive Fee") of 25% of gross proceeds after the
payment of a priority return of approximately $66.25 per share was made to the
stockholders of the Corporation.

         Subsequently, on July 29, 2002, Longacre Corp. ("Longacre") commenced a
lawsuit individually and derivatively against the Companies, their boards, HX
Investors, and Exeter seeking preliminary and permanent injunctive relief and
monetary damages based on purported violations of the securities laws and
mismanagement related to the tender offer by HX Investors, the Stock Purchase
Agreement, and the Plan of Liquidation. The suit was filed in federal district
court in New York, New York. On August 1, 2002, the court denied Longacre's
motion for a preliminary injunction, and the court dismissed the lawsuit on
September 30, 2002, at the request of Longacre.

         Contemporaneous with filing its July 29, 2002 lawsuit, Longacre
publicly announced that its related companies, together with outside investors,
were prepared to initiate a competing tender offer for the same number of shares
of common stock of the Corporation as were tendered for under the HX Investors
Offer, at a price per share of $68.20. Over the course of the next several days,
Longacre and HX Investors submitted competing proposals to the board of
directors of the Corporation and made those proposals public. On August 4, 2002,
Longacre notified the Corporation that it was no longer interested in proceeding
with its proposed offer.

         On August 5, 2002, the Corporation entered into an amendment to the
Stock Purchase Agreement. Pursuant to the terms of the amendment, the purchase
price per share offered under the HX Investors Offer was increased from $62.00
to $73.85. The amendment also reduced the Incentive Fee payable to HX Investors
under the Plan of Liquidation from 25% to 15% of gross proceeds after payment of
the approximately $66.25 per share Priority Return to stockholders of the
Corporation plus interest thereon compounded quarterly at 6% per annum (the
"Priority Return"), and included certain corporate governance provisions. After
giving effect to dividends paid from August 19, 2002 to March 24, 2004, the
remaining unpaid per share Priority Return to stockholders is $3.20.

         On August 16, 2002, the HX Investors Offer expired and HX Investors
acquired 268,444 shares representing 30% of the outstanding shares.

         On August 19, 2002, as contemplated by the Stock Purchase Agreement,
the existing Board of Directors and executive officer of the Corporation
resigned, and the Board was reconstituted to consist of six members, four of
whom are independent directors. In addition, new executive officers were
appointed.

         Also on August 19, 2002, the Board of Directors of the Corporation
authorized the issuance by the Operating Partnership of Class B Units to HX
Investors which Class B Units were to be issued in full satisfactory of the
Incentive Fee. The Class B Units provide distribution rights to HX Investors
consistent with the intent and


                                       8
<PAGE>

financial terms of the incentive payment provided for in Stock Purchase
Agreement described above. On August 19, 2002, the Operating Partnership issued
the Class B Units to HX Investors in full satisfaction of the Incentive Fee
otherwise required under the Plan of Liquidation.

         On October 29, 2002, the stockholders of the Corporation approved the
Plan of Liquidation. As a result, the Operating Partnership has been seeking,
and will seek to, sell its remaining properties at such time as it is believed
that the sale price for such property can be maximized. Since the adoption of
the Plan of Liquidation, the Corporation has sold its properties located in
Raleigh, North Carolina; Hilliard, Ohio; New York, New York; Melrose Park,
Illinois; San Diego, California; Grove City, Ohio; and Orange, Ohio, and has
paid dividends totaling $65.25 as follows: $14.00 per share on November 21,
2002, $14.50 on January 31, 2003, $30.00 on March 18, 2003 and $6.75 on July 9,
2003. Pursuant to the Plan of Liquidation, if all of the assets of the
Corporation are not disposed of prior to October 29, 2004, the remaining assets
will be placed in a liquidating trust and the stockholders of the Corporation
will receive a beneficial interest in such trust in total redemption of their
shares in the Corporation.

         The foregoing description of Stock Purchase Agreement is qualified in
its entirety by reference to such agreement, a copy of which is attached as an
exhibit to the Corporation's Current Reports on Form 8-K filed on July 2, 2002
and August 5, 2002, which is incorporated herein by reference. The foregoing
description of Plan of Liquidation is qualified in its entirety by reference to
the Plan of Liquidation, a copy of which is attached as an exhibit to the
Corporation's Definitive Proxy Statement filed on September 29, 2002, which is
incorporated herein by reference.

FINANCINGS

         The Hypo Loan. On May 1, 2002, the operating partnerships of the
Companies and certain of the operating partnerships' subsidiaries entered into a
$75,000,000 revolving credit facility with Bayerische Hypo-Und Vereinsbank AG,
New York Branch, as agent for itself and other lenders (the "Credit Facility" or
"Hypo Loan"). The Credit Facility was subsequently satisfied on February 20,
2003 from proceeds of the Fleet Loan. See "Fleet Loan" below.

         The Fleet Loan. Under the terms of the Credit Facility, upon the sale
of the New York, New York property which was sold on February 28, 2003, the
proceeds from such sale would first have been required to satisfy the Credit
Facility. As a result, upon the sale of the New York property, the Corporation
risked not being able to satisfy the requirements to maintain its REIT status as
it was likely that dividends in 2003, absent unforeseeable occurrences, would
not have been equal to at least 90% of the Corporation's ordinary taxable
income. Accordingly, on February 20, 2003, in a transaction designed to
alleviate this problem as well as provide flexibility to the Companies in
implementing their respective plans of liquidation, direct and indirect
subsidiaries of each of the Companies (the "Borrowers") entered into a Loan
Agreement with Fleet National Bank, as agent for itself and other lenders
("Fleet") pursuant to which the Borrowers obtained a $55,000,000 loan (the
"Fleet Loan"). The entering into of this Fleet Loan transaction enabled 100% of
the net proceeds from the sale of its 568 Broadway Joint Venture (the New York
property) to be paid as a dividend by the Corporation as the New York property
was not security for the Fleet Loan.









                                       9
<PAGE>

         The Borrowers were jointly and severally liable for the repayment of
the amounts due under the Fleet Loan and the Operating Partnership and the
Corporation (as well as the other operating partnerships and Companies) have
guaranteed the repayment of the Fleet Loan. The proceeds of the Fleet Loan were
used to satisfy the Credit Facility that had an aggregate balance due of
$37,417,249. The Credit Facility was satisfied by delivery of $27,417,249 in
cash and a $10,000,000 note from 568 Broadway Joint Venture (the "568 Note"),
which note was then acquired by Manufacturers Traders and Trust Company. In
connection with the assignment of the 568 Note, the purchase agreement with
respect to the property held by 568 Joint Venture was amended to provide that
the buyer would acquire the property subject to the 568 Note and would receive a
credit of $10,000,000 at closing. After satisfying the Credit Facility,
establishing a capital improvements reserve of $5,000,000 in the aggregate
($2,637,500 of which is allocable to the Corporation), a $10,000,000 reserve
($3,892,500 of which is allocable to the Corporation) to be released upon the
earlier of the sale of the 568 Property or the satisfaction of the 568 Note and
costs associated with consummating the Fleet Loan, the net proceeds received by
the Companies was approximately $11,000,000 in the aggregate, which proceeds,
together with the $10,000,000 reserve that was released from escrow on March 3,
2003, were paid to stockholders as part of the March 2003 dividend.

         The Fleet Loan was subsequently satisfied on December 11, 2003 from the
proceeds of the sales of properties owned by the Corporation, Shelbourne
Properties I, Inc., and Shelbourne Properties III, Inc. as mandated by the Plan
of Liquidation. The remaining balance in the capital improvement reserve of
$4,260,819 was also released at that date of which $1,930,000 was allocable to
the Corporation.

RELATED PARTY LOAN PAYABLE

         In connection with the Fleet Loan financing, the Corporation,
Shelbourne Properties I, Inc. and Shelbourne Properties III, Inc. entered into
Indemnity, Contribution and Subrogation Agreements, the purpose and intent of
which was to place operating partnerships in the same position (as among each
other) as each would have been had the lender made three separate loans. Under
the terms of the Fleet Loan, Shelbourne Properties I, Inc. and Shelbourne
Properties III, Inc. were required to utilize a portion of their proceeds
generated by property sales to make principal payments on the Fleet Loan on
behalf of the Corporation. In accordance with the terms of the Indemnity,
Contribution and Subrogation Agreements, the portion of the Corporation's
principal payments made by Shelbourne Properties I, Inc., in the amount of
$1,349,257, and Shelbourne Properties III, Inc., in the amount of $5,371,444 are
recorded as loan payables that are secured by the Corporation's interests in the
entities that own its properties. The principal and accrued interest due to
Shelbourne Properties I, Inc. and Shelbourne Properties III, Inc. at December
31, 2003 are $1,352,307 and $5,383,586, respectively. The loans payable require
payment of interest under the same terms as the Fleet Loan, which is LIBOR plus
2.75% (3.875% at December 31, 2003).

PROPERTY SALES/ACQUISITIONS

         The Accotel Transaction. As discussed above, in connection with the
Transaction, the Operating Partnership issued the Class A Units to Shelbourne
Management. Pursuant to the terms of the Purchase and Contribution Agreement
pursuant to which the Class A Units were issued, the holder of the Class A Units
had the right to cause the Operating Partnership to purchase the Class A Units
at a substantial premium to their liquidation value ($6,605,000 at the January
15, 2003) unless the Operating Partnership, together with the operating
partnerships of Shelbourne Properties I, Inc. and Shelbourne Properties III,
Inc. (together with the Operating Partnership, the "Shelbourne OPs") maintained
at least approximately $54,200,000 of aggregate indebtedness ($22,026,000 in the
case of the Operating Partnership) guaranteed by the holder of the Class A Units
and secured by assets having an aggregate market value of at least approximately
$74,800,000 ($30,400,000 in the case of the Operating Partnership) (the "Debt
and Asset Covenant"). These requirements significantly impaired the ability of
the Corporation to sell its properties and pay dividends in accordance with the
Plan of Liquidation.

         Accordingly, in a transaction (the "Accotel Transaction") designed to
facilitate the liquidation of the Corporation and provide dividends to
stockholders, on January 15, 2003, a joint venture owned by the Shelbourne OPs
acquired from Realty Holdings of America, LLC, an unaffiliated third party, a
100% interest in an entity that owns 20 motel properties triple net leased to an
affiliate of Accor S.A. The cash purchase price, which was provided from working
capital, was $2,668,272, of which $867,806, $1,079,675 and $720,791 was paid by
Shelbourne Properties I L.P., the Operating Partnership and Shelbourne
Properties III L.P., respectively. The properties are also subject to existing
mortgage indebtedness in the principal amount of approximately $74,220,000.



                                       10
<PAGE>

         The Accor S.A. Properties were acquired for the benefit of the holder
of the Class A Units as they provide sufficient debt to be guaranteed by the
holder of the Class A Units. Except as indicated below, the Class A Unitholder
will ultimately be the sole owner of the joint venture. In connection with the
Accotel Transaction, the terms of the Class A Units were amended to (i)
eliminate the liquidation preferences (as the cost of the interest in the Accor
S.A. Properties which was borne by the Shelbourne OPs satisfied the liquidation
preference) and (ii) eliminate the Debt and Asset Covenant. The holder of the
Class A Units does, however, continue to have the right, under certain limited
circumstances which the Companies do not anticipate will occur, to cause the
Shelbourne OPs to purchase their respective Class A Units at the premium
described above. These circumstances include the occurrence of the following
while any of the Class A Units are outstanding; (i) the filing of bankruptcy by
a Shelbourne OP; (ii) the failure of a Shelbourne OP to be taxed as a
partnership; (iii) the termination of the Advisory Agreement; (iv) the issuing
of a guaranty by any of the Companies on the debt securing the Accor S.A.
Properties; or (v) the taking of any action with respect to the Accor S.A.
Properties without the consent of the Class A Unitholder.

         The holder of the Class A Units had the right, which right was to be
exercised by no later than July 28, 2004, to require that the Shelbourne OPs
acquire other properties for the Class A Unitholder's benefit at an aggregate
cash cost to the Shelbourne OPs of not more than $2,500,000 (approximately
$1,015,000 of which would be paid by the Operating Partnership). In that event,
the Accor S.A. Properties would not be held for the benefit of the holder of the
Class A Units and the Companies would seek to dispose of these properties as
part of the liquidation of the Companies. Accordingly, if the Class A Unitholder
were to exercise this option, there is a risk that the Companies' interest in
the Accor S.A. Properties could not be sold for their original purchase price.
On March 18, 2004, an agreement was entered into with the holder of the Class A
Units pursuant to which the holder of the Class A Units elected to retain title
to the Accor S.A. Properties. Accordingly, it is presently expected that on
April 16, 2004, all assets of the Operating Partnership, other than its interest
in the entity that indirectly holds title to the Accor S.A. Properties, will be
distributed to the Corporation in full redemption of the Corporation's interest
in the Operating Partnership and the Corporation will transfer such assets to a
liquidating trust. In consideration of the Class A Unitholder electing to take
title to the Accor S.A. Properties earlier than required, the Corporation waived
its right to require the Class A Unitholder to reimburse it for up to $75,000 of
costs associated with the acquisition of the Accor S.A. Properties and agreed to
make a payment to the Class A Unitholder of approximately $41,667.

         The Liquidating Trust will also assume the Corporation's then remaining
liabilities. It is presently contemplated that April 15, 2004 (the "Record
Date") will be the last day of trading of the Corporation's common stock on the
American Stock Exchange, and the Corporation's stock transfer books will be
closed as of the close of business on such date.

         Under the terms of the proposed Trust Agreement, on April 16, 2004,
each stockholder of the Corporation on the Record Date (each, a "beneficiary")
automatically will become the holder of one unit of beneficial interest ("Unit")
in the Liquidating Trust for each share of the Corporation's common stock then
held of record by such stockholder. As provided in the Corporation's Plan of
Liquidation, the holder of Class B Units in the Operating Partnership is
entitled to receive 15% of all distributions made by the Corporation and the
Liquidating Trust after such time as aggregate distributions by the Corporation
and the Liquidating Trust from and after August 19, 2002 exceed a specified per
share amount. After giving effect to dividends paid since August 19, 2002, the
remaining unpaid per share amount as of March 15, 2004 was $3.21. After the
specified per share amount has been received by beneficiaries, the holder of
Class B Units will receive 15% of all subsequent distributions by the
Liquidating Trust.

         After April 16, 2004, all outstanding shares of the Corporation's
common stock will be deemed cancelled, and the rights of beneficiaries in their
Units will not be represented by any form of certificate or other instrument.
Stockholders of the Corporation on the Record Date will not be required to take
any action to receive their Units. The Trustee will maintain a record of the
name and address of each beneficiary and such beneficiary's aggregate Units in
the Liquidating Trust. Subject to certain exceptions related to transfer by
will, intestate succession or operation of law, the Units will not be
transferable, nor will a beneficiary have authority or power to sell or in any
other manner dispose of any Units.

