##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 1-14516
 PRENTISS PROPERTIES TRUST
 (Exact Name of Registrant as Specified in its Charter)
 Maryland
(State or Other Jurisdiction of Incorporation or Organization)
    
    75-2661588
(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)
 þ o
 þ o




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PRENTISS PROPERTIES TRUST
 INDEX
 Page NumberPart I: FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2005
(unaudited) and December 31, 2004 (unaudited)
    
    
    5Consolidated Statements of Income for the three and six
months ended June 30, 2005 and 2004 (unaudited)
    
    
    6Consolidated Statements of Comprehensive Income for the
three and six months ended June 30, 2005 and 2004
(unaudited)
    
    
    7Consolidated Statements of Cash Flows for the six months
ended June 30, 2005 and 2004 (unaudited)
    
    
    8Notes to Consolidated Financial Statements
    
    
    9-23Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    24-44Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    45Part II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    46Item 2. Changes in Securities and Use of Proceeds
    
    
    46Item 3. Default Upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46-47Item 5. Other Information
    
    
    47Item 6. Exhibits
    
    
    48-49SIGNATURE
    
    
    502005 Share Incentive PlanPromissory NoteCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
    
    Our failure to qualify as a REIT under the
Internal Revenue Code of 1986, as amended;
    
    Possible adverse changes in tax and
environmental laws, as well as the impact of newly
adopted accounting principles on our accounting
policies and on period-to-period comparison of
financial results;
    
    Potential liability for uninsured losses and
environmental contamination;
    
    Our properties are illiquid assets;
    
    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;
    
    Changes in market conditions including market
interest rates and employment rates;
    
    Our incurrence of debt and use of variable
rate and derivative financial instruments;
    
    Our real estate acquisition, redevelopment,
development and construction activities;
    
    The geographic concentration of our
properties;
    
    Changes in market conditions including
capitalization rates applied in real estate
acquisitions;
    
    Competition in markets where we have properties;
    
    Our dependence on key personnel whose continued service is not guaranteed;
    
    Changes in our investment, financing and borrowing policies without shareholder approval;
    
    The effect of shares available for future sale on the price of common shares;
    
    Limited ability of shareholders to effect change of control;
    
    Conflicts of interest with management, our board of trustees and joint venture partners could
impact business decisions;
    
    Our third-party property management, leasing, development and construction business and related services;
    
    Risks associated with an increase in the frequency and scope of changes in state and local tax
laws and increases in the number of state and local tax audits; and
    
    Cost of compliance with the Americans with Disabilities Act and other similar laws related to our properties.
  3




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PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 (this page intentionally left blank)
 4




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 
 CONSOLIDATED BALANCE SHEETS
(Unaudited)
 June 30,
    
    December 31,2005
    
    2004ASSETSOperating real estate:Land
    
    $
    369,160
    
    
    $
    341,321Buildings and improvements
    
    
    1,915,883
    
    
    
    1,789,043Less: accumulated depreciation
    
    
    (257,923
    )
    
    
    (234,007
    )2,027,120
    
    
    
    1,896,357Construction in progress
    
    
    34,955
    
    
    
    23,417Land held for development
    
    
    61,948
    
    
    
    59,014Deferred charges and other assets, net
    
    
    287,405
    
    
    
    260,283Notes receivable
    
    
    1,000
    
    
    
    1,500Accounts receivable, net
    
    
    61,272
    
    
    
    55,772Cash and cash equivalents
    
    
    10,570
    
    
    
    8,586Escrowed cash
    
    
    8,830
    
    
    
    9,584Investments in securities and insurance contracts
    
    
    5,014
    
    
    
    3,279Investments in unconsolidated joint ventures and subsidiaries
    
    
    6,842
    
    
    
    12,943Interest rate hedges
    
    
    3,286
    
    
    
    2,804Total assets
    
    $
    2,508,242
    
    
    $
    2,333,539LIABILITIES AND SHAREHOLDERS EQUITYMortgages and notes payable
    
    $
    1,393,100
    
    
    $
    1,191,911Interest rate hedges
    
    
    1,254
    
    
    
    3,850Accounts payable and other liabilities

    
    
    100,395
    
    
    
    105,304Distributions payable
    
    
    28,224
    
    
    
    28,103Total liabilities
    
    
    1,522,973
    
    
    
    1,329,168Minority interest in operating partnership
    
    
    23,425
    
    
    
    24,990Minority interest in real estate partnerships
    
    
    44,905
    
    
    
    35,792Commitments and contingenciesPreferred shares $.01 par value, 20,000,000 shares
authorized, 3,773,585 shares issued and outstanding at June
30, 2005 and December 31, 2004
    
    
    100,000
    
    
    
    100,000Common shares $.01 par value, 100,000,000 shares authorized,
48,444,049 and 48,268,845 (includes 3,269,444 and 3,286,957
in treasury) shares issued and outstanding at June 30, 2005
and December 31, 2004, respectively
    
    
    484
    
    
    
    483Additional paid-in capital
    
    
    1,026,708
    
    
    
    1,020,917Common shares in treasury at cost 3,269,444 and 3,286,957
shares at June 30, 2005 and December 31, 2004, respectively
    
    
    (82,379
    )
    
    
    (82,694
    )Unearned compensation
    
    
    (5,700
    )
    
    
    (3,386
    )Accumulated other comprehensive income
    
    
    2,599
    
    
    
    (302
    )Distributions in excess of earnings
    
    
    (124,773
    )
    
    
    (91,429
    )Total shareholders equity
    
    
    916,939
    
    
    
    943,589Total liabilities and shareholders equity
    
    $
    2,508,242
    
    
    $
    2,333,539
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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenues:Rental income
    
    $
    96,707
    
    
    $
    87,622
    
    
    $
    191,746
    
    
    $
    171,920Service business and other income
    
    
    3,506
    
    
    
    2,928
    
    
    
    6,556
    
    
    
    6,416100,213
    
    
    
    90,550
    
    
    
    198,302
    
    
    
    178,336Operating expenses:Property operating and maintenance
    
    
    25,230
    
    
    
    22,015
    
    
    
    51,275
    
    
    
    43,392Real estate taxes
    
    
    10,856
    
    
    
    9,780
    
    
    
    21,715
    
    
    
    19,116General and administrative and personnel costs
    
    
    3,689
    
    
    
    2,785
    
    
    
    6,572
    
    
    
    5,370Expenses of service business
    
    
    2,892
    
    
    
    2,466
    
    
    
    5,547
    
    
    
    4,115Depreciation and amortization
    
    
    26,223
    
    
    
    22,467
    
    
    
    50,782
    
    
    
    43,75168,890
    
    
    
    59,513
    
    
    
    135,891
    
    
    
    115,744Other expenses:Interest expense
    
    
    19,720
    
    
    
    16,825
    
    
    
    37,595
    
    
    
    33,024Amortization of deferred financing costs
    
    
    572
    
    
    
    568
    
    
    
    1,290
    
    
    
    1,133Income from continuing operations before equity in (loss)/income of
unconsolidated joint ventures and subsidiaries, loss on investment in
securities, loss from impairment of mortgage loan and minority interests
    
    
    11,031
    
    
    
    13,644
    
    
    
    23,526
    
    
    
    28,435Equity in (loss)/income of unconsolidated joint ventures and subsidiaries
    
    
    (1,543
    )
    
    
    596
    
    
    
    (845
    )
    
    
    1,174Loss on investment in securities
    
    
    
    
    
    
    (420
    )
    
    
    
    
    
    
    (420
    )Loss from impairment of mortgage loan
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )
    
    
    Minority interests
    
    
    (172
    )
    
    
    (563
    )
    
    
    (677
    )
    
    
    (2,163
    )Income from continuing operations
    
    
    8,816
    
    
    
    13,257
    
    
    
    21,504
    
    
    
    27,026Discontinued operations:Income from discontinued operations
    
    
    
    
    
    
    942
    
    
    
    
    
    
    
    2,920Gain from disposition of discontinued operations
    
    
    2
    
    
    
    10,185
    
    
    
    17
    
    
    
    10,185Loss from debt defeasance related to sale of real estate
    
    
    
    
    
    
    (5,316
    )
    
    
    
    
    
    
    (5,316
    )Minority interests related to discontinued operations
    
    
    
    
    
    
    (182
    )
    
    
    
    
    
    
    (246
    )2
    
    
    
    5,629
    
    
    
    17
    
    
    
    7,543Income before (loss)/gain on sale of land and an interest in a real
estate partnership
    
    
    8,818
    
    
    
    18,886
    
    
    
    21,521
    
    
    
    34,569(Loss)/gain on sale of land and an interest in a real estate partnership
    
    
    
    
    
    
    (94
    )
    
    
    
    
    
    
    1,222Net income
    
    $
    8,818
    
    
    $
    18,792
    
    
    $
    21,521
    
    
    $
    35,791Preferred dividends
    
    
    (2,113
    )
    
    
    (2,113
    )
    
    
    (4,226
    )
    
    
    (5,826
    )Net income applicable to common shareholders
    
    $
    6,705
    
    
    $
    16,679
    
    
    $
    17,295
    
    
    $
    29,965Basic earnings per common share:Income from continuing operations applicable to common shareholders
    
    $
    0.15
    
    
    $
    0.25
    
    
    $
    0.39
    
    
    $
    0.51Discontinued operations
    
    
    
    
    
    
    0.13
    
    
    
    
    
    
    
