Exhibit 99.3



Item 1-Business-The Company-Risk Factors



In addition to the other information in this document, you should consider carefully the following risk factors in
evaluating an investment in our securities. Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on our financial condition and the performance of our business.



Our performance and share value are subject to risks associated with the real estate
industry



We derive a substantial majority of our
operating and net income from the ownership and operation of office buildings. If we do not generate income sufficient to meet our operating expenses, including debt service and capital expenditures necessary to maintain or improve our properties,
our financial performance, the value of our real estate assets and our ability to pay distributions to our securityholders, and consequently the value of our securities, will be adversely affected. We are susceptible to, among others, the following
real estate industry risks:



| |  | Downturns in the national, regional and local economic conditions where our properties are located, which generally will negatively impact the demand for office space and rental
rates;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Local conditions such as an oversupply of office properties, including space available by sublease, or a reduction in demand for high rise and other office properties, making it
more difficult for us to lease space at attractive rental rates, or at all;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Competition from other available office properties, which could cause us to lose current or prospective tenants to other properties or cause us to reduce our rental rates;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Changes in market rental rates and our ability to fund repair and maintenance costs;
| | - | ------------------------------------------------------------------------------------



| |  | Our ability to fund the cost of tenant improvements, leasing commissions and other costs associated with leasing or re-letting space;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| |  | Earthquakes and other natural disasters, terrorist acts, civil disturbances or acts of war which may result in uninsured or underinsured losses;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our ability to collect rent from tenants; and
| | - | ---------------------------------------------



| |  | Our ability to pay for adequate maintenance, insurance, utility, security and other operating costs, including real estate taxes and debt service payments, that are not necessarily
reduced when circumstances such as market factors and competition cause a reduction in income from a property.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Further declines in overall economic activity, particularly in our San Francisco Bay Area, Washington, DC Metro Area and Southern California core markets, could
adversely affect our operating results



As a result of the
recent 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. The
occupancy in our portfolio of stabilized operating properties decreased to 87.8% at December 31, 2003 compared to 92.3% at December 31, 2002 and 95.3% at December 31, 2001. Although we have begun to see some improvements in our markets, because
vacancy rates are still at high levels in most markets, we do not expect any material



---

improvement in leasing conditions until later in 2004. In addition to increasing vacancy rates, market rental rates have
declined in most markets from peak levels and there may be additional declines in some markets in 2004. Rental rates on our space that was re-leased in 2003 decreased an average of 12.3% in comparison to rates that were in effect under expiring
leases.



We are particularly subject to the economic risks in
our San Francisco Bay Area, Washington, DC Metro Area and Southern California core markets. These markets represented approximately 31.5%, 25.3% and 14.8%, respectively, of our property operating income in 2003. A continued downturn in the economies
of these markets, or the impact of a continued national economic downturn on these markets, could result in further reduced demand for office space and decreasing rental rates.



One of the factors contributing to the decline in occupancy for our office properties was the increased level of early lease
terminations. Future rental income may be affected by future lease terminations as we are unlikely to be able to collect upon termination the full contracted amount payable under the leases as well as the additional cost of re-leasing the space.



Further decreases in occupancy rates and/or further declines
in rental rates, particularly in our San Francisco Bay Area, Washington, DC Metro Area and Southern California core markets, could adversely affect our revenues and results of operations in subsequent periods, which could have a material adverse
effect on our liquidity and financial condition, our ability to make distributions to our securityholders and result in a decline in the market value of our securities.



We may be unable to renew leases or relet space on similar terms, or at all, as leases expire or are terminated, or may expend
significant capital in our efforts to relet space



From
2004 through 2008, leases on our office properties will expire on a total of approximately 59.3% of our rentable square feet at our currently stabilized properties, with leases on over 10% of our rentable square feet expiring in each of those years.
We may not be able to renew leases with our existing tenants or we may be unable to relet space to new tenants if our current tenants do not renew their leases or terminate their leases early. Even if our tenants renew their leases or we are able to
relet the space, the terms and other costs of renewal or reletting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, declining rental rates and other potential concessions may be less
favorable or more costly than the terms of our current leases or than we anticipate and could require the expenditure of significant amounts of capital. If we are unable to renew leases or relet space in a reasonable time, or if rental rates decline
or tenant improvement, leasing commissions and other costs increase, it could have a material adverse effect on our results of operations, liquidity and financial condition and result in a decline in the value of our securities.



