UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2005

OR

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

For the transition period from                   to                  

Commission File Number 1-9317

HRPT PROPERTIES TRUST

Maryland	04-6558834
(State of Organization)	(IRS Employer Identification No.)

400 Centre Street, Newton, Massachusetts 02458

617-332-3990

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares of Beneficial Interest	New York Stock Exchange
8 3/4% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest	New York Stock Exchange
7 1/8% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:	None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý  No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No ý

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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

Large accelerated filer ý  Accelerated filer o  Non-accelerated filer o

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

The aggregate market value of the voting common shares of the registrant held by non-affiliates was $2.4 billion based on the $12.43 closing price per common share for such stock on the New York Stock Exchange on June 30, 2005. For purposes of this calculation, 1,000,000 common shares of beneficial interest, $0.01 par value, held by Senior Housing Properties Trust and an aggregate of 1,906,132 common shares held directly or by affiliates of the trustees and officers of the registrant have been included in the number of common shares held by affiliates.

Number of the registrant’s common shares outstanding as of March 6, 2006:  209,860,625.

References in this Annual Report on Form 10-K to the “Company”, “HRP”, “we”, “us” or “our” include consolidated subsidiaries, unless the context indicates otherwise.

DOCUMENTS INCORPORATED BY REFERENCE

Certain Information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K is incorporated herein by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 23, 2006, or our definitive Proxy Statement.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS STATEMENTS THAT ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND FEDERAL SECURITIES LAWS. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS ANNUAL REPORT ON FORM 10-K AND INCLUDE STATEMENTS REGARDING

•THE SECURITY OF OUR RENTAL INCOME AND OUR LEASES,

•THE CREDIT QUALITY OF OUR TENANTS,

•THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT, RENEW LEASES, SIGN NEW LEASES OR BE AFFECTED BY CYCLICAL ECONOMIC CONDITIONS,

•OUR ACQUISITION AND SALE OF PROPERTIES,

•OUR ABILITY TO COMPETE EFFECTIVELY,

•OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT, INCLUDING CURRENTLY INTENDED PREPAYMENTS,

•OUR ABILITY TO PAY DISTRIBUTIONS TO SHAREHOLDERS,

•OUR POLICIES AND PLANS REGARDING INVESTMENTS AND FINANCINGS,

•THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,

•OUR RECEIPT OF DIVIDENDS FROM OUR FORMER SUBSIDIARIES,

•OUR ABILITY TO SELL OUR SHARES OF OUR FORMER SUBSIDIARIES,

•OUR TAX STATUS AS A REAL ESTATE INVESTMENT TRUST,

•OUR ABILITY TO RAISE CAPITAL,

AND OTHER MATTERS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS.

ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. SUCH FACTORS INCLUDE, WITHOUT LIMITATION,

•CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS,

•COMPETITION WITHIN THE REAL ESTATE INDUSTRY OR THOSE INDUSTRIES IN WHICH OUR TENANTS AND FORMER SUBSIDIARIES OPERATE, AND

•CHANGES IN FEDERAL, STATE AND LOCAL LEGISLATION.

FOR EXAMPLE:

•SOME OF OUR TENANTS MAY NOT RENEW EXPIRING LEASES, AND WE MAY BE UNABLE TO LOCATE NEW TENANTS TO MAINTAIN THE HISTORICAL OCCUPANCY RATES OF OUR PROPERTIES,

•RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE,

•OUR TENANTS MAY EXPERIENCE LOSSES AND BECOME UNABLE TO PAY OUR RENTS,

•THE DIVIDENDS WE RECEIVE FROM OUR FORMER SUBSIDIARIES MAY DECLINE OR WE MAY BE UNABLE TO SELL OUR SHARES OF OUR FORMER SUBSIDIARIES FOR AMOUNTS EQUAL TO OUR CARRYING VALUES OF THOSE SHARES,

•CHANGES IN CIRCUMSTANCES COULD CAUSE THE CLOSINGS OF OUR COMMITTED ACQUISITIONS NOT TO OCCUR OR BE DELAYED BECAUSE THE RESULTS OF VARIOUS DILIGENCE ITEMS MAY CAUSE TRANSACTIONS TO FAIL TO CLOSE,

•WE MAY BE UNABLE TO IDENTIFY PROPERTIES WHICH WE WANT TO BUY OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, AND

•OTHER RISKS MAY ADVERSELY IMPACT US, AS DESCRIBED MORE FULLY UNDER “ITEM 1A. RISK FACTORS”.

THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH, SUCH AS CHANGES IN OUR TENANTS’ FINANCIAL CONDITIONS OR NEEDS FOR LEASED SPACE, OR CHANGES IN THE CAPITAL MARKETS OR THE ECONOMY GENERALLY, ARE BEYOND OUR CONTROL. THE INFORMATION CONTAINED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K IDENTIFY OTHER IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW, WE DO NOT INTEND TO IMPLY THAT WE WILL RELEASE PUBLICLY THE RESULT OF ANY REVISION TO THE FORWARD LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT TO REFLECT THE FUTURE OCCURRENCE OF PRESENTLY UNANTICIPATED EVENTS.

STATEMENT CONCERNING LIMITED LIABILITY

THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING HRPT PROPERTIES TRUST, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, IS DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT THE NAME “HRPT PROPERTIES TRUST” REFERS TO THE TRUSTEES UNDER THE DECLARATION OF TRUST COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF HRPT PROPERTIES TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, HRPT PROPERTIES TRUST. ALL PERSONS DEALING WITH HRPT PROPERTIES TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF HRPT PROPERTIES TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

HRPT PROPERTIES TRUST

2005 FORM 10-K ANNUAL REPORT

Table of Contents

Part I
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
Part II
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information
Part III
Item 10.	Directors and Executive Officers of the Registrant
Item 11.	Executive Compensation *
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.	Certain Relationships and Related Transactions *
Item 14.	Principal Accountant Fees and Services *
Part IV
Item 15.	Exhibits and Financial Statement Schedules

*Incorporated by reference from our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 23, 2006, to be filed pursuant to Regulation 14A.

PART I

Item 1. Business

The Company. We are a real estate investment trust, or REIT, formed in 1986 under the laws of the State of Maryland. Our primary business is the ownership and operation of real estate, including office and industrial buildings and leased industrial land. For a discussion and information regarding our operating segments see our financial statements beginning on page F-1.

As of December 31, 2005, we owned 442 properties for a total investment of $5.2 billion at cost, and a depreciated book value of $4.7 billion. Our portfolio includes 307 office properties with 31.3 million square feet of space and 135 industrial properties with 23.8 million square feet of space. Our 135 industrial properties include 17.9 million square feet of developed commercial and industrial lands in Oahu, Hawaii. In addition, we own minority equity positions in two former subsidiary REITs which are now separately listed on the New York Stock Exchange, or NYSE: Senior Housing Properties Trust, or Senior Housing, and Hospitality Properties Trust, or Hospitality Properties.

Our principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02458, and our telephone number is (617) 332-3990.

Investment Policies. Our investment, financing and disposition policies are established by our board of trustees and may be changed by our board of trustees at any time without shareholder approval. Our investment goals are current income for distribution to shareholders and capital growth from appreciation in the value of properties and other investments. Our income is derived primarily from rent.

In evaluating potential investments and asset sales, we consider various factors including the following:

•the historic and projected rents received and likely to be received from the property;

•the historic and expected operating expenses, including real estate taxes, incurred and expected to be incurred at the properties;

•the growth, tax and regulatory environments of the market in which the property is located;

•the quality, experience, and credit worthiness of the property’s tenants;

•occupancy and demand for similar properties in the same or nearby markets;

•the construction quality, physical condition and design of the property;

•the geographic area and type of property; and

•the pricing of comparable properties as evidenced by recent arm’s length market sales.

We attempt to acquire properties which will enhance the diversity of our portfolio with respect to tenants and locations. However, we have no policies which specifically limit the percentage of our assets which may be invested in any individual property, in any one type of property, in properties leased to any one tenant or in properties leased to an affiliated group of tenants.

We prefer wholly owned investments in fee interests. However, circumstances may arise in which we may invest in leaseholds, joint ventures, mortgages and other real estate interests. We may invest in real estate joint ventures if we conclude that by doing so we may benefit from the participation of co-venturers or that our opportunity to participate in the investment is contingent on the use of a joint venture structure. We may invest in participating, convertible or other types of mortgages if we conclude that by doing so we may benefit from the cash flow or appreciation in the value of a property which is not available for purchase.

In the past, we have considered the possibility of entering mergers or strategic combinations with other companies. No such mergers or strategic combinations are under active consideration at this time. However, we may undertake such considerations in the future. A principal goal of any such transaction will be to increase our revenues and profits and diversify their sources.

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Disposition Policies. From time to time we consider the sale of properties or investments. Disposition decisions are made based on a number of factors including, but not limited to, the following:

•the proposed sale price;

•the strategic fit of the property or investment with the rest of our portfolio; and

•the existence of alternative sources, uses or needs for capital.

Financing Policies. We currently have a revolving credit facility (which is guaranteed by most of our subsidiaries) that we use for working capital and general business purposes and for acquisition funding on an interim basis until we refinance with equity or long term debt. In January 2005, we amended this credit facility to increase the available borrowing amount from $560 million to $750 million and to extend the maturity date from April 2006 to April 2009; and we have an option to extend the maturity by one additional year upon payment of an extension fee. The annual interest payable for amounts drawn under the facility was reduced from LIBOR plus 0.80% to LIBOR plus 0.65%. In certain circumstances, the amount of unsecured borrowings available under this facility may be increased to $1.5 billion. Certain financial and other covenants in this facility were also amended to reflect current market conditions. At December 31, 2005, $256 million was outstanding under our revolving credit facility.

Our credit facility, our term loan agreement and our senior note indenture and its supplements contain financial covenants that, among other things, restrict our ability to incur indebtedness and require us to maintain financial ratios and minimum net worth. Our board of trustees may determine to replace our current credit facility or to seek additional capital through equity offerings, debt financings, retention of cash flows in excess of distributions to shareholders or a combination of these methods. Some of our properties are encumbered by mortgages. To the extent that the board of trustees decides to obtain additional debt financing, we may do so on an unsecured basis or a secured basis, subject to limitations present in existing financing or other arrangements, and may seek to obtain other lines of credit or to issue securities senior to our common and/or preferred shares, including preferred shares of beneficial interest and debt securities, some of which may be convertible into common shares or be accompanied by warrants to purchase common shares, or to engage in transactions which may involve a sale or other conveyance of properties to subsidiaries or to unaffiliated entities. We may finance acquisitions through an exchange of properties or through the issuance of additional common shares or other securities. The proceeds from any of our financings may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions and expansions of existing or new properties.

The borrowing guidelines established by our board of trustees and covenants in various debt agreements prohibit us from maintaining a debt to total asset value, as defined, of greater than 55%. Our declaration of trust also limits our borrowings. We may from time to time re-evaluate and modify our financing policies in light of then current economic conditions, relative availability and costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors and may increase or decrease our ratio of debt to total capitalization accordingly.

Manager. Our day to day operations are conducted by Reit Management & Research LLC, or RMR. RMR originates and presents investment opportunities to our board of trustees and provides property management services to us. RMR is a Delaware limited liability company, whose majority owner is Barry M. Portnoy, one of our trustees. The remainder of RMR is owned by Adam D. Portnoy, Barry Portnoy’s son, who is our executive vice president. RMR has a principal place of business at 400 Centre Street, Newton, Massachusetts 02458, and its telephone number is (617) 928-1300. RMR also acts as the manager to Hospitality Properties and Senior Housing and has other business interests. The directors of RMR are Gerard M. Martin, Barry M. Portnoy and David J. Hegarty. The executive officers of RMR are David J. Hegarty, President and Secretary; John G. Murray, Executive Vice President; Evrett W. Benton, Vice President; Ethan S. Bornstein, Vice President; Jennifer B. Clark, Vice President and Assistant Secretary; John R. Hoadley, Vice President; Mark L. Kleifges, Vice President; David M. Lepore, Vice President; Bruce J. Mackey Jr., Vice President; John A. Mannix, Vice President; Thomas M. O’Brien, Vice President; John C. Popeo, Vice President and Treasurer and Adam D. Portnoy, Vice President. Messrs. Mannix, Popeo, Adam Portnoy and Lepore and Ms. Clark are also our officers.

Employees. We have no employees. Services which would otherwise be provided by employees are provided by RMR and by our managing trustees and officers. As of March 6, 2006, RMR had over 400 full time employees.

Competition. Investing in and operating office buildings and other real estate is a very competitive business. We compete against other REITs, numerous financial institutions, individuals and public and private

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companies who are actively engaged in this business. We do not believe we have a dominant position in any of the geographic markets in which we operate but some of our competitors are dominant in selected markets. Many of our competitors have greater financial and management resources than we have. We believe the geographic diversity of our investments, the experience and abilities of our management, the quality of our assets and the financial strength of many of our tenants affords us some competitive advantages which have and will allow us to operate our business successfully despite the competitive nature of our business.

Environmental Matters. Under various laws, owners of real estate may be required to investigate and clean up or remove hazardous substances present at a property, and may be held liable for property damage or personal injuries that result from such hazardous substances. These laws also expose us to the possibility that we may become liable to reimburse the government for damages and costs it incurs in connection with such hazardous substances. We estimate the cost to remove hazardous substances at some of our properties based in part on environmental surveys of the properties we own prior to their purchase and we considered those costs when determining an acceptable purchase price. Estimated liabilities related to hazardous substances at properties we own are reflected in our consolidated balance sheet and included in the cost of the real estate acquired. We do not believe that there are other environmental conditions at any of our properties that have a material adverse effect on us. However, no assurances can be given that such conditions are not present in our properties or that other costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition.

Internet Website. Our internet website address is www.hrpreit.com. Copies of our governance guidelines, code of ethics and the charters of our audit, compensation and nominating and governance committees may be obtained free of charge by writing to our Secretary, HRPT Properties Trust, 400 Centre Street, Newton, MA 02458 or at our website. We make available, free of charge, through our website, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or Exchange Act, as soon as reasonably practicable after such forms are filed with the SEC. Any shareholder or other interested party who desires to communicate with our non-management trustees, individually or as a group, may do so by filling out a report on our website. Our board also provides a process for security holders to send communications to the entire board. Information about the process for sending communications to our board can be found on our website. Our website address is included several times in this Annual Report on Form 10-K as a textual reference only and the information in the website is not incorporated by reference into this Annual Report on Form 10-K.

FEDERAL INCOME TAX CONSIDERATIONS

The following summary of federal income tax considerations is based on existing law, and is limited to investors who own our shares as investment assets rather than as inventory or as property used in a trade or business. The summary does not discuss the particular tax consequences that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are:

•a bank, life insurance company, regulated investment company, or other financial institution;

•a broker or dealer in securities or foreign currency;

•a person who has a functional currency other than the U.S. dollar;

•a person who acquires our shares in connection with employment or other performance of services;

•a person subject to alternative minimum tax;

•a person who owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction, or conversion transaction; or

•except as specifically described in the following summary, a tax-exempt entity or a foreign person.

The Internal Revenue Code sections that govern federal income tax qualification and treatment of a REIT and its shareholders are complex. This presentation is a summary of applicable Internal Revenue Code provisions, related rules and regulations and administrative and judicial interpretations, all of which are subject to change, possibly with retroactive effect. The American Jobs Creation Act of 2004 or the 2004 Act, which subsequently received technical corrections as part of the Gulf Opportunity Zone Act of 2005, made a number of significant changes to these provisions, some of which have retroactive effect; we have summarized these changes in more detail below. Future legislative, judicial, or administrative actions or decisions could also affect the accuracy of statements made in this

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summary. We have not received a ruling from the IRS with respect to any matter described in this summary,and we cannot assure you that the IRS or a court will agree with the statements made in this summary. In addition, this summary is not exhaustive of all possible tax consequences, and does not discuss any estate, gift, state, local, or foreign tax consequences. For all these reasons, we urge you and any prospective acquiror of our shares to consult with a tax advisor about the federal income tax and other tax consequences of the acquisition, ownership and disposition of our shares. Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of the date of this Annual Report on Form 10-K. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.

Your federal income tax consequences may differ depending on whether or not you are a “U.S. shareholder.”  For purposes of this summary, a “U.S. shareholder” for federal income tax purposes is:

•a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under the federal income tax laws;

•an entity treated as a corporation or partnership for federal income tax purposes, that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia, unless otherwise provided by Treasury regulations;

•an estate the income of which is subject to federal income taxation regardless of its source; or

•a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or electing trusts in existence on August 20, 1996, to the extent provided in Treasury regulations;

whose status as a U.S. shareholder is not overridden by an applicable tax treaty. Conversely, a “non-U.S. shareholder” is a beneficial owner of our shares who is not a U.S. shareholder.

Taxation as a REIT

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable year ending December 31, 1987. Our REIT election, assuming continuing compliance with the then applicable qualification tests, continues in effect for subsequent taxable years. Although no assurance can be given, we believe that we are organized, have operated, and will continue to operate in a manner that qualifies us to be taxed under the Internal Revenue Code as a REIT.

As a REIT, we generally are not subject to federal income tax on our net income distributed as dividends to our shareholders. Distributions to our shareholders generally are included in their income as dividends to the extent of our current or accumulated earnings and profits. Our dividends are not generally entitled to the favorable 15% rate on qualified dividend income, but a portion of our dividends may be treated as capital gain dividends, all as explained below. No portion of any of our dividends is eligible for the dividends received deduction for corporate shareholders. Distributions in excess of current or accumulated earnings and profits generally are treated for federal income tax purposes as return of capital to the extent of a recipient shareholder’s basis in our shares, and will reduce this basis. Our current or accumulated earnings and profits are generally allocated first to distributions made on our preferred shares, and thereafter to distributions made on our common shares.

Our counsel, Sullivan & Worcester LLP, has opined that we have been organized and have qualified as a REIT under the Internal Revenue Code for our 1987 through 2005 taxable years, and that our current investments and plan of operation enable us to continue to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code. Our continued qualification and taxation as a REIT will depend upon our compliance with various qualification tests imposed under the Internal Revenue Code and summarized below. While we believe that we will satisfy these tests, our counsel has not reviewed and will not review compliance with these tests on a continuing basis. If we fail to qualify as a REIT, we will be subject to federal income taxation as if we were a C corporation and our shareholders will be taxed like shareholders of C corporations. In this event, we could be subject to significant tax liabilities, and the amount of cash available for distribution to our shareholders may be reduced or eliminated.

If we qualify as a REIT and meet the tests described below, we generally will not pay federal income tax on amounts we distribute to our shareholders. However, even if we qualify as a REIT, we may be subject to federal tax in the following circumstances:

•We will be taxed at regular corporate rates on any undistributed “real estate investment trust taxable income,” including our undistributed net capital gains.

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•If our alternative minimum taxable income exceeds our taxable income, we may be subject to the corporate alternative minimum tax on our items of tax preference.

•If we have net income from the disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or from other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate rate, currently 35%.

•If we have net income from prohibited transactions, including dispositions of inventory or property held primarily for sale to customers in the ordinary course of business other than foreclosure property, we will be subject to tax on this income at a 100% rate.

•If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, but nonetheless maintain our qualification as a REIT, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% or the 95% test, with adjustments, multiplied by a fraction intended to reflect our profitability.

•If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year, and any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the amounts actually distributed.

•If we acquire an asset from a corporation in a transaction in which our basis in the asset is determined by reference to the basis of the asset in the hands of a present or former C corporation, and if we subsequently recognize gain on the disposition of this asset during the ten year period beginning on the date on which the asset ceased to be owned by the C corporation, then we will pay tax at the highest regular corporate tax rate, which is currently 35%, on the lesser of the excess of the fair market value of the asset over the C corporation’s basis in the asset on the date the asset ceased to be owned by the C corporation, or the gain we recognize in the disposition.

•If we acquire a corporation, to preserve our status as a REIT we must generally distribute all of the C corporation earnings and profits inherited in that acquisition, if any, not later than the end of the taxable year of the acquisition. However, if we fail to do so, relief provisions would allow us to maintain our status as a REIT provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution.

•As summarized below, REITs are permitted within limits to own stock and securities of a “taxable REIT subsidiary.”  A taxable REIT subsidiary is separately taxed on its net income as a C corporation, and is subject to limitations on the deductibility of interest expense paid to its REIT parent. In addition, its REIT parent is subject to a 100% tax on the difference between amounts charged and redetermined rents and deductions, including excess interest.

•If and to the extent we invest in properties in foreign jurisdictions, our income from those properties will generally be subject to tax in those jurisdictions. If we continue to operate as we do, then we will distribute our taxable income to our shareholders each year and we will generally not pay federal income tax. As a result, we cannot recover the cost of foreign income taxes imposed on our foreign investments by claiming foreign tax credits against our federal income tax liability. Also, we cannot pass through to our shareholders any foreign tax credits.

If we fail to qualify or elect not to qualify as a REIT, we will be subject to federal income tax in the same manner as a C corporation. Distributions to our shareholders if we do not qualify as a REIT will not be deductible by us nor will distributions be required under the Internal Revenue Code. In that event, distributions to our shareholders will generally be taxable as ordinary dividends potentially eligible for the 15% income tax rate discussed below in “Taxation of U.S. Shareholders” and, subject to limitations in the Internal Revenue Code, will be eligible for the dividends received deduction for corporate shareholders. Also, we will generally be disqualified from qualification as a REIT for the four taxable years following disqualification. If we do not qualify as a REIT for even one year, this could result in reduction or elimination of distributions to our shareholders, or in our incurring substantial indebtedness or liquidating substantial investments in order to pay the resulting corporate-level taxes. For our 2005 taxable year and beyond, the 2004 Act provides certain relief provision under which we might avoid automatically ceasing to be a REIT for failure to meet certain REIT requirements, all as discussed in more detail below.

