UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2005~~2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ~~ACT~~ ACT OF 1934

For the transition period from to

Commission file number 0-6201

BRESLER & REINER, INC.

(Exact name of registrant as specified in its charter)

Delaware	~~52-0903424~~	52-0903424
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
(State or other jurisdiction of		(I.R.S. Employer
11140 Rockville Pike, Suite 620 Rockville, MD 20852
incorporation or organization)		Identification Number)
(Address of principal executive offices)
(301) 945-4300
Registrant’s telephone number, including area code
www.breslerandreiner.com

~~Indicate~~11200 byRockville ~~check~~Pike, ~~mark whether the registrant (1)~~Suite has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o502

~~Indicate by check mark~~Rockville, ~~whether~~MD ~~the registrant is an accelerated filer~~ 20852 (asAddress ~~defined~~of ~~in Rule 12b-2~~principal ofexecutive ~~the Exchange Act~~offices)~~. Yes o No x~~

~~Indicate~~(301) ~~the number of shares outstanding of each of the issuer~~945-4300 Registrant’s ~~classes of common~~telephone ~~stock as of the latest practicable date. 5~~number,~~477,212~~ ~~shares~~including ofarea ~~Common Stock $0.01 par value, as of May 16, 2005.~~code

~~BRESLER & REINER, INC. FORM 10-Q MARCH 31, 2005 TABLE OF CONTENTS~~n/a

PART I. FINANCIAL INFORMATION			3
	Item 1	Consolidated Financial Statements and Notes	3
		Consolidated Balance Sheets as of March 31, 2005 (Unaudited) and December 31, 2004	3
		Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2005 and 2004	4
		Consolidated Statements of Cash Flows (Unaudited) for the Thee Months Ended March 31, 2005 and 2004	5
		Notes to the Consolidated Financial Statements (Unaudited)	6
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4	Controls and Procedures	31
PART II. OTHER INFORMATION			32
	Item1	Legal Proceedings	32
	Item 2	Changes in Securities, Use of Proceeds and Issuer’s	32
	Item 3	Defaults Upon Senior Securities	32
	Item 4	Submission of Matters to Vote of the Security Holders	32
	Item 5	Other Information	32
	Item 6	Exhibits and Reports on Form 8-K	32
		Signatures	33
		Certifications

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. 5,477,212 shares of Common Stock $0.01 par value, as of June 20, 2007.

EXPLANATORY NOTE

As described in Note 14 to our condensed consolidated financial statements, this Form 10-Q for the period ended March 31, 2007, includes a restatement of our condensed consolidated statement of cash flows for the three months ended March 31, 2006.

We have not amended and do not intend to amend our previously filed periodic report for the period ended March 31, 2006 on Form 10-Q as the period affected by the restatement described above has been amended in this filing. For this reason the previously issued condensed consolidated financial statements for the period indicated should no longer be relied upon.

BRESLER & REINER, INC.

FORM 10 Q

March 31, 2007

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and 2006	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006 (As Restated)	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II. OTHER INFORMATION		35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Submission of Matters to Vote of the Security Holders	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
	Signatures	36

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements and Notes

~~BRESLER~~CONDENSED ~~& REINER, INC.~~ CONSOLIDATED BALANCE SHEETS MARCH 31, ~~2005~~2007 AND DECEMBER 31, ~~2004~~2006 (UNAUDITED)

	March 31, 2005			December 31, 2004
	2007			2006
	(Unaudited)
ASSETS
Real Estate:
Rental property and equipment	$	~~337~~574,~~217~~205,000		$	~~313~~513,~~187~~631,000
Property and land development	~~154~~132,~~080~~458,000			~~129~~167,~~595~~521,000
Land held for investment	2,847,000			2,847,000
Real estate, at cost	706,663,000			681,152,000
Real estate, at cost	494,144,000			445,629,000
Less: Accumulated depreciation	(47,294,000		)	(42,700,000		)
Less: accumulated depreciation	(34,823,000		)	(32,800,000		)
Total real estate, net	659,369,000			638,452,000
Total real estate, net	459,321,000			412,829,000
Assets held for sale	—			25,927,000
Assets held for sale	6,876,000			6,911,000
Receivables:
Income taxes receivable	~~980~~648,000			1644,~~535,~~000
Mortgage and notes receivable	15,~~892~~136,000			5,~~680~~438,000
Other receivables	3,817,000			7,063,000
Other receivables, net	6,832,000			6,996,000
Cash and cash equivalents	818,~~758~~343,000			918,~~914~~191,000
Restricted cash and deposits held in escrow	1234,~~906~~489,000			1046,~~540~~953,000
Investments	46,982,000			40,029,000
Investments, principally available-for-sale securities	87,212,000			36,829,000
Investment in and advances to joint ventures	12,649,000			9,842,000
Investments in and advances to joint ventures	43,864,000			30,403,000
Deferred charges and other assets, net	2741,~~901~~829,000			3045,~~837~~788,000
Total assets	$	~~582~~897,~~082~~722,000		$	~~535~~855,~~180~~621,000
LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES
LIABILITIES AND SHAREHOLDERS’ EQUITY
Mortgage and construction loans and other debt	$	368,624,000		$	329,170,000
LIABILITIES
Liabilities of assets held for sale	5,482,000			5,512,000
Mortgage and construction loans and other debt	$	666,349,000		$	582,435,000
Accounts payable, trade and accrued expenses	12,940,000			15,045,000
Liabilities of assets held for sale	—			29,704,000
Deferred income taxes payable	9,058,000			8,911,000
Accounts payable, trade and accrued expenses	15,148,000			19,358,000
Other liabilities	17,819,000			12,429,000
Deferred income taxes payable	13,645,000			11,146,000
Total liabilities	413,923,000			371,067,000
Other liabilities	28,652,000			28,258,000
Minority interest	36,133,000			32,968,000
Total liabilities	723,794,000			670,901,000
Commitments and contingencies
Minority interest	29,743,000			43,496,000
SHAREHOLDERS’ EQUITY
Common shares, $0.01 par value; 7,000,000 shares authorized, 5,679,306 shares issued, and 5,477,212 shares outstanding as of both March 31, 2005 and December 31, 2004	57,000			57,000
Common shares, $0.01 par value; 7,000,000 shares authorized, 5,477,212 shares issued and outstanding as of March 31, 2007 and December 31, 2006.	55,000			55,000
Additional paid-in capital	75,~~536~~721,000			75,~~536~~721,000
Retained earnings	~~126~~138,~~250~~612,000			~~125~~135,~~369~~651,000
Treasury stock (202,094 shares as of March 31, 2005 and December 31, 2004)	(1,817,000		)	(1,817,000		)
Accumulated other comprehensive loss	(203,000		)	(203,000		)
Total shareholders’ equity	~~132~~144,~~026~~185,000			~~131~~141,~~145~~224,000
Total liabilities and shareholders’ equity	$	~~582~~897,~~082~~722,000		$	~~535~~855,~~180~~621,000

See ~~Notes~~notes to ~~Consolidated~~condensed ~~Financial~~consolidated ~~Statements~~financial statements.

BRESLER & REINER, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, ~~2005~~2007 AND ~~2004~~2006 (~~Unaudited~~UNAUDITED)

	2005			2004
	2007			2006
OPERATING REVENUES
Homebuilding, residential lots and other development	$	15,843,000		$	2,729,000
Development sales	$	952,000		$	5,962,000
Rentals—commercial	916,~~778~~254,000			611,~~504~~497,000
Rentals—residential	23,~~783~~675,000			2,~~530~~477,000
Hospitality	1753,~~994,~~000			1739,~~706,~~000
Other	38132,000			~~110~~118,000
Total operating revenues	3021,~~436~~766,000			1320,~~579~~793,000
COSTS AND EXPENSES
Cost of homebuilding, residential lots and other development	11,529,000			2,562,000
Cost of development sales	847,000			5,083,000
Rental expense—commercial
Operating expenses	47,~~276~~859,000			24,~~096~~580,000
Depreciation and amortization expense	26,~~677~~243,000			13,~~710~~901,000
Rental expense—residential
Operating expenses	1,~~068~~917,000			1989,~~122,~~000
Depreciation and amortization expense	~~635~~1,228,000			~~850~~541,000
Hospitality expense
Operating expenses	2578,~~089,~~000			1511,~~362,~~000
Depreciation and amortization expense	~~170~~80,000			~~220~~33,000
General and administrative expense	13,~~122~~761,000			~~964~~3,787,000
Other expenses	—			6,000
Loss on impairment of assets	1,105,000			—
Total operating expenses	23,566,000			10,892,000
Other expenses	13,000			—
Total operating income	6,870,000			2,687,000
Total operating expenses	23,631,000			19,425,000
Total operating (loss) income	(1,865,000		)	1,368,000
OTHER INCOME (EXPENSES)
Interest income	~~349~~837,000			~~410~~375,000
Interest expense	(48,~~060~~617,000		)	(35,~~091~~529,000		)
Income before income taxes, income from investments in joint ventures, minority interest and income from discontinued operations	3,159,000			6,000
Debt extinguishment costs	(4,048,000		)	—
Income from investments in joint ventures	222,000			457,000
Gain on sale of investments in joint ventures	21,541,000			—
Minority interest	(1,996,000		)	(68,000		)
Income (loss) before income taxes, income from investments in joint ventures, minority interest and income from discontinued operations	7,848,000			(3,786,000		)
Income before income taxes and discontinued operations	1,385,000			395,000
Income from investments in joint ventures	127,000			142,000
Provision for income taxes	(503,000		)	(112,000		)
Minority interest	(8,084,000		)	(356,000		)
Income from continuing operations	882,000			283,000
Loss before income taxes and discontinued operations	(109,000		)	(4,000,000		)
(Loss)/income from discontinued operations, net of tax	(1,000		)	9,000
Benefit for income taxes	49,000			1,419,000
Net income	$	881,000		$	292,000
Loss from continuing operations	(60,000		)	(2,581,000		)
EARNINGS PER SHARE OF COMMON STOCK
Income from discontinued operations, net of tax and minority interest	3,843,000			179,000
Net income (loss)	$	3,783,000		$	(2,402,000	)
INCOME PER SHARE OF COMMON STOCK
Basic and Diluted:
Income from continuing operations	$	0.16		$	0.05
Loss from continuing operations	$	(0.01	)	$	(0.47	)
Income from discontinued operations, net of tax	—			—
Income from discontinued operations, net of tax and minority interest	0.70			0.03
Net income	$	0.16		$	0.05
Net income (loss)	$	0.69		$	(0.44	)
Weighted average number of common shares outstanding	5,477,212			5,477,212

See ~~Notes~~notes to ~~Consolidated~~condensed ~~Financial~~consolidated ~~Statements~~financial statements.

BRESLER & REINER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, ~~2005~~2007 AND ~~2004~~2006 (UNAUDITED)

	2005			2004
	2007			2006
				(As Restated See Note 14)
OPERATING ACTIVITIES:
Net income	$	881,000		$	292,000
Net income (loss)	$	3,783,000		$	(2,402,000	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	37,~~297~~293,000			25,~~789~~202,000
Income from investments in joint ventures	(222,000		)	(457,000		)
Gain on sale of properties and investments in joint ventures	(30,077,000		)	(6,354,000		)
Minority interest expense	1,996,000			68,000
Income from investments in joint ventures	(127,000		)	(142,000		)
Deferred income taxes	147,000			84,000
Minority interest expense (including discontinued operations)	8,084,000			5,222,000
Amortization of finance costs	89,000			118,000
Deferred income taxes	2,499,000			681,000
Homebuilding and land development	(20,414,000		)	(5,701,000		)
Loss on impairment of assets (including discontinued operations)	1,612,000			—
Cost of homebuilding and land development	10,294,000			2,307,000
Amortization of finance costs	216,000			175,000
Distribution of income from investments in joint ventures	109,000			183,000
Bad debt expense	631,000			142,000
Property and land development	(2,639,000		)	(141,000		)
Distributions of income from investments in joint ventures	48,000			74,000
Debt extinguishment costs (including discontinued operations)	5,175,000			—
Changes in assets and liabilities:
Receivables	3(899,~~801,~~000		)	(1,~~587~~017,000		)
Other assets	31,~~697~~981,000			(2893,~~915,~~000		)
Other liabilities	(1489,~~467,~~000		)	14,~~577~~551,000
Total adjustments	1(6,~~327~~692,000		)	(37,~~534~~500,000		)
Net cash provided by (used in) operating activities	2,208,000			(3,242,000		)
Net cash (used in) provided by operating activities	(2,909,000		)	5,098,000
INVESTING ACTIVITIES:
Increase in cash due to change in consolidation method	—			519,000
Investment in joint ventures	(1,458,000		)	(125,000		)
Distributions from (investment in) joint ventures	(2,694,000		)	648,000
Distributions from joint ventures in excess of income	1,574,000			7,000
Deposits for property acquisitions	(~~879~~500,000		)	—(1,963,000		)
Increase in restricted cash	(828,000		)	(1,769,000		)
Decrease (increase) in restricted cash and deposits held in escrow	12,464,000			(7,710,000		)
Decrease (increase) in investments in municipal obligations	(6,953,000		)	8,126,000
Net (increase) decrease in investments principally available-for-sale securities	(50,383,000		)	26,192,000
Purchase of rental property, equipment and other	(21,893,000		)	(73,568,000		)
Purchase of rental property and equipment	(59,280,000		)	(67,820,000		)
Increase in property and land under development	(12,023,000		)	(10,035,000		)
Purchase of property and land development	(7,010,000		)	(2,020,000		)
Decrease in notes receivable	3,788,000			2,067,000
Proceeds from sale of properties and investments in joint ventures	61,651,000			21,771,000
Net cash used in investing activities	(4142,~~482~~942,000		)	(7431,~~012~~668,000		)
FINANCING ACTIVITIES:
Proceeds from mortgage and construction loans and other debt	49167,~~256~~195,000			7061,~~104~~360,000
Repayment of notes and real estate loans payable	(9,802,000		)	(172,000		)
Repayment of mortgage and construction loans and other debt	(47,469,000		)	(28,811,000		)
Deposits held in escrow	(1,538,000		)	1,047,000
Purchase of marketable securities in connection with the legal defeasance of mortgage notes payable	(68,774,000		)	—
Contributions from (distributions to) minority partners	1,169,000			(707,000		)
Contributions from minority partners	2,589,000			1,757,000
Increase in deferred charges	(967,000		)	(607,000		)
Distributions to minority partners	(4,505,000		)	(4,516,000		)
Net cash provided by financing activities	38,118,000			69,665,000
Debt financing charges	(2,211,000		)	(938,000		)
Net decrease in cash and cash equivalents	(1,156,000		)	(7,589,000		)
Dividends paid	(822,000		)	—
Cash and cash equivalents, beginning of period	9,914,000			13,561,000
Net cash provided by financing activities	46,003,000			28,852,000
Cash and cash equivalents, end of period	$	8,758,000		$	5,972,000
Net increase in cash and cash equivalents	152,000			2,282,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Cash and cash equivalents, beginning of the period	18,191,000			10,820,000
Consolidation of Waterfront Associates, LLC	$	—		$	9,385,000
Cash and cash equivalents, end of the period	$	18,343,000		$	13,102,000
Debt assumed on acquisitions	—			24,716,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)	$	9,232,000		$	5,230,000
Income taxes (current and estimated)	5,000			25,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt assumed on acquisitions	$	—		$	23,117,000
Marketable securities transferred in connection with the legal defeasance of mortgage notes payable	68,774,000			—
Mortgage notes payable legally defeased	64,279,000			—
Liabilities related to loan guaranties	(87,000		)	369,000
Accrued purchases of real estate	4,714,000			5,013,000

See ~~Notes~~notes to ~~Consolidated~~condensed ~~Financial~~consolidated ~~Statements~~financial statements.

