This section should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes in "Item 1. Financial Statements" of this report and the more detailed information contained in our Form 10-K for the year ended December 31, 2008. Historical results and percentage relationships set forth in Item 1 and this section should not be taken as indicative of future operations of the Company. Capitalized terms used but not otherwise defined in this section, have the meanings given to them in Item 1 of this Form 10-Q.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are generally characterized by terms such as "believe", "expect" and "may".

Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could differ materially from those given in the forward-looking statements as a result of changes in factors which include among others, the following:

• risks related to the continuation or worsening of the domestic and global credit markets and their effect on discretionary spending;

• risks that the Company's tenants will not pay rent;

• risks related to the Company's reliance on shopping center "anchor" tenants and other significant tenants;

• risks related to the Company's substantial relationships with members of The Saul Organization;

• risks of financing, such as increases in interest rates, restrictions imposed by the Company's debt, the Company's ability to meet existing financial covenants and the Company's ability to consummate planned and additional financings on acceptable terms;

• risks related to the Company's development activities;

• risks that the Company's growth will be limited if the Company cannot obtain additional capital;

• risks that planned and additional acquisitions or redevelopments may not be consummated, or if they are consummated, that they will not perform as expected;

• risks generally incident to the ownership of real property, including adverse changes in economic conditions, changes in the investment climate for real estate, changes in real estate taxes and other operating expenses, adverse changes in governmental rules and fiscal policies, the relative illiquidity of real estate and environmental risks;

• risks related to the Company's status as a REIT for federal income tax purposes, such as the existence of complex regulations relating to the Company's status as a REIT, the effect of future changes in REIT requirements as a result of new legislation and the adverse consequences of the failure to qualify as a REIT; and

• such other risks as described in Part I, Item 1A of our Form 10-K for the year ended December 31, 2008.

General

The following discussion is based primarily on the consolidated financial statements of the Company, as of March 31, 2009 and for the three-month period ended March 31, 2009.

Overview

The Company's principal business activity is the ownership, management and development of income-producing properties. The Company's long-term objectives are to increase cash flow from operations and to maximize capital appreciation of its real estate investments.

The Company's primary operating strategy is to focus on its community and neighborhood shopping center business and to operate its properties to achieve both cash flow growth and capital appreciation. Management believes there is potential for growth in cash flow as existing leases for space in the Shopping Centers expire and are renewed, or newly available or vacant space is leased. The Company intends to renegotiate leases where possible and seek new tenants for available space in order to maximize this potential for increased cash flow. As leases expire, management expects to revise rental rates, lease terms and conditions, relocate existing tenants, reconfigure tenant spaces and introduce new tenants with the goal of increasing cash flow. In those circumstances in which leases are not otherwise expiring, management selectively attempts to increase cash flow through a variety of means, or in connection with renovations or relocations, recapturing leases with below market rents and re-leasing at market rates, as well as replacing financially troubled tenants. When possible, management also will seek to include scheduled increases in base rent, as well as percentage rental provisions, in its leases.

The Company's redevelopment and renovation objective is to selectively and opportunistically redevelop and renovate its properties, by replacing leases with below market rents with strong, traffic-generating anchor stores such as supermarkets and drug stores, as well as other desirable local, regional and national tenants. The Company's strategy remains focused on continuing the operating performance and internal growth of its existing Shopping Centers, while enhancing this growth with selective retail redevelopments and renovations.

In light of the currently constrained capital market, management believes acquisition and development opportunities for investment in existing and new shopping center and office properties are limited. However, management believes that the Company is positioned to take advantage of these opportunities when market conditions change because of its conservative capital structure. It is management's view that several of the sub-markets in which the Company operates have very attractive supply/demand characteristics. The Company will continue to evaluate acquisition, development and redevelopment as an integral part of its overall business plan.

Although there has been a downturn in the national real estate market, to date, the effects on the office and retail markets in the metropolitan Washington, D.C. area, where the majority of the Company's properties are located, have been less severe. However, continued deterioration in the local economies where the Company's properties are located may lead to increased tenant bankruptcies, increased vacancies and decreased rental rates.

With a severe decline in overall consumer spending, retailers continue to struggle with declining sales and limited access to capital. Store closings are on the increase and retailers expanding their store count have become extremely rare. Vacancies have continued to increase compared to prior periods. Our overall portfolio leasing percentage was 92.9% at March 31, 2009 compared to 94.2% at December 31, 2008, and 95.4% at March 31, 2008.