         It is currently contemplated that the initial trustee (the "Trustee")
of the Liquidating Trust will be Arthur N. Queler, who will receive a fee of
$2,000 per month from the Liquidating Trust with a minimum aggregate fee during



                                       11
<PAGE>

the existence of the Liquidating Trust of $40,000. Further, pursuant to the
terms of the proposed Trust Agreement, the Trustee will have the exclusive right
to cause the Liquidating Trust to take such other action as he deems advisable
in connection with the liquidation of the remaining assets including, without
limitation, incur indebtedness on behalf of the Liquidating Trust, sell its
remaining assets, pay any and all expenses of the Liquidating Trust and appoint
such agents and delegates such powers as he deems advisable. Kestrel Management,
L.P. ("Kestrel"), the current asset and property manager for the Corporation
will continue to provide asset and property management services to Liquidating
Trust on the same terms as currently provided to the Corporation. Successor
trustees may be appointed to administer the Liquidating Trust in accordance with
the terms of the Liquidating Trust Agreement. It is expected that from time to
time the Liquidating Trust will make distributions of its assets to
beneficiaries, but only to the extent that such assets will not be needed to
provide for the liabilities (including contingent liabilities) assumed by the
Liquidating Trust. No assurances can be given as to the amount or timing of any
distributions by the Liquidating Trust.

         For federal income tax purposes, on April 16, 2004, each stockholder of
the Corporation on the Record Date will be deemed to have received a pro rata
share of the assets of the Corporation to be transferred to the Liquidating
Trust, subject to such stockholder's pro rata share of the liabilities of the
Corporation assumed by the Liquidating Trust. Accordingly, on April 16, 2004
each stockholder will recognize gain or loss in an amount equal to the
difference between (x) the fair market value of such stockholder's pro rata
share of the assets of the Corporation that are transferred to the Liquidating
Trust, reduced by such stockholder's pro rata share of the liabilities of the
Corporation that are assumed by the Liquidating Trust, and (y) such
stockholder's adjusted tax basis in the shares of the Corporation's common stock
held by such stockholder on the Record Date. Based on the estimates used by
management to determine net realizable value of the Corporation's assets at
December 31 2003, the estimated net realizable value of the Corporation is
approximately $17.4 million or $17.04 per common share. The foregoing estimate
is based on the carrying values of the current assets of the Corporation as well
as the current account payables of the Corporation and estimates as to future
costs associated with transferring the assets to the Liquidating Trust,
maintaining the Liquidating Trust and insurance coverage. Accordingly, the
ultimate value realized may be significantly less or more than the estimated
amount.

         The Liquidating Trust is intended to qualify as a "liquidating trust"
for federal income tax purposes. As such, the Liquidating Trust will be a
complete pass-through entity for federal income tax purposes and, accordingly,
will not itself be subject to federal income tax. Instead, each beneficiary will
take into account in computing its taxable income, its pro rata share of each
item of income, gain, loss and deduction of the Liquidating Trust, regardless of
the amount or timing of distributions made by the Liquidating Trust to
beneficiaries. Distributions, if any, by the Liquidating Trust to beneficiaries
generally will not be taxable to such beneficiaries. The Trustee will furnish to
beneficiaries of the Liquidating Trust a statement of their pro rata share of
the assets transferred by the Corporation to the Liquidating Trust, less their
pro rata share of the Corporation's liabilities assumed by the Liquidating
Trust. On a yearly basis, the Trustee also will furnish to beneficiaries a
statement of their pro rata share of the items of income, gain, loss, deduction
and credit (if any) of the Liquidating Trust to be included on their tax
returns.

         Property Sales. On October 29, 2002, the Corporation's stockholders
approved the Plan of Liquidation. Accordingly the Corporation began selling its
properties. Since the adoption of the Plan of Liquidation, the Company has sold
the following properties:

         Sutton Square. On December 20, 2002, the Corporation sold its property
located in Raleigh, North Carolina commonly referred to as Sutton Square for a
gross sales price of $16,750,000. After making the required payment under the
Credit Facility of $6,000,000, adjustments for taxes and rents and a credit to
the purchaser for improvements, as well as closing costs, net proceeds to the
Operating Partnership were approximately $10,000,000.

         568 Broadway. On February 28, 2003, 568 Broadway Joint Venture, a joint
venture in which the Corporation indirectly held a 38.925% interest, sold its
property located at 568 Broadway, New York, New York for a gross sales price of
$87,500,000. After assumptions of the debt encumbering the property, closing
adjustments and other closing costs, net proceeds were approximately
$73,000,000, of which approximately $28,415,250 was allocated to the Operating
Partnership.



                                       12
<PAGE>

         Melrose Park. Also on February 28, 2003, the Corporation sold its
property located in Melrose Park, Illinois for a gross sales price of
$3,247,200. The Corporation received proceeds of $3,125,632 after closing costs.
After closing adjustments, net proceeds were $2,934,617.

         Century Park I. On April 29, 2003, Century Park I Joint Venture, a
joint venture in which the Corporation indirectly held a 50% interest, sold its
property located in San Diego, California for a gross sales price of
$29,750,000. The Fleet Loan required that a payment of $20,000,000 be made to
pay down the loan. After such payment, closing adjustments and other closing
costs, net proceeds were $9,403,450, of which the Operating Partnership was
allocated $4,701,725.

         Tri-Columbus Associates. During 2003, a joint venture in which the
Corporation held a 20.66% interest, sold all of its properties as described
below.

         On January 31, 2003, the Hilliard, Ohio, property was sold for a gross
sales price of $4,600,000. After making the required payment under the Credit
Facility of $2,300,000 (of which the Corporation was responsible for $475,180),
closing adjustments and other closing costs, net proceeds were approximately
$2,063,000, $426,330 of which is attributable to the Corporation's interest.

         On June 18, 2003, the Grove City, Ohio property was sold for a gross
sales price of $4,090,000. The Fleet Loan required principal payment equal to
the greater of $3,300,000 or 90% of the net proceeds. After closing adjustments
and costs the net proceeds were $3,938,286. As a result, the required principal
payment was $3,544,457 of which the Corporation was allocated $732,285. The
remaining proceeds after the principal payment were $393,829 of which the
Corporation was allocated $81,365.

         On December 11, 2003, the Orange, Ohio property was sold for a gross
sales price of $13,900,000. After the required principal paydown of $9,200,000
of which the Corporation was allocated $1,900,720, closing costs and closing
adjustments, the net proceeds amounted to $4,419,613, the Corporation was
allocated $913,012.

COMPETITION

         The leasing and sale of real estate is highly competitive. We compete
for tenants with lessors and developers of similar properties located in our
respective markets primarily on the basis of location, rent charged, services
provided, and the design and condition of our buildings. In addition, we compete
for purchasers with sellers of similar properties in the areas in which our
properties are located. These factors are discussed more particularly in "Item
2. Properties" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Real Estate Market."

INDUSTRY SEGMENTS AND SEASONALITY

         Our primary business is the ownership of office, retail and industrial
properties. Our long-term tenants are in a variety of businesses, and no single
tenant is significant to our business. Our business is not seasonal.

EMPLOYEES

         Since the Corporation's inception, property management services, asset
management services, investor relations services and accounting services have
been provided to us by affiliates. See "Item 8. Financial Statements and
Supplementary Data- Note 3" for additional information.

         Asset Management Services. For the period January 1, 2001 through April
16, 2001, an affiliate of the Predecessor General Partners, Resources
Supervisory, provided Asset Management Services for an annual fee equal to 1.25%
of the Predecessor Partnership's gross asset value. In addition, the Predecessor
Partnership was obligated to (i) pay $200,000 for non-accountable expenses and
(ii) reimburse Resources Supervisory for expenses incurred in connection with
the performance of its services.

         Effective April 17, 2001 through February 14, 2002, all asset
management services, investor relations services and accounting services (the
"Asset Management Services") were provided by Shelbourne Management


                                       13
<PAGE>

pursuant to the terms of the Advisory Agreement. Under the terms of the Advisory
Agreement, which agreement was approved by the stockholders of the Corporation
in connection with the merger of the Predecessor Partnership with and into the
Operating Partnership, Shelbourne Management received (1) an annual asset
management fee, payable quarterly, equal to 1.25% of the gross asset value of
the Corporation as of the last day of each year, (2) $200,000 for
non-accountable expenses and (3) reimbursement of expenses incurred in
connection with performance of its services. See "The Predecessor Partnership"
above.

         Effective February 14, 2002, the Advisory Agreement was contributed by
Shelbourne Management to the Operating Partnership (see "The Presidio
Transaction" above), Shelbourne Management ceased providing the Asset Management
Services, and the Corporation retained PCIC to provide the Asset Management
Services to the Corporation on a transitional basis at a reduced fee of $333,333
per annum.

         Effective October 1, 2002, as contemplated by the Plan of Liquidation,
the agreement with PCIC was terminated and Kestrel began providing the Asset
Management Services for an annual fee of $200,000. Kestrel is an affiliate of
our current Chief Executive Officer.

         Property Management Services. During the years ended December 31, 2001,
2002 and 2003 property management services have been provided by Kestrel. For
providing property management services, as approved by the stockholders of the
Corporation in connection with the merger of the Predecessor Partnership with
and into the Operating Partnership, Kestrel is entitled to receive a fee of up
to 3% of the applicable property's revenues. Personnel at the properties perform
services for the Corporation at the properties. Salaries for such on-site
personnel are reimbursed by the Corporation.














                                       14
<PAGE>


                                  RISK FACTORS

         You should carefully consider the risks described below. These risks
are not the only ones that our company may face. Additional risks not presently
known to us or that we currently consider immaterial may also impair our
business operations and hinder our ability to make expected distributions to our
stockholders.

         This Form 10-K also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below or elsewhere in this Form 10-K.

         OUR ECONOMIC PERFORMANCE AND THE VALUE OF OUR REAL ESTATE ASSETS ARE
SUBJECT TO THE RISKS INCIDENTAL TO THE OWNERSHIP AND OPERATION OF REAL ESTATE
PROPERTIES.

         Our economic performance, the value of our real estate assets and,
therefore, the value of your investment are subject to the risks normally
associated with the ownership, operation and disposal of real estate properties,
including:

<TABLE>
<S>                                                          <C>
        o    changes in the general and local economic       o    the attractiveness of our properties
             climate;                                             to tenants and purchasers;

        o    the cyclical nature of the real estate          o    changes in market rental rates and our
             industry and possible oversupply of, or              ability to rent space on favorable terms;
             reduced demand for, space in our core markets;

        o    trends in the retail industry, in               o    the bankruptcy or insolvency of
             employment levels and in consumer spending           tenants;
             patterns;

        o    changes in household disposable income;         o    the need to periodically renovate,
                                                                  repair and re-lease space and the costs
                                                                  thereof;

        o    changes in interest rates and the               o    increases in maintenance, insurance
             availability of financing;                           and operating costs; and

        o    competition from other properties;              o    civil unrest, acts of terrorism,
                                                                  earthquakes and other natural disasters or
                                                                  acts of God that may result in uninsured
                                                                  losses.
</TABLE>


         In addition, applicable federal, state and local regulations, zoning
and tax laws and potential liability under environmental and other laws may
affect real estate values. Further, throughout the period that we own real
property regardless of whether the property is producing any income, we must
make significant expenditures, including property taxes, maintenance costs,
insurance costs and related charges and debt service. The risks associated with
real estate investments may adversely affect our operating results and financial
position, and therefore the funds available for distribution to you as
dividends.


         WE CANNOT ASSURE THE AMOUNTS OR TIMING OF LIQUIDATING DIVIDENDS.

         The Plan of Liquidation may not yield liquidating dividends equal to or
greater than the recent market prices of the shares of common stock of the
Corporation. In addition, the ability to sell real estate assets depends, in
some cases, on the availability of financing to buyers on favorable terms. If
such financing is not available, it may take longer than expected to sell our
assets at desirable prices, and this may delay our ability to make liquidating
dividends. There can be no assurance that we will be successful in disposing of
our remaining assets for values approximating those currently estimated by us or
that related liquidating dividends will occur within the currently estimated
timetable.


                                       15
<PAGE>

         THE AMOUNTS AND TIMING OF THE LIQUIDATING DIVIDENDS MAY BE ADVERSELY
AFFECTED BY LIABILITIES AND INDEMNIFICATION OBLIGATIONS FOLLOWING ASSET SALES.

         In selling our assets, we may be unable to negotiate agreements that
provide for the buyers to assume all of the known and unknown liabilities
relating to the assets, including, without limitation, environmental and
structural liabilities. In addition, if we agree to indemnify the buyers for
such liabilities, we may be unable to limit the scope or duration of such
indemnification obligations to desirable levels or time periods. As a result, we
have from time to time determined, and we may in the future determine, that it
is necessary or appropriate to reserve cash amounts or obtain insurance in order
to attempt to cover the liabilities not assumed by the buyers and to cover
potential indemnifiable losses. There can be no assurance that such reserves and
insurance will be sufficient to satisfy all liabilities and indemnification
obligations arising after the sale of our assets, and any such insufficiencies
may have a material adverse affect on the amounts and timing of the liquidating
dividends made to our stockholders.


         IF A SIGNIFICANT NUMBER OF OUR TENANTS DEFAULTED OR SOUGHT BANKRUPTCY
PROTECTION, OUR CASH FLOWS, OPERATING RESULTS AND SALE PRICES WOULD SUFFER.

         A tenant may experience a downturn in its business, which could cause
the loss of that tenant or weaken its financial condition and result in the
tenant's inability to make rental payments when due. In addition, a tenant of
any of our properties may seek the protection of bankruptcy, insolvency or
similar laws, which could result in the rejection and termination of such
tenant's lease and cause a reduction in our cash flows, and, accordingly, sale
prices.

         We cannot evict a tenant solely because of its bankruptcy. A court,
however, may authorize a tenant to reject and terminate its lease with us. In
such a case, our claim against the tenant for unpaid, future rent would be
subject to a statutory cap that might be substantially less than the remaining
rent owed under the lease. In any event, it is unlikely that a bankrupt tenant
will pay in full amounts it owes us under a lease. The loss of rental payments
from tenants could adversely affect our cash flows and operating results and,
accordingly, sale prices.

         In October 2000, a tenant leasing approximately 29% of the property and
operating a movie theater at our Matthews Township Festival property defaulted
on its lease obligations as a result of its bankruptcy filing. The tenant
rejected the lease in its bankruptcy and the space is now vacant.