BRESLER & REINER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND ORGANIZATION

Bresler & Reiner, Inc. (“B&R” and, together with its subsidiaries and affiliates, “we,” the “Company” or “us”) engages in the acquisition, development, and ownership of commercial, residential and hospitality real estate in the Philadelphia, Pennsylvania; Washington, DC; ~~Philadelphia~~Wilmington, ~~Pennsylvania~~ Delaware; Baltimore, Maryland; ~~Ocean~~Delaware ~~City,~~ and Maryland Eastern Shore; ~~Wilmington~~Houston, ~~Delaware~~Texas; ~~Orlando,~~ ~~Florida~~ and the Tampa and Orlando, Florida, metropolitan areas.

The accompanying unaudited ~~consolidated~~ condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“GAAP”) ~~for~~ for interim financial information and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for ~~complete~~ complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair ~~presentation~~ presentation have been included. The results of operations for the three months ended March 31, ~~2005~~ 2007, are not necessarily indicative of the results that may be expected for the full year. These consolidated financial statements should be read in conjunction with our audited Consolidated Financial Statements and Notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

~~PRINCIPLES~~These OFcondensed ~~CONSOLIDATION~~consolidated financial statements should be read in conjunction with our audited Consolidated Financial Statements and Notes thereto, included in our Annual Report on Form 10-K/A for the year ended December 31, 2006.

~~Our~~PRINCIPLES ~~consolidated financial~~OF statements include the accounts of Bresler & Reiner, Inc., our wholly owned subsidiaries, and entities which we control or, entities that are required to be consolidated under Financial Accounting Standards Board Interpretation No. 46R (“FIN 46R”). All significant intercompany balances and transactions have been eliminated in consolidation.CONSOLIDATION

~~REVENUE~~Our ~~RECOGNITION~~condensed consolidated financial statements include the accounts of the Company, our wholly owned subsidiaries, and entities which we control or, entities that are required to be consolidated under Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46R Consolidation of Variable Interest Entities. Entities which we do not control or entities that are not to be consolidated under FIN 46R and over whom we exercise significant influence, are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated in consolidation.

~~Real~~USE ~~estate~~OF sales—Gains on sales of homes and land parcels are recognized pursuant to the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 66, “Accounting for Sales of Real Estate.” Revenues and cost of sales are recorded at the time each home or land parcel is closed and title and possession have been transferred to the buyer.ESTIMATES

~~Rentals—we~~The ~~recognize~~preparation ~~rental~~of financial ~~revenue~~statements in ~~accordance~~conformity with GAAP requires management to make ~~SFAS~~estimates ~~No. 13~~and assumptions that affect the stated amounts of assets, liabilities, ~~“Accounting~~revenues, ~~for~~and ~~Leases~~expenses presented in the financial statements, as well as the disclosures relating to contingent liabilities.” ~~SFAS~~Consequently, actual Noresults could differ from those estimates that have been reported in our consolidated financial statements. 13 ~~requires~~Critical accounting policies that require ~~revenue~~the beuse ~~recognized~~of onestimates aand ~~straight-line~~significant ~~basis~~judgment ~~over~~include the ~~term~~allocation of purchase prices and assignment of useful lives for property acquisitions; the recording ~~lease~~of cost of sales for development projects; the determination of ~~operating~~consolidation ~~leases~~methodology for joint ventures; the valuation of assumed debt; the valuation of guarantees related to debt on entities that we do not consolidate; and the recording of impairment losses if applicable.

~~Hospitality—we recognize hospitality revenue as services are provided.~~RECLASSIFICATIONS

~~Rental~~Certain ~~and~~amounts ~~management~~reported ~~fees—we~~in ~~recognize~~the ~~rental~~2006 ~~and~~consolidated ~~management~~financial ~~fees~~statements ashave ~~services~~been ~~are~~reclassified ~~provided~~to conform to the current year presentation related to assets held for sale and discontinued operations.

~~RENTAL PROPERTY AND EQUIPMENT~~6

~~Rental property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, generally 39~~BRESLER ~~years~~& ~~for buildings and three to 10 years for furniture~~REINER, ~~fixtures and equipment~~INC. ~~Replacements~~NOTES ~~and renovations~~TO ~~that~~CONDENSED ~~extend~~CONSOLIDATED ~~the~~FINANCIAL ~~useful~~STATEMENTS ~~life~~(Continued) ~~of an asset are capitalized and depreciated over their estimated useful lives. Depreciation expense totaled $2,116,000 and $1,713,000 for the three months ended March 31, 2005 and 2004, respectively.~~UNAUDITED

62. NEW ACCOUNTING PRONOUNCEMENTS

~~BRESLER &~~In September ~~REINER~~2006, ~~INC.~~the ~~NOTES~~FASB TOissued ~~CONSOLIDATED~~Statement ~~FINANCIAL~~No. ~~STATEMENTS~~157 Fair Value Measurements (~~Continued~~“SFAS No. 157”). SFAS No. 157 provides guidance for, among other things, the definition of fair value, establishes a framework for measuring fair value and provides guidance on additional required disclosures of fair value measurement. The provisions of SFAS No. 157 are effective for us on January 1, 2008. Management will evaluate the impact of this new standard on our consolidated financial statements at the time of adoption.

~~Upon~~In ~~acquisitions~~February 2007, ofthe ~~real~~FASB ~~estate,~~issued weStatement ~~assess~~No. 159, The ~~the~~Fair ~~fair value~~Value ofOption ~~acquired~~for ~~assets~~Financial ~~(including~~Assets and ~~land,~~Financial ~~buildings~~Liabilities ~~and~~(“SFAS ~~improvements,~~No. 159”) ~~and~~which provides ~~identified~~companies ~~intangibles~~with ~~such~~an asoption ~~above~~to ~~and~~report ~~below~~selected ~~market~~financial ~~leases~~assets and ~~acquired~~liabilities at ~~in-place~~fair ~~leases~~value. ~~and~~The ~~tenant~~standard’s ~~relationships)~~objective ~~and~~is ~~acquired~~to ~~liabilities~~reduce ~~in accordance~~both ~~with~~complexity ~~SFAS~~in ~~No. 141,~~accounting for ~~“Business~~financial ~~Combinations”~~instruments and ~~SFAS~~the ~~No. 142, “Goodwill~~volatility ~~and~~in ~~Other~~earnings ~~Intangible~~caused ~~Assets”~~by ~~and~~measuring related ~~allocate~~assets ~~purchase~~and ~~price~~liabilities ~~based~~differently. ~~on these~~SFAS ~~assessments~~No. 159 Wealso ~~assess~~establishes presentation ~~fair~~and ~~value~~disclosure ~~based~~requirements ondesigned ~~estimated~~to ~~cash~~facilitate ~~flow~~comparisons ~~projections~~between companies that ~~utilize~~choose ~~appropriate~~different ~~discount~~measurement ~~and~~attributes ~~capitalization~~for ~~rates and~~similar ~~available~~types ~~market~~of ~~information.~~assets ~~Estimates~~and ofliabilities. ~~future~~SFAS ~~cash~~No. 159 ~~flows~~is ~~are~~effective ~~based~~for onus aon ~~number~~January 1, of2008. ~~factors~~Management ~~including~~will evaluate the ~~historical~~impact ~~operating~~of ~~results,~~this ~~known~~new ~~trends, and~~standard ~~market~~on ~~conditions~~our ~~that~~consolidated ~~may~~financial ~~affect~~statements at the ~~property~~time of adoption.

~~In accordance with SFAS No~~3. ~~144,~~ SIGNIFICANT ~~“Accounting for the Impairment or Disposal of Long-Lived Assets”~~TRANSACTIONS, weACQUISITIONS ~~evaluate the~~AND recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured based on net, undiscounted expected cash flows. Assets are considered to be impaired if the undiscounted expected cash flows are less than the carrying amount of the assets. Impairment charges are recorded based upon the difference between the carrying value of the asset and its fair value.DISPOSITIONS

~~PROPERTY~~During ~~AND~~the ~~LAND~~three months ended March 31, 2007, we ~~DEVELOPMENT~~entered into several significant transactions as described below. All acquisitions of real estate and investments in joint ventures have been included in our accompanying statements of operations from the date of the transaction forward and any gain or loss on sale of assets has been calculated and recorded as of the date of the disposal. All the acquisitions have been consolidated into our condensed consolidated financial statements.

When construction commences, costs are recorded in property and land development where they are accumulated by project. Project costs included in property and land development include materials and labor, capitalized interest and property taxes. These costs are charged to costs of homes and lots sold based on either the specific identification method or the relative sales value method, whichever is more appropriate, in accordance with SFAS No.ACQUISITIONS—COMMERCIAL ~~67, “Accounting for Costs and~~& ~~Initial Rental Operations of Real Estate Projects.” We review our accumulated costs to ensure that any costs in excess of net realizable value are charged to operations when identified.~~RESIDENTIAL

~~LAND~~Westbury ~~HELD~~In ~~FOR~~January 2007, ~~INVESTMENT~~we acquired a 366 unit resident apartment community located in Lake Brandon, Florida for a purchase price of $42,050,000. In February 2007, we placed a ten-year $36,000,000 mortgage loan on the property, bearing interest at 6.03%. Approximately $7,100,000 of the loan proceeds were held back by the lender and will be released upon the property achieving certain occupancy levels and debt service coverage ratio results. Interest-only payments are due during the first five years of the loan term.

~~Land~~14800 ~~held~~St. ~~for~~Mary’s ~~investment~~Lane In February 2007, iswe ~~recorded~~acquired atan ~~cost~~85,000 ~~and~~square ~~reviewed~~foot commercial office building located in Houston, Texas for ~~impairment~~a ~~when~~purchase ~~such~~price ~~indicators~~of ~~arise~~$9,650,000. ~~If determined~~Subsequent to bethe ~~impaired~~purchase in February 2007, itwe isplaced ~~recorded~~a atten-year ~~its~~$8,200,000 ~~estimated~~mortgage ~~fair~~loan ~~value~~on the building bearing a fixed interest rate of 5.75%. The loan requires interest-only payments during the first five years of the loan term.

~~INVESTMENTS~~14825 INSt. ~~AND~~Mary’s Lane In February 2007, ~~ADVANCES~~we TOacquired ~~JOINT~~a ~~VENTURES~~45,000 square foot commercial office building located in Houston, Texas for a purchase price of $4,845,000. In March 2007, we placed a ten-year $4,200,000 mortgage loan on the building bearing a fixed interest rate of 5.67%. The loan requires interest-only payments during the first three years.

~~For~~SIGNIFICANT entities that are not deemed to be variable interest entities (“VIEs”), as set forth in FIN 46R, we account for our investments in these joint ventures in accordance with Statement of Position No. 78-9, “Accounting for Investments in Real Estate Ventures” and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” For entities in which we have a controlling interest, we consolidate the investment and a minority interest is recognized in our consolidated financial statements. Minority interest in the balance sheet represents the minority owners’ share of equity as of the balance sheet date; minority interest in the statements of operations represents the minority owners’ share of the income or loss of the consolidated joint venture. For entities in which we exercise significant influence but do not control, we account for our investment using the equity method of accounting and do not consolidate the investment. We evaluate control primarily based on the investors’ relative voting rights in the joint venture and the investment is accounted for as described above.TRANSACTION

~~For~~Waterfront ~~entities~~Complex In October 2002, ~~that~~B&R ~~are~~Waterfront ~~deemed to~~Properties beLLC ~~VIEs~~(“BRW”), asa ~~set~~54% ~~forth~~owned subsidiary inof ~~FIN 46R~~ours, weformed ~~account~~a ~~for~~joint ~~our~~venture, ~~investments~~called inWaterfront ~~joint ventures~~Associates ~~based~~LLC on(“WALLC”), with aK/FCE ~~determination~~Investment ofLLC ~~the~~(“K/FCE”), ~~entity’s~~to ~~primary~~redevelop ~~beneficiary.~~and Ifreposition ~~we are~~ the ~~primary~~Waterfront Complex. ~~beneficiary~~BRW ~~through~~contributed ~~being~~the ~~subject~~leasehold toimprovements and a ~~majority~~ground oflease ~~the~~expiring ~~potential variability~~ in ~~gains~~2058, orrelating ~~losses~~to of the ~~VIE,~~Waterfront Complex to

BRESLER & REINER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) UNAUDITED

~~then we consolidate our investment in the joint venture~~3. SIGNIFICANT IfTRANSACTIONS, weACQUISITIONS ~~are~~AND ~~not the primary~~DISPOSITIONS ~~beneficiary then we do not consolidate our investment in the joint venture.~~(Continued)

~~INVESTMENTS~~WALLC. Based on the terms of the agreement K/FCE has the right, subject to certain conditions, to increase its ownership in the joint venture up to 50% by the making of capital contributions or by causing the joint venture to make capital distributions. K/FCE, as the managing member of WALLC, has sole responsibility for the management, control, and operation of the WALLC, as well as for the formulation and execution of its business and investment policy.

~~Investments~~In ~~consist~~March 2007, in accordance with an amended and ~~principally~~restated operating agreement of ~~investments~~WALLC, inK/FCE ~~municipal~~exercised ~~obligations.~~its ~~Our~~right ~~investments~~to ~~are~~increase its ~~classified~~ownership asinterest ~~trading.~~in ~~Trading~~the ~~securities~~joint ~~are~~venture ~~recorded~~to at50% ~~fair~~by ~~value~~making a $25,000,000 contribution to WALLC with ~~unrealized~~ ~~holding~~such ~~gains~~amount ~~and~~distributed ~~losses~~by ~~included~~WALLC into ~~earnings~~BRW (“equalization payment”). AtThe ~~March 31~~equalization payment is in addition to $23,000,000 that K/FCE ~~2005~~has ~~and~~either ~~December 31,~~contributed ~~2004,~~or ~~cost~~has ~~approximated~~committed ~~fair~~to ~~value~~contribute ~~for~~to ~~these securities~~WALLC. AtBRW ~~March 31~~recorded an $18,721,000 ~~2005~~gain ~~and~~related ~~December 31,~~to ~~2004~~the equalization payment, representing the difference ~~total~~between the proceeds received and the proportionate cost of the real ~~these~~estate ~~investments~~underlying the partnership interest that ~~were~~was ~~short~~effectively ~~term~~sold to K/FCE. The gain is included in ~~nature~~gain ~~with~~on ~~maturities~~sale of ~~less~~investments ~~than~~in joint ventures with an ~~one~~offsetting ~~year,~~minority ~~were~~interest ~~$39,182,000~~expense ~~and~~of $348,~~748~~612,000, ~~respectively~~in the accompanying consolidated statements of operations.

~~DEFERRED CHARGES AND OTHER ASSETS~~DISPOSITIONS

~~Included~~Inn inat ~~deferred~~the ~~charges~~Colonnade ~~are fees incurred in~~In ~~connection~~January 2007, ~~with~~we ~~obtaining~~sold ~~financing~~the ~~for~~Inn ~~our~~at ~~real~~the ~~estate.~~Colonnade, ~~These fees are deferred and amortized as~~ a ~~part~~125 ofroom ~~interest~~hotel ~~expense~~located in ~~over~~Baltimore, ~~the~~Maryland, ~~term~~for of$15,000,000 ~~the related~~and ~~debt~~recorded ~~instrument on~~ a ~~straight~~pre-~~line~~tax ~~basis,~~gain ~~which~~on ~~approximates~~sale ~~the effective~~of ~~interest~~$7,409,000, ~~method.~~net Inof ~~addition,~~debt ~~deferred~~extinguishment costs. ~~include~~The ~~leasing~~sale ~~charges,~~generated ~~comprised~~net proceeds of ~~tenant~~approximately ~~allowances and lease commissions incurred to originate a lease~~$4,194,000 ~~which are~~after ~~amortized~~defeasance ~~on a straight-line basis over the term~~ of the ~~related~~existing ~~lease~~debt.