    0.17Net income applicable to common shareholders  basic
    
    $
    0.15
    
    
    $
    0.38
    
    
    $
    0.39
    
    
    $
    0.68Weighted average number of common shares outstanding  basic
    
    
    44,902
    
    
    
    44,386
    
    
    
    44,893
    
    
    
    43,906Diluted earnings per common share:Income from continuing operations applicable to common shareholders
    
    $
    0.15
    
    
    $
    0.25
    
    
    $
    0.38
    
    
    $
    0.51Discontinued operations
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    0.17Net income applicable to common shareholders  diluted
    
    $
    0.15
    
    
    $
    0.37
    
    
    $
    0.38
    
    
    $
    0.68Weighted average number of common shares and common share equivalents
outstanding  diluted
    
    
    45,122
    
    
    
    44,527
    
    
    
    45,116
    
    
    
    44,094
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PRENTISS
PROPERTIES TRUST
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income
    
    $
    8,818
    
    
    $
    18,792
    
    
    $
    21,521
    
    
    $
    35,791Unrealized gains and losses on securities:Unrealized gains/(losses) arising during the period
    
    
    72
    
    
    
    2
    
    
    
    (18
    )
    
    
    28Unrealized gains and losses on interest rate hedges:Unrealized (losses)/gains arising during the period
    
    
    (5,000
    )
    
    
    6,911
    
    
    
    613
    
    
    
    2,337Reclassification of losses on qualifying cash flow hedges into earnings
    
    
    932
    
    
    
    2,827
    
    
    
    2,306
    
    
    
    5,397Other comprehensive income
    
    
    (3,996
    )
    
    
    9,740
    
    
    
    2,901
    
    
    
    7,762Comprehensive income
    
    $
    4,822
    
    
    $
    28,532
    
    
    $
    24,422
    
    
    $
    43,553
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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months EndedJune 30,2005
    
    2004Cash Flows from Operating Activities:Net income
    
    $
    21,521
    
    
    $
    35,791Adjustments to reconcile net income to net cash provided by operating activities:Minority interests
    
    
    677
    
    
    
    2,409Gain from disposition
    
    
    (17
    )
    
    
    (11,407
    )Loss on debt extinguishment/defeasance
    
    
    2,207
    
    
    
    5,316Loss on investment in securities
    
    
    
    
    
    
    420Loss on impairment of mortgage loan
    
    
    500
    
    
    
    Provision for doubtful accounts
    
    
    (229
    )
    
    
    (3,147
    )Depreciation and amortization
    
    
    50,782
    
    
    
    47,019Amortization of deferred financing costs
    
    
    1,290
    
    
    
    1,133Non-cash compensation
    
    
    1,888
    
    
    
    1,221Gain on derivative financial instruments
    
    
    (159
    )
    
    
    (171
    )Changes in assets and liabilities:Deferred charges and other assets
    
    
    1,109
    
    
    
    (2,279
    )Accounts receivable
    
    
    (4,515
    )
    
    
    (1,852
    )Escrowed cash
    
    
    754
    
    
    
    1,764Accounts payable and other liabilities
    
    
    (11,943
    )
    
    
    (9,978
    )Net cash provided by operating activities
    
    
    63,865
    
    
    
    66,239Cash Flows from Investing Activities:Development/redevelopment of real estate
    
    
    (14,483
    )
    
    
    (2,888
    )Purchase of real estate
    
    
    (154,691
    )
    
    
    (174,943
    )Capital expenditures for in-service properties
    
    
    (29,564
    )
    
    
    (21,187
    )Distributions in excess of earnings of unconsolidated joint ventures
    
    
    1,821
    
    
    
    208Proceeds from the sale of a joint venture interest in a real estate partnership
    
    
    
    
    
    
    69,338Proceeds received from repayments of notes receivable
    
    
    
    
    
    
    9,962Proceeds from the sale of investment
    
    
    
    
    
    
    1,107Proceeds from the sale of real estate
    
    
    
    
    
    
    78,999Investments in securities and insurance contracts
    
    
    (841
    )
    
    
    (666
    )Investments in unconsolidated subsidiaries
    
    
    (17,050
    )
    
    
    Net cash used in investing activities
    
    
    (214,808
    )
    
    
    (40,070
    )Cash Flows from Financing Activities:Net proceeds from sale of common shares
    
    
    847
    
    
    
    63,790Net proceeds from sale of treasury shares
    
    
    964
    
    
    
    Redemption of series E preferred units
    
    
    
    
    
    
    (10,000
    )Redemption of series B preferred units
    
    
    
    
    
    
    (95,000
    )Repurchase of treasury shares
    
    
    (275
    )
    
    
    Capital contribution from minority interest partners in consolidated joint ventures
    
    
    25,146
    
    
    
    9,334Repurchase of operating partnership common units
    
    
    
    
    
    
    (891
    )Distributions paid to limited partners
    
    
    (17,972
    )
    
    
    (2,856
    )Distributions paid to common shareholders
    
    
    (50,539
    )
    
    
    (48,695
    )Distributions paid to preferred shareholders
    
    
    (4,226
    )
    
    
    (4,226
    )Distributions paid to preferred unitholders
    
    
    
    
    
    
    (3,176
    )Proceeds from mortgages and notes payable
    
    
    599,300
    
    
    
    427,000Payment of debt prepayment cost
    
    
    (2,207
    )
    
    
    Repayments of mortgages and notes payable
    
    
    (398,111
    )
    
    
    (357,359
    )Net cash provided used in financing activities
    
    
    152,927
    
    
    
    (22,079
    )Net change in cash and cash equivalents
    
    
    1,984
    
    
    
    4,090Cash and cash equivalents, beginning of period
    
    
    8,586
    
    
    
    5,945Cash and cash equivalents, end of period
    
    $
    10,570
    
    
    $
    10,035Supplemental Cash Flow Information:Cash paid for interest
    
    $
    38,318
    
    
    $
    33,878
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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 1. The Organization
 Organization
  Series DConvertibleCommon
    
    
    
    
    
    Preferred(units in thousands)
    
    Units
    
    %
    
    Units
    
    %Prentiss Properties Trust
    
    
    45,238
    (1)
    
    
    97.21
    %
    
    
    3,774
    
    
    
    100.00
    %Third parties
    
    
    1,297
    
    
    
    2.79
    %
    
    
    
    
    
    
    0.00
    %Total
    
    
    46,535
    
    
    
    100.00
    %
    
    
    3,774
    
    
    
    100.00
    %
 
 (1)
    
    Includes 63,439 common shares held by the company pursuant to a deferred
compensation plan. The shares are accounted for as common shares in treasury on the
consolidated balance sheet.  Number of
    
    Net RentableBuildings
    
    Square Feet(in thousands)Office properties
    
    
    101
    
    
    
    16,617Industrial properties
    
    
    27
    
    
    
    2,203Total
    
    
    128
    
    
    
    18,820
    Reportable Segment
    
    MarketMid-Atlantic
    
    Metropolitan Washington D.C.Midwest
    
    Chicago, Suburban DetroitSouthwest
    
    Dallas/Fort Worth, Austin, DenverNorthern California
    
    Oakland, Silicon ValleySouthern 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
   Three Months Ended(in thousands)
    
    June 30, 2005Land
    
    $
    14,544Buildings and improvements
    
    $
    70,784Tenant improvements and leasing commissions
    
    $
    12,385Above/(below) market lease value
    
    $
    (3,614
    )Other intangible assets
    
    $
    9,123
   Other Transactions
    10




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PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
    2. Basis of Presentation
  3. Share-Based Compensation
    11




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PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(amounts in thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004Net income applicable to common shareholders as reported
    
    $
    6,705
    
    
    $
    16,679
    
    
    $
    17,295
    
    
    $
    29,965Add: Share-based employee compensation expense included therein
    
    
    1,089
    
    
    
    612
    
    
    
    2,056
    
    
    
    1,112Deduct: Total share-based employee compensation expense
determined under fair value method for all awards
    
    
    (1,090
    )
    
    
    (633
    )
    
    
    (2,059
    )
    
    
    (1,154
    )Pro Forma net income applicable to common shareholders
    
    $
    6,704
    
    
    $
    16,658
    
    
    $
    17,292
    
    
    $
    29,923Earnings per share:Basic  as reported
    
    $
    0.15
    
    
    $
    0.38
    
    
    $
    0.39
    
    
    $
    0.68Basic  pro forma
    
    $
    0.15
    
    
    $
    0.38
    
    
    $
    0.39
    
    
    $
    0.68Diluted  as reported
    
    $
    0.15
    
    
    $
    0.37
    
    
    $
    0.38
    
    
    $
    0.68Diluted  pro forma
    
    $
    0.15
    
    
    $
    0.37
    
    
    $
    0.38
    
    
    $
    0.68
  4. Earnings per Share
  12




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PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(in thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004Reconciliation of the numerator used for basic earnings per shareIncome from continuing operations
    
    $
    8,816
    
    
    $
    13,257
    
    
    $
    21,504
    
    
    $
    27,026Preferred dividends
    
    
    (2,113
    )
    
    
    (2,113
    )
    
    
    (4,226
    )
    
    
    (5,826
    )(Loss)/gain on sale of land and an interest in a real estate partnership
    
    
    
    
    
    
    (94
    )
    
    
    
    
    
    
    1,222Income from continuing operations applicable to common shareholders
    
    $
    6,703
    
    
    $
    11,050
    
    
    $
    17,278
    
    
    $
    22,422Discontinued operations
    
    
    2
    
    
    
    5,629
    
    
    
    17
    
    
    
