UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xþ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~SEPTEMBER~~JUNE 30, ~~2004~~2005 or


o		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 1-9997

CRT PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

FLORIDA (State or other jurisdiction of incorporation or organization) 59-2898045 (I.R.S. Employer Identification No.)


FLORIDA		59-2898045
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

225 NE MIZNER BOULEVARD, SUITE 200 BOCA RATON, FLORIDA (Address of principal executive offices) 33432 (Zip Code)


225 NE MIZNER BOULEVARD, SUITE 200
BOCA RATON, FLORIDA		33432
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (561) 395-9666

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 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 the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class Common Stock, $.01 par value Outstanding at October 29, 2004 26,862,347 shares


Class		Outstanding at July 29, 2005
Common Stock, $.01 par value		31,852,370 shares

CRT PROPERTIES, INC. ~~AND SUBSIDIARIES~~

FORM 10-Q INDEX

	PAGE NO.
			PAGE
PART I. FINANCIAL INFORMATION
PART I.	FINANCIAL INFORMATION
Report of Independent Registered Public Accounting Firm		3
Item 1.	Financial Statements (Unaudited):
Item 1. Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004			3
Condensed Consolidated Balance Sheets— September 30, 2004 and December 31, 2003		4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2005 and 2004			4
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003		5
	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2005			5
Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2004		6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004			6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003		7
	Notes to Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2005 and 2004			7
Notes to Condensed Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2004 and 2003		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			27
Item 3.Quantitative and Qualitative Disclosures About Market Risk		27
Item 4.	Controls and Procedures			27
Item 4.Controls and Procedures		28
PART II.	OTHER INFORMATION
PART II.OTHER INFORMATION
Item 1.	Legal Proceedings			28
Item 1. Legal Proceedings		29
Item 4.	Submission of Matters to a Vote of Security Holders			28
Item 5. Other Information		29
Item 5.	Other Information			29
Item 6. Exhibits and Reports on Form 8-K		31
Item 6.	Exhibits			31
Signatures and Exhibits		33
	Signatures			32
Form of Amended Participation Agreement
Amended Participation Agreement
Form of Amended Supplemental Executive Retirement Agreement
Section 302 Chief Executive Officer Certification
Section 302 Certification of CFO
Section 906 Certification of CEO and CFO

~~REPORT~~PART OFI. ~~INDEPENDENT~~FINANCIAL ~~REGISTERED PUBLIC ACCOUNTING FIRM~~INFORMATION

~~To the Board of Directors and Shareholders of CRT Properties, Inc~~Item 1. ~~Boca~~ ~~Raton,~~Financial ~~Florida~~Statements (Unaudited):

~~We have reviewed the accompanying condensed consolidated balance sheet of~~ CRT ~~Properties,~~ ~~Inc. and subsidiaries (the “Company”)~~PROPERTIES, ~~formerly Koger Equity, Inc~~INC. and subsidiaries as of September 30, 2004, and the related condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2004 and 2003, of changes in shareholders’ equity for the nine-month period ended September 30, 2004 and of cash flows for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.

WeCONDENSED ~~conducted~~CONSOLIDATED ~~our~~BALANCE review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. SHEETS

~~Based~~(Unaudited onand ~~our~~amounts ~~review, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be~~ in ~~conformity~~thousands, ~~with~~except ~~accounting~~share ~~principles generally accepted in the United States of America.~~ data)

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2003, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 5, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


	June 30,			December 31,
	2005			2004
ASSETS
Real Estate Investments:
Operating properties:
Land	$	164,420		$	162,988
Buildings		1,269,850			1,189,658
Furniture and equipment		3,758			3,747
Accumulated depreciation		(238,182	)		(215,587	)

Operating properties, net		1,199,846			1,140,806
Undeveloped land held for investment		14,628			14,628
Cash and cash equivalents		11,801			32,717
Restricted cash		8,222			15,964
Accounts receivable, net of allowance for uncollectible accounts of $1,325 and $1,169		2,750			2,839
Straight-line rents receivable		28,999			20,118
Fair value of in-place leases		9,668			10,695
Investment in unconsolidated entity		—			3,217
Other assets		44,414			43,282

TOTAL ASSETS	$	1,320,328		$	1,284,266


LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Mortgages and loans payable	$	676,971		$	623,467
Accounts payable		11,121			8,584
Accrued real estate taxes payable		11,613			2,414
Accrued liabilities — other		13,234			24,259
Dividends payable		11,448			11,365
Advance rents and security deposits		9,307			9,039

Total Liabilities		733,694			679,128


Minority interest		13,294			11,179


Shareholders’ Equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; liquidation preference of $25 per share; 2,990,000 shares issued and outstanding		30			30
Common stock, $.01 par value; 100,000,000 shares authorized; 40,352,351 and 40,115,540 shares issued; 31,852,370 and 31,614,502 shares outstanding		403			401
Capital in excess of par value		767,896			762,642
Unearned compensation		(3,690	)		—
Accumulated other comprehensive loss		(536	)		(536	)
Dividends in excess of net income		(59,304	)		(37,110	)
Treasury stock, at cost; 8,499,981 and 8,501,038 shares		(131,459	)		(131,468	)

Total Shareholders’ Equity		573,340			593,959

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,320,328		$	1,284,266

~~DELOITTE~~See &notes ~~TOUCHE~~to ~~LLP West~~unaudited ~~Palm~~condensed ~~Beach,~~consolidated ~~Florida November 1,~~financial ~~2004~~statements.

CRT PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~BALANCE~~STATEMENTS ~~SHEETS~~OF OPERATIONS

(Unaudited and amounts In thousands, except per share data)

(In thousands, except share data)


	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2005			2004			2005			2004
REVENUES
Base rental revenues	$	43,769		$	36,778		$	86,605		$	71,534
Recoveries from tenants		4,799			2,582			9,590			6,095
Parking and other		1,491			1,571			2,949			2,770
Management fees		172			108			382			174

Total operating revenues		50,231			41,039			99,526			80,573


EXPENSES
Property operations		14,397			11,534			27,713			22,481
Real estate taxes		5,785			4,502			11,429			9,091
Depreciation and amortization		13,173			9,916			25,211			19,136
General and administrative		6,817			3,167			10,922			6,011
Other		23			58			46			110

Total operating expenses		40,195			29,177			75,321			56,829


OPERATING INCOME		10,036			11,862			24,205			23,744


OTHER INCOME AND (EXPENSE)
Interest income		69			135			184			262
Mortgage and loan interest, including amortization of deferred loan costs of $332 and $378 for the three months and $1,320 and $752 for the six months		(10,466	)		(7,520	)		(21,108	)		(14,826	)

Total other income and (expense)		(10,397	)		(7,385	)		(20,924	)		(14,564	)


INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, AND EQUITY IN EARNINGS OF UNCONSOLIDATED ENTITY		(361	)		4,477			3,281			9,180
Income tax provision		—			—			—			—

NET INCOME (LOSS) BEFORE MINORITY INTEREST AND EQUITY IN EARNINGS OF UNCONSOLIDATED ENTITY		(361	)		4,477			3,281			9,180
Minority Interest		(62	)		—			(138	)		—

NET INCOME BEFORE EQUITY IN EARNINGS OF UNCONSOLIDATED ENTITY		(423	)		4,477			3,143			9,180
Equity in earnings of unconsolidated entity		24			110			124			241

NET INCOME (LOSS)		(399	)		4,587			3,267			9,421
Dividends on preferred stock		(1,588	)		(1,588	)		(3,177	)		(3,176	)

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(1,987	)	$	2,999		$	90		$	6,245


EARNINGS (LOSS) PER SHARE:
Basic	$	(0.06	)	$	0.11		$	—		$	0.24

Diluted	$	(0.06	)	$	0.11		$	—		$	0.23

WEIGHTED AVERAGE SHARES:
Basic		31,822			26,840			31,787			26,455

Diluted		31,822			27,230			32,151			26,882

	September 30,			December 31,
	2004			2003
ASSETS
Real Estate Investments:
Operating properties:
Land	$	149,853		$	119,973
Buildings		1,016,263			838,430
Furniture and equipment		3,734			3,599
Accumulated depreciation		(205,843	)		(179,569	)
Operating properties, net		964,007			782,433
Undeveloped land held for investment		14,575			10,975
Undeveloped land held for sale		3,039			3,041
Cash and cash equivalents		4,845			9,163
Restricted cash		14,024			11,114
Accounts receivable, net of allowance for uncollectible accounts of $1,196 and $939		19,378			16,236
Investment in unconsolidated entity		3,240			—
Other assets		30,935			15,239
TOTAL ASSETS	$	1,054,043		$	848,201
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Mortgages and loans payable	$	517,025		$	408,716
Accounts payable		2,784			4,299
Accrued real estate taxes payable		10,850			1,853
Accrued liabilities — other		11,108			11,016
Dividends payable		9,700			7,824
Advance rents and security deposits		7,016			6,846
Total Liabilities		558,483			440,554
Minority interest		6,844			4,672
Shareholders’ Equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; liquidation preference of $25 per share; 2,990,000 shares issued and outstanding		30			30
Common stock, $.01 par value; 100,000,000 shares authorized; 35,361,691 and 30,011,225 shares issued; 26,857,025 and 21,495,956 shares outstanding		354			300
Capital in excess of par value		650,131			546,968
Notes receivable from stock sales to related parties		(1,292	)		(5,092	)
Accumulated other comprehensive loss		(241	)		(241	)
Dividends in excess of net income		(28,768	)		(7,405	)
Treasury stock, at cost; 8,504,666 and 8,515,269 shares		(131,498	)		(131,585	)
Total Shareholders’ Equity		488,716			402,975
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,054,043		$	848,201

See notes to unaudited condensed consolidated financial statements.

CRT PROPERTIES, INC. ~~AND SUBSIDIARIES~~

~~CONDENSED~~ CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~OPERATIONS~~CHANGES IN ~~(Unaudited)~~SHAREHOLDERS’ EQUITY

(InUnaudited ~~thousands,~~and ~~except~~amounts ~~per~~in ~~share data~~thousands)

	Three Months						Nine Months
	Preferred Stock						Common Stock						Capital					Accumulated			Dividends						Total
	Ended September 30,						Ended September 30,
													in Excess					Other			In Excess						Share-
	2004			2003			2004			2003
	Shares			Par			Shares			Par			Of Par		Unearned			Comprehensive			of Net			Treasury			holders'
REVENUES
	Issued			Value			Issued			Value			Value		Compensation			Loss			Income			Stock			Equity
Rental and other rental services	$	40,974		$	35,163		$	121,373		$	107,407
BALANCE AT DECEMBER 31, 2004		2,990		$	30			40,115		$	401		$	762,642	$	—		$	(536	)	$	(37,110)	)	$	(131,468	)	$	593,959
Management fees		89			—			263			331
Issuance of restricted stock								180			2			4,098		(4,100	)											—
Other		—			—			—			5
Common stock sold														16											9			25
Total operating revenues		41,063			35,163			121,636			107,743
Amortization of restricted stock award																410												410
EXPENSES
Shares issued pursuant to long-term incentive plan								21						479														479
Property operations		16,114			13,907			47,686			41,949
Options exercised								36			—			661														661
Depreciation and amortization		10,479			7,925			29,615			24,537
Dividends declared																						(25,461	)					(25,461	)
General and administrative		4,146			2,385			10,157			8,415
Net Income																						3,267						3,267
Direct costs of management fees		—			—			—			88
BALANCE AT JUNE 30, 2005		2,990		$	30			40,352		$	403		$	767,896	$	(3,690	)	$	(536	)	$	(59,304	)	$	(131,459	)	$	573,340
Other		47			36			157			103
Total operating expenses		30,786			24,253			87,615			75,092
OPERATING INCOME		10,277			10,910			34,021			32,651
OTHER INCOME AND (EXPENSE)
Equity in earnings of unconsolidated entity		65			—			306			—
Interest income		53			39			315			179
Mortgage and loan interest, including amortization of deferred loan costs of $584 and $370 for the three months and $1,336 and $1,095 for the nine months		(8,155	)		(7,289	)		(22,981	)		(22,059	)
Total other income and (expense)		(8,037	)		(7,250	)		(22,360	)		(21,880	)
INCOME BEFORE GAIN ON SALE OR DISPOSITION OF ASSETS, INCOME TAXES, AND MINORITY INTEREST		2,240			3,660			11,661			10,771
Gain on sale or disposition of assets		—			—			—			589
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		2,240			3,660			11,661			11,360
Income tax expense (benefit)		—			(1	)		—			(22	)
NET INCOME BEFORE MINORITY INTEREST		2,240			3,661			11,661			11,382
Minority Interest		72			—			72			—
NET INCOME		2,168			3,661			11,589			11,382
Dividends on preferred stock		(1,588	)		(371	)		(4,764	)		(371	)
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	580		$	3,290		$	6,825		$	11,011
EARNINGS PER SHARE:
Basic	$	0.02		$	0.15		$	0.26		$	0.52
Diluted	$	0.02		$	0.15		$	0.25		$	0.52
WEIGHTED AVERAGE SHARES:
Basic		26,855			21,332			26,590			21,314
Diluted		27,180			21,455			26,919			21,377

See notes to unaudited condensed consolidated financial statements.

CRT PROPERTIES, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~CHANGES~~CASH INFLOWS

~~SHAREHOLDERS’~~(Unaudited ~~EQUITY~~and amounts in thousands)

(Unaudited)


	Six Months
	Ended June 30,
	2005			2004
OPERATING ACTIVITIES
Net income	$	3,267		$	9,421
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of unconsolidated entity		(124	)		(241	)
Minority interest expense		138			—
Depreciation and amortization		25,211			19,136
Amortization of deferred loan costs		1,320			752
Provision for uncollectible accounts		282			277
Amortization of restricted stock award		410			—
Changes in assets and liabilities:
Increase in receivables and other assets		(10,928	)		(7,701	)
Increase in accounts payable, accrued liabilities and other liabilities		1,477			8,742

Net cash provided by operating activities		21,053			30,386


INVESTING ACTIVITIES
Property acquisitions		(14,990	)		(83,944	)
Tenant improvements to first generation space		(6,125	)		(4,297	)
Tenant improvements to second generation space		(5,081	)		(2,106	)
Building improvements		(3,618	)		(7,940	)
Deferred tenant costs		(2,228	)		(2,371	)
Additions to furniture and equipment		(11	)		(114	)
Decrease (Increase) in restricted cash		7,742			(809	)
Investment in unconsolidated entity		—			(3,148	)
Dividends from unconsolidated entity		57			—

Net cash used in investing activities		(24,254	)		(104,729	)


FINANCING ACTIVITIES
Proceeds from exercise of stock options		661			2,643
Proceeds from sales of common stock		25			100,337
Proceeds from mortgages and loans		87,000			6,000
Principal payments on mortgages and loans payable		(79,996	)		(17,724	)
Distributions to minority interest		(26	)		—
Dividends paid		(25,379	)		(20,095	)

Net cash (used in) provided by financing activities		(17,715	)		71,161

Net decrease in cash and cash equivalents		(20,916	)		(3,182	)
Cash and cash equivalents — beginning of period		32,717			9,163

Cash and cash equivalents — end of period	$	11,801		$	5,981


SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for income taxes	$	—		$	5

Cash paid during the period for interest	$	19,799		$	13,966

Non cash item-issuance of restricted stock to certain key executives	$	4,100		$	—

Non cash item-shares issued pursuant to long-term incentive plan	$	479		$	—

Non cash item-assumption of debt from real estate acquisitions	$	46,500		$	75,874

Non cash item-issuance of assets and limited partner units for acquisitions	$	5,269		$	2,041

(In thousands)

	Preferred Stock				Common Stock				Capitalin Excess		NotesReceivable			AccumulatedOther			DividendsIn Excess						TotalShare-
	Shares		Par		Shares		Par		of Par		from Stock			Comprehensive			of Net			Treasury			holders’
	Issued		Value		Issued		Value		Value		Sales			Loss			Income			Stock			Equity
BALANCE AT DECEMBER 31, 2003		2,990	$	30		30,011	$	300	$	546,968	$	(5,092	)	$	(241	)	$	(7,405	)	$	(131,585	)	$	402,975
Common stock sold						5,175		52		100,283											87			100,422
Options exercised						175		2		2,880														2,882
Dividends declared																		(32,952	)					(32,952	)
Stock loan repayments												3,800												3,800
Net Income																		11,589						11,589
BALANCE AT SEPTEMBER 30, 2004		2,990	$	30		35,361	$	354	$	650,131	$	(1,292	)	$	(241	)	$	(28,768	)	$	(131,498	)	$	488,716

See notes to unaudited condensed consolidated financial statements.

CRT PROPERTIES, INC. ~~AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR OFTHE ~~CASH~~THREE ~~FLOWS~~AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (Unaudited and in thousands, except per share data)

~~(Unaudited~~Unless the context otherwise requires, all references to the terms “we,” “our” or “us” “CRT” or the “Company” in this report refer collectively to CRT Properties, Inc., a Florida corporation incorporated in 1988 under the name Koger Equity, Inc., individually or together with our subsidiaries and Inour ~~Thousands)~~predecessors, unless the context requires otherwise.

	Nine Months
	Ended September 30,
	2004			2003
OPERATING ACTIVITIES
Net income	$	11,589		$	11,382
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of unconsolidated entity		(306	)		—
Minority interest expense		72			—
Depreciation and amortization		29,615			24,537
Amortization of deferred loan costs		1,336			1,095
Provision for uncollectible accounts		388			488
Gain on sale or disposition of assets		—			(589	)
Changes in assets and liabilities:
Increase in receivables and other assets		(10,224	)		(928	)
Increase in accounts payable, accrued liabilities and other liabilities		7,751			6,980
Net cash provided by operating activities		40,221			42,965
INVESTING ACTIVITIES
Property acquisitions		(125,718	)		(33,103	)
Tenant improvements to first generation space		(6,533	)		(3,300	)
Tenant improvements to second generation space		(3,106	)		(3,448	)
Building improvements		(9,975	)		(3,857	)
Deferred tenant costs		(3,784	)		(1,585	)
Additions to furniture and equipment		(135	)		(213	)
Increase in restricted cash		(2,910	)		(3,086	)
Proceeds from sale of assets		—			1,580
Investment in unconsolidated entity		(2,934	)		—
Net cash used in investing activities		(155,095	)		(47,012	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options		2,882			317
Proceeds from issuance of preferred stock		—			72,145
Proceeds from sales of common stock		100,422			204
Proceeds from mortgages and loans		82,490			36,000
Principal payments on mortgages and loans payable		(50,055	)		(73,570	)
Contributions from minority interest		2,100			—
Stock loan repayment		3,800			—
Dividends paid		(31,083	)		(22,374	)
Net cash provided by financing activities		110,556			12,722
Net (decrease) increase in cash and cash equivalents		(4,318	)		8,675
Cash and cash equivalents — beginning of period		9,163			4,627
Cash and cash equivalents — end of period	$	4,845		$	13,302
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for income taxes	$	5		$	—
Cash paid during the period for interest	$	21,456		$	20,757
Non cash item-assumption of debt from real estate acquisitions	$	75,874		$	—
Non cash item-issuance of limited partner units for real estate acquisitions	$	2,041		$	—

1. Organization. We are a fully integrated, self-administered and self-managed equity real estate investment trust (a “REIT”) which develops, owns, operates, leases and manages office buildings in metropolitan areas in the southeastern United States, Maryland and Texas. We conducted our initial public offering in 1988. Our common shares are listed on the NYSE under the symbol CRO and our Series A Cumulative Redeemable Preferred Stock is listed on the NYSE under the symbol CRO-PA. As of June 30, 2005, we owned 137 office buildings containing 11.7 million rentable square feet, primarily located in more than twenty-five office projects in twelve metropolitan areas in the Southeastern United States, Maryland and Texas.

~~See~~ 2. Pending ~~notes~~Merger toTransaction. ~~unaudited~~On ~~condensed~~June 17, ~~consolidated~~2005, ~~financial~~we ~~statements~~entered into an Agreement and Plan of Merger (the “Merger Agreement”) with DRA G&I Fund V Real Estate Investment Trust (“Parent”) and DRA CRT Acquisition Corp., a wholly-owned subsidiary of Parent ( “MergerCo”, and together with Parent, the “Acquirors”), providing for the merger of the Company with and into MergerCo (the “Merger”). The Acquirors represent clients advised by DRA Advisors LLC, a New York-based registered investment advisor specializing in real estate investment management services for institutional and private investors.

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger each share of our common stock issued and outstanding will be converted into the right to receive $27.80 in cash, plus unpaid dividends through the earlier of closing and September 30, 2005 (the “Merger Consideration”). Also at the effective time of the Merger, each outstanding option to purchase shares of our common stock will be canceled in exchange for the right to receive the excess of the Merger Consideration over the exercise price of the option.

At the effective time of the Merger, each issued and outstanding share of our 8.5% Series A Cumulative Redeemable Preferred Shares will be exchanged for a share of 8.5% Series A Cumulative Redeemable Preferred Stock of MergerCo, with terms identical to the terms of the existing preferred shares. The Merger Agreement provides that we may continue to declare and pay regularly quarterly dividends on our preferred shares.

The Merger and the transactions contemplated by the Merger Agreement have been unanimously approved by our Board of Directors. The consummation of the Merger is conditioned upon customary closing conditions, including the approval of our common shareholders, but contains no financing contingencies. While the Merger Agreement restricts our ability to solicit other proposals, the agreement permits us to consider unsolicited proposals. The Merger Agreement contains certain termination rights for both the Acquirors and us and provides that upon termination of the Merger Agreement under certain circumstances, we may be required to pay the Parent a break-up fee of $40 million.

In connection with the Merger Agreement, DRA Growth and Income Fund V LLC has issued an unconditional guarantee for the payment and performance when due of all the liabilities, obligations and undertakings of the Acquirors (the “Guaranty”). The Guaranty will terminate upon the earlier of the termination of the Merger Agreement (other than as a result of default or breach by the Acquirors) or the closing of the Merger.

We are aware of two purported class action lawsuits related to the Merger Agreement filed against us, each of our

~~CRT~~directors ~~PROPERTIES~~and DRA Advisors LLC in the Circuit Court of the 15th Judicial Circuit, Palm ~~INC~~Beach County, Florida. ~~AND~~The ~~SUBSIDIARIES~~two lawsuits allege, among other things, that the Merger Consideration is unfair and inadequate and unfairly favors insiders. In addition, the complaints allege that our directors violated their fiduciary duties by, among other things, failing to take all reasonable steps to assure the maximization of shareholder value, including the implementation of a bidding mechanism to foster a fair auction of our company to the highest bidder or the exploration of strategic alternatives that will return greater or equivalent short-term value to our shareholders. The complaints seek, among other relief, certification of the lawsuit as a class action, a declaration that the Merger is unfair, unjust and inequitable to our shareholders, an injunction preventing completion of the Merger at a price that is not fair and equitable, compensatory damages to the class, attorneys’ fees and expenses, along with such other relief as the court might find just and proper.

~~NOTES~~ On TOAugust 8, ~~CONDENSED~~2005, ~~CONSOLIDATED~~we ~~FINANCIAL~~entered ~~STATEMENTS~~into a memorandum with the plaintiffs in the two cases described above, pursuant to which we agreed in principal to settle these lawsuits. Under the terms of the proposed settlement, which is subject to the execution of the definitive settlement documents, completion by plaintiffs’ counsel of confirmatory discovery and court approval, we agreed to make certain additional disclosures in our definitive proxy statement dated August 8, 2005, which were not contained in the preliminary proxy statement we filed with the Securities and Exchange Commission on July 15, 2005. In addition, we agreed not to oppose application by plaintiffs’ counsel to the court for an award of attorneys’ fees and expenses in an amount not to exceed the aggregate $400,000, which would be paid by us or our successors.

~~FOR~~ 3. Basis ~~THE~~of ~~THREE~~Presentation ~~AND~~and ~~NINE~~Summary ~~MONTHS~~of Recent Accounting Pronouncements. The condensed consolidated financial statements have been prepared by CRT. All material intercompany transactions and accounts have been eliminated in consolidation. The financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission related to interim financial statements.

~~ENDED~~ The ~~SEPTEMBER~~accompanying 30condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2004, included ~~AND~~in ~~2003~~the Form 10-K Annual Report for the year ended December 31, 2004. The accompanying balance sheet at December 31, 2004, has been derived from the audited financial statements at that date and is condensed.

~~(Unaudited)~~ All adjustments which, in the opinion of management, are necessary to fairly present the results for the interim periods have been made. Results of operations for the three and six months ended June 30, 2005 are not necessarily indicative of the results to be expected for future periods or for the full year.

1.In December ~~ORGANIZATION.~~2004, ~~CRT~~the ~~Properties,~~Financial ~~Inc.~~Accounting Standards Board (“~~CRT~~FASB”) orissued ~~the~~Statement on Financial Accounting Standards (“~~Company~~SFAS”) No. 123(R), a“Share-Based Payment.” This statement replaces ~~Florida~~SFAS ~~corporation~~123 ~~formerly~~and ~~known~~establishes asstandards ~~Koger~~for ~~Equity,~~the ~~Inc.,~~accounting ~~was~~for ~~incorporated~~transactions in ~~1988~~ towhich ~~own~~an ~~and~~entity ~~manage~~exchanges its ~~commercial~~equity ~~office~~instruments ~~buildings~~for ~~and~~goods ~~other~~or ~~income-producing properties~~services. ~~CRT~~It isalso aaddresses ~~self-administered~~transactions ~~and~~in ~~self-managed~~which ~~real~~an ~~estate~~entity ~~investment~~incurs ~~trust~~liabilities (ain ~~“REIT”)~~exchange ~~and~~for ~~its~~goods ~~common~~or ~~stock~~services ~~and~~that ~~preferred stock~~ are ~~listed~~ based on the ~~New~~fair ~~York~~value ~~Stock~~of ~~Exchange~~the entity’s ~~under~~equity ~~the~~instruments ~~ticker~~or ~~symbol~~that ~~“CRO”~~may ~~and “CROPRA”,~~be ~~respectively.~~settled Asby the issuance of ~~September 30,~~those ~~2004,~~equity ~~CRT~~instruments. Public ~~owned~~entities orthat ~~had~~do ~~interests in~~not ~~134~~file ~~office~~as ~~buildings~~small ~~containing~~business ~~10.8 million~~issuers ~~rentable~~are ~~square~~subject ~~feet, primarily~~to ~~located~~the ~~within~~provisions 21of ~~suburban~~this Statement ~~office~~which ~~projects~~are ~~and~~effective ~~two~~for ~~urban~~the ~~centers~~Company ~~in 12~~January 1, ~~metropolitan~~2006. ~~areas~~We inare currently evaluating the ~~Southeastern~~effects ~~United~~of ~~States,~~SFAS ~~Maryland~~No. 123(R) ~~and~~on our ~~Texas~~condensed consolidated financial statements.

