<PAGE>
 
                                   FORM 10-K
                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C.  20001

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:   December 31, 1998
                             ----------------- 
                                       OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
For the transition period from  ___________________ to  ____________________ 
Commission File Number   0-6201
                         ------------------
 
                            BRESLER & REINER, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
           Delaware                                     52-0903424
---------------------------------          ------------------------------------
(State or other Jurisdiction of            (IRS Employer Identification number)
 incorporation or organization)
 
      401 M Street, S.W.
      Waterside Mall
      Washington, D.C.                                         20024
-----------------------------------------            --------------------------
(Address of principal executive Office)                      (Zip Code)
Registrant's telephone number including area code:  (202) 488-8800
                                                   --------------------
Securities registered pursuant to Section 12(b) of the Act:  None
 Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $.01 par value
                         ----------------------------
                               (Title of Class)

Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for at least the past 90 days.  Yes  X
                                     -

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part 3 of this Form 10-K or any amendment to this
Form 10-K. [X]

The number of shares outstanding of Registrant's common stock ($.01 par value)
at March 15, 1999 was 2,839,653 shares, and the aggregate market value of the
shares held by non-affiliates (based upon 29.5625 per share, the average of the
closing bid and asked prices reported by The National Quotation Bureau) was
approximately $27,507,315.

Documents Incorporated by Reference:
Part III - Item 10.  Directors and Executive Officers of Registrant
           Item 11.  Executive Compensation
           Item 12.  Security Ownership of Certain Beneficial Owners and
                     Management
           Item 13.  Certain Relationships and Related Transactions

          The information required by this Part will be incorporated by
reference to a definitive proxy statement which Registrant intends to file with
the

                                       1
<PAGE>
 
Commission pursuant to Regulation 14A involving the election of directors within
120 days after the end of its fiscal year.

          The Exhibit Index is found on page 50.

                                    PART I

ITEM 1.  BUSINESS
         --------

          Registrant has two principal activities, Residential Land Development
and Construction and Rental Property Ownership and Management, primarily in the
Washington, DC Metropoliton Area.

Residential Land Development and Construction
---------------------------------------------

          Registrant owns several partially developed residential tracts of land
within the greater Washington, D.C. area.  On these tracts, it develops
residential lots for sale and constructs and develops single family homes and
townhouses as part of residential subdivisions.  Registrant may decide to sell
certain of its land if it determines that it is in the best interest of
Registrant to do so.

          While the following information represents Registrant's current
intentions, the number of units, commencement dates, and other specific details
of a project may vary, depending on Registrant's ability to secure adequate
financing on acceptable terms, labor conditions, approval of land use plans, and
other regulatory requirements, general economic conditions, demand for housing
and other factors.

          Registrant designs and constructs its homes in accordance with its
periodic evaluation of the prevailing market for new homes.  Its current plan is
to continue to build homes that appeal to the entry level homeowner, which will
give the purchaser the maximum amount of space for the purchase price.
Registrant generally avoids custom features and offers a limited number of home
models.  It also generally does not build homes in advance of sales contracts
other than models and certain units for immediate sales.

        A.  Registrant's Homebuilding Projects
            ----------------------------------

          1.  Skyline Hill's, Prince George's County, Maryland.  This project
              ------------------------------------------------               
consists of 179 single-family homes and 43 townhomes.  3 single-family homes and
11 townhouses were sold and settled in 1998.  As of March 12, 1999, 2 townhouses
were under contract of sale.  6 single-family lots and 1 townhouse, together
with one single family model and 1 townhouse model, remain unsold.

          2.  St. Mary's County, Maryland.  This project consists of 64
              ---------------------------   
subdivided lots, all of which have been sold, and 31 farmsteads, of 15 to 30
acres each. As of March 12, 1999, 9 farmsteads totaling 210 acres remain to be
sold.

          3.  Oak Hill Towns, Prince George's County, Maryland. This 83 townhome
              ------------------------------------------------                  
development has been completed.  The last 7 townhomes were sold and settled in
1998.

          4.  Yorkshire Knolls, Prince George's County, Maryland. This project
              --------------------------------------------------              
consists of 252 townhouses on a 31.5 acre tract. Clearing and grading for the
entire project is complete. 20 homes were sold and settled during 1998.  As of
March 12, 1999, a total of 103 homes were settled and 20 homes are under
contract 

                                       2
<PAGE>
 
of sale. When these 20 homes are settled, 129 townhomes will remain to be
developed and sold.

                           _________________________

          In the sale of homes by Registrant and entities controlled by it,
Registrant has utilized furnished model homes at each site.  Sales are made by
independent real estate brokers to whom a commission is paid.  In its production
of homes for sale, Registrant competes with numerous builders, which range from
well financed and managed regional and national firms to small speculative
builders.

          When Registrant enters into an agreement of sale for a home, it
generally receives a deposit of $500 to $2,000 as is customary in its area of
business.  These deposits may be refundable under certain circumstances,
including Registrant's inability to complete construction within specified time
periods, or the purchaser's inability to secure financing.  Registrant generally
receives the balance of the purchase price in cash upon the closing of the sale,
but has in the past occasionally taken a note secured by a junior mortgage for a
portion of the purchase price.

          Although it is the responsibility of the home purchaser to obtain
financing for his purchase, Registrant seeks to obtain mortgage commitments from
lending institutions for its customers (subject to verification of individual
customer credit status) for purchases of homes in its developments. Registrant
may also be required to pay the lender a discount or points at the closing of
each loan, which in the case of loans insured by the Federal Housing
Administration, or the Veterans Administration, cannot be charged to customers.

          There can be no assurances that Registrant will in the future be able
to secure acceptable permanent mortgage commitments for its customers, and the
absence of such commitments could adversely affect its sale of homes.

          Because of its seasonal nature, home sales generally decline in the
first quarter of Registrant's fiscal year.

   B.  Joint Ventures with Sequoia Building Corporation of Virginia ("Sequoia")
       ------------------------------------------------------------------------
at Manassas, Virginia.  Starting in 1984, Registrant entered into a series of
---------------------                                                        
joint ventures and partnerships with Sequoia in Manassas, Prince William County,
Virginia.  In 1984, Registrant and Sequoia organized a limited partnership known
as Paradise Developers ("Paradise") to develop a 418 acre tract of land in
Manassas, Virginia (the "Tract").  The Tract yielded approximately 243 acres of
residential land and 100 acres of commercial land after streets, recreation
facilities, parks and schools.

          Registrant's subsidiary is the sole general partner and managing
general partner, owning a 50% partnership interest. Sequoia is a limited partner
owning a 50% partnership interest.

          Registrant originally owned the Tract and Paradise purchased the Tract
in two stages from Registrant in December, 1985 and September, 1986.  The
consideration for this purchase was a subordinated non-recourse mortgage and
note ("purchase money mortgage") in the original principal amount of
$11,525,616.  As of December 31, 1998, the balance due Registrant on the
purchase money mortgage was $1,898,808.  In addition, Registrant is due
$1,862,047 in unpaid interest, which will be recognized as income when received.

                                       3
<PAGE>
 
        All of the residential land and 51 acres of the commercial land was sold
prior to 1993.  Paradise developed 18 acres of land into three commercial
projects; the 7800 Building, a bank building and Paradise Sudley North Office
Park.  31 acres of commercial land remain to be sold or developed.

        1.  7800 Building.  Paradise constructed a 15,460 square foot office
            -------------                                                   
building known as the 7800 Building on 1.52 acres of the Tract. The building is
82% leased.

        2.  Bank Building.  This building of 3,478 rentable square feet on two
            -------------                                                     
thirds of an acre is leased to NationsBank.  The lease terminates in December,
2001, subject to NationsBank's option to renew for up to four successive five-
year terms.

        3.  Paradise Sudley North Office Buildings. Registrant's subsidiary is
            --------------------------------------                            
the sole general partner of Paradise Sudley North Limited Partnership
("Sudley"), owner of a 16.35 acre parcel of the Tract. Registrant owns 98.75% of
this partnership.  A former employee of Sequoia owns the remaining 1.25%
interest.

        Sudley has developed on this site four office buildings, which contain
approximately 187,000 square feet of space.  Buildings A, B and C are owned by
Sudley.  Building D is owned by Paradise Sudley North Building D Partnership, a
joint venture in which Sudley is a 50% partner and a Limited Liability Company
controlled by the Chief Executive Officer of Registrant is the owner of the
remaining 50%.

                Building A, 22,608 square feet, is 53% leased.

                Building B, 62,420 square feet, is 61% leased.

                Building C, 33,120 square feet, is 78% leased.

                Building D, 69,374 square feet, is 100% leased to the Prince
William County, Virginia government ("PWC"). The original lease expired December
31, 1998. Prior to the lease expiration, the Company negotiated a new ten (10)
year lease to expire December 31, 2009. PWC, at its option, may extend the term
for an additional five (5) years. In consideration of the new lease and in lieu
of the owner having to refit the building, PWC was given $400,000 rent credit
during 1998. The new lease reduces the rental to the original lease rent and
requires PWC to pay for utilities. Since the formation of the Paradise Sudley
North Building D Partnership, Sudley has been a 50% partner with a right of
return on the value of its capital contribution before distribution to other
partners. There were two non-affiliated limited partners each of whom owned a
25% limited partnership interest. During 1998, the non-affiliated partners
elected to dispose of their partnership interests. The Company decided not to
purchase these partnership interests. The 50% non-affiliates' interests were
purchased by the Bresler Family Investors Limited Liability Company ("LLC").
Charles S. Bresler, the Company's Chief Executive Officer, is the manager of
this LLC.

Rental Property Ownership and Management
----------------------------------------

        Registrant owns and manages apartment buildings, for itself and others.
In the Southwest Washington, DC urban renewal area, as described below,
Registrant holds a 49% interest in an office building, and owns and manages a
portion of an enclosed shopping-office center.  It is the policy of Registrant
to manage and lease these rental properties through its own personnel.
Registrant also is a 

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limited partner in certain properties described below, which are operated by
others.

        Apartments.  Registrant owns and operates two apartment complexes, one
        ----------                                                            
in Greenbelt, MD and one in Southwest Washington, DC with a total of 294 units.
Registrant constructed these apartment buildings.

        As of December 31, 1998, approximately 95% of Registrant's apartment
units were rented.  In renting apartment units Registrant employs rental agents
and uses model apartments, advertising in local newspapers and displays on the
site.  Each building or complex has a project manager employed by Registrant who
supervises rentals and general operations.

        Apartment leases generally provide for a fixed monthly rental over a
one-year term and the tenant normally gives a security deposit.  Registrant
estimates that the average length of occupancy of an apartment by its tenants is
approximately 30 months.  Registrant pays for all utilities, except that certain
tenants pay for their own electricity.  All of Registrant's properties are in
good condition, and in the opinion of Registrant, are adequately covered by fire
and other casualty insurance.

        Southwest Washington, D.C. Urban Renewal Area.  Since 1964, Registrant
        ---------------------------------------------                         
has been the redeveloper of a portion of the Southwest Washington, D.C. Urban
Renewal Area (the "Area"), located immediately south of the "Federal Mall" which
extends from the United States Capitol Building to the Washington Monument.
Registrant has performed each of its principal business activities, as well as
building construction for others, in this Area.

        High Rise Office Buildings.  Located in the Area are two matching 14
        --------------------------                                          
story office buildings, which are leased and managed by Registrant.  One
building, with approximately 153,000 square feet, is owned by Trilon Plaza
Company ("Trilon") an affiliate; the other building, with approximately, 173,000
square feet, is owned by Town Center East Investors ("TCELP"), a limited
partnership in which Registrant holds a 49% interest and serves as the 1%
general partner.

        Trilon is a limited partnership, in which a substantial majority
interest is owned by Messrs. Bresler and Reiner, whose wholly owned corporation
is the general partner (other officers of Registrant hold minor interests) and
the balance is owned by non-affiliates.  Trilon's principal assets are its
leasehold interests in the Area and the projects developed thereon.

        GSA Lease.  The United States General Services Administration ("GSA")
        ---------                                                            
leases all of the two high rise buildings, as well as the second and third
floors of the adjacent shopping-office center and a portion of another smaller
structure (see "Shopping Center") at an annual rental of approximately $22.6
million for approximately 955,000 square feet plus 216,000 square feet of
parking space (the "GSA Lease"). The GSA lease covers 89.4% of the total
commercial and office space in the project. Approximately 327,550 square feet of
the portion of the shopping center owned by Registrant (97.1% of Registrant's
portion of the project) is included in the GSA lease at an annual rental of
approximately $7.4 million. 72,000 square feet are owned by S.E.W. Investors,
another affiliate.  173,000 square feet are owned by TCELP, in which Registrant
has a 49% interest. Registrant acts as managing and leasing agent for Trilon,
TCELP and S.E.W. Investors for their portions of the leased space. All four
owners, including Registrant, are jointly and severally liable as landlord to
GSA under the Lease. See "Management of Rental Properties".

                                       5
<PAGE>
 
        The GSA lease expires in September, 2002, and provides that the GSA may,
on one year's notice, terminate portion of the lease at any time after
September, 2000.  The GSA has not given any notice of early termination.
 
        The Environmental Protection Agency ("EPA"), the principal occupant
under the GSA lease, is in the process of relocating to new facilities and
expects to vacate Registrant's buildings by some time in 2001.  The GSA has
placed other tenants in portions of the EPA space as it has been vacated.

        In January, 1997 and February, 1998, the GSA leased an additional 5,000
square feet and 45,000 square feet, respectively, for use by the EPA. This
office space was previously leased to unrelated commercial government
contractors. These leases also will expire in September, 2002 and are subject to
cancellation after September, 2000.

        Total GSA rental from Registrant's portion of the mall complex is
currently $7.4 Million.  Registrant also received $766,000 in leasing fees and
$535,000 in management fees in 1998 as the result of the GSA lease.  The
commercial tenants in the mall complex also rely heavily on the GSA lease
occupants.  If GSA does not place other tenants in the space being vacated by
EPA, the commercial tenants and Registrant may lose substantial revenue.

        The Southwest Community Council, in concert with the District of
Columbia government, has commissioned a study by the Urban Land Institute
("ULI") to provide a detailed study and recommendations as to the use of the
Waterside Mall complex, when the GSA lease terminates.  The ULI study commenced
on March 1, 1998. The written report has been published.  There is an assurance
that the recommendations of the ULI will be undertaken or are feasible.

See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS- RENTAL INCOME- COMMERCIAL" for more information.

        Shopping-Office Center.  An enclosed shopping-office center is located
        ----------------------                                                
between the two high rise buildings containing approximately 750,000 square feet
of space.  The center includes approximately 1,100 parking spaces located in an
underground parking garage and adjacent parking areas.

        Registrant acts as managing and leasing agent for Trilon and for S.E.W.
Investors, a limited partnership ("S.E.W. Investors") (see "Southeast Section"
below) for their portions of the shopping-office center, part of which is leased
to the GSA as described above and the balance is leased to other commercial
tenants.  See "Management of Rental Properties".

        Registrant's portion of the shopping-office center, consisting of
231,023 square feet, is leased by Registrant from the District of Columbia
Redevelopment Land Agency ("RLA") for a term expiring in 2058.  Under the lease,
Registrant is responsible for all expenses related to the land, including real
estate taxes and utilities.  Registrant must obtain the approval of RLA before
constructing additional improvements on these tracts.