Our properties face significant competition



We face significant competition from other owners, operators and developers
of office properties. Substantially all of our properties face competition from similar properties in the same markets. Such competition may affect our ability to attract and retain tenants and reduce the rents we are able to charge. These competing
properties may have vacancy rates higher than our properties, which may result in their owners being willing to rent space at lower rental rates than we or in their owners providing greater tenant improvement allowances or other leasing concessions.
This combination of circumstances could adversely affect our results of operations, liquidity and financial condition, which could cause a decline in the value of our securities.



We face potential adverse effects from tenant delinquencies, bankruptcies or insolvencies



The bankruptcy or insolvency or other failure to pay of our tenants is
likely to adversely affect the income produced by our properties. If a tenant defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord. If a tenant files for bankruptcy, we may not be able to evict the
tenant solely because of such bankruptcy or failure to pay. A court, however, may authorize a tenant to reject and terminate its lease with us. In such a case, our claim against the tenant for unpaid, future rent



---

would be subject to a statutory cap that might be substantially less than the remaining rent owed under the lease. In
addition, certain amounts paid to us within 90 days prior to the tenants bankruptcy filing could be required to be returned to the tenants bankruptcy estate. In any event, it is highly unlikely that a bankrupt or insolvent tenant would
pay in full amounts it owes us under a lease. In other circumstances, where a tenants financial condition has become impaired, we have agreed to partially or wholly terminate the lease in advance of the termination date in consideration for a
lease termination fee that is less than the agreed rental amount. Without regard to the manner in which the lease termination occurs, we are likely to incur additional costs in the form of tenant improvements and leasing commissions in our efforts
to lease the space to a new tenant. In any of the foregoing circumstances, our results from operations, liquidity and financial condition could be adversely affected, which could result in a decline in the value of our securities.



New developments and acquisitions may fail to perform as expected



We continue to develop and acquire office properties. New office property
developments are subject to a number of risks, including construction delays, complications in obtaining necessary zoning, occupancy and other governmental permits, cost overruns, financing risks, and the possible inability to meet expected
occupancy and rent levels. If any of these problems occur, development costs for a project may increase, and there may be costs incurred for projects that are not completed. In deciding whether to acquire or develop a particular property, we make
certain assumptions regarding the expected future performance of that property. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position, or may be unable to increase
occupancy at a newly acquired property as quickly as expected, or at all. If newly acquired properties or development projects are not completed in the timing or at the costs expected or do not perform as expected, our results of operations,
liquidity and financial condition may be adversely affected, which could result in a decline in the value of our securities.



Competition for acquisitions or an oversupply of properties for sale could adversely affect us



Generally, other major real estate investors with significant capital compete with us for attractive investment
opportunities. These competitors include publicly traded REITs, private REITs, investment banking firms and private institutional investment funds. This competition could increase prices for office properties. We also compete with other real estate
investors that may be able to provide better terms and conditions to sellers with tax sensitivities. We also face competition with other property owners in our efforts to dispose of assets, which may result in lower sales prices. Any such increase
in prices for acquired office properties or decrease in prices for properties to be sold by us could impair our growth prospects or reduce our available capital, either of which could have an adverse effect on our liquidity and financial condition,
which could result in a decline in the value of our securities.



We may not
be able to sell properties when appropriate or on attractive terms



Real estate investments generally cannot be sold quickly. In addition, there are limitations under the federal income tax laws applicable to REITs and agreements that we have entered into in connection with the acquisition of some of our
properties that may limit our ability to sell our assets. In addition, we are subject to income taxes on the sale of any properties owned by any of our taxable REIT subsidiaries. At the end of 2003, we decided, based on their returns and market
factors, that we will exit the Portland and Atlanta markets as soon as practicable. We expect to begin marketing these properties late in the first quarter of 2004. We intend to reinvest the proceeds from the sale of the Portland/Atlanta properties
in our other existing markets. However, our inability to sell our Portland and Atlanta or other properties in the time frame expected or at attractive prices could limit our ability to make acquisitions or other capital expenditures necessary to
upgrade our portfolio or to recycle our capital to more productive markets, which could have an adverse effect on our liquidity and financial condition and our ability to service debt and make distributions to our securityholders, which could result
in a decline in the value of our securities.



