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MD&A 

## Allowance for Doubtful Accounts - Current and Deferred Receivables 

Accounts receivable primarily represent amounts currently due from tenants in accordance with the terms of the respective leases. Receivables are reviewed monthly and reserves are established with a charge to current period operations when, in the opinion of management, collection of the receivable is doubtful. In addition to rents due currently, accounts receivable include amounts representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases. Reserves are established with a charge to income for tenants whose rent payment history or financial condition casts doubt upon the tenant’s ability to perform under its lease obligations. 

## RESULTS OF OPERATIONS 

## Legal Contingencies 

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a material adverse effect on the financial position or the results of operations. Once it has been determined that a loss is probable to occur, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine. 

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Total revenues increased 15.3% for the 2004 year compared to 2003 primarily due to the contribution of operating revenue from three development properties and five acquisition properties placed in service during 2004 or 2003. The developments Broadlands Village II and Shops at Monocacy were placed in service in 2004 and Broadlands Village in 2003. The acquisition properties Boca Valley Plaza, Countryside, Cruse MarketPlace and Briggs Chaney Plaza were acquired in 2004 and Olde Forte Village was acquired in 2003 (the “Development and Acquisition Properties”). The Development and Acquisition Properties contributed $10,888,000 or 73% of the increase in revenues. The Company’s 601 Pennsylvania Avenue office property was fully leased during 2004 and contributed $2,267,000 or 15% of the year’s revenue improvement. A discussion of the components of revenue follows. 

## Base rent 

The $12,958,000 increase in base rent for 2004 versus 2003 was primarily attributable (69% or approximately $8,958,000) to leases in effect at the Development and Acquisition Properties. The lease-up of space at 601 

Pennsylvania Avenue (15% or approximately $1,886,000) and contractual rent increases at other Properties substantially accounted for the balance of the increase. 

The increase in base rent for 2003 versus 2002 was primarily attributable to leases in effect at properties acquired and developed in 2003 and 2002: Ashburn Village IV, Kentlands Square and Olde Forte Village (approximately $1,890,000), the continued lease-up of space at Washington Square (approximately $1,200,000), and releasing space at several other properties at rental rates higher than expiring rental rates. This increase was partially offset by an approximately $1,920,000 decrease in base rent at 601 Pennsylvania Avenue resulting from the departure of a major tenant whose lease expired during the first quarter of 2003. The major tenant was also paying higher rent under the terms of a short-term lease extension during the prior year, increasing the magnitude of the variance between periods. By December 31, 2003, the former tenant’s space was re-leased and 601 Pennsylvania Avenue was 100% leased. 