        Southeast Section.  On October 10, 1980, Registrant assigned its
        -----------------                                               
leasehold interest in a portion ("Southeast Section") of the shopping-office
center to S.E.W. Investors.  The Southeast Section contains approximately
105,000 square feet of rentable space in the three story and basement building,
of which approximately 49,000 square feet were completed prior to 1981. Tenant
occupancy commenced in February, 1982, including 56,000 square feet leased to
the GSA. S.E.W. Investors was organized by Registrant to acquire the Southeast
Section. Registrant 

                                       6
<PAGE>
 
is the sole general partner, with a 1% interest. Of the limited partnership
interests, 62% is held by non-affiliates and the remaining 37% is held by
certain directors and officers of Registrant, including Charles S. Bresler, its
Chairman of the Board and principal shareholder, and Burton J. Reiner, its
President, director and principal shareholder. Registrant manages this building.
See "Management of Rental Properties".

        Town Center East Apartment Buildings.  On August 1, 1979, Registrant
        ------------------------------------                                
assigned its leasehold interest in two high rise apartment buildings in the
redevelopment area, with 256 units, known as Town Center East Apartments, to
Third Street Southwest Investors, a limited partnership.  Registrant is the sole
general partner in this limited partnership, with a 1% interest, and acts as
management agent for the project.  In this partnership, 90% of the limited
partnership interests are held by unaffiliated persons, and the remaining 9% of
the limited partnership interests are held by certain directors and officers of
Registrant, including Charles S. Bresler, Chairman and Chief Executive Officer
of Registrant and Burton J. Reiner, its President.  Registrant manages these
buildings.  See "Management of Rental Properties".

            Low Income Housing.  Registrant has interests in the following
            ------------------   
limited partnerships which are operating low-income housing units:

        1.  Multi-State Projects.  On November 15, 1988, Registrant purchased
            --------------------                                             
99% limited partnership interests in each of seven limited partnerships, which
collectively have constructed 266 rental apartments.  The projects are located
in small communities in Maryland (3), Pennsylvania (1), Virginia (2) and West
Virginia (1).  At March 1, 1999, the projects were 99% occupied.  The projects
are financed by Farmers Home Administration mortgages and enjoy the benefits of
low income housing credits against federal income tax authorized under Section
42 of the Internal Revenue Code of 1986, as amended, (the "Code").  The purchase
price for such limited partnership interests is approximately $5,168,000 in the
aggregate, of which $4,996,254 has been paid as of March 15, 1999.  It is
payable in annual installments over the ten years such tax credit is available,
commencing in March 1990, and is to be adjusted annually based on the annual tax
benefits generated.

       2.   Windsor, Connecticut Project.  On April 27, 1989, Registrant
            ----------------------------                                
purchased a 97% limited partnership interest in a Connecticut limited
partnership. This partnership converted a former schoolhouse into 40 residential
apartments in Windsor, Connecticut, a suburb of Hartford. The partnership
received the certificate of occupancy for the apartments and is eligible for
both Federal historic tax credit and Federal low income housing credits against
Federal income tax as authorized under Section 42 of the Code. The purchase
price for the partnership interest, payable in installments over the ten (10)
years the credits are available, is approximately $1,130,000, of which $664,000
was paid as of December 31, 1998. The purchase price is to be adjusted based on
the tax benefits generated annually.  The loan has been in default.  The general
partner has indicated that it may deliver a deed for property to the lender in
1999.  In the event the property is deeded to the lender, the partnership may
have a tax recapture.

        3.  Orlando, Florida Project.  On July 17, 1989, Registrant purchased a
            ------------------------                                           
90% limited partnership interest in a Florida limited partnership.  The general
partners of the partnership are three individuals and PAC Land Development
Corporation, a Florida real estate development company ("PAC").  The partnership
developed and constructed a 28 acre, 312 unit apartment project in Orlando,
Florida, of which 63 units are eligible for Federal low income housing credits
and the balance of 249 units are market rate apartments. The purchase price for
the 

                                       7
<PAGE>
 
partnership interest was $1,600,000. The purchase price, other than the first
installment, is to be adjusted based on the tax benefits generated annually,
which may result in additional payments in the future. 92% of the apartments
were occupied as of December 31, 1998.

        4.  St. Mary's County, Maryland Project.  On November 22, 1989,
            -----------------------------------                        
Registrant purchased a 79% limited partnership interest in Foxchase Village
Associates Limited Partnership, which has constructed a 134 unit apartment
project in St. Mary's County, Maryland.  The project is eligible for Federal low
income housing credits against Federal income tax authorized under Section 42 of
the Code over the first ten years after occupancy. The purchase price for the
partnership interest was $3,200,000. 93% of the apartments were occupied as of
December 31, 1998.

        Competition.  In each of the areas where Registrant's rental properties
        -----------                                                            
are located, there are buildings which offer similar accommodations at
approximately the same rentals.  The rents charged by Registrant for its
properties in the District of Columbia are subject to rent control regulation.

        Management of Rental Properties.  Registrant, through a subsidiary, has
        -------------------------------                                        
contracts to act as managing agent and, in certain cases, leasing agent, for
residential and commercial projects of certain partnerships in which Registrant
is a general partner, and of certain partnerships in which Charles S. Bresler
and Burton J. Reiner, officers, directors, and principal shareholders of
Registrant, have substantial interests and other directors and officers have
minor interests as follows:

<TABLE>
<CAPTION>
       Property Managed          Compensation(1)        Expiration
       ----------------          ---------------        ----------
<S>                              <C>              <C>
414 apartment units (5)                5%         December, 2000  (2) (3)
20 townhouses (6)                      5%         December, 2000  (2) (3)
390,000 square feet of office
    space(6)                           3% (10)    December, 2003  (2) (4)
185,000 square feet of office
    space(7)                           3% (10)    December, 2003  (2) (4)
256 apartment units (8)                5%         September, 1999 (2) (3)
105,000 square feet of
    shopping-office
    center (9)                         3% (10)    December, 2003  (2) (4)
</TABLE>

   (1)  As a percentage of gross rent collected.

   (2)  These contracts renew automatically for additional five-year terms
        unless either party gives notice of termination at the end of the term
        stated above.

   (3)  This contract may be terminated at any time by the Federal Housing
        Commissioner or the mortgagee.

   (4)  These contracts may be terminated by the owners on 60 days prior
        written notice, subject to payment of the present value of the
        leasing fees (see note 9 below) for the remainder of the contract
        term.

   (5)  This property is located in the Southwest Washington, D.C. Urban
        Renewal Area and is managed for Waterside Towers, L.L.C., an affiliate

                                       8
<PAGE>
 
        of the Registrant.
 
   (6)  These properties are located in the Southwest Washington, D.C. Urban
        Renewal Area and are managed for Trilon Plaza Company and Waterside
        Towers, L.L.C., affiliates of the Registrant.

   (7)  The project is described in "Southwest Washington, D.C. Urban
        Renewal Area" and is managed for TCELP, a partnership in which
        Registrant has a 49% interest and is the general partner.

   (8)  These buildings are the Town Center East Apartments described in
        "Southwest Washington, D.C. Urban Renewal Area" and are managed for
        a partnership in which Registrant has a 1% interest and is general
        partner.

   (9)  This property is managed for a partnership in which Registrant has a
        1% interest and is a general partner. (See "Southwest Washington,
        D.C. Urban Renewal Area - Southeast Section" above.)

   (10) In addition, Registrant earns leasing fees of 5% of gross rents
        collected on the GSA Lease for these properties.

        Holiday Inn Express.  Registrant owns and operates a 151 room Holiday
        -------------------                                                  
Inn Express motel located in Camp Springs, Maryland, suburban Washington, D.C.,
opposite the main entrance to Andrews Air Force Base and an interchange of the
Capital Beltway.  The motel commenced business in March, 1970.

        In March, 1997 Registrant commenced conversion of the facility from a
Holiday Inn to a Holiday Inn Express.  The conversion required substantial
renovation of the Holiday Inn facility.  Renovation was completed in December,
1997. Average occupancy in 1998 was 59%, compared to 43% in 1997.  1997
occupancy was severely impacted during the renovation period.  The average daily
room revenue in 1998 was $64.20 as compared to $58.20 in 1997

        Under Registrant's franchise license agreement with Holiday Inns, Inc.,
Registrant pays Holiday Inns a monthly royalty, and additional payments for
advertising and trading services.  The Holiday Inn Express license agreement
will expire in March, 2007.

        There are three other motels in the immediate vicinity of Registrant's
Holiday Inn property.  The motel business in the Washington, D.C. area is highly
competitive.

        The Colonnade, Baltimore, Maryland.  The Colonnade is a multi-purpose
        ----------------------------------                                   
condominium apartment, hotel, office and retail building across from the Johns
Hopkins University campus in Baltimore, Maryland.  Registrant's portion of the
building consists of 125 hotel rooms operated by Registrant as a Doubletree
Hotel, a 5,200 square foot restaurant, leased to an unrelated operator, 7,600
square feet of retail and office space and a 137 parking space garage.  Hotel
occupancy averaged 75% in 1998 compared to 72% in 1997.  The average daily room
rate in 1998 was $108.89 as compared to $98.89 in 1997.

        Pine Club Phase II Limited Partnership, Orlando, Florida.  Registrant
        --------------------------------------------------------             
holds a 64.35% limited partnership interest in Pine Club Phase II, Ltd., a
Florida limited partnership.  The general partners of this partnership are three

                                       9
<PAGE>
 
unaffiliated individuals and PAC, who own with others, in the aggregate, a
35.65% partnership interest.

        The partnership has constructed 160 residential apartment units on
approximately 14 acres of land in Orlando, Orange County, Florida.  This land is
contiguous to Registrant's low-income housing and market rate housing project in
Orlando, Florida previously discussed under "Low Income Housing - Orlando,
Florida Project".  The Project was completed in January, 1991, and is 93%
occupied as of February 28, 1999.

        Convenience Stores.  In June, 1986, Registrant acquired 16 Circle K
        ------------------                                                 
convenience store locations, in the southern and southeastern United States, for
an aggregate consideration of $3,390,000.  Registrant acquired title to each
store building, but holds leasehold interests in the underlying parcels of land.
All of the stores were under lease through February, 2000, on a net basis, to
Circle K Corporation, a large convenience store chain which operates the stores
under the name "Circle K." On May 15, 1990, Circle K and certain of its
affiliates filed Petitions under Chapter 11 of the Bankruptcy Code. One of
Circle K's rights under the Bankruptcy Code was to affirm or reject the rental
leases on its stores. At various times, Circle K rejected a total of 12 of the
sixteen leases owned by Registrant. As of March 15, 1999, five of these stores
are leased to unrelated parties.  Registrant has sold six stores. The remaining
store has not yet been sold or leased.

        Nursing Home.  Registrant owns a New Jersey nursing home facility,
        ------------                                                      
Lakeview Manor, which it leases to an unaffiliated operating company.

        Lakeview Manor is a 120-bed nursing home facility in Lakewood, New
Jersey.  The skilled and intermediate care facility is located on State Road 88,
Ocean County, New Jersey, approximately 60 miles south of New York City.  The
one-story building of approximately 37,000 square feet, with brick exterior, is
situated on 11 acres of land.

        Registrant has leased the nursing home to an unaffiliated operator for a
term of 10 years, commencing June 1, 1989.  The monthly rent is $48,295 for the
first five years with increased rent thereafter.  Tenant has several renewal
options for up to 20 additional years. The lessee pays taxes and other operating
expenses, and all structural and nonstructural repairs and replacements.  The
lessee has a right of first refusal in the event Registrant seeks to sell the
property.  The lessee may assign the lease to another experienced nursing home
operator, subject to certain conditions.  The monthly rent increases to $53,245
effective June 1, 1999.

        There are several other nursing homes in Lakewood, New Jersey.  The
Nursing Home business is highly competitive.  Nursing homes operate under state
licenses and are subject to extensive governmental regulations.  Should Lakeview
Manor not be in compliance with these regulations, it would be subject to
termination of its qualification for federal assistance payment or termination
of its operating license by federal or state regulators.

Equipment Leasing and Vending
-----------------------------

        Registrant previously engaged in personal property leveraged equipment
leasing, both directly and through subsidiaries and general partnerships.

        In December, 1983, Registrant, with others, organized a general
partnership to engage in equipment leasing known as Builders Leasing Company,
and 

                                       10
<PAGE>
 
agreed to act as its managing partner with a 20% interest. The initial $2
million capital of the partnership was contributed by each partner, in
proportion to his percentage interest, over five years in semiannual
installments. In addition to the initial capitalization, the partners
contributed $1,150,000 to the capital of the partnership in 1988, 1989 and 1990.
Registrant's capital contribution to date totals $630,000. Certain directors and
officers of Registrant also hold an aggregate of 27% of the partnership
interests, including Charles S. Bresler, Chairman of the Board and principal
shareholder (20%), and Burton J. Reiner, President, director and principal
shareholder (5%).

        Builders Leasing Company owns transportation barges and petroleum
transportation vehicles.  The partners are personally liable for debt of
Builders Leasing, with a balance at December 31, 1998 of about $2,198,000.

        In February 1984 Registrant organized Tech-High Leasing Company, a
general partnership in which it holds a 50% interest. The other 50% is held by a
non-affiliated corporation.  Registrant and its partner have each contributed
$1,100,000.

        Neither Registrant nor these partnerships are currently entering into
new equipment leases. The lease portfolios have been substantially reduced.

        Registrant, through a wholly owned subsidiary, has since August,1987,
conducted a coin operated telephone business, primarily in the Washington, D.C.
metropolitan area. The telephones are now being serviced by a management company
in Maryland.

Employment
----------

        On March 12, 1999, Registrant and its subsidiaries employed
approximately 117 persons.

                       _________________________________

        Registrant's business is substantially dependent on general economic
conditions, and the availability of construction labor and materials in the area
served. The development of unimproved real estate is subject to Registrant's
obtaining appropriate governmental approvals, and availability of utilities,
including sewers.


ITEM 2. PROPERTIES.
        ---------- 

        Rental properties of Registrant are described under "Rental Property
Ownership and Management" in Item 1.

ITEM 3. LEGAL PROCEEDINGS.
        ----------------- 

        Registrant, S.E.W. Investors, Town Center Management Company (a
subsidiary of Registrant), Bresler and Reiner Companies (a subsidiary of
Registrant), and Trilon Plaza Company are defendants in a civil suit case no.
90-CA10594 filed October 12, 1990 in the Superior Court of the District of
Columbia by Joanne Bahura, et. al. (the "Plaintiffs").  The Plaintiffs are 19
individuals who state they are all present or former employees of the
Environmental Protection Agency, which leases certain office space at a high
rise office building in Washington, D.C. known as the "Waterside Mall Complex."
Four spouses of such employees are also plaintiffs.  See "Management of Rental
Properties", "Southwest Washington, D.C. Urban Renewal Area", "High Rise Office
Buildings", "Shopping-

                                       11
<PAGE>
 
Office Center" and "Southeast Section" in Item 1 above. The Complaint, as
amended (the "Complaint"), alleges that (i) the defendants are the owners of the
Waterside Mall Complex and (ii) certain renovations and reconstruction to the
Waterside Mall Complex were done in such a manner as to cause the Plaintiffs
multiple physiological and physical symptoms.

