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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the Quarterly Period Ended June 30, 2004



OR



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



Commission File Number 1-14516



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PRENTISS PROPERTIES TRUST

(Exact Name of Registrant as Specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 75-2661588                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



3890 West Northwest
Highway, Suite 400, Dallas, Texas 75220

(Address of Principal Executive Offices)



(214) 654-0886

(Registrants Telephone Number, Including Area Code)



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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  x    No ̈



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



The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding as of August 4, 2004, was 44,851,618 and the number of outstanding Participating Cumulative Redeemable Preferred Shares of Beneficial Interest, Series D, was
3,773,585.



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PRENTISS PROPERTIES TRUST



INDEX



|          |  |                       |  |                                                                                                                       |  |            
|--------- |  | --------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | -----------
|          |  |                       |  |                                                                                                                       |  | Page Number
|Part I:   |  | FINANCIAL INFORMATION
|          |  |                       | 
|          |  | Item 1.               |  | Financial Statements                                                                                                  |  |            
|          |  |                       | 
|          |  |                       |  | Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003 (unaudited)                         |  | 5          
|          |  |                       | 
|          |  |                       |  | Consolidated Statements of Income for the three and six months ended June 30, 2004 and 2003 (unaudited)               |  | 6          
|          |  |                       | 
|          |  |                       |  | Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2004 and 2003 (unaudited) |  | 7          
|          |  |                       | 
|          |  |                       |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 (unaudited)                     |  | 8          
|          |  |                       | 
|          |  |                       |  | Notes to Consolidated Financial Statements                                                                            |  | 9-22       
|          |  |                       | 
|          |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                 |  | 23-40      
|          |  |                       | 
|          |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                            |  | 41         
|          |  |                       | 
|          |  | Item 4.               |  | Controls and Procedures                                                                                               |  | 41         
|          | 
|Part II:  |  | OTHER INFORMATION    
|          |  |                       | 
|          |  | Item 1.               |  | Legal Proceedings                                                                                                     |  | 42         
|          |  |                       | 
|          |  | Item 2.               |  | Changes in Securities and Use of Proceeds                                                                             |  | 42         
|          |  |                       | 
|          |  | Item 3.               |  | Default Upon Senior Securities                                                                                        |  | 42         
|          |  |                       | 
|          |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                   |  | 42-43      
|          |  |                       | 
|          |  | Item 5.               |  | Other Information                                                                                                     |  | 43         
|          |  |                       | 
|          |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                                      |  | 44-48      
|          | 
|SIGNATURE |  | 49                   



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FORWARD-LOOKING STATEMENTS



This Form 10-Q and the documents incorporated by reference into this Form 10-Q may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, words such as anticipate, believe, estimate, expect,
intend, predict, project, and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management as well as
assumptions made by us and information currently available to us. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including risks, uncertainties and assumptions related to the following:



|                                                                                                                                                                                                                         |  |                                                                                                                     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------
|      Our failure to qualify as a REIT;                                                                                                                                                                                 |  |       Competition in markets where we have properties;                                                             
|                                                                                                                                                                                                                         | 
|      Some of our properties may be subject to uninsured losses;                                                                                                                                                        |  |       Our dependence on key personnel;                                                                             
|                                                                                                                                                                                                                         | 
|      Our properties are illiquid assets;                                                                                                                                                                               |  |       Changes in our investment, financing and borrowing policies without shareholder
approval;                    
|                                                                                                                                                                                                                         | 
|      Factors that could result in the poor operating performance of our properties including tenant
defaults and increased costs such as taxes, insurance, utilities and casualty losses that exceed insurance limits; |  |       The effect of shares available for future sale on the price of common shares;                                
|                                                                                                                                                                                                                         | 
|      Changes in market conditions including market interest rates;                                                                                                                                                     |  |       Limited ability of shareholders to effect change of control;                                                 
|                                                                                                                                                                                                                         | 
|      Our incurrence of debt and use of variable rate debt and derivative financial
instruments;                                                                                                                        |  |       Conflicts of interest;                                                                                       
|                                                                                                                                                                                                                         | 
|      Our real estate acquisition, redevelopment, development and construction activities;                                                                                                                              |  |       Our third-party property management, leasing, development and construction business and related
services; and
|                                                                                                                                                                                                                         | 
|      The geographic concentration of our properties;                                                                                                                                                                   |  |       Environmental and Americans with Disabilities Act compliance issues related to our
properties.               



If one or more of
these risks or uncertainties materialize, or if any underlying assumption proves incorrect, actual results may vary materially from those anticipated, expected or projected. Such forward-looking statements reflect our current views with respect to
future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or
individuals acting on our behalf are expressly qualified in their entirety by this paragraph. A detailed discussion of risks is included, under the caption Risk Factors, in our Form 10-K, filed on March 15, 2004. You are cautioned not to
place undue reliance on our forward-looking statements, which speak only as of the date of this Form 10-Q or the date of any document incorporated by reference into this Form 10-Q. We do not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.



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PART I

FINANCIAL INFORMATION



Item 1. Financial Statements



(this page intentionally left blank)



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PRENTISS PROPERTIES TRUST

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share
and per share amounts)



|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                                         |  | June 30,2004 |           |   | December 31,2003 |  
|ASSETS                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Operating real estate:                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Land                                                                                                                                                                                                                     |  | $            | 345,089   |   |                  | $ | 325,623   |  
|Buildings and improvements                                                                                                                                                                                               |  |              | 1,779,810 |   |                  |   | 1,727,056 |  
|Less: accumulated depreciation                                                                                                                                                                                           |  |              | (221,575  | ) |                  |   | (210,944  | )
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|                                                                                                                                                                                                                         |  |              | 1,903,324 |   |                  |   | 1,841,735 |  
|Construction in progress                                                                                                                                                                                                 |  |              | 12,594    |   |                  |   |          |  
|Land held for development                                                                                                                                                                                                |  |              | 43,678    |   |                  |   | 47,202    |  
|Deferred charges and other assets, net                                                                                                                                                                                   |  |              | 224,019   |   |                  |   | 207,795   |  
|Notes receivable                                                                                                                                                                                                         |  |              | 5,942     |   |                  |   | 15,904    |  
|Accounts receivable, net                                                                                                                                                                                                 |  |              | 51,030    |   |                  |   | 47,412    |  
|Cash and cash equivalents                                                                                                                                                                                                |  |              | 10,035    |   |                  |   | 5,945     |  
|Escrowed cash                                                                                                                                                                                                            |  |              | 10,149    |   |                  |   | 11,913    |  
|Investments in securities and insurance contracts                                                                                                                                                                        |  |              | 3,030     |   |                  |   | 2,579     |  
|Investments in unconsolidated joint ventures                                                                                                                                                                             |  |              | 12,774    |   |                  |   | 14,215    |  
|Interest rate hedges                                                                                                                                                                                                     |  |              | 5,099     |   |                  |   | 1,768     |  
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                                             |  | $            | 2,281,674 |   |                  | $ | 2,196,468 |  
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                     |  |              |           |   |                  |   |           |  
|Mortgages and notes payable                                                                                                                                                                                              |  | $            | 1,103,992 |   |                  | $ | 1,029,035 |  
|Interest rate hedges                                                                                                                                                                                                     |  |              | 5,277     |   |                  |   | 9,842     |  
|Accounts payable and other liabilities                                                                                                                                                                                   |  |              | 73,487    |   |                  |   | 81,741    |  
|Mandatorily redeemable preferred units                                                                                                                                                                                   |  |              |          |   |                  |   | 10,000    |  
|Distributions payable                                                                                                                                                                                                    |  |              | 28,041    |   |                  |   | 28,986    |  
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                                                        |  |              | 1,210,797 |   |                  |   | 1,159,604 |  
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|Minority interest in operating partnership                                                                                                                                                                               |  |              | 27,738    |   |                  |   | 123,058   |  
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|Minority interest in real estate partnerships                                                                                                                                                                            |  |              | 77,843    |   |                  |   | 1,565     |  
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|Commitments and contingencies                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|                                                                                                                                                                                                                         |  |             
|Preferred shares $.01 par value, 20,000,000 shares authorized, 3,773,585 shares issued and outstanding                                                                                                                   |  |              | 100,000   |   |                  |   | 100,000   |  
|Common shares $.01 par value, 100,000,000 shares authorized, 48,038,007 and 45,772,383 (includes 3,272,308 and 3,159,089 in treasury) shares
issued and outstanding at June 30, 2004 and December 31, 2003, respectively |  |              | 480       |   |                  |   | 458       |  
|Additional paid-in capital                                                                                                                                                                                               |  |              | 1,014,116 |   |                  |   | 942,644   |  
|Common shares in treasury at cost, 3,272,308 and 3,159,089 shares at June 30, 2004 and December 31, 2003, respectively                                                                                                   |  |              | (82,159   | ) |                  |   | (78,000   | )
|Unearned compensation                                                                                                                                                                                                    |  |              | (4,254    | ) |                  |   | (2,176    | )
|Accumulated other comprehensive income                                                                                                                                                                                   |  |              | 564       |   |                  |   | (7,198    | )
|Distributions in excess of earnings                                                                                                                                                                                      |  |              | (63,451   | ) |                  |   | (43,487   | )
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                                                                               |  |              | 965,296   |   |                  |   | 912,241   |  
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|Total liabilities and shareholders equity                                                                                                                                                                               |  | $            | 2,281,674 |   |                  | $ | 2,196,468 |  
|                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  



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



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PRENTISS PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per
share amounts)



|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                  |  | Three Months EndedJune 30, |        |   | Six Months Ended June 30, |  
|                                                                                                                  |  | 2004                       |        |   | 2003                      |   |        | 2004 |  |   | 2003    |  
|Revenues:                                                                                                         |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Rental income                                                                                                     |  | $                          | 90,856 |   |                           | $ | 81,134 |      |  | $ | 178,151 |   |  | $ | 160,529 |  
|Service business and other income                                                                                 |  |                            | 2,928  |   |                           |   | 4,247  |      |  |   | 6,416   |   |  |   | 8,602   |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                  |  |                            | 93,784 |   |                           |   | 85,381 |      |  |   | 184,567 |   |  |   | 169,131 |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Operating expenses:                                                                                               |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Property operating and maintenance                                                                                |  |                            | 23,050 |   |                           |   | 20,211 |      |  |   | 45,298  |   |  |   | 40,300  |  
|Real estate taxes                                                                                                 |  |                            | 10,347 |   |                           |   | 9,486  |      |  |   | 20,251  |   |  |   | 19,149  |  
|General and administrative and personnel costs                                                                    |  |                            | 2,785  |   |                           |   | 3,232  |      |  |   | 5,370   |   |  |   | 5,628   |  
|Expenses of service business                                                                                      |  |                            | 2,466  |   |                           |   | 2,902  |      |  |   | 4,115   |   |  |   | 5,121   |  
|Depreciation and amortization                                                                                     |  |                            | 23,134 |   |                           |   | 17,614 |      |  |   | 45,081  |   |  |   | 35,434  |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                  |  |                            | 61,782 |   |                           |   | 53,445 |      |  |   | 120,115 |   |  |   | 105,632 |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Other expenses:                                                                                                   |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Interest expense                                                                                                  |  |                            | 16,825 |   |                           |   | 17,069 |      |  |   | 33,024  |   |  |   | 33,497  |  
|Amortization of deferred financing costs                                                                          |  |                            | 568    |   |                           |   | 536    |      |  |   | 1,133   |   |  |   | 1,045   |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                  |  |                            | 17,393 |   |                           |   | 17,605 |      |  |   | 34,157  |   |  |   | 34,542  |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Income from continuing operations before minority interests and equity in income of unconsolidated joint ventures |  |                            | 14,609 |   |                           |   | 14,331 |      |  |   | 30,295  |   |  |   | 28,957  |  
|Minority interests                                                                                                |  |                            | (594   | ) |                           |   | (2,564 | )    |  |   | (2,223  | ) |  |   | (5,169  | )
|Equity in income of unconsolidated joint ventures                                                                 |  |                            | 596    |   |                           |   | 712    |      |  |   | 1,174   |   |  |   | 1,338   |  
|Loss on investment in securities                                                                                  |  |                            | (420   | ) |                           |   |       |      |  |   | (420    | ) |  |   |        |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Income from continuing operations                                                                                 |  |                            | 14,191 |   |                           |   | 12,479 |      |  |   | 28,826  |   |  |   | 25,126  |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Discontinued operations:                                                                                          |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|(Loss)/income from discontinued operations                                                                        |  |                            | (23    | ) |                           |   | (384   | )    |  |   | 1,060   |   |  |   | 1,413   |  
|Gain/(loss) from disposition of discontinued operations                                                           |  |                            | 10,185 |   |                           |   | (4,542 | )    |  |   | 10,185  |   |  |   | (4,542  | )
|Loss from debt defeasance related to sale of real estate                                                          |  |                            | (5,316 | ) |                           |   |       |      |  |   | (5,316  | ) |  |   |        |  
|Minority interests related to discontinued operations                                                             |  |                            | (151   | ) |                           |   | 181    |      |  |   | (186    | ) |  |   | 115     |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                  |  |                            | 4,695  |   |                           |   | (4,745 | )    |  |   | 5,743   |   |  |   | (3,014  | )
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Income before gain on sale of land and an interest in a real estate partnership                                   |  |                            | 18,886 |   |                           |   | 7,734  |      |  |   | 34,569  |   |  |   | 22,112  |  
|                                                                                                                  |  |                            |        |  
|(Loss)/gain on sale of land and an interest in a real estate partnership                                          |  |                            | (94    | ) |                           |   | 778    |      |  |   | 1,222   |   |  |   | 1,910   |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net income                                                                                                        |  | $                          | 18,792 |   |                           | $ | 8,512  |      |  | $ | 35,791  |   |  | $ | 24,022  |  
|Preferred dividends                                                                                               |  |                            | (2,113 | ) |                           |   | (2,113 | )    |  |   | (5,826  | ) |  |   | (4,226  | )
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net income applicable to common shareholders                                                                      |  | $                          | 16,679 |   |                           | $ | 6,399  |      |  | $ | 29,965  |   |  | $ | 19,796  |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic earnings per common share:                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Income from continuing operations applicable to common shareholders                                               |  | $                          | 0.27   |   |                           | $ | 0.28   |      |  | $ | 0.55    |   |  | $ | 0.59    |  
|Discontinued operations                                                                                           |  |                            | 0.11   |   |                           |   | (0.12  | )    |  |   | 0.13    |   |  |   | (0.08   | )
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net income applicable to common shareholders  basic                                                              |  | $                          | 0.38   |   |                           | $ | 0.16   |      |  | $ | 0.68    |   |  | $ | 0.51    |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Weighted average number of common shares outstanding  basic                                                      |  |                            | 44,386 |   |                           |   | 38,996 |      |  |   | 43,906  |   |  |   | 38,973  |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Diluted earnings per common share:                                                                                |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Income from continuing operations applicable to common shareholders                                               |  | $                          | 0.27   |   |                           | $ | 0.28   |      |  | $ | 0.55    |   |  | $ | 0.59    |  
|Discontinued operations                                                                                           |  |                            | 0.10   |   |                           |   | (0.12  | )    |  |   | 0.13    |   |  |   | (0.08   | )
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net income applicable to common shareholders  diluted                                                            |  | $                          | 0.37   |   |                           | $ | 0.16   |      |  | $ | 0.68    |   |  | $ | 0.51    |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Weighted average number of common shares and common share equivalents outstanding  diluted                       |  |                            | 44,527 |   |                           |   | 39,204 |      |  |   | 44,094  |   |  |   | 39,128  |  
|                                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  



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



6



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##### Table of Contents

PRENTISS PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands)



|                                                            |  |                            |        |                          |   |       |  |      |        |  |   |        |  
|----------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ----- |  | ---- | ------ |  | - | ------ | -
|                                                            |  | Three Months EndedJune 30, |        | Six Months EndedJune 30, |  
|                                                            |  | 2004                       |        | 2003                     |   | 2004  |  | 2003 |       
|Net income                                                  |  | $                          | 18,792 |                          | $ | 8,512 |  | $    | 35,791 |  | $ | 24,022 |  
|Unrealized gains and losses on securities:                  |  |                            |        |                          |   |       |  |      |        |  |   |        |  
|Unrealized gains/(losses) arising during the period         |  |                            | 2      |                          |   | 151   |  |      | 28     |  |   | (146   | )
|Unrealized gains on interest rate hedges:                   |  |                            |        |                          |   |       |  |      |        |  |   |        |  
|Unrealized gains arising during the period                  |  |                            | 9,738  |                          |   | 972   |  |      | 7,734  |  |   | 1,772  |  
|Reclassification adjustment for losses included in earnings |  |                            |       |                          |   | 120   |  |      |       |  |   | 263    |  
|                                                            |  |                            |        |                          |   |       |  |      |        |  |   |        |  
|Other comprehensive income                                  |  |                            | 9,740  |                          |   | 1,243 |  |      | 7,762  |  |   | 1,889  |  
|                                                            |  |                            |        |                          |   |       |  |      |        |  |   |        |  
|Comprehensive income                                        |  | $                          | 28,532 |                          | $ | 9,755 |  | $    | 43,553 |  | $ | 25,911 |  
|                                                            |  |                            |        |                          |   |       |  |      |        |  |   |        |  



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



7



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##### Table of Contents

PRENTISS PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in thousands)



|                                                                                  |  |                           |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Six Months Ended June 30, |         
|                                                                                  |  | 2004                      |          |   | 2003 |  
|Cash Flows from Operating Activities:                                             |  |                           |          |   |      |   |          |  
|Net income                                                                        |  | $                         | 35,791   |   |      | $ | 24,022   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |          |   |      |   |          |  
|Minority interests                                                                |  |                           | 2,409    |   |      |   | 5,054    |  
|(Gain)/loss on sale of real estate, net                                           |  |                           | (11,407  | ) |      |   | 2,632    |  
|Loss on impairment of discontinued operations                                     |  |                           |         |   |      |   | 1,792    |  
|Loss on debt defeasance                                                           |  |                           | 5,316    |   |      |   |         |  
|Loss on investment in securities                                                  |  |                           | 420      |   |      |   |         |  
|Provision for doubtful accounts                                                   |  |                           | (3,147   | ) |      |   | 1,171    |  
|Depreciation and amortization                                                     |  |                           | 47,019   |   |      |   | 39,160   |  
|Amortization of deferred financing costs                                          |  |                           | 1,133    |   |      |   | 1,045    |  
|Non-cash compensation                                                             |  |                           | 1,221    |   |      |   | 1,736    |  
|Reclassification of accumulated other comprehensive income                        |  |                           |         |   |      |   | 263      |  
|Gain on derivative financial instruments                                          |  |                           | (171     | ) |      |   | (149     | )
|Changes in assets and liabilities:                                                |  |                           |          |   |      |   |          |  
|Deferred charges and other assets                                                 |  |                           | (2,279   | ) |      |   | (1,328   | )
|Accounts receivable                                                               |  |                           | (1,852   | ) |      |   | (1,483   | )
|Escrowed cash                                                                     |  |                           | 1,764    |   |      |   | (2,068   | )
|Accounts payable and other liabilities                                            |  |                           | (9,978   | ) |      |   | (12,075  | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                           | 66,239   |   |      |   | 59,772   |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Cash Flows from Investing Activities:                                             |  |                           |          |   |      |   |          |  
|Development/redevelopment of real estate                                          |  |                           | (2,888   | ) |      |   | (4,374   | )
|Purchase of real estate                                                           |  |                           | (174,943 | ) |      |   | (57,580  | )
|Capital expenditures for in-service properties                                    |  |                           | (21,187  | ) |      |   | (12,270  | )
|Distributions in excess of earnings of unconsolidated joint ventures              |  |                           | 208      |   |      |   | 124      |  
|Purchase of interest in Prentiss Properties Resources                             |  |                           |         |   |      |   | (67      | )
|Cash from consolidation of Prentiss Properties Resources                          |  |                           |         |   |      |   | 461      |  
|Investments in securities and insurance contracts                                 |  |                           | (666     | ) |      |   | (327     | )
|Proceeds received from repayments of notes receivable                             |  |                           | 9,962    |   |      |   |         |  
|Proceeds from the sale of a joint venture interest in a real estate partnership   |  |                           | 69,338   |   |      |   |         |  
|Proceeds from the sale of investment                                              |  |                           | 1,107    |   |      |   |         |  
|Proceeds from the sale of real estate                                             |  |                           | 78,999   |   |      |   | 18,869   |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash used in investing activities                                             |  |                           | (40,070  | ) |      |   | (55,164  | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Cash Flows from Financing Activities:                                             |  |                           |          |   |      |   |          |  
|Net proceeds from sale of common shares                                           |  |                           | 63,790   |   |      |   | 1,774    |  
|Redemption of series E preferred units                                            |  |                           | (10,000  | ) |      |   |         |  
|Redemption of series B preferred units                                            |  |                           | (95,000  | ) |      |   |         |  
|Repurchase of operating partnership common units                                  |  |                           | (891     | ) |      |   |         |  
|Contributions from limited partners                                               |  |                           | 9,334    |   |      |   | 115      |  
|Distributions paid to limited partners                                            |  |                           | (2,856   | ) |      |   | (1,677   | )
|Distributions paid to common shareholders                                         |  |                           | (48,695  | ) |      |   | (43,720  | )
|Distributions paid to preferred shareholders                                      |  |                           | (4,226   | ) |      |   | (4,226   | )
|Distributions paid to preferred unitholders                                       |  |                           | (3,176   | ) |      |   | (4,318   | )
|Proceeds from mortgages and notes payable                                         |  |                           | 427,000  |   |      |   | 296,685  |  
|Repayments of mortgages and notes payable                                         |  |                           | (357,359 | ) |      |   | (246,926 | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash used in financing activities                                             |  |                           | (22,079  | ) |      |   | (2,293   | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Net change in cash and cash equivalents                                           |  |                           | 4,090    |   |      |   | 2,315    |  
|Cash and cash equivalents, beginning of period                                    |  |                           | 5,945    |   |      |   | 5,080    |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                          |  | $                         | 10,035   |   |      | $ | 7,395    |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Supplemental Cash Flow Information:                                               |  |                           |          |   |      |   |          |  
|Cash paid for interest                                                            |  | $                         | 33,878   |   |      | $ | 34,658   |  
|                                                                                  |  |                           |          |   |      |   |          |  



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



8



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##### Table of Contents

PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



1. The Organization



Organization



We are a self-administered and self-managed Maryland REIT that acquires, owns, manages, leases, develops and builds primarily office properties throughout
the United States. We are self-administered in that we provide our own administrative services, such as accounting, tax and legal, through our own employees. We are self-managed in that we provide all the management and maintenance services that our
properties require through our own employees, such as, property managers, leasing professionals and engineers. We operate principally through our operating partnership, Prentiss Properties Acquisition Partners, L.P., and its subsidiaries, and two
management service companies, Prentiss Properties Resources, Inc. and its subsidiaries and Prentiss Properties Management, L.P. The ownership of the operating partnership was as follows at June 30, 2004:



|                          |  |             |  |        |   |  |                                   |  |        |  
|------------------------- |  | ----------- |  | ------ | - |  | --------------------------------- |  | ------ | -
|(units in thousands)      |  | CommonUnits |  | %      |   |  | Series DConvertiblePreferredUnits |  | %      |  
|Prentiss Properties Trust |  | 44,846      |  | 96.90  | % |  | 3,774                             |  | 100.00 | %
|Third parties             |  | 1,437       |  | 3.10   | % |  |                                  |  | 0.00   | %
|                          |  |             |  |        |   |  |                                   |  |        |  
|Total                     |  | 46,283      |  | 100.00 | % |  | 3,774                             |  | 100.00 | %
|                          |  |             |  |        |   |  |                                   |  |        |  



As of June 30, 2004,
we owned interests in a diversified portfolio of 136 primarily suburban Class A office and suburban industrial properties as follows:



|                      |  |                    |  |                        
|--------------------- |  | ------------------ |  | -----------------------
|                      |  | Number ofBuildings |  | Net RentableSquare Feet
|                      |  |                    |  | (in thousands)         
|Office properties     |  | 105                |  | 16,197                 
|Industrial properties |  | 31                 |  | 2,294                  
|                      |  |                    |  |                        
|Total                 |  | 136                |  | 18,491                 
|                      |  |                    |  |                        



As of June 30, 2004,
our properties were 91% leased to approximately 1,000 tenants. In addition to managing properties that we own, we manage approximately 10.8 million net rentable square feet in office, industrial and other properties for third parties.