         OUR BUSINESS IS SUBSTANTIALLY DEPENDENT ON THE ECONOMIC CLIMATES OF
THREE MARKETS.

         As of March 24, 2004, our real estate portfolio consists of an office
property in Richmond, Virginia, a 50% interest in an office property in Seattle,
Washington and a retail property in Matthews, North Carolina. As a result, our
business is substantially dependent on the economies of these markets. A
material downturn in demand for office or retail space in any one of these
markets could have a material impact on our ability to lease the office or
retail space in our portfolio and may adversely impact our cash flows and
operating results and, accordingly, sale prices.

         OUR COMPETITORS MAY ADVERSELY AFFECT OUR ABILITY TO LEASE OUR
PROPERTIES, WHICH MAY CAUSE OUR CASH FLOWS, OPERATING RESULTS AND SALE PRICES TO
SUFFER.

         We face significant competition from developers, managers and owners of
office, retail and mixed-use properties in seeking tenants for our properties.
Our properties face competition from similar properties in the same markets.
These competing properties may have vacancy rates higher than our properties,
which may result in their owners being willing to make space available at lower
prices than the space in our properties. Competition for tenants could have a
material adverse affect on our ability to lease our properties and on the rents
that we may charge or concessions that we must grant. If our competitors
adversely impact our ability to lease our properties, our cash flows, operating
results and sale prices may suffer.




                                       16
<PAGE>


         ENVIRONMENTAL PROBLEMS AT OUR PROPERTIES ARE POSSIBLE, THEY MAY BE
COSTLY AND THEY MAY ADVERSELY AFFECT OUR OPERATING RESULTS, FINANCIAL CONDITION
AND SALE PRICES.

         We are subject to various federal, state and local laws and regulations
relating to environmental matters. Under these laws, we are exposed to liability
primarily as an owner or operator of real property and, as such, we may be
responsible for the cleanup or other remediation of contaminated property.
Contamination for which we may be liable could include historic contamination,
spills of hazardous materials in the course of our tenants' regular business
operations and spills or releases of hydraulic or other toxic oils. An owner or
operator can be liable for contamination or hazardous or toxic substances in
some circumstances whether or not the owner or operator knew of, or was
responsible for, the presence of such contamination or hazardous or toxic
substances. In addition, the presence of contamination or hazardous or toxic
substances on property, or the failure to properly clean up or remediate such
contamination or hazardous or toxic substances when present, may materially and
adversely affect our ability to sell or rent such contaminated property or to
borrow using such property as collateral.

         Environmental laws and regulations can change rapidly, and we may
become subject to more stringent environmental laws and regulations in the
future. Compliance with more stringent environmental laws and regulations could
have a material adverse affect on our operating results or financial condition.
We believe that our exposure to environmental liabilities under currently
applicable laws is not material. We cannot assure you, however, that we
currently know of all circumstances that may give rise to such exposure.

         IF WE WERE REQUIRED TO ACCELERATE OUR EFFORTS TO COMPLY WITH THE
AMERICANS WITH DISABILITIES ACT, OUR CASH FLOWS, OPERATING RESULTS AND SALE
PRICES COULD SUFFER.

         All of our properties must comply with the Americans with Disabilities
Act, or the ADA. The ADA has separate compliance requirements for "public
accommodations" and "commercial facilities," but generally requires that
buildings be made accessible to people with disabilities. Compliance with ADA
requirements could require us to remove access barriers, and non-compliance
could result in the imposition of fines by the U.S. Government or an award of
damages to private litigants. We believe that the costs of compliance with the
ADA will not have a material adverse affect on our cash flows or operating
results. However, if we must make changes to our properties on a more
accelerated basis than we anticipate, our cash flows, operating results and sale
prices could suffer.

         ADDITIONAL REGULATIONS APPLICABLE TO OUR PROPERTIES MAY REQUIRE US TO
MAKE SUBSTANTIAL EXPENDITURES TO ENSURE COMPLIANCE, WHICH COULD ADVERSELY AFFECT
OUR CASH FLOWS, OPERATING RESULTS AND SALE PRICES.

         Our properties are subject to various federal, state and local
regulatory requirements such as local building codes and other similar
regulations. If we fail to comply with these requirements, governmental
authorities may impose fines on us or private litigants may be awarded damages
against us.

         We believe that our properties are currently in substantial compliance
with all applicable regulatory requirements. New regulations or changes in
existing regulations applicable to our properties, however, may require us to
make substantial expenditures to ensure regulatory compliance, which would
adversely affect our cash flows, operating results and sale prices.

         OUR INSURANCE MAY NOT COVER SOME POTENTIAL LOSSES.

         We carry comprehensive general liability, fire, flood, extended
coverage and rental loss insurance with policy specifications, limits and
deductibles customarily carried for similar properties. Some types of risks,
generally of a catastrophic nature such as from war or environmental
contamination, however, are either uninsurable or not economically insurable.

         We currently have insurance for earthquake risks, subject to certain
policy limits and deductibles, and will continue to carry such insurance if it
is economical to do so. We cannot assure you that earthquakes may not seriously
damage our properties, one of which is located in the State of Washington,
historically an earthquake-prone area, and that the recoverable amount of
insurance proceeds will be sufficient to fully cover reconstruction costs and
losses suffered. Should an uninsured or underinsured loss occur, we could lose
our investment in, and


                                       17
<PAGE>

anticipated income and cash flows from our properties, but we would continue to
be obligated to repay any recourse mortgage indebtedness on such properties.

         Additionally, although we generally obtain owner's title insurance
policies with respect to our properties, the amount of coverage under such
policies may be less than the full value of the remaining properties. If a loss
occurs resulting from a title defect with respect to a property where there is
no title insurance or the loss is in excess of insured limits, we could lose all
or part of our investment in, and anticipated income and cash flows from, that
property.

         THE TRANSFER OF OUR REMAINING ASSETS TO A LIQUIDATING TRUST WILL AFFECT
THE LIQUIDITY OF YOUR OWNERSHIP INTERESTS, AND THE ANTICIPATION OF THAT TRANSFER
MAY REDUCE THE PRICE OF OUR COMMON STOCK.

         The Corporation currently expects that not later than October 29, 2004
the Corporation will transfer and assign to a liquidating trust as designated by
the Board of Directors all of its then remaining assets (which may include
direct or indirect interests in real property) and liabilities, although there
can be no assurance in this regard. After such a transfer to a liquidating
trust, which could be as soon as April 1, 2004, all stock certificates that
represent outstanding shares of our common stock will be automatically deemed to
evidence ownership of beneficial interests in the liquidating trust. Beneficial
interests in the liquidating trust will be non-certificated and
non-transferable, except by will, intestate succession or operation of law. As a
result, the beneficial interests in the liquidating trust will not be listed on
any securities exchange or quoted on any automated quotation system of a
registered securities association. In anticipation of such a transfer and the
resulting illiquidity of the beneficial interests, some of our stockholders may
desire to sell their shares of common stock. In such case, if the number of
shares of our common stock for which sell orders are placed is high relative to
the demand for such shares, there could be a material adverse affect on the
price of the Corporation's common stock.


         OUR STOCKHOLDERS WILL FACE REDUCED LIQUIDITY AS OUR ASSETS ARE SOLD AND
THE PROCEEDS ARE PAID TO THEM AS DIVIDENDS.

         As our assets are sold and the proceeds are paid to our stockholders as
dividends, the market capitalization, "public float" and the market interest in
our common stock by the investment community will diminish, thereby reducing the
market price, the market demand and liquidity for shares of the common stock.
Depending on the length of the liquidation process and our market
capitalization, the American Stock Exchange may cause the common stock to be
delisted at a later stage of the liquidation process.


                  WHERE CAN YOU FIND MORE INFORMATION ABOUT US?

The Corporation is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which means that the
Corporation files periodic reports, including reports on Forms 10-K and 10-Q,
and other information with the Securities and Exchange Commission ("SEC"). As
well, the Corporation distributes proxy statements annually and files those
reports with the SEC. You can read and copy these reports, statements and other
information at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, NW, Washington, D.C. 20549, as well as the regional
offices at the Woolworth Building, 233 Broadway Ave., New York, New York 10279
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. You may obtain copies of this material for a fee by writing to the
SEC's Public Reference Section of the SEC at 450 Fifth Street, NW, Washington,
D.C. 20549. You may obtain information about the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can also access some of
this information electronically by means of the SEC's website on the Internet at
http://www.sec.gov, which contains reports, proxy and information statements and
other information that the Corporation has filed electronically with the SEC.


                                       18
<PAGE>


ITEM 2.  PROPERTIES

PROPERTY PORTFOLIO

         In addition to the Corporation's interest in the Accor S.A. Properties,
as described below in "Item 1. Business - Property Sales/Acquisitions - The
Accotel Transaction", the Corporation owned or held a Joint Venture interest in
the following properties as of December 31, 2003:

         (1) COMMERCE PLAZA I

         On April 23, 1987, the Predecessor Partnership purchased a fee simple
interest in Commerce Plaza I located in Richmond, Virginia. Commerce Plaza I is
an office building located in the Commerce Center Business Park, an office park
situated at the intersection of I-64, Glenside Drive and Broad Street in Henrico
County, northwest of Richmond, Virginia. This area, referred to as the West End,
contains established residential neighborhoods as well as corporate headquarters
and many of Richmond's suburban office parks. Commerce Plaza I's building is
constructed of steel with red brick facade and insulated bronze tinted glass. It
is situated on a site of approximately 4.2 acres, has a net rentable area of
approximately 85,000 square feet and provides parking for approximately 300
cars.

         (2) MATTHEWS TOWNSHIP FESTIVAL

         On February 23, 1988, the Predecessor Partnership purchased a fee
simple interest in Matthews Township Festival ("Matthews Festival"), a community
shopping center in suburban Charlotte, North Carolina in the town of Matthews.
Completed in November 1987, Matthews Festival contains 127,403 square feet of
rentable space. During 1990 the A&P anchor store closed and the center has
suffered a lower level of consumer traffic, sales and occupancy as a result. A&P
remains obligated pursuant to the terms of its lease until 2007 and continues to
pay rent. In October 2000, a tenant leasing approximately 29% of the property
and operating a movie theater defaulted on its lease obligations as a result of
its bankruptcy filing. The tenant has rejected the lease in its bankruptcy and,
accordingly, the space is now vacant.

         Matthews Festival is part of a larger overall retail complex containing
approximately 55 acres and zoned for 550,000 square feet of retail space. During
1996, construction of Phase II of the overall complex and a concept restaurant
on an out-parcel in front of the center were completed by the original
developer.

         (3) SEATTLE TOWER

         On December 16, 1986, a joint venture (the "Seattle Landmark Joint
Venture") comprised of the Predecessor Partnership and Intergrated Resources
High Equity Partners - Series 85 ("HEP-85") acquired a fee simple interest in
Seattle Tower, a commercial office building located in downtown Seattle
("Seattle Tower"). The Operating Partnership and Shelbourne Properties I, L.P.
each have a 50% interest in the Seattle Landmark Joint Venture.

         Seattle Tower is located at Third Avenue and University Street on the
eastern shore of Puget Sound in the financial and retail core of the Seattle
central business district. Seattle Tower, built in 1928, is a 27-story
commercial building containing approximately 167,000 rentable square feet,
including almost 10,000 square feet of retail space and approximately 2,211
square feet of storage space. The building also contains a 55-car garage.
Seattle Tower, formerly Northern Life Tower, represented the first appearance in
Seattle of a major building in the Art Deco style. It was accepted into the
National Register of Historic Places in 1975. There are approximately seventy
tenants occupying the building. Leasing efforts are focused on consolidating
space to create single floor tenants.

         In February 2001, the Seattle area was hit with an earthquake. Seattle
Tower suffered some damage in the earthquake. Repairs have been undertaken and
completed on all tenant spaces, with approximately 75% of the repairs completed
overall. The costs of the repairs are fully covered by insurance, subject to a
$25,000 deductible which has been satisfied.



                                       19
<PAGE>

         We believe that Seattle Tower's primary direct competition comes from
three office buildings of similar size or age in the immediate vicinity of
Seattle Tower, which buildings have current occupancy rates which are comparable
to Seattle Tower's.

OCCUPANCY

         The following table lists the occupancy rates of our properties at the
end of each of the last three years.

                                    OCCUPANCY

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
PROPERTY                                                 12/31/2003            12/31/2002            12/31/2001
--------                                                 ----------            ----------            ----------
<S>                                                      <C>                   <C>                   <C>
Commerce Plaza I                                            100%                  74%                   73%
Matthews Township Festival                                  66%                   68%                   64%
Seattle Tower Office Building                               87%                   80%                   90%
</TABLE>


         The following table contains information for each tenant that occupies
ten percent or more of the rentable square footage of any of our properties.

<TABLE>
<CAPTION>
                                            PRINCIPAL           SQUARE FEET                         LEASE
                       NAME OF TENANT        BUSINESS            LEASED BY                        EXPIRATION       RENEWAL
     PROPERTY                               OF TENANT             TENANT        ANNUAL RENT          DATE          OPTIONS
--------------------------------------------------------------------------------------------------------------------------------

<S>                  <C>                  <C>                    <C>            <C>               <C>              <C>
COMMERCE PLAZA       Branch Banking &     Banking                  9,416            $164,780         6/30/06       2-5 yr.
                     Trust

                     Inversys Controls    Appliance control       18,120            $322,340         1/31/04         None.
                     Co.                  manufacturer

                     Sinclair             Communications          12,931            $169,599         7/31/10         None.
                     Telecable/ Radio
                     One

                     National Clinical    Medical Clinic           9,645            $180,289         3/31/08         None.
                     Research

--------------------------------------------------------------------------------------------------------------------------------

MATTHEWS FESTIVAL    A&P (1)              Grocery retailer        40,526            $364,734        11/30/07       4-5 yr.
--------------------------------------------------------------------------------------------------------------------------------

SEATTLE TOWER        Electric Lightwave   Telephone               23,598            $510,545         8/31/09         None.
                                          switching company
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         (1) Tenant has vacated property but continues to pay rent pursuant to
             terms of the lease.


CAPITAL IMPROVEMENTS

         See "Item 7. Management's Discussion and Analysis and Results of
Operations."




                                       20
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

         Delaware Plaintiffs Litigation, Court of Chancery of the State of
Delaware (C.A. No. 19442- NC, and C.A. No. 19611).

         On February 26 and March 6, 2002, respectively, plaintiffs Thomas
Hudson and Ruth Grening filed individual and derivative action lawsuits, which
were subsequently consolidated, on behalf of the Companies against NorthStar
Capital Investment Corp. ("NorthStar"), several of its affiliates, and the
members of the boards of directors of the Companies as of February 13, 2002 in
the Court of Chancery of the State of Delaware. The two actions challenged the
propriety of transactions consummated on February 14, 2002, by which the
Companies and their respective operating partnerships agreed to purchase from
NorthStar approximately 30% of the then outstanding shares of each of the
Companies as well as the right to terminate certain management services
agreements.