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REIT Qualification Requirements

General Requirements. Section 856(a) of the Internal Revenue Code defines a REIT as a corporation, trust or association:

(1)that is managed by one or more trustees or directors;

(2)the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;

(3)that would be taxable, but for Sections 856 through 859 of the Internal Revenue Code, as a C corporation;

(4)that is not a financial institution or an insurance company subject to special provisions of the Internal Revenue Code;

(5)the beneficial ownership of which is held by 100 or more persons;

(6)that is not “closely held” as defined under the personal holding company stock ownership test, as described below; and

(7)that meets other tests regarding income, assets and distributions, all as described below.

Section 856(b) of the Internal Revenue Code provides that conditions (1) through (4) must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a pro rata part of a taxable year of less than 12 months. Section 856(h)(2) of the Internal Revenue Code provides that neither condition (5) nor (6) need be met for our first taxable year as a REIT. We believe that we have met conditions (1) through (7) during each of the requisite periods ending on or before December 31, 2005, and that we can continue to meet these conditions in future taxable years. There can, however, be no assurance in this regard.

By reason of condition (6), we will fail to qualify as a REIT for a taxable year if at any time during the last half of a year more than 50% in value of our outstanding shares is owned directly or indirectly by five or fewer individuals. To help comply with condition (6), our declaration of trust restricts transfers of our shares. In addition, if we comply with applicable Treasury regulations to ascertain the ownership of our shares and do not know, or by exercising reasonable diligence would not have known, that we failed condition (6), then we will be treated as having met condition (6). However, our failure to comply with these regulations for ascertaining ownership may result in a penalty of $25,000, or $50,000 for intentional violations. Accordingly, we intend to comply with these regulations, and to request annually from record holders of significant percentages of our shares information regarding the ownership of our shares. Under our declaration of trust, our shareholders are required to respond to these requests for information.

For purposes of condition (6), REIT shares held by a pension trust are treated as held directly by the pension trust’s beneficiaries in proportion to their actuarial interests in the pension trust. Consequently, five or fewer pension trusts could own more than 50% of the interests in an entity without jeopardizing that entity’s federal income tax qualification as a REIT. However, as discussed below, if a REIT is a “pension-held REIT,” each pension trust owning more than 10% of the REIT’s shares by value generally may be taxed on a portion of the dividends it receives from the REIT.

The 2004 Act provides that we will not automatically fail to be a REIT if we do not meet conditions (1) through (6), provided we can establish reasonable cause for any such failure. Each such excused failure will result in the imposition of a $50,000 penalty instead of REIT disqualification. It is impossible to state whether in all circumstances we would be entitled to the benefit of this relief provision. This relief provision applies to any failure of the applicable conditions, even if the failure first occurred in a prior taxable year, as long as each of the requirements of the relief provision is satisfied after October 22, 2004.

Our Wholly-Owned Subsidiaries and Our Investments through Partnerships. Except in respect of taxable REIT subsidiaries as discussed below, Section 856(i) of the Internal Revenue Code provides that any corporation, 100% of whose stock is held by a REIT, is a qualified REIT subsidiary and shall not be treated as a separate corporation. The assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as the REIT’s. We believe that each of our direct and indirect wholly-owned subsidiaries, other than the taxable REIT subsidiaries discussed below, will either be a qualified REIT subsidiary within the meaning of Section 856(i) of the Internal Revenue Code, or a noncorporate entity that for federal income tax purposes is not treated as separate from its

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owner under regulations issued under Section 7701 of the Internal Revenue Code. Thus, except for the taxable REIT subsidiaries discussed below, in applying all the federal income tax REIT qualification requirements described in this summary, all assets, liabilities and items of income, deduction and credit of our direct and indirect wholly-owned subsidiaries are treated as ours.

We have invested and may invest in real estate through one or more limited or general partnerships or limited liability companies that are treated as partnerships for federal income tax purposes. In the case of a REIT that is a partner in a partnership, regulations under the Internal Revenue Code provide that, for purposes of the REIT qualification requirements regarding income and assets discussed below, the REIT is deemed to own its proportionate share of the assets of the partnership corresponding to the REIT’s proportionate capital interest in the partnership and is deemed to be entitled to the income of the partnership attributable to this proportionate share. In addition, for these purposes, the character of the assets and gross income of the partnership generally retain the same character in the hands of the REIT. Accordingly, our proportionate share of the assets, liabilities, and items of income of each partnership in which we are a partner is treated as ours for purposes of the income tests and asset tests discussed below. In contrast, for purposes of the distribution requirement discussed below, we must take into account as a partner our share of the partnership’s income as determined under the general federal income tax rules governing partners and partnerships under Sections 701 through 777 of the Internal Revenue Code.

Taxable REIT Subsidiaries. We are permitted to own any or all of the securities of a “taxable REIT subsidiary” as defined in Section 856(l) of the Internal Revenue Code, provided that no more than 20% of our assets, at the close of each quarter, is comprised of our investments in the stock or securities of our taxable REIT subsidiaries. Among other requirements, a taxable REIT subsidiary must:

(1) be a non-REIT corporation for federal income tax purposes in which we directly or indirectly own shares;

(2) join with us in making a taxable REIT subsidiary election;

(3) not directly or indirectly operate or manage a lodging facility or a health care facility; and

(4) not directly or indirectly provide to any person, under a franchise, license, or otherwise, rights to any brand name under which any lodging facility or health care facility is operated, except that in limited circumstances a subfranchise, sublicense or similar right can be granted to an independent contractor to operate or manage a lodging facility.

In addition, a corporation other than a REIT in which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value will automatically be treated as a taxable REIT subsidiary. Subject to the discussion below, we believe that we and each of our taxable REIT subsidiaries have complied with, and will continue to comply with, the requirements for taxable REIT subsidiary status during all times each subsidiary’s taxable REIT subsidiary election remains in effect, and we believe that the same will be true for any taxable REIT subsidiary that we later form or acquire.

Our ownership of stock and securities in taxable REIT subsidiaries is exempt from the 10% and 5% REIT asset tests discussed below. Also, as discussed below, taxable REIT subsidiaries can perform services for our tenants without disqualifying the rents we receive from those tenants under the 75% or 95% gross income tests discussed below. Moreover, because taxable REIT subsidiaries are taxed as C corporations that are separate from us, their assets, liabilities and items of income, deduction and credit are not generally imputed to us for purposes of the REIT qualification requirements described in this summary. Therefore, taxable REIT subsidiaries can generally undertake third-party management and development activities and activities not related to real estate.

Restrictions are imposed on taxable REIT subsidiaries to ensure that they will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary may not deduct interest paid in any year to an affiliated REIT to the extent that the interest payments exceed, generally, 50% of the taxable REIT subsidiary’s adjusted taxable income for that year. However, the taxable REIT subsidiary may carry forward the disallowed interest expense to a succeeding year, and deduct the interest in that later year subject to that year’s 50% adjusted taxable income limitation. In addition, if a taxable REIT subsidiary pays interest, rent, or other amounts to its affiliated REIT in an amount that exceeds what an unrelated third party would have paid in an arm’s length transaction, then the REIT generally will be subject to an excise tax equal to 100% of the excessive portion of the payment. Finally, if in comparison to an arm’s length transaction, a tenant has overpaid rent to the REIT in exchange for underpaying the taxable REIT subsidiary for services rendered, then the REIT may be subject to an excise tax equal to 100% of the overpayment. There can be no assurance that arrangements involving our taxable REIT subsidiaries will not result in

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the imposition of one or more of these deduction limitations or excise taxes, but we do not believe that we are or will be subject to these impositions.

Income Tests. There are two gross income requirements for qualification as a REIT under the Internal Revenue Code:

•At least 75% of our gross income, excluding gross income from sales or other dispositions of property held primarily for sale, must be derived from investments relating to real property, including “rents from real property” as defined under Section 856 of the Internal Revenue Code, mortgages on real property or shares in other REITs. When we receive new capital in exchange for our shares or in a public offering of five-year or longer debt instruments, income attributable to the temporary investment of this new capital in stock or a debt instrument, if received or accrued within one year of our receipt of the new capital, is generally also qualifying income under the 75% gross income test.

•At least 95% of our gross income, excluding gross income from sales or other dispositions of property held primarily for sale, must be derived from a combination of items of real property income that satisfy the 75% gross income test described above, dividends, interest, gains from the sale or disposition of stock, securities, or real property or, for financial instruments entered into during our 2004 or earlier taxable years, certain payments under interest rate swap or cap agreements, options, futures contracts, forward rate agreements or similar financial instruments. But for financial instruments entered into during our 2005 or later taxable years, the 95% gross income test has been modified as follows:  except as may be provided in Treasury regulations, gross income for these purposes no longer includes income from a “hedging transaction” as defined under clauses (ii) and (iii) of Section 1221(b)(2)(A) of the Internal Revenue Code, but only to the extent that (A) the transaction hedges indebtedness we incur to acquire or carry real estate assets, and (B) the hedging transaction was “clearly identified,” meaning that the transaction must be identified as a hedging transaction before the end of the day on which it is entered and the risks being hedged must be identified generally within 35 days after the date the transaction is entered.

For purposes of the 75% and 95% gross income tests outlined above, income derived from a “shared appreciation provision” in a mortgage loan is generally treated as gain recognized on the sale of the property to which it relates. Although we will use our best efforts to ensure that the income generated by our investments will be of a type that satisfies both the 75% and 95% gross income tests, there can be no assurance in this regard.

In order to qualify as “rents from real property” under Section 856 of the Internal Revenue Code, several requirements must be met:

•The amount of rent received generally must not be based on the income or profits of any person, but may be based on receipts or sales.

•Rents do not qualify if the REIT owns 10% or more by vote or value of the tenant, whether directly or after application of attribution rules. While we intend not to lease property to any party if rents from that property would not qualify as rents from real property, application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control. For example, an unaffiliated third party’s ownership directly or by attribution of 10% or more by value of our shares, as well as 10% or more by vote or value of the stock of one of our tenants, would result in that tenant’s rents not qualifying as rents from real property. Our declaration of trust disallows transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our REIT status under the Internal Revenue Code. Nevertheless, there can be no assurance that these provisions in our declaration of trust will be effective to prevent our REIT status from being jeopardized under the 10% affiliated tenant rule. Furthermore, there can be no assurance that we will be able to monitor and enforce these restrictions, nor will our shareholders necessarily be aware of ownership of shares attributed to them under the Internal Revenue Code’s attribution rules.

•There is a limited exception to the above prohibition on earning “rents from real property” from a 10% affiliated tenant, if the tenant is a taxable REIT subsidiary. If at least 90% of the leased space of a property is leased to tenants other than taxable REIT subsidiaries and 10% affiliated tenants, and if the taxable REIT subsidiary’s rent for space at that property is substantially comparable to the rents paid by nonaffiliated tenants for comparable space at the property, then otherwise qualifying rents paid by the taxable REIT subsidiary to the REIT will not be disqualified on account of the rule prohibiting 10% affiliated tenants.

•In order for rents to qualify, we generally must not manage the property or furnish or render services to the tenants of the property, except through an independent contractor from whom we derive no income or, for our

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2001 taxable year and thereafter, through one of our taxable REIT subsidiaries. There is an exception to this rule permitting a REIT to perform customary tenant services of the sort that a tax-exempt organization could perform without being considered in receipt of “unrelated business taxable income” as defined in Section 512(b)(3) of the Internal Revenue Code. In addition, a de minimis amount of noncustomary services will not disqualify income as “rents from real property” so long as the value of the impermissible services does not exceed 1% of the gross income from the property.

•If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property”; if this 15% threshold is exceeded, the rent attributable to personal property will not so qualify. For our taxable years through December 31, 2000, the portion of rental income treated as attributable to personal property was determined according to the ratio of the tax basis of the personal property to the total tax basis of the real and personal property that is rented. For our 2001 taxable year and thereafter, the ratio is determined by reference to fair market values rather than tax bases.

We believe that all or substantially all our rents have qualified and will qualify as rents from real property for purposes of Section 856 of the Internal Revenue Code.

In order to qualify as mortgage interest on real property for purposes of the 75% test, interest must derive from a mortgage loan secured by real property with a fair market value, at the time the loan is made, at least equal to the amount of the loan. If the amount of the loan exceeds the fair market value of the real property, the interest will be treated as interest on a mortgage loan in a ratio equal to the ratio of the fair market value of the real property to the total amount of the mortgage loan.

Other than sales of foreclosure property, any gain we realize on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of business will be treated as income from a prohibited transaction that is subject to a penalty tax at a 100% rate. This prohibited transaction income also may adversely affect our ability to satisfy the 75% and 95% gross income tests for federal income tax qualification as a REIT. We cannot provide assurances as to whether or not the IRS might successfully assert that one or more of our dispositions is subject to the 100% penalty tax. However, we believe that dispositions of assets that we have made or that we might make in the future will not be subject to the 100% penalty tax, because we intend to:

•own our assets for investment with a view to long-term income production and capital appreciation;

•engage in the business of developing, owning and operating our existing properties and acquiring, developing, owning and operating new properties; and

•make occasional dispositions of our assets consistent with our long-term investment objectives.

Pursuant to the 2004 Act, if we fail to satisfy one or both of the 75% or the 95% gross income tests in any taxable year, we may nevertheless qualify as a REIT for that year if we satisfy the following requirements after October 22, 2004:

•our failure to meet the test is due to reasonable cause and not due to willful neglect, and

•after we identify the failure, we file a schedule describing each item of our gross income included in the 75% or 95% gross income tests for that taxable year.

It is impossible to state whether in all circumstances we would be entitled to the benefit of this relief provision for the 75% and 95% gross income tests. Even if this relief provision does apply, a 100% tax is imposed upon the greater of the amount by which we failed the 75% test or the 95% test, with adjustments, multiplied by a fraction intended to reflect our profitability. This relief provision applies to any failure of the applicable income tests, even if the failure first occurred in a prior taxable year, as long as each of the requirements of the relief provision is satisfied after October 22, 2004.

Under prior law, if we failed to satisfy one or both of the 75% or 95% gross income tests, we nevertheless would have qualified as a REIT for that year if:  our failure to meet the test was due to reasonable cause and not due to willful neglect; we reported the nature and amount of each item of our income included in the 75% or 95% gross income tests for that taxable year on a schedule attached to our tax return; and any incorrect information on the schedule was not due to fraud with intent to evade tax. For our 2004 and prior taxable years, we attached a schedule of gross income to our federal income tax returns, but it is impossible to state whether in all circumstances we would

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be entitled to the benefit of this prior relief provision for the 75% and 95% gross income tests. Even if this relief provision did apply, a 100% tax is imposed upon the greater of the amount by which we failed the 75% test or the 95% test, with adjustments, multiplied by a fraction intended to reflect our profitability.

Asset Tests. At the close of each quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify as a REIT for federal income tax purposes:

•At least 75% of our total assets must consist of real estate assets, cash and cash items, shares in other REITs, government securities, and temporary investments of new capital (that is, stock or debt instruments purchased with proceeds of a stock offering or a public offering of our debt with a term of at least five years, but only for the one-year period commencing with our receipt of the offering proceeds).

•Not more than 25% of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test.

•Of the investments included in the preceding 25% asset class, the value of any one non-REIT issuer’s securities that we own may not exceed 5% of the value of our total assets, and we may not own more than 10% of any one non-REIT issuer’s outstanding voting securities. For our 2001 taxable year and thereafter, we may not own more than 10% of the vote or value of any one non-REIT issuer’s outstanding securities, unless that issuer is our taxable REIT subsidiary or the securities are “straight debt” securities or otherwise excepted as discussed below.

•For our 2001 taxable year and thereafter, our stock and securities in a taxable REIT subsidiary are exempted from the preceding 10% and 5% asset tests. However, no more than 20% of our total assets may be represented by stock or securities of taxable REIT subsidiaries.

When a failure to satisfy the above asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter.

In addition, for our 2005 taxable year and thereafter, the 2004 Act provides that if we fail the 5% value test or the 10% vote or value tests at the close of any quarter and do not cure such failure within 30 days after the close of that quarter, that failure will nevertheless be excused if (a) the failure is de minimis and (b) within 6 months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy the 5% value and 10% vote and value asset tests. For purposes of this relief provision, the failure will be “de minimis” if the value of the assets causing the failure does not exceed the lesser of (a) 1% of the total value of our assets at the end of the relevant quarter or (b) $10,000,000. If our failure is not de minimis, or if any of the other REIT asset tests have been violated, we may nevertheless qualify as a REIT if (a) we provide the IRS with a description of each asset causing the failure, (b) the failure was due to reasonable cause and not willful neglect, (c) we pay a tax equal to the greater of (i) $50,000 or (ii) the highest rate of corporate tax imposed (currently 35%) on the net income generated by the assets causing the failure during the period of the failure, and (d) within 6 months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy all of the REIT asset tests. These relief provisions apply to any failure of the applicable asset tests, even if the failure first occurred in a prior taxable year, as long as each of the requirements of the relief provision is satisfied after October 22, 2004.

The 2004 Act also clarifies and expands, on a retroactive basis so as to be effective for our 2001 taxable year forward, an excepted securities safe harbor to the 10% value test that includes among other items (a) “straight debt” securities, (b) certain rental agreements in which payment is to be made in subsequent years, (c) any obligation to pay rents from real property, (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of or payments from a nongovernmental entity, and (e) any security issued by another REIT.

We intend to maintain records of the value of our assets to document our compliance with the above asset tests, and to take actions as may be required to cure any failure to satisfy the tests within 30 days after the close of any quarter.

Our Investment in Senior Housing. We continue to own a significant minority of Senior Housing shares, in excess of 10%, and we believe that Senior Housing has qualified and will continue to qualify as a REIT under the Internal Revenue Code. For any of our taxable years in which Senior Housing qualifies as a REIT, our investment in Senior Housing will count favorably toward the REIT asset tests and our gains and dividends from Senior Housing shares will count as qualifying income under both REIT gross income tests. However, because we do not and cannot

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control Senior Housing’s compliance with the federal income tax requirements for REIT qualification, we joined with Senior Housing in filing a protective taxable REIT subsidiary election under Section 856(l) of the Internal Revenue Code, effective January 1, 2001, and we have reaffirmed this protective election every January 1 since then. Pursuant to this protective taxable REIT subsidiary election, we believe that if Senior Housing were not a REIT, it would instead be considered one of our taxable REIT subsidiaries. As one of our taxable REIT subsidiaries, we believe that Senior Housing’s failure to qualify as a REIT would not jeopardize our own qualification as a REIT even though we own more than 10% of it.

Annual Distribution Requirements. In order to qualify for taxation as a REIT under the Internal Revenue Code, we are required to make annual distributions other than capital gain dividends to our shareholders in an amount at least equal to the excess of:

(A)the sum of 90% of our “real estate investment trust taxable income,” as defined in Section 857 of the Internal Revenue Code, computed by excluding any net capital gain and before taking into account any dividends paid deduction for which we are eligible, and 90% of our net income after tax, if any, from property received in foreclosure, over

(B)the sum of our qualifying noncash income, e.g., imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges.

The distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the earlier taxable year and if paid on or before the first regular distribution payment after that declaration. If a dividend is declared in October, November, or December to shareholders of record during one of those months, and is paid during the following January, then for federal income tax purposes the dividend will be treated as having been both paid and received on December 31 of the prior taxable year. A distribution which is not pro rata within a class of our beneficial interests entitled to a distribution, or which is not consistent with the rights to distributions among our classes of beneficial interests, is a preferential distribution that is not taken into consideration for purposes of the distribution requirements, and accordingly the payment of a preferential distribution could affect our ability to meet the distribution requirements. Taking into account our distribution policies, including the dividend reinvestment plan we have adopted, we expect that we will not make any preferential distributions. The distribution requirements may be waived by the IRS if a REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below. To the extent that we do not distribute all of our net capital gain and all of our real estate investment trust taxable income, as adjusted, we will be subject to tax on undistributed amounts.

In addition, we will be subject to a 4% excise tax to the extent we fail within a calendar year to make required distributions to our shareholders of 85% of our ordinary income and 95% of our capital gain net income plus the excess, if any, of the “grossed up required distribution” for the preceding calendar year over the amount treated as distributed for that preceding calendar year. For this purpose, the term “grossed up required distribution” for any calendar year is the sum of our taxable income for the calendar year without regard to the deduction for dividends paid and all amounts from earlier years that are not treated as having been distributed under the provision. We will be treated as having sufficient earnings and profits to treat as a dividend any distribution by us up to the amount required to be distributed in order to avoid imposition of the 4% excise tax.

If we do not have enough cash or other liquid assets to meet the 90% distribution requirements, we may find it necessary and desirable to arrange for new debt or equity financing to provide funds for required distributions in order to maintain our REIT status. We can provide no assurance that financing would be available for these purposes on favorable terms.

We may be able to rectify a failure to pay sufficient dividends for any year by paying “deficiency dividends” to shareholders in a later year. These deficiency dividends may be included in our deduction for dividends paid for the earlier year, but an interest charge would be imposed upon us for the delay in distribution. Although we may be able to avoid being taxed on amounts distributed as deficiency dividends, we will remain liable for the 4% excise tax discussed above.

In addition to the other distribution requirements above, to preserve our status as a REIT we are required to timely distribute C corporation earnings and profits that we inherit from acquired corporations.