    7,543Net income applicable to common shareholders
    
    $
    6,705
    
    
    $
    16,679
    
    
    $
    17,295
    
    
    $
    29,965Reconciliation of the denominator used for basic earnings per shareWeighted average common shares outstanding
    
    
    44,902
    
    
    
    44,386
    
    
    
    44,893
    
    
    
    43,906Basic earnings per share
    
    $
    0.15
    
    
    $
    0.38
    
    
    $
    0.39
    
    
    $
    0.68Reconciliation of the numerator used for dilutive earnings per shareIncome from continuing operations
    
    $
    8,816
    
    
    $
    13,257
    
    
    $
    21,504
    
    
    $
    27,026Preferred dividends
    
    
    (2,113
    )
    
    
    (2,113
    )
    
    
    (4,226
    )
    
    
    (5,826
    )(Loss)/gain on sale of land and an interest in a real estate partnership
    
    
    
    
    
    
    (94
    )
    
    
    
    
    
    
    1,222Income from continuing operations applicable to common shareholders
    
    $
    6,703
    
    
    $
    11,050
    
    
    $
    17,278
    
    
    $
    22,422Discontinued operations
    
    
    2
    
    
    
    5,629
    
    
    
    17
    
    
    
    7,543Net income applicable to common shareholders
    
    $
    6,705
    
    
    $
    16,679
    
    
    $
    17,295
    
    
    $
    29,965Reconciliation of the denominator used for dilutive earnings per share(1)Weighted average common shares outstanding
    
    
    44,902
    
    
    
    44,386
    
    
    
    44,893
    
    
    
    43,906Dilutive options
    
    
    86
    
    
    
    82
    
    
    
    98
    
    
    
    133Dilutive share grants
    
    
    134
    
    
    
    59
    
    
    
    125
    
    
    
    55Weighted average common shares and common share equivalents outstanding
(1)
    
    
    45,122
    
    
    
    44,527
    
    
    
    45,116
    
    
    
    44,094Diluted earnings per share
    
    $
    0.15
    
    
    $
    0.37
    
    
    $
    0.38
    
    
    $
    0.68
 
 (1)
    
    The following securities were not included in the diluted earnings per share
computation because they would have had an antidilutive effect.
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Antidilutive Securities (in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Series D Convertible Preferred Shares
    
    
    3,774
    
    
    
    3,774
    
    
    
    3,774
    
    
    
    3,774
 5. Deferred Charges and Other Assets, Net
  (in thousands)June 30,
    
    December 31,2005
    
    2004Deferred leasing costs and tenant improvements
    
    $
    350,344
    
    
    $
    311,320In-place lease values
    
    
    39,852
    
    
    
    27,910Above market lease values
    
    
    5,624
    
    
    
    5,666Deferred financing costs
    
    
    15,535
    
    
    
    14,568Prepaids and other assets
    
    
    8,787
    
    
    
    11,610420,142
    
    
    
    371,074Less: accumulated amortization
    
    
    (132,737
    )
    
    
    (110,791
    )$
    287,405
    
    
    $
    260,283
 13




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
  6. Notes Receivable
  7. Accounts Receivable, Net
  (in thousands)June 30,
    
    December 31,2005
    
    2004Rents and services
    
    $
    9,272
    
    
    $
    10,449Accruable rental income
    
    
    56,074
    
    
    
    50,721Other
    
    
    575
    
    
    
    80965,921
    
    
    
    61,979Less: allowance for doubtful accounts
    
    
    (4,649
    )
    
    
    (6,207
    )$
    61,272
    
    
    $
    55,772
 14




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 8. Investments in Unconsolidated Joint Ventures and Subsidiaries
  Summary of Financial Position:
    
    Total Assets
    
    Total Debt(4)
    
    Total Equity
    
    Companys InvestmentJune 30,
    
    Dec. 31,
    
    June 30,
    
    Dec. 31,
    
    June 30,
    
    Dec. 31,
    
    June 30,
    
    Dec. 31,(in thousands)
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004Broadmoor Austin
Associates(1)
    
    $
    96,570
    
    
    $
    97,962
    
    
    $
    128,487
    
    
    $
    131,979
    
    
    $
    (34,030
    )
    
    $
    (34,814
    )
    
    $
    4,482
    
    
    $
    4,217Tysons International
Partners(2)
    
    
    
    
    
    
    89,268
    
    
    
    
    
    
    
    59,113
    
    
    
    
    
    
    
    28,914
    
    
    
    
    
    
    
    8,726Other Investments(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,360
    
    
    
    $
    6,842
    
    
    $
    12,943
 Summary of Operations for the Three
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companys Share ofMonths Ended June 30, 2005 and 2004:
    
    Total Revenue
    
    Net Income
    
    Net Income/(Loss)(in thousands)
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004Broadmoor Austin Associates
    
    $
    5,645
    
    
    $
    5,018
    
    
    $
    1,369
    
    
    $
    1,254
    
    
    $
    685
    
    
    $
    627Tysons International Partners(2)
    
    
    1,070
    
    
    
    2,876
    
    
    
    (8,912
    )
    
    
    (124
    )
    
    
    (2,228
    )
    
    
    (31
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,543
    )
    
    $
    596Summary of Operations for the Six
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companys Share ofMonths Ended June 30, 2005 and 2004:
    
    Total Revenue
    
    Net Income
    
    Net Income/(Loss)(in thousands)
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004Broadmoor Austin Associates
    
    $
    11,292
    
    
    $
    10,035
    
    
    $
    2,742
    
    
    $
    2,474
    
    
    $
    1,371
    
    
    $
    1,237Tysons International Partners(2)
    
    
    4,228
    
    
    
    5,819
    
    
    
    (8,864
    )
    
    
    (250
    )
    
    
    (2,216
    )
    
    
    (63
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (845
    )
    
    $
    1,174
 
 (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)
    
    At December 31, 2004, we owned a 25% non-controlling interest in Tysons
International Partners, an entity, which owns two office properties containing 456,000 net
rentable square feet in the Northern Virginia area. On May 2, 2005, we acquired the remaining
75% interest in the properties owned by the joint venture. Prior to our acquisition of the
remaining 75% for $103.2 million, we contributed to the joint venture $14.7 million
representing our pro rata share of the outstanding indebtedness on the properties. As a
condition of closing, out of proceeds from the sale and our capital contribution, the joint
venture prepaid the outstanding indebtedness collateralized by the properties. The prepayment
amount totaled $67.6 million of which $8.8 million represented a prepayment penalty. Net
income for Tysons International Partners includes the $8.8 million loss from debt prepayment
but excludes the gain on sale resulting from our acquisition of the remaining 75% interest in
the joint venture.(3)
    
    Represents an interest in Prentiss Properties Capital Trust I and Prentiss
Properties Capital Trust II that we account for using the cost method of accounting.(4)
    
    The mortgage debt, all of which is non-recourse, is collateralized by the individual
real estate property or properties within each venture.
 15




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 9. Mortgages and Notes Payable
   (in thousands)June 30,
    
    December 31,Description
    
    2005
    
    2004
    
    Amortization
    
    Interest Rate(1)
    
    MaturityRevolving credit facility
    
    $
    255,000
    
    
    $217,500
    
    None
    
    LIBOR+1.350%
    
    February 19, 2007PPREFI portfolio loan (2)
    
    
    180,100
    
    
    180,100
    
    None
    
    7.58%
    
    February 26, 2007High Bluffs construction loan
    
    
    19,019
    
    
    8,929
    
    None
    
    LIBOR+1.400%
    
    September 1, 2007Collateralized term loan  Union Bank of
Calif.(3)
    
    
    30,000
    
    
    30,000
    
    None
    
    LIBOR+1.150%
    
    September 30, 2007Unsecured term loan  Eurohypo I
    
    
    100,000
    
    
    100,000
    
    None
    
    LIBOR+1.375%
    
    May 22, 2008Unsecured term loan  Commerzbank
    
    
    75,000
    
    
    75,000
    
    None
    
    LIBOR+1.350%
    
    March 15, 2009Unsecured term loan  Eurohypo II
    
    
    13,620
    
    
    13,760
    
    30 yr
    
    7.46%
    
    July 15, 2009Collateralized term loan  Mass Mutual (4)
    
    
    85,000
    
    
    85,000
    
    None
    
    LIBOR+0.850%
    
    August 1, 2009Prentiss Properties Capital Trust I Debenture
    
    
    52,836
    
    
    
    
    None
    
    LIBOR+1.250%
    
    March 30, 2035Prentiss Properties Capital Trust II Debenture
    
    
    25,774
    
    
    
    
    None
    
    LIBOR+1.250%
    
    June 30, 2035Variable rate mortgage notes payable (5)
    
    
    61,600
    
    
    96,700
    
    None
    
    (6)
    
    (6)Fixed rate mortgage notes payable (7)
    
    
    495,151
    
    
    384,922
    
    (8)
    
    (8)
    
    (8)$
    1,393,100
    
    
    $1,191,911
 (1)
    
    All of our variable rate loans are based on 30-day LIBOR with the exception of
our Prentiss Properties Capital Trust I & II Debentures which are based on 90-day LIBOR. 30-day
and 90-day LIBOR were 3.34% and 3.52% at June 30, 2005, respectively.(2)
    
    The PPREFI portfolio loan is collateralized by 36 properties with an
aggregate net book value of real estate of $233.9 million.(3)
    
    The term loan is collateralized by two properties with an aggregate
net book value of real estate of $18.1 million.(4)
    
    The term loan is collateralized by 9 properties with an aggregate net
book value of real estate of $106.7 million.(5)
    
