##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to
 COMMISSION FILE NO. 001-32536
 COLUMBIA EQUITY TRUST, INC.
  Maryland
    
    20-1978579(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)1750 H Street, N.W.,Suite 500, Washington, D.C.
    
    20006(Address of principal executive office)
    
    (Zip code)
 (202) 303-3080
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ




---



##### 



COLUMBIA EQUITY TRUST, INC.
FORM 10-Q
 TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements.
    
    
    3Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005 for Columbia Equity Trust, Inc.
    
    
    4Statements of Operations for the three months ended March 31, 2006 (unaudited) for Columbia Equity Trust, Inc. and for the three months ended March 31, 2005 (unaudited) for Combined Columbia Predecessor
    
    
    5Statements of Cash Flows for the three months ended March 31, 2006 (unaudited) for Columbia Equity Trust, Inc. and for the three months ended March 31, 2005 (unaudited) for Combined Columbia Predecessor
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    37Item 4. Controls and Procedures.
    
    
    37PART II  OTHER INFORMATIONItem 1A. Risk Factors.
    
    
    39Item 6. Exhibits.
    
    
    39SIGNATURES
    
    
    41EXHIBIT INDEX
    
    
    42
 2




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##### 



PART I
 FINANCIAL INFORMATION
 Item 1. Financial Statements
    3




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##### 



COLUMBIA EQUITY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsRental propertyLand
    
    $
    25,040,819
    
    
    $
    19,300,819Buildings
    
    
    140,658,743
    
    
    
    120,509,954Tenant improvements
    
    
    29,507,785
    
    
    
    24,377,997Furniture, fixtures and equipment
    
    
    1,062,094
    
    
    
    1,088,989196,269,441
    
    
    
    165,277,759Accumulated depreciation
    
    
    (4,893,370
    )
    
    
    (2,805,222
    )Total rental property, net
    
    
    191,376,071
    
    
    
    162,472,537Cash and cash equivalents
    
    
    9,746,733
    
    
    
    8,149,634Restricted deposits
    
    
    346,581
    
    
    
    256,356Accounts and other receivables, net of reserves for doubtful
accounts of $61,124 and $39,401, respectively
    
    
    1,555,714
    
    
    
    1,039,510Investments in unconsolidated real estate entities
    
    
    41,339,516
    
    
    
    42,308,003Accrued straight-line rents
    
    
    1,022,870
    
    
    
    524,258Deferred leasing costs, net
    
    
    737,290
    
    
    
    490,609Deferred financing costs, net
    
    
    973,350
    
    
    
    955,129Intangible assetsAbove market leases, net
    
    
    3,646,185
    
    
    
    3,610,453In-place leases, net
    
    
    18,853,572
    
    
    
    15,813,098Tenant relationships, net
    
    
    7,193,342
    
    
    
    6,387,594Prepaid expenses and other assets
    
    
    954,460
    
    
    
    1,323,308Total assets
    
    $
    277,745,684
    
    
    $
    243,330,489Liabilities and Stockholders EquityLiabilitiesRevolving loan payable
    
    $
    10,250,000
    
    
    $
    22,000,000Mortgage notes payable
    
    
    74,122,093
    
    
    
    27,358,998Accounts payable and accrued expenses
    
    
    3,137,545
    
    
    
    2,252,575Dividends payable
    
    
    2,079,500
    
    
    
    1,940,867Security deposits
    
    
    1,242,117
    
    
    
    945,158Rent received in advance
    
    
    1,008,251
    
    
    
    758,265Deferred credits  Below market leases, net
    
    
    2,468,522
    
    
    
    1,593,812Other liabilities
    
    
    92,839
    
    
    
    Total liabilities
    
    
    94,400,867
    
    
    
    56,849,675Commitments and contingenciesMinority interest
    
    
    14,160,891
    
    
    
    14,205,638Stockholders equityPreferred stock, $0.001 par value, 100,000,000 shares authorized in
2006 and 2005, no shares issued or outstanding in either period
    
    
    
    
    
    
    Common stock, $0.001 par value, 500,000,000 shares authorized
and 13,863,334 shares issued and outstanding in 2006 and 2005
    
    
    13,863
    
    
    
    13,863Additional paid-in capital
    
    
    178,366,298
    
    
    
    178,366,298Cumulative dividends in excess of net income
    
    
    (9,196,235
    )
    
    
    (6,104,985
    )Total stockholders equity
    
    
    169,183,926
    
    
    
    172,275,176Total liabilities and stockholders equity
    
    $
    277,745,684
    
    
    $
    243,330,489
  4




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##### 



COLUMBIA EQUITY TRUST, INC.
AND COLUMBIA EQUITY TRUST, INC. PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
 CombinedConsolidated
    
    
    ColumbiaColumbia Equity
    
    
    Predecessor for theTrust, Inc. for the
    
    
    Three MonthsThree Months Ended
    
    
    EndedMarch 31, 2006
    
    
    March 31, 2005(Unaudited)
    
    
    (Unaudited)RevenuesBase rents
    
    $
    6,193,981
    
    
    $
    Recoveries from tenants
    
    
    309,297
    
    
    
    Fee income, primarily from related parties
    
    
    404,348
    
    
    
    622,359Parking and other income
    
    
    136,209
    
    
    
    Total revenues
    
    
    7,043,835
    
    
    
    622,359Operating expensesProperty operating
    
    
    1,141,194
    
    
    
    Utilities
    
    
    532,184
    
    
    
    Real estate taxes and insurance
    
    
    656,837
    
    
    
    General and administrative
    
    
    829,623
    
    
    