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Acquisition of Publicly Traded Partnership

In 2004, we acquired all of the limited partnership interests and the general partnership interest of a publicly traded partnership as well as certain of the partnership’s affiliated entities. Prior to our acquisition of the publicly traded partnership and its affiliates, the acquired entities directly or indirectly owned substantially all of the outstanding equity interests in various noncorporate subsidiaries and four C corporations. However, before our acquisition of these entities, all four C corporation subsidiaries were converted into disregarded entities under Treasury regulations issued under Section 7701 of the Internal Revenue Code, and thus considered liquidated for federal income tax purposes. Upon our acquisition, the publicly traded partnership itself and its affiliates and subsidiaries became disregarded entities of ours under Treasury regulations issued under Section 7701 of the Internal Revenue Code. Thus, after the 2004 acquisition, all assets, liabilities and items of income, deduction and credit of these acquired entities have been treated as ours for purposes of the various REIT qualification tests described above. Our initial tax basis in the acquired assets is our cost for acquiring them, and we believe that we did not succeed to any C corporation earnings and profits in this acquisition.

Depreciation and Federal Income Tax Treatment of Leases

Our initial tax bases in our assets will generally be our acquisition cost. We will generally depreciate our real property on a straight-line basis over 40 years and our personal property over 12 years. These depreciation schedules may vary for properties that we acquire through tax-free or carryover basis acquisitions.

We are entitled to depreciation deductions from our facilities only if we are treated for federal income tax purposes as the owner of the facilities. This means that the leases of the facilities must be classified for federal income tax purposes as true leases, rather than as sales or financing arrangements, and we believe this to be the case. In the case of sale-leaseback arrangements, the IRS could assert that we realized prepaid rental income in the year of purchase to the extent that the value of a leased property, at the time of purchase, exceeded the purchase price for that property. While we believe that the value of leased property at the time of purchase did not exceed purchase prices, because of the lack of clear precedent we cannot provide assurances as to whether the IRS might successfully assert the existence of prepaid rental income in any of our sale-leaseback transactions.

Taxation of U.S. Shareholders

The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the maximum individual federal income tax rate for long-term capital gains generally to 15% (for gains properly taken into account during the period beginning May 6, 2003, and ending for taxable years that begin after December 31, 2008) and for most corporate dividends generally to 15% (for taxable years that begin in the years 2003 through 2008). However, because we are not generally subject to federal income tax on the portion of our REIT taxable income or capital gains distributed to our shareholders, dividends on our shares generally are not eligible for the new 15% tax rate on dividends. As a result, our ordinary dividends continue to be taxed at the higher federal income tax rates applicable to ordinary income. However, the 15% federal income tax rate for long-term capital gains and dividends generally applies to:

(1)your long-term capital gains, if any, recognized on the disposition of our shares;

(2)our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation recapture, in which case the distributions are subject to a 25% federal income tax rate);

(3)our dividends attributable to dividends, if any, received by us from non-REIT corporations such as taxable REIT subsidiaries; and

(4)our dividends to the extent attributable to income upon which we have paid federal corporate income tax.

As long as we qualify as a REIT for federal income tax purposes, a distribution to our U.S. shareholders that we do not designate as a capital gain dividend will be treated as an ordinary income dividend to the extent of our current or accumulated earnings and profits. Distributions made out of our current or accumulated earnings and profits that we properly designate as capital gain dividends will be taxed as long-term capital gains, as discussed below, to the extent they do not exceed our actual net capital gain for the taxable year. However, corporate shareholders may be required to treat up to 20% of any capital gain dividend as ordinary income under Section 291 of the Internal Revenue Code.

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In addition, we may elect to retain net capital gain income and treat it as constructively distributed. In that case:

(1)we will be taxed at regular corporate capital gains tax rates on retained amounts;

(2)each U.S. shareholder will be taxed on its designated proportionate share of our retained net capital gains as though that amount were distributed and designated a capital gain dividend;

(3)each U.S. shareholder will receive a credit for its designated proportionate share of the tax that we pay;

(4)each U.S. shareholder will increase its adjusted basis in our shares by the excess of the amount of its proportionate share of these retained net capital gains over its proportionate share of this tax that we pay; and

(5)both we and our corporate shareholders will make commensurate adjustments in our respective earnings and profits for federal income tax purposes.

If we elect to retain our net capital gains in this fashion, we will notify our U.S. shareholders of the relevant tax information within 60 days after the close of the affected taxable year.

As discussed above, for noncorporate U.S. shareholders, long-term capital gains are generally taxed at maximum rates of 15% or 25%, depending upon the type of property disposed of and the previously claimed depreciation with respect to this property. If for any taxable year we designate capital gain dividends for U.S. shareholders, then the portion of the capital gain dividends we designate will be allocated to the holders of a particular class of shares on a percentage basis equal to the ratio of the amount of the total dividends paid or made available for the year to the holders of that class of shares to the total dividends paid or made available for the year to holders of all classes of our shares. We will similarly designate the portion of any capital gain dividend that is to be taxed to noncorporate U.S. shareholders at the maximum rates of 15% or 25% so that the designations will be proportionate among all classes of our shares.

Distributions in excess of current or accumulated earnings and profits will not be taxable to a U.S. shareholder to the extent that they do not exceed the shareholder’s adjusted tax basis in the shareholder’s shares, but will reduce the shareholder’s basis in those shares. To the extent that these excess distributions exceed the adjusted basis of a U.S. shareholder’s shares, they will be included in income as capital gain, with long-term gain generally taxed to noncorporate U.S. shareholders at a maximum rate of 15%. No U.S. shareholder may include on his federal income tax return any of our net operating losses or any of our capital losses.

Dividends that we declare in October, November or December of a taxable year to U.S. shareholders of record on a date in those months will be deemed to have been received by shareholders on December 31 of that taxable year, provided we actually pay these dividends during the following January. Also, items that are treated differently for regular and alternative minimum tax purposes are to be allocated between a REIT and its shareholders under Treasury regulations which are to be prescribed. It is possible that these Treasury regulations will require tax preference items to be allocated to our shareholders with respect to any accelerated depreciation or other tax preference items that we claim.

A U.S. shareholder will recognize gain or loss equal to the difference between the amount realized and the shareholder’s adjusted basis in our shares that are sold or exchanged. This gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the shareholder’s holding period in the shares exceeds one year. In addition, any loss upon a sale or exchange of our shares held for six months or less will generally be treated as a long-term capital loss to the extent of our long-term capital gain dividends during the holding period.

The 2004 Act imposes a penalty, effective for federal tax returns with due dates after October 22, 2004, for the failure to properly disclose a “reportable transaction.”  A reportable transaction currently includes, among other things, a sale or exchange of our shares resulting in a tax loss in excess of (i) $10 million in any single year or $20 million in any combination of years in the case of our shares held by a C corporation or by a partnership with only C corporation partners or (ii) $2 million in any single year or $4 million in any combination of years in the case of our shares held by any other partnership or an S corporation, trust or individual, including losses that flow through pass through entities to individuals. A taxpayer discloses a reportable transaction by filing IRS Form 8886 with its federal income tax return and, in the first year of filing, a copy of Form 8886 must be sent to the IRS’s Office of Tax Shelter Analysis. The penalty for failing to disclose a reportable transaction is generally $10,000 in the case of a natural person and $50,000 in any other case.

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Noncorporate U.S. shareholders who borrow funds to finance their acquisition of our shares could be limited in the amount of deductions allowed for the interest paid on the indebtedness incurred. Under Section 163(d) of the Internal Revenue Code, interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment is generally deductible only to the extent of the investor’s net investment income. A U.S. shareholder’s net investment income will include ordinary income dividend distributions received from us and, if an appropriate election is made by the shareholder, capital gain dividend distributions received from us; however, distributions treated as a nontaxable return of the shareholder’s basis will not enter into the computation of net investment income.

Taxation of Tax-Exempt Shareholders

In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a REIT to a tax-exempt employees’ pension trust did not constitute “unrelated business taxable income,” even though the REIT may have financed some of its activities with acquisition indebtedness. Although revenue rulings are interpretive in nature and subject to revocation or modification by the IRS, based upon the analysis and conclusion of Revenue Ruling 66-106, our distributions made to shareholders that are tax-exempt pension plans, individual retirement accounts, or other qualifying tax-exempt entities should not constitute unrelated business taxable income, unless the shareholder has financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the Internal Revenue Code.

Tax-exempt pension trusts, including so-called 401(k) plans but excluding individual retirement accounts or government pension plans, that own more than 10% by value of a “pension-held REIT” at any time during a taxable year may be required to treat a percentage of all dividends received from the pension-held REIT during the year as unrelated business taxable income. This percentage is equal to the ratio of:

(1)the pension-held REIT’s gross income derived from the conduct of unrelated trades or businesses, determined as if the pension-held REIT were a tax-exempt pension fund, less direct expenses related to that income, to

(2)the pension-held REIT’s gross income from all sources, less direct expenses related to that income, except that this percentage shall be deemed to be zero unless it would otherwise equal or exceed 5%. A REIT is a pension-held REIT if:

•the REIT is “predominantly held” by tax-exempt pension trusts; and

•the REIT would fail to satisfy the “closely held” ownership requirement discussed above if the stock or beneficial interests in the REIT held by tax-exempt pension trusts were viewed as held by tax-exempt pension trusts rather than by their respective beneficiaries.

A REIT is predominantly held by tax-exempt pension trusts if at least one tax-exempt pension trust owns more than 25% by value of the REIT’s stock or beneficial interests, or if one or more tax-exempt pension trusts, each owning more than 10% by value of the REIT’s stock or beneficial interests, own in the aggregate more than 50% by value of the REIT’s stock or beneficial interests. Because of the share ownership concentration restrictions in our declaration of trust, we believe that we are not and will not be a pension-held REIT. However, because our shares are publicly traded, we cannot completely control whether or not we are or will become a pension-held REIT.

Social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, are subject to different unrelated business taxable income rules, which generally will require them to characterize distributions from a REIT as unrelated business taxable income. In addition, these prospective investors should consult their own tax advisors concerning any “set aside” or reserve requirements applicable to them.

Taxation of Non-U.S. Shareholders

The rules governing the United States federal income taxation of non-U.S. shareholders are complex, and the following discussion is intended only as a summary of these rules. If you are a non-U.S. shareholder, we urge you to consult with your own tax advisor to determine the impact of United States federal, state, local, and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your investment in our shares.

In general, a non-U.S. shareholder will be subject to regular United States federal income tax in the same manner as a U.S. shareholder with respect to its investment in our shares if that investment is effectively connected with the non-U.S. shareholder’s conduct of a trade or business in the United States. In addition, a corporate non-U.S.

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shareholder that receives income that is or is deemed effectively connected with a trade or business in the United States may also be subject to the 30% branch profits tax under Section 884 of the Internal Revenue Code, which is payable in addition to regular United States federal corporate income tax. The balance of this discussion of the United States federal income taxation of non-U.S. shareholders addresses only those non-U.S. shareholders whose investment in our shares is not effectively connected with the conduct of a trade or business in the United States.

A distribution by us to a non-U.S. shareholder that is not attributable to gain from the sale or exchange of a United States real property interest and that is not designated as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of current or accumulated earnings and profits. A distribution of this type will generally be subject to United States federal income tax and withholding at the rate of 30%, or at a lower rate if the non-U.S. shareholder has in the manner prescribed by the IRS demonstrated its entitlement to benefits under a tax treaty. Because we cannot determine our current and accumulated earnings and profits until the end of the taxable year, withholding at the rate of 30% or applicable lower treaty rate will generally be imposed on the gross amount of any distribution to a non-U.S. shareholder that we make and do not designate a capital gain dividend. Notwithstanding this withholding on distributions in excess of our current and accumulated earnings and profits, these distributions are a nontaxable return of capital to the extent that they do not exceed the non-U.S. shareholder’s adjusted basis in our shares, and the nontaxable return of capital will reduce the adjusted basis in these shares. To the extent that distributions in excess of current and accumulated earnings and profits exceed the non-U.S. shareholder’s adjusted basis in our shares, the distributions will give rise to tax liability if the non-U.S. shareholder would otherwise be subject to tax on any gain from the sale or exchange of these shares, as discussed below. A non-U.S. shareholder may seek a refund from the IRS of amounts withheld on distributions to him in excess of our current and accumulated earnings and profits.

Capital gain dividends that are received by a non-U.S. shareholder, including dividends attributable to our sales of United States real property interests, and that are deductible by us in respect of our 2005 taxable year and thereafter will be subject to the taxation and withholding regime applicable to ordinary income dividends and the branch profits tax will not apply, provided that (1) the capital gain dividends are received with respect to a class of shares that is “regularly traded” on a domestic “established securities market” like the NYSE, both as defined by applicable Treasury regulations, and (2) the foreign shareholder does not own more than 5% of that class of shares at any time during the one-year period ending on the date of distribution of the capital gain dividends. If both of these provisions are satisfied, qualifying non-U.S. shareholders will not be subject to withholding on capital gain dividends as though those amounts were effectively connected with a United States trade or business, and qualifying non-U.S. shareholders will not be required to file United States federal income tax returns or pay branch profits tax in respect of these capital gain dividends. Instead, these dividends will be subject to United States federal income tax and withholding as ordinary dividends, currently at a 30% tax rate unless reduced by applicable treaty, as discussed below. We believe that our shares are and will be “regularly traded” on an “established securities market” within the definition of each term provided in applicable Treasury regulations; however, we can provide no assurance that our shares will continue to be “regularly traded” on an “established securities market” in future taxable years.

Except as discussed above, for any year in which we qualify as a REIT, distributions that are attributable to gain from the sale or exchange of a United States real property interest are taxed to a non-U.S. shareholder as if these distributions were gains effectively connected with a trade or business in the United States conducted by the non-U.S. shareholder. Accordingly, a non-U.S. shareholder that does not qualify for the provision above or that received dividends for taxable years before 2005 will be taxed on these amounts at the normal capital gain rates applicable to a U.S. shareholder, subject to any applicable alternative minimum tax and to a special alternative minimum tax in the case of nonresident alien individuals; such a non-U.S. shareholder will be required to file a United States federal income tax return reporting these amounts, even if applicable withholding is imposed as described below; and such a non-U.S. shareholder that is also a corporation may owe the 30% branch profits tax under Section 884 of the Internal Revenue Code in respect of these amounts. We will be required to withhold from distributions to such non-U.S. shareholders, and remit to the IRS, 35% of the maximum amount of any distribution that could be designated as a capital gain dividend. In addition, for purposes of this withholding rule, if we designate prior distributions as capital gain dividends, then subsequent distributions up to the amount of the designated prior distributions will be treated as capital gain dividends. The amount of any tax withheld is creditable against the non-U.S. shareholder’s United States federal income tax liability, and the non-U.S. shareholder may file for a refund from the IRS of any amount of withheld tax in excess of that tax liability.

If for any taxable year we designate capital gain dividends for our shareholders, then the portion of the capital gain dividends we designate will be allocated to the holders of a particular class of shares on a percentage basis equal to the ratio of the amount of the total dividends paid or made available for the year to the holders of that class of shares to the total dividends paid or made available for the year to holders of all classes of our shares.

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Tax treaties may reduce the withholding obligations on our distributions. Under some treaties, however, rates below 30% that are applicable to ordinary income dividends from United States corporations may not apply to ordinary income dividends from a REIT or may apply only if the REIT meets certain additional conditions. You must generally use an applicable IRS Form W-8, or substantially similar form, to claim tax treaty benefits. If the amount of tax withheld by us with respect to a distribution to a non-U.S. shareholder exceeds the shareholder’s United States federal income tax liability with respect to the distribution, the non-U.S. shareholder may file for a refund of the excess from the IRS. The 35% withholding tax rate discussed above on some capital gain dividends corresponds to the maximum income tax rate applicable to corporate non-U.S. shareholders but is higher than the 15% and 25% maximum rates on capital gains generally applicable to noncorporate non-U.S. shareholders. Treasury regulations also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, our distributions to a non-U.S. shareholder that is an entity should be treated as paid to the entity or to those owning an interest in that entity, and whether the entity or its owners are entitled to benefits under the tax treaty.

If our shares are not “United States real property interests” within the meaning of Section 897 of the Internal Revenue Code, a non-U.S. shareholder’s gain on sale of these shares generally will not be subject to United States federal income taxation, except that a nonresident alien individual who was in the United States for 183 days or more during the taxable year will be subject to a 30% tax on this gain. Our shares will not constitute a United States real property interest if we are a “domestically controlled REIT.”  A domestically controlled REIT is a REIT in which at all times during the preceding five-year period less than 50% in value of its shares is held directly or indirectly by foreign persons. We believe that we are and will be a domestically controlled REIT and thus a non-U.S. shareholder’s gain on sale of our shares will not be subject to United States federal income taxation. However, because our shares are publicly traded, we can provide no assurance that we will be a domestically controlled REIT. If we are not a domestically controlled REIT, a non-U.S. shareholder’s gain on sale of our shares will not be subject to United States federal income taxation as a sale of a United States real property interest, if that class of shares is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market like the NYSE, and the non-U.S. shareholder has at all times during the preceding five years owned 5% or less by value of that class of shares. If the gain on the sale of our shares were subject to United States federal income taxation, the non-U.S. shareholder will generally be subject to the same treatment as a U.S. shareholder with respect to its gain, will be required to file a United States federal income tax return reporting that gain, and a corporate non-U.S. shareholder might owe branch profits tax under Section 884 of the Internal Revenue Code. A purchaser of our shares from a non-U.S. shareholder will not be required to withhold on the purchase price if the purchased shares are regularly traded on an established securities market or if we are a domestically controlled REIT. Otherwise, a purchaser of our shares from a non-U.S. shareholder may be required to withhold 10% of the purchase price paid to the non-U.S. shareholder and to remit the withheld amount to the IRS.

Backup Withholding and Information Reporting

Information reporting and backup withholding may apply to distributions or proceeds paid to our shareholders under the circumstances discussed below. The backup withholding rate is currently 28%. Amounts withheld under backup withholding are generally not an additional tax and may be refunded by the IRS or credited against the REIT shareholder’s federal income tax liability.

A U.S. shareholder will be subject to backup withholding when it receives distributions on our shares or proceeds upon the sale, exchange, redemption, retirement or other disposition of our shares, unless the U.S. shareholder properly executes, or has previously properly executed, under penalties of perjury an IRS Form W-9 or substantially similar form that:

•provides the U.S. shareholder’s correct taxpayer identification number; and

•certifies that the U.S. shareholder is exempt from backup withholding because it is a corporation or comes within another exempt category, it has not been notified by the IRS that it is subject to backup withholding, or it has been notified by the IRS that it is no longer subject to backup withholding.

If the U.S. shareholder has not and does not provide its correct taxpayer identification number on the IRS Form W-9 or substantially similar form, it may be subject to penalties imposed by the IRS, and the REIT or other withholding agent may have to withhold a portion of any capital gain distributions paid to it. Unless the U.S. shareholder has established on a properly executed IRS Form W-9 or substantially similar form that it is a corporation or comes within another exempt category, distributions on our shares paid to it during the calendar year, and the amount of tax withheld, if any, will be reported to it and to the IRS.

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Distributions on our shares to a non-U.S. shareholder during each calendar year and the amount of tax withheld, if any, will generally be reported to the non-U.S. shareholder and to the IRS. This information reporting requirement applies regardless of whether the non-U.S. shareholder is subject to withholding on distributions on our shares or whether the withholding was reduced or eliminated by an applicable tax treaty. Also, distributions paid to a non-U.S. shareholder on our shares may be subject to backup withholding, unless the non-U.S. shareholder properly certifies its non-U.S. shareholder status on an IRS Form W-8 or substantially similar form in the manner described above. Similarly, information reporting and backup withholding will not apply to proceeds a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares, if the non-U.S. shareholder properly certifies its non-U.S. shareholder status on an IRS Form W-8 or substantially similar form. Even without having executed an IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not apply to proceeds that a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S. shareholder receives those proceeds through a broker’s foreign office.

Other Tax Consequences

Our tax treatment and that of our shareholders may be modified by legislative, judicial, or administrative actions at any time, which actions may be retroactive in effect. The rules dealing with federal income taxation are constantly under review by the Congress, the IRS and the Treasury Department, and statutory changes, new regulations, revisions to existing regulations, and revised interpretations of established concepts are issued frequently. Likewise, the rules regarding taxes other than federal income taxes may also be modified. No prediction can be made as to the likelihood of passage of new tax legislation or other provisions or the direct or indirect effect on us and our shareholders. Revisions to tax laws and interpretations of these laws could adversely affect the tax or other consequences of an investment in our shares. We and our shareholders may also be subject to taxation by state, local or other jurisdictions, including those in which we or our shareholders transact business or reside. These tax consequences may not be comparable to the federal income tax consequences discussed above.

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ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS

General Fiduciary Obligations

Fiduciaries of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, ERISA, must consider whether:

•their investment in our shares satisfies the diversification requirements of ERISA;

•the investment is prudent in light of possible limitations on the marketability of our shares;

•they have authority to acquire our shares under the applicable governing instrument and Title I of ERISA; and

•the investment is otherwise consistent with their fiduciary responsibilities.

Trustees and other fiduciaries of an ERISA plan may incur personal liability for any loss suffered by the plan on account of a violation of their fiduciary responsibilities. In addition, these fiduciaries may be subject to a civil penalty of up to 20% of any amount recovered by the plan on account of a violation. Fiduciaries of any IRA, Roth IRA, Keogh Plan or other qualified retirement plan not subject to Title I of ERISA, referred to as “non-ERISA plans,” should consider that a plan may only make investments that are authorized by the appropriate governing instrument. Fiduciary shareholders should consult their own legal advisors if they have any concern as to whether the investment is consistent with the foregoing criteria.

