UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One)                                                       |                                                                                          
|---------------------------------------------------------------- | -----------------------------------------------------------------------------------------
|ý                                                                | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     
|For the fiscal year ended December 31, 2004                     
|or                                                              
|o                                                                | TRANSITION REPORT PURSUANT TO Section 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                                to

Commission file number 0-6201

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BRESLER & REINER, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                 |  | 52-0903424(I.R.S. Employer Identification Number)
|-------------------------------------------------------------------------------------- |  | -------------------------------------------------
|11140 Rockville Pike, Suite 620, Rockville, MD(Address of principal executive offices) |  | 20852(Zip Code)                                  
|Registrant's telephone number, including area code                                     |  | (301) 945-4300                                   

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Securities registered pursuant to Section 12 (b) of the Act:

|Title of each class |  | Name of each exchange on which registered
|------------------- |  | -----------------------------------------
|                    |  |                                          
|                    |  |                                          

Securities registered pursuant to Section 12 (g) of the Act:

Common Stock, $.01 par value

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Title of class

Title of class

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 III of this
Form 10-K or any amendment to this Form 10-K. Yes ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant (556,268 shares) was approximately
$15,297,370 as of June 30, 2004. The aggregate market value was computed by reference to the last sale of the Common Stock of the Registrant at $27.50 per share.For
purposes of this computation, directors, officers and holders of 5% or more of the Registrant's Common Stock are considered affiliates of the Registrant at that date.

As
of March 28, 2005 there were 5,477,212 shares of the Registrant's Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.

Certain information is incorporated by reference to the Proxy Statement for the Registrant's 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.



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BRESLER & REINER, INC.    ANNUAL REPORT ON FORM 10-K  DECEMBER 31, 2004

TABLE OF CONTENTS

|PART I   |  | 1                         
|-------- |  | --------------------------
|         |  | Item 1.                   
|         |  | Item 2.                   
|         |  | Item 3.                   
|         |  | Item 4.                   
|PART II  |  | 13                        
|         |  | Item 5.                   
|         |  | Item 6.                   
|         |  | Item 7.                   
|         |  | Item 7A.                  
|         |  | Item 8.                   
|         |  | Item 9.                   
|         |  | Item 9A.                  
|         |  | Item 9B.                  
|PART III |  | 31                        
|         |  | Item 10.                  
|         |  | Item 11.                  
|         |  | Item 12.                  
|         |  | Item 13.                  
|         |  | Item 14.                  
|PART IV  |  | 31                        
|         |  | Item 15.                  
|         |  | A.    Financial Statements
|         |  | B.    Exhibits            
|         |  | SIGNATURES                
|         |  | CERTIFICATIONS            

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PART I

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements that are based on current estimates, expectations, forecasts and projections about us,
our future performance, the industry in which we operate, our beliefs and management's assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made
by or on behalf of us. Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," or "would be," and variations of such words and
similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties include:



Item 1.    Business

Bresler &
Reiner, Inc. ("B&R" and, together with its subsidiaries and affiliates, "we," the "Company" or "us") was incorporated under the laws of the State of Delaware in 1970 and has
been publicly traded since 1971. We engage in real estate business activities including commercial, residential, and hospitality property ownership, residential and commercial property development and
land development, through either direct ownership or through joint ventures with third parties. We engage in these activities in the Washington, DC; Philadelphia, Pennsylvania; Baltimore, Maryland;
Ocean City, Maryland; Orlando, Florida and Tampa, Florida, metropolitan areas.

As
an opportunistic investor in real estate, we evaluate a broad range of investment opportunities available in the marketplace, for their ability to generate significant cash returns on our invested
capital. Our evaluation of these investment opportunities includes an analysis of the type of real estate assets to be acquired, the percentage of capital to be invested by asset type, the percentage
ownership interest in particular assets to be acquired, and any resulting liabilities to be assumed. Our investment strategy is adjusted from time-to-time to adapt to changing
marketplaces and phases in the real estate cycle. Prior to making an investment, we conduct appropriate
due diligence studies to evaluate risks and opportunities of each prospective investment and the likelihood of generating cash returns on our equity investment that meet or exceed our internal target
rates.

We
pursue opportunities to acquire commercial and residential properties that have the potential for increased returns. We employ reputable, local management companies to perform on-site
management, leasing, maintenance, and development activities and combine our extensive real estate experience with the management company's in-depth knowledge of their local markets to
create revenue enhancement opportunities. Such opportunities include investing in capital expenditures to improve a building's common areas, landscaping and overall curb appeal, employing aggressive
lease-up programs and focusing on tenant satisfaction. As a result, we are able to increase occupancy rates through attracting new tenants and achieving higher retention rates of existing
tenants. We perform on-going asset-management services, conducting a management process that includes the development of short and long-term capital replacement plans, review
and approval of detailed annual budgets, and review of monthly operations reports that allow us to monitor property performance and operation, and leasing and development activities. We also have an
internal audit

1

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function
that documents and tests controls and procedures at the management companies and ensures compliance with our operating, accounting, and reporting policies and procedures.

For
development projects, we partner with well-respected regional and national developers to develop and reposition properties that we believe have significant potential to provide strong
risk-adjusted returns.

Segments of Business

We report segment information for the following four real estate business segments:

Commercial Rental Property

This
segment includes the rental income derived by commercial properties from leases of office and industrial space and other related revenue sources. Commercial leases generally provide for a fixed
monthly rental over terms that range from three to 10 years. At December 31, 2004 we owned, or had an ownership interest in, 35 commercial property buildings containing 2,484,000 square
feet of space. The properties are located in the Washington, DC, Philadelphia, Pennsylvania and Baltimore, Maryland metropolitan areas. The table below sets forth these commercial rental properties.

|                                 |                                                  | Number of
Buildings |    | Square
Feet |           | Occupancy (1) |  | Location             |  | B&R
Ownership
|-------------------------------- | ------------------------------------------------ | ------------------- | -- | ----------- | --------- | ------------- |  | -------------------- |  | -------------
|Consolidated Properties (2)      |                                                  |                     |    |             |           |               |  |                      |  |              
|Washington Business Park (3)     |                                                  | 9                   |    | 568,000     |           | 86.3%         |  | Lanham, MD           |  | 80.0%        
|Baltimore Portfolio              |                                                  | 8                   |    | 530,000     |           | 80.1%         |  | Baltimore, MD        |  | 51.0%        
|Fort Washington Executive Center |                                                  | 3                   |    | 393,000     |           | 98.7%         |  | Ft. Washington, PA   |  | 96.5%        
|Versar Center                    |                                                  | 2                   |    | 217,000     |           | 90.1%         |  | Springfield, VA      |  | 100.0%       
|Sudley North (Buildings A,B&C)   |                                                  | 3                   |    | 116,000     |           | 90.3%         |  | Manassas, VA         |  | 98.8%        
|West Germantown Pike             |                                                  | 2                   |    | 115,000     |           | 100.0%        |  | Plymouth Meeting, PA |  | 97.5%        
|One Northbrook                   |                                                  | 1                   |    | 95,000      |           | 88.8%         |  | Trevose, PA          |  | 100.0%       
|Sudley North (Building D)        |                                                  | 1                   |    | 69,000      |           | 100.0%        |  | Manassas, VA         |  | 49.4%        
|900 Northbrook                   |                                                  | 1                   |    | 66,000      |           | 94.0%         |  | Trevose, PA          |  | 87.5%        
|Fort Hill                        |                                                  | 1                   |    | 66,000      |           | 100.0%        |  | Centreville, VA      |  | 80.0%        
|7800 Building                    |                                                  | 1                   |    | 15,000      |           | 100.0%        |  | Manassas, VA         |  | 100.0%       
|Bank Building                    |                                                  | 1                   |    | 3,000       |           | 100.0%        |  | Manassas, VA         |  | 100.0%       
|                                 |                                                  |                     |    |             |           |               |  |                      |  |              
|                                 | Total consolidated properties                    |                     | 33 |             | 2,253,000 |               |  |                      |  |              
|                                 |                                                  |                     |    |             |           |               |  |                      |  |              
|Unconsolidated Properties (2)    |                                                  |                     |    |             |           |               |  |                      |  |              
|1925 K Street                    |                                                  | 1                   |    | 149,000     |           | 98.2%         |  | Washington, DC       |  | 85.0%        
|Madison Building                 |                                                  | 1                   |    | 82,000      |           | 96.5%         |  | McLean, VA           |  | 24.9%        
|                                 |                                                  |                     |    |             |           |               |  |                      |  |              
|                                 | Total unconsolidated properties                  |                     | 2  |             | 231,000   |               |  |                      |  |              
|                                 |                                                  |                     |    |             |           |               |  |                      |  |              
|                                 | Total consolidated and unconsolidated properties |                     | 35 |             | 2,484,000 |               |  |                      |  |              
|                                 |                                                  |                     |    |             |           |               |  |                      |  |              

NOTES:

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Also included in this segment is income generated from management and leasing activities associated with our 50% ownership interest in Redwood Commercial
Management, LLC ("Redwood"), a commercial management company. Redwood manages approximately 1,488,000 square feet of commercial office space, approximately 486,000 of which are owned by entities in
which we have an ownership interest.

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Residential Rental Property

This
segment includes the rental income derived by residential properties from leases of apartment units and other related revenue sources. Apartment leases generally provide for a fixed monthly
rental over a one-year term. At December 31, 2004 we owned, or had an ownership interest in, four residential properties containing a total of 1,022 apartment units. The properties
are located in the Washington, DC and Orlando, Florida metropolitan areas. The table below sets forth these residential rental properties.

|                                      |  | Apt. Units |  | Occupancy (1) |     | Location          |  | B&R
Ownership %
|------------------------------------- |  | ---------- |  | ------------- | --- | ----------------- |  | ---------------
|Consolidated Properties (2)           |  |            |  |               |     |                   |  |                
|The Fountains                         |  | 400        |  | 96.8%         |     | Orlando, FL       |  | 100.0%         
|Victoria Place                        |  | 364        |  | 97.8%         |     | Orlando, FL       |  | 85.0%          
|Charlestown North                     |  | 178        |  | 96.1%         |     | Greenbelt, MD     |  | 100.0%         
|                                      |  |            |  |               |     |                   |  |                
|Total Consolidated Properties         |  | 942        |  |               |     |                   |  |                
|                                      |  |            |  |               |     |                   |  |                
|Unconsolidated Property (2)           |  |            |  |               |     |                   |  |                
|Arbor Crest                           |  | 80         |  | 34.0%         | (3) | Silver Spring, MD |  | 33.3%          
|                                      |  |            |  |               |     |                   |  |                
|Total Consolidated and Unconsolidated |  | 1,022      |  |               |     |                   |  |                
|                                      |  |            |  |               |     |                   |  |                

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Included in this segment are fees generated from a wholly-owned subsidiary that managed residential properties owned both by us and by affiliated third parties.
The management contracts on two residential properties that we managed were terminated during the year ended December 31, 2003 while the one remaining management contract was terminated during
the year ended December 31, 2004.

Hospitality Properties

This
segment includes revenue and income from two hospitality properties, The Inn at the Colonnade located in Baltimore, Maryland and the Holiday Inn Express located in Camp Springs, Maryland. The Inn
at the Colonnade has 125 rooms and the Holiday Inn Express has 151 rooms. The Inn at the Colonnade, which is a Doubletree branded property, is managed by a third party manager. Prior to
June 2004, the Holiday Inn Express was managed by a wholly-owned subsidiary of the Company. In June 2004 this management contract was terminated and replaced with a management contract
with a third party manager.

For
the year ended December 31, 2004 the average occupancy level at the Inn at the Colonnade was 65.3% and the average daily room rate was $134.13.

For
the year ended December 31, 2004 the average occupancy level at the Holiday Inn Express was 60.3% and the average daily room rate was $83.70.

Commercial, Residential and Land Development

This
segment primarily includes the development of residential condominium and rental apartment units, the development of commercial buildings and the development of lots as part of residential
subdivisions. Also included are the revenues and costs associated with undeveloped commercial land sales, and other construction activity. At

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December 31,
2004 we owned, or had a material ownership interest in, entities involved in 13 development projects. The table below sets forth these development projects.

|Project Name                |  | Development Type              |  | Size (1)              |  | Number sold (2) |     | Location           |  | B&R
Ownership %
|--------------------------- |  | ----------------------------- |  | --------------------- |  | --------------- | --- | ------------------ |  | ---------------
|Consolidated Properties (3) |  |                               |  |                       |  |                 |     |                    |  |                
|Clarksburg Ridge            |  | Residential Lots              |  | 159 lots              |  | 149 lots        |     | Clarksburg, MD     |  | 100.0%         
|Golfview                    |  | Residential Condominiums      |  | 140 units             |  | 2 units         |     | St. Petersburg, FL |  | 50.0%          
|Laguna Vista                |  | Residential Condominiums      |  | 41 units              |  |                |     | Ocean City, MD     |  | 100.0%         
|Cigar Factory               |  | Residential Condominiums      |  | 30 units              |  | 13 units        |     | Philadelphia, PA   |  | 66.7%          
|400 S. Philadelphia Ave.    |  | Residential Condominiums      |  | 20 units              |  |                |     | Ocean City, MD     |  | 51.0%          
|146th Street                |  | Residential Condominiums      |  | 18 units              |  |                |     | Ocean City, MD     |  | 51.0%          
|Seaside                     |  | Residential Lots              |  | 138 lots              |  |                |     | Ocean City, MD     |  | 51.0%          
|Waterfront                  |  | Commercial Office Complex     |  | 1,144,000 sq. ft. (4) |  |                | (5) | Washington, DC     |  | 48.6%          
|Northbrook Development      |  | Commercial Office Building    |  | 108,000 sq. ft.       |  |                | (5) | Trevose, PA        |  | 100.0%         
|Sudley South                |  | Commercial Office Condominium |  | 54,000 sq. ft.        |  |                |     | Manassas, VA       |  | 100.0%         
|640 N. Broad Street         |  | Residential Apartments        |  | 266 units             |  |                | (5) | Philadelphia, PA   |  | 80.0%          
|Divine Lorraine             |  | Residential Apartments        |  | 135 units             |  |                | (5) | Philadelphia, PA   |  | 95.0%          
|Unconsolidated Property (3) |  |                               |  |                       |  |                 |     |                    |  |                
|WBP Land                    |  | Undeveloped Land              |  | 79 acres              |  | 29 acres        |     | Lanham, MD         |  | 80.0%          

NOTES:

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Competition

In virtually all aspects of our real estate activities we operate in highly competitive marketplaces. During the acquisition process we compete primarily based on offer prices
and the ability to fund the acquisition and close the transaction in a timely manner. In our commercial rental, residential rental and hospitality segments we compete for tenants and guests primarily
based on price, location and amenities offered.

During
the acquisition process we compete against other acquirers of real estate, including both public and private real estate investment trusts, real estate development companies, investment firms,
investment funds and financial institutions. This competition may affect our ability to acquire properties at prices that enable us to generate cash returns on invested capital that meet or exceed our
target rates of return.

An
oversupply of office space as a result of a weak economy, and low job growth could lead to low demand from tenants, thereby increasing the competitive pressure on our commercial properties.
Competition from other developers, managers, and owners could produce material adverse effects on our ability to lease space and on the rents realized or concessions granted. Such a situation could
materially and adversely affect our results of operations and cash flows.

The
development of new residential properties and rent concession offers by competitors, in addition to the low interest rate environment which has enabled potential tenants to seek home ownership,
have all added to the competitive pressure on our residential properties, which could produce material adverse effects on our ability to rent apartment units.

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The general marketplace for lodging in the Baltimore/Washington area is highly competitive and subject to general economic conditions and possible adverse effects from homeland security issues. This
competition tends to adversely affect occupancy rates and exert pricing pressure on room rates at our hospitality properties. This pricing pressure will increase due to the planned development of
several new hotels in the downtown Baltimore area this year.

Employment

On December 31, 2004, we employed 15 persons.

Risk Factors That May Affect Our Future Results

Changes in Economic and Market Conditions May Cause the Value Of and Our Income from Our Real Property Investments to Decline

Our real estate properties can be affected by changes in both national and local economic and market conditions. The national economic factors include: a decline in the
national economy leading to a lack of job growth and lower demand for office space; an increase in interest rates; a drop in consumer and corporate confidence and a tightening of the availability of
credit. A result of these conditions could be a decline in both our income from real estate investments and the value of these investments.

Changes in the Operations at our Properties May Cause a Decline in Income

Changes at our operating properties that could lead to a decline in income include: a change in occupancy levels, leasing rates and tenant retention caused by changes in our
tenant's perception about the attractiveness of the property; the physical deterioration of the property; and competitive pressure caused by newly developed properties within the
same geographic market, and rent concessions offered by competitors. Our results may also be adversely affected by an increase in tenant receivables and an increase in operating expenses.

We May Be Unable to Sell the Residential Condominiums we are Developing

Sales of residential condominium units can be affected by a slowdown in the economy. Furthermore, a rise in interest rates, which raises the cost of borrowing for potential
homebuyers, could adversely affect the number of residential condominium units we sell and the prices at which we sell them.

Development of New Projects or the Repositioning Of Existing Projects Could Be Adversely Affected

Plans for future development of commercial properties, residential communities, and the repositioning of our commercial properties can be affected by a number of factors
including: community opposition to development or construction on a specific site; time delays in obtaining necessary governmental permits and approvals; an inability to secure tenants necessary to
support the project; the availability of financing and an increase in construction costs.

We May Be Unable to Sell or Finance Underperforming Properties

The ability to sell or finance underperforming properties may be adversely affected by the illiquid nature of real estate and by market conditions, including the weakening of
capital markets thereby affecting the availability of credit. This situation could lead to operating losses and potential write-downs in the value of our properties.

Our Operating Results and Cash Flows May Be Adversely Affected By Tenant Defaults and High Tenant Turnover

If a significant number of tenants are unable to meet their rental obligations or choose not to renew their leases, or if we are unable to substantially lease on economically
favorable terms, our operating results and cash flows could be adversely affected. Tenant defaults may result in significant collection expenses. In addition, the failure to renew the leases of major
tenants or relet vacant space could adversely affect operating results and cash flows. At our residential properties, which typically have twelve-month lease terms there is increased exposure to
tenants not renewing their leases.

Changes in Tax Laws or Regulations Could Adversely Affect Operating Results

We cannot predict the future effect of possible changes in the tax laws or regulations, which if made, could have a material adverse effect on operating results.

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Environmental Matters

Under various federal, state, and local environmental laws, an owner or operator of real property may become liable for the costs associated with the investigation, removal,
and remediation of hazardous or toxic substances at the property. Environmental laws often impose liability without regard to the owner/operator's knowledge of, or responsibility for, the presence of
the hazardous or toxic substances. The presence of, or failure to remediate hazardous or toxic substances may adversely affect an owner's ability to sell or rent the property or to borrow funds with
the property as collateral. In some instances, the laws require abatement or removal of specific toxic-containing materials in the event of demolition, renovations, remodeling, damage, or decay.

We
could be held liable for the environmental costs associated with the release of regulated substances or related claims, whether by us, our tenants, former owners or tenants of the affected
property, or others. The presence of hazardous substances on a property could result in personal injury or other claims by private parties. These claims could result in costs or liabilities that could
exceed the value of that property. We are aware of asbestos-containing materials that exist in the Waterfront Complex that will require remediation as part of the property's redevelopment. A
$3,000,000 escrow account to address the asbestos removal project at the Waterfront Complex has been established with our contributing 54% of the escrow funds. We cannot provide assurance that this
reserve is adequate to complete the remediation of this project. Any additional costs would have an adverse affect on our cash flows. We are not aware of any notification by any party or governmental
authority of any claim in connection with environmental conditions at any of our other properties that we believe will involve any material expenditure. However, we cannot provide assurance that any
non-compliance, liability, claim, or expenditure will not arise with respect to other properties in our portfolio.

Increase in Interest Rates Would Raise our Cost of Capital and May Affect Our Ability to Obtain New Mortgage Debt and Refinance Existing Mortgage Debt

An increase in interest rates would affect our ability to obtain new mortgage debt and to refinance existing mortgage debt and would limit our ability to make future
acquisitions, through increasing our cost of capital. Higher interest rates upon refinancing mortgage debt would decrease cash flow from operations, negatively impacting our earnings and lowering our
cash returns as a percentage of our invested equity. In addition, a rise in interest rates would raise the cost of servicing our variable rate debt, thereby negatively impacting our earnings.

We May Have Difficulty Obtaining Financing

Weak real estate markets not only affect the prices for which real estate properties can be purchased or sold and rental revenues, but also affect the availability of
financing. During weak real estate markets, lenders are reluctant to make or renew loans secured by real estate. Therefore, during a weak market, we may have difficulty obtaining the funds
necessary to purchase properties which would adversely affect our acquisition strategy. In addition, under such conditions we may have difficulty refinancing existing acquisition and construction
financing with long-term financing, which could result in our having to accept less favorable financing terms or use our cash resources to repay indebtedness that otherwise would be
refinanced.

New Accounting Pronouncements and Regulations Could Have an Impact on our Earnings

We are required to implement new accounting pronouncements and regulations applicable to our business when issued by the Financial Accounting Standards Board, SEC and other
regulatory organizations within the accounting profession. While we are not aware of any current pronouncements being considered that may have an adverse impact on our earnings, there is no assurance
that no such pronouncements will be adopted in the future.

Access to Company Information

We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
all exhibits and amendments to these reports, with the Securities and Exchange Commission (the "SEC"). The public may read and copy any of the reports that are filed with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an internet site(http://www.sec.gov)that contains reports, proxy and information
statements and other information regarding issuers that file electronically.

We
make available, free of charge, by responding to requests addressed to our investor relations department, our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports. These reports are available as soon as reasonably practicable after such
material is electronically filed with or furnished to the SEC. These reports can also be accessed on the Company's website
(http://www.breslerandreiner.com).

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Item 2.    Properties

Commercial Rental Property

Following is a description of our asset portfolio at December 31, 2004:

Baltimore
PortfolioIn November 2004, a joint venture in which we own a 51% interest and an unaffiliated third party owns the balance acquired a
portfolio of eight historic commercial office buildings located in the central business district of Baltimore, Maryland containing a total of 530,000 square feet of office space. The purchase price
for the eight buildings was $29,500,000. The joint venture assumed an $8,470,000 mortgage loan on one of the buildings. The loan bears a fixed interest rate of 5.95% and matures in 2012. At the time
of the acquisition the joint venture placed a two-year $15,000,000 mortgage loan on the remaining seven buildings. The loan bears a variable interest rate of one month LIBOR plus 175 basis
points and provides for two, two-year extension options. We invested $3,500,000 for our 51% interest in the venture. We also contributed an additional $1,500,000 to the venture, which
funds are to be returned before any other distributions.

Fort
WashingtonIn February 2004, a joint venture in which we own a 96.5% interest and two unaffiliated third parties own the balance acquired an
executive center located in Fort Washington, Pennsylvania, consisting of three commercial buildings containing a total of 393,000 square feet of office space. The purchase price of the property was
$52,664,000. At the time of the acquisition the joint venture placed a $33,300,000 mortgage loan on two of the buildings and a $15,700,000 mortgage loan on the third building. Each of the loans, bears
a fixed-interest rate of 5.6% and matures in ten years. As a condition of financing, we executed conditional master lease agreements as tenant, for certain periods and space within the properties. We
invested $7,000,000 at the time of the acquisition for our 96.5% interest in the joint venture. Through December 31, 2004 we had invested an additional $1,473,000 related to capital
expenditures at the property.

One
NorthbrookIn February 2004, we acquired a 95,000 square foot office building located in a commercial office park in Trevose, Pennsylvania, for a
purchase price of $16,900,000. In February 2004, we placed a ten-year, 5.75% fixed-rate mortgage loan of $15,300,000 on the property.