We have determined that our reportable segments are those that are based on
our method of internal reporting, which disaggregates our business by geographic region. As of June 30, 2004, our reportable segments include our five regions (1) Mid-Atlantic; (2) Midwest; (3) Southwest; (4) Northern California; and (5) Southern
California.



At June 30, 2004, our properties were located in
11 markets, which were included in our reportable segments as follows:



|                    |  |                                           
|------------------- |  | ------------------------------------------
|Reportable Segment  |  | Market                                    
|Mid-Atlantic        |  | Metropolitan Washington D.C.              
|Midwest             |  | Chicago, Suburban Detroit                 
|Southwest           |  | Dallas/Fort Worth, Austin, Denver, Houston
|Northern California |  | Oakland, Silicon Valley                   
|Southern California |  | San Diego, Los Angeles                    



9



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##### Table of Contents

PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



Real Estate Transactions



On April 22, 2004, using proceeds from our revolving credit facility, we acquired from an unrelated third party a 1.3 million net rentable square foot
class AA office building and an adjacent land parcel in Dallas, Texas for gross consideration of $124.0 million. Under the terms of the purchase agreement, 7-Eleven entered into a 504,351 square foot lease for three years from the date
of closing.



On May 12, 2004, Prentiss Office Investors, L.P.
acquired from an unrelated third party a 69,000 net rentable square foot class A office building in San Diego, California for gross consideration of $17.7 million. Prentiss Office Investors, L.P. is owned 51% by the operating partnership
and its affiliates and 49% by Stichting Pensioenfonds ABP. Each partner contributed their pro rata share of the purchase price of the property to Prentiss Office Investors, L.P. for the acquisition. Amounts contributed from the operating partnership
were funded with proceeds from our revolving credit facility.



On May 25, 2004, we acquired from an unrelated third party the Great America Parkway Complex, a three building office complex with approximately 306,000 net rentable square feet and an adjacent land parcel for future development. The
properties are located in Santa Clara, California and were acquired for gross proceeds of $34.8 million. The property was 100% vacant upon acquisition. Subsequent to the acquisition, we executed a lease with a third party, unrelated to the seller,
for approximately 219,000 net rentable square feet, or approximately 72% of the property. The acquisition was funded with proceeds from our revolving credit facility.



In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations, we allocated the
purchase price of the properties acquired as follows:



|                                            |  |                                  |         |  
|------------------------------------------- |  | -------------------------------- | ------- | -
|(in thousands)                              |  | Three Months Ended June 30, 2004 |        
|Land                                        |  | $                                | 39,243  |  
|Buildings and improvements                  |  | $                                | 114,030 |  
|Tenant Improvements and leasing commissions |  | $                                | 19,898  |  
|Above/(below) market lease value            |  | $                                | (7,016  | )
|In-place lease value at market              |  | $                                | 9,672   |  
|Furniture and fixtures                      |  | $                                | 808     |  



On May 20, 2004, we
completed the sale, to an unrelated third party, of six office properties containing approximately 566,000 net rentable square feet. The sale, which included all of our properties in the Sacramento, California area, resulted in gross proceeds of
$80.5 million. Concurrent with the sale of the properties, we exercised our right to complete a voluntary defeasance of the mortgage loan collateralized by the properties. Pursuant to the defeasance, we transferred the mortgage loan with an
outstanding principal balance of $35.9 million to an unrelated successor entity. The buyer of the properties transferred proceeds totaling $41.2 million representing the proceeds necessary to acquire U.S. Treasury Securities sufficient to cover debt
service including both interest and principal payments from the defeasance date through maturity of the loan. We recognized a gain on sale of real estate of $10.2 million and a loss from debt defeasance of $5.3 million during the period both of
which are included in discontinued operations. The proceeds from the sale, net of the proceeds used to acquire U.S. Treasury Securities, were used to repay a portion of the outstanding borrowings under our revolving credit facility.



10



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##### Table of Contents

PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
effective for financial statements issued for fiscal years beginning after December 15, 2001, income and gain/(loss) for real estate properties sold and real estate properties held for sale are to be reflected in the consolidated statements of
income as discontinued operations. Below is a summary of our combined results of operations from the properties disposed of or held for sale during the periods presented. The summary includes the results of operations before gain/(loss) on sale and
the related loss on debt defeasance for the three and six months ended June 30, 2004 and 2003, respectively:



|                                           |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|------------------------------------------ |  | -------------------------- | ----- | - | ------------------------ | - | ------ | ---- |  | - | ----- | - |  | - | ------ | -
|                                           |  | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |  
|Discontinued Operations:                   |  | 2004                       |       |   | 2003                     |   |        | 2004 |  |   | 2003  |  
|(in thousands)                             |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|Property revenues:                         |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|Rental income                              |  | $                          | 1,677 |   |                          | $ | 6,789  |      |  | $ | 5,606 |   |  | $ | 14,235 |  
|                                           |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|Property revenues                          |  |                            | 1,677 |   |                          |   | 6,789  |      |  |   | 5,606 |   |  |   | 14,235 |  
|                                           |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|Property expenses:                         |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|Property operating and maintenance         |  |                            | 484   |   |                          |   | 2,402  |      |  |   | 1,296 |   |  |   | 4,991  |  
|Real estate taxes                          |  |                            | 99    |   |                          |   | 416    |      |  |   | 330   |   |  |   | 1,030  |  
|Depreciation and amortization              |  |                            | 774   |   |                          |   | 1,920  |      |  |   | 1,938 |   |  |   | 3,726  |  
|                                           |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|Property expenses                          |  |                            | 1,357 |   |                          |   | 4,738  |      |  |   | 3,564 |   |  |   | 9,747  |  
|                                           |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|Loss on impairment of real estate          |  |                            |      |   |                          |   | (1,792 | )    |  |   |      |   |  |   | (1,792 | )
|Interest expense                           |  |                            | (343  | ) |                          |   | (643   | )    |  |   | (982  | ) |  |   | (1,283 | )
|                                           |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|(Loss)/income from discontinued operations |  | $                          | (23   | ) |                          | $ | (384   | )    |  | $ | 1,060 |   |  | $ | 1,413  |  
|                                           |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  



During the quarter, we
transitioned a parcel of land with a carrying amount at June 30, 2004 of $12.6 million from land held for development to construction in progress. The construction includes a two building office project located in Del Mar, California and will
contain approximately 157,859 net rentable square feet upon completion. The project is currently 50% pre-leased.



Other Transactions



On April 26, 2004, we completed a five-year interest rate swap in a notional amount of $50.0 million. The interest rate swap, which effectively locks our
cost of funds at 3.935% (before the spread over LIBOR) on $50.0 million of our variable rate borrowings, matures May 1, 2009.



On June 23, 2004, we completed a four-year interest rate swap in a notional amount of $70.0 million. The interest rate swap effectively locks our cost of
funds at 4.139% (before the spread over LIBOR) on $70.0 million of future variable rate borrowings. The interest rate swap is effective beginning August 2, 2004 and matures August 1, 2008.



On June 25, 2004, we exercised the accordion feature of our revolving credit
facility expanding the facilitys overall borrowing capacity from $300 million to $375 million. Other terms of the facility remain unchanged.



On June 10, 2002, we entered into a securities sales agreement with Brinson Patrick Securities Corporation to issue, from time to time using Brinson
Patrick Securities Corporation as our sales agent, up to 3,000,000 of our common shares at the then market price directly to the public (the Dribble Plan). On May 28, 2004, we entered into a second securities sales agreement with Brinson Patrick to
issue, from time to time using Brinson Patrick as our sales agent, up to 2,000,000 of our common shares at the then market price directly to the public. On May 28, 2004 we filed a registration statement to register the issuance of the 2,000,000
common shares and such registration statement was declared effective by the Securities and Exchange Commission on June 10, 2004. Common shares will begin to be issued pursuant to the May 28, 2004 agreement after all 3,000,000 of our common shares
pursuant to the June 10, 2002 sales agreement have been issued. Since the inception of the Dribble Plan through June 30, 2004, 2,178,400 common shares have been issued including 448,200 common shares issued during the three months ended June 30,
2004. Net proceeds from the common shares issued during the three months ended June 30, 2004 which totaled $14.9 million, or $33.17 per share after underwriting discounts were used to repay a portion of the outstanding borrowings under our revolving
credit facility. As of June 30, 2004, 821,600 common shares remain available for issuance under the June 10, 2002 sales agreement and 2,000,000 common shares remain available for issuance under the May 28, 2004 sales agreement.



11



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PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



2. Basis of Presentation



The accompanying financial statements are unaudited; however, our financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by accounting principles
generally accepted in the United States of America for complete financial statements. In our opinion, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim
periods have been included. The December 31, 2003 comparative balance sheet information was derived from audited financial statements. The results for the three and six month periods ended June 30, 2004 are not necessarily indicative of the results
to be obtained for the full fiscal year. These financial statements should be read in conjunction with our audited financial statements, and notes thereto, included in our annual report on Form 10-K for the fiscal year ended December 31, 2003.



3. Share-Based Compensation



In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. The statement amends Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
expanding disclosure requirements and providing alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock or share-based employee compensation.



On January 1, 2003, we adopted the fair value based method of accounting as
prescribed by statement of Financial Accounting Standards No. 123 as amended, for our share-based compensation plans and we elected to apply this method on a prospective basis as prescribed in Financial Accounting Standards No. 148. The prospective
basis requires that we apply the fair value based method of accounting to all awards granted, modified or settled after the beginning of the fiscal year in which we adopt the accounting method.



Historically, we applied the intrinsic value based method of accounting as
prescribed by APB Opinion 25 and related Interpretations in accounting for our share-based awards. Had we fully adopted Statement of Financial Accounting Standards No. 123 for awards issued prior to January 1, 2003 it would have changed our method
for recognizing the cost of our plans. Had the compensation cost for our share-based compensation plans been determined consistent with Statement of Financial Accounting Standards No. 123, our net income applicable to common shareholders and net
income per common share for the three and six months ended June 30, 2004 and 2003 would approximate the pro forma amounts below:



|                                             |  |                                               |        |               |   |                 |  |               |       |  |   |      
|-------------------------------------------- |  | --------------------------------------------- | ------ | ------------- | - | --------------- |  | ------------- | ----- |  | - | -----
|                                             |  | (amounts in thousands, except per share data)
|Three Months Ended June 30,                  |  | As reported2004                               |        | Pro forma2004 |   | As reported2003 |  | Pro forma2003
|SFAS No. 123 charge                          |  | $                                             | 612    |               | $ | 633             |  | $             | 563   |  | $ | 623  
|Net income applicable to common shareholders |  | $                                             | 16,679 |               | $ | 16,658          |  | $             | 6,399 |  | $ | 6,339
|Net income per common share-basic            |  | $                                             | 0.38   |               | $ | 0.38            |  | $             | 0.16  |  | $ | 0.16 
|Net income per common share-diluted          |  | $                                             | 0.37   |               | $ | 0.37            |  | $             | 0.16  |  | $ | 0.16 



|                                             |  |                                               |        |               |   |                 |  |               |        |  |   |       
|-------------------------------------------- |  | --------------------------------------------- | ------ | ------------- | - | --------------- |  | ------------- | ------ |  | - | ------
|                                             |  | (amounts in thousands, except per share data)
|Six Months Ended June 30,                    |  | As reported2004                               |        | Pro forma2004 |   | As reported2003 |  | Pro forma2003
|SFAS No. 123 charge                          |  | $                                             | 1,112  |               | $ | 1,154           |  | $             | 1,036  |  | $ | 1,199 
|Net income applicable to common shareholders |  | $                                             | 29,965 |               | $ | 29,923          |  | $             | 19,796 |  | $ | 19,633
|Net income per common share-basic            |  | $                                             | 0.68   |               | $ | 0.68            |  | $             | 0.51   |  | $ | 0.50  
|Net income per common share-diluted          |  | $                                             | 0.68   |               | $ | 0.68            |  | $             | 0.51   |  | $ | 0.50  



The effects of
applying Statement of Financial Accounting Standards No. 123 in this pro forma disclosure are not indicative of future amounts.



12



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PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



4. Earnings per Share



We calculate earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share, which requires a
dual presentation of basic and diluted earnings per share on the face of the income statement. Additionally, the statement requires a reconciliation of the numerator and denominator used in computing basic and diluted earnings per share. The table
below presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share for the three and six month periods ended June 30, 2004 and 2003:



|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|(in thousands, except per share data)                                      |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                           |  | 2004                       |        |   | 2003                     |   |        | 2004 |  |   | 2003   |  
|Reconciliation of the numerator used for basic earnings per share          |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations                                          |  | $                          | 14,191 |   |                          | $ | 12,479 |      |  | $ | 28,826 |   |  | $ | 25,126 |  
|Preferred dividends                                                        |  |                            | (2,113 | ) |                          |   | (2,113 | )    |  |   | (5,826 | ) |  |   | (4,226 | )
|(Loss)/gain on sale of land and an interest in a real estate partnership   |  |                            | (94    | ) |                          |   | 778    |      |  |   | 1,222  |   |  |   | 1,910  |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations applicable to common shareholders        |  | $                          | 11,984 |   |                          | $ | 11,144 |      |  | $ | 24,222 |   |  | $ | 22,810 |  
|                                                                           |  |                            |        |  
|Discontinued operations                                                    |  |                            | 4,695  |   |                          |   | (4,745 | )    |  |   | 5,743  |   |  |   | (3,014 | )
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net income applicable to common shareholders                               |  | $                          | 16,679 |   |                          | $ | 6,399  |      |  | $ | 29,965 |   |  | $ | 19,796 |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Reconciliation of the denominator used for basic earnings per share        |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Weighted average common shares outstanding(1)                              |  |                            | 44,386 |   |                          |   | 38,996 |      |  |   | 43,906 |   |  |   | 38,973 |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings per share                                                   |  | $                          | 0.38   |   |                          | $ | 0.16   |      |  | $ | 0.68   |   |  | $ | 0.51   |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Reconciliation of the numerator used for dilutive earnings per share       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations                                          |  | $                          | 14,191 |   |                          | $ | 12,479 |      |  | $ | 28,826 |   |  | $ | 25,126 |  
|Preferred dividends                                                        |  |                            | (2,113 | ) |                          |   | (2,113 | )    |  |   | (5,826 | ) |  |   | (4,226 | )
|(Loss)/gain on sale of land and an interest in a real estate partnership   |  |                            | (94    | ) |                          |   | 778    |      |  |   | 1,222  |   |  |   | 1,910  |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations applicable to common shareholders        |  | $                          | 11,984 |   |                          | $ | 11,144 |      |  | $ | 24,222 |   |  | $ | 22,810 |  
|                                                                           |  |                            |        |  
|Discontinued operations                                                    |  |                            | 4,695  |   |                          |   | (4,745 | )    |  |   | 5,743  |   |  |   | (3,014 | )
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net income applicable to common shareholders                               |  | $                          | 16,679 |   |                          | $ | 6,399  |      |  | $ | 29,965 |   |  | $ | 19,796 |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Reconciliation of the denominator used for dilutive earnings per share     |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Weighted average common shares outstanding                                 |  |                            | 44,386 |   |                          |   | 38,996 |      |  |   | 43,906 |   |  |   | 38,973 |  
|Options                                                                    |  |                            | 82     |   |                          |   | 191    |      |  |   | 133    |   |  |   | 145    |  
|Share grants                                                               |  |                            | 59     |   |                          |   | 17     |      |  |   | 55     |   |  |   | 10     |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Weighted average common shares and common share equivalents outstanding(1) |  |                            | 44,527 |   |                          |   | 39,204 |      |  |   | 44,094 |   |  |   | 39,128 |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Diluted earnings per share                                                 |  | $                          | 0.37   |   |                          | $ | 0.16   |      |  | $ | 0.68   |   |  | $ | 0.51   |  
|                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  

---

|(1) | Preferred shares for the three and six months ended June 30, 2004 and 2003 are excluded from the denominator in calculating basic and dilutive earnings per share as
such shares were anti-dilutive for the periods; therefore, the numerator used in the calculation of basic and dilutive earnings per share is income applicable to common shareholders for all periods.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



5. Deferred Charges and Other Assets, Net



Deferred charges consisted of the following at June 30, 2004 and December 31, 2003:



|                                               |  |                |          |   |                  |   |          |  
|---------------------------------------------- |  | -------------- | -------- | - | ---------------- | - | -------- | -
|                                               |  | (in thousands) |         
|                                               |  | June 30,2004   |          |   | December 31,2003 |  
|Deferred leasing costs and tenant improvements |  | $              | 297,507  |   |                  | $ | 276,926  |  
|In-place lease value at market                 |  |                | 16,928   |   |                  |   | 7,425    |  
|Below market lease values                      |  |                | (7,031   | ) |                  |   | (15      | )
|Deferred financing costs                       |  |                | 14,664   |   |                  |   | 14,870   |  
|Prepaids and other assets                      |  |                | 8,411    |   |                  |   | 8,920    |  
|                                               |  |                |          |   |                  |   |          |  
|                                               |  |                | 330,479  |   |                  |   | 308,126  |  
|Less: accumulated amortization                 |  |                | (106,460 | ) |                  |   | (100,331 | )
|                                               |  |                |          |   |                  |   |          |  
|                                               |  | $              | 224,019  |   |                  | $ | 207,795  |  
|                                               |  |                |          |   |                  |   |          |  



We record the
amortization related to deferred leasing costs and tenant improvements and in-place lease value at market in the line item depreciation and amortization. We record below market lease value amortization in the line item rental
income. Amortization for deferred financing cost is recorded in the line item amortization of deferred financing costs, and the amortization for prepaid items is recorded in the line items property operating and
maintenance and real estate taxes.



6. Accounts
Receivable, Net



Accounts receivable consisted of the
following at June 30, 2004 and December 31, 2003:



|                                      |  |                |        |   |                  |   |        |  
|------------------------------------- |  | -------------- | ------ | - | ---------------- | - | ------ | -
|                                      |  | (in thousands) |       
|                                      |  | June 30,2004   |        |   | December 31,2003 |  
|Rents and services                    |  | $              | 9,398  |   |                  | $ | 12,322 |  
|Accruable rental income               |  |                | 47,835 |   |                  |   | 44,137 |  
|Other                                 |  |                | 636    |   |                  |   | 939    |  
|                                      |  |                |        |   |                  |   |        |  
|                                      |  |                | 57,869 |   |                  |   | 57,398 |  
|Less: allowance for doubtful accounts |  |                | (6,839 | ) |                  |   | (9,986 | )
|                                      |  |                |        |   |                  |   |        |  
|                                      |  | $              | 51,030 |   |                  | $ | 47,412 |  
|                                      |  |                |        |   |                  |   |        |  



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PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



7. Investments in Unconsolidated Joint Ventures



The following information summarizes the financial position at June 30, 2004 and December 31, 2003 and the results of operations for the three and six
month periods ended June 30, 2004 and 2003 for the investments in which we held a non-controlling interest during the period presented:



|                                 |  |              |         |                |   |              |  |              |                      |              |   |         |              |   |         |              |  |              |         |   |  |   |        |  |   |       
|-------------------------------- |  | ------------ | ------- | -------------- | - | ------------ |  | ------------ | -------------------- | ------------ | - | ------- | ------------ | - | ------- | ------------ |  | ------------ | ------- | - |  | - | ------ |  | - | ------
|Summary of Financial Position:   |  | Total Assets |         | Total Debt (4) |   | Total Equity |  |              | Companys Investment
|(in thousands)                   |  | June 30,2004 |         | Dec. 31,2003   |   | June 30,2004 |  | Dec. 31,2003 |                      | June 30,2004 |   |         | Dec. 31,2003 |   |         | June 30,2004 |  | Dec. 31,2003
|Broadmoor Austin Associates(1)   |  | $            | 100,448 |                | $ | 103,334      |  | $            | 135,324              |              | $ | 138,552 |              | $ | (35,482 | )            |  | $            | (35,991 | ) |  | $ | 4,010  |  | $ | 3,882 
|Tysons International Partners(2) |  |              | 95,072  |                |   | 95,186       |  |              | 59,524               |              |   | 59,914  |              |   | 33,964  |              |  |              | 34,213  |   |  |   | 8,764  |  |   | 9,226 
|Other Investments(3)             |  |              |        |                |   |             |  |              |                     |              |   |        |              |   |        |              |  |              |        |   |  |   |       |  |   | 1,107 
|                                 |  |              |         |                |   |              |  |              |                      |              |   |         |              |   |         |              |  |              |         |   |  |   |        |  |   |       
|                                 |  |              |         |                |   |              |  |              |                      |              |   |         |              |   |         |              |  |              |         |   |  | $ | 12,774 |  | $ | 14,215
|                                 |  |              |         |                |   |              |  |              |                      |              |   |         |              |   |         |              |  |              |         |   |  |   |        |  |   |       



|                                                                        |  |               |       |            |   |                                     |  |   |       |   |      |   |       |      |   |     |   |  |   |    
|----------------------------------------------------------------------- |  | ------------- | ----- | ---------- | - | ----------------------------------- |  | - | ----- | - | ---- | - | ----- | ---- | - | --- | - |  | - | ---
|Summary of Operations for the Three Months Ended June 30,2004 and 2003: |  | Total Revenue |       | Net Income |   | Companys Share ofNet Income/(Loss)
|(in thousands)                                                          |  | 2004          |       | 2003       |   | 2004                                |  |   | 2003  |   | 2004 |   |       | 2003
|Broadmoor Austin Associates                                             |  | $             | 5,018 |            | $ | 5,055                               |  | $ | 1,254 |   |      | $ | 1,210 |      | $ | 627 |   |  | $ | 605
|Tysons International Partners                                           |  |               | 2,876 |            |   | 3,329                               |  |   | (124  | ) |      |   | 427   |      |   | (31 | ) |  |   | 107
|                                                                        |  |               |       |            |   |                                     |  |   |       |   |      |   |       |      |   |     |   |  |   |    
|Total                                                                   |  |               |       |            |   |                                     |  |   |       |   |      |   |       |      | $ | 596 |   |  | $ | 712
|                                                                        |  |               |       |            |   |                                     |  |   |       |   |      |   |       |      |   |     |   |  |   |    



|                                                                       |  |               |        |            |   |                                     |  |   |       |   |      |   |       |      |   |       |   |  |   |      
|---------------------------------------------------------------------- |  | ------------- | ------ | ---------- | - | ----------------------------------- |  | - | ----- | - | ---- | - | ----- | ---- | - | ----- | - |  | - | -----
|Summary of Operations for the Six Months Ended June 30, 2004 and 2003: |  | Total Revenue |        | Net Income |   | Companys Share ofNet Income/(Loss)
|(in thousands)                                                         |  | 2004          |        | 2003       |   | 2004                                |  |   | 2003  |   | 2004 |   |       | 2003
|Broadmoor Austin Associates                                            |  | $             | 10,035 |            | $ | 10,111                              |  | $ | 2,474 |   |      | $ | 2,338 |      | $ | 1,237 |   |  | $ | 1,169
|Tysons International Partners                                          |  |               | 5,819  |            |   | 6,574                               |  |   | (250  | ) |      |   | 676   |      |   | (63   | ) |  |   | 169  
|                                                                       |  |               |        |            |   |                                     |  |   |       |   |      |   |       |      |   |       |   |  |   |      
|Total                                                                  |  |               |        |            |   |                                     |  |   |       |   |      |   |       |      | $ | 1,174 |   |  | $ | 1,338
|                                                                       |  |               |        |            |   |                                     |  |   |       |   |      |   |       |      |   |       |   |  |   |      

---

|(1) | We own a 50% non-controlling interest in Broadmoor Austin Associates, an entity, which owns a seven-building, 1.1 million net rentable square foot office complex in
Austin, Texas.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | We own a 25% non-controlling interest in Tysons International Partners, an entity, which owns two office properties containing 452,000 net rentable square feet in
the Northern Virginia area.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Prior to April 14, 2004, we owned a 1% investment in certain real estate entities accounted for using the cost method of accounting. On April 14, 2004, we sold our
investment to Brandywine Realty Trust for proceeds totaling $1.1 million, equaling the carrying amount of our investment at the date of sale.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The mortgage debt, all of which is non-recourse, is collateralized by the individual real estate property or properties within each venture.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



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PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



8. Mortgages and Notes Payable



At June 30, 2004, we had mortgages and notes payable of $1.10 billion, excluding our proportionate share of debt from our unconsolidated joint ventures.