    The variable rate mortgage loans are collateralized by 5 buildings
with an aggregate net book value of $84.6 million.(6)
    
    Interest rates on our variable rate mortgages range from 30-day
LIBOR plus 110 basis points to 30-day LIBOR plus 130 basis points. Maturity dates range from
July 2009 through May 2010.(7)
    
    The fixed rate mortgage loans are collateralized by 23 buildings with
an aggregate net book value of $553.7 million.(8)
    
    The payments on our fixed rate mortgages are based on amortization
periods ranging between 18 and 30 years. The effective interest rates for our fixed rate
mortgages range from 3.70% to 8.05% with a weighted average effective interest rate of 6.77%
at June 30, 2005. Maturity dates range from November 2005 through April 2015 with a weighted
average maturity of 6.0 years from June 30, 2005.
   (in thousands)2005
    
    $
    48,1972006
    
    
    9,7042007
    
    
    496,2012008
    
    
    107,0942009
    
    
    251,764Thereafter
    
    
    480,140$
    1,393,100
 16




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 10. Interest Rate Hedges
         17




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
  Swap Rate ReceivedNotional
    
    Swap Rate Paid
    
    (Variable) atAmount
    
    (Fixed)
    
    June 30, 2005
    
    Swap Maturity
    
    Fair Value(in thousands)$25 million
    
    
    4.345
    %
    
    
    3.34
    %
    
    July 2005
    
    $
    (7
    )$15 million
    
    
    4.345
    %
    
    
    3.34
    %
    
    July 2005
    
    
    (4
    )$20 million
    
    
    5.985
    %
    
    
    3.34
    %
    
    March 2006
    
    
    (304
    )$30 million
    
    
    5.990
    %
    
    
    3.34
    %
    
    March 2006
    
    
    (456
    )$50 million
    
    
    2.270
    %
    
    
    3.34
    %
    
    August 2007
    
    
    1,619$25 million
    
    
    2.277
    %
    
    
    3.34
    %
    
    August 2007
    
    
    806$70 million(1)
    
    
    4.139
    %
    
    
    3.34
    %
    
    August 2008
    
    
    (470
    )$30 million
    
    
    3.857
    %
    
    
    3.34
    %
    
    September 2008
    
    
    58$30 million
    
    
    3.819
    %
    
    
    3.34
    %
    
    October 2008
    
    
    93$20 million
    
    
    3.819
    %
    
    
    3.34
    %
    
    October 2008
    
    
    62$50 million
    
    
    3.935
    %
    
    
    3.34
    %
    
    May 2009
    
    
    23$30 million
    
    
    3.443
    %
    
    
    3.34
    %
    
    October 2009
    
    
    625$20 million (1)
    
    
    4.000
    %
    
    
    3.34
    %
    
    February 2010
    
    
    (13
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,032
 
 (1)
    
    The interest rate swap agreement was executed by Prentiss Office Investors,
L.P., a partnership which is 51% owned by our operating partnership.
  11. Accounts Payable and Other Liabilities
  (in thousands)June 30,
    
    December 31,2005
    
    2004Accrued interest expense
    
    $
    6,454
    
    
    $
    5,685Accrued real estate taxes
    
    
    25,132
    
    
    
    28,178Advance rents and deposits
    
    
    20,424
    
    
    
    20,010Deferred compensation liability
    
    
    7,435
    
    
    
    6,516Below market lease values, net of amortization(1)
    
    
    11,156
    
    
    
    8,319Other liabilities
    
    
    29,794
    
    
    
    36,596$
    100,395
    
    
    $
    105,304
 
 (1)
    
    Accumulated amortization for below market lease values as of June 30, 2005
and December 31, 2004 was $3.0 million and $2.0 million, respectively. We record below
market lease value amortization in the line item rental income.
 12. Distributions
  18




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 13. Supplemental Disclosure of Non-Cash Activities
      14. Segment Information
  For the Three Months Ended June 30, 2005
(in thousands)
 CorporateNotMid-
    
    
    
    
    
    
    
    
    
    Northern
    
    Southern
    
    Total
    
    Allocable To
    
    ConsolidatedAtlantic
    
    Midwest
    
    Southwest
    
    California
    
    California
    
    Segments
    
    Segments
    
    TotalRevenues
    
    $
    28,064
    
    
    $
    16,681
    
    
    $
    32,053
    
    
    $
    12,287
    
    
    $
    10,338
    
    
    $
    99,423
    
    
    $
    790
    
    
    $
    100,213Income from continuing
operations
    
    $
    9,433
    
    
    $
    4,241
    
    
    $
    10,982
    
    
    $
    3,799
    
    
    $
    4,043
    
    
    $
    32,498
    
    
    $
    (23,682
    )
    
    $
    8,816Additions to long-lived assets:Development/redevelopment
    
    $
    55
    
    
    $
    589
    
    
    $
    725
    
    
    $
    991
    
    
    $
    6,058
    
    
    $
    8,418
    
    
    $
    
    
    
    $
    8,418Purchase of real estate
    
    
    103,222
    
    
    
    
    
    
    
    
    
    
    
    1,885
    
    
    
    
    
    
    
    105,107
    
    
    
    
    
    
    
    105,107Capital expenditures for
in-service properties
    
    
    4,630
    
    
    
    763
    
    
    
    6,863
    
    
    
    514
    
    
    
    1,749
    
    
    
    14,519
    
    
    
    
    
    
    
    14,519Total additions
    
    $
    107,907
    
    
    $
    1,352
    
    
    $
    7,588
    
    
    $
    3,390
    
    
    $
    7,807
    
    
    $
    128,044
    
    
    $
    
    
    
    $
    128,044Investment balance in equity
method investees
    
    $
    
    
    
    $
    
    
    
    $
    4,482
    
    
    $
    
    
    
    $
    
    
    
    $
    4,482
    
    
    $
    
    
    
    $
    4,482Assets
    
    $
    780,343
    
    
    $
    432,473
    
    
    $
    700,319
    
    
    $
    280,518
    
    
    $
    285,347
    
    
    $
    2,479,000
    
    
    $
    29,242
    
    
    $
    2,508,242
 19




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 For the Three Months Ended June 30, 2004
(in thousands)
 CorporateNotMid-
    
    
    
    
    
    
    
    
    
    Northern
    
    Southern
    
    Total
    
    Allocable To
    
    ConsolidatedAtlantic
    
    Midwest
    
    Southwest
    
    California
    
    California
    
    Segments
    
    Segments
    
    TotalRevenues
    
    $
    24,241
    
    
    $
    14,419
    
    
    $
    32,729
    
    
    $
    8,338
    
    
    $
    10,291
    
    
    $
    90,018
    
    
    $
    532
    
    
    $
    90,550Income from continuing
operations
    
    $
    11,291
    
    
    $
    4,695
    
    
    $
    11,147
    
    
    $
    3,351
    
    
    $
    3,694
    
    
    $
    34,178
    
    
    $
    (20,921
    )
    
    $
    13,257Additions to long-lived assets:Development/redevelopment
    
    $
    15
    
    
    $
    459
    
    
    $
    17
    
    
    $
    1
    
    
    $
    881
    
    
    $
    1,373
    
    
    $
    
    
    
    $
    1,373Purchase of Real Estate
    
    
    
    
    
    
    
    
    
    
    123,323
    
    
    
    34,780
    
    
    
    17,724
    
    
    
    175,827
    
    
    $
    
    
    
    
    175,827Capital expenditures for
in- service properties
    
    
    2,286
    
    
    
    1,301
    
    
    
    3,681
    
    
    
    1,667
    
    
    
    1,498
    
    
    
    10,433
    
    
    
    
    
    
    
    10,433Total additions
    
    $
    2,301
    
    
    $
    1,760
    
    
    $
    127,021
    
    
    $
    36,448
    
    
    $
    20,103
    
    
    $
    187,633
    
    
    $
    
    
    
    $
    187,633Investment balance in equity
method investees
    
    $
    8,764
    
    
    $
    
    
    
    $
    4,010
    
    
    $
    
    
    
    $
    
    
    
    $
    12,774
    
    
    $
    
    
    
    $
    12,774Assets
    
    $
    611,022
    
    
    $
    414,105
    
    
    $
    753,585
    
    
    $
    215,255
    
    
    $
    259,191
    
    
    $
    2,253,158
    
    
    $
    28,516
    
    
    $
    2,281,674
 For the Six Months Ended June 30, 2005
(in thousands)
 CorporateNotMid-
    
    
    
    
    
    
    
    
    
    Northern
    
    Southern
    
    Total
    
    Allocable To
    
    ConsolidatedAtlantic
    
    Midwest
    
    Southwest
    
    California
    
    California
    
    Segments
    
    Segments
    
    TotalRevenues
    
    $
    54,634
    
    
    $
    33,421
    
    
    $
    64,138
    
    
    $
    24,527
    
    
    $
    20,265
    
    
    $
    196,985
    
    
    $
    1,317
    
    
    $
    198,302Income from continuing
operations
    
    $
    21,185
    
    
    $
    8,500
    
    
    $
    20,582
    
    
    $
    8,194
    
    
    $
    7,616
    
    
    $
    66,077
    
    
    $
    (44,573
    )
    
    $
    21,504Additions to long-lived assets:Development/redevelopment
    
    $
    58
    
    
    $
    797
    
    
    $
    738
    
    
    $
    1,237
    
    
    $
    11,653
    
    
    $
    14,483
    
    
    $
    
    
    