West
Germantown PikeIn February 2004, a joint venture in which we own a 97.5% interest and two unaffiliated third parties own the balance acquired an
office complex containing two commercial office buildings, in Plymouth Meeting, Pennsylvania comprising a total of 115,000 square feet. The total purchase price of the office buildings was
$20,500,000. In connection with the acquisition, the joint venture assumed a 5.9% fixed-rate mortgage loan on the buildings. The loan, which had an outstanding principal balance of
$16,246,000 at the time of the assumption, matures in 2013. We invested $4,875,000 for our 97.5% interest in the joint venture.

900
NorthbrookIn November 2003, a joint venture in which we own an 87.5% interest and unaffiliated third-parties own the balance acquired a 66,000
square foot office building located in a commercial office park in Trevose, Pennsylvania. The purchase price for the office building was $12,050,000. At the time of the acquisition, the joint venture
placed a ten-year, 5.98% fixed rate mortgage loan of $11,200,000 on this property. We invested $1,313,000 for our interest in the joint venture.

Madison
BuildingIn August 2002, a joint venture in which we own a 24.9% interest and an unaffiliated third-party owns the balance acquired an 82,000
square foot office building and an adjacent developable parcel located in McLean, Virginia. The adjacent parcel is currently used for parking for the office building. We invested $2,200,000
for our interest in this joint venture. In August 2002, the joint venture placed a 10-year, 6.35% fixed rate mortgage loan of $14,600,000 on this property.

1925
K StreetIn June 2002, a joint venture in which we own an 85% interest and an unaffiliated third-party owns the balance acquired a 149,000 square
foot office building located in the central business district of Washington, DC. The purchase price for the office building was $27,150,000. We invested $6,800,000 for our interest in the joint
venture. At the time of the acquisition, the joint venture placed a $20,438,000 five-year mortgage loan on this property, bearing a variable interest rate of one month LIBOR plus 235 basis
points. In February 2004, the promissory note related to this loan was sold to an unaffiliated third party lender and amended to reflect a variable interest rate of one month LIBOR plus 145
basis points, a maturity date of April 2007 and a payment guarantee from us of $5,500,000.

Versar
CenterIn January 2002, we acquired two office buildings located in Springfield, Virginia, called the Versar Center, that contain 217,000 square
feet of office space, for a purchase price of $20,000,000. In May 2002, we placed a ten-year, 6.18% fixed rate mortgage loan of $18,500,000 on this property.

7

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Washington
Business ParkIn November 2001, a joint venture in which we own an 80% interest and an unaffiliated third party owns the balance acquired two
office buildings containing 105,000 square feet and seven flex and warehouse buildings containing 463,000 square feet, for a total purchase price of $46,300,000. These buildings constitute a portion
of the Washington Business Park located in Lanham, Maryland. We invested $8,806,000 for our interest in the joint venture. In December 2001, the joint venture placed a 30-year,
7.63% fixed-rate mortgage loan of $40,000,000 on these properties.

Fort
Hill Office BuildingIn September 2000, a joint venture in which we hold an 80% interest and an unaffiliated third party owns the balance
purchased, for $7,050,000, a 66,000 square foot office building located in Centreville, Virginia. We invested $1,340,000 for our interest in the joint venture. In February 2001, the joint
venture placed a 10-year, 7.7% fixed-rate mortgage loan of $5,750,000 on this property.

7800
BuildingWe developed a 15,000 square foot office building located in Manassas, Virginia.

Bank
BuildingWe developed a 3,000 square foot building located in Manassas, Virginia. The building is 100% leased to a bank. The lease terminates in
December 2006, with the tenant holding options to renew the lease for up to three successive five-year terms.

Paradise
Sudley North Office BuildingsWe developed four office buildings, containing 185,000 square feet of space, on a 16.4-acre parcel located
in Manassas, Virginia. Three of the buildings (Buildings A, B and C) are owned by Paradise Sudley North Limited Partnership ("Sudley"), of which we are the sole general partner and 98.8% owner.
The fourth building (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 a
Co-Chairman of B&R is the remaining 50% owner.

In
March 2002, we placed a 10-year, 7.47% fixed rate mortgage loan of $18,010,000 on the Bank Building and the four Paradise Sudley North Office Buildings.

Redwood
Commercial Management, LLCIn December 2001, we and an unaffiliated third party created a property management and leasing company, known as
Redwood Commercial Management, LLC ("Redwood"). Each member holds a 50% ownership interest in Redwood with the other member managing Redwood on a day-to-day basis. Redwood
performs management and leasing services for properties containing approximately 1,488,000 square feet of office, commercial and warehouse space, approximately 486,000 square feet of which are in our
properties and the remainder of which are in properties that are owned by unaffiliated third parties.

Residential Rental Property

Fountains at Waterford LakesIn September 2003, we acquired a 400 unit apartment community, located in Orange County, Florida,
called The Fountains at Waterford Lakes ("The Fountains"). The purchase price of The Fountains was $35,100,000. We assumed $24,600,000 of mortgage debt on the property as a part of the transaction.
This loan bears interest at 5.00% per annum, is non-amortizing and matures in December 2007. No prepayments on the loan are permitted prior to December 2005.

Victoria
Place ApartmentsIn July 2003, we acquired an 85% membership interest in Victoria Place Apartments, LLC ("Victoria Place") which owns a 364
unit apartment complex located in Orange County, Florida. An unaffiliated third-party acquired the remaining 15% interest as part of the same transaction. The purchase price for Victoria Place was
$39,500,000. We invested $8,500,000 for our 85% interest in the venture. At the time of the acquisition, the joint venture placed a 10-year, 4.72% fixed rate mortgage loan of $34,120,000
on this property.

Charlestown
NorthWe developed a 178 unit apartment project called Charlestown North, which is located in Greenbelt, Maryland. In May 2002 we placed a
10-year, 6.74% fixed rate mortgage loan of $5,000,000 on the property.

Arbor
CrestIn July 2003, we invested $400,000 in exchange for a 33.3% interest in Selborne House at St. Marks Owner, LLC ("Arbor Crest"), which has
developed an 80 unit age-restricted apartment community in Silver Spring, Maryland. Two unaffiliated third parties own the remaining 66.7%. The development and construction of the
community was financed by a $7,100,000 construction loan. We have provided an unconditional and irrevocable payment guaranty to the lender for 33.3% of the balance outstanding under the construction
loan, which is also guaranteed by the other members of Arbor Crest. Development of the apartment community was completed in September 2004 and leasing operations commenced in
October 2004.

8

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Hospitality Properties

The Inn at the ColonnadeWe own a portion of The Colonnade Building, which is a multi-purpose residential condominium, hotel, office
and retail building located across from the Johns Hopkins University campus in Baltimore, Maryland. The portion of the building that we own consists of 125 hotel rooms and a 5,200 square foot
restaurant, operated for us by a third party management company, 7,600 square feet of retail and office space and a 137 parking space garage. The hotel is operated as a Hilton Doubletree Hotel. Under
our franchise agreement with Hilton Hotels, we pay a monthly royalty fee and additional reimbursements for advertising and trading services. In September 2001, we placed a 10-year,
7.45% fixed rate mortgage loan of $10,300,000 on this property.

Holiday
Inn ExpressWe own a 151 room Holiday Inn Express located in Camp Springs, Maryland, opposite the main entrance to Andrews Air Force Base. Under our
franchise agreement with Holiday Inns, Inc., we pay a monthly royalty fee and additional reimbursements for advertising and trading services. The franchise agreement expires in
March 2007. In July 2001, we placed a 10-year, 7.88% fixed rate mortgage loan of $3,800,000 on this property.

Commercial, Residential and Land Development

SeasideIn November 2004, we invested $2,500,000 for a 51% interest in Worcester Seaside Developers LLC ("Seaside"), the owner
of a parcel of undeveloped land, in Ocean City, Maryland, which is subdivided into 138 residential lots along with 50 boat slips. An unaffiliated third party owns the remaining interest in Seaside.
Seaside intends to develop the land as lots to be sold along with the boat slips and has entered into a sales contract with a homebuilder that provides for the takedown of lots commencing in 2005 and
ending in 2007. The homebuilder has paid Seaside a non-refundable deposit of $7,000,000. Seaside purchased the parcel of land and boat slips for approximately $26,000,000, which was funded
primarily from a $16,000,000 acquisition loan, a $2,888,000 drawdown on a $5,500,000 construction loan, the homebuilder's deposit, and $1,000,000 in proceeds from the sale of 50 boat slips to the
homebuilder. The acquisition and construction loans each bears interest at the Prime Rate and matures in October, 2007.

400
S. PhiladelphiaIn September 2004, a joint venture in which we own a 51% interest and an unaffiliated third party owns the balance, acquired for
$2,000,000 a parcel of land in Ocean City, Maryland for the purpose of developing 20 for-sale residential condominium units. We invested 100% of the equity required for the acquisition,
which was funded through draws on an unsecured line of credit.

146
StreetIn August 2004, a joint venture in which we own a 51% interest and an unaffiliated third party owns the balance, acquired for $1,726,000 a
parcel of land in Ocean City, Maryland for the purpose of developing 18 for-sale residential condominium units. We invested 100% of the equity required for the acquisition, which was
funded through draws on an unsecured line of credit.

GolfviewIn
April 2004, a joint venture in which we own a 50% interest and an unaffiliated third party owns the balance, acquired a 144 unit
mid-rise residential rental complex located in St. Petersburg, Florida, for the purpose of converting the complex into 140 for-sale residential condominium units. The purchase
price of the building was $10,800,000. In connection with the purchase the joint venture obtained a $14,000,000 acquisition and construction loan, approximately $7,800,000 of which was drawn down for
the funding of
the acquisition. The loan, which bears a variable-interest rate of one month LIBOR plus 175 basis points, matures in April 2007 and provides one six-month extension option. We have
invested $3,664,000, through December 31, 2004, for our interest in the joint venture.

Paradise
DevelopersWe own approximately 31 acres of undeveloped commercial land in Manassas, Virginia. We plan to develop three office buildings, on
approximately 10 of these acres. In November 2004 we began development on the first of these, an approximately 54,000 square foot commercial office building, which will be offered for sale as
condominium office units. In connection with this development, we have obtained a $7,044,000 development loan, which bears interest at one month LIBOR plus 180 basis points and matures in
April 2006. The remaining buildings will contain a total of approximately 135,000 square feet of office space.

Laguna
VistaIn late 2003 and early 2004 we advanced $3,000,000 to the stockholders of Laguna Vista Company ("Laguna Vista"), which is developing 41 luxury
condominium units in Ocean City, Maryland. In March 2004, we entered into a Stock Purchase Agreement to purchase 100% of the stock of Laguna Vista for $8,000,000 and advanced an additional
$3,000,000 as a deposit toward the purchase of the stock. We acquired the stock of Laguna Vista in March 2005. The purchase price was paid primarily from the deposit and a credit for the
principal and accrued interest on the promissory notes, with the remainder to be paid from cash proceeds of condominium unit sales, after repayment of all construction loans.

In
March, 2004 Laguna Vista obtained a $15,100,000 construction loan, which bears interest at one month LIBOR plus 185 basis points and matures in September, 2005. We guaranteed the purchase of half
of all unpurchased condominium units at the maturity date at a total acquisition price that will equate to one half of the outstanding loan balance at that date. At the time the loan was obtained the
Laguna Vista stockholders contributed $4,000,000 to Laguna Vista as a capital contribution.

9

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We
have consolidated Laguna Vista's assets and liabilities in our consolidated financial statements, due to the financing we have provided and our participation in its anticipated profits.

640
North BroadIn January 2004, a joint venture in which we own an 80% interest and two unaffiliated third parties own the balance, acquired a historic
property in Philadelphia, PA, comprising two buildings, for a purchase price of $9,050,000. The joint venture is redeveloping the buildings into an approximately 266 unit apartment property. In
August, 2004 the partnership obtained a $32,000,000 acquisition and construction loan. The loan bears interest at one month LIBOR plus 155 basis points, has a term of three years and provides for two,
one-year extension options. Simultaneous with the loan closing, the partnership drew down $6,000,000, the proceeds of which were used to pay off a loan the partnership had obtained at the
time the property was acquired. In September 2004, the partnership obtained an additional bridge construction loan totaling $6,900,000. The loan bears interest at one month LIBOR plus 175 basis
points and has a term of three years. Simultaneous with the closing of the construction bridge loan, the joint venture admitted another equity partner which is obligated to contribute approximately
$7,300,000 in exchange for receiving the benefit of certain tax credits, when certain conditions are met. A portion of these equity contributions will be used to repay the bridge loan. Through
December 31, 2004 we have invested $4,867,000 in the joint venture.

900
Northbrook Development ParcelIn November 2003 we acquired for $2,000,000 a 9.6-acre tract of land in the commercial office park in
Trevose, Pennsylvania, which hosts the 900 Northbrook and One Northbrook buildings. We plan to develop a commercial office building, containing approximately 108,000 square feet, on the land.

699
North Broad Street Associates, L.P.In August 2003 a joint venture in which we own a 95% interest, and two unaffiliated third parties own the
balance, acquired a historic building in Philadelphia, PA, called the Divine Lorraine, for a purchase price of $2,295,000. The joint venture plans to redevelop the building into an approximately 135
unit apartment property. We invested $2,375,000 for our interest in the joint venture.

In
October 2004, the joint venture acquired 3.8 acres of land adjacent to the Divine Lorraine, from the School District of Philadelphia for $3,580,000. The land parcel was acquired for the
purpose of developing a parking lot for the Divine Lorraine and for future development projects. We contributed all the proceeds necessary to fund the acquisition, with such funds obtained through
draws on an unsecured line of credit.

Cigar
Factory Apartments L.P.In July, 2003, we invested $1,000,000 in exchange for a 66.7% interest in both Cigar Factory Apartments L.P. ("Cigar Factory")
and Orianna Street Development, LLC ("Orianna Street"). Two unaffiliated third parties own the remaining 33.3% interest in both Cigar Factory and Orianna Street. Cigar Factory owns a warehouse in
Philadelphia, PA, which is being redeveloped into a 30 unit for-sale condominium property, together with parking and associated spaces. Orianna Street owns a parcel of land adjacent to the
Cigar Factory. Cigar Factory has obtained an acquisition and construction loan in the amount of $6,300,000. The loan matures July 2005, but may be extended for an additional year at the option
of the borrower. We have provided a payment guarantee for 66.7% of the loan balance outstanding, with the remaining balance guaranteed by the other members of Cigar Factory.

In
December 2004, we sold our interest in Orianna Street back to the limited liability company for $400,000. In connection with the sale we received $100,000 in cash and a $300,000 promissory
note from Orianna Street. The five-year note, which bears interest at 7.0%, is secured by the land parcel and guaranteed by a member of the limited liability company.

Clarksburg
RidgeIn March, 2003, we purchased a 100% interest in Clarksburg Ridge, LLC ("Clarksburg Ridge") for an aggregate purchase price of $12,200,000. At
the time of the acquisition, Clarksburg Ridge owned a parcel of undeveloped residential land in Clarksburg, Maryland, subdivided into 159 residential lots. Simultaneous with the acquisition, we
entered into an approximately $7,000,000 development management agreement with a third party for the site grading, sewer installation and street paving. In July 2002, Clarksburg Ridge entered
into a sales contract with a homebuilder that provided for the takedown of lots. With the execution of the sales contract, the homebuilder paid Clarksburg Ridge a non-refundable deposit of
$4,950,000. Also in July 2002, Clarksburg Ridge entered into a $7,000,000 acquisition and development loan agreement. The variable rate loan bore interest at the lender's prime rate of interest
plus 100 basis points. The purchase price of Clarksburg Ridge was funded through the assumption of the outstanding balance on the loan of $4,200,000, the application of $3,000,000 of deposit proceeds
from the homebuilder and $5,000,000 in cash. The remaining $1,950,000 of the homebuilder's deposit was refunded to the homebuilder and an appropriate amendment was made to their sales contract. The
acquisition and development loan was fully repaid in 2004.

10

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Undeveloped
Land at Washington Business ParkIn November 2001, a joint venture in which we own an 80% interest and an unaffiliated third party owns the
balance, acquired approximately 26 parcels on 79 acres of undeveloped land in the Washington Business Park located in Lanham, Maryland, for the purposes of either selling the land parcels or holding
the parcels for development opportunities. The purchase price was $8,700,000. In December 2001, the joint venture placed a $5,000,000 mortgage loan on this property. Interest on the loan is
calculated at the lender's Prime Rate of interest plus 75 basis points. The loan matured in November 2004, and was extended through November 2005. The borrower has an option to extend
the maturity date a further 12 months. We invested $4,194,000 for our 80% interest in the joint venture.

Waterfront
ComplexBeginning in 1964, we developed, on a portion of the southwest Washington, D.C. Urban Renewal Area, a shopping-office center ("Complex")
containing approximately 1,144,000 square feet of office, retail and storage space, consisting of two high-rise office buildings ("Office Buildings") containing approximately 326,000
square feet, an enclosed center ("Center") consisting of approximately 740,000 square feet, most of which is office space and the balance consisting of retail space, approximately 1,100 parking spaces
and approximately 78,000 square feet of storage space. These improvements were constructed on ground leased from The District of Columbia Redevelopment Land Agency ("RLA") for a term expiring in 2058
with an option to extend for an additional 20 years.

We
assigned our interests in the Complex to a joint venture entity, B&R Waterfront Properties, LLC ("BRW"). We are the managing member and hold a 54% interest in BRW. A partnership in which
Co-Chairmen of the company are among the partners holds a portion of the remaining 46% interest.

Prior
to September 2002, the United States General Services Administration ("GSA") leased all of the space in the two Office Buildings, as well as the second and third floors of the adjacent
Center and a portion of another smaller structure, totaling approximately 955,000 square feet, or 89.6% of the total office and retail space in the complex, under a thirty year lease agreement. In
September 2002 the GSA lease expired and was not subsequently renewed.

In
October 2002, BRW formed a joint venture, called Waterfront Associates LLC ("WALLC"), with K/FCE Investment LLC ("K/FCE"), a joint venture between the Washington DC based developer, The
Kaempfer Company, Inc., and the national developer, Forest City Enterprises, Inc., to redevelop and reposition the Complex. BRW contributed the leasehold improvements relating to the
Complex to WALLC. Affiliates of K/FCE are marketing, leasing, redeveloping, and managing the complex. K/FCE has the right, subject to certain conditions, to increase its ownership in the joint venture
up to 50% by the making of capital contributions or by causing the joint venture to make capital distributions. To the extent required, K/FCE has committed to contribute the first $25,000,000 of
redevelopment funds. If necessary, BRW may be required to contribute a portion of the additional equity required in excess of the $25,000,000. K/FCE, as the managing member of WALLC, has sole
responsibility for the management, control, and operation of the LLC, as well as for the formulation and execution of its business and investment policy.

While
WALLC still operates the retail space, the expiration of the GSA lease adversely affected the retail tenants in the Complex who relied heavily on business generated by the employees who occupied
the GSA space and several have since vacated their premises. BRW is obligated to pay the costs associated with tenant relocation expenses for the remaining tenants in connection with the redevelopment
of the Complex. The majority of these tenants had received their negotiated relocation costs, which are considered part of the redevelopment, by December 31, 2004. A further tenant received
their payment in January, 2005. We cannot determine at this time the amount or timing of the relocation expenses for those tenants who have not yet received a payment.

As
part of the redevelopment of the Waterfront Complex, BRW may incur significant costs relating to the remediation of hazardous materials. A reserve has been established for this purpose in the
amount of $3,000,000, of which $1,620,000 was contributed by us and the balance was contributed by the minority partners of BRW.

WALLC
is currently active in the preliminary planning and development stages as it continues to seek tenants. Through December 31, 2004, approximately $10,000,000 of planning and development
costs had been incurred by the joint venture, and was funded by capital contributions from K/FCE.

Item 3.    Legal Proceedings

We are not presently involved in any material litigation. We are from time to time involved in routine litigation incidental to our business.

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

No matters were submitted to the vote of the security holders during the fourth quarter of 2004.

11

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The following list is included as an unnumbered Item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to
be held on June 16, 2005.

Executive Officers of Registrant (included pursuant to General Instruction G to Form 10-K and instruction 3 to Item 401(b) of
Regulation S-K).

|Name                |  | Age |  | Positions & Offices                                                          |  | Date Elected to Office                       
|------------------- |  | --- |  | ---------------------------------------------------------------------------- |  | ---------------------------------------------
|Charles S. Bresler  |  | 77  |  | Chairman & Director                                                          |  | June 1970                                    
|Burton J. Reiner    |  | 76  |  | President & Director
Co-Chairman                                             |  | June 1970
February 2003                      
|Sidney M. Bresler   |  | 50  |  | Chief Operating Officer
Chief Executive Officer
Director
Assistant Secretary |  | June 2000
June 2002
August 2002
February 2003
|Jean S. Cafardi     |  | 58  |  | Corporate Secretary                                                          |  | November 2000                                
|Darryl M. Edelstein |  | 37  |  | Chief Financial Officer
Treasurer                                            |  | August 2003
May 2004                         

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

The
instances of family relationships are as follows: Mr. Sidney M. Bresler is the son of Mr. Charles S. Bresler.

Each
officer has held the above positions as his principal occupation for more than the past five years with the exception of Mr. Sidney M. Bresler, Ms. Jean S. Cafardi and
Mr. Darryl M. Edelstein. Prior to June 2000 and during his seventeen years of employment with the Company, Mr. Bresler has served in various capacities. Prior to
November 2000 and during her thirty-eight years of employment with the Company, Ms. Jean S. Cafardi has served in various capacities.

Mr. Darryl
M. Edelstein joined us in August 2003, as our Chief Financial Officer. During the past five years Mr. Edelstein has worked in various finance capacities for Crestline
Capital Corporation. During the eight years prior to that he worked at Host Marriott Corporation, Kraft Foods Inc. and Ernst & Young, LLP. Mr. Edelstein is a Certified Public
Accountant.

12

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PART II

Item 5.    Market for the Company's Common Equity and Related Stockholder Matters

Our
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.

Quarter



2004 Price

2003 Price1st

High

$
25.77

$
21.68Low

$
22.70

$
20.592nd

High

$
28.25

$
21.31Low

$
25.52

$
20.993rd

High

$
30.87

$
22.30Low

$
27.39

$
20.994th

High

$
30.00

$
24.78Low

$
28.88

$
21.41


The
above quotations represent prices adjusted for a 2-for-1 stock split which was effected in the form of a stock dividend on September 1, 2004. These quotations also
represent prices between dealers and do not include retail markup, markdown or commissions and do not represent actual transactions. As of March 4, 2005, there were 77 record holders of Common
Stock.

On
June 16, 2004, the Board of Directors approved an amendment to the Certificate of Incorporation to increase the authorized Common Stock from 4,000,000 shares to 7,000,000 shares. On the same
date the Board of Directors approved a 2-for-1 stock split of the Company's common stock which was effected in the form of a stock dividend. On July 21, 2004,
stockholders holding more than fifty percent of the voting power of the issued and outstanding capital stock executed the shareholder consent to this amendment. The amendment was filed with the
Secretary of State of Delaware on September 1, 2004 at which time the stock dividend was distributed.

On
May 17, 2004, the Company's Board of Directors declared a special cash dividend of $0.50 per common share, $0.25 per share of which was paid on June 15, 2004. The remaining dividend
payment was made on December 15, 2004 at an adjusted per share amount of $0.125. The per share payment was adjusted to take into account the 2-for-1 stock split. Prior
to 2004, the Company had not declared any dividends.

13

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Item 6.    Selected Financial Data

The
following table sets forth our selected consolidated financial data (in thousands, except weighted average number of common shares outstanding and per share amounts), including our consolidated
subsidiaries. The historical financial data should be read in conjunction with the consolidated financial statements and accompanying notes and the discussion set forth in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of Operations," each included elsewhere in this Form 10-K.