~~The~~1105 ~~application~~Market ofStreet ~~SFAS No. 141~~In ~~“Business Combinations” and SFAS No.~~February ~~142~~2007, ~~“Goodwill~~we ~~and~~sold ~~Other~~1105 ~~Intangible Assets”~~Market ~~(together~~Street, ~~“SFAS~~a ~~Nos.~~173,000 ~~141~~square ~~and 142”) to real estate acquisitions requires~~foot uscommercial tooffice ~~allocate~~building ~~the~~located ~~purchase price to acquired~~ in~~-place~~ ~~leases~~Wilmington, inDelaware, ~~addition~~for ~~to land~~$18,500,000. ~~building and improvements based on~~ At the ~~relative~~time ~~fair values~~ of the ~~assets and~~sale ~~liabilities acquired. In order to determine~~ the ~~amount~~sales ~~of the purchase~~ price toapproximated ~~be allocated to~~ the ~~acquired~~carrying ~~leases, we are required to make several assumptions regarding the relative~~ value of the ~~in-place leases when compared~~ toproperty, ~~the current market. Some of the judgments required~~ as aadjusted ~~part~~for ofimpairment. ~~this exercise~~The ~~include~~sale ~~(1) determining~~proceeds ~~the~~were ~~market~~used ~~rental~~to ~~rates~~help ~~of the acquired~~repay ~~leases, (2) estimating~~ the ~~market~~outstanding ~~value~~loan ~~of concessions (including rent concessions and tenant improvement allowances) and leasing commissions to be paid~~ on ~~new leases, (3) estimating an appropriate lease-up period and (4) applying an estimated risk-adjusted discount rate to~~ the ~~existing~~property ~~tenants’~~of ~~leases~~$19,000,000.

~~USE~~Madison OFBuilding ~~ESTIMATES~~In February 2007, we sold our 25% interest in Madison Building, an 82,000 square foot commercial office building located in McLean, Virginia, for $4,000,000 and recorded a pre-tax gain on sale of $2,820,000 that is included in gain on sale of investments in joint ventures in the accompanying condensed consolidated statements of operations.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the stated amounts of assets, liabilities, revenues, and expenses presented in the financial statements, as well as the disclosures relating to contingent liabilities4. ~~Consequently, actual results could differ~~ INVESTMENTS ~~from~~IN ~~those~~AND ~~estimates~~ADVANCES ~~that~~TO ~~have~~JOINT ~~been reported in our financial statements.~~VENTURES

~~RECLASSIFICATIONS~~At March 31, 2007, our investments in non-consolidated joint ventures and partnerships consisted of the following:

Certain amounts in the 2004 consolidated financial statements have been reclassified to conform to the current year presentation.

Joint Venture	Ownership Percentage(1)
Guilford Properties Master LLC (“Guilford Properties”)		51%
Holliday Properties Master LLC (“Holliday Properties”)		51%
Redwood Commercial Management, LLC (“Redwood Commercial”)		50%
Tech-High Leasing Company (“Tech-High Leasing”)		50%
Selborne House at St. Marks Owner, LLC (“Arbor Crest”)		33%
Waterfront Associates, LLC (“WALLC”)(2)		27%	(3)
Venice Lofts Associates LP (“Venice Lofts”)		22%
Symphony House Associates LP (“Symphony House”)		22%
B&R Devon Square Owner, LP (“Devon Square”)		6%

~~EARNINGS~~(1) Represents ~~PER~~our ~~COMMON~~effective ~~SHARE~~ownership of the underlying property.

We have no dilutive securities; therefore, basic and fully diluted earnings per share are identical. Weighted average common shares outstanding were 5,477,212 for both the three months ended March 31, 2005 and 2004 (restated for a 2-for-1 stock split, affected in the form of a stock dividend in 2004).8

8BRESLER & REINER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) UNAUDITED

~~BRESLER &~~4. INVESTMENTS ~~REINER,~~IN ~~INC.~~AND ~~NOTES~~ADVANCES TO ~~CONSOLIDATED~~JOINT ~~FINANCIAL STATEMENTS~~ VENTURES (Continued)

~~COMPREHENSIVE~~(2) Beginning March 31, ~~INCOME~~2004, BRW consolidated the assets, liabilities and operations of WALLC, in accordance with FIN 46R because WALLC was deemed to be a variable interest entity and we were deemed to be the primary beneficiary of the entity. Subsequent to the equalization payment, as described above, we reassessed the designation of primary beneficiary of WALLC and determined that BRW was no longer the primary beneficiary since K/FCE is subject to a majority of the potential variability in gains and losses of the entity. We have therefore accounted for BRW’s investment in WALLC under the equity method as of March 1, 2007. As a result, total assets in our consolidated balance sheet decreased by $26,913,000, total liabilities decreased by $713,000 and minority interest liability decreased by $26,200,000.

~~Except~~(3) The ~~for~~Company ~~net~~owns ~~income,~~a we54% dointerest ~~not~~in ~~have any items impacting comprehensive income. Therefore~~BRW, ~~comprehensive income~~which ~~and~~owns ~~net~~a ~~income~~50% ~~are~~interest ~~the~~in ~~same~~WALLC.

~~2. SIGNIFICANT~~Below are ~~TRANSACTIONS,~~condensed ~~ACQUISITIONS~~combined balance sheets for our unconsolidated joint venture ~~AND~~entities ~~INVESTMENTS~~as of March 31, 2007 and December 31, 2006 (in thousands):

During the first quarter ended March 31, 2005 we entered into several material transactions as described below. All acquisitions of real estate and investments in joint ventures have been included in our accompanying statements of operations from the date of the transaction forward.

	March 31, 2007		December 31, 2006
ASSETS
Cash	$	3,106		$	3,138
Property under development	202,840			141,601
Rental property and equipment	29,981			39,588
Other assets	3,982			4,391
Total assets	$	239,909		$	188,718
LIABILITIES AND MEMBERS’ EQUITY
Mortgages and notes	$	151,195		$	137,677
Other liabilities	20,589			18,498
Total liabilities	171,784			156,175
Members’ equity	68,125			32,543
Total liabilities and members’ equity	$	239,909		$	188,718
Company’s interest in members’ equity(1)	$	40,163		$	29,366

~~1105 Market Street On February 15,~~(1) Included ~~2005 we acquired a 173,000 square foot commercial office building located~~ in ~~Wilmington,~~ ~~Delaware, for a purchase price of $20,700,000. At~~ the ~~time~~Company’s ofinterest ~~the acquisition~~in wemembers’ ~~placed~~equity ais $192,~~000~~199,000 ~~mortgage loan on the building. The loan bears interest~~ at ~~one-month LIBOR plus 195 basis points. We have provided a guarantee for the entire loan balance. We anticipate spending between $3~~March 31,~~000,000~~ 2007 and $42,~~000~~202,000 onat ~~renovations~~December 31, ~~and~~2006 ~~tenant~~of ~~improvements.~~equity Wefrom ~~have consolidated~~ the ~~property’s~~ ~~assets and liabilities and results of operations in our consolidated~~Trust ~~financial~~Preferred ~~statements~~Securities.

Devon Square On February 10, 2005, together with an unaffiliated third party investor, we acquired two commercial office buildings containing a total of 140,000 square feet of office space, located in Devon, Pennsylvania. The ~~purchase~~difference ~~price~~between of the ~~buildings was~~ ~~$17,109,000.~~carrying Inamount ~~connection~~of ~~with~~our ~~the~~investment ~~purchase, we entered into a tenant-~~in~~-common~~ ~~agreement~~joint ~~with~~ventures ~~the third party investor, whereby each party is an equal tenant-in-common of the buildings. At the time of the acquisition, a $21,350,000 acquisition~~ and ~~construction~~our ~~loan~~accumulated ~~was obtained, $12,451,000 of~~membership ~~which~~interest ~~was~~noted ~~drawn~~above ~~down~~is atprimarily ~~the~~due ~~closing.~~to ~~The~~capitalized ~~loan bears~~ interest aton ~~the~~our ~~higher of~~investment ~~the~~balance ~~lender’s prime rate or the federal funds rate plus one-half percent and matures~~ in ~~August 2007.~~joint Itventures ~~is anticipated~~ that ~~approximately~~own ~~$8,900,000 will~~real beestate ~~expended~~under indevelopment ~~2005 on capital improvements, tenant improvements~~ and ~~leasing~~ ~~commissions related to~~ the ~~renovation~~fair value ~~and further lease-up~~ of ~~the buildings,~~loan ~~with~~guaranties ~~such~~we ~~amounts~~have ~~funded through draws on the loan~~provided. WeThe ~~and~~capitalized ~~the outside~~interest ~~investor~~is ~~each contributed $2,667,000 to fund the acquisition. We have~~expensed ~~accounted~~as ~~for our investment in Devon Square using~~ the ~~equity~~development ~~method~~units inare ~~our consolidated financial statements~~sold.

Crisfield In January and March 2005 we invested a total of $2,500,000 for a 51% interest in an entity that owns a parcel of undeveloped land which is subdivided into 232 residential lots, in Crisfield, Maryland. An unaffiliated third party owns the remaining membership interest in the entity. The entity intends to develop the land as lots to be sold to a homebuilder. The entity purchased the parcel for approximately $10,250,000, which was funded by an $8,321,000 drawdown on an $11,700,000 acquisition and development loan and a $2,500,000 deposit from a homebuilder. The loan bears interest at one month LIBOR plus 275 basis points and matures in January 2008. We have consolidated the entity’s assets and liabilities and results of operations in our consolidated financial statements.9

9BRESLER & REINER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) UNAUDITED

~~BRESLER & REINER, INC~~4. INVESTMENTS IN ~~NOTES~~AND ADVANCES TO ~~CONSOLIDATED~~JOINT ~~FINANCIAL~~VENTURES ~~STATEMENTS~~ (Continued)

~~Pro-Forma Results~~Below ofare ~~Operations—Unaudited The~~condensed ~~following~~combined ~~unaudited pro-forma~~ statements ~~reflect our results~~ of operations for ~~as if~~ our ~~material acquisition,~~unconsolidated ~~Ft.~~joint ~~Washington,~~venture inentities ~~2004~~for ~~had occurred on~~ the ~~first day of the~~ periods ~~presented~~indicated (in thousands~~, except earnings per share amounts~~):

	Pro-forma Three Months Ended March 31,
	Three Months Ended March 31,
	2005			2004
	2007					2006
Operating revenues	$	~~30,436~~$	1,496	$	~~15,092~~		$	3,096
Net income	$	881		$	286
Operating expenses		818					1,546
Earnings per common share	$	0.16		$	0.05
Interest expense		234					872
Depreciation and amortization expense		298					648
Net income		$	146				$	30
Company’s equity in earnings of unconsolidated joint ventures		$	127				$	142

~~These~~5. OTHER ~~unaudited~~ASSETS ~~pro-forma results~~AND ~~have been prepared for comparative purposes only and do not purport to~~OTHER ~~be indicative of the results of operations which would have actually resulted had the acquisitions been effective on the first day of the periods presented.~~LIABILITIES

3In recording our acquisitions of rental properties, we have established intangible assets and intangible liabilities. ~~INTANGIBLE~~ The following table summarizes these intangible assets ~~ASSETS~~and liabilities as of the dates presented (in thousands):

As a result of adopting SFAS Nos. 141 and 142, we have intangible in-place lease assets and intangible in-place lease liabilities. The following table summarizes these intangible assets and liabilities as of the dates presented (in thousands):

	March 31, 2007					December 31, 2006
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquired in-place lease assets	$	47,233		$	24,211	$	47,408		$	21,626
Acquired in-place lease liabilities	11,305			4,639		12,182			4,446

	March 31, 2005					December 31, 2004
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquired in-place lease assets	$	20,995		$	8,402	$	19,110		$	6,838
Acquired in-place lease liabilities	5,848			1,780		2,783			1,204

The amortization of acquired in-place lease assets included in depreciation and amortization expense, totaled $2,686,000 and $2,264,000 for the three months ended March 31, 2007 and 2006, respectively.

The amortization of acquired above and below-market-in-place ~~lease~~ ~~assets~~leases, included as ina ~~depreciation~~net ~~and~~increase ~~amortization~~in ~~expense~~revenues, totaled $1322,~~138,~~000 and $~~468~~446,000 for the three months ended March 31, ~~2005~~2007 and ~~2004~~ 2006, respectively.

The ~~amortization~~estimated annual amortization of acquired above and below-market~~-in-place lease~~ ~~assets, net of acquired~~ in-place ~~lease~~leases ~~liabilities,~~to be included as a ~~net~~ net increase in revenues ~~totaled~~for ~~$226,000~~each ~~and~~of ~~$87,000 for~~ the ~~three~~next ~~months ended~~five ~~March 31,~~fiscal ~~2005~~years ~~and~~is ~~2004,~~as ~~respectively.~~follows (in thousands):

The estimated annual amortization of acquired in-place lease assets, net of acquired below-market-in-place lease liabilities to be included as a net reduction in revenues for each of the five fiscal years is as follows (in thousands):

2008	$	755
2009	928
2010	478
2011	409
2012	193

2005	$	833
2006	675
2007	541
2008	571
2009	411

The estimated annual amortization of acquired in-place lease assets to be included in depreciation and amortization expense for each of the next five fiscal years is as follows (in thousands):

2008	$	5,382
2009	3,534
2010	2,111
2011	1,517
2012	676

~~BRESLER & REINER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~10

~~The estimated~~BRESLER & ~~annual~~REINER, ~~amortization~~INC. ofNOTES ~~acquired~~TO ~~in-place~~CONDENSED ~~lease~~CONSOLIDATED ~~assets~~FINANCIAL toSTATEMENTS ~~be included in amortization expense for each of the five fiscal years is as follows~~ (~~in thousands~~Continued): UNAUDITED

2005	$	3,295
2006	2,785
2007	2,129
2008	1,429
2009	806

6. MORTGAGE AND CONSTRUCTION LOANS AND OTHER DEBT

4. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

Property(1)	Interest Rate(2)	Maturity		March 31, 2007(3)			December 31, 2006(3)
Fort Washington	5.60%		2014		$	47,066		$	47,249
Victoria Place Apartments(4)	5.73%		2017		46,000			32,341
The Fountains at Waterford Lakes	5.45%		2010		39,500			39,500
Valley Square	6.30%		2016		37,500			37,500
Westbury	6.03%		2017		36,000			—
919 Market Street	5.52%		2015		35,600			35,600
Blue Bell Plaza	5.65%		2016		29,800			29,800
Red Mill Pond—Development Loans	Lender’s Prime		2008		25,719			24,488
Red Mill Pond—Promissory Note	6.00%		2012		8,115			8,115
Sudley N. Bldgs. A, B, C, and Bank Bldg.(4)	5.75%		2017		18,500			11,108
Versar Center	6.18%		2013		17,559			17,626
Mearns Park	6.17%		2016		16,500			16,500
West Germantown Pike	5.90%		2033		15,565			15,626
One Northbrook	5.75%		2014		14,714			14,770
Cross Keys	6.33%		2016		14,500			14,500
Huntington at Sundance(5)	7.28%		2039		14,425			14,454
Wynwood	5.62%		2016		11,800			11,800
510 Township Road	LIBOR + 200 basis pts.		2009		10,760			10,760
900 Northbrook	5.98%		2013		10,752			10,792
10333 Harwin Drive	5.78%		2016		10,497			10,532
Sudley N. Building D(4)	5.75%		2017		10,400			6,114
Fort Hill(4)	5.75%		2017		10,400			5,428
Crisfield	LIBOR + 200 basis pts.		2008		10,289			11,700
102 Pickering Way(5)	6.50%		2013		9,904			9,940
Seaside	Lender’s Prime Rate		2007		9,554			12,813
Commerce Park North	6.14%		2016		9,400			9,400
1150 Northbrook Development	LIBOR + 170 basis pts.		2009		8,219			4,103
14800 St. Mary’s Lane	5.75%		2017		8,200			—
400 South Philadelphia Avenue	Lender’s Prime + 100 basis pts.		2007		6,400			6,400
9950 Westpark	6.37%		2016		6,324			6,342
1120 NASA Parkway(5)	5.41%		2015		5,189			5,208
17043-49 El Camino	5.78%		2016		5,007			5,024
950 Threadneedle	5.75%		2017		4,300			—
14825 St. Mary’s Lane	5.67%		2017		4,200			—
8700 Commerce Drive(5)	5.24%		2015		3,795			3,809
Sudley South Building No. III	LIBOR + 165 basis pts.		2008		3,701			2,855
Holiday Inn Express	7.88%		2011		3,482			3,500
1110 NASA Parkway(5)	5.55%		2014		3,395			3,408
1100 NASA Parkway(5)	6.12%		2012		2,819			2,830
1717 Portway Plaza(5)	5.75%		2013		2,700			2,711
Total mortgage and construction loans					$588,550			$	504,646
Junior subordinated notes—Series I (unsecured)	8.37%		2035		41,238			41,238
Junior subordinated notes—Series II (unsecured)	9.02%		2036		30,930			30,930
Corporate	LIBOR + 250 basis pts.		2009		4,000			4,000
Other	(6)		(6)		1,409			1,409
Total mortgage and construction loans and other debt before debt related to assets held for sale					$	666,127		$	582,223
Debt Related to Assets Held For Sale
1105 Market Street	LIBOR + 195 basis pts.		2007		—			19,000
Inn at the Colonnade	7.45%		2011		—			9,458
Total mortgage and construction loans and other debt and debt related to assets held for sale					$	666,127		$	610,681

At(1) Note ~~March 31, 2005,~~is ~~our~~secured ~~investments~~by inthe ~~non-consolidated~~property, ~~joint~~unless ~~ventures and partnerships~~otherwise ~~consisted of the following:~~noted.