         On May 7, 2002, plaintiffs Grening and Hudson jointly filed a separate
individual and class action in Delaware Chancery Court alleging that the
Companies and the members of the Boards at that time had violated 8 Del. C.
(ss.) 211 by failing to call and hold annual meetings of the stockholders within
13 months of the incorporation of the Companies, and had breached their
fiduciary duties and the provisions of the Companies' Amended and Restated
Certificates of Incorporation, by, inter alia, reducing and reorganizing the
Companies' boards and issuing allegedly false and/or misleading statements and
omissions of material facts in press releases and the 2001 Annual Reports filed
with the Securities and Exchange Commission by each of the Companies. On May 29,
2002, the Court consolidated the claims pursuant to 8 Del. C. (ss.) 211 for
purposes of discovery and trial with similar claims in a lawsuit brought in the
same forum by HX Investors, L.P. ("HX Investors") and other stockholders against
the Companies.

         The Companies vigorously defended all of the litigation, and, on July
1, 2002, HX Investors, the additional stockholders, the Companies, the
additional defendants, and Ms. Grening entered into several related agreements
pursuant to which the aforementioned actions by plaintiffs Grening, Hudson, and
HX Investors were settled, subject, with respect to the class and derivative
actions, to the approval of the Court. In connection with the settlement, among
other things, NorthStar agreed to contribute up to $1 million for the payment of
the class and derivative plaintiffs' attorneys' fees, expenses, and incentive
fees as approved by the Court.

         The settlement with Ms. Grening was memorialized by letter agreement
dated July 1, 2002, setting forth the agreement in principle. By letter
agreement dated October 28, 2002, Plaintiff Thomas Hudson joined in the
agreement in principle. On August 28, 2003, the settlement was approved by the
Court and the case was dismissed.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.





                                       21
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR OUR COMMON STOCK

         In May 2001, our Common Stock began trading on the American Stock
Exchange under the symbol "HXE". Prior to that date, there was no established
trading market for interests in the Predecessor Partnership.

         The high and low sales prices per share of Common Stock are set forth
below for the periods indicated.


<TABLE>
<CAPTION>
QUARTER ENDED                                            HIGH                                    LOW
---------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>                                    <C>
March 31, 2002                                          $52.80                                 $35.00

June 30, 2002                                           $54.25                                 $50.10

September 30, 2002                                      $72.00                                 $53.75

December 31, 2002                                       $64.50                                 $53.25

March 31, 2003                                          $67.00                                 $28.15

June 30, 2003                                           $38.75                                 $22.00

September 30, 2003                                      $30.00                                 $16.50

December 31, 2003                                       $20.88                                 $16.65
</TABLE>


         On March 24, 2004, the closing sale price of the Common Stock as
reported by the American Stock Exchange was $18.80. The Corporation had
approximately 2,475 holders of record of Common Stock as of March 24, 2004.

         The Corporation has authorized 2,500,000 shares of Common Stock, issued
1,237,916 shares with 894,792 shares outstanding at March 24, 2004.

DIVIDENDS

         Holders of Common Stock will be entitled to receive dividends if, as
and when the Board of Directors authorizes and declares dividends. In connection
with the settlement of the lawsuit brought by HX Investors L.P., the Operating
Partnership issued to HX Investors Class B units which entitle HX Investors to
receive 15% of all gross proceeds after payment to stockholders of the
approximately $66.25 per share plus interest compounded quarterly at 6% per
annum from August 19, 2002 ("Priority Return"). After giving effect to dividends
paid from August 19, 2002 through March 24, 2004, the remaining unpaid per share
Priority Return is $3.21.

         The following table sets forth the dividends paid or declared by the
Corporation on its Common Stock for the previous two years:

                                       22
<PAGE>


<TABLE>
<CAPTION>
                                                       STOCKHOLDER RECORD                        DIVIDEND / SHARE
     PERIOD ENDED                                             DATE
-----------------------------------------------------------------------------------------------------------------------

<S>                                                    <C>                                       <C>
     March 31, 2002                                               -                                $   -
     June 30, 2002                                                -                                $   -
     September 30, 2002                                           -                                $   -
     December 31, 2002                                    November 15, 2002                        $14.00
     March 31, 2003                                        January 23, 2003                        $14.50
     March 31, 2003                                         March 10, 2003                         $30.00
     June 30, 2003                                          June 30, 2003                          $6.75
     September 30, 2003                                           -                                $   -
     December 31, 2003                                            -                                $   -
</TABLE>


RECENT SALES OF UNREGISTERED SECURITIES

         There were no securities sold by us in 2003 that were not registered
under the Securities Act.















                                       23
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

         The following financial data are derived from our audited consolidated
financial statements. The financial data set forth below should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8. Financial Statements and
Supplementary Data" and the notes thereto appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                          Year Ended December 31,  Period 10/30/02  Period 1/1/02               Year Ended December 31,
                             Liquidation Basis       to 12/31/02     to 10/29/02                     Going Concern
                                   2003              Liquidation    Going Concern         2001            2000          1999
                                   ----                 Basis                             ----            ----          ----
----------------------------------------------------------------------------------------------------------------------------------

<S>                       <C>                       <C>             <C>              <C>              <C>            <C>
    Total Revenue (6)           $2,926,212(4)         $837,495(4)   $3,700,417(4)(6) $15,916,861(2)   $12,675,585    $12,800,623

    Net Income (Loss)
   Available for Common
       Stockholders             38,692,911            7,177,799      (23,815,147)     6,850,151(2)     4,103,276      3,852,480

  Net Income (Loss) per
       Common Share                43.24               8.02 (8)      (25.19) (7)          5.53            3.31          3.11

   Dividends per Common
        Share (1)                  51.25                14.00             -             2.11 (3)           -            1.16

       Total Assets             $27,087,918         $90,672,934(5)   $60,317,641      $70,681,975     $67,141,583    $63,413,501
</TABLE>


(1)      All dividends are in excess of accumulated undistributed net income and
         therefore represent a return of capital to investors on a generally
         accepted accounting principles basis prior to conversion to a REIT.

(2)      Total revenues and net income for the year ended December 31, 2001
         includes a $3,207,975 gain or $2.59 per share, from the sale of a
         property, Commonwealth Industrial Park.

(3)      Dividends made from and after December 21, 2001 are based on the total
         shares issued and outstanding.

(4)      Reflects the January 1, 2002 conversion to the equity method of
         accounting, as required under generally acceptable accounting
         principles due to the incurrence of debt. Prior to the conversion, the
         Corporation reported its investments in joint ventures using the pro
         rata consolidation method of accounting, under which revenues and
         expenses attributable to the joint ventures are presented on a pro rata
         basis in accordance with the Corporation's percentage of ownership
         together with the revenues and expenses of the Corporation's
         wholly-owned properties. Under the equity method of accounting, the net
         income attributable to the Corporation's investment in the joint
         ventures is presented as a single item on the statement of operations.
         If the change to the equity method of accounting had been made on
         January 1, 2001, revenues reported for 2001 have been reduced by
         $6,803,300. Total net income remains unchanged.

(5)      Reflects the conversion to the liquidation basis of accounting under
         which real estate is reported to its estimated net realizable value.
         Prior to the conversion to the liquidation basis of accounting, real
         estate was reported at its historical cost, less accumulated
         depreciation and adjustments for impairment.

(6)      Total revenue for 2002 includes revenue from discontinued operations.

(7)      Net Income (Loss) per Common Share was calculated using a weighted
         average shares outstanding of 945,583.

                                       24
<PAGE>

(8)      Net Income (Loss) per Common Share was calculated using a weighted
         average of shares outstanding of 894,792.























                                       25
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The following should be read in conjunction with "Forward-Looking
Statements" and our combined consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-K.

                                    OVERVIEW

         Shelbourne Properties II, Inc. was formerly a Delaware limited
partnership, High Equity Partners L.P. - Series 86 ("HEP-86"), which was merged
on April 17, 2001 with and into Shelbourne Properties II L.P., a Delaware
limited partnership (the "Operating Partnership"). The Corporation holds its
investment in its properties through the Operating Partnership in which it held
a 99% direct interest and a 1% indirect interest at December 31, 2003. The 1% is
held indirectly through the general partner of the Operating Partnership,
Shelbourne Properties II GP LLC (the "General Partner"), of which the
Corporation is the sole member.

         On February 14, 2002, the Corporation repurchased the shares of a major
stockholder, Presidio Capital Investment Company LLC ("PCIC"), (the
"Transaction"). As part of that repurchase, Shelbourne Management LLC, a
wholly-owned subsidiary of PCIC, contributed to the Operating Partnership, the
advisory agreement between the Corporation, the Operating Partnership, and
Shelbourne Management LLC, dated as of April 17, 2001 (the "Advisory
Agreement"), pursuant to which Shelbourne Management LLC had provided financial
and investment advisory services to the Corporation and the Operating
Partnership. As consideration for the purchase of the shares and the
contribution of the Advisory Agreement, the Corporation paid $17,866,603 in cash
and the Operating Partnership issued a note in the amount of $22,034,250 and
issued 1,015.148 5% Class A Preferred Partnership Units (with a liquidation
preference of $1,000 per unit) to Shelbourne Management LLC. As a result, until
those preferred units are redeemed, Shelbourne Management LLC is entitled to
receive quarterly distributions from the Operating Partnership at a rate of 5%
per annum of the aggregate liquidation preference of its preferred units. The
agreement governing the repurchase also provided for pre-payment penalties in
the event that the Operating Partnership redeems these preferred units prior to
February 14, 2007. As a result of a transaction that was consummated in January
2003, the 5% Class A Preferred Partnership Units were reclassified as Class A
Partnership Units and modified to eliminate the liquidation preference and to
significantly limit the events that could create a pre-payment penalty. The
Class A Partnership Units are still entitled to receive quarterly distributions
at a rate of 5% per annum.

         During July and August 2002, the Corporation entered into a settlement
agreement with HX Investors, L.P. ("HX Investors"), a stockholder in the
Corporation, with respect to a lawsuit brought by HX Investors and others
against the Companies. In connection with this settlement:

         o        HX Investors made a tender offer for up to 30% of the
                  outstanding shares of Common Stock. Upon consummation of the
                  offer, HX Investors acquired 268,444 Common Shares. As a
                  result of the tender offer and subsequent market acquisitions,
                  HX Investors holds 41.46% of the outstanding Common Stock.

         o        On August 19, 2002, the existing Board of Directors and
                  executive officer of the Corporation resigned, and the Board
                  was reconstituted to consist of six members, four of whom are
                  independent directors. In addition, new executive officers
                  were appointed.

         o        HX Investors was issued by the Operating Partnership Class B
                  Units that entitle the holder thereof to receive 15% of the
                  Operating Partnership's gross proceeds after the payment of a
                  priority return of approximately $66.25 (plus interest at 6%
                  per annum, subject to certain increases) per share to the
                  stockholders of the Corporation.

         o        A Plan of Liquidation of the Corporation was adopted by the
                  prior Board of Directors.

         On October 29, 2002, the stockholders of the Corporation approved the
Plan of Liquidation. As a result, the Corporation adopted liquidation accounting
and the Operating Partnership has been seeking, and will seek, to sell its
remaining properties at such time as it is believed that the sale price for such
property can be maximized. Since the adoption of the Plan of Liquidation, the
Corporation (a) has sold its properties located in Raleigh, North


                                       26
<PAGE>

Carolina; Hillard, Ohio; New York, New York; Melrose Park, Illinois; San Diego,
California; Grove City, Ohio; and Orange, Ohio and (b) has paid dividends of
$65.25 per share. Pursuant to the Plan of Liquidation, if all of the assets of
the Corporation are not sold prior to October 29, 2004, the remaining assets
will be placed in a liquidating trust and the stockholders of the Corporation
will receive a beneficial interest in such trust in total redemption for their
shares in the Corporation.

         The Corporation has operated with the intention of qualifying as a real
estate investment trust for U.S. Federal Income Tax purposes ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986 as amended. Under those
sections, a REIT which pays at least 90% of its ordinary taxable income as a
dividend to its stockholders each year and which meets certain other conditions
will not be taxed on that portion of its taxable income which is distributed to
its stockholders.

         We have adopted a plan of liquidation that requires us to liquidate all
of our assets and liabilities by October 29, 2004. Dividends paid during our
liquidation generally will not be taxable to the stockholder until the dividends
paid exceed the adjusted tax basis in the stockholder's shares, and then will be
taxable as long-term capital gain assuming the shares as capital assets have
been held for more than 12 months when the stockholder receives the dividend as
a result of the adoption of the plan of liquidation. As a result of the sale of
substantially all of our assets and in light of the costs associated with
maintaining a public company, it is expected that our remaining assets will be
transferred to a liquidating trust as early as April 2004 and in lieu of owning
shares, each stockholder will own a beneficial interest in the liquidating trust
of an equivalent percentage. In this regard, on March 17, 2004, the holder of
the Class A Units agreed to retain its beneficial ownership of the Accor S.A.
Properties and relinquish its right to require the acquisition of other
properties, thereby enabling the Corporation to set up liquidating trusts to
complete its liquidation as early as April 16, 2004. In consideration of the
Class A Unitholder electing to take title to the Accor S.A. Properties earlier
than required, the Corporation waived its right to require the Class A
Unitholder to reimburse it for up to $75,000 of costs associated with the
acquisition of the Accor S.A. Properties and made a payment to the Class A
Unitholder of approximately $41,667. Accordingly, at such time as the assets of
the Corporation are distributed to a liquidating trust, which is presently
expected to be April 16, 2004, the transferability of interests in the trust
will be significantly restricted as compared to the shares in the Corporation,
and the stockholders, as holders of beneficial interests, will be required to
include in their own income their pro rata share of the trust's taxable income
whether or not that amount is actually distributed by the trust in that year.
Further, for federal income tax purposes, on April 16, 2004, each stockholder of
the Corporation on the Record Date will be deemed to have received a pro rata
share of the assets of the Corporation to be transferred to the Liquidating
Trust, reduced by such stockholder's pro rata share of the liabilities of the
Corporation assumed by the Liquidating Trust. Based on the estimates used by
management to determine net realizable value of the Corporation's assets at
December 31, 2003, the estimated net realizable value of the Corporation is
approximately $17.4 million or $17.04 per common share. The foregoing estimate
is based on the carrying values of the current assets of the Corporation as well
as the current account payables of the Corporation and estimates as to future
costs associated with transferring the assets to the Liquidating Trust,
maintaining the Liquidating Trust and insurance coverage. Accordingly, the
ultimate value realized may be significantly less or more than the estimated
amount.


