CORPORATE OFFICE PROPERTIES TRUST INC, 424B1, 1998-04-23

CORPORATE OFFICE PROPERTIES TRUST INC
424B1, 1998-04-23
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-47465

PROSPECTUS
APRIL 22, 1998

[LOGO]
7,500,000 SHARES

CORPORATE OFFICE PROPERTIES TRUST

COMMON SHARES OF BENEFICIAL INTEREST

Corporate Office Properties Trust (the "Company") is a self-administered
real estate investment trust ("REIT") which focuses principally on the
ownership, acquisition and management of suburban office properties in strong
and growing submarkets in the United States. The Company currently owns
interests in ten suburban office buildings in Pennsylvania and New Jersey
containing approximately 1.5 million rentable square feet and seven retail
properties located in the Midwest containing approximately 370,000 rentable
square feet. As of March 1, 1998, these properties were over 99% leased.

All of the common shares of beneficial interest, par value $.01 per share,
of the Company (the "Common Shares") are being sold (the "Offering") by the
Company. The Common Shares were traded through the date hereof on the Nasdaq
Small Cap market tier of the Nasdaq Stock Market ("NASDAQ") under the symbol
"COPT." The Common Shares will be listed on the New York Stock Exchange, Inc.
("NYSE") under the symbol "OFC." On April 22, 1998, the closing bid price for
the Common Shares on NASDAQ was $11 3/16. See "Price Range of Common Stock and
Distributions." Upon completion of the Offering, approximately 9.6% of the total
outstanding Common Shares of the Company will be beneficially owned by officers
and trustees of the Company (42.4% assuming all outstanding Units (as
hereinafter defined) are redeemed with Common Shares).

The Company has qualified as a REIT for federal income tax purposes
commencing with its taxable year ended December 31, 1992. To assist the Company
in complying with certain qualification requirements applicable to REITs, the
Company's Declaration of Trust provides that no shareholder or group of
affiliated shareholders may actually or constructively own more than 9.8% in
value of the outstanding Common Shares, subject to certain exceptions. See
"Description of Common Shares--Restrictions on Transfer."

SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON SHARES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Common Share................... $10.50 $0.58 $9.92
Total(3)........................... $78,750,000 $4,350,000 $74,400,000
- --------------------------------------------------------------------------------
</TABLE>

(1) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.
(2) BEFORE DEDUCTING ESTIMATED EXPENSES OF $1,400,000 PAYABLE BY THE COMPANY.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
AN AGGREGATE OF 1,125,000 ADDITIONAL COMMON SHARES, AT THE PRICE TO THE
PUBLIC, LESS THE UNDERWRITING DISCOUNTS AND COMMISSIONS, SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL
PRICE TO THE PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
THE COMPANY WILL BE $90,562,500, $5,002,500 AND $85,560,000, RESPECTIVELY.
SEE "UNDERWRITING."

The Common Shares offered hereby are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to approval of certain legal matters by Rogers & Wells LLP, counsel for
the Underwriters. The Underwriters reserve the right to reject orders in whole
or in part. It is expected that delivery of the Common Shares will be made
against payment therefor in New York, New York on or about April 27, 1998.

DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION

BT ALEX. BROWN

PRUDENTIAL SECURITIES INCORPORATED
<PAGE>
[COPT LOGO]

[Property Photo Montage--Seven Office Buildings and Descriptions]

2605 Interstate Building

- Harrisburg, Pennsylvania

- 84,268 square feet

Commerce Court

- Harrisburg, Pennsylvania

- 67,377 square feet

Unisys World Headquarters

- Unisys Corporation

- Blue Bell, Pennsylvania

- 736,718 square feet

Gateway Corporate Center

- Harrisburg, Pennsylvania

- 32,800 square feet

Princeton Technology Center

- Teleport Communications Group

- Princeton, New Jersey

- 172,385 square feet

Princeton Technology Center

- IBM Corporation

- Princeton, New Jersey

- 170,000 square feet

Merck Building

- Merck & Co., Inc.

- Blue Bell, Pennsylvania

- 218,219 square feet

2
<PAGE>
SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" REFERS TO CORPORATE OFFICE
PROPERTIES TRUST AND ITS PREDECESSORS AND, WHERE APPLICABLE, CORPORATE OFFICE
PROPERTIES, L.P., A DELAWARE LIMITED PARTNERSHIP (THE "OPERATING PARTNERSHIP"),
AND OTHER SUBSIDIARIES. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED. CERTAIN CAPITALIZED TERMS WHICH ARE USED HEREIN ARE DEFINED UNDER
"GLOSSARY."

THE COMPANY

The Company is a self-administered REIT which focuses principally on the
ownership, acquisition and management of suburban office properties in strong
and growing submarkets in the United States. The Company currently owns
interests in ten suburban office properties in Pennsylvania and New Jersey
containing approximately 1.5 million rentable square feet (the "Office
Properties") and seven retail properties located in the Midwest containing
approximately 370,000 rentable square feet (the "Retail Properties" and,
together with the Office Properties, the "Properties"). As of March 1, 1998, the
Properties were over 99% leased. In addition, the Company has options to
purchase 44.3 acres of land contiguous to certain of the Office Properties owned
by related parties.

The Company was formed in 1988 as Royale Investments, Inc. to own and
acquire retail properties and subsequently became an externally advised REIT. On
October 14, 1997, the Company, as part of a series of transactions, acquired the
Mid-Atlantic suburban office operations of The Shidler Group, a national real
estate firm (the "Transactions"). As a result of the Transactions, the Company
relocated its headquarters from Minneapolis to Philadelphia and became
self-administered. At that time, Jay Shidler became the Company's Chairman of
the Board, and Clay Hamlin became the Company's President and Chief Executive
Officer. On January 1, 1998, the Company changed its name to Corporate Office
Properties Trust, Inc. On March 16, 1998, the Company was reformed as a Maryland
real estate investment trust (the "Reformation"). See "Structure and Formation
of the Company."

The Company's reformation as a Maryland REIT completes the conversion of The
Shidler Group's privately-owned Mid-Atlantic suburban office operations into a
public REIT operating format. This transformation results from Mr. Shidler's
vision and desire to create a growth-oriented real estate company focused on
suburban office properties. Mr. Shidler believes the suburban office market has
very attractive investment characteristics at this stage of the U.S. real estate
cycle.

Mr. Shidler, a nationally acknowledged expert in the field of real estate
investment and finance, has a recognized investment track record resulting from
the successful creation and performance of other large public real estate
companies, consisting of TriNet Corporate Realty Trust, Inc. ("TriNet") and
First Industrial Realty Trust, Inc. ("First Industrial"). Both TriNet and First
Industrial have experienced rapid growth since their initial public offerings in
May 1993 and June 1994, respectively, and currently have total market
capitalizations of approximately $1.5 billion and $2.7 billion, respectively.

THE SUBURBAN OFFICE MARKET

The performance of the U.S. office market has improved substantially since
the recession of the late 1980's and early 1990's. According to CB
Commercial/Torto Wheaton Research, a national real estate consulting firm,
office property returns for the twelve months ended June 30, 1997 exceeded all
calendar year returns since 1983. A number of markets across the country are
beneficiaries of declining vacancies and limited or no new construction, which
is resulting in increased average rental rates. This is particularly true in
suburban office markets, which continue to exhibit stronger performance than
downtown office markets on a nationwide basis. For the fifth consecutive year
through 1997, the year-end national suburban office vacancy rate was lower than
the national downtown average vacancy rate.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON SHARES TO COVER SYNDICATE
SHORT POSITIONS OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON SHARES
AND THE IMPLEMENTATION OF PENALTY BIDS. SEE "UNDERWRITING."

3
<PAGE>
The following chart shows the ten-year history of national office vacancy
rates in suburban and central business district markets:

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
SUBURBAN CBD
<S> <C> <C> <C> <C> <C>
</TABLE>

[LOGO]

<TABLE>
<S> <C> <C> <C> <C> <C>
Vacancy Vacancy
Year % %
1988 21.5% 14.1%
1989 21.4% 14.3%
1990 20.9% 16.1%
1991 20.5% 17.3%
1992 19.3% 18.0%
1993 17.0% 17.1%
1994 14.9% 16.2%
1995 13.2% 15.1%
1996 11.2% 13.9%
1997 9.2% 10.8%
To be inserted on Pgs. 4 & 26 of COPT
Prospectus.
Print w/ no border.
</TABLE>

Reductions in office vacancy have resulted from limited construction
completions and from increased demand for office space as a result of strong
employment growth. According to CB Commercial/Torto Wheaton Research, absorption
of suburban office space was better than expected throughout 1997. Although the
ongoing recovery of the office suburban market resulted in 19.7 million square
feet of construction completions in 1997, this level is substantially lower than
during the period from 1988 to 1991, when an average of 64.2 million square feet
of suburban office construction was completed annually.

The following chart shows the ten-year history of new office construction
completions and net absorption in suburban markets:

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NEW NET
Year Construction Absorption
<S> <C> <C> <C> <C> <C> <C>
1988 86.0 84.4
1989 81.3 63.5
1990 59.8 53.2
1991 29.5 27.4
1992 12.4 28.0
1993 4.6 42.1
1994 3.7 36.7
1995 5.3 30.1
1996 11.4 43.4
1997 19.7 41.9
To be inserted on Pgs. 5 & 27 of COPT
Prospectus.
Print w/ no border.
</TABLE>

[LOGO]

According to Landauer and Associates in its 1998 Market Forecast, much of
the employment growth in 1997 was attributable to technology-oriented companies,
particularly technology services companies such as programmers, software
developers and data processors. Landauer and Associates estimate
information-technology firms contributed over 30 million square feet of net
demand to commercial office markets in 1997. The Company believes that companies
within these industries will continue to generate significant employment growth
and demand for additional office space.

4
<PAGE>
BUSINESS OBJECTIVES AND GROWTH STRATEGIES

The Company's primary business objectives are to achieve sustainable
long-term growth in funds from operations ("FFO") per share and to maximize
long-term shareholder value. The Company intends to achieve these objectives
primarily through external growth and, to a lesser extent, through internal
growth. The Company intends to focus its activities on acquiring, owning and
operating suburban office properties in strong and growing submarkets throughout
the United States. The Company does not intend to expand its investment in
retail properties (except as part of an entity or portfolio acquisition
consisting principally of suburban office properties) and, to the extent
appropriate opportunities arise, may sell or exchange some or all of these
properties and reinvest any net cash proceeds therefrom in suburban office
properties. It also may decide to contribute some or all of these properties to
the Operating Partnership in exchange for additional units of limited
partnership in the Operating Partnership ("Units"). Key elements of the
Company's business objectives and growth strategies include:

- SUBURBAN OFFICE FOCUS. Management believes office buildings currently
offer the strongest fundamentals of any real estate property type, and
suburban office properties offer the Company very attractive long-term
investment opportunities. The four key factors driving the strong
fundamentals of suburban office properties are (i) increasing rental
rates, (ii) declining vacancy rates, (iii) positive net absorption and
(iv) limited new supply of office product. Management believes that many
companies are relocating to, and expanding in, suburban locations rather
than traditional central business districts because of lower total costs,
proximity to residential housing and better quality of life.

- EXTERNAL GROWTH. The Company is actively pursuing the acquisition of
suburban office properties in strong and growing submarkets in the United
States. The Company's three-part acquisition strategy includes targeting
(i) entity transactions in which the Company enters new markets or
increases its penetration in existing markets by acquiring significant
portfolios along with their management, which will also enable the Company
to enhance its management infrastructure and local expertise, (ii)
portfolio purchases in or near existing markets as well as selective new
markets which will also allow the Company to add experienced property
management personnel and (iii) opportunistic acquisitions of individual
properties in submarkets in which the Company already has a presence. The
Company believes that there are a significant number of potential
acquisitions that could greatly benefit from the Company's experience in
enhancing property cash flow and value by renovating and repositioning
properties.

The Company believes it has certain competitive advantages which will
enhance its ability to identify and capitalize on acquisition
opportunities, including: (i) management's multiple market expertise in
identifying, creatively structuring and closing acquisitions; (ii)
management's experience in successfully growing public real estate
companies utilizing a centralized/decentralized organizational structure;
(iii) management's long-standing relationships with tenants, real estate
brokers and institutional and other owners of commercial real estate,
which collectively help the Company to identify acquisition opportunities
resulting in a large acquisition pipeline; (iv) the Company's fully
integrated real estate operations, which allow it to respond quickly to
acquisition opportunities; (v) the Company's access to capital as a public
company; and (vi) the Company's ability to offer tax deferred
consideration to sellers of properties.

- INTERNAL GROWTH. Management believes that the Company's internal growth
will come from (i) proactive property management and leasing, (ii)
contractual rent increases, (iii) operating efficiencies achieved through
increasing economies of scale and (iv) tenant retention and rollovers at
increased rents where market conditions permit.

In order to implement its objective to achieve sustainable long-term growth
in FFO per share primarily from external growth, the Company is engaged in an
active acquisition program. The Company presently is identifying, negotiating
and seeking to consummate entity acquisitions, portfolio acquisitions and
acquisitions of individual suburban office properties.

POTENTIAL ACQUISITIONS. At April 17, 1998, the Company had reached a
preliminary understanding or an executed letter of intent or a purchase
agreement (subject, in each case, to due diligence and other significant
conditions precedent) with respect to three potential acquisitions of
approximately 45 properties, consisting of approximately 1.6 million square feet
in the aggregate and located in four states. Substantially all of the properties
comprising the potential acquisitions are suburban office properties. The total
aggregate consideration, payable through a combination of cash, assumptions of
debt and/or the issuance of common and convertible preferred Units, is
approximately $158 million.

5
<PAGE>
In addition to the three potential acquisitions discussed in the preceding
paragraph, on March 9, 1998, the Company entered into a letter of intent with a
large publicly held corporation (the "Seller") with respect to the acquisition
of the Seller's real estate operating business for a total consideration, based
on the current price of the Common Shares, of approximately $229 million. This
transaction would have involved the acquisition by the Company of a 1.6 million
square foot property portfolio consisting principally of suburban office
buildings located in one Mid-Atlantic state in which the Company does not
currently have any operations. The letter of intent contemplated that the
transaction, if consummated, would have resulted in the assumption or
refinancing of approximately $94 million of debt. The balance of the purchase
price would have been payable principally in Common Shares and preferred shares
convertible into Common Shares. The value of the Common Shares was determined
based principally upon the weighted average trading price of the Common Shares
for the 20 trading day period preceding the execution of the letter of intent,
which was less than the $11.50 closing price of the Common Shares on the trading
day prior to such execution. Many of the employees of the Seller would have
become employees of the Company, certain of the Seller's senior executives would
have become senior executives of the Company and the Seller would have been
entitled to two representatives on the Company's Board of Trustees and
representation on various committees thereof. The letter of intent contemplated
the completion of due diligence and the execution of definitive documentation by
March 31, 1998, neither of which occured by such date. The Company is still
engaged in its due diligence investigation of the assets involved in the
proposed acquisition and, depending on the outcome thereof, could desire to
continue negotiations with the Seller with regard to an acquisition. However, as
a result of its due diligence investigation to date, the Company expects that
the terms of any acquisition could differ from those contained in the expiring
letter of intent. Depending upon the amount of voting securities of the Company
actually issued to the Seller in connection with any such acquisition, such
acquisition could require approval by the Company's shareholders.

Any of the properties described in the preceding two paragraphs, if
acquired, would be held in the Operating Partnership or in entities owned and
controlled by the Operating Partnership.

Since all of the foregoing potential acquisitions are subject to completion
of further due diligence, negotiation and execution of definitive documentation
and a number of other material contingencies, including in certain cases lender
consents, there can be no assurance that any one of these acquisitions will be
completed, or, if completed, upon what terms or at what time.

6
<PAGE>
CAPITALIZATION STRATEGY

During the second phase of this strategy, the Company plans to gradually
reduce its debt as a percentage of total market capitalization while continuing
to grow FFO per share. The Company's plan to reduce its debt in the future is
designed to achieve investment grade unsecured debt ratings to provide the
Company access to the corporate unsecured debt markets.

RISK FACTORS

An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to making an investment in the Company. Such risks include, among others:

- The Company is reliant on certain major tenants, four of which, Unisys
Corporation ("Unisys"), Teleport Communications Group Inc. ("TCG"), Merck
& Co., Inc. ("Merck") and IBM Corporation ("IBM"), accounted for 74.4% of
Total Rental Revenue (as hereinafter defined) as of March 1, 1998.

- The Company has a lack of geographic diversity, since all of its Office
Properties are located in the greater Philadelphia and Harrisburg,
Pennsylvania regions and the Princeton, New Jersey region.

- Although the Company intends to maintain its current level of
distributions, no assurance can be given that the Company will be able to
do so.

- The anti-takeover effects of the organizational documents of the Company
and the Operating Partnership, which limit actual or constructive
ownership of Common Shares by a single person to 9.8% of the number of
issued and outstanding Common Shares or the total equity value of such
shares (subject to certain exceptions), provide for staggered elections of
the trustees of the Company (the "Trustees") and contain certain other
provisions, may have the effect of delaying, deferring or preventing a
change in control of the Company or other transaction that might involve a
price for the Common Shares that exceeds their then current market price
or that may otherwise be considered desirable by the Company's
shareholders.

- The Company is subject to tax risks, including taxation of the Company as
a corporation if it fails to qualify as a REIT for federal income tax
purposes and the resulting decrease in cash that would be available for
distribution and certain state tax risks.

- Conflicts of interest between the Company and certain of its Trustees may
arise as a result of the Company's operating partnership structure as well
as the fact that certain of the Trustees have interests in outside
investments including other REITs.

- Investment in, and operation of, commercial real estate generally involves
certain risks, including the failure of tenants to make lease payments,
tenant defaults and bankruptcy, operating risks, including the ability to
pass on increased operating expenses, the impact on the Properties by
competition from existing properties or newly constructed properties and
environmental issues.

- The Company has significant levels of indebtedness and as a result, among
other things, of the annual income distribution requirements applicable to
REITs under the Internal Revenue Code of 1986, as amended (the "Code"),
the Company expects to rely on borrowings and other external sources of
financing to fund the costs of new property acquisitions, capital
expenditures and other items. Accordingly, the Company will be subject to
real estate financing risks, including changes from period to period in
the availability of such financing, the risk that the Company's cash flow
may not be sufficient to cover both required debt service payments and
distributions to shareholders and the risk that indebtedness secured by
properties will not be able to be refinanced or that the terms of such
refinancing will not be as favorable as the terms of existing
indebtedness.

7
<PAGE>
- The possibility that sales of a substantial number of Common Shares, or
the perception that such sales could occur, could adversely affect the
price of the Common Shares.

- Upon completion of the Offering, officers and Trustees of the Company will
beneficially own approximately 9.6% of the total outstanding Common Shares
(42.4% assuming all outstanding Units are redeemed with Common Shares) and
as a result will have a substantial influence on the Company.

- The Company's Board of Trustees (the "Board of Trustees") may change the
Company's investment, financing, distribution and other policies at any
time without shareholder approval.

- The Company is dependent on the efforts of its executive officers and the
loss of their services could have an adverse effect on the operations of
the Company.

8
<PAGE>
PROPERTIES

The Company currently owns interests in ten suburban office buildings in
Pennsylvania and New Jersey containing approximately 1.5 million rentable square
feet and seven retail properties located in the Midwest containing approximately
370,000 rentable square feet. As of March 1, 1998, the Properties were over 99%
leased. Set forth below is certain information with respect to the Properties.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF TOTAL RENTAL
YEAR LEASED TOTAL TOTAL REVENUE
BUILT/ RENTABLE (AS OF RENTAL RENTAL PER RENTABLE
PROPERTY LOCATION RENOVATED SQUARE FEET 3/1/98) REVENUE(1) REVENUE SQUARE FOOT
- ---------------------- ------------ ----------- ------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
PHILADELPHIA REGION
Unisys World Hdqtrs.
751 Jolly Rd...... 1966/1991 112,958 100.0% $1,425,955 7.2% $12.62(2)
753 Jolly Rd...... 1960/1992-94 424,380 100.0 2,903,216 14.6 6.84 (2)
760 Jolly Rd...... 1974/1994 199,380 100.0 2,516,925 12.6 12.62 (2)
Combined Total.... 736,718 6,846,096
Merck Building
785 Jolly Rd...... 1970/1996 218,219 100.0 2,096,951 10.5 9.61 (2)
Region Total...... 954,937 8,943,047

HARRISBURG REGION
Gateway Corporate
Center
6385 Flank Dr..... 1995 32,800 100.0 431,616 2.2 13.16

Commerce Park
Commerce Court.... 1989 67,377 98.2 1,071,348 5.4 16.19

2605 Interstate
Dr.............. 1990 84,268 100.0 1,159,160 5.8 13.76
Region Total...... 184,445 2,662,124 14.53

PRINCETON REGION
Princeton Technology
Center
Teleport National
Hdqtrs.
429 Ridge Rd.... 1966/1996 142,385 100.0 2,508,824 12.6 17.62
437 Ridge Rd.... 1962/1996 30,000 100.0 582,867 2.9 19.43
IBM Building
431 Ridge Rd.... 1958/1967 170,000 100.0 2,767,414 13.9 16.28
Region Total...... 342,385 5,859,105

THE RETAIL PROPERTIES 1991-1994 369,737 100.0 2,441,185 12.3 6.60 (2)

TOTAL/ WEIGHTED
AVERAGE......... 1,851,504 99.9% $19,905,461 100.0% $ 10.76
----------- -----------
----------- -----------

<CAPTION>
MAJOR TENANTS
(10% OR MORE
OF RENTABLE
PROPERTY LOCATION SQUARE FEET)
- ---------------------- --------------------------
<S> <C>
PHILADELPHIA REGION
Unisys World Hdqtrs.
751 Jolly Rd...... Unisys (100%)
753 Jolly Rd...... Unisys (100%)
760 Jolly Rd...... Unisys (100%)
Combined Total....
Merck Building
785 Jolly Rd...... Unisys with 100%
sublease to Merck
Region Total......
HARRISBURG REGION
Gateway Corporate
Center
6385 Flank Dr..... Cowles Magazines (35%)
Orion Capital (26%)
Commerce Park
Commerce Court.... Penn State Geisinger (38%)
Ernst & Young (26%)
Texas-Eastern Gas
Pipeline Co. (26%)
2605 Interstate
Dr.............. PA Emergency Mgmt.
Agency (56%)
USF&G (24%)
Health Central (15%)
Region Total......
PRINCETON REGION
Princeton Technology
Center
Teleport National
Hdqtrs.
429 Ridge Rd.... TCG (100%)(3)
437 Ridge Rd.... IBM with 100%
sublease to TCG
IBM Building
431 Ridge Rd.... IBM (100%)
Region Total......
THE RETAIL PROPERTIES SuperValu, Inc. (36%)
Nash-Finch Company (29%)
Fleming Companies, Inc.
(35%)
TOTAL/ WEIGHTED
AVERAGE.........
</TABLE>

- ------------------------

(1) Total Rental Revenue is the monthly contractual base rent as of March 1,
1998 multiplied by 12 plus the estimated annualized expense reimbursements
under existing leases except for the Philadelphia Region properties, which
are triple net leases pursuant to which the tenant pays all operating
expenses directly.

(2) Properties are triple net leased.

(3) On January 8, 1998, TCG announced its intention to merge with a subsidiary
of AT&T Corporation.

9
<PAGE>
STRUCTURE AND FORMATION OF THE COMPANY

The following diagram depicts the Company's structure and the ownership
interests following consummation of the Offering:

[CHART]

- ------------------------

(1) Trustees and officers own 42.4% assuming all outstanding Units are redeemed
with Common Shares.

(2) The Retail Properties are held by the Company.

(3) The Office Properties are held by subsidiary partnerships of the Operating
Partnership.

(4) Percentages are after giving effect to the Retained Interests (as
hereinafter defined). In the Transactions, the Operating Partnership
acquired all of the limited partnership interests in limited partnerships
holding the Office Properties except for an 11% limited partnership interest
in Blue Bell Investment Company, L.P. retained by Shidler Equities, L.P., a
limited partnership in effect controlled by Mr. Shidler, Chairman of the
Board, and his wife, Wallette Shidler, and an 11% limited partnership
interests in each of ComCourt Investors L.P. and 6385 Flank Drive, L.P.
retained by Mr. Hamlin, the President, Chief Executive Officer and a Trustee
of the Company (collectively, the "Retained Interests"). The Retained
Interests are required to be contributed to the Operating Partnership in
November 2000.

(5) Operating Partnership also has 2,100,000 of Preferred Units outstanding,
after giving effect to the contribution of the Retained Interests. See
"Operating Partnership Agreement."

10
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Shares offered........................ 7,500,000 Common Shares(1)
Common Shares outstanding after the
Offering................................... 9,771,083(1)(2)(3)
Common Shares outstanding after the Offering
assuming redemption of all Units........... 19,852,841 Common Shares(1)(3)
Use of proceeds.............................. The Company intends to use $70 million of the
anticipated net proceeds to repay
indebtedness outstanding under the Property
Financing and the remainder for acquisitions
and general business purposes. See "Use of
Proceeds."
NYSE symbol.................................. OFC
</TABLE>

- ------------------------

(1) Does not include 1,125,000 Common Shares that may be issued upon exercise of
the Underwriters' over-allotment options. See "Underwriting."

(2) Does not include (i) 9,133,345 Common Shares that may be issued under
certain circumstances upon conversion or redemption of outstanding Units and
(ii) 948,413 Common Shares that may be issued under certain circumstances
upon conversion or redemption of the Units to be issued in exchange for the
Retained Interests. See "Structure and Formation of the Company--The
Transactions."

(3) Does not include 115,000 Common Shares underlying options issued under the
Option Plan and Incentive Plan (each as hereinafter defined) as of March 30,
1998. See "Management--The Plans."

DISTRIBUTIONS

The Company intends to make regular quarterly cash distributions to its
shareholders based upon a quarterly distribution of $0.150 per Common Share,
which equates, on an annualized basis, to $0.60 per Common Share (or an annual
distribution rate of approximately 5.4% based upon the last bid price of the
Common Shares on NASDAQ on April 22, 1998). See "Price Range of Common Stock and
Distributions." For a discussion of the annual distribution requirements
applicable to REITs see "Federal Income Tax Considerations--Taxation of the
Company--Annual Distribution Requirements." For a discussion of the tax
treatment of distributions to the holders of the Common Shares, see "Federal
Income Tax Considerations--Taxation of Shareholders." Distributions by the
Company will be at the discretion of the Board of Trustees and will depend on
the Company's actual cash available for distribution, financial condition,
capital requirements, annual distribution requirements under the REIT provisions
of the Code and such other factors as the Board of Trustees deems relevant. See
"Risk Factors--Possible Changes in Policies Without Shareholder Approval; No
Limitation on Debt."

TAX STATUS OF THE COMPANY

The Company was organized in 1988 and elected to be taxed as a REIT
commencing with its taxable year ended on December 31, 1992. The Company
believes that it was organized and has operated in a manner that permits it to
satisfy the requirements for taxation as a REIT under the applicable provisions
of the Code, and intends to continue to operate in such a manner. If the Company
qualifies for taxation as a REIT, the Company generally will not be subject to
federal income tax on its taxable income that is distributed to its
shareholders. A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute at least 95%
of its annual taxable income (excluding net capital gains). The Company does not
intend to request a ruling from the Service as to its REIT status. The Company
has received an opinion of special tax counsel, that (i) the Company has
properly elected and otherwise qualified to be taxed as a REIT for the taxable
years beginning on and after January 1, 1992 and ending prior to January 1, 1998
and (ii) the proposed method of operation, as described in this Prospectus and
as represented by the Company, will enable the Company to continue to

11
<PAGE>
satisfy the requirements for such qualification for subsequent taxable years,
which opinion is based on certain assumptions and representations and will not
be binding on the Service or any court. Even if the Company continues to qualify
for taxation as a REIT, the Company may be subject to certain federal, state and
local taxes on its income and property. Failure to qualify as a REIT would
subject the Company to tax (including any applicable minimum tax) on its taxable
income at regular corporate rates, and distributions to the Company's
shareholders in any such year would not be deductible by the Company. See "Risk
Factors--Tax Risks" and "--Effects of Ownership Limit, Classified Board and
Power to Issue Additional Shares" and "Federal Income Tax Consequences--Taxation
of the Company."

SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY

The following summary selected historical financial data of the Company as
of and for the fiscal year ended December 31, 1997 has been derived from, and
should be read in conjunction with, the Company's audited financial statements
for that year. This information should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the Notes thereto of the
Company and the Combined Financial Statements and the Notes thereto of the
Office Properties included elsewhere in this Prospectus.

The pro forma operating and other data for the year ended December 31, 1997
set forth below gives effect to the Transactions and the Offering as if the
Transactions and the Offering (including the use of proceeds thereof) had
occurred on January 1, 1997. The pro forma balance sheet data as of December 31,
1997 gives effect to the Offering as if the Offering (and the use of proceeds
thereof) had occurred on such date. The information set forth below should be
read in conjunction with "Unaudited Pro Forma Financial Data," the Consolidated
Financial Statements and the Notes thereto of the Company and the Combined
Financial Statements and the Notes thereto of the Office Properties included
elsewhere in this Prospectus. The pro forma financial information is based upon
certain assumptions that are included in the notes to the pro forma financial
statements included elsewhere in this Prospectus. The pro forma financial
information is unaudited and is not necessarily indicative of what the financial
position or results of operations of the Company would have been as of the dates
and for the periods indicated, nor does it purport to represent or project the
financial position or results of operations for future periods.

12
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
1997 1997
----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Revenue:
Rental income......................................................................... $ 6,122 $ 18,338
Tenant recoveries and other income.................................................... 496 1,778
----------- -----------
Total revenue....................................................................... 6,618 20,116
----------- -----------
Expenses:
Interest.............................................................................. 2,855 3,824
Depreciation and amortization......................................................... 1,331 4,280
Property expenses..................................................................... 728 3,459
General and administrative............................................................ 533 707
Termination of Advisory Agreement(1).................................................. 1,353 --
----------- -----------
Total expenses...................................................................... 6,800 12,270
----------- -----------
Income (loss) before minority interests................................................. (182) 7,846
Income allocated to minority interests.................................................. (785) (4,396)
----------- -----------
Net income (loss)(1).................................................................... $ (967) $ 3,450
----------- -----------
----------- -----------
Net income (loss) per common share(1)................................................... $ (0.60) $ 0.35
----------- -----------
----------- -----------
BALANCE SHEET DATA (AS OF PERIOD END):
Real estate investments, net of accumulated depreciation................................ $ 188,625 $ 188,625
Total assets............................................................................ 193,534 196,534
Mortgages payable....................................................................... 114,375 44,375
Total liabilities....................................................................... 117,008 47,008
Minority interests...................................................................... 64,862 64,862
Stockholders' equity.................................................................... 11,664 84,664

OTHER DATA:
Cash flows provided by (used in):
Operating activities.................................................................. $ 3,216 $ -- (2)
Investing activities.................................................................. 973 -- (2)
Financing activities.................................................................. (1,052) -- (2)
Funds from operations(3)................................................................ 1,718 8,363
Weighted average shares outstanding (in thousands)...................................... 1,601 9,766

PROPERTY DATA (AS OF PERIOD END):
Number of properties owned.............................................................. 17 17
Total rentable square feet owned (in thousands)......................................... 1,852 1,852
</TABLE>

- ------------------------

(1) Reflects a non-recurring termination expense of $1,353 associated with the
termination of the Advisory Agreement (as hereinafter defined), which was
paid in the form of Common Stock (as hereinafter defined). See "Certain
Transactions."

(2) Pro forma information relating to cash flows from operating, investing and
financing activities has not been included because management believes that
the information would not be meaningful due to the number of assumptions
required in order to calculate this information.

(3) The White Paper on FFO approved by the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT") in March 1995
defines FFO as net income (loss) (computed in accordance with generally
accepted accounting principles ("GAAP")), excluding gains (or losses) from
debt restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that FFO is helpful to
investors as a measure of the financial performance of an equity REIT
because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to make
capital expenditures and to fund other cash needs. The Company computes FFO
in accordance with standards established by NAREIT which may not be
comparable to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. FFO does not represent cash
generated from operating activities determined in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions.

13
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON SHARES INVOLVES VARIOUS RISKS AND
CONSIDERATIONS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
INFORMATION IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE MAKING A DECISION TO PURCHASE THE COMMON SHARES OFFERED
HEREBY.

RELIANCE ON MAJOR TENANTS

The Company's four major tenants, Unisys, TCG (which has recently announced
its intention to merge with a subsidiary of AT&T), Merck and IBM, accounted for
an aggregate of 74.4% of Total Rental Revenue as of March 1, 1998. See
"Properties--Tenants." In the event that one or more of these tenants experience
financial difficulties, or default on their obligation to make rental payments
to the Company, the Company's financial performance and ability to make expected
distributions to shareholders would be materially adversely affected.

LACK OF GEOGRAPHICAL DIVERSITY

All of the Office Properties are located in the greater Philadelphia and
Harrisburg, Pennsylvania regions and the Princeton, New Jersey region. See
"Properties--The Suburban Office Properties." As a result, the Company does not
have the benefits of portfolio geographic diversity and is subject to any issues
selectively affecting these regions. Therefore, in the long term, based upon the
properties currently owned directly or indirectly by the Company, the Company's
financial performance and ability to make expected distributions to shareholders
is dependent upon the Philadelphia, Harrisburg and Princeton markets. There can
be no assurance as to the stability or growth conditions of the Philadelphia,
Harrisburg and Princeton markets.

RISK OF INABILITY TO SUSTAIN DISTRIBUTION LEVEL

The Company initially intends to maintain its current level of
distributions. However, the level of distributions is based on a number of
assumptions, including assumptions relating to future operations of the Company.
These assumptions concern, among other matters, continued property occupancy and
profitability of tenants, distributions received from the Operating Partnership,
the amount of future capital expenditures and expenses relating to the
Properties, the level of leasing activity and future rental rates, the strength
of the commercial real estate market, competition, the costs of compliance with
environmental and other laws, the amount of uninsured losses and decisions by
the Company to reinvest rather than distribute cash available for distribution.
The Company currently expects to maintain its distribution level throughout
1998. A number of the assumptions described above, however, are beyond the
control of the Company. Accordingly, no assurance can be given that the Company
will be able to maintain its distribution level.

EFFECTS OF OWNERSHIP LIMIT, CLASSIFIED BOARD AND POWER TO ISSUE ADDITIONAL
SHARES

POTENTIAL EFFECTS OF OWNERSHIP LIMITATION. For the Company to maintain its
qualification as a REIT under the Code, not more than 50% in value of the
outstanding shares of beneficial interest of the Company may be owned, directly
or indirectly, by five or fewer persons (as defined in the Code to include
certain entities) at any time during the last half of any taxable year. See
"Federal Income Tax Considerations--Taxation of the Company." The Amended and
Restated Declaration of Trust of the Company (the "Declaration of Trust")
authorizes the Board of Trustees, subject to certain exceptions, to take such
actions as may be necessary or desirable to preserve its qualification as a REIT
and to limit any person to direct or indirect ownership of no more than (i) 9.8%
of the Company's number of issued and outstanding shares of beneficial interest,
or (ii) 9.8% of the total equity value of such shares of beneficial interest
(the "Ownership Limit"). The Board of Trustees, upon such conditions as the
Board of Trustees, in its sole discretion (which may include receipt of an
appropriate ruling from the Internal Revenue Service (the

14
<PAGE>
"Service") or an opinion of counsel), may exempt a proposed transferee from the
Ownership Limit. However, the Board of Trustees may not grant an exemption from
the Ownership Limit to any proposed transferee whose ownership, direct or
indirect, of shares of beneficial interest of the Company in excess of the
Ownership Limit would result in the termination of the Company's status as a
REIT. The Board of Trustees has exempted the Common Shares issued in the
Transactions from the Ownership Limit, as well as the Common Shares to be issued
following redemption or conversion of the Units issued in the Transactions. For
an indication of the number of such Common Shares, see "Structure and Formation
of the Company--The Transactions" and "Security Ownership of Management and
Others." A transfer of Common Shares in violation of the above limits may result
in the constructive transfer of the Common Shares to a trust administered for
charitable purposes and/or trigger the Company's right to repurchase such Common
Shares. The foregoing restrictions on transferability and ownership will
continue to apply until the Board of Trustees determines that it is no longer in
the best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT. The Ownership Limit may have the effect of delaying,
deferring or preventing a change in control of the Company or other transaction
that might involve a premium over the then prevailing market price for the
Common Shares or other attributes that the shareholders may consider to be
desirable. See "Description of Common Shares--Restrictions on Transfer."

POTENTIAL EFFECTS OF STAGGERED ELECTIONS OF TRUSTEES. The Board of Trustees
is divided into three classes of Trustees. The terms of the first, second and
third classes of the Trustees will expire in 1999, 2000 and 2001, respectively.
Beginning in 1999, Trustees of each class will be chosen for three-year terms
upon the expiration of their current terms, and one class of Trustees will be
elected by the shareholders each year. The staggered terms of the Trustees may
reduce the possibility of a tender offer or an attempt to change control of the
Company, even though a tender offer or change in control might be considered by
the shareholders to be desirable. See "Certain Provisions of Maryland Law, the
Declaration of Trust and the Bylaws--Classification of Board and Removal of
Trustees."

POTENTIAL EFFECTS OF ISSUANCE OF ADDITIONAL SHARES; OTHER MATTERS. The
Declaration of Trust authorizes the Board of Trustees to (i) amend the
Declaration of Trust, without shareholder approval, to increase or decrease the
aggregate number of shares of beneficial interest of any class, including Common
Shares, that the Company has the authority to issue, (ii) cause the Company to
issue additional authorized but unissued Common Shares or preferred shares of
beneficial interest, par value $0.01 per share (the "Preferred Shares"), and
(iii) classify or reclassify any unissued Common Shares and Preferred Shares and
to set the preferences, rights and other terms of such classified or
unclassified shares. See "Description of Common Shares--General." In addition to
Common Shares issued in the Offering, the Company is likely to issue directly,
or through the issuance of Units by the Operating Partnership, a substantial
number of Common Shares or Units redeemable or exchangeable for Common Shares,
in connection with acquisitions. The Company is presently exploring a number of
potential acquisitions, some of which could be material and a number of which
could be effected in the near term. In addition, although the Board of Trustees
has no intention to do so at the present time, it will be authorized pursuant to
these provisions to establish a class or series of shares of beneficial interest
that could, depending on the term of such series, delay, defer or prevent a
change in control of the Company or other transaction that might involve a
premium over the then prevailing market price for the Common Shares or other
attributes that the shareholders may consider to be desirable. The Declaration
of Trust, the Bylaws of the Trust (the "Bylaws") and Maryland law also contain
other provisions that may have the effect of delaying, deferring or preventing a
change in control of the Company or other transaction that might involve a
premium over the then prevailing market price for the Common Shares or other
attributes that the shareholders may consider to be desirable. See "Certain
Provisions of Maryland Law, the Declaration of Trust and the Bylaws--Possible
Antitakover Effect of Certain Provisions of Maryland Law and of the Declaration
of Trust and the Bylaws."

Holders of Units in the Operating Partnership have the right to cause the
Operating Partnership to redeem their Units on the occurrence of certain events,
including a transaction resulting in a group

15
<PAGE>
becoming the beneficial owner of 20% or more of the Common Shares (other than
Permitted Holders, as defined in the Operating Partnership Agreement, which
include Messrs. Shidler and Hamlin) or a merger or consolidation involving the
Company. The Company has the option to deliver cash or Common Shares in
satisfaction of such redemption obligation. See "Operating Partnership
Agreement--Conversion and Redemption." This redemption provision may have the
effect of delaying, deferring or preventing a change in control of the Company
or other transaction that might involve a premium over the then prevailing
market price for the Common Shares or other attributes that the shareholders may
consider to be desirable. In addition, there is no limit on the ability of the
Operating Partnership to issue additional Units, which Units may be convertible
or redeemable for Common Shares. See "--Possible Adverse Effect of Shares
Available for Future Sale on Price of Common Shares." Existing shareholders will
have no preemptive right to acquire any such equity securities, and any such
issuance of equity securities could result in dilution of an existing
shareholder's investment in the Company.

The issuance of Common Shares or Preferred Shares discussed above could have
a dilutive effect on shareholders.

TAX RISKS

FAILURE TO QUALIFY AS A REIT. The Company was organized and has operated,
and intends to operate, so as to qualify as a REIT for federal income tax
purposes. The Company has not requested, and does not expect to request, a
ruling from the Service that it qualifies as a REIT. The Company has received an
opinion of its counsel that, based upon certain assumptions and representations,
the Company has properly elected and otherwise qualified to be taxed as a REIT
for the taxable years commencing on and after January 1, 1992 and ending prior
to January 1, 1998 and the Company's proposed method of operation will enable
the Company to continue to so qualify. Shareholders should be aware, however,
that opinions of counsel are not binding on the Service or any court. The REIT
qualification opinion only represents the view of counsel to the Company based
upon such counsel's review and analysis of existing law, which includes no
controlling precedent. Furthermore, both the validity of the opinion and the
qualification of the Company as a REIT will depend on the Company's continuing
ability to meet various requirements concerning, among other things, the
ownership of its outstanding stock, the nature of its assets, the sources of its
income and the amount of its distributions to its shareholders. There can be no
assurance that the Company will do so successfully. See "Federal Income Tax
Considerations--Taxation of the Company."