2.In December ~~BASIS~~2004, OFthe ~~PRESENTATION~~FASB issued SFAS No. 153, ~~The~~“Exchanges ~~condensed~~of ~~consolidated~~Non-monetary ~~financial~~Assets.” This ~~statements~~statement ~~have~~establishes ~~been~~standards ~~prepared~~for bythe ~~CRT.~~measurement ~~All~~of ~~material~~exchanges ~~intercompany~~of ~~transactions~~ non-monetary assets and eliminates ~~accounts~~the ~~have~~exception ~~been~~from ~~eliminated~~fair value measurement for non-monetary exchanges of similar productive assets in ~~consolidation~~paragraph 21(b) of APB Opinion No. 29, ~~The~~“Accounting ~~financial~~for ~~statements~~Non-monetary Transactions,” and replaces it with an exception for exchanges that do no have ~~been~~commercial substance. ~~prepared~~SFAS inNo. 153’s ~~accordance~~transition ~~with~~provisions ~~the~~are ~~rules~~effective ~~and~~for ~~regulations~~fiscal ofperiods ~~the~~beginning after ~~Securities~~June 15, ~~and~~2005. ~~Exchange~~We ~~Commission~~are ~~related~~currently toevaluating ~~interim~~the effects of SFAS No. 153 on our condensed consolidated financial statements.

4. Summary of Significant Accounting Policies and Estimates. The ~~accompanying~~preparation ~~condensed~~of condensed consolidated financial statements ~~should~~in beconformity ~~read~~with accounting principles generally accepted in ~~conjunction~~the ~~with~~United ~~the~~States ~~consolidated~~of ~~financial~~America ~~statements~~(“GAAP”) requires us to make estimates and ~~notes~~assumptions ~~thereto~~that ~~for~~ affect the reported ~~year~~amounts ~~ended~~of ~~December 31~~assets, ~~2003~~liabilities, ~~included~~revenues, inand ~~the~~expenses ~~Company’s~~and ~~Form~~the ~~10-K~~disclosure ~~Annual~~of contingent ~~Report~~assets ~~for~~and ~~the~~liabilities. ~~year~~These ~~ended~~estimates ~~December 31,~~are ~~2003.~~based ~~The~~on ~~accompanying~~historical ~~balance~~experience ~~sheet~~and atvarious other ~~December 31,~~factors ~~2003~~that ~~has~~we ~~been~~believe ~~derived~~to ~~from~~be reasonable under the ~~audited~~circumstances. ~~financial~~However, ~~statements~~actual atresults could ~~that~~differ ~~date~~from ~~and~~our isestimates ~~condensed~~under different assumptions or conditions. We evaluate the reasonableness of our estimates on an ongoing basis.

~~All~~ We ~~adjustments~~believe ~~which, in~~ the ~~opinion~~following ofsignificant ~~management,~~accounting ~~are~~policies ~~necessary~~affect ~~to fairly present~~ the ~~results~~significant ~~for~~estimates ~~the interim periods have been made. Certain prior~~and ~~year~~assumptions ~~amounts~~used ~~have been reclassified~~ in ~~order to conform to~~ the ~~current year~~ ~~presentation. Results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for future periods or for the full year.~~

New Accounting Standards. In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees of Indebtedness of Others.” FIN No. 45 requires certain guarantees to be recorded at fair value and also requires significant new disclosures related to guarantees, even when the likelihood of making any payments under the guarantee is remote. FIN No. 45 generally applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying variable that is related to an asset, liability, or an equity security of the guaranteed party. FIN No. 45 is effective for guarantees issued or modified after December 31, 2002. The Company adopted FIN No. 45 effective January 1, 2003. The Company’s adoption of FIN No. 45 has not had a material impact on its condensed consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148 does not amend SFAS No. 123 to require companies to account for their employee stock-based awards using the fair value method. However, the disclosure provisions are required for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS No. 123 or the intrinsic value method described in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 148’s transition provisions are effective for fiscal years ending after December 15, 2002. The Company adopted the interim disclosure provisions of SFAS No. 148 effective January 1, 2003. The Company’s adoption of SFAS No. 148 has not had a material impact on its condensed consolidated financial statements.

~~In December 2003,~~preparation ~~FASB Interpretation No. (“FIN”) 46(R), “Consolidation~~ of ~~Variable~~ ~~Interest~~our ~~Entities”~~condensed was issued. FIN 46(R) replaces FIN 46 and addresses consolidation by business enterprises of variable interest entities. The provisions of FIN 46(R) are effective for the first reporting period that ends after December 15, 2003 for variable interests in those entities commonly referred to as special-purpose entities. Application of the provisions of FIN 46(R) for all other entities is effective for the first reporting period ending after March 15, 2004. The Company’s adoption of FIN 46(R) has not had a material impact on its consolidated financial statements. :

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 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. This statement was effective for contracts entered into or modified after June 30, 2003. The Company’s adoption of SFAS No. 149 has not had a material impact on its consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003 (July 1, 2003 for calendar quarter companies). The Company adopted SFAS No. 150 effective July 1, 2003. The Company’s adoption of SFAS No. 150 has not had a material impact on its consolidated financial statements.

In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” (SAB No. 104), which codifies, revises and rescinds certain sections of SAB No. 101, “Revenue Recognition”, in order to make this interpretive guidance consistent with current authoritative guidance. The Company’s adoption of SAB No. 104 did not have a material impact on its consolidated financial statements.

3. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES. The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. These estimates are based on historical experience and various other factors that are believed to be reasonable under the circumstances. However, actual results could differ from the Company’s estimates under different assumptions or conditions. On an ongoing basis, the Company evaluates the reasonableness of its estimates.

The Company believes the following significant accounting policies affect the significant estimates and assumptions used in the preparation of its condensed consolidated financial statements:

Investments in Real Estate. Rental property and improvements, including interest and other costs capitalized during construction, are included in real estate investments and are stated at cost. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements, which improve or extend the useful life of the assets, are capitalized. Except for amounts attributed to land, rental property and improvements are depreciated as described below.

~~The~~ We ~~Company~~recognize ~~recognizes~~ gains on the sale of property in accordance with SFAS No. 66. Revenues from sales of property are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

~~Acquisitions~~Depreciation ofand ~~Real Estate~~Amortization. ~~The~~We ~~Company~~compute ~~assesses~~depreciation ~~the~~on ~~fair~~our ~~value~~operating ofproperties ~~acquired~~using ~~tangible~~the ~~and~~straight-line ~~intangible~~method ~~assets,~~based ~~including~~on ~~land,~~estimated ~~buildings,~~useful ~~tenant~~lives of 3 to 39 years. A significant ~~improvements,~~portion ~~above~~of ~~and~~the ~~below~~acquisition ~~market~~cost ~~leases,~~of ~~origination~~each ~~costs,~~operating property is allocated to the acquired buildings ~~in-place~~(usually ~~leases,~~85% ~~other~~to ~~identified~~90%). ~~intangible~~The ~~assets~~allocation ~~and~~of ~~assumed~~the ~~liabilities~~acquisition ~~in accordance~~cost ~~with~~to ~~Statement~~buildings and the determination of the ~~Financial~~useful ~~Accounting~~lives ~~Standards~~are ~~(“SFAS”)~~based Noon our estimates. ~~141, “Business~~ ~~Combinations”~~If ~~and~~estimates ~~allocates~~of the ~~purchase~~useful ~~price~~lives toof ~~the~~our ~~acquired assets~~operating ~~and~~properties ~~assumed liabilities~~change, ~~including~~we ~~land~~may atbe ~~appraised~~required ~~value~~to ~~and~~adjust ~~buildings~~future ~~at replacement~~depreciation ~~cost~~expense. ~~The~~Deferred ~~Company~~tenant ~~assesses~~costs (leasing commissions and ~~considers~~tenant ~~fair~~relocation ~~value~~costs) ~~based~~are ~~on estimated~~amortized ~~cash~~over the term of the related leases.

Impairment of Long-Lived Assets. Our long-lived assets include investments in real estate. We assess impairment of long-lived assets whenever changes or events indicate that the carrying value may not be recoverable. We assess impairment of operating properties based on the operating cash flows of the properties. In performing our assessment, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. During the three and six months ended June 30, 2005, we did not record any impairment charges. If these estimates or their related assumptions change in the future, we may be required to record impairment charges.

Cost of Real Estate Acquired. We account for our acquisitions of real estate in accordance with SFAS No. 141, “Business Combinations,” which requires the fair value of the real estate acquired to be allocated to the acquired tangible assets, consisting of land, building, building improvements and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above and below market leases, customer relationships, lease costs and the value of in-place leases.

The allocation to intangible assets is based upon various factors including the above or below market component of in–place leases, the value of in-place leases, leasing commissions, legal fees and the value of customer relationships. The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using an interest rate which reflects the risks associated with the lease) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using current fair market rates over the remaining term of the lease. The amounts allocated to above or below market leases are amortized to rental income over the average remaining term of the respective leases. The remaining purchase price is allocated among various categories of tangible assets (building and land) and is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Differing assumptions and methods could result in different estimates of fair value and thus, a different purchase price allocation and corresponding increase or decrease in depreciation and amortization expense.

Revenue Recognition. Rental income is generally recognized over the lives of leases according to provisions of the underlying lease agreements. Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments increase during the term of the lease. For these leases, we record rental income for the full term of each lease on a straight-line basis. For the quarters ended June 30, 2005 and 2004, the recognition of rental revenues on a

~~flow~~straight-line ~~projections~~basis ~~that~~for ~~utilize~~applicable ~~appropriate~~leases ~~discount~~increased ~~and/or~~rental ~~capitalization rates,~~revenues asby ~~well~~$4,326,000 ~~as available market information. Estimates of future cash flows~~and ~~are based on a number of factors including the historical operating results~~$1, ~~known~~407,000, ~~and anticipated trends~~respectively, ~~and~~over ~~market~~the ~~and~~amount ~~economic~~which ~~conditions.~~would ~~Results~~have ~~of operations~~been ofrecognized ~~acquired~~based ~~entities~~upon ~~are included in consolidated earnings from~~ the ~~date~~contractual ofprovisions ~~acquisition. The fair value~~ of ~~the~~these ~~tangible~~leases. ~~assets~~For ~~of an acquired property considers~~ the ~~value~~six ofmonths ~~the~~ended ~~property~~June 30, as2005 ifand it2004, ~~were vacant. The Company~~the ~~also~~recognition ~~considers an allocation~~ of ~~purchase~~rental ~~price~~revenues ofon ~~other~~a ~~acquired~~straight-line ~~intangibles, including~~basis ~~acquired~~for ~~in-place~~applicable leases ~~that~~increased ~~may~~rental revenues ~~have~~by a$8,885,000 ~~customer~~and ~~relationship intangible~~$2,656,000, ~~value~~respectively, ~~including~~over ~~(but not limited to)~~ the ~~nature~~amount ~~and~~which ~~extent~~would ofhave ~~the~~been ~~existing~~recognized ~~relationship~~based ~~with~~upon the ~~tenants,~~contractual ~~the~~provisions ~~tenant’s credit quality and expectations~~ of ~~lease~~these ~~renewals~~leases.

~~Depreciation~~We ~~and~~have ~~Amortization.~~historically ~~The~~generated ~~Company~~management ~~computes~~fees ~~depreciation~~and onleasing ~~its operating~~commissions ~~properties~~by ~~using~~providing ~~the straight~~on-~~line~~site property ~~method~~management ~~based~~and onleasing ~~estimated~~services ~~useful lives of 3~~ to ~~39 years.~~a Alimited ~~significant~~number ~~portion~~ of ~~the~~third ~~acquisition~~party ~~cost~~owners. ~~of each~~Management ~~operating~~fees ~~property~~are isgenerally ~~allocated~~earned tomonthly ~~the~~and ~~acquired~~are ~~buildings~~based ~~(usually~~on ~~85%~~a topercentage ~~90%). The allocation~~ of the ~~acquisition~~managed ~~cost~~properties’ tomonthly rental ~~buildings~~ and ~~the~~other ~~determination~~operating ~~of the~~revenues. ~~useful~~Leasing ~~lives~~commissions are ~~based~~earned onwhen ~~the~~we, ~~Company’s~~on ~~estimates.~~behalf Ifof the ~~Company were to~~ ~~allocate~~third ~~acquisition~~party ~~costs~~owner, ~~inappropriately~~negotiate ~~to buildings~~ or toassist ~~incorrectly estimate~~in the ~~useful~~negotiation ~~lives~~ of ~~its~~new ~~operating properties~~leases, itrenewals ~~may~~and beexpansions ~~required to~~of ~~adjust~~existing ~~future~~leases, ~~depreciation~~and ~~expense.~~are ~~Deferred~~generally ~~tenant~~based ~~costs~~on ~~(leasing~~a ~~commissions and~~percentage ~~tenant~~of ~~relocation~~rents ~~costs)~~to ~~are~~be ~~amortized~~received ~~over~~under the initial term of the ~~related~~respective leases.

~~Impairment~~Allowances offor ~~Long-Lived~~Doubtful ~~Assets~~Accounts. ~~The~~We ~~Company’s~~maintain ~~long-lived~~allowances ~~assets~~for ~~include investments~~doubtful inaccounts ~~real~~for estimated ~~estate.~~losses ~~The~~due ~~Company~~to ~~assesses~~the ~~impairment~~inability of ~~long-lived assets~~our ~~whenever~~tenants ~~changes~~to ormake ~~events~~required ~~indicate~~payments ~~that~~for ~~the~~rents ~~carrying~~and ~~value may not be~~other ~~recoverable~~rental services. ~~The~~In ~~Company~~assessing ~~assesses~~the ~~impairment~~recoverability of ~~operating~~these ~~properties~~receivables, ~~based~~we onmake assumptions regarding the ~~operating~~financial ~~cash~~condition ~~flows~~ of the ~~properties.~~tenants Inbased ~~performing~~primarily ~~its~~on ~~assessment,~~past ~~the Company~~payment ~~must~~trends ~~make~~and ~~assumptions~~certain financial ~~regarding~~information ~~estimated~~that ~~future~~tenants ~~cash~~submit ~~flows and other factors~~ to ~~determine~~us. If the ~~fair~~financial ~~value~~condition of ~~the~~our ~~respective~~tenants ~~assets.~~were ~~During the~~to ~~quarter~~deteriorate and ~~nine~~result ~~months~~in ~~ended~~an ~~September 30,~~impairment ~~2004~~of their ability to make payments, nowe ~~impairment~~may ~~charges~~be ~~were~~required to ~~recorded~~increase our allowances by recording additional bad debt expense. IfLikewise, ~~these~~should ~~estimates~~the orfinancial condition ~~their~~of ~~related~~our ~~assumptions~~tenants ~~change~~improve and result in ~~the~~payments or settlements of previously reserved ~~future~~amounts, ~~the~~we ~~Company~~ may be required to record ~~impairment~~a ~~charges~~reduction in bad debt expense.

~~Revenue~~Federal ~~Recognition~~Income Taxes. ~~Rental~~We ~~income~~are isqualified ~~generally~~and ~~recognized~~have ~~over~~elected ~~the~~tax ~~lives~~treatment as a REIT under ofthe ~~leases~~Internal ~~according~~Revenue toCode. ~~provisions~~A ofcorporate ~~the~~REIT ~~underlying~~is ~~lease~~a ~~agreements.~~legal ~~Certain leases~~entity ~~provide~~that ~~for~~owns ~~tenant~~income-producing ~~occupancy~~real property, ~~during~~and ~~periods~~through ~~for~~distributions ~~which~~of noincome ~~rent~~to its shareholders, is ~~due~~permitted to reduce or avoid ~~where~~the ~~minimum~~payment ~~rent~~of ~~payments~~federal ~~increase~~income ~~during~~taxes at the ~~term~~corporate oflevel. ~~the~~To ~~lease.~~maintain ~~For~~qualification ~~these~~as a REIT, ~~leases~~we must, ~~the~~among ~~Company~~other ~~records~~requirements, ~~rental~~distribute ~~income~~at ~~for~~least ~~the~~90 percent ~~full~~of ~~term~~our ofREIT ~~each~~taxable ~~lease~~income onto aour ~~straight-line basis~~shareholders. ~~For~~To the ~~quarters~~extent ~~ended~~that ~~September~~we pay dividends equal to 100 30percent of our REIT taxable income, our ~~2004~~earnings ~~and~~are ~~2003~~taxed at the shareholder level. However, the ~~recognition~~ use of ~~rental~~net ~~revenues~~operating onloss carryforwards, awhich ~~straight-line~~may ~~basis~~reduce REIT taxable income to zero, are limited for ~~applicable~~alternative ~~leases~~minimum ~~increased~~tax ~~rental~~purposes. ~~revenues~~Distributed bycapital ~~$1,492,000~~gains ~~and~~on ~~$802,000,~~sales ~~respectively,~~of ~~over~~real estate are not subject to tax at the REIT ~~amount~~level; ~~which~~however, ~~would~~undistributed ~~have~~capital ~~been~~gains ~~recognized~~are ~~based~~taxed ~~upon~~at the ~~contractual~~REIT ~~provisions of~~level ~~these leases~~. ~~For~~If ~~the~~we ~~nine~~fail ~~months~~to ~~ended~~qualify ~~September 30~~as a REIT in any taxable year, ~~2004~~we will be subject to federal income taxes and ~~2003,~~will ~~the recognition~~not ofbe ~~rental~~able ~~revenues~~to qualify onas a ~~straight-line~~REIT ~~basis~~ for ~~applicable~~four ~~leases increased~~subsequent ~~rental~~taxable ~~revenues~~years. byAlthough ~~$4,148,000~~CRT ~~and~~Realty $3Services,~~172~~ Inc. (“CRTRSI”),~~000,~~ ~~respectively~~a taxable REIT subsidiary, ~~over~~is ~~the~~consolidated with us for financial reporting purposes, ~~amount~~this ~~which~~entity ~~would~~is ~~have~~subject ~~been~~to ~~recognized~~federal ~~based~~income ~~upon~~tax ~~the~~and ~~contractual~~files ~~provisions of~~separate ~~these~~federal ~~leases~~and state income tax returns.

~~The~~ Investment ~~Company~~in ~~has~~Unconsolidated ~~historically~~Entity. ~~generated~~On ~~management~~May 9, ~~fees~~2005, ~~and~~we ~~leasing~~acquired ~~commissions~~the remaining 70 bypercent ~~providing~~equity ~~on-site~~interests ~~property~~that ~~management~~we ~~and~~did ~~leasing~~not ~~services~~already toown ain ~~limited~~the partnership which owns Broward ~~number~~Financial ofCentre ~~third~~in ~~party~~Ft. ~~owners~~Lauderdale, Florida. ~~Management~~As ~~fees~~of ~~are~~June 30, ~~generally~~2005, ~~earned~~the ~~monthly~~assets, liabilities, and net results of Broward Financial Centre are ~~based~~included onin our consolidated financial statements. Prior to this acquisition, we accounted for our investment in Broward Financial Centre using the equity method of accounting, as we did not have a ~~percentage~~controlling interest over the operating and financial policies of the ~~managed~~joint ~~properties’~~venture. ~~monthly~~As ~~rental~~a result, the assets and ~~other~~liabilities of the joint ~~operating~~venture ~~revenues.~~were ~~Leasing~~not ~~commissions~~included ~~are~~in ~~earned~~our ~~when~~balance ~~the~~sheet ~~Company~~prior to May 9, on2005. ~~behalf~~FIN No. 46(R), “Consolidation of ~~the~~Variable ~~third~~Interest ~~party owner~~Entities,” ~~negotiates~~requires orexisting ~~assists~~unconsolidated inVariable Interest Entities (“VIE”) to be consolidated by their primary beneficiaries. The primary beneficiary of a VIE is the ~~negotiation~~party that absorbs a majority of ~~new~~the entity’s expected losses or receives a majority of its expected ~~leases~~residual returns, ~~renewals~~or ~~and~~both. ~~expansions~~Prior ofto ~~existing~~the ~~leases~~acquisition above, ~~and~~we ~~are~~accounted ~~generally~~for ~~based~~our oninvestment in aBroward ~~percentage~~Financial Centre using the equity method of ~~rents~~accounting torather bethan ~~received~~consolidation under FIN 46(R) since we had determined that we were not the ~~initial~~primary ~~term~~beneficiary of the ~~respective leases~~entity. Equity investments are initially recorded at cost and are subsequently adjusted for equity in earnings and cash contributions and distributions.

~~Allowances~~Fair ~~for~~Value ~~Doubtful~~of ~~Accounts~~Financial Instruments. ~~The~~We ~~Company~~believe ~~maintains allowances for doubtful accounts for estimated losses due to~~ the ~~inability~~carrying amount of ~~its~~our ~~tenants to~~financial ~~make~~instruments ~~required~~(temporary ~~payments~~investments, ~~for~~accounts ~~rents~~receivable, and ~~other~~accounts ~~rental~~payable) ~~services.~~is Ina ~~assessing the~~reasonable ~~recoverability~~estimate of ~~these~~fair ~~receivables,~~value ~~the Company makes assumptions regarding the financial condition~~ of ~~the~~these ~~tenants~~instruments. ~~based~~Based ~~primarily~~ on ~~past~~an ~~payment~~estimated ~~trends and~~market ~~certain~~interest ~~financial~~rate ~~information~~of ~~that tenants submit to the Company~~5. ~~If the~~5 ~~financial~~percent, ~~condition of~~ the ~~Company’s~~fair ~~tenants~~value ~~were~~of toour ~~deteriorate~~mortgages and ~~result~~loans ~~in an~~payable ~~impairment~~would ~~of their ability to make payments, the Company may~~ be ~~required to~~approximately ~~increase its allowances by recording additional bad debt expense~~$701.5 million ~~Likewise, should~~at ~~the financial condition of its tenants improve and result in payments or settlements of previously reserved amounts~~June 30, ~~the Company may be required to record a reduction in bad debt expense~~2005.

Federal Income Taxes. The Company is qualified and has elected tax treatment as a real estate investment trust under the Internal Revenue Code (a “REIT”). A corporate REIT is a legal entity that owns income-producing real property, and through distributions of income to its shareholders, is permitted to reduce or avoid the payment of federal income taxes at the corporate level.

To Fair ~~maintain~~Value ~~qualification as a REIT, the Company must, among other requirements, distribute to shareholders at least 90 percent~~ of ~~REIT~~In-Place ~~taxable income~~Leases. ToSFAS ~~the extent that the Company pays dividends equal to 100~~No. ~~percent~~142 ~~of REIT~~“Goodwill ~~taxable~~and ~~income,~~Other ~~the~~Intangible ~~earnings of the Company are taxed at the shareholder level. However~~Assets, ~~the use of net operating loss carryforwards, which may reduce~~” ~~REIT~~requires ~~taxable~~us ~~income~~ to ~~zero,~~recognize ~~are~~certain ~~limited~~intangible ~~for~~assets ~~alternative~~obtained ~~minimum~~as ~~tax~~part ~~purposes. Distributed~~of ~~capital~~the ~~gains~~acquisition ~~on sales~~ of real ~~estate are not subject to tax at the~~ ~~REIT level; however~~property, ~~undistributed~~including ~~capital gains are taxed at~~ the ~~REIT~~value ~~level. If~~of ~~the~~acquired, ~~Company fails to qualify as a REIT~~ in-place ~~any~~leases ~~taxable~~and ~~year,~~certain itcustomer ~~will~~relationships. beWe ~~subject~~amortize tothese ~~federal~~intangible ~~income~~assets ~~taxes~~on ~~and~~a ~~will~~straight-line ~~not~~basis beover ~~able~~the toremaining ~~qualify~~term asof athe ~~REIT for~~acquired ~~four subsequent taxable years~~leases. ~~Although~~As ~~CRT~~of ~~Realty Services~~June 30, ~~Inc. (“CRTRSI”)~~2005, a ~~taxable~~we ~~REIT~~had ~~subsidiary,~~intangible isassets ~~consolidated~~related ~~with the Company for financial reporting purposes, this entity is subject~~ to ~~federal~~acquired ~~income~~leases ~~tax~~as ~~and~~follows ~~files~~(in ~~separate federal and state income tax returns.~~thousands):

Stock Options. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply Accounting Principles Board Opinion No. 25 (“APB 25”), which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. As a result, there were no stock options charged to income during the three and nine months ended September 30, 2004 and 2003. The Company has continued to apply APB 25 to its stock based compensation awards to employees and has disclosed the required pro forma effect on net income and earnings per share as follows:


						Net		Weighted
						Carrying Value		Average
			Accumulated			of In-place		Amortization
	Initial Cost		Amortization			Leases		Period (in years)
Atlantic Center Plaza	$	9,400	$	(1,332	)	$	8,068		10
Baymeadows Way		242		(71	)		171		10
Campus Circle & Tollway Crossing		500		(224	)		276		4
Decoverly		654		(343	)		311		3
McGinnis Park		329		(124	)		205		4
The Lakes on Post Oak		1,500		(969	)		531		4
Three Ravinia		274		(168	)		106		5.5

Total	$	12,899	$	(3,231	)	$	9,668

	Three Months
	Ended September 30,
	2004			2003
Net income — As reported	$	2,168,000		$	3,661,000
Dividends on preferred shares		(1,588,000	)		(371,000	)
Stock-based employee compensation expense determined under fair value method for all forfeitures (awards)		—			(364,000	)
Pro forma net income	$	580,000		$	2,926,000
EARNINGS PER SHARE:
Basic-as reported	$	0.02		$	0.15
Basic-pro forma	$	0.02		$	0.14
Diluted-as reported	$	0.02		$	0.15
Diluted-pro forma	$	0.02		$	0.14

We recognized aggregate amortization for the three and six months ended June 30, 2005 of $573,000 and $1,027,000, respectively. Aggregate amortization expense is expected to be $2.2 million for the years ended December 31, 2005 through 2008, and $1.0 million for the year ended December 31, 2009.