---

Our use of debt subjects us to various financing risks



We regularly borrow money to finance our operations, particularly the
acquisition and development of properties. We generally incur unsecured debt, although in some cases we will incur mortgage debt that is secured by one or more of our office buildings. In the future, our financial condition could be materially and
adversely affected by our use of debt financing, in part due to the following risks:



| |  | No Limitation on Debt Incurrence. Our organizational documents do not limit the amount of debt we can incur. Our leverage could have important consequences to our
securityholders, including affecting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes and making us more vulnerable to a downturn in
business or the economy generally. In addition, as a result of the financial and operating covenants described below, our leverage could reduce our flexibility in conducting our business and planning for, or reacting to, changes in our business and
in the real estate industry. Any such reduction in our ability to obtain additional financing or our flexibility to conduct our business could adversely affect our financial condition and results of operations. This could result in a decline in the
market value of our securities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Possible Inability to Meet Scheduled Debt Payments; Potential Foreclosure. If our properties do not perform as expected, the cash flow from our properties may not be enough
to make required principal and interest payments. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the holder of the mortgage or lender could foreclose on the property, resulting in loss of
income and asset value. An unsecured lender could also attempt to foreclose on some of our assets in order to receive payment.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Inability to Refinance Debt. In most cases, very little of the principal amount that we borrow is repaid prior to the maturity of the loan. We generally expect to
refinance that debt when it matures, although in some cases we may pay off the loan. If principal amounts due at maturity cannot be refinanced as a result of general economic downturns, if our credit rating is downgraded, if our properties do not
perform as expected, or otherwise, or extended or paid with proceeds of other capital transactions, such as property sales or new equity capital, our cash flow could be insufficient to repay all maturing debt. Prevailing interest rates or other
factors at the time of a refinancing (such as possible reluctance of lenders to make commercial real estate loans) may result in higher interest rates and increased interest expense it could adversely affect our results of operations, liquidity,
financial condition, ability to service debt and make distributions to our securityholders.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Financial Covenants Could Adversely Affect Our Financial Condition. Our credit facilities and the indentures under which our senior unsecured indebtedness are issued
contain financial and operating covenants, including coverage ratios and other limitations on our ability to incur secured and unsecured indebtedness, sell all or substantially all of our assets and engage in mergers, consolidations and certain
acquisitions. Failure to meet our financial covenants could result from, among other things, changes in our results of operations or general economic changes. These covenants may restrict our ability to engage in transactions that would otherwise be
in our best interests. Failure to comply with any of the covenants under our unsecured credit facility or other debt instruments could result in a default under one or more of our debt instruments. This could cause our lenders to accelerate the
timing of payments and would therefore have a material adverse effect on our business, operations, financial condition or liquidity.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2003, we were in compliance with all of our loan covenants, however, our ability to draw on our unsecured credit
facility or incur other unsecured debt in the future could be restricted by the loan covenants. Our maximum ratio of aggregate unsecured debt to tangible fair market value of our unencumbered assets (unencumbered leverage ratio) is 55%. As of
December 31, 2003, our unencumbered leverage ratio was 52%. Our unencumbered leverage ratio is most significantly impacted by two key factors: the purposes for which we incur



---

any additional unsecured debt and the performance of our operating properties. Incurring additional
unsecured debt to acquire additional unencumbered assets does not impact our unencumbered leverage ratio as significantly as incurring additional unsecured debt for other purposes. The tangible fair market value of our unencumbered properties is
calculated based on their operating income and our unencumbered leverage ratio could increase if our unencumbered properties perform poorly. If our unencumbered leverage ratio increases further, it could impact our business and operations, including
limiting our ability to incur additional unsecured debt, including drawing on our unsecured line of credit, which is our primary source of short term liquidity, or to invest in properties through joint ventures.



| |  | Variable Interest Rates Could Increase the Cost of Borrowing. As of December 31, 2003, approximately 32.8% of our total financing was subject to variable interest rates,
including our line of credit and debt related to interest rate swap agreements excluding the impact of interest rate cap agreements. Because we have not hedged significantly against interest fluctuations, significant increases in interest rates
could dramatically increase our costs of borrowing. Additionally, interest rates on certain types of our debt are based on the credit rating of our debt by independent agencies, and would be substantially increased in the event that the credit
ratings are downgraded.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Derivatives. We may use derivative financial instruments at times to limit market risk only for hedging purposes, not for speculation or trading purposes. Interest rate
protection agreements may be used to convert variable rate debt to a fixed rate basis, to convert fixed rate debt to a variable rate basis or to hedge anticipated financing transactions. However, these arrangements may expose us to additional risks.
Although our interest rate risk management policy establishes minimum credit ratings for counterparties, this does not eliminate the risk that a counterparty may fail to honor its obligations. Developing an effective interest rate risk strategy is
complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. In addition, hedging agreements may involve costs, such as transaction fees or breakage costs, if we terminate them. Any failure by us to
effectively manage our exposure to interest rate risk through hedging agreements or otherwise, and any costs associated with hedging arrangements, could adversely affect our results of operations or financial condition. This could cause the market
value of our securities to decline.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We may need to borrow funds in order to pay distributions necessary to maintain our REIT status. In order to maintain our REIT status, we may need to borrow funds on a
short-term basis to meet the REIT distribution requirements, even if the then prevailing market conditions are not favorable for these borrowings. To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT
taxable income, excluding capital gains. In order to eliminate federal income tax, we must distribute 100% of our net taxable income, including capital gains. We may need to incur debt to fund required distributions if our cash flows from operations
are insufficient to make such distributions, as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes, or as a result of the effect of non-deductible capital
expenditures, the creation of reserves or required debt or amortization payments. Any such incurrence of, particularly during unfavorable market conditions, could adversely affect our results of operations or financial condition. As a result, the
market value of our securities could decline.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