    378,974Share-based compensation cost
    
    
    234,750
    
    
    
    Depreciation and amortization
    
    
    3,458,389
    
    
    
    3,003Total operating expenses
    
    
    6,852,977
    
    
    
    381,977Operating income
    
    
    190,858
    
    
    
    240,382Other income and expenseInterest income
    
    
    43,335
    
    
    
    5,332Interest expense
    
    
    (1,151,974
    )
    
    
    (2,250
    )(Loss) income before income taxes, equity in net (loss) income of
unconsolidated real estate entities and minority interest
    
    
    (917,781
    )
    
    
    243,464Equity in net (loss) income of unconsolidated real estate entities
    
    
    (135,970
    )
    
    
    102,917Minority interest
    
    
    75,501
    
    
    
    (Loss) income before income taxes
    
    
    (978,250
    )
    
    
    346,381Provision for income taxes
    
    
    33,500
    
    
    
    34,061Net (loss) income
    
    $
    (1,011,750
    )
    
    $
    312,320Net loss per common share  Basic and diluted
    
    $
    (0.07
    )Weighted average shares of common stock
outstanding  Basic and diluted
    
    
    13,863,334
  5




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##### 



COLUMBIA EQUITY TRUST, INC.
AND COLUMBIA EQUITY TRUST, INC. PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
 Consolidated
    
    
    CombinedColumbia Equity
    
    
    ColumbiaTrust, Inc. for the
    
    
    Predecessor for theThree Months Ended
    
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005(Unaudited)
    
    
    (Unaudited)Cash flows from operating activitiesNet (loss) income
    
    $
    (1,011,750
    )
    
    $
    312,320Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activitiesMinority interest
    
    
    (75,501
    )
    
    
    Equity in net income of unconsolidated real estate entities
    
    
    135,970
    
    
    
    (102,917
    )Compensation cost related to LTIP units
    
    
    191,250
    
    
    
    Distributions received from earnings of unconsolidated
real estate entities
    
    
    159,486
    
    
    
    19,055Depreciation and amortization
    
    
    3,458,389
    
    
    
    3,003Amortization of above and below market leases
    
    
    89,035
    
    
    
    Amortization of deferred financing costs
    
    
    107,174
    
    
    
    Provision for doubtful accounts
    
    
    21,724
    
    
    
    Changes in assets and liabilitiesAccounts and other receivables
    
    
    (537,928
    )
    
    
    (23,198
    )Accrued straight-line rents
    
    
    (498,611
    )
    
    
    Deferred leasing costs
    
    
    (271,299
    )
    
    
    Deferred offering costs
    
    
    
    
    
    
    (1,243,306
    )Prepaid expenses and other assets
    
    
    (26,138
    )
    
    
    (500,111
    )Accounts payable and accrued expenses
    
    
    692,378
    
    
    
    1,230,637Accrued interest payable to stockholders
    
    
    
    
    
    
    2,250Rent received in advance
    
    
    95,777
    
    
    
    Other liabilities
    
    
    2,283
    
    
    
    Net cash provided by (used in) operating activities
    
    
    2,532,239
    
    
    
    (302,267
    )Cash flows from investing activitiesPurchases of interests in rental property and related net assets
    
    
    (14,187,258
    )
    
    
    Deposit on pending purchase of interest in rental property
    
    
    (150,000
    )
    
    
    Additions to rental properties
    
    
    (1,146,856
    )
    
    
    Additions to rental property furniture, fixtures and equipment
    
    
    (7,995
    )
    
    
    (396
    )Restricted deposits
    
    
    67,310
    
    
    
    Distributions in excess of net income
received from real estate entities
    
    
    673,031
    
    
    
    49,857Contributions made to unconsolidated real estate entities
    
    
    
    
    
    
    (100,000
    )Net cash used in investing activities
    
    
    (14,751,768
    )
    
    
    (50,539
    )Cash flows from financing activitiesBorrowings under revolving credit line
    
    
    14,550,000
    
    
    
    Repayment of revolving credit line borrowings
    
    
    (26,300,000
    )
    
    
    Mortgage note borrowings
    
    
    27,685,985
    
    
    
    Repayments of mortgage note
    
    
    (33,752
    )
    
    
    Dividends
    
    
    (1,940,867
    )
    
    
    Distributions to minority interest
    
    
    (149,796
    )
    
    
    (60,424
    )Security deposits received
    
    
    5,058
    
    
    
    Net cash provided by (used in) financing activities
    
    
    13,816,628
    
    
    
    (60,424
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,597,099
    
    
    
    (413,230
    )Cash and cash equivalents, beginning of period
    
    
    8,149,634
    
    
    
    1,188,146Cash and cash equivalents, end of period
    
    $
    9,746,733
    
    
    $
    774,916Supplemental disclosuresCash paid for income taxes
    
    $
    33,500
    
    
    $
    Cash paid for interest
    
    $
    911,762
    
    
    $
    Debt assumed in purchases of interests in rental property
    
    $
    19,000,000
    
    
    $
    Liability for asbestos remebiation assumed as part of
purchase of rental property
    
    $
    90,556
    
    
    $
    
  6




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##### 



COLUMBIA EQUITY TRUST, INC. AND
COLUMBIA EQUITY TRUST, INC. PREDECESSOR
 NOTES TO FINANCIAL STATEMENTS
 1. Organization and Description of Business
     2. Basis of Presentation and Summary of Significant Accounting Policies
 a) Unaudited Interim Consolidated Financial Information
  7