CRITICAL ACCOUNTING POLICIES
----------------------------

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying financial statements and related footnotes. In preparing
these financial statements, management has made its best estimates and judgments
of certain amounts included in the financial statements, giving due
consideration to materiality. However, application of these accounting policies
involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates.


ADJUSTMENT TO LIQUIDATION BASIS OF ACCOUNTING
---------------------------------------------

         On October 30, 2002, in accordance with the liquidation basis of
accounting, assets were adjusted to estimated net realizable value and
liabilities were adjusted to estimated settlement amounts, including estimated
costs associated with carrying out the liquidation. Since the sale of the
properties located in Melrose Park, Illinois; Hilliard, Ohio; New York, New
York; San Diego, California; Grove City, Ohio; and Orange, Ohio, the valuation
of


                                       27
<PAGE>

investments in joint ventures and real estate held for sale have been adjusted
to reflect the remaining estimated costs of carrying out the liquidation as of
December 31, 2003. Further adjustments were included in the December 31, 2003
Consolidated Statement of Changes in Net Assets. The valuation is based on
current contracts, estimates as determined by independent appraisals or other
indications of sales value, net of estimated selling costs and capital
expenditures anticipated during the liquidation period. The valuations of other
assets and liabilities are based on management's estimates as of December 31,
2003. During the year ended December 31, 2003, in addition to decreases due to
the result of sales, the deferred gain was decreased by $968,196 to reflect
revisions to the carrying value of real estate and joint ventures. The actual
values realized for assets and settlement of liabilities may differ materially
from amounts estimated.

         The anticipated gains which include any distributions payable to the
Class B Unitholder associated with the adjustment in value of these real estate
properties have been deferred until such time as a sale occurs. During the year
ended December 31, 2003, the Corporation recognized actual gains of $846,203 on
the sale of real estate and $37,125,122 included in equity income from joint
ventures attributable to real estate sales. As a result of these sales, the
Corporation's deferred gain at December 31, 2002 was reduced by $37,592,575 to
$5,286,904.


RESERVE FOR ESTIMATED COSTS DURING THE PERIOD OF LIQUIDATION
------------------------------------------------------------

         Under liquidation accounting, the Corporation is required to estimate
and accrue the non-operating costs associated with executing the Plan of
Liquidation. These amounts can vary significantly due to, among other things,
the timing and realized proceeds from property sales, the costs of retaining
agents and trustees to oversee the liquidation, including the costs of
insurance, the timing and amounts associated with discharging known and
contingent liabilities and the non-operating costs associated with cessation of
the Corporation's operations. These non-operating costs are estimates and are
expected to be paid out over the liquidation period. Such costs do not include
costs incurred in connection with ordinary operations.

         The reserve for additional costs associated with liquidation was
reduced from $1,600,000 at December 31, 2002 to $1,500,000 at December 31, 2003.
The decrease is the result of (a) professional costs associated with obtaining
the Fleet Loan of $504,926, (b) $2,067 incurred in connection with the payoff of
the Fleet Loan, and (c) tax planning costs of $16,667 paid to an affiliate of
Presidio Capital Investment Company, LLC in connection with the Accotel
transaction. These expenditures were partially offset by an increase in
management's estimate of costs associated with executing the Plan of Liquidation
of $423,660.


RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections," which updates, clarifies and simplifies existing accounting
pronouncements, which will be effective for fiscal years beginning after May 15,
2002. This statement had no effect on the Corporation's financial statements.

         In November 2002, the FASB issued Interpretation No. 45, Guarantors'
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The Interpretation elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. This Interpretation does not prescribe a specific approach for
subsequently measuring the guarantor's recognized liability over the term of the
related guarantee. The disclosure provisions of this Interpretation are
effective for the Corporation's December 31, 2002 financial statements. The
initial recognition and initial measurement provisions of this Interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. This Interpretation had no material effect on the
Corporation's financial statements.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement had no material effect on the Corporation's financial statements.

                                       28
<PAGE>

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement improves the accounting for certain financial instruments that under
previous guidance, issuers could account for as equity. The new statement
requires that those instruments be classified as liabilities in statements of
financial position. SFAS No. 150 affects the issuer's accounting for three types
of freestanding financial instruments. One type is mandatorily redeemable
shares, which the issuing company is obligated to buy back in exchange for cash
and other assets. A second type, which includes put options and forward purchase
contracts, involves instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets. The third type of
instruments that are liabilities under this statement is obligations that can be
settled with shares, the monetary value of which is fixed, tied solely or
predominately to a variable such as a market index, or varies inversely with the
value of the issuer's shares. SFAS No. 150 does not apply to features embedded
in a financial instrument that is not a derivative in its entirety. In addition
to its requirements for the classification and measurement of financial
instruments in its scope, SFAS No. 150 also requires disclosures about
alternative ways of settling the instruments and the capital structure of
entities, all of whose shares are mandatorily redeemable. Most of the guidance
in SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. This statement had no
material effect on the Corporation's financial statements.

         In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003). Consolidation of Variable Interest Entities ("VIEs"), which
addresses how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation
No. 46, Consolidation of Variable Interest Entities, which was issued in January
2003. The Corporation will be required to adopt FIN 46R in the first fiscal
period ending after March 15, 2004. Upon adoption of FIN 46R, the assets,
liabilities and noncontrolling interest of the VIE initially would be measured
at their carrying amounts with any difference between the net amount added to
the balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure the assets, liabilities and noncontrolling interest of the VIE. The
Corporation does not expect that this will have a material impact on the
Corporation's consolidated financial statements.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

         The Corporation uses its working capital reserves and any cash from
operations as its primary source of liquidity. On October 29, 2002, the
Corporation's stockholders approved the Plan of Liquidation. Accordingly, the
Corporation began to sell its properties.

         The Company had $1,242,698 in cash and cash equivalents at December 31,
2003. Cash and cash equivalents are temporarily invested in short-term
instruments. The Company's level of liquidity based upon cash and cash
equivalents decreased by $9,655,797 during the year ended December 31, 2003. As
discussed further below, the decrease resulted from $62,968,194 of net cash used
in financing activities which more than offset $52,116,293 of net cash provided
by operating activities and $1,196,104 of net cash provided by investing
activities.

         In addition to the cash and cash equivalents reported at December 31,
2003, Seattle Landmark Joint Venture, in which the Corporation holds a 50%
interest, held cash at December 31, 2003 of which the Corporation's allocable
share was approximately $304,148.

         During 2003, the Corporation's primary sources of funds were rents
collected from tenants, distributions from its joint venture investments and
proceeds from property sales. Rents collected from tenants for the year ended
December 31, 2003 amounted to $2,459,531 as compared to $4,474,295 for the year
ended December 31, 2002. The decrease is due to the sale of Sutton Square in
December 2002 and Melrose Crossing I on February 28, 2003. Distributions in
excess of earnings from joint venture investments increased by $8,230,635 to
$15,209,006 for the year ended December 31, 2003 from $6,978,371 for the year
ended December 31, 2002. The reason for the increase is due to the net cash
received from the sale of properties owned by 568 Broadway Joint Venture,
Century Park I Joint Venture and Tri-Columbus Associates during 2003.



                                       29
<PAGE>

         Cash provided by investing activities were the result of the sale of
Melrose Crossing I which generated proceeds of $3,125,632 which was partially
offset by the investment in the Accotel transaction of $1,079,675 and by
improvements to real estate at Commerce Plaza of $848,053 and $1,800 at Melrose
Crossing I prior to its sale.

         Cash used in financing activities consisted of the dividends paid to
stockholders of ($45,858,090), distributions made to Class A Unitholder
($51,462), the satisfaction of the Credit Facility ($23,779,343) and principal
payments on the Fleet Loan ($22,081,542). These expenditures were partially
offset by the Fleet Loan proceeds in the amount of $22,081,542 and the proceeds
from the related party loans payable of $6,720,701.


CAPITAL IMPROVEMENTS AND CAPITALIZED TENANT PROCUREMENT COSTS
-------------------------------------------------------------

         The following table sets forth, for each of the last three fiscal
years, the Corporation's and the Predecessor Partnership's expenditures at each
of its wholly owned properties for capital improvements and capitalized tenant
procurement costs:


<TABLE>
<CAPTION>
                                                                            YEARS ENDED DECEMBER 31,

         PROPERTY                                           2003                  2002                  2001
---------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>                      <C>                    <C>
         Melrose Crossing   (2)                          $    1,800              $199,591               $53,347

         Matthews Festival (3)                                    -               189,942                71,292

         Sutton Square (1)                                        -                16,346                18,985

         Melrose Out Parcel (2)                                   -                     -                     -

         Commerce Plaza I                                   848,053               404,694               433,360
                                                   ------------------------------------------------------------------

         TOTALS:                                           $849,853              $810,573              $576,984
                                                           ========              ========              ========
</TABLE>

(1)      Sutton Square Shopping Center was sold on December 20, 2002.

(2)      Melrose Crossing and the Melrose Out Parcel were sold on February 28,
         2003.

(3)      Matthews Festival improvements have been expensed as the property was
         determined to be at its net realizable value at December 31, 2002.


RESULTS OF OPERATIONS
---------------------

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2003 TO THE YEAR ENDED DECEMBER 31,
2002

Net income

         The Corporation's net income available for common stockholders
increased by $55,330,259 to $38,692,911 for the year ended December 31, 2003
from a net loss of $16,637,348 for the year ended December 31, 2002. The
increase in net income available for common stockholders was due to a decrease
in expenses as well as increases in equity income from joint ventures, which
were partially offset by a decrease in rental revenue, gain on sale of real

                                       30
<PAGE>

estate held for sale and a decrease in interest expense. The Corporation's net
loss before equity income from joint ventures, interest and other income and net
gain on sale of real estate was $364,167 for the year ended December 31, 2003 as
compared to a net loss of $26,260,396 for the year ended December 31, 2002,
which was primarily attributable to significant costs incurred during 2002 in
connection with the Transaction, including the purchase of the Advisory
Agreement.

         The net operating loss attributable to Melrose Crossing I, the
Corporation's property located in Melrose Park, Illinois, for the period ended
October 29, 2002 is classified as discontinued operations due to the property
being under contract for sale prior to the adoption of the Plan of Liquidation.
Loss from discontinued operations ceased on October 29, 2002 due to the
stockholders vote to liquidate the portfolio. Under liquidation accounting, all
property is considered real estate held for sale and discontinued operations are
no longer applicable.

Rental Revenue

         Rental revenues decreased by $1,800,514, or approximately 41%, to
$2,571,747 for the year ended December 31, 2003 from $4,372,261 for the year
ended December 31, 2002 due to the sale of Sutton Square in December 2002.
Income for the year ended December 31, 2003 included $122,453 related to Sutton
Square common area maintenance recoveries from tenants and percentage rent,
compared to Sutton Square's full operations during the year ended December 31,
2002 which generated $1,759,486 in revenues. Matthews Festival and Commerce
Plaza combined rental revenue decreased by $133,527 which was partially offset
by Melrose Crossing I's 2003 rental revenue prior to its sale of $86,153.

Costs and Expenses

         Costs and expenses for the year ended December 31, 2003 were
$2,935,914, representing a decrease of $27,696,743 from the same period in 2002.
The decrease is due principally to expenses incurred in 2002 of $23,049,398
associated with the purchase of the Advisory Agreement that was consummated on
February 14, 2002. Excluding expenses associated with the purchase of the
Advisory Agreement, expenses for the year ended December 31, 2002 were
$7,583,259. Therefore, without giving effect to the costs incurred in 2002 for
the purchase of the Advisory Agreement, expenses decreased by $4,647,345 for
year ended December 31, 2003 compared with the same period in 2002. The decrease
is primarily due to reduced administrative expenses, the cessation of
depreciation and amortization and the reduction of the asset management fees to
$200,000 per year partially offset by an increase in operating expenses.

         Operating expenses increased by $272,925, primarily due the expensing
of improvements made at Matthews Festival. These improvements were expensed
instead of capitalized because the incurrence of these costs did not increase
the estimated net realizable value of the property. The increase was partially
offset by the sale of Sutton Square in December 2002, resulting in the Company
incurring no operating expenses at the property.

         Pursuant to the Plan of Liquidation which was adopted October 29, 2002,
depreciation and amortization expenses ceased to be recognized as of that date.
Therefore, the Corporation incurred no depreciation and amortization for the
year ended December 31, 2003 as compared to $1,249,356 for the period ended
October 29, 2002.

         Partnership asset management fees and transition management fees
decreased to $200,000 for the year ended December 31, 2003 from $415,832 for the
same period in 2002. This decrease was due to the reduction of the fee in
connection with the Transaction from a fee based on 1.25% of gross asset value
of the Corporation to set a fee of $27,778 per month through September 30, 2002,
which was then further reduced to $16,667 per month for the balance of 2002.
Shelbourne Management was paid $157,582 in partnership asset management fees
prior to February 14, 2002, $208,250 was paid to PCIC for transition fees from
February 15, 2002 through September 30, 2002 and Kestrel Management was paid
$50,000 for its services from October 1, 2002 through December 31, 2002.

         Administrative costs decreased to $1,086,591 for the year ended
December 31, 2003 from $4,486,914 for the same period in 2002. This reduction is
due to certain costs incurred in 2002 in connection with the Transaction and
legal, professional and consulting fees incurred in 2002. Property management
fees decreased to $73,240 from


                                       31
<PAGE>

$127,999 for the year ending December 31, 2003 and 2002, respectively. The
decrease is due to the sale of Sutton Square in December 2002 and Melrose
Crossing I in February 2003.

Gain on Sale of Real Estate

         The gain on sale of $846,203 for the year ended December 31, 2003 was
due to the sale of Melrose Crossing I during the year ended December 31, 2003 as
compared to $6,760,285 for the year ended December 31, 2002 which was due to the
sale of Sutton Square in that year.

Non-Operating Income and Expenses

         Equity income from investments in joint ventures increased by
$34,391,808 to $38,502,411 for the year ended December 31, 2003 as compared to
$4,110,603 for the year ended December 31, 2002. This is primarily due to 568
Broadway Joint Venture, in which the Corporation indirectly held a 38.925%
interest, selling its property located in New York, New York on February 28,
2003. The joint venture recognized a gain on sale for financial reporting
purposes of $67,746,480 of which $26,702,093 was allocated to the Corporation.
The increase in income from investments in joint ventures is also attributable
to the Corporation's joint venture investment in Century Park I Joint Venture,
in which the Corporation held a 50% indirect interest, which sold its property
located in San Diego, CA on April 29, 2003. The joint venture recognized a gain
on sale for financial reporting purposes of $20,394,138 of which the $10,261,579
was allocated to the Corporation. In addition, Tri-Columbus Associates sold all
three of its properties during 2003 and recognized a gain on the sales for
financial reporting purposes of $161,450.