An earthquake
or terrorist act could adversely affect our business



Over
53.4% of our property operating income is generated by properties located in California and the State of Washington, which are high risk geographical areas for earthquakes. In addition, a significant portion of our properties is located in
Washington, DC and other major urban areas which could be the target of future terrorist acts. Depending upon its magnitude, an earthquake or terrorist act could severely damage one or more of our properties or otherwise cause a loss of tenants or
other economic downturn in the market in which the event occurs, which could adversely affect our business. Although we maintain



---

earthquake and terrorism insurance for our properties and the resulting business interruption, any earthquake or
terrorist attack, whether or not insured, could have a material adverse effect on our results of operations, liquidity and financial condition, and result in a decline in the value of our securities.



Our insurance may not be adequate to cover losses, including those that result from
earthquakes or terrorist acts



Although we believe our
properties are adequately covered by insurance, we cannot predict at this time if we will be able to obtain appropriate coverage at a reasonable cost in the future. Our insurance costs increased significantly in mid-2002. Due to various factors and
coverage changes, our premiums for the 2003-2004 renewal period were relatively unchanged from the 2002-2003 period.



As a result of the Terrorism Risk Insurance Act of 2002 (TRIA), we elected to purchase the TRIA coverage upon our 2003 insurance renewal
rather than stand alone coverage. Our TRIA insurance coverage is up to $500 million for foreign certified terrorist acts and also includes $25 million of coverage for domestic terrorism. However, TRIA currently only mandates that carriers provide
such coverage through 2004. In addition, coverage under TRIA includes only physical damage and does not include losses due to biological, chemical or radioactive contamination. The failure of the government to renew or extend TRIA or the lack of
coverage for the types of contamination not covered by TRIA could cause terrorism insurance to be prohibitively expensive and could have a material adverse effect on our financial results if a building we own becomes uninhabitable as a result of a
biological, chemical, radioactive or other contamination.



Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. Nevertheless, we might remain
obligated for any mortgage debt or other financial obligations related to the property. It is also possible that third-party insurance carriers will not be able to maintain reinsurance sufficient to cover any losses that may be incurred.



In addition, if any of our properties were to experience a catastrophic
loss that was insured, there can be no assurance that such coverage will adequately compensate us for any loss, that our coverage would continue after a loss, or that a loss, even if covered, would not have a material adverse effect on our business,
financial condition or results of operations. It could still seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Also, due to inflation, changes in codes and ordinances, environmental
considerations and other factors, it may not be feasible to use insurance proceeds to replace a building after it has been damaged or destroyed.



Also, we have to renew our policies in most cases on an annual basis and negotiate acceptable terms for coverage, exposing us to the volatility of the
insurance markets, including the possibility of rate increases. Any material increase in insurance rates or decrease in available coverage in the future could adversely affect our results of operations and financial condition, which could cause a
decline in the market value of our securities.



Increases in taxes and
regulatory compliance costs, including compliance with the Americans with Disabilities Act, may adversely affect our results of operations



We may not be able to pass all real estate tax increases through to our tenants. Therefore, any tax increases may adversely affect our results of
operations. Our properties are also subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. Some trade associations, such as the Building Owners and Managers Association and the
National Fire Protection Association, publish standards that are adopted by government authorities. These include standards relating to life, safety and fire protection systems published by the NFPA. Failure to comply with these requirements could
result in the imposition of fines by governmental authorities or awards of damages to private litigants. In addition, we cannot provide any assurance that these requirements will not be changed or that new requirements will not be imposed that would
require significant unanticipated expenditures by us and could have an adverse effect on our results of operations.



