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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, 2005or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the
transition period from ___ to ___ Commission File Number 1-9997 CRT PROPERTIES, INC.  FLORIDA
    
    59-2898045(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 225 NE MIZNER BOULEVARD, SUITE 200
BOCA RATON, FLORIDA
(Address of principal executive offices)
    
    33432
(Zip Code)
 Registrants telephone number, including area code: (561) 395-9666 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes þ No o Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date. Class
    
    Outstanding at April 29, 2005Common Stock, $.01 par value
    
    31,818,244 shares




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CRT PROPERTIES, INC. FORM 10-Q INDEX PAGEPART I. FINANCIAL INFORMATIONReport of Independent Registered Public Accounting Firm
    
    
    3Item 1. Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of
March 31, 2005 and December 31, 2004
    
    
    4Condensed Consolidated Statements of Operations
for the Three Months Ended
March 31, 2005 and 2004
    
    
    5Condensed Consolidated Statement of Changes in
Shareholders Equity for the Three Months
Ended March 31, 2005
    
    
    6Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2005 and 2004
    
    
    7Notes to Condensed Consolidated Financial
Statements for the Three Months
Ended March 31, 2005 and 2004
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART
II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    27Signatures and Exhibits
    
    
    28
  2




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders
CRT Properties, Inc.
Boca Raton, Florida: We have reviewed the accompanying condensed consolidated balance sheet of CRT Properties, Inc. and
subsidiaries (the Company), as of March 31, 2005, and the related condensed consolidated
statements of operations for the three-month periods ended March 31, 2005 and 2004, of changes in shareholders equity for the three-month period ended March
31, 2005 and of cash flows for the three-month periods ended
March 31, 2005 and 2004. These interim financial statements are the responsibility of the
Companys management. We conducted our review in accordance with standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with standards of
the Public Company Accounting Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such
condensed consolidated interim financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America. We have previously audited, in accordance with standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet of the Company as of December 31, 2004, and
the related consolidated statements of operations, changes in shareholders equity, and cash flows
for the year then ended (not presented herein); and in our report dated March 15, 2005, we
expressed an unqualified opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet as of December 31,
2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived. DELOITTE & TOUCHE LLP
West Palm Beach, Florida
May 6, 2005 3




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CRT PROPERTIES, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited and amounts in thousands, except share data)
 March 31,
    
    
    December 31,2005
    
    
    2004ASSETSReal Estate Investments:Operating properties:Land
    
    $
    162,988
    
    
    $
    162,988Buildings
    
    
    1,196,340
    
    
    
    1,189,658Furniture and equipment
    
    
    3,758
    
    
    
    3,747Accumulated depreciation
    
    
    (226,526
    )
    
    
    (215,587
    )Operating properties, net
    
    
    1,136,560
    
    
    
    1,140,806Undeveloped land held for investment
    
    
    14,628
    
    
    
    14,628Cash and cash equivalents
    
    
    33,730
    
    
    
    32,717Restricted cash
    
    
    7,095
    
    
    
    15,964Accounts receivable, net of allowance for
uncollectible accounts of $1,150 and $1,169
    
    
    3,421
    
    
    
    2,839Straight-line rents receivable
    
    
    24,673
    
    
    
    20,118Fair value of in-place leases
    
    
    10,241
    
    
    
    10,695Investment in unconsolidated entity
    
    
    3,261
    
    
    
    3,217Other assets
    
    
    43,086
    
    
    
    43,282TOTAL ASSETS
    
    $
    1,276,695
    
    
    $
    1,284,266LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Mortgages and loans payable
    
    $
    622,938
    
    
    $
    623,467Accounts payable
    
    
    5,507
    
    
    
    8,584Accrued real estate taxes payable
    
    
    5,762
    
    
    
    2,414Accrued liabilities  other
    
    
    24,010
    
    
    
    24,259Dividends payable
    
    
    11,436
    
    
    
    11,365Advance rents and security deposits
    
    
    10,170
    
    
    
    9,039Total Liabilities
    
    
    679,823
    
    
    
    679,128Minority interest
    
    
    11,230
    
    
    
    11,179Shareholders Equity:Preferred stock, $.01 par value; 50,000,000 shares
authorized; liquidation preference of $25 per share;
2,990,000 shares issued and outstanding
    
    
    30
    
    
    
    30Common stock, $.01 par value; 100,000,000 shares
authorized; 40,318,225 and 40,115,540 shares
issued; 31,818,244 and 31,614,502 shares outstanding
    
    
    403
    
    
    
    401Capital in excess of par value
    
    
    767,267
    
    
    
    762,642Unearned compensation
    
    
    (3,895
    )
    
    
    Accumulated other comprehensive loss
    
    
    (536
    )
    
    
    (536
    )Dividends in excess of net income
    
    
    (46,168
    )
    
    
    (37,110
    )Treasury stock, at cost; 8,499,981 and 8,501,038 shares
    
    
    (131,459
    )
    
    
    (131,468
    )Total Shareholders Equity
    
    
    585,642
    
    
    
    593,959TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,276,695
    
    
    $
    1,284,266
 See notes to unaudited condensed consolidated financial statements. 4




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CRT PROPERTIES, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited and amounts in thousands, except per share data)
 Three MonthsEnded March 31,2005
    
    
    2004RevenuesBase rental revenues
    
    $
    42,836
    
    
    $
    34,756Recoveries from tenants
    
    
    4,791
    
    
    
    3,513Parking and other
    
    
    1,458
    
    
    
    1,199Management fees
    
    
    210
    
    
    
    66Total operating revenues
    
    
    49,295
    
    
    
    39,534ExpensesProperty operations
    
    
    13,316
    
    
    
    10,947Real estate taxes
    
    
    5,645
    
    
    
    4,589Depreciation and amortization
    
    
    12,037
    
    
    
    9,220General and administrative
    
    
    4,105
    
    
    
    2,844Other
    
    
    23
    
    
    
    52Total operating expenses
    
    
    35,126
    
    
    
    27,652Operating Income
    
    
    14,169
    
    
    
    11,882Other Income and ExpenseInterest Income
    
    
    115
    
    
    
    127Mortgage and loan interest, including amortization
of deferred loan costs of $988 and $374
    
    
    (10,642
    )
    
    
    (7,306
    )Total other income and expense
    
    
    (10,527
    )
    
    
    (7,179
    )Income Before Income Taxes, Minority Interest and Equity
in Earnings of Unconsolidated Entity
    
    
    3,642
    
    
    
    4,703Income tax provision
    
    
    
    
    
    
    Income Before Minority Interest and Equity
in Earnings of Unconsolidated Entity
    
    
    3,642
    
    
    
    4,703Minority Interest
    
    
    (77
    )
    
    
    Income Before Equity in Earnings of Unconsolidated Entity
    
    
    3,565
    
    
    
    4,703Equity in earnings of Unconsolidated Entity
    
    
    101
    
    
    
    131Net Income
    
    
    3,666
    
    
    
    4,834Dividends on preferred stock
    
    
    (1,588
    )
    
    
    (1,588
    )Net Income Available to Common Shareholders
    
    $
    2,078
    
    
    $
    3,246Earnings Per Share Available to Common Shareholders:Basic
    
    $
    0.07
    
    
    $
    0.12Diluted
    
    $
    0.06
    
    
    $
    0.12Weighted Average Shares:Basic
    
    
    31,751
    
    
    
    26,071Diluted
    
    
    32,083
    
    
    
    26,524
 See notes to unaudited condensed consolidated financial statements. 5




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CRT PROPERTIES, INC. 
 CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS EQUITY
 (Unaudited and amounts in thousands)
 Capital
    
    
    
    
    
    
    Accumulated
    
    Dividends
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    in Excess
    
    
    
    
    
    
    Other
    
    In Excess
    
    
    
    
    
    
    Share-Shares
    
    
    Par
    
    
    Shares
    
    
    Par
    
    
    Of Par
    
    
    Unearned
    
    Comprehensive
    
    of Net
    
    
    Treasury
    
    
    holdersIssued
    
    
    Value
    
    
    Issued
    
    
    Value
    
    
    Value
    
    
    Compensation
    
    Loss
    
    Income
    
    
    Stock
    
    
    EquityBALANCE
ATDECEMBER 31, 2004
    
    
    2,990
    
    
    $
    30
    
    
    
    40,115
    
    
    $
    401
    
    
    $
    762,642
    
    
    $
    
    
    
    $
    (536
    )
    
    $
    (37,110
    )
    
    $
    (131,468
    )
    
    $
    593,959Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    180
    
    
    
    2
    
    
    
    4,098
    
    
    
    (4,100
    )Common stock sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    25Amortization of restricted
stock award
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205Shares issued pursuant to
long-term incentive plan
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479Options exercised
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,724
    )
    
    
    
    
    
    
    (12,724
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,666
    
    
    
    
    
    
    
    3,666BALANCE
ATMARCH 31, 2005
    
    
    2,990
    
    
    $
    30
    
    
    
    40,318
    
    
    $
    403
    
    
    $
    767,267
    
    
    $
    (3,895
    )
    
    $
    (536
    )
    
    $
    (46,168
    )
    
    $
    (131,459
    )
    
    $
    585,642
 See notes to unaudited condensed consolidated financial statements. 6