---



##### 



b) Principles of Consolidation
  c) Cash and Cash Equivalents
  d) Fair Value of Financial Instruments
  e) Revenue Recognition
   f) Investments in Rental Property
  8




---



##### 



g) Investments in Unconsolidated Real Estate Entities
    h) Minority Interest
  9




---



##### 



i) Tenant Leasing Costs
  j) Deferred Financing Costs
  k) Share Based Compensation
  l) New Accounting Pronouncements
  10




---



##### 



m) Income Taxes
   n) Managements Estimates
  o) Segment Disclosure
  p) Concentration of Credit Risk
   q) Comprehensive Income
  11




---



##### 



3. Earnings Per Share
  For the ThreeMonths EndedMarch 31, 2006Net loss
    
    $
    (1,011,750
    )Weighted average shares outstanding
    
    
    13,863,334Basic and diluted loss per share
    
    $
    (0.07
    )
  4. Office Property Acquisition
  12




---



##### 



Rental property
    
    $
    29,811,000Intangible assets
    
    
    5,443,000Other assets
    
    
    295,000Total assets acquired
    
    
    35,459,000Mortgage note payable
    
    
    19,000,000Deferred credits
    
    
    1,001,000Other liabilities
    
    
    692,000Total liabilities assumed
    
    
    20,603,000Net assets acquired
    
    $
    14,856,000
  Pro Forma
    
    
    Actual ResultsFor the Three
    
    
    For the ThreeMonths Ended
    
    
    Months EndedMarch 31, 2006
    
    
    March 31, 2006(unaudited)
    
    
    (unaudited)Revenues
    
    $
    7,162,000
    
    
    $
    7,043,834Net loss
    
    $
    (1,049,000
    )
    
    $
    (1,011,750
    )Net loss per share
    
    $
    (0.08
    )
    
    $
    (0.07
    )Weighted average number
of shares outstanding
    
    
    13,863,334
    
    
    
    13,863,334
 13




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##### 



5. Investments in Unconsolidated Real Estate Entities
  Square
    
    
    PercentProperty
    
    Location
    
    Feet
    
    
    Owned1575 Eye Street
    
    Washington, D.C.
    
    210,372
    
    
    9.18
    %Atrium
    
    Alexandria, Va.
    
    138,507
    
    
    37.00
    %Barlow Building
    
    Chevy Chase, Md.
    
    270,562
    
    
    40.00
    %Independence Center  I
    
    Chantilly, Va.
    
    275,003
    
    
    14.74
    %Independence Center  II
    
    Chantilly, Va.
    
    (1
    )
    
    8.10
    %King Street
    
    Alexandria, Va.
    
    149,080
    
    
    50.00
    %Madison Place
    
    Alexandria, Va.
    
    108,252
    
    
    50.00
    %Suffolk Building
    
    Falls Church, Va.
    
    257,425
    
    
    36.50
    %Victory Point
    
    Chantilly, Va.
    
    147,966
    
    
    10.00
    %
 
 (1)
    
    A 115,368 square foot office building is currently under construction.  2006
    
    
    2005AssetsInvestments in real estate
    
    $
    306,421,474
    
    
    $
    306,193,345Receivables and deferred rents
    
    
    9,404,557
    
    
    
    9,458,009Other assets
    
    
    50,943,886
    
    
    
    51,513,600Total assets
    
    $
    366,769,917
    
    
    $
    367,164,954Liabilities and EquityMortgage loans
    
    $
    258,511,628
    
    
    $
    255,897,580Other liabilities
    
    
    16,212,547
    
    
    
    16,515,825Equity  Columbia Equity Trust, Inc.
    
    
    34,355,079
    
    
    
    35,176,959Equity  Other owners
    
    
    57,690,663
    
    
    
    59,574,590Total liabilities and equity
    
    $
    366,769,917
    
    
    $
    367,164,954,
    ,
 14




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##### 



For the Three
    
    
    For the ThreeMonths Ended
    
    
    Months EndedMarch 31, 2006
    
    
    March 31, 2005Revenues
    
    $
    11,363,913
    
    
    $
    9,003,755Operating and other expenses
    
    
    4,128,593
    
    
    
    3,421,414Depreciation
    
    
    4,000,671
    
    
    
    2,652,443Interest
    
    
    3,323,323
    
    
    
    3,052,529Total expenses
    
    
    11,452,587
    
    
    
    9,126,386Net income (loss)
    
    $
    (88,674
    )
    
    $
    (122,631
    )Company and Columbia Predecessor
share of net (loss) income, net
    
    $
    (135,970
    )
    
    $
    6,674Equity in net income of real estate entities not contributed by Columbia Predecessor at the Initial Public Offering
    
    
    
    
    
    
    96,243Equity in net (loss) income of unconsolidated real estate entities
    
    $
    (135,970
    )
    
    $
    102,917
 6. Intangible Assets
  March 31,
    
    
    December 31,2006
    
    
    2005Intangible AssetsAbove market leases
    
    $
    4,144,197
    
    
    $
    3,892,695Accumulated amortization
    
    
    (498,012
    )
    
    
    (282,242
    )$
    3,646,185
    
    
    $
    3,610,453In-Place leases
    
    $
    20,980,594
    
    
    $
    16,980,485Accumulated amortization
    
    
    (2,127,022
    )
    
    
    (1,167,387
    )$
    18,853,572
    
    
    $
    15,813,098Tenant relationships
    
    $
    8,083,050
    
    
    $
    6,891,313Accumulated amortization
    
    
    (889,708
    )
    
    
    (503,719
    )$
    7,193,342
    
    
    $
    6,387,594Deferred CreditsBelow market leases
    
    $
    2,712,404
    
    
    $
    1,710,959Accumulated amortization
    
    
    (243,882
    )
    