The following table sets forth our mortgages and notes payable
as of June 30, 2004 and December 31, 2003:



|                                  |  |                |           |                  |   |              |  |                  |  |              |  |                   
|--------------------------------- |  | -------------- | --------- | ---------------- | - | ------------ |  | ---------------- |  | ------------ |  | ------------------
|                                  |  | (in thousands) |           |                  |   |              |  |                 
|Description                       |  | June 30,2004   |           | December 31,2003 |   | Amortization |  | Interest Rate(3) |  | Maturity    
|Collateralized term loan          |  | $              | 70,438    |                  | $ | 70,813       |  | 25 yr            |  | LIBOR+1.375% |  | September 30, 2004
|Revolving credit facility         |  |                | 225,000   |                  |   | 111,000      |  | None             |  | LIBOR+1.250% |  | February 19, 2007 
|Unsecured term loan -Commerz      |  |                | 75,000    |                  |   | 75,000       |  | None             |  | LIBOR+1.250% |  | March 15, 2009    
|Unsecured term loan - Eurohypo I  |  |                | 100,000   |                  |   | 100,000      |  | None             |  | LIBOR+1.250% |  | May 22, 2008      
|Unsecured term loan - Eurohypo II |  |                | 13,900    |                  |   | 14,000       |  | 30 yr            |  | 7.46%        |  | July 15, 2009     
|PPREFI portfolio loan             |  |                | 180,100   |                  |   | 180,100      |  | None             |  | 7.58%        |  | February 26, 2007 
|Mortgage notes payable            |  |                | 439,554   |                  |   | 478,122      |  | (1)              |  | (2)          |  | (2)               
|                                  |  |                |           |                  |   |              |  |                  |  |              |  |                   
|                                  |  | $              | 1,103,992 |                  | $ | 1,029,035    |  |                  |  |              |  |                   
|                                  |  |                |           |                  |   |              |  |                  |  |              |  |                   

---

|(1) | Excluding the $66.0 million financing of our Burnett Plaza property, which requires interest only payments until maturity, our mortgage notes have debt service
requirements based on amortization terms ranging from 18 to 30 years.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excluding the Burnett Plaza financing, which has an interest rate equal to 30-day LIBOR plus 150 basis points, the interest rates range from 6.63% to 8.05% with a
weighted average interest rate of 7.37% at June 30, 2004. Maturity dates range from April 2005 through June 2013 with a weighted average maturity of 5.3 years from June 30, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 30-day LIBOR was 1.37% at June 30, 2004.
|--- | ----------------------------------------



Our mortgages and notes payable at June 30, 2004 consisted of $553.7 million of fixed rate, non-recourse, long-term mortgages, $13.9 million of fixed
rate, recourse debt and $536.4 million of floating rate debt, $325.0 million of which was hedged at June 30, 2004 with variable to fixed rate hedges.



Future scheduled principal repayments of our outstanding mortgages and notes payable are as follows:



|           |  |                |          
|---------- |  | -------------- | ---------
|           |  | (in thousands)
|2004       |  | $              | 73,169   
|2005       |  |                | 104,349  
|2006       |  |                | 9,704    
|2007       |  |                | 417,182  
|2008       |  |                | 106,048  
|Thereafter |  |                | 393,540  
|           |  |                |          
|           |  | $              | 1,103,992
|           |  |                |          



9. Interest Rate Hedges



In the normal course of business, we are exposed to the
effect of interest rate changes. We limit our interest rate risk by following established risk management policies and procedures including the use of derivatives. For interest rate exposures, derivatives are used to hedge against rate movements on
our related debt.



To manage interest rate risk, we may employ
options, forwards, interest rate swaps, caps and floors or a combination thereof depending on the underlying exposure. We undertake a variety of borrowings from credit facilities, to medium- and long-term financings. To hedge against increases in
interest cost, we use interest rate instruments, typically interest rate swaps, to convert a portion of our variable-rate debt to fixed-rate debt.



16



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PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



On the date we enter into a derivative contract, we designate the derivative as a hedge of (a) a forecasted transaction or (b) the variability of cash
flows that are to be received or paid in connection with a recognized asset or liability (cash flow hedge). These agreements involve the exchange of amounts based on a variable interest rate for amounts based on fixed interest rates over the life of
the agreement based upon a notional amount. The difference to be paid or received as the interest rates change is recognized as an adjustment to interest expense. The related amount payable to or receivable from counterparties is included in
accounts payable and other liabilities. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive
income, until earnings are affected by the variability of cash flows of the hedged transaction (e.g. until periodic settlements of a variable-rate asset or liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount
by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current-period earnings. Changes in the fair value of non-hedging instruments are reported in
current-period earnings.



We formally document all
relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to
(1) specific assets and liabilities on the balance sheet or (2) specific firm commitments or forecasted transactions. We also formally assess (both at the hedges inception and on an ongoing basis) whether the derivatives that are used in
hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or
has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively, as discussed below.



We discontinue hedge accounting prospectively when (1) we determine that the derivative is no longer effective in offsetting changes in the cash flows of
a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm
commitment no longer meets the definition of a firm commitment; or (5) management determines that designating the derivative as a hedging instrument is no longer appropriate.



When we discontinue hedge accounting because it is no longer probable that the forecasted transaction will occur in the
originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted
transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in
earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, we will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.



To determine the fair value of derivative instruments, we use
a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For our derivatives, standard market conventions and techniques such as discounted cash flow analysis, option pricing models,
replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.



Over time, the unrealized gains and losses held in accumulated other
comprehensive income will be reclassified to earnings. This reclassification is consistent with when the hedged items are recognized in earnings. Within the next twelve months, we expect to reclassify to earnings approximately $3.8 million and $1.3
million of unrealized losses and unrealized gains, respectively.



The following table summarizes the notional values and fair values of our derivative financial instruments at June 30, 2004. The notional value provides an indication of the extent of our involvement in these instruments as of the balance
sheet date, but does not represent exposure to credit, interest rate or market risks.



17



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NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



|                |  |                       |   |  |                     |   |  |                                               |   |  |                |  |                |        |  
|--------------- |  | --------------------- | - |  | ------------------- | - |  | --------------------------------------------- | - |  | -------------- |  | -------------- | ------ | -
|Notional Amount |  | Swap Rate Paid(Fixed) |   |  | EffectiveFixed Rate |   |  | Swap Rate Received(Variable) at June 30, 2004 |   |  | Swap Maturity  |  | Fair Value     |       
|                |  |                       |   |  |                     |   |  |                                               |   |  |                |  | (in thousands) |       
|$ 50 million    |  | 6.253                 | % |  | 7.628               | % |  | 1.37                                          | % |  | September 2004 |  | $              | (592   | )
|$ 60 million    |  | 6.248                 | % |  | 7.623               | % |  | 1.37                                          | % |  | September 2004 |  |                | (709   | )
|$ 25 million    |  | 4.345                 | % |  | 5.845               | % |  | 1.37                                          | % |  | July 2005      |  |                | (497   | )
|$ 15 million    |  | 4.345                 | % |  | 5.845               | % |  | 1.37                                          | % |  | July 2005      |  |                | (298   | )
|$ 20 million    |  | 5.985                 | % |  | 7.235               | % |  | 1.37                                          | % |  | March 2006     |  |                | (1,054 | )
|$ 30 million    |  | 5.990                 | % |  | 7.240               | % |  | 1.37                                          | % |  | March 2006     |  |                | (1,583 | )
|$ 50 million    |  | 2.270                 | % |  | 3.520               | % |  | 1.37                                          | % |  | August 2007    |  |                | 1,859  |  
|$ 25 million    |  | 2.277                 | % |  | 3.527               | % |  | 1.37                                          | % |  | August 2007    |  |                | 925    |  
|$ 70 million(1) |  | 4.139                 | % |  | 4.989               | % |  | 1.37                                          | % |  | August 2008    |  |                | (543   | )
|$ 30 million(2) |  | 3.857                 | % |  | 5.107               | % |  | 1.37                                          | % |  | September 2008 |  |                | 254    |  
|$ 30 million(2) |  | 3.819                 | % |  | 5.069               | % |  | 1.37                                          | % |  | October 2008   |  |                | 298    |  
|$ 20 million(2) |  | 3.819                 | % |  | 5.069               | % |  | 1.37                                          | % |  | October 2008   |  |                | 198    |  
|$ 50 million    |  | 3.935                 | % |  | 5.186               | % |  | 1.37                                          | % |  | May 2009       |  |                | 338    |  
|$ 30 million(2) |  | 3.443                 | % |  | 4.693               | % |  | 1.37                                          | % |  | October 2009   |  |                | 1,226  |  
|                |  |                       |   |  |                     |   |  |                                               |   |  |                |  |                |        |  
|Total           |  |                       |   |  |                     |   |  |                                               |   |  |                |  | $              | (178   | )
|                |  |                       |   |  |                     |   |  |                                               |   |  |                |  |                |        |  

---

|(1) | The interest rate swap agreement will effectively lock 30-day LIBOR at 4.139% on $70.0
million of future floating rate debt of Prentiss Office Investors, L.P. for a period of four years beginning August 2, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Each of the interest rate swap agreements has an effective date of October 1, 2004.
|--- | -----------------------------------------------------------------------------------



Cash payments made under our interest rate
hedges exceeded cash receipts from our interest rate hedges by $2.7 million and $2.4 million for the three months ended June 30, 2004 and 2003, respectively.



10. Accounts Payable and Other Liabilities



Accounts payable and other liabilities consisted of the following at June 30, 2004 and December 31, 2003:



|                              |  |                |        |                  |   |       
|----------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                              |  | (in thousands)
|                              |  | June 30,2004   |        | December 31,2003
|Accrued interest expense      |  | $              | 5,410  |                  | $ | 5,618 
|Accrued real estate taxes     |  |                | 23,348 |                  |   | 24,764
|Advance rents and deposits    |  |                | 19,434 |                  |   | 18,067
|Deferred compensation payable |  |                | 5,785  |                  |   | 4,941 
|Other liabilities             |  |                | 19,510 |                  |   | 28,351
|                              |  |                |        |                  |   |       
|                              |  | $              | 73,487 |                  | $ | 81,741
|                              |  |                |        |                  |   |       



11. Distributions



On June 9, 2004, we declared a cash distribution for the second quarter
of 2004 in the amount of $0.56 per share, payable on July 9, 2004 to common shareholders of record on June 30, 2004. Additionally, we determined that a distribution of $0.56 per common unit would be made to the partners of the operating partnership
and the holders of our Series D Convertible Preferred Shares. The distributions totaled $28.0 million and were paid July 9, 2004.



12. Supplemental Disclosure of Non-Cash Activities



During the three months ended June 30, 2004, we declared cash distributions totaling $28.0 million payable to holders of common shares, operating
partnership units and Series D Convertible Preferred Shares. The distributions were paid July 9, 2004.



Pursuant to our long-term incentive plan, during the six months ended June 30, 2004, we issued 89,000 restricted common shares to various key employees.
The shares, which had a market value of approximately $3.0 million based upon the per share price on the date of grant, were classified as unearned compensation and recorded in the shareholders equity section of the consolidated balance sheet.
The unearned compensation is amortized quarterly as compensation expense over the three-year vesting period.



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PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



During the six months ended June 30, 2004, 10,580 common shares were issued pursuant to the conversion of 10,580 common units of our operating
partnership. The common shares had a market value of approximately $374,000 on the conversion date.



During the six months ended June 30, 2004, common shares held in treasury increased by $4.2 million primarily relating to 116,375 common shares
surrendered as payment of the exercise price and statutory withholdings for certain share options exercised during the period.



We marked-to-market our investments in securities and our interest rate hedges. During the six months ended June 30, 2004, we recorded unrealized gains of
$7.7 million and $28,000 on our interest rate hedges and investments in securities, respectively.



In connection with the acquisitions during the six months ended June 30, 2004, we assumed liabilities of approximately $1.4 million. As a result of
property sales during the six months ended June 30, 2004, we removed approximately $1.4 million, $466,000 and $212,000 of receivables, other assets and liabilities, respectively.



13. Segment Information



The tables below present information about segment assets, our investments in equity method investees, expenditures for additions to long-lived assets and
revenues and income from continuing operations used by our chief operating decision maker as of and for the three and six month periods ended June 30, 2004 and 2003:



For the Three Months Ended June 30, 2004

(in thousands)



|                                               |  |               |         |         |   |           |  |                    |         |                    |   |               |  |                                  |         |  |                   |           |  |   |         |   |  |   |          
|---------------------------------------------- |  | ------------- | ------- | ------- | - | --------- |  | ------------------ | ------- | ------------------ | - | ------------- |  | -------------------------------- | ------- |  | ----------------- | --------- |  | - | ------- | - |  | - | ---------
|                                               |  | Mid- Atlantic |         | Midwest |   | Southwest |  | NorthernCalifornia |         | SouthernCalifornia |   | TotalSegments |  | CorporateNotAllocable ToSegments |         |  | ConsolidatedTotal
|Revenues                                       |  | $             | 24,241  |         | $ | 15,158    |  | $                  | 34,993  |                    | $ | 8,338         |  | $                                | 10,522  |  | $                 | 93,252    |  | $ | 532     |   |  | $ | 93,784   
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |               |  |                                  |         |  |                   |           |  |   |         |   |  |   |          
|Income from continuing operations              |  | $             | 11,291  |         | $ | 4,916     |  | $                  | 11,792  |                    | $ | 3,351         |  | $                                | 3,793   |  | $                 | 35,143    |  | $ | (20,952 | ) |  | $ | 14,191   
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |               |  |                                  |         |  |                   |           |  |   |         |   |  |   |          
|Additions to long-lived assets:                |  |               |         |         |   |           |  |                    |         |                    |   |               |  |                                  |         |  |                   |           |  |   |         |   |  |   |          
|Development/redevelopment                      |  | $             | 15      |         | $ | 459       |  | $                  | 17      |                    | $ | 1             |  | $                                | 881     |  | $                 | 1,373     |  | $ |        |   |  | $ | 1,373    
|Purchase of real estate                        |  |               |        |         |   |          |  |                    | 123,323 |                    |   | 34,780        |  |                                  | 17,724  |  |                   | 175,827   |  |   |        |   |  |   | 175,827  
|Capital expenditures for in-service properties |  |               | 2,286   |         |   | 1,301     |  |                    | 3,681   |                    |   | 1,667         |  |                                  | 1,498   |  |                   | 10,433    |  |   |        |   |  |   | 10,433   
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |               |  |                                  |         |  |                   |           |  |   |         |   |  |   |          
|Total additions                                |  | $             | 2,301   |         | $ | 1,760     |  | $                  | 127,021 |                    | $ | 36,448        |  | $                                | 20,103  |  | $                 | 187,633   |  | $ |        |   |  | $ | 187,633  
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |               |  |                                  |         |  |                   |           |  |   |         |   |  |   |          
|Investment balance in equity method investees  |  | $             | 8,764   |         | $ |          |  | $                  | 4,010   |                    | $ |              |  | $                                |        |  | $                 | 12,774    |  | $ |        |   |  | $ | 12,774   
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |               |  |                                  |         |  |                   |           |  |   |         |   |  |   |          
|Assets                                         |  | $             | 611,022 |         | $ | 414,105   |  | $                  | 753,585 |                    | $ | 215,255       |  | $                                | 259,191 |  | $                 | 2,253,158 |  | $ | 28,516  |   |  | $ | 2,281,674
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |               |  |                                  |         |  |                   |           |  |   |         |   |  |   |          



19



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##### Table of Contents

PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



For the Three Months Ended June 30, 2003

(in thousands)



|                                               |  |               |         |         |   |           |  |                    |         |                    |   |         |               |   |                                  |   |  |                   |           |  |   |         |   |  |   |          
|---------------------------------------------- |  | ------------- | ------- | ------- | - | --------- |  | ------------------ | ------- | ------------------ | - | ------- | ------------- | - | -------------------------------- | - |  | ----------------- | --------- |  | - | ------- | - |  | - | ---------
|                                               |  | Mid- Atlantic |         | Midwest |   | Southwest |  | NorthernCalifornia |         | SouthernCalifornia |   |         | TotalSegments |   | CorporateNotAllocable ToSegments |   |  | ConsolidatedTotal
|Revenues                                       |  | $             | 22,537  |         | $ | 15,281    |  | $                  | 30,190  |                    | $ | 8,279   |               | $ | 7,912                            |   |  | $                 | 84,199    |  | $ | 1,182   |   |  | $ | 85,381   
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |         |               |   |                                  |   |  |                   |           |  |   |         |   |  |   |          
|Income from continuing operations              |  | $             | 11,591  |         | $ | 5,025     |  | $                  | 11,495  |                    | $ | 3,556   |               | $ | 3,728                            |   |  | $                 | 35,395    |  | $ | (22,916 | ) |  | $ | 12,479   
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |         |               |   |                                  |   |  |                   |           |  |   |         |   |  |   |          
|Additions to long-lived assets:                |  |               |         |         |   |           |  |                    |         |                    |   |         |               |   |                                  |   |  |                   |           |  |   |         |   |  |   |          
|Development/redevelopment                      |  | $             | 208     |         | $ | 1,552     |  | $                  | 241     |                    | $ | 2       |               | $ | (190                             | ) |  | $                 | 1,813     |  | $ |        |   |  | $ | 1,813    
|Purchase of real estate                        |  |               |        |         |   | 31,361    |  |                    | 13      |                    |   |        |               |   |                                 |   |  |                   | 31,374    |  |   |        |   |  |   | 31,374   
|Capital expenditures for in-service properties |  |               | 2,256   |         |   | 862       |  |                    | 2,223   |                    |   | 1,686   |               |   | 943                              |   |  |                   | 7,970     |  |   |        |   |  |   | 7,970    
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |         |               |   |                                  |   |  |                   |           |  |   |         |   |  |   |          
|Total additions                                |  | $             | 2,464   |         | $ | 33,775    |  | $                  | 2,477   |                    | $ | 1,688   |               | $ | 753                              |   |  | $                 | 41,157    |  | $ |        |   |  | $ | 41,157   
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |         |               |   |                                  |   |  |                   |           |  |   |         |   |  |   |          
|Investment balance in equity method investees  |  | $             | 9,534   |         | $ |          |  | $                  | 3,894   |                    | $ |        |               | $ |                                 |   |  | $                 | 13,428    |  | $ |        |   |  | $ | 13,428   
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |         |               |   |                                  |   |  |                   |           |  |   |         |   |  |   |          
|Assets                                         |  | $             | 610,388 |         | $ | 411,860   |  | $                  | 639,129 |                    | $ | 265,672 |               | $ | 178,678                          |   |  | $                 | 2,105,727 |  | $ | 29,937  |   |  | $ | 2,135,664
|                                               |  |               |         |         |   |           |  |                    |         |                    |   |         |               |   |                                  |   |  |                   |           |  |   |         |   |  |   |          