        The Complaint seeks damages aggregating $40,000,000 under claims of
negligence, breach of warranty of habitability, breach of contract, strict
liability, loss of consortium and punitive damages.  The claims of six
plaintiffs were tried to a jury from October 25 to December 23, 1993, with
verdicts for plaintiffs totaling $948,000.  No punitive damages were awarded.
The judgments in favor of four defendants were overturned following trial,
reducing the total award to $232,000.  Plaintiffs have filed a notice of appeal,
and appeals are pending. The cases of fourteen primary plaintiffs and three loss
of consortium plaintiffs remain to be tried.  Management believes the claims are
without merit and intends to continue to contest the case vigorously.

     In prior years two "copy cat" suits were filed, one of which has been
dismissed with prejudice and the other of which has been stayed.  During 1998,
an additional "copy cat" suit was filed.  This suit is in the early stages of
discovery. Management believes the claim is without merit and intends to contest
the case vigorously.

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

        Not Applicable.

                        ______________________________

                       Executive Officers of Registrant
                  (included pursuant to instruction 3 to Item
                           401(b) of Regulation S-K)

<TABLE>
<CAPTION>
                                          Present Positions
                                          and Offices with    Date Elected
Name                         Age          Registrant          to Office____
----                         ---          -----------------   -----------------
<S>                          <C>          <C>                 <C>
Charles S. Bresler            71          Chief Executive     June 2, 1970    
                                          Officer, Chairman                   
                                          of the Board                        
                                          and Director                        
                                                                              
Burton J. Reiner              70          President and       June 2, 1970    
                                          Director                            
                                                                              
William L. Oshinsky           56          Treasurer and       April 6, 1994   
                                          Director            November 15, 1994
                                                                              
Edwin Horowitz                67          Secretary and       June 2, 1970     
                                          Director
</TABLE>

        In accordance with Article V of the By-Laws of Registrant, each officer
was elected to serve until his successor is chosen and shall have qualified or
until his earlier resignation or removal.

                                       12
<PAGE>
 
        There is no family relationship as defined in the instructions to this
Item between any of the above officers, except Mr. Oshinsky is the brother-in-
law of Mr. Reiner.

        Each officer has held the above positions as his principal occupation
for more than the past five years, except Mr. Oshinsky, who, prior to his
election as Treasurer, served as an officer of subsidiaries of Registrant for
more than the past five years.


                                    PART II
                                    -------

ITEM 5.  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
         ------------------------------------------------------------
         MATTERS.
         ------- 

        Registrant's Common Stock is traded in the over-the-counter market. The
following table presents the high and low bid quotations for the periods shown,
as reported by the National Quotation Bureau, Inc.  No dividends were declared
or paid during the years reported.

<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------

          Quarter                        Price
          ------------------------------------- 
          <S>             <C>            <C>
           1st            High           11.50 
                          Low            11.00  
          ------------------------------------- 
           2nd            High           21.00 
                          Low            12.00  
          ------------------------------------- 
           3rd            High           21.50 
                          Low            21.00
          ------------------------------------- 
           4th            High           21.50 
                          Low            20.25
          ------------------------------------- 
</TABLE> 

<TABLE> 
<CAPTION> 
Year Ended December 31, 1998
------------------------------
 
          Quarter                        Price
          -------------------------------------
          <S>             <C>            <C> 
           1/st/          High           25.00  
                          Low            20.25  
          ------------------------------------- 
           2/nd/          High           28.625 
                          Low            25.00  
          ------------------------------------- 
           3/rd/          High           28.875 
                          Low            27.000 
          ------------------------------------- 
           4/th/          High           29.50 
                          Low            28.00  
          ------------------------------------- 
</TABLE> 
 
        The above quotations, as reported by National Quotation Bureau, Inc.,
represent prices between dealers and do not include retail markup, markdown or
commissions and do not represent actual transactions.

        As of March 15, 1999, there were 137 record holders of Common Stock.

                                       13
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE> 
<CAPTION> 
               1998             1997/*/          1996/*/          1995/*/          1994/*/
               ----             -------          -------          -------          -------
<S>            <C>              <C>              <C>              <C>              <C> 
Revenues       $  35,052,000    $  34,029,000    $  35,143,000    $  33,824,000    $  39,563,000

Net income
(loss)
before
extra-
ordinary
item and
income taxes   $  15,106,000    $  12,823,000    $  10,805,000    $   7,491,000    $  (6,445,000)

Net income     $   9,228,000    $   8,265,000    $   7,273,000    $   6,140,000    $   3,404,000
               =============    =============    =============    =============    =============
Earning
per common
share
before
extra-
ordinary
item           $        3.32    $        2.96    $        2.60    $        1.57    $       (1.45)

Earnings
per common
share          $        3.32    $        2.96    $        2.60    $        2.18    $        1.20
               =============    =============    =============    =============    =============
Total
Assets         $  97,886,000    $  97,522,000    $  94,926,000    $ 100,419,000    $ 102,425,000
               =============    =============    =============    =============    =============
Long Term
Obliga-
tions          $   5,151,000    $  15,667,000    $  22,238,000    $  33,729,000    $  42,495,000
               =============    =============    =============    =============    =============
Cash divi-
dends per
common
share               (1)              (1)              (1)              (1)              (1)
               =============    =============    =============    =============    =============
</TABLE> 
   (1)  No dividends have been declared or paid.

   /*/  Restated to reflect reclassifications.


                                       14
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        -----------------------------------------------------------------------
OF OPERATIONS
-------------

Results of Operation
--------------------

During 1998, Registrant entered into certain transaction beneficial to the
Company.  These transactions are as follows:

1. In May 1998, Registrant purchased a loan on Building "D" (Paradise Sudley
   North Office Buildings) from the lender at a discount of $978,000. The
   discount will be reflected as income over the life of the original mortgage.

2. During November 1998, Registrant purchased the loan on Building "A" (Paradise
   Sudley North Office Buildings) from the lender.


Sales of Homes and Lots
-----------------------

    During 1998, Registrant sold 41 homes for $5,672,000 as compared with 41
homes and two lots in 1997 totaling $5,757,000 and 63 homes in 1996 totaling
$8,669,000.

Rental Income - Apartments and Commercial
-----------------------------------------

    Apartments.  Rental income from apartments in 1998 was $2,503,000, a 5.0%
    ----------                                                               
increase from $2,389,000 in 1997. Total units in 1998 were 294, with an average
occupancy of 95% and an average monthly income of $747, compared with an 93%
occupancy rate and average monthly income of $729 for 1997.  The increase in
revenues in 1998 was primarily due to increased occupancy. Rental income from
apartments in 1997 increased 2.0% from $2,342,000 in 1996.  Total units in 1996
were 370, with an average occupancy of 86% and an average monthly rental of
$614.  Rental expenses in 1998 were $1,430,000, a 4.9% decrease from $1,503, 000
in 1997.

    Commercial.  Rental income from commercial properties in 1998 was
    ----------                                                       
$11,379,000, a 4.2% decrease from $11,885,000 in 1997.  Total commercial square
footage is 543,600. Average occupancy for 1998 was 91.3%, with an average
annual rental of $19.93 per square foot. This compares with an 92.4% occupancy
rate and average annual rental of $20.50 per square foot for 1997.  The decrease
in commercial rental revenues in 1998 was primarily due to the reduction of rent
to the tenant in the Sudley North Office Building D. Commercial rental income in
1997 increased 0.4% from $11,282,000 in 1996.  Average occupancy in 1996 was
89.5%, with an average annual rental of $20.10 per square foot. Commercial
rental income for each year described above also included (i) rental income from
Lakeview Manor nursing home of $579,538 per year, (ii) utility reimbursements
from tenants and property tax refunds of $114,865 in 1998,  $233,779 in 1997 and
$143,798 in 1996, (iii) maintenance fees of $282,881 in 1998,  $236,799 in 1997
and $188,811 in 1996, and (iv) revenues from convenience store properties of
$189,503 in 1998, $188,636 in 1997 and $174,196 in 1996.

    The GSA lease contributed 35% and 28% of Registrant's total revenues in 1998
and 1997, respectively.

    Hotel.  Hotel revenues for 1998 were $7,224,000 compared to $6,137,000 for
    -----                                                                     
1997 and $5,890,000 for 1996.  Net income from Hotel operations was $2,083,000
for 1998, compared to $1,219,000 for 1997 and $1,021,000 for 1996.

    The Holiday Inn 1997 and 1996 results reflect reduced revenues as the
result of undergoing renovation to a Holiday Inn Express format.

                                       15
<PAGE>
 
    The Colonnade revenues increased 7% in 1998 over 1997 ($5,073,000 compared
to $4,726,000). This was the result of increased average room rates and
occupancy.  1997 Colonnade revenues increased 12% over 1996 revenues of
$4,217,000 as the result of increased average room rates. Net income from
Colonnade operations was $1,821,000 in 1998,  $1,534,000 in 1997 and $928,000 in
1996.  Average occupancy was 75%, 72% and 69% respectively.

Leasing Fees, Affiliates
-------------------------

    The 1996,1997 and 1998 results consist of a 5% real estate leasing fee
earned by Registrant resulting from the GSA lease.  These fees are recorded as
earned over the life of the lease, as rent is collected.  See "Rentals --
Apartments and Commercial".

Interest, Affiliates
--------------------

    Interest affiliates for 1998 increased as the result of the note on Building
D.

Income from Equity Investments
------------------------------

    The components of this Item are as follows:

<TABLE>
<CAPTION>
   Year Ended December 31         1998           1997             1996
   ----------------------      ----------     ----------     -------------
<S>                            <C>            <C>            <C>
Orlando, Florida Apartments    $   69,000     $  (17,000)       $ (14,000)
Town Center Office Building       993,000        792,000          779,000
Tech High Leasing Company         468,000(a)     157,000           42,000
Other                              91,000(b)     468,000(b)        14,000
                               -------------  -------------     ------------
Total                          $1,621,000     $1,400,000        $ 821,000
</TABLE>

(A) The increase is due to the recognition of the gain upon the sale of
    equipment under lease.

(b) In accordance with generally accepted accounting principles, distributions
in excess of basis from a partnership of $31,000 were included in 1998 "Other"
income and $461,000 in 1997 "Other" income.

Revenue - Other
---------------

    Included for 1997 is $377,000 consisting of a payment from the settlement
between the FDIC and commercial paper creditors resulting from the 1990 failure
of Washington Bancorp. Included for 1996 is $232,000 from a non-recurring
settlement.

Interest Expense
----------------

    The reduction in interest expense from $1,975,000 in 1997 to $868,000 in
1998 is due to the 1998 payoff of the Holiday Inn loan, the payoff of the Third
Street Investors loan and the consolidation of the Sudley North loans. The
reduction in interest expenses from $2,898,000 in 1996 to $1,975,000 in 1997 is
primarily due to the 1996 payoff of the Colonnade mortgage.

Provision for Loss on Real Estate
---------------------------------

    In accordance with GAAP, Registrant writes down the costs of substantially-
completed residential construction projects in excess of the market value of
unsold units. The write-down was $650,000, $60,000 in 1997 and 1996,
respectively.

                                       16

<PAGE>
 
Expenses- Other
---------------

     In 1997, Registrant expensed cash advances of $217,000 to a partnership
operating at a loss.  No such advances were made in 1998.

Balance Sheet:
--------------

Notes Payable-Mortgages
-----------------------

     The decrease in this item resulted from the payoff in 1998 of the mortgages
secured by the Registrant's Holiday Inn, Town Center East Apartment Buildings
and the purchase of the notes on two of the Sudley properties.

Liquidity and Capital Resources
-------------------------------

     Registrant continues to fund its obligations out of current cash flow.  The
banking and finance communities continue to be adverse to most real estate
lending, requiring increased coverage on debt and significant owner investment
in properties.  There is no assurance that Registrant will be able to meet all
of its needs out of cash flow or that additional funding will be available to
Registrant if needed.

     During the year ended December 31, 1998, Registrant generated cash flow
from operating activities of $14,504,000. Cash flow from operating activities
was used in investing activities of $4,412,000, which consisted of investments
in U.S. Treasury instruments and other activities of $6,684,000, less proceeds
of $2,272,000 related to investment in joint ventures. The remaining cash flow
from operating activities was used in financing activities for the repayment of
notes payable. Overall, cash flow from operating, investing and financing
resulted in an decrease of $424,000 in cash and cash equivalents and cash
deposits held in escrow during the year ended December 31, 1998.

     During the year ended December 31, 1997, Registrant generated cash flow
from operating activities of $5,815,000. Cash flow of $11,000 was provided from
investing activities, which consisted of investments in U.S. Treasury
instruments and other activities of $2,240,000, less proceeds of $2,251,000
related to investment in joint ventures. The remaining cash flow from operating
activities was used in financing activities for the repayment of notes payable
and the purchase of treasuring stock. Overall, cash flow from operating,
investing and financing resulted in a decrease of $999,000 in cash and cash
equivalents and cash deposits held in escrow during the year ended December 31,
1997.

     During the year ended December 31, 1996, Registrant generated $20,998,000
Cash flow from operating activities was used in investing activities of
$11,793,000, which consisted of investments in U.S. Treasury instruments and
other activities of $12,481,000, less proceeds of $688,000 related to
investments in joint ventures. The remaining cash flow from operating activities
was used in financing activities for the repayment of notes. Overall, cash flow
from operating, investing and financing resulted in a decrease of $2,786,000 in
cash and cash equivalents and cash deposits held in escrow during the year ended
December 31, 1996.


Year 2000 Issue
---------------

     In 1997, the Registrant began a comprehensive review of its year 2000
compliance issues utilizing an overlapping, three-phased approach. Phase I
involves assessments of building infrastructure and internal computer systems
including both 

                                       17
<PAGE>
 
hardware and software to identify possible compliance failures. Phase II
involves vendor compliance and actual testing of hardware and software
applications including significant electronic interfaces. Phase III involves
identifying remaining company-wide risks and development of contingency plans.
The Registrant expects to complete Phases I and II of its Year 2000 review in
mid-1999. Phase III is expected to run from March 1999 through December 1999.
Based on the review plan as well as the expected success of remediation efforts
currently underway, management believes the Registrant has no material risks
related to the ability of its hardware and software to recognize the year 2000
and beyond as valid dates.

     The Registrant's primary financial and operational software programs are
purchased from outside vendors who have already resolved year 2000 issues. The
Registrant has received letters from these vendors indicating that their
software is Year 2000 compliant.
 
As part of Phase II, the Registrant has initiated steps to identify and contact
key vendors whose inability to provide service in the year 2000 could have a
material adverse effect on the Registrant's business operations. With the
exception of utility services, the Registrant believes that there are no other
critical suppliers whose inability to provide service would materially affect
business operations.  This is due primarily to the physical nature of the
Registrant's product as well as the availability of multiple suppliers of
property services. The Registrant does not have  a contingency plan to address
the possibility that utility services may not be available. However, management
believes that this is a very unlikely scenario. Readers are cautioned that these
conclusions involve numerous subjective assumptions and there can be no
assurances that management has adequately identified or addressed all possible
contingencies.

     The Registrant's Year 2000 compliance efforts have been primarily conducted
with internal staff. Accordingly, the costs have been immaterial and are
expensed as incurred.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
          ------------------------------------------- 

          The financial statements are listed under Item 14 in this annual
report and are included therein.