    
    (117,147
    )$
    2,468,522
    
    
    $
    1,593,812
 15




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##### 



7. Debt Agreements
  FairType/
    
    
    
    
    
    
    
    
    
    Note
    
    
    ValueIssuer
    
    Rate
    
    
    Maturity
    
    
    Principal
    
    
    Adjustment
    
    
    TotalCredit Facility
    
    
    5.81
    %
    
    
    11/28/2007
    
    
    $
    10,250,000
    
    
    $
    
    
    
    $
    10,250,0001025 Vermont
    
    
    5.11
    %
    
    
    01/01/2010
    
    
    
    22,500,000
    
    
    
    
    
    
    
    22,500,000Meadows IV
    
    
    4.95
    %
    
    
    11/01/2011
    
    
    
    19,000,000
    
    
    
    
    
    
    
    19,000,000Park Plaza II
    
    
    5.53
    %
    
    
    02/01/2016
    
    
    
    24,290,000
    
    
    
    
    
    
    
    24,290,000Patrick Henry
    
    
    5.02
    %
    
    
    04/01/2009
    
    
    
    8,411,892
    
    
    
    (79,799
    )
    
    
    8,332,093$
    84,451,892
    
    
    $
    (79,799
    )
    
    $
    84,372,093
  FairType/
    
    
    
    
    
    
    
    
    
    Note
    
    
    ValueIssuer
    
    Rate
    
    
    Maturity
    
    
    Principal
    
    
    Adjustment
    
    
    TotalCredit Facility
    
    
    5.55
    %
    
    
    11/28/2007
    
    
    $
    22,000,000
    
    
    $
    
    
    
    $
    22,000,000Meadows IV
    
    
    4.95
    %
    
    
    11/01/2011
    
    
    
    19,000,000
    
    
    
    
    
    
    
    19,000,000Patrick Henry
    
    
    5.02
    %
    
    
    04/01/2009
    
    
    
    8,445,643
    
    
    
    (86,645
    )
    
    
    8,358,998$
    49,445,643
    
    
    $
    (86,645
    )
    
    $
    49,358,998
  16




---



##### 



2006
    
    $
    97,9402007
    
    
    10,388,5332008
    
    
    144,5902009
    
    
    8,030,8292010
    
    
    22,500,0002011
    
    
    19,000,000Thereafter
    
    
    24,290,000$
    84,451,892
 8. Income and Other Taxes
  17




---



##### 



9. Equity Compensation Plan
   Minority Interest andCompensation ExpenseAs of March 31, 2006
    
    
    Recognized for theLTIP Units
    
    
    LTIP Units
    
    
    Three Months EndedRecipient Class
    
    Granted
    
    
    Vested
    
    
    March 31, 2006Directors
    
    
    20,000
    
    
    
    20,000
    
    
    $
    Consultants
    
    
    15,000
    
    
    
    15,000
    
    
    
    Employees
    
    
    255,000
    
    
    
    
    
    
    
    191,250290,000
    
    
    
    35,000
    
    
    $
    191,250
 10. Minimum Future Rentals
   Year EndingDecember 31,2006 (nine months)
    
    $
    18,140,1812007
    
    
    24,391,3422008
    
    
    23,489,1212009
    
    
    21,720,1692010
    
    
    17,059,7242011
    
    
    13,714,633Thereafter
    
    
    22,286,795$
    140,801,965
  11. Related Party Transactions
  18




---



##### 



Transactions Reflected in the Consolidated and Combined Financial Statements
      For the Three
    
    For the ThreeMonths Ended
    
    Months EndedService
    
    March 31, 2006
    
    March 31, 2005RevenuesAsset management
    
    $
    76,785
    
    
    $
    352,731Construction management
    
    
    31,257
    
    
    
    Transaction advisory
    
    
    
    
    
    
    272,524Rental revenues
    
    
    42,102
    
    
    
    13,198ExpensesOffice space
    
    
    63,485
    
    
    
    37,554Administrative services
    
    
    17,868
    
    
    
    22,500
 As of
    
    As ofMarch 31,
    
    December 31,2006
    
    2005ReceivablesAsset management
    
    $
    46,895
    
    
    $
    166,850Construction management
    
    
    31,257
    
    
    
    40,242Rental revenues
    
    
    13,999
    
    
    
    13,999
 19




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##### 



Transactions Reflected in the Unconsolidated Real Estate Entities
       12. Commitments
   20




---



##### 



13. Subsequent Events
   21




---



##### 



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
   Forward Looking Statements
   
    
    general risks affecting the commercial office property industry;
    
    risks associated with the availability and terms of financing and the use of debt,
equity or other types of financings;
    
    failure to manage effectively (i) our growth and (ii) our transition from a privately
held to a publicly held company;
    
    risks and uncertainties affecting property development and construction;
    
    risks associated with downturns in the national and local economies, increases in
interest rates and volatility in the securities markets;
    
    risks associated with actual and threatened terrorist attacks;
    
    costs of compliance with the Americans with Disabilities Act and other similar laws and
potential liability for uninsured losses and environmental contamination;
    
    risks associated with the potential failure to qualify as a REIT; and
 22




---



##### 




    
    the other risk factors identified in Part I, Item 1A  Risk Factors contained in our
Annual Report on Form 10-K for the year ended December 31, 2005.
  Overview and Recent Developments
    
    
    owned interests in 18 commercial office properties consisting of approximately 2.6
million square feet and one development property, including:
 -
    
    100% fee simple ownership in nine properties totaling approximately
946,000 square feet of net rentable area;-
    
    a 100% leasehold interest in an approximately 126,000 square foot
office building in North Rockville, Maryland (the property is subject to a ground
lease with a remaining term, including extension options, of 70 years);-
    
    partial interests ranging from 9% to 50% in eight office properties
totaling approximately 1.6 million square feet of net rentable area; and-
    
    an 8.1% joint venture interest in an approximately 115,000 square
foot office building development adjacent to our Independence Center I property.
 
    
    provided asset management services to related parties for three office buildings
containing approximately 690,000 net rentable square feet and two hotel properties
containing approximately 610 rooms.
  