For the Six Months Ended June 30,
2004

(in thousands)



|                                               |  |               |        |         |   |           |  |                    |         |                    |   |               |  |                                  |        |  |                   |         |  |   |         |   |  |   |        
|---------------------------------------------- |  | ------------- | ------ | ------- | - | --------- |  | ------------------ | ------- | ------------------ | - | ------------- |  | -------------------------------- | ------ |  | ----------------- | ------- |  | - | ------- | - |  | - | -------
|                                               |  | Mid- Atlantic |        | Midwest |   | Southwest |  | NorthernCalifornia |         | SouthernCalifornia |   | TotalSegments |  | CorporateNotAllocable ToSegments |        |  | ConsolidatedTotal
|Revenues                                       |  | $             | 48,435 |         | $ | 30,152    |  | $                  | 67,344  |                    | $ | 16,786        |  | $                                | 20,560 |  | $                 | 183,277 |  | $ | 1,290   |   |  | $ | 184,567
|                                               |  |               |        |         |   |           |  |                    |         |                    |   |               |  |                                  |        |  |                   |         |  |   |         |   |  |   |        
|Income from continuing operations              |  | $             | 21,572 |         | $ | 8,671     |  | $                  | 24,249  |                    | $ | 7,255         |  | $                                | 6,958  |  | $                 | 68,705  |  | $ | (39,879 | ) |  | $ | 28,826 
|                                               |  |               |        |         |   |           |  |                    |         |                    |   |               |  |                                  |        |  |                   |         |  |   |         |   |  |   |        
|Additions to long-lived assets:                |  |               |        |         |   |           |  |                    |         |                    |   |               |  |                                  |        |  |                   |         |  |   |         |   |  |   |        
|Development/redevelopment                      |  | $             | 15     |         | $ | 1,714     |  | $                  | 179     |                    | $ | 1             |  | $                                | 979    |  | $                 | 2,888   |  | $ |        |   |  | $ | 2,888  
|Purchase of real estate                        |  |               |       |         |   |          |  |                    | 123,323 |                    |   | 34,780        |  |                                  | 17,724 |  |                   | 175,827 |  |   |        |   |  |   | 175,827
|Capital expenditures for in-service properties |  |               | 3,890  |         |   | 4,529     |  |                    | 7,306   |                    |   | 2,962         |  |                                  | 2,500  |  |                   | 21,187  |  |   |        |   |  |   | 21,187 
|                                               |  |               |        |         |   |           |  |                    |         |                    |   |               |  |                                  |        |  |                   |         |  |   |         |   |  |   |        
|Total additions                                |  | $             | 3,905  |         | $ | 6,243     |  | $                  | 130,808 |                    | $ | 37,743        |  | $                                | 21,203 |  | $                 | 199,902 |  | $ |        |   |  | $ | 199,902
|                                               |  |               |        |         |   |           |  |                    |         |                    |   |               |  |                                  |        |  |                   |         |  |   |         |   |  |   |        



For the Six Months Ended June 30,
2003

(in thousands)



|                                               |  |              |        |         |   |           |  |                    |        |                    |   |        |               |   |                                  |   |  |                   |         |  |   |         |   |  |   |        
|---------------------------------------------- |  | ------------ | ------ | ------- | - | --------- |  | ------------------ | ------ | ------------------ | - | ------ | ------------- | - | -------------------------------- | - |  | ----------------- | ------- |  | - | ------- | - |  | - | -------
|                                               |  | Mid-Atlantic |        | Midwest |   | Southwest |  | NorthernCalifornia |        | SouthernCalifornia |   |        | TotalSegments |   | CorporateNotAllocable ToSegments |   |  | ConsolidatedTotal
|Revenues                                       |  | $            | 44,405 |         | $ | 29,882    |  | $                  | 59,122 |                    | $ | 17,088 |               | $ | 15,854                           |   |  | $                 | 166,351 |  | $ | 2,780   |   |  | $ | 169,131
|                                               |  |              |        |         |   |           |  |                    |        |                    |   |        |               |   |                                  |   |  |                   |         |  |   |         |   |  |   |        
|Income from continuing operations              |  | $            | 22,308 |         | $ | 9,203     |  | $                  | 21,030 |                    | $ | 7,602  |               | $ | 7,161                            |   |  | $                 | 67,304  |  | $ | (42,178 | ) |  | $ | 25,126 
|                                               |  |              |        |         |   |           |  |                    |        |                    |   |        |               |   |                                  |   |  |                   |         |  |   |         |   |  |   |        
|Additions to long-lived assets:                |  |              |        |         |   |           |  |                    |        |                    |   |        |               |   |                                  |   |  |                   |         |  |   |         |   |  |   |        
|Development/redevelopment                      |  | $            | 1,231  |         | $ | 2,827     |  | $                  | 331    |                    | $ | 7      |               | $ | (22                              | ) |  | $                 | 4,374   |  | $ |        |   |  | $ | 4,374  
|Purchase of real estate                        |  |              |       |         |   | 31,361    |  |                    | 28,051 |                    |   |       |               |   |                                 |   |  |                   | 59,412  |  |   |        |   |  |   | 59,412 
|Capital expenditures for in-service properties |  |              | 3,043  |         |   | 1,174     |  |                    | 4,290  |                    |   | 2,393  |               |   | 1,370                            |   |  |                   | 12,270  |  |   |        |   |  |   | 12,270 
|                                               |  |              |        |         |   |           |  |                    |        |                    |   |        |               |   |                                  |   |  |                   |         |  |   |         |   |  |   |        
|Total additions                                |  | $            | 4,274  |         | $ | 35,362    |  | $                  | 32,672 |                    | $ | 2,400  |               | $ | 1,348                            |   |  | $                 | 76,056  |  | $ |        |   |  | $ | 76,056 
|                                               |  |              |        |         |   |           |  |                    |        |                    |   |        |               |   |                                  |   |  |                   |         |  |   |         |   |  |   |        



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##### Table of Contents

PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)





14. Recently Issued Accounting Pronouncements



In March 2004, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share. Statement 128 indicates that participating securities should be included in basic earnings per
share (EPS), if the effect is dilutive, using either the two-class method or the if-converted method. EITF No. 03-6 provides guidance on how to determine whether a security should be considered a participating security for purposes of
computing EPS and how earnings should be allocated to a participating security when using the two-class method for computing basic EPS. The adoption of EITF 03-6 did not have a material effect on our results of operations or our financial condition.



In April 2004, the Financial Accounting Standards Board,
issued Staff Position FAS 129-1, Disclosure Requirements under Statement of Financial Accounting Standards No. 129, Disclosure of Information about Capital Structure, Relating to Contingently Convertible Financial Instruments. The Staff
Position provides guidance on disclosures of contingently convertible financial instruments, including those containing contingent conversion requirements that have not been met and are not otherwise required to be included in the calculation of
diluted earnings per share. The statement was effective immediately, and applies to all existing and newly created securities. The adoption of this statement did not have a material effect on our results of operations or financial condition.



15. Pro Forma



The accompanying unaudited pro forma information for the six months ended
June 30, 2004 and 2003 is presented as if the acquisition of Cityplace on April 22, 2004, The Bluffs on May 12, 2004 and 5500 Great America Parkway on May 25, 2004 had occurred January 1, 2004 and 2003 and all leases in effect on the date of
acquisition were in place on January 1, 2004 and 2003. This pro forma information is based on the historical results of the properties and on our historical consolidated financial results and should be read in conjunction with our consolidated
financial statements and notes thereto.



This unaudited pro
forma information does not purport to represent what our actual results of operations would have been had the above occurred, nor do they purport to predict the results of operations of future periods.



|                                                                                  |  |                           |         |      |   |        
|--------------------------------------------------------------------------------- |  | ------------------------- | ------- | ---- | - | -------
|Pro Forma                                                                         |  | Six Months Ended June 30,
|(in thousands)                                                                    |  | 2004                      |         | 2003
|Total revenue                                                                     |  | $                         | 192,326 |      | $ | 181,466
|                                                                                  |  |                          
|Income applicable to common shareholders before discontinued operations           |  | $                         | 22,744  |      | $ | 21,325 
|                                                                                  |  |                          
|Net income applicable to common shareholders                                      |  | $                         | 28,487  |      | $ | 18,311 
|                                                                                  |  |                          
|Basic earnings per share:                                                         |  |                           |         |      |   |        
|Income applicable to common shareholders before discontinued operations           |  | $                         | 0.52    |      | $ | 0.55   
|Net income applicable to common shareholders                                      |  | $                         | 0.65    |      | $ | 0.47   
|Weighted average number of common shares outstanding                              |  |                           | 43,906  |      |   | 38,973 
|Diluted earnings per share:                                                       |  |                           |         |      |   |        
|Income applicable to common shareholders before discontinued operations           |  | $                         | 0.52    |      | $ | 0.55   
|Net income applicable to common shareholders                                      |  | $                         | 0.65    |      | $ | 0.47   
|Weighted average number of common shares and common share equivalents outstanding |  |                           | 44,094  |      |   | 39,128 



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##### Table of Contents

PRENTISS PROPERTIES TRUST

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)



16. Subsequent Events



On July 15, 2004, using proceeds from our revolving credit facility, we acquired, from an unrelated third party, approximately 7.7 acres of land in Del
Mar, California for gross consideration of $14.9 million.



On
July 23, 2004, Prentiss Office Investors, L.P. completed a five-year, $10.7 million loan collateralized by a 69,000 net rentable square foot building in San Diego, California. The interest rate fluctuates between 130 and 150 basis points over 30-day
LIBOR depending on the propertys occupancy.



On July 23,
2004, we completed the sale, to an unrelated third party, of four industrial properties containing approximately 91,000 net rentable square feet located in the San Diego, California area. The proceeds from the sale which totaled approximately $10.2
million, before transaction costs, were used to repay a portion of the outstanding borrowings under our revolving credit facility.



On July 29, 2004, Prentiss Office Investors, L.P., through its subsidiaries, completed an $85.0 million, five-year loan, collateralized by certain office
buildings owned by various subsidiaries of Prentiss Office Investors, L.P. located in Illinois, California and Virginia. The interest rate is 85 basis points over 30-day LIBOR and the monthly payments are interest only, with the principal of $85.0
million payable at its maturity on August 1, 2009.



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial
statements and related notes thereto presented in this Form 10-Q. Historical results set forth in our consolidated financial statements should not be taken as an indication of our future operations.



Overview



We are a self-administered and self-managed Maryland REIT. We acquire, own, manage, lease, develop and build primarily
office properties throughout the United States. We are self-administered in that we provide our own administrative services, such as accounting, tax and legal, internally through our own employees. We are self-managed in that we internally provide
all the management and maintenance services that our properties require through employees, such as property managers, leasing professionals and engineers. We operate principally through our operating partnership, Prentiss Properties Acquisition
Partners, L.P. and its subsidiaries, and two management service companies, Prentiss Properties Resources, Inc. and its subsidiaries and Prentiss Properties Management, L.P.



As of June 30, 2004, we owned interests in a diversified portfolio of 136 primarily suburban Class A office and suburban
industrial properties as follows:



|                      |  |                    |  |                        
|--------------------- |  | ------------------ |  | -----------------------
|                      |  | Number ofBuildings |  | Net RentableSquare Feet
|                      |  |                    |  | (in millions)          
|Office properties     |  | 105                |  | 16.2                   
|Industrial properties |  | 31                 |  | 2.3                    
|                      |  |                    |  |                        
|Total                 |  | 136                |  | 18.5                   
|                      |  |                    |  |                        



As an owner of real
estate, the majority of our income and cash flow is derived from rental income received pursuant to tenant leases for space at our properties; and thus, our earnings would be negatively impacted by a deterioration of our rental income. One or more
factors could result in a deterioration of rental income including (1) our failure to renew or execute new leases as current leases expire, (2) our failure to renew or execute new leases with rental terms at or above the terms of in-place leases,
and (3) tenant defaults.



Our failure to renew or execute new
leases as current leases expire or to execute new leases with rental terms at or above the terms of in-place leases is dependent on factors such as (1) the local economic climate, which may be adversely impacted by business layoffs or downsizing,
industry slowdowns, changing demographics and other factors and (2) local real estate conditions, such as oversupply of office and industrial space or competition within the market.



Our industrys performance is generally predicated on a sustained pattern of job growth. In 2003, while the overall
United States economy began to demonstrate economic growth, there were few indications that the economy was creating jobs at a pace sufficient to generate increased demand for our office space. We continued to operate in a period of weak
fundamentals, evidenced by relatively high vacancy and correspondingly lower rental rates.



As a result of the weak economic climate, the office real estate markets have been materially affected. The contraction of office workforces has reduced demand for office space and overall vacancy rates for office
properties increased in all of our markets through 2002 and our operations were adversely impacted. In 2003, vacancy rates appeared to peak in many of our markets and some positive net absorption of space started to occur. Of our four largest
markets, Northern Virginia/Metropolitan Washington, D.C., Dallas/Fort Worth, Chicago and Austin, only the Northern Virginia/Metropolitan Washington, D.C. market experienced positive net absorption for the year ended December 31, 2003. Year-to-date
through June 30, 2004, the Northern Virginia/Metropolitan Washington D.C., Dallas/Fort Worth and Austin markets have all experienced positive net absorption. While Chicago is seeing some improvement in the suburban office market, the downtown market
is still recording negative net absorption. Because vacancy rates remain high in most markets and because the demand for office space typically lags behind overall economic growth, we do not expect any material improvement in leasing conditions
prior to 2005.



Occupancy in our portfolio has trended down
from 96% at December 31, 2000 to 91% as of December 31, 2003. Occupancy at June 30, 2004 remained relatively constant at 91%. Market rental rates have declined in most markets from peak levels and there may be additional declines in some markets in
2004.



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##### Table of Contents

Our organization consists of a corporate office located in Dallas, Texas and five regional offices each
of which operates under the guidance of a member of our senior management team. The following table presents second quarter 2004 regional revenues and the 11 markets in which our properties are located, with the first market being the location of
each regional office:



|                    |  |                |        |        |                                           
|------------------- |  | -------------- | ------ | ------ | ------------------------------------------
|Region              |  | Revenues       |        | Market
|                    |  | (in thousands) |        |       
|Mid-Atlantic        |  | $              | 24,241 |        | Metropolitan Washington D.C.              
|Midwest             |  |                | 15,158 |        | Chicago, Suburban Detroit                 
|Southwest           |  |                | 34,993 |        | Dallas/Fort Worth, Austin, Denver, Houston
|Northern California |  |                | 8,338  |        | Oakland, Silicon Valley                   
|Southern California |  |                | 10,522 |        | San Diego, Los Angeles                    
|                    |  |                |        |        |                                           
|Total               |  | $              | 93,252 |        |                                           
|                    |  |                |        |        |                                           



In addition to the
$93.3 million of regional revenues, during the three months ended June 30, 2004, we recognized $532,000 of revenue consisting primarily of interest income which was not allocated to our regions.



At June 30, 2004, we had 16.8 million square feet of in-place leases
representing 91% of the net rentable square feet of our properties. Our leases range in term from 1 month to 20 years with an average term of 5 to 7 years. The 16.8 million square feet of in-place leases expire as follows:



|           |  |                |  |       |  
|---------- |  | -------------- |  | ----- | -
|           |  | Square Feet    |  |       |  
|           |  | (in thousands) |  |       |  
|2004       |  | 1,432          |  | 8.5   | %
|2005       |  | 1,633          |  | 9.7   | %
|2006       |  | 1,956          |  | 11.7  | %
|2007       |  | 2,625          |  | 15.7  | %
|2008       |  | 1,653          |  | 9.9   | %
|Thereafter |  | 7,456          |  | 44.5  | %
|           |  |                |  |       |  
|           |  | 16,755         |  | 100.0 | %
|           |  |                |  |       |  



If one or more tenants
fail to pay their rent due to bankruptcy, weakened financial condition or otherwise, our income, cash flow and ability to make distributions would be negatively impacted. At any time, a tenant may seek the protection of the bankruptcy laws, which
could result in delays in rental payments or in the rejection and termination of such tenant leases.



Second Quarter 2004 Transactions



Real Estate Transactions



On April 22, 2004, using proceeds from our revolving credit facility, we acquired from an unrelated third party a 1.3 million net rentable square foot class AA office building and an adjacent land parcel in Dallas, Texas for
gross consideration of $124.0 million. Under the terms of the purchase agreement, 7-Eleven entered into a 504,351 square foot lease for three years from the date of closing.



On May 12, 2004, Prentiss Office Investors, L.P. acquired from an unrelated third party a 69,000 net rentable square foot
class A office building in San Diego, California for gross consideration of $17.7 million. Prentiss Office Investors, L.P. is owned 51% by the operating partnership and its affiliates and 49% by Stichting Pensioenfonds ABP. Each partner
contributed their pro rata share of the purchase price of the property to Prentiss Office Investors, L.P. for the acquisition. Amounts contributed from the operating partnership were funded with proceeds from our revolving credit facility.



On May 25, 2004, we acquired from an unrelated third party the
Great America Parkway Complex, a three building office complex with approximately 306,000 net rentable square feet and an adjacent land parcel for future development. The properties are located in Santa Clara, California and were acquired for gross
proceeds of $34.8 million. The property was 100% vacant upon acquisition. Subsequent to the acquisition, we executed a lease with a third party, unrelated to the seller, for approximately 219,000 net rentable square feet, or approximately 72% of the
property. The acquisition was funded with proceeds from our revolving credit facility.



On May 20, 2004, we completed the sale, to an unrelated third party, of six office properties containing approximately 566,000 net rentable square feet. The sale, which included all of our properties in the
Sacramento, California area, resulted in gross proceeds of $80.5 million. Concurrent with the sale of the properties, we exercised our right to complete a voluntary defeasance of the mortgage loan collateralized by the properties. Pursuant to the
defeasance, we transferred the mortgage loan with an outstanding principal balance of $35.9 million to an unrelated successor entity. The buyer of the properties transferred proceeds totaling $41.2 million representing the proceeds necessary to
acquire U.S. Treasury Securities sufficient to cover debt service including both interest and principal payments from the defeasance date through maturity of the loan. We recognized a gain on sale of real estate of $10.2



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##### Table of Contents

million and a loss from debt defeasance of $5.3 million during the period both of which are included in discontinued
operations. The proceeds from the sale, net of the proceeds used to acquire U.S. Treasury Securities, were used to repay a portion of the outstanding borrowings under our revolving credit facility.



In accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, effective for financial statements issued for fiscal years beginning after December 15, 2001, income and gain/(loss) for real estate properties sold and real estate
properties held for sale are to be reflected in the consolidated statements of income as discontinued operations. Below is a summary of our combined results of operations from the properties disposed of or held for sale during the periods presented.
The summary includes the results of operations before gain/(loss) on sale and the related loss on debt defeasance for the three and six months ended June 30, 2004 and 2003, respectively:



|                                           |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  
|------------------------------------------ | ---- | -------------------------- | ----- | ---- | ------------------------ | - | ------ | - |  | ---- | ----- | - |  | - | ------ | -
|Discontinued Operations: (in
thousands)    |      | Three Months EndedJune 30, |       |      | Six Months EndedJune 30, |  
|                                           | 2004 |                            |       | 2003 |                          |   | 2004   |   |  | 2003 |      
|Property revenues:                         |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  
|Rental income                              |      | $                          | 1,677 |      |                          | $ | 6,789  |   |  | $    | 5,606 |   |  | $ | 14,235 |  
|                                           |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  
|Property revenues                          |      |                            | 1,677 |      |                          |   | 6,789  |   |  |      | 5,606 |   |  |   | 14,235 |  
|                                           |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  
|Property expenses:                         |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  
|Property operating and maintenance         |      |                            | 484   |      |                          |   | 2,402  |   |  |      | 1,296 |   |  |   | 4,991  |  
|Real estate taxes                          |      |                            | 99    |      |                          |   | 416    |   |  |      | 330   |   |  |   | 1,030  |  
|Depreciation and amortization              |      |                            | 774   |      |                          |   | 1,920  |   |  |      | 1,938 |   |  |   | 3,726  |  
|                                           |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  
|Property expenses                          |      |                            | 1,357 |      |                          |   | 4,738  |   |  |      | 3,564 |   |  |   | 9,747  |  
|                                           |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  
|Loss on impairment of real estate          |      |                            |      |      |                          |   | (1,792 | ) |  |      |      |   |  |   | (1,792 | )
|Interest expense                           |      |                            | (343  | )    |                          |   | (643   | ) |  |      | (982  | ) |  |   | (1,283 | )
|                                           |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  
|(Loss)/income from discontinued operations |      | $                          | (23   | )    |                          | $ | (384   | ) |  | $    | 1,060 |   |  | $ | 1,413  |  
|                                           |      |                            |       |      |                          |   |        |   |  |      |       |   |  |   |        |  



During the quarter, we
transitioned a parcel of land with a carrying amount at June 30, 2004 of $12.6 million from land held for development to construction in progress. The construction includes a two building office project located in Del Mar, California and will
contain approximately 157,859 net rentable square feet upon completion. The project is currently 50% pre-leased.



Other Transactions



On April 26, 2004, we completed a five-year interest rate swap in a notional amount of $50.0 million. The interest rate swap, which effectively locks our
cost of funds at 3.935% (before the spread over LIBOR) on $50.0 million of our variable rate borrowings, matures May 1, 2009.



On June 23, 2004, we completed a four-year interest rate swap in a notional amount of $70.0 million. The interest rate swap effectively locks our cost of
funds at 4.139% (before the spread over LIBOR) on $70.0 million of future variable rate borrowings. The interest rate swap is effective beginning August 2, 2004 and matures August 1, 2008.



On June 25, 2004, we exercised the accordion feature of our revolving credit
facility expanding the facilitys overall borrowing capacity from $300 million to $375 million. Other terms of the facility remain unchanged.



On June 10, 2002, we entered into a securities sales agreement with Brinson Patrick Securities Corporation to issue, from time to time using Brinson
Patrick Securities Corporation as our sales agent, up to 3,000,000 of our common shares at the then market price directly to the public (the Dribble Plan). On May 28, 2004, we entered into a second securities sales agreement with Brinson Patrick to
issue, from time to time using Brinson Patrick as our sales agent, up to 2,000,000 of our common shares at the then market price directly to the public. On May 28, 2004 we filed a registration statement to register the issuance of the 2,000,000
common shares and such registration statement was declared effective by the Securities and Exchange Commission on June 10, 2004. Common shares will begin to be issued pursuant to the May 28, 2004 agreement after all 3,000,000 of our common shares
pursuant to the June 10, 2002 sales agreement have been issued. Since the inception of the Dribble Plan through June 30, 2004, 2,178,400 common shares have been issued including 448,200 common shares issued during the three months ended June 30,
2004. Net proceeds from the common shares issued during the three months ended June 30, 2004 which totaled $14.9 million, or $33.17 per share after underwriting discounts were used to repay a portion of the outstanding borrowings under our revolving
credit facility. As of June 30, 2004, 821,600 common shares remain available for issuance under the June 10, 2002 sales agreement and 2,000,000 common shares remain available for issuance under the May 28, 2004 sales agreement.



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##### Table of Contents

Critical Accounting Policies and Estimates



Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial
statements. Our consolidated financial statements include the accounts of Prentiss Properties Trust, our operating partnership and our other consolidated subsidiaries. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from our estimates.



The significant accounting policies used in the preparation of our consolidated financial statements are fully described in Note (2) to our audited
consolidated financial statements for the year ended December 31, 2003, included in our Form 10-K filed on March 15, 2004. However, certain of our significant accounting estimates are considered critical accounting estimates because the estimate
requires our management to make assumptions about matters that are highly uncertain at the time the estimate is made and different estimates that reasonably could have been used in the current period, or changes in the estimates that are reasonably
likely to occur from period to period, would have a material impact on our financial condition, changes in financial condition or results of operations. We consider our critical accounting policies and estimates to be those used in the determination
of the reported amounts and disclosure related to the following:



(1) Impairment of long-lived assets and the long-lived assets to be disposed of;

(2) Allowance for doubtful accounts;

(3) Depreciable lives applied to real estate assets and improvements to real estate assets;

(4) Initial recognition, measurement and allocation of the cost of real estate acquired; and

(5) Fair value of derivative instruments.