          No supplementary data are supplied because none are required.

ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
          ---------------------------------------------------- 

          None.



                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
          ---------------------------------------------- 

          The information required by this item will be incorporated by
reference to a definitive proxy statement involving the election of directors
which is expected to be filed by the Company pursuant to Regulation 14A within
120 days after the close of its fiscal year.

ITEM 11.  EXECUTIVE COMPENSATION.
          ---------------------- 

                                       18
<PAGE>
 
          The information required by this item will be incorporated by
reference to a definitive proxy statement involving the election of directors
which is expected to be filed by the Company pursuant to Regulation 14A within
120 days after the close of its fiscal year, except for the information
contained under such definitive proxy statement under the captions "Board
Compensation Committee Report on Executive Compensation" and "Performance
Graph."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
          ---------------------------------------------------------------

          The information required by this item will be incorporated by
reference to a definitive proxy statement involving the election of directors
which is expected to be filed by the Company pursuant to Regulation 14A within
120 days after the close of its fiscal year.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
          -----------------------------------------------

          The information required by this item will be incorporated by
reference to a definitive proxy statement involving the election of directors
which is expected to be filed by the Company pursuant to Regulation 14A within
120 days after the close of its fiscal year.


B.     Reports on Form 8-K.  Registrant filed no reports on Form 8-K during the
       fourth quarter of fiscal 1997.

C.     Exhibits.

          Index to Exhibits
          -----------------

Exhibit 3

               (i)  Articles of Incorporation

          A.   Restated Certificate of Incorporation of Registrant filed
February 23, 1971, Amendment filed August 12, 1987, and Amendment filed May 31,
1991.

          (Incorporated by reference to Exhibit 3A of Registrant's Quarterly
Report on Form 10Q for the second quarter of 1991, dated August 14, 1991, filed
with the Securities and Exchange Commission.)

               (ii) By-Laws

          B.   Revised By-laws of Registrant.

          (Incorporated by reference to Exhibit 3B of Registrant's Report on
Form 10-K for 1994, dated March 31, 1995, filed with the Securities and Exchange
Commission.)

                                       19
<PAGE>
 
                                    PART IV

Item 14   Exhibits, Financial Statement Schedules, and Reports on Form 10-K

<TABLE> 
<CAPTION> 
                                                                                     Page
                                                                                     ----
<S>                                                                                 <C> 
A.   The following documents are filed as part of this report:

     1.   Financial Statements

          Bresler & Reiner, Inc. Consolidated Financial Statements:

               Report of Independent Public Accountants                                21

               Consolidated Balance Sheets                                          22-23

               Consolidated Statements of Income                                       24

               Consolidated Statements of Changes in Shareholders' Equity              25

               Consolidated Statements of Cash Flows                                26-27

               Notes to Consolidated Financial Statements                           28-42

     2.   Financial Statement Schedules III and IV                                  43-49 

          Schedules other than those listed above have been omitted 
          because they are not required, not applicable, or the
          required information is set forth in the financial 
          statements or notes thereto.

     3.   Exhibits                                                                     50 
</TABLE> 

          SHAREHOLDERS MAY OBTAIN A COPY OF ANY FINANCIAL STATEMENT
          SCHEDULES AND ANY EXHIBITS FILED WITH FORM 10-K BY WRITING TO
          EDWIN HOROWITZ, SECRETARY, BRESLER & REINER, INC., AT 401 M
          STREET, S.W., WASHINGTON, D.C. 20024, WHO WILL ADVISE SHAREHOLDERS
          OF THE FEE FOR ANY EXHIBIT.

                                      -20-
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of
Bresler & Reiner, Inc.:


We have audited the accompanying consolidated balance sheets of Bresler &
Reiner, Inc. (a Delaware corporation, the "Company") and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These consolidated financial statements and
the schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index of financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not a required part of the
basic consolidated financial statements. This information has been subjected to
the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as a
whole.


Washington, D.C.
March 19, 1999

                                      -21-
<PAGE>
 
                            BRESLER & REINER, INC.



                          CONSOLIDATED BALANCE SHEETS
                       AS OF DECEMBER 31, 1998 AND 1997


<TABLE> 
<CAPTION> 
                                    ASSETS

                                                                   1998           1997
                                                                -----------   -----------
<S>                                                             <C>           <C> 
RENTAL PROPERTY AND EQUIPMENT, net                              $34,871,000   $36,250,000

CONSTRUCTION IN PROCESS                                           7,142,000     8,594,000

HOMES HELD FOR SALE                                                 590,000     1,135,000

LAND HELD FOR SALE                                                4,245,000     4,237,000

RECEIVABLES:

     Mortgages and notes, affiliates                              4,090,000     4,984,000
     Mortgages and notes, other                                     800,000       923,000
     Other                                                        3,161,000     3,124,000

INVESTMENT IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS     2,864,000     3,515,000

CASH AND CASH EQUIVALENTS                                         5,338,000     5,762,000

CASH DEPOSITS HELD IN ESCROW                                      9,626,000     8,641,000

INVESTMENTS                                                      19,626,000    13,667,000

INCOME TAXES RECEIVABLE                                              12,000     1,156,000

DEFERRED CHARGES AND OTHER ASSETS                                 5,521,000     6,340,000
                                                                -----------   -----------
                  Total assets                                  $97,886,000   $98,328,000
                                                                ===========   ===========
</TABLE> 

  The accompanying notes are an integral part of these consolidated balance 
                                    sheets.

                                      -22-
<PAGE>
 
                            BRESLER & REINER, INC.

                          CONSOLIDATED BALANCE SHEETS
                       AS OF DECEMBER 31, 1998 AND 1997

                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE> 
<CAPTION> 
                                                                                      1998            1997
                                                                                  -----------     ------------ 
<S>                                                                               <C>             <C>    
LIABILITIES:
     Notes payable-
         Mortgages                                                                $  5,151,000    $ 15,667,000
     Accounts payable, trade                                                           987,000       1,810,000
     Accrued expenses                                                                  871,000         691,000
     Tenant deposits                                                                   220,000         249,000
     Deferred income                                                                   544,000         341,000
     Deferred income taxes payable                                                   6,011,000       5,186,000
     Due to affiliates                                                                 558,000          16,000
                                                                                    ----------      ----------
                  Total liabilities                                                 14,342,000      23,960,000
                                        
MINORITY INTEREST                                                                    1,063,000       1,115,000

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
     Common stock, $0.01 par value: 4,000,000 shares authorized, 2,839,653
       shares issued, 2,780,528 and 2,780,528 shares outstanding as of December
       31, 1998 and 1997, respectively
                                                                                        28,000          28,000
     Capital in excess of par                                                        7,565,000       7,565,000
     Retained earnings                                                              75,570,000      66,342,000
     Treasury stock                                                                   (682,000)       (682,000)
                                                                                  ------------    ------------         
                  Total shareholders' equity                                        82,481,000      73,253,000
                                                                                  ------------    ------------         
                  Total liabilities and shareholders' equity                      $ 97,886,000    $ 98,328,000
                                                                                  ============    ============
</TABLE> 

  The accompanying notes are an integral part of these consolidated balance 
                                    sheets.

                                      -23-
<PAGE>
 
                            BRESLER & REINER, INC.

                       CONSOLIDATED STATEMENTS OF INCOME
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE> 
<CAPTION> 
                                                                               1998             1997                1996     
                                                                         ---------------    -------------      -------------
<S>                                                                      <C>                <C>                <C> 
REVENUES:                                                                                              
     Sales of homes and lots                                             $  5,672,000       $  5,757,000       $  8,669,000
     Other construction, net                                                1,216,000          1,048,000          1,097,000
     Rental income - apartments                                             2,503,000          2,389,000          2,342,000
     Rental income - commercial                                            11,379,000         11,885,000         11,282,000
     Hotel income                                                           7,224,000          6,137,000          5,890,000
     Management fees, affiliates                                              888,000            885,000            852,000
     Leasing fees, affiliates                                                 766,000            749,000            749,000
     Interest-                                                                                         
         Affiliates                                                         1,178,000            852,000            943,000
         Other                                                              1,561,000          1,566,000          1,400,000
     Gain on sales of realty interests, net                                   726,000            674,000            436,000
     Equipment leasing and vending                                            269,000            263,000            357,000
     Income from equity investments                                         1,621,000          1,400,000            821,000
     Other                                                                     49,000            424,000            305,000
                                                                         ------------      -------------       ------------  
                  Total revenues                                           35,052,000         34,029,000         35,143,000
                                                                         ------------      -------------       ------------ 
COSTS AND EXPENSES:                                                                                    
     Cost of home and lot sales                                             5,437,000          5,366,000          8,147,000
     Rental expense - apartments                                            1,430,000          1,503,000          1,712,000
     Rental expense - commercial                                            4,281,000          4,358,000          4,407,000
     Hotel expense                                                          5,141,000          4,918,000          4,869,000
     Land development expense                                                 103,000            103,000            103,000
     General and administrative                                             1,796,000          1,752,000          1,764,000
     Interest expense                                                         868,000          1,975,000          2,898,000
     Equipment leasing and vending                                             61,000            248,000            321,000
     Provision for loss on real estate                                              -            650,000             60,000
     Other                                                                    932,000            217,000                  -
                                                                         ------------      -------------       ------------  
                  Total costs and expenses                                 20,049,000         21,090,000         24,281,000
                                                                         ------------      -------------       ------------    
NET INCOME BEFORE INCOME TAXES AND MINORITY INTEREST                       15,003,000         12,939,000         10,862,000
PROVISION FOR INCOME TAXES                                                  5,878,000          4,558,000          3,532,000
                                                                         ------------      -------------       ------------    
NET INCOME BEFORE MINORITY INTEREST                                         9,125,000          8,381,000          7,330,000
MINORITY INTEREST                                                             103,000           (116,000)           (57,000)
                                                                         ------------      -------------       ------------    
NET INCOME                                                               $  9,228,000      $   8,265,000       $  7,273,000
                                                                         ============      =============       ============
                                                                         $       3.32      $        2.96       $       2.60
                                                                         ============      =============       ============
</TABLE> 

  The accompanying notes are an integral part of these consolidated balance 
                                    sheets.

                                      -24-
<PAGE>
 
                            BRESLER & REINER, INC.

          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE> 
<CAPTION> 
                                                         CAPITAL IN                                     TOTAL     
                                            COMMMON      EXCESS OF       RETAINED       TREASURY     SHAREHOLDERS'
                                             STOCK          PAR          EARNINGS        STOCK           EQUITY   
                                         ------------   ------------   ------------   ------------    ------------ 
<S>                                      <C>            <C>            <C>            <C>             <C>         
BALANCE, December 31, 1995               $     28,000   $  7,565,000   $ 50,804,000   $   (428,000)   $ 57,969,000
                                                                                                                  
     Net income                                    --             --      7,273,000             --       7,273,000 
                                         ------------   ------------   ------------   ------------    ------------ 
BALANCE, December 31, 1996                     28,000      7,565,000     58,077,000       (428,000)     65,242,000
     Net income                                    --             --      8,265,000             --       8,265,000
     Purchase of treasury stock                    --             --             --       (254,000)       (254,000)
                                         ------------   ------------   ------------   ------------    ------------         
BALANCE, December 31, 1997                     28,000      7,565,000     66,342,000       (682,000)     73,253,000
     Net income                                    --             --      9,228,000             --       9,228,000
                                         ------------   ------------   ------------   ------------    ------------ 
BALANCE, December 31, 1998               $     28,000   $  7,565,000   $ 75,570,000   $   (682,000)   $ 82,481,000
                                         ============   ============   ============   ============    ============ 
</TABLE> 

      The accompanying notes are an integral part of these consolidated 
                                  statements.

                                      -25-
<PAGE>
 
                            BRESLER & REINER, INC.


                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE> 
<CAPTION> 
                                                                                     1998           1997            1996
                                                                                -------------   ------------    ------------
<S>                                                                             <C>             <C>             <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                                 $  9,228,000    $  8,265,000    $  7,273,000
     Adjustments to reconcile net income to net cash provided by
       operating activities-
         Depreciation and amortization                                             2,312,000       2,364,000       2,315,000
         Gain on sales of realty interests, net                                     (726,000)       (674,000)       (436,000)
         Direct financing lease payments                                                   -          57,000         705,000
         Amortization of investment in direct financing leases                             -         (22,000)         (8,000)

         Proceeds from sale of equipment under direct financing
           leases                                                                          -         120,000         230,000
         Income from equity investments                                           (1,621,000)     (1,400,000)       (821,000)
         Provision for loss on real estate                                                 -         650,000          60,000
         Deferred income taxes                                                       825,000       2,492,000        (177,000)
         Changes in other assets and liabilities-
              Construction in process                                              1,452,000      (1,209,000)      2,103,000
              Homes held for sale                                                    545,000       2,034,000         481,000
              Land held for sale                                                      (8,000)        533,000        (412,000)
              Mortgages and notes receivable                                       1,743,000       1,362,000       1,040,000
              Income taxes receivable                                              1,144,000      (1,124,000)        959,000
              Cash deposits held in escrow                                          (985,000)     (5,214,000)      7,788,000
              Other assets                                                           574,000      (1,860,000)        527,000
              Other liabilities                                                       21,000        (559,000)       (629,000)
                                                                                ------------    ------------    ------------
                  Total adjustments to reconcile net income to net
                    cash provided by operating activities                          5,276,000      (2,450,000)     13,725,000
                                                                                ------------    ------------    ------------
                  Net cash provided by operating activities                     $ 14,504,000    $  5,815,000    $ 20,998,000
                                                                                ------------    ------------    ------------
</TABLE> 

      The accompanying notes are an integral part of these consolidated 
                                  statements.

                                      -26-
<PAGE>
 
                            BRESLER & REINER, INC.


                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                                  (CONTINUED)

<TABLE> 
<CAPTION> 
                                                                        1998             1997             1996
                                                                   -------------    ------------     -------------
<S>                                                                <C>              <C>              <C> 
CASH FLOWS FROM INVESTING ACTIVITIES:
     Investment in joint ventures                                   $  2,272,000     $  2,251,000     $    688,000
     Net purchases of investments                                     (5,959,000)        (364,000)     (11,929,000)
     Decrease in rental property and equipment and other                (725,000)      (1,876,000)        (552,000)
                                                                   -------------     ------------     ------------
                  Net cash (used in) provided by investing
                    activities                                        (4,412,000)          11,000      (11,793,000) 
                                                                   -------------     ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of notes payable                                      (10,516,000)      (6,571,000)     (11,991,000)
     Purchase of treasury stock                                                -         (254,000)               -
                                                                   -------------     ------------     ------------
                  Net cash (used in) provided by
                    financing activities                             (10,516,000)      (6,825,000)     (11,991,000)
                                                                   -------------     ------------     ------------
 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                    (424,000)        (999,000)      (2,786,000)

CASH AND CASH EQUIVALENTS, beginning of year                           5,762,000        6,761,000        9,547,000
                                                                   -------------     ------------     ------------ 
CASH AND CASH EQUIVALENTS, end of year                             $   5,338,000     $  5,762,000     $  6,761,000
                                                                   =============     ============     ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the year for-
         Interest                                                  $     873,000     $  2,031,000     $  3,021,000
         Income taxes                                                  3,150,000        3,399,000        1,610,000

SUPPLEMENTAL DISCLOSURES OF TENANT DEPOSIT ACTIVITIES:
     Escrowed cash deposits received                                     177,000          192,000          136,000
     Escrowed cash deposits refunded                                     207,000          189,000          156,000
</TABLE> 

       The accompanying notes are an integral part of these consolidated
                                  statements.

