MESSAGE TO OUR SHAREHOLDERS Portfolio Highlights Retail Highlights T he Saul Centers core operating portfolio produced another year of increased cash flow growth. Same property operating income for the total portfolio grew 6.6% for the year and 5.2% for the quarter ended December 31, 2002, compared to the same periods in 2001. The same property comparison excludes the development properties, Washington Square and Ashburn Village Phases III and IV, and the Company’s September 2002 Kentlands Square acquisition. As of December 31, 2002, the total portfolio was 93.7% leased. Same property operating income in the shopping center portfolio increased 3.2% for the year and was unchanged in the fourth quarter compared to the same prior year periods. Same property office performance grew 16.6% for the year and 22.3% for the fourth quarter. The improvement  in the office properties was inflated by the revenues generated from a major tenant paying higher rent under the terms of a short term holdover lease at 601 Pennsylvania Avenue,  and to a lesser extent by higher lease termination fees and receipt of a payment from a former office tenant’s bankruptcy estate. R etail core operating trends have proven very resilient during this prolonged economic slowdown, as interest rates remain  at historically low levels and consumers have generally continued to spend. The Washington DC/Baltimore metropolitan area remains the Company’s area of focus, with approximately 83% of the retail cash flow from properties in  these markets. In general, grocery anchored retail tenants are experiencing increased competition from WalMart and Target entering their market areas. The expansion of these two retailers is pressuring already thin grocery margins and forcing more consolidation and store closings. Our Washington metropolitan area focus has greatly insulated the Company from these market pressures due to the lack of new development sites in our high density, in-fill locations. Additionally, twelve of the Company’s 18 grocery anchored retail centers are anchored by one of the top three market share grocers in the trade area, also providing insulation from store closings as grocers exit non-core markets. Grocery sales moderated within our portfolio  to a 2% growth rate over the prior year, compared to 4% and 4.7% in the previous  two years. Overall retail sales, on a same  store basis, for tenants reporting sales totaled approximately $265 per square foot during  2002. Same store sales levels decreased 3.2% compared to 2001 levels after averaging  annual increases of over 3% for the previous  two years. With less than 2% of the Company’s revenue tied directly to tenant sales, the  financial impact in percentage rent of this moderation in tenant sales is minimal. Our retailers, however, continue to show confidence despite an uncertain economic environment. Over 470,000 square feet of retail leases expired in 2002, with 65% of these tenants renewing their leases. During 2002, retail spaces were relet at average rental rates 10% higher than expiring rents for the 420,000 square feet of same store shopping center lease rollovers. The quality of  our tenants was demonstrated by historically low levels of delinquencies and defaults within our portfolio throughout 2002. The Company continues to pursue selective development and acquisition opportunities. During the third quarter of 2002, we completed construction of the final phase of the 210,000 square foot Ashburn Village shopping center in  8 Kentlands Square acquisition Same property operating income grew 6.6%