Impairment of long-lived assets and long-lived assets to be disposed of



Real estate, leasehold improvements and land holdings are classified as long-lived assets held for sale or long-lived assets to be held and used. In
accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we record assets held for sale at the lower of the carrying amount or fair value, less cost to sell.
With respect to assets classified as held and used, we periodically review these assets to determine whether our carrying amount will be recovered. All of our long-lived assets were classified as held and used at June 30, 2004. Our operating real
estate, which comprises the majority of our long-lived assets, had a carrying amount of $1.9 billion at June 30, 2004. A long-lived asset is considered impaired if its carrying amount exceeds the sum of the undiscounted cash flows expected to result
from the use and eventual disposition of the asset. Upon impairment, we would recognize an impairment loss to reduce the carrying value of the long-lived asset to our estimate of its fair value. Our estimate of fair value and cash flows to be
generated from our properties requires us to make assumptions related to future occupancy of our properties, future rental rates, tenant concessions, operating expenditures, property taxes, capital improvements, the ability of our tenants to perform
pursuant to their lease obligations, the holding period of our properties and the proceeds to be generated from the eventual sale of our properties. If one or more of our assumptions proves incorrect or if our assumptions change, the recognition of
an impairment loss on one or more properties may be necessary in the future. The recognition of an impairment loss would negatively impact earnings. We did not recognize any impairment losses during the three months ended June 30, 2004. We
recognized an impairment loss of $1.8 million during the three months ended June 30, 2003 on properties held for sale at June 30, 2003.



Allowance for doubtful accounts



Accounts receivable are reduced by an allowance for amounts that we estimate to be uncollectible. Our receivable balance is comprised primarily of accrued
rental rate increases to be received over the life of in-place leases as well as rents and operating cost recoveries due from tenants. We regularly evaluate the adequacy of our allowance for doubtful accounts considering such factors as credit
quality of our tenants, delinquency of payment, historical trends and current economic conditions. At June 30, 2004, we had total receivables of $57.8 million and an allowance for doubtful accounts of $6.8 million, resulting in a net receivable
balance of $51.0 million. Of the $57.8 million in total receivables, $47.8 million represents accrued rental rate increases to be received over the life of in-place leases. It is our policy to reserve all outstanding receivables that are 90-days
past due along with a portion of the remaining receivable balance that we feel is uncollectible based on our evaluation of the outstanding receivable balance. In addition, we increase our allowance for doubtful accounts for accrued rental rate
increases, if we determine such future rent is uncollectible. Actual results may differ from these estimates under different assumptions or conditions. If our assumptions, regarding the collectibility of accounts receivable, prove incorrect, we may
experience write-offs in excess of our allowance for doubtful accounts which would negatively impact earnings. The table below presents the net increase/(decrease) to our allowance for doubtful accounts during the periods, amounts written-off as
uncollectible during the periods and our allowance for doubtful accounts at June 30, 2004 and 2003.



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|                                                       |  |                            |        |   |      |   |       |  
|------------------------------------------------------ |  | -------------------------- | ------ | - | ---- | - | ----- | -
|                                                       |  | Three Months EndedJune 30, |       
|(in thousands)                                         |  | 2004                       |        |   | 2003 |  
|(Decrease)/increase in allowance for doubtful accounts |  | $                          | (2,119 | ) |      | $ | 501   |  
|Amounts written off during the period                  |  | $                          | (2,163 | ) |      | $ | (287  | )
|                                                       |  |                           
|Allowance for doubtful accounts at period end          |  | $                          | 6,839  |   |      | $ | 8,883 |  



Depreciable lives applied to real
estate assets and improvements to real estate assets



Depreciation on buildings and improvements is provided under the straight-line method over an estimated useful life of 30 to 40 years for office buildings and 25 to 30 years for industrial buildings. Significant betterments made to our real
estate assets are capitalized and depreciated over the estimated useful life of the betterment. If our estimate of useful lives proves to be materially incorrect, the depreciation and amortization expense that we currently recognize would also prove
to be materially incorrect. A change in our estimate of useful lives would therefore result in either an increase or decrease in depreciation and amortization expense and thus, a decrease or increase in earnings. The table below presents real estate
related depreciation and amortization expense, including real estate depreciation and amortization expense included in income from continuing operations as well as discontinued operations, for the three months ended June 30, 2004 and 2003:



|                                          |  |                            |        |      |   |       
|----------------------------------------- |  | -------------------------- | ------ | ---- | - | ------
|                                          |  | Three Months EndedJune 30,
|(in thousands)                            |  | 2004                       |        | 2003
|Real estate depreciation and amortization |  | $                          | 23,785 |      | $ | 19,466



Initial recognition, measurement
and allocation of the cost of real estate acquired



We
allocate the purchase price of properties acquired to tangible and identified intangible assets acquired based on their fair values in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. These fair
values are derived as follows:



We record above-market and
below-market in-place lease values for acquired properties based on the present value (using a market interest rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid
pursuant to the in-place leases and (2) managements estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancellable term of the lease for above-market leases and the
initial term plus the term of the fixed rate renewal option, if any for below-market leases. We perform this analysis on a lease (tenant) by lease (tenant) basis. The capitalized above-market lease values are amortized as a reduction to rental
income over the remaining non-cancellable terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term plus the term of the fixed rate renewal option, if any, of the
respective leases.



The aggregate value of other intangible
assets (in-place leases) acquired is determined by applying a fair value model. Our estimates of fair value for other intangibles (in-place leases) includes an estimate of carrying costs during the expected lease-up periods for the respective spaces
considering current market conditions and the costs to execute similar leases. In estimating the carrying costs that would have otherwise been incurred had the leases not been in place, we include such items as real estate taxes, insurance and other
operating expenses as well as lost rental revenue during the expected lease-up period based on current market conditions. Costs to execute similar leases include leasing commissions, legal and other related costs. The value of in-place leases is
amortized to expense over the remaining non-cancelable term of the respective leases. Should a tenant terminate its lease, the unamortized portion of the in-place lease value would be charged to expense.



Amounts allocated to land are derived from (1) comparable sales of raw land,
(2) floor area ratio (FAR) specifics of the land as compared to other developed properties (average land cost per FAR) and (3) our other local market knowledge.



Amounts allocated to buildings and improvements are calculated and recorded as if the building was vacant upon purchase as the value associated with
any in-place or above or below-market leases are allocated to such as discussed above. Depreciation is computed using the straight-line method over the estimated life of 30 to 40 years for office buildings and 25 to 30 years for industrial buildings
as discussed above.



Statement No. 141 is effective for
business combinations for which the date of acquisition is July 1, 2001, or later. Based on our estimates of the fair value of the components of each real estate property acquired between April 1, 2004 and June 30, 2004, we allocated the purchase
price as follows:



|                                            |  |                                  |         |  
|------------------------------------------- |  | -------------------------------- | ------- | -
|(in thousands)                              |  | Three Months Ended June 30, 2004 |        
|Land                                        |  | $                                | 39,243  |  
|Buildings and improvements                  |  | $                                | 114,030 |  
|Tenant Improvements and leasing commissions |  | $                                | 19,898  |  
|Above/(below) market lease value            |  | $                                | (7,016  | )
|In-place lease value at market              |  | $                                | 9,672   |  
|Furniture and fixtures                      |  | $                                | 808     |  



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Fair value of derivative instruments



In accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended and interpreted, beginning January 1, 2001, we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative
and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.
Derivatives used to hedge the exposure to variability of expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.



For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are
recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income and subsequently reclassified to earnings when the
hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized currently in earnings. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or
cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.



Our objective in using derivatives is to add stability to interest expense
and to manage our exposure to interest rate movements. To accomplish this objective, we use interest rate swaps as part of our cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate
amounts in exchange for fixed-rate payments over the life of the agreements without the exchange of the underlying principal amount. During the three months ended June 30, 2004, such derivatives were used to hedge the variable cash flows associated
with a portion of our variable-rate debt.



As of June 30, 2004,
we did not have any derivatives designated as fair value hedges. Additionally, we do not use derivatives for trading or speculative purposes, and currently, we do not have any derivatives that are not designated as hedges.



To determine the fair value of our derivative instruments, we use a variety
of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, standard market conventions and techniques such as discounted cash
flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. Future cash
inflows or outflows from our derivative instruments depend upon future borrowing rates. If assumptions about future borrowing rates prove to be materially incorrect, the recorded value of these agreements could also prove to be materially incorrect.
Because we use the derivative instruments to hedge our exposure to variable interest rates, thus effectively fixing a portion of our variable interest rates, changes in future borrowing rates could result in our interest expense being either higher
or lower than might otherwise have been incurred on our variable-rate borrowings had the rates not been fixed. The table below presents the amount by which cash payments made under our interest rate swap agreements exceeded cash receipts from our
agreements during the three months ended June 30, 2004 and 2003. The table also presents the estimated fair value of our in-place swap agreements as of June 30, 2004 and 2003.



|                                                      |  |                            |       |   |      |   |         |  
|----------------------------------------------------- |  | -------------------------- | ----- | - | ---- | - | ------- | -
|                                                      |  | Three Months EndedJune 30, |      
|(in thousands)                                        |  | 2004                       |       |   | 2003 |  
|Net cash paid under our interest rate swap agreements |  | $                          | 2,742 |   |      | $ | 2,354   |  
|Fair value of interest rate swaps at period end       |  | $                          | (178  | ) |      | $ | (14,855 | )
|                                                      |  |                            |       |   |      |   |         |  



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##### Table of Contents

Results of Operations



Comparison of the three months ended June 30, 2004 to the three months ended June 30, 2003



The table below presents our consolidated statements of income for the three months ended June 30, 2004 and 2003:



|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | -------------------- | - | ------ | - |  | - | ------ | -
|Consolidated Statements of Income                                                                                 |  | Three Months EndedJune 30, |        |   | Increase/ (Decrease) |  
|(in thousands)                                                                                                    |  | 2004                       |        |   | 2003                 |   |       
|Revenues:                                                                                                         |  |                            |        |   |                      |   |        |   |  |   |        |  
|Rental income                                                                                                     |  | $                          | 90,856 |   |                      | $ | 81,134 |   |  | $ | 9,722  |  
|Service business and other income                                                                                 |  |                            | 2,928  |   |                      |   | 4,247  |   |  |   | (1,319 | )
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|                                                                                                                  |  |                            | 93,784 |   |                      |   | 85,381 |   |  |   | 8,403  |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|Operating expenses:                                                                                               |  |                            |        |   |                      |   |        |   |  |   |        |  
|Property operating and maintenance                                                                                |  |                            | 23,050 |   |                      |   | 20,211 |   |  |   | 2,839  |  
|Real estate taxes                                                                                                 |  |                            | 10,347 |   |                      |   | 9,486  |   |  |   | 861    |  
|General and administrative and personnel costs                                                                    |  |                            | 2,785  |   |                      |   | 3,232  |   |  |   | (447   | )
|Expenses of service business                                                                                      |  |                            | 2,466  |   |                      |   | 2,902  |   |  |   | (436   | )
|Depreciation and amortization                                                                                     |  |                            | 23,134 |   |                      |   | 17,614 |   |  |   | 5,520  |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|                                                                                                                  |  |                            | 61,782 |   |                      |   | 53,445 |   |  |   | 8,337  |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|Other expenses:                                                                                                   |  |                            |        |   |                      |   |        |   |  |   |        |  
|Interest expense                                                                                                  |  |                            | 16,825 |   |                      |   | 17,069 |   |  |   | (244   | )
|Amortization of deferred financing costs                                                                          |  |                            | 568    |   |                      |   | 536    |   |  |   | 32     |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|                                                                                                                  |  |                            | 17,393 |   |                      |   | 17,605 |   |  |   | (212   | )
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|Income from continuing operations before minority interests and equity in income of unconsolidated joint ventures |  |                            | 14,609 |   |                      |   | 14,331 |   |  |   | 278    |  
|Minority interests                                                                                                |  |                            | (594   | ) |                      |   | (2,564 | ) |  |   | (1,970 | )
|Equity in income of unconsolidated joint ventures                                                                 |  |                            | 596    |   |                      |   | 712    |   |  |   | (116   | )
|Loss on investment in securities                                                                                  |  |                            | (420   | ) |                      |   |       |   |  |   | 420    |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|Income from continuing operations                                                                                 |  |                            | 14,191 |   |                      |   | 12,479 |   |  |   | 1,712  |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|Discontinued operations:                                                                                          |  |                            |        |   |                      |   |        |   |  |   |        |  
|(Loss)/income from discontinued operations                                                                        |  |                            | (23    | ) |                      |   | (384   | ) |  |   | 361    |  
|Gain/(loss) from disposition of discontinued operations                                                           |  |                            | 10,185 |   |                      |   | (4,542 | ) |  |   | 14,727 |  
|Loss from debt defeasance related to sale of real estate                                                          |  |                            | (5,316 | ) |                      |   |       |   |  |   | 5,316  |  
|Minority interests related to discontinued operations                                                             |  |                            | (151   | ) |                      |   | 181    |   |  |   | 332    |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|                                                                                                                  |  |                            | 4,695  |   |                      |   | (4,745 | ) |  |   | 9,440  |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|Income before gain on sale of land and an interest in a real estate partnership                                   |  |                            | 18,886 |   |                      |   | 7,734  |   |  |   | 11,152 |  
|(Loss)/gain on sale of land and an interest in a real estate partnership                                          |  |                            | (94    | ) |                      |   | 778    |   |  |   | (872   | )
|Net income                                                                                                        |  | $                          | 18,792 |   |                      | $ | 8,512  |   |  | $ | 10,280 |  
|Preferred dividends                                                                                               |  |                            | (2,113 | ) |                      |   | (2,113 | ) |  |   |       |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  
|Net income applicable to common shareholders                                                                      |  | $                          | 16,679 |   |                      | $ | 6,399  |   |  | $ | 10,280 |  
|                                                                                                                  |  |                            |        |   |                      |   |        |   |  |   |        |  



Included below is a
discussion of the significant events or transactions that have impacted our results of operations when comparing the three months ended June 30, 2004 to the three months ended June 30, 2003.



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##### Table of Contents

Acquisition of Real Estate. During the period April 1, 2003 through June 30, 2004, we acquired 15 office
properties containing in the aggregate approximately 2.5 million net rentable square feet as follows:



|                               |  |                 |  |                    |  |                      |  |                     |  |                                         |  |                                 |      
|------------------------------ |  | --------------- |  | ------------------ |  | -------------------- |  | ------------------- |  | --------------------------------------- |  | ------------------------------- | -----
|Acquired Properties            |  | Segment         |  | Market             |  | Month of Acquisition |  | Number of Buildings |  | Net Rentable Square Feet (in thousands) |  | Acquisition Price (in millions)
|410 Warrenville Road           |  | Midwest         |  | Chicago            |  | May 2003             |  | 1                   |  | 60                                      |  | $                               | 8.7  
|Corporate Lakes III            |  | Midwest         |  | Chicago            |  | June 2003            |  | 1                   |  | 124                                     |  |                                 | 22.6 
|2291 Wood Oak Drive            |  | Mid-Atlantic    |  | Metro. Wash., D.C. |  | Aug. 2003            |  | 1                   |  | 228                                     |  |                                 | 52.2 
|Camino West Corporate Park     |  | Southern Calif. |  | San Diego          |  | Nov. 2003            |  | 1                   |  | 54                                      |  |                                 | 8.9  
|Carlsbad Airport Plaza         |  | Southern Calif. |  | San Diego          |  | Nov. 2003            |  | 1                   |  | 62                                      |  |                                 | 10.5 
|La Place Court                 |  | Southern Calif. |  | San Diego          |  | Nov. 2003            |  | 2                   |  | 81                                      |  |                                 | 13.6 
|Pacific Ridge Corporate Centre |  | Southern Calif. |  | San Diego          |  | Nov. 2003            |  | 2                   |  | 121                                     |  |                                 | 23.9 
|Pacific View Plaza             |  | Southern Calif. |  | San Diego          |  | Nov. 2003            |  | 1                   |  | 52                                      |  |                                 | 10.2 
|Cityplace                      |  | Southwest       |  | Dallas/Ft. Worth   |  | April 2004           |  | 1                   |  | 1,296                                   |  |                                 | 124.0
|The Bluffs                     |  | Southern Calif. |  | San Diego          |  | May 2004             |  | 1                   |  | 69                                      |  |                                 | 17.7 
|5500 Great America Parkway     |  | Northern Calif. |  | Silicon Valley     |  | May 2004             |  | 3                   |  | 306                                     |  |                                 | 34.8 
|                               |  |                 |  |                    |  |                      |  |                     |  |                                         |  |                                 |      
|                               |  |                 |  |                    |  |                      |  | 15                  |  | 2,453                                   |  | $                               | 327.1
|                               |  |                 |  |                    |  |                      |  |                     |  |                                         |  |                                 |      



Real Estate Dispositions.
During the period April 1, 2003 through June 30, 2004, we disposed of 17 office properties containing 1.5 million net rentable square feet. Two office properties, containing 339,000 square feet, within our Southwest region were sold on June 26,
2003. Nine properties, containing 644,000 net rentable square feet, representing our only properties in the Atlanta area, a market within our Mid-Atlantic region were sold on July 24, 2003. The remaining six properties, containing 566,000 net
rentable square feet, representing our only properties in the Sacramento area, a market within our Northern California region were sold on May 20, 2004.



The following is a discussion of the material changes in our consolidated statements of income and a discussion of the impact that the significant events
or transactions, as described above, had on one or more line items of our consolidated statements of income when comparing the three months ended June 30, 2004 to the three months ended June 30, 2003.



Rental Income. Rental income increased $9.3 million due to real estate acquisitions.
In addition, during the three months ended June 30, 2004, termination fees increased by $378,000 when compared to the three months ended June 30, 2003.



Property Operating and Maintenance. Property operating and maintenance cost increased $2.4 million due to real estate acquisitions. Property operating and
maintenance expenses related to our other properties increased by $380,000. The increase in property operating and maintenance expenses at our other properties primarily related to an increase from the three months ended June 30, 2003 to the three
months ended June 30, 2004 of utility expense and parking related expenses offset by a decrease in bad debt expense.



Real Estate Taxes. Real estate taxes increased $1.2 million due to real estate acquisitions. This increase was partially offset by a decrease of $303,000 related
to our other properties. The decrease primarily resulted from lower estimates of current year taxes resulting from lower property tax assessments across our portfolio.



General and Administrative and Personnel Costs.The decrease in general and administrative and personnel costs was mainly due to
compensation related expenses, which resulted from a decrease in amounts due participants related to our deferred compensation plans.



Service Business and Other Income/Expenses of Service Business.The decrease in service business and other income was mainly due to a decrease in interest income
resulting from the repayment of certain notes receivable, as well as a decrease in leasing fees and other service business income. Service business expenses decreased due to lower compensation related expenses during the three months ended June 30,
2004 compared to the three months ended June 30, 2003. The decrease in compensation related expenses resulted primarily from a decrease in health care, FICA, and workers compensation expenses.



Depreciation and Amortization. Depreciation and amortization increased $4.1 million
due to real estate acquisitions. Depreciation and amortization for our other properties increased by $1.4 million which is attributable to the depreciation and amortization expense related to capital expenditures incurred at our properties
subsequent to acquisition.



Interest Expense. The decrease in interest
expense is primarily a result of a decrease in the weighted average interest rate paid on outstanding borrowings from 6.49% to 6.15% for the three months ended June 30, 2004 compared to the three months ended June 30, 2003, partially offset by an
increase in weighted average borrowings outstanding for the respective periods.



30



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##### Table of Contents

Minority Interests. Minority interest expense for the three months ended June 30, 2003 attributable to the Series
E Preferred Units and Series B Perpetual Preferred Units totaled $2.2 million in the aggregate. The decrease in minority interest expense was primarily due to the repurchase of the Series E Preferred Units on February 4, 2004 and the repurchase of
the Series B Cumulative Redeemable Perpetual Preferred Units on February 24, 2004.



Discontinued Operations. The increase in discontinued operations is primarily due to the recognition of gain on sale during the three months ended June 30, 2004 of $10.2 million compared to a loss on sale of $4.5 million recognized
during the three months ended June 30, 2003, partially offset by a loss from debt defeasance recognized during the three months ended June 30, 2004. Discontinued operations was also impacted by an impairment loss of $1.8 million recognized during
the three months ended June 30, 2003 and the timing of sale of the properties.



Loss on Investment in Securities.In August 2000, we invested $423,000 in Narrowcast Communications Corporation, a provider of an electronic tenant information service known as Elevator News Network. During the three months ended
June 30, 2004, we received a return on investment of approximately $3,000 and recorded a loss on investment of approximately $420,000.