If the Company were to fail to qualify as a REIT for any taxable year, the
Company would not be allowed a deduction for distributions to its shareholders
in computing its taxable income and would be subject to federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. As a result, cash
available for distribution would be reduced for each of the years involved.
Although management intends to operate the Company in a manner designed to meet
the REIT qualification requirements, it is possible that future economic,
market, legal, tax or other considerations may cause the Board of Trustees to
revoke the REIT election. See "Federal Income Tax Considerations."

OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT, it will be
subject to certain state and local taxes on its income and property, and may be
subject to certain federal taxes. The Company was reformed as a Maryland real
estate investment trust in March 1998 and is treated as a corporation for tax
purposes. Generally, all corporations operating in Pennsylvania are subject to
the Pennsylvania Corporate Net Income Tax ("CNI") and the Pennsylvania Capital
Stock/Foreign Franchise Tax ("CS/FF") apportioned to Pennsylvania based on that
corporation's activities within the Commonwealth. However, a foreign business
trust that confines its activities in Pennsylvania to the maintenance,
administration and management of intangible investments and qualifies as a REIT
under Section 856 of the Code or a qualified REIT subsidiary under Section
856(i) of the Code is not subject to the CS/FF or CNI. If the

16
<PAGE>
Company were to fail to qualify as REIT for any tax year, the Company would be
subject to CNI and CS/ FF based upon the Company's income and equity apportioned
to Pennsylvania.

In the Transactions, the transfers of partnership interests to the Operating
Partnership relating to the Properties located in Pennsylvania were structured
as transfers of 89% of the capital interests with the remaining interests to be
acquired by the Operating Partnership not later than December 2000. This
structure is intended to comply with informal advice from the Pennsylvania
Department of Revenue that such transfers are not subject to Pennsylvania real
estate transfer taxes. However, the Company has not obtained a formal ruling
from the Pennsylvania Department of Revenue on this issue. If the Pennsylvania
Department of Revenue were to successfully challenge this structure, or the
remaining interests were required to be transferred for financing or other
purposes prior to October 14, 2000, the Operating Partnership would be subject
to Pennsylvania state and local transfer taxes of approximately $2.7 million.

REIT MINIMUM DISTRIBUTION REQUIREMENTS; POSSIBLE INCURRENCE OF ADDITIONAL
DEBT. In order to qualify as a REIT, the Company generally will be required
each year to distribute to its shareholders at least 95% of its net taxable
income (excluding any net capital gains). In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain
net income for that year and (iii) 100% of its undistributed taxable income from
prior years. The Company intends to make distributions to its shareholders to
comply with the 95% distribution requirement and to avoid the nondeductible
excise tax. The Company's income will consist primarily of its share of the
income of the Operating Partnership and, to a significantly lesser extent, from
the properties it owns directly, and the cash available for distribution by the
Company to its shareholders will consist of its share of cash distributions from
the Operating Partnership and, to a significantly lesser extent, cash flow from
the properties it owns directly together with funds available to it from
borrowings. Differences in timing between (i) the actual receipt of income and
actual payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at taxable income of the Company could
require the Company, directly or indirectly through the Operating Partnership,
to borrow funds on a short-term basis to meet the 95% distribution requirement
and to avoid the nondeductible excise tax. See "--Real Estate Financing Risks."

CONFLICTS OF INTEREST

RISKS RELATING TO STRUCTURE. The Company currently owns the Retail
Properties directly and its interest in the Office Properties indirectly through
its interests in the Operating Partnership and the Properties Partnerships (as
hereinafter defined). Messrs. Shidler and Hamlin, Trustees of the Company, are
limited partners of the Operating Partnership ("Limited Partners") and are
limited partners in certain of the Properties Partnerships. Certain Trustees
also own Preferred Units (as defined in the Operating Partnership Agreement)
which receive a priority return to the Partnership Units (as defined in the
Operating Partnership Agreement) held by the Company and other limited partners,
and it is anticipated that additional Preferred Units will be issued in the
future. See "Structure and Formation of the Company--The Transactions" and
"Operating Partnership Agreement." As a result, there are basically two pools of
assets in which the Company has differing interests and conflicts of interest
may arise concerning, among other things, the allocation of resources (financial
or otherwise) between asset pools, assets sales and the reduction of
indebtedness.

The Company, as the general partner (the "General Partner") of the Operating
Partnership, may have fiduciary duties to the Limited Partners, the discharge of
which may conflict with interests of the Company's shareholders. Pursuant to the
Operating Partnership Agreement, however, the Limited Partners have acknowledged
that the Company is acting both on behalf of the Company's shareholders and, in
its capacity as General Partner, on behalf of the Limited Partners. The Limited
Partners have agreed that the Company will discharge its fiduciary duties to the
Limited Partners by acting in the best interests of the Company's shareholders.
Limited Partners will also have the right to vote on amendments to the Operating

17
<PAGE>
Partnership Agreement, many of which will require the vote of holders (other
than the Company) of a majority of the Partnership Units and the Preferred
Units, voting separately, and individually to approve certain amendments that
will adversely affect their rights. These voting rights may be exercised in a
manner that conflicts with the interests of the Company's shareholders.

In addition, distributions from the Operating Partnership and income from
the Retail Properties may not be sufficient to both pay the Company's current
overhead expenses and maintain the current level of distributions to
shareholders. To the extent that there is a mismatch between expenses and
shareholder distributions, on the one hand, and Operating Partnership
distributions and rental income, on the other hand, the Company would be
required to seek discretionary distributions or loans from the Operating
Partnership, to incur additional indebtedness in order to fund operating
expenses and distributions or to decrease shareholder distributions. See "--Real
Estate Financing Risks." Alternatively, the Company may seek to issue additional
Common Shares, although the proceeds from such issuance would be required to be
contributed to the Operating Partnership absent a waiver by the Limited
Partners.

RISKS RELATED TO OUTSIDE INVESTMENTS. Mr. Shidler, the Chairman of the
Board of Trustees, also has interests in a number of other real estate
investments, including First Industrial, a REIT, of which he is Chairman of the
Board of Directors. As a result, Mr. Shidler will only spend a portion of his
time on the Company's business. Instances may arise in which Mr. Shidler's
interests with respect to his overall activities, or a given investment
opportunity, may be inconsistent with the interests of the Company. Mr. Hamlin,
President, Chief Executive Officer and a Trustee, also has interests in a number
of other real estate investments, including First Industrial and TriNet and
other REITs. Although Mr. Hamlin has entered into an employment agreement with
the Company, which requires that he devote his full business time to the affairs
of the Company and contains a non-compete clause, there can be no assurance that
instances would not arise which present conflicts of interest. See
"Management--Executive Officers and Trustees" and "--Employment Agreement."

Entities controlled by Mr. Shidler and Mr. Hamlin also own undeveloped
property contiguous to certain of the Properties. Although all such entities
have granted the Company an option to acquire these properties at a discount to
fair market value, there can be no assurance that the Company will acquire these
properties. These properties could be developed and compete with the Company for
tenants.

REAL ESTATE INVESTMENT RISKS

GENERAL RISKS. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of rental income earned and capital appreciation
generated, as well as property operating and other expenses incurred. If the
Properties do not generate revenues sufficient to meet operating expenses of the
Operating Partnership and the Company, including debt service, tenant
improvements, leasing commissions and other capital expenditures, the Operating
Partnership or the Company may have to borrow additional amounts to cover fixed
costs, and the Company's financial performance and ability to make distributions
to its shareholders may be adversely affected.

The Company's revenues and the value of the Properties may be adversely
affected by a number of factors, including (i) the national, state and local
economic climate and real estate conditions (such as oversupply of or reduced
demand for space and changes in market rental rates), (ii) the perceptions of
prospective tenants of the attractiveness, convenience and safety of the
Properties, (iii) the ability of the Company to provide adequate management,
maintenance and insurance, (iv) the ability to collect all rent from tenants on
a timely basis, (v) the expense of periodically renovating, repairing and
reletting spaces and (vi) increasing operating costs (including real estate
taxes and utilities) to the extent that such increased costs cannot be passed
through to tenants. Certain significant costs associated with investments in
real estate (such as mortgage payments, real estate taxes, insurance and
maintenance costs) generally are not reduced when circumstances cause a
reduction in rental revenues from the property and vacancies

18
<PAGE>
result in loss of the ability to receive tenant reimbursements of operating
costs customarily borne by commercial real estate tenants. In addition, real
estate values and income from properties are also affected by such factors as
compliance with laws applicable to real property, including environmental and
tax laws, interest rate levels and the availability of financing. Furthermore,
the amount of available rentable square feet of commercial property is often
affected by market conditions and may therefore fluctuate over time.

TENANT DEFAULTS AND BANKRUPTCY. Substantially all of the Company's income
will be derived, directly or through distributions from the Operating
Partnership, from rental income from properties. The distributable cash flow and
ability to make expected distributions to shareholders would be adversely
affected if a significant number of the Company's tenants failed to meet their
lease obligations. Tenants may seek the protection of the bankruptcy laws, which
could result in delays in rental payments or in the rejection and termination of
such tenant's lease and thereby cause a reduction in the Company's cash flow and
the amounts available for distributions to its shareholders. No assurance can be
given that tenants will not file for bankruptcy protection in the future or, if
any tenants file, that they will affirm their leases and continue to make rental
payments in a timely manner. In addition, a tenant, from time to time, may
experience a downturn in its business, which may weaken its financial condition
and result in the failure to make rental payments when due. If tenant leases are
not affirmed following bankruptcy, or if a tenant's financial condition weakens,
the Company's results of operations and the amounts available for distribution
to its shareholders may be adversely affected.

OPERATING RISKS. The Properties will be subject to operating risks common
to commercial real estate in general, any and all of which may adversely affect
occupancy and rental rates. The Properties will be subject to increases in
operating expenses such as cleaning, electricity, heating, ventilation and air
conditioning, maintenance, insurance and administrative costs, and other general
costs associated with security, landscaping, repairs and maintenance. While the
Company's current tenants generally are obligated to pay a portion of these
escalating costs, there can be no assurance that tenants will agree to pay all
or a portion of such costs upon renewal or that new tenants will agree to pay
such costs. If operating expenses increase, the local rental market may limit
the extent to which rents may be increased to meet increased expenses without
decreasing occupancy rates. While the Company implements cost-saving incentive
measures at each of its properties, the Company's results of operations and
ability to make distributions to shareholders could be adversely affected if
operating expenses increase without a corresponding increase in revenues,
including tenant reimbursements of operating costs. In addition, when tenant
leases expire, the Company may incur significant retenanting costs for leasing
commissions and tenant improvements.

COMPETITION; RISK OF NOT MEETING TARGETED LEVEL OF LEASING ACTIVITY,
ACQUISITIONS AND DEVELOPMENT. Numerous commercial properties compete with the
Properties in attracting tenants to lease space, and additional properties can
be expected to be built in the markets in which the Properties are located. The
number and quality of competitive commercial properties in a particular area
will have a material effect on the Company's ability to lease space at its
current properties or at newly acquired properties and on the rents charged.
Some of these competing Properties may be newer or better located than the
Properties. In addition, the commercial real estate market is highly competitive
particularly within the Mid-Atlantic region in which the Company presently
operates. There are a significant number of buyers of commercial property,
including other publicly traded commercial REITs, many of which have significant
financial resources. This has resulted in increased competition in acquiring
attractive commercial properties. See "--Real Estate Investment Risks--Risks
Associated with Acquisition, Development and Construction Activities."
Accordingly, it is possible that the Company may not be able to meet its
targeted level of property acquisitions and developments due to such competition
or other factors which may have an adverse effect on the Company's expected
growth in operations.

19
<PAGE>
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability to
borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of and exposure to hazardous
substances, including asbestos-containing materials ("ACMs"), into the air, and
third parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released
hazardous substances, including ACMs. As the owner of real properties, the
Company may be potentially liable for any such costs.

Phase I environmental site assessments ("ESAs") have been obtained for each
of the Properties. The purpose of Phase I ESAs is to identify potential sources
of contamination for which a company may be responsible and to assess the status
of environmental regulatory compliance. Where recommended in the Phase I ESA,
invasive procedures, such as soil sampling and testing or the installation and
monitoring of groundwater wells, were subsequently performed. The Phase I ESAs,
including subsequent procedures where applicable, have not revealed any
environmental liability that, after giving effect to indemnification available
to the Company, the Company believes would have a material adverse effect on the
Company's business, assets or results of operations, nor is the Company aware of
any such material environmental liability. Nevertheless, it is possible that the
indemnification would be unavailable at the time the Company sought to make a
claim thereunder, the Phase I ESAs relating to any one of the Properties have
not revealed all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware. Moreover, there can
be no assurance that (i) future laws, ordinances or regulations will not impose
any material environmental liability or (ii) the current environmental condition
of the Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of such properties (such as the presence of
underground storage tanks) or by third parties unrelated to the Company.

EFFECT OF AMERICANS WITH DISABILITIES ACT COMPLIANCE ON CASH FLOW AND
DISTRIBUTIONS. Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Existing
commercial properties generally are subject to provisions requiring that
buildings be made accessible to people with disabilities. Compliance with the
ADA requirements could require removal of access barriers, and non-compliance
could result in imposition of fines by the U.S. government or an award of
damages to private litigants. While the amounts of such compliance costs, if
any, are not currently ascertainable, they are not expected to have a material
effect on the Company.

CHANGES IN LAWS. Because increases in income or service taxes may not be
passed through to tenants under some leases, such increases may adversely affect
the Company's results of operations and its ability to make distributions to
shareholders. In addition, the Properties are subject to various federal, state
and local regulatory requirements and to state and local fire and lifesafety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that the Properties currently are in material
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's cash flow and
ability to make expected distributions to shareholders.

20
<PAGE>
UNINSURED LOSSES. The Company will generally carry commercial general
liability insurance, standard "all-risk" property insurance, and flood and
earthquake (where appropriate) and rental loss insurance with respect to its
properties with policy terms and conditions customarily carried for similar
properties. No assurance can be given, however, that material losses in excess
of insurance proceeds will not occur in the future which would adversely affect
the business of the Company and its financial condition and results of
operations. In addition, certain types of losses may be either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a property,
as well as the anticipated future revenue from such property, and would continue
to be obligated on any mortgage indebtedness or other obligations related to the
property.

RISKS ASSOCIATED WITH ILLIQUIDITY OF REAL ESTATE. Equity real estate
investments are relatively illiquid. Such illiquidity will tend to limit the
ability of the Company to vary its portfolio promptly in response to changes in
economic or other conditions. In addition, the Code limits the ability of a REIT
to sell properties held for fewer than four years, which may affect the
Company's ability to sell properties without adversely affecting returns to
holders of Common Shares.

RISKS ASSOCIATED WITH ACQUISITION, DEVELOPMENT AND CONSTRUCTION
ACTIVITIES. The Company intends to acquire existing commercial properties to
the extent that they can be acquired on advantageous terms and meet the
Company's investment criteria. Acquisitions of such properties entail general
investment risks associated with any real estate investment, including the risk
that investments will fail to perform in accordance with expectations or that
estimates of the costs of improvements to bring an acquired property up to the
Company's standards may prove inaccurate.

The Company also intends to grow in part through the selective development,
redevelopment and construction of commercial properties, including build-to-suit
properties and speculative development, as suitable opportunities arise.
Additional risks associated with such real estate development and construction
activities include the risk that the Company may abandon development activities
after expending significant resources to determine their feasibility; the
construction cost of a project may exceed original estimates; occupancy rates
and rents at a newly completed property may not be sufficient to make the
property profitable; financing may not be available on favorable terms for
development of a property; and the construction and lease up of a property may
not be completed on schedule (resulting in increased debt service and
construction costs). Development activities are also subject to risks relating
to inability to obtain, or delays in obtaining, necessary zoning, land-use,
building occupancy and other required governmental permits and authorizations.
If any of the above occur, the Company's results of operations and ability to
make distributions to shareholders could be adversely affected. In addition, new
development activities, regardless of whether they are ultimately successful,
may require a substantial portion of management's time and attention.

REAL ESTATE FINANCING RISKS

As of December 31, 1997, the Company and the Operating Partnership had,
without regard to the use of Offering proceeds to repay debt, approximately $14
million and $100 million of outstanding indebtedness, respectively, all of which
is collateralized. The indebtedness of the Company is in the form of mortgage
notes which are non-recourse to any property of the Company other than the
specific retail store property or properties collateralizing the mortgage note,
and are subject to prepayment penalties. The Property Financing matures in
October 2000 (subject to an ability, under certain circumstances, to extend for
two additional years). The Company intends to repay $70 million under the
Property Financing with the net proceeds of the Offering, which amount may be
reborrowed. For a description of the indebtedness outstanding to the Properties
Partnerships, see "Structure and Formation of the Company--Description of
Property Financing." The Company intends to continue to operate in the near term
with higher debt levels than most other REITs. The Declaration of Trust does not
limit the amount of indebtedness that the Company may incur. In addition, as a
result of, among other things, the annual income distribution requirements
applicable to REITs under the Code, the Company will be required to rely on
borrowings,

21
<PAGE>
either directly or through the Operating Partnership, and other external sources
of financing to fund the costs of new property acquisitions, capital
expenditures and other items. Accordingly, the Company and the Operating
Partnership will be subject to real estate financing risks, including changes
from period to period in the availability of such financing, the risk that the
Company's or the Operating Partnership's cash flow may not be sufficient to
cover both required debt service payments and distributions to shareholders and
the risk that indebtedness secured by properties will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness. Each of the Properties, whether directly owned
or owned through the Operating Partnership, has been mortgaged to collateralize
indebtedness. If the Company or the Operating Partnership becomes unable to meet
its required mortgage payment obligations, the property or properties subject to
such mortgage indebtedness could be foreclosed upon by or otherwise transferred
to the mortgagee, with a consequent loss of income and asset value to the
Company.

In addition, to the extent the Operating Partnership was unable to meet its
debt service obligations, cash distributions to the Company could be reduced or
eliminated. The Property Financing contains provisions that could restrict the
ability of the Operating Partnership to make distributions to the Company. Not
only does the Property Financing specifically limit certain distributions and
contain financial covenants the practical effect of which may require cash to be
retained by the Operating Partnership, but in the event of a default by the
Operating Partnership, the lender under the Property Financing could require the
Operating Partnership to significantly curtail or eliminate all distributions.
Any indebtedness incurred in the future by the Operating Partnership may contain
similar limitations and covenants. There can be no assurance that the lenders
under the Property Financing or such future indebtedness would grant waivers of
these provisions. Any reduction in distributions from the Operating Partnership
could require the Company to reduce distributions to shareholders or incur debt
to maintain the current level of distributions. See "Structure and Formation of
the Company--Description of Property Financing."

POSSIBLE ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE SALE ON PRICE OF COMMON
SHARES

Sales of a substantial number of Common Shares, or the perception that such
sales could occur, could adversely affect the prevailing market price of the
Common Shares. Sales or issuances of Common Shares could have a dilutive effect
on existing shareholders. In addition to the Common Shares currently outstanding
or being sold in the Offering, 2,299,310 Partnership Units (excluding 600,000
Units owned by the Company) and 1,913,545 Preferred Units were outstanding as of
December 31, 1997, which were, as of such date, convertible under certain
circumstances into an aggregate of 2,299,310 and 6,834,035 Common Shares,
respectively. Holders of the Retained Interests (as hereinafter defined) were
also entitled, as of December 31, 1997, to receive Partnership Units convertible
into 282,508 Common Shares and Preferred Units convertible into 665,905 Common
Shares. Subject to compliance with the Operating Partnership Agreement, the
holders of the Partnership Units (the "Unit Holders") have the right to require
the Operating Partnership to redeem all or a portion of such Partnership Units
beginning on September 1, 1998 for cash. The Operating Partnership has the
option to pay such redemption price in Common Shares, which option it currently
anticipates exercising in the event any Units are redeemed, subject to the
limitations in the Operating Partnership Agreement. Each Preferred Unit is
convertible into 3.5714 Partnership Units, subject in turn to the right of
redemption referred to above, beginning on October 1, 1999. Upon the issuance of
Common Shares in satisfaction of the Operating Partnership's redemption
obligations, the Common Shares may be sold in the public market pursuant to
shelf registration statements which the Company is obligated to file on behalf
of the Unit Holders or pursuant to any available exemptions from registration.
See "Structure and Formation of the Company--The Transactions" and "Security
Ownership of Management and Others."

Options to purchase a total of 70,000 shares of Common Stock are outstanding
as of March 30, 1998 under the Company's Stock Option Plan for Directors (the
"Option Plan"). In addition, up to ten percent

22
<PAGE>
of the Common Shares outstanding from time to time will be available for grant
under the Company's 1998 Long Term Incentive Plan (the "Incentive Plan").
Options to purchase a total of 45,000 Common Shares are outstanding as of March
30, 1998 under the Incentive Plan. See "Management--The Plans."

The Company intends to cause the Operating Partnership to offer additional
Preferred Units and Partnership Units in exchange for property or otherwise.
Existing shareholders will have no preemptive right to acquire any such equity
securities, and any such issuance of equity securities could result in dilution
of an existing shareholder's investment in the Company. No prediction can be
made concerning the effect that future sales of any of such Common Shares will
have on the market prices of shares.

CONTROL OF MANAGEMENT; LIMITS ON CHANGE OF CONTROL

Giving effect to the Offering, Trustees and executive officers of the
Company, as a group, beneficially owned, as of March 30, 1998, approximately
9.6% of the total outstanding Common Shares (approximately 42.4% assuming
issuance of Common Shares in satisfaction of the redemption obligations with
respect to the Partnership Units and the Preferred Units owned and to be owned,
following contribution of the Retained Interests to the Operating Partnership in
exchange for Units, by such group, which Common Shares may be issued beginning
September 1, 1998 (in the case of the Partnership Units) and October 1, 1999 (in
the case of the Preferred Units)). See "Security Ownership of Management and
Others." The Company currently expects that, if permitted under the Operating
Partnership Agreement provisions designed to maintain the Company's REIT status,
in the event of any redemption, it will elect to deliver Common Shares for such
Units. Accordingly, such Trustees and executive officers will have substantial
influence on the Company, which influence might not be consistent with the
interests of all other shareholders, and may in the future have a substantially
greater influence on the outcome of any matters submitted to the Company's
shareholders for approval following redemption of the Units. This significant
ownership interest by Trustees and executive officers may have the effect of
delaying, deferring or preventing a change in control of the Company or other
transaction that might involve a premium over the then prevailing market price
for the Common Shares or other attributes that the shareholders may consider to
be desirable. See "--Conflicts of Interest."

POSSIBLE CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL; NO LIMITATION ON DEBT

The Company's investment, financing and distribution policies, and its
policies with respect to all other activities, including growth, capitalization
and operations, will be determined by the Board of Trustees. Although the
Company's Board of Trustees has no present intention to do so, these policies
may be amended or revised at any time and from time to time at the discretion of
the Board of Trustees without a vote of the Company's shareholders. A change in
these policies could adversely affect the Company's financial condition, results
of operations or the market price of the Common Shares. The organizational
documents of the Company do not contain any limitation on the amount of
indebtedness the Company may incur. See "Policies with Respect to Certain
Activities."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of its trustees and executive
officers, including the Company's Chairman of the Board of Trustees, Mr.
Shidler, the Company's President and Chief Executive Officer, Mr. Hamlin, and
the Company's Vice President and Chief Investment Officer, Mr. Bernheim.
Although Mr. Hamlin has entered into an employment agreement with the Company,
there can be no assurance that he will not elect to terminate his agreement. The
loss of any of their services could have an adverse effect on the operations of
the Company. See "Management--Employment Agreement."

23
<PAGE>
POSSIBLE ADVERSE EFFECT ON PRICE OF COMMON SHARES

One of the factors that is expected to influence the market price of the
Common Shares is the annual distribution rate on the Common Shares. An increase
in market interest rates may lead prospective purchasers of the Common Shares to
demand a higher annual distribution rate from future distributions. Such an
increase in the required distribution rate may adversely affect the market price
of the Common Shares. Moreover, numerous other factors, such as regulatory
action and changes in tax laws, could have a significant impact on the future
market price of the Common Shares. There also can be no assurances that
following listing on the NYSE the Company will continue to meet the criteria for
continued listing of the Common Shares.

RISKS ASSOCIATED WITH RELIANCE ON FORWARD-LOOKING STATEMENTS

This Prospectus contains "forward-looking statements" relating to, without
limitation, future economic performance, plans and objectives of management for
future operations and projections of revenue and other financial items, which
can be identified by the use of forward-looking terminology such as "may,"
"will," "should," "expect," "anticipate," "estimate," "believe" or "continue" or
the negative thereof or other variations thereon or comparable terminology. The
Company's actual results may differ significantly from the results discussed in
such "forward-looking statements." Factors that could cause such differences
include, but are not limited to, the risks described in this Risk Factors
section of this Prospectus.

24
<PAGE>
THE COMPANY

GENERAL

The Company is a self-administered REIT which focuses principally on the
ownership, acquisition and management of suburban office properties in strong
and growing submarkets in the United States. The Company currently owns
interests in ten suburban office properties in Pennsylvania and New Jersey
containing approximately 1.5 million rentable square feet and seven retail
properties located in the Midwest containing approximately 370,000 rentable
square feet. As of March 1, 1998, the Properties were over 99% leased. In
addition, the Company has options to purchase 44.3 acres of land contiguous to
certain of the Office Properties owned by related parties.

The Company was formed in 1988 to own and acquire retail properties and
subsequently became an externally advised REIT. On October 14, 1997, the
Company, as part of the Transactions, acquired the Mid-Atlantic suburban office
operations of The Shidler Group, a national real estate firm. As a result of the
Transactions, the Company relocated its headquarters from Minneapolis to
Philadelphia and became internally administered. At that time, Jay Shidler
became the Company's Chairman of the Board and Clay Hamlin became the Company's
President and Chief Executive Officer. On January 1, 1998, the Company changed
its name to Corporate Office Properties Trust, Inc. On March 16, 1998, the
Company was reformed as a Maryland real estate investment trust.

Mr. Shidler, a nationally acknowledged expert in the field of real estate
investment and finance, has a recognized investment track record resulting from
the successful creation and performance of other large public real estate
companies consisting of TriNet and First Industrial. Both TriNet and First
Industrial have experienced rapid growth since their initial public offerings in
May 1993 and June 1994, respectively, and currently have total market
capitalizations of approximately $1.5 billion and $2.7 billion, respectively.

The principal executive offices of the Company and the Operating Partnership
are located at One Logan Square, Suite 1105, Philadelphia, Pennsylvania 19103,
and its telephone number is (215) 567-1800.

THE SUBURBAN OFFICE MARKET

The performance of the U.S. office market has improved substantially since
the recession of the late 1980's and early 1990's. According to CB
Commercial/Torto Wheaton Research, office property returns for the twelve months
ended June 30, 1997 exceeded all calendar year returns since 1983. A number of
markets across the country are beneficiaries of declining vacancies and limited
or no new construction, which is resulting in increased average rental rates.
This is particularly true in suburban office markets, which continue to exhibit
stronger performance than downtown office markets on a nationwide basis. For the
fifth consecutive year through 1997, the year-end national suburban office
vacancy rate was lower than the national downtown average vacancy rate.

25
<PAGE>
The following chart shows the ten-year history of national office vacancy
rates in suburban and central business district markets:

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
SUBURBAN CBD
<S> <C> <C> <C> <C> <C>
</TABLE>

[LOGO]

The following chart shows the ten-year history of new office construction
completions and net absorption in suburban markets:

[LOGO]

26
<PAGE>
BUSINESS OBJECTIVES AND GROWTH STRATEGIES

The Company's primary business objectives are to achieve sustainable
long-term growth in FFO per share and to maximize long-term shareholder value.
The Company intends to achieve these objectives primarily through external
growth and, to a lesser extent, through internal growth. The Company intends to
focus its activities on acquiring, owning and operating suburban office
properties in strong and growing submarkets throughout the United States. The
Company does not intend to expand its investment in retail properties (except as
part of an entity or portfolio acquisition consisting principally of suburban
office properties) and, to the extent appropriate opportunities arise, may sell
or exchange some or all of the Properties and reinvest any net cash proceeds
therefrom in suburban office properties. It also may decide to contribute some
or all of these properties to the Operating Partnership in exchange for
additional Units. Key elements of the Company's business objectives and growth
strategies include:

- - SUBURBAN OFFICE FOCUS. Management believes office buildings currently offer
the strongest fundamentals of any real estate property type, and suburban
office properties offer the Company very attractive investment opportunities.
The four key factors driving the strong fundamentals of suburban office
properties are (i) increasing rental rates, (ii) declining vacancy rates,
(iii) positive net absorption and (iv) limited new supply of office product.
Management believes that many companies are relocating to, and expanding in,
suburban locations because of lower total costs, proximity to residential
housing and better quality of life.

- - EXTERNAL GROWTH. The Company is actively pursuing the acquisition of suburban
office properties in strong and growing submarkets in the United States
submarkets with strong fundamentals. The Company's three-part acquisition
strategy includes targeting (i) entity transactions in which the Company
enters new markets or increases its penetration in existing markets by
acquiring significant portfolios along with their management, which will also
enable the Company to enhance its management infrastructure and local
expertise, (ii) portfolio purchases in or near existing markets as well as
selective new markets and (iii) opportunistic acquisitions of individual
properties in submarkets in which the Company already has a presence. The
Company believes that there are a significant number of potential acquisitions
that could greatly benefit from the Company's experience in enhancing property
cash flow and value by renovating and repositioning properties. The Company
will seek to make acquisitions at attractive yields and below replacement
costs.

Entity Transactions ($100+ million average size). The Company will seek
to identify acquisitions of significant portfolios together with their
management organizations. The Company anticipates that these entity
transactions will (i) facilitate rapid growth, (ii) drive its goal to
achieve a national presence by entering new markets and gaining major
regional presences, (iii) achieve economies of scale through the
integration of the property management organizations of the acquired
entities into the Company's management infrastructure and (iv) assist it
in building strong local management to complement its current management
team. Through these local managers, the Company also expects to have
better access to acquisition and development opportunities. This strategy
allows the sellers of the entities to contribute their organizations in
exchange for Units on a tax-deferred basis, and to retain significant
involvement in the future management of the Company. Further, the Company
believes that the commitment of such local management often will be
assured by virtue of such owner's significant investment in the Company.

Portfolio Purchases ($50+ million average size). The Company will seek
to make portfolio purchases that provide either attractive yields or
potential for growth in cash flow from property operations and are well
located and competitive in their submarkets. These acquisitions are also
expected to expand the Company's regional presence within or near to its
existing markets and to selectively enter new markets. The Company
believes portfolio purchases will frequently result in the addition of
experienced property managers knowledgeable in the day-to-day operation
of the

27
<PAGE>
acquired properties. In addition, the Company expects that these local
asset managers will provide increased property management capabilities
and business linkages, including access to additional acquisitions, in
the particular submarket where the acquired properties are located.

Opportunistic Acquisitions ($10+ million average size). The Company
will seek to acquire individual office properties in its existing
markets which are under-performing and present an attractive opportunity
to create value and enhance FFO through the Company's hands-on approach
to property repositioning, including the implementation of property
specific renovation programs for underperforming assets. The Company
believes that the significant experience of its management in property
development, redevelopment, construction, management and leasing
provides it with the expertise necessary to identify, acquire, upgrade,
renovate and reposition suburban office properties. The Company believes
these opportunistic acquisitions will be accretive to the Company's FFO
per share and will provide significant returns relative to the risk
involved.

The Company believes it has certain competitive advantages which will
enhance its ability to identify and capitalize on acquisition
opportunities, including: (i) management's multiple market expertise in
identifying, creatively structuring and closing acquisitions; (ii)
management's experience in successfully growing public real estate
companies utilizing a centralized/decentralized organizational
structure; (iii) management's long-standing relationships with tenants,
real estate brokers and institutional and other owners of commercial
real estate, which collectively help the Company to identify acquisition
opportunities resulting in a large acquisition pipeline; (iv) the
Company's fully integrated real estate operations, which allow it to
respond quickly to acquisition opportunities; (v) the Company's access
to capital as a public company; and (vi) the Company's ability to offer
tax deferred consideration to sellers of properties.

- - INTERNAL GROWTH. Management believes that the Company's internal growth will
come from (i) proactive property management and leasing, (ii) contractual rent
increases, (iii) operating efficiencies achieved through increasing economies
of scale and (iv) tenant retention and rollovers at increased rents where
market conditions permit. These strategies are designed to promote tenant
satisfaction, resulting in tenant retention and attracting new tenants.

The Company intends to selectively explore the development of developable land
when market fundamentals support a favorable risk-adjusted return on such
development. Since 1989, the Company's present senior executive officers have
been integrally involved in the development of several office properties by
entities with which they were previously associated. The Company currently
does not intend to develop or redevelop any properties outside of its markets.

CAPITALIZATION STRATEGY

28
<PAGE>
USE OF PROCEEDS

The proceeds from the sale of the Common Shares offered hereby, net of
underwriting discounts and commissions and expenses related to the Offering, are
estimated to be approximately $73.0 million. The Company is required to
contribute all of the net proceeds to the Operating Partnership in exchange for
additional Partnership Units. The Company will receive 7,500,000 Partnership
Units and increase its percentage interest in the Operating Partnership to
approximately 75.8%. The Operating Partnership intends to use $70 million of
such net proceeds to repay indebtedness outstanding under the Property
Financing, the lender of which is an affiliate of BT Alex. Brown Incorporated,
one of the Underwriters in the Offering. Any remaining net proceeds will be used
by the Operating Partnership for acquisitions and general business purposes.

If the Underwriters' over-allotment option is exercised in full, the Company
is required to contribute the additional net proceeds, estimated to be $11.2
million, to the Operating Partnership in exchange for 1,125,000 additional
Partnership Units, which will increase its percentage interest in the Operating
Partnership to approximately 78.1%. The Operating Partnership intends to use the
additional net proceeds for acquisitions and general business purposes.

The Property Financing bears interest at a rate of 7.5% per annum and
matures on October 13, 2000 unless extended for one or two one-year extensions.
The Company has entered into an agreement with the lender of the Property
Financing pursuant to which the lender has granted to the Company the right to
reborrow, in minimum amounts of $20 million (or the remaining undrawn amount, if
less), the entire $70 million repaid with the net proceeds of the Offering for
the purpose of acquiring commercial office building real property and paying
related fees and expenses. This right must be exercised within nine months of
the date of the Offering and is subject to certain preconditions. See "Structure
and Formation of the Company -- Description of Property Financing."

29
<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

The Common Shares were listed for trading through the date hereof on NASDAQ
under the symbol "COPT." The Common Shares will be listed on the NYSE under the
symbol "OFC." Prior to January 1, 1998, the Common Stock was listed on NASDAQ
under the symbol "RLIN." The following table sets forth the range of the high
and low last bid prices as reported on NASDAQ, as well as the quarterly
distributions per share of Common Stock declared and paid, prior to the Company
Reformation, and per Common Share thereafter. The quotations shown represent
interdealer prices without adjustment for retail markups, markdowns or
commissions, and may not reflect actual transactions.

<TABLE>
<CAPTION>
YEAR
ENDED PRICE RANGE
DECEMBER OF COMMON STOCK
31, --------------------------
1996: HIGH LOW DISTRIBUTION
------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter...................................................................... $ 4 7/8 $ 4 3/4 $ 0.125
2nd Quarter...................................................................... 5 3/8 4 7/8 0.125
3rd Quarter...................................................................... 5 1/4 4 7/8 0.125
4th Quarter...................................................................... 5 1/8 4 3/4 0.125

YEAR ENDED DECEMBER 31, 1997:

1st Quarter...................................................................... $ 5 5/8 $ 4 1/2 $ 0.125
2nd Quarter...................................................................... 5 1/4 4 1/2 0.125
3rd Quarter...................................................................... 7 1/8 4 7/8 0.125
4th Quarter...................................................................... 10 3/4 6 5/8 0.125

YEAR ENDED DECEMBER 31, 1998:

1st Quarter...................................................................... $ 14 $ 9 3/4 $ 0.150
2nd Quarter (through April 22, 1998)............................................. 13 7/8 11 3/16 --
</TABLE>

On September 5, 1997, the last trading day before the announcement of the
Transactions, the last bid price for the Common Stock, as reported on NASDAQ,
was $5 3/8. On September 8, 1997, the date on which the Transactions were first
announced, the last bid price for the Common Stock, as reported on NASDAQ, was
$6 7/8 per share. On October 13, 1997, the day before the Transactions were
consummated, the last bid price for the Common Stock, as reported on NASDAQ, was
$7 1/2 per share. On April 22, 1998, the last bid price for the Common Stock, as
reported on NASDAQ, was $11 3/16 per share. The approximate number of holders of
record of the shares of Common Stock was approximately 209 as of April 22, 1998.

Future distributions by the Company, however, will be at the discretion of
the Board of Trustees. The Company's ability to pay cash distributions in the
future will be dependent upon (i) amounts distributed by the Operating
Partnership from properties or interests held by it, (ii) income from the
properties held directly by the Company, (iii) cash generated by financing
transactions and (iv) the annual distribution requirements under the REIT
provisions of the Code described above and such other factors as the Board of
Trustees deems relevant. The ability of the Company to make cash distributions
will also be limited by the terms of the Operating Partnership Agreement and the
Property Financing as well as limitations imposed by state law and the
agreements governing any future indebtedness of the Company or the Operating
Partnership. See "Risk Factors -- Possible Changes in Policies Without
Shareholder Approval; No Limitation on Debt," "Structure and Formation of the
Company" and "Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements."

30
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an historical basis and (ii) on a pro forma basis
giving effect to the Offering and the application of the estimated net proceeds
thereof as further described under "Use of Proceeds." The information set forth
in the table should be read in conjunction with "Unaudited Pro Forma Financial
Data" and the Consolidated Financial Statements and Notes thereto of the Company
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
<S> <C> <C>
(IN THOUSANDS)

<CAPTION>
HISTORICAL PRO FORMA
---------- -----------
<S> <C> <C>
Debt:
Mortgages notes payable................................................................. $ 14,375 $ 14,375
Property Financing(1)................................................................... 100,000 30,000
---------- -----------
Total debt............................................................................ 114,375 44,375

Minority Interest--Preferred Units........................................................ 52,500 52,500
Minority Interest--Partnership Units...................................................... 12,362 12,362

Stockholders' equity:
Common Stock, $0.01 par value per share, 50,000,000 shares authorized, 2,266,083 issued
and outstanding on an historical basis and 9,766,083 shares issued and outstanding on
a pro forma basis(2)(3)............................................................... 23 98
Additional paid-in capital.............................................................. 16,620 89,545
Accumulated deficit..................................................................... (4,979) (4,979)
---------- -----------
Total stockholders' equity............................................................ 11,664 84,664
---------- -----------
Total capitalization...................................................................... $ 190,901 $ 193,901
---------- -----------
---------- -----------
</TABLE>

- ------------------------

(1) See "Property Financing" and Note 6 of notes to consolidated financial
statements for information relating to this indebtedness.

(2) The Company was reformed on March 16, 1998 as a Maryland real estate
investment trust. At the time of the Company Reformation, each share of
Common Stock was converted into one Common Share. For purposes of the Pro
Forma column, Common Shares issued in the Offering are reflected as shares
of Common Stock. In addition, as a result of the Reformation, the Company
has authorized capital consisting of 45,000,000 Common Shares and 5,000,000
Preferred Shares. There are no issued and outstanding Preferred Shares.

(3) Does not include (i) 9,133,345 Common Shares that may be issued under
certain circumstances upon conversion or redemption of outstanding Units,
(ii) 948,413 Common Shares that may be issued under certain circumstances
upon conversion or redemption of the Units to be issued in exchange for the
Retained Interests, (iii) 115,000 Common Shares underlying options issued,
or to be issued, under the Option Plan and the Incentive Plan outstanding as
of March 30, 1998, (iv) 1,125,000 Common Shares subject to the Underwriters'
over-allotment option and (v) 5,000 shares issued subsequent to December 31,
1997 in connection with the Option Plan. See "Structure and Formation of the
Company -- The Transactions" and "Management -- The Plans."

31
<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data of the Company as of and for each of
the fiscal years ended December 31, 1993 through 1997 has been derived from and
should be read in conjunction with, the Company's audited financial statements
for those years. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the Notes thereto of the
Company and the Combined Financial Statements and the Notes thereto of the
Office Properties included elsewhere in this Prospectus.