Prohibited Transactions

Fiduciaries of ERISA plans and persons making the investment decision for an IRA or other non-ERISA plan should consider the application of the prohibited transaction provisions of ERISA and the Internal Revenue Code in making their investment decision. Sales and other transactions between an ERISA or non-ERISA plan, and persons related to it, are prohibited transactions. The particular facts concerning the sponsorship, operations and other investments of an ERISA plan or non-ERISA plan may cause a wide range of other persons to be treated as disqualified persons or parties in interest with respect to it. A prohibited transaction, in addition to imposing potential personal liability upon fiduciaries of ERISA plans, may also result in the imposition of an excise tax under the Internal Revenue Code or a penalty under ERISA upon the disqualified person or party in interest with respect to the plan. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA or Roth IRA is maintained or his beneficiary, the IRA or Roth IRA may lose its tax-exempt status and its assets may be deemed to have been distributed to the individual in a taxable distribution on account of the prohibited transaction, but no excise tax will be imposed. Fiduciary shareholders should consult their own legal advisors as to whether the ownership of our shares involves a prohibited transaction.

“Plan Assets” Considerations

The Department of Labor, which has administrative responsibility over ERISA plans as well as non-ERISA plans, has issued a regulation defining “plan assets.” The regulation generally provides that when an ERISA or non-ERISA plan acquires a security that is an equity interest in an entity and that security is neither a “publicly offered security” nor a security issued by an investment company registered under the Investment Company Act of 1940, the ERISA plan’s or non-ERISA plan’s assets include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant.

Each class of our shares (that is, our common shares and any class of preferred shares that we have issued or may issue) must be analyzed separately to ascertain whether it is a publicly offered security. The regulation defines a publicly offered security as a security that is “widely held,” “freely transferable” and either part of a class of securities registered under the Exchange Act, or sold under an effective registration statement under the Securities Act of 1933, as amended, provided the securities are registered under the Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering occurred. Each class of our outstanding shares has been registered under the Exchange Act.

The regulation provides that a security is “widely held” only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. However, a security will not fail to be “widely held” because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer’s control. Our common shares and our preferred shares have been widely held and we

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expect our common shares and our preferred shares to continue to be widely held. We expect the same to be true of any additional class of preferred stock that we may issue, but we can give no assurance in that regard.

The regulation provides that whether a security is “freely transferable” is a factual question to be determined on the basis of all relevant facts and circumstances. The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that these securities are freely transferable. The restrictions on transfer enumerated in the regulation as not affecting that finding include:

•any restriction on or prohibition against any transfer or assignment which would result in a termination or reclassification for federal or state tax purposes, or would otherwise violate any state or federal law or court order;

•any requirement that advance notice of a transfer or assignment be given to the issuer and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer which are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence;

•any administrative procedure which establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and

•any limitation or restriction on transfer or assignment that is not imposed by the issuer or a person acting on behalf of the issuer.

We believe that the restrictions imposed under our declaration of trust on the transfer of shares do not result in the failure of our shares to be “freely transferable.”  Furthermore, we believe that there exist no other facts or circumstances limiting the transferability of our shares which are not included among those enumerated as not affecting their free transferability under the regulation, and we do not expect or intend to impose in the future, or to permit any person to impose on our behalf, any limitations or restrictions on transfer which would not be among the enumerated permissible limitations or restrictions.

Assuming that each class of our shares will be “widely held” and that no other facts and circumstances exist which restrict transferability of these shares, we have received an opinion of our counsel, Sullivan & Worcester LLP, that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of the shares under our declaration of trust and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA plan or non-ERISA plan that invests in our shares.

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Item 1A. Risk Factors

Our business faces many risks. The risks described below are not our only risks. Additional risks that we do not yet know of, or that we currently think are immaterial, may also impair our business operations or financial results. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer and the trading price of our debt or equity securities may decline. Investors and prospective investors should consider the following risks and the information contained under the heading “Warning Concerning Forward Looking Statements” before deciding to invest in our securities.

Acquisitions that we make may not be successful.

Our business strategy contemplates additional acquisitions. We cannot assure you that acquisitions we make will prove to be successful. We might encounter unanticipated difficulties and expenditures relating to any acquired properties. Newly acquired properties might require significant management attention that would otherwise be devoted to our ongoing business. We might never realize the anticipated benefits of certain acquisitions.

We may be unable to access the capital necessary to repay debts or to grow.

To retain our status as a REIT, we are required to distribute 90% of our taxable income to shareholders and we generally cannot use income from operations to repay debts or to fund our growth. Accordingly, our business and growth strategy depends, in part, upon our ability to raise additional capital at reasonable costs to repay our debts and to fund new investments. We believe we will be able to raise additional debt and equity capital at reasonable costs to refinance our debts at or prior to their maturities and to invest at yields which exceed our cost of capital. However, our ability to raise reasonably priced capital is not guaranteed; we may be unable to raise reasonably priced capital because of reasons related to our business or for reasons beyond our control, such as market conditions. Our growth strategy is not assured and may fail.

We are currently dependent upon economic conditions in our seven core markets: Metro Philadelphia, Pennsylvania; Metro Washington, DC; Oahu, Hawaii; Metro Boston, Massachusetts; Southern California; Metro Atlanta, Georgia; and Metro Austin, Texas.

Over 60% of our revenues in fiscal year 2005 were derived from properties located in our seven core markets: Metro Philadelphia, PA; Metro Washington, DC; Oahu, HI; Metro Boston, MA; Southern California; Metro Atlanta, GA; and Metro Austin, TX. A downturn in economic conditions in these markets could result in reduced demand for office space. A significant economic downturn in one or more of these areas could adversely affect our results of operations.

Changes in the healthcare industry may cause us to experience losses.

As of December 31, 2005, approximately 18.2% of our total rents came from tenants in healthcare related businesses. Generally, we believe that tenants in healthcare related businesses are less affected by the business cycle than most other tenants and that our concentration of revenues from such tenants may tend to stabilize our cash flows. However, the healthcare business is highly regulated and certain aspects of the healthcare industry are currently undergoing rapid regulatory, scientific and technological changes. Because of such regulations and systemic changes, some of our healthcare related tenants may experience losses which reduce their space needs or make it difficult for them to pay our rents. Also, we currently own approximately 7.7 million shares of our former subsidiary, Senior Housing, which invests in healthcare and senior housing real estate; any adverse change in Senior Housing’s business may affect our dividend income from these shares and the value of our investment in those shares.

Changes in the government’s requirements for leased space may adversely affect us.

As of December 31, 2005, approximately 15.6% of our total rents came from government tenants. Many of our leases with government agencies allow the tenants to vacate the leased premises before stated terms expires with little or no liability. Historically, our government tenants have regularly renewed leases and only rarely exercised lease termination rights. Nonetheless, for fiscal policy reasons, security concerns or otherwise some or all of our government tenants may decide to vacate our properties. If a significant number of such terminations occur our income and cash flow may materially decline and our ability to pay regular distributions to shareholders may be jeopardized.

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Our business dealings with our managing trustees and affiliated entities may create conflicts of interest.

We have no employees. Personnel and other services which we require are provided to us under contract by our manager, RMR. RMR is majority beneficially owned by one of our trustees, Barry Portnoy. The remainder of RMR is beneficially owned by Adam Portnoy, Mr. Portnoy’s son, who is also an executive officer of RMR and our Executive Vice President. In addition, John A. Mannix, our President and Chief Operating Officer, John C. Popeo, our Treasurer, Chief Financial Officer and Secretary, and David M. Lepore and Jennifer B. Clark, our Senior Vice Presidents, are executive officers of or have served in various capacities with RMR and Gerard Martin, another of our trustees, is a director of RMR. We pay RMR a fee based in large part upon the amount of our investments. Our agreement with RMR also provides for payment to RMR of incentive fees under certain circumstances. Our fee arrangement with RMR could encourage RMR to advocate property acquisitions and discourage property sales by us. Our fees to RMR were $27.0 million for 2005, including $1.2 million which is expected to be paid in restricted common shares as an incentive fee in April 2006. RMR also acts as the manager for two other publicly owned REITs: Hospitality Properties, which primarily owns hotel properties; and Senior Housing, which owns senior housing properties. RMR also provides services to Five Star Quality Care, Inc., or Five Star, under a shared services agreement, and RMR has other business interests. Messrs. Barry Portnoy and Martin also serve as managing trustees of Hospitality Properties and Senior Housing and as managing directors of Five Star. The multiple responsibilities to public companies and other businesses could create competition among these companies for the time and efforts of RMR and Messrs. Barry and Adam Portnoy and Martin. All of the contractual arrangements between us and RMR have been approved by our trustees other than Messrs. Barry Portnoy and Martin. One of our other trustees serves as a trustee of Senior Housing. We believe that the quality and depth of management available to us by contracting with RMR could not be duplicated by our being a self-advised company or by our contracting with unrelated third parties without considerable cost increases. Also, a termination of our contract with RMR is a default under our revolving credit facility unless approved by a majority of the lenders. However, the fact that we believe that our relationships with RMR and our managing trustees have been beneficial to us in the past does not guarantee that these related party transactions may not be detrimental to us in the future.

Ownership limitations and anti-takeover provisions in our declaration of trust and under Maryland law may prevent you from receiving a takeover premium.

Our declaration of trust prohibits any shareholder other than RMR and its affiliates from owning more than 8.5% of our outstanding shares. This provision of the declaration of trust may help us comply with REIT tax requirements. However, this provision will also inhibit a change of control. Our declaration of trust and bylaws contain other provisions that may increase the difficulty of acquiring control of us by means of a tender offer, open market purchases, a proxy fight or otherwise, if the acquisition is not approved by our board of trustees. These other anti-takeover provisions include the following:

•a staggered board of trustees with three separate classes;

•the two-thirds majority shareholder vote required for removal of trustees;

•the ability of our board of trustees to increase, without shareholder approval, the amount of shares (including common shares) that we are authorized to issue under our declaration of trust and bylaws, and to issue additional shares on terms that it determines;

•advance notice procedures with respect to nominations of trustees and shareholder proposals; and

•the fact that only the board of trustees may call shareholder meetings and that shareholders are not entitled to act without a meeting.

We have a rights agreement whereby, in the event a person or group of persons acquires or attempts to acquire 10% or more of our outstanding common shares, our shareholders, other than such person or group, will be entitled to purchase additional shares or other securities or property at a discount. In addition, certain provisions of Maryland law may have an anti-takeover effect. For all of these reasons, our shareholders may be unable to realize a change of control premium for shares they own.

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The loss of our tax status as a REIT would have significant adverse consequences to us and reduce the value of our common shares.

As a REIT, we generally do not pay federal and state income taxes. However, our continued qualification as a REIT is dependent upon our compliance with complex provisions of the Internal Revenue Code for which there are available only limited judicial or administrative interpretations. We believe we have operated as a REIT in compliance with the Internal Revenue Code. However, we cannot assure you that, upon review or audit, the IRS will agree with this conclusion. A different conclusion may jeopardize our REIT status. If we cease to be a REIT, we would violate a covenant in our bank credit facilities, our ability to raise capital could be adversely affected, we may be subject to material amounts of federal and state income taxes and the value of our shares would likely decline.

Real estate ownership creates risks and liabilities.

Our business is subject to risks associated with real estate ownership, including:

•property and casualty losses, some of which may be uninsured;

•defaults and bankruptcies by our tenants;

•the illiquid nature of real estate markets which impairs our ability to purchase or sell our assets rapidly to respond to changing market conditions;

•leases which are not renewed at expiration or for property which may be relet at lower rents;

•costs that may be incurred relating to maintenance and repair, and the need to make expenditures due to changes in governmental regulations, including the Americans with Disabilities Act; and

•environmental hazards at our properties for which we may be liable, including those created by prior owners or occupants, existing tenants, abutters or other persons.

We face significant competition.

We plan to continue to acquire properties whenever we are able to identify attractive opportunities. We may face competition for acquisition opportunities from other investors and this competition may subject us to the following risks:

•we may be unable to acquire a desired property because of competition from other well capitalized real estate investors, including publicly traded and private REITs, institutional investment funds and others;

•competition from other real estate investments may significantly increase the purchase price we must pay to acquire properties.

In addition, substantially all of our properties face competition for tenants from properties in the areas we are located. This competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge. Some competing properties may have vacancy rates higher than our properties, which may result in their owners being willing to lease available space at lower prices than the space in our properties.

Increasing interest rates would increase our interest costs on variable rate debt and could adversely impact our ability to refinance existing debt or sell assets.

On December 31, 2005, we had approximately $600 million of debt outstanding at variable interest. If interest rates increase, so will our interest costs, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our shareholders. Further, rising interest rates may raise our cost to refinance existing debt when it matures. We may from time to time enter into agreements such as interest rate swaps, caps, floors and other interest rate hedging contracts with respect to a portion of our variable rate debt. While these agreements may lessen the impact of rising interest rates on us, they also expose us to the risk that other parties to the agreements will not perform or that the agreements will be unenforceable. In addition, an increase in interest rates could decrease the amount buyers may be willing to pay for our properties, thereby limiting our ability to sell property to raise capital or realize gains.

22

We have substantial debt.

At December 31, 2005, we had $2.5 billion in debt outstanding, which was approximately 49% of our total book capitalization. Our note indenture and revolving credit facility permit us and our subsidiaries to incur additional debt, including secured debt. If we default in paying any debts or honoring our debt covenants, these debts may be accelerated and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.

Any notes we may issue will be effectively subordinated to the debts of our subsidiaries and to our secured debt.

We conduct substantially all of our business through, and substantially all of our properties are owned by, subsidiaries. Consequently, our ability to pay debt service on our outstanding notes and any notes we issue in the future will be dependent upon the cash flow of our subsidiaries and payments by those subsidiaries to us as dividends or otherwise. Our subsidiaries are separate legal entities and may have their own liabilities. Payments due on our outstanding notes, and any notes we may issue are, or will be, effectively subordinated to liabilities of our subsidiaries, including guaranty liabilities. Substantially all of our subsidiaries have guaranteed our revolving credit facility and our term loan; none of our subsidiaries guaranty our outstanding notes. In addition, at December 31, 2005, our subsidiaries have $374 million of secured debt. Our outstanding notes are, and any notes we may issue will be, also effectively subordinated to our secured debt.

Our notes may permit redemption before maturity, and our noteholders may be unable to reinvest proceeds at the same or a higher rate.

The terms of our notes may permit us to redeem all or a portion of our outstanding notes or notes we may issue in the future after a certain amount of time. Generally, the redemption price will equal the principal amount being redeemed, plus accrued interest to the redemption date, plus any applicable premium. If a redemption occurs, our noteholders may be unable to reinvest the money they receive from the redemption at a rate that is equal to or higher than the rate of return we previously paid on the redeemed notes.

There may be no public market for notes we may issue and one may not develop.

Generally, any notes we may issue will be a new issue for which no trading market currently exists. We may not list our notes on any securities exchange or seek approval for quotation through any automated quotation system. We can give no assurance that an active trading market for any of our notes will exist in the future. Even if a market does develop, the liquidity of the trading market for any of our notes and the market price quoted for any such notes may be adversely affected by changes in the overall market for fixed income securities, by changes in our financial performance or prospects, or by changes in the prospects for REITs or for the real estate industry generally.

Item 1B. Unresolved Staff Comments

None.

23

Item 2. Properties

General. At December 31, 2005, approximately 96% of our total investments included office and industrial buildings and leased industrial land, 2% was represented by our equity investment in Senior Housing and 2% was represented by our equity investment in Hospitality Properties. At December 31, 2005, we had real estate investments totaling $5.2 billion in 442 properties that were leased to approximately 2,000 tenants. Our properties are located in both Central Business District, or CBD, and suburban areas. We have concentrations of properties in seven major markets areas: Metro Philadelphia, PA; Metro Washington, DC; Oahu, HI; Metro Boston, MA; Southern California; Metro Atlanta, GA; and Metro Austin, TX.

Occupancy for all properties owned on December 31, 2005 and 2004, was 94.3% and 93.0%, respectively. These results reflect average occupancy of approximately 92% at properties that we acquired during 2004 and 2005, and increases in occupancy at comparable properties, or properties we owned continuously during 2005 and 2004. Occupancy at properties we owned continuously since October 1, 2004, increased by 1.2 percentage points and occupancy at properties we owned continuously since January 1, 2004, increased by 1.6 percentage points. The following tables summarize additional information about our properties as of December 31, 2005 (square feet in thousands):

	All Properties				Comparable Properties (1)				Comparable Properties (2)
	As of the Year Ended December 31,				As of the Quarter Ended December 31,				As of the Year Ended December 31,
	2005		2004		2005		2004		2005		2004
Total properties	442		375		362		362		235		235
Total square feet	55,035		44,154		42,941		42,941		35,523		35,523
Percent leased (3)	94.3	%	93.0	%	94.4	%	93.2	%	95.2	%	93.6	%

(1)Based on properties owned continuously since October 1, 2004.

(2)Based on properties owned continuously since January 1, 2004.

(3)Percent leased includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

Results of operations and other operating data by property type for all properties is as follows (dollars and square feet in thousands):

	All Properties
	As of and For the Quarter Ended December 31,		As of and For the Year Ended December 31,
	2005	2004	2005	2004
Number of properties:
Office	307	278	307	278
Industrial	135	97	135	97
Total	442	375	442	375
CBD	51	50	51	50
Suburban	391	325	391	325
Total	442	375	442	375
Square feet:
Office	31,267	28,329	31,267	28,329
Industrial	23,768	15,825	23,768	15,825
Total	55,035	44,154	55,035	44,154
CBD	11,519	10,889	11,519	10,889
Suburban	43,516	33,265	43,516	33,265
Total	55,035	44,154	55,035	44,154

24

	All Properties
	As of and For the Quarter Ended December 31,						As of and For the Year Ended December 31,
	2005			2004			2005			2004
Percent leased (1):
Office	92.5		%	91.0		%	92.5		%	91.0		%
Industrial	96.6		%	96.5		%	96.6		%	96.5		%
Total	94.3		%	93.0		%	94.3		%	93.0		%
CBD	92.9		%	92.9		%	92.9		%	92.9		%
Suburban	94.6		%	93.0		%	94.6		%	93.0		%
Total	94.3		%	93.0		%	94.3		%	93.0		%
Rental income (2):
Office	$	158,551		$	143,460		$	605,681		$	518,828
Industrial	27,515			23,928			105,077			81,928
Total	$	186,066		$	167,388		$	710,758		$	600,756
CBD	$	72,547		$	68,497		$	281,779		$	268,879
Suburban	113,519			98,891			428,979			331,877
Total	$	186,066		$	167,388		$	710,758		$	600,756
Net operating income (NOI) (3):
Office	$	92,378		$	86,140		$	366,039		$	314,938
Industrial	19,950			16,361			74,411			58,527
Total	$	112,328		$	102,501		$	440,450		$	373,465
CBD	$	40,079		$	38,983		$	160,188		$	156,602
Suburban	72,249			63,518			280,262			216,863
Total	$	112,328		$	102,501		$	440,450		$	373,465
NOI margin (4):
Office	58.3		%	60.0		%	60.4		%	60.7		%
Industrial	72.5		%	68.4		%	70.8		%	71.4		%
Total	60.4		%	61.2		%	62.0		%	62.2		%
CBD	55.2		%	56.9		%	56.8		%	58.2		%
Suburban	63.6		%	64.2		%	65.3		%	65.3		%
Total	60.4		%	61.2		%	62.0		%	62.2		%

(1)	Percent leased includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.
(2)	Includes some triple net lease rental income. Excludes rental income from discontinued operations.
(3)	NOI is defined as property rental income less property operating expenses. Excludes NOI from discontinued operations. Property level net operating income is not a measure of operating results or cash flows from operating activities as measured by U.S. generally accepted accounting principles, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate property level net operating income in the same manner. We consider property level net operating income to be an appropriate supplemental measure to net income because it helps both investors and management to understand the operations of our properties. See footnote 9 to our financial statements.
(4)	NOI margin is defined as NOI as a percentage of rental income.