    $
    14,483Purchase of real estate
    
    
    155,040
    
    
    
    
    
    
    
    
    
    
    
    1,885
    
    
    
    
    
    
    
    156,925
    
    
    
    
    
    
    
    156,925Capital expenditures for
in- service properties
    
    
    13,154
    
    
    
    1,332
    
    
    
    11,209
    
    
    
    722
    
    
    
    3,147
    
    
    
    29,564
    
    
    
    
    
    
    
    29,564Total additions
    
    $
    168,252
    
    
    $
    2,129
    
    
    $
    11,947
    
    
    $
    3,844
    
    
    $
    14,800
    
    
    $
    200,972
    
    
    $
    
    
    
    $
    200,972
 For the Six Months Ended June 30, 2004
(in thousands)
 CorporateNotMid-
    
    
    
    
    
    
    
    
    
    Northern
    
    Southern
    
    Total
    
    Allocable To
    
    ConsolidatedAtlantic
    
    Midwest
    
    Southwest
    
    California
    
    California
    
    Segments
    
    Segments
    
    TotalRevenues
    
    $
    48,435
    
    
    $
    28,575
    
    
    $
    63,156
    
    
    $
    16,786
    
    
    $
    20,094
    
    
    $
    177,046
    
    
    $
    1,290
    
    
    $
    178,336Income from continuing
operations
    
    $
    21,572
    
    
    $
    8,170
    
    
    $
    23,096
    
    
    $
    7,255
    
    
    $
    6,752
    
    
    $
    66,845
    
    
    $
    (39,819
    )
    
    $
    27,026Additions to long-lived assets:Development/redevelopment
    
    $
    15
    
    
    $
    1,714
    
    
    $
    179
    
    
    $
    1
    
    
    $
    979
    
    
    $
    2,888
    
    
    $
    
    
    
    $
    2,888Purchase of real estate
    
    
    
    
    
    
    
    
    
    
    123,323
    
    
    
    34,780
    
    
    
    17,724
    
    
    
    175,827
    
    
    
    
    
    
    
    175,827Capital expenditures for
in- service properties
    
    
    3,890
    
    
    
    4,529
    
    
    
    7,306
    
    
    
    2,962
    
    
    
    2,500
    
    
    
    21,187
    
    
    
    
    
    
    
    21,187Total additions
    
    $
    3,905
    
    
    $
    6,243
    

    
    $
    130,808
    
    
    $
    37,743
    
    
    $
    21,203
    
    
    $
    199,902
    
    
    $
    
    
    
    $
    199,902
 20




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 15. Recently Issued Accounting Pronouncements
        16. Pro Forma
   21




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
  Six Months EndedPro Forma
    
    June 30,(in thousands)
    
    2005(1)
    
    2004Total revenue
    
    $
    203,113
    
    
    $
    186,694Income applicable to common shareholders before discontinued operations
    
    
    19,071
    
    
    
    22,332Net income applicable to common shareholders
    
    
    19,088
    
    
    
    29,875Basic earnings per share:Income applicable to common shareholders before discontinued operations
    
    $
    0.43
    
    
    $
    0.51Net income applicable to common shareholders
    
    $
    0.43
    
    
    $
    0.68Weighted average number of common shares outstanding
    
    
    44,893
    
    
    
    43,906Diluted earnings per share:Income applicable to common shareholders before discontinued operations
    
    $
    0.42
    
    
    $
    0.51Net income applicable to common shareholders
    
    $
    0.42
    
    
    $
    0.68Weighted average number of common shares and common share equivalents outstanding
    
    
    45,116
    
    
    
    44,094
 
 (1)
    
    The pro forma results of operations for the six months ended June 30, 2005
excludes a $2.2 million prepayment penalty due to its non-recurring nature. The $2.2
million loss is included in the line item equity in (loss)/income of unconsolidated joint
ventures and subsidiaries on our consolidated statement of income during the three and six
months ended June 30, 2005.
 17. Subsequent Events
     22




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##### Table of Contents



PRENTISS
PROPERTIES TRUST
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
    23




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   Number of
    
    Net RentableBuildings(1)
    
    Square Feet(2)(in thousands)Office properties
    
    
    108
    
    
    
    17,729Industrial properties
    
    
    27
    
    
    
    2,203Total
    
    
    135
    
    
    
    19,932
 
 (1)
    
    Includes 7 buildings owned through a joint venture, the operations of
which are accounted for using the equity method of accounting and 14 buildings which
are owned through a joint venture, the operations of which are consolidated.(2)
    
    Includes 1.1 million square feet in the 7 buildings owned by our
unconsolidated joint venture of which we own a 50% non-controlling interest and 1.2
million square feet in the 14 buildings owned by our consolidated joint venture of
which we own a 51% controlling interest.
      24




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##### Table of Contents



Region
    
    Revenues
    
    Market(in thousands)Mid-Atlantic
    
    $
    28,064
    
    
    Metropolitan Washington D.C.Midwest
    
    
    16,681
    
    
    Chicago, Suburban DetroitSouthwest
    

    
    32,053
    
    
    Dallas/Fort Worth, Austin, DenverNorthern California
    
    
    12,287
    
    
    Oakland, Silicon ValleySouthern California
    
    
    10,338
    
    
    San Diego, Los AngelesTotal
    
    $
    99,423
   Square Feet
    
    
    
    
    
    
    
    
    
    
    
    
    
    Northern
    
    Southern(in thousands)
    
    Mid-Atlantic
    
    Midwest
    
    Southwest
    
    California
    
    California
    
    Total2005
    
    
    165
    
    
    
    48
    
    
    
    203
    
    
    
    74
    
    
    
    383
    
    
    
    873
    
    
    
    4.9
    %2006
    
    
    672
    
    
    
    435
    
    
    
    781
    
    
    
    95
    
    
    
    264
    
    
    
    2,247
    
    
    
    12.5
    %2007
    
    
    485
    
    
    
    166
    
    
    
    862
    
    
    
    235
    
    
    
    606
    
    
    
    2,354
    
    
    
    13.1
    %2008
    
    
    320
    
    
    
    568
    
    
    
    482
    
    
    
    206
    
    
    
    325
    
    
    
    1,901
    
    
    
    10.6
    %2009
    
    
    600
    
    
    
    226
    
    
    
    856
    
    
    
    188
    
    
    
    417
    
    
    
    2,287
    
    
    
    12.8
    %Thereafter
    
    
    1,895
    
    
    
    1,445
    
    
    
    3,619
    
    
    
    874
    
    
    
    437
    
    
    
    8,270
    
    
    
    46.1
    %4,137
    
    
    
    2,888
    
    
    
    6,803
    
    
    
    1,672
    
    
    
    2,432
    
    
    
    17,932
    
    
    
    100.0
    %
 25




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##### Table of Contents



Second Quarter 2005 Transactions
 Real Estate Transactions
   Three Months Ended(in thousands)
    
    June 30, 2005Land
    
    $
    14,544Buildings and improvements
    
    $
    70,784Tenant improvements and leasing commissions
    
    $
    12,385Above/(below) market lease value
    
    $
    (3,614
    )Other intangible assets
    
    $
    9,123
   Other Transactions
    26




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##### Table of Contents



Critical Accounting Policies and Estimates
   (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
  27




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##### Table of Contents



Allowance for doubtful accounts
  Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,(in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Decrease in allowance for doubtful accounts
    
    $
    (1,702
    )
    
    $
    (2,119
    )
    
    $
    (1,558
    )
    
    $
    (3,147
    )Amounts written off during the period
    
    $
    (1,446
    )    (1)
    
    $
    (2,163
    )
    
    $
    (1,829
    )(1)
    
    $
    (4,078
    )Allowance for doubtful accounts at period end
    
    $
    4,649
    
    
    $
    6,839
    
    
    $
    4,649
    
    
    $
    6,839
 
 (1)
    
    Includes a $500,000 loss from impairment of mortgage loan recognized
effective June 30, 2005.
 Depreciable lives applied to real estate assets and improvements to real estate assets
  Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,(in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Real estate depreciation and amortization from continuing operations
    
    $
    26,045
    
    
    $
    22,344
    
    
    $
    50,452
    
    
    $
    43,499Real estate depreciation and amortization from discontinued operations
    
    $
    
    
    
    $
    1,441
    
    
    $
    
    
    
    $
    3,268
 Initial recognition, measurement and allocation of the cost of real estate acquired
    28




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##### Table of Contents



Six Months Ended(in thousands)
    
    June 30, 2005Land
    
    $
    24,884Buildings and improvements
    
    $
    107,011Tenant improvements and leasing commissions
    
    $
    15,922Above/(below) market lease value
    
    $
    (3,883
    )Other intangible assets
    
    $
    12,991
 Fair value of derivative instruments
     29




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##### Table of Contents



Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,(in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Net cash paid under our interest rate swap agreements
    
    $
    1,087
    
    
    $
    2,742
    
    
    $
    2,573
    
    
    $
    5,321Fair value of interest rate swaps at period end
    
    $
    2,032
    
    
    $
    (178
    )
    
    $
    2,032
    
    
    $
    (178
    )
 30




---



##### Table of Contents



Results of Operations
 Comparison of the three months ended June 30, 2005 to the three months ended June 30, 2004.
  Three Months EndedConsolidated Statements of Income
    
    June 30,(in thousands)
    
    2005
    
    2004Revenues:Rental income
    
    $
    96,707
    
    
    $
    87,622Service business and other income
    
    
    3,506
    
    
    
    2,928100,213
    
    
    