Joint Venture	Ownership Percentage
1925 K Associates LLC (“1925 K Street”)		85	%
WBP Undeveloped Land (“WBP Undeveloped Land”)		80	%
Redwood Commercial Management, LLC (“Redwood Commercial”)		50	%
Tech-High Leasing Company (“Tech-High Leasing”)		50	%
Devon Square		50	%
Selborne House at St. Marks Owner, LLC (“Arbor Crest”)		33	%
Madison Building Associates, LLC (“Madison Building”)		25	%

~~Below~~BRESLER & ~~are~~REINER, ~~condensed balance~~INC. ~~sheets~~NOTES ~~for~~TO ~~our~~CONDENSED ~~unconsolidated~~CONSOLIDATED ~~joint~~FINANCIAL ~~venture~~STATEMENTS ~~entities as of March 31, 2005 and December 31, 2004~~ (~~in thousands~~Continued): UNAUDITED

	March 31, 2005			December 31, 2004
ASSETS
Cash		$	2,042		$	1,348
Land held for investment		5,704			5,432
Land, building and equipment, net		70,861			77,654
Other assets		4,832			1,276
Total assets		$	83,439		$	85,710
LIABILITIES AND MEMBERS’ EQUITY
Mortgages and notes		$	58,726		$	39,366
Other liabilities		6,227			5,527
Total liabilities		64,953			44,893
Members’ equity		18,486			40,817
Total liabilities and members’ equity		$	83,439		$	85,710
Company’s interest in members’ equity		$	12,649		$	9,738

6. MORTGAGE AND CONSTRUCTION LOANS AND OTHER DEBT (Continued)

11(2) LIBOR rate is the one-Month LIBOR rate which was 5.32% and 5.35% at March 31, 2007 and December 31, 2006 respectively.

~~BRESLER &~~(3) Generally ~~REINER,~~our ~~INC.~~mortgage ~~NOTES~~loans TOhave ~~CONSOLIDATED~~10-year ~~FINANCIAL~~terms and ~~STATEMENTS~~30-year ~~(Continued)~~amortization schedules.

~~The~~(4) Note ~~difference~~was ~~between~~defeased ~~the~~and ~~carrying~~new ~~value~~financing ofwas ~~our investment~~obtained in ~~unconsolidated joint ventures and partnerships and our~~ ~~accumulated~~2007. ~~membership~~The interest ~~noted~~rate ~~above~~and ismaturity ~~primarily~~date ~~due~~reflect tothe ~~capitalized interest~~terms onof ~~our~~the ~~investment~~new ~~balance in joint ventures that own real estate under development~~loan.

~~Below are~~(5) The ~~condensed~~debt ~~statements~~shown ~~of operations~~ for ~~our~~these ~~unconsolidated~~properties ~~joint~~does ~~venture entities~~not ~~for~~ include the ~~periods~~related ~~indicated~~premium ~~(in~~or ~~thousands):~~discount.

	Three Months Ended March 31,
	2005			2004
Operating revenues		$	2,669		$	3,875
Operating expenses		1,366			2,040
Interest expense		558			503
Depreciation expense		591			548
Net income		154			784
Company’s equity in earnings of unconsolidated joint ventures		$	222		$	457

(6) Represents a deferred purchase money promissory note.

12LOAN FINANCINGS

~~BRESLER~~950 Threadneedle In February &2007, ~~REINER~~we placed a ten-year $4,300,000 ~~INC~~mortgage loan on 950 Threadneedle, bearing interest at 5.75%. ~~NOTES~~Interest-only TOpayments ~~CONSOLIDATED~~are ~~FINANCIAL~~due ~~STATEMENTS~~during the ~~(Continued)~~first five years of the loan term.

~~5. MORTGAGE AND~~LOAN ~~CONSTRUCTION LOANS AND OTHER DEBT (in thousands):~~DEFEASANCES

Property(1)	Interest Rate	Maturity		March 31, 2005		December 31, 2004
Fort Washington	5.60%		2014	$	48,391		$	48,556
Washington Business Park	7.63%		2031	38,877			38,983
Victoria Place Apartments	4.72%		2013	33,308			33,446
The Fountains at Waterford Lakes	5.00%		2007	24,758			24,773
Seaside	Lender’s Prime Rate		2007	19,492			19,095
1105 Market Street	One month LIBOR + 195 basis pts.		2007	19,000			—
Versar Center	6.18%		2013	18,040			18,100
Sudley North Buildings A,B,C,& D and Bank Bldg.	7.47%		2012	17,548			17,597
640 North Broad—acquisition and construction loan	One month LIBOR + 155 basis pts.		2007	9,567			6,000
640 North Broad—bridge loan	One month LIBOR + 175 basis pts.		2007	6,900			2,128
West Germantown Pike	5.90%		2033	16,009			16,064
One Northbrook	5.75%		2014	15,116			15,166
Laguna Vista	One month LIBOR + 185 basis pts.		2005	12,450			10,236
900 Northbrook	5.98%		2013	11,038			11,073
Baltimore Portfolio (4 Buildings)	One month LIBOR + 175 basis pts.		2006	9,815			9,815
Inn at the Colonnade	7.45%		2011	9,774			9,806
Crisfield	One month LIBOR + 200 basis pts.		2008	8,661			—
Baltimore Portfolio (1 Building)	5.95%		2012	8,414			8,452
Fort Hill	7.70%		2011	5,538			5,554
Charlestown North	6.74%		2012	4,858			4,874
Holiday Inn Express	7.88%		2011	3,612			3,627
Golfview	One month LIBOR + 175 basis pts.		2007	2,924			10,385
Sudley South	One month LIBOR + 275 basis pts.		2006	451			—
Cigar Factory	One month LIBOR + 275 basis pts.		2005	—			1,566
Total mortgage and construction loans				344,541			315,296
Unsecured Loan to B&R(2)	One month LIBOR + 195 basis pts.		2005	6,000			6,000
Acquisition Line of Credit(3)	One month LIBOR + 175 basis pts.		2005	7,874			7,874
Other debt	(4)		(4)	10,209			—
Total mortgage and construction loans and other debt				$	368,624		$	329,170

In the first quarter of 2007 we defeased three mortgage loans collateralized by our properties by purchasing US Treasury Securities (“Securities”). These Securities, whose cash flow is structured to match the principal and interest payments due under the respective mortgage notes, were placed in trusts for the sole purpose of funding these payments under the mortgage notes. Since the transactions were structured as legal defeasances, in accordance with SFAS No. 140, Accounting for Transfers on Servicing of Financial Assets and Liabilities, the mortgage notes payable were accounted for as having been extinguished. Following is a description of the mortgage loans that were defeased:

~~(1) Note~~Victoria Place isIn ~~secured~~February 2007, we defeased the $32,249,000 loan collateralized by Victoria Place Apartments and placed a ~~related~~$46,000,000 ten-year mortgage loan on the property bearing an interest rate of 5.73%. Interest-only payments are due during the first five years of the loan term. We recorded debt extinguishment costs, net of minority interest, of $684,000 related to the defeasance.

~~(2) Note~~Ft. Hill isIn anMarch 2007, ~~unsecured~~we defeased the $5,418,000 loan tocollateralized by Ft. Hill and placed a $10,400,000 ten-year mortgage loan on the ~~Company~~property bearing a fixed interest rate of 5.75%. Interest-only payments are due during the first five years of the loan term. We recorded debt extinguishment costs, net of minority interest, of $592,054 related to the defeasance.

~~(3) Note~~Sudley North isIn March 2007, we defeased the $17,192,000 loan collateralized by Sudley Buildings A,B,C&D and the Bank Building and placed an ~~unsecured~~$18,500,000 mortgage loan on Sudley Buildings A,B&C and the Bank ~~line~~Building and a $10,400,000 mortgage loan on Sudley Building D. Both the new loans mature in 2017, bear interest at 5.75% and require interest-only payments during the first five years of ~~credit~~the loan term. We recorded debt extinguishment costs, net of minority interest, of $2,139,000 related to the ~~Company~~defeasance.

~~(4) Other debt includes two promissory notes issued during the first quarter of 2005, see descriptions of these notes below.~~12

13BRESLER & REINER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) UNAUDITED

~~BRESLER & REINER, INC~~6. MORTGAGE ~~NOTES~~AND TOCONSTRUCTION ~~CONSOLIDATED~~LOANS ~~FINANCIAL~~AND ~~STATEMENTS~~OTHER DEBT (Continued)

AtWe ~~March 31,~~have ~~2005~~guarantied the ~~one~~debt ~~month~~of ~~LIBOR~~certain ~~rate was~~consolidated 2subsidiaries.~~86%~~ Such guaranties do not increase our consolidated obligations. However, they may under certain conditions provide for accelerated repayments, if requested by the lender.

InWe ~~February 2005,~~have wea ~~borrowed~~ $850,000,000 ~~from Trilon~~line ~~Plaza~~of ~~Company~~credit ~~(“Trilon”),~~that ahad ~~related party and executed a note payable~~no ~~for~~amounts ~~this~~outstanding ~~amount.~~as ~~The note bears interest at a fixed interest rate~~ of ~~10% per annum and matures in February~~March 31, 2007. ~~The note is secured by the 7800 Building and the 5-acre parcel of land immediately adjacent to the property.~~

InSeveral ~~March 2005~~of ~~in connection~~our ~~with~~loans ~~the~~contain ~~purchase~~financial ofcovenants. ~~100%~~The most stringent of ~~the~~these ~~stock~~covenants ofrequire ~~Laguna~~that ~~Vista,~~ we ~~issued~~maintain a minimum net worth of $1130,~~709~~000,000, ~~deferred~~a ~~purchase~~minimum ~~money~~liquidity ~~promissory~~of ~~note.~~$30,000,000, ~~The~~and ~~note~~a isminimum ~~payable~~annual ~~out~~Funds From ofOperations ~~cash~~as ~~proceeds~~defined ~~from~~by the ~~sale~~National Association of ~~Laguna~~Real Estate ~~Vista’s~~Investment ~~condominium~~Trusts ~~units~~and adjusted for income tax expense on property sales, of $15,000,000.

6Included in mortgage and construction loans and other debt on the balance sheets are fair value adjustments on assumed debt. ~~DISCONTINUED~~ ~~OPERATIONS~~The net unamortized fair value premium was $222,000 at March 31, 2007 and $213,000 at December 31, 2006.

InAs ~~December 2004,~~part weof ~~sold to two unaffiliated~~our ~~parties~~construction ~~five~~and ~~commercial~~development ~~properties~~activities, ~~that~~we ~~were~~capitalized ~~leased~~$1,800,000 toand ~~convenience store~~$1,706,000 ~~operators.~~of Weinterest ~~are currently holding~~ for ~~sale~~the three ofmonths ~~the~~ended ~~eight Baltimore properties acquired in November~~March ~~2004.~~31, We2007 ~~have~~and ~~recorded the results of operations of these properties as part of discontinued operations~~2006, ~~in the~~ ~~accompanying consolidated statements of operations~~respectively.

~~The~~7. DISCONTINUED ~~following summary presents the operating results of properties we have classified as discontinued operations (in thousands):~~OPERATIONS

	Three Months Ended March 31,
	2005				2004
Revenues		$	332,000			$	22,000
(Loss)/income before provision for income taxes		$	(12,000	)		$	15,000
Minority interest		11,000				—
Provision for income taxes		—				(6,000		)
(Loss)/income from discontinued operations		$	(1,000	)		$	9,000

The results of operations and gains on sale for 1105 Market Street and the Inn at the Colonnade are included in income from discontinued operations, net of tax and minority interest, for the three months ended March 31, 2007. For the three months ended March 31, 2006, income from discontinued operations, net of tax and minority interest include the results of operations and gains on sale, net of minority interest of the Washington Business Park portfolio, 7800 Building, Charlestown North, and the four remaining properties in the Baltimore Portfolio all of which were sold in 2006, as well as the results of operations of 1105 Market Street and the Inn at the Colonnade.

In January 2007, we sold the Inn at the Colonnade for $15,000,000 and recorded a pre-tax gain on sale of $7,409,000, net of debt extinguishment costs. ~~COMMITMENTS~~ ~~AND~~The ~~CONTINGENCIES~~sale generated net proceeds of approximately $4,194,000 after defeasance of the existing debt.

~~GUARANTEES~~In February 2007, we sold 1105 Market Street, for $18,500,000. At the time of the sale the sales price approximated the carrying value of the property, as adjusted for impairment. The sale proceeds were used to help repay the outstanding loan on the property of $19,000,000.

