MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Strategy and Financing Activity The Company’s capital strategy is to maintain a ratio of total debt to total fair market asset value of 50% or less, and to actively manage the Company’s leverage and debt expense on an ongoing basis in order to maintain prudent coverage of fixed charges. Management believes that current total debt remains less than 50% of total fair market asset value. The following is a summary of notes payable as of December 31, 2002 and 2001: (Dollars in thousands) Principal Outstanding December 31, Interest Scheduled 2002 2001 Rate * Maturity * Fixed Rate Mortgages: $ 135,641 (a) $ 138,215 7.67 % Oct 2012 93,044 (b) 95,716 8.23 % Dec 2011 34,830 (c) 35,583 7.88 % Jan 2013 13,667 (d) 13,936 8.33 % June 2015 9,797 (e) 10,028 6.88 % May 2004 7,640 (f) -- 8.18 % Feb 2004 Total Fixed Rate 294,619 293,478 7.89 % 9.2 Years  Variable Rate Loans: Construction Loan 39,374 (g) 38,342 2.89 % Jan 2003 Line of Credit 46,750 (h) 20,000 3.09 % Aug 2005 Total Variable Rate 86,124 58,342 3.00 % 1.5 Years Total Notes Payable $ 380,743 $ 351,820 6.78 % 7.4 Years Notes Payable *Interest rate and scheduled maturity data presented for December 31, 2002. Totals computed using weighted averages. 33 (a) The loan is collateralized by nine shopping centers (Seven Corners, Thruway, White Oak, Hampshire Langley, Great Eastern, Southside Plaza, Belvedere, Giant and Ravenwood) and requires monthly principal and interest payments based upon a 25 year amortization schedule. Principal of $2,574,000 was amortized during 2002. (b) The loan is collateralized by Avenel Business Park, Van Ness Square, Ashburn Village, Leesburg Pike, Lumberton Plaza and Village Center. The loan has been increased on three occasions since its inception in 1997. The 8.23% blended interest rate is the weighted average of the initial loan rate and additional borrowings rates. Monthly principal and interest payments are based upon a weighted average 23 year amortization schedule. Principal of $2,672,000 was amortized during 2002. (c) The loan is collateralized by 601 Pennsylvania Avenue and requires monthly principal and interest payments based upon a 25 year amortization schedule. Principal of $753,000 was amortized during 2002. (d) The loan is collateralized by Shops at Fairfax and Boulevard shopping centers and requires monthly principal and interest payments based upon a 22 year amortization schedule. Principal of $269,000 was amortized during 2002.  (e) The loan is collateralized by The Glen shopping center and a corporate guarantee. The loan requires monthly principal and interest payments based upon a 23 year amortization schedule. Principal of $231,000 was amortized during 2002.  (f) The loan is collateralized by Kentlands Square shopping center and requires monthly principal and interest payments based upon a 15 year amortization schedule. Principal of $166,000 was amortized during 2002.  (g) The loan is a construction loan totaling $42,000,000 and is collateralized by Washington Square. Interest expense is calculated based upon the 1, 2, 3 or 6 month LIBOR rate plus a spread of 1.45% to 1.9% (determined by certain leasing and/or construction benchmarks) or upon the bank’s prime rate at the Company’s option. The loan was repaid on January 9, 2003. The interest rate in effect on December 31, 2002 was based on a weighted average LIBOR of 1.44% and spread of 1.45%. The effective annual average interest rate, which considers debt cost amortization, was 3.69% for 2002. (h) The loan is an unsecured revolving credit facility totaling $125,000,000. Loan availability is determined by operating income from  the Company’s unencumbered properties. An additional amount is available for funding qualified operating property acquisitions. Interest expense is calculated based upon the 1,2,3 or 6 month LIBOR rate plus a spread of 1.625% to 1.875% (determined by certain debt service coverage and leverage tests) or upon the bank’s reference rate at the Company’s option. The line may be extended one year with payment of a fee of 1/4% at the Company’s option. The interest rate in effect on December 31, 2002 was based on a weighted average LIBOR of 1.391% and spread of 1.625% and a prime rate of 4.25%. The effective annual average interest rate, which considers debt cost amortization and unused line fees, was 4.84% for 2002.