32
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
PRO FORMA
------------
1997
------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental income............................................ $ 1,073 $ 2,038 $ 2,436 $ 2,477 $ 6,122 $ 18,338
Tenant recoveries and other income....................... 70 217 48 32 496 1,778
--------- --------- --------- --------- --------- ------------
Total revenue.......................................... 1,143 2,255 2,484 2,509 6,618 20,116
--------- --------- --------- --------- --------- ------------
Expenses:
Interest................................................. 461 1,098 1,267 1,246 2,855 3,824
Depreciation and amortization............................ 256 476 567 567 1,331 4,280
Property expenses........................................ 63 43 42 31 728 3,459
General and administrative............................... 183 337 336 372 533 707
Termination of Advisory Agreement(1)..................... 1,353 --
--------- --------- --------- --------- --------- ------------
Total expenses......................................... 963 1,954 2,212 2,216 6,800 12,270
--------- --------- --------- --------- --------- ------------
Income (loss) before minority interests.................... 180 301 272 293 (182) 7,846
Income allocated to minority interests..................... 0 0 0 0 (785) (4,396)
--------- --------- --------- --------- --------- ------------
Net income (loss)(1)....................................... $ 180 $ 301 $ 272 $ 293 $ (967) $ 3,450
--------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- ------------
Net income (loss) per common share(1)...................... $ 0.17 $ 0.21 $ 0.19 $ 0.21 $ (0.60) $ 0.35
--------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- ------------
Cash dividends/distributions declared...................... $ 923 $ 1,207 $ 710 $ 710 $ 816
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash dividends/distributions per share..................... $ 0.88 $ 0.85 $ 0.50 $ 0.50 $ 0.50
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA (AS OF PERIOD END):
Real estate investments, net of accumulated depreciation... $ 15,110 $ 24,179 $ 23,624 $ 23,070 $ 188,625 $ 188,625
Total assets............................................... 18,882 25,647 24,779 24,197 193,534 196,534
Mortgages payable.......................................... 7,450 15,153 14,916 14,658 114,375 44,375
Total liabilities.......................................... 7,950 15,620 15,191 15,026 117,008 47,008
Minority interests......................................... 64,862 64,862
Stockholders' equity....................................... 10,932 10,026 9,588 9,171 11,664 84,664

OTHER DATA:
Cash flows provided by (used in):
Operating activities..................................... $ 358 $ 690 $ 678 $ 840 $ 3,216 $ -- (2)
Investing activities..................................... (5,461) (9,511) (551) 127 973 -- (2)
Financing activities..................................... 7,829 6,357 (1,000) (967) (1,052) -- (2)
Funds from operations (3).................................. 437 768 827 847 1,718 8,363
Weighted average shares outstanding (in thousands)......... 1,065 1,420 1,420 1,420 1,601 9,766

PROPERTY DATA (AS OF PERIOD END):
Number of properties owned................................. 4 7 7 7 17 17
Total rentable square feet owned (in thousands)............ 215 370 370 370 1,852 1,852
</TABLE>

- ------------------------

(1) Reflects a non-recurring termination expense of $1,353 for the year ended
December 31, 1997 associated with the termination of the Advisory Agreement,
which was paid in the form of Common Stock. See "Certain Transactions."

(3) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines FFO as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that FFO is helpful to investors as a measure
of the financial performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur
and service debt, to make capital expenditures and to fund other cash needs.
The Company computes FFO in accordance with standards established by NAREIT
which may not be comparable to FFO reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. FFO
does not represent cash generated from operating activities determined in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.

33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read in conjunction with Selected
Financial Data and the Consolidated Financial Statements and the Notes thereto
of the Company, the Combined Financial Statements and the Notes thereto of the
Office Properties and the Pro Forma Financial Statements and the Notes thereto
of the Company included elsewhere in this Prospectus.

The Company was formed in 1988 to own and acquire net lease retail
properties. The Company did not commence operations until February 1990 and
filed its initial public offering of Common Stock on December 31, 1991. On June
25, 1992, the Company acquired two net leased retail properties. On June 30,
1993, the Company sold additional shares of Common Stock in a public offering.
During 1993 and 1994, the Company purchased five additional net leased retail
properties.

On October 14, 1997, the Company completed the Transactions. For the
purposes of the Transactions, the Properties Partnerships (including the
Retained Interests) were treated as having a value of $170 million (which
includes the $100 million of indebtedness represented by the Property
Financing). The aggregate consideration issued in the Transactions by the
Company and the Operating Partnership to the former general and limited partners
of the Properties Partnerships consisted of (x) 600,000 shares of Common Stock
(issued at a price of $5.50 per share), (y) an aggregate of 2,899,310
Partnership Units (including 600,000 issued to the Company in consideration for
limited partner interests in the Properties Partnerships acquired by it for
600,000 shares of Common Stock and subsequently contributed by it to the
Operating Partnership) and (z) 1,913,545 Preferred Units. Concurrently with the
closing of the Transactions, the then existing advisory agreement (the "Advisory
Agreement") between Crown Advisors, Inc. ("Crown") and the Company was
terminated, and the Company entered into a management agreement (the "Management
Agreement") with Glacier Realty LLC, a Minnesota limited liability company
("Glacier") owned by Messrs. Beck and Parsinen. A non-recurring termination
expense of $1.4 million, paid in the form of shares of Common Stock (net of
certain shares retired), was incurred as a result of the termination of the
Advisory Agreement. As a result of the Transactions, the Company became self-
administered. See "Structure and Formation of the Company."

On January 1, 1998, the Company changed its name to Corporate Office
Properties Trust, Inc. On March 16, 1998, the Company was reformed as a Maryland
real estate investment trust and changed its name to Corporate Office Properties
Trust. In connection with the Reformation, each share of Common Stock was
exchanged for one Common Share in Corporate Office Properties Trust.

The Company accounted for the acquisition of the Office Properties under
purchase accounting requirements; therefore, the operating results of the
Company for the year ended December 31, 1997 is not directly comparable to 1996.

THE COMPANY

RESULTS OF OPERATIONS.

Comparison of the Years Ended December 31, 1997 and 1996: Total revenues
increased from $2.5 million for the year ended December 31, 1996 to $6.6 million
for the year ended December 31, 1997, an

34
<PAGE>
increase of $4.1 million or 164%. Of this increase, $3.6 million results from an
increase in base rents, substantially all of which is attributable to the
acquisition of the Office Properties. Tenant recoveries totaled $.4 million in
1997 as compared to none in 1996 due to tenant recoveries attributable to leases
on the Office Properties.

Total expenses increased from $2.2 million for the year ended December 31,
1996 to $6.8 million for the year ended December 31, 1997, an increase of 207%,
of which $1.4 million of the change represented a non-recurring charge related
to the termination of the Advisory Agreement. The remaining $3.2 million
increase was attributable to increased interest expense ($1.6 million),
increased depreciation and amortization ($.7 million), increased property
expenses ($.7 million), and increased general and administrative expenses ($.2
million), primarily as a result of the acquisition of the Office Properties.

Depreciation and amortization increased from $567,000 in 1996 to $1.3
million in 1997, an increase of 129%, as a result of the Transactions. Interest
expense increased from $1.2 million in 1996 to $2.9 million in 1997, an increase
of 129%, primarily as a result of borrowings under the Property Financing,
offset slightly by decreased interest expense on the retail properties'
mortgages.

General and administrative expenses increased from $372,000 in 1996 to
$533,000 in 1997 resulting from the conversion of the Company from an
externally-advised REIT to a self-administered REIT. During 1997, the REIT
commenced administrative operations and incurred payroll expenses of $102,000
and office overhead expenses of $34,000 not incurred previously. General and
administrative expenses also increased due to higher professional fees as a
result of the change in corporate structure, partially offset by a reduction in
the advisory fees resulting from the termination of the Advisory Agreement.

As a result of the above factors, net income before minority interests
decreased from income of $293,000 for the year ended December 31, 1996 to a loss
of $182,000 for the year ended December 31, 1997. Net income decreased from
income of $293,000 for 1996 to a loss of $1.0 million for 1997 attributable
primarily to the existence of minority interests resulting from the new
structure of the Company following the Transactions, as well as the factors
described above.

Comparison of the Years Ended December 31, 1996 and 1995: Total revenues
were approximately $2.5 million for both the year ended December 31, 1995 and
the year ended December 31, 1996. The increase of $41,000 in total rental
revenue in 1996 resulted from contractual rent increases in two of the Retail
Properties based on increases in the Consumer Price Index partially offset by a
decrease in interest income due to a reduction in cash and marketable
securities.

Total expenses were approximately $2.2 million for both the year ended
December 31, 1995 and the year ended December 31, 1996. Because all of the
properties owned by the Company in 1995 and 1996 were triple net leased, all
operating expenses relating to the Company's properties, such as utilities,
property taxes, repairs and maintenance and insurance, are the responsibility of
the Company's tenants. The increase of $4,000 in total expense in 1996 consists
of an increase in general and administrative expenses, consisting primarily of
professional fees, travel expense and state income taxes, offset by a decrease
in mortgage interest expense, due to a reduction in mortgage principal of
approximately $257,000 during the year. Operation and management expenses
consisting mainly of fees paid to Crown pursuant to the Advisory Agreement, and
depreciation expense, remained relatively unchanged between 1995 and 1996.

As a result of the above described factors and a charge to operations in
1996 for an unsuccessful attempt to raise capital and acquire additional
properties, net income increased from $272,000 for the year ended December 31,
1995 to $293,000 for the year ended December 31, 1996.

RESULTS OF OPERATIONS-PRO FORMA.

Comparison of December 31, 1997 Pro Forma and December 31, 1997
Historical: Total pro forma revenues for the year ended December 31, 1997 were
$20.1 million as compared to $6.6 million total

35
<PAGE>
historical revenues for the year ended December 31, 1997 due primarily to the
pro forma inclusion of revenues related to the Office Properties for the period
prior to the closing of the Transactions.

Total pro forma expenses for the year ended December 31, 1997 were $12.3
million as compared to $6.8 million total historical expenses for the year ended
December 31, 1997 due primarily to the inclusion of the expenses related to the
Office Properties for the period prior to the closing of the Transactions,
partially offset by the pro forma elimination of a non-recurring charge for the
Company's termination of the Advisory Agreement.

Pro forma net income before minority interest for the year ended December
31, 1997 was $7.8 million as compared to an historical net loss of $182,000 for
the comparable period due to the factors discussed above. Pro forma net income
was $3.5 million as compared to an historical net loss of $1.0 million due to
these same factors and the inclusion of minority interests resulting from the
new structure of the Company following the Transactions for the period prior to
the closing of the Transactions.

Comparison of December 31, 1997 Pro Forma and December 31, 1996
Historical: Total pro forma revenues were $20.1 million for the year ended
December 31, 1997 as compared to $2.5 million total historical revenues for the
year ended December 31, 1996. Substantially all of the increase results from the
inclusion of pro forma revenues related to the Office Properties for the year
ended December 31, 1997.

Total pro forma expenses were $12.3 million for the year ended December 31,
1997 as compared to $2.2 million total historical expenses for the year ended
December 31, 1996. The increase was due primarily to the pro forma inclusion of
expenses related to the Office Properties, partially offset by the pro forma
elimination of a non-recurring charge for the Company's termination of the
Advisory Agreement.

Pro forma net income before minority interest for the year ended December
31, 1997 was $7.8 million as compared to historical net income before minority
interest of $293,000 for the year ended December 31, 1996 as a result of the
factors discussed above. Pro forma net income for the Company for the year ended
December 31, 1997 was $3.5 million as compared to historical net income of
$293,000 for the year ended December 31, 1996 due to the factors discussed above
and the existence in 1997 of minority interests resulting from the new structure
of the Company following the Transactions.

LIQUIDITY AND CAPITAL RESOURCES

Historically, cash provided from operations represented the primary source
of liquidity to fund distributions, pay debt service and fund working capital
requirements. The Company expects to continue to meet its short-term capital
needs from property cash flow, including all property expenses, general and
administrative expenses, dividend and distribution requirements and recurring
capital improvements and leasing commissions. The Company does not anticipate
borrowing to meet these requirements.

On October 14, 1997, the Company completed the Transactions, including the
assumption of $100 million of the Property Financing and the issuance of $70
million of equity consisting of (i) $3.3 million in shares of Common Stock, (ii)
$14.2 million in Partnership Units and (iii) $52.5 million in Preferred Units,
including the Retained Interests. The aggregate purchase price for the Office
Properties was $169 million and $1 million of cash was provided for working
capital to the Operating Partnership.

The Property Financing consists of a $100 million facility bearing interest
at an annual rate of 7.5%, and is prepayable at any time. The loan requires
payments of interest only through its term and matures on October 13, 2000
unless extended for one or two one-year extensions. This agreement has been
amended. See "Structure and Formation of the Company--Description of Property
Financing."

To meet long-term capital needs, the Company has historically relied
primarily on fixed-rate secured financing for the acquisition, redevelopment and
improvement of the Properties. The proceeds from the Offering are expected to be
utilized to repay a portion of an existing mortgage loan and to pay the costs
associated with the Offering and for acquisitions and general business purposes.
Subject to certain

36
<PAGE>
conditions, this loan may be reborrowed to fund acquisition of office properties
and will provide for certain long-term capital needs. See "Structure and
Formation of the Company--Description of Property Financing."

To further meet long-term capital needs, the Company is presently
negotiating with Bankers Trust Company, an affiliate of BT Alex. Brown
Incorporated, one of the Underwriters in the Offering, regarding a separate $100
million credit facility which is intended to be utilized to facilitate
acquisitions, renovations, tenant improvements and leasing commissions.
Acquisitions may also be financed through net cash provided from operations or
equity issuances. There is no assurance that the Company will be able to obtain
such credit facility or that such credit facility will be adequate to fund its
acquisition and capital program.

The Company has no contractual obligations for property acquisition or
material capital costs, other than tenant improvements in the ordinary course of
business. The Company expects to meet its long-term capital needs through a
combination of cash from operations, additional borrowings, additional equity
issuances of Common Shares, Partnership Units and/or Preferred Units.

STATEMENT OF CASH FLOWS.

During the year ended December 31, 1997, the Company generated $3.2 million
in cash flow from operating activities which, together with $1.0 million of
proceeds from the Transactions, initial cash balances of $0.3 million and
marketable securities net proceeds of $0.5 million, were used in part for (i)
property costs in the Transactions of $0.5 million, (ii) costs relating to
Common Stock issued in the Transactions of $0.1 million, (iii) dividends paid of
$0.7 million and (iv) repayments of mortgage loans of $0.3 million. As a result,
the cash balances increased to $3.4 million at December 31, 1997 from $0.3
million at December 31, 1996.

FUNDS FROM OPERATIONS

The Company considers FFO to be helpful to investors as a measure of the
financial performance of an equity REIT. In accordance with NAREIT's definition,
FFO is defined as net income (loss) computed in accordance with GAAP, excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate-related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities determined in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
Other REITs may not define FFO in accordance with the current NAREIT definition
or may interpret the current NAREIT definition differently from the Company. FFO
for the years ended December 31, 1997 and 1996, as calculated in accordance with
the NAREIT definition published in March 1995, are summarized in the following
table (in thousands). The accompanying pro forma FFO computation for the year
ended December 31, 1997 reflects the historical FFO adjusted for the effects of
the Transactions and the Offering as if it had occurred on January 1, 1997. The
pro forma computation does not purport to be indicative of the results that
would have been obtained had such transactions been completed on January 1, 1997
or which may be obtained in the future.

37
<PAGE>

<TABLE>
<CAPTION>
HISTORICAL
YEARS ENDED DECEMBER 31,
---------------------------------
PRO FORMA
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
(Loss) income before minority interests............................................. $ 293 $ (182) $ 7,846
Add: Nonrecurring charge--Advisory Agreement termination cost....................... -- 1,353 --
Add: Real estate related depreciation and amortization.............................. 554 1,267 3,929
Less: Preferred Unit distributions.................................................. -- (720) (3,412)
--------- --------- -----------
Funds from operations............................................................... $ 847 $ 1,718 $ 8,363
--------- --------- -----------
--------- --------- -----------
Weighted average Common Shares/Units outstanding(1)................................. 1,420 2,153 12,348
--------- --------- -----------
--------- --------- -----------
</TABLE>

- ------------------------

(1) Assumes redemption of all Partnership Units, calculated on a weighted
average basis for Common Shares. Excludes the weighted average effect of the
conversion of 1,913,545 Preferred Units into 6,834,035 Partnership Units
which are, in turn, redeemable for 6,834,035 Common Shares. Includes 282,508
Common Shares issuable upon redemption of Partnership Units issuable upon
the transfer of the Retained Interests.

THE OFFICE PROPERTIES

GENERAL.

The Office Properties had common ownership and management by The Shidler
Group (the "Group"). The Group was formed in 1989 to engage in the acquisition,
development and ownership, leasing and management of commercial office
properties in the Pennsylvania and New Jersey area. The financial statements of
the Office Properties were prepared on a combined basis because the operations
were managed and were acquired as a single business under common control.

The Group acquired its first properties in Philadelphia in June 1992. In
March 1995, the Office Properties located outside of Princeton, New Jersey were
purchased in a sale leaseback transaction from IBM. The office property held by
6385 Flank Drive, L.P. ("Flank") was constructed in 1995 and placed into service
in December 1995. The other Office Properties located in Harrisburg,
Pennsylvania were acquired in December 1996. As a result of these acquisitions,
the operating results of the Office Properties in each of the periods presented
are not directly comparable.

RESULTS OF OPERATIONS.

Comparison of the nine months ended September 30, 1997 and 1996: Total
revenues increased to $12.9 million for the nine months ended September 30, 1997
from $10.0 million for the nine months ended September 30, 1996, an increase of
29.0%, due principally to the inclusion of a full-year of revenues from ComCourt
Investors, L.P. ("ComCourt") (placed in service in December 1996) and increased
rental revenue from South Brunswick L.P. ("Brunswick") resulting from the
effects of additional leasing activity during 1996 and 1997. This increase was
offset by a decrease in tenant reimbursements of $320,000 due primarily to an
interim revision in a tenant lease which reduced the amounts due for tenant
reimbursements. Interest and other income increased to $100,000 in the nine
months ended September 30, 1997 from $47,000 in the equivalent period in 1996
due primarily to higher interest income on investments at Blue Bell Investment
Company, L.P.

Total expenses increased to $12.1 million for the nine months ended
September 30, 1997 from $10.0 million for the nine months ended September 30,
1996, an increase of 21.0%, due principally to the inclusion of a full year of
expenses for ComCourt and increased interest and property expense resulting from
tenant activity at ComCourt and Brunswick. The expenses for ComCourt accounted
for $1.6 million of this increase.

38
<PAGE>
Net income for the Office Properties for the nine months ended September 30,
1997 was $777,000 as compared to a net loss of $24,000 in the equivalent period
in 1996 due to the factors described above.

Comparison of the years ended December 31, 1996 and 1995: Total revenues
increased to $13.7 million for the year ended December 31, 1996 from $12.4
million for the year ended December 31, 1995, an increase of 10.8%, principally
due to additional rental revenue from Brunswick resulting primarily from a full
year of revenue for a significant tenant as compared to eight months of revenue
for that tenant in 1995, and, to a lesser extent, increased revenues resulting
from the lease-up of Flank, which was placed into service in December 1995.
Tenant reimbursements totaled $1.9 million in 1996 as compared to $1.4 million
in 1995 due primarily to corresponding increases in reimbursable expenses.

Total expenses increased to $13.5 million for the year ended December 31,
1996 from $12.3 million for the year ended December 31, 1995, an increase of
$1.2 million or 9.5%, due principally to the inclusion for a full year of the
expense of Brunswick's tenant activity and Flank's December 1995 in-service
date. The Brunswick tenant activity accounted for $994,000 of this increase.

Net income for the Office Properties for the year ended December 31, 1996
was $180,000 as compared to $15,000 for the year ended December 31, 1995 due to
the factors described above.

STATEMENT OF CASH FLOWS.

The Office Properties' liquidity is affected by a number of factors among
which are the ability of its tenants to make required rental payments and the
ability of the Office Properties to obtain adequate and timely financing for its
acquisition and construction needs. As of September 30, 1997, the Office
Properties had $1.5 million of cash and cash equivalents and $2.6 million of
restricted cash and escrows. As of September 30, 1997, the Office Properties'
long-term debt was $87.1 million as compared to $85.9 million at December 31,
1996.

Cash flows from operating activities decreased $939,000 in the nine months
ended September 30, 1997 as compared to the equivalent period in 1996 due
principally to the timing effects of certain working capital items. Cash flows
used in investing activities decreased $1.9 million in the nine months ended
September 30, 1997 as compared to the equivalent period in 1996 due principally
to reduced levels of acquisition and construction activity. Cash flows from
financing activities decreased $921,000 in the nine months ended September 30,
1997 as compared to the equivalent period in 1996 due principally to reduced
long-term financing needs resulting from the aforementioned reduction in
acquisition and construction activity.

As of December 31, 1996, the Office Properties had $1.1 million of cash and
cash equivalents and $3.4 million of restricted cash and escrows. As of December
31, 1996, the Office Properties' long-term debt was $85.9 million as compared to
$70.7 million at December 31, 1995 as described below.

Cash flows from operating activities increased $2.2 million in the year
ended December 31, 1996 as compared to the equivalent period in 1995 due
principally to positive cash flows from the aforementioned increased rental
activity.

Cash flows used in investing activities increased $7.4 million in the year
ended December 31, 1996 as compared to the equivalent period in 1995 due
principally to the acquisition of the properties for ComCourt and property
additions at Brunswick.

Cash flows from financing activities increased $5.3 million in the year
ended December 31, 1996 as compared to the equivalent period in 1995 due
principally to increased proceeds from borrowings relating primarily to ComCourt
and Brunswick, offset by increased debt repayments resulting primarily from the
retirement of a note payable relating to Brunswick.

39
<PAGE>
INFLATION

Inflation has not generally had a significant impact during the periods
presented on the Company or the Office Properties because of the relatively low
inflation rates in the markets in which they operate. Most of the Company's or
the Office Properties' tenants are contractually obligated to pay their share of
operating expenses, thereby reducing exposure to increases in such costs
resulting from inflation.

PROSPECTIVE ACCOUNTING STANDARDS

In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) Nos. 130, "Reporting Comprehensive
Income," and 131, "Disclosures About Segments of an Enterprise and Related
Information." Both statements are effective for the Company beginning January 1,
1998. The statements, both of which are disclosure-related only, are not
expected to materially impact the Company's financial reporting disclosures.

At its March 1998 meeting, the Emerging Issues Task Force of the FASB
reached a consensus ("EITF 97-11") that internal pre-acquisition costs of
operating properties should be expensed as incurred. The Company cannot
determine the impact of adopting EITF 97-11 on its future operating results.

YEAR 2000

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer systems that have date-sensitive software or microprocessors may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar business activities.

The Company has evaluated its systems and determined that the software
currently in use is substantially year 2000 compliant. The software vendor has
agreed to make minor modifications in the software to make it fully year 2000
compliant by December 31, 1998 at no additional cost to the Company. The Company
presently believes that with these modifications, the Year 2000 issue will not
have a material adverse impact on the operations and financial condition of the
Company. However, even if such modifications are not timely completed, the Year
2000 issue is not expected to have a material adverse impact on the operations,
financial condition and cash flows of the Company.

40
<PAGE>
PROPERTIES

THE SUBURBAN OFFICE PROPERTIES

Set forth below is certain information with respect to the Office Properties
as of March 1, 1998.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE TOTAL RENTAL
YEAR LEASED OF TOTAL REVENUE
BUILT/ RENTABLE (AS OF TOTAL RENTAL RENTAL PER RENTABLE
PROPERTY LOCATION RENOVATED SQUARE FEET 3/1/98) REVENUE(1) REVENUE SQUARE FOOT
- -------------------------- ------------- ----------- ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
PHILADELPHIA REGION

Unisys World Hdqtrs.
751 Jolly Rd.......... 1966/1991 112,958 100.0% $ 1,425,955 7.2% $ 12.62(2)
753 Jolly Rd.......... 1960/1992-94 424,380 100.0 2,903,216 14.6 6.84(2)
760 Jolly Rd.......... 1974/1994 199,380 100.0 2,516,925 12.6 12.62(2)
Combined Total...... 736,718 6,846,096 34.4
Merck Building
785 Jolly Rd.......... 1970/1996 218,219 100.0 2,096,951 10.5 9.61(2)
Region Total.............. 954,937 100.0 8,943,047 44.9

HARRISBURG REGION

Gateway Corporate Center
6385 Flank Dr......... 1995 32,800 100.0 431,616 2.2 13.16
Commerce Park
Commerce Court........ 1989 67,377 98.2 1,071,348 5.4 16.19
2605 Interstate Dr.... 1990 84,268 100.0 1,159,160 5.8 13.76
Region Total.............. 184,445 99.3 2,662,124 13.4
PRINCETON REGION

Princeton Technology Center
Teleport National
Hdqtrs.
429 Ridge Rd........ 1966/1996 142,385 100.0 2,508,824 12.6 17.62
437 Ridge Rd........ 1962/1996 30,000 100.0 582,867 2.9 19.43
IBM Building
431 Ridge Rd........ 1958/1967 170,000 100.0 2,767,414 13.9 16.28
Region Total.............. 342,385 100.0 5,859,105 29.4

TOTAL/
WEIGHTED
AVERAGE............... 1,481,767 99.9% $ 17,464,276 87.7% $ 11.80
----------- ------------ ---
----------- ------------ ---

<CAPTION>
MAJOR TENANTS
(10% OR MORE OF
PROPERTY LOCATION RENTABLE SQUARE FEET)
- -------------------------- --------------------------
<S> <C>
PHILADELPHIA REGION
Unisys World Hdqtrs.
751 Jolly Rd.......... Unisys (100%)
753 Jolly Rd.......... Unisys (100%)
760 Jolly Rd.......... Unisys (100%)
Combined Total......
Merck Building
785 Jolly Rd.......... Unisys with 100% sublease
to Merck.
Region Total..............
HARRISBURG REGION
Gateway Corporate Center
6385 Flank Dr......... Cowles Magazines (35%)
Orion Capital (26%)
Commerce Park
Commerce Court........ Penn State Geisinger (38%)
Ernst & Young (26%)
Texas-Eastern Gas Pipeline
Co. (26%)
2605 Interstate Dr.... PA Emergency Mgmt.
Agency (56%)
USF&G (24%)
Health Central (15%)
Region Total..............
PRINCETON REGION
Princeton Technology Cen
Teleport National
Hdqtrs.
429 Ridge Rd........ TCG (100%)(3)
437 Ridge Rd........ IBM with 100%
sublease to TCG
IBM Building
431 Ridge Rd........ IBM (100%)
Region Total..............
TOTAL/
WEIGHTED
AVERAGE...............
</TABLE>

- ------------------------
(1) Total Rental Revenue is the monthly contractual base rent as of March 1,
1998 multiplied by 12 plus the estimated annualized expense reimbursements
under existing leases except for the Philadelphia Region properties, which
are triple net leases pursuant to which the tenant pays all operating
expenses directly.
(2) Property is triple net leased.
(3) On January 8, 1998, TCG announced its intention to merge with a subsidiary
of AT&T Corporation.

41
<PAGE>
PHILADELPHIA SUBURBAN MARKET.

Regional Analysis: Located along the Delaware and Schuylkill Rivers,
Philadelphia is a cosmopolitan city situated at the crossroads of the Northeast
Corridor, the most prosperous and densely populated region in the country. With
a total population of over 5 million according to the 1990 U.S. Census, the
Philadelphia Metropolitan Statistical Area ("MSA") is the fourth largest
metropolitan area in the U.S. Philadelphia has a large, highly skilled workforce
which forms the base of one of the most diverse economies in the nation.
Although the Philadelphia metropolitan area is a market in itself, its location
and extensive transportation system provide easy access to 25% of the U.S.
population which lives within a 300-mile radius.

The greatest growth in the past fifteen years in the greater Philadelphia
region has occurred in the suburban counties as migration out of the central
urban core has taken place. The Company's Philadelphia region properties are
located in the Pennsylvania suburban counties within the Philadelphia MSA. The
suburban counties have seen higher growth since 1980 in employment compared to
the Philadelphia central business district as jobs moved from the central
business district and new jobs emerged in the surrounding areas. Management
believes the Pennsylvania suburban counties are well positioned for continued
growth in both employment and population.

Philadelphia Suburban Office Market: As of September 30, 1997, the
Philadelphia Suburban Office Market contained approximately 44.2 million square
feet of non-owner occupied space and is divided into two subregions, the
Philadelphia Suburban Office Region and the Southern New Jersey Office Market.
The Company believes that current and projected economic trends favor the
Philadelphia Suburban Office Region and present advantageous conditions for
commercial real estate.

The following table presents the current status of the Philadelphia Suburban
Office Region as of September 30, 1997 and for the years ended December 31, 1996
and 1995:

<TABLE>
<CAPTION>
YEAR TO DATE YEAR ENDED YEAR ENDED
THROUGH SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
--------------------- ------------ ------------
<S> <C> <C> <C>
Total Non-Owner Occupied
Space (square feet)........................................... 34,718,305 34,205,507 33,292,196
Direct Vacancy................................................ 8.3% 8.3% 13.8%
Overall Vacancy(1)............................................ 9.3% 9.2% 14.9%
Net Absorption................................................ 365,777 1,521,973 543,766
Leasing Activity.............................................. 2,326,949 2,671,213 3,104,997
Under Construction............................................ 147,000 26,600 52,390
</TABLE>

- ------------------------

Source: Cushman & Wakefield

(1) Includes space available for sublease.

Blue Bell/Plymouth Meeting/Fort Washington Submarket: With the opening of
I-476 connecting the Pennsylvania Turnpike to I-95 south of Philadelphia and
connecting to I-76 into Philadelphia, the Blue Bell/Plymouth Meeting/Fort
Washington submarket, one of the submarkets in the Philadelphia Suburban Office
Region, is located at the crossroads of the primary road network in the region.
As a result, the northern suburbs, Blue Bell/Plymouth Meeting/Fort Washington,
made a strong rebound from the recession and have seen rapidly rising rental
rates. As of September 30, 1997, the vacancy in the Blue Bell/ Plymouth
Meeting/Fort Washington submarket had fallen to 4.3%.

42
<PAGE>
The following table presents the current status of the Blue Bell/Plymouth
Meeting/Fort Washington office market as of September 30, 1997 and for the years
ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
YEAR TO DATE YEAR ENDED YEAR ENDED
THROUGH SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
--------------------- ------------ ------------
<S> <C> <C> <C>
Total Non-Owner Occupied Space
(square feet)................................................. 4,856,811 4,911,211 4,609,855
Direct Vacancy................................................ 4.3% 4.0% 8.1%
Overall Vacancy(1)............................................ 5.6% 5.7% 9.1%
Net Absorption................................................ 33,697 181,821 170,141
Leasing Activity.............................................. 327,104 272,885 410,673
Under Construction............................................ 0 0 0
</TABLE>

- ------------------------

Source: Cushman & Wakefield.

(1) Includes space available for sublease.

The Company owns four properties in the Blue Bell/Plymouth Meeting/Fort
Washington submarket.

The Merck Building: The Merck Building is a 218,219 square foot office
building located on 28 acres at 785 Jolly Road in Blue Bell, Montgomery County,
Pennsylvania. The building has a one-story lobby with a structural steel frame
and brick exterior.

The building is currently 50% occupied by Unisys and 50% occupied by Merck &
Co. Inc. ("Merck"), which has exercised its option to occupy 100% of the
building commencing on January 1, 1999. The building is leased in its entirety
to Unisys on a triple net basis through June 30, 2009 with the tenant
responsible for the payment of all operating and capital improvement expenses of
the property. The lease provides for 2% annual increases in the base rent. Merck
has subleased one-half of the building from Unisys through June 30, 2009, the
remainder of the Unisys lease term. The Merck sublease contains a call option
under which Merck can take the remainder of the space in the building and a put
option under which Unisys can cause Merck to take the remaining space. Merck has
exercised its option to become the sole occupant of the building commencing on
January 1, 1999. Under the sublease, Merck has a direct obligation to pay the
landlord if Unisys were to default on its obligations. The two-story brick
building was constructed in 1970 as the Remington Rand Headquarters and was
renovated by Merck in 1996.

The aggregate undepreciated tax basis of depreciable real property for 785
Jolly Road for Federal income tax purposes was $9,987,000 as of December 31,
1997. Depreciation is computed on the straight-line method over 40 years.

The current real estate tax for 785 Jolly Road is $31.622 per $100 of
assessed value. The total annual tax for 785 Jolly Road at this rate for the
1997-1998 tax year is $289,942 (at an assessed value of $916,900).

The entire county was revalued in 1998, and as a result, the real estate
assessment increased to $16,114,020. As a result of the revaluation, the taxing
authorities will adjust downward the real estate tax rates.

Unisys World Headquarters: The Unisys World Headquarters, located on 84
acres in Blue Bell, Montgomery County, Pennsylvania, consists of 736,718 square
feet contained in three office buildings in a suburban office campus setting.

All of the buildings are leased to Unisys under separate leases which expire
June 30, 2009. The buildings are leased on a triple net basis though June 30,
2009 with the tenant responsible for the payment of all operating and capital
improvement expenses of the property. The leases provide for 2% annual increases
in the base rent.

43
<PAGE>
- 751 Jolly Road: The first building comprising the Unisys World
Headquarters consists of 112,958 square feet in a two-story steel frame
facility. Exterior walls of glass and concrete panels enclose the
executive offices, boardroom, and worldwide telecommunications facilities
of this international corporation. The building was substantially
renovated by Unisys in 1991.

- 753 Jolly Road: The second building comprising the Unisys World
Headquarters is a single story office/flex building with structural steel
frame and brick, block and glass exterior containing 424,380 square feet.
The building possesses the heavy power capabilities, fiber optics,
upgraded HVAC and telecommunications and electronic systems necessary to
support this Fortune 500 technology company. The building contains the
primary software engineering and development divisions for Unisys, as
well as general offices. Renovation of this building has been ongoing
since 1993, during which time Unisys has expended over $6 million in
capital improvements on the building.

Both 751 Jolly Road and 753 Jolly Road are leased under a single lease
with Unisys, which has posted a cash security deposit in the amount of
$12.75 million under the lease.

The aggregate undepreciated tax basis of depreciable real property for
751 Jolly Road and 753 Jolly Road for Federal income tax purposes was
$24,592,000 as of December 31, 1997. Depreciation is computed on the
straight-line method of 40 years.

The current real estate tax for 751 Jolly Road and 753 Jolly Road is
$31.622 per $100 of assessed value. The total annual tax for 751 Jolly
Road and 753 Jolly Road at this rate for the 1997-98 tax year is $389,614
(at an assessed value of $1,232,100).

The entire county was revalued in 1998, and as a result, the real estate
assessment increased to $29,050,890. As a result of the revaluation, the
taxing authorities will adjust downward the real estate tax rates.

- 760 Jolly Road: The third building comprising the Unisys World
Headquarters is a 199,380 square foot office building situated on 29.67
acres. This building serves as the headquarters for Unisys' worldwide
marketing operations. The three-story building consists of structural
steel framing with brick and concrete panel exterior walls. This
technologically advanced building contains the latest telecommunications
and electronic systems, a high tech display center and a cafeteria.

The aggregate undepreciated tax basis of depreciable real property for
760 Jolly Road for Federal income tax purposes was $9,125,000 as of
December 31, 1997. Depreciation is computed on the straight-line method
over 40 years.

The current real estate tax for 760 Jolly Road is $31.622 per $100 of
assessed value. The total annual tax for 760 Jolly Road at this rate for
the 1997-1998 tax year is $235,078 (at an assessed value of $743,400).

The entire county was revalued in 1998, and as a result, the real estate
assessment increased to $15,703,760. As a result of the revaluation, the
taxing authorities will adjust downward the real estate tax rates.

44
<PAGE>
The following table sets forth information for 785 Jolly Road, 751 Jolly
Road, 753 Jolly Road and 760 Jolly Road, collectively:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED RENT EFFECTIVE RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- -------------------------------------------------------------- ------------------- ----------------- -----------------
<S> <C> <C> <C>
1997.......................................................... 100% $ 9.27 $ 9.27
1996.......................................................... 100 9.09 9.09
1995.......................................................... 100 8.91 8.91
1994.......................................................... 100 8.74 8.74
1993.......................................................... 100 8.57 8.57
</TABLE>

HARRISBURG, PENNSYLVANIA.

Regional Analysis: The Harrisburg Capital Region is the MSA composed of
Cumberland, Dauphin, Lebanon and Perry counties located midway between
Philadelphia and Pittsburgh. At the center of the area is the city of
Harrisburg, the capital of the Commonwealth of Pennsylvania and seat of Dauphin
County.

With its central location and convenient access to major markets (I-83, I-81
and the Pennsylvania Turnpike) along the East Coast, Harrisburg has recently
become a fast growing area in the state. The region is strategically situated
along major air, train and highway arteries. The Company believes that
Harrisburg, which has become a new "edge city" to Philadelphia, is well
positioned for long term growth and stability. The diverse economic base
includes distribution, agriculture, retail and wholesale trade, light and heavy
manufacturing, the federal military and state government activities.

Harrisburg Office Market: The Harrisburg Office Market, as of December 31,
1997, consisted of approximately 9.9 million square feet of non-owner occupied
space, with an overall office occupancy level of 91.4% at the end of 1997.

The following table presents the current status of the Harrisburg office
market as of December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total Non-Owner Occupied Space (square feet)........................ 9,929,395 9,060,433 8,627,141
Direct Vacancy...................................................... 8.6% 8.7% 10.7%
Overall Vacancy(1).................................................. n/a n/a n/a
Net Absorption...................................................... 167,712 199,173 223,341
Leasing Activity.................................................... n/a n/a n/a
Under Construction.................................................. n/a n/a n/a
</TABLE>

Source: Landmark Commercial Realty, Inc.

- ------------------------

(1) Includes space available for sublease.

The Company believes that the stability provided by the presence of the
state capital, coupled with the strong growth prospects due to Harrisburg's
central location within the transportation network, make Harrisburg an excellent
market in which to own suburban office properties.

45
<PAGE>
East Shore Submarket: The East Shore Submarket, one of the submarkets of the
Harrisburg Office Market, which is the newest of the Harrisburg submarkets,
contained approximately 2.5 million square feet of non-owner occupied office
space as of December 31, 1997. With limited new construction, the market has
tightened and effective rents have increased.

The following table presents the current status of the East Shore office
market as of December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total Non-Owner Occupied Space (square feet)........................ 2,465,364 2,290,864 2,111,255
Direct Vacancy...................................................... 9.3% 11.4% 16.9%
Overall Vacancy(1).................................................. n/a n/a n/a
Net Absorption...................................................... 72,119 121,247 37,466
Leasing Activity.................................................... n/a n/a n/a
Under Construction.................................................. n/a n/a n/a
</TABLE>

Source: Landmark Commercial Realty, Inc.

- ------------------------

(1) Includes space available for sublease.

The Company owns three properties in the East Shore submarket.

Gateway Corporate Center: The Gateway Corporate Center is a corporate office
park located in the East Shore submarket, just six and a half miles from
downtown Harrisburg in Lower Paxton Township adjacent to I-81. Gateway Corporate
Center, consisting of 67 landscaped acres, is Harrisburg's first comprehensive
business park. The Gateway Corporate Center contains 334,000 rentable square
feet in seven buildings with an overall occupancy of 99%. When completed, the
park will have in excess of 406,000 rentable square feet.

- 6385 Flank Drive: 6385 Flank Drive was built new by management in 1995 and
consists of a single-story brick and glass office building of 32,800
square feet located in the Gateway Corporate Center. The building is 100%
occupied on a multi-tenant basis. Primary tenants include Cowles
Magazines, Orion Capital and Pitney Bowes.

Commerce Park: Commerce Park is a multiple ownership corporate office park
located at the intersection of I-81 and I-83 in the East Shore submarket.
Commerce Park is three miles from downtown Harrisburg in Susquehanna Township.
When completed, the park will have in excess of 900,000 square feet on 150
acres.

- Commerce Court: Commerce Court is a four-story office building built in
1989 and located on 8.5 acres in Commerce Park. The existing building
contains 67,377 square feet and consists of a structural steel frame with
brick and reflective glass facade. Commerce Court is leased on a multi-
tenant basis with Texas Eastern, Ernst & Young and Penn State Geisinger
Health Systems as primary tenants.

- 2605 Interstate Drive: 2605 Interstate Drive is an 84,268 square feet
three-story office building and is located on 5.75 acres in Commerce Park.
The building was constructed in 1990 and consists of a structural steel
frame and concrete panel and reflective glass exterior. The building is
leased on a multi-tenant basis with the Pennsylvania Emergency Management
Agency and USF&G as the primary tenants.

46
<PAGE>
PRINCETON, NEW JERSEY.

Regional Analysis: Central New Jersey enjoys a premium location between the
major metropolitan areas of New York and Philadelphia. The central counties'
(Middlesex, Mercer and Somerset) equidistant position between these cities,
together with favorable demographics and high quality of life, have made them
highly favorable for commercial properties. In fact, the three counties form the
geographic center of the entire Northeastern Corridor, stretching from Boston to
Washington, DC, with both urban centers located within 250 miles.

The Princeton Technology Center is included in a geographic region
collectively referred to as "Princeton," which stretches southward from South
Brunswick in Middlesex County to Hamilton in Mercer County. Since 1980, there
has developed an image of prestige at being located in the Princeton area. The
office real estate market has increased eightfold since 1980. Large corporations
such as Merrill Lynch, Bristol-Myers Squibb, AT&T, Johnson & Johnson, Dow Jones,
Raytheon, Rhone Poulenc Rorer and Wyeth Ayerst have relocated major divisions to
the area. The area's proximity to major roadways, including I-95 and the New
Jersey Turnpike, make it a valuable distribution center.

The Princeton Technology Center is located in the southwestern corner of
Middlesex County, close to the border of Mercer County. Private sector
non-agricultural employment increased in Middlesex County from 1981 to 1990,
rising by 25.1%. The county population increased by 12.7% to a total of 671,811
since 1980.

Princeton Office Market: The Princeton office market, which as of December
31, 1997 consisted of approximately 14.6 million square feet of non-owner
occupied space with a vacancy rate of 8.1% at December 31, 1997.

The following table presents the current status of the Princeton office
market as of December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total Non-Owner Occupied Space (square feet)........................ 14,557,333 14,401,333 13,696,854
Direct Vacancy...................................................... 5.8% 10.9% 16.4%
Overall Vacancy(1).................................................. 8.1% 16.1% 16.9%
Net Absorption...................................................... 886,096 1,382,190 n/a
Leasing Activity.................................................... 1,354,357 1,208,174 n/a
Under Construction.................................................. n/a n/a n/a
</TABLE>

Source: Buschman Jackson-Cross

- ------------------------

(1) Includes space available for sublease.

