Forward-Looking Statements: Forward-looking statements are made throughout this Quarterly Report on Form 10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "may," "believes," "anticipates," "plans," "expects," "seeks," "estimates," "intends," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including but not limited to: (a) changes in general economic and business conditions; (b) decreases in rental rates or increases in vacancy rates/failure to renew or replace expiring leases; (c) tenant defaults; (d) the effect of the recent credit and financial market conditions; (e) our failure to maintain our status as a real estate investment trust ("REIT"); (f) the economic health of our tenants; (g) increases in operating costs; (h) casualties to our properties not covered by insurance; (i) the availability and cost of capital;
(j) increases in interest rates and its effect on our stock price; (k) other factors discussed under the heading "Item 1A. Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2011. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements, except as required by law.

Overview

As of June 30, 2012, the Company owned and operated 27.2 million rentable square feet of multi-tenant flex, industrial and office properties located in eight states.

The Company focuses on increasing profitability and cash flow aimed at maximizing shareholder value. The Company strives to maintain high occupancy levels while increasing rental rates when market conditions allow, although the Company may decrease rental rates in markets where conditions require. The Company also acquires properties it believes will create long-term value, and from time to time disposes of properties which no longer fit within the Company's strategic objectives or in situations where the Company believes it can optimize cash proceeds. Operating results are driven primarily by income from rental operations and are therefore substantially influenced by rental demand for space within our properties and rental rates.

During the first six months of 2012, the Company leased 3.9 million square feet of space including 2.1 million square feet of renewals of existing leases and 1.8 million square feet of new leases. Overall, the Company experienced a decrease in rental rates when comparing new rental rates to outgoing rental rates by 5.2%. See further discussion of operating results below.

Critical Accounting Policies and Estimates:

Our accounting policies are described in Note 2 to the consolidated financial statements included in this Form 10-Q. We believe our most critical accounting policies relate to revenue recognition, property acquisitions, allowance for doubtful accounts, impairment of long-lived assets, depreciation, accruals of operating expenses and accruals for contingencies, each of which we discuss below.

Revenue Recognition: The Company must meet four basic criteria before revenue can be recognized: persuasive evidence of an arrangement exists; the delivery has occurred or services rendered; the fee is fixed or determinable; and collectability is reasonably assured. All leases are classified as operating leases. Rental income is recognized on a straight-line basis over the terms of the leases. Straight-line rent is recognized for all tenants with contractual fixed increases in rent that are not included on the Company's credit watch list. Deferred rent receivable represents rental revenue recognized on a straight-line basis in excess of billed rents. Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as rental income in the period the applicable costs are incurred. Property management fees are recognized in the period earned.

Property Acquisitions: The Company records the purchase price of acquired properties to land, buildings and improvements and intangible assets and liabilities associated with in-place leases (including tenant improvements, unamortized lease commissions, value of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any) based on their respective estimated fair values. Acquisition-related costs are expensed as incurred.

In determining the fair value of the tangible assets of the acquired properties, management considers the value of the properties as if vacant as of the acquisition date. Management must make significant assumptions in determining the value of assets acquired and liabilities assumed. Using different assumptions in the recording of the purchase cost of the acquired properties would affect the timing of recognition of the related revenue and expenses. Amounts recorded to land are derived from comparable sales of land within the same region. Amounts recorded to buildings and improvements, tenant improvements and unamortized lease commissions are based on current market replacement costs and other market rate information.

The value recorded to the above-market or below-market in-place lease values of acquired properties is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual rents to be paid pursuant to the in-place leases, and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The amounts recorded to above-market or below-market leases are included in other assets or other liabilities in the accompanying consolidated balance sheets and are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases.

Allowance for Doubtful Accounts: Rental revenue from our tenants is our principal source of revenue. We monitor the collectability of our receivable balances including the deferred rent receivable on an ongoing basis. Based on these reviews, we maintain an allowance for doubtful accounts for estimated losses resulting from the possible inability of our tenants to make required rent payments to us. Tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible tenant receivables and deferred rent. As discussed below, determination of the adequacy of these allowances requires significant judgments and estimates. Our estimate of the required allowance is subject to revision as the factors discussed below change and is sensitive to the effect of economic and market conditions on our tenants.