YEARS ENDED DECEMBER 31,2004

2003

2002

2001

2000Operating revenues

$
78,258

$
31,298

$
52,833

$
46,891

$
38,786Income from continuing operations

$
3,238

$
1,832

$
5,300

$
9,564

$
9,564Net income

$
4,419

$
9,581

$
6,086

$
10,216

$
10,158Income from continuing operations per common share, basic and diluted

$
0.59

$
0.33

$
0.97

$
1.75

$
1.75Earnings per common share, basic and diluted

$
0.81

$
1.75

$
1.11

$
1.87

$
1.85Total assets

$
535,180

$
348,249

$
243,492

$
203,778

$
136,523Long-term obligations

$
334,355

$
183,142

$
100,586

$
72,496

$
19,373Cash dividends per common share

$
0.25



(2)


(2)


(2)


(2)Weighted average number of common shares outstanding (3)


5,477,212


5,477,212
(3)

5,477,502
(3)

5,477,812
(3)

5,479,538
(3)


---

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this
document.

Overview.

We are a real estate owner and developer with a portfolio that includes commercial, residential and hospitality properties as well as undeveloped and developed land. We earn
our revenues and profits primarily from leasing commercial office space and residential apartment units; providing services at our hospitality properties; selling residential properties and selling
both developed and undeveloped land.

The
expiration of the GSA lease at the Waterfront Complex (see Item 2. Properties) in September 2002 led to a change in our strategy. With the goal of replacing the revenue and income generated
by this property, we began to aggressively acquire real estate assets. We applied a dual investment approach, investing in both operating commercial and residential properties that generate immediate
returns that are relatively stable and predictable in addition to investments in development projects where returns are generally higher but are less immediate, stable or predictable.

To
implement our strategy we took advantage of our strong liquidity position, a low interest rate environment and our core strengths, including our extensive experience and knowledge of the real
estate industry; our strong relationships with financial institutions, real estate investors, management companies and developers; our ability to perform due diligence, arrange financing and execute a
transaction in an efficient and expedient manner, and our reputation and track record for executing such transactions.

We
acquire operating, commercial and residential properties that we identify as having the potential for increased returns and employ management companies with in-depth knowledge of their
local markets to manage the properties. Together with the management companies, we implement capital expenditure and leasing programs to increase the property's occupancy rates, revenue and overall
value. For development projects, we partner with well-respected regional and national developers to acquire real estate for the purpose of developing residential for-sale
condominium units, residential rental apartment units, commercial properties and residential land.

14

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To
achieve the highest possible risk-adjusted return on our invested capital, we seek to minimize the amount of equity we invest in any one acquisition property through obtaining or
assuming high levels of debt relative to the purchase price of the assets we acquire, while still maintaining strong debt service coverage ratios on our mortgage debt. In some instances we further
minimize our required equity contributions through entering into joint venture agreements with unaffiliated third party investors.

During
the two year period ended December 31, 2004, we acquired, through both wholly-owned subsidiaries and joint venture entities with unaffiliated third parties that we consolidate in our
financial statements, a total of 15 commercial office buildings containing approximately 1,200,000 square feet of office space and two residential apartment properties containing 764 apartment units.
The total purchase price of these acquisitions was approximately $206,214,000. In connection with these acquisitions, we placed or assumed fixed-rate mortgage debt totaling $158,918,000 at
an average interest rate of 5.41% and placed variable-rate mortgage debt of $15,000,000.

During
the two year period ended December 31, 2004, we also acquired, through both wholly-owned subsidiaries and joint venture entities with unaffiliated third parties that we consolidate in
our financial statements, 10 parcels of real estate for the purpose of developing residential for-sale condominium units, residential rental apartment units and residential lots. The total purchase
price of these acquisitions was approximately $77,000,000. In connection with these acquisitions, we drew down approximately $47,000,000 on acquisition and development loans and an unsecured line of
credit, and obtained homebuilder deposits totaling $10,000,000.

In
2004 we began to realize the benefits of our acquisition activity. These benefits should be further realized in 2005 with a full year of operations of properties we acquired in 2004, as well as
further income generated from the sale of residential apartment units and residential lots that are either completed or are currently under development.

We
now have a diversified portfolio of assets across the real estate spectrum that encompasses the following four real estate segments: commercial property rentals; residential apartment rentals;
hospitality; and commercial, residential and land development. Our real estate investments are located in the Washington DC, Philadelphia, Pennsylvania, Baltimore, Maryland, Ocean City, Maryland,
Orlando, Florida and Tampa, Florida metropolitan areas.

While
we are focused on growing our portfolio of assets, we also divest of underperforming or older properties that either do not generate adequate returns or do not fit with our overall strategy.
During the two year period ended December 31, 2004 we sold, for a total of approximately $17,900,000, a commercial building leased to a nursing home operator, 95% of our interest in a
residential apartment complex, and five commercial properties leased to convenience store operators. In the future we may continue to divest of properties that either do not generate adequate cash
returns or do not fit our overall goals and objectives. In general, we try to conduct the sale of property as part of a tax free exchange under §1031 of the US Internal Revenue Code and,
as such, defer the taxable gain on sale.

In
2005 we will continue our strategy of investing in both operating properties and in development real estate. Our biggest challenge in 2005 will be to continue to utilize our cash and other sources
of financing available to purchase real estate that has the potential to generate strong cash returns on our investment, in an interest-rate environment that may not be as accommodating as
it has been in recent years, and to maximize the cash returns on our existing assets. While short term interest rates rose steadily during the year ended December 31, 2004, with the one month
LIBOR rate increasing by 130 basis points, the yield curve flattened, evidenced by the 10 year Treasury Note decreasing by three basis points. As a result, the rates at which we were able to
obtain fixed-rate mortgage financing were not significantly affected. However, there is no assurance that long-term rates will remain low. It is widely anticipated that the
Federal Reserve Board will continue to raise short term interest rates and there is no guarantee that the yield curve will remain flat. In a speech made on February 16, 2005, Federal Reserve
Chairman Alan Greenspan stated that the decline in long-term bond yields since the Federal Reserve began raising short-term rates was a "conundrum", which may prove to be a
"short-term aberration". While interest rates remain low our strategy will continue to involve obtaining high debt levels relative to the purchase price of acquired properties. However,
should interest rates increase we may be required to obtain lower levels of debt and look for greater participation from our equity partners or invest larger amounts of our own equity. A higher
interest rate environment would also raise our cost of capital, thereby making it more difficult to find acquisition opportunities that have the potential to meet or exceed our required returns on
investment.

The
discussion that follows is based primarily on our consolidated balance sheets as of December 31, 2004 and 2003, and the results of operations for the years ended December 31, 2004,
2003 and 2002 and should be read along with the "Selected Financial Data," and our consolidated financial statements and related notes. The ability to compare one period to another may be
significantly affected by operating properties in the process of being repositioned, acquisitions and dispositions of commercial and residential properties, residential subdivisions fully developed
and completed, the acquisition and subsequent partial sale of undeveloped commercial and residential lots, and the acquisition and subsequent partial development and sale of residential lots.
Historical results set forth in the "Selected Financial Data"
and our consolidated financial statements are not necessarily indicative of our future financial position and results of our operations.

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Application of Critical Accounting Policies

Our accounting policies comply with accounting principles generally accepted in the United States. The application of these accounting policies involves the exercise of
judgment and use of assumptions as to future uncertainties. We have made best estimates and judgments of certain amounts included in the financial statements. However, actual results could differ from
these estimates and a change in the facts and circumstances of the underlying transactions could significantly change the application of an accounting policy and the resulting financial statement
impact. We have listed below those policies that we believe are critical and require the use of significant judgment in their application.

Rental Property and Equipment

On an annual basis, we assess whether there are any indicators that the value of our real estate properties may be impaired. A property's value is impaired only if our estimate
of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. Our estimate is based on a subjective
assessment that considers factors such as expected future operating income, trends, and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has
occurred, an impairment charge is recorded, resulting in an immediate negative adjustment to net income. The impairment amount is measured as the excess of the carrying amount of the property over the
fair value of the property, such fair value calculated on a discounted future cash flow basis using a risk-adjusted discount rate. The assessment of impairment could affect both our
earnings and the carrying value of property on our balance sheet. If for a given property we were to make a different estimate of future cash flow it could affect the determination as to whether
impairment has occurred.

Acquisition of Real Estate

Upon acquisitions of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below
market leases and acquired in-place leases and tenant relationships) and acquired liabilities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" and allocate purchase price based on these assessments. We assess fair value based on estimated cash flow
projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical
operating results, known trends, and market conditions that may affect the property. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", we evaluate the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If we
incorrectly estimate the values at acquisition or the undiscounted cash flows, initial allocations of purchase price and future impairment charges may be different.
The impact of our estimates in connection with acquisitions and future impairment analysis could be material to our consolidated financial statements.

In
accordance with SFAS No. 141, we are also required to reflect on our balance sheet the fair value of debt assumed in connection with our acquisitions. In order to calculate the fair value of
assumed debt we are required to discount the cash flows relating to the debt, by an interest rate that is an estimate of the market rate of interest for a loan of that type, taking into account such
factors as the cash flow generated by the property, any guarantees of indebtedness, and the amount of debt relative to the property's fair market value. The estimate of fair value of the assumed debt
will affect our interest expense and the carrying amount of the assumed debt on our balance sheet.

Cost of Real Estate Sales

Homebuilding and land development costs are charged to the cost of the homes and land parcels sold under either the specific identification or relative sales value basis
methods, based on what is deemed more appropriate for the project. The relative sales value basis method requires us to estimate the total project revenue. An inaccurate projection of total revenue
would affect the cost of sales recorded related to the sale of homes and developed land.

Investments in Joint Ventures

For all our joint ventures, we are required to determine if the entity is a variable interest entity (VIE). Such a determination includes, among other requirements, that we
evaluate whether the equity investment at risk is sufficient to allow the entity to finance its activities without additional subordinated support from others. If the equity at risk is not sufficient
then the entity is considered a VIE and is subject to consolidation based on the guidelines of FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities" (FIN 46R). If the
equity at risk is sufficient, and various other conditions are met, then the entity is not considered to be a VIE.

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If
a joint venture of ours is a VIE under FIN 46R, we are required to determine whether we are the primary beneficiary through being subject to a majority of the potential variability in gains or
losses of the VIE. If we are the primary beneficiary, then we consolidate our investment in the joint venture. If we are not the primary beneficiary, then we do not consolidate our investment in the
joint venture.

Our
evaluation of the sufficiency of equity at risk and our determination of the primary beneficiary is based on subjective assessments that involve our estimating a number of possible future outcomes
of cash flows for the entity as well as the probability of each outcome occurring. This process includes our estimating future operating income and losses, taking into account industry trends, the
impact of macro economic forces, as well as the effects of demand, competition and other factors. The evaluation of the sufficiency of equity of a joint venture and the determination of the primary
beneficiary will affect the presentation of that joint venture in our consolidated balance sheet and results of operations.

Depreciation Expense

We use judgment in order to allocate the purchase price of all acquired assets and assign useful lives to those assets that have finite lives. Depreciation expense is generally
computed using the straight-line method applied over the deemed useful life of depreciable assets. Tenant improvements are capitalized and amortized over the term of the corresponding
lease. Repairs, maintenance and minor improvements are expensed as incurred. The allocation of the purchase price to assets or assignment of useful lives will affect the amount of depreciation expense
recorded.

Balance Sheet Overview.

The following table reflects certain condensed balance sheet items from our audited consolidated balance sheets as of the dates presented (in thousands):

|                                               |  | December 31,
2004 |         | December 31,
2003 |   | Change
2003 to 2004 | 
|---------------------------------------------- |  | ----------------- | ------- | ----------------- | - | ------------------- | 
|
|Assets:                                        |  |                   |         |                   |   |                     | 
|                                               |  |                   |         |                   |   |                     | 
|Rental property and equipment, at cost         |  | $                 | 319,322 |                   | $ | 203,335             | 
|Property and land under development            |  |                   | 129,595 |                   |   | 22,127              | 
|Cash, cash equivalents, and investments        |  |                   | 49,943  |                   |   | 66,196              | 
|Investments in and advances to joint ventures  |  |                   | 9,842   |                   |   | 35,230              | 
|Deferred charges and other assets, net         |  |                   | 31,523  |                   |   | 13,887              | 
|Total assets                                   |  |                   | 535,180 |                   |   | 348,249             | 
|Liabilities and Shareholders' Equity:          |  |                   |         |                   |   |                     | 
|                                               |  |                   |         |                   |   |                     | 
|Mortgage and construction loans and other debt |  |                   | 334,355 |                   |   | 183,142             | 
|Total liabilities                              |  |                   | 371,067 |                   |   | 204,367             | 
|Minority interest                              |  |                   | 32,968  |                   |   | 15,787              | 
|Shareholders' equity                           |  |                   | 131,145 |                   |   | 128,095             | 

Material
changes in assets include:



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Material
changes in liabilities include:



Financial Overview.

Results of OperationsComparison of the results of operations for the year ended December 31, 2004
compared to 2003.

The following table reflects key line items from our statements of operations for the years ended December 31, 2004 and 2003 (in thousands, except percentages):

|                                                  |  | 2004 |        | 2003 |   | Change
2003 to 2004 |  | % Change
2003 to 2004 |       
|------------------------------------------------- |  | ---- | ------ | ---- | - | ------------------- |  | --------------------- | ------
|
|                                                  |  |      |        |      |   |                     |  |                       |       
|Revenues from commercial rental properties        |  | $    | 33,152 |      | $ | 15,864              |  | $                     | 17,288
|Revenues from residential rental properties       |  |      | 10,343 |      |   | 4,592               |  |                       | 5,751 
|Revenues from hospitality properties              |  |      | 8,099  |      |   | 7,896               |  |                       | 203   
|Revenues from homebuilding and residential lots   |  |      | 24,605 |      |   | 1,633               |  |                       | 22,972
|Other revenues                                    |  |      | 2,059  |      |   | 1,313               |  |                       | 746   
|Total operating revenues                          |  |      | 78,258 |      |   | 31,298              |  |                       | 46,960
|Commercial operating expenses                     |  |      | 13,195 |      |   | 6,484               |  |                       | 6,711 
|Residential operating expenses                    |  |      | 5,017  |      |   | 2,389               |  |                       | 2,628 
|Hospitality operating expenses                    |  |      | 6,172  |      |   | 5,236               |  |                       | 936   
|Commercial depreciation and amortization expense  |  |      | 9,163  |      |   | 4,272               |  |                       | 4,891 
|Residential depreciation and amortization expense |  |      | 2,680  |      |   | 1,025               |  |                       | 1,655 
|Cost of homebuilding and residential lots         |  |      | 21,071 |      |   | 1,650               |  |                       | 19,421
|General and administrative expense                |  |      | 3,973  |      |   | 3,762               |  |                       | 211   
|Interest expense                                  |  |      | 13,998 |      |   | 8,025               |  |                       | 5,973 
|Income from investments in joint ventures         |  |      | 1,360  |      |   | 1,725               |  |                       | (365  
|Gain on sale of investments in joint ventures     |  |      | 624    |      |   |                    |  |                       | 624   
|Minority interest                                 |  |      | 2,007  |      |   | 49                  |  |                       | 1,958 
|Income from discontinued operations, net of tax   |  |      | 1,181  |      |   | 7,749               |  |                       | (6,568
|Net income                                        |  |      | 4,419  |      |   | 9,581               |  |                       | (5,162

General Overview.

Total operating revenues for the year ended December 31, 2004 increased by $46,960,000 over total operating revenues for 2003. The increase was primarily due to revenue
generated from sales of residential lots at Clarksburg Ridge and sales of condominium units at Cigar Factory, along with revenue generated from the acquisition of Victoria Place and The Fountains
apartment complexes and the 900 Northbrook commercial building, in the second half of 2003 and the acquisition of the Fort Washington Executive Center, the West Germantown Pike commercial office
buildings and the One Northbrook commercial office building in the first quarter of 2004.

Net
income for the year ended December 31, 2004 decreased by $5,162,000 compared to net income for 2003. The decrease was primarily due to a $7,129,000 gain, net of taxes, recorded in 2003
relating to the sale of a commercial building leased to a nursing home operator and the sale of 95% of our interest in a residential apartment complex, partially offset by increased income from sales
of residential lots and condominium units.

Commercial Rental Properties.

At December 31, 2004, our commercial portfolio of properties owned by entities that we consolidate consisted of 33 commercial property buildings containing 2,253,000
square feet of space compared to 18 commercial property buildings containing 1,120,000 square feet of commercial space at December 31, 2003, an increase of 1,133,000 square feet.

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The
$17,288,000 revenue increase in 2004 relative to 2003 primarily represents a $16,010,000 increase related to the acquisition in 2004 of the Fort Washington Executive Center, the Baltimore
portfolio of commercial office buildings, the West Germantown Pike commercial office buildings and the One Northbrook commercial office building, and the acquisition in 2003 of the 900 Northbrook
commercial office building. The remaining increase is primarily due to an increase in the average occupancy during the year, primarily at Washington Business Park.

Operating
expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. Operating expenses in 2004
increased relative to 2003 by $6,711,000 due to operating expenses from properties acquired in 2004 and a full year of expenses from properties acquired in 2003.

Depreciation
and amortization expense in 2004 increased by $4,891,000 over the prior year due to the depreciation expense recorded related to the 2004 and 2003 acquisitions.

We
expect rental revenues, operating expenses and depreciation expense to all increase in 2005 due to the acquisitions we have made in 2004.

Residential Rental Properties.

At both December 31, 2004 and December 31, 2003, our residential portfolio of properties owned by entities that we consolidate, consisted of three residential
properties, containing a total of 942 apartment units.

The
$5,751,000 increase in residential rental revenue over the prior year can be primarily attributed to a $5,641,000 increase in revenue reflecting a full year of revenues from Victoria Place and The
Fountains.

Operating
expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. The increase in residential
operating expenses of $2,628,000 over the prior year can be primarily attributed to a full year of operating expenses from Victoria Place and The Fountains.

Depreciation
and amortization expense in 2004 increased by $1,655,000 over the prior year primarily due to a full year of expense from Victoria Place and The Fountains.

Hospitality Properties.

The average daily room rate at The Inn at the Colonnade increased to $134.13 from $130.37 in the prior year, while occupancy decreased to 65.3% from 67.1%. Revenue per
available room ("REVPAR") increased to $87.59 from $87.48 in the prior year. The average daily room rate at the Holiday Inn increased to $83.70 from $75.38 in the prior year, while occupancy decreased
to 60.3% from 69.7%. REVPAR decreased to $50.47 from $52.54 in the prior year.

Revenue
increased by $203,000 over the prior year primarily due to an increase in REVPAR at the Inn at the Colonnade, partially offset by lower REVPAR at the Holiday Inn.

Operating
expenses, which consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense, increased by $936,000
compared to 2003. The increase can be primarily attributed to increased salary and benefits at the Inn at the Colonnade due to the hiring of additional staff in 2004 and severance payments made and
management fees incurred at the Holiday Inn due to the termination of the management agreement with a wholly-owned subsidiary and the signing of a new management agreement with an unrelated third
party management company in July 2004.

Homebuilding and Residential Lots.

Homebuilding and residential lots revenue in 2004 increased by $22,972,000 compared to the prior year. The increase can be attributed to the sale in 2004 of 138 developed lots
at Clarksburg Ridge, 13 condominium units at Cigar Factory and two condominium units at Golfview, compared to the sale in 2003 of 11 developed lots at Clarksburg Ridge and one remaining home in a
residential subdivision we developed in 2002.

The
cost of homebuilding and residential lots in 2004 increased by $19,421,000 compared to the prior year. The increase can be attributed to the cost of sales allocated to the developed lots and
condominium units sold at Clarksburg Ridge, Cigar Factory and Golfview.

Other Revenues.

Other revenues in 2004 increased by $746,000 compared to 2003, primarily due to the payment in full by Third Street S.W. Investors (Third Street"), a joint venture in which we
have a 1% ownership interest, of a note receivable for which $1,584,000 had been previously written-off as uncollectible. This increase was partially offset by decreased management fee
income earned on the residential properties we managed.

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General and Administrative Expense.

General and administrative expense increased by $211,000 compared to 2003 primarily due to higher salary and benefits expense due to the hiring of additional personnel as well
as an increase in consulting expense in 2004, partially offset by a $274,000 pension liability accrual recorded in 2003.

Interest Expense.

The increase in interest expense of $5,973,000 over the prior year is primarily due to interest on debt obtained or assumed in 2004 and 2003 in connection with the acquisitions
of Fort Washington, Victoria Place, The Fountains, the Baltimore portfolio, West Germantown Pike, One Northbrook and 900 Northbrook. For the years ended December 31, 2004 and
December 31, 2003, we capitalized interest of $1,738,000 and $1,023,000, respectively related to our investment in development projects.

Gain on Sale of Investments in Joint Ventures.

Gain on sale of investments in joint ventures increased by $624,000 due to a $731,000 gain recorded in 2004, related to the sale of our 25% interest in Congressional Village
Associates, LLC ("Congressional South"), a joint venture that owned a shopping center. This gain was partially offset by a $107,000 loss recorded in 2004, related to the sale of all the assets owned
by Builders Leasing Company, a joint venture in which we had a 20% ownership interest.

Income from Investments in Joint Ventures.

Income from investments in joint ventures, which consists of income earned from joint ventures that are not consolidated into our financial statements, decreased by $365,000 in
2004 primarily due to the sale in 2003 of five parcels consisting of approximately 15 acres of undeveloped land at Washington Business Park compared to no land sales by unconsolidated joint ventures
in 2004, partially offset by increased income at 1925K Street and Redwood Commercial in 2004.

Provision for Income Taxes.

The provision for income taxes, which includes a provision for both income from continuing operations and income from discontinued operations has been calculated by applying an
effective tax rate of 28.6% in 2004 and 31.3% in 2003. The effective tax rates reflect a reduction from the statutory rates primarily for tax-exempt interest earned on investments in
municipal obligations.

Income from Discontinued Operations, net of tax.

Discontinued operations, net of tax, decreased by $6,568,000, primarily due to a $7,129,000 gain, net of taxes, recorded in 2003 relating to the sale of Maplewood Manor, a
commercial building leased to a nursing home operator and the sale of 95% of our interest in Town Square Commons, LLC ("The Commons"), which owned a residential apartment complex. In 2004 gains on
sale, net of taxes, totaling $1,462,000 were recorded relating to the recognition of a deferred gain on the sale of a residential apartment building and a gain on the sale of five commercial
properties leased to convenience store operators.

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Results of OperationsComparison of the results of operations for the year ended December 31, 2003 compared to 2002.

The
following table reflects key line items from our statements of operations for the years presented (in thousands, except for percentages):

|                                                             |  | 2003 |        | 2002 |   | Change
2002 to 2003 |  | % Change
2002 to 2003 |        
|------------------------------------------------------------ |  | ---- | ------ | ---- | - | ------------------- |  | --------------------- | -------
|
|                                                             |  |      |        |      |   |                     |  |                       |        
|Revenues from commercial rental properties                   |  | $    | 15,864 |      | $ | 34,318              |  | $                     | (18,454
|Revenues from residential rental properties                  |  |      | 4,592  |      |   | 1,578               |  |                       | 3,014  
|Revenues from hospitality properties                         |  |      | 7,896  |      |   | 7,571               |  |                       | 325    
|Revenues from homebuilding and residential lots              |  |      | 1,633  |      |   | 8,176               |  |                       | (6,543 
|Income from investments in joint ventures                    |  |      | 1,725  |      |   | 1,607               |  |                       | 118    
|Interest income                                              |  |      | 2,041  |      |   | 2,738               |  |                       | (697   
|Total operating revenues                                     |  |      | 31,298 |      |   | 52,833              |  |                       | (21,535
|Commercial operating expenses                                |  |      | 6,484  |      |   | 10,576              |  |                       | (4,092 
|Residential operating expenses                               |  |      | 2,389  |      |   | 1,091               |  |                       | 1,298  
|Hospitality operating expenses                               |  |      | 5,236  |      |   | 4,751               |  |                       | 485    
|Residential depreciation expense                             |  |      | 1,025  |      |   | 218                 |  |                       | 807    
|Cost of homebuilding, residential lots and other development |  |      | 1,650  |      |   | 7,259               |  |                       | (5,609 
|General and administrative expense                           |  |      | 3,762  |      |   | 3,497               |  |                       | 265    
|Interest expense                                             |  |      | 8,025  |      |   | 7,078               |  |                       | 947    
|Minority interest                                            |  |      | 49     |      |   | 6,422               |  |                       | (6,373 
|Other expenses                                               |  |      | 14     |      |   | 3,115               |  |                       | (3,101 
|Income from discontinued operations, net of tax              |  |      | 7,749  |      |   | 786                 |  |                       | 6,963  
|Net income                                                   |  |      | 9,581  |      |   | 6,086               |  |                       | 3,495  

General Overview.