We have provided an unconditional and irrevocable payment guaranty of $5,500,000 to Wachovia Bank, N.A in connection with a loan made to 1925K Associates, LLC. The loan matures in April 2007, but may be extended for up to an additional two years at the option of the borrower.13

We have provided an unconditional and irrevocable payment guaranty to PNC Bank for 33.3% of the loan balance outstanding under the $7,100,000 construction loan, made to Arbor Crest. The other members of Arbor Crest have guaranteed the remaining balance under the loan. The loan matures in JanuaryBRESLER ~~2006~~& ~~and provides for one 5-year extension option. Our payment guarantee will be reduced to 16.7% of the outstanding loan balance~~REINER, ~~upon Arbor Crest maintaining a debt service ratio of 1~~INC.25 toNOTES ~~1.0~~TO ~~for~~CONDENSED ~~a period~~CONSOLIDATED ofFINANCIAL ~~one~~STATEMENTS ~~year.~~(Continued) ~~At March 31, 2005 the outstanding loan balance totaled $7,046,000.~~UNAUDITED

~~In connection with the $15,100,000 construction loan made by Wachovia Bank, N~~7.A. DISCONTINUED toOPERATIONS Laguna Vista, we have guaranteed the purchase of half of all unpurchased condominium units at Laguna Vista at September 30, 2005 at a total acquisition price that will equate to one half of the outstanding loan balance at that date. At March 31, 2005 the outstanding loan balance totaled $12,450,000.(Continued)

14The following summary presents the combined operating results of and gains on sale from properties we have classified as discontinued operations (in thousands):

BRESLER & REINER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Three Months Ended March 31,
	2007			2006
Revenues	$	7,680		$	11,021
Loss before gain on sale, loss on impairment of assets, minority interest, debt extinguishment costs, and provision for income taxes	$	(497	)	$	(1,189	)
Gain on sale	8,536			6,353
Debt extinguishment costs	(1,127		)	—
Loss on impairment of assets	(507		)	—
Minority interest	—			(4,866		)
Provision for income taxes	(2,562		)	(119		)
Income from discontinued operations, net of tax and minority interest	$	3,843		$	179

~~We have guaranteed repayment of the entire loan balance outstanding under a $15,000,000 mortgage loan made by Wachovia Bank, N~~8.~~A to the entities that own seven of the Baltimore properties. The loan~~ COMMITMENTS ~~matures~~AND ~~in 2006 and provides for two, one-year extension options.~~CONTINGENCIES

We have guaranteed the full amount of the outstanding balance under both the $32,000,000 acquisition and construction loan and the $6,900,000 bridge construction loan made by Wachovia Bank, N.A. to 640 North Broad. Both loans mature in 2007, while the acquisition and construction loan provides for two one-year extension options. At March 31, 2005, the total amount outstanding under the loans totaled $16,467,000.GUARANTIES

WeTogether ~~have~~with ~~guaranteed~~our ~~the~~joint ~~full~~venture ~~amount~~partner, we have guarantied repayment of aup to $739,~~044~~240,000 under the $98,100,000 primary ~~development~~construction loan ~~maturing~~for the Symphony House construction project (in ~~2006~~which affiliates ~~from~~of ~~Wachovia~~the ~~Bank,~~Company Nare investors).A In addition, towe ~~Paradise~~have guarantied ~~Developers~~repayment of the full amount outstanding under the $16,900,000 ~~our~~mezzanine construction ~~wholly-owned~~loan ~~subsidiary~~for the same project. AtThe ~~March 31,~~guarantied ~~2005~~repayment under the primary loan was reduced to $24,525,000 in the ~~balance~~first quarter of 2006 upon the joint venture obtaining in excess of $83,500,000 in sales contracts and will be further reduced to $9,810,000 once net sales proceeds reach 110% of the outstanding ~~under~~principal balance of the loan. ~~was~~Both the primary construction loan and the mezzanine loan mature in 2008. Funding of the guaranty would increase our equity participation in the venture. We have a liability of $~~451~~84,000 included in other liabilities, which is our estimate of the fair value of this guaranty at March 31, 2007.

We have ~~guaranteed~~provided ~~repayment~~a ofguarantee to the ~~entire~~lender on a $8,500,000 mezzanine construction loan for Venice Lofts (in which affiliates of ~~balance~~the ~~outstanding~~Company ~~under~~are ainvestors), that should the interest rate on the project’s $1930,000,000 ~~mortgage~~variable-rate senior construction loan ~~from~~exceed ~~Wells~~6.5%, ~~Fargo~~the todifference between ~~1105~~the interest due and a calculation of interest due based on 6.5% ~~Market~~interest ~~Street~~rate, will be kept current. The amount outstanding under the senior loan ~~matures~~totaled in$23,004,000 at March 31, 2007 and all the loan interest payments were current as of that date.

We have ~~guaranteed~~guarantied repayment of ~~$1,700,000~~the ofentire anloan balance outstanding under a $1121,~~700~~350,000 acquisition and ~~development~~construction loan obtained ~~from~~by ~~Wachovia~~Devon ~~Bank~~Square. NOur equity partner in the venture has provided the same guaranty.A. toFunding ~~Crisfield~~of the guaranty would increase our equity participation in the venture. The loan matures in ~~January~~August ~~2008~~2007. At March 31, ~~2005~~2007, the balance ofoutstanding under the loan ~~was~~ totaled $817,~~661~~213,000. We have a liability of $3,000 included in other liabilities, which is our estimate of the fair value of this guaranty at March 31, 2007.

We have guaranteed repayment of the entire loan balance outstanding under a $21,300,000 acquisition and construction loan from Wells Fargo to Devon Square. The loan matures in August 2007. At March 31, 2005, the balance outstanding under the loan totaled approximately $12,451,000.14

~~MASTER~~BRESLER & ~~LEASE AGREEMENTS~~REINER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) UNAUDITED

~~In connection with the two mortgage loans obtained for the Fort Washington Executive Center, we have entered into two master lease agreements with the lender~~8. COMMITMENTS ~~One~~AND ~~requires~~CONTINGENCIES us to lease 41,000 square feet of office space at an annual rent of $21.25 per square foot for a five year term ending February 2009, provided a lease for this space is not obtained. To date the joint venture has obtained leases covering 35,000 square feet of this space, with such leases providing for first year rent of between $18.00 and $21.25 per square foot. The other master lease agreement requires us to lease 110,000 square feet of office space at an annual rent of $21.00 per square foot for a five year term beginning January 2008, provided a major tenant fails to exercise a five year extension option on their lease at that time.(Continued)

~~LITIGATION~~In conjunction with the sale of 640 North Broad we guarantied a $6,000,000 loan obtained by the buyer and secured in part by a $3,000,000 certificate of deposit that we purchased from the lender. We have recorded a liability of $300,000, our estimate of the fair value of this guaranty, which is included in other liabilities. We have also deferred the gain associated with the sale of 640 North Broad due to the guarantee.

We ~~are~~have ~~not~~guarantied ~~presently involved~~repayment inof ~~any~~the ~~material~~entire ~~litigation~~loan balance ~~nor~~outstanding tounder ~~our~~a ~~knowledge~~$7,480,000 isacquisition ~~any~~and ~~litigation~~development loan ~~threatened~~obtained ~~against~~by usGuilford orProperties. ~~our~~Funding ~~subsidiaries~~of ~~that,~~the inguaranty ~~management’s~~would ~~opinion,~~increase ~~would~~our ~~result~~equity participation in ~~any~~the ~~material~~venture. ~~adverse~~The ~~effect~~loan onmatures ~~our~~in ~~financial~~2009. ~~condition~~At March 31, 2007, ~~results~~the ~~of operations~~balance oroutstanding ~~cash~~under ~~flows~~the loan totaled $6,312,000.

8We have guarantied repayment of the entire loan balance outstanding under a $9,116,000 acquisition and development loan obtained by Holliday Properties. ~~INCOME~~ ~~TAXES~~Funding of the guaranty would increase our equity participation in the venture. The loan matures in 2009. At March 31, 2007, the balance outstanding under the loan totaled $3,397,000.

~~SFAS~~In ~~No. 109,~~support ~~“Accounting~~of ~~for Income Taxes,”~~certain ~~establishes~~consolidated ~~financial~~entities’ ~~accounting~~mortgage ~~and~~loans ~~reporting~~we ~~standards~~have ~~for~~entered ~~the~~into ~~effects~~master oflease ~~income~~agreements, ~~taxes that result from our activities during the current~~ and ~~preceding years.~~we Ithave ~~requires~~provided anindemnification ~~asset and liability approach to accounting~~ for ~~income~~certain environmental ~~taxes~~events. ~~Balance~~These ~~sheet~~agreements ~~accruals for income taxes~~ are ~~adjusted~~entered tointo ~~reflect~~for ~~changes in~~the ~~tax~~benefit ~~rates~~of in the ~~period such changes are enacted. The Company and its~~mortgage ~~subsidiaries~~lenders ~~file~~to afacilitate ~~consolidated~~more ~~income~~favorable ~~tax return~~terms.

15LITIGATION

~~BRESLER &~~We ~~REINER,~~are ~~INC~~subject to various legal proceedings and claims that arise in the ordinary course of our business. Management ~~NOTES~~believes TOthat ~~CONSOLIDATED~~the ~~FINANCIAL~~final ~~STATEMENTS~~outcome ~~(Continued)~~of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.

Our provision for income taxes for the three months ended March 31, 2005 and 2004, includes a provision for income taxes on the income from continuing operations as well as a provision for income taxes on the discontinued operations9. ~~The provision for~~ BENEFIT ~~income taxes is calculated by applying the estimated full year effective tax rate to our year to date earnings through March 31, 2005 and 2004.~~PLAN

9Our net pension cost as determined by SFAS No. ~~SEGMENT~~ 87, ~~INFORMATION~~Employers’ Accounting for Pensions, and the net postretirement benefit cost as determined by SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, related to our plans include the following components (in thousands):

In accordance with SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company reports segment information for the following four categories:

	Three Months Ended March 31,
	2007				2006
Defined benefit pension plan
Service cost		$	45			$	29
Interest cost		34				36
Expected return on plan assets		(32		)		(55		)
Amortization of prior service cost		4				17
Recognized net actuarial losses		—				22
Total net pension expense		$	51			$	49

~~Commercial~~In 2007, we are required to contribute approximately ~~Residential~~$42,000 ~~and~~to ~~Land~~our ~~Development~~defined benefit pension plan (our “Plan”). We do not expect that there will be any additional required contributions to our Plan. There were no contributions in the first quarter of 2007.

This segment primarily includes the development and sale of homes and residential condominium units, the development of commercial and residential buildings and the development and sale of lots as part of residential subdivisions.15

~~Commercial~~BRESLER & ~~Rental Property~~REINER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) UNAUDITED

This segment includes the rental income derived by commercial properties from leases of office and industrial space and other related revenue sources. Commercial leases generally provide for a fixed monthly rental over terms that range from three to 10 ~~years~~. DIVIDENDS

~~Also~~In ~~included~~January 2007, inour ~~this~~Board of Directors declared ~~segment~~an isannual ~~income~~cash ~~generated~~dividend ~~from~~of ~~management~~$0.60 ~~and~~per ~~leasing~~share ~~activities~~of ~~associated~~common stock to be paid ~~with~~quarterly. The first payment was made on March 15, 2007 to record holders of our ~~50%~~common ~~ownership~~stock ~~interest~~as inof ~~Redwood~~March 1, a2007. ~~commercial~~The ~~management~~remainder ~~company~~of the cash dividend will be paid quarterly on June 15, September 17, and December 17, 2007 to record holders of our common stock as of June 1, September 3, and December 3, 2007, respectively.

~~Residential Rental~~11. INCOME ~~Property~~TAXES

~~This~~We ~~segment~~adopted ~~includes~~FIN 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty ~~rental~~in income ~~derived~~taxes ~~from~~recognized ~~residential~~in ~~properties~~an ~~from~~enterprise’s ~~leases~~financial statements in accordance with SFAS No. 109. FIN No. 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of ~~apartment~~a tax ~~units~~position taken or expected to be taken in a tax return. The new FASB interpretation also provides guidance on derecognition, classification, interest and ~~other~~penalties, ~~related~~accounting ~~revenue~~in ~~sources~~interim periods, disclosure and transition. ~~Apartment~~In ~~leases~~the ~~generally~~event ~~provide~~that we receive an assessment for interest and/or apenalties, ~~fixed~~our ~~monthly~~policy ~~rental~~is ~~over~~to recognize them as operating expenses. The adoption of this standard effective January 1, 2007 did not have a ~~one-year~~material ~~term~~impact on our consolidated financial statements as the total amount of unrecognized tax benefits as of the date of adoption was not material. ~~Also~~We ~~included~~do not believe there will be any material changes in ~~this~~our ~~segment~~unrecognized ~~are~~tax benefits over the next ~~fees~~twelve ~~earned~~months. ~~from~~We ~~our~~are ~~management~~subject ofto ~~residential~~examination ~~properties~~by respective taxing authorities for the tax years 2003 through 2006.

~~Hospitality~~SFAS ~~Properties~~No. 109, Accounting for Income Taxes, establishes financial accounting and reporting standards for the effects of income taxes that result from our activities during the current and preceding years. It requires an asset and liability approach to accounting for income taxes. Balance sheet accruals for income taxes are adjusted to reflect changes in tax rates in the period such changes are enacted.

~~This~~Our ~~segment~~provision ~~includes~~for ~~revenue~~income taxes for the three months ended March 31, 2007 and 2006 includes a provision for income ~~derived~~taxes on the income from continuing operations as well as a provision for income taxes on ~~services~~the ~~provided~~discontinued atoperations. The provision for income taxes is calculated by applying the estimated full year effective tax rate to our ~~hospitality~~year-to-date earnings ~~properties~~through March 31, 2007 and 2006, respectively.

Our real estate investments are located in the Washington DC; Philadelphia, Pennsylvania; Baltimore, Crisfield and Ocean City, Maryland; Wilmington, Delaware; Orlando and Tampa, Florida metropolitan areas12. SEGMENT ~~We are not involved in any operations in countries other than the United States of America.~~INFORMATION

~~The~~In ~~accounting~~accordance ~~policies~~with SFAS No. 131, Disclosures About Segments of ~~the~~an ~~segments~~Enterprise ~~are~~and ~~the~~Related ~~same~~Information, aswe ~~those~~report ~~described~~segment ininformation for the ~~summary~~following ofsix ~~significant accounting policies.~~categories:

~~Our~~Commercial ~~reportable~~Rental ~~segments~~Property ~~are~~This segment aincludes ~~consolidation~~the rental income derived by commercial properties from leases of office and industrial space and other related revenue sources. Commercial ~~subsidiaries~~leases generally provide for a fixed monthly rental over terms that ~~are~~range ~~managed~~from three ~~separately~~to as10 years. ~~each~~Also included in this segment ~~requires~~is ~~different operating,~~income ~~pricing,~~generated from management and leasing ~~strategies~~activities associated with our 50% ownership interest in Redwood Commercial, a commercial management company.

16Residential Rental Property This segment includes the rental income derived from residential properties from leases of apartment units and other related revenue sources. Apartment leases generally provide for a fixed monthly rental over a one-year term.

~~BRESLER~~Hospitality &Property ~~REINER,~~This segment ~~INC.~~includes ~~NOTES~~revenue TOand ~~CONSOLIDATED~~income ~~FINANCIAL~~derived ~~STATEMENTS~~from ~~(Continued)~~services provided at our hospitality property.

~~Following is~~Development—Residential aand ~~summary~~Commercial ofCondominiums This segment primarily includes the revenues ~~Company’s~~and ~~reportable~~costs ~~segments~~associated with commercial and residential condominium sales.

March 31, 2005 (in thousands)	Commercial, Residential and Land Development			Commercial Rental			Residential Rental			Hospitality			Corporate and Other			Consolidated
Statement of Operations:
Total operating revenues	$	15,843,000		$	9,797,000		$	2,783,000		$	1,994,000		$	19,000		$	30,436,000
Cost of homebuilding, residential lots and other development	(11,529,000		)	—			—			—			—			(11,529,000		)
Operating expenses	—			(4,276,000		)	(1,068,000		)	(2,089,000		)	—			(7,433,000		)
Depreciation and amortization expense	—			(2,677,000		)	(635,000		)	(170,000		)	—			(3,482,000		)
Interest expense	—			(3,159,000		)	(799,000		)	(260,000		)	158,000			(4,060,000		)
Income (loss) from investments in joint ventures	—			300,000			(78,000		)	—			—			222,000
Minority interest	(2,089,000		)	111,000			(18,000		)	—			—			(1,996,000		)
General, administrative and other expenses	—			—			—			—			(1,122,000		)	(1,122,000		)
Interest income	—			—			—			—			349,000			349,000
Income (loss) before taxes and discontinued operations	$	2,225,000		$	96,000		$	185,000		$	(525,000	)	$	(596,000	)	$	1,385,000

March 31, 2005 (in thousands)	Commercial, Residential and Land Development		Commercial Rental			Residential Rental			Hospitality			Corporate and Other		Consolidated
Assets:
Real estate at cost	$	156,927,000	$	237,847,000		$	83,130,000		$	16,240,000		$	—	$	494,144,000
Accumulated depreciation	—		(19,243,000		)	(6,850,000		)	(8,730,000		)	—		(34,823,000		)
Investments in joint ventures	415,000		11,792,000			442,000			—			—		12,649,000
Cash, cash equivalents and restricted cash	—		—			—			—			21,664,000		21,664,000
Investments	—		—			—			—			46,982,000		46,982,000
Other	44,000		22,859,000			879,000			495,000			17,189,000		41,466,000
	$	157,386,000	$	253,255,000		$	77,601,000		$	8,005,000		$	85,835,000	$	582,082,000

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

1712. SEGMENT INFORMATION (Continued)

~~BRESLER~~Development—Developed &and Undeveloped ~~REINER,~~Land ~~INC.~~This ~~NOTES~~segment TOprimarily ~~CONSOLIDATED~~includes ~~FINANCIAL~~the development ~~STATEMENTS~~and ~~(Continued)~~sale of land parcels and lots as part of residential subdivisions and undeveloped commercial land sales.