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CRT PROPERTIES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited and amounts in thousands)
 Three MonthsEnded March 31,2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    3,666
    
    
    $
    4,834Adjustments to reconcile net income to net cash
provided by operating activities:Equity in earnings of unconsolidated entity
    
    
    (101
    )
    
    
    (131
    )Minority interest expense
    
    
    77
    
    
    
    Depreciation and amortization
    
    
    12,037
    
    
    
    9,220Amortization of deferred loan costs
    
    
    988
    
    
    
    374Provision for uncollectible accounts
    
    
    3
    
    
    
    282Amortization of restricted stock award
    
    
    205
    
    
    
    Changes in assets and liabilities:Increase in receivables and other assets
    
    
    (4,953
    )
    
    
    (1,332
    )Increase in accounts payable, accrued liabilities
and other liabilities
    
    
    1,633
    
    
    
    3,135Net cash provided by operating activities
    
    
    13,555
    
    
    
    16,382INVESTING ACTIVITIESProperty acquisitions
    
    
    
    
    
    
    (118,107
    )Tenant improvements to first generation space
    
    
    (2,514
    )
    
    
    (1,273
    )Tenant improvements to second generation space
    
    
    (2,645
    )
    
    
    (973
    )Building improvements
    
    
    (1,482
    )
    
    
    (2,392
    )Deferred tenant costs
    
    
    (1,664
    )
    
    
    (647
    )Additions to furniture and equipment
    
    
    (11
    )
    
    
    (73
    )Decrease (Increase) in restricted cash
    
    
    8,869
    
    
    
    (1,567
    )Investment in unconsolidated entity
    
    
    
    
    
    
    (3,238
    )Dividends from unconsolidated entity
    
    
    57
    
    
    
    Net cash provided by (used in) investing activities
    
    
    610
    
    
    
    (128,270
    )FINANCING ACTIVITIESProceeds from exercise of stock options
    
    
    32
    
    
    
    2,643Proceeds from sales of common stock
    
    
    25
    
    
    
    100,257Proceeds from mortgages and loans
    
    
    78,000
    
    
    
    75,874Principal payments on mortgages and loans payable
    
    
    (78,529
    )
    
    
    (16,349
    )Contributions from minority interest
    
    
    63
    
    
    
    Distributions to minority interest
    
    
    (89
    )
    
    
    Dividends paid
    
    
    (12,654
    )
    
    
    (9,112
    )Net cash (used in) provided by financing activities
    
    
    (13,152
    )
    
    
    153,313Net increase in cash and cash equivalents
    
    
    1,013
    
    
    
    41,425Cash and cash equivalents  beginning of period
    
    
    32,717
    
    
    
    9,163Cash and cash equivalents  end of period
    
    $
    33,730
    
    
    $
    50,588SUPPLEMENTAL CASH FLOW INFORMATIONCash paid during the period for income taxes
    
    $
    
    
    
    $
    5Cash paid during the period for interest
    
    $
    9,609
    
    
    $
    6,776Non cash item-issuance of restricted stock to certain key executives
    
    $
    4,100
    
    
    $
    Non cash item-shares issued pursuant to long-term incentive plan
    
    $
    479
    
    
    $
    Non cash item-issuance of limited partner units for real estate acquisitions
    
    $
    
    
    
    $
    2,041
 See notes to unaudited condensed consolidated financial statements. 7




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CRT PROPERTIES, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS
 ENDED MARCH 31, 2005 AND 2004
 (Unaudited and in thousands, except per share data)
 Unless the context otherwise requires, all references to the terms we, our or us CRT or
the Company in this report refer collectively to CRT Properties, Inc., a Florida corporation
incorporated in 1988 under the name Koger Equity, Inc., individually or together with our
subsidiaries and our predecessors, unless the context requires otherwise. 1. Organization.We are a fully integrated, self-administered and self-managed equity real
estate investment trust (a REIT) which develops, owns, operates, leases and manages office
buildings in metropolitan areas in the southeastern United States, Maryland and Texas. We
conducted our initial public offering in 1988. Our common shares are listed on the NYSE under the
symbol CRO and our Series A Cumulative Redeemable Preferred Stock is listed on the NYSE under the
symbol CRO-PA. As of March 31, 2005, we owned or had interests in 137 office buildings containing
11.7 million rentable square feet, primarily located in more than 25 office projects in 12
metropolitan areas in the Southeastern United States, Maryland and Texas. 2. Basis of Presentation and Summary of Recent Accounting Pronouncements. The condensed
consolidated financial statements have been prepared by CRT. All material intercompany
transactions and accounts have been eliminated in consolidation. The financial statements have
been prepared in accordance with the rules and regulations of the Securities and Exchange
Commission related to interim financial statements. The accompanying condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended December 31, 2004,
included in our Form 10-K Annual Report for the year ended December 31, 2004. The accompanying
balance sheet at December 31, 2004, has been derived from the audited financial statements at that
date and is condensed. All adjustments which, in the opinion of management, are necessary to fairly present the
results for the interim periods have been made. Results of operations for the three months ended
March 31, 2005 are not necessarily indicative of the results to be expected for future periods or
for the full year. In December 2004, the Financial Accounting Standards Board (FASB) issued Statement on
Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment. This statement replaces
SFAS 123 and establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services. It also addresses transactions in which an entity
incurs liabilities in exchange for goods or services that are based on the fair value of the
entitys equity instruments or that may be settled by the issuance of those equity instruments.
Public entities that do not file as small business issuers are subject to the provisions of this
Statement effective January 1, 2006. We are currently evaluating the effects of SFAS No. 123(R) on
our condensed consolidated financial statements. In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets. This
statement establishes standards for the measurement of exchanges of non-monetary assets and
eliminates the exception from fair value measurement for non-monetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Non-monetary
Transactions, and replaces it with an exception for exchanges that do no have commercial
substance. SFAS No. 153s transition provisions are effective for fiscal periods beginning after
June 15, 2005. We are currently evaluating the effects of SFAS No. 153 on our condensed
consolidated financial statements. 3. Summary of Significant Accounting Policies and Estimates.The preparation of condensed
consolidated
financial statements in conformity with accounting principles generally accepted in the United
States of America (GAAP) requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, and expenses and the 8




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disclosure of contingent assets and
liabilities. These estimates are based on historical experience and various other factors that we
believe to be reasonable under the circumstances. However, actual results could differ from our
estimates under different assumptions or conditions. We evaluate the reasonableness of our
estimates on an ongoing basis. We believe the following significant accounting policies affect the significant estimates and
assumptions used in the preparation of our condensed consolidated financial statements: Investments in Real Estate. Rental property and improvements, including interest and
other costs capitalized during construction, are included in real estate investments and are stated
at cost. Expenditures for ordinary maintenance and repairs are expensed to operations as they are
incurred. Significant renovations and improvements, which improve or extend the useful life of the
assets, are capitalized. Except for amounts attributed to land, rental property and improvements
are depreciated as described below. We recognize gains on the sale of property in accordance with SFAS No. 66. Revenues from
sales of property are recognized when a significant down payment is received, the earnings process
is complete and the collection of any remaining receivables is reasonably assured. Depreciation and Amortization. We compute depreciation on our operating properties
using the straight-line method based on estimated useful lives of 3 to 39 years. A significant
portion of the acquisition cost of each operating property is allocated to the acquired buildings
(usually 85% to 90%). The allocation of the acquisition cost to buildings and the determination of
the useful lives are based on our estimates. If estimates of the useful lives of our operating
properties change, we may be required to adjust future depreciation expense. Deferred tenant costs
(leasing commissions and tenant relocation costs) are amortized over the term of the related
leases. Impairment of Long-Lived Assets. Our long-lived assets include investments in real
estate. We assess impairment of long-lived assets whenever changes or events indicate that the
carrying value may not be recoverable. We assess impairment of operating properties based on the
operating cash flows of the properties. In performing our assessment, we must make assumptions
regarding estimated future cash flows and other factors to determine the fair value of the
respective assets. During the quarter ended March 31, 2005, we did not record any impairment
charges. If these estimates or their related assumptions change in the future, we may be required
to record impairment charges. Cost of Real Estate Acquired. We account for our acquisitions of real estate in
accordance with SFAS No. 141, Business Combinations, which requires the fair value of the real
estate acquired to be allocated to the acquired tangible assets, consisting of land, building,
building improvements and tenant improvements, and identified intangible assets and liabilities,
consisting of the value of above and below market leases, customer relationships, lease costs and
the value of in-place leases. The allocation to intangible assets is based upon various factors including the above or below
market component of inplace leases, the value of in-place leases, leasing commissions, legal
fees and the value of customer relationships. The value allocable to the above or
below market component of an acquired in-place lease is determined based upon the present
value (using an interest rate which reflects the risks associated with the lease) of the
difference between (i) the contractual amounts to be paid pursuant to the lease over its
remaining term, and (ii) managements estimate of the amounts that would be paid using current
fair market rates over the remaining term of the lease. The amounts allocated to above or
below market leases are amortized to rental income over the average remaining term of the
respective leases. The remaining purchase price is allocated among various categories of
tangible assets (building and land) and is based upon managements determination of the value
of the property as if it were vacant using discounted cash flow models. Factors considered by
management include an estimate of carrying costs during the expected lease-up periods
considering current market conditions and costs to execute similar leases. Differing
assumptions and methods could result in different estimates of fair value and thus, a
different purchase price allocation and corresponding increase or decrease in depreciation and
amortization expense. 9