Total operating revenues for the year ended December 31, 2003 decreased by $21,535,000 over total operating revenues for 2002. The decrease was primarily due to the
September 2002 expiration of the GSA lease at the Waterfront Complex. The GSA lease generated $19,555,000 of revenue in 2002. In addition, there were fewer residential home and lot sales in
2003 compared to 2002. In 2003 we earned $1,633,000 in revenue from residential home and lot sales, compared to $8,176,000 of revenue earned in 2002. This decrease in revenue was partially offset by
increased revenue generated from our acquisition in the third and fourth quarters of 2003 of the Victoria Place and The Fountains residential apartment complexes and the 900 Northbrook commercial
office building.

Net
income for the year ended December 31, 2003 increased by $3,495,000 compared to net income for 2002. The increase was primarily due to a $7,129,000 gain, net of taxes, recorded in 2003
relating to the sale of a commercial building leased to a nursing home operator and the sale of 95% of our interest in a residential apartment complex. This increase was partially offset by lower
income resulting from the GSA lease expiration. In 2002 the GSA lease generated $6,910,000 of pre-tax income. In addition in 2003, we generated $784,000 less in pre-tax income
from the sale of residential homes and lots as compared to 2002.

Commercial Rental Properties.

At December 31, 2003, our commercial portfolio of properties owned by entities that we consolidate, contained approximately 1,120,000 square feet of commercial space,
compared to approximately 1,054,000 square feet at December 31, 2002, an increase of approximately 66,000 square feet. The average lease space available during 2003 decreased from 2002 by
approximately 776,000 square feet, primarily as a result of the September 2002 expiration of the GSA lease at the Waterfront Complex, and subsequent deconsolidation of the entity that owns the
Complex, which comprised approximately 1,066,000 square feet of commercial space.

The
$18,454,000 revenue decrease in 2003 relative to 2002 can be primarily attributed to a $19,555,000 decrease in revenue related to the GSA lease at the Waterfront Complex, partially offset by a
$604,000 increase in revenue related to the January,
2002 acquisition of the Versar Center and the November, 2003 acquisition of the 900 Northbrook building, and an increase in revenue at Washington Business Park and the Sudley North Buildings due to
higher occupancy rates.

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Operating
expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. Operating expenses in 2003
decreased relative to 2002 by $4,092,000 primarily due to a $4,922,000 decrease in expenses related to the GSA lease at the Waterfront Complex, partially offset by a $433,000 increase in expenses
related to the Versar Center and the 900 Northbrook building acquisitions and an increase in expenses related to all other commercial buildings principally as a result of higher snow removal and
utility costs due to severe weather conditions and record snowfalls in the Washington, DC region during the first quarter of 2003.

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Residential Rental Properties.

Our residential portfolio of properties owned by entities that we consolidate contained 942 apartment units at December 31, 2003, compared to 178 apartment units at
December 31, 2002. The average number of apartment units available during 2003 increased from 2002 by 282 units as a result of the July 2003 acquisition of 364 units at Victoria Place
and the September 2003 acquisition of 400 units at The Fountains, partially offset by the December 2003 sale of 95% of our interest in the Commons, which contains 116 units.

The
$3,014,000 increase in residential rental revenue over prior year can be primarily attributed to a $3,055,000 increase in revenue from the acquisitions of Victoria Place and The Fountains.

Operating
expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. The increase in residential
operating expenses of $1,298,000 over the prior year can be primarily attributed to an increase in operating expenses from the acquisitions of Victoria Place and The Fountains.

Depreciation
expense in 2003 increased by $807,000 over the prior year primarily due to acquisitions made in 2003.

Hospitality Properties.

The average daily room rate at The Inn at the Colonnade decreased to $130.37 from $133.22 in the prior year, while occupancy increased to 67.1% from 65.0%. The average daily
room rate at the Holiday Inn increased to $75.38 from $73.41 in the prior year, while occupancy increased to 69.7% from 61.2%.

The
$325,000 increase in revenue over the prior year reflects a $405,000 increase in revenue at the Holiday Inn, partially offset by an $80,000 decrease in revenues at the Inn at the Colonnade. The
increase in revenue at the Holiday Inn is primarily due to increased military operations at neighboring Andrews Air Force Base. The decrease in revenue at the Inn at the Colonnade is indicative of the
continued weak demand in the hospitality industry as a result of the slow economy in 2003.

Operating
expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. The increase in operating
expenses of $485,000 over the prior year is due in part to the cost of snow removal at both properties as a result of the heavier than normal snowfall experienced in the region. Additionally, the Inn
at the Colonnade incurred higher payroll costs relative to the prior year, in part due to the hiring of a property controller during 2003.

Homebuilding, Residential Lots and Other Construction.

Homebuilding, residential lots and other construction revenue in 2003 decrease by $6,543,000 compared to the prior year. The decrease can be primarily attributed to the sale in
2002 of 48 homes and six lots in the Yorkshire Knolls subdivision and the final seven lots in the St. Mary's County subdivision, compared to the sale in 2003 of 11 developed lots in Clarksburg Ridge
and the final home in the Yorkshire Knolls residential subdivision.

The
cost of homebuilding, residential lots and other construction in 2003 decreased by $5,609,000 compared to the prior year. The decrease can be primarily attributed to fewer residential homes and
lot sales.

Interest Income.

Interest income in 2003 totaled decreased by $697,000 compared to the prior year. The decrease is attributable to lower interest rates compared to the prior year, coupled with
a lower balance in our short-term investment portfolio relative to the prior year, due to the use of funds for investment purposes.

Income from Investments in Joint Ventures.

Income from investments in joint ventures consists of our share of profits and losses generated by non-consolidated joint ventures and partnerships in which we hold
an equity interest. Income from equity investments increased in 2003 by $118,000 over the prior year. The increase can be primarily attributed to a $439,000 increase related to the operations at
Congressional South, in which we invested in December 2002 and a $712,000 increase related to 1925K Street, which was acquired in June 2002, partially offset by a $1,016,000 decrease
related to WBP Undeveloped Land, due to lower margins on land parcel sales.

General and Administrative Expense.

The increase in general and administrative expense of $265,000 over the prior year is primarily due to an increase in salaries, pension costs and legal, accounting and
consulting fees, partially offset by a decrease in bonuses. In 2002 a $1,000,000 performance bonus was paid to the Company's Co-Chairman Charles S. Bresler.

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Interest Expense.

The increase in interest expense of $947,000 over the prior year is primarily due to interest on debt obtained or assumed in 2003 in connection with the acquisition of Victoria
Place, The Fountains and 900 Northbrook, as well as interest on the debt placed on the Paradise Sudley North Office Buildings in 2002.

Minority Interest.

Minority interest expense in 2003 decreased by $6,373,000 primarily due to the expiration of the GSA lease at the Waterfront Complex. The lease expiration and the subsequent
contribution of the Complex to an unconsolidated joint venture, resulted in a reduction in minority interest expense of $5,915,000.

Other Expenses.

Other expenses during 2003 decreased by $3,101,000. The decrease can be attributed to a $1,620,000 accrual established in 2002 for expenses associated with the removal of
hazardous materials at the Waterfront Complex; an $891,000
impairment allowance established in 2002 related to the write-down of our 50% share of Tech High Leasing; a write-down of three vacant properties that had previously been
leased to convenience store operators, and a $585,000 write-off in 2002 for cash advances made to Third Street during that year, of which collection was uncertain.

Income from Discontinued Operations, Net of Tax.

The increase in income from discontinued operations, net of tax, of $6,963,000 is primarily attributable to a $1,711,000 gain, net of tax, related to the sale of Maplewood
Manor and a $5,418,000 gain, net of tax, related to the sale of 95% of our interest in The Commons.

24

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Funds From Operations.

We consider Funds From Operations ("FFO") to be a meaningful measure of our performance and we evaluate management based on FFO. We provide FFO as a supplemental measure for
reviewing our operating performance, although FFO should be reviewed in conjunction with net income which remains the primary measure of performance. FFO is a recognized metric used extensively by the
real estate industry. Accounting for real estate assets using historical cost accounting under generally accepted accounting principles ("GAAP") assumes that the value of real estate assets diminishes
predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating
results that exclude historical cost depreciation to be useful in evaluating the operating performance of real estate companies. As a result, the National Association of Real Estate Investment Trusts
("NAREIT") created the concept of FFO as a standard supplemental measure of operating performance that adjusts GAAP net income to exclude historical cost depreciation.

While
we are not a real estate investment trust ("REIT"), in light of the fact that we are a real estate company with large amounts of depreciable and amortizable real estate assets and we compete
against REITS, we believe FFO to be a relevant measurement of our performance.

FFO
as defined by the NAREIT is "net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis". Our FFO measure
differs from NAREIT'S definition in that we exclude income tax expense related to property sales. The exclusion of income tax expense on property sales is consistent with the objective of presenting
comparative period operating performance. FFO should not be considered an alternative to net income as an indicator of our operating performance, or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity. Additionally, the FFO measure presented by us is not calculated in the same manner as FFO measures of other real estate companies and
therefore may not necessarily be comparable. We believe that FFO provides relevant information about our operations and is useful, along with net income, for an understanding of our operating
activities.

Our
funds from operations were $15,953,000 in 2004, compared to $9,753,000 in 2003, an increase of $6,200,000 or 63.6%. The increase is primarily due to funds from operations generated from properties
we acquired in 2004, a full year of funds from operations generated from properties we acquired in 2003 and increased sales in 2004 of residential homes and lots.

25

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Our
funds from operations were $9,753,000 in 2003, compared to $11,221,000 in 2002, a decrease of $1,468,000 or 13.1%. The reduction is primarily the result of the GSA lease expiration and fewer home
sales, partially offset by an increase in funds from operations from land sales as well as from properties acquired in 2003 and 2002.

The
following table reflects the calculation of FFO (in thousands):

|                      |                                                                                                 | For the years ended December 31,
|--------------------- | ----------------------------------------------------------------------------------------------- | --------------------------------
|
|Net income            |                                                                                                 | $                               
|                      | Add: Depreciation and amortization including share of unconsolidated real estate joint ventures |                                 
|                      | Add: Income tax expense from property sales                                                     |                                 
|                      | Less: Gain on sale of properties                                                                |                                 
|                      |                                                                                                 |                                 
|Funds from operations |                                                                                                 | $                               
|                      |                                                                                                 |                                 

Liquidity and Capital Resources

Cash Flows

Our principal sources of cash are cash from our operations, our ability to obtain mortgage and other financing and asset dispositions. Our principal uses of cash are real
estate acquisitions, investments in real estate joint ventures, funding working capital requirements and payments of debt, capital expenditures and corporate expenses. With current cash and cash
equivalents and investments that are principally short-term in nature, totaling $49,943,000 at December 31, 2004, our sources of cash are sufficient to meet our liquidity needs;
however we cannot be assured that our actual cash requirements will not be greater than we currently expect.

Operating Activities:

During
the year ended December 31, 2004 net cash provided by operating activities was $5,755,000.

Investing Activities:

During
the year ended December 31, 2004 net cash used in investing activities totaled $102,256,000. We experienced cash outflows of $131,547,000, primarily for the acquisition of the Fort
Washington Executive Center, the Baltimore portfolio of commercial office buildings, the West Germantown Pike commercial office buildings, the One Northbrook commercial office building and the 640
North Broad Building, along with the purchase of the ground from the School District of Philadelphia. These outflows were reduced by cash inflows totaling $29,291,000 primarily consisting of proceeds
received from the liquidation of a portion of our investments in municipal obligations and distributions received from joint ventures.

Financing Activities:

During
the year ended December 31, 2004 net cash provided by financing activities totaled $92,854,000. This primarily resulted from the placement of mortgage debt related to the acquisition of
the Fort Washington Executive Center, the Baltimore portfolio of commercial office buildings and the One Northbrook commercial office building, as well as a draw under a development acquisition loan
for the acquisition of the 640 North Broad Building and draws on an unsecured line of credit for the purchase of the ground from the School District of Philadelphia. Reductions in cash as a result of
cash dividend distributions, loan principal payments and an increase in deposits held in escrow were partially offset by amounts contributed by our equity partners into joint venture entities that we
consolidate into our consolidated financial statements.

Excess
cash flow generated from our properties operations and from distributions from joint ventures is typically invested in municipal obligations that are short-term in nature. These
investments are then liquidated as needed for our real estate acquisitions and investments in joint ventures. At December 31, 2004, we had $40,029,000 of such investments.

Future Capital Requirements

Pursuant to several of our loans, we are required to maintain a minimum liquidity (cash, cash equivalents and investments that are short-term in nature) of
$30,000,000. Furthermore, pursuant to our $30,000,000 unsecured

26

---



acquisition
line of credit, we are required to maintain a minimum liquidity to total unsecured debt ratio of 1.5 to 1.0. At December 31, 2004 we had a liquidity balance of $49,943,000 and a
liquidity to unsecured debt ratio of 3.4 to 1.0. Management has determined the maximum amount that we could use of our cash, cash equivalents and short-term investments, together with the
maximum amount that we could borrow under our line of credit, and still be in compliance with our debt covenants, totals approximately $25,000,000 at December 31, 2004. While the availability
of these funds is further restricted by covenants on the line of credit minimizing the amount of total draws that can be used for purchases of real estate related to development and requiring draws to
be made for the purchase of unencumbered real estate only, the funds available should enable us to quickly respond to real estate acquisition opportunities in 2005.

In
May, 2004 we received from the franchisor of our Holiday Inn Express hotel, a Notice of Default and Termination of the license agreement ("Termination Notice"), based on our failure to meet the
quality and service requirements for the hotel. Based on the Termination Notice, in order to avoid the termination of our license agreement we are required to perform various capital improvements and
reach certain guest satisfaction score levels, by June 6, 2005. In 2004 we hired a new management company to manage the property and began a complete renovation of all the hotel rooms and the
hotel lobby, with such renovation expected to be completed by April, 2005. Termination of the license agreement would be an event of default under our loan agreement. The loan agreement also provides
for a prepayment penalty. The total amount outstanding under the loan was $3,627,000 at December 31, 2004. Management believes we have sufficient liquidity to pay off the loan together with the
prepayment fee, in the event our license is terminated and we are unable to refinance the loan.

Projected
cash flow from operations for 2005 indicates that current obligations and working capital needs can be met. Unanticipated funding requirements that could surface include unexpected revenue
losses caused by tenant defaults or bankruptcies that have a detrimental effect on the cash flow generated from operations. In addition, we have an extensive development and construction pipeline.
These development projects may require additional equity contributions should we be unable to obtain the necessary financing or should the existing construction loans be insufficient to fund
development cost overruns.

Long
term our main challenge will be to refinance our existing fixed-rate debt at interest rates that will allow us to continue to maximize cash returns on our investments. At
December 31, 2004 the weighted average interest rate on our fixed-rate mortgage debt was 6.1%. Based on the fixed-rate debt outstanding at December 31, 2004, a
100 basis point increase in the weighted average interest rate on our debt would increase our
annual financing costs by approximately $2,561,000. Our fixed-rate mortgage debt, matures on average in approximately 10 years, beginning in 2007 (see annual contractual principal
payments schedule in the footnotes to the financial statements).

Off-Balance Sheet Commitments

As of December 31, 2004, our off-balance sheet commitments were as follows:



27

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Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2004 (in thousands):

|                               |  |   |         | Payments Due by Period
|------------------------------ |  | - | ------- | ----------------------
|
|Long-term debt obligations (1) |  | $ | 334,182 |                       
|Fixed interest payments        |  |   | 149,935 |                       
|Operating lease obligations    |  |   | 7,612   |                       
|Outstanding letters of credit  |  |   | 156     |                       
|                               |  |   |         |                       
|Total                          |  | $ | 491,885 |                       
|                               |  |   |         |                       

---

During 2003 we assumed debt with a principal balance of $24,600,000. This assumed debt had a premium balance of $173,000 as of December 31, 2004.

28

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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Market
risk is the risk of loss arising from adverse changes in interest rates. Our market risk arises from interest rate risk inherent in our investment assets and our variable rate debt. Interest
rate risk is the possibility that changes in interest rates will cause unfavorable changes in net income or in the value of interest rate-sensitive assets, liabilities and commitments.

We
do not believe that we have any material exposures to adverse changes in interest rates associated with our investment assets. We invest in investment grade state and local government issues with
short-term maturities and fixed rates of return. The short-term nature of the investments provides opportunities for reinvestment at higher interest rates, as those rates
increase.

At
December 31, 2004 we had $78,284,000 of variable-rate debt outstanding. In addition, a joint venture in which we have an 85% non-controlling interest had $20,121,000
of variable-rate debt outstanding. Based on the total of this variable-rate debt outstanding at December 31, 2004, a 100 basis point increase in market interest rates
would impact our pre-tax earnings by approximately $984,000. Assuming the rate increase is not caused by an increase in credit spreads and that there is a proportionate 100 basis point
increase in returns on our cash, cash equivalents and investments, our annual interest income would increase by approximately $500,000.

Based
upon requirements for assessing the market value of debt instruments, we estimate the fair market value by discounting future cash payments at interest rates that approximate the current market.
Based on these parameters, at December 31, 2004, the carrying amount of our total fixed-rate debt was $256,071,000 compared to an estimated fair value of $253,737,000.

Item 8.    Financial Statements and Supplementary Data

The
financial statements are listed under Item 15 in this annual report and are included therein.

No
supplementary data are supplied because none are required.

29

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Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

On
October 5, 2004, upon recommendation of the Audit Committee and approval of the Board of Directors, we dismissed Ernst & Young LLP ("Ernst & Young") as our independent
auditors. Effective as of that date, we appointed Deloitte & Touche LLP ("Deloitte & Touche") to serve as our independent auditors for the year ended December 31, 2004.

Ernst &
Young's reports on our consolidated financial statements for the years ended December 31, 2003 and December 31, 2002, did not contain an adverse opinion or disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2003 and December 31, 2002 and through
the dismissal date, there were: (i) no disagreements with Ernst & Young on any matter of accounting principles or practices, financial statement disclosure, or auditing scope and
procedure which, if not resolved to the satisfaction of Ernst & Young, would have caused Ernst & Young to make reference to the matter in their report; and (ii) there were no
reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

During
each of the years ended December 31, 2003 and December 31, 2002 and through the appointment date, we did not consult Deloitte & Touche with respect to the application of
accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

On
June 27, 2002, upon recommendation of the Audit Committee and approval of the Board of Directors, we dismissed Arthur Andersen LLP ("Arthur Andersen") as our independent auditors. Effective
as of that date, we appointed Ernst & Young to serve as our independent auditors for the year ended December 31, 2002.

Arthur
Andersen's reports on our consolidated financial statements for the years ended December 31, 2001 and December 31, 2000, did not contain an adverse opinion or disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2001 and December 31, 2000 and through
the dismissal date, there were: (i) no disagreements with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope and procedure
which, if not resolved to the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make reference to the matter in their report; and (ii) there were no reportable events as
defined in Item 304(a)(1)(v) of Regulation S-K.

During
each of the years ended December 31, 2001 and December 31, 2000 and through the appointment date, we did not consult Ernst & Young with respect to the application of
accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

Item 9A.    Controls and Procedures

Under
the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that these controls and procedures are effective in informing them of material information relating to the Company that is required to be included in our reports filed
or submitted under the Exchange Act of 1934 (the "Exchange Act"). During the fourth quarter of 2004, there have been no significant changes in our internal controls or in other factors that could
significantly affect these controls.

Disclosure
controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed in such reports is accumulated and communicated to management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decision regarding required disclosure.

Item 9B.    Other Information

No
information is required to be disclosed under this Item.

30

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PART III

Item 10. Directors and Executive Officers of the Company

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 us pursuant to
Regulation 14A, within 120 days after the close of our fiscal year.

Item 11. Executive Compensation

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 us pursuant to
Regulation 14A, within 120 days after the close of our fiscal year, except for the information contained in 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 our 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 our fiscal year.

Item 14. Principal Accounting Fees and Services

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 our fiscal year.

PART IV

Item 15. Exhibits and Financial Statement Schedules

A. Financial Statements

| | Reports of Independent Registered Public Accounting Firms                                                                                                                                       |  | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| | Consolidated Balance Sheets as of December 31, 2004 and 2003                                                                                                                                    |  | 
| | Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002                                                                                                      |  | 
| | Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2004, 2003 and 2002                                                                                 |  | 
| | Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                                                                                                      |  | 
| | Notes to the Consolidated Financial Statements                                                                                                                                                  |  | 
| | Schedule IIIReal estate and accumulated depreciation as of December 31, 2004                                                                                                                   |  | 
| | Schedule IVMortgage loans on real estate as of December 31, 2004                                                                                                                               |  | 
| | 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. |  | 

31

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B. Exhibits

|Exhibit
Number |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                       
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | 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 10-Q for the second quarter of 1991, filed August 14, 1991.)                                                                                                
|3.2            |  | Certificate of Amendment to Certificate of Incorporation filed September 1, 2004 (incorporated by reference to Exhibit 3.1 of Registrant's Quarterly Report on Form 10-Q for the third quarter of 2004, filed November 15,
2004.                                                                                                                                                              
|3.3            |  | Amended and Restated By-laws of Registrant. (Incorporated by reference to Exhibit 4 to Registrant's Annual Report on Form 10-K for 2001, filed April 1, 2002.)                                                                                                                                                                                                                                
|3.4            |  | First Amendment to Bresler & Reiner, Inc. Amended and Restated Bylaws of Registrant. (Incorporated by reference to Exhibit 3.3 of Registrant's Report on Form 10-K for 2002, filed March 31, 2003.)                                                                                                                                                                                           
|3.5            |  | Second Amendment to Bresler & Reiner, Inc. Amended and Restated Bylaws of Registrant. (Incorporated by reference to Exhibit 3.2 to Registrant's Current Report on Form 8-K filed February 26, 2003.)                                                                                                                                                                                          
|9.1            |  | First Amended and Restated Shareholders Agreement, dated as of July 31, 2002, by and between Bresler Family Investors, LLC, Burton J. Reiner and Anita O. Reiner, Joint Tenants, Burton and Anita Reiner Charitable Remainder Unitrust and
Registrant. (Incorporated by reference to Exhibit 2.5 to Registrant's Current Report on Form 8-K, filed August 8, 2002.)                           
|9.2            |  | Second Amended and Restated Shareholders Agreement, dated as of February 21, 2003, by and among Bresler Family Investors, LLC, Burton J. Reiner and Anita O. Reiner, husband and wife as joint tenants, Burton and Anita Reiner Charitable Remainder
Unitrust and Registrant. (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, filed February 26, 2003.)
|10.1           |  | Agreement of Sale and Purchase dated May 14. 2001 between ASP Washington, L.L.C. and ASP Washington Development, L.L.C., and Cohen Companies, LLC. (Incorporated by reference to Exhibit 10.1 of Registrant's Report on Form 10-K for 2003, filed March 30,
 2004.).                                                                                                                          
|10.2           |  | Membership Interest Purchase Agreement dated May 6, 2003 by and among KGH Corporation, Victoria Place Apartments, Ltd. and Osprey Capital, Inc., P.A.C. Land Development Corporation and Bresler & Reiner, Inc (Incorporated by reference to
Exhibit 10.2 of Registrant's Report on Form 10-K for 2003, filed March 30, 2004.).                                                               
|10.3           |  | Purchase and Sale Agreement dated June 6, 2003 between Fountain Ponds, LLC and Bresler & Reiner, Inc (Incorporated by reference to Exhibit 10.3 of Registrant's Report on Form 10-K for 2003, filed March 30, 2004.).                                                                                                                                                                         
|16.1           |  | Letter from Arthur Andersen LLP to the SEC dated June 27, 2002 regarding the change in certifying accountants. (Incorporated by reference to Exhibit 16 to Registrant's Current Report on Form 8-K, filed June 27, 2002.)                                                                                                                                                                     
|16.2           |  | Letter from Ernst & Young LLP to the SEC dated October 7, 2004 regarding the change in certifying accountants. (Incorporated by reference to Exhibit 16 to Registrant's Current Report on Form 8-K, filed October 7, 2004.)                                                                                                                                                                   
|21             |  | Subsidiaries of the Registrant. (Filed herewith.)                                                                                                                                                                                                                                                                                                                                             
|31.1           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from Sidney M. Bresler, Chief Executive Officer. (Filed herewith.)                                                                                                                                                                                                                                                    
|31.2           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from Darryl M. Edelstein, Chief Financial Officer. (Filed herewith.)                                                                                                                                                                                                                                                  
|32             |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from Sidney M. Bresler, Chief Executive Officer and Darryl M. Edelstein, Chief Financial Officer. (Filed herewith.)                                                                                                                                                                                                   

Shareholders
may obtain a copy of any financial statement schedules and any exhibits filed with Form 10-K by writing to: Mr. Darryl M. Edelstein, 11140 Rockville Pike, Suite
620, Rockville, MD 20852. Mr. Edelstein will advise shareholders of the fee for any exhibit.