The Company maintains a ratio of total debt to total assets of under 50%, which allows the Company to obtain additional secured borrowings, if necessary. As of March 31, 2009, fixed rate debt represented approximately 93% of the Company's notes payable, thus minimizing the effect of increased interest rates on the Company's financial condition. The Company's earliest significant fixed rate debt maturity is not until 2011. As of March 31, 2009, the Company had loan availability of more than $134,000,000 on its $150,000,000 unsecured revolving line of credit.

Although it is management's present intention to concentrate future acquisition and development activities on community and neighborhood shopping centers and office properties in the Washington, DC/Baltimore metropolitan area and the southeastern region of the United States, the Company may, in the future, also acquire other types of real estate in other areas of the country as opportunities present themselves. While the Company may diversify in terms of property locations, size and market, the Company does not set any limit on the amount or percentage of Company assets that may be invested in any one property or any one geographic area.

Critical Accounting Policies

The Company's accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the Company's financial statements and the reported amounts of revenue and expenses during the reporting periods. If judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of the financial statements. Below is a discussion of accounting policies which the Company considers critical in that they may require judgment in their application or require estimates about matters which are inherently uncertain. Additional discussion of accounting policies which the Company considers significant, including further discussion of the critical accounting policies described below, can be found in the notes to the Consolidated Financial Statements.

Real Estate Investments

Real estate investment properties are stated at historic cost less depreciation. The Company intends to own its real estate investment properties over a long-term. No real estate

investment properties have been sold since the Company's formation in 1993. Management believes that these assets have generally appreciated in value since their acquisition and, accordingly, the aggregate current value exceeds their aggregate net book value and also exceeds the value of the Company's liabilities as reported in these financial statements. Because these financial statements are prepared in conformity with U.S. GAAP, they do not report the current value of the Company's real estate investment properties. The Company purchases real estate investment properties from time to time and allocates the purchase price to various components, such as land, buildings, and intangibles related to in-place leases and customer relationships in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." The purchase price is allocated based on the relative fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease up period. The Company determines the fair value of above and below market intangibles associated with in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In the case of above and below market leases, the Company considers the remaining contractual lease period and renewal periods, taking into consideration the likelihood of the tenant exercising its renewal options. The fair value of a below market lease component is recorded as deferred income and amortized as additional lease revenue over the remaining contractual lease period and any renewal option periods included in the valuation analysis. The fair value of above market lease intangibles is recorded as a deferred asset and is amortized as a reduction of lease revenue over the remaining contractual lease term. The Company determines the fair value of at-market in-place leases considering the cost of acquiring similar leases, the foregone rents associated with the lease-up period and carrying costs associated with the lease-up period. Intangible assets associated with at-market in-place leases are amortized as additional expense over the remaining contractual lease term. To the extent customer relationship intangibles are present in an acquisition, the fair value of the intangibles are amortized over the life of the customer relationship.

If there is an event or change in circumstance that indicates an impairment in the value of a real estate investment property, the Company prepares an impairment analysis to assess that the carrying value of the real estate investment property does not exceed its estimated fair value. The Company considers both quantitative and qualitative factors including recurring operating losses, significant decreases in occupancy, and significant adverse changes in legal factors and business climate. If impairment indicators are present the Company performs a comparison of the projected cash flows of the property over its remaining useful life, on an undiscounted basis, to the carrying value of that property. The Company assesses its undiscounted projected cash flows based upon estimated capitalization rates, historic operating results and market conditions that may affect the property. If such carrying value is greater than the undiscounted projected cash flows, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its then estimated fair market value. The value of any property is sensitive to the actual results of any of the aforementioned estimated factors, either individually or taken as a whole. Should the actual results differ from management's projections, the valuation could be negatively or positively affected.

When incurred, the Company capitalizes the cost of improvements that extend the useful life of property and equipment. All repair and maintenance expenditures are expensed when

incurred. In addition, we capitalize leasehold improvements when certain criteria are met, including when we supervise construction and will own the improvement. Tenant improvements we own are depreciated over the life of the respective lease or the estimated useful life of the improvements, whichever is shorter.

Interest, real estate taxes, development-related salary costs and other carrying costs are capitalized on projects under construction. Once construction is substantially complete and the assets are placed in service, rental income, direct operating expenses, and depreciation associated with such properties are included in current operations.