March 31, 2004 (in thousands)	Commercial, Residential and Land Development				Commercial Rental			Residential Rental			Hospitality			Corporate and Other			Consolidated
Statement of Operations:
Total operating revenues		$	2,729,000		$	6,517,000		$	2,544,000		$	1,706,000		$	83,000		$	13,579,000
Cost of homebuilding, residential lots and other development		(2,562,000		)	—			—			—			—			(2,562,000		)
Operating expenses		—			(2,096,000		)	(1,122,000		)	(1,362,000		)	—			(4,580,000		)
Depreciation and amortization expense		—			(1,710,000		)	(850,000		)	(220,000		)	—			(2,780,000		)
Interest expense		—			(2,274,000		)	(786,000		)	(272,000		)	241,000			(3,091,000		)
Income (loss) from investments in joint ventures		(153,000		)	610,000			—			—			—			457,000
Minority interest		(150,000		)	95,000			(13,000		)	—			—			(68,000		)
General, administrative and other expenses		—			—			—			—			(970,000		)	(970,000		)
Interest income		—			—			—			—			410,000			410,000
Income (loss) before taxes and discontinued operations		$	(136,000	)	$	1,142,000		$	(227,000	)	$	(148,000	)	$	(236,000	)	$	395,000

Development—Rental Properties This segment primarily includes the development and construction of commercial and residential buildings that will be leased to tenants upon completion. Costs associated with this segment are capitalized until completion, at which time the assets are placed in service and transferred to either the Residential or Commercial Rental Property segment.

December 31, 2004 (in thousands)	Commercial, Residential and Land Development		Commercial Rental			Residential Rental			Hospitality			Corporate and Other		Consolidated
Assets:
Real estate at cost	$	132,442,000	$	214,687,000		$	82,596,000		$	15,904,000		$	—	$	445,629,000
Accumulated depreciation	—		(18,011,000		)	(6,217,000		)	(8,572,000		)	—		(32,800,000		)
Investments in joint ventures	415,000		8,942,000			485,000			—			—		9,842,000
Cash, cash equivalents and restricted cash	—		—			—			—			20,454,000		20,454,000
Investments	—		—			—			—			40,029,000		40,029,000
Other	44,000		29,635,000			991,000			656,000			20,700,000		52,026,000
	$	132,901,000	$	235,253,000		$	77,855,000		$	7,988,000		$	81,183,000	$	535,180,000

Our real estate investments are located in the Washington DC, Philadelphia, Pennsylvania, Houston, Texas, Baltimore, Maryland, Wilmington, Delaware, Maryland and Delaware Eastern Shore, and Orlando and Tampa, Florida metropolitan areas. We are not involved in any operations in countries other than the United States.

11The accounting policies of the segments are the same as those described in the summary of significant accounting policies. ~~SUBSEQUENT~~ We evaluate performance based upon revenues less operating ~~EVENTS:~~expenses of the combined properties in each segment.

~~Cross~~Following ~~Keys On April 6,~~is ~~2005~~a wesummary ~~acquired an 82,000 square foot commercial office building located in Doylestown, Pennsylvania. The purchase price~~ of ~~the office building~~ ~~was~~our ~~$17,792,000.~~reportable ~~In connection with~~ segments:

March 31, 2007 (in thousands)	Development— Developed and Undeveloped Land		Development— Residential and Commercial Condominiums				Development— Rental Properties				Commercial Rental				Residential Rental				Hospitality				Corporate				TOTAL
Statement of Operations:
Total operating revenues		$ —		$	952			$	—			$	16,254			$	3,675			$	753			$	132		$	21,766
Cost of development sales		—		(847		)		—				—				—				—				—			(847		)
Operating expenses		—		—				—				(7,859		)		(1,917		)		(578		)		—			(10,354		)
Depreciation and amortization expense		—		—				—				(6,243		)		(1,228		)		(80		)		—			(7,551		)
Interest expense		—		(148		)		—				(5,445		)		(1,657		)		(75		)		(1,292		)	(8,617		)
Gain on sale of investments in joint ventures		—		—				18,721				2,820				—				—				—			21,541
Income (loss) from investments in joint ventures		—		14				—				88				(19		)		—				44			127
Minority interest		—		(65		)		(8,699		)		558				122				—				—			(8,084		)
Debt extinguishment costs		—		—				—				(3,332		)		(716		)		—				—			(4,048		)
Loss on impairment of assets		—		(1,105		)		—				—				—				—				—			(1,105		)
General, administrative and other expenses		—		—				—				—				—				—				(3,774		)	(3,774		)
Interest income		—		—				—				—				—				—				837			837
Net (loss) income before taxes and discontinued operations		$ —		$	(1,199	)		$	10,022			$	(3,159	)		$	(1,740	)		$	20			$	(4,053	)	$	(109	)

BRESLER & REINER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2007 (in thousands)	Development— Developed and Undeveloped Land		Development— Residential and Commercial Condominiums			Development— Rental Properties			Commercial Rental				Residential Rental				Hospitality				Corporate			TOTAL
Assets:
Real estate at cost		$ 92,020		$	21,038		$	19,400		$	417,991			$	148,706			$	7,508			$	—	$	706,663
Accumulated depreciation		—		—			—			(33,156		)		(8,655		)		(5,483		)		—		(47,294		)
Investments in joint ventures		—		18,986			22,344			641				(306		)		—				2,199		43,864
Cash, cash equivalents and restricted cash		—		—			—			—				—				—				52,832		52,832
Investments		—		—			—			—				—				—				87,212		87,212
Other (inc. assets held for sale)		400		48			610			38,476				2,762				271				11,878		54,445
		$ 92,420		$	40,072		$	42,354		$	423,952			$	142,507			$	2,296			$	154,121	$	897,722

~~the acquisition, we assumed a 5.45% fixed-rate mortgage loan on the building. The loan, which had an outstanding principal balance of $10,969,000 at the time of the assumption, matures in 2013.~~17

~~102 Pickering Way On April~~BRESLER ~~14,~~& ~~2005 we acquired an 80~~REINER,~~000~~ ~~square foot commercial office building located in Exton, Pennsylvania~~INC. ~~The~~NOTES ~~purchase~~TO ~~price~~CONDENSED ofCONSOLIDATED ~~the~~FINANCIAL ~~office building~~STATEMENTS ~~was~~(Continued) $15,275,000. In connection with the acquisition, we assumed a 6.5% fixed-rate mortgage loan on the building. The loan, which had an outstanding principal balance of $10,149,000 at the time of the assumption, matures in 2013.UNAUDITED

~~919 Market Street~~12. ~~On April 21,~~SEGMENT ~~2005~~INFORMATION we acquired a 225,000 square foot commercial office building located in Wilmington, Delaware. The purchase price of the office building was $40,525,000. In connection with the acquisition, we assumed a 5.89% fixed-rate mortgage loan on the building. The loan, which had an outstanding principal balance of $22,498,000 at the time of the assumption, matures in 2033. If this loan is not prepaid by June 2013, the annual interest rate increases by a minimum of 2%.(Continued)

Red Mill Pond In May 2005 we invested a total of $3,000,000 for a 51% interest in an entity that owns a parcel of undeveloped land which is subdivided into 544 residential lots, in Sussex County, Delaware. An unaffiliated third party owns the remaining membership interest in the entity. The entity intends to develop the land as lots to be sold to a homebuilder. The entity purchased the parcel for approximately $26,482,000 which was funded primarily by a $23,968,000 drawdown on a $53,400,000 acquisition and development loan and proceeds from a $5,000,000 deposit from the homebuilder.

March 31, 2006 (in thousands)	Development— Developed and Undeveloped Land			Development— Residential and Commercial Condominiums				Development— Rental Properties				Commercial Rental				Residential Rental				Hospitality				Corporate				TOTAL
Statement of Operations:
Total operating revenues		$ 3,524			$	2,438			$	—			$	11,497			$	2,477			$	739			$	118		$	20,793
Cost of development sales		(3,084	)		(1,963		)		(36		)		—				—				—				—			(5,083		)
Operating expenses		—			—				—				(4,580		)		(989		)		(511		)		—			(6,080		)
Depreciation and amortization expense		—			—				—				(3,901		)		(541		)		(33		)		—			(4,475		)
Interest expense		—			—				—				(3,658		)		(959		)		(76		)		(836		)	(5,529		)
Gain on sale of investments in joint ventures		—			—				—				—				—				—				—			—
Income (loss) from investments in joint ventures		—			2				—				136				(22		)		—				26			142
Minority interest		(225	)		—				(79		)		(35		)		(17		)		—				—			(356		)
Debt extinguishment costs		—			—				—				—				—				—				—			—
General, administrative and other expenses		—			—				—				—				—				—				(3,787		)	(3,787		)
Interest income		—			—				—				—				—				—				375			375
Net income (loss) before taxes and discontinued operations		$ 215			$	477			$	(115	)		$	(541	)		$	(51	)		$	119			$	(4,104	)	$	(4,000	)

Venice Lofts and Symphony House On May 6, 2005, we invested a total of $8,000,000 for a 44.5% interest in an entity that owns 50% limited partnership interests in two limited partnerships. One of the limited partnerships intends to develop a 234,900 square foot residential development consisting of 38 luxury townhouse and 90 mid-rise condominium units on Venice Island located in Philadelphia, PA. The other limited partnership intends to develop 163 luxury high-rise condominium units, a 35,000 square foot theater and approximately 4,300 square feet of retail space in center city Philadelphia, PA.

December 31, 2006 (in thousands)	Development— Developed and Undeveloped Land		Development— Residential and Commercial Condominiums			Development— Rental Properties			Commercial Rental				Residential Rental				Hospitality				Corporate			TOTAL
Assets:
Real estate at cost		$ 90,031		$	21,995		$	55,494		$	401,519			$	104,590			$	7,498			$	25	$	681,152
Accumulated depreciation		—		—			—			(29,744		)		(7,554		)		(5,402		)		—		(42,700		)
Investments in joint ventures		—		18,918			—			9,563				(280		)		—				2,202		30,403
Cash, cash equivalents and restricted cash		—		—			—			—				—				—				65,144		65,144
Investments		—		—			—			—				—				—				36,829		36,829
Other (inc. assets held for sale)		404		—			512			59,849				1,217				6,852				15,959		84,793
		$ 90,435		$	40,913		$	56,006		$	441,187			$	97,973			$	8,948			$	120,159	$	855,621

~~Midlantic Office Trust, Inc~~13. ~~On May 13, 2005, Midlantic Office~~SUBSEQUENT Trust, Inc. (“Midlantic”) filed a registration statement with the Securities Exchange Commission for the initial public offering of its common stock. Upon completion of Midlantic’s initial public offering, Midlantic will purchase from us, for an aggregate purchase price (including assumption of debt) of approximately $270,600,000, eight commercial office properties consisting of 23 buildings currently owned by us and one additional commercial property consisting of two buildings that we have under contract and expect to acquire. We will hold long term incentive plan units in Midlantic’s operating partnership representing approximately 2% of Midlantic’s outstanding common stock following the offering. In addition, we will purchase $15,000,000 in Midlantic common stock as part of the initial public offering.EVENTS

19510 Township Line Road In May 2007, we repaid the loan collateralized by 510 Township Line Road, which had an outstanding balance of $10,760,000, and placed a ten-year $14,000,000 mortgage loan on the property bearing a fixed interest rate of 5.71%. Interest only payments are due during the first five years of the loan term.

~~Item~~Arbor 2Crest In April 2007, we sold our 33% interest in an unconsolidated entity that owned Arbor Crest, an 80 unit age-restricted residential property. ~~Management’s~~ We received $1,000,000 from the ~~Discussion~~sale and ~~Analysis~~will record a pre-tax gain on sale of ~~Financial~~$1,387,000. ~~Condition~~The ~~and~~gain ~~Results~~in excess of ~~Operations~~the cash received is the result of a negative basis that arose from distributions we received upon a refinancing of the property.

~~Forward~~Intercontinental Building In May 2007 we invested $3,643,000 for a 71.2% interest in a joint venture that acquired a 197,000 square foot commercial office building located in Houston, Texas for a purchase price of $24,200,000. The joint venture placed a ten-~~Looking~~year $20,500,000 ~~Statements~~mortgage loan on the property bearing a fixed interest rate of 6.18%. Interest-only payments are due during the first three years of the loan term.

~~This~~Tender ~~Form 10-Q contains~~Offer ~~forward-looking statements that are based on current estimates,~~In ~~expectations,~~May ~~forecasts and projections about us~~2007, ~~our future performance, the industry in which~~ we ~~operate,~~issued ~~our~~a ~~beliefs~~tender ~~and~~offer ~~management’s~~for ~~assumptions.~~the ~~In addition,~~purchase ~~other written or oral statements that constitute forward-looking statements may be made by or on behalf~~ of ~~us.~~the ~~Words~~outstanding ~~such as “expects,” “anticipates,”~~limited ~~“targets,”~~partnership ~~“goals,”~~interests ~~“projects,”~~in ~~“intends,”~~Trilon ~~“plans,”~~Plaza ~~“believes,”~~Company (“~~seeks,~~Trilon”) ~~“estimates,” or~~for ~~“would be~~$543,”000 ~~and~~per ~~variations of such words and similar expressions are~~one ~~intended~~percent tointerest ~~identify such forward-looking statements. These statements are not guarantees of future performance~~ and ~~involve~~for ~~certain~~the risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties include:

~~· our exposure to the credit risks of our tenants;~~18

~~· our ability~~BRESLER & toREINER, ~~recruit~~INC. ~~and~~NOTES ~~retain~~TO ~~key~~CONDENSED ~~personnel;~~CONSOLIDATED FINANCIAL STATEMENTS (Continued) UNAUDITED

~~· adverse changes~~13. SUBSEQUENT inEVENTS ~~the local or general economy and market conditions;~~(Continued)

~~· our~~outstanding membership ~~ability~~interests toin ~~obtain~~West ~~necessary~~Office, ~~governmental~~LLC ~~permits~~(“West Office”) for $154,795 per one percent interest. The assets of both Trilon and ~~approvals;~~West Office consist primarily of their interests in BRW, a 54% owned subsidiary of the Company, in which Trilon owns 36.8% and West Office owns 9.2%.

~~· our~~Affiliates of the Company own an 88.3% interest in ~~ability~~Trilon toand ~~complete~~a ~~development~~31.5% ~~projects~~interest in West Office. Should these affiliates tender their membership interests in Trilon, they will receive a ~~timely~~total ~~manner~~of $46,851,000, of which $11,712,000 will be paid in cash and ~~within~~$35,138,000 ~~budget;~~in the form of a three-year promissory note from the Company bearing an interest rate of 7.5%. All the other partners in Trilon and all the members of West Office, including affiliates of the Company, will receive cash for their respective interests.