    
    On January 12, 2006, we completed the acquisition of 1025 Vermont Avenue in Washington,
D.C. for a purchase price of approximately $34.1 million, net of transaction costs. The
transaction was funded with borrowings under our credit facility and the assumption of a
$19.0 million mortgage loan which bears interest at 4.91% and matures in January 2010.
Subsequent to the closing of the acquisition, the lender for the mortgage loan advanced an
additional $3.5 million in loan proceeds
 23




---



##### 



resulting in an outstanding balance of $22.5 million. Concurrent with the increase in loan
proceeds, the interest rate was re-set to a fixed rate of 5.11%. The additional loan
proceeds were used to repay amounts outstanding under our credit facility. The property
contains approximately 115,000 net rentable square feet of space and was 97% leased to 27
tenants at the time of acquisition.
    
    On February 16, 2006, we completed a $24.3 million, ten-year mortgage financing at a
rate of 5.53% per annum that matures in March 2016. The financing requires monthly
payments of interest-only at a fixed interest rate of 5.53% through March 2012 and monthly
payments of principal and interest from April 2012 through February 2016 based on a fixed
interest rate of 5.53% and a 360 month amortization schedule. The financing is secured by
our leasehold interest in Park Plaza II.
  Subsequent Events
  Our Business Strategy
  
    
    Investing in Small-to-Medium Size Office Buildings.We invest principally in
small-to-medium size office properties with an initial cost between $10 and $60 million as
we believe these properties present opportunities for attractive, risk-adjusted returns
due to the lower degree of institutional focus on this segment of the office market.
    
    Selective and Strategic Geographic Focus. We focus primarily on the Greater
Washington, D.C. commercial office property market to take advantage of the strong
economic and demographic characteristics of that market, leverage our local market
expertise and relationships and create economies of scale through the clustering of
properties.
    
    Intensive and Efficient Asset Management.We intensively manage each of our
properties through active property leasing and targeted capital improvements, which may
include re-positioning or redeveloping certain properties, while maintaining efficiency
through the outsourcing of non-strategic property functions.
 24




---



##### 




    
    Strategic Joint Ventures.We selectively enter into joint ventures where appropriate
to leverage our equity returns through fees and disproportionate cash flow distributions,
as well as manage the risks associated with certain properties that may be inappropriate
to wholly own due to size or vacancy levels.
    
    Recycling Capital.We evaluate individual properties in our portfolio to assess their
future potential growth against current market values. If we believe that we have
maximized a propertys value potential, we will look to sell or recapitalize the property
and reinvest the profit generated from the sale or recapitalization into new investments
that offer improved earnings potential for our stockholders.
    
    Maintain Investment Flexibility. When the market for new acquisitions remains
competitive, we will consider allocating additional capital into development and
alternative investment structures, including equity joint ventures and mezzanine debt,
which may offer investment yields above those provided through wholly owned property
acquisitions. In addition, we will consider investments in contiguous markets, as well as
investments in mixed-use properties, that provide an appropriate investment yield premium.
 Office Market Commentary
   
    
    Market-wide office vacancy levels remained low decreasing to 9.0% at March 31, 2006.
This compares to vacancy rates of 9.2% at December 31, 2005; 9.5% at September 30, 2005;
10.0% at June 30, 2005; and 10.3% at March 31, 2005.
    
    Vacancy levels by region at March 31, 2006 stood at 7.4% for the District of Columbia;
9.4% for suburban Maryland; and 10.0% for northern Virginia.
    
    The average quoted asking rental rate for all classes of available office space was
$30.73 at March 31, 2006, representing a 1.4% increase in quoted rental rates from $30.30
at March 31, 2005.
    
    There was approximately 16.2 million square feet of office space under construction at
March 31, 2006, represented by 6.5 million square feet in the District of Columbia, 8.3
million square feet in northern Virginia and 1.4 million square feet in suburban Maryland.
This compares to a total of 12.2 million square feet of office space under construction at
March 31, 2005.
    25




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##### 



Our ProRata Shareof TotalAnnualizedYear
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rent as a %Acquired
    
    
    
    
    
    Net Rentable
    
    Occupancy
    
    Total
    
    of our TotalOwnership
    
    
    
    
    
    
    
    
    
    by Columbia
    
    Year Built/
    
    Area
    
    at
    
    Annualized
    
    AnnualizedProperty (1)
    
    Interest
    
    Tenancy
    
    Market
    
    or Predecessor
    
    Renovated
    
    (Square Feet)
    
    March 31, 2006
    
    Rent (2)
    
    Rent (3)1025 Vermont Avenue
    
    
    100
    %
    
    Multi-Tenant
    
    Washington, D.C.
    
