Form 10-K

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

COMMISSION FILE NO. 1-6622

WASHINGTON REAL ESTATE INVESTMENT TRUST

(Exact name of registrant as specified in its charter)


MARYLAND		53-0261100
(State of incorporation)		(IRS Employer Identification Number)

6110 EXECUTIVE BOULEVARD, SUITE 800, ROCKVILLE, MARYLAND 20852


(Address of principal executive office)		(Zip code)

Registrant’s telephone number, including area code: (301) 984-9400

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of exchange on which registered
Shares of Beneficial Interest		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO x

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 such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days. YES x NO ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x

As of June 30, 2010, the aggregate market value of such shares held by non-affiliates of the registrant was approximately $1,710,524,544 (based on the closing price of the stock on June 30, 2010).

As of February 18, 2011, 65,895,876 common shares were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our definitive Proxy Statement relating to the 2011 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.

WASHINGTON REAL ESTATE INVESTMENT TRUST

2010 FORM 10-K ANNUAL REPORT

INDEX


PART I			Page

	Item 1.	Business		3
	Item 1A.	Risk Factors		7
	Item 1B.	Unresolved Staff Comments		14
	Item 2.	Properties		15
	Item 3.	Legal Proceedings		17
	Item 4.	(Removed and Reserved)		17

PART II

	Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		18
	Item 6.	Selected Financial Data		19
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
	Item 7A.	Qualitative and Quantitative Disclosures about Market Risk		55
	Item 8.	Financial Statements and Supplementary Data		56
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		56
	Item 9A.	Controls and Procedures		56
	Item 9B.	Other Information		56

PART III

	Item 10.	Directors, Executive Officers and Corporate Governance		57
	Item 11.	Executive Compensation		57
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		57
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		57
	Item 14.	Principal Accountant Fees and Services		57

PART IV

	Item 15.	Exhibits and Financial Statements Schedules		58
		Signatures		64

PART I

ITEM 1: BUSINESS

WRIT Overview

Washington Real Estate Investment Trust (“we” or “WRIT”) is a self-administered, self-managed, equity real estate investment trust (“REIT”) successor to a trust organized in 1960. Our business consists of the ownership and operation of income-producing real property in the greater Washington metro region. We own a diversified portfolio of office buildings, medical office buildings, industrial/flex properties, multifamily buildings and retail centers.

Our geographic focus is based on two principles:

Real estate is a local business and is more effectively selected and managed by owners located, and with expertise, in the region.

Geographic markets deserving of focus must be among the nation’s best markets with a strong primary industry foundation and diversified enough to withstand downturns in their primary industry.

We consider markets to be local if they can be reached from Washington within two hours by car. While we have historically focused most of our investments in the greater Washington metro region, in order to maximize acquisition opportunities we will consider investments within the two-hour radius described above. We also may consider opportunities to duplicate our Washington-focused approach in other geographic markets which meet the criteria described above.

All of our officers and employees live and work in the greater Washington metro region and all but one of our officers have over 20 years of experience in this region.

Over the last five years, dividends paid per share have been $1.73125 for 2010, $1.73 for 2009, $1.72 for 2008, $1.68 for 2007 and $1.64 for 2006.

The Greater Washington Metro Area Economy

In 2010, the Washington metro region’s economy improved significantly from the prior year, with positive job growth and an increase in gross regional product (“GRP”). Current estimates by Delta Associates / Transwestern Commercial Services (“Delta”), a national full service real estate firm that provides market research and evaluation services for commercial property, indicate that the Washington metro region gained 20,000 – 25,000 jobs in 2010, compared to a loss of almost 53,000 in 2009. The region’s unemployment rate was 6.0% at November 2010, down from 6.1% in the prior year. The region’s unemployment rate remains the lowest rate among all of the nation’s largest metro areas, and is well below the national average of 9.8%. The federal government remains the region’s most important industry, providing approximately one third of the region’s GRP.

Delta expects growth in the Washington metro region to accelerate from recovery to expansion in 2011, albeit slower than in prior recoveries due to a more cautious business community as well as more austere spending policies from the federal government. According to Delta, the Washington Leading Index, which forecasts area economic performance over the next 18 months, is 107.2, as of September 2010, which is above the 20-year average of 102.6. Delta also forecasts GRP for the Washington metro region to increase by 3.3% - 3.6% in 2010. This compares to a national GRP projection of 3.0% - 3.5%. Delta forecasts job growth in the region to increase in 2011 and 2012, adding 48,100 and 44,000 new jobs, respectively, compared to the 20-year annual average of 37,000.

Greater Washington Metro Region Real Estate Markets

The Washington metro region’s economy has translated into improving relative real estate market performance in each of our segments, compared to other national metropolitan regions, as reported by Delta. Market statistics and information from Delta are set forth below:

Office and Medical Office Sectors

•

Average effective rents decreased 6.5% in 2010 in the region compared to a decrease of 6.9% in 2009.

•

Vacancy was 11.9% at year-end 2010, down from 13.0% at year-end 2009 but up from 10.6% at year-end 2008.

•

The region has the third lowest vacancy rate of large metro areas in the United States.

•

Net absorption (defined as the change in occupied, standing inventory from one period to the next) totaled 6.4 million square feet in 2010, up from 0.6 million square feet in 2009 and equal to the 6.4 million square foot long-term average.

•

Of the 5.0 million square feet of office space under construction at year-end 2010 (down from 5.7 million square feet at year-end 2009), 61% is pre-leased compared to 48% one year ago.

Retail Sector

•

Rental rates at grocery-anchored centers decreased 2.4% in the region in 2010, compared to the 5.8% decrease in 2009.

•

Vacancy rates increased to 5.6% at year-end 2010 from 5.3% at year-end 2009.

•

Total retail sales, excluding autos, parts and gas, increased by 5.2% for the twelve months ending October 2010, as compared to a 2.0% decrease in 2009.

Multifamily Sector

•

Net effective rents for all investment grade apartments increased 8.2% in the greater Washington metro region during 2010. Class A rents increased by 7.8% in 2010 compared to a decline of 1.7% in 2009.

•

The vacancy rate for all apartments was 3.4% at year-end 2010, compared to 4.3% at year-end 2009. The national rate was 6.6% at year-end 2010, which places the Washington metro region as one of the lowest vacancy rates of any metro area in the nation. Class A vacancy increased to 4.6% at year-end 2010 from 3.6% at year-end 2009.

Industrial/Flex Sector

•

Rental rates for the industrial sector decreased 3.0% in the Washington metro region in 2010 compared to a decrease of 4.3% in 2009.

•

Overall vacancy was 11.0% at year-end 2010, down from 11.4% at year-end 2009.

•

Net absorption was a positive 1.2 million square feet, compared to a negative 2.3 million square feet in 2009.

•

Of the 1.1 million square feet of industrial space under construction at year-end 2010, 51% was pre-leased, compared to 41% of space under construction that was pre-leased at year-end 2009.

Our Portfolio

As of December 31, 2010, we owned a diversified portfolio of 85 properties, totaling approximately 10.7 million square feet of commercial space and 2,540 residential units, and land held for development. These 85 properties consist of 25 office properties, 18 medical office properties, 15 retail centers, 11 multifamily properties and 16 industrial/flex properties. Our principal objective is to invest in high quality properties in prime locations, then proactively manage, lease and direct ongoing capital improvement programs to improve their economic performance. The percentage of total real estate rental revenue by property group for 2010, 2009 and 2008, and the percent leased, calculated as the percentage of physical net rentable area leased, as of December 31, 2010, were as follows:


Percent Leased December 31, 2010				Real Estate Rental Revenue⁽¹⁾
Percent Leased December 31, 2010				2010			2009			2008
	90	%	Office		44	%		44	%		42	%
	90	%	Medical office		15			15			16
	92	%	Retail		14			14			15
	97	%	Multifamily		16			16			14
	80	%	Industrial		11			11			13

					100	%		100	%		100	%

⁽¹⁾	Data excludes discontinued operations.

The industrial segment’s decrease in share of real estate rental revenue from 13% in 2008 to 11% in 2009 and 2010 is primarily due to declines in that segment’s real estate rental revenue caused by lower occupancy.

On a combined basis, our commercial portfolio (i.e., our office, medical office, retail and industrial properties, but not our multifamily properties) was 88% leased at December 31, 2010, 90% leased at December 31, 2009 and 95% leased at December 31, 2008.

The commercial lease expirations for the next five years are as follows:


	# of Leases		Square Feet		Gross Annual Rent		Percentage of Total Gross Annual Rent
2011		293		1,234,000	$	29,374,000		12	%
2012		219		1,225,000		27,861,000		11
2013		216		1,325,000		28,338,000		12
2014		154		1,408,000		37,331,000		15
2015		147		1,167,000		31,833,000		13
2016 and thereafter		332		2,763,000		88,852,000		37

Total		1,361		9,122,000	$	243,589,000		100	%

Total real estate rental revenue from continuing operations was $298.0 million for 2010, $298.2 million for 2009 and $268.7 million for 2008. During the three year period ended December 31, 2010, we acquired three office buildings, two medical office buildings, one multifamily building, one retail center and one industrial/flex property. We also placed into service from development one office building and one multifamily building. During that same time frame, we sold five office buildings, one multifamily building and eight industrial/flex properties. These acquisitions and dispositions were the primary reason for the shifting of each group’s percentage of total real estate rental revenue reflected above.

No single tenant accounted for more than 3.3% of real estate rental revenue in 2010, 3.3% of revenue in 2009 and 3.6% of revenue in 2008. All federal government tenants in the aggregate accounted for approximately 2.6% of our 2010 total revenue. Federal government tenants include the Department of Defense, U.S. Patent and Trademark Office, Federal Bureau of Investigation, Office of Personnel Management, Secret Service, Federal Aviation Administration, NASA and the National Institutes of Health. Our ten largest tenants, in terms of aggregate occupied square feet, are as follows:

World Bank;

Advisory Board Company;

General Services Administration;

INOVA Health System;

Patton Boggs LLP;

IBM Corporation;

Sunrise Senior Living, Inc.;

General Dynamics;

Children’s National Medical Center;

10.

George Washington University.

We expect to continue investing in additional income-producing properties. We invest in properties which we believe will increase in income and value. Our properties typically compete for tenants with other properties throughout the respective areas in which they are located on the basis of location, quality and rental rates.

We make capital improvements on an ongoing basis to our properties for the purpose of maintaining and increasing their value and income. Major improvements and/or renovations to the properties in 2010, 2009, and 2008 are discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Capital Improvements and Development Costs.”

Further description of the property groups is contained in Item 2, Properties and in Schedule III. Reference is also made to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

On February 18, 2011, we had 293 employees including 213 persons engaged in property management functions and 80 persons engaged in corporate, financial, leasing, asset management and other functions.

REIT Tax Status

We believe that we qualify as a REIT under Sections 856-860 of the Internal Revenue Code and intend to continue to qualify as such. To maintain our status as a REIT, we are required to distribute 90% of our ordinary taxable income to our shareholders. When selling properties, we have the option of (a) reinvesting the sales proceeds of properties sold, allowing for a deferral of income taxes on the sale, (b) paying out capital gains to the shareholders with no tax to us or (c) treating the capital gains as having been distributed to our shareholders, paying the tax on the gain deemed distributed and allocating the tax paid as a credit to our shareholders.

Tax Treatment of Recent Disposition Activity

We sold several properties during the three year period ended December 31, 2010:


Disposition Date	Property	Type	Rentable Square Feet (unaudited)		Contract Sales Price (in thousands)		Gain on Sale (in thousands)
June 18, 2010	Parklawn Portfolio⁽¹⁾	Office/Industrial		229,000	$	23,400	$	7,900
December 21, 2010	The Ridges	Office		104,000		27,500		4,500
December 22, 2010	Ammendale I&II/ Amvax	Industrial		305,000		23,000		9,200

		Total 2010		638,000	$	73,900	$	21,600

May 13, 2009	Avondale	Multifamily		170,000	$	19,800	$	6,700
July 23, 2009	Tech 100 Industrial Park	Industrial		166,000		10,500		4,100
July 31, 2009	Brandywine Center	Office		35,000		3,300		1,000
November 13, 2009	Crossroads Distribution Center	Industrial		85,000		4,400		1,500

		Total 2009		456,000	$	38,000	$	13,300

June 6, 2008	Sullyfield Center/The Earhart Building	Industrial		336,000	$	41,100	$	15,300

		Total 2008		336,000	$	41,100	$	15,300

⁽¹⁾	The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center).

All disclosed gains on sale are calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The capital gains from the sales were paid out to shareholders.

We distributed all of our 2010, 2009 and 2008 ordinary taxable income to our shareholders. No provision for income taxes was necessary in 2010, 2009 or 2008.

Availability of Reports

Copies of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports are available, free of charge, on the Internet on our website www.writ.com. All required reports are made available on the website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission. The reference to our website address does not constitute incorporation by reference of the information contained in the website and such information should not be considered part of this document.

ITEM 1A: RISK FACTORS

Set forth below are the risks that we believe are material to our shareholders. We refer to the shares of beneficial interest in WRIT as our “common shares,” and the investors who own shares as our “shareholders.” This section includes or refers to certain forward-looking statements. You should refer to the explanation of the qualifications and limitations on such forward-looking statements beginning on page 53.

Disruptions in the financial markets could affect our ability to obtain financing or have other adverse effects on us or the market price of our common shares.

The United States and global equity and credit markets have experienced in the recent past significant price volatility and liquidity disruptions which caused the market prices of stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances significantly negatively impacted liquidity in the financial markets, making terms for certain financings less attractive or unavailable. Any disruption in the equity and credit markets could negatively impact our ability to access additional financing at reasonable terms or at all. If such disruption were to occur, in the event of a debt financing, our cost of borrowing in the future would likely be significantly higher than historical levels. As well, in the case of a common equity financing, the disruptions in the financial markets could have a material adverse effect on the market value of our common shares, potentially requiring us to issue more shares than we would otherwise have issued with a higher market value for our common shares. Disruption in the financial markets also could negatively affect our ability to make acquisitions, undertake new development projects and refinance our debt. In addition, it could also make it more difficult for us to sell properties and could adversely affect the price we receive for properties that we do sell, as prospective buyers experience increased costs of financing and difficulties in obtaining financing.