The Company believes that the strong growth prospects of the Princeton
market make Princeton an excellent market in which to own suburban office
properties. Princeton has become an attractive alternative to the New York/North
Jersey office market.

47
<PAGE>
Exit 8A-Cranbury Submarket: The Company's properties are located in the Exit
8A-Cranbury submarket, one of the Princeton Office Market's submarkets. The
following table presents the current status of the Exit 8A/Cranbury office
market as of December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total Non-Owner Occupied Space (square feet)........................ 1,944,006 1,817,006 1,684,410
Direct Vacancy...................................................... 4.9% 11.2% 18.7%
Overall Vacancy(1).................................................. 14.7% 49.5% 18.7%
Net Absorption...................................................... 235,301 244,855 n/a
Leasing Activity.................................................... 548,132 171,600 n/a
Under Construction.................................................. n/a n/a n/a
</TABLE>

Source: Buschman Jackson-Cross

- ------------------------

(1) Includes space available for sublease.

The Company owns three properties in the Exit 8A--Cranbury submarket.

Princeton Technology Center: The Princeton Technology Center, a corporate
business park located on 18.8 acres in Dayton, New Jersey, consists of three
parcels and 342,385 rentable square feet contained in three separate buildings
- -- two office buildings and an office/flex building.

- 429 Ridge Road: The first of two buildings leased to TCG is a 142,385
square feet three-story building on 14 acres. TCG is a leading fiber optic
based telecommunications company. In January 1998, AT&T announced its
agreement to acquire TCG. This three-story building has a structural steel
frame with brick, metal panel and glass exterior. TCG operates a National
Monitoring Center and its national training headquarters at this location
and has made a multi-million dollar investment in the building. The
initial term of TCG's lease ends in 2008. The building was totally
renovated in 1996 and 1997 and provides the latest in technologically
advanced telecommunications and electronics capabilities.

The following table sets forth certain information for 429 Ridge Road:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED RENT EFFECTIVE RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- -------------------------------------------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
1997.......................................................... 100% $ 17.62 $ 12.62
1996.......................................................... 61 17.62 12.62
1995.......................................................... 0 0.00 0.00
</TABLE>

The aggregate undepreciated tax basis of depreciable real property for 429
Ridge Road for Federal income tax purposes was $7,770,000 as of December 31,
1997. Depreciation is computed on the straight-line method over 40 years.

The current real estate tax for 429 Ridge Road is $2.48 per $100 of assessed
value. The total annual tax for 429 Ridge Road at this rate for the
1997-1998 tax year is $119,640 (at an assessed value of $4,824,200).

- 437 Ridge Road: The second of the buildings leased to TCG consists of a
30,000 square feet single-story building. The building has a glass
exterior along with a glass enclosed landscaped courtyard. TCG occupies
the building under a sublease with IBM through April 2002, and a direct
lease extending its occupancy through December 2006. The Chief Executive
Officer and other executive officers work out of this facility. TCG
totally renovated this building at a cost exceeding $2 million for TCG's
initial occupancy beginning November 1, 1996.

48
<PAGE>
- 431 Ridge Road: 431 Ridge Road is a 170,000 square feet single-story
office and research building which is leased in its entirety to IBM
through March 31, 2002. The building has a structural steel frame with
glass, metal panel and block exterior. The large floorplate, ample parking
and ceiling height make the building highly adaptable for either office or
research uses.

The following table sets forth certain information for 431 Ridge Road:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED RENT EFFECTIVE RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- -------------------------------------------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
1997.......................................................... 100% $ 16.28 $ 8.50
1996.......................................................... 100 16.35 8.50
1995.......................................................... 100 16.68 8.50
</TABLE>

The aggregate undepreciated tax basis of depreciable real property for 431
Ridge Road for Federal income tax purposes was $7,082,000 as of December 31,
1997. Depreciation is computed on the straight-line method over 40 years.

The current real estate tax for 431 and 437 Ridge Road is $2.48 per $100 of
assessed value. The total annual tax for 431 and 437 Ridge Road at this rate
for the 1997-1998 tax year is $190,305 (at an assessed value of $7,673,600).

THE RETAIL PROPERTIES

Set forth below is certain information with respect to the Company's retail
properties as of March 1, 1998. All of the Retail Properties are leased on a
triple net basis.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE TOTAL RENTAL
YEAR LEASED TOTAL OF TOTAL REVENUE
PROPERTY BUILT/ RENTABLE (AS OF RENTAL RENTAL PER RENTABLE
LOCATION RENOVATED SQUARE FEET 3/1/98) REVENUE(1) REVENUE(1) SQUARE FOOT(1)
- ----------------------- ------------- ----------- ------------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
SUPERVALU STORES, INC.
Indianapolis, IN
5835 West 10th
St................. 1991 67,541 100.0% $548,196 2.8% $ 8.12
Plymouth, MN
3550 Vicksburg
Ln................. 1991 67,510 100.0 522,813 2.6 7.74
NASH-FINCH STORES
Minot, ND
2100 S. Broadway... 1993 46,134 100.0 305,774 1.5 6.63
Peru, IL
1351 38th St.
North.............. 1993 60,232 100.0 334,776 1.7 5.56
FLEMING COMPANIES
STORES
Delafield, WI
3265 Golf Rd....... 1994 52,800 100.0 312,201 1.6 5.91
Glendale, WI
7601 N. Port
Washington Rd...... 1992 36,248 100.0 168,300 0.8 4.64
Oconomowac, WI
630 E. Wisconsin
Ave................ 1994 39,272 100.0 249,125 1.3 6.34
----------- ----------- ---
TOTAL/ WEIGHTED
AVERAGE.......... 369,737 100.0% $2,441,185 12.3% $ 6.60
----------- ----------- ---
----------- ----------- ---

<CAPTION>
PROPERTY
LOCATION TENANTS
- ----------------------- -----------------------
<S> <C>
SUPERVALU STORES, INC.
Indianapolis, IN
5835 West 10th
St................. SV Ventures
Plymouth, MN
3550 Vicksburg
Ln................. Innsbruck Investments
NASH-FINCH STORES
Minot, ND
2100 S. Broadway... Nash-Finch Company
Peru, IL
1351 38th St.
North.............. Nash-Finch Company
FLEMING COMPANIES
STORES
Delafield, WI
3265 Golf Rd....... Fleming Companies, Inc.
Glendale, WI
7601 N. Port
Washington Rd...... Fleming Companies, Inc.
Oconomowac, WI
630 E. Wisconsin
Ave................ Fleming Companies, Inc.
TOTAL/ WEIGHTED
AVERAGE..........
</TABLE>

- ------------------------

(1) Total Rental Revenue is the monthly contractual base rent as of March 1,
1998 multiplied by 12.

49
<PAGE>
TENANTS

The following table sets forth certain information with respect to the
Company's office and retail tenants as of March 1, 1998.
<TABLE>
<CAPTION>
REMAINING PERCENTAGE OF AGGREGATE
NUMBER LEASE TERM TOTAL RENTAL TOTAL RENTAL LEASED
TENANT NAME OF LEASES (MONTHS) REVENUE($000)(1) REVENUE(1) SQUARE FEET
- --------------------------------------- ------------- --------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OFFICE TENANTS
Unisys................................. 3 136 $ 7,895(2) 39.7% 845,827
TCG.................................... 2 (3) 2,603 13.1 172,385
IBM.................................... 1 49 3,256 16.3 170,000
Merck (4).............................. 1 136 1,048(2) 5.3 109,110
Penna. Emergency Mgmt
Agency (5)........................... 1 45 636 3.2 47,328
Penn State Geisinger................... 2 (6) 411 2.0 25,428
Ernst & Young.......................... 1 116 292 1.5 17,499
Texas Eastern.......................... 1 27 286 1.4 17,363
USF&G.................................. 1 52 271 1.4 19,903
Health Central......................... 1 36 190 1.0 12,699
Cowles Magazines....................... 1 48 149 0.7 11,309
Orion Capital.......................... 1 33 117 0.6 8,640
Pitney Bowes........................... 1 39 87 0.4 6,898
Aerotek................................ 1 37 62 0.3 4,338
Groundwater Sciences................... 1 19 56 0.3 4,420
Orion Consulting....................... 1 51 45 0.2 3,566
Hershey Foods.......................... 1 51 34 0.2 2,387
McGraw-Hill............................ 1 50 26 0.1 1,467
--
---------------- ----- -----------
Total Office Properties.............. 22 17,464 87.7 1,480,567

RETAIL TENANTS
Fleming Companies, Inc................. 3 (7) 730 3.7 128,320
Nash-Finch Company (8)................. 2 191 640 3.2 106,366
SV Ventures (9)........................ 1 104 548 2.8 67,541
Innsbruck Investments (10)............. 1 156 523 2.6 67,510
--
---------------- ----- -----------
Total Retail Properties.............. 7 2,441 12.3 369,737
--
---------------- ----- -----------
Total.................................. 29 $ 19,905 100.0% 1,850,304
--
--
---------------- ----- -----------
---------------- ----- -----------

<CAPTION>
PERCENTAGE OF
AGGREGATE
LEASED
TENANT NAME SQUARE FEET
- --------------------------------------- -------------
<S> <C>
OFFICE TENANTS
Unisys................................. 45.7%
TCG.................................... 9.3
IBM.................................... 9.2
Merck (4).............................. 5.9
Penna. Emergency Mgmt
Agency (5)........................... 2.6
Penn State Geisinger................... 1.4
Ernst & Young.......................... 0.9
Texas Eastern.......................... 0.9
USF&G.................................. 1.1
Health Central......................... 0.7
Cowles Magazines....................... 0.6
Orion Capital.......................... 0.5
Pitney Bowes........................... 0.4
Aerotek................................ 0.2
Groundwater Sciences................... 0.2
Orion Consulting....................... 0.2
Hershey Foods.......................... 0.1
McGraw-Hill............................ 0.1

-----
Total Office Properties.............. 80.0
RETAIL TENANTS
Fleming Companies, Inc................. 6.9
Nash-Finch Company (8)................. 5.7
SV Ventures (9)........................ 3.7
Innsbruck Investments (10)............. 3.7

-----
Total Retail Properties.............. 20.0

-----
Total.................................. 100.0%

-----
-----
</TABLE>

- ------------------------

(1) Total Rental Revenue is the monthly contractual base rent as of March 1,
1998 multiplied by 12, plus the estimated annualized expense reimbursements
under existing leases, except for the Philadelphia Region Properties and the
Retail Properties, which are triple net leases for which the tenant pays all
operating expenses directly.

(2) Property occupied under a triple net lease agreement, pursuant to which the
tenant directly pays all building operating expenses.

(3) TCG leases 142,385 square feet which expires in June 2008 and 30,000 square
feet which expires in December 2006. The 30,000 square feet are subleased
from IBM through March 2002 and directly leased through 2006.

(4) Lease is with Unisys. Merck subleases 109,110 square feet and has exercised
its option to lease an additional 109,109 square feet commencing on January
1, 1999.

(5) Aggregate Leased Square Feet has been adjusted from a 43,828 useable square
feet lease to 47,328 rentable square feet for comparability.

(6) Penn State Geisinger leases 17,665 square feet through October 2007 and
7,763 square feet through October 2000. Both leases are in the Commerce
Court property.

(7) Fleming Companies, Inc. has three leases consisting of 36,248 square feet,
39,272 square feet and 52,800 square feet. The leases expire in October
2010, May 2014 and November 2014, respectively.

(8) Nash-Finch has two leases consisting of 60,232 square feet and 46,134 square
feet. Both leases expire in January 2014.

(9) SV Ventures is a wholly owned subsidiary of SuperValu, Inc. SuperValu, Inc.
has guaranteed this lease through 2006.

(10) Franchisee of SuperValu, Inc. The Company pays SuperValu, Inc. a credit
enhancement fee to guarantee payment under the lease through 2001.

50
<PAGE>
LEASE EXPIRATION -- PORTFOLIO TOTAL

The following table sets forth a summary schedule of the lease expirations
for the Company's Properties for leases in place as of March 1, 1998, assuming
that none of the tenants exercise renewal options.

<TABLE>
<CAPTION>
TOTAL RENTAL
SQUARE TOTAL RENTAL REVENUE
NUMBER OF FOOTAGE OF PERCENTAGE OF REVENUE OF OF EXPIRING LEASES PERCENTAGE OF
LEASES EXPIRING TOTAL LEASED EXPIRING PER RENTABLE TOTAL RENTAL
YEAR OF LEASE EXPIRATION EXPIRING LEASES SQUARE FEET LEASES($000)(1) SQUARE FOOT(1) REVENUE EXPIRING(1)
- ------------------------ --------------- ---------- --------------- -------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
1998.................... 0 0 0.0% $ 0 $ 0.00 0.0%
1999.................... 1 4,420 0.2 56 12.65 0.3
2000.................... 3 33,766 1.8 523 15.48 2.6
2001.................... 4 71,263 3.9 974 13.67 4.9
2002.................... 6 208,632 11.3 3,293 15.78 16.5
2003.................... 0 0 0.0 0 0.00 0.0
2004.................... 0 0 0.0 0 0.00 0.0
2005.................... 0 0 0.0 0 0.00 0.0
2006.................... 2 97,510 5.3 1,106 11.34 5.6
2007.................... 2 35,164 1.9 584 16.60 2.9
2008 and beyond......... 11 1,399,549 75.6 13,369 9.55 67.2
--
---------- ----- ------- -----
Total................. 29 1,850,304 100.0% $ 19,905 $ 10.76 100.0%
--
--
---------- ----- ------- -----
---------- ----- ------- -----
</TABLE>

- ------------------------

(1) Total Rental Revenue is the monthly contractual base rent as of March 1,
1998 multiplied by 12, plus the estimated annualized expense reimbursements
under existing leases, except for the Philadelphia Region Properties and the
Retail Properties which are triple net leases for which the tenant pays all
operating expenses directly.

51
<PAGE>
TENANT IMPROVEMENTS AND LEASING COMMISSIONS

The following table sets forth certain historical information regarding
tenant improvement and leasing commission costs for tenants at the Properties
for the years ended December 31, 1995, 1996 and 1997:

<TABLE>
<CAPTION>
TOTAL/WEIGHTED
AVERAGE JANUARY 1,
1995 1996 1997 1995-DECEMBER 31, 1997
--------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C>
RENEWALS
Number of leases...................................... 0 0 3 3
Square feet........................................... 0 0 53,215 53,215
Tenant improvement costs per square foot.............. $ 0.00 $ 0.00 $ 3.92 $ 3.92
Leasing commission costs per square foot.............. 0.00 0.00 0.13 0.13
--------- ---------- ---------- --------
Total tenant improvement and leasing commission
costs per square foot............................. $ 0.00 $ 0.00 $ 4.05 $ 4.05
--------- ---------- ---------- --------
--------- ---------- ---------- --------
RE-TENANTED SPACE
Number of leases...................................... 0 0 3 3
Square feet........................................... 0 0 42,927 42,927
Tenant improvement costs per square foot.............. $ 0.00 $ 0.00 $ 13.92 $ 13.92
Leasing commission costs per square foot.............. 0.00 0.00 5.99 5.99
--------- ---------- ---------- --------
Total tenant improvement and leasing commission
costs per square foot............................. $ 0.00 $ 0.00 $ 19.91 $ 19.91
--------- ---------- ---------- --------
--------- ---------- ---------- --------
NEWLY TENANTED SPACE(1)
Number of leases...................................... 1 4 4 9
Square feet........................................... 8,640 107,973 88,572 205,185
Tenant improvement costs per square foot.............. $ 23.74 $ 31.83 $ 40.01 $ 35.02
Leasing commission costs per square foot.............. 3.84 9.47 10.61 9.73
--------- ---------- ---------- --------
Total tenant improvement and leasing commission
costs per square foot............................. $ 27.58 $ 41.30 $ 50.62 $ 44.75
--------- ---------- ---------- --------
--------- ---------- ---------- --------
TOTAL
Number of leases...................................... 1 4 10 15
Square feet........................................... 8,640 107,973 184,714 301,327
Tenant improvement costs per square foot.............. $ 23.74 $ 31.83 $ 23.55 $ 26.53
Leasing commission costs per square foot.............. 3.84 9.47 6.51 7.50
--------- ---------- ---------- --------
Total tenant improvement and leasing commission
costs per square foot............................. $ 27.58 $ 41.30 $ 30.06 $ 34.03
--------- ---------- ---------- --------
--------- ---------- ---------- --------
</TABLE>

- ------------------------

(1) The cost of leasing vacant space (i.e., newly-tenanting) generally exceeds
the cost of renewing or retenating occupied space. During the period January
1, 1995 through December 31, 1997, certain of the Properties were in a
lease-up phase which required major renovation and improvements necessary to
attract a large corporate tenant.

52
<PAGE>
RECURRING CAPITAL EXPENDITURES

The following table summarizes the recurring capital expenditures for the
Properties for the last three calendar years.

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Total recurring capital expenditures ($000's)........................................ $ 0 $ 1,000 $ 690
Total weighted average square feet (in thousands).................................... 1,330 1,482 1,482
Cost per square foot................................................................. $ 0 $ 0.67 $ 0.47
</TABLE>

COMPETITION

Numerous commercial properties compete with the Company's properties in
attracting tenants to lease space, and additional properties can be expected to
be built in the markets in which the Company's properties are located. The
number and quality of competitive commercial properties in a particular area
will have a material effect on the Company's ability to lease space at its
current properties or at newly acquired properties and on the rents charged.
Some of these competing properties may be newer or better located than the
Company's properties. In addition, the commercial real estate market is highly
competitive, particularly within the Mid-Atlantic region in which the Company
presently operates. There are a significant number of buyers of commercial
property, including other publicly traded commercial REITs, many of which have
significant financial resources. This has resulted in increased competition in
acquiring attractive commercial properties. See "Risk Factors--Real Estate
Investment Risks--Risks Associated with Acquisition, Development and
Construction Activities." Accordingly, it is possible that the Company may not
be able to meet its targeted level of property acquisitions and developments due
to such competition or other factors which may have an adverse effect on the
Company's expected growth in operations.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of hazardous or toxic
substances, or the failure to remediate such property properly, may adversely
affect the owner's ability to borrow using such real property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of
hazardous substances at the disposal or treatment facility, whether or not such
facility is or ever was owned or operated by such person. Certain environmental
laws and common law principles could be used to impose liability for release of
and exposure to hazardous substances, including ACMs, into the air, and third
parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to release hazardous
substances, including ACMs. As the owner of real properties, the Company may be
potentially liable for any such costs.

Phase I ESAs have been obtained for each of the Properties. The purpose of
Phase I ESAs is to identify potential sources of contamination for which a
company may be responsible and to assets the status of environmental regulatory
compliance. Where recommended in the Phase I ESA, invasive procedures, such as
soil sampling and testing or the installation and monitoring of groundwater
wells, were subsequently performed. The Phase I ESAs, including subsequent
procedures where applicable, have not revealed any environmental liability that,
after giving effect to indemnification available to the Company, the Company
believes would have a material adverse effect on the Company's business, assets
or results of operations, nor is the Company aware of any such material
environmental liability. Nevertheless, it is possible that the indemnification
would be unavailable at the time the Company sought to make a claim

53
<PAGE>
thereunder, the Phase I ESAs relating to any one of its properties have not
revealed all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no assurance
that (i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Company's properties will not be affected by tenants, by the condition of land
or operations in the vicinity of such properties (such as the presence of
underground storage tanks) or by third parties unrelated to the Company.

INSURANCE

The Company will generally carry commercial general liability insurance,
standard "all-risk" property insurance, and flood and earthquake (where
appropriate) and rental loss insurance with respect to its properties with
policy terms and conditions customarily carried for similar properties. No
assurance can be given, however, that material losses in excess of insurance
proceeds will not occur in the future which would adversely affect the business
of the Company and its financial condition and results of operations. In
addition, certain types of losses may be either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits occur,
the Company could lose its capital invested in a property, as well as the
anticipated future revenue from such property, and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property.

CERTAIN PROPERTY TAX INFORMATION

The aggregate real estate property tax obligations paid by the Company (with
or without tenant reimbursement) for calendar 1997 were approximately $485,000.
These amounts do not include real estate property taxes paid directly by
tenants. On a pro forma basis, more than 97.4% of the Total Rental Revenue of
the Properties as of March 1, 1997 is generated by leases which contain
provisions requiring tenants to pay as additional rent their proportionate share
of any real estate taxes or increases in real estate taxes over base amounts.

EMPLOYEES

As of December 31, 1997, the Company employed nine persons.

LEGAL PROCEEDINGS

The Company is not currently involved in any material litigation nor, to the
Company's knowledge, is any material litigation currently threatened against the
Company (other than routine litigation arising in the ordinary course of
business, substantially all of which is expected to be covered by liability
insurance).

54
<PAGE>
MORTGAGE DEBT

The following table sets forth the Company's mortgage indebtedness that will
remain outstanding after the closing of the Offering and the application of the
net proceeds therefrom.

PROPERTIES--INDEBTEDNESS

<TABLE>
<CAPTION>
PRO FORMA
PRINCIPAL
BALANCE INTEREST RATE PRO FORMA
AS OF AT ANNUAL
FACE AMOUNT DECEMBER ACCUMULATED DECEMBER 31, DEBT PREPAYMENT
PROPERTY/LOCATION OF MORTGAGE 31, 1997 AMORTIZATION 1997 SERVICE(1) MATURITY DATE PREMIUMS
- ------------------------- ------------ ---------- ------------ --------------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Plymouth, MN and
Indianapolis, IN....... $4,800,000 $4,660,648 $ 139,352 9.50% $ 490,684 6/1/2002(2) Yield Maintenance
Peru, IL................. 2,650,000 2,429,348 220,652 8.00% 257,868 11/1/2013 Yield Maintenance
Minot, ND................ 2,850,000 2,628,356 221,644 8.00% 277,331 2/1/2014 Yield Maintenance
Glendale, WI............. 1,200,000 1,055,731 144,269 7.75% 127,224 4/1/2011 (3)
Oconomowac, WI........... 1,800,000 1,737,046 62,954 7.625% 153,000 6/10/2014 Yield Maintenance
Delafield, WI............ 2,000,000 1,864,231 135,769 8.125%(4) 202,617 12/10/2004(5) Yield Maintenance
Office Properties(6)..... 100,000,000 30,000,000 0 7.50% 2,250,000 10/13/2000(7) None
------------ ---------- ------------ ---------
Total Mortgage
Indebtedness........... 1$15,300,000 $44,375,360 $ 924,640 $3,758,724
------------ ---------- ------------ ---------
------------ ---------- ------------ ---------
</TABLE>

- ------------------------

(1) "Pro Forma Annual Debt Service" includes interest expense and principal
amortization calculated for the twelve-month period ending December 31,
1997. For loans that bear interest at a variable rate, the rates in effect
at December 31, 1997 have been assumed to remain constant for the balance of
1997.

(2) A balloon payment of $4,434,000 is due on June 1, 2002.

(3) Until May 1, 1999, there is a prepayment premium of 5.0%. As of May 1, for
each year thereafter, the prepayment premium decreases by 0.5%.

(4) Until November 30, 1999, the interest rate is 8.125%. Thereafter, the
interest rate is the greater of the current 5 year U.S. Treasury Yield plus
1.80% or 8.125%.

(5) A balloon payment of $1,401,000 is due on December 10, 2004.

(6) $100 million is currently outstanding under the Property Financing. The
Company will repay $70 million of indebtedness outstanding under the
Property Financing. See "Use of Proceeds" and "Structure and Formation of
the Company--Description of Property Financing."

(7) A balloon payment of any amount then outstanding under the Property
Financing is due on October 13, 2000.

55
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND TRUSTEES

The persons who serve as executive officers and Trustees of the Company are
identified below. Except as noted below, each of the executive officers will be
a full time employee of the Company or the Operating Partnership.

<TABLE>
<CAPTION>
NAME AGE OFFICE CLASS
- ------------------------ ----------- ----------------------------------------------------------- -----------
<S> <C> <C> <C>
Jay H. Shidler 52 Chairman of the Board of Trustees III
Clay W. Hamlin, III 53 President, Chief Executive Officer and Trustee III
Vernon R. Beck 56 Vice President and Vice Chairman of the Board of Trustees I
Kenneth D. Wethe 56 Trustee II
Allen C. Gehrke 63 Trustee I
William H. Walton 45 Trustee II
Kenneth S. Sweet, Jr. 65 Trustee III
Antony P. Bernheim 38 Vice President, Chief Investment Officer
Thomas D. Cassel 39 Vice President, Finance and Treasurer
David P. Hartsfield 46 Vice President, Operations and Development
John Parsinen 55 Secretary
James K. Davis, Jr. 37 Vice President, Acquisitions
Denise J. Liszewski 41 Vice President, Administration
Stephen S. Fera 32 Controller
</TABLE>

JAY H. SHIDLER is Chairman of the Board of Trustees. Mr. Shidler was
appointed Chairman of the Board of Directors upon the closing of the
Transactions. Mr. Shidler is the Founder and Managing Partner of The Shidler
Group. A nationally acknowledged expert in the field of real estate investment
and finance, Mr. Shidler has over 25 years of experience in real estate
investment and has been directly involved in the acquisition and management of
over 1,000 properties in 40 states and Canada totalling over $4 billion in
aggregate value. Mr. Shidler is a founder and current Chairman of the Board of
Directors of First Industrial Realty Trust, Inc. (NYSE: FR) and is a founder and
former director and Co-Chairman of TriNet Corporate Realty Trust, Inc. (NYSE:
TRI). Mr. Shidler is also founder and Chairman of the Board of Directors of CGA
Group, Ltd., a holding company whose subsidiary is a AAA-rated financial
guarantor based in Bermuda.

Mr. Shidler serves on the boards of directors of several companies and is
active as a trustee of several charitable organizations, including The Shidler
Family Foundation. Mr. Shidler holds a bachelor's degree in Business
Administration from the University of Hawaii.

CLAY W. HAMLIN, III is a Trustee and President and Chief Executive Officer
of the Company. Mr. Hamlin was appointed director and President and Chief
Executive Officer of the Company upon the closing of the Transactions. Mr.
Hamlin joined The Shidler Group in May 1989, as Managing Partner of The Shidler
Group's Mid-Atlantic regional office and acquired, managed and leased over four
million square feet of commercial property with a value in excess of $300
million. A resident of Philadelphia for over 30 years, Mr. Hamlin has been
active in the real estate business for 25 years. Mr. Hamlin is an attorney, a
CPA and holds an MBA from The Wharton School of Business and an undergraduate
degree from the University of Pennsylvania. Mr. Hamlin served as a Lieutenant
J.G. in the U.S. Navy, and is active in many professional and charitable
organizations. Mr. Hamlin is a founding shareholder of both TriNet Corporate
Realty Trust, Inc. and First Industrial Realty Trust, Inc. His professional
affiliations include the Urban Land Institute, NAREIT, the American Institute of
CPAs and the American Bar Association.

56
<PAGE>
VERNON R. BECK is Vice Chairman of the Board of Trustees and is a Vice
President of the Company. Mr. Beck was elected a director of the Company in
January 1990. From 1988 to 1997, Mr. Beck served as President of the Company and
as President of Crown Advisors, Inc., the Company's former external advisors.
Since 1976, Mr. Beck has also been President of Vernon Beck & Associates, Inc.,
a commercial mortgage banking and real estate development firm, which has
developed and financed numerous commercial real estate projects. Mr. Beck is a
former commercial loan officer with IDS Mortgage Corporation and senior analyst
with Northwestern National Life Insurance Company. Mr. Beck, together with John
Parsinen, owns substantially all of the interests in Glacier Realty LLC. See
"Certain Transactions--Management Agreement."

KENNETH D. WETHE is a Trustee of the Company. Mr. Wethe was elected a
director of the Company in January 1990. Since 1990, Mr. Wethe has been the
owner and principal officer of Wethe & Associates, a Dallas-based firm providing
independent risk management, insurance and employee benefit services to school
districts and governmental agencies. Mr. Wethe's background includes over 26
years experience in the group insurance and employee benefits area. He is a
certified public accountant and holds an MBA from Pepperdine University.

ALLEN C. GEHRKE is a Trustee of the Company. Mr. Gehrke was elected a
director of the Company in May 1995. Prior to becoming a private investor in
1995, Mr. Gehrke served for 35 years in various key positions at Fleming
Companies, Inc. As Senior Vice President of Corporate Development, Mr. Gehrke's
responsibilities included management of company physical assets, market
research, lease negotiations and real estate financing. Prior to his employment
with Fleming Companies, Mr. Gehrke spent seven years with Midwest Contractors
and L.A. Construction Co. of Milwaukee. Mr. Gehrke is a former director of
United Cerebral Palsy and several other community organizations.

WILLIAM H. WALTON is a Trustee of the Company. Mr. Walton was appointed a
director of the Company upon the closing of the Transactions. Mr. Walton is a
Managing Principal of Westbrook Partners, L.L.C. ("Westbrook") which he
co-founded in April of 1994. With offices in Dallas, New York, San Francisco and
Florida, Westbrook is a fully integrated real estate investment management
company. Westbrook is the sponsor of Westbrook Real Estate Fund I, L.P. and
Westbrook Real Estate Fund II, L.P., which together control approximately $4
billion of real estate assets including investments in: real estate companies
and securities; offices, retail and industrial properties; apartments; hotels;
and residential developments. Prior to co-founding Westbrook, Mr. Walton was a
Managing Director of Morgan Stanley Realty. Mr. Walton holds an AB from
Princeton University and an MBA from Harvard Business School.

KENNETH S. SWEET, JR. is a Trustee of the Company. Mr. Sweet was appointed a
director of the Company upon the closing of the Transactions. Mr. Sweet is the
Managing Director of Gordon Stuart Associates, Inc., which he founded in 1991.
In 1971, Mr. Sweet founded K.S. Sweet Associates which specialized in real
estate and venture capital investments. From 1957 to 1971, he served in
increasingly responsible positions at The Fidelity Mutual Life Insurance
Company. Currently the Managing General Partner of fifteen venture capital and
real estate partnerships with assets of over $300 million, Mr. Sweet has over 37
years of experience in real estate investment, management, development and
venture capital transactions.

Mr. Sweet is active in community affairs and serves as a director, chairman
of the real estate committee and a member of the finance committee of the Main
Line Health and the Philadelphia Chapter of the Nature Conservancy and is on the
Advisory Committee of the Arthur Ashe Youth Tennis Center. Mr. Sweet holds a BA
degree from the Lafayette College and attended The Wharton School of Business.

ANTONY P. BERNHEIM became Vice President, Chief Investment Officer, of the
Company in November 1997. Prior to joining the Company, Mr. Bernheim served as
Director of Acquisitions for Cali Realty Corp. from September 1994 to May 1997.
As Cali's Director of Acquisitions, Mr. Bernheim oversaw the acquisition program
which transformed Cali from a $300 million company with 12 buildings to a 130
building, $2.5 billion company. Prior to his employment with Cali, Mr. Bernheim
had 13 years experience

57
<PAGE>
in the real estate industry, including three years with Oppenheimer & Company
from February 1991 to September 1994. Mr. Bernheim studied international finance
at the University of Southern California.

THOMAS D. CASSEL has been Vice President, Finance and Treasurer of the
Company since October 1997. Mr. Cassel has over 18 years experience in real
estate accounting, finance, acquisitions and management. From 1995 until he
joined the Company, Mr. Cassel was Vice President and Chief Financial Officer of
Delancey Investment Group, Inc., a Philadelphia based real estate investment and
management company of commercial and residential properties. Prior to Delancey,
he was a real estate consulting manager for Arthur Andersen, LLP for four years
and Kenneth Leventhal & Co. for two years. As a consultant, he performed
strategic planning, capital markets, valuation and acquisition analyses for a
variety of real estate companies, including REITs. Mr. Cassel is a CPA and
received his bachelor's degree in Finance with a major in Accounting from the
Wharton School at the University of Pennsylvania. He is active in several
professional and charitable organizations.

DAVID P. HARTSFIELD has been Vice President, Operations and Development of
the Company since October 1997. He joined The Shidler Group in November 1994, as
Vice President with responsibility for management, leasing and development for
The Shidler Group's Mid-Atlantic region. Prior to joining The Shidler Group, he
served as Vice President, Development for the Kevin F. Donohoe Companies, where
he was responsible for the development and management of office, hotel and
retail properties, including the 1.1 million square foot Curtis Center in
Philadelphia. Mr. Hartsfield has over 20 years of experience with commercial
real estate management, leasing and development. He has a degree in architecture
and an MBA from The University of Virginia and is a member of BOMA and other
professional organizations.

JOHN PARSINEN has been Secretary of the Company since January 1990. Mr.
Parsinen has over 31 years of experience in commercial real estate. Mr. Parsinen
has developed and owns various real estate projects. Mr. Parsinen has been a
senior attorney at Parsinen Kaplan Levy Rosberg & Gotlieb, P.A. (Minneapolis,
Minnesota) since it was formed in 1982. Mr. Parsinen owns 50% of Guaranty Title,
Inc. a Minneapolis-based real estate title insurance company. Mr. Parsinen was a
general partner of Earle Brown Commons Limited Partnership II, which owned and
operated an elderly housing facility in Brooklyn Center, MN. In 1994, the
limited partnership initiated a Chapter 11 bankruptcy reorganization proceeding
to restructure certain tax and debt obligations. The bankruptcy was dismissed in
1995 and the project was sold. Mr. Parsinen, together with Vernon Beck, owns
substantially all of the interests in Glacier Realty LLC. See "Certain
Transactions."

JAMES K. DAVIS, JR. has been Vice President, Acquisitions of the Company
since October 1997. He joined The Shidler Group in July 1994, as Vice President
with responsibility for acquisitions, financing, and leasing for The Shidler
Group's Mid-Atlantic region. Prior to joining The Shidler Group, Mr. Davis, was
Vice President, Acquisitions for Sandler Securities, Inc. He has 13 years of
real estate experience in acquisitions, financing, development and leasing. Mr.
Davis has an MBA from The Wharton School with a major in finance and an
undergraduate degree from The University of North Carolina. He is active in
several professional and charitable organizations.

DENISE J. LISZEWSKI has been Vice President, Administration of the Company
and Assistant Secretary since October l997. She joined The Shidler Group in May
1989 serving in a number of capacities, where she was in charge of personnel,
administration and information systems. Ms. Liszewski has over 20 years of
business experience and has an undergraduate degree from Drexel University.

STEPHEN S. FERA has been Controller of the Company since December 1997.
Prior to joining the Company, he spent seven years at Pennsylvania Real Estate
Investment Trust ("PREIT"), where he was promoted to the position of Controller.
At PREIT, he was responsible for managing the day-to-day accounting operations
of the REIT including all wholly-owned and joint venture properties. Prior to
PREIT, Mr. Fera was Assistant Controller at Calvanese Corporation, where he was
responsible for all corporate and construction accounting.

58
<PAGE>
CERTAIN INFORMATION REGARDING THE BOARD OF TRUSTEES AND COMMITTEES

THE BOARD OF TRUSTEES. The business and affairs of the Company are managed
under the direction of the Board of Trustees. Pursuant to the terms of the
Declaration of Trust, the Trustees are divided into three classes. Class I will
hold office for a term expiring at the annual meeting of shareholders to be held
in 1999, Class II will hold office for a term expiring at the annual meeting of
shareholders to be held in 2000, and Class III will hold office for a term
expiring at the annual meeting of shareholders to be held in 2001. At each
annual meeting of the shareholders of the Company, the successors to the class
of Trustees whose terms expire at the meeting will be elected to hold office for
a term continuing until the annual meeting of shareholders held in the third
year following the year of their election and the election and qualification of
their successors. See "Certain Provisions of Maryland Law and the Company's
Declaration of Trust -- Classification of the Board, Vacancies and Removal of
Trustees."

COMMITTEES. The Company has a standing Audit Committee, which currently
consists of Mr. Wethe (Chairman) and Mr. Gehrke, and a Compensation Committee,
which currently consists of Mr. Sweet and Mr. Walton. The Audit Committee
reviews, recommends and reports to the Board of Trustees on (1) the engagement
of independent auditors and range of audit fees, (2) the quality and
effectiveness of internal controls, (3) engagement or discharge of the
independent auditors, (4) professional services provided by the independent
auditors and (5) the review and approval of major changes in the Trust's
accounting principles and practices. The Compensation Committee determines all
executive compensation, administers stock option plans and other incentive plans
and approves employment contracts.

The Board of Trustees presently acts as its own Nominating Committee.

COMPENSATION OF TRUSTEES. Independent Trustees (Messrs. Gehrke, Sweet,
Walton and Wethe) will receive an annual fee of $15,000. Trustees incurring
travel expenses in connection with their duties as trustees of the Company are
reimbursed in full. Each Trustee is eligible to participate in the Incentive
Plan. The Compensation Committee intends to grant to each Trustee who is not an
employee of the Trust, upon initial election or appointment, an option to
purchase 5,000 Common Shares, at the then fair market value of the Common
Shares.

EXECUTIVE COMPENSATION

Upon completion of the Transactions on October 14, 1997, the Company
converted from an externally advised to a self-administered REIT. Prior to
October 14, 1997, no individual officer of the Company was paid any cash or
other compensation. The following table sets forth the compensation paid from
October 14, 1997 to December 31, 1997 and current base annual compensation for
each of the five most highly compensated officers of the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
1997 ACTUAL
NAME PRINCIPAL POSITION SALARY BASE ANNUAL SALARY
- --------------------------- -------------------------------------------------- ----------------- ------------------
<S> <C> <C> <C>
Clay W. Hamlin, III President, Chief Executive Officer $ 18,000 $ 90,000
Antony Bernheim Vice President, Chief Investment Officer -- 125,000
Thomas D. Cassel Vice President, Finance and Treasurer 22,038 90,000
David P. Hartsfield Vice President, Operations and Development 16,000 80,000
James K. Davis, Jr. Vice President, Acquisitions 13,000 65,000
</TABLE>

59
<PAGE>
OPTIONS GRANTS IN FISCAL YEAR 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
ANNUAL RATE OF
COMMON PRICE
APPRECIATION FOR
NUMBER OF COMMON PERCENT OF TOTAL EXERCISE PRICE OPTION TERM (2)
SHARES UNDERLYING OPTIONS GRANTED PER COMMON EXPIRATION --------------------
NAME OPTIONS GRANTED (1) IN FISCAL YEAR SHARE DATE 5% 10%
- ----------------------- --------------------- ------------------- --------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Clay W. Hamlin, III 2,500 14.3% $ 7.59 10/14/2007 $ 11,933 $ 30,241
</TABLE>

- ------------------------

(1) All options are granted at the fair market value of the Common Shares at the
date of grant. Options granted are for a term of ten years from the date of
grant and vest one year after the date of grant.

(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), these amounts are the hypothetical gains or "option spreads"
that would exist for the options based on assumed rates of annual compound
share price appreciation of 5% and 10% from the date the options are granted
over the full option term. No gain to the optionee is possible without an
increase in the market price of the Common Shares, which would benefit all
shareholders.

Other than as set forth above, none of the other officers received options in
connection with their service to the Company during the year ended December 31,
1997. In addition, none of these officers contributed to any 401(k) plan.

In addition to cash compensation in the form of base annual salary, the
Company anticipates that it will have a cash bonus incentive plan pursuant to
which cash bonuses may be awarded to executive officers and other key employees
based on attainment of specified personal and corporate objectives. It is
anticipated that the amounts of such bonuses will be determined by the Board of
Trustees based upon a recommendation of the Compensation Committee.

EMPLOYMENT AGREEMENTS

Mr. Hamlin has entered into an employment agreement with the Company. The
agreement is for a continuous and self-renewing term of two years unless
terminated by either party. The agreement provides for base annual compensation
in the amount set forth above and incentive compensation to be determined by the
Board of Trustees, upon a recommendation of the Compensation Committee. The base
annual compensation may be increased in subsequent years by action of the
Compensation Committee. The employment agreement provides for certain severance
payments in the event of disability or termination by the Company without cause
or by Mr. Hamlin based upon constructive termination. The agreement also
provides for certain payments to be made to Mr. Hamlin in the event of a Change
in Control (as defined in the agreement). Mr. Hamlin is required under the terms
of his employment agreement to devote his full business time to the affairs of
the Company. The agreement also prohibits Mr. Hamlin from engaging, directly or
indirectly, during the term of his employment and for a period thereafter, in
activities that compete with those of the Company.

Mr. Cassel has entered into an employment agreement with the Company. The
agreement is for a term of three years unless terminated by either party. The
agreement provides for base annual compensation in the amount set forth above
and incentive compensation to be determined by the Board of Trustees, upon a
recommendation of the Compensation Committee. The base annual compensation may
be increased in subsequent years by action of the Compensation Committee. The
employment agreement provides for certain severance payments in the event of
disability or termination by the Company without cause or by Mr. Cassel based
upon constructive termination. The agreement also provides for certain payments
to be made to Mr. Cassel in the event of a Change of Control (as defined in the
agreement). Mr. Cassel is required under the terms of his employment agreement
to devote his full business time to the affairs of the Company. The agreement
also prohibits Mr. Cassel from engaging, directly or indirectly, during the term
of his employment and for a period thereafter, in activities that compete with
those of the Company.

60
<PAGE>
THE PLANS

THE OPTION PLAN. Since 1993, the Company has maintained the Option Plan. A
total of 75,000 shares of Common Stock were reserved for issuance under the
Option Plan. Each director of the Company was eligible to participate in the
Option Plan. The Option Plan provided that each director received, upon initial
election or appointment, an option to purchase 2,500 shares of Common Stock at
the then fair market value of the Common Stock. The Option Plan also provided
for the grant of an option to purchase an additional 2,500 shares of the Common
Stock upon each director's re-election to the Board of Directors of the Company.
The options become exercisable in full one year after date of grant and expire
ten years from the date of grant. Options representing 75,000 shares of Common
Stock have been granted under the Option Plan, with options representing 70,000
Common Shares remaining unexercised as of March 30, 1998. The Company does not
intend to issue any more options under the Option Plan.