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Revenue Recognition.Rental income is generally recognized over the lives
of leases according to provisions of the underlying lease agreements. Certain leases provide for
tenant occupancy during periods for which no rent is due or where minimum rent payments increase
during the term of the lease. For these leases, we record rental income for the full term of each
lease on a straight-line basis. For the quarters ended March 31, 2005 and 2004, the recognition of
rental revenues on a straight-line basis for applicable leases increased rental revenues by
$4,559,000 and $1,249,000, respectively, over the amount which would have been recognized based
upon the contractual provisions of these leases. We have historically generated management fees and leasing commissions by providing on-site
property management and leasing services to a limited number of third party owners. Management
fees are generally earned monthly and are based on a percentage of the managed properties monthly
rental and other operating revenues. Leasing commissions are earned when we, on behalf of the
third party owner, negotiate or assist in the negotiation of new leases, renewals and expansions of
existing leases, and are generally based on a percentage of rents to be received under the initial
term of the respective leases. Allowances for Doubtful Accounts. We maintain allowances for doubtful accounts for
estimated losses due to the inability of our tenants to make required payments for rents and other
rental services. In assessing the recoverability of these receivables, we make assumptions
regarding the financial condition of the tenants based primarily on past payment trends and certain
financial information that tenants submit to us. If the financial condition of our tenants were to
deteriorate and result in an impairment of their ability to make payments, we may be required to
increase our allowances by recording additional bad debt expense. Likewise, should the financial
condition of our tenants improve and result in payments or settlements of previously reserved
amounts, we may be required to record a reduction in bad debt expense. Federal Income Taxes. We are qualified and have elected tax treatment as a REIT under
the Internal Revenue Code. A corporate REIT is a legal entity that owns income-producing real
property, and through distributions of income to its shareholders, is permitted to reduce or avoid
the payment of federal income taxes at the corporate level. To maintain qualification as a REIT,
we must, among other requirements, distribute at least 90 percent of our REIT taxable income to our
shareholders. To the extent that we pay dividends equal to 100 percent of our REIT taxable income,
our earnings are taxed at the shareholder level. However, the use of net operating loss
carryforwards, which may reduce REIT taxable income to zero, are limited for alternative minimum
tax purposes. Distributed capital gains on sales of real estate are not subject to tax at the REIT
level; however, undistributed capital gains are taxed at the REIT level . If we fail to qualify as
a REIT in any taxable year, we will be subject to federal income taxes and will not be able to
qualify as a REIT for four subsequent taxable years. Although CRT Realty Services, Inc.
(CRTRSI), a taxable REIT subsidiary, is consolidated with us for financial reporting purposes,
this entity is subject to federal income tax and files separate federal and state income tax
returns. 4. Stock Options.SFAS No. 123, Accounting for Stock-Based Compensation requires expanded
disclosures of stock-based compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply Accounting Principles Board Opinion No. 25
(APB 25), which recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. We have continued to apply APB 25 to our stock based compensation awards to
our employees and as a result, no stock options were charged to income during the three months
ended March 31, 2005 and 2004. In December 2004, the FASB issued SFAS No. 123(R), Share-Based
Payment. This statement replaces SFAS 123 and establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for goods or services that
are based on the fair value of the entitys equity instruments or that may be settled by the
issuance of those equity instruments. The Company will be subject to the provisions of this
statement effective January 1, 2006. 10




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The pro forma effect on net income and earnings per share from stock based compensation awards to
our employees is as follows: Three MonthsEnded March 31,2005
    
    
    2004Net income available to common shareholders- As reported
    
    $
    2,078,000
    
    
    $
    3,246,000Stock-based employee compensation expense
determined under fair value method for all
forfeitures (awards)
    
    
    
    
    
    
    32,000Pro forma net income
    
    $
    2,078,000
    
    
    $
    3,278,000EARNINGS PER SHARE:Basic-as reported
    
    $
    0.07
    
    
    $
    0.12Basic-pro forma
    
    $
    0.07
    
    
    $
    0.12Diluted-as reported
    
    $
    0.06
    
    
    $
    0.12Diluted-pro forma
    
    $
    0.06
    
    
    $
    0.12
 Investment in Unconsolidated Entity. We account for an investment in an
unconsolidated entity using the equity method of accounting, as we do not have a controlling
interest over the operating and financial policies of the joint venture. As a result, the assets
and liabilities of the joint venture are not included in our balance sheet. FIN No. 46(R),
Consolidation of Variable Interest Entities, requires existing unconsolidated Variable Interest
Entities (VIE) to be consolidated by their primary beneficiaries. The primary beneficiary of a
VIE is the party that absorbs a majority of the entitys expected losses or receives a majority of
its expected residual returns, or both. We account for our investment in an unconsolidated entity
using the equity method of accounting rather than consolidation under FIN 46(R) since we have
determined that we are not the primary beneficiary of the entity. These investments are initially
recorded at cost and are subsequently adjusted for equity in earnings and cash contributions and
distributions. Fair Value of Financial Instruments. We believe the carrying amount of our financial
instruments (temporary investments, accounts receivable, and accounts payable) is a reasonable
estimate of fair value of these instruments. Based on an estimated market interest rate of 6.0
percent, the fair value of our mortgages and loans payable would be approximately $460.0 million at
March 31, 2005. 11




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Fair Value of In-Place Leases. SFAS No. 142 Goodwill and Other Intangible Assets,
requires the separate recognition of intangible assets acquired as part of an asset acquisition,
including the value attributable to leases in place and certain customer relationships. These
intangible assets are being amortized on a straight-line basis over the remaining term of the
existing leases. As of March 31, 2005, we had intangible assets relating to in-place leases as
follows (in thousands): Net
    
    
    WeightedCarrying Value
    
    
    AverageAccumulated
    
    
    of in-place
    
    
    AmortizationInitial Cost
    
    
    Amortization
    
    
    Leases
    
    
    Period (in years)Atlantic Center Plaza
    
    $
    9,400
    
    
    $
    (1,097
    )
    
    $
    8,303
    
    
    
    10Baymeadows Way
    
    
    242
    
    
    
    (16
    )
    
    
    226
    
    
    
    10Campus Circle &
Tollway Crossing
    
    
    500
    
    
    
    (193
    )
    
    
    307
    
    
    
    4Decoverly
    
    
    654
    
    
    
    (218
    )
    
    
    436
    
    
    
    3McGinnis Park
    
    
    329
    
    
    
    (103
    )
    
    
    226
    
    
    
    4The Lakes on Post Oak
    
    
    1,500
    
    
    
    (875
    )
    
    
    625
    
    
    
    4Three Ravinia
    
    
    274
    
    
    
    (156
    )
    
    
    118
    
    
    
    5.5Total
    
    $
    12,899
    
    
    $
    (2,658
    )
    
    $
    10,241
 Our aggregate amortization for the three months ended March 31, 2005, was $454,000. Amortization
expense is calculated on a straight-line basis and the estimated aggregate amortization expense is
expected to be $2.2 million for the years ended December 31, 2005 through 2008, and $1.0 million
for the year ended December 31, 2009. We are currently evaluating any other intangible assets that may have arisen resulting from the
following acquisitions: Westchase Corporate Center in Houston, Texas; Signature Place located in
Dallas, Texas; and Las Olas Centre, located in Fort Lauderdale, Florida. Cash and Cash Equivalents. Cash in excess of daily requirements is invested in
short-term monetary securities. Such temporary cash investments have an original maturity of less
than three months and are deemed to be cash equivalents for purposes of the condensed consolidated
financial statements. Restricted Cash. Restricted cash represents amounts contractually placed in escrow
for purposes of making payments for certain future building improvements, tenant allowances,
leasing commissions, real estate taxes, and debt service. 5. Statement of Cash Flows.On February 9, 2005, we refinanced our $77.0 million loan
held by Column Financial,
Inc. with a $78.0 million loan from ING USA Annuity and Life Insurance Company (ING). The new
loan has an initial maturity date of March 1, 2031, with two one-year extension options. The
loan bears monthly interest at variable rate of LIBOR plus 1.25% (the LIBOR monthly contract
rate in effect for this loan was 2.59% as of March 31, 2005) and is interest only for the first
twelve months. Beginning March 1, 2006, monthly principal payments based on a 25 year
amortization schedule will be due along with interest payments. This indebtedness will be
collateralized by a property with a carrying value of approximately $111.7 million at March 31,
2005. This new loan required a $6.0 million Letter of Credit in lieu of lender escrows for
leasing costs. 6. Earnings Per Share.Basic earnings per common share has been computed based on the
weighted average number of shares of common stock outstanding for each period. Diluted earnings
per common share is similar to basic earnings per share except that the weighted average number of
common shares outstanding is increased to include the number of additional common shares that would
have been outstanding if the dilutive common shares underlying the options had been issued. The
treasury stock method is used to calculate dilutive shares which reduces the gross number of
dilutive shares by the number of shares purchasable from the proceeds of the options assumed to be
exercised. 12




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##### Table of Contents



For the three months ended March 31, 2005 and 2004, earnings per common share is calculated as
follows (in thousands except per share data): Three MonthsEnded March 31,2005
    