Disruptions in the financial markets also could adversely affect many of our tenants and their businesses, including their ability to pay rents when due and renew their leases at rates at least as favorable as their current rates. As well, our ability to attract prospective new tenants in the future could be adversely affected by disruption in the financial markets.

Our performance and value are subject to risks associated with our real estate assets and with the real estate industry.

Our economic performance and the value of our real estate assets are subject to the risk that if our office, medical office, retail, multifamily and industrial properties do not generate revenues sufficient to meet our operating expenses, debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected. The following factors, among others, may adversely affect the cash flow generated by our commercial and multifamily properties:

•

downturns in the national, regional and local economic climate;

•

the economic health of our tenants and the ability to collect rents;

•

consumer confidence, unemployment rates, and consumer tastes and preferences;

•

competition from similar asset type properties;

•

local real estate market conditions, such as oversupply or reduction in demand for office, medical office, retail, multifamily and industrial properties;

•

changes in interest rates and availability of financing;

•

vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;

•

increased operating costs, including insurance premiums, utilities and real estate taxes;

•

inflation;

•

civil disturbances, earthquakes and other natural disasters, terrorist acts or acts of war; and

•

decreases in the underlying value of our real estate.

We are dependent upon the economic climate of the Washington metropolitan region.

All of our properties are located in the Washington metropolitan region, which may expose us to a greater amount of market dependent risk than if we were geographically diverse. General economic conditions and local real estate conditions in our geographic region may be dependent upon one or more industries, thus a downturn in one of the industries may have a particularly strong effect. In the event of negative economic changes in our region, we may experience a negative impact to our profitability and may be limited in our ability to make distributions to our shareholders.

We may be adversely affected by any significant reductions in federal government spending.

As a REIT operating exclusively in the Washington, D.C. metropolitan area, a significant portion of our properties is occupied by United States Government tenants or tenants that are directly or indirectly serving the United States Government as federal contractors or otherwise. A significant reduction in federal government spending could affect the ability of these tenants to fulfill lease obligations or decrease the likelihood that they will renew their leases with us. Further, economic conditions in the Washington, D.C. metropolitan area are significantly dependent upon the level of federal government spending in the region. In the event of a significant reduction in federal government spending, there could be negative economic changes in our region which could adversely impact the ability of our tenants to perform their financial obligations under our leases or the likelihood of their lease renewal. As a result, if such a reduction in federal government spending were to occur, we could experience an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.

We face risks associated with property acquisitions.

We intend to continue to acquire properties which would continue to increase our size and could alter our capital structure. Our acquisition activities and results may be exposed to the following risks:

•

we may be unable to finance acquisitions on favorable terms;

•

the acquired properties may fail to perform as we expected in analyzing our investments;

•

the actual returns realized on acquired properties may not exceed our average cost of capital;

•

we may be unable to acquire a desired property because of competition from other real estate investors, including publicly traded real estate investment trusts, institutional investment funds and private investors;

•

even if we enter into an acquisition agreement for a property, it is subject to customary conditions to closing, including completion of due diligence investigations which may have findings that are unacceptable;

•

even if we enter into an acquisition agreement for a property, we may be unable to complete that acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs;

•

we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;

•

competition from other real estate investors may significantly increase the purchase price; and

•

our estimates of capital expenditures required for an acquired property, including the costs of repositioning or redeveloping, may be inaccurate.

We may acquire properties subject to liabilities and without recourse, or with limited recourse with respect to unknown liabilities. As a result, if liability were asserted against us based upon the acquisition of a property, we may have to pay substantial sums to settle it, which could adversely affect our cash flow. Unknown liabilities with respect to properties acquired might include:

•

liabilities for clean-up of undisclosed environmental contamination;

•

claims by tenants, vendors or other persons dealing with the former owners of the properties;

•

liabilities incurred in the ordinary course of business; and

•

claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

Real estate investments are illiquid, and we may not be able to sell our properties on a timely basis when we determine it is appropriate to do so.

Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable, and we may find that to be the case under the current economic conditions due to limited credit availability for potential buyers. Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions. Moreover, under certain circumstances, the Internal Revenue Code imposes penalties on a REIT that sells property held for less than two years and or sells more than a specified number of properties in a given year. In addition, for properties that we acquire by issuing units in an operating partnership, we may be restricted by agreements with the sellers of the properties for a certain period of time from entering into transactions (such as the sale or refinancing of the acquired property) that will result in a taxable gain to the sellers without the sellers’ consent. Due to these factors, we may be unable to sell a property at an advantageous time.

We face potential difficulties or delays renewing leases or re-leasing space.

As of December 31, 2010, leases on our commercial properties will expire from 2011 through 2015 as follows:


		% of leased square footage
2011		12%
2012		11%
2013		12%
2014		15%
2015		13%

Total		63%

We derive substantially all of our income from rent received from tenants. If our tenants decide not to renew their leases, we may not be able to re-let the space. If tenants decide to renew their leases, the terms of renewals, including the cost of required improvements or concessions, may be less favorable than current lease terms. Multifamily properties are leased under operating leases with terms of generally one year or less. For the years ended 2010, 2009 and 2008, the multifamily tenant retention rate was 61%, 54% and 67%, respectively. Similar to our commercial properties, if our multifamily tenants decide not to renew their leases, we may not be able to re-let the space, or the terms of the renewal may be less favorable than current lease terms. As a result of the foregoing, our cash flow could decrease and our ability to make distributions to our shareholders could be adversely affected.

We face potential adverse effects from major tenants' bankruptcies or insolvencies.

The bankruptcy or insolvency of a major tenant may adversely affect the income produced by a property. We cannot evict a tenant solely because of its bankruptcy. On the other hand, a court might authorize the tenant to reject and terminate its lease. In such case, our claim against the bankrupt tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. As a result, our claim for unpaid rent would likely not be paid in full. This shortfall could adversely affect our cash flow and results from operations. If a tenant experiences a downturn in its business or other types of financial distress, it may be unable to make timely rental payments.

We face risks associated with property development.

Developing properties present a number of risks for us, including risks that:

•

if we are unable to obtain all necessary zoning and other required governmental permits and authorizations or cease development of the project for any other reason, the development opportunity may be abandoned after expending significant resources, resulting in the loss of deposits or failure to recover expenses already incurred;

•

the development and construction costs of the project may exceed original estimates due to increased interest rates and increased cost of materials, labor, leasing or other expenditures, which could make the completion of the project less profitable because market rents may not increase sufficiently to compensate for the increase in construction costs;

•

construction and/or permanent financing may not be available on favorable terms or may not be available at all, which may cause the cost of the project to increase and lower the expected return;

•

the project may not be completed on schedule as a result of a variety of factors, many of which are beyond our control, such as weather, labor conditions and material shortages, which would result in increases in construction costs and debt service expenses; and

•

occupancy rates and rents at the newly completed property may not meet the expected levels and could be insufficient to make the property profitable.

Properties developed or acquired for development may generate little or no cash flow from the date of acquisition through the date of completion of development. In addition, new development activities, regardless of whether or not they are ultimately successful, may require a substantial portion of management’s time and attention.

These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on our financial condition, results of operations, or ability to satisfy our debt service obligations.

We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments.

We may invest in joint ventures or other entities in which we are not the exclusive investor or principal decision maker. Investments in such entities may involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions. Our partners in these entities may have economic, tax or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also lead to impasses, for example, as to whether to sell a property, because neither we nor the other parties to these investments may have full control over the entity. In addition, we may in certain circumstances be liable for the actions of the other parties to these investments. Each of these factors could have an adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our shareholders.

Our properties face significant competition.

We face significant competition from developers, owners and operators of office, medical office, retail, multifamily, industrial and other commercial real estate. Substantially all of our properties face competition from similar properties in the same market. Such competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge. These competing properties may have vacancy rates higher than our properties, which may result in their owners being willing to make space available at lower rents than the space in our properties.

We face risks associated with the use of debt, including refinancing risk.

We rely on borrowings under our credit facilities and offerings of debt securities to finance acquisitions and development activities and for general corporate purposes. The commercial real estate debt markets have in the recent past experienced significant volatility due to a number of factors, including the tightening of underwriting standards by lenders and credit rating agencies and the reported significant inventory of unsold mortgage backed securities in the

market. The volatility resulted in investors decreasing the availability of debt financing as well as increasing the cost of debt financing. We believe that circumstances could again arise in which we may not be able to obtain debt financing in the future on favorable terms, or at all. If we were unable to borrow under our credit facilities or to refinance existing debt financing, our financial condition and results of operations would likely be adversely affected.

We are subject to the risks normally associated with debt, including the risk that our cash flow may be insufficient to meet required payments of principal and interest. We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity. Therefore, we are likely to need to refinance a significant portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt. If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital, our cash flow may not be sufficient to repay all maturing debt in years when significant “balloon” payments come due.

Our degree of leverage could limit our ability to obtain additional financing or affect the market price of our common shares or debt securities.

On February 18, 2011, our total consolidated debt was approximately $1.2 billion. Consolidated debt to consolidated market capitalization ratio, which measures total consolidated debt as a percentage of the aggregate of total consolidated debt plus the market value of outstanding equity securities, is often used by analysts to gauge leverage for equity REITs such as us. Our market value is calculated using the price per share of our common shares. Using the closing share price of $30.90 per share of our common shares on February 18, 2011, multiplied by the number of our common shares, our consolidated debt to total consolidated market capitalization ratio was approximately 38% as of February 18, 2011.

Our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes. Our senior unsecured debt is currently rated investment grade by the two major rating agencies. However, there can be no assurance that we will be able to maintain this rating, and in the event our senior debt is downgraded from its current rating, we would likely incur higher borrowing costs and/or difficulty in obtaining additional financing. Our degree of leverage could also make us more vulnerable to a downturn in business or the economy generally. There is a risk that changes in our debt to market capitalization ratio, which is in part a function of our share price, or our ratio of indebtedness to other measures of asset value used by financial analysts, may have an adverse effect on the market price of our equity or debt securities.

Rising interest rates would increase our interest costs.

We may incur indebtedness that bears interest at variable rates. Accordingly, if interest rates increase, so will our interest costs, which could adversely affect our cash flow and our ability to service debt. As a protection against rising interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts. These agreements, however, increase our risks that other parties to the agreements may not perform or that the agreements may be unenforceable.

Covenants in our debt agreements could adversely affect our financial condition.

Our credit facilities contain customary restrictions, requirements and other limitations on our ability to incur indebtedness. We must maintain a minimum tangible net worth and certain ratios, including a maximum of total liabilities to total gross asset value, a maximum of secured indebtedness to gross asset value, a minimum of annual EBITDA to fixed charges, a minimum of unencumbered asset value to unsecured indebtedness, a minimum of net operating income from unencumbered properties to unsecured interest expense and a maximum of permitted investments to gross asset value. Our ability to borrow under our credit facilities is subject to compliance with our financial and other covenants. The recent economic downturn may adversely affect our ability to comply with these financial and other covenants.

Failure to comply with any of the covenants under our unsecured credit facilities or other debt instruments could result in a default under one or more of our debt instruments. In particular, we could suffer a default under one of our secured debt instruments that could exceed a cross default threshold under our unsecured credit facilities, causing an event of default under the unsecured credit facilities. Alternatively, even if a secured debt instrument is below the cross default threshold for non-recourse secured debt under our unsecured credit facilities, a default under such secured debt instrument may still cause a cross default under our unsecured credit facilities because such secured debt instrument may not qualify as “non-recourse” under the definition in our unsecured credit facilities. Another possible cross default could occur between our unsecured credit facilities, on the one hand, and our senior unsecured notes, on the other hand. Any of the foregoing default or cross

default events could cause our lenders to accelerate the timing of payments and/or prohibit future borrowings, either of which would have a material adverse effect on our business, operations, financial condition and liquidity.

We face risks associated with short-term liquid investments.

We have significant cash balances from time to time that we invest in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. From time to time, these investments may include (either directly or indirectly):

•

direct obligations issued by the U.S. Treasury;

•

obligations issued or guaranteed by the U.S. government or its agencies;

•

taxable municipal securities;

•

obligations (including certificates of deposit) of banks and thrifts;

•

commercial paper and other instruments consisting of short-term U.S. dollar denominated obligations issued by corporations and banks;

•

repurchase agreements collateralized by corporate and asset-backed obligations;

•

both registered and unregistered money market funds; and

•

other highly rated short-term securities.

Investments in these securities and funds are not insured against loss of principal. Under certain circumstances we may be required to redeem all or part of our investment, and our right to redeem some or all of our investment may be delayed or suspended. In addition, there is no guarantee that our investments in these securities or funds will be redeemable at par value. A decline in the value of our investment or a delay or suspension of our right to redeem may have a material adverse effect on our results of operations or financial condition.

Further issuances of equity securities may be dilutive to current shareholders.

The interests of our existing shareholders could be diluted if additional equity securities are issued, including to finance future developments and acquisitions, instead of incurring additional debt. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing.

Compliance or failure to comply with the Americans with Disabilities Act and other laws and regulations could result in substantial costs.

The Americans with Disabilities Act generally requires that public buildings, including commercial and multifamily properties, be made accessible to disabled persons. Noncompliance could result in imposition of fines by the federal government or the award of damages to private litigants. If, pursuant to the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our results of operations.

We may also incur significant costs complying with other regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fair housing, rent control and fire and life safety requirements. If we fail to comply with these requirements, we may incur fines or private damage awards. We believe that our properties are currently in material compliance with regulatory requirements. However, we do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will adversely affect our results of operations.

Some potential losses are not covered by insurance.

We carry insurance coverage on our properties of types and in amounts that we believe are in line with coverage customarily obtained by owners of similar properties. We believe all of our properties are adequately insured. The property insurance that we maintain for our properties has historically been on an “all risk” basis, which is in full force

and effect until renewal in August 2011. There are other types of losses, such as from wars or catastrophic events, for which we cannot obtain insurance at all or at a reasonable cost.

