Overview

We are a specialty office real estate investment trust ("REIT") that focuses primarily on strategic customer relationships and specialized tenant requirements in the United States Government, defense information technology and data sectors. We acquire, develop, manage and lease properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in demographically strong markets possessing growth opportunities. As of March 31, 2009, our investments in real estate included the following:

†          240 wholly owned operating properties totaling 18.5 million square
feet;

†          16 wholly owned properties under construction or development that we

† wholly owned land parcels totaling 1,584 acres that we believe are potentially developable into approximately 13.8 million square feet; and

† partial ownership interests in a number of other real estate projects in operation, under development or redevelopment or held for future development.

During the three months ended March 31, 2009, we:

† experienced significant growth in our revenues from real estate operations in total by amounts that exceeded the growth in our property operating expenses compared to the three months ended March 31, 2008. While much of this increase is attributable to the growth of our portfolio from property additions, we also experienced growth in our revenues from real estate operations by amounts that exceeded the growth in our property operating expenses for properties that were owned and 100% operational since January 1, 2008 (properties that we refer to collectively as "Same-Office Properties");

† finished the period with occupancy of our wholly owned portfolio of properties at 92.8%; and

† placed into service an aggregate of 83,000 square feet in newly constructed space located in two properties.

In April 2009, we issued 2.99 million common shares in an underwritten public offering made in conjunction with our inclusion in the S&P MidCap 400 Index effective April 1, 2009. The shares were issued at a public offering price of $24.35 per share for net proceeds of $72.1 million after underwriting discounts but before offering expenses.

As discussed in greater detail in our 2008 Annual Report Form 10-K, the United States and world economies are in the midst of a significant recession that has had devastating effects on the capital markets, reducing stock prices and limiting credit availability. We believe that for much of the office real estate sector, since the core operations tend to be structured as long-term leases and since revenue streams generally remain in place until leases expire or tenants fail to satisfy lease terms, the changes in the overall economy on our operations have not been fully felt to date. As a result, we do not believe that the economic downturn has significantly affected the operations of our real estate properties yet but do expect the effects to become increasingly evident over the remainder of 2009 and 2010, and perhaps beyond. We continue to see signs of increased competition for tenants and downward pressure on rental rates in most of our regions, which we expect, along with an increased intention by certain tenants to reduce costs through job cuts and associated space reductions, could adversely affect our occupancy and renewal rates. In addition, we may also experience higher bad debt expense should tenants be unable to pay their rents. However, we believe that our future real estate operations may be affected to a lesser degree than many of our peers for the following reasons:

† our expectation of continued strength in demand from our customers in the United States Government, defense information technology and data sectors; and

† our high concentration of large, high-quality tenants with a relatively small concentration of revenue from the financial services sector.

In this section, we discuss our financial condition and results of operations as of and for the three months ended March 31, 2009. This section includes discussions on, among other things:

† our results of operations and why various components of our Consolidated Statements of Operations changed for the three months ended March 31, 2009 compared to the same period in 2008;