32

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 31, 2005.

| |  | BRESLER & REINER, INC.
| |  | ----------------------
| |  | By:                   
| |  | By:                   

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on
March 31, 2005.

|                                              |  |                                                                   
|--------------------------------------------- |  | ------------------------------------------------------------------
|/s/SIDNEY M. BRESLERSidney M. Bresler         |  | Chief Executive Officer, Director                                 
|/s/DARRYL M. EDELSTEINDarryl M. Edelstein     |  | Chief Financial Officer (Principal Financial & Accounting Officer)
|/s/BENJAMIN C. AUGERBenjamin C. Auger         |  | Director                                                          
|/s/CHARLES S. BRESLERCharles S. Bresler       |  | Director                                                          
|/s/GARY F. BULMASHGary F. Bulmash             |  | Director                                                          
|/s/RALPH S. CHILDS, JR.Ralph S. Childs, Jr.   |  | Director                                                          
|/s/MICHAEL W. MALAFRONTEMichael W. Malafronte |  | Director                                                          
|/s/BURTON J. REINERBurton J. Reiner           |  | Director                                                          
|/s/RANDALL L. REINERRandall L. Reiner         |  | Director                                                          
|George W. Huguely, III                        |  | Director                                                          

33

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BRESLER & REINER, INC.        FINANCIAL STATEMENTS  YEARS ENDED DECEMBER 31, 2004 and 2003

CONTENTS

|Reports of Independent Registered Public Accounting Firms |                                                            | F-2 & 3
|--------------------------------------------------------- | ---------------------------------------------------------- | -------
|Audited Financial Statements                              |                                                            |        
|                                                          | Consolidated Balance Sheets                                |        
|                                                          | Consolidated Statements of Operations                      |        
|                                                          | Consolidated Statements of Changes in Shareholders' Equity |        
|                                                          | Consolidated Statements of Cash Flows                      |        
|                                                          | Notes to Consolidated Financial Statements                 |        

F-1

---



Report of Independent Registered Public Accounting Firm

To
the Shareholders of Bresler & Reiner, Inc.

We
have audited the accompanying consolidated balance sheet of Bresler & Reiner, Inc. as of December 31, 2004 and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the year then ended. Our audit also included the 2004 information included in the financial statement schedules listed in the Index at Item 15. These
consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for
the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bresler & Reiner Inc., at December 31, 2004, and the
results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2004
information included in the financial statement schedules, when considered in relation to the basic 2004 consolidated financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein.

/s/
Deloitte & Touche LLP

McLean,
Virginia
March 31, 2005

F-2

---



Report of Independent Registered Public Accounting Firm

To
the Shareholders of Bresler & Reiner, Inc.

We
have audited the accompanying consolidated balance sheets of Bresler & Reiner, Inc. (a Delaware corporation, the Company) as of December 31, 2003, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each of the two years in the period ended December 31, 2003. Our audits also included the financial statement schedules
listed in the Index at Item 15(a). These consolidated financial statements and schedules 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose if expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 consolidated financial position of Bresler & Reiner Inc., at
December 31, 2003, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements, taken
as a whole, present fairly, in all material respects, the information set forth therein.



McLean,
Virginia
March 26, 2004

F-3

---





BRESLER & REINER, INC.        CONSOLIDATED BALANCE SHEETS  DECEMBER 31, 2004 AND 2003

|                                                                                                                                                                                                                                                              |                                            | 2004 |                                            | 2003        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---- | ------------------------------------------ | ----------- | -
|ASSETS                                                                                                                                                                                                                                                        |                                            |      |                                            |             |  
|Real Estate:                                                                                                                                                                                                                                                  |                                            |      |                                            |             |  
|                                                                                                                                                                                                                                                              | Rental property and equipment              |      | $                                          | 319,322,000 |  
|                                                                                                                                                                                                                                                              | Property and land development              |      |                                            | 129,595,000 |  
|                                                                                                                                                                                                                                                              | Land held for investment                   |      |                                            | 2,847,000   |  
|                                                                                                                                                                                                                                                              |                                            |      |                                            |             |  
|Real estate, at cost                                                                                                                                                                                                                                          |                                            |      | 451,764,000                                |             |  
|Less: accumulated depreciation                                                                                                                                                                                                                                |                                            |      | (32,820,000                                | )           |  
|                                                                                                                                                                                                                                                              |                                            |      |                                            |             |  
|                                                                                                                                                                                                                                                              |                                            |      | Total real estate, net                     |             |  
|Assets held for sale, net                                                                                                                                                                                                                                     |                                            |      | 110,000                                    |             |  
|Receivables:                                                                                                                                                                                                                                                  |                                            |      |                                            |             |  
|                                                                                                                                                                                                                                                              | Income taxes receivable                    |      |                                            | 1,535,000   |  
|                                                                                                                                                                                                                                                              | Mortgage and notes receivables, affiliates |      |                                            |            |  
|                                                                                                                                                                                                                                                              | Mortgage and notes receivables, other      |      |                                            | 5,680,000   |  
|                                                                                                                                                                                                                                                              | Other receivables                          |      |                                            | 7,063,000   |  
|Cash and cash equivalents                                                                                                                                                                                                                                     |                                            |      | 9,914,000                                  |             |  
|Restricted cash and deposits held in escrow                                                                                                                                                                                                                   |                                            |      | 10,540,000                                 |             |  
|Investments                                                                                                                                                                                                                                                   |                                            |      | 40,029,000                                 |             |  
|Investment in and advances to joint ventures                                                                                                                                                                                                                  |                                            |      | 9,842,000                                  |             |  
|Deferred charges and other assets, net                                                                                                                                                                                                                        |                                            |      | 31,523,000                                 |             |  
|                                                                                                                                                                                                                                                              |                                            |      |                                            |             |  
|                                                                                                                                                                                                                                                              |                                            |      | Total assets                               |             | $
|                                                                                                                                                                                                                                                              |                                            |      |                                            |             |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                          |                                            |      |                                            |             |  
|LIABILITIES                                                                                                                                                                                                                                                   |                                            |      |                                            |             |  
|Mortgage and construction loans and other debt                                                                                                                                                                                                                |                                            | $    | 334,355,000                                |             | $
|Accounts payable, trade and accrued expenses                                                                                                                                                                                                                  |                                            |      | 15,045,000                                 |             |  
|Deferred income taxes payable                                                                                                                                                                                                                                 |                                            |      | 8,911,000                                  |             |  
|Other liabilities                                                                                                                                                                                                                                             |                                            |      | 12,756,000                                 |             |  
|                                                                                                                                                                                                                                                              |                                            |      |                                            |             |  
|                                                                                                                                                                                                                                                              |                                            |      | Total liabilities                          |             |  
|Minority interest                                                                                                                                                                                                                                             |                                            |      | 32,968,000                                 |             |  
|Commitments and contingencies                                                                                                                                                                                                                                 |                                            |      |                                            |             |  
|SHAREHOLDERS' EQUITY                                                                                                                                                                                                                                          |                                            |      |                                            |             |  
|Common shares, $0.01 par value; 7,000,000 shares authorized, 5,679,306 shares issued, and 5,477,212 shares outstanding as of December 31, 2004 and 4,000,000 shares authorized; 2,893,653 shares issued; 2,738,606 shares
outstanding as of December 31, 2003 |                                            |      | 56,000                                     |             |  
|Additional paid-in capital                                                                                                                                                                                                                                    |                                            |      | 7,537,000                                  |             |  
|Retained earnings                                                                                                                                                                                                                                             |                                            |      | 125,369,000                                |             |  
|Treasury stock (202,094 shares as of December 31, 2004 and 101,047 shares as of December 31, 2003)                                                                                                                                                            |                                            |      | (1,817,000                                 | )           |  
|                                                                                                                                                                                                                                                              |                                            |      |                                            |             |  
|                                                                                                                                                                                                                                                              |                                            |      | Total shareholders' equity                 |             |  
|                                                                                                                                                                                                                                                              |                                            |      |                                            |             |  
|                                                                                                                                                                                                                                                              |                                            |      | Total liabilities and shareholders' equity |             | $
|                                                                                                                                                                                                                                                              |                                            |      |                                            |             |  

See
Notes to Consolidated Financial Statements

F-4

---





BRESLER & REINER, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS  FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

|                                                                                                                                 |                                                 | 2004 |                          | 2003       |   | 2002       |          
|-------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ---- | ------------------------ | ---------- | - | ---------- | ---------
|OPERATING REVENUES                                                                                                               |                                                 |      |                          |            |   |            |          
|Homebuilding, residential lots and other development                                                                             |                                                 | $    | 24,605,000               |            | $ | 1,633,000  |          
|Rentalscommercial                                                                                                               |                                                 |      | 33,152,000               |            |   | 15,864,000 |          
|Rentalsresidential                                                                                                              |                                                 |      | 10,343,000               |            |   | 4,592,000  |          
|Hospitality                                                                                                                      |                                                 |      | 8,099,000                |            |   | 7,896,000  |          
|Other                                                                                                                            |                                                 |      | 2,059,000                |            |   | 1,313,000  |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|                                                                                                                                 |                                                 |      | Total operating revenues |            |   | 78,258,000 |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|COSTS AND EXPENSES                                                                                                               |                                                 |      |                          |            |   |            |          
|Cost of homebuilding, residential lots and other development                                                                     |                                                 |      | 21,071,000               |            |   | 1,650,000  |          
|Rental expensecommercial                                                                                                        |                                                 |      |                          |            |   |            |          
|                                                                                                                                 | Operating expenses                              |      |                          | 13,195,000 |   |            | 6,484,000
|                                                                                                                                 | Depreciation and amortization expense           |      |                          | 9,163,000  |   |            | 4,272,000
|Rental expenseresidential                                                                                                       |                                                 |      |                          |            |   |            |          
|                                                                                                                                 | Operating expenses                              |      |                          | 5,017,000  |   |            | 2,389,000
|                                                                                                                                 | Depreciation and amortization expense           |      |                          | 2,680,000  |   |            | 1,025,000
|Hospitality expense                                                                                                              |                                                 |      |                          |            |   |            |          
|                                                                                                                                 | Operating expenses                              |      |                          | 6,172,000  |   |            | 5,236,000
|                                                                                                                                 | Depreciation and amortization expense           |      |                          | 685,000    |   |            | 863,000  
|General and administrative expense                                                                                               |                                                 |      | 3,973,000                |            |   | 3,762,000  |          
|Other expenses                                                                                                                   |                                                 |      |                         |            |   | 14,000     |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|                                                                                                                                 |                                                 |      | Total operating expenses |            |   | 61,956,000 |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|                                                                                                                                 |                                                 |      | Total operating income   |            |   | 16,302,000 |          
|OTHER INCOME (EXPENSES)                                                                                                          |                                                 |      |                          |            |   |            |          
|Interest income                                                                                                                  |                                                 |      | 1,885,000                |            |   | 2,041,000  |          
|Interest expense                                                                                                                 |                                                 |      | (13,998,000              | )          |   | (8,025,000 | )        
|Gain on sale of investments in joint ventures                                                                                    |                                                 |      | 624,000                  |            |   |           |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|Income before income taxes, income from investments in joint ventures, minority interest and income from discontinued operations |                                                 |      | 4,813,000                |            |   | (381,000   | )        
|Income from investments in joint ventures                                                                                        |                                                 |      | 1,360,000                |            |   | 1,725,000  |          
|Minority interest                                                                                                                |                                                 |      | (2,007,000               | )          |   | (49,000    | )        
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|Income before income taxes and discontinued operations                                                                           |                                                 |      | 4,166,000                |            |   | 1,295,000  |          
|(Provision) benefit for income taxes                                                                                             |                                                 |      | (928,000                 | )          |   | 537,000    |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|Income from continuing operations                                                                                                |                                                 |      | 3,238,000                |            |   | 1,832,000  |          
|Income from discontinued operations, net of tax                                                                                  |                                                 |      | 1,181,000                |            |   | 7,749,000  |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|                                                                                                                                 |                                                 |      | Net income               |            | $ | 4,419,000  |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|EARNINGS PER SHARE OF COMMON STOCK                                                                                               |                                                 |      |                          |            |   |            |          
|Basic and Diluted:                                                                                                               |                                                 |      |                          |            |   |            |          
|                                                                                                                                 | Income from continuing operations               |      | $                        | 0.59       |   | $          | 0.33     
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|                                                                                                                                 | Income from discontinued operations, net of tax |      | $                        | 0.22       |   | $          | 1.42     
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|                                                                                                                                 |                                                 |      | Net income               |            | $ | 0.81       |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          
|Weighted average number of common shares outstanding                                                                             |                                                 |      | 5,477,212                |            |   | 5,477,212  |          
|                                                                                                                                 |                                                 |      |                          |            |   |            |          

See
Notes to Consolidated Financial Statements

F-5

---





BRESLER & REINER, INC.        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

|                           |  | COMMON
STOCK |        | ADDITIONAL
PAID-IN
CAPTIAL |   | RETAINED
EARNINGS |   | TREASURY
STOCK |             | TOTAL
SHAREHOLDERS'
EQUITY |  
|-------------------------- |  | ------------ | ------ | -------------------------- | - | ----------------- | - | -------------- | ----------- | -------------------------- | -
|Balance, January 1, 2002   |  | $            | 28,000 |                            | $ | 7,565,000         |   | $              | 106,652,000 |                            | $
|Net income                 |  |              |       |                            |   |                  |   |                | 6,086,000   |                            |  
|Purchase of treasury stock |  |              |       |                            |   |                  |   |                |            |                            |  
|                           |  |              |        |                            |   |                   |   |                |             |                            |  
|Balance, December 31, 2002 |  |              | 28,000 |                            |   | 7,565,000         |   |                | 112,738,000 |                            |  
|Net income                 |  |              |       |                            |   |                  |   |                | 9,581,000   |                            |  
|                           |  |              |        |                            |   |                   |   |                |             |                            |  
|Balance, December 31, 2003 |  |              | 28,000 |                            |   | 7,565,000         |   |                | 122,319,000 |                            |  
|Stock Split                |  |              | 28,000 |                            |   | (28,000           | ) |                |            |                            |  
|Cash dividends paid        |  |              |       |                            |   |                  |   |                | (1,369,000  | )                          |  
|Net income                 |  |              |       |                            |   |                  |   |                | 4,419,000   |                            |  
|                           |  |              |        |                            |   |                   |   |                |             |                            |  
|Balance, December 31, 2004 |  | $            | 56,000 |                            | $ | 7,537,000         |   | $              | 125,369,000 |                            | $
|                           |  |              |        |                            |   |                   |   |                |             |                            |  

See
Notes to Consolidated Financial Statements

F-6

---





BRESLER & REINER, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

|                                                                                            |                                                                    | 2004                                 |                   | 2003                                                |            | 2002       |             
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------------------ | ----------------- | --------------------------------------------------- | ---------- | ---------- | ------------
|OPERATING ACTIVITIES:                                                                       |                                                                    |                                      |                   |                                                     |            |            |             
|Net income                                                                                  |                                                                    | $                                    | 4,419,000         |                                                     | $          | 9,581,000  |             
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            | Depreciation and amortization                                      |                                      |                   | 12,482,000                                          |            |            | 7,554,000   
|                                                                                            | Gain on sale of properties and investments in joint ventures       |                                      |                   | (1,680,000                                          | )          |            | (11,990,000 
|                                                                                            | Income from investments in joint ventures                          |                                      |                   | (1,360,000                                          | )          |            | (1,725,000  
|                                                                                            | Minority interest expense                                          |                                      |                   | 2,007,000                                           |            |            | 49,000      
|                                                                                            | Deferred income taxes                                              |                                      |                   | (862,000                                            | )          |            | 5,092,000   
|                                                                                            | Amortization of finance costs and capitalized interest             |                                      |                   | (925,000                                            | )          |            | 472,000     
|                                                                                            | Asset impairment write-down                                        |                                      |                   |                                                    |            |            |            
|                                                                                            | Homebuilding and land development                                  |                                      |                   | (30,518,000                                         | )          |            | (7,774,000  
|                                                                                            | Cost of homebuilding and land development                          |                                      |                   | 18,454,000                                          |            |            | 1,560,000   
|                                                                                            | Distribution of income from investments in joint ventures          |                                      |                   | 1,583,000                                           |            |            | 1,502,000   
|                                                                                            | Changes in assets and liabilities:                                 |                                      |                   |                                                     |            |            |             
|                                                                                            |                                                                    | Assets held for sale, net            |                   |                                                     | (48,000    | )          |             
|                                                                                            |                                                                    | Receivables                          |                   |                                                     | (318,000   | )          |             
|                                                                                            |                                                                    | Other assets                         |                   |                                                     | (5,926,000 | )          |             
|                                                                                            |                                                                    | Other liabilities                    |                   |                                                     | 8,447,000  |            |             
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            |                                                                    |                                      | Total adjustments |                                                     |            | 1,336,000  |             
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            |                                                                    |                                      |                   | Net cash provided by (used in) operating activities |            |            | 5,755,000   
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|INVESTING ACTIVITIES:                                                                       |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            | Increase in cash due to change in consolidation method             |                                      |                   | 519,000                                             |            |            |            
|                                                                                            | Distributions from (investment in) joint ventures                  |                                      |                   | 6,124,000                                           |            |            | 1,642,000   
|                                                                                            | Deposits for property acquisitions                                 |                                      |                   | (3,610,000                                          | )          |            | (2,044,000  
|                                                                                            | Decrease (increase) in restricted cash                             |                                      |                   | 5,447,000                                           |            |            | (4,384,000  
|                                                                                            | Decrease (increase) in investments in municipal obligations        |                                      |                   | 12,606,000                                          |            |            | 23,200,000  
|                                                                                            | Purchase of rental property, equipment and other                   |                                      |                   | (101,014,000                                        | )          |            | (63,781,000 
|                                                                                            | (Purchase) sale of property and land under development             |                                      |                   | (26,923,000                                         | )          |            | (4,735,000  
|                                                                                            | Decrease (increase) in notes receivable                            |                                      |                   | 4,060,000                                           |            |            | (1,339,000  
|                                                                                            | Proceeds from sale of properties and investments in joint ventures |                                      |                   | 535,000                                             |            |            | 13,804,000  
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            |                                                                    |                                      |                   | Net cash used in investing activities               |            |            | (102,256,000
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|FINANCING ACTIVITIES:                                                                       |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            | Proceeds from mortgage and construction loans and other debt       |                                      |                   | 95,557,000                                          |            |            | 51,306,000  
|                                                                                            | Repayment of notes and real estate loans payable                   |                                      |                   | (2,737,000                                          | )          |            | (1,201,000  
|                                                                                            | Deposits held in escrow                                            |                                      |                   | (3,119,000                                          | )          |            | (4,415,000  
|                                                                                            | Contributions from (distributions to) minority partners            |                                      |                   | 6,489,000                                           |            |            | (123,000    
|                                                                                            | Increase in deferred charges                                       |                                      |                   | (1,967,000                                          | )          |            | (611,000    
|                                                                                            | Dividends paid and purchase of treasury stock                      |                                      |                   | (1,369,000                                          | )          |            |            
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            |                                                                    |                                      |                   | Net cash provided by financing activities           |            |            | 92,854,000  
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|Net (decrease) increase in cash and cash equivalents                                        |                                                                    |                                      | (3,647,000        | )                                                   |            | 6,477,000  |             
|Cash and cash equivalents, beginning of year                                                |                                                                    |                                      | 13,561,000        |                                                     |            | 7,084,000  |             
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|Cash and cash equivalents, end of year                                                      |                                                                    | $                                    | 9,914,000         |                                                     | $          | 13,561,000 |             
|                                                                                            |                                                                    |                                      |                   |                                                     |            |            |             
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                          |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            | Cash paid during the year for:                                     |                                      |                   |                                                     |            |            |             
|                                                                                            |                                                                    | Interest (net of amount capitalized) |                   | $                                                   | 15,312,000 |            | $           
|                                                                                            |                                                                    | Income taxes (current and estimated) |                   |                                                     | 236,000    |            |             
|SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:                                            |                                                                    |                                      |                   |                                                     |            |            |             
|                                                                                            | Acquisition of Sarnia liabilities and mortgage note payable        |                                      | $                 |                                                    |            | $          |            
|                                                                                            | Consolidation of Waterfront Associates, LLC                        |                                      |                   | 9,385,000                                           |            |            |            
|                                                                                            | Contribution of Waterfront Associates, LLC                         |                                      |                   |                                                    |            |            |            
|                                                                                            | Debt assumed on acquisitions                                       |                                      |                   | 24,716,000                                          |            |            | 29,184,000  
|                                                                                            | Deposit liability assumed on Clarksburg Ridge acquisition          |                                      |                   |                                                    |            |            | 2,875,000   

See Notes to Consolidated Financial Statements

F-7

---





BRESLER & REINER, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND ORGANIZATION

Bresler & Reiner, Inc. ("B&R" and, together with its subsidiaries and affiliates, "we," the "Company" or "us") engages in the acquisition, development and
ownership of commercial, residential and hospitality real estate in the Washington, DC; Philadelphia, Pennsylvania; Baltimore, Maryland; Ocean City, Maryland; Orlando, Florida and Tampa, Florida,
metropolitan areas.

PRINCIPLES OF CONSOLIDATION

Our consolidated financial statements include the accounts of Bresler & Reiner, Inc., our wholly owned subsidiaries, and entities which we control or, entities
that are required to be consolidated under Financial Accounting Standards Board Interpretation No. 46R ("FIN 46R"). Entities which we do not control or entities that are not required to
be consolidated under FIN 46R and over whom we exercise significant influence, are accounted for under the equity method.

All
significant intercompany balances and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

Real estate salesGains on sales of homes and land parcels are recognized pursuant to the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 66, "Accounting for Sales of Real Estate." Revenues and cost of sales are recorded at the time each home or land parcel is closed and title and possession have been transferred to the
buyer.

Rentalswe
recognize rental revenue in accordance with SFAS No. 13, "Accounting for Leases." SFAS No. 13 requires that revenue be recognized on a straight-line
basis over the term of the lease for operating leases.

Hospitalitywe
recognize hospitality revenue as services are provided.

Rental,
construction and management feeswe recognize rental, construction and management fees as services are provided.

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,
generally 39 years for buildings and three to 10 years for furniture, fixtures and equipment. Replacements and renovations that extend the useful life of an asset are capitalized and
depreciated over their estimated useful lives. Depreciation expense totaled $7,718,000, $6,393,000 and $5,092,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

Upon
acquisitions of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired
in-place leases and tenant relationships) and acquired liabilities in accordance with SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets" and allocate purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available
market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market conditions that may affect the property.

In
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", we evaluate the recoverability of long-lived assets whenever events or
changes in circumstances indicate that the carrying value 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
its fair value.