THE INCENTIVE PLAN. In connection with the Company Reformation, the Board
of Trustees adopted, and the shareholders of the Company approved, the Incentive
Plan for the purpose of attracting, retaining and motivating employees and
trustees of the Company. The Incentive Plan authorizes the issuance of up to ten
percent of the Common Shares outstanding from time to time, subject to
adjustment on the event of certain recapitalization or reorganization
transactions. The Incentive Plan is administered by the Compensation Committee
of the Board of Trustees or, with respect to certain matters, its delegate. As
used in this summary, the term "Administrator" means the Compensation Committee
or its delegate, as appropriate. Trustees, and employees of the Company, the
Operating Partnership and other subsidiaries of the Company, and designated
affiliates of the Company will be eligible for selection by the Administrator to
participate in the Incentive Plan. The maximum number of Common Shares with
respect to which options may be granted during a calendar year to any
participant under the Incentive Plan will be 200,000 Common Shares, subject to
adjustment for certain recapitalization or reorganization transactions. No
awards may be granted under the Incentive Plan after March 2008.

The Incentive Plan provides for the grant of (i) share options intended to
qualify as incentive stock options under Section 422 of the Code, (ii) share
options not intended to qualify as incentive stock options under Section 422 of
the Code ("nonqualified stock options") and (iii) Dividend Equivalents (as
defined in the Incentive Plan) which may be granted alone or in conjunction with
share options (each an "Award"). The Administrator determines the type and
number of Awards granted, the terms and conditions of any Award and may adopt,
amend, waive and rescind the rules and regulations necessary to administer the
Incentive Plan, among other things. In connection with the grant of options
under the Incentive Plan, the Administrator will determine the option exercise
price, the term of the option and the time and method of exercising.

An option granted under the Incentive Plan may be exercised for any number
of whole Common Shares less than the full number of Common Shares for which the
option could be exercised. Unless otherwise agreed by the Administrator, Awards
will not be transferable except by will or the laws of descent and distribution.
A holder of an option will have no rights as a shareholder with respect to
Common Shares subject to his or her option until the option is exercised. Any
Common Shares subject to options which are forfeited (or expire without
exercise) pursuant to the vesting requirement or other terms established at the
time of grant will again be available for grant under the Incentive Plan.
Payment of the exercise price of an option granted under the Incentive Plan may
be made in cash, or, if permitted by the Administrator, by exchanging Common
Shares having a fair market value equal to the option exercise price. Unless
otherwise provided by the Administrator, all outstanding Awards will become
fully exercisable upon a Change of Control (as defined under the Incentive
Plan).

Options to purchase an aggregate of 20,000 Common Shares were granted to the
independent Trustees on March 12, 1998 at a purchase price of $12.25 (options to
purchase 5,000 Common Shares granted to each of Messrs. Gehrke, Sweet, Walton
and Wethe) which vest one year after the date of grant. Options to purchase
25,000 Common Shares were granted to Mr. Cassel on March 12, 1998 at a purchase
price of $12.25 which vest ratably over three years following the date of grant.
These options expire ten years after their date of grant.

61
<PAGE>
STRUCTURE AND FORMATION OF THE COMPANY

GENERAL

The following diagram depicts the Company's structure and the ownership
interests following consummation of the Offering:

[LOGO]

- ------------------------------

(1) Trustees and officers own 42.4% assuming all outstanding Units are redeemed
with Common Shares.

(2) The Retail Properties are held by the Company.

(3) The Office Properties are held by subsidiary partnerships of the Operating
Partnership.

(4) Percentages are after giving effect to the Retained Interests. In the
Transactions, the Operating Partnership acquired all of the limited
partnership interests in limited partnerships holding the Office Properties
except for the Retained Interests. The Retained Interests are required to be
contributed to the Operating Partnership in November 2000.

(5) Operating Partnership also has 2,100,000 of Preferred Units outstanding,
after giving effect to the contribution of the Retained Interests. See
"Operating Partnership Agreement."

62
<PAGE>
THE TRANSACTIONS

On October 14, 1997, the Company completed the Transactions pursuant to the
Formation Agreement. Although the Transactions involved a number of properties
and partnerships and were effected by a series of intermediate steps, the
Transactions were negotiated and effected as a unitary transaction and, in
effect, constituted the acquisition by the Company of an interest in the
Operating Partnership formed to acquire the Office Properties.

Pursuant to the Transactions, the Company became the sole General Partner of
the Operating Partnership, and the Operating Partnership acquired all of the
limited partnership interests in limited partnerships holding the Office
Properties (collectively, the "Properties Partnerships") except for an 11%
limited partnership interest in Blue Bell Investment Company, L.P. retained by
Shidler Equities, L.P., a limited partnership in effect controlled by Mr.
Shidler, Chairman of the Board, and his wife, Wallette Shidler, and 11% limited
partnership interests in each of ComCourt and 6385 Flank Drive, L.P. retained by
Mr. Hamlin, the President, Chief Executive Officer and a Trustee of the Company.
Immediately prior to the Acquisition, Corporate Office Properties Holdings, Inc.
("Holdings") was admitted as the sole general partner of each of the Properties
Partnerships, holding a 0.1% interest in each of them. At the consummation of
the Transactions, the Company had a 20.6946% partnership interest (before giving
effect to the contribution of the Retained Interests) in the Operating
Partnership.

The Retained Interests are required to be contributed to the Operating
Partnership in November 2000 in consideration for the issuance to them of an
aggregate of 282,508 Partnership Units and 186,455 Preferred Units.

Immediately prior to the Acquisition, each of the Properties Partnerships
jointly and severally entered into a $100 million principal amount mortgage
financing with Bankers Trust Company pursuant to a Senior Secured Credit
Agreement dated as of October 14, 1997 (the "Property Financing"). See
"Description of Property Financing."

For the purposes of the Transactions, the Properties Partnerships (including
the Retained Interests) were treated as having a value of $170 million (which
includes the $100 million of indebtedness represented by the Property
Financing). For purposes of determining the consideration to be given in respect
of the acquisition by the Operating Partnership of limited partnership interests
in the Properties Partnerships, Partnership Units were issued (and will be
issued in November 2000 for Retained Interests) at the rate of one Partnership
Unit for every $5.50 in exchange value and Preferred Units were issued (and will
be issued in November 2000 for Retained Interests) at a rate of one Preferred
Unit for every $25.00 in exchange value. This represented a conversion price of
$7.00 per Partnership Unit based upon a conversion rate of 3.5714 Partnership
Units for each Preferred Unit.

The aggregate consideration issued in the Transactions by the Company and
the Operating Partnership on October 14, 1997 to the former general and limited
partners of the Properties Partnerships consisted of (x) 600,000 shares of
Common Stock (issued at a price of $5.50 per share); (y) an aggregate of
2,899,310 Partnership Units (including 600,000 issued to the Company in
consideration for limited partnership interests in the Properties Partnerships
acquired by it for 600,000 shares of Common Stock and subsequently contributed
by it to the Operating Partnership); and (z) 1,913,545 Preferred Units. The
nature and amount of consideration given and received by the Company in the
Transactions was based on its judgment as to the fair market value of the Office
Properties and the shares of Common Stock at the time the Formation Agreement
was negotiated.

Pursuant to the Transactions, Messrs. Shidler and Hamlin each acquired
300,000 shares of Common Stock in exchange for partnership interests in various
of the Properties Partnerships, which Common Stock represented, in the
aggregate, approximately 26% of the outstanding Common Stock immediately
following the Transactions. Prior to the Transactions, the Properties
Partnerships had in effect been controlled by Mr. Shidler and Mr. Hamlin.

DESCRIPTION OF PROPERTY FINANCING

Immediately prior to the Acquisition, each of the Properties Partnerships
jointly and severally entered into the $100 million Property Financing with
Bankers Trust Company. Approximately $96.1 million of the

63
<PAGE>
proceeds of the Property Financing was used by entities other than the Company
and the Operating Partnership to refinance indebtedness of or secured by the
assets of the Properties Partnerships and to pay various costs in connection
with the Transactions. Approximately $3.9 million of the proceeds of the
Property Financing was contributed to the Operating Partnership in connection
with the Transactions. The Operating Partnership used approximately $2.9 million
of these funds to pay various costs associated with the Transactions and
retained approximately $1.0 million for working capital needs.

The Operating Partnership is a joint and several obligor in respect of the
Property Financing. The Company and Holdings are not obligors with respect to
the Property Financing, but have pledged certain assets described in the
following sentence to secure repayment of the Property Financing. Substantially
all of the assets of the Properties Partnerships and the Operating Partnership's
and Holdings' interests in the Properties Partnerships and the Company's
interests in Holdings and the Operating Partnership have been pledged or
mortgaged to secure the Properties Partnerships' and the Operating Partnership's
joint and several obligations in respect of the Property Financing.

The initial term of the Property Financing is three years with the right
given to the obligors to extend it, subject to the satisfaction of certain
conditions precedent thereto, for two successive one-year extensions. Borrowings
under the Property Financing bear interest at the rate of 7.5% per annum. In the
event that the Property Financing is extended after the third anniversary or
following an event of default during the first three years, the borrowings under
the Property Financing will bear interest at a floating rate based on LIBOR plus
2.5%.

The Property Financing contains, among other things, covenants restricting
the ability of the Operating Partnership to make distributions. The Property
Financing also contains covenants restricting the ability of each Properties
Partnership to incur indebtedness, create liens, make certain investments, enter
into transactions with affiliates and otherwise restrict activities. The
Property Financing also contains the following financial covenants binding upon
the Company and its subsidiaries: maintenance of consolidated net worth, a
minimum consolidated interest coverage ratio, a maximum consolidated unhedged
floating rate debt ratio and a maximum consolidated total indebtedness ratio.
Each Properties Partnership must also maintain a minimum property interest
coverage ratio and a minimum property hedged interest coverage ratio.

Events of default under the Property Financing include, among other things,
default in the payment of principal or interest on borrowings outstanding under
the Property Financing, any payment default in respect of material amounts of
indebtedness of the Company or its subsidiaries, any non-payment default on such
indebtedness, any material breach of the covenants or representations and
warranties included in the Property Financing and related documents, the
institution of any bankruptcy proceedings and the failure of any security
agreement related to the Property Financing or lien granted thereunder to be
valid and enforceable. Upon the occurrence and continuance of an event of
default under the Property Financing, the lender may declare the then
outstanding loans due and payable.

In connection with the Offering, the Company has entered into an agreement
with Bankers Trust Company pursuant to which the Company has been granted the
right to reborrow, in minimum amounts of $20 million (or the remaining undrawn
amount, if less), the entire $70 million repaid with the net proceeds of the
Offering for the purpose of acquiring commercial office building real property
and paying related fees and expenses. This right must be exercised within nine
months of the date of the Offering. Prior to the end of the nine-month period,
the Company may reborrow the remaining amount of the prepayment not previously
reborrowed and use the proceeds to purchase marketable securities in which
Bankers Trust Company will have a security interest. The Company may not
reborrow the $70 million unless there are no defaults or events of default under
the Property Financing, the Company provides Bankers Trust Company with
satisfactory assurances that Bankers Trust Company has a first priority lien on
the existing Office Properties for the entire amount of the loan outstanding
under the Property Financing and the Company pays certain draw down fees. The
Company will pay an unused facility fee for the period between prepayment and
reborrowing.

64
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS

THE COMPANY

The following table contains certain information as of March 30, 1998,
regarding the beneficial ownership of the Common Shares and Units by (i) each
person known by the Company to own beneficially more than 5% of the Common
Shares, (ii) each current Trustee and executive officer of the Company and (iii)
the current Trustees and executive officers as a group. Any shares which are
subject to an option or a warrant exercisable within 60 days are reflected in
the following table and are deemed to be outstanding for the purpose of
computing the percentage of Common Shares owned by the option or warrant holder
but are not deemed to be outstanding for the purpose of computing the percentage
of Common Shares owned by any other person. Unless otherwise noted, each person
identified below possesses sole voting and investment power with respect to such
shares.

<TABLE>
<CAPTION>
NUMBER OF
COMMON
SHARES
BENEFICIALLY NUMBER OF NUMBER OF PERCENT OF ALL PERCENT OF
OWNED PARTNERSHIP UNITS PREFERRED UNITS COMMON SHARES ALL
AFTER THE BENEFICIALLY BENEFICIALLY AND COMMON
OFFERING(1) OWNED OWNED UNITS(2)(3) SHARES(3)
-------------- --------------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Jay H. Shidler........... 300,000 816,526(4) 736,908(5) 18.9% 3.1%
Clay W. Hamlin, III...... 300,000 994,447(6) 854,335(7) 21.9 3.1
Vernon R. Beck........... 151,793(8)(9) 0 0 * 1.6
John Parsinen............ 151,965(10)(11) 0 0 * 1.6
Allen C. Gehrke.......... 7,750(12) 0 0 * *
Kenneth S. Sweet, Jr..... 10,000 0 0 * *
William H. Walton........ -- (13) 0 0 0 0
Kenneth D. Wethe......... 12,724(9) 0 0 * *
Antony P. Bernheim....... 7,500 0 0 * *
Thomas D. Cassel......... 660 0 0 * *
--
------- ---------- --------------- ---
All Trustees and
Executive Officers as a
Group
(10 persons)........... 942,392(14) 1,810,973 1,591,243 42.4% 9.6%
--
--
------- ---------- --------------- ---
------- ---------- --------------- ---
</TABLE>

- ------------------------

* Represents less than one percent.

(1) Shares Beneficially Owned by a person are determined in accordance with the
definition of "beneficial ownership," as set forth in the regulations of the
Commission and, accordingly, may include securities owned by or for, among
others, the spouse, children or certain other relatives of such person, as
well as other shares as to which the person has or shares voting or
investment power or has the option or right to acquire Common Shares within
60 days.

(2) Assumes that all Units are exchanged for Common Shares (without regard to
the prohibition on exchange of Preferred Units for Partnership Units until
October 1, 1999 and of Partnership Units for Common Shares until September
1, 1998, and assumes the Company elects to issue Common Shares rather than
pay cash upon exchange of all Partnership Units).

(3) Assumes 9,771,083 Common Shares outstanding immediately following completion
of the Offering (before giving effect to any exchange of Units beneficially
held by the identified person).

(4) 2,600 Partnership Units are held directly by Mr. Shidler and 582,103
Partnership Units are held by Shidler Equities, L.P., a limited partnership
controlled by Mr. Shidler and his wife, Wallette Shidler. Includes 231,823
Partnership Units to be issued in exchange for the Retained Interests.

65
<PAGE>
(5) 126,079 Preferred Units are held directly by Mr. Shidler and 457,826
Preferred Units are held by Shidler Equities, L.P. Includes 153,003
Preferred Units to be issued in exchange for the Retained Interests.

(6) 5,235 Partnership Units are held directly by Mr. Hamlin. 875,284 Partnership
Units and 63,243 Partnership Units are held by LBCW Limited Partnership and
CHLB Partnership, respectively. LBCW Limited Partnership and CHLB
Partnership are both family partnerships controlled by Mr. Hamlin and his
wife, Lynn B. Hamlin, as the sole general partners. Includes 50,685
Partnership Units to be issued in exchange for the Retained Interests.

(7) 115,334 Preferred Units, 663,808 Preferred Units and 41,741 Preferred Units
are held by Mr. Hamlin, LBCW Limited Partnership and CHLB Partnership,
respectively. Includes 33,452 Preferred Units to be issued in exchange for
the Retained Interests.

(8) Shares are held by Enterprise Nautical, Inc., of which Mr. Beck is sole
owner.

(9) Includes 12,500 Common Shares issuable upon exercise of presently
exercisable options.

(10) Includes 10,000 Common Shares issuable upon exercise of presently
exercisable options.

(11) Includes 3,000 shares owned by Mr. Parsinen's wife.

(12) Includes 7,500 Common Shares issuable upon exercise of presently
exercisable options.

(13) Excludes 336,121 Partnership Units and 33,299 Partnership Units held by
Westbrook Real Estate Fund I, L.P. and Westbrook Real Estate Co-Investment
Partnership I, L.P., respectively, and 221,840 Preferred Units and 21,977
Preferred Units held by Westbrook Real Estate Fund I, L.P. and Westbrook
Real Estate Co-Investment Partnership I, L.P., respectively. Mr. Walton is a
Managing Principal of Westbrook Partners, L.L.C., which is the sponsor of
Westbrook Real Estate Fund I, L.P. and Westbrook Real Estate Co-Investment
Partnership I, L.P. Mr. Walton disclaims beneficial interest of these Units.

(14) Includes 42,500 Common Shares issuable upon exercise of presently
exercisable options.

REGISTRATION RIGHTS

The Company has granted to the holders of the Partnership Units and the
Preferred Units certain registration rights. No later than August 1, 1998, the
Company is obligated to file a shelf registration statement with respect to the
Common Shares issuable upon conversion or redemption of the Units (the
"Registerable Securities"). The Company is also required, at the demand of
holders of 6% or more of the Registerable Securities, to register such holders'
Registerable Securities, subject to the right to defer the filing of the
necessary registration statement for a period not to exceed 90 days under
certain limited circumstances. This right to demand registration may be
exercised not more than three times. In addition, the Company has granted to
holders of Registrable Securities certain "piggy-back" rights. The Company has
agreed to indemnify the holders of Registrable Securities against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Company will pay all fees associated with these
registrations, other than underwriting discounts and commissions.

66
<PAGE>
CERTAIN TRANSACTIONS

Options to purchase an aggregate of 17,500 shares of Common Stock were
granted to the Trustees in the year ended December 31, 1997 under the Option
Plan at a purchase price of $7.59 (options to purchase 2,500 Common Shares
granted to each of Messrs. Hamlin, Shidler, Sweet and Walton in October 1997)
and $5.25 (options to purchase 2,500 Common Shares granted to each of Messrs.
Beck, Gehrke and Wethe in May 1997). These options expire ten years after their
issue date. For options granted subsequent to December 31, 1997, see
"Management--The Plans."

Subject to the supervision of the Company's Board of Directors, prior to
October 14, 1997 the business of the Company was managed by Crown, which
provided investment advisory and administrative services to the Company pursuant
to the Advisory Agreement. Crown was owned by John Parsinen and Vernon R. Beck,
then officers and directors of the Company and currently Secretary and Vice
President and Vice Chairman of the Board of Trustees, respectively. Under the
Advisory Agreement, the Company paid Crown certain attorney fees, expenses and
performance fees, as defined in the Advisory Agreement, and a 3% fee for each
real estate acquisition or disposition.

Concurrently with the closing of the Transactions and pursuant to the
Formation Agreement, the Advisory Agreement was terminated and the Company
entered into the Management Agreement with Glacier. Substantially all of the
interests in Glacier are owned by Vernon R. Beck and John Parsinen. Under the
Management Agreement, Glacier is responsible for the management of the Retail
Properties of the Company, subject to the approval and direction of the Board of
Trustees. The Management Agreement provides that Glacier will receive an annual
fee of $250,000 plus a percentage of Average Invested Assets (as defined in the
Management Agreement) and will pay third party expenses associated with owning
the Retail Properties. In addition, Glacier will receive a fee of 1% of the
purchase price or the sale price upon the acquisition or disposition by the
Company or any of its affiliates of any net-leased real estate assets. Under the
Management Agreement, this percentage is increased to 3% in the event that all
or substantially all of the net-leased real estate properties are disposed of.
The Management Agreement has a term of five years and is terminable thereafter
on 180 days' prior written notice. In the event the Management Agreement is
terminated, including for non-renewal, a fee equal to 3% of the Invested Real
Estate Assets (defined in the Management Agreement to exclude the Company's
current net-leased real estate assets) would be due to Glacier. Crown and
Glacier received combined fees of $250,288 pursuant to the Advisory Agreement
and the Management Agreement in the year ended December 31, 1997.

Parsinen Kaplan Levy Rosberg & Gotlieb, P.A. performed legal services for
the Company. The Company incurred legal fees to them of approximately $69,000 in
the year ended December 31, 1997. John Parsinen, Secretary of the Company, is an
officer, director and shareholder of Parsinen Kaplan Levy Rosberg & Gotlieb,
P.A.

An officer and director of the Company is the director of a company that
received management fees of approximately $22,000 in the year ended December 31,
1997. This fee was paid for property services. The Company believes that this
fee represented a payment for services not in excess of their fair market value.

In addition to the transactions listed above, for a description of the
Transactions, see "Structure and Formation of the Company--The Transactions."

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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a description of certain investment, financing and other
policies of the Company. These policies have been adopted by the Board of
Trustees and may be amended or revised from time to time without the approval of
the Company's shareholders, except that changes in certain policies with respect
to conflicts of interest must be consistent with certain legal requirements.

INVESTMENT POLICIES

INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Company owns
the net Retail Properties directly but intends to conduct all of its other
investment activities through the Operating Partnership and its subsidiaries and
other affiliates and joint ventures in which the Operating Partnership or a
subsidiary may be a partner. The Company's investment objectives are to provide
quarterly cash distributions and achieve long-term capital appreciation through
increases in the value of the Company's portfolio of properties and its
operations. For a discussion of the Properties, see "Properties." The Company's
policies are to (i) purchase income-producing suburban office properties
primarily for long-term capital appreciation and rental growth and (ii) expand
and improve its current properties or other properties purchased or sell such
properties, in whole or in part, when circumstances warrant. To a lesser extent,
the Company intends to grow through the selective development, redevelopment and
construction of commercial properties. The Company does not intend to expand its
existing investments in retail properties (except as part of an entity or
portfolio acquisition consisting principally of suburban office properties) and,
to the extent appropriate opportunities arise, may sell or exchange some or all
of these properties and reinvest any net cash proceeds therefrom in suburban
office properties. It also may decide to contribute some or all of these
properties to the Operating Partnership in exchange for additional Units.

Equity investments may be subject to existing mortgage financing and other
indebtedness or to such financing or indebtedness as may be incurred in
connection with acquiring or refinancing such equity investments. Debt service
with respect to such financing or indebtedness will have a priority over any
distributions with respect to the Common Shares and Units. Investments are also
subject to the Company's policy not to be treated as an investment company under
the Investment Company Act of 1940.

The Company expects to pursue its investment objectives primarily through
the direct ownership by the Operating Partnership of its current Properties
(other than those currently held by the Properties Partnerships and the Company)
and other properties to be acquired in the future. The Company currently intends
to invest primarily in existing improved properties but may, if market
conditions warrant, invest in development projects as well. The Company intends
to concentrate on acquiring, owning and operating suburban office properties,
and future investment or development activities will not be limited to any
geographic area or product type or to a specified percentage of the Company's
assets. While the Company intends to seek diversity in its investments in terms
of property locations, size and market, the Company does not have any limit on
the amount or percentage of its assets that may be invested in any one property
or any one geographic area. The Company intends to engage in such future
investment and development activities in a manner which is consistent with the
maintenance of its status as a REIT for federal income tax purposes.

INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company's current portfolio
consists of, and the Company's business objectives emphasize, equity investments
in suburban office properties, the Company may, in the discretion of the Board
of Trustees, invest in mortgages and deeds of trust, consistent with the
Company's continued qualification as a REIT for federal income tax purposes,
including participating or convertible mortgages if the Company concludes that
it may benefit from the cash flow or any appreciation in value of the property
secured by such mortgages. Investments in real estate mortgages run the risk
that one or more borrowers may default under such mortgages and that the
collateral securing such mortgages may not be sufficient to enable the Company
to recoup its full investment.

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SECURITIES OF OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUES. Subject to the limitations on ownership of certain
types of assets and the gross income tests imposed by the Code, the Company also
may invest in the securities of other REITs, other entities engaged in real
estate activities or other issuers, including for the purpose of exercising
control over such entities. See "Federal Income Tax Considerations--Taxation of
the Company--Asset Tests" and "--Taxation of the Company-- Gross Income Tests."
The Company may enter into joint ventures or partnerships for the purpose of
obtaining an equity interest in a particular property in accordance with the
Company's investment policies. Such investments may permit the Company to own
interests in larger assets without unduly restricting diversification and,
therefore, add flexibility in structuring its portfolio. The Company has no
plans to enter into a joint venture or partnership to make an investment that
would not otherwise meet its investment policies.

FINANCING POLICIES

In conjunction with its growth strategies, the Company has developed a
two-phase capitalization strategy. The Company intends during the first phase of
this strategy, a period of rapid growth of the Company, to emphasize the
issuance of Units as tax-deferred consideration to sellers in entity and
portfolio acquisitions. To accelerate growth in FFO per share during this
period, the Company will utilize a minimum cash flow to debt service coverage
ratio of approximately 1.6 to 1.0, which is anticipated to equate to a ratio of
debt to total market capitalization of between 40% and 60%. The Company believes
a 1.6 times cash flow coverage ratio is conservative for a seasoned pool of
suburban office buildings and is a more appropriate measure of entity leverage
than the conventional REIT measure of total debt outstanding to total market
capitalization. During the second phase of this strategy, the Company plans to
gradually reduce its debt as a percentage of total market capitalization while
continuing to grow FFO per share. The Company's plan to reduce its debt in the
future is designed to achieve an investment grade rating and provide the Company
access to the corporate unsecured debt market. The Declaration of Trust and the
Bylaws, however, do not limit the amount or percentage of indebtedness that the
Company may incur, and the Company may from time to time modify its debt policy
in light of current economic conditions, relative costs of debt and equity
capital, the market values of its properties, general conditions in the market
for debt and equity securities, fluctuations in the market price of its Common
Shares, growth and acquisition opportunities and other factors. Any increase in
the Company's level of indebtedness results in an increased risk of default on
its obligations and a related increase in debt service requirements that could
adversely affect the financial condition and results of operations of the
Company and the Company's ability to make distributions to shareholders. The
Company will consider a number of factors in making decisions regarding the
incurrence of debt, such as the purchase price of properties to be acquired with
debt financing, the estimated market value of properties upon refinancing and
the ability of particular properties and the Company as a whole to generate
sufficient cash flow to cover expected debt service. See "Risk Factors--Possible
Changes in Policies Without Shareholder Approval; No Limitation on Debt."

The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.

To the extent that the Board of Trustees decides to obtain additional
capital, the Company may raise such capital through additional equity offerings
(including offerings of senior securities), debt financings or retention of cash
available for distribution (subject to provisions in the Code concerning
taxability of undistributed REIT income), or a combination of these methods. As
long as the Operating Partnership is in existence, the net proceeds of the sale
of Common Shares by the Company will be transferred to the Operating Partnership
in exchange for that number of Partnership Units in the Operating Partnership
equal to the number of Common Shares sold by the Company. The Company presently
anticipates that any additional borrowings would be made through the Operating
Partnership, although the Company may incur indebtedness directly and loan the
proceeds to the Operating Partnership. Borrowings may be unsecured or may be
secured by any or all of the assets of the Company, the Operating Partnership or
any

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existing or new property owning partnership and may have full or limited
recourse to all or any portion of the assets of the Company, the Operating
Partnership or any existing or new property owning partnership. Indebtedness
incurred by the Company may be in the form of bank borrowings, purchase money
obligations to sellers of properties, publicly or privately placed debt
instruments or financing from institutional investors or other lenders. The
proceeds from any borrowings by the Company may be used for working capital, to
refinance existing indebtedness or to finance acquisitions, expansions or the
development of new properties, and for the payment of distributions. See
"Federal Income Tax Considerations."

CONFLICT OF INTEREST POLICIES

The Company has adopted certain policies that are intended to minimize
potential conflicts of interest. The Board of Trustees also is subject to
certain provisions of Maryland law that are designed to eliminate or minimize
certain potential conflicts of interest. However, there can be no assurance that
these policies will be successful in eliminating the influence of such
conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of all shareholders. See "Risk Factors--
Conflicts of Interest."

DECLARATION OF TRUST AND BYLAW PROVISIONS. The Declaration of Trust
includes a provision generally permitting the Company to enter into an agreement
or transaction of any kind with any person, including any Trustee, officer,
employee or agent of the Company.

THE OPERATING PARTNERSHIP. The Operating Partnership Agreement gives the
Company, in its capacity as General Partner, full, complete and exclusive
discretion in managing and controlling the business of the Operating Partnership
and in making all decisions affecting the business and assets of the Operating
Partnership. Pursuant to the Operating Partnership Agreement, the Limited
Partners have agreed that the Company is acting on behalf of the Operating
Partnership and the Company's shareholders generally and, in its capacity as
General Partner, although owing fiduciary duties to all partners, in the event
of a conflict of interest between the Limited Partners and the Company's
shareholders, the General Partner shall discharge its fiduciary obligations to
the Limited Partners by acting in the best interests of the Company's
shareholders. In addition, the General Partner is not responsible for any
misconduct or negligence on the part of its agents, provided that such agents
were appointed in good faith. The Operating Partnership Agreement provides that
neither the Company nor any of its affiliates (including its officers and
Trustees) may sell, transfer or convey any property to, or purchase any property
from, the Operating Partnership except on terms competitive with those that may
be obtained in the marketplace from unaffiliated persons. See "Operating
Partnership Agreement."

PROVISIONS OF MARYLAND LAW. Under the MGCL, a contract or other transaction
between a corporation and any of its directors or between a corporation and any
other corporation, firm or other entity in which any of its directors is a
director or has a material financial interest is not void or voidable solely
because of (a) the common directorship or interest, (b) the presence of the
director at the meeting of the board of directors or a committee of the board of
directors that authorizes or approves or ratifies the contract or transaction or
(c) the counting of the vote of the director for the authorization, approval or
ratification of the contract or transaction if (i) after disclosure of the
interest, the transaction is authorized, approved or ratified by the affirmative
vote of a majority of the disinterested directors, or by the affirmative vote of
a majority of the votes cast by stockholders entitled to vote other than the
votes of shares owned of record or beneficially by the interested director or
such corporation, firm or other entity, or (ii) the transaction is fair and
reasonable to the corporation. Under the Bylaws, these provisions apply to the
Company and the Trustees.

POLICIES WITH RESPECT TO OTHER ACTIVITIES. The Company may, but does not
presently intend to, make investments other than as previously described. The
Company has authority to offer its Common Shares, other shares of beneficial
interest or other securities, for cash or in exchange for property and to

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repurchase or otherwise reacquire its shares or any other securities and may
engage in such activities in the future. The Company has not engaged in trading,
underwriting or agency distribution or sale of securities of other issuers, nor
has the Company invested in the securities of other issuers other than the
Operating Partnership for the purpose of exercising control and currently does
not intend to do so. The Company makes and intends to continue to make
investments in such a way that it will not be treated as an investment company
under the Investment Company Act of 1940. The Company's policies with respect to
such activities may be reviewed and modified or amended from time to time by the
Board of Trustees without approval of the Company's shareholders.

At all times, the Company intends to make investments in such a manner
consistent with the requirements of the Code for the Company to maintain its
qualification as a REIT unless, because of changing circumstances or changes in
the Code (or in Treasury Regulations), the Board of Trustees determines that it
is no longer in the best interests of the Company to quality as a REIT.

WORKING CAPITAL RESERVES

The Company intends to maintain working capital reserves in amounts that the
Board of Trustees determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and investments.

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DESCRIPTION OF COMMON SHARES

THE FOLLOWING SUMMARY OF THE TERMS OF THE SHARES OF BENEFICIAL INTEREST OF
THE COMPANY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE DECLARATION OF TRUST AND THE BYLAWS, COPIES OF
WHICH ARE EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART.

GENERAL

The Declaration of Trust provides that the Company may issue up to
45,000,000 Common Shares and 5,000,000 Preferred Shares. As of March 30, 1998,
there were 2,271,083 Common Shares and no Preferred Shares issued and
outstanding. As permitted by Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended (the "Maryland REIT Law"),
the Declaration of Trust contains a provision permitting the Board of Trustees,
without any action by the shareholders of the Company, to amend the Declaration
of Trust to increase or decrease the aggregate number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that the Company has authority to issue. The Company believes that the power of
the Board of Trustees to issue additional shares of beneficial interest will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs that might arise. The
additional shares of beneficial interest, possibly including Common Shares, will
be available for issuance without further action by the Company's shareholders,
unless action by the shareholders is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Trustees currently has
no intention of doing so, it could authorize the Company to issue a class or
series of shares that could, depending on the terms of such class or series,
delay, defer or prevent a change in control of the Company or other transaction
that might involve a premium over the then prevailing market price for the
Common Shares or other attributes that the shareholders may consider to be
desirable.

Both the Maryland REIT Law and the Declaration of Trust provide that no
shareholder of the Company will be personally liable for any obligation of the
Company solely as a result of such shareholder's status as a shareholder of the
Company. The Declaration of Trust provides that the Company shall have the
power, to the maximum extent permitted by Maryland law in effect from time to
time, to obligate itself to indemnify, and to pay or reimburse reasonable
expenses in advance of a final disposition of a proceeding to, any shareholder
or any former shareholder from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former shareholder of the Company. The Bylaws of the Company
obligate it, to the maximum extent permitted by Maryland law, to indemnify any
shareholder or any former shareholder (including, without limitation, any
individual who, while a shareholder and at the request of the Company, serves or
has served another real estate investment trust, corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a trustee,
director, officer, partner, employee or agent of such real estate investment
trust, corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of being a
shareholder, against reasonable expenses incurred by him in connection with the
proceeding. Inasmuch as the Company carries public liability insurance which it
considers adequate, any risk of personal liability to shareholders is limited to
situations in which the Company's assets plus its insurance coverage would be
insufficient to satisfy the claims against the Company and its shareholders.

COMMON SHARES

All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or series
of beneficial interest and to the provisions of the Declaration of Trust
regarding the restriction on transfer of Common Shares, holders of Common Shares
are entitled to receive dividends on such shares if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in the assets of the Company legally

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available for distribution to its shareholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Company.

Subject to the provisions of the Declaration of Trust regarding restrictions
on transfer of shares of beneficial interest, each outstanding Common Share
entitles the holder thereof to one vote on all matters submitted to a vote of
shareholders, including the election of Trustees, and, except as provided with
respect to any other class or series of shares of beneficial interest, the
holders of such Common Shares possess the exclusive voting power. There is no
cumulative voting in the election of Trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the Trustees then
standing for election and the holders of the remaining shares will not be able
to elect any Trustees.

Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of Common Shares, the Common Shares
have equal dividend, distribution, liquidation and other rights.

Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all the votes entitled to be cast on the matter) is set forth in the
real estate investment trust's declaration of trust. The Declaration of Trust
provides for approval by a majority of the votes cast by holders of Common
Shares entitled to vote on the matter in all situations permitting or requiring
action by the shareholders, except with respect to: (i) the election of Trustees
(which requires a plurality of all the votes cast at a meeting of shareholders
of the Company at which a quorum is present), (ii) the removal of Trustees
(which requires the affirmative vote of the holders of two-thirds of the
outstanding shares of beneficial interest of the Company entitled to vote
generally in the election of Trustees, which action can only be taken for cause
by vote at a shareholder meeting), (iii) the merger or sale (or other
disposition) of all or substantially all of the assets of the Company (which
requires the affirmative vote of the holders of two-thirds of the outstanding
shares of beneficial interest entitled to vote on the matter), (iv) the
amendment of the Declaration of Trust by shareholders (which requires the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter) and (v) the termination of the Company (which requires the affirmative
vote of two-thirds of the outstanding shares of beneficial interest entitled to
be cast on the matter). As allowed under the Maryland REIT Law, the Declaration
of Trust permits (a) the Trustees by a two-thirds vote to amend the Declaration
of Trust from time to time to qualify as a real estate investment trust under
the Code or the Maryland REIT Law without the approval of the shareholders and
(b) the Trustees by a majority vote, without any action by the shareholders of
the Company, to amend the Declaration of Trust to increase or decrease the
aggregate number of shares of beneficial interest or the number of shares of any
class of shares of beneficial interest that the Company has authority to issue.

CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES

The Declaration of Trust authorizes the Board of Trustees to classify any
unissued Preferred Shares and to reclassify any unissued Common Shares and any
previously classified but unissued Preferred Shares of any series from time to
time in one or more series, as authorized by the Board of Trustees. Prior to
issuance of classified or reclassified shares of each class or series, the Board
of Trustees is required by the Maryland REIT Law and the Declaration of Trust to
set for each class or series, subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of shares of beneficial interest,
the terms, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption for each such class or series. Thus, the
Board of Trustees could authorize the issuance of Preferred Shares with terms
and conditions which could have the effect of delaying, deferring or preventing
a change in control of the Company or other transaction that might involve a
premium over the then prevailing market price for Common Shares or

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other attributes that the shareholders may consider to be desirable. As of the
date hereof, no Preferred Shares are issued or outstanding.

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Code, its shares of
beneficial interest generally must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of twelve months or during a
proportionate part of a shorter taxable year. Also, not more than 50% of the
value of the outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the last half of a taxable year (other than
the first year for which an election to be a REIT has been made).

The Declaration of Trust, subject to certain exceptions, contains certain
restrictions on the number of shares of beneficial interest of the Company that
a person may own. The Declaration of Trust provides that no person may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
9.8% (the "Aggregate Share Ownership Limit") of the number or value of the
outstanding shares of beneficial interest of the Company. In addition, the
Declaration of Trust prohibits any person from acquiring or holding, directly or
indirectly, Common Shares in excess of 9.8% (in value or in number of shares,
whichever is more restrictive) of the aggregate of the outstanding Common Shares
(the "Common Share Ownership Limit").

The Board of Trustees, in its sole discretion, may exempt a proposed
transferee from the Aggregate Share Ownership Limit and the Common Share
Ownership Limit (an "Excepted Holder"). However, the Board of Trustees may not
grant such an exemption to any person if such exemption would result in the
Company being "closely held" within the meaning of Section 856(h) of the Code or
otherwise would result in the Company failing to qualify as a REIT. In order to
be considered by the Board of Trustees as an Excepted Holder, a person also must
not own, directly or indirectly, an interest in a tenant of the Company (or a
tenant of any entity owned or controlled by the Company) that would cause the
Company to own, directly or indirectly, an interest in a tenant of the Company
(or a tenant of any entity owned or controlled by the Company) that would cause
the Company to own, directly or indirectly, more than a 9.9% interest in such a
tenant. The person seeking an exemption must represent to the satisfaction of
the Board of Trustees that it will not violate the two aforementioned
restrictions. The person also must agree that any violation or attempted
violation of any of the foregoing restrictions will result in the automatic
transfer of the shares of stock causing such violation to the Share Trust (as
defined below). The Aggregate Share Ownership Limit and the Common Share
Ownership Limit do not apply to the Common Shares issued in the Transactions, as
well as Common Shares to be issued following redemption or conversion of Units
issued in the Transactions. The Board of Trustees may require a ruling from the
Service or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Trustees, in its sole discretion, in order to
determine or ensure the Company's status as a REIT.

The Declaration of Trust further prohibits (a) any person from beneficially
or constructively owning shares of beneficial interest of the Company that would
result in the Company being "closely held" under Section 856(h) of the Code or
otherwise cause the Company to fail to qualify as a REIT and (b) any person from
transferring shares of beneficial interest of the Company if such transfer would
result in shares of beneficial interest of the Company being owned by fewer than
100 persons. Any person who acquires or attempts or intends to acquire
beneficial or constructive ownership of shares of beneficial interest of the
Company that will or may violate any of the foregoing restrictions on
transferability and ownership, or any person who would have owned shares of the
beneficial interest of the Company that resulted in a transfer of shares to the
Share Trust (as hereinafter defined), is required to give notice immediately to
the Company and provide the Company with such other information as the Company
may request in order to determine the effect of such transfer on the Company's
status as a REIT. The foregoing restrictions on transferability and ownership
will not apply if the Board of Trustees determines that it is no longer in the
best interests of the Company to attempt to qualify, or to continue to qualify,
as a REIT.

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If any transfer of shares of beneficial interest of the Company occurs
which, if effective, would result in any person beneficially or constructively
owning shares of beneficial interest of the Company in excess or in violation of
the above transfer or ownership limitations (a "Prohibited Owner"), then that
number of shares of beneficial interest of the Company, the beneficial or
constructive ownership of which otherwise would cause such person to violate
such limitations (rounded to the nearest whole share), shall be automatically
transferred to a trust (the "Share Trust") for the exclusive benefit of one or
more charitable beneficiaries (the "Charitable Beneficiary"), and the Prohibited
Owner shall not acquire any rights in such shares. Such automatic transfer shall
be deemed to be effective as of the close of business on the Business Day (as
defined in the Declaration of Trust) prior to the date of such violative
transfer. Shares of beneficial interest held in the Share Trust shall be issued
and outstanding shares of beneficial interest of the Company. The Prohibited
Owner shall not benefit economically from ownership of any shares of beneficial
interest held in the Share Trust, shall have no rights to dividends and shall
not possess any other rights attributable to the shares of beneficial interest
held in the Share Trust. The trustee of the Share Trust (the "Share Trustee")
shall have all voting rights and rights to dividends or other distributions with
respect to shares of beneficial interest held in the Share Trust, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other distribution paid prior to the discovery by the Company that
shares of beneficial interest have been transferred to the Share Trust shall be
paid by the recipient of such dividend or distribution to the Share Trustee upon
demand, and any dividend or other distribution authorized but unpaid shall be
paid when due to the Share Trustee. Any dividend or distribution so paid to the
Share Trustee shall be held in the Share Trust for the Charitable Beneficiary.
The Prohibited Owner shall have no voting rights with respect to shares of
beneficial interest held in the Share Trust and, subject to Maryland law,
effective as of the date that such shares of beneficial interest have been
transferred to the Share Trust, the Share Trustee shall have the authority (at
the Share Trustee's sole discretion) (i) to rescind as void any vote cast by a
Prohibited Owner prior to the discovery by the Company that such shares have
been transferred to the Share Trust and (ii) to recast such vote in accordance
with the desires of the Share Trustee acting for the benefit of the Charitable
Beneficiary. However, if the Company has already taken irreversible trust
action, then the Share Trustee shall not have the authority to rescind and
recast such vote.