We have an insurance policy which has no terrorism exclusion, except for non-certified nuclear, chemical and biological acts of terrorism. Our financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts. Effective November 26, 2002, under this existing coverage, any losses caused by certified acts of terrorism would be partially reimbursed by the United States under a formula established by federal law. Under this formula the United States pays 85% of covered terrorism losses exceeding the statutorily established deductible paid by the insurance provider, and insurers pay 10% until aggregate insured losses from all insurers reach $100 billion in a calendar year. If the aggregate amount of insured losses under this program exceeds $100 billion during the applicable period for all insured and insurers combined, then each insurance provider will not be liable for payment of any amount which exceeds the aggregate amount of $100 billion. On December 26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 was signed into law and extends the program through December 31, 2014. We continue to monitor the state of the insurance market in general, and the scope and costs of coverage for acts of terrorism in particular, but we cannot anticipate what amount of coverage will be available on commercially reasonable terms in future policy years.

In the event of an uninsured loss or a loss in excess of our insurance limits, we could lose both the revenues generated from the affected property and the capital we have invested in the affected property. Depending on the specific circumstances of the affected property it is possible that we could be liable for any mortgage indebtedness or other obligations related to the property. Any such loss could adversely affect our business and financial condition and results of operations.

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

Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties.

All of our properties are located in or near Washington D.C., a metropolitan area that has been and may in the future be the target of actual or threatened terrorism attacks. As a result, some tenants in our market may choose to relocate their businesses to other markets. This could result in an overall decrease in the demand for commercial space in this market generally, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms, or both. In addition, future terrorist attacks in or near Washington D.C. could directly or indirectly damage our properties, both physically and financially, or cause losses that materially exceed our insurance coverage. As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially.

Potential liability for environmental contamination could result in substantial costs.

Under federal, state and local environmental laws, ordinances and regulations, we may be required to investigate and clean up the effects of releases of hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or responsibility, simply because of our current or past ownership or operation of the real estate. In addition, the U.S. Environmental Protection Agency, the U.S. Occupational Safety and Health Administration and other state and local governmental authorities are increasingly involved in indoor air quality standards, especially with respect to asbestos, mold, medical waste and lead-based paint. The clean up of any environmental contamination, including asbestos and mold, can be costly. If environmental problems arise, we may have to make substantial payments which could adversely affect our financial condition and results of operations because:

•

as owner or operator we may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination;

•

the law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination;

•

even if more than one person may be responsible for the contamination, each person who shares legal liability under the environmental laws may be held responsible for all of the clean-up costs; and

•

governmental entities and third parties may sue the owner or operator of a contaminated site for damages and costs.

These costs could be substantial and in extreme cases could exceed the value of the contaminated property. The presence of hazardous or toxic substances or petroleum products or the failure to properly remediate contamination may adversely affect our ability to borrow against, sell or rent an affected property. In addition, applicable environmental laws create liens on contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination.

Environmental laws also govern the presence, maintenance and removal of asbestos. Such laws require that owners or operators of buildings containing asbestos:

•

properly manage and maintain the asbestos;

•

notify and train those who may come into contact with asbestos; and

•

undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building.

Such laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers.

It is our policy to retain independent environmental consultants to conduct Phase I environmental site assessments and asbestos surveys with respect to our acquisition of properties. These assessments generally include a visual inspection of the properties and the surrounding areas, an examination of current and historical uses of the properties and the surrounding areas and a review of relevant state, federal and historical documents. However, they do not always involve invasive techniques such as soil and ground water sampling. Where appropriate, on a property-by-property basis, our general practice is to have these consultants conduct additional testing. However, even though these additional assessments may be conducted, there is still the risk that:

•

the environmental assessments and updates did not identify all potential environmental liabilities;

•

a prior owner created a material environmental condition that is not known to us or the independent consultants preparing the assessments;

•

new environmental liabilities have developed since the environmental assessments were conducted; and

•

future uses or conditions or changes in applicable environmental laws and regulations could result in environmental liability to us.

Failure to qualify as a REIT would cause us to be taxed as a corporation, which would substantially reduce funds available for payment of dividends.

If we fail to qualify as a REIT for federal income tax purposes, we would be taxed as a corporation. We believe that we are organized and qualified as a REIT and intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are qualified as such, or that we will remain qualified as such in the future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code as to which there are only limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within our control. Future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of such qualification.

If we fail to qualify as a REIT we could face serious tax consequences that could substantially reduce our funds available for payment of dividends for each of the years involved because:

•

we would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and could be subject to federal income tax at regular corporate rates;

•

we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes;

•

unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four taxable years following the year during which we are disqualified; and

•

all dividends would be subject to tax as ordinary income to the extent of our current and accumulated earnings and profits potentially eligible as “qualified dividends” subject to the 15% income tax rate.

In addition, if we fail to qualify as a REIT, we would no longer be required to pay dividends. As a result of these factors, our failure to qualify as a REIT could have a material adverse impact on our results of operations, financial condition and liquidity.

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

As with any public company, a number of factors may adversely influence the public market price of our common shares. These factors include:

•

level of institutional interest in us;

•

perceived attractiveness of investment in us, in comparison to other REITs;

•

attractiveness of securities of REITs in comparison to other asset classes taking into account, among other things, that a substantial portion of REITs’ dividends are taxed as ordinary income;

•

our financial condition and performance;

•

the market’s perception of our growth potential and potential future cash dividends;

•

government action or regulation, including changes in tax law;

•

increases in market interest rates, which may lead investors to expect a higher annual yield from our distributions in relation to the price of our shares;

•

changes in federal tax laws;

•

changes in our credit ratings;

•

relatively low trading volume of shares of REITs in general, which tends to exacerbate a market trend with respect to our shares; and

•

any negative change in the level of our dividend or the partial payment thereof in common shares.

We cannot assure you we will continue to pay dividends at historical rates.

Our ability to continue to pay dividends on our common shares at historical rates or to increase our common share dividend rate will depend on a number of factors, including, among others, the following:

•

our future financial condition and results of operations;

•

the performance of lease terms by tenants;

•

the terms of our loan covenants; and

•

our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.

If we do not maintain or increase the dividend rate on our common shares in the future, it could have an adverse effect on the market price of our common shares.

Provisions of the Maryland General Corporation Law, or the MGCL, may limit a change in control.

There are several provisions of the Maryland General Corporation Law, or the MGCL, that may limit the ability of a third party to undertake a change in control, including:

•

a provision where a corporation is not permitted to engage in any business combination with any “interested stockholder,” defined as any holder or affiliate of any holder of 10% or more of the corporation’s stock, for a period of five years after that holder becomes an “interested stockholder;” and

•

a provision where the voting rights of “control shares” acquired in a “control share acquisition,” as defined in the MGCL, may be restricted, such that the “control shares” have no voting rights, except to the extent approved by a vote of holders of two-thirds of the common shares entitled to vote on the matter.

These provisions may delay, defer, or prevent a transaction or a change in control that may involve a premium price for holders of our shares or otherwise be in their best interests.

ITEM 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 2: PROPERTIES

The schedule on the following pages lists our real estate investment portfolio as of December 31, 2010, which consisted of 85 properties and land held for development.

As of December 31, 2010, the percent leased is the percentage of net rentable area for which fully executed leases exist and may include signed leases for space not yet occupied by the tenant.

Cost information is included in Schedule III to our financial statements included in this Annual Report on Form 10-K.

Schedule of Properties


Properties	Location	Year Acquired		Year Constructed		Net Rentable Square Feet		Percent Leased 12/31/10
Office Buildings
1901 Pennsylvania Avenue	Washington, D.C.		1977		1960		97,000		81	%
51 Monroe Street	Rockville, MD		1979		1975		210,000		88	%
515 King Street	Alexandria, VA		1992		1966		76,000		100	%
6110 Executive Boulevard	Rockville, MD		1995		1971		198,000		97	%
1220 19^th Street	Washington, D.C.		1995		1976		102,000		88	%
1600 Wilson Boulevard	Arlington, VA		1997		1973		166,000		95	%
7900 Westpark Drive	McLean, VA		1997		1972/1986/1999		523,000		92	%
600 Jefferson Plaza	Rockville, MD		1999		1985		112,000		91	%
1700 Research Boulevard	Rockville, MD		1999		1982		101,000		90	%
Wayne Plaza	Silver Spring, MD		2000		1970		91,000		87	%
Courthouse Square	Alexandria, VA		2000		1979		113,000		84	%
One Central Plaza	Rockville, MD		2001		1974		267,000		92	%
The Atrium Building	Rockville, MD		2002		1980		80,000		92	%
1776 G Street	Washington, D.C.		2003		1979		263,000		100	%
Albemarle Point	Chantilly, VA		2005		2001		89,000		80	%
6565 Arlington Blvd	Falls Church, VA		2006		1967/1998		140,000		85	%
West Gude Drive	Rockville, MD		2006		1984/1986/1988		276,000		88	%
The Crescent	Gaithersburg, MD		2006		1989		49,000		89	%
Monument II	Herndon, VA		2007		2000		205,000		65	%
Woodholme Center	Pikesville, MD		2007		1989		73,000		81	%
2000 M Street	Washington, D.C.		2007		1971		227,000		87	%
Dulles Station	Herndon, VA		2005		2007		180,000		94	%
2445 M Street	Washington, D.C.		2008		1986		290,000		100	%
925 Corporate Drive	Stafford, VA		2010		2007		135,000		100	%
1000 Corporate Drive	Stafford, VA		2010		2009		136,000		100	%

Subtotal							4,199,000		90	%


Medical Office Buildings
Woodburn Medical Park I	Annandale, VA		1998		1984		71,000		95	%
Woodburn Medical Park II	Annandale, VA		1998		1988		96,000		99	%
Prosperity Medical Center I	Merrifield, VA		2003		2000		92,000		96	%
Prosperity Medical Center II	Merrifield, VA		2003		2001		88,000		100	%
Prosperity Medical Center III	Merrifield, VA		2003		2002		75,000		100	%
Shady Grove Medical Village II	Rockville, MD		2004		1999		66,000		95	%
8301 Arlington Boulevard	Fairfax, VA		2004		1965		49,000		73	%
Alexandria Professional Center	Alexandria, VA		2006		1968		113,000		93	%
9707 Medical Center Drive	Rockville, MD		2006		1994		38,000		96	%
15001 Shady Grove Road	Rockville, MD		2006		1999		51,000		100	%
Plumtree Medical Center	Bel Air, MD		2006		1991		33,000		95	%

SCHEDULE OF PROPERTIES (continued)


Properties	Location	Year Acquired	Year Constructed		Net Rentable* Square Feet		Percent Leased 12/31/10
15005 Shady Grove Road	Rockville, MD	2006	2002			52,000		100	%
2440 M Street	Washington, D.C.	2007	1986/2006			110,000		95	%
Woodholme Medical Office Bldg	Pikesville, MD	2007	1996			125,000		98	%
Ashburn Farm Office Park	Ashburn, VA	2007	1998/2000/2002			75,000		90	%
CentreMed I & II	Centreville, VA	2007	1998			52,000		95	%
Sterling Medical Office Building	Sterling, VA	2008	1986/2000			36,000		85	%
Lansdowne Medical Office Building	Leesburg, VA	2009	2009			87,000		20	%

Subtotal						1,309,000		90	%


Retail Centers
Takoma Park	Takoma Park, MD	1963	1962			51,000		100	%
Westminster	Westminster, MD	1972	1969			151,000		95	%
Concord Centre	Springfield, VA	1973	1960			76,000		92	%
Wheaton Park	Wheaton, MD	1977	1967			72,000		85	%
Bradlee	Alexandria, VA	1984	1955			168,000		99	%
Chevy Chase Metro Plaza	Washington, D.C.	1985	1975			49,000		100	%
Montgomery Village Center	Gaithersburg, MD	1992	1969			198,000		82	%
Shoppes of Foxchase¹	Alexandria, VA	1994	1960/2006			134,000		94	%
Frederick County Square	Frederick, MD	1995	1973			227,000		91	%
800 S. Washington Street	Alexandria, VA	1998/2003	1955/1959			44,000		96	%
Centre at Hagerstown	Hagerstown, MD	2002	2000			332,000		96	%
Frederick Crossing	Frederick, MD	2005	1999/2003			295,000		94	%
Randolph Shopping Center	Rockville, MD	2006	1972			82,000		95	%
Montrose Shopping Center	Rockville, MD	2006	1970			143,000		82	%
Gateway Overlook	Columbia, MD	2010	2007			223,000		90	%

Subtotal						2,245,000		92	%


Multifamily Buildings				# of units
3801 Connecticut Avenue	Washington, D.C.	1963	1951	308		179,000		99	%
Roosevelt Towers	Falls Church, VA	1965	1964	191		170,000		99	%
Country Club Towers	Arlington, VA	1969	1965	227		163,000		99	%
Park Adams	Arlington, VA	1969	1959	200		173,000		96	%
Munson Hill Towers	Falls Church, VA	1970	1963	279		259,000		95	%
The Ashby at McLean	McLean, VA	1996	1982	256		252,000		97	%
Walker House Apartments	Gaithersburg, MD	1996	1971/2003	212		159,000		100	%
Bethesda Hill Apartments	Bethesda, MD	1997	1986	195		226,000		98	%
Bennett Park	Arlington, VA	2007	2007	224		268,000		92	%
Clayborne	Alexandria, VA	2008	2008	74		87,000		93	%
Kenmore	Washington, D.C.	2008	1948	374		270,000		99	%

Subtotal				2,540		2,206,000		97	%


Industrial/Flex Properties
Fullerton Business Center	Springfield, VA	1985	1980			104,000		36	%
The Alban Business Center	Springfield, VA	1996	1981/1982			87,000		76	%
Pickett Industrial Park	Alexandria, VA	1997	1973			246,000		100	%
Northern Virginia Industrial Park	Lorton, VA	1998	1968/1991			787,000		71	%
8900 Telegraph Road	Lorton, VA	1998	1985			32,000		23	%
Dulles South IV	Chantilly, VA	1999	1988			83,000		90	%
Sully Square	Chantilly, VA	1999	1986			95,000		78	%

SCHEDULE OF PROPERTIES (continued)


Properties	Location	Year Acquired		Year Constructed		Net Rentable Square Feet		Percent Leased 12/31/10
Fullerton Industrial Center	Springfield, VA		2003		1980		137,000		60	%
8880 Gorman Road	Laurel, MD		2004		2000		141,000		100	%
Dulles Business Park Portfolio	Chantilly, VA		2004/2005		1999-2005		324,000		84	%
Albemarle Point	Chantilly, VA		2005		2001/2003/2005		207,000		82	%
Hampton Overlook	Capital Heights, MD		2006		1989/2005		302,000		92	%
9950 Business Parkway	Lanham, MD		2006		2005		102,000		100	%
270 Technology Park	Frederick, MD		2007		1986-1987		157,000		63	%
6100 Columbia Park Road	Landover, MD		2008		1969		150,000		100	%

Subtotal							2,954,000		80	%

TOTAL							12,913,000

¹	Development on approximately 60,000 square feet of the center was completed in December 2006.