PROPERTY AND LAND DEVELOPMENT

When construction commences, costs are recorded in property and land development where they are accumulated by project. Project costs included in property and land development
include materials and labor, capitalized interest and property taxes. These costs are charged to costs of homes and lots sold based on either the specific identification

F-8

---



method
or the relative sales value method, whichever is more appropriate, in accordance with SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects." We review
our accumulated costs to ensure that any costs in excess of net realizable value are charged to operations when identified.

LAND HELD FOR INVESTMENT

Land held for investment is recorded at cost and reviewed for impairment when such indicators arise. If determined to be impaired, it is recorded at its estimated fair value.

INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

For entities that are not deemed to be variable interest entities ("VIEs"), as set forth in FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51" as revised in December 2003, ("FIN 46R"), we account for our investments in these joint ventures in accordance with Statement of Position
No. 78-9, "Accounting for Investments in Real Estate Ventures" and APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." For entities in
which we have a controlling interest, we consolidate the investment and a minority interest is recognized in our consolidated financial statements. Minority interest in the balance sheet represents
the minority owners' share of equity as of the balance sheet date; minority interest in the statements of operations represents the minority owners' share of the income or loss of the consolidated
joint venture. For entities in which we exercise significant influence but do not control, we account for our investment using the equity method of accounting and do not consolidate the investment. We
evaluate control primarily based on the investors' relative voting rights in the joint venture.

For
entities that are deemed to be VIEs, as set forth in FIN 46R, we account for our investments in joint ventures based on a determination of the entity's primary beneficiary. If we are the primary
beneficiary through being subject to a majority of the potential variability in gains or losses of the VIE, then we consolidate our investment in the joint venture. If we are not the primary
beneficiary then we do not consolidate our investment in the joint venture.

INVESTMENTS

Investments consist principally of investments in municipal instruments. Our investments are classified as trading. Trading securities are recorded at fair value, with
unrealized holding gains and losses included in earnings. At December 31, 2004 and 2003, cost approximated fair value for these securities. At December 31, 2004 and December 31,
2003, the total of these investments that were short term in nature with maturities of less than one year, was $34,748,000 and $43,392,000 respectively.

CASH AND CASH EQUIVALENTS

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

RESTRICTED CASH AND DEPOSITS HELD IN ESCROW

Deposits held in escrow include: escrow balances funded in accordance with lender requirements, including escrows for real estate taxes, insurance, replacement reserves, and
lease reserves; deposits held in escrow for tenants; deposits on homes held for sale; and loan funds held back by a lender pending the successful achievement of various coverage targets and occupancy
statistics.

DEFERRED CHARGES AND OTHER ASSETS

Included in deferred charges are fees incurred in connection with obtaining financing for our real estate. These fees are deferred and amortized as a part of interest expense
over the term of the related debt instrument on a straight-line basis, which approximates the effective interest method. In addition, deferred costs include leasing charges, comprised of
tenant allowances and lease commissions incurred to originate a lease, which are amortized on a straight-line basis over the term of the related lease.

The
application of SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets" (together "SFAS Nos. 141 and 142") to real estate acquisitions requires us
to allocate the purchase price to acquired

F-9

---



in-place
leases in addition to land, building and improvements based on the relative fair values of the assets and liabilities acquired. In order to determine the amount of the purchase
price to be allocated to the acquired leases, we are required to make several assumptions regarding the relative value of the in-place leases when compared to the current market. Some of
the judgments required as a part of this exercise include (1) determining the market rental rates of the acquired leases, (2) estimating the market value of concessions (including rent
concessions and tenant improvement allowances) and leasing commissions to be paid on new leases, (3) estimating an appropriate lease-up period and (4) applying an estimated
risk-adjusted discount rate to the existing tenants' leases.

INCOME TAXES

SFAS No. 109, "Accounting for Income Taxes," is applied in calculating our provision for income taxes. As prescribed therein, the provision for income tax is based on
both current and deferred taxes. Current taxes represent the estimated taxes payable or refundable in the current year, and deferred taxes represent estimated future tax effects attributable to
temporary differences and loss carryforwards. Nontaxable income, such as interest on state and municipal securities, is excluded from the provision calculation.

Deferred
income taxes result principally from temporary differences related to the timing of (1) the recognition of real estate sales, lease income, interest expense, and real estate taxes
during development and (2) depreciation for tax and financial reporting purposes.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the stated amounts of assets, liabilities, revenues, and expenses presented in the financial statements, as well as the disclosures relating to contingent liabilities. Consequently, actual
results could differ from those estimates that have been reported in our financial statements.

RECLASSIFICATIONS

Certain amounts in the 2003 and 2002 consolidated financial statements have been reclassified to conform to the current year presentation.

EARNINGS PER COMMON SHARE

We have no dilutive securities; therefore, basic and fully diluted earnings per share are identical.

On
June 16, 2004, the Board of Directors approved an amendment to the Certificate of Incorporation to increase the authorized Common Stock from 4,000,000 shares to 7,000,000 shares. On the same
date the Board of Directors approved a 2-for-1 stock split of the Company's common stock, which was effected in the form of a stock dividend. On July 21, 2004,
stockholders holding more than fifty percent of the voting power of the issued and outstanding capital stock executed the shareholder consent to this amendment. The amendment was filed with the
Secretary of State of Delaware on September 1, 2004, at which time the stock dividend was distributed. Earnings per common share are based upon the weighted-average number of shares outstanding
during the year and have been restated for the 2-for-1 stock split. Weighted average common shares outstanding were 5,477,212 for both the years ended December 31, 2004
and 2003 (restated for the stock split) and were 5,477,502 for the year ended December 31, 2002 (restated for the stock split).

DIVIDENDS

On May 17, 2004, the Company's Board of Directors declared a special cash dividend of $0.50 per common share. Of the total dividend, $0.25 per share was paid on
June 15, 2004, while the remaining dividend was paid on December 15, 2004 at an adjusted per share amount of $0.125. The per-share payment was adjusted to take into account
the 2-for-1 stock split.

COMPREHENSIVE INCOME

Except for net income, we do not have any items impacting comprehensive income. Therefore, comprehensive income and net income are the same.

F-10

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2.     NEW ACCOUNTING PRONOUNCEMENTS

FASB Interpretation No. 46RIn December 2003, the Financial Accounting Standards Board ("FASB") issued the revised FIN 46R, to
expand upon and strengthen existing accounting guidance that address when a company should include the assets, liabilities and activities of another entity in its financial statements. To improve
financial
reporting by companies involved with variable interest entities ("VIEs"), FIN 46R requires that a VIE be consolidated by a company if that company is the primary beneficiary through being subject to a
majority of the potential variability in gains or losses of the VIE (with the primary focus on losses). Prior to FIN 46R, a company generally included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. We had previously adopted the provisions of FIN 46R for variable interest entities created after January 31, 2003. However,
the adoption of FIN 46R for variable interest entities created on or before January 31, 2003 is required for periods ended after March 15, 2004. We have adopted the final
provisions of FIN 46R as of March 31, 2004.

As
a result we have consolidated Waterfront Associates LLC ("WALLC) in which a 54% owned subsidiary of the Company currently owns a 90% interest. We previously classified WALLC in investments in and
advances to joint ventures. The consolidation of WALLC resulted, as of the consolidation date, in an increase in total assets of $10,600,000 (including an increase in property and land development of
$28,757,000 and a decrease in investments in and advances to joint ventures of $18,359,000) an increase in accrued expenses and accounts payable of $1,700,000 and an increase in minority interest
liability of $8,900,000. At December 31, 2004 total assets of this entity were $30,783,000 and total liabilities were $899,000. At December 31, 2004, the Company has $9,825,000 of equity
at risk relating to its investment in WALLC, which represents our maximum exposure to losses from this entity.

We
have also identified Golfview, Laguna Vista, Seaside, 699 North Broad Street, 146 Street, and 400 S. Philadelphia as additional VIEs which we have consolidated into our December 31, 2004
financial statements (see "Significant Transactions, Acquisitions and Investments"). Our total investment in these entities was $20,593,000 at December, 2004, which together with our guarantees as
described in Note 8, represents our maximum exposure to losses from these entities.

3.     SIGNIFICANT TRANSACTIONS, ACQUISITIONS AND INVESTMENTS

During
the years ended December 31, 2004, 2003 and 2002 we entered into several material transactions as described below. All acquisitions of real estate and investments in joint ventures have
been included in our accompanying statements of operations from the date of the transaction forward.

SeasideOn November 5, 2004, we invested $2,500,000 for a 51% interest in an entity that owns a parcel of undeveloped land which is subdivided
into 138 residential lots along with 50 boat slips, in Ocean City, Maryland. An unaffiliated third party owns the remaining membership interest in the entity. The entity intends to develop the land as
lots to be sold along with the boat slips to a homebuilder. The entity purchased the parcel of land and boat slips for approximately $26,000,000 which was funded primarily by a $7,000,000 deposit from
the homebuilder, a $16,000,000 acquisition loan and a $2,888,000 drawdown on a $5,500,000 construction loan. We have consolidated the entity's assets and liabilities in our consolidated financial
statements.

Baltimore PortfolioOn November 1, 2004 a joint venture in which we own a 51% interest and an unaffiliated third party owns the balance, acquired
a portfolio of eight historic commercial office buildings located in the central business district of Baltimore, Maryland containing a total of 530,000 square feet of office space. The purchase price
for the eight buildings was $29,500,000. The joint venture assumed an $8,470,000 mortgage loan on one of the buildings. The loan bears a fixed interest rate of 5.95% and matures in 2012. At the time
of the acquisition the joint venture placed a two-year $15,000,000 mortgage loan on the remaining seven buildings. The loan bears a variable interest rate of one month LIBOR plus 175 basis
points and provides for two, two-year extension options. We
invested $3,500,000 for our 51% interest in the venture. We also contributed an additional $1,500,000 to the venture, which funds are to be returned before any other distributions. We have
consolidated the entity's assets and liabilities and results of operations in our consolidated financial statements.

Third StreetOn October 29, 2004, Third Street, in which we own a 1% interest, sold its interests in two residential buildings located in
Washington DC, to an unaffiliated third party for $10,600,000. A total of $8,400,000 of the net proceeds received by Third Street were used to pay in full notes and advances made by us to Third
Street, together with accrued interest thereon. For the year ended December 31, 2004, we recognized approximately $2,400,000 of

F-11

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income
before taxes related to the repayment due to previous reserves recorded against the advances as well as a deferred gain on sale.

400 S. PhiladelphiaOn September 30, 2004, a joint venture in which we own a 51% interest and an unaffiliated third party owns the balance,
acquired for $2,000,000 a parcel of land in Ocean City, Maryland for the purpose of developing 20 for-sale residential condominium units. We invested 100% of the required equity for the
acquisition. Through December 31, 2004 we have invested $2,000,000 in the joint venture. We have consolidated the entity's assets and liabilities in our consolidated financial statements.

146 StreetOn August 5, 2004, a joint venture in which we own a 51% interest and an unaffiliated third party owns the balance, acquired for
$1,726,000 a parcel of land in Ocean City, Maryland for the purpose of developing 18 for-sale residential condominium units. We invested 100% of the required equity for the acquisition.
Through December 31, 2004 we have invested $1,870,000 in the joint venture. We have consolidated the entity's assets and liabilities in our consolidated financial statements.

GolfviewOn April 7, 2004, a joint venture in which we own a 50% interest and an unaffiliated third party owns the balance, acquired a 144 unit
mid-rise residential rental complex located in St. Petersburg, Florida, for a purchase price of $10,800,000. The joint venture is converting the complex into 140 for-sale
residential condominium units. In connection with the purchase the joint venture obtained a $14,000,000 acquisition and construction loan, approximately $7,800,000 of which was drawn down for the
funding of the acquisition. The loan, which bears a variable-interest rate of one month LIBOR plus 175 basis points, matures in April 2005. Through December 31, 2004 we have invested
$3,670,000 in the joint venture. We have consolidated the entity's assets and liabilities in our consolidated financial statements.

640 North BroadOn January 14, 2004, a joint venture in which we own an 80% interest and two unaffiliated third parties own the balance, acquired
a historic property in Philadelphia, PA, comprising two buildings, for a purchase price of $9,050,000. The joint venture is redeveloping the buildings into an approximately 266 unit apartment
property. In August 2004 the partnership obtained a $32,000,000 acquisition and construction loan. The loan bears interest at one month LIBOR plus 155 basis points, has a term of three years and
provides for two, one-year extension options. Simultaneous with the loan closing, the partnership drew down $6,000,000, the proceeds of which were used to pay off a loan the partnership
had obtained at the time the property was acquired. In September 2004, the partnership obtained an additional bridge construction loan totaling $6,900,000. The loan bears interest at one month
LIBOR plus 175 basis points and has a term of three years. Simultaneous with the closing of the bridge construction loan, the joint venture admitted another equity partner which is obligated to
contribute approximately $7,300,000, when certain conditions are met. A portion of these equity contributions will be used to repay the bridge loan. Through December 31, 2004 we have
contributed approximately $4,867,000 to the joint venture. We have consolidated the entity's assets and liabilities in our consolidated financial statements.

Fort Washington Executive CenterOn February 26, 2004, a joint venture, in which we own a 96.5% interest and two unaffiliated third parties own
the balance, acquired an executive center located in Fort Washington, Pennsylvania, consisting of three commercial buildings containing a total of 393,000 square feet of office space. The purchase
price of the property was $52,664,000. At the time of the acquisition, the joint venture placed a $33,300,000 mortgage loan on two of the buildings and a $15,700,000 mortgage loan on the third
building. Each of the loans bears a fixed-interest rate of 5.6% and matures in ten years. As a condition of financing, we executed conditional master lease agreements as tenant, on each of the loans
for certain periods and space within the properties. Through December 31, 2004 we have contributed approximately $8,473,000 to the joint venture. We have consolidated the entity's assets and
liabilities and results of operations in our consolidated financial statements.

One NorthbrookOn February 18, 2004, we acquired approximately 95,000 square foot office building located in a commercial office park in Trevose,
Pennsylvania, for a purchase price of $16,900,000. In February 2004, we placed a ten-year, 5.75% fixed-rate mortgage of $15,300,000 on the property. As a condition of
financing, we executed a master lease agreement as tenant for certain periods and space within the property. We have invested a total of $3,465,000 in this property through December 31, 2004.
We have consolidated the entity's assets and liabilities and results of operations in our consolidated financial statements.

West Germantown PikeOn February 5, 2004, a joint venture, in which we own a 97.5% interest and two unaffiliated third parties own the balance,
acquired an office complex containing two commercial office buildings, in Plymouth

F-12

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Meeting,
Pennsylvania comprising a total of 115,000 square feet. The total purchase price of the office buildings was $20,500,000. In connection with the acquisition, the joint venture assumed a 5.9%
fixed-rate mortgage loan on the buildings. The loan, which had an outstanding principal balance of $16,246,000 at the time of the assumption, matures in 2013. We invested $4,875,000 for
our 97.5% interest in the joint venture. We have consolidated the entity's assets and liabilities and results of operations in our consolidated financial statements.

900 NorthbrookOn November 26, 2003, a joint venture, in which we own an 87.5% interest and two unaffiliated third parties own the balance,
acquired a 66,000 square foot office building located in a commercial office park in Trevose, Pennsylvania. The purchase price for the office building was $12,050,000. At the time of the acquisition,
the joint venture placed a ten-year, 5.98% fixed-rate mortgage of $11,200,000 on the property. We invested $1,313,000 for our interest in the joint venture. We have
consolidated the entity's assets and liabilities and results of operations in our consolidated financial statements.

900 Northbrook Development ParcelOn November 26, 2003 we acquired for $2,000,000 a 9.6-acre tract of land adjacent to the 900
Northbrook building in the commercial office park in Trevose, Pennsylvania. We plan to develop a commercial office building containing approximately 108,000 square feet of office space, on the land.

Laguna VistaIn September 2003, November 2003, and March 2004, we advanced a total of $3,000,000 to the stockholders of Laguna
Vista Company ("Laguna Vista"), which is developing 41 luxury condominium units in Ocean City, Maryland. In March 2004, we entered into a Stock Purchase Agreement to purchase 100% of the stock
of Laguna Vista for $8,000,000 and advanced an additional $3,000,000 as a deposit toward the purchase of the stock. In March 2004, Laguna Vista obtained a $15,100,000 construction loan, which bears
interest at one month LIBOR plus 185 basis points and matures in September 2005. We guaranteed the purchase of half of all unpurchased condominium units at the maturity date at a total acquisition
price that will equate to one half of the outstanding loan balance at that date. At
the time the loan was obtained the Laguna Vista stockholders contributed $4,000,000 to Laguna Vista as a capital contribution. We have consolidated Laguna Vista's assets and liabilities in our
consolidated financial statements, due to the financing we have provided and our participation in its anticipated profits.

The Fountains at Waterford LakesOn September 25, 2003 we acquired a 400 unit apartment community, located in Orange County, Florida, called The
Fountains at Waterford Lakes ("The Fountains"). The purchase price of The Fountains was $35,100,000, which was paid in part by the assumption of a $24,600,000 permanent mortgage on the property. The
loan bears interest at 5.0% per annum and is non-amortizing, with the outstanding principal balance due and payable in December 2007. No prepayments on the loan are permitted prior
to December 2005.

699 North Broad Street Associates, L.P.On August 27, 2003, a joint venture, in which we own a 95% interest and two unaffiliated third parties
own the balance, acquired a historic building in Philadelphia, PA, called the Divine Lorraine, for a purchase price of $2,295,000. The joint venture plans to redevelop the building into a 135 unit
rental apartment property. On October 20, 2004, the joint venture acquired 3.8 acres of land adjacent to the Divine Lorraine, from the School District of Philadelphia for $3,580,000. The land
parcel was acquired for the purpose of developing a parking lot for Divine Lorraine and for future development projects. Through December 31, 2004 we have invested $6,440,000 in the joint
venture. We have consolidated the entity's assets and liabilities in our consolidated financial statements

Cigar Factory Apartments L.P.On July 24, 2003, we invested $1,000,000 in exchange for both a 66.7% interest in Cigar Factory Apartments L.P.
("Cigar Factory") and a 66.7% interest in Orianna Street Development, LLC ("Orianna Street"). Two unaffiliated third parties own the remaining 33.3% interest in both Cigar Factory and Orianna Street.
Cigar Factory owns a warehouse in Philadelphia, PA, which is being redeveloped into a 30 unit for-sale condominium property, together with parking and associated spaces. Orianna Street
owns a parcel of land adjacent to the Cigar Factory. Cigar Factory has obtained an acquisition and construction loan in the amount of $6,300,000. The loan matures July 2005, but may be extended
for an additional year at the option of the borrower. We have provided a payment guarantee for 66.7% of the loan balance outstanding, with the remaining balance guaranteed by the other members of
Cigar Factory. We have consolidated the entity's assets and liabilities in our consolidated financial statements.

In
December 2004, we sold our interest in Orianna Street back to the limited liability company for $400,000. In connection with the sale we received $100,000 in cash and a $300,000 promissory
note from Orianna Street. The five-year note, which bears interest at 7.0%, is secured by the land parcel and guaranteed by a member of the limited liability company.

F-13

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Victoria Place Apartment, LLCOn July 10, 2003, we invested $8,500,000 for an 85% membership interest in Victoria Place Apartments, LLC
("Victoria Place"). An unaffiliated investor acquired the remaining 15% membership interest as part of the same transaction. Victoria Place owns and operates a 364 unit apartment complex, which is
located in Orange County, Florida. The purchase price for Victoria Place was $39,500,000. The balance of the purchase price was funded by a $34,120,000 permanent, non-recourse
ten-year mortgage on the property which bears interest at 4.72% per annum. At closing, $30,620,000 of the mortgage was disbursed and the remaining $3,500,000 was disbursed in
February 2004, upon the property achieving certain occupancy and debt service coverage targets. The February loan disbursement reduced our invested capital to $5,525,000. We have consolidated
the entity's assets and liabilities and results of operations in our consolidated financial statements.

Clarksburg Ridge, LLCOn March 18, 2003, we purchased a 100% interest in Clarksburg Ridge, LLC ("Clarksburg Ridge") for an aggregate purchase
price of $12,200,000. At the time of the acquisition, Clarksburg Ridge owned a parcel of undeveloped residential land in Clarksburg, Maryland, subdivided into 159 residential lots. Simultaneous with
the acquisition, we entered into an approximately $7,000,000 development management agreement with a third party for the site grading, sewer installation and street paving. In July 2002,
Clarksburg Ridge entered into a sales contract with a homebuilder that provided for the structured takedown of lots. With the execution of the sales contract, the homebuilder paid Clarksburg Ridge a
non-refundable deposit of $4,950,000. Also in July 2002, Clarksburg Ridge entered into a $7,000,000 acquisition and development loan agreement with Columbia Bank. The purchase price
of Clarksburg Ridge was funded through the assumption of the outstanding balance on the loan of $4,200,000, the application of $3,000,000 of deposit proceeds from the homebuilder and $5,000,000 in
cash. The remaining $1,950,000 of the homebuilder's deposit was refunded to the homebuilder and an appropriate amendment was made to their sales contract.

Congressional SouthIn December 2002, we contributed approximately $2,800,000 in exchange for a 25% interest in Congressional South Associates
LLC ("Congressional South"). Unaffiliated third-parties owned the remaining interest. Congressional South owns a shopping center containing approximately 81,000 square feet located in Rockville,
Maryland. In addition, it owns a parcel of ground adjacent to the shopping center that is leased on a net basis to an apartment developer who has constructed approximately 400 apartment units thereon.
In December 2004, we sold our 25% interest to the other members of the joint venture for a price equal to the original contributed capital plus a 20% annual return thereon. Prior to the sale of
our interest, we accounted for our investment in the joint venture by the equity method in our consolidated financial statements.

WaterfrontIn October 2002, following the expiration of a major tenant's lease at the Waterfront Complex, which is located in the Southwest
Washington, D.C Urban Renewal Area, BRW, a 54% owned subsidiary of ours, entered into a joint venture with K/FCE Investment LLC ("K/FCE") (a joint venture between the Washington DC based developer,
The Kaempfer Company, Inc., and the national developer, Forest City Enterprises, Inc.), to form WALLC for the purposes of redeveloping and repositioning the Waterfront Complex. BRW
contributed the buildings and the leasehold improvements relating to the Waterfront Complex to WALLC. Affiliates of K/FCE are marketing, leasing, redeveloping, and managing the complex. K/FCE is the
managing member of WALLC and has sole responsibility for the management, control, and operation of WALLC, as well as for the formulation and execution of its business and investment policy. We have
consolidated the entity's assets and liabilities in our consolidated financial statements effective March 31, 2004. Prior to this date we accounted for our investment in the joint venture by
the equity method in our consolidated financial statements.

Madison BuildingIn August 2002, a joint venture in which we own a 24.9% interest and an unaffiliated third-party owns the balance acquired an
82,000 square foot office building and an adjacent developable parcel located in McLean, Virginia. The adjacent parcel is currently used for parking for the office building. We invested $2,200,000 for
our interest in this joint venture. In August 2002, the joint venture placed a 10-year, 6.35% fixed rate mortgage loan of $14,600,000 on this property. We have accounted for our
investment in the joint venture by the equity method in our consolidated financial statements.

1925 K StreetIn June 2002, a joint venture in which we own an 85% interest and an unaffiliated third-party owns the balance acquired a 149,000
square foot office building located in the central business district of Washington, DC. The purchase price for the office building was $27,150,000. We invested $6,800,000 for our interest in the joint
venture. At the time of the acquisition, the joint venture placed a $20,438,000 five-year mortgage loan on this property, bearing a variable interest rate of one month LIBOR plus 235 basis
points. In February 2004, the promissory note related to this

F-14

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loan
was sold to an unaffiliated third party lender and amended to reflect a variable interest rate of one month LIBOR plus 145 basis points, a maturity date of April 2007 and a payment
guarantee from us of $5,500,000. We have accounted for our investment in the joint venture by the equity method in our consolidated financial statements.