In the initial rental operations of development projects, a project is considered substantially complete and available for occupancy upon completion of tenant improvements, but no later than one year from the cessation of major construction activity. Substantially completed portions of a project are accounted for as separate projects. Depreciation is calculated using the straight-line method and estimated useful lives of 35 to 50 years for base buildings and up to 20 years for certain other improvements.

Deferred Leasing Costs

Certain initial direct costs incurred by the Company in negotiating and consummating successful leases are capitalized and amortized over the initial base term of the leases. Deferred leasing costs consist of commissions paid to third-party leasing agents as well as internal direct costs such as employee compensation and payroll-related fringe benefits directly related to time spent performing successful leasing-related activities. Such activities include evaluating prospective tenants' financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating lease terms, preparing lease documents and closing transactions. In addition, deferred leasing costs include amounts attributed to in-place leases associated with acquisition properties as determined pursuant to the application of SFAS No.141.

Revenue Recognition

Rental and interest income is accrued as earned except when doubt exists as to collectability, in which case the accrual is discontinued. Recognition of rental income commences when control of the space has been given to the tenant. When rental payments due under leases vary from a straight-line basis because of free rent periods or scheduled rent increases, income is recognized on a straight-line basis throughout the initial term of the lease. Expense recoveries represent a portion of property operating expenses billed to tenants, including common area maintenance, real estate taxes and other recoverable costs. Expense recoveries are recognized in the period when the expenses are incurred. Rental income based on a tenant's revenue, known as percentage rent, is accrued when a tenant reports sales that exceed a specified breakpoint specified in the lease agreement.

Allowance for Doubtful Accounts - Current and Deferred Receivables

Accounts receivable primarily represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to the Company's revenue recognition policy. Receivables are reviewed monthly and reserves are established with a charge to current

period operations when, in the opinion of management, collection of the receivable is doubtful. 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. Reserves are established with a charge to income for tenants whose rent payment history or financial condition casts doubt upon the tenant's ability to perform under its lease obligations.

Legal Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a material adverse effect on its financial position or the results of operations. Once it has been determined that a loss is probable to occur, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine.

Results of Operations

     Quarter ended March 31, 2009 compared to quarter ended March 31, 2008

Revenue



                                         Quarters ended        2009 to 2008
              (Dollars in thousands)        March 31,             Change
                                         2009       2008       $          %
              Base rent                $ 30,665   $ 30,382   $  283       0.9 %
              Expense recoveries          7,580      7,133      447       6.3 %
              Percentage rent               233        314      (81 )   -25.8 %
              Other                       1,211        893      318      35.6 %

              Total revenue            $ 39,689   $ 38,722   $  967       2.5 %

Note: (Dollars in thousands)

Base rent includes ($42) and $320 for the quarters ended March 31, 2009 and 2008, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes $347 and $132, for the quarters ended March 31, 2009 and 2008, respectively, to recognize income from the amortization of in-place leases in accordance with SFAS No. 141.

Total revenue increased 2.5% in the quarter ended March 31, 2009 ("2009 Quarter") compared to the corresponding prior year's quarter ("2008 Quarter"). The revenue increase for the 2009 Quarter resulted from net rental income from the operations of a developed property initiating operations in March 2009 and three 2008 acquisition properties. The development

property (Northrock) and the acquisition properties (Great Falls Center, BJ's Wholesale Club and Marketplace at Sea Colony) together defined as the "Development and Acquisition Properties," contributed $1,276,000 of increased revenue, which was partially offset by declining revenue at the core properties. A discussion of the components of revenue follows.

Base rent. The increase in base rent for the 2009 Quarter versus the 2008 Quarter was attributable to leases in effect at the Development and Acquisition Properties (approximately $1,113,000), offset in part by decreased base rent, particularly from vacancies during the quarter at three shopping centers; small shop space at Broadlands Village in Ashburn, Virginia; an anchor space at Seven Corners in Falls Church, Virginia; and an anchor space at White Oak in Silver Spring, Maryland. The vacant anchor space at both Seven Corners and White Oak has been re-leased but is not yet producing rental income. Increased vacancy at one office property, Van Ness Square, also contributed to the base rent decrease.

Expense recoveries. Expense recoveries represent a portion of property operating expenses billable to tenants, including common area maintenance, real estate taxes and other recoverable costs. The largest single contributor to the increase in expense recovery income resulted from operation of the Development and Acquisition Properties (34.2% or approximately $153,000). Billings to tenants for their share of increased real estate tax expense (36.9% or approximately $165,000) and property operating expenses (28.9% or approximately $129,000) throughout the core operating properties accounted the balance of the increase.