*	Multifamily buildings are presented in gross square feet.

ITEM 3: LEGAL PROCEEDINGS

None.

ITEM 4: (REMOVED AND RESERVED)

PART II

ITEM 5: MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our shares trade on the New York Stock Exchange. Currently, there are approximately 6,130 shareholders of record.

The high and low sales price for our shares for 2010 and 2009, by quarter, and the amount of dividends we paid per share are as follows:


				Quarterly Share Price Range
Quarter		Dividends Per Share		High		Low
2010
	Fourth	$	.43375	$	34.05	$	29.25
	Third	$	.43250	$	32.14	$	26.67
	Second	$	.43250	$	32.75	$	27.32
	First	$	.43250	$	30.77	$	25.09
2009
	Fourth	$	.43250	$	29.00	$	25.58
	Third	$	.43250	$	30.02	$	21.17
	Second	$	.43250	$	23.05	$	16.91
	First	$	.43250	$	27.48	$	15.60

We have historically paid dividends on a quarterly basis. Dividends are primarily paid from our cash flow from operating activities.

During the period covered by this report, we did not sell equity securities without registration under the Securities Act.

Neither we nor any affiliated purchaser (as that term is defined in Securities Exchange Act Rule 10b-18(a) (3)) made any repurchases of our shares during the fourth quarter of the fiscal year covered by this report.

ITEM 6: SELECTED FINANCIAL DATA

The following table sets forth our selected financial data on a historical basis, which has been revised for properties disposed of or classified as held for sale (see note 3 to the consolidated financial statements). The following data should be read in conjunction with our financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.


	2010		2009		2008		2007		2006
	(in thousands, except per share data)
Real estate rental revenue	$	297,977	$	298,161	$	268,709	$	238,854	$	195,040
Income from continuing operations	$	13,131	$	23,823	$	4,807	$	21,877	$	29,749
Discontinued operations:
Income from operations of properties sold or held for sale	$	2,829	$	3,777	$	7,211	$	10,769	$	8,508
Gain on sale of real estate	$	21,599	$	13,348	$	15,275	$	25,022		—
Net income	$	37,559	$	40,948	$	27,293	$	57,668	$	38,257
Net income attributable to the controlling interests	$	37,426	$	40,745	$	27,082	$	57,451	$	38,053
Income from continuing operations attributable to the controlling interests per share – diluted	$	0.21	$	0.41	$	0.09	$	0.47	$	0.67
Net income attributable to the controlling interests per share – diluted	$	0.60	$	0.71	$	0.55	$	1.24	$	0.87
Total assets	$	2,167,881	$	2,045,225	$	2,109,407	$	1,897,018	$	1,530,863
Lines of credit payable	$	100,000	$	128,000	$	67,000	$	192,500	$	61,000
Mortgage notes payable	$	380,171	$	383,563	$	399,009	$	229,843	$	206,253
Notes payable	$	753,587	$	688,912	$	890,679	$	861,819	$	719,862
Shareholders’ equity	$	857,080	$	745,255	$	636,630	$	502,540	$	449,922
Cash dividends paid	$	108,949	$	100,221	$	85,564	$	78,050	$	72,681
Cash dividends declared and paid per share	$	1.73	$	1.73	$	1.72	$	1.68	$	1.64

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Conditions and Results of Operations (“MD&A”) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations and financial condition. MD&A is organized as follows:

•

Overview. Discussion of our business, operating results, investment activity and capital requirements, and summary of our significant transactions to provide context for the remainder of MD&A.

•

Critical Accounting Policies and Estimates. Descriptions of accounting policies that reflect significant judgments and estimates used in the preparation of our consolidated financial statements.

•

Results of Operations. Discussion of our financial results comparing 2010 to 2009 and comparing 2009 to 2008.

•

Liquidity and Capital Resources. Discussion of our financial condition and analysis of changes in our capital structure and cash flows.

When evaluating our financial condition and operating performance, we focus on the following financial and non-financial indicators:

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Net operating income (“NOI”), calculated as real estate rental revenue less real estate expenses excluding depreciation and amortization and general and administrative expenses. NOI is a non-GAAP supplemental measure to net income.

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Funds From Operations (“FFO”), calculated as set forth below under the caption “Funds from Operations.” FFO is a non-GAAP supplemental measure to net income.

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Occupancy, calculated as occupied square footage as a percentage of total square footage as of the last day of that period.

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Leased percentage, calculated as the percentage of available physical net rentable area leased for our commercial segments and percentage of apartments leased for our multifamily segment.

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Rental rates.

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Leasing activity, including new leases, renewals and expirations.

Overview

Business

Our revenues are derived primarily from the ownership and operation of income-producing properties in the greater Washington metro region. As of December 31, 2010, we owned a diversified portfolio of 85 properties, totaling approximately 10.7 million square feet of commercial space and 2,540 multifamily units, and land held for development. These 85 properties consisted of 25 office properties, 16 industrial/flex properties, 18 medical office properties, 15 retail centers and 11 multifamily properties.

We have a fundamental strategy of regional focus and diversification by property type. In recent years we have sought to pursue a strategy of upgrading our portfolio by selling properties that do not fit our long-term strategy (generally assets in locations that we want to exit), and acquiring or developing higher quality and better located properties. We will seek to continue to upgrade our portfolio as opportunities arise, funding acquisitions with a combination of cash, equity, debt and proceeds from property sales.

Operating Results

Real estate rental revenue, NOI, net income attributable to the controlling interests and FFO for 2010 and 2009 were as follows (in thousands):


	2010		2009		Change
Real estate rental revenue	$	297,977	$	298,161	$	(184	)
NOI⁽¹⁾	$	199,055	$	196,857	$	2,198
Net income attributable to the controlling interests	$	37,426	$	40,745	$	(3,319	)
FFO⁽²⁾	$	111,566	$	121,771	$	(10,205	)

⁽¹⁾	See pages 32 and 39 of the MD&A for reconciliations of NOI to net income.

⁽²⁾	See page 55 of the MD&A for reconciliations of FFO to net income.

Real estate rental revenues decreased by $0.2 million as lower occupancy in the commercial segments (i.e. office, medical office, retail and industrial) was substantially offset by higher occupancy in the multifamily segment and revenues from our 2010 acquisitions. Lower real estate expenses, primarily utilities and real estate taxes, caused the $2.2 million increase in NOI. Our multifamily segment performed well in 2010, as both occupancy and rental rates increased. However, we experienced a challenging market environment in our commercial segments. While the Washington metro region has emerged from recession, growth remains slow and we continued to have challenges in leasing vacant space, particularly in the office and industrial segments.

While we expect slow but steady improvement in the real estate market conditions in the region during 2011, we anticipate continued challenges in leasing vacant space. We also anticipate several instances where rents on new or renewal leases will be lower than the existing portfolio rents, putting further downward pressure on NOI. Additionally, we were successful in reducing our utilities and real estate taxes during 2010, but do not expect further reductions in 2011. We do plan to actively pursue property acquisitions throughout 2011, which may generate future NOI growth. However, any NOI growth in 2011 from acquisitions would likely be offset by acquisition costs.

The large decreases in net income and FFO during 2010 are primarily attributable to a net loss on extinguishment of debt of $9.2 million from repurchases of our 5.95% senior notes and 3.875% convertible notes. We incurred $8.9 million of this loss during the fourth quarter of 2010.

The performance of our five operating segments and the market conditions in our region are discussed in greater detail below (industry data is as reported by Delta):

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The region’s office market improved during 2010, with overall vacancy decreasing to 11.9% from 13.0% in the prior year. Vacancy in the submarkets was 13.2% for Northern Virginia, 14.1% for Suburban Maryland, and 8.5% in the District of Columbia. Net absorption (defined as the change in occupied, standing inventory from one year to the next) increased to 6.4 million square feet from 0.6 million square feet in 2009, driven by large federal government leases within the District of Columbia. Despite the improving market conditions, the region’s effective rents decreased by 6.5%. Delta does not expect overall rents to begin increasing until 2012. Our office segment was 90.4% leased at year-end 2010, a decrease from 92.1% leased at year-end 2009. By submarket, our office segment was 89.0% leased in Northern Virginia, 89.6% leased in Suburban Maryland, and 93.9% leased in the District of Columbia at year end 2010.

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Our medical office segment was 90.2% leased at year-end 2010, an increase from 89.4% at year-end 2009. The segment’s leased percentage reflects the 2009 acquisition of the newly-constructed Lansdowne Medical Office Building, which was 20.0% leased at year-end 2010. Excluding Lansdowne Medical Office Building, the segment was 95.2% leased at year-end 2010.

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The region’s retail market declined in 2010, with vacancy rates increasing to 5.6% from 5.3% in 2009. Rental rates at grocery-anchored centers decreased 2.4% in 2010, after a 5.8% decrease in 2009. Our retail segment was 92.2% leased at year-end 2010, down from 96.0% at year-end 2009.

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The region’s multifamily market significantly improved during 2010. The region’s vacancy rate for investment grade apartments decreased to 3.4%, down from 4.3% one year ago. During the same period rents increased by 8.2%, which is twice the long-term average. Our multifamily segment was 97.4% leased at year-end 2010, up from 95.8% at year-end 2009.

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The region’s industrial market began to recover during 2010. Vacancy decreased to 11.0% from 11.4% one year ago, while rents decreased by 3.0%. Net absorption was a positive 1.2 million square feet, compared to a negative 2.3 million square feet one year ago. Our industrial segment was 79.7% leased at year-end 2010, a decrease from 85.3% at year-end 2009. The decrease in occupancy for our industrial properties is driven by evicting non-paying tenants from our buildings, evidenced by a $0.8 million decrease in provisions for bad debt in 2010 as compared to 2009 in our industrial segment.

Investment Activity

We sold eight properties during 2010, while executing three property acquisitions. According to Delta, investment sales of real estate in the Washington metro region increased in 2010 compared to 2009, and this trend is expected to continue in 2011. We are continuing our stated acquisition strategy of focusing on properties inside the Washington metro region’s Beltway, near major transportation nodes and in areas with strong employment drivers and superior growth demographics. We intend to focus our future acquisition activity on the office, medical office, retail and multifamily segments.

We will seek to continue to recycle assets by disposing of properties that do not fit the above acquisition criteria. To that end, we are exploring the sale of all or a portion our industrial/flex segment and potentially using the sale proceeds to further our acquisition strategy. However, we may not receive acceptable offers for these properties. If we did receive an offer we considered acceptable, the completion of a definitive transaction with respect to such offer would still require the successful negotiation of a sale agreement and the approval of WRIT’s Board of Trustees. Lastly, if we identify a potential purchaser of all or a portion of the industrial/flex segment, negotiate an acceptable sale agreement and receive approval from the Board of Trustees to execute any such sale, there could still be conditions to the closing of such transaction that may not be achieved, or we or the potential purchaser otherwise may not be successful in completing such transaction. If we do sell all or a portion of the industrial/flex segment during 2011, we do not expect the resulting decrease in 2011’s net income attributable to the controlling interest to be completely offset by income from potential acquisitions.

Capital Requirements

Over the past year, we continued to focus on strengthening our balance sheet in order to minimize our refinancing risk and prepare for future acquisitions as transaction volume increases. To this end we issued $250.0 million of 4.95% notes due in 2020, using a portion of the proceeds to repurchase $56.1 million of our 5.95% senior notes due in 2011 and $122.8 million of our 3.875% convertible notes which could be put to us at par in 2011. Additionally, we paid off a $23.1 million mortgage note and paid down $28.0 million on our unsecured lines of credit during 2010.

Our unsecured lines of credit currently have $100.0 million outstanding, leaving a remaining borrowing capacity of $237.0 million, and mature in 2011. We currently expect to extend for one year our $75.0 million unsecured line of credit and enter into a new unsecured revolving credit facility at an amount at least equal to our $262.0 million unsecured line of credit during 2011.

We have a combined $105.9 million of unsecured and mortgage notes payable that mature in 2011. We currently expect to pay these maturities with some combination of proceeds from new debt, property sales and equity issuances.

Significant Transactions

We summarize below our significant transactions during the two years ended December 31, 2010:

2010

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The acquisition of two office buildings in Stafford, Virginia, 925 and 1000 Corporate Drive, for $68.0 million, adding approximately 271,000 square feet.

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The acquisition of a retail property in Columbia, Maryland, Gateway Overlook, for $88.4 million, adding approximately 223,000 square feet.

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The disposition of the Parklawn Portfolio, consisting of three office properties and one industrial property, for a contract sales price of $23.4 million and a gain on sale of $7.9 million.

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The disposition of an office property, the Ridges, for a contract sales price of $27.5 million and a gain on sale of $4.5 million.

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The disposition of three industrial properties, Ammendale I & II and Amvax, for a contract sales price of $23.0 million and a gain on sale of $9.2 million.

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The issuance of $250.0 million of 4.95% unsecured notes due October 1, 2020, with net proceeds of $245.8 million. The notes bear an effective interest rate of 5.053%.

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The repurchases by tender offer of $122.8 million of our 3.875% convertible notes at 102.8 % of par, resulting in a net loss on extinguishment of debt of $6.5 million. Prior to the tender offer, we had executed repurchases of our 3.875% convertible notes totaling $8.8 million at 100.1% of par, resulting in a net loss on extinguishment of debt of $0.3 million.

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The repurchases by tender offer of $56.1 million of our 5.95% senior notes at 103.8% of par, resulting in a net loss on extinguishment of debt of $2.4 million.

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The issuance of 5.6 million common shares at a weighted average price of $30.34 under our sales agency financing agreement, raising $168.9 million in net proceeds.

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The execution of new leases for 1.6 million square feet of commercial space (excluding first generation leases at recently-built properties), with an average rental rate increase of 13.0% over expiring leases.

2009

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The completion of a public offering of 5.25 million common shares priced at $21.40 per share, raising $107.5 million in net proceeds.