    90,550Operating expenses:Property operating and maintenance
    
    
    25,230
    
    
    
    22,015Real estate taxes
    
    
    10,856
    
    
    
    9,780General and administrative and personnel costs
    
    
    3,689
    
    
    
    2,785Expenses of service business
    
    
    2,892
    
    
    
    2,466Depreciation and amortization
    
    
    26,223
    
    
    
    22,46768,890
    
    
    
    59,513Other expenses:Interest expense
    
    
    19,720
    
    
    
    16,825Amortization of deferred financing costs
    
    
    572
    
    
    
    568Income from continuing operations before equity in (loss)/income of
unconsolidated joint ventures and subsidiaries, loss on investment in
securities, loss from impairment of mortgage loan and minority interests
    
    
    11,031
    
    
    
    13,644Equity in (loss)/income of unconsolidated joint ventures and subsidiaries
    
    
    (1,543
    )
    
    
    596Loss on investment in securities
    
    
    
    
    
    
    (420
    )Loss from impairment of mortgage loan
    
    
    (500
    )
    
    
    Minority interests
    
    
    (172
    )
    
    
    (563
    )Income from continuing operations
    
    
    8,816
    
    
    
    13,257Discontinued operations:Income from discontinued operations
    
    
    
    
    
    
    942Gain from disposition of discontinued operations
    
    
    2
    
    
    
    10,185Loss from debt defeasance related to sale of real estate
    
    
    
    
    
    
    (5,316
    )Minority interests related to discontinued operations
    
    
    
    
    
    
    (182
    )2
    
    
    
    5,629Income before loss on sale
    
    
    8,818
    
    
    
    18,886Loss on sale
    
    
    
    
    
    
    (94
    )Net income
    
    $
    8,818
    
    
    $
    18,792Preferred dividends
    
    
    (2,113
    )
    
    
    (2,113
    )Net income applicable to common shareholders
    
    $
    6,705
    
    
    $
    16,679
  Acquisition of Real Estate.
 31




---



##### Table of Contents



Net Rentable
    
    AcquisitionMonth of
    
    Number of
    
    Square Feet(1)
    
    PriceAcquired Properties
    
    Segment
    
    Market
    
    Acquisition
    
    Buildings
    
    (in thousands)
    
    (in millions)Cityplace Center
    
    Southwest
    
    Dallas/Ft. Worth
    
    April 2004
    
    1
    
    
    
    1,296
    
    
    $
    123.3The Bluffs(2)
    
    Southern Calif.
    
    San Diego
    
    May 2004
    
    1
    
    
    
    69
    
    
    
    17.75500 Great America Parkway
    
    Northern Calif.
    
    Silicon Valley
    
    May 2004
    
    3
    
    
    
    306
    
    
    
    34.8Lakeside Point I & II(2)
    
    Midwest
    
    Chicago
    
    Oct. 2004
    
    2
    
    
    
    198
    
    
    
    32.62101 Webster
    
    Northern Calif.
    
    Oakland
    
    Oct. 2004
    
    1
    
    
    
    459
    
    
    
    65.7Presidents Plaza(2)
    
    Mid-Atlantic
    
    Metro Wash., DC
    
    Feb. 2005
    
    2
    
    
    
    197
    
    
    
    51.81676 International Drive(3)
    
    Mid-Atlantic
    
    Metro Wash., DC
    
    May 2005
    
    1
    
    
    
    295
    
    
    
    83.88260 Greensboro Drive(3)
    
    Mid-Atlantic
    
    Metro Wash., DC
    
    May 2005
    
    1
    
    
    
    161
    
    
    
    19.412
    
    
    
    2,981
    
    
    $
    429.1
 (1)
    
    Net rentable square feet defines the area of a property for which a tenant is
required to pay rent, which includes the actual rentable area plus a portion of the common
areas of the property allocated to a tenant.(2)
    
    Acquisitions were acquired by Prentiss Office Investors, L.P. which is owned 51%
by our operating partnership and its affiliates and 49% by Stichting Pensioenfond ABP. The
net rentable square feet and acquisition price is presented at 100%. Each partner
contributed their pro rata share of the purchase price of each property to Prentiss Office
Investors, L.P. prior to acquisition.(3)
    
    Our operating partnership held a 25% interest in the 1676 International Drive and
8260 Greensboro Drive properties prior to our acquisition of the remaining interest in May
2005. Purchase price represents amount paid for the 75% interest not previously owned.
 Real Estate Dispositions.
  Rental Income.
 Service Business and Other Income.
 Property Operating and Maintenance.
 Real Estate Taxes.
 General and Administrative and Personnel Costs.
 Expense of Service Business.
 Depreciation and Amortization.
 32




---



##### Table of Contents



Interest Expense.
 Equity in (loss)/income of unconsolidated joint ventures and subsidiaries
 Loss on Investment in Securities.
 Loss from impairment of mortgage loan.
 Minority Interests.
 Discontinued Operations.
 33




---



##### Table of Contents



Results of Operations
 Comparison of the six months ended June 30, 2005 to the six months ended June 30, 2004.
  Six Months EndedConsolidated Statements of Income
    
    June 30,(in thousands)
    
    2005
    
    2004Revenues:Rental income
    
    $
    191,746
    
    
    $
    171,920Service business and other income
    
    
    6,556
    
    
    
    6,416198,302
    
    
    
    178,336Operating expenses:Property operating and maintenance
    
    
    51,275
    
    
    
    43,392Real estate taxes
    
    
    21,715
    
    
    
    19,116General and administrative and personnel costs
    
    
    6,572
    
    
    
    5,370Expenses of service business
    
    
    5,547
    
    
    
    4,115Depreciation and amortization
    
    
    50,782
    
    
    
    43,751135,891
    

    
    
    115,744Other expenses:Interest expense
    
    
    37,595
    
    
    
    33,024Amortization of deferred financing costs
    
    
    1,290
    
    
    
    1,133Income from continuing operations before equity in (loss)/income of
unconsolidated joint ventures and subsidiaries, loss on investment in
securities, loss from impairment of mortgage loan and minority interests
    
    
    23,526
    
    
    
    28,435Equity in (loss)/income of unconsolidated joint ventures and subsidiaries
    
    
    (845
    )
    
    
    1,174Loss on investment in securities
    
    
    
    
    
    
    (420
    )Loss from impairment of mortgage loan
    
    
    (500
    )
    
    
    Minority interests
    
    
    (677
    )
    
    
    (2,163
    )Income from continuing operations
    
    
    21,504
    
    
    
    27,026Discontinued operations:Income from discontinued operations
    
    
    
    
    
    
    2,920Gain from disposition of discontinued operations
    
    
    17
    
    
    
    10,185Loss from debt defeasance related to sale of real estate
    
    
    
    
    
    
    (5,316
    )Minority interests related to discontinued operations
    
    
    
    
    
    
    (246
    )17
    
    
    
    7,543Income before gain on sale of land and an interest in a real estate
partnership
    
    
    21,521
    
    
    
    34,569Gain on sale of land and an interest in a real estate partnership
    
    
    
    
    
    
    1,222Net income
    
    $
    21,521
    
    
    $
    35,791Preferred dividends
    
    
    (4,226
    )
    
    
    (5,826
    )Net income applicable to common shareholders
    
    $
    17,295
    
    
    $
    29,965
  Acquisition of Real Estate.
 34




---



##### Table of Contents



Net Rentable
    
    AcquisitionMonth of
    
    Number of
    
    Square Feet (1)
    
    PriceAcquired Properties
    
    Segment
    
    Market
    
    Acquisition
    
    Buildings
    
    (in thousands)
    
    (in millions)Cityplace Center
    
    Southwest
    
    Dallas/Ft. Worth
    
    April 2004
    
    1
    
    1,296
    
    $123.3The Bluffs(2)
    
    Southern Calif.
    
    San Diego
    
    May 2004
    
    1
    
    69
    
    17.75500 Great America Parkway
    
    Northern Calif.
    
    Silicon Valley
    
    May 2004
    
    3
    
    306
    
    34.8Lakeside Point I & II(2)
    
    Midwest
    
    Chicago
    
    Oct. 2004
    
    2
    
    198
    
    32.62101 Webster
    
    Northern Calif.
    