Within 20 days of receiving notice from the Company that shares of
beneficial interest of the Company have been transferred to the Share Trust, the
Share Trustee shall sell the shares of beneficial interest held in the Share
Trust to a person, designated by the Share Trustee, whose ownership of the
shares will not violate the ownership limitations set forth in the Declaration
of Trust. Upon such sale, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Share Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary
as follows. The Prohibited Owner shall receive the lesser of (i) the price paid
by the Prohibited Owner for the shares or, if the Prohibited Owner did not give
value for the shares in connection with the event causing the shares to be held
in the Share Trust (e.g., a gift, devise or other such transaction), the Market
Price (as defined in the Declaration of Trust) of such shares on the day of the
event causing the shares to be received by the Share Trustee and (ii) the price
per share received by the Share Trustee from the sale or other disposition of
the Common Shares held in the Share Trust. Any net sale proceeds in excess of
the amount payable to the Prohibited Owner shall be paid immediately to the
Charitable Beneficiary. If, prior to the discovery by the Company that shares of
beneficial interest have been transferred to the Share Trust, such shares are
sold by a Prohibited Owner, then (i) such shares shall be deemed to have been
sold on behalf of the Share Trust and (ii) to the extent that the Prohibited
Owner received an amount for shares that exceeds the amount that such Prohibited
Owner was entitled to receive pursuant to the aforementioned requirement, such
excess shall be paid to the Share Trustee upon demand.

In addition, shares of beneficial interest of the Company held in the Share
Trust shall be deemed to have been offered for sale to the Company, or its
designee, at a price per share equal to the lesser of (i) the price per share in
the transaction that resulted in such transfer to the Share Trust (or, in the
case of a devise or gift, the Market Price at the time of such devise or gift)
and (ii) the Market Price on the date the

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Company, or its designee, accepts such offer. The Company shall have the right
to accept such offer until the Share Trustee has sold the shares of beneficial
interest held in the Share Trust. Upon such a sale to the Company, the interest
of the Charitable Beneficiary in the shares sold shall terminate and the Share
Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.

All certificates representing Common Shares will bear a legend referring to
the restrictions described above.

Every owner of more than 5% (or such other percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of the
Company's shares of beneficial interest, including Common Shares, within 30 days
after the end of each taxable year, is required to give written notice to the
Company stating the name and address of such owner, the number of shares of each
class and series of shares of beneficial interest of the Company which the owner
beneficially owns and a description of the manner in which such shares are held.
Each such owner shall provide to the Company such additional information as the
Company may request in order to determine the effect, if any, of such beneficial
ownership on the Company's status as a REIT and to ensure compliance with the
Aggregate Share Ownership Limit. In addition, each shareholder shall upon demand
be required to provide to the Company such information as the Company may
request, in good faith, in order to determine the Company's status as a REIT and
to comply with the requirements of any taxing authority or governmental
authority or to determine such compliance.

These ownership limitations could delay, defer or prevent a change in
control of the Company or other transaction that might involve a premium over
the then prevailing market price for the Common Shares or other attributes that
the shareholders may consider to be desirable.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Shares is Norwest Bank
Minnesota, N.A.

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CERTAIN PROVISIONS OF MARYLAND LAW,
THE DECLARATION OF TRUST AND THE BYLAWS

THE COMPANY IS ORGANIZED AS A REAL ESTATE INVESTMENT TRUST UNDER THE LAWS OF
THE STATE OF MARYLAND. AS A MARYLAND REAL ESTATE INVESTMENT TRUST, THE COMPANY
IS GOVERNED BY THE MARYLAND REIT LAW, CERTAIN PROVISIONS OF THE MARYLAND GENERAL
CORPORATION LAW (THE "MGCL") AND BY THE DECLARATION OF TRUST AND THE BYLAWS.
THIS SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW, THE DECLARATION OF TRUST AND
THE BYLAWS DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND TO THE DECLARATION OF TRUST AND
THE BYLAWS, COPIES OF WHICH ARE EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH
THIS PROSPECTUS IS A PART.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (i) actual receipt of an improper benefit or profit
in money, property or services or (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust contains such a provision limiting such liability to the
maximum extent permitted by Maryland law.

The Declaration of Trust authorizes the Company, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former Trustee or officer or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer, partner, employee or agent of such entity from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of service in such capacity. The Bylaws obligate the Company, to the
maximum extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (i) any
present or former Trustee or officer who is made a party to the proceeding by
reason of his service in that capacity or (ii) any such Trustee or officer who,
at the request of the Company, serves or has served another real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a trustee, director, officer, partner,
employee or agent of such entity and who is made a party to the proceeding by
reason of his service in that capacity against any claim or liability to which
he may become subject by reason of his or her status as a present or former
Trustee or officer of the Company. The Declaration of Trust and the Bylaws also
permit the Company to provide indemnification to any person who served a
predecessor of the Company in any of the capacities described above and to any
employee or agent of the Company or a predecessor of the Company. The Bylaws
require the Company to indemnify a trustee or officer who has been successful,
on the merits or otherwise, in the defense of any proceeding to which he is made
a party by reason of his service in that capacity.

The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify, and to advance expenses to, its trustees and officers, to the same
extent as permitted by the MGCL for directors and officers of Maryland
corporations. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (i) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (a) was committed in bad faith or (b) was the result of active
and deliberate dishonesty, (ii) the director or officer actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, under the MGCL, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit

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was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met. Under the
MGCL, rights to indemnification and expenses are nonexclusive, in that they need
not be limited to those expressly provided by statute.

The Maryland REIT Law and the Bylaws may permit indemnification for
liabilities arising under the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Board of Trustees has been advised
that, in the opinion of the Commission, indemnification for liabilities arising
under the Securities Act or the Exchange Act is contrary to public policy and is
therefore unenforceable, absent a decision to the contrary by a court of
appropriate jurisdiction.

SHAREHOLDERS' MEETINGS

The Declaration of Trust and the Bylaws provide for an annual meeting of
shareholders to be held within a reasonable period, but not less than 30 days,
following delivery of the Company's annual report, but in any event within six
months after the end of each full fiscal year. Special meetings of shareholders
may be called by one-third of the Trustees or by certain executive officers of
the Company and shall be called by the Secretary upon the written request of
shareholders holding in the aggregate not less than a majority of the
outstanding shares of the Company entitled to be cast at such meeting. Written
notice stating the place, date and hour of the shareholders' meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, is required to be delivered not less than 10 nor more than 90 days
before the day of the meeting to each holder of record.

ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS

The Declaration of Trust permits the Bylaws to include a provision that
permits any action which may be taken at a meeting of shareholders to be taken
without a meeting if a written consent of the action is signed by each
shareholder entitled to vote on the matter. The Bylaws permit any action which
may be taken at a meeting of shareholders to be taken without a meeting if a
consent in writing, setting forth such action, is signed by each shareholder
entitled to vote on the matter, and any other shareholder entitled to notice of
a meeting of shareholders (but not entitled to vote at such meeting) has waived
in writing any right to dissent from such action, and such consent and waiver
are filed with the minutes of proceedings of shareholders.

CLASSIFICATION OF BOARD, VACANCIES AND REMOVAL OF TRUSTEES

The Declaration of Trust provides for a staggered Board of Trustees. The
Company presently has seven Trustees divided into three classes, with terms of
three years each and with one class to be elected at each annual meeting of
shareholders. See "Management" for the identity of the Class I, Class II and
Class III Trustees. At each annual meeting of shareholders of the Company,
commencing in 1999, successors of the class of Trustees whose term expires at
that annual meeting will be elected for a three-year term. The Bylaws provide
that a majority of Trustees may establish, increase or decrease the number of
Trustees. The Bylaws also permit the Trustees of the Company to fill vacancies
in the Board of Trustees. The Bylaws provide that any vacancy on the Board of
Trustees shall be filled by a majority of the remaining Trustees. Any individual
so elected Trustee will hold office for the unexpired term of the Trustee he is
replacing.

The Declaration of Trust provides that a Trustee may be removed at any time
only for cause upon the affirmative vote of at least two-thirds, rather than a
simple majority, of the votes entitled to be cast in the

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election of Trustees, but only by a vote taken at a shareholder meeting. This
provision, when coupled with the provision in the Bylaws authorizing the Board
of Trustees to fill vacant trusteeships, precludes shareholders from removing
incumbent trustees, except upon the existence of cause for removal and a
substantial affirmative vote, and filling the vacancies created by such removal
with their own nominees.

With a classified Board of Trustees, it will generally take holders of a
majority of the voting power two annual meetings of stockholders to elect a
majority of the Board of Trustees. As a result, a classified board may delay,
defer or prevent a change in control of the Company or other transaction that
might involve a premium over the then prevailing market price for the Common
Shares or other attributes that the shareholders may consider to be desirable.
In addition, because under the Declaration of Trust a Trustee may be removed
only for cause by the affirmative vote of the holders of two thirds of the
outstanding shares entitled to vote in the election of Trustees, the classified
Board of Trustees would delay shareholders who do not agree with the policies of
the Board of Trustees from replacing a majority of the Board of Trustees for two
years, unless they can demonstrate that the trustee should be removed for cause
and obtain the requisite vote.

CHANGES IN CONTROL PURSUANT TO MARYLAND LAW

CERTAIN BUSINESS COMBINATIONS. Under the MGCL, as applicable to Maryland
real estate investment trusts, certain business combinations (including certain
mergers, consolidations, share exchanges and asset transfers and certain
issuances and reclassifications of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or more
of the voting power of the trust's shares or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of such trust (an "Interested Shareholder"), or an
affiliate of such an Interested Shareholder, are prohibited for five years after
the most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the board of trustees of such trust and approved by the affirmative vote of at
least (i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of beneficial interest of the trust and (ii) two-thirds of the votes
entitled to be cast by holders of voting shares of the trust other than shares
held by the Interested Shareholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
trust's common shareholders receive a minimum price (as defined in the MGCL) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for its shares. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by the board of trustees of the trust prior to the time
that the Interested Shareholder becomes an Interested Shareholder. The Board of
Trustees has opted out of this statute by resolution.

CONTROL SHARE ACQUISITIONS. The MGCL, as applicable to Maryland real estate
investment trusts, provides that Control Shares (as defined below) of a Maryland
real estate investment trust acquired in a control share acquisition (as defined
below) have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter, excluding shares of
beneficial interest owned by the acquiror, by officers or by trustees who are
employees of the trust. Control Shares are voting shares of beneficial interest
which, if aggregated with all other such shares of beneficial interest
previously acquired by the acquiror or in respect of which the acquiror is able
to exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing trustees within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority or (iii) a majority or more of all voting power. Control Shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval. A control share acquisition
means the acquisition of Control Shares, subject to certain exceptions.

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A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders' meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the Control Shares (except those for which voting rights have previously been
approved) for fair value, determined without regard to the absence of voting
rights for the Control Shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a shareholders' meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.

The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust. The Bylaws contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of the
Company's shares of beneficial interest. The Board of Trustees may, however,
amend the Bylaws at any time to eliminate such provision, either prospectively
or retroactively.

DISSOLUTION OF THE COMPANY; TERMINATION OF REIT STATUS

The Declaration of Trust permits the termination of the Company and the
discontinuation of the operations of the Company by the affirmative vote of the
holders of not less than two-thirds of the outstanding Common Shares entitled to
be cast on the matter at a meeting of shareholders or by written consent. In
addition, the Declaration of Trust permits the termination of the Company's
qualification as a REIT if such qualification, in the opinion of the Board of
Trustees, is no longer advantageous to the shareholders.

AMENDMENTS

Under the Maryland REIT Law, a real estate investment trust generally cannot
amend its declaration of trust or merge unless approved by the affirmative vote
of shareholders holding at least two-thirds of the shares entitled to vote on
the matter unless a lesser percentage (but not less than a majority of all of
the votes entitled to be cast on the matter) is set forth in the real estate
investment trust's declaration of trust. The Declaration of Trust does not
provide for a lesser percentage in such situations. Under the Maryland REIT Law,
a declaration of trust may permit the trustees by a two-thirds vote to amend the
declaration of trust from time to time to qualify as a real estate investment
trust under the Code or the Maryland REIT Law without the affirmative vote or
written consent of the shareholders. The Trust's Declaration of Trust permits
such action by the Board of Trustees.

Under the Bylaws, the Trustees have the exclusive power to amend the Bylaws.

The Board of Trustees has adopted certain investment and financing policies.
See "Policies with Respect to Certain Activities." The Board of Trustees may,
without shareholder approval, amend or modify its current policies at any time.

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ADVANCE NOTICE OF NOMINATIONS AND NEW BUSINESS

The Bylaws provide that (i) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (a)
pursuant to the Company's notice of the meeting, (b) by the Board of Trustees or
(c) by a shareholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in the Bylaws and (ii) with respect
to special meetings of shareholders, only the business specified in the
Company's notice of meeting may be brought before the meeting of shareholders
and nominations of persons for election to the Board of Trustees may be made
only (a) pursuant to the Company's notice of the meeting, (b) by the Board of
Trustees or (c) provided that the Board of Trustees has determined that Trustees
shall be elected at such meeting, by a shareholder who is entitled to vote at
the meeting and has complied with the advance notice provisions set forth in the
Bylaws.

POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE DECLARATION OF TRUST AND THE BYLAWS

The provisions of the Declaration of Trust on classification of the Board of
Trustees, the removal of Trustees and the restrictions on the transfer of shares
of beneficial interest and the advance notice provisions of the Bylaws could
have the effect of delaying, deferring or preventing a change in control of the
Company or other transaction that might involve a premium over the then
prevailing market price for the Common Shares or other attributes that the
shareholders may consider desirable.

ANNUAL REPORT

The Bylaws (pursuant to the Maryland REIT Law) require the Company to
deliver to shareholders an annual report concerning its operations for the
preceding fiscal year containing financial statements prepared in accordance
with GAAP which are audited and reported on by independent certified public
accountants. The report must include a balance sheet and a statement of income
and surplus. Annual reports must be mailed or delivered to each shareholder and
must be placed on file at the principal office of the Company within the time
prescribed by the Maryland REIT Law.

MARYLAND ASSET REQUIREMENTS

To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires at least 75% of the value of the Company's assets
to be held, directly or indirectly, in real estate assets, mortgages or mortgage
related securities, government securities, cash and cash equivalent items,
including high-grade short term securities and receivables. The Maryland REIT
Law also prohibits the Company from using or applying land for farming,
agricultural, horticultural or similar purposes.

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OPERATING PARTNERSHIP AGREEMENT

THE FOLLOWING SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT, INCLUDING THE
DESCRIPTIONS OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROSPECTUS, IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPERATING PARTNERSHIP AGREEMENT,
WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART.

GENERAL

Substantially all of the Company's assets (other than its interest in the
Retail Properties) are held by, and its operations are conducted through, the
Operating Partnership. After giving effect to the Offering, the Company will
hold Partnership Units representing a 75.8% partnership interest in the
Operating Partnership (after giving effect to the Retained Interests) and will
control the Operating Partnership in its capacity as the sole general partner.
The Company's interest in the Operating Partnership will entitle it to share in
quarterly cash distributions from, and in the profits and losses of, the
Operating Partnership in proportion to the Company's percentage ownership of the
Operating Partnership; provided, however, that the Company as General Partner
will be allocated all losses in excess of partner capital accounts. See
"Structure and Formation of the Company--The Transactions." The Limited Partners
will own the remaining 24.2% economic interest in the Operating Partnership
(after giving effect to the Retained Interests) through their ownership of
Partnership Units and Preferred Units. Under the Operating Partnership Agreement
no Partnership Units or Preferred Units may be transferred by a Limited Partner
without the consent of the General Partner and no such transfer may be made if
such transfer would (i) result in the Operating Partnership being terminated for
federal income tax purposes or treated as an association taxable as a
corporation, (ii) be effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code, (iii) violate the provisions of applicable securities
laws or (iv) violate the terms of any law, rule, regulation or commitment
binding on the Operating Partnership, among others. The transferee will only be
admitted as a Limited Partner by furnishing certain requested instruments or
documents to the Company in its capacity as General Partner. In addition, with
the consent of the General Partner, Partnership Units and Preferred Units may be
transferred to certain family members or entities controlled by or comprised of
such family members.

The net proceeds of any subsequent issuance of Common Shares are anticipated
to be contributed to the Operating Partnership in exchange for an equivalent
number of Partnership Units.

As the general partner of the Operating Partnership, the Company will have
the exclusive power under the Operating Partnership Agreement to manage and
conduct the business of the Operating Partnership. The Board of Trustees will
direct the affairs of the Operating Partnership. The Operating Partnership will
be responsible for, and pay when due, its share of all administrative and
operating expenses of its properties. The General Partner of the Operating
Partnership may have fiduciary duties to the Limited Partners, the discharge of
which may conflict with interests of the Company's shareholders. Pursuant to the
Operating Partnership Agreement, however, the Limited Partners have acknowledged
that the Company is acting both on behalf of the Company's shareholders and, in
its capacity as General Partner, on behalf of the Limited Partners. The Limited
Partners have agreed that the Company will discharge its fiduciary duties to the
Limited Partners by acting in the best interests of the Company's shareholders.

MANAGEMENT

The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the Operating Partnership Agreement. The
Company, as the sole general partner of the Operating Partnership, will
generally have full, exclusive and complete discretion in managing and
controlling the Operating Partnership. The Limited Partners of the Operating
Partnership will have no

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authority to transact business for, or to participate in the management
activities or decisions of, the Operating Partnership, except as provided in the
Operating Partnership Agreement and as provided by applicable law. However, the
General Partner may not perform any act that would subject a Limited Partner to
liability as a general partner in any jurisdiction or any other liability except
as provided in the Operating Partnership Agreement or under the laws of the
State of Delaware. In addition, no amendments may be made to the Operating
Partnership Agreement that would alter a partner's amount of, or right to,
distributions, modify the redemption rights discussed below or terminate the
Operating Partnership without the consent of each partner adversely affected
thereby.

CONVERSION AND REDEMPTION

Preferred Units may be converted on or after October 1, 1999 into
Partnership Units of the Operating Partnership on the basis of 3.5714
Partnership Units for each Preferred Unit being converted plus an amount in cash
equal to the accrued Priority Return Amount (as defined in the Operating
Partnership Agreement) in respect of such Preferred Units.

Subject to compliance with the Operating Partnership Agreement, beginning on
September 1, 1998, each Limited Partner has the right to require the Operating
Partnership to redeem all or a portion of the Partnership Units held by such
Limited Partner. The Operating Partnership (or the Company as its General
Partner) has the right, in its sole discretion, to deliver to such redeeming
Limited Partner for each Partnership Unit either one Common Share (subject to
anti-dilution adjustment) or a cash payment equal to the then fair market value
of such share (so adjusted) (based on the formula for determining such value set
forth in the Operating Partnership Agreement). Such rights of redemption and
conversion are immediately exercisable upon the happening of a Special Event (as
defined in the Operating Partnership Agreement). The redemption of Partnership
Units for Common Shares will have the effect of increasing the Company's
percentage interest in the Operating Partnership.

The receipt of Common Shares upon exercise of such right of redemption is
subject to compliance with a number of significant conditions precedent,
including compliance with the Declaration of Trust, all requirements under the
Code applicable to REITs, the MGCL or any other law then in effect applicable to
the Company and any applicable rule or policy of any stock exchange or
self-regulatory organization.

LIABILITY AND INDEMNIFICATION

The Operating Partnership Agreement provides the General Partner shall not
be liable to the Operating Partnership or any of the other partners for any act
or omission performed or omitted in good faith on behalf of the Operating
Partnership and in a manner reasonably believed to be (i) within the scope of
the authority granted by the Operating Partnership Agreement and (ii) in the
best interests of the Operating Partnership or the shareholders of the General
Partner. The Operating Partnership Agreement also provides that the Operating
Partnership shall indemnify the General Partner and each director, officer and
shareholder of the General Partner and each person (including any affiliate)
designated as an agent by the General Partner to the fullest extent permitted
under the Delaware Revised Uniform Limited Partnership Act from and against any
and all losses (including reasonable attorney's fees), and any other amounts
arising out of or in connection with any claim, relating to or resulting
(directly or indirectly) from the operations of the Operating Partnership, in
which such indemnified party becomes involved, or reasonably believes it may
become involved, as a result of its acting in the referred to capacity.

CAPITAL CONTRIBUTIONS

When the Company contributes additional capital to the Operating Partnership
from the proceeds of subsequent issuances of Common Shares (or Preferred
Shares), the Company's interest in the Operating Partnership will be increased
on a proportionate basis based upon the number of Common Shares (or

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Preferred Shares) issued to the extent the net proceeds from, or the property
received in consideration for, the issuance thereof are used to fund the
contribution.

TAX MATTERS

Pursuant to the Operating Partnership Agreement, the Company will be the tax
matters partner of the Operating Partnership and, as such, will have authority
to make certain tax related decisions and tax elections under the Code on behalf
of the Operating Partnership.

OPERATIONS

The Operating Partnership Agreement allows the Company to operate the
Operating Partnership in a manner that will enable the Company to satisfy the
requirements for being classified as a REIT. The Operating Partnership Agreement
also requires the distribution of the cash available for distribution of the
Operating Partnership quarterly on a basis in accordance with the Operating
Partnership Agreement.

TERM

The Operating Partnership will continue in full force and effect until
October 31, 2096 or until sooner dissolved upon (i) the withdrawal of the
Company as a general partner (unless a majority the Limited Partners elect to
continue the Operating Partnership) or (ii) entry of a decree of judicial
dissolution of the Operating Partnership or (iii) the sale, exchange or other
disposition of all or substantially all of the assets of the Operating
Partnership or (iv) the affirmative vote of two-thirds in interest of the
Limited Partners.

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SHARES AVAILABLE FOR FUTURE SALE

Upon the completion of the Offering, the Company will have outstanding
9,771,083 Common Shares (10,896,083 Common Shares if the Underwriters'
overallotment option is exercised in full). In addition, 9,133,345 Common Shares
may be issued upon conversion or redemption of outstanding Units and 948,413
Common Shares may be issued upon conversion or redemption of Units to be issued
in exchange for the Retained Interests. The Common Shares issued in the Offering
will be freely tradeable by persons other than "affiliates" (as that term is
defined under the Securities Act) of the Company without restriction under the
Securities Act, subject to the limitations on ownership set forth in this
Prospectus. See "Description of Common Shares." The 600,000 Common Shares
received by Messrs. Hamlin and Shidler in the Transactions and any Common Shares
acquired upon conversion or redemption of Units (the "Restricted Common Shares")
will be "restricted" securities within the meaning of Rule 144 promulgated under
the Securities Act ("Rule 144") and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including exemptions contained in Rule 144.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Common Shares from the
Company or any affiliate of the Company, the acquiror or subsequent holder
thereof is entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the then outstanding Common Shares or
the average weekly trading volume of the Common Shares during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 also are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the date of
acquisition of Restricted Common Shares from the Company or from any affiliate
of the Company, and the acquiror or subsequent holder thereof is deemed not to
have been an affiliate of the Company at any time during the 90 days immediately
preceding a sale, such person is entitled to sell such shares in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.

The Company, the Operating Partnership and certain of the executive officers
and Trustees will be required, as a condition to the Underwriters' participation
in the Offering, to agree that they will not, subject to certain exceptions,
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, on behalf of the Underwriters, offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly (or enter into any transaction or device
which is designed to, or could be expected to, result in the disposition by any
person at any time in the future of), any Common Shares and/or Units (including
any Common Shares acquired upon conversion or exchange of Units) or any
securities convertible into or exercisable, exchangeable or redeemable for
Common Shares or Units or enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of any Common Shares or Units (regardless of whether any of the
transactions described above is to be settled by the delivery of Common Shares,
Units or such other securities, in cash or otherwise), for a period of 180 days
after the date of the Underwriting Agreement (as hereinafter defined). See
"Underwriting." The Company has granted certain registration rights, including
piggyback and demand rights, to holders of the Units. No later than August 1,
1998, the Company is obligated to file a shelf registration statement with
respect to the Common Shares issuable upon conversion or redemption of the
Units. The Company will bear all expenses incident to its registration
requirements, except for any underwriting discounts or commissions or transfer
taxes, if any, relating to such Common Shares. See "Security Ownership of
Management and Others--Registration Rights."

The Company has adopted the Incentive Plan for the purpose of attracting and
retaining highly qualified trustees, executive officers and other key employees.
The Company also maintains the Option Plan. See "Management--The Plans." The
Company has issued options for a total of 45,000 Common Shares and may issue
options to purchase up to an aggregate of 10% of the Common Shares outstanding

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from time to time under the Incentive Plan. The Company has issued options for
75,000 Common Shares under the Option Plan. Prior to the expiration of the
initial 12-month period following the completion of the Offering, the Company
expects to file a registration statement with the Commission with respect to the
Common Shares issuable under the Plans, which shares may be resold without
restriction, unless held by affiliates.

FEDERAL INCOME TAX CONSIDERATIONS

Based upon certain assumptions and representations described below, Cahill
Gordon & Reindel, special tax counsel to the Company, is of the opinion that,
for federal income tax purposes, (i) the Company has properly elected and
otherwise qualified to be taxed as a REIT for its taxable years beginning on and
after January 1, 1992 and ending prior to January 1, 1998 and (ii) the proposed
method of operation as described in this Prospectus and as represented by the
Company will enable the Company to continue to satisfy the requirements for such
qualification for its subsequent taxable years. The determination of REIT
qualification is based on certain assumptions relating to the organization and
operation of the Company, the Operating Partnership and the Properties
Partnerships, and is conditioned upon certain representations made by the
Company as to certain factual matters relating to its organization and intended
or expected manner of operation. In addition, this determination is based on the
law existing and in effect on the date hereof (or, where applicable, as in
effect during earlier periods in question) and the Company's qualification and
taxation as a REIT will depend on compliance with such law and as the same may
hereafter be amended. The qualification and taxation as a REIT will further
depend upon the ability to meet, on a continuing basis through actual operating
results, asset composition, distribution levels and diversity of share
ownership, the various qualification tests imposed under the Code discussed
below. No assurance can be given that the Company will satisfy such tests on a
continuing basis.

In brief, a corporation that invests primarily in real estate can, if it
meets the REIT provisions of the Code described below, claim a tax deduction for
the dividends it pays to its shareholders. Such a corporation generally is not
taxed on its "REIT taxable income" to the extent such income is currently
distributed to shareholders, thereby substantially eliminating the "double
taxation" (i.e., at both the corporate and shareholder levels) that generally
results from an investment in a corporation. However, as discussed in greater
detail below, such an entity remains subject to tax in certain circumstances
even if it qualifies as a REIT. Further, if the entity were to fail to qualify
as a REIT in any year, it would not be able to deduct any portion of the
dividends it paid to its shareholders and would be subject to full federal
income taxation on its earnings, thereby significantly reducing or eliminating
the cash available for distribution to its shareholders. See "--Taxation of the
Company--General" and "--Taxation of the Company--Failure to Qualify."

The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, financial institutions and
broker-dealers) subject to special treatment under the federal income taxation
laws.

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TAXATION OF THE COMPANY

GENERAL. In any year in which the Company qualifies as a REIT, in general
it will not be subject to federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to shareholders. The Company may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gains not distributed. Under recently enacted legislation, shareholders
are required to include their proportionate share of the REIT's undistributed
long-term capital gain in income but receive a credit for their share of any
taxes paid on such gain by the REIT.

Notwithstanding its qualification as a REIT, the Company also may be subject
to taxation in certain other circumstances. If the Company should fail to
satisfy either the 75% or the 95% gross income test (each as discussed below),
and nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% test, multiplied by
a fraction intended to reflect the Company's profitability. The Company will
also be subject to a tax of 100% on net income from any "prohibited transaction"
(as described below), and if the Company has (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying income
from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company also
may be subject to the corporate alternative minimum tax, as well as to tax in
certain situations not presently contemplated. The Company will use the calendar
year both for federal income tax purposes, as is required of a REIT, and for
financial reporting purposes.

In order to qualify as a REIT, the Company must meet the following
requirements, among others:

SHARE OWNERSHIP TESTS. The Company's shares of beneficial interest (which
term, in the case of the Company, currently means the Common Shares) must be
held by a minimum of 100 persons for at least 335 days in each taxable year (or
a proportionate number of days in any short taxable year). In addition, at all
times during the second half of each taxable year, no more than 50% in value of
the outstanding shares of beneficial interest of the Company may be owned,
directly or indirectly and including the effects of certain constructive
ownership rules, by five or fewer individuals, which for this purpose includes
certain tax-exempt entities. However, for purposes of this test, any shares of
beneficial interest held by a qualified domestic pension or other retirement
trust will be treated as held directly by its beneficiaries in proportion to
their actuarial interest in such trust rather than by such trust.

In order to attempt to ensure compliance with the foregoing share ownership
tests, the Company has placed certain restrictions on the transfer of its shares
of beneficial interest to prevent additional concentration of stock ownership.
Moreover, to evidence compliance with these requirements, Treasury Regulations
require the Company to maintain records which disclose the actual ownership of
its outstanding shares of beneficial interest. In fulfilling its obligations to
maintain records, the Company must and will demand written statements each year
from the record holders of designated percentages of its shares of beneficial
interest disclosing the actual owners of such shares of beneficial interest (as
prescribed by Treasury Regulations). A list of those persons failing or refusing
to comply with such demand must be maintained as part of the Company's records.
A shareholder failing or refusing to comply with the Company's written demand
must submit with his tax return a similar statement disclosing the actual
ownership of Company shares of beneficial interest and certain other
information. In addition, the Declaration of Trust provides restrictions
regarding the transfer of its shares of beneficial interest that are intended to
assist the Company in continuing to satisfy the share ownership requirements.
See "Description of Common Shares--Restrictions on Transfer."

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ASSET TESTS. At the close of each quarter of the Company's taxable year,
the Company must satisfy two tests relating to the nature of its assets
(determined in accordance with generally accepted accounting principles). First,
at least 75% of the value of the Company's total assets must be represented by
interests in real property, interests in mortgages on real property, shares in
other REITs, cash, cash items, government securities and qualified temporary
investments. Second, although the remaining 25% of the Company's assets
generally may be invested without restriction, securities in this class may not
exceed (i) in the case of securities of any one non-government issuer, 5% of the
value of the Company's total assets (the "Value Test") or (ii) 10% of the
outstanding voting securities of any one such issuer (the "Voting Stock Test").
Where the Company invests in a partnership (such as the Operating Partnership),
it will be deemed to own a proportionate share of the partnership's assets, and
the partnership interest will not constitute a security for purposes of these
tests. See "--Tax Aspects of the Company's Investments in Partnerships--
General." Accordingly, the Company's investment in its properties through its
interests in the Operating Partnership and the Properties Partnerships (jointly
referred to herein as the "Partnerships") will constitute an investment in
qualified assets for purposes of the 75% asset test.

GROSS INCOME TESTS. There are two separate percentage tests relating to the
sources of the Company's gross income which must be satisfied for each taxable
year. For purposes of these tests, where the Company invests in a partnership,
the Company will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the partnership.
See "--Tax Aspects of the Company's Investments in Partnerships--General." The
two tests are as follows:

THE 75% TEST. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes: (i)
rents from real property (except as modified below); (ii) interest on
obligations secured by mortgages on, or interests in, real property; (iii) gains
from the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage secured by such property ("foreclosure
property"); and (vii) commitment fees received for agreeing to make loans
secured by mortgages on real property or to purchase or lease real property.

Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% gross income test (or the 95% gross income test
described below) if the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater that 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person, although an amount received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property for purposes of the 75% and 95%
gross income tests, the Company generally must not operate or manage the
property or furnish or render services to customers, other than through an
"independent contractor" from whom the Company derives no income, except that
the "independent contractor" requirement does not apply to the extent that the
services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only, and are not otherwise
considered "rendered to the occupant for his convenience." In addition, under
recently enacted legislation, beginning with its taxable year ending December
31, 1998, the Company may directly perform a DE MINIMIS amount of non-customary
services. See "--Other Tax Considerations--The Taxpayer Relief Act."

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The Company intends to monitor its operations in the context of these
standards so as to satisfy the 75% and 95% gross income tests. The Operating
Partnership will provide certain services at the properties of the Properties
Partnerships and possibly at any newly acquired properties of the Partnerships.
The Company believes that for purposes of the 75% and 95% gross income tests the
services provided at such properties and any other services and amenities
provided by the Operating Partnership or its agents with respect to such
properties will be of the type usually or customarily rendered in connection
with the rental of space for occupancy only and not rendered to the occupants of
such properties. The Company intends that services that cannot be provided
directly by the Operating Partnership or other agents will be performed by
independent contractors.

THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Trust's gross income for the taxable
year must be derived from the above-described qualifying income or from
dividends, interest, or gains from the sale or other disposition of stock or
other securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% test. The Company
intends to monitor closely its non-qualifying income and anticipates that
non-qualifying income from its other activities will not result in the Company
failing to satisfy either the 75% or 95% gross income test.

For purposes of determining whether the Company complies with the 75% and
the 95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property (excluding
foreclosure property); however, a sale of property will not be a prohibited
transaction if such property is held for at least four years and certain other
requirements (relating to the number of properties sold in a year, their tax
bases and the cost of improvements made thereto) are satisfied. See "--Taxation
of the Company--General" and "--Tax Aspects of the Company's Investments in
Partnerships--Sale of Properties."

The Company believes that, for purposes of both the 75% and the 95% gross
income test, its investment in properties through the Partnerships will in major
part give rise to qualifying income in the form of rents, and that gains on
sales of its properties generally will also constitute qualifying income.

Even if the Company fails to satisfy one or both of the 75% and 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
is due to reasonable cause and not to willful neglect; (ii) the Company reports
the nature and amount of each item of its income included in the tests on a
schedule attached to its tax return; and (iii) any incorrect information on this
schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Company will nonetheless be subject to a 100% tax
on the greater of the amount by which it fails either the 75% or 95% gross
income test, multiplied by a fraction intended to reflect the Company's
profitability.

ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the
Company is required to distribute dividends to its shareholders each year in an
amount at least equal to (A) the sum of (i) 95% of the Company's REIT taxable
income (computed without regard to the dividends received deduction and the
Company's net capital gain) and (ii) 95% of the net income (after tax), if any,
for foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after the declaration. To the extent that the Company does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of its
REIT taxable income, as adjusted, it will be subject to tax on the undistributed
amount at regular capital gain or ordinary corporate tax rates, as the case may
be.

The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Operating

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Partnership Agreement authorizes the Company in its capacity as General Partner
to take such steps as may be necessary to cause the Operating Partnership to
distribute to its partners an amount sufficient to permit the Company to meet
the distribution requirements. It is possible that the Company may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement,
due to timing differences between the actual receipt of income and actual
payment of expenses on the one hand, and the inclusion of such income and
deduction of such expense in computing the Company's REIT taxable income on the
other hand; or for other reasons. The Company will monitor closely the
relationship between its REIT taxable income and cash flow and, if necessary,
intends to borrow funds (or cause the Operating Partnership or other affiliates
to borrow funds) in order to satisfy the distribution requirement. However,
there can be no assurance that such borrowing would be available at such time.

If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.

FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify as a REIT will not be deductible by the
Company, nor generally will they be required to be made under the Code. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and subject to
certain limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from re-electing taxation as a
REIT for the four taxable years following the year during which qualification
was lost.

TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS

GENERAL. The Company will hold a partnership interest in the Operating
Partnership. In general, a partnership is a "pass-through" entity which is not
subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether a partner received a distribution from the partnership. The Company will
include its proportionate share of the foregoing partnership items for purposes
of the various REIT gross income tests and in the computation of its REIT
taxable income. See "--Taxation of the Company--General" and "--Gross Income
Tests."

Each partner's share of a partnership's tax attributes is determined in
accordance with the partnership agreement, although the allocations will be
adjusted for tax purposes if they do not comply with the technical provisions of
Code Section 704(b) and the regulations thereunder. The Partnerships'
allocations of tax attributes are intended to comply with these provisions.
Notwithstanding these allocation provisions, for purposes of complying with the
gross income and asset tests discussed above, the Company will be deemed to own
its proportionate share of each of the assets of the Partnerships and will be
deemed to have received a share of the income of the Partnerships based on its
capital interest in the Partnerships.

Accordingly, any resultant increase in the Company's REIT taxable income
from its interest in the Partnerships (whether or not a corresponding cash
distribution is also received from the Partnerships) will increase its
distribution requirements (see "--Taxation of the Company--Annual Distribution
Requirements"), but will not be subject to federal income tax in the hands of
the Company provided that an amount equal to such income is distributed by the
Company to its shareholders. Moreover, for purposes of the REIT asset tests (see
"--Taxation of the Company--Asset Tests"), the Company will include its
proportionate share of assets held by the Partnerships.

TAX ALLOCATIONS WITH RESPECT TO PROPERTIES. Pursuant to Section 704(c) of
the Code, income, gain, loss and deductions attributable to appreciated or
depreciated property that is contributed to a partnership in

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exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for federal income tax purposes and do not affect the
book capital amounts or other economic arrangements among the partners.
Consequently, the Operating Partnership Agreement requires certain allocations
to be made in a manner consistent with Section 704(c) of the Code.

Treasury Regulations under Section 704(c) provide partnerships with a choice
of several methods of accounting for Book-Tax Differences. The Partnerships and
the Company have not yet determined which of the alternative methods of
accounting for Book-Tax Differences will be elected, and accordingly, such
determination could have differing timing and other effects on the Company.

The Company's properties acquired in taxable transactions will in general
have a tax basis equal to their fair market value. Section 704(c) of the Code
will not apply in such cases.

SALE OF PROPERTIES. The Company's share of any gain realized by a
Partnership on the sale of any "dealer property" generally will be treated as
income from a prohibited transaction that is subject to a 100% penalty tax. See
"--Taxation of the Company--General" and "--The 95% Test." Under existing law,
whether property is dealer property is a question of fact that depends on all
the facts and circumstances with respect to the particular transaction. The
Company has held and the Partnerships intend to hold their properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, owning, operating and developing its properties and other commercial
properties, and to make such occasional sales of properties, whether presently
held or acquired subsequent to the date hereof, as are consistent with the
Company's investment objectives. Based upon the Company's investment objectives,
the Company believes that overall, its current properties should not be
considered dealer property and that the amount of income from prohibited
transactions, if any, will not be material.

TAXATION OF SHAREHOLDERS

TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders out
of current or accumulated earnings and profits generally will be taxed to such
shareholders as ordinary dividend income, except that, subject to the discussion
below regarding the new tax rates contained in the Taxpayer Relief Act of 1997
(the "Taxpayer Relief Act"), distributions of net capital gain designated by the
Company as capital gain dividends will be taxed to such shareholders as
long-term capital gain (to the extent they do not exceed the Company's actual
net capital gain for the fiscal year) without regard to the period for which the
shareholder has held its shares of beneficial interest in the Company. However,
corporate shareholders may be required to treat up to 20% of capital gain
dividends as ordinary income. To the extent that the Company makes distributions
in excess of current and accumulated earnings and profits, such distributions
will be treated first as a tax-free return of capital to the shareholder,
reducing the tax basis of such shareholder's Common Shares by the amount of such
excess distribution (but not below zero), with distributions in excess of the
shareholder's tax basis being taxed as capital gain (if the Common Shares are
held by the shareholder as a capital asset). See "Market Price and Distribution
Policy." In addition, any dividend declared by the Company in October, November
or December of any year that is payable to a shareholder of record on a specific
date in any such month shall be treated as both paid by the Company and received
by the shareholder on December 31 of such year, provided that the dividend is
actually paid by the Company during January of the following calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses of the Company. Federal income tax rules may also require that
certain minimum tax adjustments and preferences be apportioned to the Company's
shareholders.

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The Company is permitted under the Code to elect to retain and pay income
tax on its net capital gain for any taxable year. However, if the Company so
elects, a shareholder must include in income such shareholder's proportionate
share of the Company's undistributed capital gain for the taxable year, and will
be deemed to have paid such shareholder's proportionate share of the income tax
paid by the Company with respect to such undistributed capital gain. Such tax
would be credited against the shareholder's tax liability and subject to normal
refund procedures. In addition, each shareholder's basis in such shareholder's
Common Shares would be increased by the amount of undistributed capital gain
(less the tax paid by the Company) included in the shareholder's income.

The Taxpayer Relief Act alters the taxation of capital gain income for
individuals (and for certain trusts and estates). Gain from the sale or exchange
of certain investments held for more than 18 months will be taxed at a maximum
rate of 20%. Gain from the sale or exchange of such investments held for 18
months or less, but for more than one year, will be taxed at a maximum rate of
28%. The Taxpayer Relief Act also provides a maximum rate of 25% for
"unrecaptured section 1250 gain" recognized on the sale or exchange of certain
real estate assets, introduces special rules for "qualified 5-year gain," and
makes certain other changes to prior law. On November 10, 1997, the Service
issued Notice 97-64, which provides generally that the Company may classify
portions of its designated capital gain dividend as (i) a 20% rate gain
distribution (which would be taxed as capital gain in the 20% group), (ii) an
unrecaptured section 1250 gain distribution (which would be taxed as capital
gain in the 25% group) or (iii) a 28% rate capital gain distribution (which
would be taxed as capital gain in the 28% group). If no designation is made, the
entire designated capital gain dividend will be treated as a 28% rate capital
gain distribution. Notice 97-64 provides that a REIT must determine the maximum
amounts that it may designate as 20% and 25% rate capital gain dividends by
performing the computation required by the Code as if the REIT were an
individual whose ordinary income was subject to a marginal tax rate of at least
28%.