                                      -27-
<PAGE>
 
                             BRESLER & REINER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1998 AND 1997

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Bresler & Reiner,
Inc., and its wholly and majority-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.

The Company's activities include residential land development and construction
and rental property ownership and management and hotel ownership and management
primarily in Maryland, Virginia and the District of Columbia.

INVESTMENTS IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS

The Company includes its share of the earnings or losses of unconsolidated joint
ventures and partnerships under the equity method of accounting.

REVENUE RECOGNITION

The Company accounts for revenue from sales of homes and condominiums and sales
of real property in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 66, "Accounting for Sales of Real Estate."
Rental, construction, and management service fees are generally recorded when
earned. Leasing fees are recorded over the life of the lease.

RENTAL PROPERTY AND EQUIPMENT

Rental property and equipment are stated at cost. Depreciation is recorded using
the straight-line method over the estimated useful lives of the related assets.

The Company evaluates the recoverability of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured based on net, undiscounted expected
cash flows. Assets are considered to be impaired if the undiscounted expected
cash flows are less than the carrying amount of the assets. Impairment charges
are recorded based upon the difference between the carrying value of the asset
and fair value. Real estate for sale is recorded based on its estimated fair
value less cost to sell.

CONSTRUCTION IN PROCESS

When construction commences, costs are transferred to construction in process
where they are accumulated by project. Other project costs included in
construction in process include property taxes, materials, labor, and allocated
overhead. These costs are charged to costs of homes sold on a pro rata basis as
homes are 

                                      -28-
<PAGE>
 
sold, in accordance with SFAS No. 67, "Accounting for Costs and Initial Rental
Operations of Real Estate Projects." The Company generally finances its
homebuilding operations from internal cash flow. The Company reviews its
accumulated costs to ensure that costs in excess of net realizable value are
charged to operations.


INCOME TAXES

Deferred income taxes result principally from temporary differences related to
the timing of the recognition of real estate sales, lease income, interest
expense and real estate taxes during development and depreciation for tax and
financial reporting purposes.

EARNINGS PER SHARE

SFAS No. 128, "Earnings Per Share," was issued in February 1997. This statement
establishes new standards for computing, presenting and disclosing earnings per
share. The Company has no dilutive securities, therefore, basic and diluted
earnings per share are identical. Earnings per common share is based upon the
weighted average number of shares outstanding during each year (2,780,528 shares
in 1998, 2,789,863 shares in 1997 and 2,792,653 shares in 1996).

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.

CASH DEPOSITS HELD IN ESCROW

Amounts include deposits held in escrow for tenants and deposits on homes held
for sale.

INVESTMENTS

As of December 31, 1998 and 1997, all investment securities, consisting of FHLMC
notes and FNMA notes, are classified as held-to-maturity and are therefore
reported at amortized cost. Fair value of these instruments approximates
carrying value at year end. There were no unrealized holding gains or losses.
All of the instruments mature within one year. There were no sales of investment
securities during 1998 or 1997.

MANAGEMENT'S USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain 1997 and 1996 amounts have been reclassified in order to conform to the
1998 presentation.

                                      -29-
<PAGE>
 
2. RENTAL PROPERTY AND EQUIPMENT, NET:

                                            1998              1997
                                        ------------     -------------  
       Land                             $  3,279,000      $  3,278,000
       Buildings and improvements         55,519,000        55,971,000
       Equipment                           4,601,000         4,197,000
                                        ------------     -------------
                                          63,399,000        63,446,000
       
       Less- Accumulated depreciation    (28,528,000)      (27,196,000)
                                        ------------     -------------
                                        $ 34,871,000      $ 36,250,000
                                        ============     =============

Buildings and improvements and equipment are depreciated over the useful lives
of the related assets ranging from 5 to 40 and 3 to 12 years, respectively.

3.   LAND HELD FOR SALE:

Land held for sale represents land intended to be sold on the open market. The
land is recorded at the lower of cost or estimated fair value less cost to sell.

4.   HOMES HELD FOR SALE:

Homes held for sale represent homes that have been substantially completed for
over one year and are held for sale on the open market. These homes are recorded
at the lower of cost or estimated fair value less cost to sell.

5. GAIN ON SALES OF REALTY INTERESTS, NET:

                                           1998        1997          1996
                                        ----------  ---------      ---------
     Sales price                          $171,000   $299,000  (a) $       -
     Cost of sales                         107,000    111,000              -
                                        ----------  ---------      ---------
     Gain recognized, current year        
        transactions                        64,000    188,000              - 
     Gain recognized from prior years'
        sales recorded using the
        installment method                 662,000    486,000        436,000
                                        ----------  ---------      ---------
                                          $726,000   $674,000       $436,000
                                        ==========  =========      =========

(a)  In 1997, the Company sold the remaining 12.8 acres of the Meredith
     property, the full sales price of which was received in cash and is
     therefore accounted for using the full accrual method.

6. OTHER CONSTRUCTION, NET:

The Company engages in certain construction activities for the benefit of its
tenants. Revenues and costs related to these activities are as follows:


                                      1998         1997         1996
                                   ----------   ----------   ----------
     Other construction revenues   $2,244,000   $1,989,000   $1,850,000
 

                                      -30-
<PAGE>
 
     Other construction costs       1,028,000      941,000      753,000
                                   ----------   ----------   ----------
     Other construction, net       $1,216,000   $1,048,000   $1,097,000
                                   ==========   ==========   ==========

7.   NOTES PAYABLE - MORTGAGES:

<TABLE> 
<CAPTION> 
                                                                                
                                                                                
                                                                                    MATURITIES FOR        
                                                                                   DEBT OUTSTANDING   
                                                                                   AS OF DECEMBER 31, 
                                                      1998             1997              1998         
                                                   -----------    ------------  ----------------------- 
     <S>                                           <C>            <C>           <C> 
     Mortgages payable, 5.25% to 9.75%*
        collateralized by rental properties         $5,151,000     $15,667,000         1999-2001
</TABLE> 

     *  Interest rates relate to the 1998 balances.

None of the mortgages and notes payable are recourse to the Company at December
31, 1998. In addition, as of December 31, 1998, the Company has no recourse
obligations. 

Annual contractual principal payments as of December 31, 1998, are as follows:
                 
                 
                                           NOTES 
                                          PAYABLE,           
                                         MORTGAGES   
                                       ---------------
                  1999                  $   97,000    
                  2000                     106,000    
                  2001                   4,948,000    
                                       -----------    
                                        $5,151,000    
                                       ===========     

 .    During 1998, the Company retired approximately $10 million in debt due
     throughout the years 1998 to 2001. There was no extraordinary gain or loss
     associated with this transaction.

                                      -31-
<PAGE>
 
8.   MORTGAGES AND NOTES RECEIVABLE, AFFILIATES:

                                                  1998            1997
                                              ------------    -----------
             Mortgages and notes:
                Due 2001 (a)                   $        --     $  308,000
                Due 2009 (b)                     1,292,000      1,303,000

             Installment sales:
                Due 1999 (c)                     1,644,000      1,731,000
                Due 2000 (d)                     1,154,000      1,642,000
                                              ------------    -----------
                                               $ 4,090,000     $4,984,000
                                              ============    ===========

(a)  In payment of construction costs, the Company accepted a second mortgage
     note with an office building pledged as collateral. The note was due in
     monthly installments of principal and interest of $9,670, at 8.5 percent,
     from a limited partnership in which the Company is the general partner and
     has a 49.6 percent interest. Certain of the Company's officers and
     directors own 4.5 percent of the limited partnership. The note was paid off
     in 1998.

(b)  Amounts due in monthly installments of $11,200, including interest at 9.5
     percent through 2009, with a final payment due 2009 of approximately
     $1,074,000 from a limited partnership in which the Company is the sole
     general partner and has a 1 percent interest. Certain of the Company's
     officers and directors own 9 percent of the limited partnership.

(c)  Amounts due are net of deferred gains of $1,269,000 and $1,337,000 in 1998
     and 1997, respectively. The amounts are due in monthly installments of
     $36,600, including interest at 9.5 percent through 1999, with a final
     payment due 1999 of approximately $2,838,000, from a limited partnership in
     which the Company is the sole general partner and has a 1 percent interest.
     The building sold is pledged as collateral for the note with no further
     recourse to the partnership. Certain of the Company's officers and
     directors own 9 percent of the limited partnership.

(d)  Amounts due are net of deferred gains of $1,372,000 and $1,951,000 in 1998
     and 1997, respectively. The amounts are due in monthly installments of
     $95,700 including interest at 10 percent through 2000, with a final payment
     of approximately $1,031,000, from a limited partnership in which the
     Company is a sole general partner and has a 1 percent interest. The
     building sold is pledged as collateral for the note with no further
     recourse to the partnership. Certain of the Company's officers and
     directors own 37 percent of the limited partnership.

                                      -32-
<PAGE>
 
9.   MORTGAGES AND NOTES RECEIVABLE, OTHER:

<TABLE> 
<CAPTION> 
                                                                                     1998             1997
                                                                                   ----------      ----------
          <S>                                                                      <C>             <C>   
          Mortgages and notes:
            Home sales, 8% to 12.5%, due through 2020                              $ 69,000        $259,000
            Condominium sales, 8% to 13%, net of deferred gain of $114,000
              and $134,000 in 1998 and 1997, respectively
                                                                                    110,000         129,000
              
          Notes receivable:
            Other, 8% to 10%, due through 2003                                      443,000         487,000
            Tenant improvements, 10%, due through 2003                              178,000          48,000
                                                                                  ----------      ----------
                                                                                   $800,000        $923,000
                                                                                  ==========      ==========
</TABLE> 
       
Substantially all notes are collateralized by first trusts on houses,
residential property or undeveloped land.

10. INVESTMENT IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS:

The Company has general and limited partnership interests in entities that are
developing or operating properties located in Northern Virginia, Washington,
D.C., Baltimore, Maryland, and Orlando, Florida.


The following is a summary of joint ventures and partnerships in which the
Company holds ownership interests.

<TABLE> 
<CAPTION> 
                                     COMPANY INTERESTS                                      AS OF DECEMBER 31, 1998
                                     -----------------                               -----------------------------------------
                                                                                                                PARTNERSHIP
                                    GENERAL     LIMITED     CURRENT STATUS OF                                     EQUITY
                                    PARTNER     PARTNER       PARTNERSHIPS            ASSETS        DEBT        (DEFICIT)
                                    -------     -------     -----------------         ------        ----        --------------    
<S>                                 <C>         <C>         <C>                      <C>           <C>          <C> 
Town Center East, L.P.                1%          48.6%     Owns and operates an
                                                            office building in
                                                            Southwest Washington,
                                                            D.C.                     $6,825,000    $  317,000      $ 6,508,000


SEW Associates                        1%           -        Owns and operates a
                                                            segment of a shopping
                                                            mall in Southwest,
                                                            Washington, D.C.          4,327,000     2,751,000        1,576,000

Third Street S.W. Investors           1%           -        Owns and operates 256
                                                            Apt. units in Southwest
                                                            Washington, D.C.            972,000     5,529,000       (4,557,000)

Tech High Leasing                    50%           -        Leveraged equipment
                                                            leasing                     715,000             -          715,000

Builders Leasing                     20%           -        Leveraged equipment
                                                            leasing                     596,000     2,217,000       (1,621,000)

Pine Club II                          -           64%       Owns and operates 160
                                                            Apt. units in Orlando,    5,736,000     5,274,000          462,000
                                                            FL    
</TABLE> 

                                      -33-
<PAGE>
 
11.  COMMITMENTS AND CONTINGENCIES:

FINANCIAL COMMITMENTS

The Company has pledged its interests in the General Services Administration's
("GSA") lease to the lender as security for Trilon Plaza Company's (an entity
affiliated with the Company) mortgages totaling $1.9 million.

The Company owns interests in certain limited partnerships which operate low-
income housing units. The required capital contributions over the next two years
are projected to aggregate $811,000. The amount of projected capital
contributions are to be adjusted annually to be a percentage of tax benefits
derived. The Company anticipates that the annual tax benefits will be more than
sufficient to fund the annual capital contributions.

At December 31, 1998, the Company had approximately $1,520,000 of outstanding
letters of credit representing performance guarantees for land improvements in
home building and land development operations.

LITIGATION

The Company and other related entities are defendants in suits filed by certain
present and former employees of the Environmental Protection Agency ("EPA"),
which occupies office space at the Waterside Mall Complex (a portion of which is
owned by the Company). The complaint seeks damages aggregating $40,000,000 under
claims of negligence, breach of warranty of habitability, breach of contract,
strict liability, loss of consortium and punitive damages. The claims of six
plaintiffs were tried to a jury from October 25 to December 23, 1993, with
verdicts for plaintiffs totaling $948,000. No punitive damages were awarded. The
judgments in favor of four defendants were overturned following trial, reducing
the total award to $232,000. Plaintiffs have filed a notice of appeal, and
appeals are pending. The cases of fourteen primary plaintiffs and three loss of
consortium plaintiffs remain to be tried. Management believes the claims are
without merit and intends to continue to contest the case vigorously.

In prior years two "copy cat" suits were filed, one of which has been dismissed
with prejudice and the other of which has been stayed. During 1998, an
additional "copy cat" suit was filed. This suit is in the early stages of
discovery. Management believes the claim is without merit and intends to contest
the case vigorously.

Also, in the normal course of business, the Company is involved in other types
of litigation. In the opinion of management, based on its assessment and
consultation with outside counsel, the litigation that is currently pending
against the Company will not have a material impact on the financial position or
future operations of the Company as a whole.

SIGNIFICANT LEASE

The EPA occupies a significant amount of the space subject to a GSA lease in the
Company's portion of the Waterside Mall Complex. The EPA also occupies a
significant amount of space at properties owned by several affiliated entities
in which the Company has an equity interest. In total, the GSA leases
approximately 1.2 million square feet in the Waterside Mall Complex. The EPA is
the GSA's tenant. The Company's lease with the GSA was for a five-year period
beginning September 1992. The lease has been extended to the year September
2002.

                                      -34-
<PAGE>
 
In aggregate, approximately 35 percent of the Company's 1998 revenues, including
related leasing and management fees and construction income, are from office
space leased by the GSA. As such, a significant portion of the Company's
operations are dependent on the continuation of the lease and if the lease is
not renewed or replaced by new tenants at similar terms, the Company's financial
position could be adversely affected.

12. INCOME TAXES:

SFAS No. 109, "Accounting for Income Taxes," establishes financial accounting
and reporting standards for the effects of income taxes that result from the
Company's activities during the current and preceding years. It requires an
asset and liability approach in accounting for income taxes, as such, balance
sheet accruals for income taxes are adjusted to reflect changes in tax rates in
the period such changes are enacted.