    Oakland
    
    Oct. 2004
    
    1
    
    459
    
    65.7Presidents Plaza(2)
    
    Mid-Atlantic
    
    Metro Wash., DC
    
    Feb. 2005
    
    2
    
    197
    
    51.81676 International Drive(3)
    
    Mid-Atlantic
    
    Metro Wash., DC
    
    May 2005
    
    1
    
    295
    
    83.88260 Greensboro Drive(3)
    
    Mid-Atlantic
    
    Metro Wash., DC
    
    May 2005
    
    1
    
    161
    
    19.412
    
    2,981
    
    $429.1
 
 (1)
    
    Net rentable square feet defines the area of a property for which a tenant is
required to pay rent, which includes the actual rentable area plus a portion of the common
areas of the property allocated to a tenant.(2)
    
    Acquisitions were acquired by Prentiss Office Investors, L.P. which is owned 51%
by our operating partnership and its affiliates and 49% by Stichting Pensioenfond ABP. The
net rentable square feet and acquisition price is presented at 100%. Each partner
contributed their pro rata share of the purchase price of each property to Prentiss Office
Investors, L.P. prior to acquisition.(3)
    
    Our operating partnership held a 25% interest in the 1676 International Drive and
8260 Greensboro Drive properties prior to our acquisition of the remaining interest in May
2005. Purchase price represents amount paid for the 75% interest not previously owned. Real Estate Dispositions.
 Other Significant Real Estate Transactions.
   Rental Income.
 Service Business and Other Income.
 Property Operating and Maintenance.
 Real Estate Taxes.
 35




---



##### Table of Contents



General and Administrative and Personnel Costs.
 Expense of Service Business.
 Depreciation and Amortization.
 Interest Expense.
 Equity in (loss)/income of unconsolidated joint ventures and subsidiaries
 Loss on Investment in Securities.
 Loss from impairment of mortgage loan.
 Minority Interests.
 Discontinued Operations.
 Gain on sale of a Partnership Interest.
 Liquidity and Capital Resources
   36




---



##### Table of Contents



Debt Financing
   37




---



##### Table of Contents



CurrentBalanceBorrower/Description
    
    (000s)
    
    Amortization
    
    Interest Rate
    
    MaturityConsolidated EntitiesBurnett Plaza AssociatesBurnett Plaza
    
    $
    114,200
    
    30 yr
    
    5.02%
    
    April 1, 2015PL Properties Associates, L.P.Park West C2
    

    32,639
    
    30 yr
    
    6.63%
    
    November 10, 2010Prentiss Properties Acquisition Partners, L.P.2101 Webster
    

    45,523
    
    28 yr
    
    3.70%
    
    November 1, 2005Highland Court
    

    4,283
    
    25 yr
    
    7.27%
    
    April 1, 2006Plaza I & II
    

    6,760
    
    18 yr
    
    7.75%
    
    January 1, 2007Revolving Credit Facility
    

    255,000
    
    None
    
    LIBOR + 1.350%
    
    February 19, 2007Collateralized Term Loan (1)
    

    30,000
    
    None
    
    LIBOR + 1.150%
    
    September 30, 2007Unsecured Term Loan  EuroHypo I
    

    100,000
    
    None
    
    LIBOR + 1.375%
    
    May 22, 2008Unsecured Term Loan  Commerzbank
    

    75,000
    
    None
    
    LIBOR + 1.350%
    
    March 15, 20097101 Wisconsin Avenue
    

    19,941
    
    30 yr
    
    7.25%
    
    April 1, 2009Unsecured Term Loan  EuroHypo II
    

    13,620
    
    30 yr
    
    7.46%
    
    July 15, 2009The Ordway
    

    47,137
    
    30 yr
    
    7.95%
    
    August 1, 2010World Savings Center
    

    28,039
    
    30 yr
    
    7.91%
    
    November 1, 2010One OHare Centre
    

    38,785
    
    30 yr
    
    6.80%
    
    January 10, 20113130 Fairview Park Drive
    

    21,753
    
    30 yr
    
    7.00%
    
    April 1, 2011Research Office Center I-III
    

    43,133
    
    28 yr
    
    7.64%
    
    October 1, 2011Bannockburn Centre
    

    25,680
    
    30 yr
    
    8.05%
    
    June 1, 2012Del Mar Loan
    

    43,107
    
    30 yr
    
    7.41%
    
    June 1, 2013Prentiss Properties Capital Trust I Debenture
    

    52,836
    
    None
    
    LIBOR + 1.250%
    
    March 30, 2035Prentiss Properties Capital Trust II Debenture
    

    25,774
    
    None
    
    LIBOR + 1.250%
    
    June 30, 2035Prentiss Properties Corporetum, L.P.Corporetum Office Campus
    

    24,171
    
    30 yr
    
    7.02%
    
    February 1, 2009Prentiss Properties Real Estate Fund I, L.P.PPREFI Portfolio Loan (2)
    

    180,100
    
    None
    
    7.58%
    
    February 26, 2007Prentiss Office Investors, L.P.(3)The Bluffs
    

    10,700
    
    None
    
    LIBOR + 1.300%
    
    July 23, 2009Collateralized Term Loan  Mass Mutual (4)
    

    85,000
    
    None
    
    LIBOR + 0.850%
    
    August 1, 2009Lakeside Point I & II
    

    20,000
    
    None
    
    LIBOR + 1.100%
    
    December 1, 2009Presidents Plaza I & II
    

    30,900
    
    None
    
    LIBOR + 1.150%
    
    May 4, 2010Prentiss/Collins Del Mar Heights, LLC(5)High Bluff Ridge Construction Loan
    

    19,019
    
    None
    
    LIBOR + 1.400%
    
    September 1, 2007Total Consolidated Outstanding Debt
    
    $
    1,393,100Unconsolidated EntitiesBroadmoor Austin AssociatesBroadmoor Austin (6)
    
    $
    128,487
    
    16 yr
    
    7.04%
    
    April 10, 2011Total Unconsolidated Outstanding Debt
    
    $
    128,487Total Debt
    
    $
    1,521,587
 
 (1)
    
    The Term Loan is collateralized by the following two properties: 8521 Leesburg
Pike and the IBM Call Center.(2)
    
    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. 38




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##### Table of Contents



(3)
    
    Our operating partnership owns a 51% interest in Prentiss Office Investors, L.P.
The accounts of Prentiss Office Investors, L.P. are consolidated with and into the accounts of
the operating partnership. The amounts shown reflect 100% of the debt balance.(4)
    
    The Term Loan is collateralized by the following 9 properties: Camino West Corporate
Park, Carlsbad Airport Plaza, La Place Court (2 properties), Pacific Ridge Corporate Centre (2
properties), Pacific View Plaza, Corporate Lakes III, and 2291 Wood Oak Drive.(5)
    
    Our operating partnership and its affiliates own a 70% interest in Prentiss/Collins
Del Mar Heights, LLC. The accounts of Prentiss/Collins Del Mar Heights, LLC are consolidated
with and into the accounts of the operating partnership. The amount shown reflects 100% of
the debt balance.(6)
    
    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 100% of the non-recourse mortgage indebtedness collateralized by the
properties.      Hedging Activities
   39




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##### Table of Contents



Swap Rate ReceivedNotional
    
    Swap Rate Paid
    
    (Variable) atAmount
    
    (Fixed)
    
    June 30, 2005
    
    Swap Maturity
    
    Fair Value(in thousands)$25 million
    
    4.345%
    
    3.34%
    
    July 2005
    
$
    (7
)$15 million
    
    4.345%
    
    3.34%
    
    July 2005
    

    (4
)$20 million
    
    5.985%
    
    3.34%
    
    March 2006
    

    (304
)$30 million
    
    5.990%
    
    3.34%
    
    March 2006
    

    (456
)$50 million
    
    2.270%
    
    3.34%
    
    August 2007
    

    1,619$25 million
    
    2.277%
    
    3.34%
    
    August 2007
    

    806$70 million(1)
    
    4.139%
    
    3.34%
    
    August 2008
    

    (470
)$30 million
    
    3.857%
    
    3.34%
    
    September 2008
    

    58$30 million
    
    3.819%
    
    3.34%
    
    October 2008
    

    93$20 million
    
    3.819%
    
    3.34%
    
    October 2008
    

    62$50 million
    
    3.935%
    
    3.34%
    
    May 2009
    

    23$30 million
    
    3.443%
    
    3.34%
    
    October 2009
    

    625$20 million (1)
    
    4.000%
    
    3.34%
    
    February 2010
    

    (13
)Total
    
    
    
    
    
    
    
    
    
$
    2,032
 
 (1)
    
    The interest rate swap agreement was executed by Prentiss Office Investors,
L.P., a partnership which is 51% owned by our operating partnership.  Capital Improvements
  Equity Financing
  Common shares outstanding at March 31, 2005
    
    
    45,125,125Common shares issued:Conversion of operating partnership units
    
    
    32,250Dividend Reinvestment and Share Purchase Plan
    
    
    15,518Trustees Share Incentive Plan
    
    
    910Share options exercised
    
    
    50049,178Common shares placed in treasury/issued from treasury:Common shares placed in treasury in connection with
our Key Employee Share Option Plan
    
    
    (1,036
    )Common shares issued from treasury in connection with
our Key Employee Share Option Plan
    
    
    1,338Common shares outstanding at June 30, 2005
    
    
    45,174,605
 40




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##### Table of Contents



Off-Balance Sheet Arrangements
     Summary of Financial Position:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companys(in thousands)
    
    Total Assets
    
    Total Debt(1)
    
    Total Equity
    
    InvestmentBroadmoor Austin Associates
    
    $
    96,570
    
    
    $
    128,487
    
    
    $
    (34,030
    )
    
    $
    4,482Other Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,360$
    6,842
  CompanysSummary of Operations for the Three Months Ended June 30, 2005:
    
    Total
    
    Net
    
    Share of Net(in thousands)
    
    Revenue
    
    Income
    
    IncomeBroadmoor Austin Associates
    
    $
    5,645
    
    
    $
    1,369
    
    
    $
    685Tysons International Partners(2)
    
    
    1,070
    
    
    
    (8,912
    )
    
    
    (2,228
    )$
    (1,543
    )
 CompanysSummary of Operations for the Six Months Ended June 30, 2005:
    
    Total
    
    Net
    
    Share of Net(in thousands)
    
    Revenue
    
    Income
    
    IncomeBroadmoor Austin Associates
    
    $
    11,292
    
    
    $
    2,742
    
    
    $
    1,371Tysons International Partners(2)
    
    
    4,228
    
    
    
    (8,864
    )
    
    
    (2,216
    )$
    (845
    )
 
 (1)
    
    The mortgage debt, which is non-recourse, is collateralized by the individual
real estate properties within the venture. Our proportionate share of the non-recourse
mortgage debt totaled $64.2 million at June 30, 2005.(2)
    