    
    2004EARNINGS PER COMMON AND DILUTIVE
POTENTIAL COMMON SHARE:Net Income available to common shareholders
    
    $
    2,078
    
    
    $
    3,246Shares:Weighted average number of common
shares outstanding  Basic
    
    
    31,751
    
    
    
    26,071EARNINGS PER SHARE  BASIC
    
    $
    0.07
    
    
    $
    0.12Shares:Weighted average number of common
shares outstanding  Basic
    
    
    31,751
    
    
    
    26,071Effect of dilutive securities (a):Stock options
    
    
    332
    
    
    
    453Adjusted weighted average common shares  Diluted
    
    
    32,083
    
    
    
    26,524EARNINGS PER SHARE  DILUTED
    
    $
    0.06
    
    
    $
    0.12
   
 7. Mortgages and Loans Payable. At March 31, 2005, the Company had $622,938,000 of loans
outstanding, which are collateralized by mortgages on all but seven of our buildings. Annual
maturities for mortgages and loans payable are summarized as follows (in thousands): Year Ending December 31,2005
    
    $
    4,5372006
    
    
    25,0732007
    
    
    100,1172008
    
    
    120,2532009
    
    
    94,634Subsequent Years
    
    
    278,324Total
    
    $
    622,938
 8. Dividends. We paid quarterly dividends on our common stock of $0.35 per share on January
28, 2005, to shareholders of record on December 31, 2004. During the quarter ended March 31, 2005,
our Board of Directors declared a quarterly dividend on our common stock of $0.35 per share payable
on April 29, 2005, to shareholders of record on March 31, 2005. On February 17, 2005, our Board of
Directors declared a dividend on our preferred stock of $0.53125 per share paid on March 15, 2005,
to shareholders of record on March 1, 2005. This preferred dividend covered the period December
15, 2004 through March 14, 2005. 9. Segment Reporting. We operate in one business segment, the ownership and management of
commercial real estate. Our primary business is the ownership, development, and operation of
income-producing office properties. Management operates each property as an individual operating
segment and has aggregated these operating segments into a single segment for financial reporting
purposes due to the fact that all of the individual operating segments have similar economic
characteristics. As of March 31, 2005, all of our operations were located in the Southeastern
United States, Maryland and Texas. 13




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##### Table of Contents



10. Common Stock. On January 13, 2004, we issued 5,175,000 shares of common stock
(including 675,000 shares issued in connection with the exercise of an over-allotment option
granted to our underwriter) at a price to the public of $20.45 per share. The net proceeds of the
offering were used to pay down our revolving credit facility ($15 million), fund the Decoverly
acquisition ($42.2 million) as well as a portion of the Atlantic Center Plaza acquisition ($40.5
million) and for general corporate purposes. In December 2004, we issued 4,749,300 shares of our common stock (including 399,300 shares
issued in connection with the exercise of an over-allotment option granted to our underwriter) at a
price to the public of $24.20 per share. The net proceeds of the offering were used to pay down
our secured revolving credit facility ($90.0 million), fund a portion of the purchase price of
Signature Place, with the remainder intended for general corporate purposes, including subsequent
acquisitions and development. Under our 2002 long-term incentive plan, certain senior officers receive payments based on the
performance of our common stock on a one-year and over a three-year measurement period and the
performance of our common stock compared to peer group REITs in the Morgan Stanley REIT index over
a three-year measurement period. Payments under the plan are dependent on the achievement of
certain performance goals and on satisfaction of certain vesting requirements. In February 2005,
we issued 21,018 shares of common stock to certain senior executives currently participating in the
long-term compensation plan. These shares of common stock were valued at approximately $479,000. Under our 2005 plan, we granted 179,667 restricted shares of our common stock to certain key
executives of our Company. The restricted shares vest (using both performance and time vesting
features) over a period of five years from the date of issuance. Upon issuance of the restricted
shares, deferred compensation of $4.1 million was charged to stockholders equity and is being
recognized as compensation expense ratably over the five year vesting period. Non-cash
compensation expense related to the vesting of the restricted shares of approximately $205,000 was
recognized during the quarter ended March 31, 2005. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and
notes thereto appearing elsewhere in this
report and Managements Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended December 31, 2004. This report on
Form 10-Q contains forward-looking statements within the meaning of the federal securities laws.
We caution investors that any forward-looking statements in this report, or which management may
make orally or in writing from time to time, are based on managements beliefs and on assumptions
made by, and information currently available to, management. When used, the words anticipate,
believe, expect, intend, may, might, plan, estimate, project, should, will,
result and similar expressions which do not relate solely to historical matters are intended to
identify forward-looking statements. Such statements are subject to risks, uncertainties and
assumptions and are not guarantees of future performance, which may be affected by known and
unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or projected. We caution you
that, while forward-looking statements reflect our good faith beliefs when we make them, they are
not guarantees of future performance and are impacted by actual events when they occur after we
make such statements. We expressly disclaim any responsibility to update our forward-looking
statements, whether as a result of new information, future events or otherwise. Accordingly,
investors should use caution in relying on past forward-looking statements, which are based on
results and trends at the time they are made, to anticipate future results or trends. 14




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Some of the risks and uncertainties that may cause our actual results, performance or
achievements to differ materially from those expressed or implied by forward-looking statements
include, among others, the following:  
    general risks affecting the real estate industry (including,
without limitation, the inability to enter into or renew leases,
dependence on tenants financial condition, and competition from
other developers, owners and operators of real estate);
    risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments;
    failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully;
    risks and uncertainties affecting property development and
construction (including, without limitation, construction delays,
cost overruns, inability to obtain necessary permits and public
opposition to such activities);
    risks associated with downturns in the national and local
economies, increases in interest rates, and volatility in the
securities markets;
    costs of compliance with the Americans with Disabilities Act and other similar laws;
    potential liability for uninsured losses and environmental contamination;
    risks associated with our potential failure to qualify as a REIT
under the Internal Revenue Code of 1986, as amended, and possible
adverse changes in tax and environmental laws; and
    risks associated with our dependence on key personnel whose continued service is not guaranteed. The risks included here are not exhaustive. Other sections of this report may include
additional factors that could adversely affect our business and financial performance. Moreover,
we operate in a very competitive and rapidly changing environment. New risk factors emerge from
time to time and it is not possible for management to predict all such risk factors, nor can we
assess the impact of all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking statements as a
prediction of actual results. Investors should also refer to our annual reports on Form 10-K and
our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file
them with the SEC, and to other materials we may furnish to the public from time to time through
Forms 8-K or otherwise. We expressly disclaim any responsibility to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new information, future events,
or otherwise, and you should not rely upon these forward-looking statements after the date of this
report. Overview We are a fully integrated, self-administered and self-managed equity REIT which develops,
owns, operates, leases and manages office buildings in metropolitan areas in the southeastern
United States, Maryland and Texas. We conducted our initial public offering in 1988. We generate
revenue and cash primarily from leasing our office space to our tenants. Factors we consider when
we lease space include creditworthiness of the tenant, the length of the lease, the rental rate to
be paid, costs of tenant improvements, operating costs and real estate taxes, vacancy and general
economic factors. Our revenues are dependent in part on the occupancy of our portfolio of office buildings.
Over the past few years, as a struggling national economy resulted in white-collar job losses and a
general oversupply of office space in many markets, occupancy rates declined in most of our
markets. The office building sector continues to experience comparatively low occupancy rates in
most markets. As of March 31, 2005 our portfolio was 82% occupied compared to 80% as March 31,
2004 and 82% as of December 31, 2004. 15