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The disposition of one multifamily property, Avondale, for a contract sales price of $19.8 million and a gain on sale of $6.7 million.

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The dispositions of two industrial properties, Tech 100 Industrial Park and Crossroads Distribution Center, for contract sales prices of $10.5 million and $4.4 million, respectively, and gains on sale of $4.1 million and $1.5 million, respectively.

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The disposition of one office property, Brandywine Center, for a contract sales price of $3.3 million and a gain on sale of $1.0 million.

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The acquisition of one newly constructed medical office building, Lansdowne Medical Office Building, for $19.9 million, adding approximately 87,000 square feet, which was 0% leased at the end of 2009.

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The execution of an agreement to modify our $100.0 million unsecured term loan with Wells Fargo Bank, National Association to extend the maturity date from February 19, 2010 to November 1, 2011. This agreement also increased the interest rate on the term loan from LIBOR plus 150 basis points to LIBOR plus 275 basis points. We also entered into a forward interest rate swap on a notional amount of $100.0 million, which had the effect of fixing the interest rate on the loan at 4.85% for the period from February 20, 2010 through the maturity date of November 1, 2011.

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The prepayment of our $100.0 million unsecured term loan with Wells Fargo Bank, National Association on December 1, 2009 using borrowings from our unsecured lines of credit. The prepayment resulted in a $1.5 million loss on extinguishment of debt.

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The issuance of 2.0 million common shares at a weighted average price of $27.37 under our sales agency financing agreement, raising $53.8 million in net proceeds.

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The execution of one mortgage note of approximately $37.5 million at a fixed rate of 5.37%, secured by the Kenmore Apartments.

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The prepayment of a $50.0 million mortgage note payable bearing interest at 7.14% per annum, secured by Munson Hill Towers, Country Club Towers, Roosevelt Towers, Park Adams Apartments and the Ashby of McLean, with no prepayment penalties.

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The repurchases of $109.7 million of our 3.875% convertible notes at prices ranging from 80% to 97.63% of par, resulting in a net gain on extinguishment of debt of $6.8 million.

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The execution of new leases for 1.4 million square feet of commercial space (excluding first generation leases at recently-built properties), with an average rental rate increase of 10.2% over expiring leases.

Critical Accounting Policies and Estimates

We base the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to estimated useful lives of real estate assets, estimated fair value of acquired leases, cost reimbursement income, bad debts, contingencies and litigation. We base the estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We cannot assure you that actual results will not differ from those estimates.

We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

Allowance for Doubtful Accounts

We recognize rental income and rental abatements from our multifamily and commercial leases when earned on a straight-line basis over the lease term. We record a provision for losses on accounts receivable equal to the estimated uncollectible amounts. We base this estimate on our historical experience and a monthly review of the current status of our receivables. We consider factors such as the age of the receivable, the payment history of our tenants and our assessment of our tenants’ ability to perform under their lease obligations, among other things. In addition to rents due currently, accounts receivable include amounts representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases. Our estimate of uncollectible accounts is subject to revision as these factors change and is sensitive to the impact of economic and market conditions on tenants.

Accounting for Real Estate Acquisitions

We record acquired or assumed assets, including physical assets and in-place leases, and liabilities, based on their fair values. We record goodwill when the purchase price exceeds the fair value of the assets and liabilities acquired. We determine the estimated fair values of the assets and liabilities in accordance with current GAAP fair value provisions. We determine the fair values of acquired buildings on an “as-if-vacant” basis considering a variety of factors, including the replacement cost of the property, estimated rental and absorption rates, estimated future cash flows and valuation assumptions consistent with current market conditions. We determine the fair value of land based on comparisons to similar properties that have been recently marketed for sale or sold.

The fair value of in-place leases consists of the following components: (a) the estimated cost to us to replace the leases, including foregone rents during the period of finding a new tenant and foregone recovery of tenant pass-throughs (referred to as “absorption cost”), (b) the estimated cost of tenant improvements, and other direct costs associated with obtaining a new tenant (referred to as “tenant origination cost”); (c) estimated leasing commissions associated with obtaining a new tenant (referred to as “leasing commissions”); (d) the above/at/below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place to projected cash flows of comparable market-rate leases (referred to as “net lease intangible”); and (e) the value, if any, of customer relationships, determined based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the tenant (referred to as “customer relationship value”).

We discount the amounts used to calculate net lease intangibles using an interest rate which reflects the risks associated with the leases acquired. We include tenant origination costs in income producing property on our balance sheet and amortize the tenant origination costs as depreciation expense on a straight-line basis over the useful life of the asset,

which is typically the remaining life of the underlying leases. We classify leasing commissions and absorption costs as other assets and amortize leasing commissions and absorption costs as amortization expense on a straight-line basis over the remaining life of the underlying leases. We classify above market net lease intangible assets as other assets and amortize net lease intangible assets on a straight-line basis as a decrease to real estate rental revenue over the remaining term of the underlying leases. We classify below market net lease intangible liabilities as other liabilities and amortize net lease intangible liabilities on a straight-line basis as an increase to real estate rental revenue over the remaining term of the underlying leases. Should a tenant terminate its lease, we write off the unamortized portion of the tenant origination cost (if it has no future value), leasing commissions, absorption costs and net lease intangible associated with that lease.

Capitalized Interest

We capitalize interest costs incurred on borrowing obligations while qualifying assets are being readied for their intended use. We amortize capitalized interest over the useful life of the related underlying assets upon those assets being placed into service.

Real Estate Impairment

We recognize impairment losses on long-lived assets used in operations and held for sale, development assets or land held for future development, if indicators of impairment are present and the net undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount and estimated undiscounted cash flows associated with future development expenditures. If such carrying amount is in excess of the estimated cash flows from the operation and disposal of the property, we would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to the estimated fair value. The estimated fair value would be calculated in accordance with current GAAP fair value provisions.

Stock Based Compensation

We initially measure compensation expense for restricted performance-based share units at fair value at the grant date as payouts are probable, and we re-measure compensation expense at subsequent reporting dates until all of the award’s key terms and conditions are known and a vesting has occurred. The number of restricted performance-based share units that actually vest may differ significantly from our estimates. We amortize such performance-based share units to expense over the performance period.

We measure compensation expense for performance-based share units with market conditions based on the grant date fair value, as determined using a Monte Carlo simulation. We amortize the expense ratably over the requisite service period, regardless of whether the market conditions are achieved and the awards ultimately vest.

We estimate forfeitures for unvested stock based compensation based on historical pre-vesting employee forfeiture patterns. We ultimately adjust our pre-vesting forfeiture assumptions to actual forfeiture rates, so changes in forfeiture assumptions would not affect the total expense ultimately recognized over the vesting period. Estimated forfeitures are reassessed each reporting period based on historical experience and current projections for the future.

Federal Income Taxes

Generally, and subject to our ongoing qualification as a REIT, no provisions for income taxes are necessary except for taxes on undistributed REIT taxable income and taxes on the income generated by our taxable REIT subsidiaries (“TRS”). Our TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates. Our TRS has net operating loss carryforwards that begin to expire in 2028. We have determined that there were no material income tax provisions or material net deferred income tax items for our TRS.

Results of Operations

The discussion that follows is based on our consolidated results of operations for the years ended December 31, 2010, 2009 and 2008. The ability to compare one period to another is significantly affected by acquisitions completed and dispositions made during those years.

For purposes of evaluating comparative operating performance, we categorize our properties as “same-store”, “non-same-store” or discontinued operations. A “same-store” property is one that was owned for the entirety of the periods being evaluated and is included in continuing operations. A “non-same-store” property is one that was acquired or

placed into service during either of the periods being evaluated and is included in continuing operations. We classify results for properties sold or held for sale during any of the periods evaluated as discontinued operations.

Properties we acquired during the years ending December 31, 2010, 2009 and 2008 are as follows:


Acquisition Date	Property	Type	Rentable Square Feet		Contract Purchase Price (In thousands)
June 3, 2010	925 and 1000 Corporate Drive	Office		271,000	$	68,000
December 1, 2010	Gateway Overlook	Retail		223,000		88,400

		Total 2010		494,000	$	156,400

August 13, 2009	Lansdowne Medical Office Building	Medical Office		87,000	$	19,900

		Total 2009		87,000	$	19,900

February 22, 2008	6100 Columbia Park Road	Industrial/Flex		150,000	$	11,200
May 21, 2008	Sterling Medical Office Building	Medical Office		36,000		6,500
September 3, 2008	Kenmore Apartments (374 units)	Multifamily		270,000		58,300
December 2, 2008	2445 M Street	Office		290,000		181,400

		Total 2008		746,000	$	257,400

Properties we sold or classified as held for sale during the three years ending December 31, 2010 are as follows:


Disposition Date	Property	Type	Rentable Square Feet		Contract Purchase Price (In thousands)
June 18, 2010	Parklawn Portfolio⁽¹⁾	Office/Industrial		229,000	$	23,400
December 21, 2010	The Ridges	Office		104,000		27,500
December 22, 2010	Ammendale I&II/Amvax	Industrial		305,000		23,000

		Total 2010		638,000	$	73,900

May 13, 2009	Avondale	Multifamily		170,000	$	19,800
July 23, 2009	Tech 100 Industrial Park	Industrial		166,000		10,500
July 31, 2009	Brandywine Center	Office		35,000		3,300
November 13, 2009	Crossroads Distribution Center	Industrial		85,000		4,400

		Total 2009		456,000	$	38,000

June 6, 2008	Sullyfield Center/The Earhart Building	Industrial		336,000	$	41,100

		Total 2008		336,000	$	41,100

⁽¹⁾	The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center).

We placed into service two development properties, Clayborne Apartments and Dulles Station, Phase I, in 2008. These properties were stabilized during the second quarter of 2009.

To provide more insight into our operating results, we divide our discussion into two main sections: (a) the consolidated results of operations section, in which we provide an overview analysis of results on a consolidated basis, and (b) the net operating income (“NOI”) section, in which we provide a detailed analysis of same-store versus non-same-store NOI results by segment. NOI is a non-GAAP measure calculated as real estate rental revenue less real estate expenses excluding depreciation and amortization and general and administrative expenses.

Consolidated Results of Operations

Real Estate Rental Revenue

Real estate rental revenue for properties classified as continuing operations is summarized as follows (all data in thousands except percentage amounts):


	2010			2009			2008			2010 vs 2009			% Change			2009 vs 2008			% Change
Minimum base rent	$	260,860		$	257,628		$	234,288		$	3,232			1.3	%	$	23,340			10.0	%
Recoveries from tenants		31,328			35,495			29,599			(4,167	)		(11.7	%)		5,896			19.9	%
Provisions for doubtful accounts		(5,465	)		(6,069	)		(4,113	)		604			10.0	%		(1,956	)		(47.6	%)
Lease termination fees		780			1,471			293			(691	)		(47.0	%)		1,178			402.0	%
Parking and other tenant charges		10,474			9,636			8,642			838			8.7	%		994			11.5	%

	$	297,977		$	298,161		$	268,709		$	(184	)		(0.1	%)		29,452			11.0	%

Real estate rental revenue is comprised of (a) minimum base rent, which includes rental revenues recognized on a straight-line basis, (b) revenue from the recovery of operating expenses from our tenants, (c) provisions for doubtful accounts, which include provisions for straight-line receivables, (d) revenue from the collection of lease termination fees and (e) parking and other tenant charges such as percentage rents.

Minimum Base Rent: Minimum base rent increased by $3.2 million in 2010 as compared to 2009 due to properties acquired or placed into service in 2010 and 2009 ($6.8 million). Minimum base rent from same-store properties decreased by $3.6 million due to lower occupancy ($6.9 million) and higher rent abatements ($0.4 million), partially offset by higher rental rates ($4.3 million).

Minimum base rent increased by $23.3 million in 2009 as compared to 2008 due primarily to properties acquired or placed into service in 2009 and 2008 ($21.0 million), combined with a $2.3 million increase in minimum base rent from same-store properties due to higher rental rates ($4.9 million) and lower amortization of intangible lease assets ($0.8 million), partially offset by higher vacancy ($3.4 million).

Recoveries from Tenants: Recoveries from tenants decreased by $4.2 million in 2010 as compared to 2009 due primarily to lower real estate tax recoveries ($2.8 million) caused by lower property tax assessments across the portfolio, as well as lower operating expense and electricity reimbursements ($1.4 million) driven by lower electricity rates and lower occupancy.

Recoveries from tenants increased by $5.9 million in 2009 as compared to 2008 due primarily to properties acquired or placed into service in 2009 and 2008 ($5.5 million), combined with a $0.4 million increase in recoveries from tenants from same-store properties primarily due to higher utilities reimbursements ($0.7 million) and real estate tax reimbursements ($0.4 million), offset by lower common area maintenance reimbursements ($0.7 million) due to lower occupancy.

Provisions for Doubtful Accounts: Provisions for doubtful accounts decreased by $0.6 million in 2010 as compared to 2009 due to lower provisions in the industrial segment ($0.7 million). This decrease in the industrial segment was due to evicting non-paying tenants from our buildings.

Provisions for doubtful accounts increased by $2.0 million in 2009 as compared to 2008 due to higher provisions in the office ($1.5 million) and retail ($0.7 million) segments, offset by lower provisions in the medical office segment ($0.3 million).

Lease Termination Fees: Lease termination fees decreased by $0.7 million in 2010 as compared to 2009 due primarily to lower fees in the office ($0.3 million), retail ($0.3 million) and medical office ($0.1 million) segments.

Lease termination fees increased by $1.2 million in 2009 as compared to 2008 due primarily to higher fees in the office ($0.4 million), retail ($0.3 million) and industrial ($0.4 million) segments.

Parking and Other Tenant Charges: Parking and other tenant charges increased by $0.8 million in 2010 as compared to 2009 due primarily to an increase in antenna rent ($0.5 million) in the office and multifamily segments due to new antenna leases, as well as an increase in parking income ($0.4 million).

Parking and other tenant charges increased by $1.0 million in 2009 as compared to 2008 due primarily to properties acquired or placed into service in 2009 and 2008 ($0.8 million), combined with a $0.2 million increase in parking and other tenant charges from same-store properties primarily due to higher parking fees ($0.1 million) in the office segment.