         Excluding the gain on sale, the Corporation experienced a decrease in
equity income from 568 Broadway Joint Venture, Century Park I Joint Venture and
Tri-Columbus Associates for the year ended December 31, 2003 as compared to the
year ended December 31, 2002 of $2,319,631, $403,823 and $19,341, respectively,
due to the sales of the properties.

         The Corporation's joint venture investment in Seattle Landmark Joint
Venture, in which the Corporation owns a 50% indirect interest, experienced an
increase in equity income of $9,481. This increase is the result of the
cessation of depreciation and amortization along with the decreases in all
expenses that were offset by the decrease in revenue in 2003.

         During 2003, interest expense amounted to $594,539 as compared to
$1,044,841 during the year 2002. During 2003, interest expense primarily
consisted of $122,928 paid in connection with the Credit Facility and $456,419
incurred in connection with the Fleet Loan. In addition, the Corporation
incurred interest expense on its loans payable to Shelbourne Properties I, Inc.
and Shelbourne Properties III, Inc. These loans payable are the result of
payments made on behalf of the Corporation by Shelbourne Properties I, Inc. and
Shelbourne Properties III, Inc., which were subject to the terms of the
Indemnity, Contribution and Subrogation Agreements. The interest accrued to
Shelbourne Properties I, Inc. and Shelbourne Properties III, Inc. during 2003 is
$3,050 and $12,142, respectively. During 2002, interest expense consisted of
$215,768 related to the notes issued to Shelbourne Management in connection with
the purchase of the Advisory Agreement and interest of $829,073 in connection
with the Credit Facility.

         Other income increased for the year ended December 31, 2003 as compared
to the year ended December 31, 2002 by $302,950 to $303,499 from $549. This is
attributable to insurance proceeds received during 2003 under the Director's and
Officer's insurance policy settlement related to lawsuits in 2002, prior to the
adoption of the Plan of Liquidation.

         Interest income decreased to $50,966 during the year ended December 31,
2003 from $165,102 during the year ended December 31, 2002 due to lower cash
balances being invested and lower yields.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER 31,
2001(ON A PRO FORMA-BASIS)

         After April 30, 2002, as a result of the Operating Partnership's
incurring debt in connection with entering into the Credit Facility, the
Corporation is no longer allowed to account for its investments in joint
ventures on a pro-rata consolidation basis in accordance with its percentage of
ownership but must instead utilize the equity


                                       32
<PAGE>

method of accounting. Further, as a result of the adoption of the Plan of
Liquidation, the Corporation adopted liquidation accounting effective October
30, 2002. In order to provide a more meaningful comparison of the results of
operations for the years ended December 31, 2002 and 2001, the following
comparison compares the results of operations for such periods assuming that the
Corporation used the equity method of accounting for the entirety of both
periods.


PRO-FORMA INFORMATION
---------------------

         The pro-forma information is provided for the purpose of facilitating
the comparison of the 2002 and 2001 results of operations in the review of
management's discussion and analysis. Investments in joint ventures were
reported in 2001 under the pro-rata consolidated method of accounting which
presented the assets and liabilities and revenues and expenses of the joint
ventures on a pro-rata basis in accordance with the Corporation's percentage of
ownership together with the assets and liabilities and revenues and expenses of
the Corporation's wholly-owned properties. In 2002, under the equity method of
accounting, the Corporation's share of assets and liabilities and revenues and
expenses in joint ventures is presented as a single item on the balance sheet
and statement of operations. The Corporation's total equity and net income did
not change as a result of the conversion. The following table shows the
pro-forma condensed consolidated statement of operations for the year ended
December 31, 2001 both reflecting the pro-forma impact had the change to equity
accounting for the investments in joint ventures occurred in 2001.

            CONDENSED CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001

                                                      AS REPORTED         DISCONTINUED         PRO-FORMA           EQUITY METHOD
                                                         2001              OPERATIONS         ADJUSTMENTS              2001
                                                   ------------------    ---------------    -----------------    ------------------

<S>                                                <C>                 <C>                 <C>                   <C>
Rental revenue                                          $ 11,918,573        $ (349,295)         $(6,803,200)          $  4,766,078
                                                   ------------------    ---------------    -----------------    ------------------

Costs and expenses                                         9,066,710          (738,150)          (3,290,290)             5,038,270
                                                   ------------------    ---------------    -----------------    ------------------

Income (loss) before equity income
     from joint ventures, interest,
     other income, gain on sale, and
     discontinued operations                               2,851,863            388,855          (3,512,910)             (272,192)

     Equity income from joint ventures                             -                  -            3,932,845             3,932,845

     Interest income                                         709,913                  -            (411,424)               298,489

     Other income                                             80,400           (50,824)              (8,511)                21,065

     Gain on sale                                          3,207,975                  -                    -             3,207,975

     Discontinued operations                                       -          (338,031)                    -             (338,031)
                                                   ------------------    ---------------    -----------------    ------------------

Net income                                              $  6,850,151            $     -             $      -          $  6,850,151
                                                   ==================    ===============    =================    ==================
</TABLE>


Net Income

         The Corporation's net income decreased by $23,487,499 to a net loss of
$16,637,348 for the year ended December 31, 2002 from a net income of $6,850,151
for the year ended December 31, 2001. This decrease is primarily attributable to
expenses incurred in connection with the Transaction, including the purchase of
the Advisory Agreement, legal fees and consulting fees to Lazard Freres & Co.
LLC for its advisory and valuation services for the Corporation. In addition,
further contributing to the decrease in net income were the legal fees


                                       33
<PAGE>

incurred by the Corporation associated with defending lawsuits brought in
connection with the Transaction and a decrease in rental revenue of $393,817.
Partially offsetting the increase in costs and expenses was an increase in
equity income from the investment in joint ventures of $177,758. Further
mitigating the effect of increased expenses was the gain on sale of Sutton
Square in 2002 which was $3,552,310 greater than the gain on sale recognized by
the sale of Commonwealth Industrial Park in 2001.

Rental Revenues

         Rental revenues decreased $393,817, or approximately 8%, to $4,372,261
for the year ended December 31, 2002 from $4,766,078 for the year ended December
31, 2001. The decrease in rental revenue was due to the loss of $934,001 of
rental income attributable to Commonwealth Industrial Park which was sold in
December 2001. The decrease was offset in part by the aggregate increase in
rental revenues of the remaining wholly owned properties of $540,184.

Costs and Expenses

         Costs and expenses for the year ended December 31, 2002 amounted to
$30,632,657, representing an increase of $25,594,387 from the year ended
December 31, 2001. This increase consists of a one-time expense of $23,049,398
for the purchase of the Advisory Agreements. The remaining costs and expenses
amounted to $7,583,259 representing an increase of $2,544,989 from $5,038,270
incurred during the year ended December 31, 2001. The increase is primarily due
to an increase in administrative expenses incurred in connection with the
Transaction, legal, professional and consulting fees.

         Operating expenses decreased slightly despite increased insurance
costs. The Corporation experienced an increase in depreciation and amortization
expense due to real estate improvements and tenant procurement costs of $76,270.
Excluding the 2001 depreciation and amortization expense associated with
Commonwealth Industrial Park of $170,940, the increase of depreciation and
amortization amounted to $247,211. As a result of the vote of the stockholders
to liquidate the portfolio and resultant conversion to the liquidation basis of
accounting on October 29, 2002, the Corporation will not incur any further
depreciation and amortization costs. Property management fees decreased $24,169.
However, if the 2001 fees attributable to Commonwealth Industrial Park of
$30,584 are deducted, property management fees increased by $6,416 due to
increased rental collections from the wholly owned properties in 2002.

         Partnership asset management fee decreased by $926,170 for the year
ended December 31, 2002 from $1,342,002 for the year ended December 31, 2001.
This decrease was due to the reduction of the fee in connection with the
Transaction from a fee based on 1.25% of gross asset value of the Corporation to
set a fee of $27,778 per month through September 30, 2002, which was then
further reduced to $16,667 per month for the balance of 2002. Shelbourne
Management was paid $157,582 in partnership asset management fees prior to
February 14, 2002, $208,250 was paid to PCIC for transition fees from February
15, 2002 through September 30, 2002 and Kestrel was paid $50,000 for its
services from October 1, 2002 through December 31, 2002.

Non-Operating Income and Expenses

         Income from the investment in joint ventures increased by $177,758 to
$4,110,603 for the year ended December 31, 2002 from $3,932,845 for the same
time period in 2001. The increase is due to the increased equity income from 568
Broadway of $354,946 that was offset by an aggregate decrease of equity income
from Century Park, Seattle Landmark and Tri-Columbus Associates of $177,188.

         Interest expense of $215,768 was paid on the note issued to Shelbourne
Management in the Transaction. An additional $829,073 was incurred on the Credit
Facility dated May 1, 2002. No interest expense was incurred during 2001 as the
Company had no outstanding debt obligations.

         Interest income decreased by $133,387, or 45% to $165,102 for the year
ended December 31, 2002 as compared to $298,489 for the year ended December 31,
2001 due to significantly lower cash balances invested as well as lower yields
on investments.



                                       34
<PAGE>

         Other income decreased for the year ended December 31, 2002 as compared
to the year ended December 31, 2001 by $20,516 or 97% to $549 from $21,065 due
to the absence, as a result of the conversion of the Predecessor Partnership
into a REIT, of transfer fees that were previously generated by the transfer of
partnership interests.

         The net operating loss attributable to Melrose Crossing I, the
Corporation's property located in Melrose Park, Illinois, for the period ended
October 29, 2002 is classified as discontinued operations due to the property
being under contract for sale prior to the adoption of the Plan of Liquidation.
Loss from discontinued operations ceased on October 29, 2002 due to the
stockholders vote to liquidate the portfolio. Under liquidation accounting, all
property is considered real estate held for sale and discontinued operations are
no longer applicable.

INFLATION

         Inflation is not expected to have a material impact on the operations
of financial position of the Corporation.
















                                       35
<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The primary market risk the Corporation faces is interest rate
sensitivity. The Corporation's related party loan payable interest at a floating
rate and therefore is exposed to the risk of interest rate changes. At March 24,
2004, borrowings totaled $6,720,701 interest at a rate of LIBOR plus 2.75%.
Based on the balance outstanding on the Loan at March 24, 2004 and the interest
rate at that date, a 1% increase in LIBOR would increase the interest expense in
2004 by approximately $756. Conversely, a 1% decrease in LIBOR would decrease
interest expense in 2004 by the same amount. The gain or loss the Corporation
ultimately realizes with respect to interest rate fluctuations will depend on
the actual interest rates during that period. The Corporation does not believe
that it has any risk related to derivative financial instruments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our consolidated balance sheets as of December 31, 2003 and 2002, and
the related consolidated statements of operations, equity and cash flows for the
years ended December 31, 2003, 2002 and 2001, and the notes thereto, and the
independent auditors' report thereon and the financial statement schedule are
set forth on pages 54 through 77.

ITEM 8A. CONTROLS AND PROCEDURES

         As of the end of the period covered by this annual report on Form 10-K,
an evaluation was carried out under the supervision and with the participation
of the Corporation's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Corporation's disclosure controls
and procedures (as such term is defined in Rule 13a-15 (e) under the Securities
Exchange Act of 1934). Based on that evaluation, the Corporation Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of such
period, the Corporation's disclosure controls and procedures were effective as
of the end of the period covered by this report. In addition, no change in our
internal control over financial reporting (as defined in Rule 13a- 15 (f) under
the Securities Exchange Act of 1934) occurred during the fourth quarter of our
fiscal year ended December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.











                                       36
<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

         (a)      Directors

         The members of the Board at March 1, 2004, and the committees of the
Board on which they serve, are identified below.

<TABLE>
<CAPTION>
                                                                             Nominating     and    Corporate
Name                       Audit Committee       Compensation Committee             Governance Committee
----                       ---------------       ----------------------             --------------------

<S>                        <C>                   <C>                         <C>
Michael L. Ashner
Arthur Blasberg, Jr.*               X                                                       X
Peter Braverman
John Ferrari*                                                X
Howard Goldberg*                    X                                                       X
Steven Zalkind*                     X                        X
</TABLE>


*        Independent Trustees as determined by the Nominating and Corporate
         Governance Committee in accordance with Sections 121A of the listing
         standards of the American Stock Exchange.

Set forth below is the business experience of, and certain other information
    regarding, the two director nominees and the Company's Directors.

<TABLE>
<CAPTION>
Name  and  year  first  became  a
Director of the Company         -    Age      Principal Occupation during the past Five Years
-----------------------              ---      -----------------------------------------------
<S>                                  <C>      <C>

CLASS III-TERM EXPIRING AT THE 2004 ANNUAL MEETING OF STOCKHOLDERS

John Ferrari                         50        Mr. Ferrari has been a Managing Director of Manhattan
    2002                                       East Suite Hotels, a New York based hotel management
                                               company that operates ten hotels (2,100 rooms) in New
                                               York City, since 1996. Mr. Ferrari is responsible for
                                               the day-to-day operations of the company and for all
                                               acquisitions and development of new ventures.


Howard Goldberg                      58       Mr. Goldberg has been a private investor and has
    2002                                      provided consultingservices to start-up companies
                                              since 1999. Mr. Goldberg presently serves as a
                                              part-time consultant to Laser Lock Technologies,
                                              Inc., a company in the security and advertising
                                              business, performing duties consistent with that of a
                                              chief operating officer. From 1994 through 1998, Mr.
                                              Goldberg served as President and Chief Executive
                                              Officer of Player's International, a public company
                                              in the gaming business, prior to its being sold to
                                              Harrah's Entertainment Inc. In addition, from 1995 to
                                              2000, Mr. Goldberg served on the board of directors
                                              of Imall Inc., a public company that provided on-line
                                              shopping and which was ultimately sold to
                                              Excite-at-Home. Mr. Goldberg has a law degree from
                                              New York University and was previously the managing
                                              partner of a large New Jersey law firm. Mr. Goldberg
                                              is a director and serves on the audit committee of
                                              First Union Real Estate Equity and Mortgage
                                              Investments ("First Union"), a real estate investment
                                              trust. Mr. Goldberg also sits on the Advisory Board
                                              of WinWin, a company specializing in foreign
                                              charitable lotteries.