In general, any loss upon a sale or exchange of Common Shares by a
shareholder who has held such Common Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of prior distributions required to be treated by such
shareholders as long-term capital gains.

BACKUP WITHHOLDING. The Company will report to its domestic shareholders
and to the Service the amount of distributions paid for each calendar year, and
the amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at a rate
of 31% with respect to distributions paid unless such shareholder (i) is a
corporation or comes with certain other exempt categories and, when required,
demonstrates this fact or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder that does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding is available as a credit against the
shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions made to any shareholders who
fail to certify their non-foreign status to the Company. See "--Taxation of the
Shareholders--Taxation of Foreign Shareholders."

TAXATION OF TAX-EXEMPT SHAREHOLDERS. The Service has issued a revenue
ruling in which it held that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a "pension-held REIT," based
upon such ruling, distributions by the Company to a shareholder that is a
tax-exempt entity should not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code, that the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity, and that the
Company, consistent with its present intent, does not hold a residual interest
in a real estate mortgage investment conduit ("REMIC") that is an entity or
arrangement that satisfies the standards set forth in Section 860D of the Code.

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If any pension or other retirement trust that qualifies under Section 401(a)
of the Code (a "qualified pension trust") holds more than 10% by value of the
interests in a "pension-held REIT" at any time during a taxable year, a portion
of the dividends paid to the qualified pension trust by such REIT may constitute
UBTI. For these purposes, a "pension-held REIT" is defined as a REIT (i) which
would not have qualified as a REIT but for the provisions of the Code which look
through such a qualified pension trust in determining ownership of shares of the
REIT and (ii) as to which at least one qualified pension trust holds more than
25% by value of the interests of such REIT or one or more qualified pension
trusts (each owning more than a 10% interest by value in the REIT) hold in the
aggregate more than 50% by value of the interests in such REIT.

TAXATION OF FOREIGN SHAREHOLDERS. The rules governing United States federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a brief summary of
such rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state and local income tax laws
with regard to an investment in Common Shares, including any reporting
requirements. The Company will qualify as a "domestically-controlled REIT" so
long as less than 50% in value of its shares of beneficial interest are held by
foreign persons (i.e., non-resident aliens, and foreign corporations,
partnerships, trusts and estates). The Company currently anticipates that it
will qualify as a domestically-controlled REIT. Under these circumstances, gain
from the sale of Common Shares by a foreign person should not be subject to
United States taxation, unless such gain is effectively connected with such
person's United States trade or business or, in the case of an individual
foreign person, such person is present within the United States for more than
182 days during the taxable year. However, notwithstanding the Company's current
expectation that the Company will qualify as a domestically-controlled REIT,
because the Common Shares will be publicly traded no assurance can be given that
the Company will continue to so qualify.

Distributions of cash generated by the Company's real estate operations (but
not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at a rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign shareholder
files with the Company the required form evidencing such lower rate, or (ii) the
foreign shareholder files an IRS Form 4224 with the Company claiming that the
distribution is "effectively connected" income.

Distributions of proceeds attributable to the sale or exchange of United
States real property interests by the Company are subject to income and
withholding taxes pursuant to the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"), and may also be subject to branch profits tax in the hands of a
shareholder that is a foreign corporation if it is not entitled to treaty relief
or exemption. The Company is required by applicable Treasury Regulations to
withhold 35% of any distribution to a foreign person that could be designated by
the Company as a capital gain dividend. This amount is creditable against the
foreign shareholder's FIRPTA tax liability.

The federal income taxation of foreign persons is a highly complex matter
that may be affected by other considerations. Accordingly, foreign investors in
the Company should consult their own tax advisor regarding the income and
withholding tax considerations with respect to their investment in the Company.

OTHER TAX CONSIDERATIONS

THE TAXPAYER RELIEF ACT. The Taxpayer Relief Act modifies many of the
provisions relating to the requirements for qualification as, and the taxation
of, a REIT. Among other things, the Taxpayer Relief Act (i) replaces the rule
that disqualifies a REIT for any year in which the REIT fails to comply with
Treasury Regulations that are intended to enable the REIT to ascertain its
ownership with a prescribed penalty for failing to do so; (ii) permits a REIT to
render a DE MINIMIS amount of impermissible services to tenants, or in
connection with the management of property, and still treat amounts received
with respect to

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<PAGE>
that property as rents from real property; (iii) permits a REIT to elect to
retain and pay income tax on net long-term capital gains; (iv) repeals a rule
that required that less than 30% of a REIT's gross income be derived from gain
from the sale or other disposition of stock or securities held for less than one
year, certain real property held for less than four years, and property that is
sold or disposed of in a prohibited transaction; (v) lengthens the original
grace period for foreclosure property from two years after the REIT acquired the
property to a period ending on the last day of the third full taxable year
following the taxable year in which the property was acquired; (vi) treats
income from all hedges that reduce the interest rate risk of REIT liabilities,
not just interest rate swaps and caps, as qualifying income under the 95% gross
income test; and (vii) permits any corporation wholly owned by a REIT to be
treated as a qualified subsidiary, regardless of whether the corporation has
always been owned by a REIT. The changes are effective for taxable years
beginning after the date of enactment, and thus will apply to the Company's
taxable year ending December 31, 1998.

POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX
CONSEQUENCES. Shareholders should recognize that the present federal income tax
treatment of an investment in the Company may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly in review by persons involved in the
legislative process and by the Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in federal tax laws and interpretations thereof can adversely
affect the tax consequences of an investment in the Company.

STATE AND LOCAL TAXES. The Company and the Partnerships may be subject to
state or local taxation, and the Company's shareholders may be subject to state
or local taxes in various jurisdictions, including those in which they transact
business or reside. The state and local tax treatment of the Company and its
shareholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
Common Shares. See "Risk Factors -- Tax Risks -- Other Tax Liabilities."

EACH POTENTIAL INVESTOR IS ADVISED TO CONSULT WITH SUCH INVESTOR'S TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH INVESTOR OF THE
OWNERSHIP AND SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES
IN APPLICABLE TAX LAWS.

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<PAGE>
UNDERWRITING

Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement") the underwriters named below (the "Underwriters")
have severally agreed to purchase from the Company, and the Company has agreed
to sell to each of the Underwriters, for whom Donaldson, Lufkin & Jenrette
Securities Corporation, BT Alex. Brown Incorporated and Prudential Securities
Incorporated are acting as representatives (the "Representatives"), the
aggregate number of Common Shares set forth below opposite their respective
names at the offering price less the underwriting discounts set forth on the
cover of this Prospectus.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON SHARES
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......................... 1,960,000
BT Alex. Brown Incorporated.................................................. 1,960,000
Prudential Securities Incorporated........................................... 1,960,000
A.G. Edwards & Sons, Inc..................................................... 90,000
Goldman, Sachs & Co.......................................................... 90,000
Legg Mason Wood Walker, Incorporated......................................... 90,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........................... 90,000
Morgan Stanley & Co. Incorporated............................................ 90,000
PaineWebber Incorporated..................................................... 90,000
Smith Barney Inc............................................................. 90,000
Arnhold and S. Bleichroeder, Inc............................................. 45,000
Barber & Bronson, Inc........................................................ 45,000
Barington Capital Group, L.P................................................. 45,000
Cleary, Gull, Reiland & McDevitt Inc......................................... 45,000
Crowell, Weedon & Co......................................................... 45,000
Fahnestock & Co. Inc......................................................... 45,000
Interstate/Johnson Lane Corporation.......................................... 45,000
Janney Montgomery Scott Inc.................................................. 45,000
Johnston, Lemon & Co. Incorporated........................................... 45,000
EDWARD D. JONES & CO., L.P................................................... 45,000
John G. Kinnard & Company, Incorporated...................................... 45,000
Ladenburg Thalmann & Co. Inc................................................. 45,000
McDonald & Company Securities, Inc........................................... 45,000
Parker/Hunter Incorporated................................................... 45,000
Pennsylvania Merchant Group.................................................. 45,000
Raymond James & Associates, Inc.............................................. 45,000
Ryan, Beck & Co.............................................................. 45,000
Sands Brothers & Co., Ltd.................................................... 45,000
Stifel, Nicolaus & Company, Incorporated..................................... 45,000
Sutro & Co. Incorporated..................................................... 45,000
Tucker Anthony Incorporated.................................................. 45,000
Wheat, First Securities, Inc................................................. 45,000
---------------
Total................................................................ 7,500,000
---------------
---------------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Shares are subject to
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the Common
Shares offered hereby (other than the shares of Common Shares covered by the
over-allotment option described below) if any such shares of Common Shares are
taken.

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<PAGE>
The Company has been advised by the Representatives that the Underwriters
propose to offer such Common Shares to the public at the offering price set
forth on the cover page of this Prospectus and to certain dealers at such price,
less a concession not in excess of $0.34 per Common Share. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $0.10 per
Common Share on sales to certain other dealers. After the Offering, the offering
price and other selling terms may be changed by the Representatives. The Company
has granted to the Underwriters an option, exercisable not later than 30
calendar days from the date of this Prospectus, to purchase up to an additional
1,125,000 Common Shares at the same price per Common Share as the Company
receives for the Common Shares that the Underwriters have agreed to purchase.

To the extent the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional Common Shares as the number of Common Shares to be
purchased by it shown in the above table bears to the total number of Common
Shares shown in the table above, and the Company will be obligated, pursuant to
the option, to sell such Common Shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Shares offered hereby. If purchased, the Underwriters will sell
such additional 1,125,000 Common Shares on the same terms as those on which the
Common Shares are being offered.

The Common Shares will be listed on the NYSE. In order to meet one of the
requirements for listing the Common Shares on the NYSE, the Underwriters have
undertaken to sell (i) lots of 100 or more shares to ensure a minimum of 2,000
beneficial holders upon completion of the Offering and (ii) sufficient Common
Shares so that following the Offering the Company has a minimum aggregate market
value of $40.0 million.

In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Shares.
Specifically, the Underwriters may overallot the Offering, creating a short
position. In addition, the Underwriters may bid for, and purchase, Common Shares
in the open market to cover short positions or to stabilize the price of the
Common Shares. Finally, the Underwriters may reclaim selling concessions allowed
for distributing the Common Shares in the Offering if they repurchase previously
distributed Common Shares in covering transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Shares above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.

The Company, the Operating Partnership and certain of the executive officers
and Trustees have agreed, with certain exceptions, as a condition to the
Underwriters' participation in the Offering, that they will not, without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, on
behalf of the Underwriters, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any person at
any time in the future of) any Common Shares and/or Units (including any Common
Shares acquired upon conversion or exchange of Units), or any securities
convertible into or exercisable, exchangeable or redeemable for Common Shares or
Units or enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with the ownership of any Common
Shares or Units (regardless of whether any of the transactions described above
is to be settled by the delivery of Common Shares, Units or such other
securities, in cash or otherwise), for a period of 180 days after the date of
the Underwriting Agreement.

In connection with the Transactions, the Property Partnerships paid
Donaldson, Lufkin & Jenrette Securities Corporation a fee of $750,000 in
connection with financial advisory services rendered. In

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<PAGE>
connection with the Offering, a lender which is an affiliate of BT Alex. Brown
Incorporated, one of the Underwriters, will receive $70 million of the net
proceeds in repayment of amounts outstanding under the Property Financing. The
Conduct Rules of the National Association of Securities Dealers, Inc. exempt
REITs from the conflict of interest provisions thereof, including the applicable
provisions of Rule 2720 concerning the appointment of "qualified independent
underwriters."

LEGAL MATTERS

Certain legal matters in connection with the Common Shares being offered
hereby will be passed upon for the Company by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York and for
the Underwriters by Rogers & Wells LLP, New York, New York. Cahill Gordon &
Reindel and Rogers & Wells LLP will rely, without independent investigation, on
Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland as to certain
matters of Maryland law.

EXPERTS

As previously announced, on October 31, 1997, Coopers & Lybrand L.L.P. was
appointed by the Company as the Company's independent accountants for the year
ending December 31, 1997, replacing Lurie, Besikoff, Lapidus & Co., LLP
("Lurie"). The Company is not aware of any disagreements with Lurie during the
Company's two most recent fiscal years and through October 31, 1997 on any
matters of accounting principles or practices, financial statement disclosures
or auditing scope and procedures which, if not resolved to the satisfaction of
Lurie, would have caused Lurie to make reference to the matters in their
reports. Lurie has furnished to the Commission a letter agreeing with this
statement.

The consolidated financial statements of the Company as of December 31, 1996
and 1997 and for each of the years in the three year period ended December 31,
1997, included in this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

The combined financial statements of the Office Properties as of December
31, 1996 and for the years ended December 31, 1995 and 1996, included in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.

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<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission relating to its business, financial position, results of operations
and other matters. Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Section maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at its Regional Offices located at The Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New
York, New York 10048. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Common Shares will be listed
for trading on the NYSE. Such reports, proxy statements and other information
filed subsequent to listing can also be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005. Such reports, proxy statements and other
information can be reviewed through the Commission's Electronic Data Gathering
Analysis and Retrieval System, which is publicly available through the
Commission's web site (http://www.sec.gov).

The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act with respect to the Common Shares offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the Common Shares offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.

98
<PAGE>
GLOSSARY

For purposes of this Prospectus, the following capitalized terms shall have
the meanings set forth below:

"ADA" means the Americans with Disabilities Act of 1990, as amended.

"ADVISORY AGREEMENT" means the advisory agreement between the Company and
Crown which was terminated as part of the Transactions.

"BOARD OF TRUSTEES" means the Board of Trustees of the Company.

"BOOK-TAX DIFFERENCE" has the meaning ascribed to it in the section
entitled "Federal Income Tax Considerations -- Tax Aspects of the Company's
Investments in Partnerships -- Tax Allocations with Respect to Properties."

"BYLAWS" means the bylaws adopted by the Board of Trustees of the Company,
as amended from time to time.

"CBD" means central business district.

"CLOSING" means the closing of the Offering.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COMMISSION" means the Securities and Exchange Commission.

"COMMON SHARES" means (i) prior to the Company Reformation, shares of
Common Stock and (ii) thereafter the common shares of beneficial interest, par
value $0.01 per share, of the Company.

"COMMON STOCK" means the common stock, par value $0.01 per share, of the
Company prior to the Company Reformation.

"COMPANY" means (i) prior to October 14, 1997, Royale Investments, Inc., a
Minnesota corporation and (ii) thereafter includes its subsidiaries, Holdings
and the Operating Partnership, together with the Delaware and Pennsylvania
limited partnerships in which the Company, through Holdings and the Operating
Partnership, has interests. On March 16, 1998, the Company was reformed as a
Maryland real estate investment trust.

"CROWN" means Crown Advisors, Inc., a Minnesota corporation owned by John
Parsinen and Vernon R. Beck.

"DECLARATION OF TRUST" means the Company's declaration of trust, as amended
from time to time, and as filed with the State Department of Assessments and
Taxation of Maryland.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"FORMATION AGREEMENT" means the agreement pursuant to which the
Transactions were consummated.

"FUNDS FROM OPERATIONS" means net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that FFO is helpful to investors as a measure of the performance of any
equity REIT because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes FFO in
accordance with standards

99
<PAGE>
established by NAREIT which may not be comparable to FFO reported by other REITs
that do not define the term in accordance with the current NAREIT definition or
that interpret the current NAREIT definition differently than the Company. FFO
does not represent cash generated from operating activities determined in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including its
ability to make cash distributions.

"GAAP" means generally accepted accounting principles in the United States.

"GENERAL PARTNER" means the Company in its capacity as general partner of
the Operating Partnership.

"GLACIER" means Glacier Realty LLC, a Minnesota limited liability company,
substantially all of the interests in which are owned by John Parsinen and
Vernon R. Beck.

"HOLDINGS" means Corporate Office Properties Holdings, Inc. (formerly
named FCO Holdings, Inc.), a Delaware corporation.

"INCENTIVE PLAN" means the Company's 1998 Long-Term Incentive Plan, as
amended from time to time.

"INTERESTED SHAREHOLDER" means any person who beneficially owns 10% or more
of the voting power of a Maryland real estate investment trust's shares of
beneficial interest or any affiliate of the trust who, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the outstanding voting shares of beneficial
interest of the trust.

"LIMITED PARTNERS" means certain of the Trustees who are limited partners
of the Operating Partnership and are limited partners in certain of the
Properties Partnerships.

"MANAGEMENT AGREEMENT" means the management agreement between the Company
and Glacier, as amended from time to time.

"MARYLAND REIT LAW" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended from time to time.

"MGCL" means the Maryland General Corporation Law, as amended from time to
time.

"MSA" means metropolitan statistical area.

"NAREIT" means the National Association of Real Estate Investment Trusts,
Inc.

"NASDAQ" means the Nasdaq Small Cap Market tier of the Nasdaq Stock Market.

"NYSE" means the New York Stock Exchange, Inc.

"1940 ACT" means the Investment Company Act of 1940, as amended.

"OFFERING" means this offering of Common Shares of the Company pursuant to
and as described in this Prospectus.

"OFFICE PROPERTIES" means the office properties to be owned by the
Operating Partnership.

"OPERATING PARTNERSHIP" means Corporate Office Properties, L.P. (formerly
named FCO, L.P.), a Delaware limited partnership, alone, or as the context may
require, together with its subsidiaries.

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<PAGE>
"OPERATING PARTNERSHIP AGREEMENT" means the limited partnership agreement
of the Operating Partnership.

"OPTION PLAN" means the Company's Stock Option Plan for Directors, as
amended from time to time.

"OWNERSHIP LIMIT" means no more than (i) 9.8% of the Company's number of
issued and outstanding shares of beneficial interest, or (ii) 9.8% of the total
equity value of such shares of beneficial interest.

"PARTNERSHIP UNITS" has the meaning ascribed to it in the Operating
Partnership Agreement.

"PREFERRED SHARES" means the preferred shares of beneficial interest, $0.01
par value per share, of the Company.

"PREFERRED UNITS" has the meaning ascribed to it in the Operating
Partnership Agreement.

"PROPERTIES" means, collectively, one or more of the Office Properties and
one or more of the Retail Properties more particularly described in the section
entitled "The Properties."

"PROPERTY FINANCING" means the $100 million principal amount mortgage
financing with Bankers Trust Company pursuant to a Senior Secured Credit
Agreement dated as of October 14, 1997, executed in connection with the
Transactions.

"PROSPECTUS" means this prospectus, as the same may be amended.

"REFORMATION" means the reformation of the Company as a Maryland real
estate investment trust which occurred on March 16, 1998.

"REIT" means a real estate investment trust as defined under Sections 856
through 860 of the Code and applicable Treasury Regulations.

"RESTRICTED COMMON SHARES" has the meaning ascribed to it in the section
entitled "Shares Available for Future Sale."

"RETAIL PROPERTIES" means seven retail properties located in the Midwest
containing approximately 370,000 rentable square feet.

"RETAINED INTERESTS" has the meaning ascribed to it in the section entitled
"Structure and Formation of the Company -- The Transactions."

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SERVICE" means the Internal Revenue Service.

"TOTAL RENTAL REVENUE" means the monthly contractual base rent as of March
1, 1998 multiplied by 12, plus the estimated annualized expense reimbursements
under existing leases, except for Philadelphia Region properties and the retail
properties which are triple net leases for which the tenant pays all operating
expenses directly.

"TREASURY REGULATIONS" means the regulations promulgated by the Service
under the Code.

"TRANSACTIONS" means all of the transactions described under "Structure and
Formation of the Company -- The Transactions."

"UNIT" means a unit of partnership interest in the Operating Partnership.

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
CORPORATE OFFICE PROPERTIES TRUST, INC.
Pro Forma Consolidated Financial Statements (Unaudited)............................ F-2
Pro Forma Consolidated Balance Sheet as of December 31, 1997....................... F-3
Pro Forma Consolidated Statement of Operations for the year ended December 31,
1997............................................................................. F-4

HISTORICAL
Report of Independent Accountants.................................................. F-6
Consolidated Balance Sheets as of December 31, 1996 and 1997....................... F-7
Consolidated Statements of Operations for the years ended December 31, 1995, 1996
and 1997......................................................................... F-8
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, 1996 and 1997.............................................................. F-9
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997......................................................................... F-10
Notes to Consolidated Financial Statements......................................... F-11

SCHEDULE III
Report of Independent Accountants.................................................. F-21
Real Estate and Accumulated Depreciation as of December 31, 1997................... F-22

THE OFFICE PROPERTIES
Report of Independent Accountants.................................................. F-23
Combined Balance Sheets as of December 31, 1996 and September 30, 1997
(Unaudited)...................................................................... F-24
Combined Statements of Operations for the years ended December 31, 1995 and 1996
and for the nine month periods ended September 30, 1997 and 1996 (Unaudited)..... F-25
Combined Statements of Partners' Capital for the years ended December 31, 1995 and
1996 and for the nine month period ended September 30, 1997...................... F-26
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996
and for the nine month periods ended September 30, 1997 and 1996................. F-27
Notes to Combined Financial Statements............................................. F-28
</TABLE>

F-1
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997

(UNAUDITED)

The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1997 reflects the historical consolidated balance sheet of the
Company adjusted for the effects of the Offering as if the Offering had occurred
on December 31, 1997. The principal use of the net proceeds of the Offering is
to repay $70 million outstanding under the Property Financing.

The accompanying unaudited pro forma consolidated statement of operations
for the year ended December 31, 1997 reflects the historical consolidated
statement of operations of the Company adjusted for the effects of: (a) the
Transactions, including the acquisition of the Office Properties, as if the
Transactions had occurred on January 1, 1997 and (b) the Offering, including the
decrease in interest expense resulting from debt assumed to be repaid with the
net proceeds of the Offering, as if the Offering had occurred on January 1,
1997.

The accompanying unaudited pro forma consolidated financial statements have
been prepared by management of the Company and do not purport to be indicative
of the results which would actually have been obtained had the Transactions and
the Offering been completed on the dates indicated or which may be obtained in
the future. The pro forma consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto of
the Company and the Combined Financial Statements and the Notes thereto of the
Office Properties included elsewhere herein.

F-2
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
OFFERING
HISTORICAL(1) ADJUSTMENTS PRO FORMA
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
Land.............................................................. $ 38,764 $ -- $ 38,764
Buildings and improvements........................................ 152,945 152,945
Furniture, fixtures and equipment................................. 140 140
Less: accumulated depreciation.................................... (3,224) (3,224)
------------ ----------- -----------
Net investment in real estate................................... 188,625 -- 188,625
Cash and cash equivalents......................................... 3,395 3,000(2) 6,395
Tenant accounts receivable........................................ 78 78
Deferred rent receivable.......................................... 479 479
Deferred financing costs, net..................................... 857 857
Prepaid and other assets, net..................................... 100 100
------------ ----------- -----------
TOTAL ASSETS.................................................... $ 193,534 $ 3,000 $ 196,534
------------ ----------- -----------
------------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans payable............................................ $ 114,375 $ (70,000)(2) $ 44,375
Accounts payable and accrued expenses............................. 932 932
Rents received in advance and security deposits................... 425 425
Dividends/distributions payable................................... 1,276 1,276
------------ ----------- -----------
Total liabilities............................................... 117,008 (70,000) 47,008
------------ ----------- -----------
Minority interests:
Preferred Units................................................... 52,500 52,500
Partnership Units................................................. 12,362 12,362
------------ ----------- -----------
Total minority interests........................................ 64,862 64,862
------------ ----------- -----------
Stockholders' equity:
Common stock ($.01 par value; 50,000,000 authorized, 2,266,083 and
9,766,083 shares issued and outstanding on a historical and pro
forma basis, respectively....................................... 23 75(3) 98
Additional paid-in capital........................................ 16,620 72,925(3) 89,545
Accumulated deficit............................................... (4,979) (4,979)
------------ ----------- -----------
Total stockholders' equity...................................... 11,664 73,000 84,664
------------ ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $ 193,534 $ 3,000 $ 196,534
------------ ----------- -----------
------------ ----------- -----------
</TABLE>

- ------------------------

(1) Reflects the historical balance sheet of the Company as of December 31,
1997.

(2) Reflects the use of net proceeds from the Offering to repay $70,000 in
indebtedness outstanding under the Property Financing with the remainder
held as cash and cash equivalents.

(3) Reflects the proceeds of the Offering of $78,750, based upon an offering of
7,500,000 common shares of beneficial interest ("Common Shares"), at an
offering price of $10.50 per share, net of underwriting discounts and
offering expenses of approximately $5,750.

F-3
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE OFFICE THE OFFICE
PROPERTIES-- PROPERTIES
1/1/97-- 10/1/97-- TRANSACTION OFFERING
HISTORICAL(1) 9/30/97(2) 10/13/97(3) ADJUSTMENTS AS ADJUSTED ADJUSTMENTS
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Rental income................ $ 6,122 $ 11,710 $ 506 $ 18,338
Tenant recoveries and other
income..................... 496 1,216 66 -- 1,778 --
------ ------------- ----- ------------- ------------- -------------
Total revenues............. 6,618 12,926 572 -- 20,116 --
------ ------------- ----- ------------- ------------- -------------
Expenses
Property operating........... 728 2,569 162 -- 3,459 --
General and administrative... 533 114 60 -- 707 --
Interest expense............. 2,855 7,042 346 $ (1,519)(4) 8,724 $ (4,900)(9)
Amortization of deferred
financing costs............ 64 494 21 (228)(5) 351 --
Depreciation................. 1,267 1,930 135 597(6) 3,929 --
Termination of Advisory
Agreement.................. 1,353 -- -- (1,353)(7) -- --
------ ------------- ----- ------------- ------------- -------------
Total expenses............. 6,800 12,149 724 (2,503) 17,170 (4,900)
------ ------------- ----- ------------- ------------- -------------
Income (loss) before minority
interests.................... (182) 2,946 --

Minority interests:
Preferred Units.............. (720) (1,858)(8) (2,578) (834)(10)
Partnership Units............ (65) 65(8) -- (984)(10)
------ -------------
Net income (loss).............. $ (967) $ 368
------ -------------
------ -------------
Net income (loss) available to
common shareholders per
weighted average common share
outstanding (1,600,807,
2,266,083, and 9,766,083
shares issued and outstanding
on a historical, as adjusted
and pro forma basis,
respectively)................ $ (0.60) $ 0.16

PRO FORMA
-----------
<S> <C>
Revenues
Rental income................ $ 18,338
Tenant recoveries and other
income..................... 1,778
-----------
Total revenues............. 20,116
-----------
Expenses
Property operating........... 3,459
General and administrative... 707
Interest expense............. 3,824
Amortization of deferred
financing costs............ 351
Depreciation................. 3,929
Termination of Advisory
Agreement.................. --
-----------
Total expenses............. 12,270
-----------
Income (loss) before minority
interests.................... 7,846
Minority interests:
Preferred Units.............. (3,412)
Partnership Units............ (984)
-----------
Net income (loss).............. $ 3,450
-----------
-----------
Net income (loss) available to
common shareholders per
weighted average common share
outstanding (1,600,807,
2,266,083, and 9,766,083
shares issued and outstanding
on a historical, as adjusted
and pro forma basis,
respectively)................ $ 0.35
</TABLE>

- ------------------------

(1) Reflects the historical consolidated operating results of Corporate Office
Properties Trust, Inc.

(2) Reflects the historical combined operating results of the Office Properties
from January 1, 1997 through September 30, 1997.

(3) Reflects the historical combined operating results of the Office Properties
from October 1, 1997 to October 13, 1997, the day prior to their
Acquisition.

(4) Reflects the reduction in interest expense relating to refinancing of the
$87,000 of mortgage indebtedness collateralized by the Office Properties
with indebtedness incurred under the Property Financing which bears interest
at the rate of 7.5% per annum.

(5) Reflects the reduction in amortization expense related to the amortization
over three years of the deferred financing costs associated with the
Property Financing.

(6) Reflects the increase in depreciation resulting from the purchase of the
Office Properties.

(7) Reflects a non-recurring expense associated with the termination of the
Advisory Agreement paid in the form of Common Stock. Accordingly, this
transaction has been eliminated since it is not expected to have a
continuing impact on the Company.

F-4
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(8) Minority interest in income (loss) has been reflected in accordance with the
Operating Partnership Agreement. The Preferred Unitholders are allocated
income up to 6.5% of their investment with remaining income, if any, or loss
allocated between the Company (18.86%) and the remaining partners (81.14%).
The adjustments to record the income (loss) effect of the minority interest
share of income (loss) in the pro forma statement of operations were
computed as follows:

<TABLE>
<S> <C> <C>
Calculation of allocation of income to Preferred Unitholders
Total Preferred Units...................................................... $ 52,500
Preferred distribution rate................................................ 6.5%
---------
Preferred Unitholders return............................................... $ 3,412(a)
---------
---------
Income before minority interest.............................................. $ 2,946 $ 2,946
Less non-Operating Partnership income for Retail Properties directly owned by
the Company................................................................ (368)
---------
Income before minority interest--Operating Partnership....................... $ 2,578(b)
---------
---------
Pro forma minority interest in income
Minority share--Preferred Units (lesser of (a) or (b))..................... (2,578)
Minority share--Partnership Units.......................................... --
---------
Net income allocated to Common Shares........................................ $ 368
---------
---------
</TABLE>

(9) Reflects the elimination of the interest expense associated with the $70,000
indebtedness repaid from the net proceeds of the Offering. The reduced
interest expense is offset by the annual unused facility fee of 0.5% to be
paid to the lender under the Property Financing.

(10) Reflects the effects of contribution of the net proceeds of the Offering to
the Operating Partnership in exchange for 7,500,000 Partnership Units and
the contribution of Retained Interests.

The following table presents the calculation of the post closing percentage
ownership in the Operating Partnership.

<TABLE>
<CAPTION>
COMPANY OTHERS TOTAL
----------- --------- ---------
<S> <C> <C> <C> <C>
Units pre-Offering................. 600,000 2,581,818 3,181,818
Offering........................... 7,500,000 7,500,000
----------- --------- ---------
Units post offering................ 8,100,000 2,581,818 10,681,818
Percentage ownership............... 75.8% 24.2%(d) 100.00%
----------- --------- ---------
----------- --------- ---------
Income before minority interest.... $ 7,846 $7,846
Less: non-Operating Partnership
income for Retail Properties
directly owned by the Company.... (368)
---------
Income before minority interest--
Operating Partnership............ $ 7,478(c)
---------
---------
Preferred Unit minority interest
share (minimum of (a) or (c)).... $ 3,412
---------
---------
Remaining Operating Partnership
allocation....................... 4,066(e)
Pro forma minority interest in
income
Minority share--Preferred
Units.......................... (3,412)
Minority share--Partnership
Units.......................... (d)x(e) (984)
-------
Net income allocated to Common
Shares........................... $3,450
-------
-------
</TABLE>

F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Corporate Office Properties Trust, Inc.:

We have audited the accompanying consolidated balance sheets of Corporate
Office Properties Trust, Inc. (the "Company") as of December 31, 1996 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows of the Company for each of the years in the three-year period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Corporate
Office Properties Trust, Inc. as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.

Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 24, 1998

F-6
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ----------
<S> <C> <C>
ASSETS
Land................................................................................... $ 5,428 $ 38,764
Buildings and improvements............................................................. 19,599 152,945
Furniture, fixtures and equipment...................................................... -- 140
Less accumulated depreciation.......................................................... (1,957) (3,224)
--------- ----------
Net investment in real estate........................................................ 23,070 188,625

Cash and cash equivalents.............................................................. 258 3,395
Marketable securities.................................................................. 479 --
Tenant accounts receivable............................................................. 16 78
Deferred rent receivable............................................................... 184 479
Deferred financing costs, net.......................................................... 185 857
Prepaid and other assets, net.......................................................... 5 100
--------- ----------
TOTAL ASSETS......................................................................... $ 24,197 $ 193,534
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans payable................................................................. $ 14,658 $ 114,375
Accounts payable and accrued expenses.................................................. 190 932
Rents received in advance and security deposits........................................ -- 425
Dividends/distributions payable........................................................ 178 1,276
--------- ----------
TOTAL LIABILITIES.................................................................... 15,026 117,008
--------- ----------
Minority interests:
Preferred Units........................................................................ -- 52,500
Partnership Units...................................................................... -- 12,362
--------- ----------
Total minority interests............................................................. -- 64,862
--------- ----------
Commitments and contingencies (Note 11)

Stockholders' equity:
Common stock ($.01 par value; 50,000,000 authorized, 1,420,000 and 2,266,083 shares,
issued and outstanding at December 31, 1996 and 1997, respectively).................. 14 23
Additional paid-in capital............................................................. 12,353 16,620
Accumulated deficit.................................................................... (3,196) (4,979)
--------- ----------
Total stockholders' equity........................................................... 9,171 11,664
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................... $ 24,197 $ 193,534
--------- ----------
--------- ----------
</TABLE>

See accompanying notes to financial statements.

F-7
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
REVENUES
Rental income...................................................................... $ 2,436 $ 2,477 $ 6,122
Tenant recoveries and other income................................................. 48 32 496
--------- --------- ---------
Total revenues................................................................... 2,484 2,509 6,618
--------- --------- ---------
EXPENSES
Property operating................................................................. 42 31 728
General and administrative......................................................... 336 372 533
Interest expense................................................................... 1,267 1,246 2,855
Amortization of deferred financing costs........................................... 13 13 64
Depreciation....................................................................... 554 554 1,267
Termination of Advisory Agreement.................................................. -- -- 1,353
--------- --------- ---------
Total expenses................................................................... 2,212 2,216 6,800
--------- --------- ---------
Income (loss) before minority interests.............................................. 272 293 (182)
Minority interests
Preferred Units.................................................................... -- -- (720)
Partnership Units.................................................................. -- -- (65)
--------- --------- ---------
Net income (loss).................................................................... $ 272 $ 293 $ (967)
--------- --------- ---------
--------- --------- ---------
Basic and diluted earnings (loss) per share........................................ $ 0.19 $ 0.21 $ (0.60)
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes to financial statements.

F-8
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1994...................................... $ 14 $ 12,353 $ (2,341) $ 10,026
Net income...................................................... -- -- 272 272
Dividends....................................................... -- -- (710) (710)
--- ----------- ------------ ---------

Balance at December 31, 1995...................................... 14 12,353 (2,779) 9,588
Net income...................................................... -- -- 293 293
Dividends....................................................... -- -- (710) (710)
--- ----------- ------------ ---------

Balance at December 31, 1996...................................... 14 12,353 (3,196) 9,171
Issuance of common stock for property acquisition and advisory
agreement termination......................................... 9 4,267 4,276
Net loss........................................................ -- -- (967) (967)
Dividends....................................................... (816) (816)
--- ----------- ------------ ---------
Balance at December 31, 1997...................................... $ 23 $ 16,620 $ (4,979) $ 11,664
--- ----------- ------------ ---------
--- ----------- ------------ ---------
</TABLE>

See accompanying notes to financial statements.

F-9
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................ $ 272 $ 293 $ (967)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Minority interests............................................................... -- -- 785
Depreciation..................................................................... 554 554 1,267
Amortization of deferred financing costs......................................... 13 13 64
Advisory contract termination cost............................................... -- -- 1,353
Other amortization............................................................... (29) (26) --
Increase in deferred rent receivable............................................. (67) (67) (295)
Decrease (increase) in other assets.............................................. 2 (19) (158)
(Decrease) increase in accounts payable, accrued expenses, rents received in
advance and security deposits.................................................. (67) 92 1,167
--------- --------- ---------
Net cash provided by operating activities...................................... 678 840 3,216
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of marketable securities.................................. 130 1,126 1,854
Purchase of marketable securities................................................ (681) (999) (1,375)
Purchase of land and buildings................................................... -- -- (506)
Cash proceeds received from acquisition of properties............................ -- -- 1,000
--------- --------- ---------
Net cash (used in) provided by investing activities............................ (551) 127 973
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Costs attributable to Common Stock issued........................................ -- -- (59)
Dividends paid................................................................... (834) (710) (710)
Repayments of mortgage loans payable............................................. (237) (257) (283)
Refund of mortgage costs......................................................... 71 -- --
--------- --------- ---------
Net cash used in financing activities.......................................... (1,000) (967) (1,052)
--------- --------- ---------

Net (decrease) increase in cash and cash equivalents............................... (873) -- 3,137

Cash and cash equivalents
Beginning of year................................................................ 1,131 258 258
--------- --------- ---------
End of year...................................................................... $ 258 $ 258 $ 3,395
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes to financial statements.

F-10
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

1. ORGANIZATION AND FORMATION OF COMPANY

Corporate Office Properties Trust, Inc. (formerly Royale Investments, Inc.)
(the "Company") is a self-administered REIT which focuses on the ownership,
acquisition and management of suburban office buildings. The Company was formed
in 1988 as a Minnesota corporation. The Company has qualified as a real estate
investment trust ("REIT") as defined in the Internal Revenue Code (the "Code").
During the three years ended December 31, 1997, the Company directly owned seven
net leased retail properties.

On October 14, 1997, the Company acquired (Note 4) a portfolio of 10
properties, representing the Mid-Atlantic suburban office operations of The
Shidler Group, a national real estate investment firm (the "Office Properties").
As result of the acquisition, the Company became the sole general partner of and
obtained a 20.6946% interest in the Common Units ("Partnership Units") of
Corporate Office Properties, L.P. (formerly FCO, L.P.) (the "Operating
Partnership"), a partnership formed to acquire and hold partnership interests in
partnerships which own the Office Properties (the "Properties Partnerships").
The General Partner of the Properties Partnerships is Corporate Office
Properties Holdings, Inc. (formerly FCO Holdings, Inc.) ("COP Holdings"), a
wholly owned subsidiary of the Company. In addition, the Company became
self-administered by terminating its external advisory contract with Crown
Advisors, Inc. ("Crown"), and currently entering into a new management contract
with Glacier Realty LLC ("Glacier") for the existing retail properties. Purchase
accounting was applied to the acquisition of the Office Properties.

As of December 31, 1997, the Company's portfolio included 17 commercial real
estate properties leased for office and retail purposes. The Company changed its
name from Royale Investments, Inc. to Corporate Office Properties Trust, Inc. on
January 1, 1998.

2. BASIS OF PRESENTATION

The consolidated financial statements of the Company at December 31, 1996
and 1997 and for the years ended December 31, 1995, 1996 and 1997 include the
accounts of the Company, the Operating Partnership, and COP Holdings. All
intercompany transactions and balances have been eliminated in consolidation.
Certain amounts from prior periods have been reclassified to conform to current
year presentation. The reclassifications had no affect on net operations or
stockholders' equity.

The Company, as general partner, controls the Operating Partnership;
therefore consolidated financial reporting and accounting have been applied.
Minority interests (Note 5) represents the 81.14% of the Partnership Units of
the Operating Partnership and 100% of the Preferred Units of the Operating
Partnership not owned by the Company, each of which include certain interests in
the Properties Partnerships retained by the Chairman and the President of the
Company ("Retained Interests").

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-11
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

The Company recognizes rental revenue from tenants on a straight-line basis
under which contractual rent changes are recognized evenly over the lease term.
In the accompanying balance sheets, revenues earned in advance of contractual
rental payments are recorded as deferred rent receivables while rental payments
received in advance of revenue recognition are recorded as rents received in
advance. Tenant recovery income includes payments from tenants for taxes,
insurance and other property operating expenses and is recognized as revenues in
the same period as the related expenses are incurred by the Company.

MAJOR TENANTS

During 1995 and 1996, all of the Company's rental revenue was derived from
four major tenants, each of which contributed 20% or more of the total rental
revenues. During 1997, four major tenants comprised 64% of total rental income,
each individually represented 10% or more of the Company's total rental revenue.

GEOGRAPHICAL DIVERSITY

During 1995 and 1996, all of the Company's rental revenue was derived from
properties located in the mid-west United States. During 1997, 59% of total
rental revenue was derived from the office properties in the Philadelphia,
Princeton and Harrisburg markets and 41% was derived from properties located in
the mid-west United States.

INVESTMENT IN REAL ESTATE AND DEPRECIATION

Real estate investments are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives. The estimated useful
lives are as follows:

<TABLE>
<S> <C>
Building and building improvements................................ 40 years
Land improvements................................................. 20 years
Equipment and personal property................................... 5 years
</TABLE>

Construction expenditures for tenant improvements and leasing commissions
are capitalized and amortized over the terms of each specific lease. Maintenance
and repairs are charged to expense when incurred. Expenditures for building and
other improvements are capitalized.

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed of." This statement requires the Company to review its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Adoption
of this statement had no effect on the Company's financial position or results
of operations.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all cash and liquid investments with an
initial maturity of three months or less. The carrying amount approximates fair
value due to the short maturity of these investments. The Company maintains its
cash in bank deposit accounts which may exceed federally insured limits at
times. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk on cash.

F-12
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS

The Company has capitalized as deferred costs certain expenditures related
to its long-term financings. These costs are being amortized, over the terms of
the related loans. Accumulated amortization totaled $34 and $98 as of December
31, 1996 and 1997, respectively.