Tenant receivables consist primarily of amounts due for contractual lease payments, reimbursements of common area maintenance expenses, property taxes and other expenses recoverable from tenants. Determination of the adequacy of the allowance for uncollectible current tenant receivables is performed using a methodology that incorporates specific identification, aging analysis, an overall evaluation of the historical loss trends and the current economic and business environment. The specific identification methodology relies on factors such as the age and nature of the receivables, the payment history and financial condition of the tenant, the assessment of the tenant's ability to meet its lease obligations, and the status of negotiations of any disputes with the tenant. The allowance also includes a reserve based on historical loss trends not associated with any specific tenant. This reserve as well as the specific identification reserve is reevaluated quarterly based on economic conditions and the current business environment.

Deferred rent receivable represents the amount that the cumulative straight-line rental income recorded to date exceeds cash rents billed to date under the lease agreement. Given the long-term nature of these types of receivables, determination of the adequacy of the allowance for unbilled deferred rent receivable is based primarily on historical loss experience. Management evaluates the allowance for unbilled deferred rent receivable using a specific identification methodology for significant tenants designed to assess their financial condition and ability to meet their lease obligations.

Impairment of Long-Lived Assets: The Company evaluates a property for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. On a quarterly basis, we evaluate our entire portfolio for impairment based on current operating information. In the event that these periodic assessments reflect that the carrying amount of a property exceeds the sum of the undiscounted cash flows (excluding interest) that are expected to result from the use and eventual disposition of the property, the Company would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on subjective assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property. Management must make assumptions related to the property such as future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, occupancy levels and the estimated proceeds generated from the future sale of the property. These assumptions could differ materially from actual results in future periods. Our intent to hold properties over the long-term directly decreases the likelihood of recording an impairment loss. If our strategy changes or if market conditions otherwise dictate an earlier sale date, an impairment loss could be recognized, and such loss could be material.

Depreciation: We compute depreciation on our buildings and improvements using the straight-line method based on estimated useful lives generally ranging from five to 30 years. A significant portion of the acquisition cost of each property is recorded to building and building components. The recording of the acquisition cost to building and building components, as well as the determination of their useful lives, are based on estimates. If we do not appropriately record to these components or we incorrectly estimate the useful lives of these components, our computation of depreciation expense may not appropriately reflect the actual impact of these costs over future periods, which will affect net income. In addition, the net book value of real estate assets could be overstated or understated. The statement of cash flows, however, would not be affected.

Accruals of Operating Expenses: The Company accrues for property tax expenses, performance bonuses and other operating expenses each quarter based on historical trends and anticipated disbursements. If these estimates are incorrect, the timing and amount of expense recognized will be affected.

Accruals for Contingencies: The Company is exposed to business and legal liability risks with respect to events that may have occurred, but in accordance with U.S. generally accepted accounting principles ("GAAP") has not accrued for such potential liabilities because the loss is either not probable or not estimable. Future events could result in such potential losses becoming probable and estimable, which could have a material adverse impact on our financial condition or results of operations.

Effect of Economic Conditions on the Company's Operations: During the first six months of 2012, while certain markets reflected signs of improved occupancy, overall the Company experienced decreases in new rental rates over expiring rental rates on executed leases as a result of continued weak economic conditions. The rate of decrease eased from 8.3% for the year ended December 31, 2011 to 5.2% for the six months ended June 30, 2012. Although it is uncertain what impact economic conditions will have on the Company's future ability to maintain existing occupancy levels and rental rates, management expects that the decrease in rental rates on lease transactions could result in a decrease in rental income for 2012 compared to 2011. Current and future economic conditions may continue to have a significant impact on the Company, potentially resulting in further reductions in occupancy and rental rates.

While the Company historically has experienced a low level of write-offs of uncollectable rents, there is inherent uncertainty in a tenant's ability to continue paying rent and meet their full lease obligation. The table below summarizes the impact to the Company from tenants' inability to pay rent or continue to meet their lease obligations (in thousands):

                                                                    For The Six Months
                                                                      Ended June 30,
                                                                   2012             2011
Write-offs of uncollectible rent                                 $    474          $  539
Write-offs as a percentage of rental income                           0.3 %           0.4 %
Square footage of leases terminated prior to their scheduled
expiration due to business failures/bankruptcies                      288             224
Accelerated depreciation expense related to unamortized
tenant improvements and lease commissions associated with
early terminations                                               $    967          $  486

As of July 30, 2012, the Company had 13,000 square feet of leased space occupied by a tenant that is protected by Chapter 11 of the U.S. Bankruptcy Code. From time to time, tenants contact us, requesting early termination of their lease, a reduction in space under lease, or rent deferment or abatement. At this time, the Company cannot anticipate what impact, if any, the ultimate outcome of these discussions will have on our future operating results.