                                       37
<PAGE>


CLASS I-TERM EXPIRING AT THE 2005 ANNUAL MEETING OF STOCKHOLDERS

Michael L. Ashner                    51       Mr. Ashner has been a director, President, Chairman
    2001*                                     and Chief Executive Officer of the Company since
                                              August 19, 2002. Mr. Ashner also served as a
                                              director, President, Chairman and Chief Executive
                                              Officer of the Company from February 8, 2001 until
                                              August 15, 2002. Mr. Ashner is and has been the Chief
                                              Executive Officer of Winthrop Financial Associates, A
                                              Limited Partnership, since 1996, and the Chief
                                              Executive Officer of The Newkirk Group, since 1997,
                                              two real estate investment and management companies
                                              controlling approximately $3.5 billion of commercial
                                              real estate throughout the United States. Effective
                                              December 31, 2003, Mr. Ashner was appointed as the
                                              Chief Executive Officer and President of First Union.
                                              Mr. Ashner currently serves as a director of Greate
                                              Bay Hotel and Casino Inc., and NBTY, Inc.


Peter Braverman                      52       Mr. Braverman has been a director and Vice President
    2002                                      of the Company since August 19, 2002. Mr. Braverman
                                              also served as a Vice President of the Company from
                                              February 8, 2001 until August 15, 2001. Mr. Braverman
                                              is and has been the Executive Vice President of
                                              Winthrop Financial Associates, A Limited Partnership,
                                              since 1996, and the Executive Vice President of The
                                              Newkirk Group, since 1997, two real estate investment
                                              and management companies controlling approximately
                                              $3.5 billion of commercial real estate throughout the
                                              United States. Effective January 8, 2004, Mr.
                                              Braverman was appointed as the Executive Vice
                                              President First Union.


CLASS II-TERM EXPIRING AT THE 2006 ANNUAL MEETING OF STOCKHOLDERS

Arthur Blasberg, Jr.                 76       Mr. Blasberg's activities for the past five years
    2002                                      include appointment by the Superior Court in
                                              Massachusetts to serve as a receiver of various
                                              businesses (including real estate investment
                                              companies), as a special master and as the trustee of
                                              a trust holding undeveloped land and a trust whose
                                              main asset was a limited partnership interest in a
                                              cogeneration plant. Mr. Blasberg serves as a director
                                              of several private companies and previously served as
                                              the receiver and liquidating trustee of The March
                                              Company, Inc., a real estate investment firm which
                                              acted as the general partner and/or limited partner
                                              in over 250 limited partnerships. Mr. Blasberg is an
                                              attorney admitted to practice in the Commonwealth of
                                              Massachusetts and previously served for five years in
                                              the general counsel's office of the Securities and
                                              Exchange Commission. Mr. Blasberg is a director and
                                              serves on the audit committee of First Union.


Steven Zalkind                       62       Mr. Zalkind has been a principal with Resource
    2002                                      Investments Limited, L.L.C., a real estate management
                                              and investment company that owns, operates and
                                              manages over 6,000 apartment units and 500,000 square
                                              feet of retail shopping centers, for the past five
                                              years. Mr. Zalkind has extensive experience in the
                                              operation, management and financing of real estate
                                              projects including apartment buildings, shopping
                                              centers and office buildings and has been involved in
                                              real estate acquisitions and resales totaling in
                                              excess of $1.5 billion.
</TABLE>

*        Mr. Ashner was a director from April 18, 2001 to August 15, 2001 at
         which time he resigned. He became a director again on August 19, 2002
         and has held that position since such date.



                                       38
<PAGE>

         Each of the foregoing directors also serves as directors of Shelbourne
         Properties II, Inc. and Shelbourne Properties III, Inc.


         The Board has determined that Mr. Blasberg is an "audit committee
financial expert" as defined in Item 401(h)(2) of Regulation S-K. Although
Messrs. Blasberg and Goldberg serve as members of the Audit Committee for each
of First Union Real Estate Equity and Mortgage Investments, Shelbourne
Properties II, Inc. and Shelbourne Properties III, Inc., the Board has
determined that their serving on such committees will not have a negative impact
on their ability to serve on the Board's Audit Committee.


(b)      Executive Officers

         Set forth below is certain information regarding the executive officers
and certain other officers of the Company:

<TABLE>
<CAPTION>
    Name                    Age      Current Position
    ----------------------- ---      -------------------------------------------------------
<S>                         <C>      <C>
        Michael L. Ashner   51           President, Chairman and Chief Executive Officer
        Peter Braverman     52           Executive Vice President
        Carolyn Tiffany     37           Chief Financial Officer, Secretary and Treasurer
</TABLE>

         Officers serve at the discretion of the Board.

         Information regarding Messrs. Ashner and Braverman is included in Item
10(a) above.

         Ms. Tiffany has been the Chief Financial Officer and Treasurer of the
Company since August 19, 2002. Ms. Tiffany has been with Winthrop Financial
Associates since January 1993. Ms. Tiffany was a Vice President in the asset
management and investor relations departments of Winthrop Financial Associates
from October 1995 to December 1997, at which time she became the Chief Operating
Officer of Winthrop Financial Associates. In addition, Ms. Tiffany is the Chief
Operating Officer of The Newkirk Group and, since January 8, 2004, the Chief
Operating Officer of First Union.

ITEM 11. EXECUTIVE COMPENSATION

         For the period from January 1, 2002 to August 19, 2002, the executive
officers of the Company during such period were employed by Shelbourne
Management LLC. For the period from August 19, 2002 through the end of 2002, the
executive officers of the Company were employed by First Winthrop Corporation.
The executive officers received no remuneration from the Company but were
compensated by Shelbourne Management LLC or First Winthrop Corporation, as the
case may be, in their capacities as officers and employees of that company, as
shown in the table under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

COMPENSATION OF DIRECTORS

         The Company's prior non-employee directors, Messrs. Bebon, Coons and
Martin in 2001 and until August 19, 2002 received $6,667 annually for their
services as directors. The Company's current non-employee directors, Messrs.
Blasberg, Ferrari, Goldberg and Zalkind will receive $10,000 annually for their
services as directors and $500 for each applicable committee meeting they
attend. Directors of the Company who are also officers of the Company receive no
additional compensation for serving on the Board. However, all directors are
reimbursed for travel expenses and other out-of-pocket expenses incurred in
connection with their service on the Board.





                                       39
<PAGE>

         In addition, solely for their services as members of the Special
Committee, which was organized to review and evaluate the fairness of the
February 2002 repurchase by the Company of the shares held by PCIC, former
directors Michael Bebon, Donald W. Coons and Robert Martin received a one-time
payment of $20,000.

         In consideration of the significant time and efforts that each of the
former directors made as a member of the Board prior to August 19, 2002, at
which time the Board was reconstituted as described above, including, among
other things, evaluating strategic alternatives to enhance stockholder value,
arranging for financing and otherwise managing the business of the Company, the
prior Board authorized a one-time payment of $75,000 to each of Robert Martin,
W. Edward Scheetz and Donald W. Coons.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Michael L. Ashner, a director and the Chief Executive Officer of the
Company, also serves as the Chief Executive Officer and director of Kestrel
Management Corp., the general partner of Kestrel Management, L.P. ("Kestrel"),
the entity that provides asset and property management services to the Company.
Similarly, Peter Braverman, a director and Vice President of the Company, also
serves as a Vice President of Kestrel Management Corp.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information as of March 1, 2004
(except as otherwise indicated) regarding the ownership of Common Stock by (i)
each person who is known to the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock, (ii) each director and nominee for
director, (iii) each executive officer named in the Summary Compensation Table
contained herein, and (iv) all current executive officers and directors of the
Company as a group. Except as otherwise indicated, each such stockholder has
sole voting and investment power with respect to the shares beneficially owned
by such stockholder.


<TABLE>
<CAPTION>
NAME AND ADDRESS OF                 POSITION WITH THE COMPANY        AMOUNT AND NATURE OF         PERCENT OF CLASS
--------------------                -------------------------        ---------------------        ----------------
 BENEFICIAL OWNER                                                    BENEFICIAL OWNERSHIP
 ----------------                                                    --------------------

<S>                                 <C>                              <C>                          <C>
HX Investors, L.P.                       Stockholder                            371,012(1)                  41.46%
100 Jericho Quadrangle
Suite 214
Jericho, NY 11753

Michael L. Ashner                        Director, President                    371,012(2)                  41.46%
100 Jericho Quadrangle                    and Chief Executive
Suite 214                                 Officer
Jericho, NY 11753

Arthur Blasberg, Jr.                     Director                                     0                      0

Peter Braverman                          Director and Executive                       0                      0
                                          Vice President

John Ferrari                             Director                                     0                      0

Howard Goldberg                          Director                                     0                      0
</TABLE>



                                       40
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF                 POSITION WITH THE COMPANY        AMOUNT AND NATURE OF         PERCENT OF CLASS
--------------------                -------------------------        ---------------------        ----------------
 BENEFICIAL OWNER                                                    BENEFICIAL OWNERSHIP
 ----------------                                                    --------------------

<S>                                 <C>                              <C>                          <C>

Carolyn Tiffany                          Chief Financial Officer                      0                      0
                                          and Treasurer

Steven Zalkind                           Director                                    10                      *

All directors and executive                                                     371,022                     41.46%
officers as a group
</TABLE>

-------------------------------------

*Less than 1%

(1)      Based upon information contained in a Form 4 filed by HX Investors,
         L.P. ("HX") with the Securities and Exchange Commission.

(2)      Comprised of shares owned by HX. As the sole stockholder of Exeter
         Capital Corporation, the sole general partner of HX, Mr. Ashner may be
         deemed to beneficially own all shares owned by HX.



SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's executive officers, directors and persons
who beneficially own greater than 10% of a registered class of the Company's
equity securities to file certain reports ("Section 16 Reports") with the
Securities and Exchange Commission with respect to ownership and changes in
ownership of the Common Stock and other equity securities of the Company. Based
solely on the Company's review of the Section 16 Reports furnished to the
Company and written representations from certain reporting persons, all Section
16(a) requirements applicable to its officers, directors and greater than 10%
beneficial owners have been complied with.

         Peter Braverman owns a 10% limited partner interest in HX. Accordingly,
Mr. Braverman owns an indirect pecuniary interest in approximately 35,286 of the
shares of Common Stock owned by HX. However, as a limited partner in HX, Mr.
Braverman does not exercise investment control over the HX shares. Accordingly,
Mr. Braverman is not deemed to beneficially own any of such shares under Section
13 or Section 16 of the Exchange Act.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During the years ended December 31, 2001, 2002 and 2003, property
management services (the "Property Management Services") and asset management
services, investor relation services and accounting services (the "Asset
Management Services") have been provided to (i) the Predecessor Partnership by
affiliates of the general partners of the Predecessor Partnership's (the
"Predecessor General Partners") and (ii) the Company by affiliates of the
Company.

ASSET MANAGEMENT SERVICES
-------------------------

         For the period January 1, 2001 through April 16, 2001, an affiliate of
the Predecessor General Partners, Resources Supervisory, provided Asset
Management Services for an annual fee equal to 1.25% of the Predecessor
Partnership's gross asset value. In addition, the Predecessor Partnership was
obligated to (i) pay $200,000 for non-accountable expenses and (ii) reimburse
Resources Supervisory for expenses incurred in connection with the performance
of its services.

                                       41
<PAGE>

         Effective April 17, 2001 through February 14, 2002, Shelbourne
Management LLC ("Shelbourne Management"), a wholly-owned subsidiary of Presidio
Capital Investment Company, LLC ("PCIC"), provided asset management services to
the Company pursuant to the terms of an Advisory Agreement (the "Advisory
Agreement") between the Corporation, the Operating Partnership and Shelbourne
Management. Pursuant to the terms of the Advisory Agreement, the Corporation was
obligated to pay for asset management services, an annual asset management fee,
payable quarterly, equal to 1.25% of the Corporation's gross asset value as of
the last day of each year. In addition, the Corporation was obligated to (i) pay
$200,000 for non-accountable expenses and (ii) reimburse Shelbourne Management
for expenses incurred in connection with the performance of its services.

         Effective February 14, 2002, in connection with the Transaction (as
described below), PCIC began providing such services for a reduced fee of
$333,333 per annum (the "Transition Management Fee"). Both Shelbourne Management
and PCIC were affiliates of the then management of the Corporation.

         Effective October 1, 2002, as contemplated by the Plan of Liquidation,
the agreement with PCIC was terminated and Kestrel Management, L.P. ("Kestrel")
began providing the Asset Management Services for a fee of $200,000 per annum.
Kestrel is an affiliate of the Corporation's current Chief Executive Officer.

PROPERTY MANAGEMENT SERVICES
----------------------------

         During the years ended December 31, 2001, 2002 and 2003, property
management services were provided by Kestrel pursuant to agreements that provide
for a fee of up to 3% of property revenue.

         The following table summarizes the amounts paid to affiliates for
Expense Reimbursements, Asset Management Fees, Transition Management Fees, and
Property Management Fees for the twelve-month periods ended December 31, 2003,
2002 and 2001. All numbers in the tables below include the Corporation's share
of fees paid to Kestrel by properties owned by joint ventures in which the
Corporation has an interest.

YEAR ENDED DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                             Resources      Shelbourne
                                            Supervisory      Management        Kestrel
                                            -----------      ----------        -------

<S>                                           <C>              <C>             <C>
         Expense Reimbursement                $      -         $      -        $      -
         Asset Management Fee                        -                -         200,000
         Property Management Fees                    -                -         183,513
</TABLE>


YEAR ENDED DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                             Resources      Shelbourne
                                            Supervisory      Management        Kestrel
                                            -----------      ----------        -------

<S>                                           <C>            <C>               <C>
         Expense Reimbursement                $      -       $   25,000        $      -
         Asset Management Fee                        -          157,582          50,000
         Transition Management Fee                   -          208,250               -
         Property Management Fees                    -                -         366,524
</TABLE>







                                       42
<PAGE>



YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                             Resources      Shelbourne
                                            Supervisory      Management        Kestrel
                                            -----------      ----------        -------

<S>                                           <C>            <C>               <C>
         Expense Reimbursement                $   59,444     $  140,556        $      -
         Asset Management Fee                    394,808        947,194               -
         Property Management Fees                      -             -          369,139
</TABLE>


ALLOCATION OF DIVIDENDS BY THE CORPORATION

         Dividends payable to affiliates for the years ended December 31, 2003,
2002 and 2001 on account of shares of common stock owned are as follows:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                2003                2002                 2001
                                                                ----                ----                 ----

<S>                                                       <C>                    <C>                 <C>
         Presidio Capital Investment Company, LLC         $              -       $       -           $   723,992
         HX Investors, L.P.                                     19,014,365       5,194,168                86,299

</TABLE>

         In addition, effective August 19, 2002, in connection with the
settlement of the lawsuit brought by HX Investors, L.P. ("HX Investors"),
Shelbourne Management agreed to pay to HX Investors approximately 42% of the
amounts paid to Shelbourne Management with respect to the Class A units.
Distributions paid to Shelbourne Management on account of its Class A units for
the years ended December 31, 2003 and 2002 were $51,462 and $64,314,
respectively, of which $21,614 and $11,659, respectively, are payable by
Shelbourne Management to HX Investors pursuant to their agreement.