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Our leases have an overall average lease term of approximately 4.5 years and we generally
renew over half of our expiring office leases; however, for those office leases that are not
renewed, we must remarket the vacated office space. Since rental rates generally decline as
vacancy rates increase (and vice versa), we may lease the vacated space at terms less favorable
than the terms of the expired lease. We use numerous approaches to maintain and increase
occupancy, including prioritizing efforts to retain existing tenants, using rental concessions such
as free rent and improvement allowances, offering market-specific broker incentives and employing
highly skilled and proactive management and leasing professionals. Our use of these strategies has
lessened the overall impact of the weak fundamentals in our operating environment by limiting lease
expirations both from natural lease expirations and from terminations due to tenant defaults. Critical Accounting Policies And Estimates Our discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements that appear elsewhere in this quarterly report on Form 10-Q.
A full summary of the significant accounting policies used in preparing the condensed consolidated
financial statements is set forth in Note 3 to those statements. The preparation of financial
statements in conformity with GAAP requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and contingencies at the date of the financial
statements and the reported amounts of revenues and expenses for the reporting period. Actual
results could differ materially from estimates made. We believe that the specific accounting
policies discussed below are critical in preparing our condensed consolidated financial statements
due to the increased level of assumptions used or estimates made in determining their impact on our
condensed consolidated financial statements. Revenue Recognition. We generate principally all of our operating revenues from
leasing space to various tenants in office buildings that we own. Tenants include for-profit
companies across a number of industries as well as various federal and state departments and
agencies. Our twenty five largest tenants comprise over half of our occupied space and generate
over half of our annual operating revenues. Rental income generally commences at the inception of
the lease (as opposed to the actual later move-in date) and is recognized based on the terms of the
individual leases. Many of our leases call for annual fixed increases in rental payments and in
such case, rental income is recognized over the terms of the lease on a straight-line basis.
Certain other leases call for annual increases based upon an inflation index, such as the Consumer
Price Index. For these leases, since the annual dollar
increase in rental income cannot be determined at the inception of the lease, rental income
increases each year after applying the inflation index. Where rental concessions (such as free
rent) are given to tenants, we also recognize rental income on a straight-line basis over the full
term of the leases. We may require certain tenants to pay a security deposit in addition to their
first months rent, which we record as a liability. Many of our leases require tenants to pay
their prorata portion of property operating expenses in addition to their base rent, such amounts
typically being in excess of a base year amount. Impairment or Disposal of Long-Lived Assets. We evaluate our real estate assets
quarterly to assess whether any impairment indicators are present that affect the recovery of the
carrying amount. Changes in the supply or demand of tenants for our properties could impact our
ability to lease available space. Should a significant amount of available space exist for an
extended period, our investment in a particular office building may be impaired. Real estate assets are classified as held for sale or held and used in accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance with SFAS
No. 144, we record assets held for sale at the lower of carrying amount or fair value less costs to
sell. With respect to assets classified as operating properties, we periodically review these
assets to determine whether our carrying amount will be recovered. A long-lived asset is
considered impaired if its carrying value exceeds the estimated fair value. Fair value is based on
the estimated and realizable contract sales price (if available) for the asset less estimated costs
to sell. If a sales price is not available, the estimated undiscounted cash flows of the asset for
the remaining estimated holding period are used to determine if the carrying value is recoverable.
Upon impairment, we would recognize an impairment loss to reduce the carrying value of the
long-lived asset to its estimated fair value. Our estimate of fair value and cash flows to be
generated from our properties requires us to make assumptions that are highly subjective and based
on a variety of factors, including but not limited to: existing leases, future leasing and
terminations, market rental rates, capital improvements, tenant improvements, leasing commissions,
inflation and other variables. If one or more assumptions proves incorrect or if our assumptions
change, the recognition of an impairment loss on one or more properties may be necessary in the
future, which would result in a decrease in net income. No impairment losses were recognized for
the three months ending March 31, 2005. 16




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##### Table of Contents



Depreciation. Depreciation of buildings and parking garages is computed using the
straight-line method over an estimated useful life of 3 to 39 years. Depreciation of building
improvements is computed using the straight-line method over the estimated useful life of the
improvement. Tenant improvements are generally amortized over the term of the respective leases.
If estimates of the useful lives of our operating properties change, we may be required to adjust
future depreciation expense. Therefore, a change in the estimated useful lives assigned to
buildings and improvements would result in either an increase or decrease in depreciation expense,
which would result in an increase or decrease in net income. Cost of Real Estate Acquired. We account for acquisitions of real estate in
accordance with SFAS No. 141, Business Combinations, which requires the fair value of the real
estate acquired to be allocated to the acquired tangible assets, consisting of land, building,
building improvements and tenant improvements, and identified intangible assets and liabilities,
consisting of the value of above and below market leases, customer relationships, lease costs and
the value of in-place leases. The allocation to intangible assets is based upon various factors including the above or below
market component of inplace leases, the value of in-place leases, leasing commissions, legal fees
and the value of customer relationships. The value allocable to the above or below
market component of an acquired in-place lease is determined based upon the present value (using an
interest rate which reflects the risks associated with the lease) of the difference between (i) the
contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) managements
estimate of the amounts that would be paid using current fair market rates over the remaining term
of the lease. The amounts allocated to above or below market leases are amortized to rental income
over the average remaining term of the respective leases. The remaining purchase price is allocated
among various categories of tangible assets (building and land) and is based upon managements
determination of the value of the property as if it were vacant using discounted cash flow models.
Factors considered by management include an estimate of carrying costs during the expected lease-up
periods considering current market conditions and costs to execute similar leases. Differing
assumptions and methods could result in different estimates of fair value and thus, a different
purchase price allocation and corresponding increase or decrease in depreciation and amortization
expense. Allowance for Doubtful Accounts. Accounts receivable are reduced by an allowance for
amounts that may become uncollectible in the future. Our receivable balance is comprised primarily
of rents and operating expense recoveries due from tenants. Changes in general economic
conditions, or in the industries in which our tenants operate, could impact our tenants ability to
honor their lease obligations, which could in turn affect our recorded revenues and estimates of
the collectibility of our receivables. Revenue from real estate rentals is recognized and accrued
as earned on a pro rata basis over the term of the lease. We regularly evaluate the adequacy of
our allowance for doubtful accounts considering such factors as credit quality of our tenants,
delinquency of payment, historical trends and current economic conditions. We provide an allowance
for doubtful accounts for tenant balances that are over 90 days past due and for specific tenant
receivables for which collection is considered doubtful. Actual write-offs may differ from these
estimates, which could result in an increase or decrease in bad debt expense. Off Balance-Sheet Arrangements On January 12, 2004, we, through a newly formed subsidiary DownREIT limited partnership called
Koger BFC, Ltd., acquired all of the partnership interests in Broward Financial Center (BFC) in
downtown Fort Lauderdale, Florida, in a joint venture with an affiliate of Investcorp Properties
Limited of New York (Investcorp), for approximately $60.1 million. BFC is a single twenty-four
story building containing approximately 326,000 rentable square feet. We have a 30% interest in
the joint venture. Approximately 14% of the existing partnership interests in BFC were owned by
entities in which the Chief Executive Officer, Thomas J. Crocker had a 50% ownership interest
(Crocker Affiliate). The decision to acquire BFC and the terms thereof were approved by the
members of our board of directors and finance committee without the participation of Mr. Crocker.
Investcorp, as the joint venture partner acquiring 70% of the economic interests, played a
substantial role in negotiating the purchase. We acquired the partnership interests held by
Crocker Affiliate by issuing 97,948 limited partnership units (Units) in exchange for the
contribution of its partnership interests. The Units will be entitled to receive quarterly
distributions equivalent to the quarterly dividend declared on our common stock. Commencing
on the
first anniversary of the transaction, Crocker Affiliate can cause the Units to be redeemed in
exchange for cash (at a price per Unit equal to the lesser of the per share price for a share of
our common stock at the time of redemption and the average per share
closing price of our common stock for the thirty trading days preceding the redemption) or, at our
option, shares of our common stock (one share of our common stock per Unit). 17




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Our total investment
in this joint venture is $5.3 million including DownREIT minority contributions ($2.1 million) and
closing costs. We account for this investment using the equity method of accounting as it does not
have a controlling interest over the operating and financial policies of the joint venture, nor is
it the primary beneficiary under FIN 46(R). As a result, the assets and liabilities of this joint
venture are not included in our balance sheet. This investment was recorded initially at cost and
subsequently adjusted for equity in earnings and cash contributions and distributions (see Recent
Developments below). Related-Party Transactions Under our 2002 long-term incentive plan, certain senior officers receive payments based on the
performance of our common stock on a one-year and over a three-year measurement period and the
performance of our common stock compared to peer group REITs in the Morgan Stanley REIT index over
a three-year measurement period. Payments under the plan are dependent on the achievement of
certain performance goals and on satisfaction of certain vesting requirements. In February 2005,
we issued 21,018 shares of common stock to certain senior executives currently participating in the
long-term compensation plan. These shares of common stock were valued at approximately $479,000. Under our 2005 plan, we granted 179,667 restricted shares of our common stock to certain key
executives of our Company. The restricted shares vest (using both performance and time vesting
features) over a period of five years from the date of issuance. Upon issuance of the restricted
shares, deferred compensation of $4.1 million was charged to stockholders equity and is being
recognized as compensation expense ratably over the five year vesting period. Non-cash
compensation expense related to the vesting of the restricted shares of approximately $205,000 was
recognized during the quarter ended March 31, 2005. 18




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Results of Operations Operating Revenues.Operating Revenues (excluding management fees) increased $9,617,000 or
24.4 percent for the three months ended March 31, 2005, as compared to the same period in 2004.
This increase resulted primarily from recent acquisitions as
follows (in thousands): Operating
    
    
    OperatingRevenues
    
    
    RevenuesFor the Period
    
    
    For the PeriodEnded March
    
    
    Ended MarchCenter Name
    
    Date of Acquisition
    
    31, 2005
    
    
    31, 2004
    
    
    VarianceAtlantic Center Plaza
    
    January 27, 2004
    
    
    $3,657
    
    
    
    $2,519
    
    
    
    $1,138Decoverly
    
    April 2, 2004
    
    
    1,376
    
    
    
    0
    
    
    
    1,376Las Olas Centre
    
    November 24, 2004
    
    
    3,726
    
    
    
    0
    
    
    
    3,726Signature Place
    
    December 30, 2004
    
    
    1,655
    
    
    
    0
    
    
    
    1,655Westchase Corporate
Center
    
    August 16, 2004
    
    
    1,064
    
    
    
    0
    
    
    
    1,064TOTAL
    
    
    
    
    $11,478
    
    
    
    $2,519
    
    
    