Company Performance and Effect of Economic Conditions on Primary Markets: The Company's operations are substantially concentrated in 10 regions. During the six months ended June 30, 2012, initial rental rates on new and renewed leases within the Company's overall portfolio decreased 5.2% over expiring rents, an improvement from a decline of 8.3% for the year ended December 31, 2011. The Company's Same Park (defined below) occupancy rate at June 30, 2012 was 91.9%, compared to 92.1% at June 30, 2011. The Company's overall occupancy rate at June 30, 2012 was 89.4%, compared to 89.0% at June 30, 2011. Each of the 10 regions in which the Company owns assets is subject to its own unique market influences. See "Supplemental Property Data and Trends" below for more information on regional operating data.

Growth of the Company's Operations and Acquisitions and Dispositions of Properties: The Company is focused on maximizing cash flow from its existing portfolio of properties by looking for opportunities to expand its presence in existing and new markets through strategic acquisitions. The Company may from time to time dispose of non-strategic assets that do not meet this criterion. The Company has historically maintained a low-leverage-level approach intended to provide the Company with the greatest level of flexibility for future growth.

Subsequent to June 30, 2012, the Company acquired a 958,000 square foot industrial park consisting of eight single-story buildings located in Kent Valley, Washington, for a purchase price of $37.6 million.

As of June 30, 2012, the blended occupancy rate of the nine assets acquired in 2010 and 2011 was 83.5% compared to a blended occupancy rate of 77.5% at the time of acquisition. As of June 30, 2012, the Company had 1.3 million square feet of vacancy spread over these nine acquisitions which we believe provides the Company with considerable opportunity to generate additional rental income given that the Company's other assets in these same submarkets have a blended occupancy of 94.2% at June 30, 2012. The table below reflects the assets acquired in 2011 and 2010 (in thousands):

                                                                                                    Square        Occupancy  at         Occupancy at
Property                         Date Acquired            Location             Purchase Price        Feet          Acquisition          June 30, 2012
Northern California Portfolio    December, 2011    East Bay, California       $        520,000        5,334                 82.2 %                84.2 %
Royal Tech                       October, 2011     Las Colinas, Texas                    2,835           80                  0.0 %               100.0 %
MICC - Center 22                  August, 2011     Miami, Florida                        3,525           46                 33.3 %                33.3 %
Warren Building                    June, 2011      Tysons Corner, Virginia              27,100          140                 68.0 %                85.3 %
Westpark Business Campus         December, 2010    Tysons Corner, Virginia             140,000          735                 61.9 %                71.7 %
Tysons Corporate Center            July, 2010      Tysons Corner, Virginia              35,400          270                 47.0 %                73.0 %
Parklawn Business Park             June, 2010      Rockville, Maryland                  23,430          232                 70.6 %                86.2 %
Austin Flex Portfolio             April, 2010      Austin, Texas                        42,900          704                 88.0 %                90.5 %
Shady Grove Executive Center      March, 2010      Rockville, Maryland                  60,000          350                 73.5 %                90.7 %

Total                                                                         $        855,190        7,891                 77.5 %                83.5 %

In August, 2011, the Company completed the sale of Westchase Corporate Park, a 177,000 square foot flex park consisting of 13 buildings in Houston, Texas, for a gross sales price of $9.8 million, resulting in a net gain of $2.7 million.

The Company is currently under contract to sell Quail Valley Business Park, a 66,000 square foot flex park in Houston, Texas, for $2.3 million. The Company anticipates closing on the sale during the third quarter of 2012 and has classified the asset as held for disposition. As of June 30, 2012, the net book value of the asset was $1.2 million.

Scheduled Lease Expirations: In addition to the 2.9 million square feet, or 10.6%, of space available in our total portfolio as of June 30, 2012, 901 leases representing 11.9% of the leased square footage of our total portfolio or 11.5% of annualized rental income are scheduled to expire during the remainder of 2012. Our ability to re-lease available space will depend upon market conditions in the specific submarkets in which our properties are located. As a result, we cannot predict with certainty the rate at which expiring leases will be re-leased.

Impact of Inflation: Although inflation has not been significant in recent years, it remains a potential factor in our economy, and the Company continues to seek ways to mitigate its potential impact. A substantial portion of the Company's leases require tenants to pay operating expenses, including real estate taxes, utilities, and insurance, as well as increases in common area expenses, partially reducing the Company's exposure to inflation.