A summary of occupancy for properties classified as continuing operations by segment follows:


Consolidated Occupancy
Segment	2010			2009			2008			2010 vs 2009			2009 vs 2008
Office		89.4	%		91.4	%		91.8	%		(2.0	%)		(0.4	%)
Medical Office		88.5	%		87.9	%		94.0	%		0.6	%		(6.1	%)
Retail		92.1	%		93.6	%		95.2	%		(1.5	%)		(1.6	%)
Multifamily		95.7	%		94.4	%		89.5	%		1.3	%		4.9	%
Industrial		78.6	%		84.8	%		91.4	%		(6.2	%)		(6.6	%)

Total		88.3	%		90.3	%		92.1	%		(2.0	%)		(1.8	%)

Occupancy represents occupied square footage indicated as a percentage of total square footage as of the last day of that period.

Our overall occupancy decreased to 88.3% in 2010 from 90.3% in 2009, as our portfolio experienced occupancy declines in the office, retail and industrial segments.

Our overall occupancy decreased to 90.3% in 2009 from 92.1% in 2008, primarily due to lower occupancy in the industrial and medical office segments. The lower industrial occupancy reflects weakness in that market segment, while the medical office decrease is due to the 2009 acquisition of the newly-built and vacant Lansdowne Medical Office Building. These were partially offset by the lease-up of our development properties during 2009. Bennett Park, Clayborne Apartments and Dulles Station, Phase I were placed into service at the end of 2007 and during 2008, and were 98%, 95% and 91% leased at the end of 2009, respectively.

A detailed discussion of occupancy by sector can be found in the Net Operating Income section.

Real Estate Expenses

Real estate expenses are summarized as follows (all data in thousands except percentage amounts):


	2010		2009		2008		2010 vs 2009			% Change			2009 vs 2008		% Change
Property operating expenses	$	69,713	$	69,404	$	63,058	$	309			0.4	%	$	6,346		10.1	%
Real estate taxes		29,209		31,900		27,164		(2,691	)		(8.4	%)		4,736		17.4	%

	$	98,922	$	101,304	$	90,222	$	(2,382	)		(2.4	%)	$	11,082		12.3	%

Real estate expenses as a percentage of revenue were 33.2% for 2010, 34.0% for 2009 and 33.6% for 2008.

Property Operating Expenses: Property operating expenses include utilities, repairs and maintenance, property administration and management, operating services, common area maintenance, property insurance, bad debt and other operating expenses.

Property operating expenses increased $0.3 million in 2010 as compared to 2009 due primarily to properties acquired and placed into service in 2010 and 2009, which contributed to a $1.6 million increase in expenses. Property operating expenses from same-store properties decreased by $1.3 million, caused by lower electricity costs ($1.2 million) due to decreased rates and lower occupancy.

Property operating expenses increased $6.3 million in 2009 as compared to 2008 due primarily to properties acquired and placed into service in 2009 and 2008, which accounted for $4.8 million of the increase. Property operating expenses from same-store properties increased by $1.5 million, caused by higher utilities costs ($0.6 million) due to increased

electricity rates and higher snow removal costs ($1.3 million, not including any tenant reimbursements) due to a severe snow storm in December 2009.

Real Estate Taxes: Real estate taxes decreased $2.7 million in 2010 as compared to 2009 due primarily to lower assessments across the portfolio.

Real estate taxes increased $4.7 million in 2009 as compared to 2008 due primarily to the properties acquired or placed into service in 2009 and 2008, which accounted for $3.4 million of the increase. Real estate taxes on same-store properties increased by $1.3 million due primarily to higher rates and assessments across the portfolio.

Other Operating Expenses

Other operating expenses are summarized as follows (all data in thousands except percentage amounts):


	2010		2009		2008		2010 vs 2009			% Change			2009 vs 2008			% Change
Depreciation and amortization	$	93,992	$	91,668	$	82,982	$	2,324			2.5	%	$	8,686			10.5	%
Interest expense		68,389		74,074		74,095		(5,685	)		(7.7	%)		(21	)		0.0	%
General and administrative		14,406		13,118		12,110		1,288			9.8	%		1,008			8.3	%

	$	176,787	$	178,860	$	169,187	$	(2,073	)		(1.2	%)	$	9,673			5.7	%

Depreciation and Amortization: Depreciation and amortization expense increased by $2.3 million in 2010 as compared to 2009 due primarily to properties acquired and placed into service of $156.4 million and $19.9 million in 2010 and 2009, respectively.

Depreciation and amortization expense increased by $8.7 million in 2009 as compared to 2008 due primarily to properties acquired and placed into service of $19.9 million and $257.4 million in 2009 and 2008, respectively.

Interest Expense: A summary of interest expense for the years ended December 31, 2010, 2009 and 2008 appears below (in millions, except percentage amounts):


Debt Type	2010			2009			2008			2010 vs. 2009			% Change			2009 vs. 2008			% Change
Notes payable	$	41.7		$	48.2		$	53.2		$	(6.5	)		(13.5	%)	$	(5.0	)		(9.4	%)
Mortgages		23.7			25.8			17.5			(2.1	)		(8.1	%)		8.3			47.4	%
Lines of credit/short-term note payable		3.8			1.5			5.7			2.3			153.3	%		(4.2	)		(73.7	%)
Capitalized interest		(0.8	)		(1.4	)		(2.3	)		0.6			(42.9	%)		0.9			(39.1	%)

Total	$	68.4		$	74.1		$	74.1		$	(5.7	)		(7.7	%)	$	—			—	%

Interest expense decreased by $5.7 million in 2010 compared to 2009. We paid off a $100.0 million term loan in December 2009 using one of our lines of credit, resulting in a net interest expense decrease of $2.9 million during 2010. Additionally, we used the proceeds from the issuance of 4.95% senior notes to pay down significant portions of our 3.875% convertible notes and our 5.95% senior notes, resulting in a net interest expense decrease of $1.4 million. Mortgage interest expense decreased by $2.1 million due to the payoff of a $50.0 million mortgage note in July 2009. These were partially offset by a $0.6 million decrease in capitalized interest.

Interest expense was the same in 2009 compared to 2008. An $8.3 million increase in mortgage interest due to entering into three new mortgage notes during the second quarter of 2008 and assuming the 2445 M Street mortgage in the fourth quarter of 2008 was offset by lower notes payable interest due to early paydowns of notes. Also, interest on our unsecured lines of credit decreased by $4.2 million due to lower balances outstanding and lower interest rates. The proceeds of the 2008 mortgage notes were used to pay down our unsecured lines of credit.

General and Administrative Expense: General and administrative expense increased by $1.3 million in 2010 as compared to 2009 due primarily to higher incentive compensation expense and the reorganization of the leasing department.

General and administrative expense increased by $1.0 million in 2009 as compared to 2008 due primarily to higher incentive compensation expense ($2.1 million), partially offset by an increase in the cash surrender value of officer life insurance policies ($0.6 million).

Discontinued Operations

We dispose of assets (sometimes using tax-deferred exchanges) that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable. The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs, or distributed to our shareholders.

We sold the following properties during the three years ended December 31, 2010:


Disposition Date	Property	Type	Rentable Square Feet (unaudited)		Contract Sales Price (in thousands)		Gain on Sale (in thousands)
June 18, 2010	Parklawn Portfolio⁽¹⁾	Office/Industrial		229,000	$	23,400	$	7,900
December 21, 2010	The Ridges	Office		104,000		27,500		4,500
December 22, 2010	Ammendale I&II/ Amvax	Industrial		305,000		23,000		9,200

		Total 2010		638,000	$	73,900	$	21,600

May 13, 2009	Avondale	Multifamily		170,000	$	19,800	$	6,700
July 23, 2009	Tech 100 Industrial Park	Industrial		166,000		10,500		4,100
July 31, 2009	Brandywine Center	Office		35,000		3,300		1,000
November 13, 2009	Crossroads Distribution Center	Industrial		85,000		4,400		1,500

		Total 2009		456,000	$	38,000	$	13,300

June 6, 2008	Sullyfield Center/The Earhart Building	Industrial		336,000	$	41,100	$	15,300

		Total 2008		336,000	$	41,100	$	15,300

⁽¹⁾	The Parklawn Portfolio consists of three office properties (Parklawn Plaza, Lexington Building and Saratoga Building) and one industrial property (Charleston Business Center).

Operating results of the properties classified as discontinued operations are summarized as follows (in thousands, except for percentages):


	2010			2009			2008			2010 vs. 2009			% Change			2009 vs. 2008			% Change
Revenues	$	8,159		$	12,114		$	18,478		$	(3,955	)		(32.6	%)	$	(6,364	)		(34.4	%)
Property expenses		(2,987	)		(4,631	)		(6,405	)		1,644			35.5	%		1,774			27.7	%
Depreciation and amortization		(1,754	)		(2,779	)		(3,916	)		1,025			36.9	%		1,137			29.0	%
Interest expense		(589	)		(927	)		(946	)		338			36.5	%		19			2.0	%

Total	$	2,829		$	3,777		$	7,211		$	(948	)		(25.1	%)	$	(3,434	)		(47.6	%)

Income from operations of properties sold or held for sale decreased by $0.9 million in 2010 compared to 2009 due to the sales of the Parklawn Portfolio, the Ridges, Ammendale I and II and Amvax in 2010.

Income from operations of properties sold or held for sale decreased by $3.4 million in 2009 compared to 2008 due to the sales of Avondale, Tech 100 Industrial Park, Brandywine Center and Crossroads Distribution Center in 2009.

Net Operating Income

NOI is the primary performance measure we use to assess the results of our operations at the property level. We believe that NOI is useful as a performance measure because, when compared across periods, NOI reflects the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income. NOI excludes certain components from net income in order to provide results 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. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. As a result of the foregoing, we provide NOI as a supplement to net income calculated in accordance with GAAP. NOI does not represent net income calculated in accordance with GAAP. As such, it should not be considered an alternative to net income as an indication of our operating performance. NOI is calculated as real estate rental revenue less real estate expenses

excluding depreciation and amortization and general and administrative expenses. A reconciliation of NOI to net income follows.

2010 Compared to 2009

The following tables of selected operating data provide the basis for our discussion of NOI in 2010 compared to 2009. All amounts are in thousands except percentage amounts.


	Years Ended December 31,
	2010			2009			$ Change			% Change

Real Estate Rental Revenue
Same-store	$	279,865		$	287,252		$	(7,387	)		(2.6	%)
Non-same-store ⁽¹⁾		18,112			10,909			7,203			66.0	%

Total real estate rental revenue	$	297,977		$	298,161		$	(184	)		(0.1	%)

Real Estate Expenses
Same-store	$	91,649		$	95,999		$	(4,350	)		(4.5	%)
Non-same-store ⁽¹⁾		7,273			5,305			1,968			37.1	%

Total real estate expenses	$	98,922		$	101,304		$	(2,382	)		(2.4	%)

NOI
Same-store	$	188,216		$	191,253		$	(3,037	)		(1.6	%)
Non-same-store ⁽¹⁾		10,839			5,604			5,235			93.4	%

Total NOI	$	199,055		$	196,857		$	2,198			1.1	%

Reconciliation to Net Income
NOI	$	199,055		$	196,857
Other income (expense)		32			417
Income from non-disposal activities		7			73
Interest expense		(68,389	)		(74,074	)
Depreciation and amortization		(93,992	)		(91,668	)
General and administrative expenses		(14,406	)		(13,118	)
Gain (loss) on extinguishment of debt		(9,176	)		5,336
Discontinued operations⁽²⁾		2,829			3,777
Gain on sale of real estate		21,599			13,348

Net income		37,559			40,948
Less: Net income attributable to noncontrolling interests		(133	)		(203	)

Net income attributable to the controlling interests	$	37,426		$	40,745


Occupancy	2010			2009
Same-store		88.4	%		90.9	%
Non-same-store ⁽¹⁾		87.0	%		77.0	%

Total		88.3	%		90.3	%

⁽¹⁾	Non-same-store properties include:

Multifamily development properties – Clayborne Apartments and Bennett Park

Office development property – Dulles Station, Phase I

2010 Office acquisitions – 925 and 1000 Corporate Drive

2010 Retail acquisition – Gateway Overlook

2009 Medical Office acquisition – Lansdowne Medical Office Building

⁽²⁾	Discontinued operations include gain on disposals and income from operations for:


2010 dispositions –		Parklawn Plaza, Lexington Building, Saratoga Building, Charleston Business Center, the Ridges, Ammendale I&II and Amvax
2009 dispositions –		Avondale, Tech 100 Industrial Park, Brandywine Center and Crossroads Distribution Center

Real estate rental revenue decreased by $0.2 million in 2010 as compared to 2009 as lower real estate revenue from same-store properties was offset by acquisition and development properties. Real estate rental revenue from same-store properties decreased by $7.4 million due to lower occupancy ($6.9 million) and lower recoveries from tenants ($4.7 million), partially offset by higher rental rates ($4.3 million).

Real estate expenses decreased by $2.4 million in 2010 as compared to 2009 due primarily to lower real estate taxes ($3.0 million) and lower electricity expense ($1.2 million) in the same-store portfolio, partially offset by a $2.0 million increase in real estate expenses attributable to acquisition and development properties.

Same-store occupancy decreased to 88.4% in 2010 from 90.9% in 2009, with the most severe decreases in the industrial and office segments. Non-same-store occupancy increased to 87.0% in 2010 from 77.0% in 2009, driven by the acquisitions in 2010 of Quantico Corporate Center (925 and 1000 Corporate Drive) and Gateway Overlook, which were 100.0% and 88.2% occupied, respectively, at the end of 2010. During 2010, 59.0% of the commercial square footage expiring was renewed as compared to 68.2% in 2009, excluding properties sold or classified as held for sale. During 2010, 1.6 million commercial square feet were leased at an average rental rate of $23.09 per square foot, an increase of 13.0%, with average tenant improvements and leasing costs of $17.45 per square foot. These leasing statistics exclude first generation leases at development properties.

An analysis of NOI by segment follows.

