MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The first phase of the development comprised of 108,000 square feet commenced operations in the fall of 1994. Ashburn Village phase II was a 49,000 square foot in-line and pad expansion which commenced operations during the third quarter of 2000. During the summer of 2001, the Company completed the development of Ashburn Village III, consisting of a an additional 29,000 square feet of in-line and pad retail space. Ashburn Village phases I, II and III are 100% leased. The Company commenced construction on Ashburn Village IV, during the fourth quarter of 2001. This final phase consisting of 25,000 square feet of retail space  was completed during the summer of 2002 and  is 84% leased.  Revenues for the year ended December 31, 2002 (“2002”) totaled $93,963,000 compared to $86,308,000 for the comparable year in 2001 (“2001”), an increase of $7,655,000 (8.9%). Base rent income was $75,699,000 for 2002 compared to $69,662,000 for 2001, representing an increase of $6,037,000 (8.7%). Approximately 40% of the increase in base rent resulted from new leases in effect at recently developed and redeveloped properties: Washington Square, Ashburn Village III & IV, Crosstown Business Center and French Market. Approximately 30% of the increase resulted from  a major tenant paying higher rent under the terms  of a short-term lease extension at 601 Pennsylvania Avenue. The balance of the base rent increase resulted from releasing property space in the remaining Current Portfolio Properties at rental rates higher than expiring rents. Expense recoveries were $12,680,000 for 2002 compared to $11,456,000 for the comparable  2001 period, representing an increase of $1,224,000 (10.7%). The commencement of operations at the newly developed and redeveloped properties accounted for 45% of the increase in expense recovery income, while the balance of the increase in expense recoveries resulted from improved occupancy and increases in recoverable property tax expense.  At December 31, 2002, the operating portfolio consisted of 29 Shopping Centers and five predominantly Office Properties, all of which are located in seven states and the District of Columbia.  As of December 31, 2002, 93.7% of the Company’s approximately 6,300,000 square feet of space was leased compared to 93.5% at December 31, 2001. The shopping center portfolio was 93.9% leased at December 31, 2002 compared to 94.3% at December 31, 2001. The Office Properties were 92.9% leased at December 31, 2002 compared  to 90.4% as of December 31, 2001. The slight improvement in the portfolio’s leasing percentage resulted from increased leasing at the Ashburn Village and Washington Square developments,  offset in part by decreased leasing at Lexington  Mall and 601 Pennsylvania Avenue. The Company  is intentionally not renewing leases at Lexington Mall  in order to redevelop the shopping center and a  major lease with a U.S. Government tenant expired  at 601 Pennsylvania Avenue.  Percentage rent was $1,850,000 in 2002, compared to $2,113,000 in 2001, a decrease of $263,000 (12.4%). Approximately 40% of the percentage  rent decrease occurred at Lexington Mall where the Company is positioning the mall for redevelopment and approximately 20% of the decrease occurred at French Market where a restaurant tenant reported lower sales revenue compared to the previous year. Other income, which consists primarily of parking income at three of the Office Properties, kiosk leasing, temporary leases and payments associated with early termination of leases, was $3,734,000 in 2002, compared to $3,077,000 in 2001, representing an increase of $657,000 (21.4%). The increase in other income resulted primarily from a $500,000 increase in lease termination payments compared to the prior year, approximately half of which was recognized at Washington Square, and  a $300,000 increase in parking income due to the lease-up of office space at Washington Square. The following discussion compares the results of the Company for the year ended December 31, 2002 with the year ended December 31, 2001, and compares the year ended December 31, 2001  with the year ended December 31, 2000. This information should be read in conjunction with  the accompanying consolidated financial statements and the notes related thereto. 36 Results of Operations Portfolio Leasing Status Years Ended December 31, 2002 and 2001