25

Results of operations and other operating data by major market for all properties is as follows (dollars and square feet in thousands):

	All Properties
	As of and For the Quarter Ended December 31,						As of and For the Year Ended December 31,
	2005			2004			2005			2004
Number of properties:
Metro Philadelphia, PA	21			21			21			21
Metro Washington, DC	20			20			20			20
Oahu, HI	53			12			53			12
Metro Boston, MA	36			39			36			39
Southern California	24			24			24			24
Metro Atlanta, GA	45			36			45			36
Metro Austin, TX	26			26			26			26
Other markets	217			197			217			197
Total	442			375			442			375
Square feet:
Metro Philadelphia, PA	5,447			5,452			5,447			5,452
Metro Washington, DC	2,645			2,645			2,645			2,645
Oahu, HI	17,879			9,699			17,879			9,699
Metro Boston, MA	2,737			2,979			2,737			2,979
Southern California	1,444			1,444			1,444			1,444
Metro Atlanta, GA	2,186			1,845			2,186			1,845
Metro Austin, TX	2,806			2,809			2,806			2,809
Other markets	19,891			17,281			19,891			17,281
Total	55,035			44,154			55,035			44,154
Percent leased (1):
Metro Philadelphia, PA	93.0		%	91.6		%	93.0		%	91.6		%
Metro Washington, DC	95.9		%	94.6		%	95.9		%	94.6		%
Oahu, HI	97.8		%	99.4		%	97.8		%	99.4		%
Metro Boston, MA	97.0		%	92.4		%	97.0		%	92.4		%
Southern California	97.9		%	97.0		%	97.9		%	97.0		%
Metro Atlanta, GA	89.1		%	92.6		%	89.1		%	92.6		%
Metro Austin, TX	90.6		%	80.2		%	90.6		%	80.2		%
Other markets	91.7		%	91.4		%	91.7		%	91.4		%
Total	94.3		%	93.0		%	94.3		%	93.0		%
Rental income: (2)
Metro Philadelphia, PA	$	32,900		$	30,794		$	133,390		$	131,469
Metro Washington, DC	20,290			18,626			77,751			66,234
Oahu, HI	14,619			10,748			51,343			42,205
Metro Boston, MA	14,775			15,003			57,932			52,157
Southern California	12,028			11,968			47,553			42,622
Metro Atlanta, GA	9,279			8,442			34,889			14,813
Metro Austin, TX	10,659			9,032			39,768			38,317
Other markets	71,516			62,775			268,132			212,939
Total	$	186,066		$	167,388		$	710,758		$	600,756
Net operating income (NOI) (3):
Metro Philadelphia, PA	$	17,401		$	15,148		$	72,909		$	71,676
Metro Washington, DC	13,018			11,987			50,316			42,752
Oahu, HI	12,130			8,712			41,561			34,582
Metro Boston, MA	9,629			10,587			38,898			37,724
Southern California	8,282			8,087			32,374			27,823
Metro Atlanta, GA	5,377			5,229			21,661			9,404
Metro Austin, TX	4,495			4,571			18,150			18,173
Other markets	41,996			38,180			164,581			131,331
Total	$	112,328		$	102,501		$	440,450		$	373,465

26

	All Properties
	As of and For the Quarter Ended December 31,				As of and For the Year Ended December 31,
	2005		2004		2005		2004
NOI margin (4):
Metro Philadelphia, PA	52.9	%	49.2	%	54.7	%	54.5	%
Metro Washington, DC	64.2	%	64.4	%	64.7	%	64.5	%
Oahu, HI	83.0	%	81.1	%	80.9	%	81.9	%
Metro Boston, MA	65.2	%	70.6	%	67.1	%	72.3	%
Southern California	68.9	%	67.6	%	68.1	%	65.3	%
Metro Atlanta, GA	57.9	%	61.9	%	62.1	%	63.5	%
Metro Austin, TX	42.2	%	50.6	%	45.6	%	47.4	%
Other markets	58.7	%	60.8	%	61.4	%	61.7	%
Total	60.4	%	61.2	%	62.0	%	62.2	%

(1)	Percent leased includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.
(2)	Includes some triple net lease rental income. Excludes rental income from discontinued operations.
(3)	NOI is defined as property rental income less property operating expenses. Excludes NOI from discontinued operations. Property level net operating income is not a measure of operating results or cash flows from operating activities as measured by U.S. generally accepted accounting principles, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate property level net operating income in the same manner. We consider property level net operating income to be an appropriate supplemental measure to net income because it helps both investors and management to understand the operations of our properties. See footnote 9 to our financial statements.
(4)	NOI margin is defined as NOI as a percentage of rental income.

Results of operations and other operating data by property type for comparable properties is as follows (dollars and square feet in thousands):

	Comparable Properties
	As of and For the Quarter Ended December 31, (1)						As of and For the Year Ended December 31, (2)
	2005			2004			2005			2004
Office:
Properties	270			270			212			212
Total square feet	27,974			27,974			23,166			23,166
Percent leased (3)	92.8		%	91.0		%	93.0		%	90.7		%
Rental income (4)	$	148,402		$	142,943		$	492,973		$	477,901
Net operating income (NOI) (5)	$	86,903		$	85,734		$	295,485		$	289,187
NOI % growth	1.4		%				2.2		%
Industrial:
Properties	92			92			23			23
Total square feet	14,967			14,967			12,357			12,357
Percent leased (3)	97.3		%	97.3		%	99.2		%	98.9		%
Rental income (4)	$	23,150		$	22,741		$	74,117		$	71,960
Net operating income (NOI) (5)	$	16,717		$	15,572		$	54,038		$	52,523
NOI % growth	7.4		%				2.9		%
CBD:
Properties	50			50			48			48
Total square feet	10,888			10,888			10,420			10,420
Percent leased (3)	92.6		%	92.9		%	93.1		%	92.6		%
Rental income (4)	$	69,364		$	68,497		$	264,592		$	263,625
Net operating income (NOI) (5)	$	38,261		$	38,983		$	150,395		$	153,584
NOI % growth	(1.9		)%				(2.1		)%

27

	Comparable Properties
	As of and For the Quarter Ended December 31, (1)						As of and For the Year Ended December 31, (2)
	2005			2004			2005			2004
Suburban:
Properties	312			312			187			187
Total square feet	32,053			32,053			25,103			25,103
Percent leased (3)	95.0		%	93.3		%	96.1		%	94.0		%
Rental income (4)	$	102,188		$	97,187		$	302,498		$	286,236
Net operating income (NOI) (5)	$	65,359		$	62,323		$	199,128		$	188,126
NOI % growth	4.9		%				5.8		%
Total:
Properties	362			362			235			235
Total square feet	42,941			42,941			35,523			35,523
Percent leased (3)	94.4		%	93.2		%	95.2		%	93.6		%
Rental income (4)	$	171,552		$	165,684		$	567,090		$	549,861
Net operating income (NOI) (5)	$	103,620		$	101,306		$	349,523		$	341,710
NOI % growth	2.3		%				2.3		%

(1)	Based on properties owned continuously since October 1, 2004.
(2)	Based on properties owned continuously since January 1, 2004.
(3)	Percent leased includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.
(4)	Includes some triple net lease rental income.
(5)	NOI is defined as property rental income less property operating expenses. Property level net operating income is not a measure of operating results or cash flows from operating activities as measured by U.S. generally accepted accounting principles, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate property level net operating income in the same manner. We consider property level net operating income to be an appropriate supplemental measure to net income because it helps both investors and management to understand the operations of our properties.

Results of operations and other operating data by major market for comparable properties is as follows (dollars and square feet in thousands):

	Comparable Properties
	As of and For the Quarter Ended December 31, (1)						As of and For the Year Ended December 31, (2)
	2005			2004			2005			2004
Metro Philadelphia, PA:
Properties	21			21			21			21
Total square feet	5,447			5,447			5,447			5,447
Percent leased (3)	93.0		%	91.6		%	93.0		%	91.6		%
Rental income (4)	$	32,900		$	30,794		$	133,390		$	131,469
Net operating income (NOI) (5)	$	17,401		$	15,148		$	72,909		$	71,676
NOI % growth	14.9		%				1.7		%
Metro Washington, DC:
Properties	20			20			16			16
Total square feet	2,645			2,645			2,215			2,215
Percent leased (3)	95.9		%	94.6		%	95.7		%	93.9		%
Rental income (4)	$	20,290		$	18,626		$	65,704		$	60,786
Net operating income (NOI) (5)	$	13,018		$	11,987		$	41,493		$	38,686
NOI % growth	8.6		%				7.3		%

28

	Comparable Properties
	As of and For the Quarter Ended December 31, (1)						As of and For the Year Ended December 31, (2)
	2005			2004			2005			2004
Oahu, HI:
Properties	11			11			11			11
Total square feet	9,625			9,625			9,625			9,625
Percent leased (3)	99.6		%	99.6		%	99.6		%	99.6		%
Rental income (4)	$	11,787		$	10,684		$	44,951		$	42,141
Net operating income (NOI) (5)	$	9,782		$	8,656		$	36,237		$	34,527
NOI % growth	13.0		%				5.0		%
Metro Boston, MA:
Properties	36			36			33			33
Total square feet	2,737			2,737			2,335			2,335
Percent leased (3)	97.0		%	94.7		%	96.6		%	93.9		%
Rental income (4)	$	14,775		$	15,003		$	48,603		$	49,004
Net operating income (NOI) (5)	$	9,629		$	10,587		$	33,379		$	35,854
NOI % growth	(9.0		)%				(6.9		)%
Southern California:
Properties	24			24			18			18
Total square feet	1,444			1,444			1,265			1,265
Percent leased (3)	97.9%			97.0		%	99.0		%	98.2		%
Rental income (4)	$	12,028		$	11,968		$	44,416		$	41,197
Net operating income (NOI) (5)	$	8,282		$	8,087		$	30,486		$	26,951
NOI % growth	2.4%						13.1		%
Metro Atlanta, GA:
Properties	36			36			—			—
Total square feet	1,845			1,845			—			—
Percent leased (3)	92.1%			92.6		%	—			—
Rental income (4)	$	8,481		$	8,442		$	—		$	—
Net operating income (NOI) (5)	$	5,036		$	5,229		$	—		$	—
NOI % growth	(3.7		)%				—
Metro Austin, TX:
Properties	26			26			26			26
Total square feet	2,806			2,806			2,806			2,806
Percent leased (3)	90.6%			80.2		%	90.6		%	80.3		%
Rental income (4)	$	10,659		$	9,032		$	39,768		$	38,317
Net operating income (NOI) (5)	$	4,495		$	4,571		$	18,150		$	18,173
NOI % growth	(1.7		)%				(0.1		)%
Other Markets:
Properties	188			188			110			110
Total square feet	16,392			16,392			11,830			11,830
Percent leased (3)	91.7		%	91.3		%	92.9		%	92.0		%
Rental income (4)	$	60,632		$	61,135		$	190,258		$	186,947
Net operating income (NOI) (5)	$	35,977		$	37,041		$	116,869		$	115,843
NOI % growth	(2.9		)%				0.9		%

29

	Comparable Properties
	As of and For the Quarter Ended December 31, (1)						As of and For the Year Ended December 31, (2)
	2005			2004			2005			2004
Total:
Properties	362			362			235			235
Total square feet	42,941			42,941			35,523			35,523
Percent leased (3)	94.4		%	93.2		%	95.2		%	93.6		%
Rental income (4)	$	171,552		$	165,684		$	567,090		$	549,861
Net operating income (NOI) (5)	$	103,620		$	101,306		$	349,523		$	341,710
NOI % growth	2.3		%				2.3		%

(1)	Based on properties owned continuously since October 1, 2004.
(2)	Based on properties owned continuously since January 1, 2004.
(3)	Percent leased includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.
(4)	Includes some triple net lease rental income.
(5)	NOI is defined as property rental income less property operating expenses. Property level net operating income is not a measure of operating results or cash flows from operating activities as measured by U.S. generally accepted accounting principles, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate property level net operating income in the same manner. We consider property level net operating income to be an appropriate supplemental measure to net income because it helps both investors and management to understand the operations of our properties.

30

Properties acquired and disposed of during the year ended December 31, 2005, were as follows (square feet and dollars in thousands):

Acquisitions:

Date Acquired	Location	Office/ Industrial	Number of Properties	Square Feet	Purchase Price (1)		Purchase Price (1) / Square Feet		Cap Rate (2)		Weighted Average Remaining Lease Term (3)	Percent Leased (4)		Major Tenant
May-05	Indianapolis, IN	Office	1	628	$	74,750	$	119.03	10.9	%	3.8	95.9	%	National City Bank of Indiana
Jun-05	Oahu, HI	Industrial Lands	41	8,180	115,500		14.12		7.6	%	15.0	95.4	%	Tesoro Hawaii Corporation
Jun-05	Indianapolis, IN	Office	1	72	6,600		91.67		9.4	%	5.9	100.0	%	Indiana Lumbermens Mutual Insurance Company
Jul-05	Milford, CT	Office	1	144	17,000		118.06		9.1	%	2.9	90.9	%	Hubbell Incorporated (Delaware)
Aug-05	Roswell, GA	Office	8	244	25,100		102.87		9.4	%	3.0	87.3	%	Kimberly-Clark Corporation
Sep-05	Atlanta, GA	Office	1	96	6,150		64.06		—	%	2.4	30.1	%	The March of Dimes
Sep-05	Pittsburgh, PA	Office	9	848	69,100		81.49		9.2	%	3.6	77.7	%	Aetna Life Insurance Company
Nov-05	Kansas City, MO	Office	1	100	13,409		134.09		10.3	%	5.0	95.4	%	Southwestern Bell Telephone Company
Dec-05	Deerfield, Lake Forest and Waukegan, IL	Office	4	398	72,665		182.58		9.0	%	5.0	100.0	%	Abbott Laboratories
Dec-05	Bannockburn, IL	Office	1	257	58,335		226.98		9.5	%	5.9	100.0	%	RR Donnelley
Dec-05	Mason and Sharonville, OH	Office	2	148	17,500		118.24		9.0	%	5.8	93.4	%	Acosta, Inc.
Total / weighted average			70	11,115	$	476,109	$	42.83	9.0	%	5.8	93.5	%

Dispositions:

Date Sold	Location	Office/ Industrial	Number of Properties	Square Feet	Sale Price (1)		Original Purchase Price (1)		Sale Price (1) / Square Feet		Original Purchase Price (1) / Square Feet		Sale Price Multiple of Original Purchase Price		Book Gain on Sale
May-05	Westwood, MA	Industrial	3	237	$	20,500	$	13,410	$	86.50	$	56.58	1.5	x	$	7,592
Total			3	237	$	20,500	$	13,410	$	86.50	$	56.58	1.5	x	$	7,592

(1)	Represents the gross contract purchase or sale price and excludes closing costs and purchase price allocations.
(2)	Represents estimated current GAAP based annual net operating income, or NOI, which is defined as property rental income less property operating expenses, divided by the purchase price.
(3)	Average remaining lease term based on rental income as of the date acquired.
(4)	Percent leased as of the date acquired.

31

We signed new leases for 538,000 square feet and lease renewals for 774,000 square feet during the quarter ended December 31, 2005, for weighted average rental rates that were 5% above prior rents. We signed new leases for 2,300,000 square feet and lease renewals for 2,733,000 square feet during the year ended December 31, 2005, at weighted average rental rates that were 3% below prior rents. Average lease terms for leases signed during the quarter and year ended December 31, 2005, were 9.4 years and 6.5 years, respectively. Commitments for tenant improvement and leasing commission costs for leases signed during the quarter and year ended December 31, 2005, totaled $10.23 per square foot and $13.73 per square foot, respectively, on a weighted average basis. Rental rates at which available space may be relet in the future will depend on prevailing market conditions at that time. Approximately 24% of our leased square feet are under leases scheduled to expire through December 31, 2008. Lease expirations by property type as of December 31, 2005, are as follows (dollars and square feet in thousands):

	Total			2006			2007			2008			2009 and After
Office:
Total square feet	31,267
Leased square feet (1)	28,931			3,297			2,920			2,895			19,819
Percent	100.0		%	11.4		%	10.1		%	10.0		%	68.5		%
Annualized rent (2)	$	647,552		$	70,855		$	67,054		$	66,146		$	443,497
Percent	100.0		%	10.9		%	10.4		%	10.2		%	68.5		%
Industrial:
Total square feet	23,768
Leased square feet (1)	22,952			1,023			1,074			1,314			19,541
Percent	100.0		%	4.5		%	4.7		%	5.7		%	85.1		%
Annualized rent (2)	$	112,342		$	5,359		$	8,151		$	9,937		$	88,895
Percent	100.0		%	4.8		%	7.3		%	8.8		%	79.1		%
CBD:
Total square feet	11,519
Leased square feet (1)	10,698			974			978			1,253			7,493
Percent	100.0		%	9.1		%	9.1		%	11.7		%	70.1		%
Annualized rent (2)	$	284,004		$	26,155		$	27,672		$	30,808		$	199,369
Percent	100.0		%	9.2		%	9.7		%	10.8		%	70.3		%
Suburban:
Total square feet	43,516
Leased square feet (1)	41,185			3,346			3,016			2,956			31,867
Percent	100.0		%	8.1		%	7.3		%	7.2		%	77.4		%
Annualized rent (2)	$	475,890		$	50,059		$	47,533		$	45,275		$	333,023
Percent	100.0		%	10.5		%	10.0		%	9.5		%	70.0		%
Total:
Total square feet	55,035
Leased square feet (1)	51,883			4,320			3,994			4,209			39,360
Percent	100.0		%	8.3		%	7.7		%	8.1		%	75.9		%
Annualized rent (2)	$	759,894		$	76,214		$	75,205		$	76,083		$	532,392
Percent	100.0		%	10.0		%	9.9		%	10.0		%	70.1		%

(1)	Square feet is pursuant to signed leases as of December 31, 2005, and includes (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease.
(2)	Annualized rent is rents pursuant to signed leases as of December 31, 2005, plus expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

32

Lease expirations by major market area as of December 31, 2005, are as follows (dollars and square feet in thousands):

	Total			2006			2007			2008			2009 and After
Metro Philadelphia, PA:
Total square feet	5,447
Leased square feet (1)	5,064			338			275			665			3,786
Percent	100.0		%	6.7		%	5.4		%	13.1		%	74.8		%
Annualized rent (2)	$	128,597		$	9,554		$	5,170		$	15,989		$	97,884
Percent	100.0		%	7.4		%	4.0		%	12.4		%	76.2		%
Metro Washington, DC:
Total square feet	2,645
Leased square feet (1)	2,538			302			222			125			1,889
Percent	100.0		%	11.9		%	8.7		%	4.9		%	74.5		%
Annualized rent (2)	$	77,972		$	8,420		$	6,773		$	3,771		$	59,008
Percent	100.0		%	10.8		%	8.7		%	4.8		%	75.7		%
Oahu, HI:
Total square feet	17,879
Leased square feet (1)	17,481			433			423			530			16,095
Percent	100.0		%	2.5		%	2.4		%	3.0		%	92.1		%
Annualized rent (2)	$	56,964		$	1,016		$	542		$	2,296		$	53,110
Percent	100.0		%	1.8		%	1.0		%	4.0		%	93.2		%
Metro Boston, MA:
Total square feet	2,737
Leased square feet (1)	2,654			208			567			182			1,697
Percent	100.0		%	7.8		%	21.4		%	6.9		%	63.9		%
Annualized rent (2)	$	59,308		$	5,275		$	14,029		$	5,286		$	34,718
Percent	100.0		%	8.9		%	23.7		%	8.9		%	58.5		%
Southern California:
Total square feet	1,444
Leased square feet (1)	1,414			189			274			110			841
Percent	100.0		%	13.4		%	19.4		%	7.8		%	59.4		%
Annualized rent (2)	$	47,522		$	5,735		$	8,476		$	4,673		$	28,638
Percent	100.0		%	12.1		%	17.8		%	9.8		%	60.3		%
Metro Atlanta, GA:
Total square feet	2,186
Leased square feet (1)	1,947			273			166			204			1,304
Percent	100.0		%	14.0		%	8.5		%	10.5		%	67.0		%
Annualized rent (2)	$	37,660		$	4,895		$	3,208		$	3,778		$	25,779
Percent	100.0		%	13.0		%	8.5		%	10.0		%	68.5		%
Metro Austin, TX:
Total square feet	2,806
Leased square feet (1)	2,542			91			536			138			1,777
Percent	100.0		%	3.6		%	21.1		%	5.4		%	69.9		%
Annualized rent (2)	$	43,575		$	1,992		$	9,051		$	2,752		$	29,780
Percent	100.0		%	4.6		%	20.8		%	6.3		%	68.3		%
Other markets:
Total square feet	19,891
Leased square feet (1)	18,243			2,486			1,531			2,255			11,971
Percent	100.0		%	13.6		%	8.4		%	12.4		%	65.6		%
Annualized rent (2)	$	308,296		$	39,327		$	27,956		$	37,538		$	203,475
Percent	100.0		%	12.8		%	9.1		%	12.2		%	65.9		%
Total:
Total square feet	55,035
Leased square feet (1)	51,883			4,320			3,994			4,209			39,360
Percent	100.0		%	8.3		%	7.7		%	8.1		%	75.9		%
Annualized rent (2)	$	759,894		$	76,214		$	75,205		$	76,083		$	532,392
Percent	100.0		%	10.0		%	9.9		%	10.0		%	70.1		%

(1)Square feet is pursuant to signed leases as of December 31, 2005, and includes (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease.

(2)Annualized rent is rents pursuant to signed leases as of December 31, 2005, plus expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

33

Our principal source of funds is rents from tenants at our properties. Rents are generally received from our non-government tenants monthly in advance, and from our government tenants monthly in arrears. As of December 31, 2005, tenants responsible for 1% or more of our total rent were as follows (square feet in thousands):

Tenant	Square Feet (1)	% of Total Square Feet		% of Rent (2)		Lease Expirations
1U. S. Government	5,131	9.9	%	14.5	%	2006 to 2020
2GlaxoSmithKline plc	605	1.2	%	2.0	%	2013
3PNC Financial Services Group	488	0.9	%	1.5	%	2011
4Comcast Corporation	406	0.8	%	1.3	%	2006, 2008
5Tyco International Ltd	660	1.3	%	1.3	%	2007, 2011
6Solectron Corporation	765	1.5	%	1.2	%	2014
7Towers, Perrin, Forster & Crosby, Inc.	388	0.7	%	1.2	%	2006, 2011
8Motorola, Inc.	770	1.5	%	1.2	%	2006, 2008, 2010
9Manugistics, Inc.	283	0.5	%	1.2	%	2012
10Ballard Spahr Andrews & Ingersoll, LLP	231	0.4	%	1.1	%	2008, 2015
11Westinghouse Electric Corporation	534	1.0	%	1.1	%	2006, 2010
12Mellon Bank, N.A.	234	0.5	%	1.0	%	2012, 2015
Total	10,495	20.2	%	28.6	%

(1)Square feet is pursuant to signed leases as of December 31, 2005, and includes (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(2)Rent is pursuant to signed leases as of December 31, 2005, plus estimated expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

As of December 31, 2005, a summary of our portfolio and a breakdown of our tenants based on rent were as follows (square feet and dollars in thousands):

	Office			Industrial			Total			Percent
Square feet (1):
CBD	11,361			158			11,519			20.9	%
Suburban	19,906			23,610			43,516			79.1	%
Total	31,267			23,768			55,035			100.0	%
Percent	56.8		%	43.2		%	100.0		%
U.S. Government and other government tenants	5,583			—			5,583			10.1	%
Medical related tenants	5,608			151			5,759			10.5	%
Land leases	—			17,482			17,482			31.8	%
Other investment grade tenants (2)	7,754			1,267			9,021			16.4	%
Other tenants	9,985			4,053			14,038			25.5	%
Vacant	2,337			815			3,152			5.7	%
Total	31,267			23,768			55,035			100.0	%
Percent	56.8		%	43.2		%	100.0		%
Rent (3):
U.S. Government and other government tenants	$	118,966		$	—		$	118,966		15.6	%
Medical related tenants	137,307			816			138,123			18.2	%
Land leases	—			56,964			56,964			7.5	%
Other investment grade tenants (2)	164,697			16,750			181,447			23.9	%
Other tenants	226,582			37,812			264,394			34.8	%
Total	$	647,552		$	112,342		$	759,894		100.0	%
Percent	85.2		%	14.8		%	100.0		%

(1)Includes leased square feet pursuant to signed leases as of December 31, 2005, including (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(2)Excludes investment grade tenants included in other tenant categories above.