INCOME TAXES

The Company intends to maintain its election to be treated as a REIT under
Sections 856 through 860 of the Code. As a result, the Company generally is not
subject to federal income taxation at the corporate level to the extent it
distributes annually at least 95% of its REIT taxable income and meets the other
conditions for qualification as a REIT under the Code, as defined in the Code,
to its stockholders and satisfies certain other requirements. Accordingly, no
provision has been made for federal income taxes in the accompanying financial
statements.

For federal income tax purposes, the cash distributions paid to stockholders
may be characterized as ordinary income, return of capital (generally
non-taxable) or capital gains. Distributions declared for the year ended
December 31, 1995 totaling $710 or $0.50 per share are characterized 30.0%
($0.15 per share) as ordinary income and 70.0% ($0.35 per share) as return of
capital. Distributions declared for the year ended December 31, 1996 totaling
$710 or $0.50 per share are characterized 40.0% ($0.20 per share) as ordinary
income and 60.0% ($0.30 per share) as return of capital. Distributions declared
for the year ended December 31, 1997 totaling $816 or $0.50 per share are
characterized 45.0% ($0.225 per share) as ordinary income and 55.0% ($0.275 per
share) as return of capital.

Earnings and profits, which will determine the taxability of distributions
to shareholders, will differ from net income reported for financial reporting
purposes due to the differences in the cost basis for federal tax purposes,
differences in the useful lives used to compute depreciation, and differences
between the allocation of the Company's net income and loss for financial
reporting purposes and for tax reporting purposes.

The Company is subject to certain state and local income and franchise
taxes. The provision for such state and local taxes has been reflected in
general and administrative expense in the consolidated statements of income and
has not been separately stated due to its insignificance. The Operating
Partnership, a limited partnership, is essentially a pass-through entity;
therefore, taxes, if any, are the obligations of the owners.

EARNINGS PER SHARE ("EPS")

The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128). Pursuant to SFAS No. 128, the Company has
computed basic and diluted EPS for the years ended December 31, 1995, 1996 and
1997. Adoption of SFAS No. 128 did not impact the amounts of EPS previously
reported.

F-13
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The numerator utilized to calculate basic EPS and diluted EPS is the same.
The weighted average common shares outstanding for purposes of basic and diluted
EPS calculations are as follows:

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares-basic................... 1,420,000 1,420,000 1,600,807
Assumed conversion of stock options.................... 249 -- --
---------- ---------- ----------
Weighted average common shares diluted................. 1,420,249 1,420,000 1,600,807
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Convertible Preferred Units and convertible Partnership Units could
potentially dilute EPS in the future.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include short-term investments,
marketable securities, tenant accounts receivable, accounts payable, accrued
expenses and mortgage loans payable. The fair values of these financial
instruments were not materially different from their carrying or contract
values.

4. ACQUISITION OF THE OFFICE PROPERTIES

On October 14, 1997, the Company closed on the acquisition of the Office
Properties. As a result of the acquisition, the Company became the sole general
partner of and obtained a 20.6946% interest in the Operating Partnership, an
operating partnership formed to acquire and hold the Office Properties.

In connection with the acquisition, the Company issued 600,000 shares of
Common Stock (valued at $5.50 per share, or an aggregate of $3,300) and the
Operating Partnership issued approximately 3.2 million Partnership Units (valued
at $5.50 per unit, or an aggregate of $17,500) and 2.1 million preferred
partnership units ("Preferred Units") (valued at $25.00 per unit, or an
aggregate of $52,500). The Office Properties were also subject to $100,000 of
7.5% mortgage financing, payable in 2000. In connection with the acquisition,
acquired assets and liabilities were recorded at fair value pursuant to the
purchase accounting method.

Concurrently with the acquisition, the Company issued 273,729 shares of
Common Stock (valued at $5.50 per share, or an aggregate of $1,506) in exchange
for the assets of Crown, an affiliate of the Company, previously acting as
investment advisor to the Company and assisting in the management operations.
The contract between Crown and the Company was terminated and the Company
entered into a property management agreement with Glacier whose stock is owned
by two current officers of the Company, one of whom is also a current director.
Further, the Company retired 27,646 shares of Common Stock previously held by
Crown at the time it was acquired. The cost of the termination of the contract
was $1,353, which was charged to expense in the accompanying statement of
operations.

5. MINORITY INTEREST

As of December 31, 1997, the Operating Partnership, which is 20.6946% owned
by the Company, has outstanding 3.2 million of Partnership Units (of which
600,000 are owned by the Company) and 2.1 million of Preferred Units (none which
are owned by the Company).

The Partnership Units are substantially similar economically (and are
convertible into) shares of common stock of the Company. The Partnership Units
are convertible into shares of Company common

F-14
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

5. MINORITY INTEREST (CONTINUED)
stock subject to certain conditions beginning on September 1, 1998. As of
December 31, 1997, the Company has accrued $272 of distributions related to
holders of Partnership Units.

The Preferred Units, for which each holder thereof is entitled to a 6.5%
priority annual return, may be converted on or after October 1, 1999 into
Partnership Units on the basis of 3.5714 Partnership Units for each Preferred
Unit plus any accrued return. Income of the Operating Partnership allocated to
holders of Preferred Units is also based on the aforementioned 6.5% priority
annual return. As of December 31, 1997, the Company has accrued $720 of
distributions related to holders of Preferred Units.

6. MORTGAGE NOTES PAYABLE

At December 31, 1996 and 1997, the Company's mortgage loans totaled $14,658
and $114,375, respectively.

The Office Properties were acquired subject to mortgage indebtedness of
$100,000. The loan is a non-recourse mortgage loan collateralized by the real
estate assets of the Office Properties. The loan provides for monthly payments
of interest only, at a fixed rate of 7.5% per annum. The loan matures on October
13, 2000 and provides for two one-year extension options, subject to certain
conditions. Certain restrictive financial covenants must be complied with, the
most restrictive of which are adjusted consolidated net worth, minimum property
interest coverage, minimum property hedged interest coverage, minimum
consolidated interest coverage, maximum consolidated unhedged floating rate debt
and maximum consolidated total indebtedness.

The Retail Properties collateralize and, in certain cases, cross
collateralize, mortgage loans with maturities ranging from 2004 to 2014
aggregating $14,658 and $14,375 as of December 31, 1996 and 1997, respectively.
The mortgage loans accrue interest at rates ranging from 7.6% to 9.5%. The
weighted average interest rate on these loans is 8.4%.

Aggregate maturities of the mortgage loans outstanding at December 31, 1997
are as follows:

<TABLE>
<S> <C>
1998.............................................................. $ 307
1999.............................................................. 355
2000.............................................................. 100,391
2001.............................................................. 425
2002.............................................................. 4,816
Thereafter........................................................ 8,081
---------
Total......................................................... $ 114,375
---------
---------
</TABLE>

As of December 31, 1997, substantially all of the Company's Properties were
mortgaged or subject to liens, aggregating $188,485 of net book value.

The Company has a revolving credit agreement with a bank whereby the Company
can borrow up to $100 at an annual interest rate equal to prime. Interest is
payable monthly with the principal due April 10, 1998. At December 31, 1997, no
amounts were borrowed against the note.

7. STOCK OPTIONS AND COMMON STOCK WARRANTS

In April 1993, the Company adopted a stock option plan ("Plan") for
directors which provides for the grant of an option to purchase 2,500 shares of
common stock to a director upon appointment or election,

F-15
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

7. STOCK OPTIONS AND COMMON STOCK WARRANTS (CONTINUED)
and upon each re-election. The purchase price of the stock will be the fair
market value at the time the option is granted. The options are exercisable
beginning on the first anniversary of their grant and expire ten years after the
date of grant. The Company has reserved 75,000 shares of common stock for
issuance pursuant to the Plan.

The following summarizes transactions in the Plan:

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
PRICE PER EXERCISE
SHARES SHARE PRICE PER SHARE
--------- -------------- ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1994....................................... 27,500 $9.50-$10.38 $ 9.75
Granted--1995.......................................................... 15,000 $5.38 $ 5.38
---------
Outstanding at December 31, 1995....................................... 42,500 $5.38-$10.38 $ 8.21
Granted--1996.......................................................... 15,000 $5.63 $ 5.63
---------
Outstanding at December 31, 1996....................................... 57,500 $ 5.38-$10.38 $ 7.53
Granted--1997.......................................................... 25,000 $ 5.25-$7.59
Forfeited--1997........................................................ (7,500) $5.25 $ 5.25
---------
Outstanding at December 31, 1997....................................... 75,000 $ 5.25-$10.38 $ 7.31
---------
---------
Exercisable at December 31, 1997....................................... 57,500 $ 5.38-$10.38 $ 7.53
---------
---------
Available for future grant at December 31, 1997........................ --
---------
---------
</TABLE>

The weighted average grant-date fair value of options granted in 1995, 1996
and 1997 was $0.76, $0.63 and $1.25, respectively. The weighted average
remaining contractual life of the options at December 31, 1997 was approximately
8 years.

The weighted average assumptions used to price the grant-date fair value of
options were as follows:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk free interest rate........................................... 6.75% 6.25% 6.32%
Expected life--years.............................................. 8 8 8
Expected volatility............................................... 35% 31% 34%
Expected dividend rate............................................ 9.2% 9.7% 6.7%
</TABLE>

If the Company elected to account for its stock options based on Statement
of Financial Accounting Standards No. 123, net income and earnings per average
common share would have been as follows for the years ended December 31, 1995,
1996 and 1997:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net (loss) income, as reported....................................... $ 272 $ 293 $ (967)
Net (loss) income, pro forma......................................... 261 284 (998)
(Loss) earnings per share, as reported............................... 0.19 0.21 (0.60)
(Loss) earnings per share, pro forma................................. 0.18 0.19 (0.61)
</TABLE>

F-16
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

7. STOCK OPTIONS AND COMMON STOCK WARRANTS (CONTINUED)
Warrants for an aggregate of 30,000 and 34,000 shares of common stock were
issued to officers and directors of the Company and to the underwriter in
December 1991 at exercise prices of $10 and $13 per share, respectively. All of
the warrants expired on December 22, 1996, and none were exercised.

8. RELATED PARTY TRANSACTIONS

Pursuant to the advisory agreement which was terminated on October 14, 1997
(see Note 4), Crown, an affiliate of the Company, acted as investment advisor to
the Company and assisted in the management of the day-to-day operations for a
base annual fee of $250 plus incentives based upon performance. Advisory fees
paid to Crown were $250, $250 and $198 for the years ended December 31, 1995,
1996 and 1997 respectively. No performance fee was paid or earned under this
agreement.

On October 14, 1997, the Company entered into a new management agreement
(the "Management Agreement") with Glacier. Substantially all of the interests in
Glacier are owned by Vernon R. Beck, a Vice President and director of the
Company, and John Parsinen, the Secretary of the Company. Under the Management
Agreement, Glacier is responsible for the management of the Retail Properties of
the Company. The Management Agreement provides that Glacier will receive an
annual fee of $250 plus a percentage of Average Invested Assets (as defined in
the Management Agreement) and will pay third party expenses associated with
owning the Retail Properties. In addition, Glacier will receive a fee of 1% of
the purchase price or the sale price upon the acquisition or disposition by the
Company or any of its affiliates of any net-leased real estate assets. Under the
Management Agreement, this percentage is increased to 3% in the event that all
or substantially all of the net-leased real estate properties are disposed of.
The Management Agreement has a term of five years and is terminable thereafter
on 180 days prior written notice. In the event that the Management Agreement is
terminated, including for non-renewal, a fee equal to 3% of the Invested Real
Estate Assets (defined in the Management Agreement to exclude the Company's
current net-leased real estate assets) would be due to Glacier. Management fees
paid to Glacier were $52 for the year ended December 31, 1997.

An officer and director of the Company is a partner in a law firm which
received fees from the Company relating to legal services totaling $9 and $69
for the years ended December 31, 1996 and 1997, respectively.

The Company has employee advances on the balance sheet in the amount of $14
as of December 31, 1997.

An officer and director of the Company is the director of a company that
received management fees of $22 in 1997.

F-17
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

9. OPERATING LEASES

The Company leases its properties to tenants under operating leases with
various expiration dates extending to the year 2014. Gross minimum future
rentals and accrued rental income on noncancelable leases at December 31, 1997
are as follows (in thousands):

<TABLE>
<S> <C>
1998.............................................................. $ 18,387
1999.............................................................. 18,273
2000.............................................................. 18,114
2001.............................................................. 17,942
2002.............................................................. 16,452
Thereafter........................................................ 101,514
---------
Total......................................................... $ 190,682
---------
---------
</TABLE>

10. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
---------------------------------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Interest paid.................................................................... $ 1,266 $ 1,210 $ 2,220
--------- --------- -----------
--------- --------- -----------
Supplemental schedule of non-cash investing and financing activities:
Distribution payable on common stock/units..................................... $ 178 $ 178 $ 556
Distribution payable on preferred units........................................ -- -- 720
--------- --------- -----------
$ 178 $ 178 $ 1,276
--------- --------- -----------
--------- --------- -----------
Advisory contract termination fee for common stock:
Advisory contract termination fee.............................................. $ -- $ -- $ (1,353)
Common stock................................................................... -- -- 2
Additional paid in capital..................................................... -- -- 1,351
--------- --------- -----------
$ -- $ -- $ --
--------- --------- -----------
--------- --------- -----------
In conjunction with the property acquisition, the following assets and
liabilities were assumed:
Purchase of real estate........................................................ $ -- $ -- $ (166,316)
Mortgage loans................................................................. -- -- 100,000
Deferred financing costs....................................................... -- -- (735)
Common stock................................................................... -- -- 6
Additional paid in capital..................................................... -- -- 2,975
Partnership Units.............................................................. -- -- 12,570
Preferred Units................................................................ -- -- 52,500
--------- --------- -----------
Proceeds from acquisition of properties........................................ $ -- $ -- $ 1,000
--------- --------- -----------
--------- --------- -----------
</TABLE>

F-18
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

11. COMMITMENTS AND CONTINGENCIES

In the normal course of business the Company is involved in legal actions
arising from its ownership and administration of its properties. In management's
opinion, any liabilities which may result are not expected to have a material
adverse effect on the Company's financial position, operations or liquidity. The
Company is subject to various federal, state and local environmental regulations
related to its property ownership and operation. The Company has performed
environment assessments of its properties, the results of which have not
revealed any environmental liability that the Company believes would have a
material adverse effect on the Company's financial position, operations or
liquidity.

The Company has a property management agreement with Glacier, a related
party, which provides for Glacier to manage the seven net leased retail
properties of the Company for a five year term with a minimum fee of $250 per
annum.

12. QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>
YEAR END DECEMBER 31, 1997
-----------------------------------------------------------
FIRST
QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues........................................... $ 633 $ 633 $ 633 $ 4,719
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Income (loss) before minority interest............. 91 87 85 (445)
Minority interest.................................. -- -- -- (785)
------------ -------------- ------------- --------------
Net (loss) income.................................. $ 91 $ 87 $ 85 $ (1,230)
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Basic and diluted earnings (loss) per share........ $ 0.06 $ 0.06 $ 0.06 $ (0.58)
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Weighted average common shares-basic............... 1,420,000 1,420,000 1,420,000 2,137,331
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Weighted average common shares-diluted............. 1,420,000 1,420,000 1,426,558 2,137,331
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
</TABLE>

<TABLE>
<CAPTION>
YEAR END DECEMBER 31, 1996
-----------------------------------------------------------
FIRST
QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues........................................... $ 620 $ 625 $ 624 $ 640
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Net income......................................... $ 61 $ 64 $ 89 $ 79
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Earnings per share................................. $ 0.04 $ 0.05 $ 0.06 $ 0.06
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Weighted average common shares-basic............... 1,420,000 1,420,000 1,420,000 1,420,000
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Weighted average common shares-diluted............. 1,420,000 1,420,056 1,420,000 1,420,000
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
</TABLE>

13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The acquisition of the Office Properties on October 14, 1997 was accounted
for by the purchase method. The accompanying financial statements include the
effects of the acquisition from the date of purchase through December 31, 1997.

F-19
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
The following pro forma condensed financial information for the years ended
December 31, 1996 and 1997 are presented as if the purchase of Office Properties
had occurred at January 1, 1996 and 1997, and therefore include pro forma
adjustments as deemed necessary by management. The pro forma financial
information is unaudited and is not necessarily indicative of the results which
actually would have occurred if the acquisitions had occurred on January 1, 1996
and 1997, nor does it purport to represent the results of operations for future
periods.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
UNAUDITED
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Total revenues.......................................................................... $ 16,202 $ 20,116
---------- ----------
Property expenses....................................................................... 2,819 3,459
General and administrative expense...................................................... 278 707
Interest expense........................................................................ 8,850 8,724
Depreciation and amortization........................................................... 4,143 4,280
---------- ----------
Total expenses.......................................................................... 16,090 17,170
---------- ----------
Income (loss) before minority interest.................................................. 112 2,946
Income allocated to minority interest:
Preferred Units..................................................................... -- (2,578)
Partnership Units................................................................... 147 --
Net income (loss) available to Common Shareholders...................................... 259 368
---------- ----------
Basic and diluted earnings per share.................................................... $ 0.11 $ 0.16
---------- ----------
---------- ----------
Weighted average number of shares outstanding-basic and diluted......................... 2,266,083 2,266,083
---------- ----------
---------- ----------
</TABLE>

14. SUBSEQUENT EVENTS

On February 5, 1998, the Company filed a registration statement with the
Securities and Exchange Commission for the conversion of outstanding shares of
common stock, par value $.01 per share, of the Company into common shares of
beneficial interest, par value $.01 per share, of Corporate Office Properties
Trust ("MD REIT"). This registration has been made to facilitate the Company's
proposed reformation into a Maryland real estate investment trust through a
two-step merger. The first proposed merger will merge the company into a newly
formed Maryland corporation. The newly formed Maryland corporation will then be
merged into the MD REIT in the second proposed merger. The Company intends to
account for the reformation as if it were a pooling of interests with no
adjustment to the carrying value of the underlying assets and liabilities. The
transaction is subject to shareholder approval.

The Company intends to file a registration statement with the Securities and
Exchange Commission for the issuance of 7,500,000 common shares of beneficial
interest, par value of $.01 per share, of MD REIT ( the "Offering"). The Company
intends to use the proceeds from the Offering to acquire additional units in the
Operating Partnership which will, in turn, use the proceeds to reduce
outstanding mortgage indebtedness and acquire properties. There is no assurance
the Company will consummate the Offering.

F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Corporate Office Properties Trust, Inc.:

In connection with our audits of the consolidated financial statements of
Corporate Office Properties Trust, Inc. as of December 31, 1997 and 1996 and for
each of the years in the three-year period ended December 31, 1997, which
financial statements are included in this Prospectus, we have also audited the
accompanying financial statement schedule.

In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.

Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania

February 24, 1998

F-21
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, INC.

SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
TOTAL
BUILDING IMPROVE- BUILDING
& LAND MENTS & & LAND
BUILDING IMPROVE- CARRYING IMPROVE-
PROPERTY NAME LOCATION TYPE ENCUMBRANCES MENTS COSTS MENTS
- ------------------------------------- ---------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
429 South Brunswick.................. Dayton, NJ Office $ 8,793,966 $11,718,548 $ 2,000 $11,720,548
431 South Brunswick.................. Dayton, NJ Office 8,351,026 11,128,301 -- 11,128,301
437 South Brunswick.................. Dayton, NJ Office 2,151,023 2,866,382 -- 2,866,382
Blue Bell 751/753/760/785 Jolly Rd... Blue Bell, PA Office 66,231,669 88,320,735 -- 88,320,735
2601 Market Place.................... Harrisburg, PA Office 5,801,595 7,712,693 -- 7,712,693
2605 Interstate...................... Harrisburg, PA Office 6,241,536 8,355,177 -- 8,355,177
6385 Flank Drive..................... Harrisburg, PA Office 2,429,185 3,242,272 -- 3,242,272
Peru................................. Peru, II Retail 2,429,348 3,226,279 -- 3,226,279
Indianapolis......................... Indianapolis, IN Retail -- 4,003,155 -- 4,003,155
Plymouth............................. Plymouth, MN Retail 4,660,648 4,019,547 -- 4,019,547
Minot................................ Minot, ND Retail 2,628,356 2,503,328 -- 2,503,328
Delafield............................ Delafield, WI Retail 1,864,231 2,540,375 -- 2,540,375
Glendale............................. Glendale, WI Retail 1,055,731 1,156,543 -- 1,156,543
Oconowomac........................... Oconowomac, WI Retail 1,737,046 2,150,000 -- 2,150,000
------------- ----------- ----------- -----------
$114,375,360 $152,943,335 $ 2,000 $152,945,335
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------

ACCUMULATED YEAR BUILT/ DATE DEPRECIATION
PROPERTY NAME DEPRECIATION RENOVATED ACQUIRED LIFE
- ------------------------------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
429 South Brunswick.................. $ 62,606 1966/1996 10/14/97 40 Years
431 South Brunswick.................. 59,453 1958/1967 10/14/97 40 Years
437 South Brunswick.................. 15,314 1962/1996 10/14/97 40 Years
Blue Bell 751/753/760/785 Jolly Rd... 471,851 1960-74/92-96 10/14/97 40 Years
2601 Market Place.................... 41,205 1989 10/14/97 40 Years
2605 Interstate...................... 44,637 1990 10/14/97 40 Years
6385 Flank Drive..................... 17,322 1995 10/14/97 40 Years
Peru................................. 353,976 1993 11/30/93 40 Years
Indianapolis......................... 667,251 1991 11/30/93 40 Years
Plymouth............................. 663,579 1991 6/01/92 40 Years
Minot................................ 265,394 1993 2/01/94 40 Years
Delafield............................ 217,545 1994 11/02/94 40 Years
Glendale............................. 135,705 1992 9/29/93 40 Years
Oconowomac........................... 208,417 1994 5/17/94 40 Years
------------
$3,224,255
------------
------------
</TABLE>

F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Partners
The Office Properties:

We have audited the accompanying combined balance sheets of The Office
Properties (Group), a group of partnerships more fully described in Note 1, as
of December 31, 1995 and 1996 and the related combined statements of operations,
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Group's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of The Office
Properties as of December 31, 1995 and 1996 and the combined results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 5, 1997

F-23
<PAGE>
THE OFFICE PROPERTIES

COMBINED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Investments in real estate:
Land....................................................................... $ 16,491 $ 18,575 $ 18,575
Buildings, building improvements and equipment............................. 59,860 72,566 74,237
--------- --------- -------------
76,351 91,141 92,812
Accumulated depreciation................................................... (5,780) (7,807) (9,684)
--------- --------- -------------
Net investments in real estate........................................... 70,571 83,334 83,128
Cash and cash equivalents.................................................... 477 1,083 1,461
Restricted cash and escrows.................................................. 11 3,413 2,640
Deferred rent receivable..................................................... 4,286 5,158 5,770
Deferred costs and other assets, net......................................... 1,769 2,561 2,515
--------- --------- -------------
Total assets............................................................. $ 77,114 $ 95,549 $ 95,514
--------- --------- -------------
--------- --------- -------------

LIABILITIES AND PARTNERS' CAPITAL
Mortgage and construction loans payable...................................... $ 70,683 $ 85,917 $ 87,131
Accounts payable and accrued expenses........................................ 286 300 614
Accrued interest............................................................. 1,212 1,192 1,192
Management fees and other amounts due to related parties..................... 2,323 2,559 2,697
Rents received in advance and tenant security deposits....................... 315 2,504 26
--------- --------- -------------
Total liabilities........................................................ 74,819 92,472 91,660
Commitments and contingencies (Note 6)
Partners' capital............................................................ 2,295 3,077 3,854
--------- --------- -------------
Total liabilities and partners' capital.................................. $ 77,114 $ 95,549 $ 95,514
--------- --------- -------------
--------- --------- -------------
</TABLE>

See accompanying notes to combined financial statements.

F-24
<PAGE>
THE OFFICE PROPERTIES

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1995 1996 1996 1997
--------- --------- --------- ---------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rental income................................................. $ 10,818 $ 11,793 $ 8,534 $ 11,710
Tenant reimbursements......................................... 1,438 1,852 1,436 1,116
Interest and other income..................................... 100 48 47 100
--------- --------- --------- ---------
12,356 13,693 10,017 12,926
--------- --------- --------- ---------
Expenses:
Interest...................................................... 7,983 8,130 6,047 7,042
Depreciation and amortization................................. 2,290 2,689 1,985 2,424
Utilities..................................................... 650 833 570 814
Maintenance and repairs....................................... 425 620 470 869
Management fees............................................... 566 666 492 499
Real estate taxes............................................. 301 339 266 387
General and administrative.................................... 126 236 211 114
--------- --------- --------- ---------
12,341 13,513 10,041 12,149
--------- --------- --------- ---------
Net income (loss)............................................... $ 15 $ 180 $ (24) $ 777
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See accompanying notes to combined financial statements

F-25
<PAGE>
THE OFFICE PROPERTIES

COMBINED STATEMENTS OF PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<S> <C>
Partners' capital, January 1, 1995.................................................. $ (40)

Contributions....................................................................... 2,320
Net income.......................................................................... 15
---------

Partners' capital, December 31, 1995................................................ 2,295

Contributions....................................................................... 602
Net income.......................................................................... 180
---------

Partners' capital, December 31, 1996................................................ 3,077

Net income (unaudited).............................................................. 777
---------

Partners' capital, September 30, 1997 (unaudited)................................... $ 3,854
---------
---------
</TABLE>

See accompanying notes to combined financial statements

F-26
<PAGE>
THE OFFICE PROPERTIES

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
---------------------- --------------------
<S> <C> <C> <C> <C>
1995 1996 1996 1997
---------- ---------- --------- ---------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................................. $ 15 $ 180 $ (24) $ 777
Adjustments to reconcile net income (loss) to net cash provided by
operations:
Depreciation and amortization.................................... 2,290 2,689 1,985 2,424
Changes in:
Deferred rent receivable....................................... (1,024) (872) (662) (612)
Other assets................................................... (94) (154) 26 (273)
Accounts payable and accrued expenses.......................... 261 14 (43) 314
Other liabilities.............................................. 582 2,405 (53) (2,340)
---------- ---------- --------- ---------
Cash provided by operations.................................. 2,030 4,262 1,229 290
---------- ---------- --------- ---------
INVESTING ACTIVITIES
Acquisition of and additions to investments in real estate......... (11,898) (14,790) (1,975) (1,560)
Leasing commissions paid........................................... (40) (913) (913) (360)
Restricted cash and escrows........................................ 254 (3,402) (150) 802
---------- ---------- --------- ---------
Cash used in investing....................................... (11,684) (19,105) (3,038) (1,118)
---------- ---------- --------- ---------
FINANCING ACTIVITIES
Proceeds from mortgage and construction loans payable.............. 9,992 24,829 11,357 1,806
Payments on mortgage and construction loans payable................ (1,999) (9,595) (8,995) (592)
Capital contributions.............................................. 2,320 602 -- --
Financing costs paid............................................... (188) (387) (235) (8)
---------- ---------- --------- ---------
Cash provided by financing................................... 10,125 15,449 2,127 1,206
---------- ---------- --------- ---------
Increase in cash................................................... 471 606 318 378
Cash and cash equivalents at beginning of period................... 6 477 477 1,083
---------- ---------- --------- ---------
Cash and cash equivalents at end of period......................... $ 477 $ 1,083 $ 795 $ 1,461
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Supplemental disclosures:
Interest paid.................................................... $ 8,014 $ 8,150 $ 6,067 $ 7,042
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>

See accompanying notes to combined financial statements

F-27
<PAGE>
THE OFFICE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

1. ORGANIZATION AND BASIS OF COMBINATION:

The accompanying combined financial statements of the Office Properties
(Group) consist of the accounts of the following real estate partnerships and
business operations:

<TABLE>
<CAPTION>
ACQUISITION/
CONSTRUCTION DATE PARTNERSHIP'S PROPERTIES
- ------------------------------- ------------------------------------------------------------
<S> <C>
June 1992...................... Blue Bell Investment Company, L.P. (Blue Bell):
751 Jolly Road, Blue Bell, PA
753 Jolly Road, Blue Bell, PA
760 Jolly Road, Blue Bell, PA
785 Jolly Road, Blue Bell, PA

March 1995..................... South Brunswick, L.P. (S. Brunswick):
429 Ridge Road, South Brunswick, NJ
431 Ridge Road, South Brunswick, NJ
437 Ridge Road, South Brunswick, NJ

December 1996.................. ComCourt Investors, L.P. (ComCourt):
2605 Interstate Drive, Harrisburg, PA
2601 Market Place, Harrisburg, PA

August 1995.................... 6385 Flank Drive, L.P. (Flank):
(placed in service 6385 Flank Drive, Harrisburg, PA
December 1995)
</TABLE>

The financial statements include the operations of the properties owned by
Group only for the period owned or placed in service.

The properties listed above have common ownership and management by The
Shidler Group. The Group is engaged in the acquisition, development and
ownership, leasing and management of commercial office properties in the
Pennsylvania and New Jersey area.

As discussed further in Note 7, on October 14, 1997, the Group was acquired
in a transaction with Royale Investments, Inc., heretofore an unaffiliated real
estate investment trust (REIT), which intends to remain qualified as a REIT
under the Internal Revenue Code (Code).

PRINCIPLES OF COMBINATION:

These financial statements have been prepared on a combined basis to present
the financial position and results of operations of the Group because the
operations were managed and have been acquired as a single business under common
control. Accordingly, all inter-entity accounts and activities have been
eliminated to reflect the combined results.

INTERIM FINANCIAL REPORTING:

The combined financial statements as of September 30, 1997, and for the nine
months ended September 30, 1996 and 1997, are unaudited; however, in the opinion
of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the combined

F-28
<PAGE>
THE OFFICE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)

1. ORGANIZATION AND BASIS OF COMBINATION: (CONTINUED)
financial statements for the interim periods have been included. The results for
the interim periods are not necessarily indicative of the results for the full
year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES:

The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.

REVENUE RECOGNITION:

Rental income from tenants is recognized on a straight-line basis regardless
of when payments are due. Deferred rent receivable represents rental income
recognized in excess of contractual payments due.

RENTS RECEIVED IN ADVANCE AND TENANT SECURITY DEPOSITS:

Rents received in advance represent the advance payment of contractual rent.
Security deposits are amounts paid by tenants to the Group which are then
refunded to such tenant at the end of the lease term subject to certain
conditions.

CONCENTRATION OF CREDIT:

As of December 31, 1996, the Group's two most significant tenants are Unisys
Corporation and IBM Corporation. The Group's lease with Unisys and IBM
Corporation comprise 67% and 12%, respectively, of the Group's annualized rental
income. These concentrations are mitigated, in part, by unconditional sublease
obligations with other tenants. The ability of these and other tenants of the
Group to make required payments is dependent upon the financial condition of the
tenants.

INVESTMENT IN REAL ESTATE AND DEPRECIATION:

The Group's investments in real estate are recorded at cost. Effective
January 1, 1996, the Group adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This statement requires that management of the Group
review long-lived assets for impairment whenever circumstances indicate that the
carrying amount of the asset may not be recoverable. Adoption of this statement
did not affect the Group's financial position or results of operations.

Interest expense, real estate taxes and other directly related expenses
incurred during construction periods are capitalized and depreciated commencing
with the date the asset is placed in service and on the same basis as the
related assets. Depreciation expense is computed using the straight-line method
based on the following useful lives:

<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings and building improvements................................................ 39 to 40
Tenant improvements and equipment.................................................. 5-11
</TABLE>

F-29
<PAGE>
THE OFFICE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Tenant improvements and leasing commissions are capitalized and amortized
over the terms of each specific lease. Maintenance and repairs are charged to
expense when incurred. Expenditures for property improvements are capitalized.

CASH AND CASH EQUIVALENTS:

For purposes of the statements of cash flows and balance sheets, cash and
cash equivalents include all cash and liquid investments with an initial
maturity of three months or less. The carrying amount of cash equivalents
approximates fair value.

The Group maintains cash in deposit accounts which, from time to time, may
exceed federally insured limits. The Group has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash.

RESTRICTED CASH AND ESCROWS:

In accordance with the provisions of the mortgage note payable for Blue
Bell, excess funds (as defined) are invested in commercial paper in amounts up
to the extent of the next interest and principal payment. These funds, which are
invested in Grade A Commercial Paper, were $11, $2,649 and $1,597 at December
31, 1995, 1996 and September 30, 1997, respectively. The remaining account
balance relates to insurance and tax escrows.

INCOME TAXES:

No income taxes are payable by the Group, and none have been provided in the
accompanying combined financial statements. The partners are required to include
their respective shares of partnership profits and losses in their individual
tax returns.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The financial instruments of the Group include short-term investments and
mortgage and construction loans payable. The estimated fair values of these
instruments were not materially different from their carrying values. On October
14, 1997, in connection with the acquisition of the Group by Royale Investments,
Inc., all of the Group's mortgage and construction loans payable at December 31,
1996 and September 30, 1997 (with a weighted average interest rate of
approximately 10.8%) were refinanced with $100,000 of long-term debt at an
interest rate of 7.5%.

F-30
<PAGE>
THE OFFICE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
DEFERRED COSTS:

Fees and costs associated with lease originations and costs incurred to
obtain long-term financing have been capitalized and are amortized over the
terms of the respective leases or debt. At December 31, 1995, 1996, and
September 30, 1997, deferred costs include the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Deferred financing costs..................................................... $ 3,387 $ 3,662 $ 3,669
Deferred leasing costs....................................................... 40 953 1,313
--------- --------- -------------
3,427 4,615 4,982
Less accumulated amortization................................................ (1,740) (2,231) (2,866)
--------- --------- -------------
$ 1,687 $ 2,384 $ 2,116
--------- --------- -------------
--------- --------- -------------
</TABLE>

Amortization expense relating to deferred costs was $500 and $603 for the
years ended December 31, 1995 and 1996, respectively. Amortization expense was
$372 and $635 for the nine months ended September 30, 1996 and 1997,
respectively (unaudited).

3. RELATED PARTY TRANSACTIONS:

Blue Bell has a management agreement contract with Hamlin/Shidler Investment
Corporation (H/ SIC), an affiliate of the Group. The agreement states that Blue
Bell shall pay H/SIC an annual fee of 4% of rental income to be allocated 0.5%
as a base management fee and 3.5% as a contingent management fee. Expenses for
the years ended December 31, 1995 and 1996 were $341 and $259, respectively, and
for the nine months ended September 30, 1996 and 1997 were $260 and $132,
respectively (unaudited). Substantially all of the amounts reported as
"Management fees and other amounts due to related parties" in the accompanying
balance sheets relate to unpaid management fees to H/SIC. The agreement also
provides for an acquisition coordination fee of 2% of the purchase price of the
real property acquired. Additionally, the agreement provides for an asset
management fee of 3/4% of the fair market value of the property, payable when
and if Blue Bell generates cash flow from operations, as defined; this fee in
the estimated amount of $488 has not been recorded. No amounts have been
incurred or paid related to the acquisition coordination or asset management fee
terms.

Blue Bell is also party to a cost sharing agreement with H/SIC and another
related party. Expenses for each of the years ended December 31, 1995 and 1996
were $12. Expenses for each of the nine months ended September 30, 1996 and 1997
were $9 (unaudited). These amounts represent an allocation of telephone,
accounting services, and other costs paid for by H/SIC.

S. Brunswick has a management agreement with H/SIC. The agreement states
that S. Brunswick shall pay H/SIC an annual property management fee of the
amount of management fees (2% of rents) recovered from tenants plus 1.5% of
gross rents. Management fees for the years ended December 31, 1995 and 1996 were
$98 and $133, respectively. Management fees for the nine months ended September
30, 1996 and 1997 were $98 and $141, respectively (unaudited). The agreement
also provides for a leasing fee of 1% of net rents. Leasing fees for the year
ended December 31, 1996 were $53. Leasing fees for the nine months ended
September 30, 1997 were $57 (unaudited). Additionally, the agreement provides
for a

F-31
<PAGE>
THE OFFICE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)

3. RELATED PARTY TRANSACTIONS: (CONTINUED)
construction management fee for tenant improvements, construction, and
renovation costs of 3% of the contract amount. Construction management fees for
the year ended December 31, 1996 were $21 and for the nine months ended
September 30, 1996 and 1997 were $16 and $27, respectively (unaudited).

ComCourt has a management agreement with H/SIC and First Industrial
Management Corporation, a related party. The agreement requires that ComCourt
shall pay an annual property management fee in the amount of 4% of rental
income. Management fees for the nine months ended September 30, 1997 were $63
(unaudited).

Flank Drive has a management agreement with H/SIC and First Industrial
Management Corporation. The agreement requires that Flank shall pay an annual
property management fee in the amount of 4% of rental income. Management fees
for the year ended December 31, 1996 were $8. Management fees for the nine
months ended September 30, 1996 and 1997 were $4 and $11, respectively
(unaudited)

4. MORTGAGE AND CONSTRUCTION LOANS PAYABLE:

Mortgage and construction loans payable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Mortgage note payable in the original amount of $65,000.
Collateralized by land, building and assignment of
rents in Blue Bell; interest rate of 11.85%. Interest
is paid quarterly on outstanding principal balance.
Final payment due in May 1999. This note payable is
also collateralized by $12,500 of funds held in trust,
pursuant to a related trust agreement. These funds are
not reflected on the accompanying financial
statements............................................. $ 61,335 $ 60,364 $ 60,364
Mortgage note in the original amount of $10,500.
Collateralized by land, building and assignment of
rents in ComCourt; interest rate of LIBOR + 4% (9.6%
and 9.7% at December 31, 1996 and September 30, 1997,
respectively). Payable monthly. Maturing in January
2000................................................... -- 10,500 10,500
Note payable in the original amount of $8,500.
Collateralized by land, building, and assignment of
rents in S. Brunswick; interest rate of Prime plus 1%
(9.5% at December 31, 1995). Payable monthly. Maturing
in May 1997............................................ 7,856 -- --
Notes payable in the original amount of $8,250.
Collateralized by land, building and assignment of
rents in S. Brunswick; interest rate of 7%. Payable
monthly. Maturing in May 1998.......................... -- 7,858 7,330
</TABLE>

F-32
<PAGE>
THE OFFICE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)

4. MORTGAGE AND CONSTRUCTION LOANS PAYABLE: (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Construction loan in the original amount of $8,500.
Collateralized by land, building, and assignments of
rents in S. Brunswick; interest rate of Prime plus 1%
(9.25% and 9.5% at December 31, 1996 and September 30,
1997, respectively). Interest is paid monthly on
outstanding balance. Maturing in June 1999............. -- 4,958 6,494
Construction loan in the original amount of $2,477.
Collateralized by land, building and assignment of
rents in Flank; interest rate of Treasury index plus
2%, (7.99, 8.73% and 8.23% at December 31, 1995, 1996
and September 30, 1997, respectively). Interest is paid
monthly on unpaid principal balance. Maturing in
September 2002......................................... 1,492 2,237 2,443
--------- --------- -------------
$ 70,683 $ 85,917 $ 87,131
--------- --------- -------------
--------- --------- -------------
</TABLE>

Approximate future maturities of notes payable are as follows at December
31, 1996:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... --
1998............................................................................... $ 10,858
1999............................................................................... 62,322
2000............................................................................... 10,500
2001............................................................................... --
Thereafter......................................................................... 2,237
---------
$ 85,917
---------
---------
</TABLE>

F-33
<PAGE>
THE OFFICE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)

5. OPERATING LEASES:

The properties are leased to tenants under gross and net operating leases
with initial term expiration dates ranging from 1997 to 2009. Future minimum
rentals under non-cancelable operating leases, excluding tenant reimbursements
of expenses, in effect at December 31, 1996, are approximately as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1997.............................................................................. $ 14,788
1998.............................................................................. 13,467
1999.............................................................................. 12,640
2000.............................................................................. 12,297
2001.............................................................................. 12,066
Thereafter........................................................................ 79,943
----------
$ 145,201
----------
----------
</TABLE>

6. COMMITMENTS AND CONTINGENCIES:

From time to time, the Group is subject to routine litigation incidental to
its business. The Group believes that the results of any pending legal
proceedings will not have a materially adverse effect on the Group's financial
condition or results of operations.

7. SUBSEQUENT EVENT:

On October 14, 1997, all of the mortgage notes payable (Note 4) were
refinanced and replaced with a $100,000 mortgage note which bears interest at
7.5%. Thereafter, Royale Investments, Inc. closed on the acquisition of the
Group. Neither transaction had any effect on these financial statements.

F-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE COMMON SHARES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary........................................ 3
Risk Factors................................... 14
The Company.................................... 25
Business Objectives and Growth Strategies...... 27
Use of Proceeds................................ 29
Price Range of Common Stock and
Distributions................................ 30
Capitalization................................. 31
Selected Financial Data........................ 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 34
Properties..................................... 41
Management..................................... 56
Structure and Formation of the Company......... 62
Security Ownership of Management and Others.... 65
Certain Transactions........................... 67
Policies with Respect to Certain Activities.... 68
Description of Common Shares................... 72
Certain Provisions of Maryland Law, the
Declaration of Trust and the Bylaws.......... 77
Operating Partnership Agreement................ 82
Shares Available for Future Sale............... 85
Federal Income Tax Considerations.............. 86
Underwriting................................... 95
Legal Matters.................................. 97
Experts........................................ 97
Available Information.......................... 98
Glossary....................................... 99
Index to Financial Statements.................. F-1
</TABLE>

7,500,000 SHARES

[LOGO]

CORPORATE OFFICE
PROPERTIES TRUST

COMMON SHARES OF
BENEFICIAL INTEREST

--------------

PROSPECTUS

--------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

BT ALEX. BROWN

PRUDENTIAL SECURITIES INCORPORATED

APRIL 22, 1998

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