THE TRANSACTION
---------------

         On February 14, 2002, the Corporation, Shelbourne Properties I, Inc.
and Shelbourne Properties III, Inc. (the "Companies") consummated a transaction
(the "Transaction") whereby the Corporation purchased the 343,124 shares of the
Corporation's common stock held by subsidiaries of PCIC and the Advisory
Agreement was contributed to the Operating Partnership. Pursuant to the
Transaction, the Corporation paid PCIC $17,866,603 in cash and the Operating
Partnership issued preferred partnership interests with an aggregate liquidation
preference of $1,015,148 and a note in the amount of $22,034,250. This note was
satisfied in April 2002 from the proceeds of the Credit Facility. The
liquidation preference was eliminated on January 15, 2003 in connection with the
Accotel Transaction.


RELATED PARTY LOAN PAYABLE
--------------------------

         In connection with the Fleet Loan financing, the Corporation,
Shelbourne Properties I, Inc. and Shelbourne Properties III, Inc. entered into
Indemnity, Contribution and Subrogation Agreements, the purpose and intent of
which was to place operating partnerships in the same position (as among each
other) as each would have been had the lender made three separate loans. Under
the terms of the Fleet Loan, the Shelbourne Properties I, Inc. and Shelbourne
Properties III, Inc. were required to utilize a portion of their proceeds
generated by property sales to make principal payments on the Fleet Loan on
behalf of the Corporation. In accordance with the terms of the Indemnity,
Contribution and Subrogation Agreements, the portion of the Corporation's
principal payments made by Shelbourne Properties I, Inc., in the amount of
$1,349,257, and Shelbourne Properties III, Inc., in the amount of $5,371,444 are
recorded as loans payable that are secured by the Corporation's interest in the
entities that own its properties. The principal and accrued interest due to
Shelbourne Properties I, Inc. and Shelbourne Properties III, Inc. at December
31, 2003 are $1,352,307 and $5,383,586, respectively. The loans payable require
payment of interest under the same terms as the Fleet Loan, which is LIBOR plus
2.75% (3.875% at December 31, 2003).



                                       43
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The following table summarizes the aggregate fees billed to Shelbourne II
by the independent auditor:


($ in '000s)                               2003                     2002
                                      ---------------          ---------------
Audit Fees (a)                              60                       67

Audit-Related Fees (b)                      --                       17

Tax Fees (c)                                37                       25

All Other Fees                              --                       --
                                      ---------------          ---------------
Total                                       97                      109

(a)  Fees for audit services billed or expected to be billed relating to fiscal
     2003 and 2002 consisted of:
     o    Audit of the Company's annual financial statements
     o    Reviews of the Company's quarterly financial statements

(b)  Fees for audit-related services provided during fiscal 2002 consisted of
     financial accounting and reporting consultations


(c)  Fees for tax services provided during fiscal 2003 and 2002 consisted of
     fees for tax compliance services. Tax compliance services are services
     rendered based upon facts already in existence or transactions that have
     already occurred to document, compute, and obtain government approval for
     amounts to be included in tax filings and consisted of:

          i.   Federal, state and local income tax return assistance
         ii.   REIT compliance
        iii.   Assistance with tax audits and appeals



Memo:  Ratio of Tax Planning and Advice Fees and All Other    0:1      0:1
           Fees to Audit Fees, Audit-Related Fees and Tax
           Compliance Fees

In considering the nature of the services provided by the independent auditor,
the Audit Committee determined that such services are compatible with the
provision of independent audit services. The Audit Committee discussed these
services with the independent auditor and Company management to determine that
they are permitted under the rules and regulations concerning auditor
independence promulgated by the U.S. Securities and Exchange Commission (the
"SEC") to implement the Sarbanes-Oxley Act of 2002, as well as the American
Institute of Certified Public Accountants.


         The Corporation has a policy of requiring that the Audit Committee
pre-approve all audit and non-audit services provided to the Corporation by the
auditor of its financial statements. During 2003 and 2002, the Audit Committee
approved all of the fees paid to Deloitte & Touche LLP by the Corporation.

                                       44
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (A)      FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

         (1)      Financial Statements

                  Independent Auditors' Report

                  Consolidated Statements of Net Assets of December 31, 2003 and
                  December 31, 2002 (Liquidation Basis)

                  Consolidated Statements of Operations and Changes in Net
                  Assets for the Year Ended December 31, 2003, the Period
                  October 30, 2002 to December 31, 2002 (Liquidation Basis), and
                  Consolidated Statement of Operations for the Period January 1,
                  2002 to October 29, 2002 and for the Year Ended December 31,
                  2001 (Going Concern Basis)

                  Consolidated Statements of Equity for the Period January 1,
                  2002 to October 29, 2002 and the Year Ended December 31, 2001
                  (Going Concern Basis)

                  Consolidated Statements of Cash Flows for the Year Ended
                  December 31, 2003, the Period October 30, 2002 to December 31,
                  2002 (Liquidation Basis) and January 1, 2002 to October 29,
                  2002 and for the Year Ended December 31, 2001 (Going Concern
                  Basis)

         (2)      Notes to Consolidated Financial Statements

                  All schedules are omitted because they are not applicable or
                  not required.

         (B)      REPORTS ON FORM 8-K

                     Date Filed:        December 23, 2002
                     Item Reported:     2 (Acquisition or Disposition of Assets)


(C)      EXHIBITS

         EXHIBIT
         NUMBER            DESCRIPTION

         2.1      Stock Purchase Agreement among HX Investors, Exeter Capital
                  Corporation and the Company (4)

         2.2      Amendment No. 1 to Stock Purchase Agreement (6)

         2.3      Plan of Liquidation (7)

         3.1      Amended and Restated Certificate of Incorporation of the
                  Company (1)

         3.2      Amended and Restated Bylaws of the Company(1)

         4.1      Limited Partnership of the operating partnership (1)

         4.2      Stockholder Rights Agreement (1)

         4.3      Amendment to Stockholder Rights Agreement (2)

         4.4      Restated Partnership Unit Designation for 5% Class A Preferred
                  Partnership Units (incorporated by reference to Exhibit E-1 of
                  Exhibit 10.4) (9)

         4.5      Stockholder Agreement, among the Companies and HX Investors,
                  LP and Exeter Capital Corporation, dated as of April 30, 2002
                  (3)

         4.6      Amendment No. 2 to Stockholder Rights Agreement (5)

         4.7      Partnership Unit Designation of the Class B Partnership Units
                  of the Operating Partnership(8)

         10.1     Settlement Agreement and Mutual Release between HX Investors,
                  the Companies and Shelbourne Management (4)

         10.2     Amendment No. 1 to Settlement Agreement (6)

         10.3     Purchase Agreement, dated as of January 15, 2003, between the
                  Shelbourne JV LLC and Realty Holdings of America, LLC (9)


                                       45
<PAGE>

         10.4     Agreement, dated as of January 15, 2003, among Presidio
                  Capital Investment Company, LLC (and certain of its
                  subsidiaries), Shelbourne Management, NorthStar Capital
                  Investment Corp., each of the Shelbourne REITs and its
                  operating partnership and HX Investors, L.P. (9)

         10.5     Loan Agreement, dated as of February 19, 2003, among
                  Shelbourne Properties I L.P., Shelbourne Properties II L.P.,
                  Shelbourne Properties III L.P., Shelbourne Richmond Company
                  LLC, Shelbourne Matthews Company LLC, Shelbourne Las Vegas
                  Company LLC, Century Park I Joint Venture, Seattle Landmark
                  Joint Venture, Tri-Columbus Associates and Fleet National Bank
                  and the other lending institutions which may become party
                  thereto and Fleet National Bank, as agent (10)

         10.6     Form of Guaranty, dated as of February 19, 2003, from
                  Shelbourne Properties II, Inc. and Shelbourne Properties II
                  L.P. (10)

         10.7     Form of Indemnity, Contribution and Subrogation Agreement,
                  dated as of February 19, 2003, among the REITs and the
                  operating partnerships (10)

         10.8     Form of Deed of Trust, Assignment of Leases and Rents,
                  Security Agreement and Fixture Filing with respect to the
                  Collateral Properties dated as of February 19, 2003 in favor
                  of Fleet National Bank (10)

         10.9     Cash Management Agreement, dated February 19, 2003, among
                  Shelbourne Properties I L.P., Shelbourne Properties II L.P.,
                  Shelbourne Properties III L.P., Fleet National Bank, as agent
                  for itself and the Lenders, and various subsidiaries of the
                  Shelbourne OP's listed on Exhibit A thereto (10)

         31       Certification Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.

         32       Certification Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.

------------------

(1)      incorporated by reference to the Registration Statement of the Company
         on Form S-4 filed on February 11, 2000, as amended

(2)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on February 14, 2002

(3)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on May 14, 2002.

(4)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on July 2, 2002.

(5)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on July 8, 2002

(6)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on August 5, 2002

(7)      incorporated by reference to Appendix A to the Company's Definitive
         Proxy Statement on Schedule 14A filed on September 27, 2002

(8)      incorporated by reference to the Quarterly Report on Form 10-Q of the
         Company filed on November 14, 2002.

(9)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on January 15, 2003.

(10)     incorporated by reference to the Current Report of the Company on Form
         8-K filed on February 24, 2003.













                                       46
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


Dated:  March 25, 2004                       By:   /s/ Michael L. Ashner
                                                ------------------------
                                                       Michael L. Ashner
                                                       Chief Executive Officer


Dated:  March 25, 2004                       By:   /s/ Carolyn B. Tiffany
                                                -------------------------
                                                       Carolyn B. Tiffany
                                                       Chief Financial Officer


         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.




<TABLE>
<CAPTION>
                    NAME                                            TITLE                              DATE
                    ----                                            -----                              ----

<S>                                             <C>                                               <C>
        /s/    Michael L. Ashner                Chief Executive Officer and Director              March 25, 2004
------------------------------------------
              MICHAEL L. ASHNER

         /s/    Arthur Blasberg, Jr.            Director                                          March 25, 2004
------------------------------------------
            ARTHUR BLASBERG, JR.

       /s/    Howard Goldberg                   Director                                          March 25, 2004
------------------------------------------
               HOWARD GOLDBERG

           /s/    Steven Zalkind                Director                                          March 25, 2004
------------------------------------------
               STEVEN ZALKIND
</TABLE>
















                                       47
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003


EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit
-------
Number                                               Description                                          Page
------                                               -----------                                          ----
<S>      <C>                                                                                              <C>
2.1      Stock Purchase Agreement among HX Investors, Exeter Capital Corporation
         and the Company                                                                                  (4)
2.2      Amendment No. 1 to Stock Purchase Agreement                                                      (6)
2.3      Plan of Liquidation                                                                              (7)
3.1      Amended and Restated Certificate of Incorporation of the Company                                 (1)
3.2      Amended and Restated Bylaws of the Corporation                                                   (1)
4.1      Limited Partnership of the operating partnership                                                 (1)
4.2      Stockholder Rights Agreement                                                                     (1)
4.3      Amendment to Stockholder Rights Agreement                                                        (2)
4.4      Restated Partnership Unit Designation for 5% Class A Preferred Partnership Units
         (incorporated by reference to Exhibit E-1 of Exhibit 10.4)                                       (9)
4.5      Stockholder Agreement, among the Companies and HX Investors, LP and
         Exeter Capital Corporation, dated as of April 30, 2002                                           (3)
4.6      Amendment No. 2 to Stockholder Rights Agreement                                                  (5)
4.7      Partnership Unit Designation of the Class B Partnership Units of the Operating Partnership       (8)
10.1     Settlement Agreement and Mutual Release between HX Investors,
         the Companies and Shelbourne Management                                                          (4)
10.2     Amendment No. 1 to Settlement Agreement                                                          (6)
10.3     Purchase Agreement, dated as of January 15, 2003, between the Shelbourne
         JV LLC and Realty Holdings of America, LLC                                                       (9)
10.4     Agreement, dated as of January 15, 2003, among Presidio Capital Investment
         Company, LLC (and certain of its subsidiaries), Shelbourne Management,
         NorthStar Capital Investment Corp., each of the Shelbourne REITs and
         its operating partnership and HX Investors, L.P.                                                 (9)
10.5     Loan Agreement, dated as of February 19, 2003, among Shelbourne Properties I L.P.,               (10)
         Shelbourne Properties II L.P., Shelbourne Properties III L.P., Shelbourne Richmond
         Company LLC, Shelbourne Matthews Company LLC, Shelbourne Las Vegas Company
         LLC, Century Park I Joint Venture, Seattle Landmark Joint Venture, Tri-Columbus
         Associates and Fleet National Bank and the other lending institutions which may become
         party thereto and Fleet National Bank, as agent
10.6     Form of Guaranty, dated as of February 19, 2003, from Shelbourne Properties II, Inc. and         (10)
         Shelbourne Properties III L.P.
10.7     Form of Indemnity, Contribution and Subrogation Agreement, dated as of February                  (10)
         19, 2003, among the REITs and the operating partnerships
10.8     Form of Deed of Trust, Assignment of Leases and Rents, Security Agreement                        (10)
         and Fixture Filing with respect to the Collateral Properties dated as of February 19, 2003
         in favor of Fleet National Bank
10.9     Cash Management Agreement, dated February 19, 2003, among Shelbourne Properties                  (10)
         I L.P., Shelbourne Properties II L.P., Shelbourne Properties III L.P., Fleet National Bank,
         as agent for itself and the Lenders, and various subsidiaries of the Shelbourne OP's listed
         on Exhibit A thereto
31       Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                          50
32       Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                          52
</TABLE>

------------------

(1)      incorporated by reference to the Registration Statement of the Company
         on Form S-4 filed on February 11, 2000, as amended

(2)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on February 14, 2002

(3)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on May 14, 2002.

(4)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on July 2, 2002.

                                       48
<PAGE>

(5)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on July 8, 2002

(6)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on August 5, 2002

(7)      incorporated by reference to Appendix A to the Company's Definitive
         Proxy Statement on Schedule 14A filed on September 27, 2002

(8)      incorporated by reference to the Quarterly Report on Form 10-Q of the
         Company filed on November 14, 2002.

(9)      incorporated by reference to the Current Report of the Company on Form
         8-K filed on January 15, 2003.

(10)     incorporated by reference to the Current Report of the Company on Form
         8-K filed on February 24, 2003.














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