(3)Rent is pursuant to signed leases as of December 31, 2005, plus estimated expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

34

The states in which we owned real estate at December 31, 2005, were as follows (dollars in thousands):

Location	Number of Properties	Investment Amount		Net Book Value		Rent (1)
Alaska	1	$	1,032	$	847	$	340
Arizona	10	122,097		107,849		18,081
California	46	412,846		355,398		60,114
Colorado	10	129,597		116,907		22,259
Connecticut	5	52,240		48,042		7,873
Delaware	2	69,737		59,422		4,930
District of Columbia	5	244,782		202,164		34,863
Florida	4	11,913		9,676		1,439
Georgia	46	235,022		227,747		38,164
Hawaii	53	610,707		609,781		56,964
Illinois	5	121,412		121,299		17,025
Indiana	2	74,540		73,513		14,948
Kansas	1	8,274		6,795		1,981
Kentucky	1	11,527		10,922		2,156
Maryland	14	367,919		328,373		54,690
Massachusetts	35	343,183		300,339		56,807
Michigan	18	62,971		60,897		15,248
Minnesota	15	137,353		116,747		17,721
Missouri	4	37,293		34,854		6,168
New Hampshire	1	22,170		18,864		2,501
New Jersey	4	37,736		29,973		5,833
New Mexico	16	110,758		100,454		19,756
New York	18	215,456		184,918		33,757
Ohio	17	59,268		55,716		8,652
Oklahoma	5	46,637		38,998		4,615
Pennsylvania	37	999,107		869,654		157,200
Rhode Island	1	8,010		6,363		1,093
Tennessee	3	55,542		50,066		8,575
Texas	31	433,186		368,942		55,438
Virginia	10	103,895		89,894		17,793
Washington	20	74,246		68,580		10,859
West Virginia	1	4,969		4,088		682
Wyoming	1	10,676		8,811		1,369
Total real estate	442	$	5,236,101	$	4,686,893	$	759,894

(1)Rent is pursuant to signed leases as of December 31, 2005, plus estimated expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

At December 31, 2005, 13 office complexes we owned comprised of 49 properties with an aggregate cost of $791.6 million were secured by mortgage notes payable aggregating $375.1 million, and $374.2 million net of unamortized discounts and premiums.

At December 31, 2005, the carrying book values of our equity ownership of Senior Housing and Hospitality Properties were $95.0 million and $99.3 million, respectively, and the market values of these equity positions were $130.4 million and $160.4 million, respectively. During 2005 we sold 950,000 of our Senior Housing shares and Senior Housing completed a public offering of common shares that reduced our ownership percentage to 10.7%. At December 31, 2005, we owned 5.6% of the Hospitality Properties common shares outstanding. At December 31, 2005, Senior Housing owned 188 senior housing properties and Hospitality Properties owned 298 hotels.

Item 3. Legal Proceedings

In the ordinary course of business we are involved in litigation incidental to our business; however, we are not aware of any pending legal proceeding affecting us or any of our properties for which we might become liable or the outcome of which we expect to have a material impact on us.

35

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common shares are traded on the NYSE (symbol: HRP). The following table sets forth for the periods indicated the high and low sale prices for our common shares as reported in the NYSE composite transactions reports:

	High		Low
2004
First Quarter	$	11.37	$	9.76
Second Quarter	11.39		8.25
Third Quarter	11.07		9.86
Fourth Quarter	12.99		10.96
2005
First Quarter	$	13.20	$	10.95
Second Quarter	12.60		11.35
Third Quarter	13.25		11.75
Fourth Quarter	12.51		10.18

The closing price of our common shares on the NYSE on March 6, 2006, was $10.67 per share.

As of March 6, 2006, there were 3,186 shareholders of record, and we estimate that as of such date there were in excess of 91,000 beneficial owners of our common shares.

Information about distributions paid to common shareholders is summarized in the table below. Common share distributions are generally paid in the quarter following the quarter to which they relate.

	Cash Distributions
	Per Common Share
	2004		2005
First Quarter	$	0.20	$	0.21
Second Quarter	0.20		0.21
Third Quarter	0.21		0.21
Fourth Quarter	0.21		0.21
Total	$	0.82	$	0.84

All common share distributions shown in the table above have been paid. We currently intend to continue to declare and pay common share distributions on a quarterly basis. However, distributions are made at the discretion of our board of trustees and depend on our earnings, cash available for distribution, financial condition, capital market conditions, growth prospects and other factors that our board of trustees deems relevant.

36

Item 6. Selected Financial Data

Set forth below is selected financial data for the periods and dates indicated. This data should be read in conjunction with, and is qualified in its entirety by reference to, our management’s discussion and analysis of financial condition and results of operations and our consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K. Amounts are in thousands, except per share data.

Income Statement Data

	Year Ended December 31,
	2005		2004		2003		2002		2001
Total revenues (1)	$	710,758	$	600,756	$	498,795	$	412,577	$	385,910
Income from continuing operations	157,471		161,312		115,731		106,135		81,683
Net income (2)	164,984		162,829		114,446		106,763		82,804
Net income available for common shareholders (3)	118,984		116,829		68,446		79,138		65,962
Common distributions declared (4)	172,065		147,156		118,348		103,056		113,135
Weighted average common shares outstanding	197,831		176,157		136,270		128,817		130,253
Per Common Share:
Income from continuing operations	$	0.56	$	0.65	$	0.51	$	0.61	$	0.50
Net income available for common shareholders (3)	0.60		0.66		0.50		0.61		0.51
Common distributions declared (4)	0.84		0.83		0.80		0.80		0.87

Balance Sheet Data

	December 31,
	2005		2004		2003		2002		2001
Real estate properties (5)	$	5,236,101	$	4,685,069	$	3,891,966	$	3,074,656	$	2,592,487
Equity investments	194,297		207,804		260,208		264,087		273,442
Total assets	5,327,167		4,813,330		4,013,244		3,221,652		2,805,426
Total indebtedness, net	2,520,156		2,355,031		1,876,821		1,215,977		1,097,217
Total shareholders’ equity	2,645,486		2,307,194		2,011,651		1,926,273		1,656,500

(1)Reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.

(2)Changes in net income include income from property acquisitions during all periods presented; gains of $11.8 million recognized in 2005 from equity transactions of equity investments and the sale of 950,000 of our Senior Housing shares, and gains of $30.0 million recognized in 2004 from equity transactions of equity investments and the sale of 4.1 million of our Senior Housing shares; and the $19.3 million loss on equity transactions of equity investments in 2001.

(3)Net income available for common shareholders is net income reduced by preferred distributions.

(4)Includes distributions of common shares of Five Star Quality Care, Inc. in 2001. Cash distributions declared with respect to 2001 were $103,783, or $0.80 per common share.

(5)Excludes value of acquired real estate leases.

37

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with our consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K.

OVERVIEW

We primarily own office buildings located throughout the United States. We also own approximately 18 million square feet of leased commercial and industrial lands located in Oahu, Hawaii and have minority holdings in shares of our former subsidiaries, Senior Housing and Hospitality Properties.

Property Operations

As of December 31, 2005, 94.3% of our total square feet was leased, compared to 93.0% leased as of December 31, 2004. These results reflect a 1.2 percentage increase in occupancy at properties we owned continuously since October 1, 2004, and a 1.6 percentage increase in occupancy at properties we owned continuously since January 1, 2004. During the year ended December 31, 2005, we signed new leases for 2.3 million square feet and lease renewals for 2.7 million square feet, at weighted average rental rates that were 3% below prior rents. Average lease terms for leases signed during 2005 were 6.5 years. Commitments for tenant improvement and leasing commission costs for leases signed during 2005 totaled $13.73 per square foot on a weighted average basis.

During the past twelve months, the decline in occupancies at some of our continuously owned buildings which we previously experienced has stopped. Also, quoted office rent rates in most of the areas where our properties are located seem to have stabilized. However, we continue to experience strong competition to retain and attract office tenants in the form of landlord funded tenant build outs and increased leasing commissions payable to tenant brokers. These build out costs and leasing commissions are generally amortized as a reduction of our income during the terms of the affected leases. We do not know whether or when the present market conditions affecting our properties may change. At this time, however, we believe that modest declines in effective rents will continue to depress the financial results at some of our currently owned office buildings during 2006. There are too many variables for us to reasonably project what the financial impact of these market conditions will be on our results for future periods.

Investment Activities

During 2005 we acquired 70 properties with 11.1 million square feet for aggregate gross purchase prices totaling $476.1 million, including 29 office properties with 2.9 million square feet for $360.6 million and 8.2 million square feet of leased industrial land for $115.5 million. At the time of acquisition, these properties were approximately 94% leased and projected to yield approximately 9% of the aggregate gross purchase price, based on estimated annual net operating income, or NOI, which we define as property rental income less property operating expenses. During 2005 we sold 950,000 common shares of Senior Housing. After this sale, we owned 7.7 million Senior Housing common shares, or 10.7% of Senior Housing outstanding common shares at December 31, 2005.

Financing Activities

During 2005 we issued 32.5 million common shares in public offerings, raising net proceeds of $384.0 million and issued $250 million 5.75% unsecured senior notes due 2015. Proceeds from these financing activities were used to repay amounts outstanding under our revolving credit facility and for general business purposes. We also repaid our $100 million 6.70% unsecured senior notes when they became due in February 2005, and we prepaid $84.9 million of 8.4% and 8.7% secured mortgage debt in July and August 2005 using cash on hand and borrowings under our revolving credit facility.

38

RESULTS OF OPERATIONS

Year Ended December 31, 2005, Compared to Year Ended December 31, 2004

	Year Ended December 31,
	2005			2004			$ Change			% Change
	(in thousands, except per share data)
Rental income	$	710,758		$	600,756		$	110,002		18.3	%
Expenses:
Operating expenses	270,308			227,291			43,017			18.9	%
Depreciation and amortization	136,307			111,986			24,321			21.7	%
General and administrative	30,446			25,170			5,276			21.0	%
Total expenses	437,061			364,447			72,614			19.9	%
Operating income	273,697			236,309			37,388			15.8	%
Interest income	1,490			638			852			133.5	%
Interest expense	(143,663		)	(118,212		)	(25,451		)	(21.5	)%
Loss on early extinguishment of debt	(168		)	(2,866		)	2,698			94.1	%
Equity in earnings of equity investments	14,352			15,457			(1,105		)	(7.1	)%
Gain on sale of shares of equity investments	5,522			21,550			(16,028		)	(74.4	)%
Gain on issuance of shares by equity investees	6,241			8,436			(2,195		)	(26.0	)%
Income from continuing operations	157,471			161,312			(3,841		)	(2.4	)%
(Loss) income from discontinued operations	(79		)	1,517			(1,596		)	(105.2	)%
Gain on sale of properties	7,592			—			7,592			100.0	%
Net income	164,984			162,829			2,155			1.3	%
Preferred distributions	(46,000		)	(46,000		)	—			—
Net income available for common shareholders	$	118,984		$	116,829		$	2,155		1.8	%
Weighted average common shares outstanding	197,831			176,157			21,674			12.3	%
Income from continuing operations per share	$	0.56		$	0.65		$	(0.09	)	(13.8	)%
(Loss) income from discontinued operations per share	$	—		$	0.01		$	(0.01	)	(100.0	)%
Net income available for common shareholders per share	$	0.60		$	0.66		$	(0.06	)	(9.1	)%

Rental income. Rental income increased for the year ended December 31, 2005, compared to the same period in 2004, primarily due to our acquisition of 70 properties in 2005 and 136 properties in 2004. Occupancy, which includes space being prepared for occupancy pursuant to signed leases and space which is being offered for sublease by tenants, at properties we owned continuously since January 1, 2004, was 95.2% at December 31, 2005, compared to 93.6% at December 31, 2004. Rental income includes non cash straight line rent adjustments totaling $30.1 million in 2005 and $22.3 million in 2004 and amortization of acquired real estate leases and obligations totaling ($7.4) million in 2005 and ($3.0) million in 2004. Rental income also includes lease termination fees totaling $3.9 million in 2005 and $3.7 million in 2004.

Total expenses. Total expenses for the year ended December 31, 2005, increased from the year ended December 31, 2004, due to increases in operating expenses, depreciation and amortization and general and administrative expenses related to our acquisition of properties in 2005 and 2004.

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Interest expense. Interest expense increased for the year ended December 31, 2005, compared to the year ended December 31, 2004, reflecting an increase in total debt outstanding which was used primarily to finance acquisitions in 2005 and 2004. In 2005 we issued $250 million unsecured 5.75% senior notes due 2015 and assumed $25.5 million of debt in connection with an acquisition. The weighted average interest rate on all of our outstanding debt at December 31, 2005 and 2004, was 5.9% and 5.7%, respectively.

Loss on early extinguishment of debt. The loss on early extinguishment of debt in 2004 represents the write off of deferred financing fees associated with the repayment of $143 million of our senior notes due 2013.

Equity in earnings of equity investments. Equity in earnings of equity investments decreased during the year ended December 31, 2005, from the year ended December 31, 2004, due to lower earnings recognized from our investment in Senior Housing. The decrease in earnings from Senior Housing is due primarily to our sale of 950,000 Senior Housing common shares we owned in 2005 and the sale of 4.1 million Senior Housing common shares we owned in 2004.

Gain on sale of shares of equity investments. The gain on sale of shares of equity investments reflects the sale of 950,000 Senior Housing common shares we owned in 2005 and 4.1 million Senior Housing common shares we owned in 2004.

Gain on issuance of shares by equity investees. The 2005 and 2004 gains on issuance of shares by equity investees reflects the issuance of common shares during 2005 and 2004 by both Senior Housing and Hospitality Properties at prices above our per share carrying value.

Income from continuing operations. The decrease in income from continuing operations primarily represents the 2004 gain on sale of shares of equity investments, offset by income from properties acquired in 2005 and 2004.

(Loss) income from discontinued operations and gain on sale of properties. The 2005 and 2004 (loss) income from discontinued operations represents income or loss from three industrial properties we sold in May 2005 for net proceeds of $20.1 million. We recognized gains on the sales of these properties of $7.6 million.

Net income and net income available for common shareholders. The increase in net income and net income available for common shareholders for the year ended December 31, 2005, from the year ended December 31, 2004, is due primarily to property acquisitions in 2005 and 2004 and the gain on sale of properties recognized in 2005, offset by the gain on sale of Senior Housing common shares in 2004, a decrease in earnings from equity investments and an increase in interest expense from the issuance of additional debt. Net income available for common shareholders is net income reduced by preferred distributions.

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Year Ended December 31, 2004, Compared to Year Ended December 31, 2003

	Year Ended December 31,
	2004			2003			$ Change			% Change
	(in thousands, except per share data)
Rental income	$	600,756		$	498,795		$	101,961		20.4	%
Expenses:
Operating expenses	227,291			190,429			36,862			19.4	%
Depreciation and amortization	111,986			92,851			19,135			20.6	%
General and administrative	25,170			19,338			5,832			30.2	%
Total expenses	364,447			302,618			61,829			20.4	%
Operating income	236,309			196,177			40,132			20.5	%
Interest income	638			411			227			55.2	%
Interest expense	(118,212		)	(101,144		)	(17,068		)	(16.9	)%
Loss on early extinguishment of debt	(2,866		)	(3,238		)	372			11.5	%
Equity in earnings of equity investments	15,457			23,525			(8,068		)	(34.3	)%
Gain on sale of shares of equity investments	21,550			—			21,550			100.0	%
Gain on issuance of shares by equity investees	8,436			—			8,436			100.0	%
Income from continuing operations	161,312			115,731			45,581			39.4	%
Income (loss) from discontinued operations	1,517			(1,285		)	2,802			218.1	%
Net income	162,829			114,446			48,383			42.3	%
Preferred distributions	(46,000		)	(46,000		)	—			—
Net income available for common shareholders	$	116,829		$	68,446		$	48,383		70.7	%
Weighted average common shares outstanding	176,157			136,270			39,887			29.3	%
Income from continuing operations per share	$	0.65		$	0.51		$	0.14		27.5	%
Income (loss) from discontinued operations per share	$	0.01		$	(0.01	)	$	0.02		200.0	%
Net income available for common shareholders per share	$	0.66		$	0.50		$	0.16		32.0	%

Rental income. Rental income increased for the year ended December 31, 2004, compared to 2003, primarily due to our acquisition of 136 properties in 2004 and 27 properties in 2003, partially offset by a decline in rents at some of our properties. Occupancy, which includes space being prepared for occupancy pursuant to signed leases and space which is being offered for sublease by tenants, at properties we owned continuously since January 1, 2003, was 90.3% at December 31, 2004, compared to 90.7% at December 31, 2003. Rental income includes non cash straight line rent adjustments totaling $22.3 million in 2004 and $16.6 million in 2003 and amortization of acquired real estate leases and obligations totaling ($3.0) million in 2004 and $1.1 million in 2003. Rental income also includes lease termination fees totaling $3.7 million in 2004 and $3.3 million in 2003.

Total expenses. Total expenses for the year ended December 31, 2004, increased from the year ended December 31, 2003, due to increases in operating expenses, depreciation and amortization and general and administrative expenses related to the properties acquired in 2004 and 2003.

Interest expense. Interest expense increased for the year ended December 31, 2004, compared to the year ended December 31, 2003, reflecting an increase in total debt outstanding which was used primarily to finance acquisitions in 2004 and 2003. In 2004 we issued $400 million unsecured 6.25% senior notes due 2016; entered into an unsecured $350 million term loan bearing interest at LIBOR plus a premium; and assumed $112.3 million of debt in connection with two acquisitions completed in 2004. The weighted average interest rate on all of our outstanding debt at December 31, 2004 and 2003, was 5.7%.

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Loss on early extinguishment of debt. The loss on early extinguishment of debt in 2004 represents the write off of deferred financing fees associated with the repayment of $143 million of our senior notes due 2013. The loss on early extinguishment of debt in 2003 represents similar losses associated with the repayment of $90 million of senior notes due 2009 and $65 million of senior notes due 2011.

Equity in earnings of equity investments. Equity in earnings of equity investments decreased during the year ended December 31, 2004, from the year ended December 31, 2003, due to lower earnings recognized from our investments in Senior Housing and Hospitality Properties. The decrease in earnings from Senior Housing is due primarily to our sale of 4.1 million Senior Housing common shares we owned in 2004. The decrease in earnings from Hospitality Properties reflects our pro rata share, totaling $6.9 million, of income from lease terminations recognized by Hospitality Properties in 2003.

Gain on sale of shares of equity investments. The 2004 gain on sale of shares of equity investments reflects the sale of 4.1 million Senior Housing common shares we owned.

Gain on issuance of shares by equity investees. The 2004 gain on issuance of shares by equity investees reflects the issuance of common shares during 2004 by both Senior Housing and Hospitality Properties at prices above our per share carrying value.

Income from continuing operations. The increase in income from continuing operations primarily represents the 2004 gain on sale of Senior Housing common shares and property acquisitions in 2004 and 2003.

Income (loss) from discontinued operations. The 2004 and 2003 income (loss) from discontinued operations represents income from three industrial properties we sold in May 2005.

Net income and net income available for common shareholders. The increase in net income and net income available for common shareholders for the year ended December 31, 2004, from the year ended December 31, 2003, is due primarily to the gain on sale of Senior Housing shares, the gain on issuance of shares by equity investees and property acquisitions in 2004 and 2003, offset by a decrease in earnings from equity investments and an increase in interest expense from the issuance of additional debt. Net income available for common shareholders is net income reduced by preferred distributions.

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources

Our principal sources of funds for current expenses and distributions to shareholders are rents from our properties and distributions received from our equity investments. This flow of funds has historically been sufficient for us to pay our operating expenses, debt service and distributions. We believe that our operating cash flow will be sufficient to meet our operating expenses, debt service and distribution payments for the foreseeable future. Our future cash flows from operating activities will depend primarily upon four factors:

•our ability to maintain or improve occupancies and effective rent rates at our continuously owned properties;

•our ability to restrain operating cost increases at our properties;

•our continuing receipt of cash distributions from our equity investments; and

•our ability to purchase new properties which produce positive cash flows from operations.