Versar CenterIn January 2002, we acquired two office buildings located in Springfield, Virginia, called the Versar Center, that contain 217,000
square feet of office space, for a purchase price of $20,000,000. In May 2002, we placed a ten-year, 6.18% fixed rate mortgage loan of $18,500,000 on this property. We have
consolidated the entity's assets and liabilities and results of operations in our consolidated financial statements.

Pro-Forma Results of OperationsUnauditedThe following unaudited pro-forma statements reflect our results of
operations as if all the material acquisitions had occurred on the first day of the periods presented (in thousands, except earnings per share amounts):

Pro-forma
Years Ended December 31,2004

2003Operating revenues

$
79,771

$
45,034Net income

$
4,413

$
9,540Earnings per share

$
0.81

$
1.74


These
unaudited pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the
acquisitions been effective January 1, 2003.

4.     RENTAL PROPERTY AND EQUIPMENT (in thousands):

December 31,2004

2003Land

$
46,680

$
28,109Buildings and improvements


267,181


169,220Equipment


5,461


6,006319,322


203,335LessAccumulated depreciation


(32,820
)

(24,948
)Rental property and equipment, net

$
286,502

$
178,387


5.     MORTGAGE AND NOTES RECEIVABLES

MORTGAGES AND NOTES, AFFILIATES (in thousands):

December 31,2004

2003Mortgages and notes

$


$
1,216Installment sales





1,060$


$
2,276


F-15

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MORTGAGES AND NOTES, OTHER (in thousands):

December 31,2004

2003Mortgages and notes:Condominium sales, 8% to 13%, net of deferred gain of $24 and $6 in 2004 and 2003, respectively

$
33

$
23Notes receivable:12% due 2006


4,393


8.5% due 2006


750


7.0% due through 2015


160


18% due 2004





3,30016% due 2004





2,000Other (1)


344


395$
5,680

$
5,718


All
mortgages are collateralized by first deeds of trust on real estate property.

6.     INTANGIBLE ASSETS

As
a result of adopting SFAS Nos. 141 and 142, we have intangible in-place lease assets and intangible in-place lease liabilities. The following table summarizes these intangible assets and
liabilities as of the dates presented (in thousands):

As of December 31,2004

2003Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
AmortizationAcquired in-place lease assets

$
19,800

$
6,893

$
7,529

$
2,434Acquired in-place lease liabilities


3,130


1,224


756


433


The
amortization of acquired in-place lease assets, included in depreciation and amortization expense totaled $3,544,000 for the year ended December 31, 2004.

The
amortization of acquired in-place lease assets, net of acquired in-place lease liabilities, included as a net reduction in revenues totaled $124,000 for the year ended December 31, 2004.

The
estimated annual amortization of acquired in-place lease assets, net of acquired in-place lease liabilities to be included as a net reduction in revenues for each of the
five succeeding years is as follows (in thousands):

2005

$
1,9942006


1,7522007


5672008


5952009


356


The
estimated annual amortization of acquired in-place lease assets to be included in amortization expense for each of the five succeeding years is as follows (in thousands):

2005

$
4,3282006


3,6722007


2,6722008


1,5552009


736


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7.     INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

At
December 31, 2004, our investments in non-consolidated joint ventures and partnerships consisted of the following:

Joint Venture

Ownership
Percentage1925 K Associates LLC ("1925 K Street")

85%WBP Undeveloped Land ("WBP Undeveloped Land")

80%Madison Building Associates, LLC ("Madison Building")

25%Selborne House at St. Marks Owner, LLC ("Arbor Crest")

33%Redwood Commercial Management, LLC ("Redwood Commercial")

50%Tech-High Leasing Company ("Tech-High Leasing")

50%Builders Leasing Company ("Builders Leasing")

20%Third Street SW Investors ("Third Street")

1%


Below
are condensed balance sheets for our unconsolidated joint venture entities as of December 31, 2004 and 2003 (in thousands):

December 31,2004

2003ASSETSCash

$
1,348

$
1,138Land held for investment


5,432


5,432Construction in progress





9,484Land, building and equipment, net


77,654


94,014Other assets


1,276


10,328Total assets

$
85,710

$
120,396LIABILITIES AND MEMBERS' EQUITYMortgages and notes

$
39,366

$
72,521Other liabilities


5,527


7,787Total liabilities


44,893


80,308Members' equity


40,817


40,088Total liabilities and members' equity

$
85,710

$
120,396Company's interest in members' equity

$
9,738

$
31,671


The
difference between the carrying value of our investment in unconsolidated joint ventures and partnerships and our accumulated membership interest noted above is primarily due to advances to the
joint ventures and capitalized interest on our investment balance in joint ventures that own real estate under development.

Below
are condensed statements of operations for our unconsolidated joint venture entities for the periods indicated (in thousands):

Years Ended December 31,2004

2003Operating revenues

$
23,397

$
18,609Operating expenses


8,132


11,591Interest expense


2,511


2,263Depreciation expense


2,112


1,703Net income

$
10,642

$
3,052Company's equity in earnings of unconsolidated joint ventures

$
1,360

$
1,725


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Waterfront AssociatesIn October 2002, following the expiration of the GSA lease at the Waterfront Complex, BRW, a 54%
owned subsidiary of ours, entered into a joint venture called Waterfront Associates LLC ("WALLC"), with K/FCE Investment LLC ("K/FCE"), a joint venture between the Washington DC based developer, The
Kaempfer Company, Inc., and the national developer, Forest City Enterprises, Inc., to redevelop and reposition the Waterfront Complex. BRW contributed the leasehold improvements relating
to the Waterfront Complex to WALLC. Affiliates of K/FCE are marketing, leasing, redeveloping, and managing the complex. K/FCE is the managing member of WALLC and has sole responsibility for the
management, control, and operation of WALLC, as well as for the formulation and execution of its business and investment policy. Beginning the date the joint venture was formed through
March 31, 2004, BRW did not consolidate the assets, liabilities and operations of WALLC, since BRW no longer had control of the Waterfront Complex. Beginning March 31, 2004 BRW began to
consolidate the assets, liabilities and operations of WALLC, in accordance with FIN 46R.

8.     MORTGAGE AND CONSTRUCTION LOANS AND OTHER DEBT (in thousands):

|Property (1)                                         |  | Interest Rate                       |  | Maturity |  | December 31,
2004 |         | December 31,
2003
|---------------------------------------------------- |  | ----------------------------------- |  | -------- |  | ----------------- | ------- | -----------------
|Fort Washington                                      |  | 5.60%                               |  | 2014     |  | $                 | 48,556  |                  
|Washington Business Park                             |  | 7.63%                               |  | 2031     |  |                   | 38,983  |                  
|Victoria Place Apartments                            |  | 4.72%                               |  | 2013     |  |                   | 33,446  |                  
|The Fountains                                        |  | 5.00%                               |  | 2007     |  |                   | 24,773  |                  
|Seaside                                              |  | Lender's Prime Rate                 |  | 2007     |  |                   | 19,095  |                  
|Versar Center                                        |  | 6.18%                               |  | 2013     |  |                   | 18,100  |                  
|Sudley North Buildings A,B,C,& D and Bank Bldg.      |  | 7.47%                               |  | 2012     |  |                   | 17,597  |                  
|West Germantown Pike                                 |  | 5.90%                               |  | 2013     |  |                   | 16,064  |                  
|One Northbrook                                       |  | 5.75%                               |  | 2014     |  |                   | 15,166  |                  
|Baltimore Portfolio (7 Buildings)                    |  | One month LIBOR + 175 basis pts.    |  | 2006     |  |                   | 15,000  |                  
|900 Northbrook                                       |  | 5.98%                               |  | 2013     |  |                   | 11,073  |                  
|Golfview                                             |  | One month LIBOR + 175 basis pts.    |  | 2007     |  |                   | 10,385  |                  
|Laguna Vista                                         |  | One month LIBOR + 185 basis pts.    |  | 2005     |  |                   | 10,236  |                  
|Inn at the Colonnade                                 |  | 7.45%                               |  | 2011     |  |                   | 9,806   |                  
|Baltimore Portfolio (1 Building)                     |  | 5.95%                               |  | 2012     |  |                   | 8,452   |                  
|640 North Broadacquisition and construction loan    |  | One month LIBOR + 155 basis pts.    |  | 2007     |  |                   | 6,076   |                  
|Fort Hill                                            |  | 7.70%                               |  | 2011     |  |                   | 5,554   |                  
|Charlestown North                                    |  | 6.74%                               |  | 2012     |  |                   | 4,874   |                  
|Holiday Inn Express                                  |  | 7.88%                               |  | 2011     |  |                   | 3,627   |                  
|640 North Broadbridge construction loan             |  | One month LIBOR + 175 basis pts.    |  | 2007     |  |                   | 2,052   |                  
|Cigar Factory                                        |  | One month LIBOR + 275 basis pts.    |  | 2005     |  |                   | 1,566   |                  
|Clarksburg Ridge                                     |  | Lender's Prime Rate +100 basis pts. |  | 2005     |  |                   |        |                  
|                                                     |  |                                     |  |          |  |                   |         |                  
|Total mortgage and construction loans                |  |                                     |  |          |  |                   | 320,481 |                  
|Unsecured Loan to B&R (2)                            |  | One month LIBOR + 195 basis pts.    |  | 2005     |  |                   | 6,000   |                  
|Acquisition Line of Credit (3)                       |  | One month LIBOR + 175 basis pts.    |  | 2005     |  |                   | 7,874   |                  
|                                                     |  |                                     |  |          |  |                   |         |                  
|Total mortgage and construction loans and other debt |  |                                     |  |          |  | $                 | 334,355 |                  
|                                                     |  |                                     |  |          |  |                   |         |                  

---

At December 31, 2004 the one month LIBOR rate was 2.42%

On
August 3, 2004 we obtained a $30,000,000 unsecured line of credit. Draws under the line bear interest at a variable-interest rate of one month LIBOR plus 175 basis points. Terms of the line
require draws to be used for the acquisition of unencumbered real estate, with a maximum of $15,000,000 to be used for the purchase of development real estate. The line, which matures in
August 2005, had $7,874,000 outstanding at December 31, 2004.

Pursuant
to several of our loan agreements, we are required to maintain a minimum net worth of $100,000,000, a minimum liquidity of $30,000,000 and a minimum liquidity to unsecured debt ratio of 1.5
to 1.0. Furthermore, we are

F-18

---



required
to achieve annual net income of $4,000,000 and annual funds from operations, (defined as net income, computed in accordance with Generally Accepted Accounting Principles, excluding gains or
losses, net of taxes, from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures), of $9,500,000. During the year ended
December 31, 2004, we were in compliance with all covenants under our loan agreements.

On
May 26, 2004, we received from the franchisor of our Holiday Inn Express hotel, a Notice of Default and Termination of the license agreement ("Termination Notice"), based on our failure to
meet the quality and service requirements for the hotel. Based on the Termination Notice, in order to avoid the termination of our license agreement we are required to perform various capital
improvements and reach certain guest satisfaction score levels, by June 6, 2005. Termination of the license agreement is an event of default under our loan agreement. The loan agreement also
provides for a prepayment penalty.

At
December 31, 2004, we had unused capacity totaling approximately $70,826,000 under various development loans and a line of credit.

We
capitalized $1,738,000 and $1,023,000 of interest in 2004 and 2003, respectively.

Annual
contractual principal payments as of December 31, 2004, are as follows (in thousands):

2005

$
28,7922006


18,3132007


65,7302008


3,7442009


3,9852010 and thereafter


213,618Total

$
334,182


During
2003, we assumed debt with a principal balance of $24,600,000. This assumed debt had a premium balance of $173,000 as of December 31, 2004.

9.     COMMITMENTS AND CONTINGENCIES

GUARANTEES

We have provided an unconditional and irrevocable payment guaranty of $5,500,000 to Wachovia Bank, N.A in connection with a loan made to 1925K Associates, LLC. The loan matures
in April 2007, but may be extended for up to an additional two years at the option of the borrower.

We
have provided an unconditional and irrevocable payment guaranty to Riggs Bank for 33.3% of the loan balance outstanding under the $7,100,000 construction loan, made to Arbor Crest. The other
members of Arbor Crest have guaranteed the remaining balance under the loan. The loan matures in January 2006 and provides for one 5-year extension option. Our payment guarantee
will be reduced to 16.7% of the outstanding loan
balance, upon Arbor Crest maintaining a debt service ratio of 1.25 to 1.0 for a period of one year. At December 31, 2004, the outstanding loan balance totaled $6,436,000.

We
have guaranteed repayment of 66.7% of the loan balance outstanding under the $6,300,000 acquisition and construction loan made by Citizen's Bank of Pennsylvania to Cigar Factory Apartments, L.P.
("Cigar Factory"). The remainder of the outstanding balance under the loan has been guaranteed by the other members of Cigar Factory. The loan matures in July 2005, but may be extended for an
additional year at the option of the borrower. Together with the other members of Cigar Factory, we have also guaranteed completion of construction of improvements to Cigar Factory on or before the
maturity date of the loan, or if the loan is extended, the extended maturity date. At December 31, 2004, the outstanding loan balance totaled $1,566,000.

In
connection with the $15,100,000 construction loan Laguna Vista has obtained from Wachovia Bank, N.A, we have guaranteed the purchase of half of all unpurchased condominium units at Laguna Vista at
September 30, 2005 at a total acquisition price that will equate to one half of the outstanding loan balance at that date. At December 31, 2004, the outstanding loan balance totaled
$10,236,000.

F-19

---



We
have guaranteed repayment of the entire loan balance outstanding under a $15,000,000 mortgage loan made by Wachovia Bank, N.A to the entities that own seven of the Baltimore properties. The loan
matures in 2006 and provides for two, two-year extension options. The outstanding loan balance totaled $15,000,000 at December 31, 2004.

In
connection with both the $32,000,000 acquisition and construction loan and the $6,900,000 bridge construction loan 640 North Broad has obtained form Wachovia Bank, N.A, we have guaranteed the full
amount of the outstanding balance under the loans. Both loans mature in 2007, while the acquisition and construction loan provides for two one-year extension options. At
December 31, 2004, the total amount outstanding under the loans totaled $8,128,000.

Paradise
Developers, a wholly-owned subsidiary of ours has obtained a $7,044,000 development loan from Wachovia Bank, N.A, maturing in 2006, the full amount of which has been guaranteed by us. At
December 31, 2004, there were no loan draws outstanding under the loan.

MASTER LEASE AGREEMENTS

In connection with the two mortgage loans obtained for the Fort Washington Executive Center, we have entered into two master lease agreements with the lender. One requires us
to lease 41,000 square feet of office space at an annual rent of $21.25 per square foot for a five year term ending February 2009, provided a lease for this space is not obtained. In 2004, the
joint venture obtained a lease covering 5,000 square feet of this space, with such lease providing for first year rent of $18.00 per square foot. In January 2005, the joint venture obtained a
lease covering 30,000 square feet of this space, with such lease providing for first year rent of $21.25 per square foot. The other master lease agreement
requires us to lease 110,000 square feet of office space at an annual rent of $21.00 per square foot for a five year term beginning January 2008, provided a major tenant fails to exercise a
five year extension option on their lease at that time.

In
connection with the mortgage loan obtained for the One Northbrook building, we have entered into a master lease agreement with the lender. The agreement requires us to lease 9,000 square feet of
office space at an annual rent of $24.25 per square foot for a five year term, beginning February 2004, provided a lease for this space is not obtained. In 2004, we obtained leases covering
approximately 7,000 square feet of this space, with such leases providing for first year rent of between $20.75 per square foot and $23.50 per square foot. In March 2005 we obtained a lease
covering the remaining square feet under the master lease agreement, with such lease providing for first year rent of $19.00 per square foot.

LITIGATION

We are not presently involved in any material litigation nor to our knowledge is any litigation threatened against us or our subsidiaries that, in management's opinion, would
result in any material adverse effect on our financial condition, results of operations or cash flows.

10.   DISCONTINUED OPERATIONS

In
December 2004, we sold to two unaffiliated parties five commercial properties that were leased to convenience store operators. The total purchase price, less closing costs, was $1,474,000,
of which $910,000 was provided in the form of promissory notes. The one note, in the amount of $750,000, bears interest at 8.5%, is non-amortizing and matures in December 2006. The
other note, in the amount of $160,000, bears interest at 7.0%, is amortized over an 11 year period and matures in December 2015. We have recorded the results of operations of the five
properties along with a $575,000 gain, net of taxes, as part of discontinued operations, in the accompanying consolidated statements of operations.

In
October 2004, Third Street, in which we own a 1% interest, sold its interests in two residential buildings to an unaffiliated third party for $10,600,000. A total of $8,400,000 of the net proceeds
received by Third Street were used to pay in full notes and advances made by us to Third Street, together with accrued interest thereon. We have recorded a $478,000 deferred gain on sale, net of
taxes, in the accompanying consolidated statements of operations related to the repayment of the notes.

In
December 2003, we sold 95% of our interest in Town Square Commons, LLC ("The Commons"), to an unaffiliated party, for a total price of $9,918,000. The Commons owns a 116 unit apartment
complex in Washington DC. The sale was part of a tax free exchange under §1031 of the US Internal Revenue Code and, as such, the taxable gain on the sale was deferred. The purchaser has a
call option to purchase, and we have a corresponding put option to sell, the

F-20

---



remaining
5% interest in The Commons for a price of $522,000, beginning December 2004. We have recorded the results of operations of The Commons along with a $5,418,000 gain, net of taxes as
part of discontinued operations, in the accompanying consolidated statements of operations.

In
May 2003, we sold to an unaffiliated party our Maplewood Manor nursing home in Lakewood, New Jersey. Pursuant to this agreement, the purchaser acquired the nursing home for $6,500,000. Of
the total purchase price, $3,900,000 was paid in cash with the balance of the purchase price, $2,600,000, given by us as a charitable gift to the purchaser, a charitable organization. The sale was
part of a tax free exchange under §1031 of the US Internal Revenue Code and, as such, the taxable gain on the sale was deferred. We have recorded the operating results of the nursing home
along with a $1,711,000 gain, net of taxes as part of discontinued operations in the accompanying consolidated statements of operations.

The
following summary presents the combined operating results of and gains on sale from properties we have classified as discontinued operations (in thousands):

Years Ended December 31,2004

2003

2002Revenues

$
195

$
1,573

$
2,205Income before gain on sale and provision for income taxes

$
148

$
772

$
1,331Gain on sale


1,874


11,882


Provision for income taxes


(841
)

(4,905
)

(545
)Income from discontinued operations

$
1,181

$
7,749

$
786


11.   INCOME TAXES

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

We
file a consolidated federal income tax return. The provision for income taxes includes the following components (in thousands):

2004

2003

2002Provision for income taxesCurrent tax

$
2,631

$
(724
)
$
4,260Deferred tax


(862
)

5,092


(1,081
)Total provision for income taxes (including discontinued operations)

$
1,769

$
4,368

$
3,179


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

2004

2003

2002Statutory rate

34.0
%
34.0
%
34.0
%Increase (decrease) resulting from:State taxes, net of federal income tax benefit

5.3
%
5.5
%
6.3
%Interest income from tax-exempt bonds

(6.2
)%
(5.7
)%
(6.6
)%Other

(4.5
)%
(2.5
)%
0.6
%Effective rate

28.6
%
31.3
%
34.3
%


F-21

---



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 (in thousands):

Deferred tax
liability (asset)
as of
December 31,
2004

Deferred income
tax provision
(benefit) for
the year ended
December 31, 2004

Deferred tax
liability (asset)
as of
December 31,
2003Basis in property

$
4,527

$
1,187

$
3,340Charitable contributions


(708
)

319


(1,027
)Investments in partnerships


1,224


(2,070
)

3,294Lease intangibles


(1,243
)

(825
)

(418
)Installment sales





(127
)

127Gain on sale


4,914


(25
)

4,939Other


197


679


(482
)Total

$
8,911

$
(862
)
$
9,773


12.   OPERATING LEASES

AS A LESSEE

At December 31, 2004 we were obligated under two land leases with the District of Columbia Redevelopment Land Agency. The leases pertain to land on which we own
commercial properties that are currently under development. The leases, which expire in 2058, have aggregate annual rental payments of approximately $130,000.

In
February 2003, we entered into a lease agreement for the lease of our corporate offices in Rockville, Maryland. The lease expires in February 2010. Rent paid under the lease for the
year ended 2004 was $121,000.

Minimum
rentals to be paid under these leases at December 31, 2004, are as follows (in thousands):

2005

$
2542006


2582007


2622008


2652009


2692010 and thereafter


6,304Total

$
7,612


AS A LESSOR

Substantially all noncancelable leases of residential property are for a term of one year of 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 as of December 31, 2004 are as follows (in thousands):

2005

$
30,6002006


26,2152007


21,5942008


13,8922009


7,4422010 and thereafter


8,760Total

$
108,503


F-22

---



13.   TRANSACTIONS WITH AFFILIATES

We
have business transactions with several affiliates that are owned in part by certain of our shareholders, officers, and directors. These transactions are summarized as follows (in thousands):

2004

2003

2002Revenues:Leasing fees

$


$


$
171Management fees


16


365


527Interest





306


330Cost and expenses:Interest


329





164


In
addition, certain affiliated entities participate under our insurance policy and reimburse us for the associated policy premiums.

14.   BENEFIT PLANS

DEFINED CONTRIBUTION PLAN

In November 2004, we established a defined contribution plan ("401K") that covers all employees. For the year ended December 31, 2004, we contributed
approximately $12,000 to the 401K plan which was expensed in the General and Administrative Expenses on our Statements of Operations.

DEFINED BENEFIT PENSION PLAN

Most of our employees are covered by our defined benefit pension plan. We have made contributions to the plan to trusts established to pay future benefits to eligible retirees
and dependents. We use December 31 as our measurement date. Benefit obligations as of the end of the year reflect assumptions in effect as of those dates. Net pension costs for each of the
years presented were based on assumptions in effect at the end of the respective preceding year.

Obligations and Funded Status (in thousands):

December 31,Change in benefit obligations2004

2003Benefit obligation at beginning of year

$
4,818

$
4,823Service cost


174


257Interest cost


265


278Benefits paid


(1,488
)

(357
)Curtailment gains


(564
)

Settlement loss


400


Actuarial gains


(167
)

(183
)Benefit obligations at end of year

$
3,438

$
4,818


December 31,Change in plan assets2004

2003Fair value of plan assets at beginning of year

$
4,422

$
4,093Actual return on plan assets


339


264Benefits paid


(1,488
)

(357
)Corporation contributions





422Fair value of plan assets at end of year

$
3,273

$
4,422


F-23

---



2004Unfunded status of plan

$
(165
)Unrecognized gains


117Unrecognized prior service cost


Unrecognized transition asset


130Prepaid pension expense


83


December 31,Amounts recognized in the consolidated balance sheet2004

2003Prepaid assets

$
83

$
Accrued liabilities





74


December 31,Information for pension plans with an accumulated benefit obligation in excess of plan assets2004

2003Projected benefit obligation

$
3,438

$
4,818Accumulated benefit obligation


3,039


3,645Fair value of plan assets


3,273


4,422


December 31,Components of Net Periodic Benefit Cost2004

2003Service cost

$
174

$
257Interest cost


265


278Expected return on plan assets


(291
)

(285
)Amortization of transition asset


57


57Preliminary net pension expense


205


307Curtailment gain


(411
)

Settlement loss


50


Final net periodic pension (income) /expense

$
(156
)
$
307


The
actuarial assumptions used to determine the benefit obligations at December 31, 2004 and 2003 related to our defined benefit pension plan, as appropriate, are as follows:

December 31,Benefit Obligation Assumptions2004

2003Discount rates

6.00%

6.00%Rates of increase in future compensation

4.25%

4.25%


The
actuarial assumptions used to determine the net (income) expense related to our defined benefit plan for years ended December 31, 2004 and 2003, as appropriate, are as follows:

December 31,Pension Cost Assumptions2004

2003Discount rates

5.50%

6.00%Expected long-term rates of return on assets

7.00%

7.00%Rates of increase in future compensation levels

4.25%

4.25%


The
long-term rate of return assumption represents the expected average rate of earnings on the funds invested or to be invested to provide for the benefits included in the benefit
obligations. The long-term rate of return assumption is

F-24

---



determined
based on a number of factors, including historical market index returns, the anticipated long-term asset allocation of the plan, historical plan return data, plan expenses and
the potential to outperform market index returns.

