According to the Center for Regional Analysis at George Mason University, or GMU, since 1996, Greater Washington, D.C. has outperformed all of the major metropolitan markets in the United States in economic growth. Delta Associates, a real estate consulting firm, reports that in the 12 month period ending July 31, 2005, the employment growth rate of Greater Washington, D.C. was 3.0% versus a 1.7% national rate. According to Co-Star Group, Inc., a provider of information services to commercial real estate professionals, as of the end of the second quarter of 2005, total office inventory in Greater Washington, D.C. was approximately 374.2 million square feet spanning 5,723 office buildings.

According to Delta Associates, the region receives the highest total value of federal procurement awards in the United States. In 2004, 15.7% of all federal procurement spending, or $50 billion, was spent in Greater Washington, D.C. This procurement spending directly supports approximately 332,500 private sector contractor jobs and also indirectly supports more than 600,000 other jobs in Greater Washington, D.C. as a result of what economists call a “multiplier effect.”

According to Delta Associates, positive changes in net occupied space, or net absorption, of office space in Greater Washington, D.C. during 2004 totaled 11.6 million square feet, the second highest in the nation, and the region exceeded its long-term average of 8.2 million square feet by 41%. In 2004, office rents in Greater Washington, D.C. increased 1%. During the past 20 years, office rent growth in Greater Washington, D.C. has averaged 5% and Delta Associates projects that further job growth and demand for office space will translate into per annum rent growth of 4-6% between 2005 and 2007.

At Presidents Park II, the Company has executed a lease amendment with an existing tenant for approximately 19,215 net rentable square feet, increasing the space under lease at that property to 32.5%. As of August 31, 2005, the weighted average remaining lease term at the Company’s properties was four years. The Company intends to develop The Portals III and its Square I and II properties in the District of Columbia. Its options to acquire these properties provides the Company with an opportunity to acquire an estimated 1.1 million net rentable square feet of office space, of which 890,000 square feet is currently under construction.

The Company may also acquire properties through joint ventures with third parties. In general, the Company will seek to acquire office properties that provide it with the opportunity to increase: cash flow available for distribution, and value through management efficiencies and leasing and marketing efforts. The Company’s acquisition of the Republic Building, which is 100% leased and 99.2% leased to U.S. government tenants on a long-term basis, represents an acquisition that provides the Company with predictable and stable cash flow.

The Company intends to develop and subsequently acquire office and office-oriented mixed-use properties primarily in Greater Washington, D.C. The Company intends to leverage its substantial expertise in public/private partnerships with various governmental institutions in order to obtain attractive opportunities for the development or redevelopment of land in areas of public interest where subsidies are available. The Company seeks to opportunistically capitalize on its established relationships and proven expertise in public/private partnerships to develop projects where the Company believes it can identify value added opportunities. The Company also will pursue fee-based development services for all real estate classes in order to produce additional revenue sources and to secure future investment opportunities, such as the Company’s ongoing mixed-use development project in the City of West Palm Beach, Florida. The Company may pursue development opportunities directly or with joint venture partners.

The Company will own 10 Class A office properties (comprising 21 buildings), one of which is located in the District of Columbia and nine of which are located in Northern Virginia.

Total operating expenses increased 118.8%, or $11.9 thousand to $8.0 thousand for the six months ended June 30, 2005 for the comparable period in 2004.

Depreciation and amortization expense increased 45.6%, or $5.4 thousand to $3.7 thousand for the six months ended June 30, 2005 for the comparable period in 2004.

General and administrative expense decreased 42.2%, or $323 to $559 for the six months ended June 30, 2005 for the comparable period in 2004.

Net income increased 34.6%, or $2.5 thousand to $1.8 thousand for the six months ended June 30, 2005 for the comparable period in 2004.