As discussed above, we believe that present leasing market conditions in some areas where our properties are located may result in modest declines in effective rents at some of our properties. Recent rises in fuel prices may cause our future operating costs to increase; however, the impact of these increases is expected to be partially offset by pass through operating cost increases to our tenants pursuant to lease terms. We expect Hospitality Properties and Senior Housing to continue to pay dividends at current rates or with modest increases for the foreseeable future. We generally do not engage in development activities (except on a build to suit basis for an existing tenant), and we generally do not purchase turn around properties or properties which do not generate positive cash flows. Our future purchases of properties which generate positive cash flows can not be accurately projected because such purchases depend entirely upon available opportunities which come to our attention.

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Cash flows provided by (used for) operating, investing and financing activities were $226.0 million, ($530.7) million and $302.3 million, respectively, for the year ended December 31, 2005, and $209.2 million, ($682.7) million and $483.9 million, respectively, for the year ended December 31, 2004. Changes in all three categories between 2005 and 2004 are primarily related to property acquisitions and sales in 2005 and 2004, our sale of some of our Senior Housing common shares in 2005 and 2004, our repayments and issuances of debt obligations and our issuance of common shares in 2005 and 2004.

Our Investment and Financing Liquidity and Resources

In order to fund acquisitions and to accommodate cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain an unsecured revolving credit facility with a group of commercial banks. At December 31, 2005, there was $256 million outstanding and $494 million available on our revolving credit facility, and we had cash and cash equivalents of $19.4 million. We expect to use cash balances, borrowings under our credit facility and net proceeds of offerings of equity or debt securities to fund future property acquisitions.

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A summary of our outstanding debt as of December 31, 2005, is as follows (dollars in thousands):

	Coupon Rate		Interest Rate (1)		Principal Balance			Maturity Date	Due at Maturity		Years to Maturity
Secured fixed rate debt:
Six properties in Minneapolis, MN	7.020	%	7.020	%	$	16,328		2/1/2008	$	15,724	2.1
Two properties in Richland, WA	8.000	%	8.000	%	5,114			11/15/2008	1,004		2.9
One property in Buffalo, NY	5.170	%	5.170	%	4,603			1/1/2009	134		3.0
See note (2)	6.814	%	7.842	%	245,965			1/31/2011	225,547		5.1
One property in Bannockburn, IL	8.050	%	5.240	%	25,489			6/1/2012	22,719		6.4
Two properties in Rochester, NY	6.000	%	6.000	%	5,468			10/11/2012	4,507		6.8
23 properties in Atlanta, GA (3)	8.500	%	5.070	%	29,399			4/11/2028	4,937		22.3
One property in Philadelphia, PA (4)	6.794	%	7.383	%	42,713			1/1/2029	2,478		23.0
Total / weighted average secured fixed rate debt	7.021	%	7.302	%	$	375,079			$	277,050	8.4
Unsecured debt:
Unsecured floating rate debt:
Revolving credit facility (LIBOR +65 basis points)	3.960	%	3.960	%	$	256,000		4/28/2009	$	256,000	3.3
Term loan (LIBOR + 80 basis points) (5)	4.100	%	4.100	%	350,000			8/24/2009	350,000		3.6
Total / weighted average unsecured floating rate debt	4.041	%	4.041	%	$	606,000			$	606,000	3.5
Unsecured fixed rate debt:
Senior notes due 2010	8.875	%	9.000	%	$	30,000		8/1/2010	$	30,000	4.6
Senior notes due 2010	8.625	%	8.770	%	20,000			10/1/2010	20,000		4.8
Senior notes due 2012	6.950	%	7.179	%	200,000			4/1/2012	200,000		6.3
Senior notes due 2013	6.500	%	6.693	%	200,000			1/15/2013	200,000		7.0
Senior notes due 2014	5.750	%	5.828	%	250,000			2/15/2014	250,000		8.1
Senior notes due 2015	6.400	%	6.601	%	200,000			2/15/2015	200,000		9.1
Senior notes due 2015	5.750	%	5.790	%	250,000			11/1/2015	250,000		9.8
Senior notes due 2016	6.250	%	6.470	%	400,000			8/15/2016	400,000		10.6
Total / weighted average unsecured fixed rate debt	6.312	%	6.473	%	$	1,550,000			$	1,550,000	8.7
Total / weighted average unsecured debt	5.674	%	5.789	%	$	2,156,000			$	2,156,000	7.2
Total / weighted average secured fixed rate debt	7.021	%	7.302	%	$	375,079			$	277,050	8.4
Total / weighted average unsecured floating rate debt	4.041	%	4.041	%	606,000				606,000		3.5
Total / weighted average unsecured fixed rate debt	6.312	%	6.473	%	1,550,000				1,550,000		8.7
Total / weighted average debt	5.873	%	6.013	%	$	2,531,079	(6)		$	2,433,050	7.4

(1)Includes the effect of interest rate protection, mark-to-market accounting for certain assumed mortgages, and discounts on certain mortgages and unsecured notes. Excludes effects of offering and transaction costs. Floating interest rates represent weighted averages based on amounts outstanding during 2005.

(2)Eight properties in Austin, TX, one property in Philadelphia, PA, two properties in Los Angeles, CA and two properties in Washington, DC.

(3)The loan becomes prepayable on January 11, 2008. On April 11, 2008, the interest rate increases to at least 13.5% and the loan becomes subject to accelerated amortization. We currently intend to prepay this loan in 2008.

(4)The loan becomes prepayable on January 31, 2011. On January 31, 2011, the interest rate increases to 8.794% and the loan becomes subject to accelerated amortization. We currently intend to prepay this loan in 2011.

(5)The term loan became prepayable on February 26, 2006.

(6)Total debt as of December 31, 2005, net of unamortized premiums and discounts, equals $2,520,156.

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Our outstanding debt maturities and weighted average interest rates as of December 31, 2005, are as follows (dollars in thousands):

	Scheduled Principal Payments During Period
	Secured		Unsecured		Unsecured				Weighted
	Fixed Rate		Floating		Fixed				Average
Year	Debt		Rate Debt		Rate Debt		Total (1)		Interest Rate
2006	$	8,298	$	—	$	—	$	8,298	6.9	%
2007	8,919		—		—		8,919		6.9	%
2008	24,980		—		—		24,980		7.0	%
2009	6,411		606,000		—		612,411		4.1	%
2010	6,736		—		50,000		56,736		8.6	%
2011	228,232		—		—		228,232		6.8	%
2012	29,329		—		200,000		229,329		7.0	%
2013	1,898		—		200,000		201,898		6.5	%
2014	2,046		—		250,000		252,046		5.8	%
2015	2,205		—		450,000		452,205		6.0	%
2016 and thereafter	56,025		—		400,000		456,025		6.4	%
	$	375,079	$	606,000	$	1,550,000	$	2,531,079	5.9	%

(1)  Total debt as of December 31, 2005, net of unamortized premiums and discounts, equals $2,520,156.

When amounts are outstanding on our revolving credit facility and as the maturity dates of our revolving credit facility and term debts approach, we explore alternatives for the repayment of amounts due.  Such alternatives usually include incurring additional term debt and issuing new equity securities.  On June 28, 2004, our shelf registration statement to increase securities available for issuance to $2.7 billion became effective, and as of December 31, 2005, $1.6 billion was available.  An effective shelf registration statement allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.  Although there can be no assurance that we will consummate any debt or equity offerings or other financings, we believe we will have access to various types of financing, including debt or equity offerings, with which to finance future acquisitions and to pay our debt and other obligations. 

The completion and the costs of our future debt transactions will depend primarily upon market conditions and our own credit ratings.  We have no control over market conditions, but we expect both short and long term debt costs to increase gradually for at least the next few months.  Our credit ratings depend upon evaluations by credit rating agencies of our business practices and plans and, in particular, whether we appear to have the ability to maintain our earnings, to space our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipatable adverse changes.  We intend to conduct our business activities in a manner which will continue to afford us reasonable access to capital for investment and financing activities.

During 2005 we purchased 70 properties for $476.1 million, plus closing costs, and funded improvements to our owned properties totaling $121.1 million.  Included in these acquisitions is the purchase of 8.2 million square feet of leased industrial lands in Oahu, HI on June 15, 2005, for an aggregate net purchase price of $115.5 million, plus closing costs.  We funded all our 2005 acquisitions with cash on hand, by borrowing under our revolving credit facility and assuming $25.5 million of mortgage debt.  During 2005 we sold three industrial properties for net proceeds of $20.1 million and recognized gains of $7.6 million.  Net proceeds from these sales were used to reduce amounts outstanding on our revolving credit facility.  As of December 31, 2005, we had an outstanding agreement to purchase 12 office properties containing 459,000 square feet of space for $51.6 million, plus closing costs.  These properties were acquired in January 2006 with cash on hand and borrowings under our revolving credit facility.  In January and February 2006 we entered agreements to acquire 25 properties for $174.9 million plus closing costs.  The acquisitions of these properties are subject to various closing conditions customary in real estate transactions and no assurances can be given as to when or if these properties will be acquired.

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During the year ended December 31, 2005 and 2004, cash expenditures made and capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (amounts in thousands):

	Year Ended December 31,
	2005		2004
Tenant improvements	$	84,237	$	31,380
Leasing costs	22,419		24,947
Building improvements	22,835		21,294
Development and redevelopment activities	14,064		7,647

Commitments made for expenditures in connection with leasing space during the year ended December 31, 2005, are as follows (amounts in thousands, except as noted):

	Total		Renewals		New Leases
Square feet leased during the year	5,033		2,733		2,300
Total commitments for tenant improvements and leasing costs	$	69,128	$	21,538	$	47,590
Leasing costs per square foot (whole dollars)	$	13.73	$	7.88	$	20.69
Average lease term (years)	6.5		6.5		6.6
Leasing costs per square foot per year (whole dollars)	$	2.11	$	1.21	$	3.14

At December 31, 2005, we owned 7.7 million, or 10.7%, of the common shares of beneficial interest of Senior Housing with a carrying value of $95.0 million and a market value, based on quoted market prices, of $130.4 million, and 4.0 million, or 5.6%, of the common shares of beneficial interest of Hospitality Properties with a carrying value of $99.3 million and a market value, based on quoted market prices, of $160.4 million.  During the year ended December 31, 2005, we received cash distributions totaling $11.1 million from Senior Housing and $11.6 million from Hospitality Properties.  We use the income statement method to account for the issuance of common shares by Senior Housing and Hospitality Properties.  Under this method, gains and losses reflecting changes in the value of our investments at the date of issuance of additional common shares by Senior Housing and Hospitality Properties are recognized in our income statement.  In 2005 Senior Housing completed a public offering of 3,250,000 common shares and in connection with this public offering we sold 950,000 Senior Housing common shares we owned.  As a result of these transactions, our ownership percentage in Senior Housing was reduced from 12.6% to 10.7%, and we recognized gains aggregating $7.1 million.  We expect cash distributions received by us from Senior Housing calculated at their current rate to decrease from $11.1 million to approximately $10.0 million per year.  In 2005 Hospitality Properties completed a public offering of common shares that reduced our ownership percentage from 6.0% to 5.6%.  As a result of this transaction, we recognized a gain of $4.7 million.  On March 6, 2006, the market values of our Senior Housing and Hospitality Properties shares were $141.3 million and $180.4 million, respectively.  In the future we may decide to sell some or all of our remaining Hospitality Properties or Senior Housing shares; our decision to sell will be based upon several factors including available alternative uses for the sale proceeds and the prices at which sales may be accomplished.

In March and September 2005 we issued 22.5 million and 10.0 million common shares, in separate public offerings at $12.10 and $13.12 per share, respectively, raising aggregate gross proceeds of $403.5 million.  Net proceeds of these offerings totaling $384.0 million, were used to reduce amounts outstanding under our revolving credit facility. 

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In February 2006 we issued 6,000,000 series C cumulative redeemable preferred shares in a public offering for net proceeds of approximately $145 million.  Each series C preferred share requires dividends of $1.78125, 7 1/8%, per annum, payable in equal quarterly payments and has a liquidation preference of $25.00.  Our series C preferred shares are redeemable, at our option, for $25.00 each plus accrued and unpaid dividends at any time on or after February 15, 2011.  We applied the net proceeds from this offering to reduce amounts outstanding on our revolving credit facility.  Thereafter, we funded the redemption of all $200 million of our 9.875% series A preferred shares on March 2, 2006, by borrowing under our revolving credit facility.

In January 2005 we amended our unsecured revolving credit facility to increase the available borrowing amount from $560 million to $750 million and to extend the maturity date from April 2006 to April 2009, with an option to extend the maturity by one additional year.  The annual interest payable for amounts drawn under the facility was reduced from LIBOR plus 0.80% to LIBOR plus 0.65%.  In certain circumstances, the amount of unsecured borrowings available under this facility may be increased to $1.5 billion.  Certain financial and other covenants in the facility were also amended to reflect current market conditions.  The interest rate averaged 4.0% per annum for the year ended December 31, 2005.  As of December 31, 2005, we had $256 million outstanding and $494 million available under our revolving credit facility. 

In 2005 we repaid our $100 million 6.7% senior notes when they became due in February.  In July, we repaid, at par, $75.0 million of 8.7% mortgage debt due in 2020.  In August 2005, we repaid at par plus a premium of $168,000, $9.9 million of 8.4% mortgage debt due in 2007.  We funded these payments with cash on hand and by drawing on our revolving credit facility. 

In October 2005 we issued $250 million unsecured senior notes in a public offering raising net proceeds of $247.2 million.  The notes bear interest at 5.75%, require semi-annual interest payments and mature in November 2015.  Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility.

As of December 31, 2005 (except as noted below), our contractual obligations were as follows (dollars in thousands):

	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-term debt obligations	$	2,531,079	$	8,298	$	33,899	$	669,147	$	1,819,735
Tenant related obligations (1)	51,018		50,418		600		—		—
Purchase obligations (2)	226,490		226,490		—		—		—
Projected interest expense (3)	1,110,449		148,706		294,624		253,089		414,030
Total	$	3,919,036	$	433,912	$	329,123	$	922,236	$	2,233,765

(1)Committed tenant related obligations include leasing commissions and tenant improvements and are based on leases executed through December 31, 2005.

(2)Represents the purchase price to acquire 12 office properties for $51.6 million, which was the subject of an executed purchase agreement on December 31, 2005, plus the purchase price to acquire 25 properties for $174.9 million pursuant to agreements we entered in January and February 2006.

(3)Projected interest expense is attributable to only the long-term debt obligations listed above at existing rates and is not intended to project future interest costs which may result from debt prepayments, new debt issuances or changes in interest rates.

As of December 31, 2005, we have no commercial paper, derivatives, swaps, hedges, guarantees, joint ventures or off balance sheet arrangements.  None of our debt documentation requires us to provide collateral security in the event of a ratings downgrade.

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Debt Covenants

Our principal debt obligations at December 31, 2005, were our unsecured revolving credit facility, our unsecured $350 million term loan and our $1.6 billion of publicly issued term debt.  Our publicly issued debt is governed by an indenture.  This indenture and related supplements, our revolving credit facility agreement and our term loan agreement contain a number of financial ratio covenants which generally restrict our ability to incur debts, including debts secured by mortgages on our properties in excess of calculated amounts, require us to maintain a minimum net worth, restrict our ability to make distributions under certain circumstances and require us to maintain other ratios.  At December 31, 2005, we were in compliance with all of our covenants under our indenture and related supplements, our revolving credit facility agreement and our term loan agreement. 

In addition to our unsecured debt obligations, we have $375.1 million of mortgage notes outstanding at December 31, 2005.

None of our indenture and related supplements, our revolving credit facility, our term loan agreement or our mortgage notes contain provisions for acceleration which could be triggered by our debt ratings.  However, our senior debt rating is used to determine the interest rate payable under our revolving credit facility and our term loan agreement, and the fees payable under our revolving credit facility.

Our public debt indenture and related supplements contain cross default provisions to any other debts of $20 million or more.  Similarly, a default on our public debt indenture would be a default under our revolving credit and term loan facilities. 

Related Party Transactions

We have agreements with RMR to originate and present investment opportunities to our board of trustees, and provide property management and administrative services to us.  Prior to October 1, 2005, RMR was beneficially owned by Barry M. Portnoy and Gerard M. Martin, each a managing trustee and member of our board of trustees.  Effective October 1, 2005, Mr. Portnoy and his son, Adam D. Portnoy, who is our executive vice president, acquired Mr. Martin’s ownership in RMR.  Mr. Martin remains a director of RMR and, together with Mr. Barry Portnoy, continues to serve as one of our managing trustees.  Each of our executive officers are also officers of RMR.  Our independent trustees, including all of our trustees other than Messrs. Barry Portnoy and Martin, review our contracts with RMR at least annually and make determinations regarding renewals.  Any termination of our contract with RMR would cause a default under our revolving credit facility, if not approved by a majority of lenders.  RMR is compensated at an annual rate equal to 0.7% of our average real estate investments, as defined, up to the first $250 million of such investments and 0.5% thereafter, plus an incentive fee based upon increases in funds from operations per common share, as defined, plus property management fees equal to 3.0% of gross rents and construction management fees equal to 5.0% of construction costs.  The incentive fee to RMR is paid in our common shares.  RMR also provides the internal audit function for us and for other publicly traded companies to which it provides management or other services.  We pay a pro rata share of RMR’s costs in providing that function.  Our audit committee composed only of independent trustees approves the identity and salary of the individual serving as our director of internal audit, as well as the pro rata share of the costs which we pay.

In 2005 Senior Housing completed a public offering of 3,250,000 of its common shares.  Simultaneously with this offering, we sold 950,000 of the Senior Housing shares we owned.  We and Senior Housing were parties to an underwriting agreement in connection with this offering.  Senior Housing did not receive any proceeds from our sale of its shares and we paid our pro rata share of the expenses of this offering.

Critical Accounting Policies

Our critical accounting policies are those that have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates.  We believe that our judgments and estimates are consistently applied and produce financial information that fairly presents our results of operations.  Our most critical accounting policies involve our investments in real property and our equity investments.  These policies affect our:

•allocation of purchase prices between various asset categories and the related impact on the recognition of rental income and depreciation and amortization expense;

•assessment of the carrying values and impairments of long lived assets;

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•classification of leases; and

•investments in Senior Housing and Hospitality Properties.

We have historically allocated the purchase prices of properties to land, building and improvements, and each component generally has a different useful life. For properties acquired subsequent to June 1, 2001, the effective date of FAS 141, we allocate the value of real estate acquired among land, building and improvements and identified intangible assets and liabilities, consisting of the value of above market and below market leases, the value of in place leases and the value of tenant relationships. Purchase price allocations and the determination of useful lives are based on our estimates and, under some circumstances, studies commissioned from independent real estate appraisal firms.

Purchase price allocations to land, building and improvements are based on our determination of the relative fair values of these assets assuming the property is vacant. We determine the fair value of a property using methods which we believe are similar to those used by independent appraisers. Purchase price allocations to above market and below market leases are based on the estimated present value (using an interest rate which reflects our assessment of the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in place leases and (ii) our estimate of fair market lease rates for the corresponding leases, measured over a period equal to the remaining non-cancelable terms of the respective leases.  Purchase price allocations to in place leases and tenant relationships are determined as the excess of (i) the purchase price paid for a property after adjusting existing in place leases to estimated market rental rates over (ii) the estimated fair value of the property as if vacant.  This aggregate value is allocated between in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in place lease value because such value and related amortization expense is immaterial for acquisitions reflected in our financial statements.  Factors we consider in performing these analyses include estimates of carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs to execute similar leases in current market conditions, such as leasing commissions, legal and other related costs.  If the value of tenant relationships are material in the future, those amounts will be separately allocated and amortized over the estimated life of the relationships.

We compute depreciation expense using the straight line method over estimated useful lives of up to 40 years for buildings and improvements, and up to 12 years for personal property.  The allocated cost of land is not depreciated.  Capitalized above market lease values (included in acquired real estate leases in the accompanying consolidated balance sheet) are amortized as a reduction to rental income over the remaining non-cancelable terms of the respective leases.  Capitalized below market lease values (presented as acquired real estate lease obligations in the accompanying consolidated balance sheet) are amortized as an increase to rental income over the remaining initial terms of the respective leases. The value of in place leases exclusive of the value of above market and below market in place leases is amortized to expense over the remaining non-cancelable periods of the respective leases.  If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off. Our purchase price allocations require us to make certain assumptions and estimates.  Incorrect assumptions and estimates may result in inaccurate depreciation and amortization charges over future periods.

We periodically evaluate our real estate properties for impairment.  Impairment indicators may include declining tenant occupancy, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life or legislative, economic or market changes that could permanently reduce the value of our investments.  If indicators of impairment are present, we evaluate the carrying value of the related real estate property by comparing it to the expected future undiscounted cash flows to be generated from that property.  If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to the present value of these expected future cash flows. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows.  If we misjudge or estimate incorrectly or if future tenant profitability, market or industry factors differ from our expectations we may record an impairment charge which is inappropriate or fail to record a charge when we should have done so, or the amount of such charges may be inaccurate.

Some of our real estate properties are leased on a triple net basis, pursuant to non-cancelable, fixed term, leases.  Each time we enter a new lease or materially modify an existing lease we evaluate its classification as either a capital lease or operating lease.  The classification of a lease as capital or operating affects the carrying value of a property, as well as our recognition of rental payments as revenue.  These evaluations require us to make estimates of, among other things, the remaining useful life and market value of a property, discount rates and future cash flows.  Incorrect assumptions or estimates may result in misclassification of our leases.

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These policies involve significant judgments made based upon our experience, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located.  Competition, economic conditions and other factors may cause occupancy declines in the future.  In the future we may need to revise our carrying value assessments to incorporate information which is not now known and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets.