Percentage rent. Percentage rent is rental revenue calculated on the portion of a tenant's sales revenue that exceeds a specified breakpoint. Percentage rent for the 2009 Quarter decreased due the re-leasing of a space in 2009 at a higher base rent, which increased the sales breakpoint, than that which was in effect during the 2008 Quarter. No percentage rent was received for the space in 2009.

Other revenue. Other revenue consists primarily of parking revenue at three of the Office Properties, temporary lease rental income, payments associated with early termination of leases and interest income from the investment of cash balances. The increase in other revenue for the 2009 Quarter resulted primarily from increased lease termination fees (approximately $348,000) offset in part by a $64,000 decrease in interest income on invested cash balances.

Operating Expenses



(Dollars in thousands)                       Quarters ended March 31,              2009 to 2008 Change
                                              2009               2008               $                 %
Property operating expenses              $        5,370     $        4,985     $       385              7.7 %
Provision for credit losses                         327                183             144             78.7 %
Real estate taxes                                 4,416              4,011             405             10.1 %
Interest expense and amortization of
deferred debt costs                               8,196              8,604            (408 )           -4.7 %
Depreciation and amortization of
leasing costs                                     7,041              6,943              98              1.4 %
General and administrative                        2,789              2,923            (134 )           -4.6 %

Total operating expenses                 $       28,139     $       27,649     $       490              1.8 %

Increases in operating expenses resulted primarily from the operation and financing of the Development and Acquisition Properties and increased property taxes and provision for credit losses throughout the remaining core properties.

Property operating expenses. Property operating expenses consist of repairs and maintenance, utilities, payroll, insurance and other property related expenses. Increased repairs and maintenance at the core shopping centers, primarily due to increased snow removal costs (67.0% or approximately $258,000) and expenses required to operate the Development and Acquisition Properties (24.2% or approximately $93,000) produced substantially all of the 2009 Quarterly expense increase.

Provision for credit losses. The provision for credit losses represents the Company's estimation that amounts previously included in income and owed by tenants may not be collectible. The $144,000 increase, primarily independent small shop retailers, in the 2009 Quarter's loss provision versus the 2008 Quarter resulted from tenant vacancies caused by the current economic downturn. The provision for credit losses of approximately eight tenths of one percent (0.8%) and five tenths of one percent (0.5%), of total revenue for 2009 and 2008 Quarters, respectively, reflects the deteriorating impact of the declining employment conditions and frozen credit market.

Real estate taxes. The increase in real estate taxes for the 2009 Quarter versus the 2008 Quarter was primarily due to a same property shopping center increase of $274,000 (67.7% of total real estate tax increase), a 9.7% increase over the 2008 Quarter's amount, impacted largely by increased taxes at several of the Company's Northern Virginia shopping centers. The Office Properties, particularly 601 Pennsylvania Avenue contributed to the increase (15.3% or approximately $62,000) as well as the Development and Acquisition Properties (17.0% or approximately $69,000).

Interest expense and amortization of deferred debt. Interest expense decreased in the 2009 Quarter versus the 2008 Quarter due to decreased debt associated with operating properties. The Company increased indebtedness to fund its development and construction costs, however these interest costs were capitalized as project costs and did not impact interest expense for the 2009 Quarter. Average outstanding borrowing increased approximately $32,206,000. The new borrowing reduced the average interest rate by 0.25%. The combined impact of the new borrowings, at a lower average rate, resulted in an approximately $170,000 increase in interest expense. Interest capitalized as a cost of construction and development projects increased during the 2009 Quarter compared to the 2008 Quarter decreased interest expense by approximately $592,000 ($1,359,000 versus $767,000) resulting primarily from construction activity at Clarendon Center, Northrock and Westview Village. Increased deferred debt cost amortization increased interest expense by approximately $14,000 ($299,000 versus $285,000).

Depreciation and amortization of deferred leasing costs. The increase in depreciation and amortization of deferred leasing costs resulted primarily from the Development and Acquisition Properties placed in service during the preceding twelve months.

General and administrative. General and administrative expenses consist of payroll, administrative and other overhead expenses. The majority of the general and administrative expense decrease during the 2009 Quarter resulted from . . .