The Company and its subsidiaries file a consolidated Federal income tax return.
The provision for income taxes includes the following components:

<TABLE> 
<CAPTION> 
                                             1998           1997          1996 
                                             ----           ----          ----    
     <S>                                 <C>            <C>           <C> 
     Provision for income taxes
          Current tax                    $5,053,000     $2,066,000    $3,355,000
          Deferred tax                      825,000      2,492,000       177,000
                                         ----------     ----------    ----------
     Total provision for income taxes    $5,878,000     $4,558,000    $3,532,000
                                         ==========     ==========    ==========  
</TABLE> 

A reconciliation of the statutory Federal tax rate to the Company's effective
income tax rate follows:

<TABLE> 
<CAPTION> 
                                                                 1998      1997     1996
                                                                 ----      ----     ----
     <S>                                                         <C>       <C>      <C> 
     Statutory rate                                              34.0%     34.0%    34.0%
     Increase (decrease) resulting from: 
          State taxes, net of Federal income tax benefit          7.0       5.5      6.2
          Low income housing tax benefits                        (6.9)     (5.3)    (4.5)
          Other                                                   5.1       1.0     (3.2)
                                                                ------     -----    -----
                  Effective rate                                 39.2%     35.2%    32.5%
                                                                ======     =====    =====
</TABLE> 

                                      -35-
<PAGE>
 
Deferred income taxes result from temporary differences in the recognition of
revenue and expense for income tax and financial statement reporting purposes.
The sources of these differences and the estimated tax effect of each are as
follows:

<TABLE> 
<CAPTION> 
                               DEFERRED INCOME TAX
                              PROVISION (BENEFIT) FOR       DEFERRED TAX LIABILITY        DEFERRED TAX LIABILITY
                                  THE YEAR ENDED                (ASSET) AS OF                (ASSET) AS OF 
                                DECEMBER 31, 1998             DECEMBER 31, 1998             DECEMBER 31, 1997
                              -----------------------       ----------------------        -----------------------  
<S>                           <C>                           <C>                           <C>  
Basis in property                   $  (138,000)                 $ 1,795,000                   $ 1,933,000
Investment in partnerships            1,383,000                    4,744,000                     3,361,000
Installment sales                        19,000                      157,000                       138,000
Leases                                  (38,000)                     330,000                       368,000
Other                                  (401,000)                  (1,015,000)                     (614,000)
                                    -----------                  -----------                   -----------
                  Total             $   825,000                  $ 6,011,000                   $ 5,186,000
                                    ===========                  ===========                   ===========
</TABLE> 


Also, included in deferred charges and other assets on the accompanying
consolidated balance sheets are deferred tax credits earned as a result of the
Company's investments in low income housing projects. The realizability of these
credits is dependent upon the Company's ability to produce taxable income in the
future.

13. OPERATING LEASES:

AS A LESSEE

At December 31, 1998, the Company was obligated under a land lease, on which the
Company owns commercial properties, with the District of Columbia Redevelopment
Land Agency with aggregate annual rental payments of approximately $43,000 plus
certain expenses. The lease expires in 2058.

At December 31, 1998, the Company was obligated under a land lease for seven
parcels, on which the Company owns commercial property. The lease expires in
2000 and contains three renewal options of five years. Pursuant to the terms of
the lease, the aggregate annual rental is approximately $32,000, and the Company
has the option to purchase the land parcels at any time during the initial lease
term or renewal periods.

Rent expense for the years ended 1998, 1997, and 1996 was approximately $76,000,
$78,000 and $88,000, respectively.

Although certain leases require the Company to pay real estate taxes, insurance
and certain other operating expenses of the properties, the basic rental payment
for each lease is used in presenting minimum rentals below.

                                      -36-
<PAGE>
 
Minimum rentals to be paid under all noncancelable leases at December 31, 1998,
are as follows:

                                              AMOUNT
                                            ---------
 
                 1999                      $   75,000
                 2000                          48,000
                 2001                          43,000
                 2002                          43,000
                 2003                          43,000
                 2004 and thereafter        2,365,000
                                           ----------
                          Total            $2,617,000
                                           ========== 

AS A LESSOR

Substantially all noncancelable leases of residential property are for a term of
one year or less. Other leases are subject to cancellation at the lessee's
option under certain conditions. Minimum future rentals to be received for
commercial property subject to noncancelable and other leases are as follows:

                                NONCANCELABLE            OTHER
                                   LEASES                LEASES
                                --------------        -----------

          1999                   $11,428,000          $         -
          2000                     3,528,000            7,407,000
          2001                     3,123,000            7,407,000
          2002                     2,750,000            5,555,000
          2003                     2,466,000                    -
          2004 and thereafter      8,067,000                    -
                                --------------        -----------
                   Total         $31,362,000          $20,369,000
                                ==============        ===========
 


14.  TRANSACTIONS WITH AFFILIATES:

The Company has business transactions with several affiliates that are owned in
part by certain of the Company's shareholders, officers, and/or directors. These
transactions are summarized as follows:



                                    1998            1997          1996
                                ----------       ----------    ---------  
     Revenues:
          Leasing fees          $  766,000       $  749,000    $ 749,000
          Management fees          888,000          885,000      841,000
          Interest               1,178,000          852,000      943,000
          
     Costs and expenses:
          Lumber and millwork            -            8,000        8,000
          Insurance                520,000          453,000      303,000

                                      -37-
<PAGE>
 
15. PENSION PLAN:

The Company and certain of its subsidiaries have a noncontributory defined
benefit pension plan (the "Plan") covering substantially all full-time
employees. The Plan provides for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company and their
compensation rates for the five years preceding retirement. The Company's
funding policy is consistent with the funding requirements of Federal law and
regulations. Plan assets consist principally of mortgage notes receivable and
cash equivalents.

The net periodic pension costs for 1998, 1997, and 1996 are computed as follows:

<TABLE> 
<CAPTION> 
                                                                 1998           1997              1996      
                                                             ----------     -----------        ---------   
          <S>                                                <C>            <C>                <C>         
          Service cost-benefits earned during the year                                                     
                                                               $221,000       $ 204,000         $181,000   
          Interest cost on projected benefit obligation                                                    
                                                                216,000         196,000          179,000   
          Return on Plan assets                                (278,000)       (389,000)        (284,000)  
          Amortization of unrecognized net obligation                                                      
                                                                 57,000          57,000           57,000   
                                                               --------       ---------         --------   
          Net periodic pension cost                            $216,000       $  68,000         $133,000   
                                                               ========       =========         ========    
</TABLE> 

The following table details the Plan's net pension asset as of December 31, 1998
and 1997:

<TABLE> 
<CAPTION> 
                                                                               1998           1997         
                                                                           -----------    -----------     
          <S>                                                              <C>            <C>             
          Actuarial Present Value of Benefit Obligation:                                                  
             Vested benefits                                               $ 2,636,000    $ 2,411,000     
             Nonvested benefits                                                102,000        100,000     
                                                                           -----------    -----------     
                Accumulated benefit obligation                               2,738,000      2,511,000     
             Effect of projected future compensation increases                                            
                                                                             1,071,000        937,000     
                                                                           -----------    -----------  
             Projected benefit obligation                                    3,809,000      3,448,000     
             Plan assets at fair value                                       4,365,000      4,129,000     
                                                                           -----------    -----------  
             Plan assets in excess of projected benefit obligation                                        
                                                                               556,000        681,000     
             Unrecognized net gain                                            (721,000)      (687,000)    
             Unrecognized net obligation at date of adoption being                                        
              recognized over 22 years                                         624,000        681,000     
                                                                           -----------    -----------  
                       Net pension asset                                   $   459,000    $   675,000      
                                                                           ===========    ===========
</TABLE> 

                                      -38-
<PAGE>
 
Interest assumptions used were:

<TABLE> 
<CAPTION> 
                                                      1998      1997  
                                                    -------    -------
     <S>                                            <C>        <C>   
     Preretirement discount rate                      6.00%      6.00%  
     Postretirement discount rate                     6.00       6.00   
     Rate of increase in future compensation          4.00       4.00   
     Long-term rate of return on Plan assets          7.00       7.00    
</TABLE> 

16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

In December 1991, the Financial Accounting Standards Board issued SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments." SFAS No. 107 requires
all entities to disclose the fair value of financial instruments, both assets
and liabilities, recognized and not recognized in the statements of financial
condition, for which it is practicable to estimate fair value. If estimating
fair value is not practicable, SFAS No. 107 requires disclosure of descriptive
information pertinent to estimating the fair value of a financial instrument.

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

 .    CASH AND CASH EQUIVALENTS AND CASH DEPOSITS HELD IN ESCROW

     Cash balances represent demand and short-term deposits with depository
     institutions as well as short-term liquid investments. The carrying amount
     is a reasonable estimate of fair value.

 .    INVESTMENTS

     The carrying amount approximates fair value because of the short maturity
     of these instruments.

 .    RECEIVABLES

     The fair value of mortgage receivables is estimated by discounting the
     future cash flows using the current rates at which similar loans would be
     made to borrowers with similar credit ratings and for the same remaining
     maturities. For short-term mortgage receivables, defined as those maturing
     or repricing in 90 days or less, the carrying amount is a reasonable
     estimate of fair value. Other receivables represent short-term receivables
     for which the carrying amount is a reasonable estimate of fair value.

 .    NOTES PAYABLE

     Based on borrowing rates currently available to the Company for financing
     on similar terms for borrowers with similar credit ratings, the fair value
     of the notes payable approximates their carrying value as of December 31,
     1998. Additionally, for short-term notes payable, the carrying amount is a
     reasonable estimate of fair value.

 .    ACCOUNTS PAYABLE, TRADE

     The fair value of accounts payable, trade is the carrying amount payable at
     the reporting date. 

                                      -39-
<PAGE>
 
The estimated fair values of the Company's financial instruments are as follows:

<TABLE> 
<CAPTION> 
                                                DECEMBER 31, 1998           DECEMBER 31, 1997
                                           -------------------------   -------------------------
                                             CARRYING                   CARRYING
                                              AMOUNT     FAIR VALUE       AMOUNT     FAIR VALUE
                                           -----------  ------------   ----------    -----------
<S>                                        <C>          <C>            <C>           <C>     
Financial assets:
     Cash and cash equivalents             $ 5,338,000   $ 5,338,000   $ 5,762,000   $ 5,762,000
     Cash deposits held in escrow            9,626,000     9,626,000     8,641,000     8,641,000
     Investments                            19,626,000    19,626,000    13,667,000    13,667,000
     Receivables-
         Mortgages and notes, affiliates     4,090,000     4,578,000     4,984,000     5,267,000
         Mortgages and notes, others           800,000       948,000       923,000     1,034,000
         Other                               3,161,000     3,161,000     3,124,000     3,124,000
Financial liabilities:
     Notes payable-
         Mortgages                           5,151,000     5,197,000    15,667,000    15,724,000
     Accounts payable, trade                   987,000       987,000     1,810,000     1,810,000
</TABLE> 

Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values. Much of the information used to determine fair 
value is subjective and judgmental in nature. Therefore, fair value estimates 
may vary. In addition, the amounts actually realized or paid upon settlement or 
maturity could be significantly different.

17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

<TABLE> 
<CAPTION> 
                                                               THREE MONTHS ENDED   
                                         ----------------------------------------------------------------------
                                          MARCH 31,        JUNE 30,        SEPTEMBER 30,           DECEMBER 31,   
                                            1998             1998              1998                  1998       
                                         ----------       ----------     ----------------        --------------
<S>                                      <C>              <C>            <C>                     <C> 
Revenues                                 $7,680,000       $8,566,000         $9,526,000           $ 9,280,000
Net income before income taxes and
   minority interest                      3,220,000        3,905,000          4,240,000             3,638,000
Net income                                1,966,000        2,440,000          2,405,000             2,417,000
Earnings per share                             0.71             0.88               0.86                  0.87
</TABLE> 

                                      -40-
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                                   THREE MONTHS ENDED
                                           ---------------------------------------------------------------
                                              MARCH 31,        JUNE 30,     SEPTEMBER 30,    DECEMBER 31,         
                                                 1997            1997           1997             1997          
                                           -------------     -----------  ---------------  --------------   
<S>                                        <C>               <C>          <C>              <C>        
Revenues                                      $7,742,000      $8,038,000     $8,422,000       $9,827,000       
Net income before income taxes and
   minority interest                           2,813,000       3,222,000      3,166,000        3,738,000       
Net income                                     1,658,000       2,117,000      1,957,000        2,533,000       
Earnings per share                                  0.59            0.76           0.70             0.91       
</TABLE> 

18. SEGMENT INFORMATION:

The Company reports segment information for the following categories: Home and
Other Construction, Commercial Rental, Residential Rental and Hotel Operations.
Home and Other Construction consists of residential home building as well as
renovation projects. This segment represents 20, 20 and 27 percent of the
Company's total consolidated revenue in years 1998, 1997 and 1996, respectively.
Commercial Rental focuses on providing office and retail space for various types
of tenants ranging from retail to governmental agencies. This segment provides
36, 38 and 36 percent of the Company's total consolidated revenue in years 1998,
1997 and 1996, respectively. Residential Rental focuses on providing housing for
low income families throughout the Washington Metropolitan area. This segment
represents 7 percent of the Company's total consolidated revenue in years 1998,
1997 and 1996. Hotel Operations focuses on the ownership of two hotel
properties. This segment provides 21, 18 and 17 percent of the Company's total
consolidated revenue in years 1998, 1997 and 1996, respectively. Other revenue
is comprised of various activities and represents the remaining 27, 24 and 22
percent of the Company's total consolidated revenue in years 1998, 1997 and
1996, respectively. The Company is not involved in any operations in countries
other than the United States.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based upon gross operating income from the combined properties in each segment.

                                      -41-
<PAGE>
 
The Company's reportable segments are a consolidation of related subsidiaries
which offer different products. They are managed separately as each segment
requires different operating, pricing and leasing strategies. All of the
properties have been acquired separately and are incorporated into the
applicable segment.