    $8,959
 Property operations and real estate taxes.Property operations expense and real estate taxes
includes such charges as utilities, janitorial, maintenance, property insurance, provision for
uncollectible rents and management costs. Property operations expense and real estate taxes
increased $3,425,000 for the three months ended March 31, 2005, compared to the same period in
2004. This increase was due primarily to operations expense resulting from the acquisition of Las
Olas Centre in November 2004 ($1,339,000), Decoverly in April 2004 ($637,000), Westchase Corporate
Center in August 2004 ($489,000), and Signature Place in December 2004 ($814,000). The amount of property operations expense and real estate taxes and their percentage of
operating revenues (excluding management fees) for the applicable periods are as follows: Percent ofPeriod
    
    Amount
    
    Total RevenuesMarch 31, 2005
    
    $
    18,961,000
    
    
    
    
    38.6%March 31, 2004
    
    $
    15,536,000
    
    
    
    
    39.4%
 Depreciation expense.Depreciation expense has been calculated on the straight-line method
based upon the useful lives of our depreciable assets, generally 3 to 39 years. Depreciation
expense increased $2,484,000 for the three months ended March 31, 2005, compared to the same period in
2004. This increase was due primarily to depreciation resulting from the Companys acquisition of
Atlantic Center Plaza in January 2004 ($402,000), Decoverly in April 2004 ($263,000), Las Olas
Centre in November 2004 ($839,000), Baymeadows Way in July 2004 ($139,000), Westchase Corporate
Center in August 2004 ($130,000), and Signature Place in December 2004 ($211,000). General and administrative expense.General and administrative expense increased $1,261,000
for the three months ended March 31, 2005, compared to the same period in 2004. This increase was due to an overall increase in payroll
related costs ($1,073,000) attributable to increased long-term equity based compensation, as
further described in Note 10 to our condensed consolidated financial statements, as well as an
overall increase in salaries and bonuses. Amortization
expense. Amortization expense increased $333,000 for the three
months ended March 31, 2005, compared to the same period in 2004. This increase was due
primarily to the increased amortization of the fair value of acquired leases for properties
recently acquired. Mortgage and loan interest expense increased $3.3 million compared to the same
period in 2004. This increase was primarily the result of an increase in interest expense due to
additional mortgage indebtedness obtained in connection with the acquisition of Baymeadows Way,
Westchase Corporate Center, and 19




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##### Table of Contents



Las Olas Centre. Net income and net income available to common shareholders. Net income and net income
available to common shareholders decreased $1,168,000 for the quarter ended March 31, 2005,
as compared to the same period in 2004. This quarterly decrease was primarily due
to an increase in total operating expenses ($7.5 million) and mortgage and loan interest expense
($3.3 million) resulting from recent acquisitions. This quarterly decrease was partially offset
by an overall increase in
operating revenues ($9.8 million). Liquidity and Capital Resources Operating Activities During the three months ended March 31, 2005, we generated
approximately $13.6 million in net cash from operating activities, approximately $2.8 million less
than the comparable period of 2004. Our decreased generation of cash from operations is primarily
attributable to an increase in the aggregate growth rate of accounts receivable and other assets
(approximately $3.6 million) and a decrease in the aggregate growth rate of accounts payable,
accrued liabilities, and other liabilities (approximately $1.5 million). The decrease in cash
generated by operations was partly offset by an increase in depreciation and amortization
(approximately $2.8 million) and a decrease in net income ($1.2 million) for the comparable period
of 2004. Our principal source of cash flow is related to the operation of our office properties. The
weighted-average term of a tenant lease is approximately 4.5 years with occupancy rates
historically in the range of 75% to 85%. Our properties provide a relatively consistent stream of
cash flow that provides us with resources to pay operating expenses, debt service and fund
quarterly dividend and distribution payment requirements. As a REIT for Federal income tax
purposes, we are required to pay out annually, as dividends, at least 90 percent of our REIT
taxable income. In the past, we have paid out dividends in amounts at least equal to our REIT
taxable income. We believe that our cash provided by operating activities and our current cash
balance will be sufficient to cover debt service payments and to pay the dividends required to
maintain our REIT status. The level of cash flow generated by rents depends primarily on the occupancy rates of our
buildings and changes in rental rates on new and renewed leases and under escalation provisions in
existing leases. At March 31, 2005, leases representing approximately 11.6 percent of the gross
annualized rent from our properties, without regard to the exercise of options to renew, were due
to expire during the remainder of 2005. These scheduled expirations represent leases for space in
buildings located in 20 of the 25 centers or locations in which we own buildings. Certain of
these tenants may not renew their leases or may reduce their demand for space. During the three
months ended March 31, 2005, leases were renewed on approximately 61 percent of our rentable
square feet that expired during the three-month period. Current market conditions in certain
markets may require that rental rates at which leases are renewed or at which vacated space is
leased be lower than rental rates under existing leases. Based upon the amount of leases that
will expire during 2005 and the competition for tenants in the markets in which we operate, we
have and expect to continue to offer incentives to certain new and renewal tenants. These
incentives may include the payment of tenant improvement costs and, in certain markets, reduced
rents during initial lease periods. Governmental tenants (including the State of Florida and the United States Government), which
account for approximately 17.3 percent of our occupied space at March 31, 2005, may be subject to
budget reductions in times of recession and governmental austerity measures. Consequently, there
can be no assurance that governmental appropriations for rents may not be reduced. Additionally,
certain of the private sector tenants that have contributed to our rent stream may reduce their
current demands, or curtail their future need, for additional office space. We believe that the markets in which we operate provide significant growth potential due to
their diverse economies, expanding metropolitan areas, skilled work force and moderate labor
costs. However, cash from operations could be reduced if economic conditions result in lower
occupancy rates and lower rental income for our buildings, which may in turn affect the amount of
dividends we pay to our shareholders. 20




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##### Table of Contents



Investing Activities At March 31, 2005, substantially all of our invested assets
were in real properties or joint ventures invested in real properties and our primary use of cash
for investing activities was for tenant and building improvements. Improvements to our existing
properties have been financed through internal operations and lender required escrow accounts for
The Lakes on Post Oak. We spent $6.6 million on tenant and building improvements, as well as
deferred tenant costs during the period. We also experienced a decrease in restricted cash ($8.9
million) resulting from payment of escrowed obligations. In February 2005, we refinanced our
existing Lakes on Post Oak loan that required us to maintain approximately $8.6 million in
required cash escrows. The new loan provided by ING, required a $6.0 million letter of credit in
lieu of cash escrows. Financing Activities We used $13.2 million of cash in financing activities during the
three months ended March 31, 2005. For the same period in 2004, we generated $153.3 million of
cash in financing activities. For the three months ended March 31, 2005, our largest sources of
cash from financing activities were proceeds from mortgages and loans ($78.0 million). In the same
time period, our largest uses of cash for financing activities were principal payments on mortgages
and loans payable ($78.5 million) and dividends paid ($12.7 million). For the three months ended
March 31, 2004, our largest sources of cash for financing activities were proceeds from mortgages
and loans ($75.9 million) and proceeds from the sale of common stock ($100.3 million). In the same
period, our primary uses of cash for financing activities were principal payments on mortgages and
loans payable ($16.3 million) and dividends paid ($9.1 million). We also have a $165 million secured revolving credit facility of which none had been borrowed
as of March 31, 2005. At March 31, 2005, we had a total of seven buildings that were unencumbered
consisting of four buildings in Charlotte, North Carolina, one building in Jacksonville, Florida,
and two buildings in Atlanta, Georgia. Loan maturities and normal amortization of mortgages and
loans payable are expected to total approximately $4.5 million during the remainder of calendar
year 2005. On February 9, 2005, we refinanced our $77.0 million loan held by Column Financial, Inc.
with a $78.0 million loan from ING USA Annuity and Life Insurance Company. The new loan has an
initial maturity date of March 1, 2031, with two one-year extension options. The loan bears
monthly interest at variable rate of LIBOR plus 1.25% (the LIBOR monthly contract rate in effect
for this loan was 2.59% as of March 31, 2005) and is interest only for the first twelve months.
Beginning March 1, 2006, monthly principal payments based on a 25 year amortization schedule
will be due along with interest payments. This indebtedness will be collateralized by property
with a carrying value of approximately $111.7 million at March 31, 2005. This new loan required
a $6.0 million Letter of Credit in lieu of lender escrows for leasing costs. We have on file with the SEC a shelf registration statement under which common stock,
preferred stock and debt securities are available for issuance from time to time by our Company.
As of March 31, 2005, we had $385.1 million available under this shelf registration for future
issuances of securities. The amount and timing of future sales of our securities will depend on
market conditions, operating cash flow, asset sales and the specific needs of our Company. We may
from time to time sell securities beyond the amount needed to meet capital requirements in order to
allow for the early repayment of long-term debt, the redemption of preferred stock, the reduction
of short-term debt or for other general corporate purposes. Contractual Obligations (In thousands) Less than
    
    
    
    
    
    
    
    
    
    More thanOne
    
    
    
    
    
    
    
    
    
    FiveTotal
    
    year
    
    1-3 years
    
    3-5 years
    
    yearsLong-Term Debt Obligations(a)
    
    $
    622,938
    
    
    $
    4,537
    
    
    $
    125,190
    
    
    $
    214,887
    
    
    $
    278,324Purchase Obligations (b)
    
    
    1,581
    
    
    