The
asset allocations of our plans as December 31, 2004 and 2003, by asset category, were as follows:

December 31,Asset Category2004

2003Equity securities

56.0%

32.0%Debt securities

41.0%

66.0%Other

3.0%

2.0%


The
investment objectives for the assets of the defined benefit pension plan are to minimize the net present value of expected funding contributions and to meet or exceed the rate of return assumed
for plan funding purposes over the long term. The nature and duration of benefit obligations; along with assumptions concerning assets class returns and return correlations, are considered when
determining an appropriate asset allocation to achieve the investment objectives.

Investment
policies and strategies governing the assets of the plan are designed to achieve investment objectives within prudent risk parameters. Risk management practices include the use of external
investment managers and the maintenance of a portfolio diversified by asset class, investment approach and security holdings, and the maintenance of sufficient liquidity to meet benefit obligations as
they come due.

The
following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2005

$
1,3812006


232007


222008


4282009


332010-2014


827


15.   DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" 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
estimated fair values of our financial instruments are as follows (in thousands):

December 31, 2004

December 31, 2003Carrying
Amount

Fair
Value

Carrying
Amount

Fair
ValueMortgage, construction loans and other debt

$
334,355

$
332,021

$
183,142

$
190,209


The
fair value of mortgage debt is estimated by discounting the future cash flows based on borrowing rates currently available to us for financing on similar terms for borrowers with similar credit
ratings. For short-term mortgage and construction loans and for variable rate loans the carrying amount is a reasonable estimate of fair value. The fair value of all of our other financial
assets and liabilities are assumed to equal their carrying amounts.

F-25

---



16.   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (in thousands except earnings per common share amounts):

|                            |  | Three months ended
|--------------------------- |  | ------------------
|
|Operating revenues          |  | $                 
|Operating income            |  |                   
|Net income                  |  |                   
|Net income per common share |  |                   

|                                   |  | Three months ended
|---------------------------------- |  | ------------------
|
|Operating revenues                 |  | $                 
|Operating income                   |  |                   
|Net income (loss)                  |  |                   
|Net income (loss) per common share |  |                   

17.   SEGMENT INFORMATION:

In
accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," the Company reports segment information for the following four categories:

Commercial Rental Property

This
segment includes the rental income derived by commercial properties from leases of office and industrial space and other related revenue sources. Commercial leases generally provide for a fixed
monthly rental over terms that range from three to 10 years.

Also
included in this segment is income generated from management and leasing activities associated with our 50% ownership interest in Redwood, a commercial management company.

Residential Rental Property

This
segment includes the rental income derived from residential properties from leases of apartment units and other related revenue sources. Apartment leases generally provide for a fixed monthly
rental over a one-year term. Also included in this segment are fees earned from our management of residential properties.

Hospitality Properties

This
segment includes revenue and income derived from services provided at our hospitality properties.

Commercial, Residential and Land Under Development

This
segment primarily includes the development and sale of homes and residential condominium units, the development of commercial and residential buildings and the development and sale of lots as
part of residential subdivisions. Also included are the revenues and costs associated with undeveloped commercial land sales, and other construction activity.

Our
real estate investments are located in the Washington DC, Philadelphia, Pennsylvania, Baltimore, Maryland, Ocean City, Maryland, Orlando Florida and Tampa, Florida metropolitan areas. We are not
involved in any operations in countries other than the United States of America.

The
accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based upon revenues less operating expenses of the
combined properties in each segment.

F-26

---



Our
reportable segments are a consolidation of related subsidiaries that are managed separately as each segment requires different operating, pricing, and leasing strategies.

Following
is a summary of the Company's reportable segments.

|December 31, 2004 (in thousands) |                                                              | Commercial,
Residential and
Land Development |         | Commercial
Rental |   | Residential
Rental |         | Hospitality |        | Corporate
and Other |   | Consolidated |       
|-------------------------------- | ------------------------------------------------------------ | -------------------------------------------- | ------- | ----------------- | - | ------------------ | ------- | ----------- | ------ | ------------------- | - | ------------ | ------
|Statement of Operations:         |                                                              |                                              |         |                   |   |                    |         |             |        |                     |   |              |       
|                                 | Total operating revenues                                     |                                              | $       | 24,605            |   | $                  | 33,424  |             | $      | 10,395              |   | $            | 8,099 
|                                 | Cost of homebuilding, residential lots and other development |                                              |         | 21,071            |   |                    |        |             |        |                    |   |              |      
|                                 | Operating expenses                                           |                                              |         |                  |   |                    | 13,195  |             |        | 5,017               |   |              | 6,172 
|                                 | Depreciation and amortization expense                        |                                              |         |                  |   |                    | 9,163   |             |        | 2,680               |   |              | 685   
|                                 | Interest expense                                             |                                              |         |                  |   |                    | 11,090  |             |        | 3,316               |   |              | 997   
|                                 | Income (loss) from investments in joint ventures             |                                              |         | (114              | ) |                    | 1,502   |             |        | (28                 | ) |              |      
|                                 | Minority interest                                            |                                              |         | 1,983             |   |                    | 76      |             |        | (52                 | ) |              |      
|                                 | General, administrative and other expenses                   |                                              |         |                  |   |                    |        |             |        |                    |   |              |      
|                                 | Other income                                                 |                                              |         |                   |   |                    |         |             |        |                     |   |              |       
|                                 |                                                              |                                              |         |                   |   |                    |         |             |        |                     |   |              |       
|                                 | Income (loss) before taxes and discontinued operations       |                                              | $       | 1,437             |   | $                  | 1,402   |             | $      | (594                | ) | $            | 245   
|                                 |                                                              |                                              |         |                   |   |                    |         |             |        |                     |   |              |       
|Assets:                          |                                                              |                                              |         |                   |   |                    |         |             |        |                     |   |              |       
|                                 | Real estate at cost                                          |                                              |         | 132,442           |   |                    | 220,822 |             |        | 82,596              |   |              | 15,904
|                                 | Accumulated depreciation                                     |                                              |         |                  |   |                    | (18,031 | )           |        | (6,217              | ) |              | (8,572
|                                 | Investments in joint ventures                                |                                              |         | 415               |   |                    | 8,942   |             |        | 485                 |   |              |      
|                                 | Cash, cash equivalents and restricted cash                   |                                              |         |                  |   |                    |        |             |        |                    |   |              |      
|                                 | Investments                                                  |                                              |         |                  |   |                    |        |             |        |                    |   |              |      
|                                 | Other                                                        |                                              |         | 44                |   |                    | 23,520  |             |        | 991                 |   |              | 656   
|                                 |                                                              |                                              |         |                   |   |                    |         |             |        |                     |   |              |       
|                                 |                                                              | $                                            | 132,901 |                   | $ | 235,253            |         | $           | 77,855 |                     | $ | 7,988        |       
|                                 |                                                              |                                              |         |                   |   |                    |         |             |        |                     |   |              |       

|December 31, 2003 (in thousands) |                                                              | Commercial,
Residential and
Land Development |        | Commercial
Rental |   | Residential
Rental |         | Hospitality |        | Corporate
and Other |   | Consolidated |       
|-------------------------------- | ------------------------------------------------------------ | -------------------------------------------- | ------ | ----------------- | - | ------------------ | ------- | ----------- | ------ | ------------------- | - | ------------ | ------
|Statement of Operations:         |                                                              |                                              |        |                   |   |                    |         |             |        |                     |   |              |       
|                                 | Total operating revenues                                     |                                              | $      | 1,633             |   | $                  | 16,106  |             | $      | 4,715               |   | $            | 7,896 
|                                 | Cost of homebuilding, residential lots and other development |                                              |        | 1,650             |   |                    |        |             |        |                    |   |              |      
|                                 | Operating expenses                                           |                                              |        |                  |   |                    | 6,484   |             |        | 2,389               |   |              | 5,236 
|                                 | Depreciation and amortization expense                        |                                              |        |                  |   |                    | 4,272   |             |        | 1,025               |   |              | 863   
|                                 | Interest expense                                             |                                              |        |                  |   |                    | 6,545   |             |        | 659                 |   |              | 821   
|                                 | Income from investments in joint ventures                    |                                              |        | 141               |   |                    | 1,584   |             |        |                    |   |              |      
|                                 | Minority interest                                            |                                              |        |                  |   |                    | 49      |             |        |                    |   |              |      
|                                 | General, administrative and other expenses                   |                                              |        |                  |   |                    |        |             |        |                    |   |              |      
|                                 | Other income                                                 |                                              |        |                   |   |                    |         |             |        |                     |   |              |       
|                                 |                                                              |                                              |        |                   |   |                    |         |             |        |                     |   |              |       
|                                 | Income (loss) before taxes and discontinued operations       |                                              | $      | 124               |   |                    | 340     |             |        | 642                 |   |              | 976   
|                                 |                                                              |                                              |        |                   |   |                    |         |             |        |                     |   |              |       
|Assets:                          |                                                              |                                              |        |                   |   |                    |         |             |        |                     |   |              |       
|                                 | Real estate at cost                                          |                                              |        | 25,358            |   |                    | 107,817 |             |        | 80,809              |   |              | 14,709
|                                 | Accumulated depreciation                                     |                                              |        |                  |   |                    | (13,198 | )           |        | (3,829              | ) |              | (7,921
|                                 | Investments in joint ventures                                |                                              |        | 23,043            |   |                    | 9,414   |             |        | 2,773               |   |              |      
|                                 | Cash, cash equivalents and restricted cash                   |                                              |        |                  |   |                    |        |             |        |                    |   |              |      
|                                 | Investments                                                  |                                              |        |                  |   |                    |        |             |        |                    |   |              |      
|                                 | Other                                                        |                                              |        | 11                |   |                    | 9,276   |             |        | 1,120               |   |              | 689   
|                                 |                                                              |                                              |        |                   |   |                    |         |             |        |                     |   |              |       
|                                 |                                                              | $                                            | 48,412 |                   | $ | 113,309            |         | $           | 80,873 |                     | $ | 7,477        |       
|                                 |                                                              |                                              |        |                   |   |                    |         |             |        |                     |   |              |       

F-27

---



|December 31, 2002 (in thousands) |                                                              | Commercial,
Residential and
Land Development |   | Commercial
Rental |  | Residential
Rental |        | Hospitality |   | Corporate
and Other |  | Consolidated
|-------------------------------- | ------------------------------------------------------------ | -------------------------------------------- | - | ----------------- |  | ------------------ | ------ | ----------- | - | ------------------- |  | ------------
|Statement of Operations:         |                                                              |                                              |   |                   |  |                    |        |             |   |                     |  |             
|                                 | Total operating revenues                                     |                                              | $ | 8,176             |  | $                  | 34,657 |             | $ | 1,766               |  | $           
|                                 | Cost of homebuilding, residential lots and other development |                                              |   | 7,259             |  |                    |       |             |   |                    |  |             
|                                 | Operating expenses                                           |                                              |   |                  |  |                    | 10,576 |             |   | 1,091               |  |             
|                                 | Depreciation and amortization expense                        |                                              |   |                  |  |                    | 4,403  |             |   | 218                 |  |             
|                                 | Interest expense                                             |                                              |   |                  |  |                    | 5,628  |             |   | 214                 |  |             
|                                 | Income from investments in joint ventures                    |                                              |   | 1,218             |  |                    | 389    |             |   |                    |  |             
|                                 | Minority interest                                            |                                              |   |                  |  |                    | 6,422  |             |   |                    |  |             
|                                 | General, administrative and other expenses                   |                                              |   |                  |  |                    |       |             |   |                    |  |             
|                                 | Other income                                                 |                                              |   |                   |  |                    |        |             |   |                     |  |             
|                                 |                                                              |                                              |   |                   |  |                    |        |             |   |                     |  |             
|                                 | Income (loss) before taxes and discontinued operations       |                                              | $ | 2,135             |  | $                  | 8,017  |             | $ | 243                 |  | $           
|                                 |                                                              |                                              |   |                   |  |                    |        |             |   |                     |  |             

18.   SUBSEQUENT EVENTS:

1105 Market StreetOn February 15, 2005 we acquired a 173,000 square foot commercial office building located in Wilmington, Delaware, for a
purchase price of $20,700,000. At the time of the acquisition we placed a $19,000,000 mortgage loan on the building. The 10-year loan bears interest at LIBOR plus 1.95%. We have provided a
guarantee for the entire loan balance.

Devon SquareOn February 10, 2005, together with an unaffiliated third party investor, we acquired two commercial office buildings containing a
total of 140,000 square feet of office space, located in Devon, Pennsylvania. The purchase price of the buildings was $17,109,000. In connection with the purchase, we entered into a
co-tenant agreement with the third party investor, whereby each party is an equal co-tenant of the building. At the time of the acquisition, a $21,350,000 acquisition and
construction loan was obtained, $12,451,000 of which was drawn down at the closing. It is anticipated that approximately $8,900,000 will be expended in 2005 on capital improvements, tenant
improvements and leasing commissions related to the renovation and further lease-up of the buildings, with such amounts funded primarily through draws on the loan. We have contributed
$2,667,000 to fund the acquisition, while the outside investor has contributed the same amount.

CrisfieldIn January and March 2005 we invested a total of $2,500,000 for a 51% interest in an entity that owns a parcel of undeveloped land
which is subdivided into 132 residential lots, in Crisfield, Maryland. An unaffiliated third party owns the remaining membership interest in the entity. The entity intends to develop the land as lots
to be sold to a homebuilder. The entity purchased the parcel for approximately $10,250,000, which was funded primarily by an $8,321,000 drawdown on an $11,700,000 acquisition and development loan.

F-28

---





BRESLER & REINER, INC.        SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION  AS OF DECEMBER 31, 2004  (Dollars in thousands)

|                                                                                                 |  |   |         |  |   |        |  | Cost Capitalization
Subsequent
to Acquisition |         | Gross amount at which
carried at close of period |   |        |  |   |        |  |   |        
|------------------------------------------------------------------------------------------------ |  | - | ------- |  | - | ------ |  | --------------------------------------------- | ------- | ------------------------------------------------ | - | ------ |  | - | ------ |  | - | -------
|
|
|Versar Center (Two office buildings in Springfield, VA)                                          |  | $ | 18,100  |  | $ | 2,187  |  | $                                             | 21,149  |                                                  | $ | 2,018  |  | $ | 2,187  |  | $ | 23,167 
|Bank Building (Office building in Manassas, VA)                                                  |  |   | 968     |  |   | 90     |  |                                               | 786     |                                                  |   |       |  |   | 90     |  |   | 786    
|Paradise/Sudley North (Four office buildings in Manassas, VA)                                    |  |   | 16,629  |  |   | 1,898  |  |                                               | 12,679  |                                                  |   | 4,190  |  |   | 1,898  |  |   | 16,869 
|7800 Building (Office building in Manassas, VA)                                                  |  |   | 0       |  |   | 283    |  |                                               | 1,636   |                                                  |   | 382    |  |   | 283    |  |   | 2,018  
|Fort Hill (Office building in Centreville, VA)                                                   |  |   | 5,554   |  |   | 500    |  |                                               | 6,492   |                                                  |   | 277    |  |   | 500    |  |   | 6,769  
|Washington Business Park (Two office buildings and
seven flex warehouse buildings in Lanham, MD) |  |   | 38,983  |  |   | 9,260  |  |                                               | 30,492  |                                                  |   | 4,910  |  |   | 9,260  |  |   | 35,402 
|900 Northbrook (Office building in Trevose, PA)                                                  |  |   | 11,073  |  |   | 1,800  |  |                                               | 7,874   |                                                  |   | 328    |  |   | 1,800  |  |   | 8,202  
|Charlestown North (Apartments in Greenbelt, MD)                                                  |  |   | 4,874   |  |   |       |  |                                               | 2,179   |                                                  |   | 3,655  |  |   |       |  |   | 5,834  
|Victoria Place (Apartments in Orlando, FL)                                                       |  |   | 33,446  |  |   | 3,825  |  |                                               | 35,863  |                                                  |   | 50     |  |   | 3,825  |  |   | 35,913 
|The Fountains (Apartments in Orlando, FL)                                                        |  |   | 24,600  |  |   | 4,000  |  |                                               | 32,745  |                                                  |   | 279    |  |   | 4,000  |  |   | 33,024 
|Inn at the Colonnade (Hotel in Baltimore, MD)                                                    |  |   | 9,806   |  |   | 1,955  |  |                                               | 5,413   |                                                  |   | 1,653  |  |   | 1,955  |  |   | 7,066  
|Holiday Inn Express (Hotel in Camp Spings, MD)                                                   |  |   | 3,627   |  |   | 377    |  |                                               | 2,793   |                                                  |   | 3,712  |  |   | 377    |  |   | 6,505  
|Fort Washington (3 Office buildings in Ft. Washington, PA)                                       |  |   | 48,556  |  |   | 9,489  |  |                                               | 37,507  |                                                  |   | 1,526  |  |   | 9,489  |  |   | 39,033 
|West Germantown Pike (2 Office
buildings in Plymouth Meeting, PA)                                |  |   | 16,064  |  |   | 3,136  |  |                                               | 14,961  |                                                  |   | 209    |  |   | 3,136  |  |   | 15,170 
|One Northbrook (Office building in Trevose, PA)                                                  |  |   | 15,166  |  |   | 2,590  |  |                                               | 13,586  |                                                  |   | 120    |  |   | 2,590  |  |   | 13,706 
|Baltimore Portfolio (8 Office buildings in Baltimore, MD)                                        |  |   | 23,452  |  |   | 5,290  |  |                                               | 23,178  |                                                  |   | 0      |  |   | 5,290  |  |   | 23,178 
|                                                                                                 |  |   |         |  |   |        |  |                                               |         |                                                  |   |        |  |   |        |  |   |        
|Total Properties                                                                                 |  | $ | 270,898 |  | $ | 46,680 |  | $                                             | 249,333 |                                                  | $ | 23,309 |  | $ | 46,680 |  | $ | 272,642
|                                                                                                 |  |   |         |  |   |        |  |                                               |         |                                                  |   |        |  |   |        |  |   |        
|Corporate                                                                                        |  |   | 13,874  |  |   |       |  |                                               | 694     |                                                  |   | 144    |  |   |       |  |   | 838    
|                                                                                                 |  |   |         |  |   |        |  |                                               |         |                                                  |   |        |  |   |        |  |   |        
|Total Properties and Corporate                                                                   |  | $ | 284,772 |  | $ | 46,680 |  | $                                             | 250,027 |                                                  | $ | 23,453 |  | $ | 46,680 |  | $ | 273,480
|                                                                                                 |  |   |         |  |   |        |  |                                               |         |                                                  |   |        |  |   |        |  |   |        

F-29

---





BRESLER & REINER, INC.        NOTES TO SCHEDULE III  (in thousands)

The aggregate cost of total real estate for Federal income tax purposes was approximately $310,877 at December 31, 2004.

The
changes in rental property and equipment for the years ended December 31, 2004, 2003 and 2002 are as follows:

|                                               |  | Years ended December 31 |        
|---------------------------------------------- |  | ----------------------- | -------
|
|Balance, January 1                             |  | $                       | 203,335
|Additions during periodAcquisitions and other |  |                         | 115,987
|Deductions during periodOther                 |  |                         |       
|                                               |  |                         |        
|Balance, December 31                           |  | $                       | 319,322
|                                               |  |                         |        

The
changes in accumulated depreciation for the years ended December 31, 2004, 2003 and 2002 are as follows:

|                                                       |  | Years ended December 31 |       
|------------------------------------------------------ |  | ----------------------- | ------
|
|Balance, January 1                                     |  | $                       | 24,948
|Additions during periodDepreciation expense and other |  |                         | 7,872 
|Deductions during periodOther                         |  |                         |      
|                                                       |  |                         |       
|Balance, December 31                                   |  | $                       | 32,820
|                                                       |  |                         |       

F-30

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BRESLER & REINER, INC.        SCHEDULE IVMORTGAGE LOANS ON REAL ESTATE  AS OF DECEMBER 31, 2004

|A                                                    |                                                          | B |                      | C |      | D |      | E |                        | F |   | G      |     | H      
|---------------------------------------------------- | -------------------------------------------------------- | - | -------------------- | - | ---- | - | ---- | - | ---------------------- | - | - | ------ | --- | -------
|
|COMMERCIAL                                           |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        
|                                                     | Fort Washington: Fort Washington, PA                     |   | Primary Commercial   |   | 5.60 | % | 2014 |   | Principal and Interest |   | $ | 40,824 |     | (7)    
|                                                     | Washington Business Park: Lanham, MD                     |   | Primary Commercial   |   | 7.63 | % | 2031 |   | Principal and Interest |   |   | 12,525 |     | (8)    
|                                                     | Versar Center: Springfield, VA                           |   | Primary Commercial   |   | 6.18 | % | 2013 |   | Principal and Interest |   |   | 15,286 |     | (7)    
|                                                     | Paradise Sudley North Building ABCD & Bank: Manassas, VA |   | Primary Commercial   |   | 7.47 | % | 2012 |   | Principal and Interest |   |   | 13,900 |     | (7)    
|                                                     | West Germantown Pike: Plymouth Meeting, PA               |   | Primary Commercial   |   | 5.90 | % | 2013 |   | Principal and Interest |   |   | 15,478 |     | (7)    
|                                                     | One Northbrook: Trevose, PA                              |   | Primary Commercial   |   | 5.75 | % | 2014 |   | Principal and Interest |   |   | 12,829 |     | (7)    
|                                                     | Baltimore Portfolio (7 Buildings): Baltimore, MD         |   | Primary Commercial   |   | (2   | ) | 2006 |   | Interest Only          |   |   | 15,000 |     | None   
|                                                     | 900 Northbrook: Trevose, PA                              |   | Primary Commercial   |   | 5.98 | % | 2013 |   | Principal and Interest |   |   | 9,335  |     | (7)    
|RESIDENTIAL                                          |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        
|                                                     | Victoria Place Apartments: Orlando, FL                   |   | Primary Residential  |   | 4.72 | % | 2013 |   | Principal and Interest |   |   | 27,683 |     | (7)    
|                                                     | The Fountains at Waterford Lakes: Orlando, FL            |   | Primary Residential  |   | 5.00 | % | 2007 |   | Interest Only          |   |   | 24,600 | (6) | None   
|CONSTRUCTION                                         |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        
|                                                     | Seaside: Ocean City, MD                                  |   | Primary Construction |   | (3   | ) | 2007 |   | Accrued Interest       |   |   | 19,095 | (6) | None   
|                                                     | Golfview: St. Petersburg, FL                             |   | Primary Construction |   | (4   | ) | 2007 |   | Accrued Interest       |   |   | 10,385 | (6) | None   
|                                                     | Laguna Vista: Ocean City, MD                             |   | Primary Construction |   | (5   | ) | 2005 |   | Accrued Interest       |   |   | 10,236 | (6) | None   
|                                                     |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        
|                                                     |                                                          |   | Sub-total            |   |      |   |      |   |                        |   |   |        | $   | 227,176
|                                                     |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        
|OTHER                                                |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        
|                                                     |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        
|Total mortgage and construction loans and other debt |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        
|                                                     |                                                          |   |                      |   |      |   |      |   |                        |   |   |        |     |        

---

F-31

---





BRESLER & REINER, INC.        NOTES TO SCHEDULE IV

The
changes in mortgages and construction loans and other debt for the years ended December 31, 2004, 2003 and 2002 are as follows:

Years ended December 31(Dollars in thousands)2004

2003

2002Balance, January 1

$
183,142

$
100,586

$
64,596Additions during period-
Acquisitions and other


153,950


83,757


44,410Deductions during period-
Principal payments and other


(2,737
)

(1,201
)

(8,420
)Balance, December 31

$
334,355

$
183,142

$
100,586


F-32

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