    
    2006
    
    
    
    1964 - 2003
    
    
    
    114,801
    
    
    
    97
    %
    
    $
    3,892,356
    
    
    
    10.5
    %14700 Lee Road
    
    
    100
    %
    
    Single Tenant
    
    Northern Virginia
    
    
    2005
    
    
    
    2000
    
    
    
    84,652
    
    
    
    100
    %
    
    
    2,126,280
    
    
    
    5.8
    %Fair Oaks
    
    
    100
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2001
    
    
    
    1985
    
    
    
    126,949
    
    
    
    95
    %
    
    
    2,593,740
    
    
    
    7.0
    %Greenbriar
    
    
    100
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2001
    
    
    
    1985 - 1998
    
    
    
    111,721
    
    
    
    88
    %
    
    
    2,118,372
    
    
    
    5.7
    %Loudoun Gateway IV
    
    
    100
    %
    
    Single Tenant
    
    Northern Virginia
    
    
    2005
    
    
    
    2002
    
    
    
    102,987
    
    
    
    100
    %
    
    
    1,563,096
    
    
    
    4.2
    %Meadows IV
    
    
    100
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2004
    
    
    
    1988 - 1997
    
    
    
    148,160
    
    
    
    100
    %
    
    
    3,216,852
    
    
    
    8.7
    %Oakton
    
    
    100
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2005
    
    
    
    1985
    
    
    
    64,648
    
    
    
    100
    %
    
    
    1,684,272
    
    
    
    4.6
    %Park Plaza II (4)
    
    
    100
    %
    
    Multi-Tenant
    
    Suburban Maryland
    
    
    2005
    
    
    
    2001
    
    
    
    126,228
    
    
    
    98
    %
    
    
    3,812,808
    
    
    
    10.3
    %Patrick Henry
    
    
    100
    %
    
    Multi-Tenant
    
    Newport News, VA
    
    
    2005
    
    
    
    1989
    
    
    
    98,883
    
    
    
    94
    %
    
    
    1,796,136
    
    
    
    4.9
    %Sherwood Plaza
    
    
    100
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2000
    
    
    
    1984
    
    
    
    92,960
    
    
    
    100
    %
    
    
    2,090,448
    
    
    
    5.7
    %King Street
    
    
    50
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    1999
    
    
    
    1984 - 2004
    
    
    
    149,080
    
    
    
    86
    %
    
    
    3,812,976
    
    
    
    5.2
    %Madison Place
    
    
    50
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2003
    
    
    
    1989
    
    
    
    108,252
    
    
    
    81
    %
    
    
    2,403,300
    
    
    
    3.2
    %Barlow Building
    
    
    40
    %
    
    Multi-Tenant
    
    Suburban Maryland
    
    
    2005
    
    
    
    1966 - 2001
    
    
    
    270,562
    
    
    
    93
    %
    
    
    8,899,404
    
    
    
    9.6
    %Atrium Building
    
    
    37
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2004
    
    
    
    1978 - 1999
    
    
    
    138,507
    
    
    
    100
    %
    
    
    4,009,632
    
    
    
    4.0
    %Suffolk Building
    
    
    37
    %
    
    Single Tenant
    
    Northern Virginia
    
    
    2005
    
    
    
    1964 - 2003
    
    
    
    257,425
    
    
    
    100
    %
    
    
    6,381,528
    
    
    
    6.3
    %Independence Center
    
    
    15
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2002
    
    
    
    1999
    
    
    
    275,002
    
    
    
    92
    %
    
    
    5,714,028
    
    
    
    2.3
    %1575 Eye Street
    
    
    9
    %
    
    Multi-Tenant
    
    Washington, D.C.
    
    
    2002
    
    
    
    1979
    
    
    
    210,372
    
    
    
    99
    %
    
    
    7,912,368
    
    
    
    2.0
    %Victory Point
    
    
    10
    %
    
    Multi-Tenant
    
    Northern Virginia
    
    
    2005
    
    
    
    1989 - 2005
    
    
    
    147,966
    
    
    
    0
    %
    
    
    
    
    
    
    0.0
    %Total / Weighted
Average (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,629,155
    
    
    
    95
    %
    
    $
    64,027,596
    
    
    
    100
    %
 
 26




---



##### 



(1)
    
    Information set forth in this table excludes our 8.1% ownership interest in the joint
venture that owns the Independence Center II development property.(2)
    
    Annualized rent is calculated by multiplying by a factor of twelve the actual
contractual monthly base rent at March 31, 2006 for each tenant. Total annualized rent
includes our joint venture partners pro rata share of contractual base rent.(3)
    
    Represents the percentage of our pro rata share of annualized rent (which is based
upon our percentage ownership interest in each property) divided by our total pro rata
share of annualized rent of our portfolio.(4)
    
    The property is subject to a ground lease with a remaining term, including extension
options, of 70 years.(5)
    
    Excludes the occupancy of Victory Point which was acquired vacant in March 2005 by
Columbia Predecessor through a joint venture and is currently being re-developed. The
weighted average occupancy including Victory Point was approximately 89% at March 31,
2006. We expect Victory Point to be placed in-service during the second quarter of 2006. Summary of Critical Accounting Policies and Estimates
   Revenue Recognition and Allowance for Doubtful Accounts Receivable
   Investments in Real Estate
   27




---



##### 



Investments in Unconsolidated Real Estate Entities
  Depreciation, Amortization and Impairment of Long-Lived Assets
  28




---



##### 



Results of Operations
  Comparison of Three Months Ended March 31, 2006 to Three Months Ended March 31, 2005
 Base Rents
  Recoveries from Tenants
  Fee Income
  29




---



##### 



Property Operating Expenses
  Utility Expenses
  Real Estate Taxes and Insurance Expenses
  General and Administrative Expenses
  Share-based Compensation Cost
  Depreciation and Amortization Expenses
  30