Results of Operations



Comparison of the six months ended June 30, 2004 to the six months ended June 30, 2003



The table below presents our consolidated statements of income for the six months ended June 30, 2004 and 2003:



|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ------------------- | - | ------- | - |  | - | ------ | -
|Consolidated Statements of Income                                                                                 |  | Six Months Ended June 30, |         |   | Increase/(Decrease) |  
|(in thousands)                                                                                                    |  | 2004                      |         |   | 2003                |   |        
|Revenues:                                                                                                         |  |                           |         |   |                     |   |         |   |  |   |        |  
|Rental income                                                                                                     |  | $                         | 178,151 |   |                     | $ | 160,529 |   |  | $ | 17,622 |  
|Service business and other income                                                                                 |  |                           | 6,416   |   |                     |   | 8,602   |   |  |   | (2,186 | )
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|                                                                                                                  |  |                           | 184,567 |   |                     |   | 169,131 |   |  |   | 15,436 |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|Operating expenses:                                                                                               |  |                           |         |   |                     |   |         |   |  |   |        |  
|Property operating and maintenance                                                                                |  |                           | 45,298  |   |                     |   | 40,300  |   |  |   | 4,998  |  
|Real estate taxes                                                                                                 |  |                           | 20,251  |   |                     |   | 19,149  |   |  |   | 1,102  |  
|General and administrative and personnel costs                                                                    |  |                           | 5,370   |   |                     |   | 5,628   |   |  |   | (258   | )
|Expenses of service business                                                                                      |  |                           | 4,115   |   |                     |   | 5,121   |   |  |   | (1,006 | )
|Depreciation and amortization                                                                                     |  |                           | 45,081  |   |                     |   | 35,434  |   |  |   | 9,647  |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|                                                                                                                  |  |                           | 120,115 |   |                     |   | 105,632 |   |  |   | 14,483 |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|Other expenses:                                                                                                   |  |                           |         |   |                     |   |         |   |  |   |        |  
|Interest expense                                                                                                  |  |                           | 33,024  |   |                     |   | 33,497  |   |  |   | (473   | )
|Amortization of deferred financing costs                                                                          |  |                           | 1,133   |   |                     |   | 1,045   |   |  |   | 88     |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|                                                                                                                  |  |                           | 34,157  |   |                     |   | 34,542  |   |  |   | (385   | )
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|Income from continuing operations before minority interests and equity in income of unconsolidated joint ventures |  |                           | 30,295  |   |                     |   | 28,957  |   |  |   | 1,338  |  
|Minority interests                                                                                                |  |                           | (2,223  | ) |                     |   | (5,169  | ) |  |   | (2,946 | )
|Equity in income of unconsolidated joint ventures                                                                 |  |                           | 1,174   |   |                     |   | 1,338   |   |  |   | (164   | )
|Loss on investment in securities                                                                                  |  |                           | (420    | ) |                     |   |        |   |  |   | 420    |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|Income from continuing operations                                                                                 |  |                           | 28,826  |   |                     |   | 25,126  |   |  |   | 3,700  |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|Discontinued operations:                                                                                          |  |                           |         |   |                     |   |         |   |  |   |        |  
|Income/(loss) from discontinued operations                                                                        |  |                           | 1,060   |   |                     |   | 1,413   |   |  |   | (353   | )
|Gain/(loss) from disposition of discontinued operations                                                           |  |                           | 10,185  |   |                     |   | (4,542  | ) |  |   | 14,727 |  
|Loss from debt defeasance related to sale of real estate                                                          |  |                           | (5,316  | ) |                     |   |        |   |  |   | 5,316  |  
|Minority interests related to discontinued operations                                                             |  |                           | (186    | ) |                     |   | 115     |   |  |   | 301    |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|                                                                                                                  |  |                           | 5,743   |   |                     |   | (3,014  | ) |  |   | 8,757  |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|Income before gain on sale of land and an interest in a real estate partnership                                   |  |                           | 34,569  |   |                     |   | 22,112  |   |  |   | 12,457 |  
|                                                                                                                  |  |                           |        
|Gain/(loss) on sale of land and an interest in a real estate partnership                                          |  |                           | 1,222   |   |                     |   | 1,910   |   |  |   | (688   | )
|                                                                                                                  |  |                           |        
|Net income                                                                                                        |  | $                         | 35,791  |   |                     | $ | 24,022  |   |  | $ | 11,769 |  
|Preferred dividends                                                                                               |  |                           | (5,826  | ) |                     |   | (4,226  | ) |  |   | 1,600  |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  
|Net income applicable to common shareholders                                                                      |  | $                         | 29,965  |   |                     | $ | 19,796  |   |  | $ | 10,169 |  
|                                                                                                                  |  |                           |         |   |                     |   |         |   |  |   |        |  



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Included below is a discussion of the significant events or transactions that have impacted our results
of operations when comparing the six months ended June 30, 2004 to the six months ended June 30, 2003.



Acquisition of Real Estate. During the period January 1, 2003 through June 30, 2004, we acquired 16 office properties containing in the aggregate approximately 2.8 million net rentable square feet as follows:



|                               |  |                |  |                    |  |                      |  |                     |  |                                         |  |                                 |      
|------------------------------ |  | -------------- |  | ------------------ |  | -------------------- |  | ------------------- |  | --------------------------------------- |  | ------------------------------- | -----
|Acquired Properties            |  | Segment        |  | Market             |  | Month of Acquisition |  | Number of Buildings |  | Net Rentable Square Feet (in thousands) |  | Acquisition Price (in millions)
|Park West C3                   |  | Southwest      |  | Dallas/Ft. Worth   |  | Feb. 2003            |  | 1                   |  | 339                                     |  | $                               | 28.1 
|410 Warrenville Road           |  | Midwest        |  | Chicago            |  | May 2003             |  | 1                   |  | 60                                      |  |                                 | 8.7  
|Corporate Lakes III            |  | Midwest        |  | Chicago            |  | June 2003            |  | 1                   |  | 124                                     |  |                                 | 22.6 
|2291 Wood Oak Drive            |  | Mid-Atlantic   |  | Metro. Wash., D.C. |  | Aug. 2003            |  | 1                   |  | 228                                     |  |                                 | 52.2 
|Camino West Corporate Park     |  | SouthernCalif. |  | San Diego          |  | Nov. 2003            |  | 1                   |  | 54                                      |  |                                 | 8.9  
|Carlsbad Airport Plaza         |  | SouthernCalif. |  | San Diego          |  | Nov. 2003            |  | 1                   |  | 62                                      |  |                                 | 10.5 
|La Place Court                 |  | SouthernCalif. |  | San Diego          |  | Nov. 2003            |  | 2                   |  | 81                                      |  |                                 | 13.6 
|Pacific Ridge Corporate Centre |  | SouthernCalif. |  | San Diego          |  | Nov. 2003            |  | 2                   |  | 121                                     |  |                                 | 23.9 
|Pacific View Plaza             |  | SouthernCalif. |  | San Diego          |  | Nov. 2003            |  | 1                   |  | 52                                      |  |                                 | 10.2 
|Cityplace                      |  | Southwest      |  | Dallas/Ft. Worth   |  | April 2004           |  | 1                   |  | 1,296                                   |  |                                 | 124.0
|The Bluffs                     |  | SouthernCalif. |  | San Diego          |  | May 2004             |  | 1                   |  | 69                                      |  |                                 | 17.7 
|5500 Great America Parkway     |  | NorthernCalif. |  | Northern Calif.    |  | May 2004             |  | 3                   |  | 306                                     |  |                                 | 34.8 
|                               |  |                |  |                    |  |                      |  |                     |  |                                         |  |                                 |      
|                               |  |                |  |                    |  |                      |  | 16                  |  | 2,792                                   |  | $                               | 355.2
|                               |  |                |  |                    |  |                      |  |                     |  |                                         |  |                                 |      



Real Estate Dispositions.
During the period January 1, 2003 through June 30, 2004, we disposed of 17 office properties containing 1.5 million net rentable square feet. Two office properties, containing 339,000 square feet, within our Southwest region were sold on June 26,
2003. Nine properties, containing 644,000 net rentable square feet, representing our only properties in the Atlanta area, a market within our Mid-Atlantic region were sold on July 24, 2003. The remaining six properties, containing 566,000 net
rentable square feet, representing our only properties in the Sacramento area, a market within our Northern California region were sold on May 20, 2004.



The following is a discussion of the material changes in our consolidated statements of income and a discussion of the impact that the significant events
or transactions, as described above, had on one or more line items of our consolidated statements of income when comparing the six months ended June 30, 2004 to the six months ended June 30, 2003.



Rental Income. Rental income increased $14.7 million due to real estate acquisitions.
In addition, during the six months ended June 30, 2004, termination fees increased by $4.1 million when compared to the six months ended June 30, 2003. These increases were offset by a decrease in rental income of $1.2 million from our other
properties relating primarily to occupancy and rental rate declines in our portfolio for the six months ended June 30, 2004 compared to June 30, 2003.



Property Operating and Maintenance. Property operating and maintenance cost increased $3.7 million due to real estate acquisitions. Property operating and
maintenance expenses related to our other properties increased by $1.3 million. The increase in property operating and maintenance expenses at our other properties primarily related to an increase from the six months ended June 30, 2003 to the six
months ended June 30, 2004 of utility and parking related expenses offset by a decrease in bad debt expense.



Real Estate Taxes. Real estate taxes increased $1.6 million due to real estate acquisitions. The increases were offset by a decrease of $478,000 from our other properties. The decrease primarily resulted from
lower estimates of current year taxes resulting from lower property tax assessments across our portfolio.



Service Business and Other Income/Expenses of Service Business.The decrease in service business and other income was mainly due to a decrease in interest income resulting from the repayment of certain notes
receivable, as well as a decrease in leasing fees and other service business income. A decrease in income tax expense offset by an increase in personnel costs caused an overall decrease in expenses of the service business.



Depreciation and Amortization. Depreciation and amortization increased $6.8 million
due to real estate acquisitions. Depreciation and amortization related to our other properties increased by $2.8 million which is attributable to the depreciation and amortization expense related to capital expenditures incurred at our properties
subsequent to acquisition.



Interest Expense. The decrease in interest
expense is primarily a result of a decrease in the weighted average interest rate paid on outstanding borrowings from 6.53% to 6.32% from the six months ended June 30, 2003 to the six months ended June 30, 2004, partially offset by an increase in
weighted average borrowings outstanding for the respective periods.



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Minority Interests. The decrease in minority interest expense was primarily due to a decrease in the proportionate
share of net income attributable to the Series B Cumulative Redeemable Perpetual Preferred unitholders share as a result of the repurchase of these units on February 24, 2004, as well as the reclassification of the Series E Preferred
unitholders proportionate share of net income from minority interest to interest expense. The Series E Preferred Units were repurchased on February 4, 2004.



Discontinued Operations. The increase in discontinued operations is primarily due to the recognition of gain on sale during the six
months ended June 30, 2004 of $10.2 million compared to a loss on sale of $4.5 million recognized during the six months ended June 30, 2003, partially offset by a loss from debt defeasance recognized during the six months ended June 30, 2004.
Discontinued operations was also impacted by an impairment loss of $1.8 million recognized during the six months ended June 30, 2003 and the timing of sale of the properties.



Loss on Investment in Securities.In August 2000, we invested $423,000 in Narrowcast Communications Corporation, a provider of an
electronic tenant information service known as Elevator News Network. During the six months ended June 30, 2004, we received a return on investment of approximately $3,000 and recorded a loss on investment of approximately $420,000.



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##### Table of Contents

Liquidity and Capital Resources



Cash and cash equivalents were $10.0 million and $5.9 million at June 30, 2004 and December 31, 2003, respectively. The
increase in cash and cash equivalents is a result of net cash provided by operating activities exceeding net cash used in investing and financing activities for the six months ended June 30, 2004.



Cash flows provided by operating activities totaled $66.2 million for the six
months ended June 30, 2004 compared to $59.8 million for the six months ended June 30, 2003. The change in cash flows from operating activities is attributable to (1) the factors discussed in our analysis of results of operations for the six months
ended June 30, 2004 compared to June 30, 2003 and (2) the timing of receipt of revenues and payment of expenses.



Net cash used in investing activities totaled $40.1 million for the six months ended June 30, 2004 compared to $55.2 million for the six months ended June
30, 2003. The decrease in net cash used in investing activities of $15.1 million is due primarily to an increase of $69.3 million in cash generated from the sale of a 49% interest in Prentiss Office Investors, L.P., an increase of $60.1 million in
proceeds received from the sale of real estate, an increase of $10.0 million in cash received from the repayments of certain notes receivable, an increase of $1.1 million in proceeds from the sale of investments, a $1.5 million decrease in cash used
in the development and redevelopment of real estate, offset by and an increase of $117.3 million used to acquire real estate assets and an increase of $8.9 million in cash used for capital expenditures related to in-service properties.



Net cash used in financing activities totaled $22.1 million for the six
months ended June 30, 2004 compared to $2.3 million for the six months ended June 30, 2003. The increase in net cash used for financing activities of $19.8 million is due primarily to an increase of $105.0 million in cash used for the redemption of
preferred units, an increase of $5.0 million in distributions paid and an increase of $891,000 for the repurchase of common operating partnership units, offset by an increase in cash generated from the sale of common shares of $62.0 million, an
increase in net borrowings of mortgages and notes payable totaling $19.9 million, and an increase in contributions from limited partners of $9.2 million.



Net cash flow from operations represents the primary source of liquidity to fund distributions, debt service, capital improvements and non-revenue
enhancing tenant improvements. We expect that our revolving credit facility will provide for funding of working capital and revenue enhancing tenant improvements, unanticipated cash needs as well as acquisitions and development costs. Our principal
short-term liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distributions required to maintain our REIT qualification under the Internal Revenue Code.



Our net cash flow from operations is generally derived from rental revenues
and operating expense reimbursements from tenants and, to a limited extent, from fees generated by our office and industrial real estate management service business. Our net cash flow from operations is therefore dependent upon the occupancy level
of our properties, the collectibility of rent from our tenants, the level of operating and other expenses, and other factors. Material changes in these factors may adversely affect our net cash flow from operations. Such changes, in turn, would
adversely affect our ability to fund distributions, debt service, capital improvements and non-revenue enhancing tenant improvements. In addition, a material adverse change in our net cash flow from operations may affect the financial performance
covenants under our revolving credit facility. If we fail to meet any of our financial performance covenants, our revolving credit facility may become unavailable to us, or the interest charged on the revolving credit facility may increase. Either
of these circumstances could adversely affect our ability to fund working capital and revenue enhancing tenant improvements, unanticipated cash needs, acquisitions and development costs.



We expect to meet our long-term liquidity requirements for the funding of activities, such as development, real estate
acquisitions, scheduled debt maturities, major renovations, expansions and other revenue enhancing capital improvements through long-term secured and unsecured indebtedness and through the issuance of additional debt and equity securities. We also
intend to use proceeds from our revolving credit facility to fund real estate acquisitions, development, redevelopment, expansions and capital improvements on an interim basis.



Debt Financing



As of June 30, 2004, we had outstanding total indebtedness, including our pro rata share of joint venture debt, of approximately $1.2 billion, or
approximately 41.4% of total market capitalization based on a common share price of $33.52 per common share. The amount of indebtedness that we may incur, and the policies with respect thereto, are not limited by our declaration of trust and bylaws,
and are solely within the discretion of our board of trustees, limited only by various financial covenants in our credit agreements.



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##### Table of Contents

The following table sets forth our mortgages and notes payable, including our pro rata share of joint
venture debt as of June 30, 2004:



|                                               |  |                |           |              |       |               |               |   |          |                   
|---------------------------------------------- |  | -------------- | --------- | ------------ | ----- | ------------- | ------------- | - | -------- | ------------------
|Borrower/Description                           |  | CurrentBalance |           | Amortization |       | Interest Rate |               |   | Maturity
|                                               |  | (in thousands) |           |              |       |               |               |   |         
|Broadmoor Austin Associates                    |  |                |           |              |       |               |               |   |          |                   
|Broadmoor Austin(1)                            |  | $              | 67,662    |              | 16 yr |               | 7.04          | % |          | April 10, 2011    
|Burnett Plaza Associates                       |  |                |           |              |       |               |               |   |          |                   
|Burnett Plaza                                  |  |                | 66,000    |              | None  |               | LIBOR+1.500   | % |          | July 9, 2005      
|PL Properties Associates, L.P.                 |  |                |           |              |       |               |               |   |          |                   
|Park West C2                                   |  |                | 33,203    |              | 30 yr |               | 6.63          | % |          | November 10, 2010 
|Prentiss Properties Acquisition Partners, L.P. |  |                |           |              |       |               |               |   |          |                   
|Collateralized Term Loan(2)                    |  |                | 70,438    |              | 25 yr |               | LIBOR + 1.375 | % |          | September 30, 2004
|Walnut Glen Tower                              |  |                | 33,317    |              | 30 yr |               | 6.92          | % |          | April 1, 2005     
|Highland Court                                 |  |                | 4,422     |              | 25 yr |               | 7.27          | % |          | April 1, 2006     
|Plaza I & II                                   |  |                | 6,958     |              | 18 yr |               | 7.75          | % |          | January 1, 2007   
|Revolving Credit Facility                      |  |                | 225,000   |              | None  |               | LIBOR + 1.250 | % |          | February 19, 2007 
|Unsecured Term Loan  EuroHypo I               |  |                | 100,000   |              | None  |               | LIBOR + 1.250 | % |          | May 22, 2008      
|Unsecured Term Loan  Commerz                  |  |                | 75,000    |              | None  |               | LIBOR + 1.250 | % |          | March 15, 2009    
|7101 Wisconsin Avenue                          |  |                | 20,243    |              | 30 yr |               | 7.25          | % |          | April 1, 2009     
|Unsecured Term Loan  EuroHypo II              |  |                | 13,900    |              | 30 yr |               | 7.46          | % |          | July 15, 2009     
|Ordway                                         |  |                | 47,702    |              | 30 yr |               | 7.95          | % |          | August 1, 2010    
|World Savings Center                           |  |                | 28,352    |              | 30 yr |               | 7.91          | % |          | November 1, 2010  
|One OHare Centre                              |  |                | 39,429    |              | 30 yr |               | 6.80          | % |          | January 10, 2011  
|3130 Fairview Park Drive                       |  |                | 22,094    |              | 30 yr |               | 7.00          | % |          | April 1, 2011     
|Research Office Center                         |  |                | 43,695    |              | 28 yr |               | 7.64          | % |          | October 1, 2011   
|Bannockburn Centre                             |  |                | 25,988    |              | 30 yr |               | 8.05          | % |          | June 1, 2012      
|Del Mar Loan                                   |  |                | 43,634    |              | 30 yr |               | 7.41          | % |          | June 1, 2013      
|Prentiss Properties Corporetum, L.P.           |  |                |           |              |       |               |               |   |          |                   
|Corporetum Office Campus                       |  |                | 24,517    |              | 30 yr |               | 7.02          | % |          | February 1, 2009  
|Prentiss Properties Real Estate Fund I, L.P.   |  |                |           |              |       |               |               |   |          |                   
|PPREFI Portfolio Loan(3)                       |  |                | 180,100   |              | None  |               | 7.58          | % |          | February 26, 2007 
|Tysons International Partners                  |  |                |           |              |       |               |               |   |          |                   
|1676 International Drive(4)                    |  |                | 10,958    |              | 28 yr |               | 7.68          | % |          | August 30, 2010   
|8260 Greensboro(4)                             |  |                | 3,923     |              | 28 yr |               | 7.83          | % |          | August 30, 2010   
|                                               |  |                |           |              |       |               |               |   |          |                   
|Total                                          |  | $              | 1,186,535 |              |       |               |               |   |          |                   
|                                               |  |                |           |              |       |               |               |   |          |                   

---

|(1) | We own a 50% non-controlling interest in the entity that owns the Broadmoor Austin properties, which interest is accounted for using the equity method of accounting.
The amount shown reflects our proportionate share of the non-recourse mortgage indebtedness collateralized by the properties.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Term Loan is collateralized by the following four properties: Willow Oaks I & II (two properties), 8521 Leesburg Pike and the IBM Call Center.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The PPREFI Portfolio Loan is collateralized by the following 36 properties: the Los Angeles industrial properties (18 properties), the Chicago industrial properties
(four properties), the Cottonwood Office Center (three properties), Park West E1 and E2 (two properties), One Northwestern Plaza, 3141 Fairview Park Drive, 13825 Sunrise Valley Drive, OHare Plaza II, 1717 Deerfield Road, 2411 Dulles Corner
Road, 4401 Fair Lakes Court, the WestPoint Office Building and the PacifiCare Building.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | We own a 25% non-controlling interest in the entity that owns the 1676 International Drive and 8260 Greensboro properties, which interest is accounted for using the
equity method of accounting. The amount shown reflects our proportionate share of the non-recourse mortgage indebtedness collateralized by the properties.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The majority of our fixed rate secured debt contains prepayment provisions based on the greater of a yield maintenance
penalty or 1.0% of the outstanding loan amount. The yield maintenance penalty essentially compensates the lender for the difference between the fixed rate under the loan and the yield that the lender would receive if the lender reinvested the
prepaid loan balance in U.S. Treasury Securities with a similar maturity as the loan.



Under our loan agreements, we are required to satisfy various affirmative and negative covenants, including limitations on total indebtedness, total collateralized indebtedness and cash distributions, as well as
obligations to maintain certain minimum tangible net worth and certain minimum interest coverage ratios. Our credit agreements limit total indebtedness to 55% of total assets and require a



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##### Table of Contents

debt service coverage ratio of at least 2 to 1. Our credit agreements provide for a 30-day period to cure a default
caused by our failure to punctually and properly perform, observe and comply with the covenants contained therein. The agreements also provide for an additional 75-day period if such failure is not capable of being cured within 30-days and we are
diligently pursuing the cure thereof. We were in compliance with these covenants at June 30, 2004.



Hedging Activities



To
manage interest rate risk, we may employ options, forwards, interest rate swaps, caps and floors or a combination thereof depending on the underlying interest rate exposure. We undertake a variety of borrowings: from revolving credit facilities, to
medium- and long-term financings. To manage overall interest rate exposure, we use interest rate instruments, typically interest rate swaps, to convert a portion of our variable rate debt to fixed rate debt. Interest rate differentials that arise
under these swap contracts are recognized as interest expense over the life of the contracts.



We may employ forwards or purchased options to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the anticipated transaction occurs, expires
or is otherwise terminated. The following table summarizes the notional amounts and fair values of our derivative financial instruments at June 30, 2004. The notional amount provides an indication of the extent of our involvement in these
instruments as of the balance sheet date, but does not represent exposure to credit, interest rate or market risks.



|                |  |                       |   |  |                     |   |  |                                               |   |  |                |  |                |        |  
|--------------- |  | --------------------- | - |  | ------------------- | - |  | --------------------------------------------- | - |  | -------------- |  | -------------- | ------ | -
|Notional Amount |  | Swap Rate Paid(Fixed) |   |  | EffectiveFixed Rate |   |  | Swap Rate Received(Variable) at June 30, 2004 |   |  | Swap Maturity  |  | Fair Value     |       
|                |  |                       |   |  |                     |   |  |                                               |   |  |                |  | (in thousands) |       
|$ 50 million    |  | 6.253                 | % |  | 7.628               | % |  | 1.37                                          | % |  | September 2004 |  | $              | (592   | )
|$ 60 million    |  | 6.248                 | % |  | 7.623               | % |  | 1.37                                          | % |  | September 2004 |  |                | (709   | )
|$ 25 million    |  | 4.345                 | % |  | 5.845               | % |  | 1.37                                          | % |  | July 2005      |  |                | (497   | )
|$ 15 million    |  | 4.345                 | % |  | 5.845               | % |  | 1.37                                          | % |  | July 2005      |  |                | (298   | )
|$ 20 million    |  | 5.985                 | % |  | 7.235               | % |  | 1.37                                          | % |  | March 2006     |  |                | (1,054 | )
|$ 30 million    |  | 5.990                 | % |  | 7.240               | % |  | 1.37                                          | % |  | March 2006     |  |                | (1,583 | )
|$ 50 million    |  | 2.270                 | % |  | 3.520               | % |  | 1.37                                          | % |  | August 2007    |  |                | 1,859  |  
|$ 25 million    |  | 2.277                 | % |  | 3.527               | % |  | 1.37                                          | % |  | August 2007    |  |                | 925    |  
|$ 70 million(1) |  | 4.139                 | % |  | 4.989               | % |  | 1.37                                          | % |  | August 2008    |  |                | (543   | )
|$ 30 million(2) |  | 3.857                 | % |  | 5.107               | % |  | 1.37                                          | % |  | September 2008 |  |                | 254    |  
|$ 30 million(2) |  | 3.819                 | % |  | 5.069               | % |  | 1.37                                          | % |  | October 2008   |  |                | 298    |  
|$ 20 million(2) |  | 3.819                 | % |  | 5.069               | % |  | 1.37                                          | % |  | October 2008   |  |                | 198    |  
|$ 50 million    |  | 3.935                 | % |  | 5.186               | % |  | 1.37                                          | % |  | May 2009       |  |                | 338    |  
|$ 30 million(2) |  | 3.443                 | % |  | 4.693               | % |  | 1.37                                          | % |  | October 2009   |  |                | 1,226  |  
|                |  |                       |   |  |                     |   |  |                                               |   |  |                |  |                |        |  
|Total           |  |                       |   |  |                     |   |  |                                               |   |  |                |  | $              | (178   | )
|                |  |                       |   |  |                     |   |  |                                               |   |  |                |  |                |        |  

---

|(1) | The interest rate swap agreement will effectively lock 30-day LIBOR at 4.139% on $70.0
million of future floating rate debt of Prentiss Office Investors, L.P. for a period of four years beginning August 2, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Each of the interest rate swap agreements have an effective date of October 1, 2004.
|--- | ------------------------------------------------------------------------------------



Beginning on the effective date each swap
effectively locks in our cost of funds at the swap rate paid (before the spread over LIBOR) on variable rate borrowings in amounts equal to the respective notional amounts above.