    At December 31, 2004, we owned a 25% non-controlling interest in Tysons
International Partners, an entity, which owns two office properties containing 456,000 net
rentable square feet in the Northern Virginia area. On May 2, 2005, we acquired the remaining
75% interest in the properties owned by the joint venture. Prior to our acquisition of the
remaining 75% for $103.2 million, we contributed to the joint venture $14.7 million
representing our pro rata share of the outstanding indebtedness on the properties. As a
condition of closing, out of proceeds from the sale and our capital contribution, the joint
venture prepaid the outstanding indebtedness collateralized by the properties. The prepayment
amount totaled $67.6 million of which $8.8 million represented a prepayment penalty. Net
income for Tysons International Partners includes the $8.8 million loss from debt prepayment
but excludes the gain on sale resulting from our acquisition of the remaining 75% interest in
the joint venture.  41




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Contractual Obligations
    
    Payments Due by Period(in thousands)
    
    Total
    
    2005
    
    2006/2007
    
    2008/2009
    
    ThereafterMortgages and notes payable
    
    $
    1,393,100
    
    
    $
    48,197
    
    
    $
    505,905
    
    
    $
    358,858
    
    
    $
    480,140Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ground leases
    
    
    30,243
    
    
    
    211
    
    
    
    841
    
    
    
    848
    
    
    
    28,343Unconditional purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    1,423,343
    
    
    $
    48,408
    
    
    $
    506,746
    
    
    $
    359,706
    
    
    $
    508,483
  Payments Due by Period(in thousands)
    
    Total
    
    2005
    
    2006/2007
    
    2008/2009
    
    ThereafterInterest payable(1)
    
    $
    403,503
    
    
    $
    39,674
    
    
    $
    131,995
    
    
    $
    80,821
    
    
    $
    151,013
 
 (1)
    
    Interest payable under our variable rate loans is calculated using our
variable interest rate at June 30, 2005 which is equal to 30-day LIBOR of 3.34% plus
our spread over LIBOR which ranges between 85 basis points and 140 basis points.  Commitment Expiration by PeriodOther Commercial Commitments
    
    Total Amounts(in thousands)
    
    Committed
    
    2005
    
    2006/2007
    
    2008/2009
    
    ThereafterStandby letters of credit
    
    $
    189
    
    
    $
    63
    
    
    $
    126
    
    
    $
    
    
    
    $
    
  Funds from Operations
  42




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##### Table of Contents



Three Months Ended
    
    Six Months EndedFunds from operations
    
    June 30,
    
    June 30,(in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Net income
    
    $
    8,818
    
    
    $
    18,792
    
    
    $
    21,521
    
    
    $
    35,791Adjustments:Real estate depreciation and amortization(1)
    
    
    26,045
    
    
    
    23,785
    
    
    
    50,452
    
    
    
    46,767Minority interests(2)
    
    
    195
    
    
    
    538
    
    
    
    507
    
    
    
    1,034Minority interests share of depreciation and
amortization
    
    
    (1,578
    )
    
    
    (1,303
    )
    
    
    (3,009
    )
    
    
    (2,124
    )Pro rata share of joint venture depreciation and
amortization
    
    
    603
    
    
    
    744
    
    
    
    1,350
    
    
    
    1,480Gain on sale of real estate and interests in real
estate partnerships
    
    
    (2
    )
    
    
    (10,091
    )
    
    
    (17
    )
    
    
    (11,407
    )Funds from operations(3)
    
    $
    34,081
    
    
    $
    32,465
    
    
    $
    70,804
    
    
    $
    71,541
 
 (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.(3)
    
    Impairment losses and debt defeasance related to real estate are not
added back in our reconciliation of net income to funds from operations; therefore, for
periods in which impairment losses or debt defeasance are recognized, funds from operations is
negatively impacted. We recognized an impairment loss on a mortgage loan of $500,000 and a
loss on debt prepayment of $2.2 million during the three and six months ended June 30, 2005.
We recognized debt defeasance of $5.3 million during the three and six months ended June 30,
2004.  Recently Issued Accounting Pronouncements
    43




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##### Table of Contents



44




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   ( dollars in thousands)
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    Fair ValueLiabilitiesLong-Term Debt:Fixed Rate
    
    $
    48,197
    
    
    $
    9,704
    
    
    $
    192,182
    
    
    $
    7,094
    
    
    $
    61,064
    
    
    $
    370,630
    
    
    $
    688,871
    
    
    $
    741,068Average Interest
Rate
    
    
    7.04
    %
    
    
    7.08
    %
    
    
    6.87
    %
    
    
    6.81
    %
    
    
    6.77
    %
    
    
    6.08
    %
    
    
    
    
    
    
    Variable Rate
    
    $
    
    
    
    $
    
    
    
    $
    304,019
    
    
    $
    100,000
    
    
    $
    190,700
    
    
    $
    109,510
    
    
    $
    704,229
    
    
    $
    704,229Average Interest
Rate
    
    
    4.66
    %
    
    
    4.66
    %
    
    
    4.62
    %
    
    
    4.57
    %
    
    
    4.53
    %
    
    
    4.65
    %
    
    
    
    
    
    
    Interest Rate DerivativesInterest Rate Swaps:Variable to Fixed
    
    $
    40,000
    
    
    $
    50,000
    
    
    $
    75,000
    
    
    $
    150,000
    
    
    $
    80,000
    
    
    $
    20,000
    
    
    $
    415,000
    
    
    $
    2,032Average Pay Rate
    
    
    3.86
    %
    
    
    3.59
    %
    
    
    3.66
    %
    
    
    3.88
    %
    
    
    3.77
    %
    
    
    4.00
    %
    
    
    
    
    
    
    Average Receive Rate
    
    
    3.34
    %
    
    
    3.34
    %
    
    
    3.34
    %
    
    
    3.34
    %
    
    
    3.34
    %
    
    
    3.34
    %
    
    
    
    
    
    
    
 
 Item 4. Controls and Procedures
   45




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Changes in Securities and Use of Proceeds
 Total Number of
    
    Maximum Number ofShares Purchased as
    
    Shares that May Yet BePart of Publicly
    
    PurchasedTotal Number of
    
    Average Price Paid
    
    Announced
    
    Under thePeriod
    
    Shares Purchased(1)
    
    per Share
    
    Plans or Programs
    
    Plans or Programs(2)April 1, 2005 
April 30, 2005
    
    
    1,036
    
    
    $
    34.45
    
    
    
    
    
    
    
    997,200May 1, 2005 
May 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    June 1, 2005 
June 30, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Total
    
    
    1,036
    
    
    $
    34.45
    
    
    
    
    
    
    
    997,200
 
 (1)
    
    During April 2005, we purchased 1,036 of our common shares pursuant to our Key
Employee Share Option Plan.(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, 2005, 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
  
 Item 4. Submission of Matters to a Vote of Security Holders
   Michael V. PrentissVotes for:
    
    
    41,135,954Votes withheld:
    
    
    2,624,165Broker non-votes:
    
    
    Abstentions:
    
    

    
 46




---



##### Table of Contents



Thomas J. Hynes, Jr.Votes for:
    
    
    41,250,852Votes withheld:
    
    
    2,509,267Broker non-votes:
    
    
    Abstentions:
    
    
    Barry J.C. ParkerVotes for:
    
    
    41,249,502Votes withheld:
    
    
    2,510,617Broker non-votes:
    
    
    Abstentions:
    
    
    
   Votes for:
    
    
    41,714,698Votes against:
    
    
    140,105Broker non-votes:
    
    
    Abstentions:
    
    
    1,905,315
   Votes for:
    
    
    37,201,329Votes against:
    
    
    1,369,324Broker non-votes:
    
    
    Abstentions:
    
    
    1,934,160
 
 Item 5. Other Information
  47




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##### Table of Contents



Item 6. 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
    
    Second Amended and Restated Bylaws of the Registrant. (filed as Exhibit 3.2 to our Quarterly
Report on Form 10-Q, filed on September 30, 2004, File No. 001-14516 and incorporated by
reference herein)3.3
    
    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).3.4
    
    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).3.5
    
    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).3.6
    
    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).3.7
    
    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).3.8
    
    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 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
    
    Third Amendment, dated February 14, 2005, to the Amended and Restated Rights Agreement
between Prentiss Properties Trust and Equiserve Trust Company, N.A. as Rights Agent (filed as
Exhibit 4 to Amendment No.5 to our Registration Statement on Form 8-A, filed on February 16, 2005,
File No. 001- 014516 and incorporated by reference herein).4.6
    
    Form of Rights Certificate (included as Exhibit A to the Rights Agreement (Exhibit 4.2)).4.7
    
    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).
 10.1*+
    
    Prentiss Properties Trust 2005 Share Incentive Plan, dated May 11, 2005.
 48




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##### Table of Contents



10.2*
    
    Promissory Note by and between Prentiss Properties International Drive, L.P. and Prentiss
Properties Greensboro Drive, L.P. affiliates of Prentiss Properties Trust, as borrower and
Wachovia Bank, National Association as lender, dated July 14, 2005.31.1*
    
    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.+
    
    Management contract or compensation plan, contract or arrangement. 49




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##### Table of Contents



SIGNATURE
  PRENTISS PROPERTIES TRUSTDate:  August 5, 2005
    By:
    /s/ Scott W. FordhamScott W. FordhamSenior Vice President and Chief Accounting Officer
(Principal Accounting Officer and Duly Authorized
Officer of the Company) 50