---



##### 



Interest Income
  Interest Expense
  Equity in Net Income (Loss) of Unconsolidated Real Estate Entities
  Minority Interest
  Net Income
  Consolidated Cash Flows
  31




---



##### 



Liquidity and Capital Resources
  Short-term Liquidity
  
    
    recurring maintenance, repairs and other operating expenses necessary to
properly maintain our properties;
    
    property taxes and insurance expenses;
    
    interest expense and scheduled principal payments on outstanding indebtedness;
    
    capital expenditures incurred to facilitate the leasing of space at our
properties, including tenant improvements and leasing commissions;
    
    general and administrative expenses; and
    
    distributions to our stockholders and operating partnership unit holders.
  32




---



##### 



Long-term Liquidity
      33




---



##### 



Pro Rata Share ofPrincipal Balance
    
    Principal Balanceas of
    
    as ofInterest Rate
    
    
    Maturity Date
    
    
    March 31, 2006
    
    
    March 31, 2006 (1)Consolidated Debt (2)Fixed RatePatrick Henry
    
    
    5.02%
    
    
    
    04/01/2009
    
    
    $
    8,332,093
    
    
    $
    8,332,093Meadows IV
    
    
    4.95%
    
    
    
    11/01/2011
    
    
    
    19,000,000
    
    
    
    19,000,000Park Plaza II
    
    
    5.53%
    
    
    
    03/04/2016
    
    
    
    24,290,000
    
    
    
    24,290,0001025 Vermont Avenue
    
    
    5.11%
    
    
    
    01/01/2010
    
    
    
    22,500,000
    
    
    
    22,500,000Floating RateCredit Facility
    
    LIBOR + 1.10 - 1.35%
    
    
    11/28/2007
    
    
    
    10,250,000
    
    
    
    10,250,000Subtotal
    
    
    
    
    
    
    
    
    
    
    84,372,093
    
    
    
    84,372,093Unconsolidated Debt (2)Fixed RateKing Street
    
    
    5.06%
    
    
    
    03/01/2008
    
    
    
    21,517,146
    
    
    
    10,758,573Madison Place
    
    
    4.49%
    
    
    
    08/01/2008
    
    
    
    15,301,289
    
    
    
    7,650,6441575 Eye Street
    
    
    6.82%
    
    
    
    03/01/2009
    
    
    
    42,454,939
    
    
    
    3,893,118Independence Center
I
    
    
    5.04%
    
    
    
    09/10/2009
    
    
    
    30,858,090
    
    
    
    4,548,482Independence Center
II
    
    
    6.02%
    
    
    
    09/10/2009
    
    
    
    5,117,411
    
    
    
    414,510Barlow Building
    
    
    5.04%
    
    
    
    08/01/2012
    
    
    
    61,750,000
    
    
    
    24,700,000Atrium  Loan # 1
    
    
    8.43%
    
    
    
    09/01/2012
    
    
    
    17,993,957
    
    
    
    6,657,764Atrium  Loan # 2
    
    
    6.21%
    
    
    
    09/01/2012
    
    
    
    5,814,565
    
    
    
    2,151,389Suffolk
    
    
    5.10%
    
    
    
    05/04/2015
    
    
    
    42,000,000
    
    
    
    15,330,000Floating RateVictory Point
    
    LIBOR + 2.95%
    
    
    03/31/2008
    
    
    
    15,704,233
    
    
    
    1,570,423Subtotal
    
    
    
    
    
    
    
    
    
    
    258,511,629
    
    
    
    77,674,904Total
    
    
    
    
    
    
    
    
    
    $
    342,883,722
    
    
    $
    162,046,997
 
 (1)
    
    Principal amount multiplied by our percentage interest in the joint venture entity that
owns the property.(2)
    
    With the exception of a limited guarantee in the amount of approximately $737,000 for
the debt at our Independence Center II property, our pro rata share of unconsolidated debt
is non-recourse to us and is collateralized by the real estate properties held by the
joint venture entities.  Unconsolidated Investments and Joint Ventures
  34




---



##### 




    
    Absence of exclusive control over the development, financing, leasing, management and
other aspects of the project; and
    
    Possibility that our co-venturer or partner might:
 o
    
    become bankrupt;o
    
    have interests or goals that are inconsistent with ours;o
    
    take action contrary to our instructions, requests or interests
(including those related to our qualification as a REIT for tax purposes); oro
    
    otherwise impede our objectives; and
 
    
    Possibility that we may elect to fund losses of the joint venture.
 Off Balance Sheet Arrangements
    35




---



##### 



Cash Distribution Policy
  Inflation
  Geographic Concentration
  Funds From Operations
  36




---



##### 



Net loss
    
    $
    (1,011,750
    )AdjustmentsMinority interests
    
    
    (75,501
    )Depreciation and amortization  consolidated entities, excluding corporate assets
    
    
    3,453,202Depreciation and amortization  unconsolidated entities
    
    
    1,423,675Funds from operations
    
    $
    3,789,626
 Item 3. Quantitative and Qualitative Disclosure About Market Risk
     Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
 37




---



##### 



38




---



##### 



PART
II  OTHER INFORMATION
 Item 1A. Risk Factors
  Item 6. Exhibits.
 3.1
    
    Articles of Amendment and Restatement of the Registrant (incorporated by reference to Exhibit 3.1
to the Companys Registration Statement on Form S-11/A (Registration No. 333-122644) filed on June
28, 2005).3.2
    