<TABLE> 
<CAPTION> 
                                                                       FOR THE YEARS ENDED DECEMBER 31
                                                               ----------------------------------------------
                                                                     1998            1997            1996
                                                               --------------    ------------    ------------    
<S>                                                            <C>               <C>             <C>    
Revenues:                                                                                       
     Home and other construction                               $    6,888,000    $  6,687,000    $  9,619,000
     Commercial rental                                             12,661,000      13,099,000      12,515,000
     Residential rental                                             2,503,000       2,390,000       2,341,000
     Hotel management                                               7,224,000       6,172,000       5,881,000
     Other                                                          9,677,000       8,233,000       7,627,000
     Consolidated entries                                          (3,901,000)     (2,552,000)     (2,840,000)
                                                               --------------    ------------    ------------    
                  Total                                            35,052,000      34,029,000      35,143,000
                                                               --------------    ------------    ------------    
Gross operating income:                                                                         
     Home and other construction                                    1,451,000       1,404,000       1,412,000
     Commercial rental                                              6,498,000       6,994,000       6,496,000
     Residential rental                                               923,000         742,000         488,000
     Hotel management                                               2,083,000       1,254,000       1,021,000
     Other                                                          5,384,000       3,792,000       3,044,000
     SG&A                                                          (1,796,000)     (1,751,000)     (1,764,000)
     Income taxes and minority interest                            (5,775,000)     (4,674,000)     (3,589,000)
     Consolidated entries                                             460,000         504,000         165,000
                                                               --------------    ------------    ------------      
                  Total                                             9,228,000       8,265,000       7,273,000
                                                               --------------    ------------    ------------    
Assets:                                                                                         
     Home and other construction                                    8,602,000      10,814,000      12,287,000
     Commercial rental                                             52,683,000      49,050,000      43,164,000
     Residential rental                                             1,924,000       2,134,000       2,076,000
     Hotel management                                              10,455,000      10,630,000      10,598,000
     Other                                                         32,506,000      23,944,000      25,897,000
     Income taxes receivable                                           12,000       1,156,000          32,000
     Consolidated entries                                          (8,296,000)        600,000         872,000
                                                               --------------    ------------    ------------     
                  Total                                         $  97,886,000     $98,328,000     $94,926,000
                                                               ==============    ============    ============ 
</TABLE> 
 

                                      -42-
<PAGE>
 
                            Bresler & Reiner, Inc.
       Schedule III - Real Estate and Accumulated Depreciationthe Years
                 Ended December 31, 1998 and 1997in thousands)

<TABLE> 
<CAPTION> 
                                                                           COLUMN C                       COLUMN D           
                                                                  ---------------------------  ----------------------------- 
                                                                                                     COST CAPITALIZATION     
             COLUMN A                             COLUMN B          INITIAL COST TO COMPANY       SUBSEQUENT TO ACQUISITION  
-----------------------------------------    -------------------  ---------------------------  ----------------------------- 
                                                                                                                             
                                                                                                                             
                                                                                BUILDING AND                       CARRYING  
           DESCRIPTION                           ENCUMBRANCES        LAND       IMPROVEMENTS     IMPROVEMENTS        COST    
-----------------------------------------    -------------------  ----------- ---------------  --------------    ----------- 
<S>                                          <C>                  <C>         <C>              <C>               <C>         
FOR THE YEAR ENDED DECEMBER 31, 1998:                                                                                        
Charlestown North (Apartments in Greenbelt,                                                                                  
     Maryland)                                        N/A         $     -     $      2,179     $       466       $       -   
Commons (Apartments in Washington, D.C.)              N/A             277            1,047             673               -   
Waterside Mall East (Shopping Center in                                                                                      
     Washington, D.C.)                                N/A               -            6,631          13,259             111   
Georgian Gardens (Apartments in Oxon Hill,                                                                                   
     Maryland)                                        N/A               -              289             430               -   
Lakeview Manor Nursing Home (Lakewood, New                                                                                   
     Jersey)                                          N/A             100            4,026               -               -   
Uptown (Hotel in Baltimore, Maryland)                 N/A               -            7,368             220               -   
Allentown Road Motel (Suitland, Maryland)             N/A             378            2,793           1,613               -   
Egap (Convenience Stores in Florida,                                                                                         
     Louisiana, and North Carolina)                   N/A              58            3,388               -               -   
Nations Bank Building (Office Building in                                                                                    
     Manassas, Virginia)                              N/A              63              798              43               -   
Paradise/Sudley North (4 Office Buildings                                                                                    
     in Manassas, Virginia)                           N/A           2,216           12,679           4,085               -   
7800 Building (Office Building in Manassas,                                                                                  
     Virginia)                                        N/A             317            1,636             492               -   
                                                                  -------     ------------     -----------       ---------   
                                                                  $ 3,409     $     42,834     $    21,281       $     111   
                                                                  =======     ============     ===========       =========

<CAPTION> 
                                                             COLUMN E
                                            ---------------------------------------------
                                                       GROSS AMOUNT AT WHICH 
          COLUMN A                                    CARRIED AT CLOSE OF PERIOD                   COLUMN F            COLUMN G   
-----------------------------------------   ---------------------------------------------    -----------------  --------------------

                                                                                                                                 
                                                                                                                                 
                                                            BUILDING AND                         ACCUMULATED           DATE OF   
           DESCRIPTION                          LAND        IMPROVEMENTS        TOTAL            DEPRECIATION        CONSTRUCTION
-----------------------------------------    -----------  ----------------  ---------------   -----------------  -------------------

<S>                                          <C>          <C>               <C>               <C>                <C> 
FOR THE YEAR ENDED DECEMBER 31, 1998:
Charlestown North (Apartments in Greenbelt,                                                                                      
     Maryland)                               $     -      $     2,448       $     2,448       $     1,826                    -   
Commons (Apartments in Washington, D.C.)         387            1,628             2,015             1,062                    -   
Waterside Mall East (Shopping Center in                                                                                          
     Washington, D.C.)                             -           15,610            15,610             9,912                 1975   
Georgian Gardens (Apartments in Oxon Hill,                                                                                       
     Maryland)                                     -                -                 -                 -                    -   
Lakeview Manor Nursing Home (Lakewood, New                                                                                       
     Jersey)                                     100            4,026             4,126             2,536                    -   
Uptown (Hotel in Baltimore, Maryland)              -            5,637             5,637               724                    -   
Allentown Road Motel (Suitland, Maryland)        378            4,587             4,965             2,120                    -   
Egap (Convenience Stores in Florida,                                                                                             
     Louisiana, and North Carolina)              143            2,117             2,260             1,398                    -   
Nations Bank Building (Office Building in                                                                                        
     Manassas, Virginia)                          90              787               877               179                 1991   
Paradise/Sudley North (4 Office Buildings                                                                                        
     in Manassas, Virginia)                    1,898           16,669            18,567             5,376                 1987   
7800 Building (Office Building in Manassas,                                                                                      
     Virginia)                                   283            2,010             2,293               673                 1990   
                                             -------      -----------       -----------       -----------  
                                             $ 3,279      $    55,519       $    58,798       $    25,806
                                             =======      ===========       ===========       ===========
<CAPTION> 
                                          
             COLUMN A                          COLUMN H          COLUMN I    
----------------------------------------   ----------------   ----------------  
                                                              LIFE ON WHICH
                                                              DEPRECIATION ON
                                                              LATEST INCOME
                                                DATE          STATEMENT  IS
         DESCRIPTION                          ACQUIRED        COMPUTED
-----------------------------------------  ----------------  ----------------
<S>                                        <C>               <C>   
FOR THE YEAR ENDED DECEMBER 31, 1998:
Charlestown North (Apartments in Greenbelt,       
     Maryland)                                  1971           5-40 years 

Commons (Apartments in Washington, D.C.)        1971           5-40 years
Waterside Mall East (Shopping Center in
     Washington, D.C.)                            -           8-40 years
Georgian Gardens (Apartments in Oxon Hill,
     Maryland)                                 Various          20 years
Lakeview Manor Nursing Home (Lakewood, New
     Jersey)                                    1984          5-30 years
Uptown (Hotel in Baltimore, Maryland)           1993 (a)         - 
                                                        
Allentown Road Motel (Suitland, Maryland)
                                                1987            19 years
Egap (Convenience Stores in Florida,
     Louisiana, and North Carolina)             1987            19 years
Nations Bank Building (Office Building in
     Manassas, Virginia)                          -           31 1/2 years
Paradise/Sudley North (4 Office Buildings
     in Manassas, Virginia)                       -            31 1/2 years
7800 Building (Office Building in Manassas,
     Virginia)                                    -          15-31 1/2 years
</TABLE> 

(a)  Asset acquisition December 31, 1993

                                      -43-
<PAGE>
 
                            Bresler & Reiner, Inc.

            Schedule III - Real Estate and Accumulated Depreciation
                For the Years Ended December 31, 1998 and 1997
                            (dollars in thousands)

<TABLE> 
<CAPTION> 
                                                                       COLUMN C                        COLUMN D              
                                                             ---------------------------      ----------------------------
                                                                                                  COST CAPITALIZATION     
                 COLUMN A                       COLUMN B        INITIAL COST TO COMPANY         SUBSEQUENT TO ACQUISITION  
------------------------------------------   --------------  ----------------------------     ----------------------------


                                                                                                                 
                                                                            BUILDING AND                       CARRYING      
              DESCRIPTION                     ENCUMBRANCES        LAND      IMPROVEMENTS       IMPROVEMENTS      COST        
------------------------------------------   --------------  ------------  --------------     --------------  ------------      
<S>                                          <C>             <C>           <C>               <C>              <C> 
FOR THE YEAR ENDED DECEMBER 31, 1997:                                                                                       

Charlestown North (Apartments in Greenbelt,                                                                                 
     Maryland)                                       N/A        $      -       $  2,179           $    358         $  -         
                                                                                                                                
Commons (Apartments in Washington, D.C.)             N/A             277          1,047                651            -          
                                                                                                                                 
Waterside Mall East (Shopping Center in                                                                                         
     Washington, D.C.)                               N/A               -          6,631             13,259          111         

Georgian Gardens (Apartments in Oxon Hill,                                                                                      
     Maryland)                                       N/A               -            289                425            -         

Lakeview Manor Nursing Home (Lakewood, New                                                                                      
     Jersey)                                         N/A             100          4,026                  -            -         

Uptown (Hotel in Baltimore, Maryland)                N/A               -          7,368                220            -          
                                                                                                                                 
Allentown Road Motel (Suitland, Maryland)            N/A             378          2,793              1,442            -          
                                                                                                                                 
Egap (Convenience Stores in Florida,                                                                                            
     Louisiana, and North Carolina)                  N/A              58          3,388                  -            -         

Nations Bank Building (Office Building in                                                                                       
     Manassas, Virginia)                             N/A              63            798                 43            -         

Paradise/Sudley North (4 Office Buildings                                                                                       
     in Manassas, Virginia)                          N/A           2,216         12,679              3,952            -         

7800 Building (Office Building in Manassas,                                                                                     
     Virginia)                                       N/A             317          1,636                481            -         
                                                                  ------       --------           --------         ----         
                                                                  $3,409       $ 42,834           $ 20,831         $111         
                                                                  ======       ========           ========         ====          

<CAPTION>                                                                                            
                                                                      COLUMN E                                                     
                                                       ----------------------------------------
                                                          GROSS AMOUNT AT WHICH CARRIED AT                                       
                                                                  CLOSE OF PERIOD                    COLUMN F                    
                                                       ----------------------------------------  ----------------                


                                                                      BUILDING AND                 ACCUMULATED                   
                                                          LAND        IMPROVEMENTS      TOTAL      DEPRECIATION                  
                                                        --------    ----------------  ---------  ----------------                
<S>                                                     <C>         <C>               <C>        <C> 
FOR THE YEAR ENDED DECEMBER 31, 1997:
                   
Charlestown North (Apartments in Greenbelt,       
     Maryland)                                           $   -          $  2,340      $ 2,340      $  1,748                      
                                                                                                                                 
Commons (Apartments in Washington, D.C.)                   387             1,605        1,992           997                      
                                                                                                                                 
Waterside Mall East (Shopping Center in                                                                                          
     Washington, D.C.)                                       -            15,610       15,610         9,598                      
Georgian Gardens (Apartments in Oxon Hill,                                                                                       
     Maryland)                                               -               696          696           623                      
Lakeview Manor Nursing Home (Lakewood, New                                                                                       
     Jersey)                                               100             4,026        4,126         2,400                      

Uptown (Hotel in Baltimore, Maryland)                        -             5,637        5,637           583                       
                                                                                                                                  
Allentown Road Motel (Suitland, Maryland)                  378             4,416        4,794         1,874                       
                                                                                                                                  
Egap (Convenience Stores in Florida,                                                                                              
     Louisiana, and North Carolina)                        142             2,319        2,461         1,417                       
Nations Bank Building (Office Building in                                                                                         
     Manassas, Virginia)                                    90               787          877           153                       
Paradise/Sudley North (4 Office Buildings                                                                                         
     in Manassas, Virginia)                              1,898            16,536       18,434         4,804                       
7800 Building (Office Building in Manassas,                                                                                       
     Virginia)                                             283             1,999        2,282           605                       
                                                         -----           -------      -------       -------                       
                                                         3,278           $55,971      $59,249       $24,802                       
                                                         =====           =======      =======       =======                       

<CAPTION> 
                                                        COLUMN G      COLUMN H         COLUMN I                                 
                                                    ---------------  -----------   ------------------                           
                                                                                     LIFE ON WHICH                              
                                                                                    DEPRECIATION ON                             
                                                                                    LATEST INCOME                               
                                                       DATE OF         DATE          STATEMENT IS                               
                                                     CONSTRUCTION     ACQUIRED         COMPUTED                                 
                                                    ---------------  -----------   ------------------                           
<S>                                                 <C>              <C>           <C> 
FOR THE YEAR ENDED DECEMBER 31, 1997:                                                                                           
                                                                                                                                
Charlestown North (Apartments in Greenbelt,                                                                                     
     Maryland)                                                   -        1971           5 - 40 years                             
                                                                                                                                
Commons (Apartments in Washington, D.C.)                         -        1971           5 - 40 years                           
                                                                                                                                
Waterside Mall East (Shopping Center in                                                                                         
     Washington, D.C.)                                        1975           -           8 - 40 years                           
Georgian Gardens (Apartments in Oxon Hill,                                                                                      
     Maryland)                                                   -       Various             20 years                           
Lakeview Manor Nursing Home (Lakewood, New                                                                                      
     Jersey)                                                     -        1984           5 - 30 years                           
                                                                                                                                
Uptown (Hotel in Baltimore, Maryland)                            -        1993(a)        -                                      
                                                                                                                                
Allentown Road Motel (Suitland, Maryland)                        -        1987               19 years                            
                                                                                                                                
Egap (Convenience Stores in Florida,                                                                                            
     Louisiana, and North Carolina)                              -        1987               19 years                            
Nations Bank Building (Office Building in                                                                                       
     Manassas, Virginia)                                      1991           -            31 1/2years                            
Paradise/Sudley North (4 Office Buildings                                                                                       
     in Manassas, Virginia)                                   1987           -            31 1/2years                            
7800 Building (Office Building in Manassas,                                                                                     
     Virginia)                                                1990           -       15 - 31 1/2years                            
</TABLE> 

(a) Asset acquisition recorded December 31, 1993.  

                                       44
<PAGE>
 
                            BRESLER & REINER, INC.

                             NOTES TO SCHEDULE III
                            (DOLLARS IN THOUSANDS)

<TABLE> 
<CAPTION> 
                                                                1998        1997
                                                             ----------  ----------         
<S>                                                          <C>         <C> 
LAND AND BUILDING AND IMPROVEMENTS:
     Balance, January 1                                       $  59,249   $  58,434
         Additions during period-
              Improvements                                          486         819
                                                             ----------  ----------
                                                                 59,735      59,253

         Deductions during period-
              Write-off of fully depreciated assets                   -           4
              Other                                                 937           -
                                                             ----------  ----------         
     Balance, December 31                                     $  58,798   $  59,249
                                                             ==========  ==========  

ACCUMULATED DEPRECIATION:
     Balance, January 1                                       $  24,802   $  23,054
         Additions during period-
              Depreciation expense                                1,765       1,748
                                                             ----------  ----------         
                                                                 26,567      24,802
         Deductions during period-
              Other                                                 761           -
                                                             ----------  ----------         
     Balance, December 31                                     $  25,806   $  24,802
                                                             ==========  ==========
</TABLE> 

                                      -45-
<PAGE>
 
                            BRESLER & REINER, INC.