Capital Improvements



Our properties require periodic investments of capital for tenant-related capital expenditures and for general capital improvements. The majority of
capital required relates to tenant-related capital expenditures and is dependent upon our leasing activity. Our leasing activity is a function of the percentage of our in-place leases expiring in current and future periods accompanied by our
exposure to tenant defaults and our ability to increase the average occupancy of our portfolio. For the six months ended June 30, 2004 capital expenditures related to our in-service properties totaled $21.2 million. We classify capital expenditures
for in-service properties as non-incremental and incremental revenue-enhancing capital expenditures representing our estimate of recurring versus non-recurring capital requirements, respectively. Our non-incremental and incremental capital
expenditures for the six months ended June 30, 2004 totaled approximately $17.9 million and $3.3 million, respectively.



36



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##### Table of Contents

Equity Financing



During the three months ended June 30, 2004, we issued 532,404 common shares of beneficial interest, par value $.01. The table below
details the common shares issued during the period, common shares in treasury activity during the period and the common shares outstanding at June 30, 2004:



|                                                                       |  |            |  
|---------------------------------------------------------------------- |  | ---------- | -
|Common shares outstanding at March 31, 2004                            |  | 44,224,828 |  
|                                                                       | 
|Common shares issued:                                                  |  |            |  
|Dribble Plan                                                           |  | 448,200    |  
|Share options exercised                                                |  | 65,500     |  
|Dividend Reinvestment and Share Purchase Plan                          |  | 17,794     |  
|Trustees Share Incentive Plan                                         |  | 910        |  
|                                                                       |  |            |  
|                                                                       |  | 532,404    |  
|                                                                       | 
|Common shares placed in treasury/issued from treasury:                 |  |            |  
|Common shares issued from treasury                                     |  | 9,800      |  
|Common shares purchased pursuant to our Key Employee Share Option Plan |  | (1,333     | )
|                                                                       |  |            |  
|Common shares outstanding at June 30, 2004                             |  | 44,765,699 |  
|                                                                       |  |            |  



Off-Balance Sheet Arrangements



At June 30, 2004 we had the following off-balance sheet
arrangements: (1) a non-controlling 50% interest in Broadmoor Austin Associates, a real estate joint venture; and (2) a 25% non-controlling interest in Tysons International Partners, a real estate joint venture.



Our investments in unconsolidated joint ventures represents less than .6% of
our total assets as of June 30, 2004 and 1.8% of our cash flow from operations for the six months ended June 30, 2004. Our investments, however, do provide us with several benefits including increased market share, important customer relations and a
possible capital source to fund future real estate projects.



Broadmoor Austin Associates and Tysons International Partners represent real estate joint ventures which own and operate office properties in Austin, Texas and Tysons Corner, Virginia, respectively. We act as managing venture partner and
have the authority to conduct the business affairs of each joint venture, subject to approval and veto rights of the other venture partner. We account for our interest in these joint ventures using the equity method of accounting.



The following information summarizes the financial position at June 30, 2004
for the investments in which we held an unconsolidated interest at June 30, 2004:



|                               |  |              |         |               |   |              |  |   |                     |   |  |   |       
|------------------------------ |  | ------------ | ------- | ------------- | - | ------------ |  | - | ------------------- | - |  | - | ------
|Summary of Financial Position: |  |              |         |               |   |              |  |   |                    
|(in thousands)                 |  | Total Assets |         | Total Debt(1) |   | Total Equity |  |   | CompanysInvestment
|Broadmoor Austin Associates    |  | $            | 100,448 |               | $ | 135,324      |  | $ | (35,482             | ) |  | $ | 4,010 
|Tysons International Partners  |  |              | 95,072  |               |   | 59,524       |  |   | 33,964              |   |  |   | 8,764 
|                               |  |              |         |               |   |              |  |   |                     |   |  |   |       
|                               |  |              |         |               |   |              |  |   |                     |   |  | $ | 12,774
|                               |  |              |         |               |   |              |  |   |                     |   |  |   |       

---

|(1) | The mortgage debt, all of which is non-recourse, is collateralized by the individual real estate property or properties within each venture, the net book value of
which totaled $168.3 million at June 30, 2004. Our proportionate share of the non-recourse mortgage debt totaled $82.5 million at June 30, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

The following information summarizes the results of operations for the unconsolidated investments which
impacted our results of operations for the three and six months ended June 30, 2004.



|                                                                |  |              |       |           |   |       |                             |  |   |     |  
|--------------------------------------------------------------- |  | ------------ | ----- | --------- | - | ----- | --------------------------- |  | - | --- | -
|Summary of Operations for the Three Months Ended June 30, 2004: |  | TotalRevenue |       | NetIncome |   |       | CompanysShare of NetIncome | 
|(in thousands)                                                  |  |              |       |           |   |       |                             | 
|Broadmoor Austin Associates                                     |  | $            | 5,018 |           | $ | 1,254 |                             |  | $ | 627 |  
|Tysons International Partners                                   |  |              | 2,876 |           |   | (124  | )                           |  |   | (31 | )
|                                                                |  |              |       |           |   |       |                             |  |   |     |  
|                                                                |  |              |       |           |   |       |                             |  | $ | 596 |  
|                                                                |  |              |       |           |   |       |                             |  |   |     |  



|                                                              |  |              |        |           |   |       |                             |  |   |       |  
|------------------------------------------------------------- |  | ------------ | ------ | --------- | - | ----- | --------------------------- |  | - | ----- | -
|Summary of Operations for the Six Months Ended June 30, 2004: |  | TotalRevenue |        | NetIncome |   |       | CompanysShare of NetIncome | 
|(in thousands)                                                |  |              |        |           |   |       |                             | 
|Broadmoor Austin Associates                                   |  | $            | 10,035 |           | $ | 2,474 |                             |  | $ | 1,237 |  
|Tysons International Partners                                 |  |              | 5,819  |           |   | (250  | )                           |  |   | (63   | )
|                                                              |  |              |        |           |   |       |                             |  |   |       |  
|                                                              |  |              |        |           |   |       |                             |  | $ | 1,174 |  
|                                                              |  |              |        |           |   |       |                             |  |   |       |  



In connection with the
disposition of a real estate property in May 2001, we entered into a financial guarantee with a maximum future potential payment of $1.4 million. The financial guarantee, provided to the third party purchaser, guaranteed payment of an amount not to
exceed the $1.4 million potential maximum if certain tenants, as defined in the purchase and sale agreement, fail to extend their leases beyond the maturities of their current in-place leases. An amount totaling $1.0 million representing
consideration to be paid in the event a certain tenant failed to extend its in-place lease was considered probable at the date of disposition and therefore, accrued during the year ended December 31, 2001. During the year ended December 31, 2003, we
paid an amount totaling $1.0 million to the third party purchaser as a result of failure of the tenant to extend its in-place lease. See further discussion and table presented under the Contractual Obligations and Commercial Commitments section
below.



Contractual Obligations and Commercial Commitments



We have contractual obligations including mortgages and notes payable and
ground lease obligations. The table below presents, as of June 30, 2004, our future scheduled principal repayments of mortgages and notes payable and ground lease obligations, including our pro rata share of debt and ground lease obligations of our
of joint venture properties:



|                                   |  |       |           |                        |   |           |  |           |         |            |   |         |  |   |        
|---------------------------------- |  | ----- | --------- | ---------------------- | - | --------- |  | --------- | ------- | ---------- | - | ------- |  | - | -------
|                                   |  |       |           | Payments Due by Period |   |          
|Contractual Obligations            |  | Total |           | 2004                   |   | 2005/2006 |  | 2007/2008 |         | Thereafter
|(in thousands)                     |  |       |           |                        |   |           |  |           |         |           
|Mortgages and notes payable        |  | $     | 1,186,535 |                        | $ | 74,945    |  | $         | 121,866 |            | $ | 532,275 |  | $ | 457,449
|Capital lease obligations          |  |       |          |                        |   |          |  |           |        |            |   |        |  |   |       
|Ground leases                      |  |       | 31,220    |                        |   | 240       |  |           | 1,086   |            |   | 1,106   |  |   | 28,788 
|Unconditional purchase obligations |  |       |          |                        |   |          |  |           |        |            |   |        |  |   |       
|Other long-term obligations        |  |       |          |                        |   |          |  |           |        |            |   |        |  |   |       
|                                   |  |       |           |                        |   |           |  |           |         |            |   |         |  |   |        
|Total contractual cash obligations |  | $     | 1,217,755 |                        | $ | 75,185    |  | $         | 122,952 |            | $ | 533,381 |  | $ | 486,237
|                                   |  |       |           |                        |   |           |  |           |         |            |   |         |  |   |        



As a condition of the
purchase and sale and as security for our guarantee, as discussed under the Off-Balance Sheet Arrangements section above, we provided to the title company at closing, irrevocable letters of credit, totaling $1.4 million, drawn on a financial
institution and identifying the purchaser as beneficiary. One letter of credit totaling $1.0 million expired in 2003. The balance of the remaining letter of credit totaled $252,000 at June 30, 2004 and expires as follows:



|                               |  |                        |     |                                 |   |           |  |           |     |            |   |  |  
|------------------------------ |  | ---------------------- | --- | ------------------------------- | - | --------- |  | --------- | --- | ---------- | - |  | -
|                               |  |                        |     | Commitment Expiration by Period |   |          
|Other Commercial Commitments   |  | Total AmountsCommitted |     | 2004                            |   | 2005/2006 |  | 2007/2008 |     | Thereafter
|(in thousands)                 |  |                        |     |                                 |   |           |  |           |     |           
|Lines of credit                |  |                        |    |                                 |   |          |  |           |    |            |  |  | 
|Standby letters of credit      |  | $                      | 252 |                                 | $ | 63        |  | $         | 189 |            |  |  | 
|Guarantees                     |  |                        |    |                                 |   |          |  |           |    |            |  |  | 
|Standby repurchase obligations |  |                        |    |                                 |   |          |  |           |    |            |  |  | 
|Other commercial commitments   |  |                        |    |                                 |   |          |  |           |    |            |  |  | 
|                               |  |                        |     |                                 |   |           |  |           |     |            |   |  |  
|Total commercial commitments   |  | $                      | 252 |                                 | $ | 63        |  | $         | 189 |            |  |  | 
|                               |  |                        |     |                                 |   |           |  |           |     |            |   |  |  



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##### Table of Contents

Funds from Operations



Funds from operations is a widely recognized measure of REIT operating performance. Funds from operations is a non-GAAP financial measure and, as defined
by the National Association of Real Estate Investment Trusts, means net income, computed in accordance with GAAP excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property, plus depreciation and amortization on
real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. We believe that funds from operations is helpful to investors and our management as a measure of our operating performance because it
excludes depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and, as a result, when compared period over period, reflects the impact on operations from trends in occupancy rates, rental rates,
operating costs, development activities, general and administrative expenses, and interest costs, providing perspective not immediately apparent from net income. In addition, our management believes that funds from operations provides useful
information to the investment community about our financial performance when compared to other REITs since funds from operations is generally recognized as the industry standard for reporting the operating performance of REITs. However, our funds
from operations may not be comparable to funds from operations reported by other REITs that do not define funds from operations exactly as we do. We believe that in order to facilitate a clear understanding of our operating results, funds from
operations should be examined in conjunction with net income as presented in our consolidated financial statements and notes thereto included in this Form 10-Q. We believe that net income is the most directly comparable GAAP financial measure to
funds from operations. Funds from operations does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of our performance or to cash flows as a
measure of liquidity or ability to make distributions. Funds from operations does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our
properties, which are significant economic costs that could materially impact our results of operations.



The following is a reconciliation of net income to funds from operations:



|                                                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |       
|---------------------------------------------------------------------------- |  | -------------------------- | ------- | ------------------------- | ---- | - | ------ |  | - | ------- | - |  | - | ------
|                                                                             |  | Three Months EndedJune 30, |         | Six Months Ended June 30,
|Funds from operations                                                        |  | 2004                       |         |                           | 2003 |   | 2004   |  |   | 2003   
|(in thousands)                                                               |  |                            |         |                           |      |   |        |  |   |        
|Net income                                                                   |  | $                          | 18,792  |                           |      | $ | 8,512  |  | $ | 35,791  |   |  | $ | 24,022
|Adjustments:                                                                 |  |                            |         |                           |      |   |        |  |   |         |   |  |   |       
|Real estate depreciation and amortization(1)                                 |  |                            | 23,785  |                           |      |   | 19,466 |  |   | 46,767  |   |  |   | 39,011
|Minority interests(2)                                                        |  |                            | 538     |                           |      |   | 244    |  |   | 1,034   |   |  |   | 757   
|Minority interests share of depreciation and amortization                    |  |                            | (1,303  | )                         |      |   |       |  |   | (2,124  | ) |  |   |      
|Pro rata share of joint venture depreciation and amortization                |  |                            | 744     |                           |      |   | 738    |  |   | 1,480   |   |  |   | 1,471 
|Issuance costs of preferred units redeemed                                   |  |                            |        |                           |      |   |       |  |   | (1,600  | ) |  |   |      
|(Gain)/loss on sale of real estate and interests in real estate partnerships |  |                            | (10,091 | )                         |      |   | 3,764  |  |   | (11,407 | ) |  |   | 2,632 
|                                                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |       
|Funds from operations                                                        |  | $                          | 32,465  |                           |      | $ | 32,724 |  | $ | 69,941  |   |  | $ | 67,893
|                                                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |       

---

|(1) | Includes real estate depreciation and amortization included in continuing operations and real estate depreciation and amortization included in discontinued
operations.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents the minority interests applicable to the common unit holders of the operating partnership.
|--- | -----------------------------------------------------------------------------------------------------



Funds from operations decreased by $259,000 for the three months ended June
30, 2004 from the three months ended June 30, 2003, and increased $2.0 million for the six months ended June 30, 2004 from the six months ended June 30, 2003 as a result of factors discussed in the analysis of operating results.



39



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##### Table of Contents

Recently Issued Accounting Pronouncements



In March 2004, the Emerging Issues Task Force of the Financial Accounting Standards Board issued EITF No. 03-6,
Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share. Statement 128 indicates that participating securities should be included in basic earnings per share (EPS), if the effect is dilutive,
using either the two-class method or the if-converted method. EITF No. 03-6 provides guidance on how to determine whether a security should be considered a participating security for purposes of computing EPS and how earnings should be
allocated to a participating security when using the two-class method for computing basic EPS. The adoption of EITF 03-6 did not have a material effect on our results of operations or our financial condition.



In April 2004, the Financial Accounting Standards Board, issued Staff
Position FAS 129-1, Disclosure Requirements under Statement of Financial Accounting Standards No. 129, Disclosure of Information about Capital Structure, Relating to Contingently Convertible Financial Instruments. The Staff Position
provides guidance on disclosures of contingently convertible financial instruments, including those containing contingent conversion requirements that have not been met and are not otherwise required to be included in the calculation of diluted
earnings per share. The statement was effective immediately, and applies to all existing and newly created securities. The adoption of this statement did not have a material effect on our results of operations or financial condition.



Inflation



Most of the leases on our properties require tenants to pay increases in operating expenses, including common area charges
and real estate taxes, thereby reducing the impact on us of the adverse effects of inflation. Leases also vary in term from one month to 20 years, further reducing the impact on us of the adverse effects of inflation.



40



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##### Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk



Our primary market risk is exposure to changes in interest rates as a result of our revolving credit facility and long-term debt. At June 30, 2004, we had
outstanding total indebtedness, including our pro rata share of joint venture debt, of approximately $1.2 billion, or approximately 41.4% of total market capitalization based on a common share price of $33.52. Our interest rate risk objective is to
limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for our borrowings through the use of
fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. In addition, we may enter into derivative financial instruments such as options, forwards, interest rate swaps, caps and floors to
mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable rate debt. We do not enter into derivative or interest rate transactions for speculative purposes. Approximately
54.8% of our outstanding debt was subject to fixed rates with a weighted average interest rate of 7.45% at June 30, 2004. Of the remaining $536.4 million, or 45.2%, representing our variable rate debt, $325.0 million was effectively locked at June
30, 2004 at an interest rate (before the spread over LIBOR) of 4.25% through our interest rate swap agreements. We regularly review interest rate exposure on our outstanding borrowings in an effort to minimize the risk of interest rate fluctuations.



The following table provides information about our financial
instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations outstanding at June 30, 2004, including our pro rata share of joint venture debt totaling $82.5 million, the table
presents principal cash flows and related weighted average interest rates for the debt outstanding during the periods. For interest rate swaps, the table presents notional amounts and weighted average interest rates for in-place swaps during the
period. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on 30-day LIBOR as of June 30, 2004. The fair value of our fixed rate debt indicates the estimated
principal amount of debt having similar debt service requirements, which could have been borrowed by us at June 30, 2004. The rate assumed in the fair value calculation of fixed rate debt is equal to 5.81%, representing our estimated borrowing rate
for fixed rate debt instruments similar in term to those outstanding at June 30, 2004 (yield on 5-year U.S. Treasury Securities at June 30, 2004 plus 200 basis points). The fair value of our variable to fixed interest rate swaps indicates the
estimated amount that would have been paid by us had they been terminated at June 30, 2004. Exclusive of our interest rate swaps, if 30-day LIBOR increased 100 basis points, total interest expense would increase $5.4 million.



|                          |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |            |   |         |       |  |            |         |   |  |   |         |  |   |         |  
|------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------- | - | ---------- | - | ------- | ----- |  | ---------- | ------- | - |  | - | ------- |  | - | ------- | -
|(dollars in thousands)    |  | 2004 |         |   | 2005 |   |        | 2006 |  |   | 2007   |   |  | 2008 |         |   | Thereafter |   |         | Total |  | Fair Value |        
|Liabilities               |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |            |   |         |       |  |            |         |   |  |   |         |  |   |         |  
|Long-Term Debt:           |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |            |   |         |       |  |            |         |   |  |   |         |  |   |         |  
|Fixed Rate                |  | $    | 4,507   |   |      | $ | 42,108 |      |  | $ | 13,758 |   |  | $    | 196,548 |   |            | $ | 10,727  |       |  | $          | 382,449 |   |  | $ | 650,097 |  | $ | 694,188 |  
|Average Interest Rate     |  |      | 7.45    | % |      |   | 7.47   | %    |  |   | 7.48   | % |  |      | 7.41    | % |            |   | 7.39    | %     |  |            | 7.43    | % |  |   |        |  |   |        |  
|Variable Rate             |  | $    | 70,438  |   |      | $ | 66,000 |      |  | $ |       |   |  | $    | 225,000 |   |            | $ | 100,000 |       |  | $          | 75,000  |   |  | $ | 536,438 |  | $ | 536,438 |  
|Average Interest Rate     |  |      | 2.70    | % |      |   | 2.68   | %    |  |   | 2.66   | % |  |      | 2.66    | % |            |   | 2.66    | %     |  |            | 2.66    | % |  |   |        |  |   |        |  
|Interest Rate Derivatives |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |            |   |         |       |  |            |         |   |  |   |         |  |   |         |  
|Interest Rate Swaps:      |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |            |   |         |       |  |            |         |   |  |   |         |  |   |         |  
|Variable to Fixed         |  | $    | 110,000 |   |      | $ | 40,000 |      |  | $ | 50,000 |   |  | $    | 75,000  |   |            | $ | 150,000 |       |  | $          | 80,000  |   |  | $ | 505,000 |  | $ | (178    | )
|Average Pay Rate          |  |      | 4.25    | % |      |   | 3.88   | %    |  |   | 3.56   | % |  |      | 3.64    | % |            |   | 3.87    | %     |  |            | 3.65    | % |  |   |        |  |   |        |  
|Average Receive Rate      |  |      | 1.37    | % |      |   | 1.37   | %    |  |   | 1.37   | % |  |      | 1.37    | % |            |   | 1.37    | %     |  |            | 1.37    | % |  |   |        |  |   |        |  



Item 4. Controls and Procedures



As of June 30, 2004, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Securities Exchange Act Rule 15d-15. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that
information required to be disclosed in our 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.



There have been no changes in our internal control over
financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



41



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##### Table of Contents

PART II

OTHER INFORMATION



Item 1. Legal Proceedings



We are
not presently subject to any material litigation, other than ordinary routine litigation incidental to the business.



Item 2. Changes in Securities and Use of Proceeds



|                               |  |                                     |  |                              |       |                                                                               |   |                                                                                  |        
|------------------------------ |  | ----------------------------------- |  | ---------------------------- | ----- | ----------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------- | -------
|Period                         |  | Total Number of SharesPurchased (1) |  | Average Price Paid per Share |       | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans or Programs |   | Maximum Number ofShares that May YetBe Purchased Under the Plans or Programs (2)
|April 1, 2004  April 30, 2004 |  | 1,333                               |  | $                            | 33.00 |                                                                               |  |                                                                                  | 997,200
|                               |  |                                     |  |                             
|May 1, 2004  May 31, 2004     |  |                                    |  | $                            |      |                                                                               |  |                                                                                  |       
|                               |  |                                     |  |                             
|June 1, 2004  June 30, 2004   |  |                                    |  | $                            |      |                                                                               |  |                                                                                  |       
|Total                          |  | 1,333                               |  | $                            | 33.00 |                                                                               |  |                                                                                  | 997,200

---

|(1) | During April 2004, we purchased 1,333 of our common shares pursuant to our Key Employee Share
Option Plan. The purchase was not made pursuant to a publicly announced plan or program.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During 1998, our board of trustees authorized the repurchase of up to 2.0 million common
shares in the open market or negotiated private transactions. On January 4, 2000, the board of trustees authorized a 1.5 million-share increase in the share repurchase program bringing the total authorization to 3.5 million common shares. On May 9,
2001, the board of trustees authorized an additional 1.0 million-share increase in the share repurchase program bringing the total authorization to 4.5 million shares. Since inception of the repurchase program, through June 30, 2004, we have
purchased 3,502,800 common shares and pursuant to current authorization, we have the ability to repurchase an additional 997,200 in the future.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 3. Defaults Upon Senior Securities



None.