	Nine Months
	Ended September 30,
	2004			2003
Net income — As reported	$	11,589,000		$	11,382,000
Dividends on preferred shares		(4,764,000	)		(371,000	)
Stock-based employee compensation expense determined under fair value method for all forfeitures (awards)		94,000			(791,000	)
Pro forma net income	$	6,919,000		$	10,220,000
EARNINGS PER SHARE:
Basic-as reported	$	0.26		$	0.52
Basic-pro forma	$	0.26		$	0.48
Diluted-as reported	$	0.25		$	0.52
Diluted-pro forma	$	0.26		$	0.48

We are currently evaluating any other intangible assets that may have arisen resulting from the following acquisitions: Westchase Corporate Center in Houston, Texas; Signature Place located in Dallas, Texas; and Las Olas Centre and Broward Financial Centre, located in Fort Lauderdale, Florida.

Investment in Unconsolidated Entity. The Company accounts for an investment in an unconsolidated entity using the equity method of accounting, as it does not have a controlling interest over the operating and financial policies of the joint venture. As a result, the assets and liabilities of the joint venture are not included in the Company’s balance sheet. FASB Interpretation (“FIN”) No. 46®, “Consolidation of Variable Interest Entities,” requires existing unconsolidated Variable Interest Entities (“VIE”) to be consolidated by their primary beneficiaries. The primary beneficiary of a VIE is the party that absorbs a majority of the entity’s expected losses or receives a majority of its expected residual returns, or both. The Company accounts for its investment in an unconsolidated entity using the equity method of accounting rather than consolidation under FIN 46® since the Company has determined that it is not the primary beneficiary of the entity. This investment was initially recorded at cost and subsequently adjusted for equity in earnings and cash contributions and distributions.

Fair Value of Financial Instruments. The Company believes the carrying amount of its financial instruments (temporary investments, accounts receivable, and accounts payable) is a reasonable estimate of fair value of these instruments. Based on an estimated market interest rate of 8.0 percent, the fair value of the Company’s mortgages and loans payable would be approximately $531.2 million at September 30, 2004.

Fair Value of In-Place Leases. SFAS No. 142 “Goodwill and Other Intangible Assets,” requires the separate recognition of intangible assets acquired as part of an asset acquisition, including the value attributable to leases in place and certain customer relationships. The Company intends to amortize these intangible assets on a straight-line basis over the remaining term of the existing leases (generally averages 4 to 5 years). As of September 30, 2004, the Company had recorded as intangible assets (before accumulated amortization), the estimated value of leases in place as follows (in thousands):

	As of
	September 30,2004
Three Ravinia	$	274,000
The Lakes on Post Oak		1,500,000
Tollway Crossing		272,000
CIGNA Plaza		228,000
Atlantic Center Plaza		9,401,000
McGinnis Park		329,000
Total fair value of leases	$	12,004,000

The Company is currently evaluating any other intangible assets that may have arisen resulting from its more recent acquisitions including the Decoverly Office Park in Rockville, Maryland, Baymeadows Way in Jacksonville, Florida, and Westchase Corporate Center in Houston, Texas.

Cash and Cash Equivalents. Cash in excess of daily requirements is invested in short-term monetary securities. Such temporary cash investments have an original maturity of less than three months and are deemed to be cash equivalents for purposes of the condensed consolidated financial statements.

Restricted Cash. Restricted cash represents amounts contractually placed in escrow for purposes of making payments for certain future building improvements, tenant allowances, leasing commissions, real estate taxes, and debt service.

4 5. Stock ~~STATEMENTS OF CASH FLOWS~~Options. OnSFAS ~~January~~No. 13123, ~~2004,~~“Accounting ~~the~~for ~~Company~~Stock-Based ~~issued~~Compensation” ~~5,175,000~~requires expanded ~~shares~~disclosures of ~~its~~stock-based ~~common~~compensation ~~stock~~arrangements ~~(including~~with ~~675,000~~employees ~~shares~~and ~~issued~~encourages in(but ~~connection~~does ~~with~~not ~~the~~require) ~~exercise~~compensation ofcost anto ~~over-allotment~~be ~~option~~measured ~~granted~~based toon the ~~Company’s~~fair ~~underwriter)~~value of the equity instrument awarded. atCompanies aare ~~price~~permitted, however, to ~~the~~continue ~~public~~to ofapply ~~$20.45~~Accounting ~~per~~Principles ~~share~~Board Opinion No. 25 (“APB ~~The~~25”), ~~net~~which ~~proceeds~~recognizes compensation cost based on the intrinsic value of the ~~offering~~equity ~~($100~~instrument awarded.~~2 million)~~ ~~were~~We ~~used~~have continued to ~~pay~~apply ~~down~~APB 25 to our stock based compensation awards to our employees and as a result, no compensation related to the ~~Company’s~~stock ~~revolving~~options ~~credit~~was ~~facility~~charged to income during the three and six ~~($15~~months ended June ~~million)~~30, ~~fund~~2005 and 2004. In December 2004, the ~~Decoverly~~FASB ~~acquisition~~issued ~~($42~~SFAS No.2 ~~million~~123(R), “Share-Based asPayment.” ~~well~~This asstatement ~~a portion~~replaces ofSFAS 123 and establishes standards for the accounting ~~Atlantic~~for ~~Center~~transactions ~~Plaza~~in ~~acquisition~~which ~~($40~~an entity exchanges its equity instruments for goods or services.~~5 million)~~ ~~and~~It also addresses transactions in which an entity incurs liabilities in exchange for ~~general~~goods ~~corporate~~or ~~purposes.~~services Onthat ~~January 27,~~are ~~2004,~~based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company ~~acquired~~will ~~Atlantic~~be subject to the ~~Center~~provisions ~~Plaza~~of this statement effective January 1, a2006.

The pro forma effect on net income and earnings per share from stock based compensation awards to our employees is as follows:


	Three Months
	Ended June 30,
	2005			2004
Net income (loss) attributable to common shareholders- As reported	$	(1,987,000	)	$	2,999,000
Stock-based employee compensation expense determined under fair value method for all forfeitures (awards)		94,000			62,000

Pro forma net income (loss)	$	(1,893,000	)	$	3,061,000


EARNINGS PER SHARE:
Basic-as reported	$	(0.06	)	$	0.11

Basic-pro forma	$	(0.06	)	$	0.11

Diluted-as reported	$	(0.06	)	$	0.11

Diluted-pro forma	$	(0.06	)	$	0.11


	Six Months
	Ended June 30
	2005		2004
Net income attributable to common shareholders- As reported	$	90,000	$	6,245,000
Stock-based employee compensation expense determined under fair value method for all forfeitures (awards)		94,000		94,000

Pro forma net income	$	184,000	$	6,339,000


EARNINGS PER SHARE:
Basic-as reported	$	—	$	0.24

Basic-pro forma	$	0.01	$	0.24

Diluted-as reported	$	—	$	0.23

Diluted-pro forma	$	0.01	$	0.24

6. Statement of Cash Flows. On February 9, 2005, we refinanced our $77.0 million loan held by Column Financial, Inc. with a $78.0 million loan from ING USA Annuity and Life Insurance Company (“ING”). The new loan has an initial maturity date of March 1, 2031, with two one-year extension options. The loan bears monthly interest at variable rate of LIBOR plus 1.25% (the LIBOR monthly contract rate in effect for this loan was 3.10% as of June 30, 2005) and is interest only for the first twelve months. Beginning March 1, 2006, monthly principal payments based on a 25 year amortization schedule will be due along with interest payments. This indebtedness will be collateralized by a property with a carrying value of approximately $108.7 million at June 30, 2005. This new loan required a $6.0 million Letter of Credit in lieu of lender escrows for leasing costs.

On May 9, 2005, we acquired the remaining 70 percent equity interests that we did not already own in the partnership which owns Broward Financial Centre in Ft. Lauderdale, Florida. These equity interests were purchased based on a total property value of approximately $70.0 million. We assumed an existing $46.5 million fixed-rate mortgage, with an interest rate of 4.84%, as part of this transaction. We preliminarily allocated approximately $1.4 million and $66.9 million of the net purchase price to the value of the acquired land and building, respectively.

~~twenty-three~~ 7. Earnings ~~story~~Per ~~502,000~~Share. ~~square~~Basic ~~foot~~earnings ~~office~~per ~~building~~common ~~located~~share inhas ~~Atlanta,~~been computed based on the ~~Georgia,~~weighted ~~for~~average anumber ~~purchase~~of ~~price~~shares of ~~$116.5 million~~common ~~plus~~stock ~~closing~~outstanding ~~and~~for ~~other~~each ~~costs~~period. Diluted earnings ~~Under~~per ~~the~~common ~~terms~~share ofis ~~the~~similar ~~acquisition~~to ~~agreement,~~basic ~~the~~earnings ~~Company~~per ~~assumed~~share aexcept ~~3-year variable~~that ~~interest~~the ~~rate~~weighted ~~secured~~average ~~loan~~number of common ~~approximately~~shares ~~$75.9 million~~outstanding ~~with~~is ~~an interest~~increased ~~rate~~to ofinclude ~~LIBOR~~the ~~(1.6%~~number atof ~~September 30,~~additional ~~2004)~~common ~~plus~~shares ~~160~~that ~~basis points.~~would ~~Simultaneously,~~have atbeen ~~closing,~~outstanding if the ~~Company~~dilutive ~~assumed~~common ashares ~~second~~underlying ~~3-year~~the ~~variable interest~~options ~~rate~~had ~~secured~~been ~~loan of $10~~issued.~~0 million~~ ~~with~~The treasury anstock ~~interest~~method ~~rate~~is ofused ~~LIBOR~~to ~~plus 600~~calculate ~~basis~~dilutive ~~points~~shares ~~and~~which ~~immediately~~reduces ~~prepaid~~ the ~~loan~~gross innumber ~~full.~~of dilutive ~~The~~shares ~~Company~~by ~~funded~~ the ~~remainder~~number of ~~the~~shares ~~purchase~~purchasable ~~price~~from ~~with~~the aproceeds ~~portion~~ of the ~~net~~options ~~proceeds~~assumed ~~($40.5 million)~~to ~~from its January 2004 common stock offering~~be exercised.

On For ~~April 2, 2004,~~ the ~~Company~~three ~~acquired~~and ~~four~~six ~~properties,~~months ~~including~~ended ~~two Class~~June ~~A office buildings~~30, a2005 ~~ground lease~~ and ~~an undeveloped parcel of land located in the Decoverly Office Park in Rockville~~2004, ~~Maryland for a purchase price of $42.0 million plus closing and other costs. The two three-story office buildings aggregate approximately 155~~respectively,~~000~~ ~~square~~earnings ~~feet~~per ~~of rentable space. The undeveloped~~common ~~land~~share ~~parcel~~are ~~contains~~calculated ~~3.2~~as ~~acres~~follows ~~with~~(in anthousands ~~approved~~except ~~site~~per ~~plan~~share ~~for a four-story~~data): ~~105,000 square foot office building. The funds required for this acquisition were provided by the proceeds from the Company’s January 2004 common stock offering.~~

On July 23, 2004 the Company acquired a five-story, 224,000 square foot, single-tenant, class “A” office building located at 7777 Baymeadows Way in Jacksonville, Florida, for a purchase price of $20.8 million, plus closing and other costs. As part of this transaction, the Company issued 33,202 DownREIT limited partnership units in exchange for a $760,985 contribution from a related minority partner (Thomas J. Crocker, the Company’s Chief Executive Officer) in a joint venture with the Company (see Note 9). The Company received an additional minority interest contribution of $154,107 from an unrelated third party. This building also has an adjacent six-story parking garage. The acquisition of the Baymeadows Way property was financed in part with the proceeds of a secured loan in the amount of approximately $13.8 million, which bears interest at a fixed rate of 5.55% and matures in 2014.


	Three Months
	Ended June 30,
	2005			2004
EARNINGS PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE:
Net Income (loss) attributable to common shareholders	$	(1,987	)	$	2,999

Shares:
Weighted average number of common shares outstanding – Basic		31,822			26,840


EARNINGS PER SHARE – BASIC	$	(0.06	)	$	0.11

Shares:
Weighted average number of common shares outstanding – Basic		31,822			26,840
Effect of dilutive securities (a):
Stock options		—			390

Adjusted weighted average common shares – Diluted		31,822			27,230


EARNINGS PER SHARE – DILUTED	$	(0.06	)	$	0.11

On August 16, 2004, the Company acquired the Westchase Corporate Center located in Houston, Texas; a six-story, 184,000 square foot, class “A” office building for a purchase price of $20.3 million, plus closing and other costs. As part of this transaction, the Company issued 28,584 DownREIT limited partnership units in exchange for a $639,015 contribution from a related minority partner (Thomas J. Crocker, the Company’s Chief Executive Officer) in a joint venture with the Company (see Note 9). The Company received an additional minority interest contribution of $545,893 from an unrelated third party. The Company financed the acquisition of the Westchase property in part with the proceeds of a secured loan totaling approximately $15.2 million, which bears interest at a fixed rate of 5.39% and matures in 2014.


	Six Months
	Ended June 30,
	2005		2004
EARNINGS PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE:
Net Income attributable to common shareholders	$	90	$	6,245

Shares:
Weighted average number of common shares outstanding – Basic		31,787		26,455


EARNINGS PER SHARE – BASIC	$	—	$	0.24

Shares:
Weighted average number of common shares outstanding – Basic		31,787		26,455
Effect of dilutive securities (a):
Stock options		364		427

Adjusted weighted average common shares – Diluted		32,151		26,882


EARNINGS PER SHARE – DILUTED	$	—	$	0.23

~~5. EARNINGS~~(a) ~~PER~~Shares ~~SHARE.~~issuable ~~Basic~~were ~~earnings~~derived ~~per~~using ~~common share has been computed based on~~ the ~~weighted~~“Treasury ~~average~~Stock ~~number~~Method” ~~of shares of common stock outstanding~~ for ~~each~~ ~~period.~~all Diluted earnings per common share is similar to basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive ~~common~~potential shares ~~underlying the options had been issued~~. ~~The~~We ~~treasury~~excluded ~~stock~~396,000 ~~method is used to calculate~~ dilutive ~~shares~~stock ~~which reduces~~options ~~the~~from ~~gross number of dilutive shares by~~ the ~~number~~above ofcalculation ~~shares purchasable~~for ~~from~~ the ~~proceeds~~three ofmonths ~~the~~ended ~~options~~June ~~assumed~~30, ~~to be exercised~~2005.

~~For~~ 8. Mortgages ~~the three~~ and ~~nine~~Loans ~~months~~Payable. ~~ended~~At ~~September~~June 30, ~~2004~~2005, ~~and~~we ~~2003~~had $676,971,000 ~~earnings~~of ~~per~~loans outstanding, ~~common~~which ~~share~~are iscollateralized ~~calculated~~by mortgages on all but eight of our buildings. Annual maturities for mortgages and loans payable are summarized as follows (in thousands ~~except per share data~~):

	Three Months
Year Ending December 31,
	Ended September 30,
2005	$	3,071
	2004		2003
2006		24,974
EARNINGS PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE:
2007		108,989
Net Income available to common shareholders	$	580	$	3,290
2008		120,130
Shares:
2009		141,016
Weighted average number of common shares outstanding – Basic		26,855		21,332
Subsequent Years		278,791
EARNINGS PER SHARE – BASIC	$	0.02	$	0.15
Total	$	676,971
Shares:
Weighted average number of common shares outstanding – Basic		26,855		21,332
Effect of dilutive securities (a):
Stock options		325		123
Adjusted weighted average common shares – Diluted		27,180		21,455
EARNINGS PER SHARE – DILUTED	$	0.02	$	0.15

	Nine Months
	Ended September 30,
	2004		2003
EARNINGS PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE:
Net Income available to common shareholders	$	6,825	$	11,011
Shares:
Weighted average number of common shares outstanding – Basic		26,590		21,314
EARNINGS PER SHARE – BASIC	$	0.26	$	0.52
Shares:
Weighted average number of common shares outstanding – Basic		26,590		21,314
Effect of dilutive securities (a):
Stock options		329		63
Adjusted weighted average common shares – Diluted		26,919		21,377
EARNINGS PER SHARE – DILUTED	$	0.25	$	0.52

9. Dividends. We paid quarterly dividends on our common stock of $0.35 per share on January 28, 2005, to shareholders of record on December 31, 2004. During the quarter ended March 31, 2005, our Board of Directors declared a quarterly dividend on our common stock of $0.35 per share payable on April 29, 2005, to shareholders of record on March 31, 2005. During the quarter ended June 30, 2005, our Board of Directors declared a quarterly dividend on our common stock of $0.35 per share payable on July 29, 2005, to shareholders of record on June 30, 2005.

~~(a)~~ On February ~~Shares~~17, ~~issuable~~2005, ~~were~~our ~~derived~~Board ~~using~~of ~~the~~Directors ~~“Treasury~~declared ~~Stock~~a ~~Method”~~dividend ~~for~~on ~~all~~our preferred stock of ~~dilutive~~$0.53125 ~~potential~~per ~~shares~~share paid on March 15, 2005, to shareholders of record on March 1, 2005. ~~The~~This preferred ~~Company~~dividend ~~excluded~~covered ~~approximately~~the ~~125~~period December 15,~~000~~ 2004 through March 14, 2005. During the quarter ~~antidilutive~~ended June 30, 2005, our Board of Directors declared a dividend on our preferred stock ~~options~~of ~~from~~$0.53125 per ~~the~~share ~~above~~paid ~~calculation~~on ~~for~~June 15, ~~the~~2005, ~~three~~to ~~and~~shareholders ~~nine~~of record on June 1, 2005. This preferred ~~months~~dividend ~~ended~~covered ~~September~~the period March 3015, 2004 through June 14, 2005.

10. Segment Reporting. We operate in one business segment, the ownership and management of commercial real estate. Our primary business is the ownership, development, and operation of income-producing office properties. Management operates each property as an individual operating segment and has aggregated these operating segments into a single segment for financial reporting purposes due to the fact that all of the individual operating segments have similar economic characteristics. As of June 30, 2005, all of our operations were located in the Southeastern United States, Maryland and Texas.

11. Common Stock. On January 13, 2004, we issued 5,175,000 shares of common stock (including 675,000 shares issued in connection with the exercise of an over-allotment option granted to our underwriter) at a price to the public of $20.45 per share. The net proceeds of the offering were used to pay down our revolving credit facility ($15 million), fund the Decoverly acquisition ($42.2 million) as well as a portion of the Atlantic Center Plaza acquisition ($40.5 million) and for general corporate purposes.

In December 2004, we issued 4,749,300 shares of our common stock (including 399,300 shares issued in connection with the exercise of an over-allotment option granted to our underwriter) at a price to the public of $24.20 per share. The net proceeds of the offering were used to pay down our secured revolving credit facility ($90.0 million), fund a portion of the purchase price of Signature Place, with the remainder intended for general corporate purposes, including subsequent acquisitions and development.

Under our 2002 long-term incentive plan, certain senior officers receive payments based on the performance of our common stock over a three-year measurement period and the performance of our common stock compared to a defined peer

~~6. MORTGAGES~~group ~~AND~~of ~~LOANS~~REITs ~~PAYABLE~~within the Morgan Stanley REIT index over a three-year measurement period. Payments Atunder ~~September 30,~~the ~~2004,~~plan are dependent on the ~~Company~~achievement ~~had~~of certain performance goals and on ~~$517,025,000~~satisfaction of ~~loans~~certain ~~outstanding~~vesting requirements. In February 2005, ~~which~~we ~~are~~issued ~~collateralized~~21,018 byshares ~~mortgages~~of oncommon ~~all~~stock ~~but~~to ~~nine~~certain ofsenior ~~the~~executives ~~Company’s~~currently ~~buildings.~~participating ~~Annual~~in ~~maturities~~the ~~for~~long-term ~~mortgages~~compensation ~~and~~plan. ~~loans~~These ~~payable~~shares ~~are~~of ~~summarized~~common asstock ~~follows~~were ~~(in~~valued ~~thousands):~~ at approximately $479,000.

Year Ending December 31,
2004	$	78,463
2005		6,067
2006		23,657
2007		122,046
2008		89,545
Subsequent Years		197,247
Total	$	517,025

Under our 2005 senior management compensation plan, we granted 179,667 restricted shares of our common stock to certain key executives of our Company. The restricted shares vest (using both performance and time vesting features) over a period of five years from the date of issuance. Upon issuance of the restricted shares, deferred compensation of $4.1 million was charged to stockholders’ equity and is being recognized as compensation expense ratably over the five year vesting period. Non-cash compensation expense related to the vesting of the restricted shares of approximately $205,000 and $410,000 was recognized during the three and six months ended June 30, 2005, respectively.

~~On April~~Item ~~21,~~2. ~~2004,~~Management’s ~~the~~Discussion ~~Company amended~~ and ~~extended~~Analysis ~~the loan agreement governing its $75.9 million loan with MetLife assumed in connection with the acquisition~~ of ~~Atlantic~~Financial ~~Center~~Condition ~~Plaza.~~and AsResults ~~part~~ of ~~the amendment, the existing~~Operations variable interest rate (LIBOR plus 160 basis points) will remain in place until December 31, 2004 and the Company will draw an additional $4.1 million prior to December 31, 2004. Effective January 1, 2005, the rate will be fixed at 5.49% until December 31, 2014.

In August 2004, the Company replaced its previous $100 million secured revolving credit facility, which was scheduled to mature in December 2004, with a new $165 million secured revolving credit facility, which has a threeForward-~~year term~~Looking ~~and a one-year extension option and is scheduled to expire on August 23,~~Statements ~~2007.~~

~~7. DIVIDENDS.~~ The ~~Company~~following ~~paid~~discussion ~~quarterly~~should ~~dividends~~be onread ~~its~~in ~~common~~conjunction with the financial statements and ~~stock~~notes thereto appearing elsewhere in this report and Management’s Discussion and Analysis of Financial ~~$0.35~~Condition ~~per~~and ~~share~~Results of Operations included in our Annual Report on ~~February~~Form 10-K for the year ended December 531, 2004,. ~~May 6~~This report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements in this report, ~~2004~~or which management may make orally or in writing from time to time, are based on management’s beliefs and ~~August 5,~~on ~~2004~~assumptions made by, and information currently available to, ~~shareholders~~management. ofWhen ~~record~~used, onthe ~~December 31~~words “anticipate,” ~~2003~~“believe,” ~~March 31~~“expect,” ~~2004~~“intend,” ~~and~~“may,” ~~June 30~~“might,” ~~2004~~“plan,” ~~respectively~~“estimate,” “project,” “should,” “will,” “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. ~~During~~These statements ~~the~~are ~~quarter~~subject ~~ended~~to ~~September 30~~risks, ~~2004~~uncertainties and assumptions and are not guarantees of future performance, ~~the~~which may be affected by known and unknown risks, trends, uncertainties and factors ~~Company’s~~that ~~Board~~are beyond our control. Should one or more of ~~Directors~~these ~~declared~~risks aor ~~quarterly~~uncertainties ~~dividend~~materialize, onor should ~~its~~underlying ~~common~~assumptions ~~stock~~prove incorrect, actual results may vary materially from those ofanticipated, ~~$0.35~~estimated ~~per~~or ~~share~~projected. ~~payable~~We oncaution ~~October 31~~you that, ~~2004~~while forward-looking statements reflect our good-faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to ~~shareholders~~update our forward-looking statements, whether as a result of ~~record~~new information, future events or otherwise. Accordingly, investors should use caution in relying on ~~September 30~~past forward-looking statements, ~~2004~~which are based on results and trends at the time they are made, to anticipate future results or trends.

On Some ~~February 17,~~of ~~2004,~~ the ~~Company’s~~risks ~~Board~~and ofuncertainties ~~Directors~~that ~~declared~~may acause ~~dividend~~our ~~on its~~actual ~~preferred stock of $0.53125 per share paid on March 15~~results, ~~2004,~~performance toor ~~shareholders~~achievements of record on March 1, 2004. This preferred dividend covered the period December 15, 2003 through March 14, 2004. On May 26, 2004, the Company’s Board of Directors declared a dividend on its preferred stock of $0.53125 per share paid on June 15, 2004, to ~~shareholders~~differ ofmaterially ~~record~~from onthose ~~June 1, 2004.~~expressed ~~This~~or ~~preferred~~implied ~~dividend~~by ~~covered~~forward-looking ~~the period March 15, 2004 through June~~statements 14include, ~~2004.~~among ~~On August 26~~others, ~~2004,~~ the ~~Company’s Board of Directors declared a~~following: dividend on its preferred stock of $0.53125 per share paid on September 15, 2004, to shareholders of record on September 1, 2004. This preferred dividend covered the period June 15, 2004 through September 14, 2004.