~~· our~~The Company will use the existing cash of Trilon and ~~ability~~West toOffice ~~sustain~~together ~~occupancy~~with ~~levels~~these entities’ share of BRW’s cash, totaling approximately $38,633,000 at ~~our~~the ~~properties;~~time of the tender offer, to fund the cash portion of the purchase, which would total $34,642,000 should all the partners and members tender their respective interests.

~~· our~~14. RESTATEMENT ~~ability~~OF toPREVIOUSLY ~~secure~~ISSUED ~~tenants~~FINANCIALS ~~for the residential and commercial properties that we develop;~~STATEMENTS

~~· changes~~Subsequent to the issuance of our consolidated infinancial statements for the ~~interest~~fiscal ~~rate~~year ~~environment~~ended ~~which~~December ~~will~~31, ~~affect~~2006 ~~our~~and ~~ability~~prior to ~~obtain~~ ~~mortgage~~the ~~financing~~issuance of our periodic report on ~~acceptable~~Form ~~terms;~~10-Q for the period ended March 31, 2007, we identified the following errors in our condensed consolidated statement of cash flows for the three months ended March 31, 2006:

~~· our~~Properties developed with the intention of leasing the ~~exposure~~related space are classified as an investing activity while the development of condominiums and land parcels that is intended to ~~interest~~be ~~rate~~sold ~~risk~~are onclassified ~~our~~as ~~variable-rate~~an operating ~~debt;~~activity. During the first quarter of 2006, the Company changed its intent with regards to certain properties from leasing space to selling units, however, we did not properly account for the resulting classification change. As a result we overstated net cash used in operating activities and understated net cash used in investing activities by $5,492,000.

~~· future~~Capitalized interest of $317,000 related to our equity ~~litigation;~~investments ~~and~~in development projects that are considered investing activities was reflected in error in operating activities rather than in investing activities.

~~· changes~~We did not properly account for accrued expenditures related to development projects categorized as investing activities. As a result, net cash used in ~~environmental~~operating ~~health~~activities was overstated and ~~safety~~net ~~laws~~cash used in investing activities was understated by $82,000.

~~The~~We ~~following~~did ~~discussion~~not ~~should~~properly bereflect ~~read~~cash inreceived ~~conjunction with~~upon the sale ~~Consolidated~~of ~~Financial~~assets ~~Statements~~that ~~and~~was used to repay or defease the ~~related~~underlying ~~notes~~debt ~~that~~and ~~appear~~other ~~elsewhere~~liabilities. As a result net cash used in ~~this~~operating ~~document~~activities was understated by $1,114,000, net cash used in investing activities was overstated by $8,085,000 and net cash provided by financing activities was overstated by $6,971,000.

~~Overview~~We did not properly reflect the cash activity related to deposits for property acquisitions. As a result we overstated net cash used in operating activities and understated net cash used in investing activities by $2,232,000.

WeIn ~~are~~addition ato ~~real estate owner and developer with a~~restating ~~portfolio~~the ~~that~~statement ~~includes~~of ~~commercial~~cash flows, ~~residential~~we and hospitality properties as well as undeveloped and developed land. We earn our revenues and profits primarily from leasing commercial office space and residential apartment units; providing services at our hospitality properties; selling residential properties and selling both developed and undeveloped land. We have ~~a diversified~~also ~~portfolio~~made ~~of assets across~~ the ~~real estate spectrum that encompasses the~~ following ~~four~~corrections ~~real~~to ~~estate segments: commercial property~~the ~~rentals;~~supplemental ~~residential~~disclosures ~~apartment~~to ~~rentals; hospitality; and commercial, residential and land development. Our real estate investments are located in~~ the ~~Washington~~statement ~~DC;~~of ~~Philadelphia,~~cash ~~Pennsylvania; Baltimore, Maryland; Ocean City, Maryland; Wilmington, Delaware; Orlando, Florida and Tampa, Florida metropolitan areas.~~flows:

~~We acquire operating commercial and residential~~· Decreased ~~properties~~the ~~that~~amount wedisclosed ~~identify~~ as ~~having~~cash paid during the ~~potential~~year for ~~increased~~interest ~~returns~~(net ~~and employ management companies with in-depth knowledge~~ of ~~their local markets to~~amount ~~manage~~capitalized) ~~the~~by ~~properties. Together with the management companies~~$466, ~~we implement capital expenditure and leasing programs to increase the property’s occupancy rates, revenue and overall value~~000. ~~For development projects, we partner with well-respected regional and national developers to acquire real~~

20· Increased the amount disclosed for accrued purchases of real estate by $4,403,000.

~~estate for the purpose of developing residential for-sale condominium units, residential rental apartment units, commercial properties and residential land.~~19

ToBRESLER & ~~achieve the highest possible risk-adjusted return on our invested capital~~REINER, we seek to minimize the amount of equity we invest in any one acquisition property through obtaining or assuming high levels of debt relative to the purchase price of the assets we acquire, while still maintaining strong debt service coverage ratios on our mortgage debtINC. InNOTES ~~some instances~~TO weCONDENSED ~~further~~CONSOLIDATED ~~minimize~~FINANCIAL ~~our~~STATEMENTS ~~required~~(Continued) ~~equity contributions through entering into joint venture agreements with unaffiliated third party investors.~~UNAUDITED

~~In 2005 we will continue our strategy of investing in both operating properties and in development real estate~~14. RESTATEMENT ~~Our~~OF ~~biggest~~PREVIOUSLY ~~challenge in~~ISSUED ~~2005~~FINANCIALS ~~will be to continue to utilize our cash and other sources of financing~~STATEMENTS available to purchase real estate that has the potential to generate strong cash returns on our investment, in an interest-rate environment that may not be as accommodating as it has been in recent years, and to maximize the cash returns on our existing assets. While interest rates remain low our strategy will continue to involve obtaining high debt levels relative to the purchase price of acquired properties. However, should interest rates increase we may be required to obtain lower levels of debt and look for greater participation from our equity partners or invest larger amounts of our own equity. A higher interest rate environment would also raise our cost of capital, thereby making it more difficult to find acquisition opportunities that have the potential to meet or exceed our required returns on investment.(Continued)

OnA ~~May 13,~~summary ~~2005,~~of ~~Midlantic Office Trust, Inc. (“Midlantic”) filed a registration statement with~~ the ~~Securities~~effects ~~Exchange Commission~~of ~~for~~ the ~~initial~~restatement ~~public~~to ~~offering of its common stock. Upon completion~~correct ofthe ~~Midlantic’s~~errors ~~initial~~identified ~~public offering~~above, ~~Midlantic~~in ~~will~~addition ~~purchase~~to ~~from~~other ~~us,~~errors ~~for~~considered ~~an aggregate purchase price (including assumption of debt) of approximately $270~~immaterial,~~600,000, eight commercial office properties consisting of 23 buildings~~ ~~currently~~on ~~owned~~our bycondensed usconsolidated ~~and~~statement ~~one additional commercial property consisting~~ of ~~two buildings~~cash ~~that~~flows ~~we have under contract~~ and ~~expect~~the ~~to acquire. We will hold long~~related ~~term~~disclosures ~~incentive plan units~~ in ~~Midlantic’s~~our ~~operating~~supplemental ~~partnership~~disclosures ~~representing approximately~~is 2%shown ofbelow ~~Midlantic’s outstanding common stock following the offering. In addition, we will purchase $15,000,000~~ (in ~~Midlantic common stock as part of the initial public offering~~thousands). ~~The proceeds of the sale will provide us with substantial resources to pursue our strategy.~~

The discussion that follows is based primarily on our consolidated balance sheets as of March 31, 2005 and December 31, 2004 and the results of operations for the three months ended March 31, 2005 and 2004 and should be read along with our consolidated financial statements and related notes included elsewhere herein. The ability to compare one period to another may be significantly affected by acquisitions of commercial properties and the development and sale of residential condominiums and residential lots.

	Three Months Ended March 31, 2006
	As Previously Reported			Adjustment			As Restated
Consolidated Statement of Cash Flows
OPERATING ACTIVITIES:
Amortization of finance costs	$	(270,000	)	$	445,000		$	175,000
Bad debt expense	—			142,000			142,000
Property and land development	(5,991,000		)	5,850,000			(141,000		)
Receivables	194,000			(1,211,000		)	(1,017,000		)
Other assets	(3,194,000		)	2,301,000			(893,000		)
Other liabilities	5,057,000			(506,000		)	4,551,000
Total adjustments	479,000			7,021,000			7,500,000
Net cash (used in) provided by operating activities	(1,923,000		)	7,021,000			5,098,000
INVESTING ACTIVITIES:
Investments in joint ventures	—			(125,000		)	(125,000		)
Deposits for property acquisitions	1,116,000			(3,079,000		)	(1,963,000		)
Purchases of rental property and equipment	(68,668,000		)	848,000			(67,820,000		)
Purchase of property and land development	3,757,000			(5,777,000		)	(2,020,000		)
Proceeds from sale of properties and investments in joint ventures	13,686,000			8,085,000			21,771,000
Net cash used in investing activities	(31,618,000		)	(50,000		)	(31,668,000		)
FINANCING ACTIVITIES:
Proceeds from mortgage and construction loans and other debt	60,248,000			1,112,000			61,360,000
Repayment of mortgage and construction loans and other debt	(20,728,000		)	(8,083,000		)	(28,811,000		)
(Distributions to) contributions from minority partners	(2,759,000		)	2,759,000			—
Contributions from minority partners	—			1,757,000			1,757,000
Distributions to minority partners	—			(4,516,000		)	(4,516,000		)
Net cash provided by financing activities	35,823,000			(6,971,000		)	28,852,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized)	$	5,696,000		$	(466,000	)	$	5,230,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued purchases of real estate	610,000			4,403,000			5,013,000

~~Application of Critical Accounting Policies~~20

~~Our~~Item ~~accounting policies comply with accounting principles generally accepted in the United States~~2. ~~The~~Management’s ~~application~~Discussion ~~of these accounting policies involves the exercise of judgment~~ and ~~use~~Analysis of ~~assumptions~~Financial ~~as to~~Condition ~~future uncertainties. We have made best estimates~~ and ~~judgments~~Results of certain amounts included in the financial statements. However, actual results could differ from these estimates and a change in the facts and circumstances of the underlying transactions could significantly change the application of an accounting policy and the resulting financial statement impact. A summary of these policies is included in our latest annual report on Form 10-K for the year ended December 31, 2004. These policies have not changed significantly in 2005.Operations

~~The preparation of these financial statements in~~Forward-Looking conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expense, and the related disclosures of contingent assets and liabilities at the date of the financial statementsStatements. ~~We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions, and various other assumptions~~

21This Form 10-Q contains forward-looking statements that are based on current estimates, expectations, forecasts and projections about us, our future performance, the industry in which we operate, our beliefs and management’s assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of us. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or “would be,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties include:

~~that~~· our exposure ~~we believe~~ to ~~be reasonable under~~ the ~~circumstances.~~credit ~~The~~risks ~~results~~ of ~~these estimates form~~ our ~~basis~~ for making judgments about the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may differ from these estimates.tenants;

~~We believe that estimates,~~· our ~~assumptions~~ability ~~and~~to ~~judgments~~recruit ~~involved in the accounting policies described in the “Management’s Discussion~~ and ~~Analysis~~retain ofkey ~~Financial Condition and Results of Operations” section of our most recent annual report on Form 10-K have the greatest potential impact on our financial statements.~~personnel;

~~Balance~~· adverse changes ~~Sheet~~in ~~Overview.~~the local or general economy and market conditions;

~~The~~· our ~~following~~ability ~~table~~to ~~reflects~~obtain ~~certain~~necessary ~~condensed~~governmental ~~balance~~permits ~~sheet~~and ~~items as of the dates presented (in thousands):~~approvals;

	March 31, 2005		December 31, 2004			$ Change 2004 to 2005
						Increase (decrease)
Assets:
Rental property and equipment, at cost	$	337,217		$	313,187		$	24,030
Property and land development	154,080			129,595			24,485
Cash, cash equivalents, and investments	55,740			49,943			5,797
Investments in and advances to joint ventures	12,649			9,842			2,807
Deferred charges and other assets, net	27,901			30,837			(2,936		)
Total assets	582,082			535,180			46,902
Liabilities and Shareholders’ Equity:
Mortgage and construction loans and other debt	368,624			329,170			39,454
Total liabilities	413,923			371,067			42,856
Minority interest	36,133			32,968			3,165
Shareholders’ equity	132,026			131,145			881

· our ability to complete development projects in a timely manner and within budget;

~~Material~~· our ability ~~changes~~to ~~in assets~~sustain ~~include:~~occupancy levels at our properties;

· ~~Rental~~our ~~property~~ability ~~and~~to ~~equipment,~~secure attenants ~~cost~~for ~~increased primarily as a result of~~ the ~~acquisition~~ ofresidential ~~the~~and ~~1105 Market Street~~ commercial ~~office~~properties ~~building~~that ~~in 2005.~~we develop;

· ~~Property~~changes ~~and~~in ~~land~~the ~~development~~interest ~~increased~~rate ~~primarily~~environment aswhich awill ~~result~~affect ofour ~~the~~ability ~~acquisition~~to ofobtain ~~Crisfield~~mortgage ~~and~~financing ~~development work performed~~ on ~~the~~acceptable 640 North Broad, Laguna Vista, Golfview, Cigar Factory and Seaside projects. This increase was partially offset by sales of condominium units at Cigar Factory, Golfview and Laguna Vista and sales of residential lots at Clarksburg Ridge.terms;

· ~~Cash,~~our ~~cash~~exposure ~~equivalents and investments increased in total primarily due~~ to ~~the $8,000,000~~interest ofrate ~~loan~~risk ~~proceeds~~on weour ~~received~~variable-rate ~~from a related party.~~debt;

· ~~Investments~~future inlitigation; and ~~advances to joint ventures increased primarily due to our investment in Devon Square.~~

· ~~Deferred~~changes ~~charges~~in ~~and~~environmental ~~other~~health ~~assets,~~and ~~net~~safety ~~decreased primarily due the amortization of in-place lease assets~~laws.

~~Material~~The ~~changes~~discussion inthat ~~liabilities~~follows ~~include:~~is based primarily on our consolidated balance sheets as of March 31, 2007 and December 31, 2006 and the results of operations for the three months ended March 31, 2007 and 2006 and should be read along with our consolidated financial statements and related notes included elsewhere herein. The ability to compare one period to another may be significantly affected by acquisitions of commercial properties and the development and sale of residential condominiums and residential lots.

~~· Mortgage and construction loans and other debt increased primarily as a result of the mortgage loan obtained in connection with the acquisition of 1105 Market Street as well as draws on~~ Overview.

22We are a real estate owner and developer with a portfolio that includes commercial, residential and hospitality properties as well as undeveloped and developed land. We earn our revenues and profits primarily from leasing commercial office space and residential apartment units; providing services at our hospitality properties; selling residential and commercial properties and selling both developed and undeveloped land. Our real estate investments are located in the Philadelphia, Pennsylvania; Washington, DC; Wilmington, Delaware; Baltimore Maryland; Delaware and Maryland Eastern Shore; Houston, Texas and Tampa and Orlando, Florida, metropolitan areas.