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



On May 5, 2004, we held our Annual Meeting of Shareholders. At the meeting, two Class II trustees, Dr. Leonard M. Riggs, Jr. and Ronald G. Steinhart were elected to serve as trustees until the 2007 Annual Meeting of
the shareholders, and until the respective successor of each is duly elected and qualified. Each of Michael V. Prentiss, Thomas F. August, Lawrence A. Wilson, Thomas J. Hynes, Jr. and Barry J.C. Parker continue their terms of office as members of
our board of trustees.



The votes cast for the trustees were:



Dr. Leonard M. Riggs, Jr.

|                  |  |           
|----------------- |  | ----------
|Votes for:        |  | 38,709,341
|Votes withheld:   |  | 618,791   
|Broker non-votes: |  |          
|Abstentions:      |  |          



42



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##### Table of Contents

Ronald G. Steinhart

|                  |  |           
|----------------- |  | ----------
|Votes for:        |  | 38,529,612
|Votes withheld:   |  | 798,520   
|Broker non-votes: |  |          
|Abstentions:      |  |          



The shareholders also
ratified the appointment of PricewaterhouseCoopers LLP as our independent accountants for 2004.



The votes cast were as follows:



|                  |  |           
|----------------- |  | ----------
|Votes for:        |  | 38,736,716
|Votes against:    |  | 571,363   
|Broker non-votes: |  |          
|Abstentions:      |  | 20,054    



The shareholders
approved and adopted our amended and restated Trustees Share Incentive Plan which increases the aggregate number of our common shares of beneficial interest, par value $0.01 per share, that may be issued under the current Trustees Share
Incentive Plan by 50,000 common shares.



The votes cast were as
follows:



|                  |  |           
|----------------- |  | ----------
|Votes for:        |  | 35,215,404
|Votes against:    |  | 873,639   
|Broker non-votes: |  |          
|Abstentions:      |  | 44,387    



The shareholders
approved and adopted our amended and restated 1996 Share Incentive Plan which increases the aggregate number of our common shares of beneficial interest, par value $0.01 per share, that may be issued under the 1996 Share Incentive Plan by 1,500,000
common shares.



The votes cast were as follows:



|                  |  |           
|----------------- |  | ----------
|Votes for:        |  | 34,790,412
|Votes against:    |  | 1,296,762 
|Broker non-votes: |  |          
|Abstentions:      |  | 46,256    



Item 5. Other Information



None



43



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##### Table of Contents

Item 6. Exhibits and Reports on Form 8-K



|(a) | Exhibits:
|--- | ---------



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Amended and Restated Declaration of Trust of the Registrant (filed as Exhibit 3.1 to our Form 10-K, filed on March 15, 2004, File No. 001-14516).                                                                                                                                                                                                                                                                                                                          
|     | 
|3.2  |  | Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to our Form 10-Q, filed on May 15, 2002, File No. 001-14516).                                                                                                                                                                                                                                                                                                                                          
|     | 
|3.3  |  | Amendment No. 1 to the Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.3 to our Form 10-Q, filed on May 15, 2002, File No. 001-14516).                                                                                                                                                                                                                                                                                                                   
|     | 
|3.4  |  | Amendment No. 2 to the Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.4 to our Form 10-Q, filed on November 12, 2003, File No. 001-14516).                                                                                                                                                                                                                                                                                                              
|     | 
|3.5  |  | Articles Supplementary, dated February 17, 1998, Classifying and Designating a Series of Preferred Shares of Beneficial Interest as Junior Participating Cumulative Convertible Redeemable
Preferred Shares of Beneficial Interest, Series B, and Fixing Distribution and Other Preferences and Rights of Such Shares (filed as an Exhibit to our Registration Statement on Form 8-A, filed on February 17, 1998, File No. 000-23813 and
incorporated by reference herein).
|     | 
|3.6  |  | Articles Supplementary, dated June 25, 1998, Classifying and Designating a Series of Preferred Shares of Beneficial Interest as Series B Cumulative Redeemable Perpetual Preferred Shares of
Beneficial Interest and Fixing Distribution and Other Preferences and Rights of Such Shares (filed as Exhibit 3.5 to our Form 10-Q, filed on August 12, 1998, File No. 001-14516).                                                                                            
|     | 
|3.7  |  | Articles Supplementary, dated March 20, 2001 (filed as Exhibit 3.6 to our Form 10-K, filed March 27, 2001, File No. 001-14516, and incorporated by reference herein).                                                                                                                                                                                                                                                                                                      
|     | 
|3.8  |  | Articles Supplementary Classifying and Designating a Series of Preferred Shares of Beneficial Interest as Series D Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest and
Fixing Distribution and Other Preferences and Rights of such Shares, dated March 20, 2001 (filed as Exhibit 3.7 to our Form 10-K, filed March 27, 2001, File No. 001-14516, and incorporated by reference herein).                                                        
|     | 
|3.9  |  | Articles Supplementary, dated January 4, 2002 (filed as Exhibit 3.7 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).                                                                                                                                                                                                                                                                                                     
|     | 
|3.10 |  | Articles Supplementary, dated February 24, 2004, declassifying the Series B Cumulative Redeemable Perpetual Preferred Shares (filed as Exhibit 3.10 to our Form 10-K, filed on March 15, 2004,
File No. 001-14516).                                                                                                                                                                                                                                                        
|     | 
|4.1  |  | Form of Common Share Certificate (filed as Exhibit 4.1 to our Registration Statement on Amendment No. 1 of Form S-11, File No. 333-09863, and incorporated by reference herein).                                                                                                                                                                                                                                                                                           
|     | 
|4.2  |  | Amended and Restated Rights Agreement, dated January 22, 2002, between Prentiss Properties Trust and EquiServe Trust Company, N.A., as Rights Agent (filed as Exhibit 1 to Amendment No. 2 to our
Registration Statement on Form 8-A, filed on February 6, 2002, File No. 000-014516).                                                                                                                                                                                     
|     | 
|4.3  |  | First Amendment dated June 26, 2002 to the Amended and Restated Rights Agreement between Prentiss Properties Trust and Equiserve Trust Company, N.A. as Rights Agent (filed as Exhibit 2 to
Amendment No. 3 to our Registration Statement on Form 8-A, filed on June 27, 2002. File No. 001-014516).                                                                                                                                                                       
|     | 
|4.4  |  | Second Amendment, dated October 21, 2003, to the Amended and Restated Rights Agreement between Prentiss Properties Trust and Equiserve Trust Company, N.A. as Rights Agent (filed as Exhibit 3 to
Amendment No. 4 to our Registration Statement on Form 8-A, filed on January 26, 2004. File No. 001-014516).                                                                                                                                                              
|     | 
|4.5  |  | Form of Rights Certificate (included as Exhibit A to the Rights Agreement (Exhibit 4.2)).                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|4.6  |  | Form of Series D Preferred Share Certificate (filed as Exhibit 4.4 to our Form 10-K, filed March 27, 2001, File No. 001-14516, and incorporated by reference herein).                                                                                                                                                                                                                                                                                                      



44



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                           
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1  |  | 1996 Share Incentive Plan (filed as Exhibit 10.25 to Amendment No. 1 to our Registration Statement on Form S-11, File No. 333-09863, and incorporated by reference herein).                                                               
|      | 
|10.2  |  | First Amendment, effective as of May 6, 1997, to the 1996 Share Incentive Plan (filed as Exhibit 4.6 to our Registration Statement on Form S-8, File No. 333-79623, filed on May 28, 1999, and
incorporated by reference herein).         
|      | 
|10.3  |  | Second Amendment, effective as of May 5, 1998, to the 1996 Share Incentive Plan (filed as Exhibit 4.7 to our Registration Statement on Form S-8, File No. 333-79623, filed on May 28, 1999, and
incorporated by reference herein).        
|      | 
|10.4  |  | Third Amendment, effective as of May 9, 2001, to the 1996 Share Incentive Plan (filed as Exhibit 4.5 to our Registration Statement on Form S-8, File No. 333-68520, filed on August 28, 2001, and
incorporated by reference herein).      
|      | 
|10.5  |  | Amendment No. 4, effective as of October 15, 1996, to the 1996 Share Incentive Plan (filed as Exhibit 10.5 to our Form 10-Q, filed November 14, 2002, File No. 001-14516).                                                                
|      | 
|10.6  |  | Amendment No. 5, effective as of October 23, 2002, to the 1996 Share Incentive Plan (filed as Exhibit 10.6 to our Form 10-Q, filed November 14, 2002, File No. 001-14516).                                                                
|      | 
|10.7  |  | Amended and Restated Trustees Share Incentive Plan, effective as of May 15, 2002 (filed as Exhibit 4.12 to our Registration Statement on Form S-8, File No. 333-97045, filed on July 24,
2002, and incorporated by reference herein).    
|      | 
|10.8  |  | Amendment No. 1, effective as of October 23, 2002, to the Amended and Restated Trustees Share Incentive Plan (filed as Exhibit 10.8 to our Form 10-Q, filed November 14, 2002, File No.
001-14516).                                      
|      | 
|10.9  |  | Trustees Share Incentive Plan (filed as Exhibit 4.8 to our Registration Statement on Form S-8, File No. 333-79623, filed on May 28, 1999, and incorporated by reference herein).                                                          
|      | 
|10.10 |  | First Amendment, effective as of May 5, 1998, to the Trustees Share Incentive Plan (filed as Exhibit 4.9 to our Registration Statement on Form S-8, File No. 333-79623, filed on May 28,
1999, and incorporated by reference herein).    
|      | 
|10.11 |  | Second Amendment, effective as of March 1, 1999, to the Trustees Share Incentive Plan (filed as Exhibit 4.10 to our Registration Statement on Form S-8, File No. 333-79623, filed on May 28,
1999, and incorporated by reference herein).
|      | 
|10.12 |  | Third Amendment, effective as of May 10, 2000, to the Trustees Share Incentive Plan (filed as Exhibit 10.8 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by
reference herein).                            
|      | 
|10.13 |  | Form of Stock Option Agreement (filed as Exhibit 10.9 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).                                                                                  
|      | 
|10.14 |  | Amended and Restated Share Purchase Plan, dated as of July 1, 2000 (filed as Exhibit 10.10 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference
herein).                                             
|      | 
|10.15 |  | Amendment No. 1, effective as of October 23, 2002, to the Amended and Restated Share Purchase Plan (filed as Exhibit 10.15 to our Form 10-Q, filed November 14, 2002, File No.
001-14516).                                                
|      | 
|10.16 |  | Key Employee Share Option Plan (filed as Exhibit 10.11 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).                                                                                 
|      | 
|10.17 |  | Prentiss Properties Employee Savings Plan (filed as Exhibit 10.12 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).                                                                      
|      | 
|10.18 |  | Third Amended and Restated Employment Agreement, dated January 1, 2004 by and between Michael V. Prentiss and Prentiss Properties Trust. (filed as Exhibit 10.18 to our Form 10-K, filed on March
15, 2004, File No. 001-14516).          



45



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                     
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19 |  | Amended and Restated Employment Agreement, dated May 10, 2000, by and between Thomas F. August and Prentiss Properties Trust (filed as Exhibit 10.21 to our Form 10-K, filed on March 27, 2001,
and incorporated herein by reference).                                                                                                              
|      | 
|10.20 |  | Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P., dated as of October 1, 2001 (filed as Exhibit 10.15 to our Form 10-K, filed March
27, 2002, File No. 001-14516, and incorporated by reference herein).                                                                               
|      | 
|10.21 |  | First Amendment, dated as of December 18, 2001, to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P., dated as of December 18,
2001 (filed as Exhibit 10.16 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).                      
|      | 
|10.22 |  | Second Amendment, dated as of January 3, 2002, to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P., dated as of October 1, 2001
(filed as Exhibit 10.17 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).                         
|      | 
|10.23 |  | Third Amendment to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P. (filed as Exhibit 10.40 to our Form 10-K, filed March 27,
2002, File No. 001-14516, and incorporated by reference herein).                                                                                     
|      | 
|10.24 |  | Fourth Amendment to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P. (filed as Exhibit 10.20 to our Form 10-Q, filed August 14,
2002, File No. 001-14516).                                                                                                                         
|      | 
|10.25 |  | Fifth Amendment to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P. (filed as Exhibit 99.1 to our Form 8-K, File No. 001-14516,
filed on August 14, 2003).                                                                                                                         
|      | 
|10.26 |  | Sixth Amendment to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P. (filed as Exhibit 10.2 to our Form 10-Q, File No. 001-14516,
filed on November 12, 2003).                                                                                                                      
|      | 
|10.27 |  | Seventh Amendment to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P. (filed as Exhibit 10.27 to our Form 10-K, filed on March
15, 2004, File No. 001-14516).                                                                                                                      
|      | 
|10.28 |  | Eighth Amendment to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P. (filed as Exhibit 10.28 to our Form 10-K, filed on March 15,
2004, File No. 001-14516).                                                                                                                       
|      | 
|10.29 |  | Series E Cumulative Redeemable Preferred Partnership Units Repurchase Agreement, dated February 4, 2004, by and between Prentiss Properties Acquisition Partners, L.P. and Brandywine Operating
Partnership, L.P. (filed as Exhibit 10.29 to our Form 10-K, filed on March 15, 2004, File No. 001-14516).                                           
|      | 
|10.30 |  | Series B Preferred Unit Redemption Agreement, dated February 24, 2004, by and between Prentiss Properties Acquisition Partners, L.P., Belrose Realty Corporation, Belmar Realty Corporation,
Belport Realty Corporation and Belshire Realty Corporation (filed as Exhibit 10.30 to our Form 10-K, filed on March 15, 2004, File No. 001-14516).     
|      | 
|10.31 |  | Credit Agreement, dated May 22, 2003, among Prentiss Properties Acquisition Partners, L.P., as Borrower, Eurohypo AG, New York Branch, as Administrative Agent, Bank One, NA, as Syndication
Agent, and other lenders as named therein, (filed as Exhibit 10.2 to our Form 10-Q, File No. 001-14516, filed on August 14, 2003).                     
|      | 
|10.32 |  | Stock Purchase Agreement, dated January 1, 2003, by and between Prentiss Properties Acquisition Partners, L.P. and Ampulla LLC, a single member Limited Liability Company, owned by Michael V.
Prentiss, Chairman of the Board of Prentiss Properties Trust, (filed as Exhibit 10.3 to our Form 10-Q, File No. 001-14516, filed on August 14, 2003).

|
|



46



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33 |  | Exchange Agreement, dated as of March 20, 2001, by and among Prentiss Properties Trust, Prentiss Properties Acquisition Partners, L.P. and Security Capital Preferred Growth Incorporated (filed
as Exhibit 10.14 to our Form 10-K, filed on March 27, 2001, and incorporated herein by reference).                                                                                                                                                                            
|      | 
|10.34 |  | Registration Rights Agreement, dated as of March 20, 2001, by and among Prentiss Properties Trust and Security Capital Preferred Growth Incorporated (filed as Exhibit 10.15 to our Form 10-K,
filed on March 27, 2001, and incorporated by reference herein).                                                                                                                                                                                                                 
|      | 
|10.35 |  | Second Amendment and Restatement of the Agreement, dated March 22, 2002, among Prentiss Properties Acquisition Partners, L.P., as Borrower, Bank One, N.A., as Administrator, Bank of America,
N.A., as Syndication Agent, Dresdner Bank, AG as Documentation Agent and each of the Lenders that are signatory therein (filed as Exhibit 10.1 to our Post-Effective Amendment No. 2 to Form S-3, File No. 333-49433, filed July 26, 2002 and
incorporated by reference herein).
|      | 
|10.36 |  | Credit Agreement, dated March 16, 2001, among Prentiss Properties Acquisition Partners, L.P., as Borrower, Commerzbank AG, New York Branch, as Administrative Agent, Sole Arranger and Sole Book
Runner, Fleet National Bank, as Syndication Agent, LaSalle Bank National Association, as Documentation Agent and each of the Lenders named therein (filed as Exhibit 10.21 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated
by reference herein). 
|      | 
|10.37 |  | First Amendment, dated as of November 28, 2000, to the Credit Agreement, dated September 30, 1999, among Prentiss Properties Acquisition Partners, L.P., as Borrower, Bank One, N.A., as
Administrative Agent, Mellon Bank and Union Bank of California as co-documentation agents (filed as Exhibit 10.23 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).                                                                  
|      | 
|10.38 |  | Second Amended and Restated Credit Agreement, dated as of February 19, 2004, by and among Prentiss Properties Acquisition Partners, L.P., Bank One, NA, Bank of America, N.A., Dresdner Bank AG,
Commerzbank AG, Societe Generale Southwest Agency and the lenders named therein (filed as Exhibit 10.38 to our Form 10-K, filed on March 15, 2004, File No. 001-14516).                                                                                                       
|      | 
|10.39 |  | Amended and Restated Credit Agreement, dated as of March 2, 2004, among Prentiss Properties Acquisition Partners, L.P. as Borrower, Eurohypo AG, New York Branch, as Sole Arranger and Sole Book
Runner, Bank One, NA as Syndication Agent, and other Lenders as named therein.                                                                                                                                                                                                
|      | 
|10.40 |  | Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and Robert K. Wiberg (filed as Exhibit 10.30 to our Form 10-K, filed March 27, 2002, File
No. 001-14516, and incorporated by reference herein).                                                                                                                                                                                                                       
|      | 
|10.41 |  | Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and Lawrence Krueger (filed as Exhibit 10.31 to our Form 10-K, filed March 27, 2002, File
No. 001-14516, and incorporated by reference herein).                                                                                                                                                                                                                       
|      | 
|10.42 |  | Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and Michael A. Ernst (filed as Exhibit 10.32 to our Form 10-K, filed March 27, 2002, File
No. 001-14516, and incorporated by reference herein).                                                                                                                                                                                                                       
|      | 
|10.43 |  | Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and Christopher M. Hipps (filed as Exhibit 10.33 to our Form 10-K, filed March 27, 2002,
File No. 001-14516, and incorporated by reference herein).                                                                                                                                                                                                                   
|      | 
|10.44 |  | Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and Daniel Cushing (filed as Exhibit 10.34 to our Form 10-K, filed March 27, 2002, File
No. 001-14516, and incorporated by reference herein).                                                                                                                                                                                                                         
|      | 
|10.45 |  | Promissory Note, dated as of June 1, 1999, by and between Prentiss Properties Limited, Inc. and Christopher M. Hipps (filed as Exhibit 10.35 to our Form 10-K, filed March 27, 2002, File No.
001-14516, and incorporated by reference herein).                                                                                                                                                                                                                                

|
|



47



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##### Table of Contents

|       |  |                                                                                                                                                                                                                                                                                                                          
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.46  |  | Promissory Note, dated as of January 1, 2002, by and between Prentiss Properties Limited, Inc. and Daniel Cushing (filed as Exhibit 10.36 to our Form 10-K, filed March 27, 2002, File No.
001-14516, and incorporated by reference herein).                                                                             
|       | 
|10.47  |  | Promissory Note, dated as of June 14, 2002, by and among Prentiss Properties Limited, Inc. and Daniel Cushing (filed as Exhibit 10.45 to our Form 10-K, filed March 28, 2003, File No. 001-14516,
and incorporated by reference herein).                                                                                 
|       | 
|10.48  |  | Purchase Agreement, dated February 25, 2002, by and among Prentiss Properties Trust, Prentiss Properties Acquisition Partners, L.P., Prentiss Properties I, Inc. and Salomon Smith Barney Inc.
(filed as Exhibit 10.38 to our Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).
|       | 
|10.49  |  | Registration Rights Agreement, dated February 25, 2002, by and among Prentiss Properties Trust and Salomon Smith Barney Inc. (filed as Exhibit 10.39 to our Form 10-K, filed March 27, 2002, File
No. 001-14516, and incorporated by reference herein).                                                                  
|       | 
|10.50  |  | Sales Agreement between us and Brinson Patrick Securities Corporation, dated June 10, 2002 (filed as Exhibit 1.1 to our Post Effective Amendment No. 2 to Form S-3, File No. 333-49433, filed on
July 26, 2002).                                                                                                         
|       | 
|10.51  |  | Amendment to Sales Agreement between us and Brinson Patrick Securities Corporation, dated May 5, 2004.                                                                                                                                                                                                                   
|       | 
|10.52* |  | Sales Agreement between us and Brinson Patrick Securities Corporation, dated May 28, 2004 (filed as Exhibit 1.1 to our Form S-3, File No. 333-116034, filed on May 28, 2004).                                                                                                                                            
|       | 
|10.53  |  | Amended and Restated Limited Partnership Agreement of Prentiss Office Investors, L.P., dated January 29, 2004 (filed as Exhibit 10.50 to our Form 10-K, filed on March 15, 2004, File No.
001-14516).                                                                                                                    
|       | 
|10.54  |  | Prentiss Properties Executive Choice Share Deferral Plan (filed as Exhibit 10.1 to our Form 10-Q, filed May 15, 2003, File No. 001-14516, and incorporated by reference herein).                                                                                                                                         
|       | 
|10.55  |  | Prentiss Properties Executive Choice Deferred Compensation Plan (filed as Exhibit 10.2 to our Form 10-Q, filed May 15, 2003, File No. 001-14516, and incorporated by reference
herein).                                                                                                                                  
|       | 
|10.56  |  | Prentiss Properties Executive Choice Deferred Compensation Plan for Trustees (filed as Exhibit 10.3 to our Form 10-Q, filed May 15, 2003, File No. 001-14516, and incorporated by reference
herein).                                                                                                                     
|       | 
|10.57  |  | Prentiss Properties Executive Choice Share Deferral Plan for Trustees (filed as Exhibit 10.4 to our Form 10-Q, filed May 15, 2003, File No. 001-14516, and incorporated by reference
herein).                                                                                                                            
|       | 
|31.1*  |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                      
|       | 
|31.2*  |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                      
|       | 
|32.1*  |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                      
|       | 
|32.2*  |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                      

---

|* | Filed herewith.
|- | ---------------



|(b) | Reports on Form 8-K
|--- | -------------------



On April 15, 2004, we furnished to the Securities and Exchange Commission a Current Report on Form 8-K. The Current Report on Form 8-K
relates to our earnings release for the quarter ended March 31, 2004.



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##### Table of Contents

SIGNATURE



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



|                     |  |                           |  |                                                                                                                                       
|-------------------- |  | ------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|                     |  | PRENTISS PROPERTIES TRUST
|                     |  |                          
|Date: August 4, 2004 |  | By:                       |  | /s/ Scott W. Fordham                                                                                                                  
|                     |  |                           |  | Scott W. Fordham Vice President and Chief Accounting Officer (Principal Accounting Officer and Duly Authorized Officer of the Company)



49