~~8. SEGMENT~~• ~~REPORTING.~~the ~~The~~satisfaction ~~Company~~of ~~operates~~the inconditions ~~one~~to ~~business~~closing ~~segment,~~of ~~the ownership~~our proposed merger with and ~~management~~into ofDRA ~~commercial~~CRT ~~real~~Acquisition ~~estate~~Corp., ~~The~~pursuant ~~Company’s~~to ~~primary business~~the isAgreement ~~the~~and ~~ownership~~Plan of Merger, ~~development~~dated June 17, 2005 between us, DRA G&I Fund V Real Estate Investment Trust and ~~operation~~DRA ofCRT ~~income-producing office~~Acquisition ~~properties~~Corp., ~~Management~~including ~~operates~~the ~~each~~approval ~~property~~of asour anshareholders; ~~individual operating~~• ~~segment~~potential ~~and~~or ~~has~~actual ~~aggregated~~litigation, ~~these~~including ~~operating~~those ~~segments~~matters ~~into~~described ain ~~single segment~~Part ~~for~~II—Legal ~~financial~~Proceedings ~~reporting~~below ~~purposes~~or ~~due~~other tolitigation challenging the ~~fact~~proposed ~~that~~merger ~~all~~transaction; of• general risks affecting the ~~individual~~ ~~operating~~real ~~segments~~estate ~~have~~industry ~~similar~~(including, ~~economic~~without ~~characteristics.~~limitation, Asthe ~~of September 30~~inability to enter into or renew leases, ~~2004~~dependence on tenants’ financial condition, ~~all~~and competition from other developers, owners and operators of real estate); • risks associated with the ~~Company’s~~availability ~~operations~~and ~~were~~terms ~~located~~of infinancing and the ~~Southeastern~~ ~~United~~use ~~States,~~of ~~Maryland~~debt to fund acquisitions and ~~Texas.~~ developments;

9. NOTES RECEIVABLE FROM STOCK SALES. On February 17, 2000, and in conjunction with the Company’s plan (the “Repurchase Plan”) to repurchase up to 2.65 million shares of common stock (the “Shares”), the Company entered into an agreement to, from time to time, loan to Mr. Thomas J. Crocker, Chief Executive Officer, and Mr. Robert E. Onisko, former Chief Financial Officer (collectively, the “Officers”), certain amounts in connection with their purchase of up to 500,000 shares and 150,000 shares, respectively, of the Company’s common stock (collectively the “Loan Stock”). For Loan Stock purchases consummated pursuant to the Company’s 1998 Equity and Cash Incentive Plan, the Company had agreed to advance up to 100% of the purchase price of the shares. For Loan Stock purchases consummated in the open market or pursuant to the Repurchase Plan, the Company had agreed to advance up to 50% of the purchase price of the shares. Each Officer’s loan was collateralized by any Loan Stock purchased by such Officer. Aside from an Officer’s equity interest in Loan Shares, the Company has limited or no personal recourse against an Officer for the principal amount of any outstanding loan balance. The Officers, under the terms of the plan, are personally obligated to make any

~~and~~• ~~all~~failure ~~interest~~to ~~payments.~~manage ~~Each~~effectively ~~loan~~our ~~bears~~growth ~~interest at 150 basis points over the applicable LIBOR rate, which interest is payable quarterly. The outstanding principal amount of each loan~~ and ~~all~~expansion ~~accrued~~into ~~but~~new ~~unpaid~~markets ~~interest is due on the earlier of (i) February 17, 2010~~ or ~~(ii) the~~to ~~second~~integrate ~~anniversary~~acquisitions ofsuccessfully; ~~the Officer’s~~• ~~termination~~risks byand ~~the~~uncertainties ~~Company~~affecting ~~for~~property ~~cause.~~development ~~During the three~~ and ~~nine months~~construction ~~ended September 30~~(including, ~~2004,~~without ~~Thomas J. Crocker made interest payments of $7~~limitation,~~524~~ ~~and~~construction ~~$56~~delays,~~881~~ ~~and~~cost ~~Robert E. Onisko made interest payments of $9~~overruns,~~052~~ ~~and $25,834,~~inability ~~respectively.~~to Asobtain ofnecessary ~~July 1,~~permits ~~2004, Mr. Crocker had purchased 320,370 shares of Loan Stock~~ and ~~the~~public ~~aggregate~~opposition ~~outstanding~~to ~~principal~~such ~~balance~~activities); of• ~~his loans~~risks ~~was~~associated ~~approximately~~with ~~$3,800,000~~downturns ~~all~~in ~~of which had been repaid as of July 26, 2004. For some time,~~ the ~~Company’s~~national ~~Board of Directors has considered the possibility of eliminating any further commitment to loan funds to Mr. Crocker~~ and tolocal ~~have Mr. Crocker’s loans repaid in full~~economies, inincreases ~~the belief that eliminating this arrangement would be~~ in ~~the Company’s best~~ interest. ~~Based~~rates, ~~on a proposal initially submitted by Mr. Crocker~~ and ~~approved~~volatility byin ~~a special committee comprised of~~ the ~~Company’s~~securities ~~independent~~markets; ~~directors~~• ascosts ~~well as the Company’s entire board~~ of ~~directors,~~compliance onwith ~~July 16, 2004,~~ the ~~Company~~Americans ~~and~~with ~~Mr. Crocker entered~~Disabilities ~~into~~Act ~~a definitive agreement whereby: (1) Mr. Crocker agreed to repay the outstanding loans~~ and ~~terminate~~other ~~his~~similar ~~rights to future loans upon the acquisition of the Baymeadows property~~laws; ~~(2) the~~• ~~Company~~potential ~~agreed~~liability tofor ~~make~~uninsured alosses ~~one time payment of $540,000 to Mr. Crocker as additional compensation to defray a portion of the costs~~ and ~~expenses~~environmental ~~incurred~~contamination; by• ~~Mr. Crocker~~risks inassociated ~~connection~~ with ~~his~~ ~~negotiation~~our ofpotential ~~the~~failure ~~agreement with the Company; and (3) the Company and Mr. Crocker agreed~~ to ~~co-invest~~qualify inas a ~~joint~~REIT ~~venture~~under ~~to acquire~~ the ~~Baymeadows~~Internal ~~and Westchase~~Revenue ~~properties~~Code ~~(the~~of ~~“Properties”)~~1986, ~~acquired~~as ~~during the quarter ended September 30~~amended, ~~2004. The joint venture arrangement between the Company~~ and ~~Mr. Crocker~~possible ~~was~~adverse ~~created~~changes in ~~part to effect for the benefit of Mr. Crocker a~~ tax~~-deferred,~~ ~~like-kind~~and ~~exchange~~environmental oflaws; a hotel in Boca Raton, Florida for the Properties. This arrangement requires the Company to protect Mr. Crocker’s ability to defer recognition of taxable gains through certain restrictions on the Company’s ability to sell or finance the Properties. Mr. Crocker contributed $1.4 million and ~~owns~~• ~~approximately~~risks ~~10%~~associated ofwith ~~the~~our ~~joint~~dependence ~~venture in the form of a DownREIT limited partnership interest. The one time payment of $540,000 was made to Mr. Crocker~~ on ~~July 30,~~key ~~2004.~~personnel ~~Mr. Crocker~~whose ~~repaid~~continued ~~his outstanding~~service ~~loans~~is innot ~~full on July 26, 2004~~guaranteed. The arrangements above are described in detail in a Form 8-K filed by the Company on July 30, 2004. As of September 30, 2004, Mr. Onisko has purchased 102,490 shares of Loan Stock and the aggregate outstanding principal balance of his loans was approximately $1,292,000. The Company has no discretion or termination right under this agreement since the Company’s loan to Mr. Onisko was made under the terms of a contract which precedes the Sarbanes-Oxley Act.

~~10. COMMON~~The ~~STOCK~~risks included here are not exhaustive. OnOther ~~January 13,~~sections ~~2004,~~of ~~the~~this ~~Company~~report ~~issued~~may ~~5,175,000~~include ~~shares~~additional offactors ~~its~~that ~~common~~could ~~stock~~adversely ~~(including~~affect ~~675,000~~our ~~shares~~business ~~issued~~and infinancial ~~connection~~performance. ~~with~~Moreover, ~~the~~we ~~exercise~~operate ofin ana ~~over-allotment~~very ~~option~~competitive ~~granted~~and torapidly ~~the~~changing ~~Company’s~~environment. ~~underwriter)~~New risk factors emerge from attime ato ~~price~~time and it is not possible for management to predict all such risk factors, nor can we assess the ~~public~~impact of ~~$20.45~~all ~~per~~such ~~share.~~risk ~~The~~factors ~~net~~on ~~proceeds~~our ofbusiness or the extent to which any factor, or ~~offering~~combination ~~were~~of ~~used~~factors, tomay ~~pay~~cause ~~down~~actual ~~the~~results ~~Company’s~~to ~~revolving~~differ ~~credit~~materially ~~facility~~from ~~($15~~those contained in any ~~million)~~forward-looking statements. Given these risks and uncertainties, ~~fund~~investors ~~the~~should ~~Decoverly~~not ~~acquisition~~place ~~($42.2 million)~~undue reliance ason ~~well~~forward-looking statements as a ~~portion~~ prediction of ~~the~~actual ~~Atlantic~~results. ~~Center~~Investors ~~Plaza~~should ~~acquisition~~also refer ~~($40.5 million)~~to our annual reports on Form 10-K and our quarterly reports on Form 10-Q for ~~general~~future periods ~~corporate~~and ~~purposes~~current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise. We expressly disclaim any responsibility to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or otherwise, and you should not rely upon these forward-looking statements after the date of this report.

~~11. SUBSEQUENT EVENTS. On October 4, 2004, the Company sold~~Overview ~~approximately 14.5 acres of undeveloped land located across the street from its Atlanta Gwinnet Center for approximately $3.25 million. This transaction resulted in a gain of approximately $293,000.~~

On We ~~September 30,~~are ~~2004,~~a ~~the~~fully ~~Company~~integrated, ~~entered~~self-administered ~~into a purchase~~ and ~~sale~~self-managed ~~agreement with~~equity ~~East~~REIT ~~Las~~which ~~Olas Investors II~~develops, ~~WLD Realty~~ owns, ~~Ltd.~~operates, leases and ~~Halmos~~manages ~~Holdings,~~office ~~Inc.~~buildings ~~to acquire~~in ~~the~~metropolitan ~~partnership~~areas ~~interests~~ in ~~two~~the ~~class~~Southeastern United ~~“A”~~States, ~~office~~Maryland ~~buildings~~and ~~located~~Texas. ~~in the~~We ~~central~~conducted ~~business~~our ~~district~~initial ofpublic ~~Fort~~offering ~~Lauderdale,~~in ~~Florida~~1988. OnWe ~~October 15,~~generate ~~2004,~~revenue ~~after~~and ~~further~~cash ~~discussions~~primarily ~~between~~from ~~the~~leasing ~~parties,~~our ~~the~~office ~~purchase~~space ~~price~~to ~~was~~our ~~fixed at $138~~tenants.~~6 million~~ ~~(plus~~Factors ~~closing~~we ~~and~~consider ~~other costs) and the Company deposited $5 million in~~when ~~earnest~~we ~~money.~~lease ~~The~~space ~~office~~include ~~buildings,~~creditworthiness ~~known~~of as the ~~Las Olas Centre~~tenant, ~~comprise~~the ~~approximately~~length ~~470,000~~of ~~rentable~~the ~~square feet and~~lease, asthe ~~of September 30,~~rental ~~2004,~~rate ~~was 87% occupied. The transaction is expected~~ to ~~close~~ ~~during~~be ~~the~~paid, ~~fourth~~costs ~~quarter~~ of ~~2004~~tenant ~~and~~improvements, ~~will~~operating becosts ~~financed~~and ~~with~~real aestate ~~10-year~~taxes, ~~$99 million~~vacancy ~~fixed~~and ~~interest rate loan with the remainder to be drawn on the~~general ~~Company’s~~economic ~~line of credit~~factors.

On Our ~~October 14,~~revenues ~~2004,~~are dependent in part on the ~~Company~~occupancy ~~announced~~of ~~plans~~our toportfolio ~~develop~~of aoffice ~~$90 million,~~buildings. ~~20-story,~~Over ~~335~~the past few years,~~000~~ as a struggling national economy resulted in white-~~square-foot,~~collar ~~class~~job ~~“A”~~losses and a general oversupply of office ~~tower~~space in amany ~~joint~~markets, ~~venture~~occupancy ~~with~~rates declined in most of our markets. The ~~Related~~office ~~Companies~~building sector continues to experience comparatively low occupancy rates in most markets. As of ~~New~~June 30, ~~York~~2005, our portfolio was 84% occupied compared to 80% as June 30, 2004, and 82% as of March 31, 2005.

Our leases have an overall average lease term of approximately 4.5 years and we generally renew over half of our expiring office leases; however, for those office leases that are not renewed, we must remarket the vacated office space. Since rental rates generally decline as vacancy rates increase (and vice versa), we may lease the vacated space at terms less favorable than the terms of the expired lease. We use numerous approaches to maintain and increase occupancy, including prioritizing efforts to retain existing tenants, using rental concessions such as free rent and improvement allowances, offering market-specific broker incentives and employing highly skilled and proactive management and leasing professionals. Our use

On November 2, 2004, the Company entered into a purchase and sale agreement with the WHML-S Real Estate Limited Partnership to acquire a 437,000 rentable square foot class “A” office building for a purchase price of ~~approximately~~these ~~$39 million~~strategies ~~(plus~~has ~~closing~~lessened and other costs). The building, located in Dallas, Texas, is comprised of two interconnected towers consisting of Tower 1 with 8 floors, and Tower 2 with 11 floors, and is situated on approximately 10.1 acres with an attached four-story parking garage. In connection with this acquisition, the ~~Company~~overall ~~will~~impact ~~enter into a joint venture with Wilcox Capital Group, whereby the Company will own 75%~~ of the ~~venture.~~weak ~~Pending~~fundamentals ~~the~~in ~~Company’s successful~~our ~~completion of due diligence on the property, the acquisition of~~operating ~~Signature~~environment ~~Place~~by ~~would~~limiting belease ~~expected~~expirations toboth ~~close~~from ~~during~~natural ~~the~~lease ~~fourth~~expirations ~~quarter of 2004~~ and ~~will be financed with proceeds~~ from ~~a non-recourse mortgage and the balance~~terminations ofdue ~~the~~to ~~equity~~tenant ~~required of the Company will be drawn on the Company’s revolving line of credit~~defaults. ~~As of September 30, 2004, the Signature Place office building was 65% leased.~~

~~CAUTIONARY~~Pending ~~STATEMENT~~Merger ~~REGARDING FORWARD-LOOKING INFORMATION~~Transaction

~~Estimates~~ On ~~and~~June 17, ~~certain~~2005, ~~other~~we ~~matters~~entered ~~discussed~~into ina ~~this~~definitive ~~report~~merger ~~may~~agreement ~~be forward-looking~~with ~~statements~~DRA ~~within~~G&I ~~the~~Fund ~~meaning~~V ~~of the Private Securities~~Real ~~Litigation~~Estate ~~Reform~~Investment ~~Act~~Trust of(“Parent”) ~~1995.~~and ~~Although~~DRA CRT ~~Properties,~~Acquisition ~~Inc~~Corp., ~~believes~~a ~~the expectations reflected in such forward~~wholly-~~looking~~owned ~~statements~~subsidiary ~~are based on~~of ~~reasonable~~Parent ~~assumptions;~~( ~~there~~“MergerCo”, ~~can~~and betogether nowith ~~assurance~~Parent, ~~that its expectations will be attained. Certain factors could cause actual results to differ materially from~~ the ~~Company’s expectations~~“Acquirors”), ~~including~~providing ~~those~~for ~~set~~the ~~forth~~merger asof ~~risk factors in~~ the Company’s ~~SEC~~with ~~reports~~ and ~~filings,~~into ~~including~~MergerCo. ~~its~~The ~~Annual~~Acquirors ~~Report~~represent onclients ~~Form~~advised ~~10-K~~by ~~for the~~DRA ~~year~~Advisors ~~ended December 31~~LLC, ~~2003.~~a ~~Included~~New York-based ~~among~~registered ~~these~~investment ~~factors~~advisor ~~are~~specializing ~~changes~~ in ~~general~~ ~~economic~~real ~~conditions,~~estate ~~including~~investment ~~changes~~management ~~in the economic conditions~~services ~~affecting~~for ~~industries~~institutional inand ~~which~~private ~~its~~investors. ~~principal~~Pursuant ~~tenants~~to ~~compete;~~the ~~its~~terms ~~ability~~of ~~to timely~~the ~~lease~~merger oragreement, ~~re-lease space~~ at ~~current or anticipated rents to creditworthy~~the ~~tenants;~~effective ~~its~~time ~~ability to achieve economies~~ of ~~scale over time;~~ the ~~demand~~merger ~~for tenant~~each ~~services~~share ~~beyond~~of ~~those~~our ~~traditionally~~common ~~provided~~stock byissued ~~landlords; changes in interest rates; changes in operating costs; its ability to attract~~ and ~~retain high-quality~~outstanding ~~personnel~~will ~~at a reasonable cost in a highly competitive labor~~be ~~environment;~~converted ~~future~~into ~~demand~~the ~~for~~right ~~its debt and equity securities; its ability~~ to ~~refinance~~ ~~its~~receive ~~debt~~$27.80 onin ~~reasonable~~cash, ~~terms~~plus atunpaid ~~maturity;~~dividends ~~and~~through ~~its~~the ~~ability~~earlier ~~to complete~~of ~~current~~closing and ~~future~~September 30, ~~development~~2005. ~~projects~~Also onat ~~schedule~~the ~~and~~effective ontime ~~budget. Many~~ of ~~these~~ ~~factors are beyond~~ the ~~Company’s~~merger, ~~ability~~each tooutstanding ~~control or predict.~~option ~~Forward-looking~~to ~~statements~~purchase ~~are~~shares ~~not guarantees~~ of ~~performance.~~our ~~For forward-looking~~common ~~statements~~stock ~~contained~~will orbe ~~incorporated~~canceled byin ~~reference~~exchange ~~herein,~~for the ~~Company~~ ~~claims~~right ~~the~~to ~~protection~~receive of the ~~safe harbor for forward-looking statements~~ ~~contained~~excess inof the ~~Private~~merger ~~Securities~~consideration ~~Litigation~~over ~~Reform~~the ~~Act~~exercise ofprice ~~1995. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because~~ of ~~subsequent~~the ~~events~~option.

~~Item~~ At 2.the ~~MANAGEMENT~~effective time of the merger, each issued and outstanding share of the Company’Ss ~~DISCUSSION~~8.5% Series A ~~AND~~Cumulative ~~ANALYSIS~~Redeemable OFPreferred ~~FINANCIAL~~Shares ~~CONDITION~~will ~~AND~~be ~~RESULTS~~exchanged OFfor ~~OPERATIONS~~a share of 8.5% Series A Cumulative Redeemable Preferred Stock of MergerCo, with terms identical to the terms of the existing preferred shares. The merger agreement provides that we may continue to declare and pay regularly quarterly dividends on our preferred shares.

The ~~following~~merger ~~discussion~~and ~~should~~the betransactions ~~read~~contemplated inby ~~conjunction~~the ~~with~~merger ~~the~~agreement ~~condensed~~have been unanimously ~~consolidated~~approved ~~financial~~by ~~statements~~our ~~and~~Board ~~related~~of ~~notes~~Directors. ~~appearing~~The ~~elsewhere~~consummation ~~in this~~of ~~Form~~the ~~10-Q,~~merger ~~and~~is ~~Management’s~~conditioned ~~Discussion~~upon ~~and~~customary closing ~~Analysis~~conditions, including the approval of ~~Financial~~our common shareholders, but contains no financing ~~Condition~~contingencies. ~~and~~While ~~Results~~the ofmerger ~~Operations~~agreement ~~included~~restricts inour ability to solicit other proposals, the agreement ~~Company’s~~permits ~~Annual~~us ~~Report~~to onconsider unsolicited proposals. The merger agreement contains certain ~~Form~~termination ~~10-K~~rights for both the ~~year~~Acquirors ~~ended~~and ~~December 31~~us and provides that upon termination of the merger agreement under certain circumstances, ~~2003~~we may be required to pay Parent a break-up fee of $40 million.

~~CRT’s~~ In ~~revenues~~connection ~~are~~with ~~dependent in part on~~ the ~~occupancy~~merger ofagreement, ~~its portfolio~~DRA ofGrowth ~~office~~and ~~buildings.~~Income ~~Over~~Fund ~~the~~V ~~past~~LLC ~~few~~has ~~years,~~issued ~~as a struggling~~an ~~national~~unconditional ~~economy~~guarantee ~~resulted~~for inthe ~~white-collar~~payment ~~job losses~~ and aperformance ~~general~~when ~~oversupply~~ due of ~~office~~all ~~space~~the ~~in many markets~~liabilities, obligations ~~occupancy~~and ~~rates~~undertakings ~~declined in most~~ of the ~~markets~~ ~~CRT serves~~Acquirors. ~~The~~This ~~office~~guarantee ~~building~~will ~~sector~~terminate ~~continues~~upon tothe ~~experience comparatively~~earlier ~~low occupancy rates in most markets. As~~ of ~~September 30, 2004,~~ ~~CRT’s~~the ~~portfolio~~termination ~~was~~of ~~80%~~the ~~occupied~~merger ~~compared~~agreement to(other ~~82%~~than as ofa ~~September 30,~~result ~~2003 and 81% as~~ of ~~December 31,~~default ~~2003.~~or ~~CRT~~breach ~~uses~~by ~~numerous approaches to maintain and~~the ~~increase~~Acquirors) ~~occupancy,~~or ~~including~~the ~~prioritizing~~closing ~~efforts~~of tothe retain existing tenants, using rental concessions such as free rent and improvement allowances, offering market-specific broker incentives and employing highly skilled and proactive management and leasing professionalsmerger.

~~CRT’s~~ For ~~leases~~additional ~~have~~and anmore ~~overall~~detailed ~~average~~information ~~lease~~on ~~term~~the ~~of approximately~~proposed ~~five~~merger ~~years.~~transaction Inand ~~any given year,~~ the related ~~Company~~special ~~generally~~meeting ~~renews over half~~ of ~~its~~our ~~expiring~~shareholders, ~~office~~please ~~leases;~~refer ~~however,~~to ~~for~~our ~~those~~definitive ~~office~~proxy ~~leases~~statement ~~that are~~filed ~~not~~with ~~renewed,~~ the ~~Company~~Securities ~~must remarket the vacated office space. Since rental rates generally decline as vacancy rates increase (~~and ~~vice~~Exchange ~~versa),~~Commission ~~the~~on ~~Company may~~Schedule 14A ~~lease~~on ~~the vacated space at terms less favorable than the terms of the expired lease. The amount of rental concessions given~~July 26, ~~such as free rent or improvement allowances, will also impact effective rental rates~~2005.

OnCritical ~~September 11,~~Accounting ~~2003,~~Policies ~~the~~And ~~Company acquired Tollway Crossing (a three-story~~Estimates building) and CIGNA Plaza (a five-story building) in Dallas, Texas for approximately $33.1 million. The two office buildings combined contain approximately 280,000 square feet of rentable space. The funds required for this acquisition were provided by the proceeds from the Company’s September 10, 2003 preferred stock issuance. As of September 30, 2004, Tollway Crossing and CIGNA Plaza were 100% and 95% occupied, respectively.

On Our ~~December 30,~~discussion ~~2003,~~and ~~the~~analysis ~~Company~~of ~~completed~~our afinancial ~~joint~~condition ~~venture~~and ~~agreement~~results ~~with Triangle~~of ~~W/Development~~operations tois ~~acquire~~based aupon our ~~75%~~consolidated ~~interest~~financial instatements ~~two~~that ~~five-story~~appear ~~office buildings~~elsewhere ~~encompassing~~in ~~202,000~~this ~~square~~quarterly ~~feet~~report ~~and~~on 8Form 10-Q.5 A ~~acres~~full summary of ~~undeveloped~~the ~~land suitable~~significant ~~for~~accounting ~~development~~policies ~~located~~used in preparing the ~~McGinnis~~condensed ~~Park~~consolidated financial ~~office~~statements ~~complex~~is set forth in ~~Atlanta,~~ ~~Georgia~~Note 4 to those statements. The ~~Company~~preparation ~~contributed~~of ~~approximately~~financial statements ~~$13.9 million~~in conformity with GAAP requires us to ~~pay~~make estimates and assumptions that affect the ~~off~~reported anamounts ~~existing~~of ~~mortgage~~assets ~~plus~~and anliabilities ~~additional~~and ~~amount~~contingencies ~~for~~at ~~closing~~the ~~costs~~date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual ~~working~~results ~~capital,~~could ~~funded~~differ materially from ~~its~~estimates ~~secured~~made. ~~line~~We ofbelieve ~~credit.~~that ~~The~~the ~~joint~~specific ~~venture~~accounting ~~assumed~~policies andiscussed ~~existing~~below ~~mortgage~~are oncritical ~~the~~in ~~undeveloped~~preparing ~~land~~our ofcondensed ~~approximately~~consolidated ~~$978,000.~~financial statements Asdue to the increased level of ~~September 30,~~assumptions ~~2004,~~used ~~the~~or ~~McGinnis~~estimates ~~Park~~made ~~office~~in ~~buildings~~determining ~~were~~their ~~58%~~impact ~~leased~~on our condensed consolidated financial statements.

~~On January 27, 2004, the Company acquired Atlantic Center Plaza, a twenty-three~~17 ~~story 502,000 square foot building located in Atlanta, Georgia, for a purchase price of $116.5 million plus closing and other costs. As of September 30, 2004, approximately 88% of~~

17 Table of Contents

~~Table~~ Revenue Recognition. We generate principally all of ~~Contents~~our operating revenues from leasing space to various tenants in office buildings that we own. Tenants include for-profit companies across a number of industries as well as various federal and state departments and agencies. Our twenty five largest tenants comprise over half of our occupied space and generate over half of our annual operating revenues. Rental income generally commences at the inception of the lease (as opposed to the actual later move-in date) and is recognized based on the terms of the individual leases. Many of our leases call for annual fixed increases in rental payments and in such case, rental income is recognized over the terms of the lease on a straight-line basis. Certain other leases call for annual increases based upon an inflation index, such as the Consumer Price Index. For these leases, since the annual dollar increase in rental income cannot be determined at the inception of the lease, rental income increases each year after applying the inflation index. Where rental concessions (such as free rent) are given to tenants, we also recognize rental income on a straight-line basis over the full term of the leases. We may require certain tenants to pay a security deposit in addition to their first month’s rent, which we record as a liability. Many of our leases require tenants to pay their prorata portion of property operating expenses in addition to their base rent, such amounts typically being in excess of a “base year” amount.

~~the~~ Impairment ~~property’s~~or ~~rentable~~Disposal ~~space~~of ~~was~~Long-Lived ~~leased~~Assets. ~~Under~~We ~~the~~evaluate ~~terms~~our ofreal ~~the~~estate ~~acquisition~~assets ~~agreement,~~quarterly ~~the~~to ~~Company~~assess ~~assumed~~whether aany ~~3-year~~impairment ~~variable~~indicators ~~interest~~are ~~rate~~present ~~secured~~that ~~loan~~affect ~~of approximately~~the ~~$75.9 million~~recovery ~~with an interest rate~~ of ~~LIBOR (1.65% at September~~the ~~30,~~carrying ~~2004) plus 160 basis points~~amount. ~~Simultaneously,~~Changes atin ~~closing,~~ the ~~Company assumed~~supply aor ~~second~~demand ~~3-year variable interest rate secured loan~~ of ~~$10.0 million with~~tenants anfor ~~interest~~our ~~rate~~properties ofcould ~~LIBOR~~impact ~~plus 600 basis points and immediately prepaid~~our ~~the~~ability ~~loan~~to inlease ~~full~~available space. ~~The~~Should ~~Company~~a ~~funded~~significant ~~the~~amount ~~remainder~~ of ~~the~~available ~~purchase~~space ~~price~~exist ~~with~~for an aextended ~~portion~~period, ofour ~~the~~investment ~~net~~in ~~proceeds~~a ~~from~~particular ~~its~~office ~~January 2004~~building ~~common~~may ~~stock~~be ~~offering~~impaired.