Concentration of Portfolio by Region: The table below reflects the Company's square footage from continuing operations based on regional concentration as of June 30, 2012 (in thousands):

                                           Square       Percent
                   Region                 Footage       of Total
                   California
                   Northern California       7,153           26.4 %
                   Southern California       3,988           14.7 %
                   Virginia                  4,165           15.3 %
                   Florida                   3,717           13.7 %
                   Texas
                   Northern Texas            1,769            6.5 %
                   Southern Texas            1,491            5.5 %
                   Maryland                  2,352            8.7 %
                   Oregon                    1,314            4.8 %
                   Arizona                     679            2.5 %
                   Washington                  521            1.9 %

                   Total Square Footage     27,149          100.0 %

Concentration of Credit Risk by Industry: The information below depicts the industry concentration of our tenant base as of June 30, 2012. The Company analyzes this concentration to minimize significant industry exposure risk.

                                                               Percent of
                                                               Annualized
     Industry                                                 Rental Income
     Business services                                                  15.3 %
     Health services                                                    11.5 %
     Government                                                         10.7 %
     Computer hardware, software and related services                   10.5 %
     Warehouse, distribution, transportation and logistics               9.3 %
     Insurance and financial services                                    6.1 %
     Engineering and construction                                        5.6 %
     Retail, food and automotive                                         5.4 %
     Communications                                                      4.9 %
     Electronics                                                         3.3 %
     Home furnishings                                                    3.1 %
     Aerospace/defense products and services                             3.1 %
     Educational services                                                1.8 %
     Other                                                               9.4 %

     Total                                                             100.0 %

The information below depicts the Company's top 10 customers by annualized rental income as of June 30, 2012 (in thousands):

                                                                                              Percent of
                                                                    Annualized                Annualized
Tenants                                Square Footage           Rental Income  (1)           Rental Income
U.S. Government                                    860         $             19,973                     5.8 %
Lockheed Martin Corporation                        176                        4,976                     1.4 %
Kaiser Permanente                                  199                        4,150                     1.2 %
Level 3 Communication                              197                        3,702                     1.1 %
Luminex Corporation                                149                        2,250                     0.7 %
Wells Fargo                                        120                        2,219                     0.6 %
Keeco LLC.                                         280                        1,847                     0.5 %
Bristol-Meyers Squibb                              114                        1,795                     0.5 %
AARP                                               102                        1,787                     0.5 %
ATS Corporation                                     58                        1,767                     0.5 %

Total                                            2,255         $             44,466                    12.8 %

(1) For leases expiring prior to December 31, 2012, annualized rental income represents income to be received under existing leases from July 1, 2012 through the date of expiration.

Comparative Analysis of the Three and Six Months Ended June 30, 2012 to the Three and Six Months Ended June 30, 2011

Results of Operations: In order to evaluate the performance of the Company's portfolio over comparable periods, management analyzes the operating performance of properties owned and operated throughout both periods (herein referred to as "Same Park"). Effective January 1, 2012, the Company revised its Same Park definition to include all operating properties owned or acquired prior to January 1, 2010. We believe that this will provide the most meaningful perspective on how our assets are performing period to period, while not inflating comparative growth results with the continued lease-up of recently acquired assets. Operating properties that the Company acquired subsequent to January 1, 2010 are referred to as "Non-Same Park." For the three and six months ended June 30, 2012 and 2011, the Same Park facilities constitute 19.2 million rentable square feet, representing 70.7% of the 27.1 million square feet in the Company's portfolio as of June 30, 2012.

Rental income, cost of operations and rental income less cost of operations, excluding depreciation and amortization, or net operating income (defined as "NOI" for purposes of the following tables), are summarized for the three and six months ended June 30, 2012 and 2011. The Company uses NOI and its components as a measurement of the performance of its commercial real estate. Management believes that these financial measures provide them, as well as the investor, the most consistent measurement on a comparative basis of the performance of the commercial real estate and its contribution to the value of the Company. Depreciation and amortization have been excluded from NOI as they are generally not used in determining the value of commercial real estate by management or the investment community. Depreciation and amortization are generally not used in determining value as they consider the historical costs of an asset compared to its current value; therefore, to understand the effect of the assets' historical cost on the Company's results, investors should look at GAAP financial measures, such as total operating costs including depreciation and amortization. The Company's calculation of NOI may not be comparable to those of other companies and should not be used as an alternative to measures of performance calculated in accordance with GAAP. As part of the tables below, we have reconciled total NOI to income from continuing operations, which we consider the most directly . . .