Office Segment:


	Years Ended December 31,
	2010		2009		$ Change			% Change
Real Estate Rental Revenue
Same-store	$	121,783	$	126,725	$	(4,942	)		(3.9	%)
Non-same-store ⁽¹⁾		9,374		3,946		5,428			137.6	%

Total real estate rental revenue	$	131,157	$	130,671	$	486			0.4	%

Real Estate Expenses
Same-store	$	42,062	$	44,997	$	(2,935	)		(6.5	%)
Non-same-store ⁽¹⁾		3,258		1,531		1,727			112.8	%

Total real estate expenses	$	45,320	$	46,528	$	(1,208	)		(2.6	%)

NOI
Same-store	$	79,721	$	81,728	$	(2,007	)		(2.5	%)
Non-same-store ⁽¹⁾		6,116		2,415		3,701			153.3	%

Total NOI	$	85,837	$	84,143	$	1,694			2.0	%


Occupancy	2010			2009
Same-store		88.4	%		91.5	%
Non-same-store ⁽¹⁾		97.5	%		89.4	%

Total		89.4	%		91.4	%

⁽¹⁾	Non-same-store properties include:

Development property – Dulles Station, Phase I

Acquisitions – 925 and 1000 Corporate Drive

Real estate rental revenue in the office segment increased by $0.5 million in 2010 as compared to 2009 due to acquisition and development properties, which contributed all of the increase. Real estate rental revenue from same-store properties decreased by $4.9 million primarily due to lower same-store occupancy ($3.8 million), lower recoveries from tenants ($2.8 million) and higher rent abatements ($0.5 million), partially offset by higher rental rates ($2.0 million) and antenna rent ($0.3 million).

Real estate expenses in the office segment decreased by $1.2 million in 2010 as compared to 2009 due primarily to lower real estate taxes ($1.5 million) caused by lower property assessments, recoveries of bad debt ($1.0 million) and lower utilities expense ($0.7 million) in the same-store portfolio. These were offset by higher real estate expenses attributable to acquisition ($1.3 million) and development ($0.4 million) properties.

Same-store occupancy decreased to 88.4% in 2010 from 91.5% in 2009, primarily caused by higher vacancy at Monument II due to the non-renewal of a major tenant. Non-same-store occupancy increased to 97.5% from 89.4%, reflecting the acquisition of the fully-leased 925 and 1000 Corporate Drive. During 2010, 48.9% of the square footage that expired was renewed compared to 61.9% in 2009, excluding properties sold or classified as held for sale. During 2010, we executed new leases for 577,000 square feet of office space at an average rental rate of $30.72 per square foot, an increase of 9.2%, with average tenant improvements and leasing costs of $33.60 per square foot. These leasing statistics exclude first generation leases at the development property, Dulles Station, Phase I.

Medical Office Segment:


	Years Ended December 31,
	2010			2009			$ Change			% Change
Real Estate Rental Revenue
Same-store	$	44,949		$	44,911		$	38			0.1	%
Non-same-store ⁽¹⁾		79			—			79			—

Total real estate rental revenue	$	45,028		$	44,911		$	117			0.3	%

Real Estate Expenses
Same-store	$	14,205		$	15,051		$	(846	)		(5.6	%)
Non-same-store ⁽¹⁾		510			167			343			205.4	%

Total real estate expenses	$	14,715		$	15,218		$	(503	)		(3.3	%)

NOI
Same-store	$	30,744		$	29,860		$	884			3.0	%
Non-same-store ⁽¹⁾		(431	)		(167	)		(264	)		(158.1	%)

Total NOI	$	30,313		$	29,693		$	620			2.1	%


Occupancy	2010			2009
Same-store		93.8	%		94.2	%
Non-same-store ⁽¹⁾		14.7	%		0.0	%

Total		88.5	%		87.9	%

⁽¹⁾	Non-same-store properties include:

2009 acquisition – Lansdowne Medical Office Building

Real estate rental revenue in the medical office segment increased by $0.1 million in 2010 as compared to 2009 due primarily to the acquisition of Lansdowne Medical Office Building. Real estate rental revenue from same-store properties slightly increased as higher rental rates ($1.3 million) were offset by higher vacancy ($0.4 million), lower tenant reimbursements for real estate taxes ($0.7 million) and higher bad debt ($0.1 million).

Real estate expenses in the medical office segment decreased by $0.5 million in 2010 as compared to 2009 due primarily to lower real estate taxes ($0.6 million) and lower utilities expense ($0.3 million) in the same-store portfolio. These were partially offset by higher real estate expenses ($0.3 million) from the acquisition property.

Same-store occupancy decreased to 93.8% in 2010 from 94.2% in 2009 due to small decreases in occupancy at several properties. Non-same-store occupancy increased to 14.7% from 0.0%, reflecting the limited progress made in the lease-up of Lansdowne Medical Office Building, which was vacant when acquired during the third quarter of 2009. This building was 20.0% leased as of the end of 2010. During 2010, 78.9% of the square footage that expired was renewed compared to 64.4% in 2009. During 2010, we executed new leases for 193,600 square feet of medical office space at an average rental rate of $37.78, an increase of 19.2%, with average tenant improvements and leasing costs of $25.30 per square foot. These leasing statistics exclude first generation leases at Lansdowne Medical Office Building, which was newly-constructed and vacant when acquired.

Retail Segment:


	Years Ended December 31,
	2010		2009		$ Change			% Change
Real Estate Rental Revenue
Same-store	$	40,376	$	41,821	$	(1,445	)		(3.5	%)
Non-same-store ⁽¹⁾		627		—		627			—

Total real estate rental revenue	$	41,003	$	41,821	$	(818	)		(2.0	%)

Real Estate Expenses
Same-store	$	10,180	$	10,680	$	(500	)		(4.7	%)
Non-same-store ⁽¹⁾		130		—		130			—

Total real estate expenses	$	10,310	$	10,680	$	(370	)		(3.5	%)

NOI
Same-store	$	30,196	$	31,141	$	(945	)		(3.0	%)
Non-same-store ⁽¹⁾		497		—		497			—

Total NOI	$	30,693	$	31,141		(448	)		(1.4	%)


Occupancy	2010			2009
Same-store		92.5	%		93.6	%
Non-same-store ⁽¹⁾		88.2	%		—

Total		92.1	%		93.6	%

⁽¹⁾	Non-same-store properties include:

2010 acquisition – Gateway Overlook

Real estate rental revenue in the retail segment decreased by $0.8 million in 2010 as compared to 2009 due to higher vacancy ($1.2 million) and lower tenant reimbursements for real estate taxes ($0.3 million) in the same-store portfolio. These were partially offset by real estate rental revenue from the 2010 acquisition of Gateway Overlook ($0.6 million).

Real estate expenses in the retail segment decreased by $0.4 million in 2010 as compared to 2009 due to lower legal fees ($0.5 million) related to litigation in 2009 concerning the remediation of an environmental condition at Westminster Shopping Center. This was partially offset by real estate expenses from the acquisition property ($0.1 million).

Same-store occupancy decreased to 92.5% in 2010 from 93.6% in 2009, driven by lower occupancy at Frederick Crossing and Wheaton Park, which was partially offset by higher occupancy at the Centre at Hagerstown. The non-same-store occupancy of 88.2% reflects the acquisition of Gateway Overlook during the fourth quarter of 2010. During 2010, 72.7% of the square footage that expired was renewed compared to 52.2% in 2009. During 2010, we executed new leases for 269,200 square feet of retail space at an average rental rate of $21.39, an increase of 18.6% from 2009, with average tenant improvements and leasing costs of $6.11 per square foot.

Multifamily Segment:


	Years Ended December 31,
	2010		2009		$ Change			% Change
Real Estate Rental Revenue
Same-store	$	40,567	$	39,507	$	1,060			2.7	%
Non-same-store ⁽¹⁾		8,032		6,963		1,069			15.4	%

Total	$	48,599	$	46,470	$	2,129			4.6	%

Real Estate Expenses
Same-store	$	15,868	$	15,887	$	(19	)		(0.1	%)
Non-same-store ⁽¹⁾		3,375		3,607		(232	)		(6.4	%)

Total real estate expenses	$	19,243	$	19,494	$	(251	)		(1.3	%)

NOI
Same-store	$	24,699	$	23,620	$	1,079			4.6	%
Non-same-store ⁽¹⁾		4,657		3,356		1,301			38.8	%

Total NOI	$	29,356	$	26,976	$	2,380			8.8	%


Occupancy	2010			2009
Same-store		96.3	%		94.5	%
Non-same-store ⁽¹⁾		91.9	%		93.6	%

Total		95.7	%		94.4	%

⁽¹⁾	Non-same-store properties include:

Development properties – Clayborne Apartments and Bennett Park

Real estate rental revenue in the multifamily segment increased by $2.1 million in 2010 as compared to 2009 due primarily to higher occupancy ($0.8 million) and lower rent abatements ($0.2 million) in our same-store properties, as well as the lease-up of our development properties ($1.1 million).

Real estate expenses in the multifamily segment decreased by $0.3 million in 2010 as compared to 2009 due primarily to lower real estate tax assessments at our development properties.

Same-store occupancy increased to 96.3% in 2010 from 94.5% in 2009, driven by higher occupancy at our two Washington, DC properties, the Kenmore and 3801 Connecticut Avenue. These were partially offset by lower occupancy at Munson Hill Towers and the Ashby at McLean. Non-same-store occupancy decreased to 91.9% from 93.6%, reflecting lower occupancy at Bennett Park.

Industrial Segment:


	Years Ended December 31,
	2010		2009		$ Change			% Change
Real Estate Rental Revenue
Total	$	32,190	$	34,288	$	(2,098	)		(6.1	%)

Real Estate Expenses
Total	$	9,334	$	9,384	$	(50	)		(0.5	%)

NOI
Total	$	22,856	$	24,904	$	(2,048	)		(8.2	%)


Occupancy	2010			2009
Total		78.6	%		84.8	%

Real estate rental revenue in the industrial segment decreased by $2.1 million in 2010 as compared to 2009 due primarily to lower occupancy ($2.3 million) and lower recoveries from tenants ($1.2 million), partially offset by higher rental rates ($0.6 million) and lower bad debt ($0.7 million). The decrease in recoveries from tenants is primarily attributable to lower occupancy and lower real estate taxes.

Real estate expenses in the industrial segment decreased slightly in 2010 as compared to 2009 as lower real estate taxes ($0.6 million) were offset by higher snow removal costs ($0.3 million) and higher legal costs ($0.1 million).

Occupancy decreased to 78.6% in 2010 from 84.8% in 2009, driven by higher vacancy at NVIP I & II, Dulles Business Park, Fullerton Business Center and Fullerton Industrial Center. This decline in occupancy continues a trend that began during the national economic recession in 2008. During 2010, 53.9% of the square footage that expired was renewed compared to 81.3% in 2009, excluding properties sold or classified as held for sale. During 2010, we executed new leases for 587,600 square feet of industrial space at an average rental rate of $11.53, an increase of 12.6% from 2009, with average tenant improvements and leasing costs of $4.19 per square foot.

2009 Compared to 2008

The following tables of selected operating data provide the basis for our discussion of NOI in 2009 compared to 2008. All amounts are in thousands except percentage amounts.


	Years Ended December 31,
	2009			2008			$ Change			% Change
Real Estate Rental Revenue
Same-store	$	260,887		$	258,799		$	2,088			0.8	%
Non-same-store ⁽¹⁾		37,274			9,910			27,364			276.1	%

Total real estate rental revenue	$	298,161		$	268,709		$	29,452			11.0	%

Real Estate Expenses
Same-store	$	86,778		$	83,938		$	2,840			3.4	%
Non-same-store ⁽¹⁾		14,526			6,284			8,242			131.2	%

Total real estate expenses	$	101,304		$	90,222		$	11,082			12.3	%

NOI
Same-store	$	174,109		$	174,861		$	(752	)		(0.4	%)
Non-same-store ⁽¹⁾		22,748			3,626			19,122			527.4	%

Total NOI	$	196,857		$	178,487		$	18,370			10.3	%

Reconciliation to Net Income
NOI	$	196,857		$	178,487
Other income (expense)		417			1,073
Income from non-disposal activities		73			17
Interest expense		(74,074	)		(74,095	)
Depreciation and amortization		(91,668	)		(82,982	)
General and administrative expenses		(13,118	)		(12,110	)
Gain (loss) on extinguishment of debt		5,336			(5,583	)
Discontinued operations⁽²⁾		3,777			7,211
Gain on sale of real estate		13,348			15,275

Net income		40,948			27,293
Less: Net income attributable to noncontrolling interests		(203	)		(211	)

Net income attributable to the controlling interests	$	40,745		$	27,082


Occupancy	2009			2008
Same-store		90.6	%		92.7	%
Non-same-store ⁽¹⁾		87.8	%		86.2	%

Total		90.3	%		92.1	%

⁽¹⁾	Non-same-store properties include:

Multifamily development properties – Clayborne Apartments and Bennett Park

Office development property – Dulles Station, Phase I

2009 Medical Office acquisition – Lansdowne Medical Office Building

2008 Office acquisition – 2445 M Street

2008 Medical Office acquisition – Sterling Medical Office Building

2008 Multifamily acquisition – Kenmore Apartments

2008 Industrial acquisition – 6100 Columbia Park Road

⁽²⁾	Discontinued operations include gain on disposals and income from operations for:


2010 dispositions –		Parklawn Plaza, Lexington Building, Saratoga Building, Charleston Business Center, the Ridges, Ammendale I&II and Amvax
2009 dispositions –		Avondale, Tech 100 Industrial Park, Brandywine Center and Crossroads Distribution Center
2008 dispositions –		Sullyfield Center and The Earhart Building

Real estate rental revenue increased by $29.5 million in 2009 as compared to 2008 due primarily to the acquisition or placing into service of one office property, two medical office properties, three multifamily properties and one industrial property in 2009 and 2008, which added approximately 1.3 million square feet of net rentable space. These acquisition and development properties contributed $27.4 million of the increase. Real estate rental revenue from the same-store properties increased by $2.1 million primarily due to higher rental rates ($4.9 million), higher lease termination fees ($1.2 million) and higher reimbursements for real estate taxes ($0.4 million) and utilities ($0.7 million), partially offset by lower same-store occupancy ($3.4 million) and higher bad debt ($2.0 million) in the commercial segments.