On Real ~~April~~estate assets are classified as held for sale or held and used in accordance with SFAS No. 2144, ~~2004~~“Accounting for the Impairment or Disposal of Long-Lived Assets”. In accordance with SFAS No. 144, we record assets held for sale at the ~~Company~~lower ~~acquired~~of ~~four~~carrying amount or fair value less costs to sell. With respect to assets classified as operating properties, ~~including~~we ~~two~~periodically ~~Class A~~review these ~~four~~assets to determine whether our carrying amount will be recovered. A long-~~story~~lived ~~office~~asset ~~buildings,~~is considered aimpaired ~~ground~~if ~~lease~~its ~~and~~carrying anvalue ~~undeveloped~~exceeds ~~parcel~~the ofestimated ~~land~~fair value. Fair value is based on ~~located~~the inestimated and realizable contract sales price (if available) for the ~~Decoverly~~asset ~~Office~~less ~~Park~~estimated incosts to ~~Rockville~~sell. If a sales price is not available, ~~Maryland~~the estimated undiscounted cash flows of the asset for the aremaining ~~purchase~~estimated holding period are used to determine if the carrying value is recoverable. ~~price~~Upon impairment, we would recognize an impairment loss to reduce the carrying value of ~~$42~~the long-lived asset to its estimated fair value.~~0 million~~ ~~plus~~Our ~~closing~~estimate of fair value and ~~other~~cash ~~costs.~~flows ~~The~~to ~~two~~be generated ~~three-story~~from our properties requires us to make assumptions that are highly subjective and based ~~office~~on ~~buildings~~a ~~aggregate~~variety ~~approximately~~of ~~155~~factors,~~000~~ ~~square~~including ~~feet~~but ofnot ~~rentable~~limited ~~space~~ to: existing leases, future leasing and terminations, ~~were~~market ~~93%~~rental ~~occupied~~rates, ascapital ofimprovements, ~~September 30~~tenant improvements, ~~2004~~leasing commissions, inflation and other variables. ~~The~~If ~~undeveloped~~one ~~land~~or ~~parcel~~more assumptions proves incorrect or if our assumptions ~~contains~~change, ~~3.2~~the ~~acres~~recognition ~~with~~of an ~~approved~~impairment ~~site~~loss ~~plan~~on ~~for~~one aor ~~four-story~~more ~~105,000~~properties ~~square~~may be necessary in the ~~foot~~future, ~~office~~which ~~building.~~would ~~The~~result ~~funds~~in ~~required~~a ~~for~~decrease ~~this~~in ~~acquisition~~net income. No impairment losses were ~~provided~~recognized byfor the ~~proceeds~~three ~~from~~and ~~the~~six ~~Company’s~~months ~~January~~ending June ~~2004~~30, ~~common stock offering~~2005.

On Depreciation. ~~April 21,~~Depreciation ~~2004,~~of ~~the~~buildings ~~Company~~and ~~amended~~parking ~~and~~garages ~~extended~~is ~~the~~computed ~~loan~~using ~~agreement~~the ~~governing~~straight-line ~~its~~method ~~$75.9 million~~over ~~loan~~an ~~with~~estimated ~~MetLife~~useful ~~assumed~~life inof ~~connection~~3 ~~with~~to ~~the acquisition~~39 years. Depreciation of ~~Atlantic~~building improvements ~~Center~~is ~~Plaza.~~computed Asusing ~~part~~the ofstraight-line ~~the~~method ~~amendment,~~over the ~~existing~~estimated useful life of the ~~variable~~improvement. ~~interest~~Tenant ~~rate~~improvements ~~(LIBOR~~are ~~plus~~generally ~~160~~amortized ~~basis~~over ~~points)~~the ~~will~~term ~~remain~~of inthe ~~place~~respective ~~until~~leases. ~~December 31,~~If ~~2004~~estimates ~~and~~of the ~~Company~~useful ~~will~~lives ~~draw~~of anour ~~additional~~operating ~~$4.1 million~~properties ~~prior~~ change, we may be required to ~~December 31,~~adjust future ~~2004~~depreciation expense. ~~Effective January 1~~Therefore, ~~2005,~~a change in the ~~rate~~estimated ~~will~~useful belives ~~fixed~~assigned atto ~~5.49%~~buildings ~~until~~and ~~December 31~~improvements would result in either an increase or decrease in depreciation expense, which ~~2014~~would result in an increase or decrease in net income.

On Cost ~~July 23,~~of ~~2004~~Real ~~the~~Estate ~~Company~~Acquired. ~~acquired~~We aaccount ~~five-story,~~for ~~224,000~~acquisitions ~~square~~of ~~foot, single-tenant,~~real ~~class~~estate ~~“A” office building located at 7777 Baymeadows Way~~ in ~~Jacksonville,~~accordance ~~Florida,~~with ~~for~~SFAS ~~a purchase price of $20~~No.8 ~~million~~141, ~~plus~~“Business ~~closing~~Combinations,” ~~and other~~which ~~costs.~~requires ~~As part of this transaction,~~ the ~~Company~~fair ~~issued~~value ~~33,202~~of ~~DownREIT limited partnership units in exchange for a $760,985 contribution from a related minority partner (Thomas J. Crocker,~~ the ~~Company’s Chief Executive~~real ~~Officer)~~estate inacquired ato ~~joint~~be ~~venture~~allocated ~~with~~to the ~~Company~~acquired ~~(see~~tangible ~~Note~~assets, ~~9).~~consisting ~~The Company received an additional minority interest contribution~~ of ~~$154~~land,~~107~~ ~~from an~~building, ~~unrelated~~building ~~third~~improvements ~~party.~~and ~~This~~tenant ~~building~~improvements, ~~also~~and ~~has~~identified anintangible ~~adjacent~~assets ~~six-story~~and ~~parking~~liabilities, ~~garage.~~consisting ~~The acquisition~~ of the ~~Baymeadows~~value ~~Way property was financed in part with the proceeds~~ of aabove ~~secured~~and ~~loan~~below inmarket ~~the~~leases, ~~amount~~customer ~~of approximately $13.8 million~~relationships, ~~which~~lease ~~bears~~costs ~~interest~~and the atvalue ~~a fixed rate~~ of ~~5.55% and matures~~ in-place ~~2014~~leases.

On The ~~August 16,~~allocation ~~2004,~~to ~~the~~intangible ~~Company~~assets ~~acquired~~is ~~the~~based ~~Westchase~~upon ~~Corporate~~various ~~Center~~factors ~~located in~~including ~~Houston,~~the ~~Texas;~~above aor ~~six-story, 184,000 square foot, class “A” office building~~below ~~for~~market acomponent ~~purchase price~~ of ~~$20.3 million,~~in–place ~~plus closing and other costs. As part of this transaction~~leases, the ~~Company~~value ~~issued~~of ~~28,584 DownREIT limited partnership units~~ in-place ~~exchange for a $639~~leases,~~015~~ ~~contribution~~leasing ~~from a related minority partner (Thomas J. Crocker~~commissions, ~~the~~legal ~~Company’s Chief Executive Officer) in a joint venture~~fees ~~with~~and the ~~Company~~value ~~(see~~of ~~Note~~customer 9)relationships. The ~~Company~~value ~~received~~allocable anto ~~additional~~the ~~minority interest~~above ~~contribution~~or ~~of $545,893 from an unrelated third party. The Company~~below ~~financed~~market ~~the~~component ~~acquisition~~ of ~~the~~an ~~Westchase~~acquired ~~property~~ in-place ~~part~~lease ~~with~~is ~~the~~determined ~~proceeds~~based ~~of a~~upon ~~secured~~the ~~loan totaling approximately $15.2 million, which bears interest at a~~present ~~fixed rate of 5.39% and matures in 2014.~~

~~CRITICAL~~value ~~ACCOUNTING~~(using ~~POLICIES~~an ~~AND~~interest ~~ESTIMATES~~rate which reflects the risks associated with the lease) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using current fair market rates over the remaining term of the lease. The amounts allocated to above or below market leases are amortized to rental income over the average remaining term of the respective leases. The remaining purchase price is allocated among various categories of tangible assets (building and land) and is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Differing assumptions and methods could result in different estimates of fair value and thus, a different purchase price allocation and corresponding increase or decrease in depreciation and amortization expense.

~~Our~~Allowance ~~discussion~~for ~~and~~Doubtful ~~analysis~~Accounts. ofAccounts ~~our~~receivable ~~financial~~are ~~condition~~reduced ~~and~~by ~~results~~an ofallowance for ~~operations~~amounts isthat ~~based~~may ~~upon~~become ~~our~~uncollectible ~~consolidated~~in ~~financial~~the ~~statements~~future. ~~that~~Our ~~appear~~receivable balance is comprised primarily ~~elsewhere~~of inrents ~~this~~and ~~quarterly~~operating ~~report~~expense onrecoveries ~~Form~~due ~~10-Q~~from tenants. AChanges ~~full~~in ~~summary~~general ~~of the~~economic ~~significant~~conditions, ~~accounting~~or ~~policies~~in ~~used~~the industries in ~~preparing~~which ~~the~~our ~~consolidated~~tenants ~~financial~~operate, could impact our tenants’ ability to ~~statements~~honor istheir ~~set~~lease ~~forth~~obligations, which could in ~~Note~~turn 3affect toour ~~those~~recorded ~~statements.~~revenues ~~The~~and ~~preparation~~estimates of ~~financial~~the ~~statements~~collectibility inof ~~conformity~~our ~~with~~receivables. ~~accounting~~Revenue ~~principles~~from ~~generally accepted~~real inestate ~~the~~rentals ~~United~~is ~~States~~recognized ofand ~~America~~accrued as ~~requires~~earned ~~the~~on ~~Company~~a topro ~~make~~rata ~~estimates and~~basis ~~assumptions~~over ~~that~~the ~~affect~~term of the ~~reported~~lease. ~~amounts~~We ofregularly ~~assets~~evaluate ~~and~~the ~~liabilities~~adequacy ~~and~~of ~~contingencies~~our atallowance ~~the~~for ~~date~~doubtful ofaccounts ~~the~~considering ~~financial~~such ~~statements~~factors ~~and~~as ~~the~~credit ~~reported~~quality ~~amounts~~of our tenants, delinquency of ~~revenues~~payment, ~~and~~historical ~~expenses~~trends ~~for~~and ~~the~~current ~~reporting~~economic ~~period~~conditions. ~~Actual~~We ~~results~~provide ~~could~~an ~~differ~~allowance ~~materially~~for ~~from~~doubtful ~~estimates~~accounts ~~made.~~for ~~The~~tenant ~~Company~~balances ~~believes~~ that ~~the~~are ~~specific accounting~~over ~~policies~~90 days ~~discussed~~past ~~below~~due ~~are~~and ~~critical~~for inspecific ~~preparing~~tenant receivables ~~its~~for ~~consolidated financial~~which ~~statements~~collection ~~due~~is toconsidered ~~the~~doubtful. ~~increased~~Actual ~~level~~write-offs ofmay ~~assumptions~~differ ~~used~~from orthese estimates, ~~made~~which could result in ~~determining~~an ~~their~~increase ~~impact~~or ondecrease ~~its~~in ~~consolidated~~bad ~~financial statements~~debt expense.

~~Revenue~~Off ~~Recognition. The Company generates principally all of its operating revenues from leasing space to various tenants in office buildings owned by the Company. Tenants include for~~Balance-~~profit~~Sheet ~~companies across a number of~~Arrangements industries as well as various federal and state departments and agencies. The Company’s twenty five largest tenants comprise over half of the Company’s occupied space and generate over half of the Company’s annual operating revenues. Rental income generally commences at the inception of the lease (as opposed to actual move-in date) and is recognized based on the terms of the individual leases. Many of the Company’s leases call for annual fixed increases in rental payments and in such case, rental income is recognized over the terms of the lease on a straight-line basis. Certain other leases call for annual increases based upon an inflation index, such as the Consumer Price Index. For these leases, since the annual dollar increase in rental income cannot be determined at the inception of the lease, rental income increases each year after applying the inflation index. Where rental concessions (such as free rent) are given to tenants, the Company also recognizes rental income on a straight-line basis over the full term of the leases. The Company may require certain tenants to pay a security deposit in addition to their first month’s rent; the Company records such security deposits as a liability. Many of the Company’s leases require tenants to pay their prorata portion of property operating expenses in addition to their base rent, such amounts typically being in excess of a “base year” amount.

~~Impairment~~On orJanuary 12, ~~Disposal~~2004, we, through a newly formed subsidiary DownREIT limited partnership called Koger BFC, Ltd., acquired all of ~~Long~~the partnership interests in Broward Financial Centre (“BFC”) in downtown Fort Lauderdale, Florida, in a joint venture with an affiliate of Investcorp Properties Limited of New York (“Investcorp”), for approximately $60.1 million. BFC is a single twenty-~~Lived~~four story ~~Assets~~building containing approximately 326,000 rentable square feet. We initially acquired a 30% interest in the joint venture and on May 9, 2005, we acquired the remaining 70% interest in the joint venture. Approximately 14% of the existing partnership interests in BFC were first owned by entities in which the Chief Executive Officer, Thomas J. Crocker had a 50% ownership interest (“Crocker Affiliate”). The ~~Company~~decision ~~evaluates~~to acquire BFC and the terms thereof were approved by the members of our board of directors and finance committee without the participation of Mr. Crocker. We acquired the partnership interests held by Crocker Affiliate by issuing 97,948 limited partnership units (“Units”) in exchange for the contribution of its partnership interests. The ~~real~~Units ~~estate~~are ~~assets~~entitled to receive quarterly todistributions ~~assess~~equivalent ~~whether~~to ~~any~~the ~~impairment~~quarterly ~~indicators~~dividend ~~are~~declared ~~present~~on ~~that~~our ~~affect~~common stock. Commencing on the ~~recovery~~first anniversary of the ~~carrying~~transaction, ~~amount.~~Crocker ~~Changes~~Affiliate can cause the Units to be redeemed in exchange for cash (at a price per Unit equal to the ~~supply~~lesser of the orper ~~demand~~share price for a share of ~~tenants~~our common stock at the time of redemption and the average per share closing price of our common stock for the ~~Company’s~~thirty ~~properties~~trading ~~could~~days ~~impact~~preceding ~~its~~the ~~ability~~redemption) or, at our option, shares of our common stock (one share of our common stock per Unit). Prior to our ~~lease~~acquisition ~~available~~of ~~space~~the remaining 70%, our total investment in this joint venture was $5.3 million including ~~Should~~DownREIT minority contributions ($2.1 million) and closing costs. Prior to our May 9, 2005 acquisition described below, we accounted for this investment using the equity method of accounting as we did not have a ~~significant~~controlling ~~amount~~interest over the operating and financial policies of the ~~available~~joint ~~space~~venture, ~~exist~~nor were we the primary beneficiary under FIN 46(R). As a result, the assets and liabilities of this joint venture were not included in our balance sheet. This investment was recorded initially at cost and subsequently adjusted for anequity ~~extended~~in ~~period~~earnings and cash contributions and distributions. On May 9, 2005, we acquired the ~~Company’s~~remaining ~~investment~~70 percent equity interest in aBroward Financial ~~particular~~Centre. ~~office~~As part of this transaction, we assumed an ~~building~~existing ~~may~~$46.5 million befixed-rate ~~impaired~~mortgage, with an interest rate of 4.84%. We preliminarily allocated approximately $1.4 million and $66.9 million of the net purchase price to the value of the acquired land and building, respectively. Subsequent to this acquisition, we have consolidated the assets and liabilities of Broward Financial Centre.

~~Real estate assets are classified as held for sale or held and used in~~19 accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. In accordance with SFAS No. 144, the Company records assets held for sale at the lower of carrying amount or fair value less costs to sell. With respect to assets classified as operating properties, the Company periodically reviews these assets to determine whether its carrying amount will be recovered. A long-lived asset is considered impaired if its carrying value exceeds the estimated fair value. Fair value is based on the estimated and realizable contract sales price (if available) for the asset less estimated costs to sell. If a sales price is not available, the estimated undiscounted cash flows of the asset for the remaining estimated holding period are used to determine if the carrying value is recoverable. Upon impairment, the Company would recognize an impairment loss to reduce the carrying value of the long-lived asset to its estimated fair value. The Company’s estimate of fair value and cash flows to be generated from its properties requires it to make assumptions that are highly subjective and based on a variety of factors, including but not limited to: existing leases, future leasing and terminations, market rental rates, capital improvements, tenant improvements, leasing commissions, inflation and other variables. If one or more assumptions proves incorrect or if the Company’s assumptions change, the recognition of an impairment loss on one or more properties may be necessary in the future, which would result in a decrease in net income. No impairment losses were recognized for the nine months ending September 30, 2004.

Depreciation.Table Depreciation of buildings and parking garages is computed using the straight-line method over an estimated useful life of 3 to 39 years. Depreciation of building improvements is computed using the straight-line method over the estimated useful life of the improvement. Tenant improvements are generally amortized over the term of the respective leases. If the Company were to incorrectly estimate the useful lives of its operating properties, it may be required to adjust future depreciation expense. Therefore, a Contents

19Related-Party Transactions

~~Table~~ Under our 2002 long-term incentive plan, certain senior officers receive payments based on the performance of ~~Contents~~our common stock over a three-year measurement period and the performance of our common stock compared to a defined peer group of REITs within the Morgan Stanley REIT index over a three-year measurement period. Payments under the plan are dependent on the achievement of certain performance goals and on satisfaction of certain vesting requirements. In February 2005, we issued 21,018 shares of common stock to certain senior executives currently participating in the long-term compensation plan. These shares of common stock were valued at approximately $479,000.

~~change~~ Under inour ~~the~~2005 ~~estimated~~senior ~~useful~~management ~~lives~~compensation ~~assigned~~plan, we granted 179,667 restricted shares of our common stock to ~~buildings~~certain ~~and~~key ~~improvements~~executives of our Company. The restricted shares vest (using both ~~would~~performance ~~result~~and intime ~~either~~vesting anfeatures) ~~increase~~over ora ~~decrease~~period inof ~~depreciation~~five ~~expense~~years from the date of issuance. Upon issuance of the restricted shares, ~~which~~deferred compensation of $4.1 million was charged to ~~would~~stockholders’ ~~result~~equity inand anis ~~increase~~being orrecognized ~~decrease~~as incompensation ~~net~~expense ~~income~~ratably over the five year vesting period. Non-cash compensation expense related to the vesting of the restricted shares of approximately $205,000 and $410,000 was recognized during the three and six months ended June 30, 2005, respectively.

~~Cost~~Results of ~~Real Estate Acquired. The Company accounts for its acquisitions~~Operations of real estate in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations,” which requires the fair value of the real estate acquired to be allocated to the acquired tangible assets, consisting of land, building, building improvements and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above and below market leases, customer relationships, lease costs and the value of in-place leases.

~~The~~ Operating ~~allocation~~Revenues. toOperating ~~intangible~~Revenues ~~assets~~(excluding ismanagement ~~based~~fees) ~~upon~~increased ~~various factors including the above or below market component of in–place leases~~$9, ~~the value of in-place leases~~128,000 ~~leasing commissions, legal fees and the value of customer~~or ~~relationships~~22.3 percent ~~The~~for ~~value allocable to~~ the ~~above~~three ormonths ~~below~~ended ~~market component of an acquired in-place lease is determined based upon the present value (using an interest rate which reflects the risks associated with the lease) of the difference between (i)~~June ~~the~~30, ~~contractual~~2005, ~~amounts~~as tocompared ~~be paid pursuant~~ to the ~~lease over~~same ~~its~~period remaining term, and (ii) management’s estimate of the amounts that would be paid using current fair market rates over the remaining term of the lease. The amounts allocated to above or below market leases are included in ~~other~~ ~~assets in the balance sheet and are amortized to rental income over the average remaining term of the respective leases~~2004. ~~The remaining purchase price is allocated among various categories of tangible~~ ~~assets~~This ~~(building~~increase ~~and~~was ~~land)~~primarily ~~and is based upon management’s determination of~~ the ~~value~~ of the property as if it were vacant using discounted cash flow models. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Differing assumptions and methods could result ~~in different estimates~~ of ~~fair~~recent ~~value~~acquisitions ~~and~~as ~~thus,~~follows ~~a different purchase price allocation and corresponding increase or decrease~~ (in ~~depreciation and~~thousands): ~~amortization expense.~~

Allowance for Doubtful Accounts. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Our receivable balance is comprised primarily of rents and operating expense recoveries due from tenants. Changes in general economic conditions, or in the industries in which our tenants operate, could impact our tenants’ ability to honor their lease obligations, which could in turn affect our recorded revenues and estimates of the collectibility of our receivables. Revenue from real estate rentals is recognized and accrued as earned on a pro rata basis over the term of the lease. The Company regularly evaluates the adequacy of its allowance for doubtful accounts considering such factors as credit quality of our tenants, delinquency of payment, historical trends and current economic conditions. The Company provides an allowance for doubtful accounts for tenant balances that are over 90 days past due and for specific tenant receivables for which collection is considered doubtful. Actual write-offs may differ from these estimates, which could result in an increase or decrease in bad debt expense.


		Operating		Operating
		Revenues		Revenues
		For the Period		For the Period
		Ended June		Ended June
Center Name	Date of Acquisition	30, 2005		30, 2004		Variance
Baymeadows Way	July 23, 2004	$	600	$	—	$	600
Broward Financial Centre	May 9, 2005		1,386		—		1,386
Las Olas Centre	November 24, 2004		3,612		—		3,612
Signature Place	December 30, 2004		1,723		—		1,723
Westchase Corporate Center	August 16, 2004		918		—		918

TOTAL		$	8,239	$	—	$	8,239

~~OFF-BALANCE~~ Operating ~~SHEET~~Revenues ~~ARRANGEMENTS~~(excluding management fees) increased $18,745,000 or 23.3 percent for the six months ended June 30, 2005, as compared to the same period in 2004. This increase was primarily the result of recent acquisitions as follows (in thousands):

On January 12, 2004, the Company, through a newly formed subsidiary DownREIT limited partnership called Koger BFC, Ltd., acquired all of the partnership interests in Broward Financial Center (“BFC”) in downtown Fort Lauderdale, Florida, in a joint venture with an affiliate of Investcorp Properties Limited of New York (“Investcorp”), for approximately $60.1 million. BFC is a single twenty-four story building containing approximately 326,000 rentable square feet. CRT has a 30% interest in the joint venture. Approximately 14% of the existing partnership interests in BFC were owned by entities in which the Company’s Chief Executive Officer, Thomas J. Crocker had a 50% ownership interest (“Crocker Affiliate”). The decision to acquire BFC and the terms thereof were approved by the members of the Company’s board of directors and finance committee without the participation of Mr. Crocker. Investcorp, as the joint venture partner acquiring 70% of the economic interests, played a substantial role in negotiating the purchase. The Company acquired the partnership interests held by Crocker Affiliate by issuing 97,948 limited partnership units (“Units”) in exchange for the contribution of its partnership interests. The Units will be entitled to receive quarterly distributions equivalent to the quarterly dividend declared on the Company’s common stock. Commencing on the first anniversary of the transaction, Crocker Affiliate can cause the Units to be redeemed in exchange for cash (at a price per Unit equal to the lesser of the per share price for a share of the Company’s common stock at the time of redemption and the average per share closing price of the Company’s common stock for the thirty trading days preceding the redemption) or, at the Company’s option, shares of the Company’s common stock (one share of the Company’s common


		Operating		Operating
		Revenues		Revenues
		For the Period		For the Period
		Ended June		Ended June
Center Name	Date of Acquisition	30, 2005		30, 2004		Variance
Atlantic Center Plaza	January 27, 2004	$	7,218	$	6,042	$	1,176
Baymeadows Way	July 23, 2004		1,198		—		1,198
Broward Financial Centre	May 9, 2005		1,386		—		1,386
Decoverly	April 2, 2004		2,750		1,136		1,614
Las Olas Centre	November 24, 2004		7,338		—		7,338
Signature Place	December 30, 2004		3,378		—		3,378
Westchase Corporate Center	August 16, 2004		1,982		—		1,982

TOTAL		$	25,250	$	7,178	$	18,072

~~stock~~ Property ~~per~~operations ~~Unit).~~and ~~The~~real ~~Company’s~~estate ~~total~~taxes. ~~investment~~Property inoperations ~~this~~expense ~~joint~~and ~~venture~~real isestate ~~$5.3~~taxes ~~million~~include ~~including~~such ~~DownREIT~~charges ~~minority~~as ~~contributions~~utilities, ~~($2.1 million)~~janitorial, ~~and~~maintenance, ~~closing costs.~~property ~~The~~insurance, ~~Company~~provision ~~accounts~~ for uncollectible ~~this~~rents ~~investment~~and ~~using~~management ~~the~~costs. ~~equity~~Property ~~method~~operations ~~of accounting~~expense asand itreal ~~does~~estate ~~not~~taxes increased ~~have~~$4,146,000 afor ~~controlling~~the ~~interest~~three ~~over~~months ~~the~~ended ~~operating~~June 30, ~~and financial~~2005, ~~policies~~compared ofto the ~~joint~~same ~~venture,~~period ~~nor~~in is2004. This itincrease ~~the~~was ~~primary~~due ~~beneficiary under~~primarily ~~FIN~~to ~~46®.~~operations Asexpense aresulting ~~result,~~from the ~~assets~~acquisition ~~and liabilities~~ of ~~this~~Las ~~joint venture~~Olas ~~are~~Centre ~~not~~($1.6 million), ~~included~~Decoverly ~~in the Company’s balance sheet~~($0.2 million), ~~This~~Westchase ~~investment~~Corporate ~~was~~Center ~~recorded~~($0.4 million), ~~initially~~Signature atPlace ~~cost~~($0.9 million), and ~~subsequently~~Broward ~~adjusted~~Financial ~~for~~Centre ~~equity in earnings and cash contributions and distributions~~($0.7 million).