    1,581
    21




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##### Table of Contents



We are subject to risks normally
associated with debt financing, including: the risk that our cash flow will be insufficient to
meet required payments of principal and interest; the risk that the existing debt with respect to
our properties, which in most cases will not have been fully amortized at maturity, will not be
able to be refinanced; and the risk that the terms of any refinancing of any existing debt will not
be as favorable as the terms of the existing debt. (b) This purchase obligation consists of a contractual commitment related to the renovation of The
Lakes on Post Oak in Houston, Texas. In connection with our ING loan of the Lakes on Post Oak, we
obtained a $6.0 million letter of credit in lieu of additional cash escrows for tenant improvements
and leasing commissions. As of March 31, 2005 and December 31, 2004, our mortgage notes payable were comprised of the
following (in thousands): As of
    
    
    As ofMarch 31,
    
    
    December 31,
    
    
    Current

    
    MaturityMortgage
    
    2005
    
    
    2004
    
    
    Interest Rate

    
    DateVariable rate mortgages (a)
    
    $
    106,800
    
    
    $
    185,800
    
    
    3.84% to 4.77%
    
    January 2008 to March 2031Fixed rate mortgages
    
    
    516,138
    
    
    
    437,667
    
    
    5.26% to 8.33%
    
    December 2006 to January 2015Total mortgage notes payable
    
    $
    622,938
    
    
    $
    623,467
   (a)
    
    On January 1, 2005, $80,000,000 of the variable rate mortgages was converted to a 5.49% fixed
rate mortgage which has a maturity of January 1, 2015. The weighted average interest rate on our mortgages was 6.1% and 6.07% as of March 31, 2005 and
December 31, 2004, respectively. Funds from Operations.Funds from Operations (FFO) is a non-GAAP financial measure that is a
widely used performance measure for real estate companies and is provided as a supplemental
measure of operating performance. Since real estate values have historically risen or fallen with
market conditions, many industry investors and analysts have considered presentation of operating
results for real estate companies that use historical cost accounting to be insufficient by
themselves. The National Association of Real Estate Investment Trusts (NAREIT) adopted the
definition of FFO in order to promote an industry standard measure of REIT financial and operating
performance. FFO adds back historical cost depreciation, which assumes the value of real estate
assets diminishes predictably in the future. NAREIT defines FFO as net income (loss) (computed in
accordance with generally accepted accounting principles (GAAP), excluding gains (losses) from
sales of property, plus depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Given the nature of our business as a real estate owner and operator, we believe that FFO is
helpful to investors as a starting point in measuring our operational performance because in
excluding real estate related depreciation and amortization, and gains and losses from sales of
property, it provides a supplemental performance measure that, when compared year over year,
captures trends in occupancy rates, rental rates and operating costs. In addition, since most
equity REITs provide FFO information to investors, FFO can also be a useful supplemental measure
for comparing our results to other equity REITs. FFO excludes depreciation and amortization, however, and captures neither the changes in the
value of our properties that result from use or market conditions, nor the level of capital
expenditures and leasing commissions necessary to maintain the operating performance of our
properties, all of which have real economic effect and could materially impact our results from
operations, the utility of FFO as a measure of performance is limited. Moreover, while we believe
its computation of FFO conforms to the NAREIT definition, it may not be comparable to FFO reported
by REITs that interpret the definition differently or that do not define FFO in accordance with the
NAREIT definition at all. Accordingly, FFO (i) should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indicator of our financial performance, (ii) is
not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a
measure of our liquidity, and (iii) is not indicative of funds available to fund our cash needs,
including its ability to pay dividends or make distributions, because of needed capital replacement
or expansion, debt service obligations, or other 22




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##### Table of Contents



cash commitments and uncertainties. The following presents our reconciliation of net income to FFO available to common shareholders
for the three months ended March 31, 2005 and 2004 (in thousands): Three MonthsEnded March 31,2005
    
    
    2004(in thousands)Net income
    
    $
    3,666
    
    
    $
    4,834Dividends on preferred stock
    
    
    (1,588
    )
    
    
    (1,588
    )Real estate related depreciation
    
    
    10,860
    
    
    
    8,347Real estate related depreciation
 unconsolidated entity
    
    
    116
    
    
    
    101Real estate related amortization
 deferred tenant costs
    
    
    497
    
    
    
    609Real estate related amortization
 fair value of acquired leases
    
    
    454
    
    
    
    137Minority interest share of add-backs
    
    
    34
    
    
    
    FFO available to common shareholders
    
    $
    14,039
    
    
    $
    12,440
 Net Operating Income. The primary financial measure for our reportable business segment is net
operating income, or NOI. NOI is a non-GAAP financial measure equal to net income available to
common shareholders, the most directly comparable GAAP financial measure, plus losses from early
extinguishments of debt, net derivative losses, depreciation and amortization, interest expense and
general and administrative expense, less gains on sales of real estate from discontinued operations
(net of minority interest), income from discontinued operations (net of minority interest), gains
on sales of real estate and other assets (net of minority interest), income from unconsolidated
joint ventures, minority interest in property partnerships, interest and other income and
development and management services income. We use NOI internally as a performance measure and we
believe NOI provides useful information to investors regarding our financial condition and results
of operations because it reflects only those income and expense items that are incurred at the
property level. Therefore, we believe NOI is a useful measure for evaluating the operating
performance of real estate assets. Our management also uses NOI to evaluate regional property level performance and to make
decisions about resource allocations. Further, we believe NOI is useful to investors as a
performance measure because, when compared across periods, NOI reflects the impact on operations
from trends in occupancy rates, rental rates, operating costs and acquisition and development
activity on an unleveraged basis, providing perspective not immediately apparent from net income.
NOI excludes certain components from net income in order to provide results that are more closely
related to a propertys results of operations. For example, interest expense is not necessarily
linked to the operating performance of a real estate asset and is often incurred at the corporate
level as opposed to the property level. In addition, depreciation and amortization, because of
historical cost accounting and useful life estimates, may distort operating performance at the
property level. NOI presented by us may not be comparable to NOI reported by other REITs that
define NOI differently. We believe that in order to facilitate a clear understanding of its
operating results, NOI should be examined in conjunction with net income as presented in our
consolidated financial statements. NOI should not be considered as an alternative to net income as
an indication of our performance or to cash flows as a measure of liquidity or ability to make
distributions. 23




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##### Table of Contents



The following is a reconciliation of NOI to net income available to common shareholders: Three Months EndedMarch 31,2005
    
    
    2004(in thousands)Net Operating income (a)
    
    $
    30,124
    
    
    $
    23,932Add:Management fee revenues
    
    
    210
    
    
    
    66Interest income
    
    
    115
    
    
    
    127Income from unconsolidated joint ventures
    
    
    101
    
    
    
    131OtherLess:General and administrative
    
    
    4,105
    
    
    
    2,844Interest expense
    
    
    10,642
    
    
    
    7,306Depreciation and amortization
    
    
    12,037
    
    
    
    9,220Other
    
    
    23
    
    
    
    52Dividends on preferred shares
    
    
    1,588
    
    
    
    1,588Minority interests in property partnerships
    
    
    77
    
    
    
    Net income available to common shareholders
    
    $
    2,078
    
    
    $
    3,246
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk. We currently have a $165 million secured revolving credit
facility and term loans with variable interest rates. We may incur additional variable rate debt
in the future to meet its financing needs. Increases in interest rates on such debt could increase
our interest expense, which would adversely affect our cash flow and our ability to pay dividends
to our shareholders. We have not entered into any interest rate hedge contracts in order to
mitigate the interest rate risk with respect to the secured revolving credit facility. As of March
31, 2005, we had $106.8 million outstanding under loans with variable interest rates. If the
weighted average interest rate on this variable rate debt were 100 basis points higher or lower,
annual interest expense would be increased or decreased by approximately $1,068,000. Additionally,
we had $516.1 million outstanding under loans with fixed interest rates as of March 31, 2005. We
may incur additional fixed rate debt in the future to meet its financing needs. If the market
interest rate on this fixed rate debt were 100 basis points lower, the fair value of our fixed rate
debt would increase to $460.0 million. 
 Item 4. Controls and Procedures. We carried out an evaluation, with the participation of our Principal Executive Officer and
Principal Financial Officer, of the effectiveness of our disclosure controls and procedures
(pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period
covered by this report. Based upon that evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to our Company (including our consolidated
subsidiaries) required to be included in our periodic SEC filings. There has been no change in the
our internal control over financial reporting during the quarter ended March 31, 2005, that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. 24




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings None. 
 Item 5. Other Information  (a)
    The following table sets forth, with respect to each office project or location at March 31,
2005, gross square feet, rentable square feet, percentage leased, and the average annual rent
per rentable square foot leased. AverageAnnualGross
    
    
    Rentable
    
    
    
    
    
    
    Rent PerSquare
    
    
    Square
    
    
    Percent
    
    
    SquareOffice Project/Location
    
    Feet
    
    
    Feet (5)
    
    
    Leased (1)
    
    
    Foot (2)Atlanta Atlantic Center Plaza (3)
    
    
    507,700
    
    
    
    501,184
    
    
    
    89
    %
    
    $
    28.96Atlanta Chamblee
    
    
    1,199,800
    
    
    
    1,128,502
    
    
    
    93
    %
    
    
    18.20Atlanta Gwinnett
    
    
    274,400
    
    
    
    262,806
    
    
    
    89
    %
    
    
    19.60Atlanta McGinnis Park
    
    
    212,400
    
    
    