Real estate expenses increased by $11.1 million in 2009 as compared to 2008 due primarily to acquisition and development properties, which contributed $8.2 million of the increase. Real estate expenses from same-store properties increased by $2.8 million due primarily to higher real estate taxes ($1.3 million) caused by increased rates and assessments across the portfolio, higher snow removal costs ($1.3 million, not including any tenant reimbursements) caused by a severe snow storm in December 2009 and higher electricity costs ($0.5 million) caused by increased rates, partially offset by lower administrative expenses ($0.4 million).

Same-store occupancy decreased to 90.6% in 2009 from 92.7% in 2008, with the most severe decreases in the industrial and office segments. We believe this weakness in same-store occupancy was reflective of the national economic recession. Non-same-store occupancy increased to 87.8% in 2009 from 86.2% in 2008, reflecting the completion of lease-up for our development properties in the office and multifamily segments. During 2009, 68.2% of the commercial square footage expiring was renewed as compared to 63.5% in 2008, excluding properties sold or classified as held for sale. During 2009, 1.4 million commercial square feet were leased at an average rental rate of $24.92 per square foot, an increase of 10.2%, with average tenant improvements and leasing costs of $13.95 per square foot. These leasing statistics exclude first generation leases at development properties.

An analysis of NOI by segment follows.

Office Segment:


	Years Ended December 31,
	2009		2008		$ Change			% Change
Real Estate Rental Revenue
Same-store	$	109,158	$	108,823	$	335			0.3	%
Non-same-store ⁽¹⁾		21,513		2,608		18,905			724.9	%

Total real estate rental revenue	$	130,671	$	111,431	$	19,241			17.3	%

Real Estate Expenses
Same-store	$	39,092	$	38,555	$	537			1.4	%
Non-same-store ⁽¹⁾		7,436		1,471		5,965			405.5	%

Total real estate expenses	$	46,528	$	40,026	$	6,502			16.2	%

NOI
Same-store	$	70,066	$	70,268	$	(202	)		(0.3	%)
Non-same-store ⁽¹⁾		14,077		1,137		12,940			1,138.1	%

Total NOI	$	84,143	$	71,405	$	12,738			17.8	%


Occupancy	2009			2008
Same-store		90.8	%		91.3	%
Non-same-store ⁽¹⁾		96.0	%		94.9	%

Total		91.4	%		91.8	%

⁽¹⁾	Non-same-store properties include:

Development property – Dulles Station, Phase I

2008 acquisition – 2445 M Street

Real estate rental revenue in the office segment increased by $19.2 million in 2009 as compared to 2008 due to acquisition and development properties, which contributed $18.9 million of the increase. Real estate rental revenue from same-store properties increased by $0.3 million primarily due to higher rental rates ($3.5 million), offset by lower occupancy ($1.7 million) and higher bad debt ($1.5 million).

Real estate expenses in the office segment increased by $6.5 million in 2009 as compared to 2008 due primarily to acquisition and development properties, which contributed $6.0 million of the increase. Real estate expenses from same-store properties increased by $0.5 million primarily due to higher electricity costs ($0.3 million) caused by higher rates, higher snow removal costs ($0.2 million, not including any tenant reimbursements) caused by a severe snow storm in December 2009, and higher real estate taxes ($0.2 million) caused by higher rates and assessments. These were offset by lower property management payroll expense ($0.2 million) due to the elimination of several positions.

Same-store occupancy decreased to 90.8% in 2009 from 91.3% in 2008, primarily caused by higher vacancy at 6565 Arlington Boulevard and the Atrium Building. These were partially offset by higher occupancy at One Central Plaza and 51 Monroe Street. Non-same-store occupancy increased to 96.0% from 94.9%, reflecting lease-up of Dulles Station, Phase I, a development property. During 2009, 61.9% of the square footage that expired was renewed compared to 42.4% in 2008, excluding properties sold or classified as held for sale. During 2009, we executed new leases for 683,800 square feet of office space at an average rental rate of $31.14 per square foot, an increase of 11.6%, with average tenant improvements and leasing costs of $20.14 per square foot. These leasing statistics exclude first generation leases at the development property, Dulles Station, Phase I.

Medical Office Segment:


	Years Ended December 31,
	2009		2008		$ Change			% Change
Real Estate Rental Revenue
Same-store	$	44,251	$	43,210	$	1,041			2.4	%
Non-same-store ⁽¹⁾		660		384		276			71.9	%

Total real estate rental revenue	$	44,911	$	43,594	$	1,317			3.0	%

Real Estate Expenses
Same-store	$	14,674	$	13,924	$	750			5.4	%
Non-same-store ⁽¹⁾		544		253		291			115.0	%

Total real estate expenses	$	15,218	$	14,177	$	1,041			7.3	%

NOI
Same-store	$	29,577	$	29,286	$	291			1.0	%
Non-same-store ⁽¹⁾		116		131		(15	)		(11.5	%)

Total NOI	$	29,693	$	29,417	$	276			0.9	%


Occupancy	2009			2008
Same-store		95.0	%		94.9	%
Non-same-store ⁽¹⁾		19.8	%		62.9	%

Total		87.9	%		94.0	%

⁽¹⁾	Non-same-store properties include:

2009 acquisition – Lansdowne Medical Office Building

2008 acquisition – Sterling Medical Office Building

Real estate rental revenue in the medical office segment increased by $1.3 million in 2009 as compared to 2008 due primarily to higher rental rates ($1.0 million) and lower bad debt ($0.3 million) on the same-store properties, offset by higher same-store vacancy ($0.2 million). The 2008 acquisition of Sterling Medical Office Building contributed $0.3 million to the increase.

Real estate expenses in the medical office segment increased by $1.0 million in 2009 as compared to 2008 due primarily to higher real estate taxes ($0.3 million) caused by higher rates and assessments on the same-store portfolio, an increase to our reserve for straight-line receivables ($0.2 million) and higher snow removal costs ($0.2 million, not including any tenant reimbursements). The acquisition properties contributed $0.3 million to the increase.

Same-store occupancy increased to 95.0% in 2009 from 94.9% in 2008, driven by higher occupancy at 8505 Arlington Boulevard, offset by lower occupancy at Ashburn Farm Office Park. Non-same-store occupancy decreased to 19.8% from 62.9% due to the acquisition of the vacant Lansdowne Medical Office Building during the third quarter of 2009. This building was unleased at the end of 2009. During 2009, 64.4% of the square footage that expired was renewed compared to 63.6% in 2008. During 2009, we executed new leases for 139,600 square feet of medical office space at an average rental rate of $36.80, an increase of 15.9%, with average tenant improvements and leasing costs of $24.28 per square foot.

Retail Segment:


	Years Ended December 31,
	2009		2008		$ Change			% Change
Real Estate Rental Revenue
Total	$	41,821	$	40,987	$	834			2.0	%

Real Estate Expenses
Total	$	10,680	$	9,647	$	1,033			10.7	%

NOI
Total	$	31,141	$	31,340	$	(199	)		(0.6	%)


Occupancy	2009			2008
Total		93.6	%		95.2	%

Real estate rental revenue in the retail segment increased by $0.8 million in 2009 as compared to 2008 due to higher rental rates ($0.4 million), higher lease termination fees ($0.3 million) and higher real estate tax ($0.3 million) and common area maintenance ($0.3 million) reimbursements, offset by higher bad debt ($0.7 million).

Real estate expenses in the retail segment increased by $1.0 million in 2009 as compared to 2008 due to higher legal fees ($0.5 million) related to litigation concerning the remediation of an environmental condition at Westminster Shopping Center and higher real estate taxes ($0.4 million) caused by higher rates and assessments.

Occupancy decreased to 93.6% in 2009 from 95.2% in 2008, driven by higher vacancy at the Centre at Hagerstown. During 2009, 52.2% of the square footage that expired was renewed compared to 91.5% in 2008. During 2009, we executed new leases for 145,900 square feet of retail space at an average rental rate of $17.60, a decrease of 0.4%, with average tenant improvements and leasing costs of $9.08 per square foot.

Multifamily Segment:


	Years Ended December 31,
	2009		2008		$ Change		% Change
Real Estate Rental Revenue
Same-store	$	32,909	$	32,199	$	710		2.2	%
Non-same-store ⁽¹⁾		13,561		5,659		7,902		139.6	%

Total real estate rental revenue	$	46,470	$	37,858	$	8,612		22.7	%

Real Estate Expenses
Same-store	$	13,382	$	13,315	$	67		0.5	%
Non-same-store ⁽¹⁾		6,112		4,121		1,991		48.3	%

Total real estate expenses	$	19,494	$	17,436	$	2,058		11.8	%

NOI
Same-store	$	19,527	$	18,884	$	643		3.4	%
Non-same-store ⁽¹⁾		7,449		1,538		5,911		384.3	%

Total NOI	$	26,976	$	20,422	$	6,554		32.1	%


Occupancy	2009			2008
Same-store		94.9	%		94.0	%
Non-same-store ⁽¹⁾		92.9	%		76.5	%

Total		94.4	%		89.5	%

⁽¹⁾	Non-same-store properties include:

Development properties – Clayborne Apartments and Bennett Park

2008 acquisition – Kenmore Apartments

Real estate rental revenue in the multifamily segment increased by $8.6 million in 2009 as compared to 2008 due primarily to acquisition and development properties, which contributed $7.9 million of the increase. Real estate rental revenue from same-store properties increased by $0.7 million due primarily to lower rent abatements ($0.3 million) and higher utilities reimbursements ($0.3 million).

Real estate expenses in the multifamily segment increased by $2.1 million in 2009 as compared to 2008 due primarily to acquisition and development properties, which contributed $2.0 million of the increase. Real estate expenses from same-store properties increased by $0.1 million primarily due to higher snow removal costs, not including any tenant reimbursements, due to a severe snow storm in December 2009.

Same-store occupancy increased to 94.9% in 2009 from 94.0% in 2008, driven by higher occupancy at Munson Hill Towers. Non-same-store occupancy increased to 92.9% from 76.5%, reflecting the lease-up of Bennett Park and Clayborne Apartments.

Industrial Segment:


	Years Ended December 31,
	2009		2008		$ Change			% Change
Real Estate Rental Revenue
Same-store	$	32,748	$	33,580	$	(832	)		(2.5	%)
Non-same-store ⁽¹⁾		1,540		1,259		281			22.3	%

Total real estate rental revenue	$	34,288	$	34,839	$	(551	)		(1.6	%)

Real Estate Expenses
Same-store	$	8,950	$	8,497	$	453			5.3	%
Non-same-store ⁽¹⁾		434		439		(5	)		(1.1	%)

Total real estate expenses	$	9,384	$	8,936	$	448			5.0	%

NOI
Same-store	$	23,798	$	25,083	$	(1,285	)		(5.1	%)
Non-same-store ⁽¹⁾		1,106		820		286			34.9	%

Total NOI	$	24,904	$	25,903	$	(999	)		(3.9	%)


Occupancy	2009			2008
Same-store		84.0	%		91.0	%
Non-same-store ⁽¹⁾		100.0	%		100.0	%

Total		84.8	%		91.4	%

⁽¹⁾	Non-same-store properties include:

2008 acquisition – 6100 Columbia Park Road

Real estate rental revenue in the industrial segment decreased by $0.6 million in 2009 as compared to 2008 due primarily to lower same-store occupancy ($1.3 million) and higher bad debt ($0.2 million), offset by higher lease termination fees ($0.4 million) and higher reimbursements ($0.3 million) for common area maintenance. The 2008 acquisition of 6100 Columbia Park Road contributed $0.3 million of additional real estate revenue.

Real estate expenses in the industrial segment increased by $0.4 million in 2009 as compared to 2008 due primarily to higher snow removal costs ($0.5 million, not including any tenant reimbursements) caused by a severe snow storm in December 2009 and higher real estate taxes ($0.2 million) caused by higher rates and assessments. These were offset by higher recoveries of previously reserved bad debt ($0.2 million).

Same-store occupancy decreased to 84.0% in 2009 from 91.0% in 2008, driven by lower occupancy at NVIP I & II, Fullerton Business Center and Albemarle Point. Non-same-store occupancy was 100.0% for both years, reflecting full occupancy at 6100 Columbia Park Road. During 2009, 81.3% of the square footage that expired was renewed compared to 64.1% in 2008, excluding properties sold or classified as held for sale. During 2009, we executed new leases for 453,400 square feet of industrial space at an average rental rate of $8.80, an increase of 3.2%, with average tenant improvements and leasing costs of $3.01 per square foot.

Liquidity and Capital Resources

Capital Structure

We manage our capital structure to reflect a long-term investment approach, generally seeking to match the cash flow of our assets with a mix of equity and various debt instruments. We expect that our capital structure will allow us to obtain additional capital from diverse sources that could include additional equity offerings of common shares, public and private secured and unsecured debt financings, and possible asset dispositions. Our ability to raise funds through the sale of debt and equity securities is dependent on, among other things, general economic conditions, general market conditions for REITs, our operating performance, our debt rating and the current trading price of our common shares. We analyze which source of capital we believe to be most advantageous to us at any particular point in time. However, the capital markets may not consistently be available on terms that we consider attractive. While we have seen increased investor appetite for securities issued by REIT’s, we have learned from the recent economic downturn that investor appetite can change dramatically in a very short period of time. As a result, there can be no assurance that we will be able to access the public or private debt and equity markets at a given point in the future.

We currently expect that our potential sources of liquidity for acquisitions, development, expansion and renovation of properties, and operating and administrative expenses, may include:

•

Cash flow from operations;

•

Borrowings under our unsecured credit facilities or other short-term facilities;

•

Issuances of our equity securities and/or common units in our operating partnership;

•

Proceeds from long-term secured or unsecured debt financings;

•

Investment from joint venture partners; and

•

Net proceeds from the sale of assets.

During 2011, we expect that we will have significant capital requirements, including the following items. There can be no assurance that our capital requirements will not be materially higher or lower than these expectations.

•

Funding dividends on our common shares and noncontrolling interest distributions to third party unit holders;

•

Capital to refinance the $105.9 million of remaining 2011 maturities on our mortgage notes payable and unsecured notes payable;

•

Capital to refinance our $262.0 million unsecured line of credit which expires in 2011;

•

Approximately $35.0 - $45.0 million to invest in our existing portfolio of operating assets, including approximately $20.0 - $25.0 million to fund tenant-related capital requirements and leasing commissions;

•

Approximately $1.0 million to fund first generation tenant-related capital requirements and leasing commissions;

•

Approximately $1.0 - $5.0 million to invest in our development projects; and