~~RECENT~~ Property ~~DEVELOPMENTS~~operations expense and real estate taxes increased $7,570,000 for the six months ended June 30, 2005, compared to the same period in 2004. This increase was due primarily to operations expense resulting from the acquisition of Las Olas Centre ($2.9 million), Decoverly ($0.8 million), Westchase Corporate Center ($0.9 million), Signature Place ($1.7 million), and Broward Financial Centre ($0.7 million).

On The ~~October 4,~~amount ~~2004,~~of ~~the~~property ~~Company~~operations ~~sold~~expense ~~approximately~~and ~~14.5~~real ~~acres~~estate oftaxes ~~undeveloped land~~and ~~located~~their ~~across~~percentage ~~the~~of operating ~~street~~revenues ~~from~~(excluding ~~its~~management ~~Atlanta~~fees) ~~Gwinnet Center~~ for ~~approximately~~ ~~$3.25 million.~~the ~~This~~applicable ~~transaction~~periods ~~resulted~~are inas ~~a gain of~~follows: ~~approximately $293,000.~~

On September 30, 2004, the Company entered into a purchase and sale agreement with East Las Olas Investors II, WLD Realty, Ltd., and Halmos Holdings, Inc. to acquire the partnership interests in two class “A” office buildings located in the central business district of Fort Lauderdale, Florida. On October 15, 2004, after further discussions between the parties, the purchase price was fixed at $138.6 million (plus closing and other costs) and the Company deposited $5 million in earnest money. The office buildings, known as the Las Olas Centre, comprise approximately 470,000 rentable square feet and, as of September 30, 2004, was 87% occupied. The transaction is expected to close during the fourth quarter of 2004 and will be financed with a 10-year, $99 million fixed interest rate loan with the remainder to be drawn on the Company’s line of credit.


			Percent of
Period	Amount		Total Revenues
June 30, 2005—Quarter	$	20,182,000		40.3	%
June 30, 2004—Quarter	$	16,036,000		39.2	%
June 30, 2005—Six Months	$	39,142,000		39.5	%
June 30, 2004—Six Months	$	31,572,000		39.3	%

On Depreciation ~~October 14,~~and ~~2004,~~amortization expense. Depreciation expense has been calculated on the straight-line ~~Company~~method ~~announced~~based ~~plans~~upon the useful lives of our depreciable assets, generally 3 to ~~develop~~39 years. aDepreciation and amortization expense increased $~~90 million~~3,257,000 for the three months ended June ~~20-story~~30, ~~335~~2005,~~000-square-foot,~~ ~~class~~compared ~~“A”~~to ~~office~~the ~~tower~~same period in a2004. ~~joint~~Depreciation ~~venture~~and ~~with~~amortization expense increased ~~The~~$6,075,000 ~~Related~~for ~~Companies~~the ofsix ~~New~~months ~~York~~ended June 30, 2005, compared to the same period in 2004. These increases were due primarily to depreciation resulting from the Company’s acquisition of Atlantic Center Plaza, Decoverly, Las Olas Centre, Baymeadows Way, Westchase Corporate Center, and Signature Place.

On General ~~November 2,~~and ~~2004,~~administrative ~~the~~expense. ~~Company~~General ~~entered into a purchase~~ and ~~sale~~administrative ~~agreement with~~expense ~~the~~increased ~~WHML-S Real Estate Limited Partnership to acquire a 437~~$3,650,000 ~~rentable~~ ~~square foot class “A” office building~~ for athe ~~purchase~~three ~~price~~months ofended ~~approximately $39 million (plus closing and other costs). The building~~June 30, ~~located in Dallas~~2005, ~~Texas,~~ iscompared ~~comprised~~to ofthe ~~two~~same ~~interconnected~~period ~~towers~~in ~~consisting~~2004. ofThis ~~Tower~~increase ~~1 with 8~~was ~~floors,~~due ~~and~~primarily ~~Tower~~to ~~2 with 11 floors, are situated on~~ approximately 10$2.1 million ~~acres with~~of ~~an attached four~~merger-~~story~~related ~~parking garage. In connection with this acquisition~~(legal, ~~the~~professional ~~Company~~and ~~will enter into a joint venture with Wilcox Capital Group, whereby the Company will own 75% of the venture. Pending the Company’s successful completion of due diligence on the~~ property~~, the acquisition of~~ ~~Signature~~inspection) ~~Place~~expenses ~~would~~(see beNote ~~expected~~2) toas ~~close~~well ~~during~~as ~~the~~increases ~~fourth~~in ~~quarter~~salaries ~~of 2004~~ and ~~will~~bonuses ~~be financed with proceeds from a non-recourse mortgage~~ and ~~the balance~~professional ~~of the equity required of the Company will be drawn on the Company’s revolving line of credit~~fees. ~~As of September 30, 2004, the Signature Place office building~~ ~~was 65% leased.~~

~~RESULTS~~ General OFand ~~OPERATIONS~~administrative expense increased $4,911,000 for the six months ended June 30, 2005, compared to the same period in 2004. This increase was due primarily to approximately $2.1 million of merger-related expenses (see Note 2), and $1.4 million of long-term incentive plan expenses (see Note 11), as well as increases in salaries and bonuses and professional fees.

~~Rental~~ Mortgage and ~~other~~loan ~~rental services revenues totaled $40,974,000 for the quarter ended September 30, 2004, compared to $35,163,000 for the quarter ended September 30, 2003~~interest. ~~Rental~~Mortgage and ~~other~~loan ~~rental~~interest ~~services~~expense ~~revenues~~increased ~~totaled~~ $~~121~~2,~~373~~946,000 for the three ~~nine~~ months ended ~~September~~June 30, ~~2004~~2005, compared to ~~$107,407,000~~ ~~for~~ the ~~nine~~same ~~months~~period ~~ended September 30, 2003. These increases resulted primarily from an increase~~ in ~~revenues resulting from the acquisition of Atlantic Center Plaza in January~~ 2004. ~~($3,862,000~~Mortgage and ~~$9,904,000~~loan ~~for the~~interest ~~quarter~~expense ~~and~~increased ~~nine months ended September 30, 2004, respectively), CIGNA Plaza and Tollway Crossing in September 2003 (~~$16,~~171~~282,000 ~~and $4,600,000~~ for the ~~quarter~~ ~~and~~six ~~nine~~ months ended ~~September~~June 30, ~~2004~~2005, ~~respectively),~~compared ~~Decoverly~~to ~~in April 2004 ($1,240,000 and $2,376,000 for~~ the ~~quarter~~same ~~and nine months ended~~period ~~September 30,~~in 2004,. ~~respectively),~~These ~~Westchase~~increases ~~Corporate~~were ~~Center~~primarily ~~and Baymeadows Way during~~ the ~~third~~result ~~quarter~~ of ~~2004~~an ~~($945,000~~increase ~~for~~in ~~the~~interest ~~quarter~~expense ~~and~~due ~~nine months~~to ~~ended~~additional ~~September 30,~~mortgage ~~2004,~~indebtedness ~~respectively)~~obtained ~~and McGinnis Park~~ in ~~December 2003 ($510,000~~connection ~~and~~with ~~$1,571,000 for~~ the ~~quarter~~acquisition ~~and nine months ended September 30, 2004, respectively). The effect~~ of ~~this~~Baymeadows ~~increase was partially offset by a decrease in rental revenues from the Lakes on Post Oak property acquired in December 2002 ($172~~Way,~~000 and $1,315,000 for the quarter and nine months ended~~ ~~September 30,~~Westchase ~~2004,~~Corporate ~~respectively)~~Center, ~~the~~Las ~~Three~~Olas ~~Ravinia Drive property acquired in January 2002 ($480~~Centre,~~000~~ ~~and~~Signature $1Place,~~008,000~~ ~~for the quarter~~ and ~~nine~~Broward ~~months~~Financial ~~ended~~Centre. ~~September 30, 2004, respectively), and a decline in rental revenues from the Company’s portfolio of assets acquired~~

~~prior~~ Net income and net income attributable to ~~January 1,~~common ~~2002~~shareholders. ofNet ~~$1,403,000~~income and net income attributable to common shareholders decreased $34,~~523~~986,000 for the quarter ~~and nine months~~ ended ~~September~~June 30, ~~2004~~2005, ~~respectively, as~~ compared to the same period in ~~2003~~2004. AtThis ~~September 30,~~decrease ~~2004,~~was ~~the~~primarily ~~Company’s~~due ~~buildings~~to ~~were~~increases onin ~~average 80~~total ~~percent~~operating ~~occupied~~expenses ~~with~~($4.1 million), angeneral ~~average~~and ~~rental~~administrative ~~rate~~expense of ($173.717 million), ~~per rentable square~~depreciation ~~foot.~~and Atamortization ~~September~~expense ($3.3 30million), ~~2003,~~and ~~the~~mortgage ~~Company’s~~and ~~buildings~~loan ~~were~~interest onexpense ~~average 82~~($2.9 million) ~~percent~~resulting ~~occupied~~from ~~with~~recent anacquisitions. ~~average~~These ~~rental~~decreases ~~rate~~were ofpartially ~~$17.28~~offset ~~per~~by ~~rentable~~an ~~square~~overall increase ~~foot~~in operating revenues ($9.1 million).

~~Property~~ Net ~~operations~~income ~~expense~~and ~~includes~~net ~~such~~income ~~charges~~attributable asto ~~utilities,~~common ~~real~~shareholders ~~estate taxes,~~decreased ~~janitorial,~~approximately ~~maintenance, property insurance, provision for uncollectible rents and management costs. Property operations expense increased~~ $26,~~207~~155,000 ~~and $5,737,000~~ for the ~~three~~six ~~and nine~~ months ended ~~September~~ June 30, ~~2004~~2005, compared to the same period in ~~2003~~2004. ~~These~~This ~~increases~~decrease ~~were~~was ~~due~~ primarily due to ~~operations~~an ~~expense~~increases ~~resulting~~in ~~from~~total ~~the~~operating ~~acquisition~~expenses ~~of Atlantic Center Plaza in January 2004~~ ($17.6 million),~~068,000~~ ~~and~~general ~~$3,310,000 for the quarter~~ and ~~nine~~administrative ~~months~~expense ~~ended September~~($4.9 ~~30, 2004~~million), ~~Decoverly~~depreciation ~~in April 2004 ($435,000~~ and ~~$830,000~~ ~~for~~amortization ~~the~~expense ~~quarter and nine months ended September~~($6.1 30million), ~~2004)~~ and ~~CIGNA~~ ~~Plaza~~mortgage and ~~Tollway~~loan ~~Crossing~~interest inexpense ~~September 2003~~ ($~~696,000~~6.3 million) ~~and~~resulting ~~$2,055,000~~from ~~for~~recent ~~the quarter and nine months ended September 30, 2004, respectively)~~acquisitions. ~~Theses~~These ~~increases~~decreases were partially offset by aan ~~decrease~~overall increase in operating ~~expenses~~revenues ~~from the Three Ravinia Drive property acquired in January 2002~~ ($~~349,000 and $560,000 for the quarter and nine months ended September~~18.7 ~~30, 2004, respectively~~million).

~~The~~Liquidity ~~amount of property operations expense~~ and ~~its~~Capital ~~percentage of total rental~~Resources ~~revenues for the applicable periods are as follows:~~

			Percent of
			Rental and Other
Period	Amount		Rental Services Revenues
September 30, 2004—Quarter	$	16,114,000		39.3	%
September 30, 2003—Quarter	$	13,907,000		39.6	%
September 30, 2004—Nine Months	$	47,686,000		39.3	%
September 30, 2003—Nine Months	$	41,949,000		39.1	%

Operating Activities— During the six months ended June 30, 2005, we generated approximately $21.1 million in net cash from operating activities, approximately $9.3 million less than the comparable period of 2004. Our decreased generation of cash from operations is primarily attributable to an increase in the aggregate growth rate of accounts receivable and other assets (approximately $3.0 million), and a decrease in the aggregate growth rate of accounts payable, accrued liabilities, and other liabilities (approximately $7.3 million).

~~Depreciation~~ Our ~~expense~~principal ~~has~~source ~~been~~of ~~calculated~~cash onflow ~~the~~is ~~straight-line~~related ~~method~~to ~~based upon~~ the ~~useful~~operation ~~lives~~ of ~~the~~our ~~Company’s~~office ~~depreciable~~properties. ~~assets,~~The weighted-average ~~generally~~term 3of toa ~~39 years.~~tenant ~~Depreciation~~lease ~~expense~~is ~~increased~~approximately ~~$1,722,000 and $~~4~~,358,000~~.5 years ~~for~~with ~~the~~occupancy ~~three~~rates ~~and~~historically ~~nine~~in ~~months~~the ~~ended~~range ~~September 30,~~of ~~2004,~~75% ~~respectively,~~to ~~compared~~90%. toOur ~~the~~properties ~~same period~~provide ina ~~2003.~~relatively ~~These~~consistent ~~increases~~stream ~~were~~of cash ~~due~~flow ~~primarily~~that toprovides ~~depreciation~~us ~~resulting from~~with ~~the~~resources ~~Company’s~~to ~~acquisition~~pay ofoperating ~~Atlantic~~expenses, ~~Center~~debt ~~Plaza~~service inand ~~January 2004~~fund ~~($962,000~~quarterly dividend and ~~$2,108,000~~distribution ~~for~~payment ~~the~~requirements. ~~quarter~~As ~~and~~a ~~nine~~REIT ~~months~~for ~~ended~~Federal ~~September 30,~~income tax ~~2004~~purposes, ~~respectively),~~we ~~McGinnis~~are ~~Park~~required into ~~December 2003~~pay ~~($288~~out annually,~~000~~ ~~and~~as ~~$489~~dividends,~~000~~ ~~for the~~at ~~quarter~~least ~~and~~90 percent ~~nine~~of ~~months~~our ~~ended~~REIT taxable ~~September 30,~~income. ~~2004,~~In ~~respectively)~~the past, ~~Decoverly in~~we ~~April 2004~~have ~~($146,000~~paid ~~and~~out ~~$292,000~~dividends ~~for~~in ~~the~~amounts ~~quarter~~at ~~and~~least ~~nine~~equal ~~months~~to ~~ended~~our REIT ~~September~~taxable ~~30,~~income. ~~2004,~~We ~~respectively)~~believe ~~and~~that ~~CIGNA~~our ~~Plaza~~cash provided by operating activities and ~~Tollway~~our ~~Crossing~~current incash ~~September 2003~~balance ~~($171,000~~will ~~and~~be ~~$512,000~~sufficient ~~for~~to ~~the~~cover ~~quarter~~debt service payments and ~~nine~~to ~~months~~pay ~~ended~~the dividends required to ~~September 30,~~maintain ~~2004,~~our ~~respectively)~~REIT status.

~~General~~ The ~~and~~level ~~administrative~~of ~~expenses~~cash ~~increased~~flow ~~$1,761,000~~generated ~~and~~by ~~$1,742,000~~rents ~~for~~ depends primarily on the ~~three~~occupancy rates of our buildings and ~~nine~~changes ~~months~~in ~~ended~~rental ~~September~~rates on new and renewed leases and under escalation provisions in existing leases. At June 30, ~~2004~~2005, ~~respectively,~~leases ~~compared~~representing to approximately 9.3 percent of the ~~same~~gross annualized ~~period~~rent infrom ~~2003.~~our ~~These~~properties, ~~increases~~without ~~were~~regard to the ~~result~~exercise of aoptions ~~one-time payment~~to ~~of $540~~renew,~~000~~ ~~made~~were due to expire during the ~~quarter~~remainder onof ~~behalf~~2005. ofThese ~~the~~scheduled ~~Company’s~~expirations ~~Chief Executive~~represent ~~Officer~~leases ~~(as~~for ~~described~~space in buildings ~~Note~~located 9in to20 of the ~~condensed~~25 ~~consolidated financial~~centers ~~statements),~~or aslocations ~~well~~in aswhich anwe ~~overall~~own ~~increase~~buildings. inCertain ~~payroll~~of these ~~related~~tenants ~~costs ($403,000~~may ~~and~~not ~~$709,000~~renew ~~for~~their ~~the~~leases ~~quarter~~or ~~and~~may ~~nine~~reduce their demand for space. During the six months ended ~~September~~June 30, ~~2004~~ 2005, ~~respectively)~~leases ~~and~~were ~~administrative~~renewed ~~costs,~~on ~~including~~approximately ~~costs~~65 percent ~~incurred~~of inour rentable square ~~connection~~feet ~~with~~that ~~changing~~expired during the ~~Company~~six-month ~~name~~period. ~~and~~Current ~~compliance~~market ~~with~~conditions ~~the~~in certain markets may ~~Sarbanes-Oxley~~require ~~Act~~that rental rates at which leases are renewed or at which vacated space is leased be lower than rental rates under existing leases. Based upon the amount of ~~2002~~leases ~~($521,000~~that will expire during 2005 and ~~$740,000~~the competition for tenants in the ~~quarter~~markets in which we operate, we have and ~~nine~~expect to ~~months~~continue ~~ended~~to ~~September 30~~offer incentives to certain new and renewal tenants. These incentives may include the payment of tenant improvement costs and, ~~2004~~in certain markets, ~~respectively)~~reduced rents during initial lease periods.

~~Amortization~~ Governmental ~~expense~~tenants ~~increased~~(including ~~$832,000~~the State of Florida and ~~$720~~the United States Government),~~000~~ which account for ~~the~~approximately ~~three~~17 percent ~~and~~of ~~nine months~~our ~~ended~~occupied ~~September~~space at June 30, ~~2004~~2005, ~~respectively,~~may asbe ~~compared~~subject to budget ~~the~~reductions ~~same period~~ in ~~2003.~~times ~~These~~of ~~increases~~recession ~~were~~and ~~due~~governmental ~~primarily~~austerity tomeasures. ~~the~~Consequently, ~~amortization~~there can ofbe ~~the~~no ~~fair value~~assurance ofthat ~~acquired~~governmental ~~leases~~appropriations for ~~Atlantic~~rents ~~Center~~may ~~Plaza~~not ~~($667~~be reduced. Additionally,~~000~~ certain ~~for~~of the ~~three~~private ~~and~~sector tenants that have contributed to our rent stream may reduce their ~~nine~~current ~~months~~demands, ~~ended~~or ~~September 30~~curtail their future need, ~~2004)~~for additional office space.

~~Mortgage and loan interest expense increased $866,000 and $922,000 for the~~22 ~~three and nine months ended September 30, 2004, respectively, compared to the same period in 2003. These increases were primarily the result of an increase in interest expense due~~

22 Table of Contents

~~Table~~ We believe that the markets in which we operate provide significant growth potential due to their diverse economies, expanding metropolitan areas, skilled work force and moderate labor costs. However, cash from operations could be reduced if economic conditions result in lower occupancy rates and lower rental income for our buildings, which may in turn affect the amount of dividends ~~Contents~~we pay to our shareholders.

to Investing aActivities— ~~mortgage~~At ~~indebtedness~~June 30, ~~assumed~~2005, substantially all of our invested assets were in ~~connection~~real ~~with~~properties ~~the~~or ~~acquisition~~joint ventures invested in real properties and our primary use of cash for ~~Atlantic~~investing ~~Center~~activities ~~Plaza~~was infor ~~January~~tenant and building improvements. Improvements to our existing properties have been financed through internal operations and lender required escrow accounts. We spent $17.1 ~~2004~~million on tenant and building improvements, as well as deferred tenant costs during the period. We also experienced a decrease in ~~the~~restricted ~~average~~cash ($7.7 million) resulting primarily ~~outstanding~~from ~~balance~~the refinancing of our existing Lakes on ~~the~~Post ~~Company’s~~Oak ~~line~~mortgage. ofIn ~~credit~~February 2005, ~~since~~we ~~September~~refinanced this loan that required us to maintain approximately $8.6 30million in required cash escrows. The new loan provided by ING, ~~2003~~required a $6.0 million letter of credit in lieu of cash escrows.

~~Net~~ On ~~income~~May 9, ~~decreased $1~~2005,~~493,000~~ ~~for~~we acquired the ~~quarter~~remaining ~~and~~70 percent ~~increased~~equity ~~$207,000~~interests ~~for~~in the partnership ~~nine~~which ~~months~~owns ~~ended~~Broward ~~September 30,~~Financial ~~2004,~~Centre ~~respectively, as compared to the same period~~ in ~~2003~~Ft. ~~This~~Lauderdale, ~~quarterly~~Florida ~~decrease~~that ~~was~~we ~~primarily~~did ~~due~~not toalready ~~an increase in~~own. ~~depreciation~~These ~~and~~equity ~~amortization~~interests ~~expense~~were ~~and~~purchased ~~property~~based ~~operating~~on ~~costs~~a ~~incurred~~total ~~in connection~~property ~~with~~value ~~the Company’s recent acquisition~~ of ~~Atlantic~~approximately ~~Center Plaza~~$70.0 ~~During~~million. ~~the~~As ~~third~~part ~~quarter~~ of ~~2004,~~this ~~the Company completed its evaluation of~~transaction, ~~and recorded~~we assumed an ~~intangible~~existing ~~asset for the fair value of leases acquired in the Atlantic Center Plaza transaction~~$46.5 million Asfixed-rate ~~a result~~mortgage, with ~~the~~an ~~Company~~interest ~~recorded~~rate ~~$667,000~~ of ~~additional amortization expense~~4.84%. ~~The~~We ~~Company~~preliminarily ~~paid~~allocated ~~$1,588,000~~approximately ~~and~~ $1.4~~,764,000~~ million ~~in dividends to preferred shareholders for the quarter~~ and ~~nine months ended September 30, 2004, respectively~~$66. ~~No such dividends were paid~~9 ~~during~~million ~~the~~of ~~quarter or nine months ended September 30, 2003, since~~ the ~~preferred~~ ~~stock was issued in September 2003. As a result,~~ net ~~income available~~purchase price to ~~common~~the ~~shareholders~~value ~~declined~~of bythe ~~$2,710,000~~acquired ~~and~~land ~~$4,186,000 for the quarter~~ and ~~nine months ended September 30~~building, ~~2004,~~ respectively~~, as compared to the same period in 2003~~.

~~LIQUIDITY~~ Financing ~~AND~~Activities— ~~CAPITAL~~We ~~RESOURCES~~used $17.7 million of cash in financing activities during the six months ended June 30, 2005. For the same period in 2004, we generated $71.1 million of cash in financing activities. For the six months ended June 30, 2005, our largest source of cash from financing activities were proceeds from mortgages and loans ($87.0 million). In the same time period, our largest uses of cash for financing activities were principal payments on mortgages and loans payable ($80.0 million) and dividends paid ($25.4 million). For the six months ended June 30, 2004, our largest source of cash for financing activities were proceeds from the sale of common stock ($100.3 million). In the same period, our primary uses of cash for financing activities were principal payments on mortgages and loans payable ($17.7 million) and dividends paid ($20.1 million).

~~Operating~~We ~~Activities—~~also ~~During~~have ~~the~~a ~~nine~~$165 million ~~months~~secured ~~ended~~revolving ~~September 30,~~credit ~~2004, the~~facility ~~Company~~of ~~generated~~which ~~approximately~~ $409.20 million inhad ~~net~~been borrowed ~~cash~~as ~~from~~of ~~operating activities~~June 30, ~~approximately $2~~2005.~~7 million~~ ~~less~~At ~~than~~June 30, ~~the~~2005, ~~comparable~~we ~~period~~had ~~of 2003.~~a ~~The~~total ~~Company’s decreased generation~~ of ~~cash~~six ~~from~~buildings ~~operations~~that ~~is primarily~~were ~~attributable~~unencumbered toconsisting anof ~~increase~~four buildings in ~~the~~Charlotte, ~~aggregate~~North ~~rate~~Carolina, ofand ~~accounts~~two ~~receivable~~buildings ~~and~~in ~~other~~Atlanta, ~~assets (approximately $9~~Georgia.~~3 million).~~ ~~The~~Loan ~~decrease~~maturities inand ~~cash~~normal ~~generated~~amortization ~~by operations~~of ~~was~~mortgages ~~partly~~and ~~offset~~loans bypayable anare expected ~~increase~~to intotal ~~depreciation and amortization (~~approximately $53.1 million) ~~and~~during ~~a growth in~~ the ~~rate~~remainder of ~~increases~~calendar inyear ~~accounts payable ($771,000)~~2005.

~~The~~ On ~~Company’s~~February 9, ~~primary~~2005, ~~internal~~we ~~sources~~refinanced ofour ~~cash~~$77.0 million ~~are~~loan ~~the~~held ~~collection~~by ofColumn ~~rents~~Financial, Inc. with a $78.0 million loan from ~~buildings~~ING ~~owned~~USA byAnnuity ~~the~~and Life Insurance Company. AsThe anew ~~REIT~~loan ~~for~~has ~~federal~~an initial ~~income~~maturity ~~tax purposes,~~date ~~the~~of ~~Company~~March 1, ~~must~~2031, ~~among~~with ~~other~~two ~~requirements,~~one-year ~~pay~~extension ~~out~~options. ~~annually~~The asloan bears ~~dividends,~~monthly interest at ~~least~~variable ~~90 percent~~rate of ~~its~~LIBOR ~~REIT~~plus ~~taxable~~1.25% ~~income~~ (~~which,~~the ~~due~~LIBOR ~~to non-cash~~monthly ~~charges,~~contract ~~including~~rate ~~depreciation~~in ~~and~~effect for ~~net~~this ~~operating~~loan ~~loss~~was ~~carryforwards~~3.10% as of June 30, ~~may~~ be2005) ~~substantially~~and ~~less~~is ~~than~~interest ~~cash~~only ~~flow~~for ~~from~~the ~~operating~~first ~~activities)~~twelve months. Beginning InMarch 1, ~~the past~~2006, ~~the~~monthly ~~Company~~principal ~~has~~payments ~~paid~~based ~~out~~on ~~dividends~~a in25 year ~~amounts~~amortization atschedule will ~~least~~be ~~equal~~due toalong ~~its~~with ~~REIT taxable~~interest ~~income~~payments. ~~The~~This ~~Company~~indebtedness ~~believes~~is ~~that~~collateralized ~~its~~by ~~cash~~property ~~flow from operating~~with ~~activities~~a ~~will~~carrying bevalue ~~sufficient~~of toapproximately ~~cover~~$108.7 million ~~debt~~at ~~service~~June 30, ~~payments~~2005. ~~and~~This tonew ~~pay~~loan ~~the dividends~~ required toa $6.0 million ~~maintain~~Letter ~~REIT~~of ~~status~~Credit ~~through~~in ~~2004.~~lieu ~~Dividends~~of ~~are determined~~lender ~~quarterly~~escrows byfor ~~the~~leasing ~~Company’s board of directors~~costs.

