• Sold one property with approximately 42,000 rentable square feet. 

• Completed a public offering of 5,185,500 shares of our 8.375% Series C cumulative redeemable preferred stock (“Series C preferred stock”). 

• Redeemed all of the outstanding shares of our 9.50% Series A cumulative preferred stock with proceeds from the Series C preferred stock offering. 

Our primary source of revenue is rental income and tenant recoveries from leases at the properties we own. Of the 112 properties we owned as of December 31, 2004, four were acquired in 1994, nine in 1996, nine in 1997, 26 in 1998, six in 1999, 11 in 2000, five in 2001, four in 2002, four in 2003 (the “2003 Properties”) and 23 in 2004. In addition, we completed the development of one property in 1999, five properties in 2000 (together with the 11 properties acquired in 2000, the “2000 Properties”), two properties in 2001 (together with the five properties acquired in 2001, the “2001 Properties”), two properties in 2002 (together with the four properties acquired in 2002, the “2002 Properties”) and one property in 2004 (together with the 23 properties acquired in 2004, the “2004 Properties”). As a result of these acquisition and development activities, as well as our ongoing leasing and redevelopment activ- ities, there have been significant increases in total revenues and expenses, including significant increases in total revenues and expenses for 2004 as compared to 2003, and for 2003 as compared to 2002. 

## C R I T I C A L A C C O U N T I N G P O L I C I E S 

Our discussion and analysis of our financial condition and results of operations are based upon our con- solidated financial statements, which have been prepared in accordance with accounting principles gen- erally accepted in the United States (“GAAP”). Our significant accounting policies are described in the notes to our consolidated financial statements. The preparation of these financial statements in con- formity with GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.We base these estimates, judgments and assumptions on historical experience and on various other factors that we believe to be reasonable under the cir- cumstances. Actual results may differ from these estimates under different assumptions or conditions. 

## REIT Compliance 

We have elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code. Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations and financial results, and the determination of various fac- tual matters and circumstances not entirely within our control.We believe that our current organization and method of operation comply with the rules and regulations promulgated under the Internal Revenue Code to enable us to qualify, and continue to qualify, as a REIT. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a REIT, or that our future operations could cause us to fail to qualify. 

If we fail to qualify as a REIT in any taxable year, then we will be required to pay federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. If we lose our REIT status, then our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved and we would no longer be required to make distributions to our stockholders. 

## Rental Properties and Properties Under Development 

In accordance with Statement of Financial Accounting Standards No. 141,“Business Combinations”, we perform the following procedures when making an allocation of the purchase price of real estate: (1) esti- mate the value of the real estate as of the acquisition date on an “as if vacant” basis; (2) allocate the “as if vacant” value among land, land improvements, buildings, building improvements, tenant improvements and equipment; (3) calculate the value of the intangibles as the difference between the “as if vacant” value and the purchase price; and (4) allocate the intangible value to above, below and at market leases, origi- nation costs associated with in-place leases, tenant relationships and other intangible assets. 

The values allocated to land improvements, buildings, building improvements, tenant improvements and equipment are depreciated on a straight-line basis using an estimated life of 20 years for land 