                  SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
           FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996   

<TABLE> 
<CAPTION> 
                               COLUMN A                                                COLUMN B                    COLUMN C       
-------------------------------------------------------------------------      --------------------------   ----------------------
                                                                                                                                  
                                                                                                                                  
                              DESCRIPTION                                               INTEREST                 MATURITY DATE    
-------------------------------------------------------------------------      --------------------------  -----------------------
<S>                                                                            <C>                         <C> 
FOR THE YEAR ENDED DECEMBER 31, 1998:                                                                                             
    Related parties-                                                                                                              
        Second mortgages:                                                                                                         
           3rd Street Southwest Investors (S.W. Washington, D.C.)                           9.5%                      1999        
           SEW Investors (S.W. Washington, D.C.)                                           12.0%                      2000        
           Town Center East Investors (S.W. Washington, D.C.)                               8.5%                      2001        
           3rd Street Southwest Investors (S.W. Washington, D.C.)                           9.5%                      2009        
                                                                                                                                  
     Other-                                                                                                                       
        First mortgages:                                                                                                          
           Home loans (Montgomery County, Maryland) ($50,000 to $159,000)                                                         
             (3 units)                                                                  9.5% to 13.5%        Various through 2013 
           Developed land loans (St. Mary's County, Maryland) ($20,000 to                                                         
             $50,000) (6 units)                                                            14.5%             Various through 2013 
           Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)                                                           
             (38 units)                                                                 8.0% to 13.0%                 2004        
                                                                                                                                  
<CAPTION>                                                                                    
                               COLUMN A                                                COLUMN D                    COLUMN E      
-------------------------------------------------------------------------     -------------------------    --------------------  


                                                                                  PERIODIC PAYMENT                 PRIOR         
                              DESCRIPTION                                               TERMS                      LIENS         
-------------------------------------------------------------------------     -------------------------    --------------------- 
<S>                                                                           <C>                          <C> 
FOR THE YEAR ENDED DECEMBER 31, 1998:                                                                                            
    Related parties-                                                                                                             
        Second mortgages:                                                                                                        
           3rd Street Southwest Investors (S.W. Washington, D.C.)                   $36,600/month(a)                None         
           SEW Investors (S.W. Washington, D.C.)                                     95,700/month(b)                None         
           Town Center East Investors (S.W. Washington, D.C.)                         9,670/month(b)                None         
           3rd Street Southwest Investors (S.W. Washington, D.C.)                    11,200/month(c)                None         
                                                                                                                                 
     Other-                                                                                                                      
        First mortgages:                                                                                                         
           Home loans (Montgomery County, Maryland) ($50,000 to $159,000)                                                        
             (3 units)                                                                                                           
           Developed land loans (St. Mary's County, Maryland) ($20,000 to                                                        
             $50,000) (6 units)                                                                                                  
           Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)                                                          
             (38 units)                                                                                                             

                                                                                                                                 
<CAPTION>                      
                               COLUMN A                                   COLUMN F             COLUMN G              COLUMN H
------------------------------------------------------------------   -----------------    ------------------   ------------------- 
                                                                                                               PRINCIPAL AMOUNT OF 
                                                                                                                  MORTGAGE LOANS 
                                                                            FACE               CARRYING           SUBJECT TO 
                                                                          AMOUNT OF            AMOUNT OF       DELINQUENT PRINCIPAL 
                              DESCRIPTION                                 MORTGAGES            MORTGAGES            OR INTEREST  
------------------------------------------------------------------    -----------------    ------------------  -------------------- 
<S>                                                                   <C>                  <C>                 <C>  
FOR THE YEAR ENDED DECEMBER 31, 1998:                                          
    Related parties-                                                           
        Second mortgages:                                                      
           3rd Street Southwest Investors (S.W. Washington, D.C.)        $4,350,000           $  1,644,000             None 
           SEW Investors (S.W. Washington, D.C.)                          9,300,000              1,154,000             None
           Town Center East Investors (S.W. Washington, D.C.)             1,200,000                      -             None 
           3rd Street Southwest Investors (S.W. Washington, D.C.)         1,333,000              1,292,000             None
                                                                                              ------------
                                                                                              $  4,090,000
                                                                                              ------------
     Other-                                                                                               
        First mortgages:                                                                                  
           Home loans (Montgomery County, Maryland) ($50,000 to $159,000)                                 
             (3 units)                                                                        $     64,000             None  
           Developed land loans (St. Mary's County, Maryland) ($20,000 to                                              
             $50,000) (6 units)                                                                      5,000             None  
           Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)                             
             (38 units)                                                                            110,000             None
                                                                                              ------------
                                                                                                   179,000              
                                                                                              ------------
                                                                                              $  4,269,000 
                                                                                              ============
</TABLE> 

                                      -46-
<PAGE>
 
                            BRESLER & REINER, INC.
                  SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE> 
<CAPTION> 
          COLUMN A                                                          COLUMN B            COLUMN C               COLUMN D 
----------------------------------------------------------------------  ----------------- --------------------  --------------------
                                                                                                                   PERIODIC PAYMENT 
          DESCRIPTION                                                       INTEREST          MATURITY DATE             TERMS   
----------------------------------------------------------------------  ----------------- --------------------  --------------------
<S>                                                                     <C>               <C>                   <C>                 
FOR THE YEAR ENDED DECEMBER 31, 1997:
   Related parties-
      Second mortgages:
         3rd Street Southwest Investors (S.W. Washington, D.C.)               9.5%               1999                 $36,600/mo(a)
         SEW Investors (S.W. Washington, D.C.)                               12.0%               2000                  95,700/mo(b)
         Town Center East Investors (S.W. Washington, D.C.)                   8.5%               2001                   9,670/mo(b)
         3rd Street Southwest Investors (S.W. Washington, D.C.)               9.5%               2009                  11,200/mo(c)
                                                                                                                  
   Other-
      First mortgages:
         Home loans (Montgomery County, Maryland) ($50,000 to $159,000) 
           (5 units)                                                      9.5% to 13.5%   Various through 2013      
         Developed land loans (St. Mary's County, Maryland) ($20,000 to                                                
           $50,000) (7 units)                                                14.5%        Various through 2013      
         Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)                                                  
           (38 units)                                                     8.0% to 13.0%          2004               
                                                                                                                    
<CAPTION>                                                                                                                     
          COLUMN A                                                     COLUMN E      COLUMN F     COLUMN G          COLUMN H 
---------------------------------------------------------------------- ---------  -------------  ----------- ---------------------- 
                                                                                                               PRINCIPAL AMOUNT OF  
                                                                                                                  MORTGAGE LOANS 
                                                                                        FACE       CARRYING         SUBJECT TO 
                                                                          PRIOR      AMOUNT OF     AMOUNT OF   DELINQUENT PRINCIPAL
          DESCRIPTION                                                     LIENS      MORTGAGES     MORTGAGES       OR INTEREST 
----------------------------------------------------------------------  ---------  -------------  ----------- ----------------------
<S>                                                                     <C>        <C>            <C>         <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
   Related parties-
      Second mortgages:
         3rd Street Southwest Investors (S.W. Washington, D.C.)           None       $4,350,000    $1,731,000         None
         SEW Investors (S.W. Washington, D.C.)                            None        9,300,000     1,642,000         None
         Town Center East Investors (S.W. Washington, D.C.)               None        1,200,000       308,000         None 
         3rd Street Southwest Investors (S.W. Washington, D.C.)           None        1,333,000     1,303,000         None  
                                                                                                  -----------    
                                                                                                   $4,984,000  
                                                                                                  ===========

   Other-                                                                      
      First mortgages:                                                     
         Home loans (Montgomery County, Maryland) ($50,000 to $159,000) 
           (5 units)                                                                               $  215,000         None  
         Developed land loans (St. Mary's County, Maryland) ($20,000 to                                             
           $50,000) (7 units)                                                                          44,000         None  
         Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)                                               
           (38 units)                                                                                 129,000         None  
                                                                                                  -----------     
                                                                                                      388,000                    
                                                                                                  ----------- 
                                                                                                   $5,372,000                     
                                                                                                  ===========
</TABLE> 

                                     -47-
<PAGE>
 
                            BRESLER & REINER, INC.
                  SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE> 
<CAPTION> 
          COLUMN A                                                          COLUMN B            COLUMN C               COLUMN D 
----------------------------------------------------------------------  ----------------- --------------------  --------------------
                                                                                                                   PERIODIC PAYMENT 
          DESCRIPTION                                                       INTEREST          MATURITY DATE             TERMS   
----------------------------------------------------------------------  ----------------- --------------------  --------------------
<S>                                                                     <C>               <C>                   <C>                 
FOR THE YEAR ENDED DECEMBER 31, 1996:
   Related parties-
      Second mortgages:
         3rd Street Southwest Investors (S.W. Washington, D.C.)               9.5%               1999                 $36,600/mo(a)
         SEW Investors (S.W. Washington, D.C.)                               12.0%               2000                  95,700/mo(b)
         Town Center East Investors (S.W. Washington, D.C.)                   8.5%               2001                   9,670/mo  
         3rd Street Southwest Investors                                       9.5%               2009                  11,200/mo(c)

   Other-
      First mortgages:
         Home loans (Montgomery County, Maryland) ($50,000 to $159,000) 
          (8 units)                                                       9.5% to 13.5%   Various through 2013       
         Developed land loans (St. Mary's County, Maryland) ($20,000 to                                              
          $50,000) (11 units)                                                14.5%        Various through 2013       
         Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)                                                
          (38 units)                                                      8.0% to 13.0%          2004                

<CAPTION>                                                                                                                     
          COLUMN A                                                     COLUMN E      COLUMN F     COLUMN G          COLUMN H 
---------------------------------------------------------------------- ---------  -------------  ----------- ---------------------- 
                                                                                                               PRINCIPAL AMOUNT OF  
                                                                                                                  MORTGAGE LOANS 
                                                                                        FACE       CARRYING         SUBJECT TO 
                                                                          PRIOR      AMOUNT OF     AMOUNT OF   DELINQUENT PRINCIPAL
          DESCRIPTION                                                     LIENS      MORTGAGES     MORTGAGES       OR INTEREST 
----------------------------------------------------------------------  ---------  -------------  ----------- ----------------------
<S>                                                                     <C>        <C>            <C>         <C>    
FOR THE YEAR ENDED DECEMBER 31, 1996:
   Related parties-
      Second mortgages:
         3rd Street Southwest Investors (S.W. Washington, D.C.)           None       $4,350,000    $1,810,000         None 
         SEW Investors (S.W. Washington, D.C.)                            None        9,300,000     1,984,000         None 
         Town Center East Investors (S.W. Washington, D.C.)               None        1,200,000       394,000         None 
         3rd Street Southwest Investors                                   None        1,333,000     1,313,000         None 
                                                                                                  -----------  
                                                                                                   $5,501,000  
                                                                                                  ===========

   Other-
      First mortgages:
         Home loans (Montgomery County, Maryland) ($50,000 to $159,000) 
          (8 units)                                                                                $  291,000         None 
         Developed land loans (St. Mary's County, Maryland) ($20,000 to                                        
          $50,000) (11 units)                                                                          77,000         None 
         Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)                                          
          (38 units)                                                                                  158,000         None 
                                                                                                  -----------   
                                                                                                      526,000  
                                                                                                  -----------   
                                                                                                   $6,027,000  
                                                                                                  ===========
</TABLE> 

                                     -48-
<PAGE>
 
                            BRESLER & REINER, INC.
                                                  
                             NOTES TO SCHEDULE IV

<TABLE> 
<CAPTION> 
                                          1998          1997          1996
                                      ------------  ------------  ------------
<S>                                   <C>           <C>           <C> 
CARRYING VALUE AT JANUARY 1            $5,372,000    $6,027,000    $6,593,000
   Deductions during period-                                      
      Collections of principal          1,103,000       655,000       566,000
                                      ------------  ------------  ------------
CARRYING VALUE AT DECEMBER 31          $4,269,000    $5,372,000    $6,027,000
                                      ============  ============  ============
</TABLE> 

(a)  The terms of this agreement call for a final payment of $2,838,000 due in
     1999.

(b)  The terms of this agreement call for a final payment of $1,031,000 due in
     2000.

(c)  The terms of this agreement call for a final payment of $1,074,000 due in
     2009.

                                     -49-
<PAGE>
 
Exhibit 10 - Material Contracts.

          C. (i) Amendment No. 1 to Agreement of December 2, 1974 among Trilon
Plaza Company, Town Center East Investors and Registrant, dated April 14, 1982.

            (ii) Amendment dated March 10, 1983 to Agreement of December 2,
1974, among Trilon Plaza Company, Town Center East Investors and Registrant.
(Exhibits C(i) and C(ii) are incorporated by reference to Exhibits 19A and B to
Registrant's Report on Form 10-K for 1982, dated March 23, 1983, filed with the
62 Securities and Exchange Commission).

          D. Partnership Agreement of Builders Leasing Company dated December
14, 1983 among the Registrant and Robert J. Schattner, Charles Bresler, Philip
Friedman, Edwin Horowitz, Lloyd Needle and Burton J. Reiner.

          (Incorporated by reference to Exhibit 10D to Registrant's Report on
Form 10-K for 1983, dated March 21, 1984, filed with the Securities and Exchange
Commission).

          E. (i) Deed of Trust Note dated September 3, 1986 from Paradise
Developers to Paradise Associates, Inc. (Manassas property)

          (Incorporated by reference to Exhibit 10E(i) to Registrant's Report on
Form 10-K for 1986, dated March 24, 1987, filed with the Securities and Exchange
Commission.)

            (ii) Deferred Purchase Money Deed of Trust dated September 3, 1986
from Paradise Developers to Paradise Associates, Inc.

          (Incorporated by reference to Exhibit 10E(ii) to Registrant's Report
on Form 10-K for 1986 dated March 24, 1987, filed with the Securities and
Exchange Commission.)

Exhibit 21     Subsidiaries of Registrant.

Exhibit 27     Financial Data Schedule.

                                       50
<PAGE>
 
 S I G N A T U R E S
 -------------------

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

                                               BRESLER & REINER, INC.
                                            ----------------------------
                                                    (Registrant)

Date:  March 25, 1999                          /s/ Charles S. Bresler
                                            ----------------------------
                                               Charles S. Bresler, Chairman
                                               of the Board
                                               (Chief Executive Officer)

Date:  March 25, 1999                          /s/ William L. Oshinsky
                                            ----------------------------
                                               William L. Oshinsky, Treasurer
                                               (Chief Financial and Chief
                                               Accounting Officer)

          Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.

          The following persons constitute a majority of the Board of Directors
of Registrant.

Date:  March 25, 1999                          /s/ Charles S. Bresler
                                            ----------------------------
                                               Charles S. Bresler, Director

Date:  March 25, 1999                          /s/ William L. Oshinsky
                                            ----------------------------
                                               William L. Oshinsky, Director

Date:  March 25, 1999                          /s/ Edwin Horowitz
                                            ----------------------------
                                               Edwin Horowitz, Director

Date:  March 25, 1999                          /s/ Burton J. Reiner
                                            ----------------------------
                                               Burton J. Reiner, Director

Date:  March 25, 1999                          /s/ Stanley S. Derisio
                                            ----------------------------
                                               Stanley S. DeRisio, Director

Date:  March 25, 1999                          /s/ Ralph S. Childs, Jr.
                                            ----------------------------
                                               Ralph S. Childs, Jr., Director

                                       51