~~The~~ We ~~level~~have ~~of cash flow generated by rents depends primarily~~ on ~~the~~file ~~occupancy rates~~with of the ~~Company’s~~SEC ~~buildings~~a ~~and~~shelf ~~changes~~registration instatement ~~rental rates on new and renewed leases and~~ under ~~escalation~~which ~~provisions~~we inmay ~~existing~~issue ~~leases. At~~common ~~September 30~~stock, ~~2004,~~preferred ~~leases~~stock ~~representing~~and ~~approximately~~debt ~~5.2 percent~~securities ~~of the gross annualized rent~~ from ~~the~~time ~~Company’s properties, without regard~~ to ~~the~~time. ~~exercise~~ As of ~~options~~June 30, ~~to renew~~2005, ~~were~~we ~~due~~had ~~to expire during the remainder of 2004~~$385. ~~These~~1 ~~scheduled~~million ~~expirations~~available ~~represent~~under ~~leases~~this ~~for~~shelf ~~space~~registration infor ~~buildings~~future ~~located~~issuances ~~in 17~~ of ~~the~~ 24securities. ~~centers~~The oramount ~~locations~~and timing inof ~~which~~future ~~the~~sales ~~Company owns buildings. Certain~~ of ~~these~~ ~~tenants~~our ~~may~~securities ~~not~~will ~~renew~~depend ~~their~~on ~~leases~~market ~~or may reduce their demand for space. During the nine months ended September 30~~conditions, ~~2004,~~operating ~~leases~~cash ~~were renewed on~~flow, ~~approximately~~asset ~~58.7 percent~~sales ofand the ~~Company’s~~specific ~~rentable~~needs ~~square~~of ~~feet~~our ~~that were scheduled to expire during the nine-month period~~Company. ~~Current~~We ~~market conditions in certain markets~~ may ~~require~~from ~~that~~time ~~rental~~to ~~rates~~time atsell ~~which~~securities ~~leases are renewed~~beyond ~~or at which vacated space is leased be lower than rental rates under existing leases. Based upon~~ the amount ofneeded ~~leases~~to ~~that~~meet ~~will~~capital ~~expire~~requirements ~~during~~in ~~2004~~order ~~and~~to ~~the competition~~allow for ~~tenants in~~ the ~~markets~~early inrepayment ~~which~~of long-term ~~the Company operates~~debt, the ~~Company~~ ~~has~~redemption ~~and~~of ~~expects~~preferred tostock, ~~continue to offer incentives to certain new and renewal tenants. These incentives may include~~ the ~~payment~~reduction of ~~tenant improvement~~short-term ~~costs~~debt ~~and,~~or infor ~~certain~~other general ~~markets,~~corporate ~~reduced rents during initial lease periods~~purposes.

~~Governmental tenants (including the State of Florida and the United States~~23 Government) which account for approximately 19.5 percent of the Company’s occupied space at September 30, 2004 may be subject to budget reductions in times of recession and governmental austerity measures. Consequently, there can be no assurance that governmental appropriations for rents may not be reduced. Additionally, certain of the private sector tenants that have contributed to the Company’s rent stream may reduce their current demands, or curtail their future need, for additional office space.

23 Table of Contents

~~Table~~Contractual ofObligations ~~Contents~~(In thousands)

The Company believes that the markets in which it operates provide significant growth potential due to their diverse economies, expanding metropolitan areas, skilled work force and moderate labor costs. However, cash from operations could be reduced if economic conditions result in lower occupancy rates and lower rental income for the Company’s buildings, which may in turn affect the amount of dividends paid by the Company.


			Less than						More than
			One						Five
	Total		year		1-3 years		3-5 years		years
Long-Term Debt Obligations(a)	$	676,971	$	3,071	$	133,963	$	261,146	$	278,791

~~Investing~~(a) ~~Activities—~~Increases Atin ~~September 30,~~interest ~~2004,~~rates ~~substantially~~on ~~all~~variable ofrate debt could increase our interest expense and adversely affect cash flow and the ~~Company’s~~ ~~invested~~ability ~~assets~~to ~~were~~pay individends ~~real~~to ~~properties~~shareholders. orWe ~~joint~~may ~~ventures~~be ~~invested~~ required to purchase interest rate protection products in ~~real~~connection ~~properties~~with ~~and~~future ~~the~~variable ~~Company’s~~rate ~~primary~~debt, which may further increase borrowing costs. Our use of leverage can adversely impact our operation, cash ~~for~~flow, ~~investing activities~~and ~~was~~ability ~~property~~to ~~acquisitions.~~make Ofdistributions ~~the~~and ~~$155.1 million~~our ~~utilized~~financial ~~in investing~~condition ~~activities~~will inbe ~~the~~negatively ~~nine~~impacted ~~months~~if ~~ended~~we ~~September 30,~~cannot ~~2004,~~repay ~~$125.7 million~~or ~~was~~refinance ~~for~~our ~~property~~indebtedness ~~acquisitions.~~as Anit ~~additional~~becomes ~~$23~~due.~~4 million~~ ~~was~~We ~~used for~~are ~~tenant~~subject ~~and~~to ~~building~~risks ~~improvements~~normally associated with debt financing, asincluding: ~~well~~the asrisk ~~deferred~~that ~~tenant~~our ~~costs~~cash ~~during the~~flow ~~period.~~will ~~Improvements~~be insufficient to meet required payments of principal and interest; the ~~Company’s~~risk that the existing debt with respect to our properties, which in most cases will not have been ~~financed~~ ~~through~~fully ~~internal~~amortized ~~operations~~at maturity, will not be able to be refinanced; and ~~lender~~the ~~required~~risk ~~escrow~~that ~~accounts~~the ~~for The~~terms ~~Lakes~~of onany ~~Post~~refinancing ~~Oak~~of any existing debt will not be as favorable as the terms of the existing debt.

OnAs ~~January~~of June 2730, ~~2004,~~2005 ~~the~~and ~~Company acquired Atlantic Center Plaza~~December 31, ~~a twenty-three story 502~~2004,~~000~~ ~~square~~our ~~foot~~mortgage ~~building~~notes ~~located~~payable inwere ~~Atlanta,~~comprised ~~Georgia, for a purchase price~~ of ~~$116.5 million plus closing and other costs. The Company initially allocated approximately $10.0 million and $108.1 million of~~ the ~~net purchase~~ ~~price~~following to(in ~~value of the acquired land and building, respectively.~~ thousands):

During the first quarter of 2004, the Company acquired a 30% interest in a joint venture that owns the Broward Financial Center, resulting in a total investment of $5.3 million (including closing costs and fees) which includes a DownREIT minority contribution of $2.1 million.

As of

June 30,

December 31,

Current

Maturity

Mortgage

2005

2004

Interest Rate

Date

Variable rate mortgages (a)

115,800

185,800

3.84% to 4.77%

January 2008 to March 2031

Fixed rate mortgages

561,171

437,667

4.84% to 8.33%

December 2006 to January 2015

Total mortgage notes payable

676,971

623,467

(a) On ~~April 2,~~January ~~2004~~1, ~~the Company acquired four properties~~2005, ~~including two Class A office buildings~~$80,000,000 ~~a ground lease and an undeveloped parcel~~ of ~~land located in~~ the ~~Decoverly~~variable ~~Office~~rate ~~Park~~mortgages inwas ~~Rockville,~~converted ~~Maryland~~to ~~for~~ a ~~purchase price of $42~~5.~~0 million~~49% ~~plus~~fixed ~~closing~~rate ~~and~~mortgage ~~other~~which ~~costs.~~has ~~The two three-story office buildings aggregate approximately 155,000 square feet of rentable space. The undeveloped land parcel contains 3.2 acres with an approved site plan for~~ a ~~four-story 105,000~~maturity ~~square foot office building. The Company initially allocated approximately $19.7 million and $22.8 million~~ of ~~the~~January ~~net purchase price to value of the acquired land and buildings~~1, ~~respectively~~2015.

OnThe ~~July 23,~~weighted ~~2004~~average ~~the~~interest ~~Company~~rate ~~acquired~~on aour ~~five-story,~~mortgages ~~224,000~~was ~~square foot, single-tenant, class “A” office building located at 7777 Baymeadows Way in Jacksonville, Florida, for a purchase price of $20~~5.~~8 million,~~56% ~~plus closing~~ and ~~other~~ ~~costs~~6.07% Asas ~~part~~ of ~~this transaction~~June 30, ~~the~~2005 ~~company issued 33,200 Down REIT~~and ~~limited partnership units in exchange for a $760~~December 31,~~985~~ ~~contribution from a related minority partner (Thomas J. Crocker~~2004, the Company’s Chief Executive Officer) in a joint venture with the Company (see Note 9). The Company received an additional minority interest contribution of $154,107 from an unrelated third party. The Company initially allocated approximately $2.4 million and $18.6 million of the net purchase price to value of the acquired land and building, respectively.

On Funds ~~August 16,~~from ~~2004,~~Operations. ~~the~~Funds ~~Company~~from ~~acquired~~Operations ~~the~~(“FFO”) ~~Westchase~~is ~~Corporate~~a ~~Center~~non-GAAP ~~located in~~financial ~~Houston,~~measure ~~Texas;~~that is a ~~six-story,~~widely ~~184,000~~used ~~square~~performance ~~foot,~~measure ~~class~~for ~~“A”~~real ~~office~~estate ~~building for~~companies aand ~~purchase~~is ~~price~~provided as a supplemental measure of ~~$20~~operating performance.~~3 million,~~ ~~plus~~Since ~~closing~~real ~~and~~estate ~~other~~values ~~costs.~~have Ashistorically ~~part of~~risen ~~this~~or ~~transaction~~fallen with market conditions, ~~the~~many ~~Company~~industry ~~issued~~investors ~~28,583~~and ~~DownREIT~~analysts ~~limited~~have ~~partnership units~~considered inpresentation ~~exchange~~of operating results for areal ~~$639,015~~estate ~~contribution~~companies ~~from~~that ause ~~related~~historical ~~minority~~cost ~~partner (Thomas~~accounting Jto be insufficient by themselves. ~~Crocker,~~The ~~the~~National ~~Company’s~~Association ~~Chief~~of ~~Executive~~Real ~~Officer)~~Estate inInvestment aTrusts ~~joint~~(“NAREIT”) ~~venture with~~adopted the definition ~~Company~~of ~~(see~~FFO ~~Note~~in ~~9).~~order ~~The~~to ~~Company~~promote ~~received~~ an ~~additional~~industry ~~minority interest~~standard ~~contribution~~measure of ~~$545~~REIT financial and operating performance. FFO adds back historical cost depreciation,~~893~~ ~~from~~which anassumes ~~unrelated~~the ~~third~~value ~~party.~~of ~~The~~real ~~Company~~estate ~~initially~~assets ~~allocated~~diminishes ~~approximately~~predictably ~~$2.1 million~~in ~~and~~the ~~$18~~future.~~7 million~~ ofNAREIT ~~the~~defines FFO as net income (loss) (computed in ~~purchase~~accordance ~~price~~with togenerally ~~value~~accepted accounting principles (GAAP), excluding gains (losses) from sales of ~~the~~property, ~~acquired~~plus ~~land~~depreciation and ~~building,~~amortization ~~respectively~~and after adjustments for unconsolidated partnerships and joint ventures.

~~Financing~~Given ~~Activities—~~the ~~The~~nature ~~Company generated $110.6 million and $12.7 million~~ of ~~cash~~our inbusiness ~~financing~~as ~~activities~~a ~~during~~real ~~the~~estate ~~nine~~owner ~~months ended September 30, 2004~~ and ~~September 30~~operator, ~~2003,~~we ~~respectively.~~believe ~~For~~that ~~the~~FFO ~~nine months ended~~is ~~September 30,~~helpful ~~2004,~~to ~~the~~investors ~~Company’s~~as ~~largest~~a ~~sources~~starting ofpoint ~~cash~~in ~~from~~measuring ~~financing activities~~our ~~were~~operational ~~proceeds~~performance ~~from~~because ~~the~~in excluding ~~sales~~real ofestate ~~common~~related ~~stock~~depreciation ~~($100.4 million)~~ and ~~proceeds~~ ~~from~~amortization, ~~mortgages~~ and ~~loans~~gains ~~($82.5 million).~~and Inlosses ~~the~~from ~~same~~sales ~~time period,~~of ~~the~~property, ~~Company’s~~it ~~largest~~provides ~~uses~~a ofsupplemental ~~cash~~performance ~~for~~measure ~~financing~~that, ~~activities~~when ~~were~~compared ~~principal~~year over year, ~~payments~~captures ontrends ~~mortgages~~in ~~and~~occupancy ~~loans~~rates, ~~payable~~rental ~~($50.1 million)~~rates and ~~dividends~~operating ~~paid ($31~~costs.~~1 million).~~ ~~For~~In ~~the nine months ended September 30~~addition, ~~2003,~~since ~~the Company’s~~most ~~largest~~equity ~~sources~~REITs ofprovide ~~cash~~FFO ~~for~~information ~~financing~~to ~~activities~~investors, ~~were~~FFO ~~proceeds~~can ~~from~~also ~~mortgages and~~be ~~loans~~a ~~($36.0 million)~~useful ~~and~~supplemental ~~proceeds~~measure for ~~from~~comparing ~~the~~our ~~sale~~results ofto other ~~preferred~~equity ~~stock ($72~~REITs.1 ~~million). In the same period, the Company’s primary uses of~~

~~cash~~ FFO ~~for~~excludes ~~financing~~depreciation ~~activities~~and ~~were~~amortization, ~~principal~~however, ~~payments~~and oncaptures ~~mortgages~~neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our ~~loans~~properties, ~~payable~~all ~~($73~~of which have real economic effect and could materially impact our results from operations and the utility of FFO as a measure of performance is thus limited.6 Moreover, while we believe our computation of FFO conforms to the NAREIT definition, it may not be comparable to FFO reported by REITs that interpret the definition differently or that do not define FFO in accordance with the NAREIT definition at all. Accordingly, FFO (i) ~~million~~should not be considered as an alternative to net income (determined in accordance with GAAP) ~~and~~as ~~dividends~~an ~~paid~~indicator of our financial performance, (~~$22.4~~ii) ~~million~~is not an alternative to cash flow from operating activities (determined in accordance with GAAP). as a measure of our liquidity, and (iii) is not indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions, because of needed capital replacement or expansion, debt service obligations, or other cash commitments and uncertainties.

On The ~~January 13,~~following ~~2004,~~presents ~~the~~our ~~Company~~reconciliation ~~issued 5,175,000 shares~~ of ~~its~~net ~~common~~income ~~stock (including 675,000 shares issued in connection with the exercise of an over-allotment option granted~~ to ~~the~~FFO ~~Company’s~~attributable ~~underwriter) at a price~~ to ~~the~~common ~~public~~shareholders offor ~~$20.45 per share. The net proceeds of~~ the ~~offering~~three ~~($100.2 million) were~~and ~~used~~six tomonths ~~pay~~ended ~~down the Company’s revolving credit facility ($15~~June ~~million)~~30, ~~fund~~ ~~the~~2005 ~~Decoverly acquisition as well as a portion of the Atlantic Center Plaza acquisition,~~ and ~~for~~2004 ~~general~~(in ~~corporate purposes.~~thousands):

The Company has a $165 million secured revolving credit facility of which $24.0 million had been borrowed as of September 30, 2004. At September 30, 2004, the Company had a total of nine buildings that were unencumbered consisting of four buildings in Charlotte, North Carolina, one building in Jacksonville, Florida, two buildings in Rockville, Maryland and two buildings in Atlanta, Georgia. Loan maturities and normal amortization of mortgages and loans payable are expected to total approximately $78.4 million during the remainder of calendar year 2004, including a $77.0 million mortgage note payable to Column Financial maturing in December 2004, which has three one-year extension options available.


	Three Months
	Ended June 30,
	2005			2004
	(in thousands)
Net income (loss)	$	(399	)	$	4,587
Dividends on preferred stock		(1,588	)		(1,588	)
Real estate related depreciation		11,577			8,909
Real estate related depreciation – unconsolidated entity		39			170
Real estate related amortization – deferred tenant costs		916			718
Real estate related amortization – fair value of acquired leases		573			179
Minority interest share of add-backs		19			—

FFO attributable to common shareholders	$	11,137		$	12,975

On April 21, 2004, the Company amended and extended the loan agreement governing its $75.9 million loan assumed in connection with the acquisition of Atlantic Center Plaza. As part of the amendment, the existing variable interest rate (LIBOR plus 160 basis points) will remain in place until December 31, 2004 and the Company will draw an additional $4.1 million prior to December 31, 2004. Effective January 1, 2005, the rate will be fixed at 5.49% until January 1, 2015.


	Six Months
	Ended June 30,
	2005			2004
	(in thousands)
Net income	$	3,267		$	9,421
Dividends on preferred stock		(3,177	)		(3,176	)
Real estate related depreciation		22,437			17,256
Real estate related depreciation – unconsolidated entity		155			271
Real estate related amortization – deferred tenant costs		1,413			1,327
Real estate related amortization – fair value of acquired leases		1,027			316
Minority interest share of add-backs		54			—

FFO attributable to common shareholders	$	25,176		$	25,415

~~The Company has on file with the SEC a shelf registration statement under which~~25 common stock, preferred stock and debt securities are available for issuance from time to time by the Company. At September 30, 2004, the Company had $500 million available under this shelf registration for future issuances of securities. The amount and timing of future sales of Company securities will depend on market conditions, operating cash flow, asset sales and the specific needs of the Company. The Company may from time to time sell securities beyond the amount needed to meet capital requirements in order to allow for the early repayment of long-term debt, the redemption of preferred stock, the reduction of short-term debt or for other general corporate purposes.

CONTRACTUALTable OBLIGATIONS (Inof thousands) Contents

			Less than							More than
			One							Five
	Total		year			1-3 years		3-5 years		years
Long-Term Debt Obligations(a)	$	517,025	$	77,000	(c)	$	143,412	$	191,747	$	104,866
Purchase Obligations (b)		3,000		3,000

Net Operating Income. The primary financial measure for our reportable business segment is net operating income, or “NOI”. NOI is a non-GAAP financial measure equal to net income attributable to common shareholders, the most directly comparable GAAP financial measure, plus losses from early extinguishments of debt, net derivative losses, depreciation and amortization, interest expense and general and administrative expense, less gains on sales of real estate from discontinued operations (net of minority interest), income from discontinued operations (net of minority interest), gains on sales of real estate and other assets (net of minority interest), income from unconsolidated joint ventures, minority interest in property partnerships, interest and other income and development and management services income. We use NOI internally as a performance measure and we believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the operating performance of real estate assets.

~~(a) Increases~~ Our inmanagement ~~interest~~also ~~rates~~uses onNOI ~~variable~~to ~~rate~~evaluate ~~debt~~regional ~~could~~property ~~increase~~level ~~the Company’s~~performance ~~interest~~and ~~expense~~to ~~and~~make decisions ~~adversely~~about ~~affect~~resource ~~cash~~allocations. ~~flow~~Further, ~~and~~we ~~the~~believe ~~ability~~NOI is useful to investors as a ~~pay~~performance ~~dividends~~measure tobecause, ~~shareholders.~~when ~~The~~compared ~~Company~~across ~~may~~periods, beNOI ~~required~~reflects tothe ~~purchase interest~~impact ~~rate~~on ~~protection~~operations from ~~products~~trends in ~~connection~~occupancy ~~with~~rates, ~~future~~rental ~~variable~~rates, ~~rate~~operating ~~debt,~~costs and acquisition and development ~~which~~activity ~~may~~on ~~further~~an ~~increase~~unleveraged ~~borrowing~~basis, ~~costs.~~providing ~~The~~perspective ~~Company’s~~not ~~use~~immediately ofapparent ~~leverage~~from ~~can~~net income. ~~adversely~~NOI ~~impact~~excludes ~~its~~certain ~~operation,~~components ~~cash~~from ~~flow,~~net ~~and~~income ~~ability~~in order to ~~make~~provide ~~distributions~~results that are more closely ~~and~~related ~~its~~to ~~financial~~a ~~condition~~property’s ~~will~~results beof ~~negatively~~operations. ~~impacted~~For ifexample, itinterest ~~cannot~~expense ~~repay~~is ornot necessarily ~~refinance~~linked ~~its~~to ~~indebtedness~~the asoperating itperformance ~~becomes~~of ~~due.~~a ~~The~~real ~~Company~~estate asset and is ~~subject~~often toincurred ~~risks normally~~at ~~associated~~the ~~with~~corporate level ~~debt~~as ~~financing,~~opposed ~~including:~~to the ~~risk~~property ~~that~~level. ~~its~~In ~~cash~~addition, depreciation and amortization, because of ~~flow~~historical ~~will~~cost beaccounting ~~insufficient~~and touseful ~~meet~~life ~~required~~estimates, ~~payments~~may ofdistort ~~principal~~operating ~~and~~performance ~~interest;~~ at the property ~~risk~~level. ~~that~~NOI ~~the~~presented ~~existing~~by ~~debt~~us ~~with~~may ~~respect~~not be comparable to ~~its~~NOI ~~properties,~~reported ~~which~~by inother ~~most~~REITs that ~~cases~~define ~~will~~NOI ~~not~~differently. ~~have~~We ~~been~~believe ~~fully~~that ~~amortized~~in atorder ~~maturity,~~to ~~will~~facilitate ~~not~~a beclear ~~able~~understanding toof beits ~~refinanced;~~operating ~~and~~results, ~~the~~NOI ~~risk~~should ~~that~~be ~~the~~examined ~~terms~~in ofconjunction ~~any~~with ~~refinancing~~net ofincome ~~any~~as ~~existing~~presented ~~debt~~in our ~~will~~consolidated financial statements. NOI should not be considered as ~~favorable~~an alternative to net income as an ~~the~~indication ~~terms~~of our performance or to cash flows as a measure of ~~the~~liquidity ~~existing~~or ~~debt~~ability to make distributions.

~~(b) This~~ The ~~purchase~~following ~~obligation~~is ~~consists of~~ a ~~contractual~~reconciliation ~~commitment~~of ~~related~~NOI to ~~the~~ ~~renovation~~net ofincome ~~The~~attributable ~~Lakes~~to oncommon ~~Post~~shareholders ~~Oak in Houston, Texas. In connection with~~for the ~~loan~~three ofand ~~the~~six ~~Lakes~~months onended ~~Post Oak~~June 30, ~~the~~2005 ~~Company~~and ~~obtained a $1~~2004,~~705,000~~ ~~letter of~~respectively: ~~credit in lieu of additional cash escrows for tenant improvements and leasing commissions.~~


	Three Months Ended
	June 30,
	2005			2004
	(in thousands)
Net Operating income (a)	$	29,877		$	24,895

Add:
Management fee revenues		172			108
Interest income		69			135
Income from unconsolidated joint ventures		24			110

Less:
General and administrative		6,817			3,167
Interest expense		10,466			7,520
Depreciation and amortization		13,173			9,916
Other		23			58
Dividends on preferred shares		1,588			1,588
Minority interests in property partnerships		62			—

Net income (loss) attributable to common shareholders	$	(1,987	)	$	2,999

~~Table of Contents~~26

(c) ThisTable variableof interest rate debt has three one-year extension options. Contents

In August 2004, the Company replaced its previous $100 million secured revolving credit facility, which was scheduled to mature in December 2004, with a new $165 million secured revolving credit facility, which has a three-year term and a one-year extension option and is scheduled to expire on August 23, 2007.


	Six Months Ended
	June 30,
	2005		2004
	(in thousands)
Net Operating income (a)	$	60,002	$	48,827

Add:
Management fee revenues		382		174
Interest income		184		262
Income from unconsolidated joint ventures		124		241

Less:
General and administrative		10,922		6,011
Interest expense		21,108		14,826
Depreciation and amortization		25,211		19,136
Other		46		110
Dividends on preferred shares		3,177		3,176
Minority interests in property partnerships		138		—

Net income attributable to common shareholders	$	90	$	6,245

As(a) ofNet ~~September 30,~~operating ~~2004~~income ~~and~~is ~~December 31,~~defined ~~2003,~~as ~~the~~total ~~Company’s~~operating ~~mortgage~~revenues ~~notes payable~~(excluding ~~were~~management ~~comprised~~fees) ofless ~~the~~property ~~following~~operations ~~(in~~expense ~~thousands):~~ and real estate taxes.

	As of		As of
	September 30,		December 31,		Current	Maturity
Mortgage	2004		2003		Interest Rate	Date
Variable rate mortgages (a)	$	176,876	$	93,468	3.25% to 4.63%	December 2004 to January 2015
Fixed rate mortgages		340,149		315,248	5.26% to 8.33%	December 2006 to September 2014
Total mortgage notes payable	$	517,025	$	408,716

Item 3. Quantitative and Qualitative Disclosures About Market Risk

( Interest Rate Risk. We currently have a~~) Effective~~ ~~January~~$165 1million secured revolving credit facility and term loans with variable interest rates. We may incur additional variable rate debt in the future to meet our financing needs. Increases in interest rates on such debt could increase our interest expense, which would adversely affect our cash flow and our ability to pay dividends to our shareholders. We have not entered into any interest rate hedge contracts in order to mitigate the interest rate risk with respect to the secured revolving credit facility. As of June 30, 2005, we had $~~75,876,000~~115.8 million ofoutstanding under loans with variable interest rates. If the weighted average interest rate on this variable rate ~~mortgages~~debt ~~will~~were 100 basis points higher or lower, annual interest expense would be ~~converted~~increased toor adecreased 5by approximately $1,158,000.~~49%~~ ~~fixed~~Additionally, we ~~rate~~had ~~mortgage~~$561.2 million ~~which~~outstanding ~~has~~under aloans ~~maturity~~with fixed interest rates as of ~~January~~June 130, 2005. We may incur additional fixed rate debt in the future to meet its financing needs. If the market interest rate on this fixed rate debt were 100 basis points lower, the fair value of our fixed rate debt would increase to $589.1 million.

~~The weighted average interest rate on the Company’s mortgages was 6~~Item 4.~~01%~~ ~~and 6.64%~~Controls ~~as of September 30, 2004~~ and ~~December 31, 2003, respectively~~Procedures.