    Amended and Restated Bylaws of the Registrant Registrant (incorporated by reference to Exhibit 3.2
to the Companys Registration Statement on Form S-11/A (Registration No. 333-122644) filed on June
28, 2005).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrants
Quarterly Form 10-Q filed on November 14, 2005).4.2
    
    Amended and Restated Agreement of Limited Partnership of Columbia Equity, LP (incorporated by
reference to Exhibit 3.3 to the Companys Registration Statement on Form S-11/A (Registration No.
333-122644) filed on June 28, 2005).10.1
    
    Transfer and Assumption and Loan Modification by and between Principal Life Insurance Company and
1025 Vermont Avenue, LLC, dated January 12, 2006 (incorporated by reference to Exhibit 10.13 to
the Registrants Annual Report on Form 10-K filed on March 31, 2006).10.2
    
    Amended, Restated and Consolidated and Secured Promissory Note by and between Principal Life
Insurance Company and 1025 Vermont Avenue, LLC, dated February 10, 2006 (incorporated by reference
to Exhibit 10.15 to the Registrants Annual Report on Form 10-K filed on March 31, 2006).10.3
    
    Fixed Rate Note payable to Wachovia Bank, National Association, dated February 16, 2006
(incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on
February 22, 2006).10.4
    
    Leasehold Indemnity Deed of Trust and Security Agreement, by Park Plaza II, L.L.C. as grantor to
Alexander Title Agency Incorporated, as trustee, for the benefit of Wachovia Bank, National
Association, as beneficiary, dated February 16, 2006 (incorporated by reference to Exhibit 10.2 to
the Registrants Current Report on Form 8-K filed on February 22, 2006).10.5
    
    Indemnity Guaranty Agreement by Park Plaza II, L.L.C., dated February 16, 2006 (incorporated by
reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K filed on February 22,
2006).10.6
    
    Summary of Cash Incentive Bonuses Payable to Executive Officers (incorporated by reference to
Exhibit 10.22 to the Registrants Annual Report on Form 10-K filed on March 31, 2006).
 39




---



##### 



10.7
    
    Purchase and Sale Agreement by and between Armada/Hoffler Investment Properties, L.P., and
Columbia Equity Trust, Inc., dated March 15, 2006.10.8
    
    Agreement of Purchase and Sale, by and between Foulger Land Limited Partnership, Argo Orchard
Ridge Manager, Inc., Argo Investment Company and Columbia Equity Trust, Inc. dated April 25, 2006.31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer
and Chief Financial Officer.
 40




---



##### 



SIGNATURES
  COLUMBIA EQUITY TRUST, INC.Date: May 15, 2006
    By:
    /s/ Oliver T. Carr, IIIOliver T. Carr, IIIPresident and Chief Executive Officer Date: May 15, 2006
    By:
    /s/ John A. SchisselJohn A. SchisselExecutive Vice President and
Chief Financial Officer 
 41




---



##### 



EXHIBIT INDEX
 No.
    
    Description3.1
    
    Articles of Amendment and Restatement of the Registrant (incorporated by reference to Exhibit 3.1
to the Companys Registration Statement on Form S-11/A (Registration No. 333-122644) filed on June
28, 2005).3.2
    
    Amended and Restated Bylaws of the Registrant Registrant (incorporated by reference to Exhibit 3.2
to the Companys Registration Statement on Form S-11/A (Registration No. 333-122644) filed on June
28, 2005).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrants
Quarterly Form 10-Q filed on November 14, 2005).4.2
    
    Amended and Restated Agreement of Limited Partnership of Columbia Equity, LP (incorporated by
reference to Exhibit 3.3 to the Companys Registration Statement on Form S-11/A (Registration No.
333-122644) filed on June 28, 2005).10.1
    
    Transfer and Assumption and Loan Modification by and between Principal Life Insurance Company and
1025 Vermont Avenue, LLC, dated January 12, 2006 (incorporated by reference to Exhibit 10.13 to
the Registrants Annual Report on Form 10-K filed on March 31, 2006).10.2
    
    Amended, Restated and Consolidated and Secured Promissory Note by and between Principal Life
Insurance Company and 1025 Vermont Avenue, LLC, dated February 10, 2006 (incorporated by reference
to Exhibit 10.15 to the Registrants Annual Report on Form 10-K filed on March 31, 2006).10.3
    
    Fixed Rate Note payable to Wachovia Bank, National Association, dated February 16, 2006
(incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on
February 22, 2006).10.4
    
    Leasehold Indemnity Deed of Trust and Security Agreement, by Park Plaza II, L.L.C. as grantor to
Alexander Title Agency Incorporated, as trustee, for the benefit of Wachovia Bank, National
Association, as beneficiary, dated February 16, 2006 (incorporated by reference to Exhibit 10.2 to
the Registrants Current Report on Form 8-K filed on February 22, 2006).10.5
    
    Indemnity Guaranty Agreement by Park Plaza II, L.L.C., dated February 16, 2006 (incorporated by
reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K filed on February 22,
2006).10.6
    
    Summary of Cash Incentive Bonuses Payable to Executive Officers (incorporated by reference to
Exhibit 10.22 to the Registrants Annual Report on Form 10-K filed on March 31, 2006).10.7
    
    Purchase and Sale Agreement by and between Armada/Hoffler Investment Properties, L.P., and
Columbia Equity Trust, Inc., dated March 15, 2006.10.8
    
    Agreement of Purchase and Sale, by and between Foulger Land Limited Partnership, Argo Orchard
Ridge Manager, Inc., Argo Investment Company and Columbia Equity Trust, Inc. dated April 25, 2006.31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer.
 42




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##### 



No.
    
    Description32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer
and Chief Financial Officer.
 43