---

Under the Americans with Disabilities Act of 1990 and various state and local laws, all public
accommodations and commercial facilities must meet certain federal requirements related to access and use by disabled persons. Compliance with these requirements could involve removal of structural barriers from certain disabled persons
entrances. Other federal, state and local laws may require modifications to or restrict further renovations of our properties with respect to such means of access. Although we believe that our properties are substantially in compliance with present
requirements, noncompliance with the ADA or related laws or regulations could result in the imposition of fines by government authorities or in the award to private litigants of damages against us.



Any such adverse effect on our results of operations, whether from real
estate tax increases or changes in regulatory requirements, could cause the market value of our securities to decline.



We may be subject to costs and liabilities associated with environmental contamination



Federal, state and local laws and regulations relating to the protection of the environment may require a current or
previous owner or operator of real property to investigate and clean up hazardous or toxic substances or petroleum product releases at the property. In addition, the U.S. Environmental Protection Agency and the U.S. Occupational Safety and Health
Administration are increasingly involved in indoor air quality standards, especially with respect to asbestos, mold and medical waste. The clean up of any environmental contamination, including asbestos and mold, can be costly. The presence of or
failure to clean up contamination may adversely affect our ability to sell or lease a property or to borrow using a property as collateral or could prove so costly as to have a material adverse effect on our results of operations, liquidity and
financial condition, which could result in our inability to make distributions to our securityholders and result in a decline in the value of our securities.



We do not have exclusive control over our joint venture investments



We have invested in projects or properties as a co-venturer or partner in the development of new properties. These investments involve risks not present
in a wholly-owned project. Risks related to these investments could include:



| |  | Absence of control over the development, financing, leasing, management and other aspects of the project;
| | - | ---------------------------------------------------------------------------------------------------------



| |  | Possibility that our co-venturer or partner might:
| | - | --------------------------------------------------



| |  | become bankrupt;
| | - | ----------------



| |  | have interests or goals that are inconsistent with ours;
| | - | --------------------------------------------------------



| |  | take action contrary to our instructions, requests or interests (including those related to our qualification as a REIT for tax purposes); or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  | otherwise impede our objectives; and
| | - | ------------------------------------



| |  | Possibility that we, together with our partners, may be required to fund losses of the investee.
| | - | ------------------------------------------------------------------------------------------------



In addition, most of our joint venture agreements contain provisions that could require us to buy our partners interest or sell our
interest or the property or project at a time we do not deem favorable for financial or other reasons, including the availability of cash at such time and the impact of tax consequences resulting from any sale.



Certain officers and directors may have interests that conflict with the interests of
stockholders



Certain of our officers and members of our
board of directors own limited partnership units in Carr Realty Holdings, L.P., a partnership that holds some of our properties. These individuals may have personal interests that conflict with the interests of our stockholders with respect to
business decisions affecting us and Carr Realty Holdings, L.P., such as interests in the timing and pricing of property sales or refinancings in order to obtain favorable tax treatment. We, as the sole general partner of Carr Realty Holdings, L.P.,
have the exclusive authority to determine whether and on what terms Carr Realty Holdings,



---

L.P. will sell or refinance an individual property, but the effect of certain transactions on these unitholders may
influence our decisions affecting these properties.



Certain Factors May
Inhibit Changes in Control of the Company



| |  | Preferred Stock. Our charter permits our board of directors to authorize the issuance of preferred stock without stockholder approval. Also, any future series of
preferred stock may have voting provisions that could delay or prevent a change in control or other transaction that might involve a premium price or otherwise be in the best interests of our common stockholders.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Ownership Limit. In order to assist us in maintaining our qualification as a REIT and for other strategic reasons, our charter contains certain provisions generally
limiting the ownership of shares of capital stock by any single stockholder to 9.8% of our outstanding common stock and/or 9.8% of any class or series of preferred stock. The federal tax laws include complex stock ownership and attribution rules
that apply in determining whether a stockholder exceeds the ownership limits. These rules may cause a stockholder to be treated as owning stock that is actually owned by others, including family members and entities in which the stockholder has an
ownership interest. Our board of directors may waive this restriction with respect to certain stockholders if it is satisfied that ownership in excess of these ownership limits would not jeopardize our status as a REIT and the board otherwise
decides that a waiver would be in our interests. Capital stock acquired or transferred in breach of the ownership limit will be automatically transferred to a trust for the benefit of a designated charitable beneficiary.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Maryland Law Provisions. Certain provisions of Maryland law which are applicable to us because we are a Maryland corporation prohibit business combinations
with any person that beneficially owns ten percent or more of our outstanding voting shares (an interested stockholder) or with an affiliate of the interested stockholder. These prohibitions last for five years after the most recent date
on which the person became an interested stockholder. After the five-year period, a business combination with an interested stockholder must be approved by two super-majority stockholder votes unless, among other conditions, our common stockholders
receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its common shares. Our board of directors has opted out of these business combination
provisions. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to a business combination involving us. Our board of directors may, however, repeal this election in most cases and cause us to become
subject to these provisions in the future. Being subject to the provisions could delay or prevent a change in control or other transactions that might involve a premium price or otherwise be in the best interests of our stockholders.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