    202,243
    
    
    
    69
    %
    
    
    18.99Atlanta Perimeter
    
    
    184,000
    
    
    
    181,862
    
    
    
    80
    %
    
    
    18.71Atlanta Three Ravinia
    
    
    845,000
    
    
    
    804,876
    
    
    
    75
    %
    
    
    17.30
    (4)Charlotte University
    
    
    190,600
    
    
    
    182,891
    
    
    
    60
    %
    
    
    18.36Charlotte Vanguard
    
    
    548,200
    
    
    
    527,342
    
    
    
    60
    %
    
    
    15.37Dallas Campus Circle
    
    
    133,600
    
    
    
    127,226
    
    
    
    97
    %
    
    
    22.41Dallas Signature Place (3)
    
    
    460,000
    
    
    
    437,319
    
    
    
    72
    %
    
    
    20.78Dallas Tollway Crossing
    
    
    159,800
    
    
    
    152,163
    
    
    
    75
    %
    
    
    22.10Ft. Lauderdale Las Olas (3)
    
    
    479,000
    
    
    
    469,226
    
    
    
    91
    %
    
    
    21.73Houston Post Oak
    
    
    1,265,000
    
    
    
    1,202,700
    
    
    
    82
    %
    
    
    17.69Houston Westchase Corporate Center (3)
    
    
    194,000
    
    
    
    184,259
    
    
    
    93
    %
    
    
    22.84Jacksonville Baymeadows
    
    
    793,400
    
    
    
    751,138
    
    
    
    97
    %
    
    
    12.96
    (4)Jacksonville Baymeadows Way (3)
    
    
    236,000
    
    
    
    224,281
    
    
    
    100
    %
    
    
    9.50
    (4)Jacksonville JTB
    
    
    436,000
    
    
    
    416,773
    
    
    
    100
    %
    
    
    13.00
    (4)Memphis Germantown
    
    
    562,600
    
    
    
    532,971
    
    
    
    85
    %
    
    
    18.06Orlando Central
    
    
    699,700
    
    
    
    615,913
    
    
    
    87
    %
    
    
    16.59Orlando Lake Mary
    
    
    318,000
    
    
    
    303,540
    
    
    
    75
    %
    
    
    16.91Orlando University
    
    
    405,200
    
    
    
    383,816
    
    
    
    83
    %
    
    
    19.31Richmond Paragon
    
    
    154,300
    
    
    
    145,127
    
    
    
    97
    %
    
    
    19.36St. Petersburg
    
    
    715,500
    
    
    
    672,022
    
    
    
    94
    %
    
    
    16.62Tallahassee
    
    
    960,300
    
    
    
    836,326
    
    
    
    79
    %
    
    
    16.37Washington D.C. Decoverly (3)
    
    
    162,500
    
    
    
    154,787
    
    
    
    98
    %
    
    
    24.08Total
    
    
    12,097,000
    
    
    
    11,401,293Weighted Average  Total Company  136 Buildings
    
    
    
    
    
    
    
    
    
    
    82
    %
    
    $
    17.94Weighted Average  Same Store  128 Buildings
    
    
    
    
    
    
    
    
    
    
    82
    %
    
    $
    17.03Weighted Average  Acquisition  8 Buildings
    
    
    
    
    
    
    
    
    
    
    85
    %
    
    $
    22.15
   (1)
    
    The percent leased rates have been calculated by dividing total rentable square feet occupied
in an office building by total rentable square feet in such building.(2)
    
    Rental rates are computed by dividing (a) total annualized base rents (which excludes expense
pass-through and reimbursements) for an office project or location as of March 31, 2005 by (b)
the rentable square feet applicable to such total annualized rents.(3)
    
    Properties acquired subsequent to January 1, 2004 (Acquisition Buildings).(4)
    
    Includes the effect of leases where tenants who occupy all or a substantial portion of an
entire office building pay substantially all operating costs in addition to base rent. 25




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##### Table of Contents



(5)
    
    Does not include investment in unconsolidated entity that contains 325,583 of rentable
square feet and was 86% occupied at March 31, 2005.(b)
    
    The following schedule sets forth for all of our buildings (i) the number of leases which
will expire during the remainder of calendar year 2005 (without regard to any renewals),
calendar years 2006 through 2013, and years subsequent to 2013, (ii) the total rentable area
in square feet covered by such leases, (iii) the percentage of total rentable square feet
represented by such leases, (iv) the average annual rent per square foot for such leases, (v)
the current annualized base rents represented by such leases, and (vi) the percentage of gross
annualized base rents contributed by such leases. This information is based on the buildings
that we owned on March 31, 2005, and on the terms of leases in effect as of March 31, 2005, on
the basis of then existing base rentals, and without regard to the exercise of options to
renew. Furthermore, the information below does not reflect that some leases have provisions
for early termination for various reasons, including, in the case of government entities, lack
of budget appropriations. Leases were renewed on approximately 61 percent of our rentable
square feet which expired during the three months ended March 31, 2005. Percentage of
    
    
    Average
    
    
    
    
    
    
    PercentageTotal Square
    
    
    Annual Rent
    
    
    Total
    
    
    of TotalNumber of
    
    
    Number of
    
    
    Feet Leased
    
    
    per Square
    
    
    Annualized
    
    
    Annual RentsLeases
    
    
    Square Feet
    
    
    Represented by
    
    
    Foot Under
    
    
    Rents Under
    
    
    Represented byPeriod
    
    Expiring
    
    
    Expiring
    
    
    Expiring Leases
    
    
    Expiring Leases
    
    
    Expiring Leases
    
    
    Expiring Leases2005
    
    
    263
    
    
    
    1,092,694
    
    
    
    11.6%
    
    
    $
    17.84
    
    
    $
    19,489,593
    
    
    
    11.6%2006
    
    
    205
    
    
    
    1,458,229
    
    
    
    15.5%
    
    
    
    18.47
    
    
    
    26,940,364
    
    
    
    16.0%2007
    
    
    195
    
    
    
    1,147,077
    
    
    
    12.2%
    
    
    
    18.97
    
    
    
    21,754,557
    
    
    
    12.9%2008
    
    
    119
    
    
    
    984,796
    
    
    
    10.5%
    
    
    
    18.65
    
    
    
    18,363,825
    
    
    
    10.9%2009
    
    
    114
    
    
    
    1,808,392
    
    
    
    19.3%
    
    
    
    17.85
    
    
    
    32,283,959
    
    
    
    19.2%2010
    
    
    58
    
    
    
    472,120
    
    
    
    5.0%
    
    
    
    16.89
    
    
    
    7,972,446
    
    
    
    4.7%2011
    
    
    23
    
    
    
    326,937
    
    
    
    3.5%
    
    
    
    15.96
    
    
    
    5,219,394
    
    
    
    3.1%2012
    
    
    24
    
    
    
    484,496
    
    
    
    5.2%
    
    
    
    18.40
    
    
    
    8,913,397
    
    
    
    5.3%2013
    
    
    3
    
    
    
    281,147
    
    
    
    3.0%
    
    
    
    28.91
    
    
    
    8,128,422
    
    
    
    4.8%Thereafter
    
    
    32
    
    
    
    1,330,169
    
    
    
    14.2%
    
    
    
    14.51
    
    
    
    19,306,139
    
    
    
    11.5%Total
    
    
    1,036
    
    
    
    9,386,057
    
    
    
    100.0%
    
    
    $
    17.94
    
    
    $
    168,372,096
    
    
    
    100.0%
 26




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##### Table of Contents



Item 6. Exhibits Number
    
    Description10.1
    
    CRT Properties, Inc. Senior Management Compensation Plan (1)10.2
    
    Form of Restricted Stock Agreement under the CRT Properties, Inc. Amended
and Restated 1998 Equity and Cash Incentive Plan (1)10.3
    
    Employment Agreement between CRT Properties, Inc. and Thomas J. Crocker
dated January 1, 2005 (1)10.4
    
    Employment Agreement between CRT Properties, Inc. and Thomas C. Brockwell
dated January 1, 2005 (1)10.5
    
    Form of Participation Agreement in the CRT Properties, Inc. Senior
Management Compensation Plan (1)10.6
    
    Employment Letter between CRT Properties, Inc. and Terence D. McNally
dated February 3, 2005 (2)10.7
    
    CRT Properties, Inc. Directors Deferred Compensation Program*15
    
    Letter re: Unaudited interim financial information.31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act32
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
   *
    
    Filed herewith(1)
    
    Incorporated by Reference to the Companys Current Report on 8-K, dated
January 13, 2005, as filed with the Commission on January 14, 2005(2)
    
    Incorporated by Reference to the Companys Current Report on 8-K, dated
February 14, 2005, as filed with the Commission on February 18, 2005 27




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CRT PROPERTIES, INC.RegistrantDated: May 6, 2005
    
    /s/ Thomas J. CrockerThomas J. CrockerChief Executive Officer(Principal Executive Officer)CRT Properties, Inc.Dated: May 6, 2005
    
    /s/ Terence D. McNallyTerence D. McNallySenior Vice President andChief Financial Officer(Principal Financial Officer)CRT Properties, Inc.Dated: May 6, 2005
    
    /s/ Randal L. MartinRandal L. MartinController(Principal Accounting Officer)CRT Properties, Inc.
 28