~~FUNDS~~ We ~~FROM~~carried ~~OPERATIONS~~out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to our Company (including our consolidated subsidiaries) required to be included in our periodic SEC filings. There has been no change in the our internal control over financial reporting during the quarter ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Funds from Operations (“FFO”) is a non-GAAP financial measure that is a widely~~27 used performance measure for real estate companies and is provided as a supplemental measure of operating performance. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. The National Association of Real Estate Investment Trusts (“NAREIT”) adopted the definition of FFO in order to promote an industry standard measure of REIT financial and operating performance. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. NAREIT defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles (GAAP), excluding gains (losses) from sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.

GivenTable the nature of the Company’s business as a real estate owner and operator, the Company believes that FFO is helpful to investors as a starting point in measuring its operational performance because in excluding real estate related depreciation and amortization, and gains and losses from sales of property, it provides a supplemental performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. In addition, since most equity REITs provide FFO information to investors, FFO can also be a useful supplemental measure for comparing the Company’s results to other equity REITs. Contents

~~FFO~~PART excludes depreciation and amortization, however, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact the Company’s results from operations, the utility of FFO as a measure of performance is limitedII. ~~Moreover,~~OTHER ~~while the Company believes its computation of FFO conforms~~INFORMATION to the NAREIT definition, it may not be comparable to FFO reported by REITs that interpret the definition differently or that do not define FFO in accordance with the NAREIT definition at all. Accordingly, FFO (i) should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company’s financial performance, (ii) is not an alternative

26Item 1. Legal Proceedings

~~Table~~ In the normal course of ~~Contents~~business, we have pending claims and legal proceedings. It is our opinion, based on information available at this time, that none of the current claims or proceedings has merit or will have a material effect on our consolidated financial statements.

to In ~~cash~~addition, ~~flow~~we ~~from~~are ~~operating~~aware ~~activities~~of ~~(determined~~two inpurported ~~accordance~~class action lawsuits related to the pending merger transaction with ~~GAAP)~~DRA asCRT Acquisition Corp. filed against us, each of our directors and DRA Advisors aLLC ~~measure~~in the Circuit Court of the ~~Company’s~~15th ~~liquidity~~Judicial Circuit, Palm Beach County, Florida. The two lawsuits, Sam Leff et al v. CRT Properties, Inc. et al., Case No. 50 2005CA 005704XXXXMB(AJ), filed on June 21, 2005, and Robert Dee et al v. CRT Properties, Inc. et al., Case No. 50 2005CA 006374XXXXMB(~~iii~~AH), filed on July is8, ~~not~~2005, ~~indicative~~allege, ofamong ~~funds~~other things, that the merger consideration ~~available~~to be paid to ~~fund~~our shareholders in the ~~Company’s~~Merger ~~cash~~is ~~needs~~unfair and inadequate and unfairly favors insiders. In addition, the complaints allege that our directors violated their fiduciary duties by, among other things, failing to take all reasonable steps to assure the maximization of shareholder value, including ~~its~~the ~~ability~~implementation of a bidding mechanism to ~~pay~~foster a fair auction of our company to the ~~dividends~~highest bidder or ~~make~~the ~~distributions~~exploration of strategic alternatives that will return greater or equivalent short-term value to our shareholders. The complaints seek, ~~because~~among other relief, certification of ~~needed~~the lawsuit ~~capital~~as ~~replacement~~a orclass action, a declaration that the Merger is unfair, unjust and inequitable to our ~~expansion~~shareholders, ~~debt~~an ~~service~~injunction ~~obligations~~preventing completion of the Merger at a price that is not fair and equitable, orcompensatory ~~other~~damages ~~cash~~to ~~commitments~~the class, attorneys’ fees and expenses, along with such other ~~uncertainties~~relief as the court might find just and proper.

~~The~~ On ~~following~~August 8, ~~presents~~2005, we entered into a memorandum with the ~~Company’s~~plaintiffs ~~reconciliation~~in ofthe ~~net~~two ~~income~~cases described above, pursuant to ~~FFO~~which we agreed in principal to settle these lawsuits. Under the terms of the ~~available~~proposed settlement, which is subject to ~~common~~the ~~shareholders~~execution ~~for~~of the ~~three~~definitive settlement documents, completion by plaintiffs’ counsel of confirmatory discovery and ~~nine~~court ~~months~~approval, ~~ended~~we ~~September~~agreed to make 30certain additional disclosures in our definitive proxy statement dated August 8, ~~2004~~2005, which were not contained in the preliminary proxy statement we filed with the Securities and ~~2003~~Exchange Commission (on July 15, 2005. In addition, we agreed not to oppose application by plaintiffs’ counsel to the court for an award of attorneys’ fees and expenses in ~~thousands):~~an amount not to exceed the aggregate $400,000, which would be paid by us or our successors.

	Three Months
	Ended September 30,
	2004			2003
	(in thousands)
Net income	$	2,168		$	3,661
Dividends on preferred stock		(1,588	)		(371	)
Real estate related depreciation		8,871			7,147
Real estate related depreciation – unconsolidated entity		58			—
Real estate related amortization – deferred tenant costs		692			436
Real estate related amortization – fair value of acquired leases		784			378
Minority interest share of add-backs					55
Gain on sale of non-operating assets		—			—
FFO available to common shareholders	$	11,040		$	11,251

Item 4. Submission of Matters to a Vote of Security Holders

	Nine Months
	Ended September 30,
	2004			2003
	(in thousands)
Net income	$	11,589		$	11,382
Dividends on preferred stock		(4,764	)		(371	)
Real estate related depreciation		26,127			21,728
Real estate related depreciation – unconsolidated entity		329			—
Real estate related amortization – deferred tenant costs		2,019			1,264
Real estate related amortization – fair value of acquired leases		1,100			1,303
Minority interest share of add-backs		55
Gain on sale of non-operating assets		—			(589	)
FFO available to common shareholders	$	36,455		$	34,717

On May 18, 2005, we held our annual meeting of shareholders and acted on the following matters:

~~Item~~(a) 3At the meeting, our shareholders elected D. ~~Quantitative~~Pike Aloian, Benjamin C. Bishop, Jr., Thomas J. Crocker, Peter J. Farrell, David B. Hiley, Victor A. Hughes, Jr., Randall E. Paulson and ~~Qualitative~~George ~~Disclosures~~F. ~~About~~Staudter ~~Market~~to ~~Risk~~serve a one-year term. The number of votes cast for and withheld for each of the director nominees was as follows:

Interest Rate Risk. The Company currently has a $165 million secured revolving credit facility and term loans with variable interest rates. The Company may incur additional variable rate debt in the future to meet its financing needs. Increases in interest rates on such debt could increase the Company’s interest expense, which would adversely affect the Company’s cash flow and its ability to pay dividends to its shareholders. The Company has not entered into any interest rate hedge contracts in order to mitigate the interest rate risk with respect to the secured revolving credit facility. As of September 30, 2004, the Company had $176.9 million


NOMINEE	FOR		WITHHELD
D. Pike Aloian		27,655,027		2,008,342
Benjamin C. Bishop, Jr.		29,142,593		520,777
Thomas J. Crocker		29,055,046		608,323
Peter J. Farrell		29,143,738		519,631
David B. Hiley		29,126,148		537,221
Victor A. Huges, Jr.		29,125,789		537,580
Randall E. Paulson		29,172,774		490,595
George F. Staudter		29,066,349		597,020

27 (b) The holders of 23,747,866 shares of our common stock voted for a proposal to change our state of incorporation from Florida to Maryland, the holders of 801,496 shares voted against the reincorporation proposal, the holders of 90,975 shares abstained and there were 5,023,032 broker non-votes. As a result, this reincorporation was approved (though we have taken no steps to implement the reincorporation, pending our proposed merger transaction with DRA CRT Acquisition Corp.). (c) The holders of 23,715,612 shares of our common stock voted for the approval of our 2005 Employee Stock Investment Plan, the holders of 787,351 shares voted against approval of the plan, the holders of 137,374 shares abstained and there were 5,023,032 broker non-votes. As a result, the 2005 Employee Stock Investment Plan was approved (though we have not yet implemented the plan, pending our proposed merger transaction with DRA CRT Acquisition Corp.). (d) The holders of 29,261,462 shares of our common stock voted for the ratification of the Board of Director’s selection of Deloitte & Touche, LLP., as the Company’s independent accountants, the holders of 355,772 shares voted against such ratification, the holders of 46,135 shares abstained and there were no broker non-votes. As a result, this ratification was approved.

~~Table of Contents~~28

outstandingTable under loans with variable interest rates. If the weighted average interest rate on this variable rate debt were 100 basis points higher or lower, annual interest expense would be increased or decreased by approximately $1,769,000. On April 21, 2004, the Company amended its $75.9 million loan, effective January 1, 2005, assumed in connection with its acquisition of Atlantic Center Plaza, to convert to a fixed interest rate of 5.49% and extend the loan maturity date to January 1, 2015. Additionally, the Company had $340.1 million outstanding under loans with fixed interest rates as of September 30, 2004. The Company may incur additional fixed rate debt in the future to meet its financing needs. If the market interest rate on this fixed rate debt were 100 basis points lower, the fair value of the Company’s fixed rate debt would increase to $354.3 million. Contents

Item 4 5. ~~Controls~~Other ~~and Procedures.~~Information

(a) The ~~Company~~following ~~carried~~table ~~out~~sets ~~an evaluation~~forth, with ~~the~~respect ~~participation~~to ofeach ~~the~~office ~~Company’s management,~~project ~~including~~or ~~its~~location ~~chief~~at ~~executive~~June ~~officer and its principal financial officer~~30, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation2005, ~~the~~gross ~~Company’s~~square chief executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. The Company’s managementfeet, ~~including~~rentable ~~the chief~~square ~~executive officer and the principal financial officer~~feet, ~~recognizes~~percentage ~~that any set of controls and procedures~~leased, ~~no matter how well designed~~ and ~~operated, can~~the ~~provide~~average ~~only~~annual ~~reasonable~~rent ~~assurance~~per ofrentable ~~achieving~~square ~~the~~foot ~~desired control objectives~~leased.

The Company is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This results in refinements to processes throughout the Company. However, there has been no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


								Average
	Gross		Rentable					Rent Per
	Square		Square		Percent			Square
Office Project/Location	Feet		Feet (5)		Leased (1)			Foot (2)
Atlanta Atlantic Center Plaza		507,700		501,185		89	%	$	28.73
Atlanta Chamblee		1,199,800		1,129,594		90	%		18.38
Atlanta Gwinnett		274,400		262,806		87	%		19.59
Atlanta McGinnis Park		212,400		202,243		72	%		17.83
Atlanta Perimeter		184,000		181,862		80	%		18.36
Atlanta Three Ravinia		845,000		804,336		73	%		17.73	(4)
Charlotte University		190,600		182,891		60	%		18.61
Charlotte Vanguard		548,200		527,471		62	%		15.41
Dallas Campus Circle		133,600		127,226		97	%		21.83
Dallas Signature Place (3)		460,000		437,319		73	%		20.23
Dallas Tollway Crossing		159,800		152,163		100	%		22.10
Ft. Lauderdale Broward Financial (3)		342,000		325,583		86	%		27.77
Ft. Lauderdale Las Olas (3)		479,000		469,199		88	%		21.60
Houston Post Oak		1,265,000		1,200,984		82	%		17.81
Houston Westchase Corporate Center (3)		194,000		184,259		92	%		22.49
Jacksonville Baymeadows		793,400		751,295		98	%		12.98	(4)
Jacksonville Baymeadows Way (3)		236,000		224,281		100	%		9.50	(4)
Jacksonville JTB		436,000		416,773		100	%		13.03	(4)
Memphis Germantown		562,600		531,709		83	%		17.97
Orlando Central		699,700		616,477		86	%		16.61
Orlando Lake Mary		318,000		303,540		77	%		16.82
Orlando University		405,200		381,786		79	%		19.39
Richmond Paragon		154,300		145,127		98	%		18.81
St. Petersburg		715,500		672,837		88	%		16.86
Tallahassee		960,300		826,384		79	%		16.39
Washington D.C. Decoverly (3)		162,500		154,787		93	%		24.24

Total		12,428,000		11,714,117

Weighted Average – Total Company – 137 Buildings						84	%	$	18.23

Weighted Average – Same Store – 129 Buildings						83	%	$	17.71

Weighted Average – Acquisition – 8 Buildings						86	%	$	21.01

There have been no significant changes in the Company’s internal controls over financial statements or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this quarterly report on Form 10-Q.


(1)		The percent leased rates have been calculated by dividing total rentable square feet occupied in an office building by total rentable square feet in such building.

(2)		Rental rates are computed by dividing (a) total annualized base rents (which excludes expense pass-through and reimbursements) for an office project or location as of June 30, 2005 by (b) the rentable square feet applicable to such total annualized rents.

(3)		Properties acquired subsequent to March 31, 2004 (“Acquisition Buildings”).

(4)		Includes the effect of leases where tenants who occupy all or a substantial portion of an entire office building pay substantially all operating costs in addition to base rent.

2829

~~PART~~(b) IIThe following schedule sets forth for all of our buildings (i) the number of leases which will expire during the remainder of calendar year 2005 (without regard to any renewals), calendar years 2006 through 2013, and years subsequent to 2013, (ii) the total rentable area in square feet covered by such leases, (iii) the percentage of total rentable square feet represented by such leases, (iv) the average annual rent per square foot for such leases, (v) the current annualized base rents represented by such leases, and (vi) the percentage of gross annualized base rents contributed by such leases. ~~OTHER~~This ~~INFORMATION~~ information is based on the buildings that we owned on June 30, 2005, and on the terms of leases in effect as of June 30, 2005, on the basis of then existing base rentals, and without regard to the exercise of options to renew. Furthermore, the information below does not reflect that some leases have provisions for early termination for various reasons, including, in the case of government entities, lack of budget appropriations. Leases were renewed on approximately 65 percent of our rentable square feet which expired during the six months ended June 30, 2005.

Item 1. Legal Proceedings


					Percentage of			Average				Percentage
					Total Square			Annual Rent		Total		of Total
	Number of		Number of		Feet Leased			per Square		Annualized		Annual Rents
	Leases		Square Feet		Represented by			Foot Under		Rents Under		Represented by
Period	Expiring		Expiring		Expiring Leases			Expiring Leases		Expiring Leases		Expiring Leases
2005		210		907,066		9.3	%	$	18.17	$	16,484,879		9.2	%
2006		227		1,547,771		15.8	%		18.69		28,925,609		16.2	%
2007		198		1,188,350		12.2	%		19.30		22,937,490		12.9	%
2008		148		982,996		10.1	%		18.62		18,301,220		10.3	%
2009		124		1,813,069		18.5	%		18.11		32,832,607		18.4	%
2010		75		606,194		6.2	%		17.39		10,542,959		5.9	%
2011		33		535,727		5.5	%		18.95		10,153,835		5.7	%
2012		29		522,891		5.3	%		18.03		9,425,631		5.3	%
2013		3		281,147		2.9	%		28.91		8,128,422		4.6	%
Thereafter		44		1,389,349		14.2	%		14.71		20,431,838		11.5	%

Total		1,091		9,774,560		100.0	%	$	18.23	$	178,164,489		100.0	%

~~None.~~30

ItemTable 5.of Other InformationContents

(a) The following table sets forth, with respect to each office project or location at September 30, 2004, gross square feet, rentable square feet, percentage leased, and the average annual rent per rentable square foot leasedItem 6. Exhibits

										Average
Number				Description
										Annual
	2.1			Agreement and Plan of Merger, dated June 17, 2005, by and among DRA G&I Fund V Real Estate Investment Trust, DRA CRT Acquisition Corp. and CRT Properties, Inc. (1)
		Gross			Rentable					Rent Per
	10.1			Form of Amended Participation Agreement, dated June 16, 2005*
		Square			Square		Percent			Square
	10.2			Amended Participation Agreement between CRT Properties, Inc. and Terence D. McNally*
Office Project/Location		Feet			Feet (5)		Leased (1)			Foot (2)
	10.3			Form of Amended Supplemental Executive Retirement Plan, dated June 16, 2005*
Atlanta Atlantic Center Plaza (3)			507,700			501,521		88	%	$	26.58
	31.1			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act*
Atlanta Chamblee			1,199,800			1,128,607		89	%		18.39
	31.2			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act*
Atlanta Gwinnett			274,400			262,806		89	%		19.28
	32			Certification Pursuant to Section 906 of the Sarbanes-Oxley Act*
Atlanta McGinnis Park (3)			212,400			202,243		58	%		17.16
	99.1			Guaranty, dated June 17, 2005, by DRA Growth and Income Fund V in favor of CRT Properties, Inc. (1)
Atlanta Perimeter			184,000			181,862		59	%		18.57
Atlanta Three Ravinia (3)			845,000			804,876		63	%		17.84	(4)
Charlotte University			190,600			182,891		60	%		18.26
Charlotte Vanguard			548,200			526,408		54	%		14.91
Dallas Cigna Plaza (3)			133,600			127,226		95	%		22.73
Dallas Tollway Crossing (3)			159,800			152,163		100	%		22.87
Houston Post Oak (3)			1,265,000			1,201,116		73	%		17.88
Houston Westchase Corporate Center (3)			194,000			184,259		94	%		22.83
Jacksonville Baymeadows			793,400			751,387		93	%		13.46	(4)
Jacksonville Baymeadows Way (3)			236,000			224,281		100	%		9.50	(4)
Jacksonville JTB			436,000			416,773		100	%		12.52	(4)
Memphis Germantown			562,600			533,017		87	%		18.00
Orlando Central			699,700			615,963		82	%		16.78
Orlando Lake Mary			318,000			303,546		81	%		17.11
Orlando University			405,200			383,749		75	%		19.39
Richmond Paragon			154,300			145,127		94	%		19.32
St. Petersburg			715,500			672,085		81	%		17.00
Tallahassee			960,300			835,840		73	%		16.89
Washington D.C. Decoverly (3)			162,500			154,787		93	%		24.05
Total			11,158,000			10,492,533
Weighted Average – Total Company								80	%	$	17.71
Weighted Average – Same Store								81	%	$	16.76
Weighted Average – Acquisition								78	%	$	19.67

(1)		The percent leased rates have been calculated by dividing total rentable square feet occupied in an office building by total rentable square feet in such building.
*		Filed herewith
(2)		Rental rates are computed by dividing (a) total annualized base rents (which excludes expense pass-through and reimbursements) for an office project or location as of September 30, 2004 by (b) the rentable square feet applicable to such total annualized rents.
(1)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 20, 2005.
(3)		Properties acquired subsequent to January 1, 2002.
(4)		Includes the effect of leases where tenants who occupy all or a substantial portion of an entire office building pay substantially all operating costs in addition to base rent.
(5)		Does not include investment in unconsolidated entity that contains 325,583 of rentable square feet and was 86% occupied at September 30, 2004.

2931

(b) The following schedule sets forth for all of the Company’s buildings (i) the number of leases which will expire during the remainder of calendar year 2004 (without regard to any renewals), calendar years 2005 through 2012, and years subsequent to 2012, (ii) the total rentable area in square feet covered by such leases, (iii) the percentage of total rentable square feet represented by such leases, (iv) the average annual rent per square foot for such leases, (v) the current annualized base rents represented by such leases, and (vi) the percentage of gross annualized base rents contributed by such leases. This information is based on the buildings owned by the Company on September 30, 2004 and on the terms of leases in effect as of September 30, 2004, on the basis of then existing base rentals, and without regard to the exercise of options to renew. Furthermore, the information below does not reflect that some leases have provisions for early termination for various reasons, including, in the case of government entities, lack of budget appropriations. Leases were renewed on approximately 58.7 percent of the Company’s rentable square feet which were scheduled to expire during the nine months ended September 30, 2004.SIGNATURES

					Percentage of			Average				Percentage
					Total Square			Annual Rent		Total		of Total
	Number of		Number of		Feet Leased			per Square		Annualized		Annual Rents
	Leases		Square Feet		Represented by			Foot Under		Rents Under		Represented by
Period	Expiring		Expiring		Expiring Leases			Expiring Leases		Expiring Leases		Expiring Leases
2004		128		455,551		5.4	%	$	17.12	$	7,798,191		5.2	%
2005		216		1,033,737		12.3	%		17.68		18,275,872		12.3	%
2006		184		1,285,672		15.3	%		18.23		23,439,615		15.7	%
2007		163		1,319,763		15.7	%		18.09		23,871,739		16.0	%
2008		97		1,059,367		12.6	%		18.26		19,313,807		13.0	%
2009		81		1,521,710		18.1	%		17.72		26,964,830		18.1	%
2010		25		265,357		3.2	%		16.92		4,488,996		3.0	%
2011		18		266,400		3.2	%		14.95		3,983,050		2.7	%
2012		12		194,474		2.3	%		23.00		4,4,72,605		3.0	%
Thereafter		14		1,004,382		11.9	%		16.21		16,279,998		11.0	%
Total		938		8,406,413		100.0	%	$	17.71	$	148,888,703		100.0	%

Pursuant to the requirements 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.

(c) On September 30, 2004, the Company entered into a purchase and sale agreement with East Las Olas Investors II, WLD Realty, Ltd., and Halmos Holdings, Inc. to acquire the partnership interests in two class “A” office buildings located in the central business district of Fort Lauderdale, Florida. On October 15, 2004, after further discussions between the parties, the purchase price was fixed at $138.6 million (plus closing and other costs) and the Company deposited $5 million in earnest money. The office buildings, known as the Las Olas Centre, comprise approximately 470,000 rentable square feet and, as of September 30, 2004, was 87% occupied. The transaction is expected to close during the fourth quarter of 2004 and will be financed with a 10-year, $99 million fixed interest rate loan with the remainder to be drawn on the Company’s line of credit.



	CRT PROPERTIES, INC.
	Registrant



Dated: August 8, 2005	/s/ Thomas J. Crocker
	Thomas J. Crocker
	Chief Executive Officer (Principal Executive Officer) CRT Properties, Inc.


Dated: August 8, 2005	/s/ Terence D. McNally
	Terence D. McNally
	Senior Vice President and Chief Financial Officer (Principal Financial Officer) CRT Properties, Inc.


Dated: August 8, 2005	/s/ Randal L. Martin
	Randal L. Martin
	Vice President and Controller (Principal Accounting Officer) CRT Properties, Inc.

3032

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Number		Description
10.1		Third Amended and Restated Agreement of Limited Partnership of CRT BMWCX, LTD., dated August 16, 2004, by & between CRTP OP LP, Thomas J. Crocker, CCA III, Inc., and Westchase Corporate Center Associates, LTD.
10.2		Agreement of Sale of Partnership Interests, dated September 30, 2004, by and between Koger Acquisition, LLC, East Las Olas Investors II, WLD Realty, Ltd., and Halmos Holdings, Inc.
10.3		Reinstatement and First Amendment to Agreement of Sale of Partnership Interests, dated October 15, 2004, by & between Koger Acquisition, LLC, East Las Olas Investors II, WLD Realty, Ltd., and Halmos Holdings, Inc.
15		Letter re: Unaudited interim financial information.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

(b) Reports on Form 8-K

On July 1, 2004, the Company filed a Form 8-K (dated June 23, 2004) reporting under Item 5, Other Events, the amendment of its articles of incorporation to change its name to CRT Properties, Inc., and providing under Item 7, Financial Statements and Exhibits, the Koger Equity, Inc. News Release, dated June 23, 2004.

On July 19, 2004, the Company furnished a Form 8-K (dated July 14, 2004), reporting under Item 9, Regulation FD, a) the ringing of the closing bell at the New York Stock Exchange by its CEO, Thomas J. Crocker on Friday, July 16, 2004 and that it would be added to the S&P Small Cap 600 Real Estate Investment Trusts Sub-Industry Index and b) the announcement of its quarterly conference call to discuss second quarter 2004 financial results and providing under Item 7, Financial Statements and Exhibits, a) the CRT Properties, Inc. News Release, dated July 14, 2004 and b) the CRT Properties, Inc. News Release dated July 15, 2004.

On July 30, 2004, the Company filed a Form 8-K (dated July 30, 2004), reporting under Item 5, Other Events, that it terminated its loan commitment to its CEO, Thomas J. Crocker, under a stock purchase loan agreement, with the full amount of outstanding loans paid in cash outlining the steps taken to achieve the loan termination. The Company announced that it completed its acquisition of a mid-rise office building in Jacksonville, Florida, in a deal valued at approximately $20.8 million. The Company also announced that it executed a binding agreement to acquire the Westchase Corporate Center in Houston, Texas, in a deal valued at approximately $19.6 million. The Company provided under Item 7, Financial Statements and Exhibits, the CRT Properties, Inc. News Release, dated July 30, 2004.

On August 5, 2004, the Company furnished a Form 8-K (dated August 3, 2004) reporting under Item 9, Regulation FD Disclosure, the announcement of its quarterly results for the period ended June 30, 2004, and related supplemental information, dated June 30, 2004, and providing under Item 7, Financial Statements and Exhibits, the CRT Properties, Inc. News Release, dated August 3, 2004 and related supplemental information.

On August 26, 2004, the Company furnished a Form 8-K (dated August 24, 2004) reporting under Item 7.01, Regulation FD Disclosure, the closing of a $165 million secured revolving credit facility, and providing under Item 9.01, Financial Statements and Exhibits, the CRT Properties, Inc. News Release, dated August 24, 2004.

On August 31, 2004, the Company furnished a Form 8-K (dated August 26, 2004) reporting under Item 7.01, Regulation FD Disclosure, the announcement of a quarterly dividend on preferred stock, and providing under Item 7, Financial Statements and Exhibits, the CRT Properties, Inc. News Release, dated August 26, 2004.

On September 20, 2004, the Company furnished a Form 8-K (dated September 17, 2004) reporting under Item 7.01, Regulation FD Disclosure, the announcement of a quarterly dividend on common stock, and providing under Item 7, Financial Statements and Exhibits, the CRT Properties, Inc. News Release, dated September 17, 2004.

SIGNATURES

Pursuant to the requirements 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.

CRT PROPERTIES, INC. Registrant Dated: November 8, 2004 /s/ Steven A. Abney Steven A. Abney Vice President, Finance and Chief Accounting Officer (Principal Financial Officer) CRT Properties, Inc.

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