The market value of our securities can be adversely affected by many factors



As with any public company, a number of factors may adversely influence the
public market price of our common stock, many of which are beyond our control. These factors include:



| |  | Level of institutional interest in us;
| | - | --------------------------------------



| |  | Perception of REITs generally and REITs with portfolios similar to ours, in particular, by market professionals;
| | - | ----------------------------------------------------------------------------------------------------------------



| |  | Attractiveness of securities of REITs in comparison to other companies taking into account, among other things, the higher tax rates imposed on dividends paid by REITs;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our financial condition and performance;
| | - | ----------------------------------------



| |  | The markets perception of our growth potential and potential future cash dividends;
| | - | ------------------------------------------------------------------------------------



| |  | Government action or regulation, including changes in tax law;
| | - | --------------------------------------------------------------



| |  | Increases in market interest rates, which may lead investors to demand a higher annual yield from our distributions in relation to the price paid for our stock; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Relatively low trading volume of shares of REITs in general, which tends to exacerbate a market trend with respect to our stock.
| | - | --------------------------------------------------------------------------------------------------------------------------------



Sales of a substantial number of shares of our stock, or the perception that
such sales could occur, also could adversely affect prevailing market prices for our stock. In addition to the possibility that we may sell shares of our stock in a public offering at any time, we also may issue shares of common stock upon
redemption of units of interest held by third parties in affiliated partnerships that we control, as well as upon exercise of stock options that we grant to our employees and others. All of these shares will be available for sale in the public
markets from time to time.



Our status as a REIT



We believe that we qualify for taxation as a REIT for federal income tax
purposes, and we plan to operate so that we can continue to meet the requirements for taxation as a REIT. If we qualify as a REIT, we generally will not be subject to federal income tax on our income that we distribute currently to our shareholders.
Many of the REIT requirements, however, are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a
REIT, at least 95% of our gross income must come from specific passive sources, like rent, that are itemized in the REIT tax laws. In determining that we have satisfied this requirement, we have concluded that certain services, such as cafeteria
services that we had provided to tenants through an independent contractor at certain of our properties under arrangements where we bore part or all of the expenses of such services, were considered customary in the geographic area where such
properties are located. There can be no assurance that the IRS or a court would agree with such conclusion or other positions we have taken interpreting the REIT requirements. We also are required to distribute to our stockholders at least 90% of
our REIT taxable income (excluding capital gains). The fact that we hold some of our assets through partnerships and their subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could
jeopardize our REIT status. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT.



If we fail to qualify as a REIT for federal income tax purposes, we would
be subject to federal income tax at regular corporate rates. Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first failed to qualify. If we failed
to qualify as a REIT, we would have to pay significant income taxes. This likely would have a significant adverse affect on the value of our securities. In addition, we would no longer be required to pay any dividends to stockholders.



Even if we qualify as a REIT for federal income tax purposes,
we are required to pay certain federal, state and local taxes on our income and property. For example, if we have net income from



---

prohibited transactions, that income will be subject to a 100% tax. In general, prohibited transactions are
sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that
sale. While we undertake sales of assets that become inconsistent with our long term strategic or return objectives, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance that the IRS would
not contend otherwise. In addition, any net taxable income earned directly by some of our affiliates, including Carr Real Estate Services, Inc. and CarrAmerica Development, Inc., is subject to federal and state corporate income tax. In this regard,
several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to
deduct interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by the taxable REIT subsidiaries if the economic arrangements between the REIT,
the REITs tenants, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Several entities in which we own interests, including Carr Real Estate Services, Inc. and CarrAmerica Development, Inc.,
have elected to be taxable REIT subsidiaries. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income. To the extent that we and our affiliates are required
to pay federal, state and local taxes, we will have less cash available for distributions to our shareholders.