~~construction~~In ~~and~~the first quarter of ~~development~~2007 ~~loans~~we ~~related~~continued to ~~640~~be ~~North~~impacted ~~Broad,~~by ~~Laguna~~a ~~Vista,~~soft ~~Golfview~~residential ~~and Seaside~~housing market. ~~This~~We ~~increase~~did not ~~was~~record ~~partially~~any ~~offset~~sales byof ~~loan~~our ~~repayments~~residential ~~from~~condominiums ~~sale~~located on the Maryland ~~proceeds~~and atDelaware ~~Cigar~~Eastern ~~Factory~~Shore and as a result recorded an impairment charge of $1,105,000 ~~Golfview~~to ~~and~~reduce ~~Laguna~~the ~~Vista~~carrying amount of one of these residential condominium projects. We have also restructured sales contracts with homebuilders at

~~· Minority interest increased primarily as a result of our minority partner’s share of income generated from sales at Cigar Factory and Golfview.~~21

~~Financial~~our residential ~~Overview~~subdivisions to accommodate a slowdown in home sales, primarily delaying the dates on which these takedowns occur.

~~Results~~Development—Condominium ofand ~~Operations—three~~Land ~~months~~Sales ~~ended~~and ~~March 31,~~Rental ~~2005 compared to the three months ended March 31, 2004.~~Properties

~~The~~Commercial and Residential ~~following~~Condominiums This segment ~~table~~primarily ~~reflects~~includes ~~key~~the ~~line~~revenues ~~items~~and ~~from~~costs ~~our~~associated ~~statements~~with the development and sale of ~~operations~~commercial ~~for~~and residential condominiums. This activity ~~the~~is ~~three~~conducted ~~months~~in ~~ended~~the ~~March 31~~Washington, ~~2005~~DC; ~~and~~Philadelphia, ~~2004~~Pennsylvania ~~(in~~and ~~thousands~~Baltimore, ~~except~~ ~~percentages):~~Maryland metropolitan markets.

	March 31, 2005			March 31, 2004			Change 2004 to 2005				% Change 2004 to 2005
							Increase/(decrease)
Revenues from homebuilding and residential lots		$	15,843		$	2,729		$	13,114			480.5
Revenues from commercial rental properties		9,778			6,504			3,274				50.3
Revenues from residential rental properties		2,783			2,530			253				10.0
Revenues from hospitality properties		1,994			1,706			288				16.9
Total operating revenues		30,436			13,579			16,857				124.1
Cost of homebuilding and residential lots		11,529			2,562			8,967				350.0
Commercial operating expenses		4,276			2,096			2,180				104.0
Residential operating expenses		1,068			1,122			(54		)		(4.8	)
Hospitality operating expenses		2,089			1,362			727				53.4
Commercial depreciation and amortization expense		2,677			1,710			967				56.5
Residential depreciation and amortization expense		635			850			(215		)		(25.3	)
General and administrative expense		1,122			964			158				16.4
Interest expense		4,060			3,091			969				31.3
Income from investments in joint ventures		222			457			(235		)		(51.4	)
Minority interest		1,996			68			1,928				2,835.3
Net income		881			292			589				201.7

Developed and Undeveloped Land This segment includes the revenues and costs associated with the development and sale of land parcels and lots as part of residential subdivisions and undeveloped commercial land sales. The residential subdivisions are located on the Maryland and Delaware Eastern Shore, and the undeveloped commercial land is located in the Washington, DC metropolitan area.

~~General Overview. Total~~Development ~~operating~~of ~~revenues~~Rental ~~for the~~Properties This ~~three~~segment ~~months~~primarily ~~ended~~includes ~~March 31, 2005 increased by $16,857,000 over total operating revenues for~~ the ~~three~~development ~~months~~and ~~ended~~construction ~~March 31, 2004. The increase was primarily due to revenue generated from sales~~ of ~~condominium~~commercial ~~apartment units at Cigar Factory~~ and ~~Golfview and sales of~~ residential ~~lots~~buildings atthat ~~Clarksburg Ridge~~will inbe ~~addition~~leased to ~~revenue~~tenants ~~generated~~upon ~~from~~completion. ~~the~~Costs associated ~~acquisition~~with ofthis ~~the~~segment ~~Fort Washington~~are ~~Executive~~capitalized ~~Center~~until completion, ~~the~~at ~~West~~which ~~Germantown Pike commercial office~~time ~~buildings,~~ the ~~One~~assets ~~Northbrook~~are ~~commercial~~placed ~~office~~in ~~building,~~service and ~~the~~transferred ~~Baltimore portfolio~~to ofeither ~~commercial office buildings and~~ the ~~1105~~residential ~~Market~~or commercial ~~Street~~rental ~~commercial office~~property ~~building~~segment. ~~Net~~This ~~income~~activity ~~for~~is ~~the~~conducted ~~three~~in ~~months ended March 31, 2005~~the ~~increased by $589~~Washington,~~000~~ ~~compared~~DC toand ~~net income for 2004~~Philadelphia, ~~primarily~~Pennsylvania ~~due~~metropolitan ~~to sales of condominium apartment units~~markets.

23We owned or had an ownership interest in the following development projects at March 31, 2007:

Homebuilding and Residential Lots.

Project Name	Location	Date of Acquisition		Development Type		Size(1)		Number sold(2)		B&R Ownership %
Consolidated Properties(3)
*Commercial & Residential Condominiums*
Laguna Vista	Ocean City, MD		2003	Residential Condominiums		41 units		25			100.0	%
400 S Philadelphia Ave.	Ocean City, MD		2004	Residential Condominiums		20 units		—			51.0	%
Sudley South (Buildings I & III)	Manassas, VA		1991	Commercial Office Condominiums		108,000 sq. ft.		50,075 sq. ft.			100.0	%
*Developed and Undeveloped Land*
Crisfield	Crisfield, MD		2005	Residential Lots		232 lots		16			51.0	%
Red Mill Pond	Lewes, DE		2005	Residential Lots		520 lots		—			51.0	%
Seaside	Ocean City, MD		2004	Residential Lots		137 lots		58			51.0	%
*Rental Properties Development*
Waterfront	Washington, DC		1964	Commercial Office, Residential and Retail		2,166,000 sq ft	(4)	—	(5)		27.0	%
1150 Northbrook	Trevose, PA		2003	Commercial Office Building		108,000 sq. ft.		—	(5)		100.0	%
Unconsolidated Properties(3)
Guilford Properties	Baltimore, MD		2006		(6)		(6)	—			51.0	%
Holliday Development	Baltimore, MD		2006		(6)		(6)	—			51.0	%
Symphony House	Philadelphia, PA		2005	Residential Condominiums		163 units	(7)	—			22.3	%
Venice Lofts(8)	Philadelphia, PA		2005	Residential Apartments		128 units		2			22.3	%

~~At March 31, 2005 we owned or had a material ownership interest in entities involved in 14 development projects. The table below sets forth these development projects.~~NOTES:

Project Name

Development Type

Size(1)

Number sold(2)

Location

B&R Ownership %

Consolidated Properties(3)

Clarksburg Ridge

Residential Lots

159 lots

155 lots

Clarksburg, MD

100.0

Golfview

Residential Condominiums

141 units

49 units

St. Petersburg, FL

50.0

Laguna Vista

Residential Condominiums

41 units

1 unit

Ocean City, MD

100.0

Cigar Factory

Residential Condominiums

30 units

21 units

Philadelphia, PA

66.7

400 S. Philadelphia Ave.

Residential Condominiums

20 units

—

Ocean City, MD

51.0

146th Street

Residential Condominiums

18 units

—

Ocean City, MD

51.0

Seaside

Residential Lots

138 lots

—

Ocean City, MD

51.0

Waterfront

Commercial Office Complex

1,144,000 sq. ft.(4)

—

(5)

Washington, DC

47.4

Northbrook Development

Commercial Office Building

108,000 sq. ft.

—

(5)

Trevose, PA

100.0

Sudley South

Commercial Office Condominium

54,000 sq. ft.

—

Manassas, VA

100.0

640 N. Broad Street

Residential Apartments

266 units

—

(5)

Philadelphia, PA

80.0

Divine Lorraine

Residential Apartments

135 units

—

(5)

Philadelphia, PA

95.0

Crisfield

Residential Lots

232 lots

—

Crisfield, MD

51.0

Unconsolidated Property(3)

WBP Land

Undeveloped Land

79 acres

29 acres

Lanham, MD

80.0

(1) Represents the actual or planned size of the project.

~~NOTES:~~22

(12) Represents ~~the~~number ~~actual or planned size~~ of ~~the~~ ~~project~~sales ~~based~~that onhad ~~square~~closed ~~footage,~~as ~~lots,~~of ~~units or acres~~March 31, 2007.

(23) ~~Represents~~ Consolidated ~~number~~properties represent properties whose assets, liabilities and results of ~~sales~~operations are consolidated into our consolidated financial statements. Unconsolidated property represents a property that ~~had~~is ~~closed~~accounted asfor under the equity method of ~~March 31~~accounting, in ~~2005~~accordance with accounting principles generally accepted in the United States of America (“GAAP”).

(34) ~~Consolidated~~ Represents ~~properties~~the ~~represent~~anticipated ~~properties~~size ~~whose assets, liabilities and results~~ of ~~operations are consolidated into our consolidated financial statements. Unconsolidated property represents a property that is accounted for under~~ the ~~equity method of accounting, in~~Waterfront ~~accordance with GAAP~~Complex.

(45) ~~Represents~~ Upon ~~the~~completion, ~~current size of~~ the ~~Waterfront~~space ~~Complex. The~~will ~~size~~be ofleased ~~the~~to ~~development project has not yet been determined~~tenants.

(56) ~~Upon~~ The ~~completion,~~type ~~the~~of ~~space~~development ~~will~~and besize ~~leased~~of the project has yet to ~~tenants~~be determined.

~~Homebuilding~~(7) Project ~~and~~also ~~residential~~includes ~~lots~~a ~~revenue~~theatre incontaining ~~2005 increased by $13~~35,~~114,~~000 ~~compared to the prior year. The increase can be~~square ~~attributed~~feet ~~to the sale in 2005~~ of ~~six developed lots at Clarksburg Ridge~~space, ~~eight condominium~~a ~~apartment~~parking ~~units~~garage ~~at Cigar Factory, 47 condominium apartment units at Golfview~~ and ~~one~~retail ~~condominium unit at Laguna Vista, compared to the sale in 2004 of 19 developed lots at Clarksburg Ridge~~space.

~~The cost of homebuilding and residential lots in 2005 increased by $~~(8) In April 2007,~~967,000~~ ~~compared to~~ the ~~prior~~partners ~~year. The increase can be~~decided ~~attributed~~ to ~~the~~convert ~~cost~~this ofproject ~~sales~~into ~~allocated~~a toresidential ~~the~~apartment ~~developed~~community ~~lots~~ and ~~condominium~~repurchased the two units sold atin ~~Clarksburg Ridge, Cigar Factory, Golfview and Laguna Vista~~2006.

2423

Commercial Rental ~~Properties.~~Property

~~The table~~This ~~below~~segment ~~sets~~includes ~~forth~~ the rental ~~commercial~~income ~~rental~~derived by commercial properties ~~which~~from weleases ~~owned~~of oroffice ~~had~~and ~~ownership~~industrial ~~interests~~space inand atother ~~March 31,~~related ~~2005~~revenue sources.

	Number of Buildings		Square Feet	Occupancy(1)			Location	B&R Ownership
Consolidated Properties(2)
Washington Business Park(3)		9	568,000		91.2	%	Lanham, MD		80.0	%
Baltimore Portfolio(4)		5	409,000		79.1	%	Baltimore, MD		51.0	%
Fort Washington Executive Center		3	393,000		98.7	%	Ft. Washington, PA		96.5	%
Versar Center		2	217,000		89.6	%	Springfield, VA		100.0	%
Sudley North (Buildings A,B&C)		3	116,000		94.4	%	Manassas, VA		98.8	%
West Germantown Pike		2	115,000		100.0	%	Plymouth Meeting, PA		97.5	%
One Northbrook		1	95,000		83.2	%	Trevose, PA		100.0	%
Sudley North (Building D)		1	69,000		100	%	Manassas, VA		49.4	%
900 Northbrook		1	66,000		94.0	%	Trevose, PA		87.5	%
Fort Hill		1	66,000		100.0	%	Centreville, VA		80.0	%
7800 Building		1	15,000		100.0	%	Manassas, VA		100.0	%
Bank Building		1	3,000		100	%	Manassas, VA		100.0	%
1105 Market Street(5)		1	173,000		25.7	%	Wilmington, DE		100.0	%
Total consolidated properties		31	2,305,000
Unconsolidated Properties(2)
1925 K Street		1	149,000		98.2	%	Washington, DC		85.0	%
Devon Square(5)		2	140,000		68.4	%	Devon, PA		50.0	%
Madison Building		1	82,000		96.5	%	McLean, VA		24.9	%
Total unconsolidated properties		4	371,000
Total consolidated and unconsolidated properties		35	2,676,000

We owned or held an ownership interest in the following commercial office properties at March 31, 2007:

NOTES:

Consolidated Properties(1)	Location	Date of Acquisition/ Opening		Number of Buildings		Square Feet	Occupancy at March 31, 2007			B&R Ownership
						(in 000’s)
Philadelphia, Pennsylvania metropolitan area:
Fort Washington Executive Center	Ft. Washington, PA		2004		3	393		100.0	%		97.5	%(2)
Mearns Park	Warminster, PA		2006		1	300		98.7	%		97.0	%(3)
Valley Square	Plymouth Meeting, PA		2006		5	294		86.7	%		97.0	%(3)
Blue Bell Plaza	Plymouth Meeting, PA		2006		2	155		100.0	%		100.0	%(3)
West Germantown Pike	Plymouth Meeting, PA		2004		2	115		100.0	%		98.0	%(2)
One Northbrook	Trevose, PA		2004		1	95		78.9	%		100.0	%(3)
510 Township Road	Plymouth Meeting, PA		2006		1	87		83.6	%		100.0	%(3)
Cross Keys	Doylestown, PA		2005		1	82		90.9	%		100.0	%(3)
102 Pickering Way	Exton, PA		2005		1	80		96.4	%		100.0	%(3)
900 Northbrook	Trevose, PA		2003		1	66		94.0	%		90.0	%(2)
Houston, Texas metropolitan area:
Commerce Park North	Houston, TX		2006		2	164		90.6	%		100.0	%
10333 Harwin Drive	Houston, TX		2006		1	148		57.2	%		100.0	%
9950 Westpark	Houston, TX		2006		1	111		66.0	%		100.0	%
14800 St. Mary’s Lane	Houston, TX		2007		1	85		95.4	%		100.0	%
17043-49 El Camino	Houston, TX		2006		4	82		74.6	%		100.0	%
1120 NASA Road	Houston, TX		2006		1	80		85.8	%		100.0	%
8700 Commerce Drive	Houston, TX		2006		1	77		73.8	%		100.0	%
1717 Portway Plaza	Houston, TX		2006		1	67		76.3	%		100.0	%
1110 NASA Road	Houston, TX		2006		1	60		89.3	%		100.0	%
950 Threadneedle	Houston, TX		2006		1	59		100.0	%		100.0	%
1100 NASA Road	Houston, TX		2006		1	57		95.0	%		100.0	%
14825 St. Mary’s Lane	Houston, TX		2007		1	45		94.2	%		100.0	%
Washington, DC metropolitan area:
Versar Center	Springfield, VA		2002		2	217		88.2	%		100.0	%
Sudley North (Buildings A, B & C)	Manassas, VA		1987		3	116		80.8	%		100.0	%
Wynwood	Chantilly, VA		2005		2	88		69.2	%		100.0	%
Sudley North (Building D)	Manassas, VA		1987		1	69		100.0	%		50.0	%
Fort Hill	Centreville, VA		2000		1	66		96.2	%		80.0	%
Bank Building	Manassas, VA		1991		1	3		100.0	%		100.0	%
Wilmington, Delaware metropolitan area:
919 Market Street	Wilmington, DE		2005		1	223		93.3	%		100.0	%(4)
Total consolidated properties					45	3,484		87.2	%
Unconsolidated Properties(1)

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