Our investments in Senior Housing and Hospitality Properties are accounted for using the equity method of accounting.  Under the equity method we record our percentage share of net earnings from Senior Housing and Hospitality Properties in our consolidated statement of income.  Under the equity method, accounting policy judgments made by Senior Housing and Hospitality Properties could have a material effect on our net income.  Also, if we determine that there is an other than temporary decline in the fair value of these investments, their cost basis would be written down to fair value and the amount of the write down would be included in our earnings.  In evaluating the fair value of these investments, we have considered, among other things, the quoted prices, the financial condition and near term prospects of each investee, earnings trends, asset quality, asset valuation models, and the financial condition and prospects for their respective industries generally.

IMPACT OF INFLATION

Inflation might have both positive and negative impacts upon us.  Inflation might cause the value of our real estate investments to increase.  Inflation might also cause our costs of equity and debt capital and other operating costs to increase.  An increase in our capital costs or in our operating costs will result in decreased earnings unless it is offset by increased revenues.  In periods of rapid inflation, our tenants’ operating costs may increase faster than revenues and this fact may have an adverse impact upon us if our tenants’ operating income becomes insufficient to pay our rent.  To mitigate the adverse impact of increased operating costs, we require some of our tenants to provide guarantees or security for our rent.  To mitigate the adverse impact of increased costs of debt capital in the event of material inflation, we may enter into interest rate hedge arrangements in the future.  The decision to enter into these agreements will be based on the amount of our floating rate debt outstanding, our belief that material interest rate increases are likely to occur and upon requirements of our borrowing arrangements.

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Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to risks associated with market changes in interest rates.  We manage our exposure to this market risk by monitoring available financing alternatives.  Our strategy to manage exposure to changes in interest rates is unchanged from December 31, 2004.  Other than as described below, we do not foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.  At December 31, 2005, our total outstanding fixed rate term debt consisted of the following fixed rate notes:

Amount	Coupon		Maturity
Unsecured senior notes:
$30.0 million	8.875	%	2010
$20.0 million	8.625	%	2010
$200.0 million	6.950	%	2012
$200.0 million	6.500	%	2013
$250.0 million	5.750	%	2014
$200.0 million	6.400	%	2015
$250.0 million	5.750	%	2015
$400.0 million	6.250	%	2016

No principal repayments are due under the unsecured senior notes until maturity. 

Secured notes:
$16.3 million	7.020	%	2008
$5.1 million	8.000	%	2008
$4.6 million	5.170	%	2009
$246.0 million	6.814	%	2011
$25.5 million	8.050	%	2012
$5.5 million	6.000	%	2012
$29.4 million	8.500	%	2028
$42.7 million	6.794	%	2029

The secured notes are secured by 49 of our office properties located in 13 office complexes and require principal and interest payments through maturity pursuant to amortization schedules.

Because these notes bear interest at fixed rates, changes in market interest rates during the term of this debt will not affect our operating results.  If all of our fixed rate unsecured and secured notes outstanding at December 31, 2005, were to be refinanced at interest rates which are 10% higher or lower than shown above, our per annum interest cost would increase or decrease, respectively, by approximately $12.4 million. 

Changes in market interest rates also affect the fair value of our debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt while decreases in market interest rates increase the value of our fixed rate debt.  Based on the balances outstanding at December 31, 2005, and discounted cash flow analyses, a hypothetical immediate 10% change in interest rates would change the fair value of our fixed rate debt obligations by approximately $70 million.

Each of our fixed rate unsecured and secured debt arrangements allows us to make repayments earlier than the stated maturity date.  In some cases, we are not allowed to make early repayment prior to a cutoff date and in most cases we are allowed to make prepayments only at a premium equal to a makewhole amount, as defined, generally designed to preserve a stated yield to the note holder.  These prepayment rights may afford us the opportunity to mitigate the risk of refinancing at maturity at higher rates by refinancing prior to maturity. 

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At December 31, 2005, we had $256 million outstanding and $494 million available for drawing under our unsecured revolving credit facility and $350 million outstanding on our unsecured term loan.  Our revolving credit facility and term loan mature in April and August 2009, respectively.  Repayments under our revolving credit facility may be made at any time without penalty.  Repayments under our term loan may be made without penalty beginning in February 2006.  We borrow in U.S. dollars and borrowings under our revolving credit facility and our term loan require interest at LIBOR plus a premium.  Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically LIBOR.  For example, the average interest rate payable on our revolver and term loan was 4.0% during 2005.  A change in interest rates would not affect the value of these floating rate debts but would affect our operating results.  The following table presents the impact a 10% change in interest rates would have on our floating rate interest expense as of December 31, 2005 (dollars in thousands):

	Impact of Changes in Interest Rates
	Interest Rate Per Year		Outstanding Debt		Total Interest Expense Per Year
At December 31, 2005	4.0	%	$	606,000	$	24,240
10% reduction	3.6	%	$	606,000	$	21,816
10% increase	4.4	%	$	606,000	$	26,664

The foregoing table shows the impact of an immediate change in floating interest rates.  If interest rates were to change gradually over time, the impact would be spread over time.  Our exposure to changes in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amount of our floating rate debt. 

Item 8.  Financial Statements and Supplementary Data

The information required by this item is included in Item 15 of this Annual Report on Form 10-K.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A.  Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our managing trustees, President and Chief Operating Officer and Treasurer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15.  Based upon that evaluation, our managing trustees, President and Chief Operating Officer and Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management Report on Assessment of Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control system is designed to provide reasonable assurance to our management and board of trustees regarding the preparation and fair presentation of published financial statements.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2005.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.  Based on our assessment, we believe that, as of December 31, 2005, our internal control over financial reporting is effective.

Ernst & Young LLP, the independent registered public accounting firm that audited our 2005 consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on our assessment of our internal control over financial reporting.  Its report appears elsewhere herein.

Item 9B.  Other Information

None.

PART III

Item 10.  Directors and Executive Officers of the Registrant

In March 2004 we adopted a code of business conduct and ethics that applies to all our representatives, including our officers and trustees and employees of RMR.  Our code of business conduct and ethics is posted on our website, www.hrpreit.com.  A printed copy of our code of business conduct and ethics is also available free of charge to any shareholder who requests a copy.  We intend to disclose any amendments or waivers to our code of business conduct and ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller (or any person performing similar functions) on our website.

The remainder of the information required by Item 10 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

Item 11.  Executive Compensation

The information required by Item 11 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

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Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Equity Compensation Plan Information.  We may grant common shares to our officers and other employees of RMR, subject to vesting requirements under our 2003 Incentive Share Award Plan, or the Award Plan.  In addition, each of our independent trustees receives 1,500 shares per year as part of their annual compensation for serving as our trustees.  The terms of grants made under the Award Plan are determined by our trustees at the time of the grant.    The following table is as of December 31, 2005.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	None.	None.	None.
Equity compensation plans not approved by security holders	None.	None.	6,339,278
Total	None.	None.	6,339,278

Payments by us to RMR are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Related Party Transactions”.

The remainder of the information required by Item 12 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

Item 13.  Certain Relationships and Related Transactions

The information required by Item 13 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

Item 14.  Principal Accountant Fees and Services

The information required by Item 14 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

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PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a)Index to Financial Statements and Financial Statement Schedules

The following consolidated financial statements and financial statement schedules of HRPT Properties Trust are included on the pages indicated:

Schedule II – Valuation and Qualifying Accounts

Schedule III – Real Estate and Accumulated Depreciation

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.

(c)Exhibits

3.1Composite Copy of Third Amendment and Restatement of Declaration of Trust of the Company, dated July 1, 1994, as amended to date.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated September 12, 2005)

3.2Articles Supplementary, dated November 4, 1994, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, creating the Junior Participating Preferred Shares.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated May 27, 1998)

3.3Articles Supplementary, dated May 13, 1997, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated May 27, 1998)

3.4Articles Supplementary, dated May 22, 1998, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated May 27, 1998)

3.5Articles Supplementary, dated May 10, 2000, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, electing for the Trust to be subject to certain sections of the Maryland General Corporation Law.  (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000)

3.6Articles Supplementary, dated September 6, 2002, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, creating the Series B Cumulative Redeemable Preferred Shares.  (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002)

3.7Articles Supplementary, dated June 16, 2003, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 7, 2004)

3.8Articles Supplementary, dated January 7, 2004, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 7, 2004)

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3.9Articles Supplementary, dated March 16, 2005, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares. (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 16, 2005)

3.10Articles Supplementary, dated September 12, 2005, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated September 12, 2005)

3.11Articles Supplementary, dated February 3, 2006, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, creating the Series C Cumulative Redeemable Preferred Shares.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 2, 2006)

3.12Composite copy of Amended and Restated By-laws of the Company dated March 20, 2003, as amended to date.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 10, 2004)

4.1Form of Common Share Certificate.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 11, 1999)

4.2Form of Temporary 8 3/4% Series B Cumulative Redeemable Preferred Share Certificate.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated September 6, 2002)

4.3Form of Temporary 7 1/8% Series C Cumulative Redeemable Preferred Share Certificate.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 2, 2006)

4.4Rights Agreement, dated as of March 10, 2004, by and between the Company and EquiServe Trust Company, N.A. (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 10, 2004)

4.5Appointment of Successor Rights Agent, dated as of December 13, 2004, by and between the Company and Wells Fargo Bank, National Association. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 13, 2004)

4.6Indenture, dated as of July 9, 1997, by and between the Company and State Street Bank and Trust Company, or State Street, as Trustee.  (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997)

4.7Supplemental Indenture No. 8, dated as of July 31, 2000, by and between the Company and State Street, relating to 8.875% Senior Notes due 2010, including form thereof.  (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000)

4.8Supplemental Indenture No. 9, dated as of September 29, 2000, by and between the Company and State Street, relating to 8.625% Senior Notes due 2010, including form thereof.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated September 28, 2000)

4.9Supplemental Indenture No. 10, dated as of April 10, 2002, by and between the Company and State Street, relating to 6.95% Senior Notes due 2012, including form thereof.  (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)

4.10Supplemental Indenture No. 11, dated as of December 6, 2002, by and between the Company and State Street, relating to 6.50% Senior Notes due 2013, including form thereof.  (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002)

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4.11Supplemental Indenture No. 12, dated as of January 30, 2003, by and between the Company and U.S. Bank National Association, or U.S. Bank, relating to 6.40% Senior Notes due 2015, including form thereof.  (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002)

4.12Supplemental Indenture No. 13, dated as of October 30, 2003, by and between the Company and U.S. Bank, relating to 5.75% Senior Notes due 2014, including form thereof.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 7, 2004)

4.13Supplemental Indenture No. 14, dated as of August 5, 2004, by and between the Company and U.S. Bank, relating to 6.25% Senior Notes due 2016, including form thereof. (incorporated by reference to the Company’s Current Report on Form 8-K, dated July 27, 2004)

4.14Supplemental Indenture No. 15, dated as of October 31, 2005, by and between the Company and U.S. Bank, relating to 5.75 % Senior Notes due 2015, including form thereof. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005)

8.1Opinion of Sullivan & Worcester LLP as to certain tax matters. (filed herewith)

10.1Advisory Agreement, dated as of January 1, 1998, by and between the Company and REIT Management & Research, Inc., or RMR, Inc. (+) (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 11, 1998)

10.2Amendment No. 1 to Advisory Agreement, dated as of October 12, 1999, by and between the Company and RMR, Inc. (+) (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 16, 1999)

10.3Amendment No. 2 to Advisory Agreement, dated as of March 10, 2004, by and between the Company and RMR LLC. (+) (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 10, 2004)

10.4Master Management Agreement, dated as of January 1, 1998, by and between the Company and RMR, Inc.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 27, 1998)

10.52003 Incentive Share Award Plan. (+) (incorporated by reference to the Company’s Current Report on Form 8-K, dated June 17, 2003)

10.6Form of Restricted Share Agreement. (+) (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)

10.7Representative Indemnification Agreement. (+) (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)

10.8Summary of Trustee Compensation. (+) (incorporated by reference to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005)

10.9Transaction Agreement, dated as of September 21, 1999, between Senior Housing Properties Trust and the Company.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated October 12, 1999)

10.10Loan and Security Agreement, dated December 15, 2000, by and between Cedars LA LLC, or Cedars, Herald Square LLC, or Herald Square, Indiana Avenue LLC, or Indiana Avenue, Bridgepoint Property Trust, or Bridgepoint, Lakewood Property Trust, or Lakewood, and 1600 Market Street Property Trust, or 1600 Market Street, collectively as Borrowers, and Merrill Lynch Mortgage Lending, Inc., or Merrill, as Lender.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

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10.11Promissory Note in the amount of $260,000,000, dated December 15, 2000, issued by Cedars, Herald Square, Indiana Avenue, Bridgepoint, Lakewood and 1600 Market Street, collectively as Borrowers, to Merrill, as Lender.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.12Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Bridgepoint in favor of William Z. Fairbanks, Jr., or Fairbanks, and for the benefit of Merrill.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.13Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Lakewood in favor of Fairbanks and for the benefit of Merrill.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.14Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Herald Square to Lawyers Title Realty Services, Inc., or Lawyers Title, for the benefit of Merrill.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.15Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Indiana Avenue to Lawyers Title for the benefit of Merrill.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.16Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Cedars to Lawyers Title Company for the benefit of Merrill.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.17Open-End Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by 1600 Market Street, as Mortgagor, to and for the benefit of Merrill, as Mortgagee.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.18Exceptions to Non-Recourse Guaranty, dated December 15, 2000, entered into by Hub Realty College Park I, LLC, or College Park, as Guarantor, for the benefit of Merrill, as Lender, in reference to the $260,000,000 loan.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.19Loan and Security Agreement, dated December 15, 2000, entered into by and between Franklin Plaza Property Trust, or Franklin Plaza, as Borrower, and Merrill, as Lender.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.20Promissory Note in the amount of $44,000,000, dated December 15, 2000, issued by Franklin Plaza, as Borrower, to Merrill, as Lender.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.21Open-End Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Franklin Plaza, as Mortgagor, to and for the benefit of Merrill, as Mortgagee.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.22Exceptions to Non-Recourse Guaranty, dated December 15, 2000, entered by College Park, as Guarantor, for the benefit of Merrill, as Lender, in reference to the $44,000,000 loan.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

58

10.23Term Loan Agreement, dated as of February 25, 2004, by and among the Company, each of the financial institutions a signatory thereto; Wachovia Bank, National Association, as Administrative Agent; and other agents. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003)

10.24First Amendment to Term Loan Agreement, dated as of August 20, 2004, by and among the Company, each of the financial institutions a signatory thereto; Wachovia Bank, National Association, as Administrative Agent; and other agents.  (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)

10.25Amended and Restated Credit Agreement, dated as of January 25, 2005, by and among the Company, Wachovia Bank, National Association, as Administrative Agent, and the additional agents, arrangers and financial institutions signatory thereto. (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 25, 2005)

12.1Computation of ratio of earnings to fixed charges.  (filed herewith)

12.2Computation of ratio of earnings to combined fixed charges and preferred distributions.  (filed herewith)

21.1Subsidiaries of the Registrant.  (filed herewith)

23.1Consent of Ernst & Young LLP.  (filed herewith)

23.2Consent of Sullivan & Worcester LLP.  (included as part of Exhibit 8.1 hereto)

31.1Rule 13a-14(a) Certification.  (filed herewith)

31.2Rule 13a-14(a) Certification.  (filed herewith)

31.3Rule 13a-14(a) Certification.  (filed herewith)

31.4Rule 13a-14(a) Certification.  (filed herewith)

32.1Section 1350 Certification. (furnished herewith)

(+)Management contract or compensatory plan or arrangement.

59

Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of HRPT Properties Trust

We have audited the accompanying consolidated balance sheets of HRPT Properties Trust as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005.  Our audits also included the financial statement schedules listed in the Index at Item 15(a).  These financial statements and schedules are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States).  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 HRPT Properties Trust at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of HRPT Properties Trust’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2006 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
Boston, Massachusetts
March 8, 2006

F-1

Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of HRPT Properties Trust

We have audited management’s assessment, included in Item 9A of HRPT Properties Trust’s Annual Report on Form 10-K under the heading Management Report on Assessment of Internal Control Over Financial Reporting, that HRPT Properties Trust maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).  HRPT Properties Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures for the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that HRPT Properties Trust maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria.  Also in our opinion, HRPT Properties Trust maintained, in material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2005 consolidated financial statements of HRPT Properties Trust and our report dated March 8, 2006 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
Boston, Massachusetts
March 8, 2006

F-2

HRPT PROPERTIES TRUST

CONSOLIDATED BALANCE SHEET

(amounts in thousands, except share data)

	December 31,
	2005			2004
ASSETS
Real estate properties:
Land	$	1,081,635		$	928,106
Buildings and improvements	4,154,466			3,756,963
	5,236,101			4,685,069
Accumulated depreciation	(549,208		)	(454,411		)
	4,686,893			4,230,658
Acquired real estate leases	161,787			149,063
Equity investments in former subsidiaries	194,297			207,804
Cash and cash equivalents	19,445			21,961
Restricted cash	18,348			22,257
Rents receivable, net of allowance for doubtful accounts of $3,767 and $4,594, respectively	145,385			113,504
Other assets, net	101,012			68,083
Total assets	$	5,327,167		$	4,813,330
LIABILITIES AND SHAREHOLDERS’ EQUITY
Revolving credit facility	$	256,000		$	175,000
Senior unsecured debt, net	1,889,991			1,739,624
Mortgage notes payable, net	374,165			440,407
Accounts payable and accrued expenses	80,125			67,716
Acquired real estate lease obligations	38,987			39,843
Rent collected in advance	17,858			15,208
Security deposits	13,679			11,920
Due to affiliates	10,876			16,418
Total liabilities	2,681,681			2,506,136
Commitments and contingencies
Shareholders’ equity:
Preferred shares of beneficial interest, $0.01 par value:
50,000,000 shares authorized;
Series A preferred shares; 9 7/8% cumulative redeemable at par on February 22, 2006; 8,000,000 shares issued and outstanding, aggregate liquidation preference $200,000	193,086			193,086
Series B preferred shares; 8 3/4% cumulative redeemable at par on September 12, 2007; 12,000,000 shares issued and outstanding, aggregate liquidation preference $300,000	289,849			289,849
Common shares of beneficial interest, $0.01 par value:
250,000,000 shares authorized; 209,860,625 and 177,316,525 shares issued and outstanding, respectively	2,099			1,773
Additional paid in capital	2,779,159			2,394,946
Cumulative net income	1,452,774			1,287,790
Cumulative common distributions	(1,894,818		)	(1,729,587		)
Cumulative preferred distributions	(176,663		)	(130,663		)
Total shareholders’ equity	2,645,486			2,307,194
Total liabilities and shareholders’ equity	$	5,327,167		$	4,813,330

See accompanying notes

F-3

HRPT PROPERTIES TRUST

CONSOLIDATED STATEMENT OF INCOME

(amounts in thousands, except per share data)

	Year Ended December 31,
	2005			2004			2003
Rental income	$	710,758		$	600,756		$	498,795
Expenses:
Operating expenses	270,308			227,291			190,429
Depreciation and amortization	136,307			111,986			92,851
General and administrative	30,446			25,170			19,338
Total expenses	437,061			364,447			302,618
Operating income	273,697			236,309			196,177
Interest income	1,490			638			411
Interest expense (including amortization of note discounts and premiums and deferred financing fees of $2,488, $4,341 and $5,975, respectively)	(143,663		)	(118,212		)	(101,144		)
Loss on early extinguishment of debt	(168		)	(2,866		)	(3,238		)
Equity in earnings of equity investments	14,352			15,457			23,525
Gain on sale of shares of equity investments	5,522			21,550			—
Gain on issuance of shares by equity investees	6,241			8,436			—
Income from continuing operations	157,471			161,312			115,731
(Loss) income from discontinued operations	(79		)	1,517			(1,285		)
Gain on sale of properties	7,592			—			—
Net income	164,984			162,829			114,446
Preferred distributions	(46,000		)	(46,000		)	(46,000		)
Net income available for common shareholders	$	118,984		$	116,829		$	68,446
Weighted average common shares outstanding	197,831			176,157			136,270
Basic and diluted earnings per common share:
Income from continuing operations	$	0.56		$	0.65		$	0.51
(Loss) income from discontinued operations	$	—		$	0.01		$	(0.01	)
Net income available for common shareholders	$	0.60		$	0.66		$	0.50

See accompanying notes

F-4

HRPT PROPERTIES TRUST

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(amounts in thousands, except share data)

	Preferred Shares									Common Shares
	Series A			Series B			Cumulative							Cumulative			Additional
	Number of Shares	Preferred Shares		Number of Shares	Preferred Shares		Preferred Distributions			Number of Shares		Common Shares		Common Distributions			Paid in Capital		Cumulative Net Income		Total
Balance at December 31, 2002	8,000,000	$	193,086	12,000,000	$	289,849	$	(38,663	)	128,825,247		$	1,288	$	(1,475,555	)	$	1,945,753	$	1,010,515	$	1,926,273
Issuance of shares, net	—	—		—	—		—			13,835,100		139		—			124,479		—		124,618
Stock grants	—	—		—	—		—			114,330		1		—			971		—		972
Cancellation of shares	—	—		—	—		—			(752	)	—		—			—		—		—
Net income	—	—		—	—		—			—		—		—			—		114,446		114,446
Distributions	—	—		—	—		(46,000		)	—		—		(108,658		)	—		—		(154,658		)
Balance at December 31, 2003	8,000,000	193,086		12,000,000	289,849		(84,663		)	142,773,925		1,428		(1,584,213		)	2,071,203		1,124,961		2,011,651
Issuance of shares, net	—	—		—	—		—			34,500,000		345		—			323,294		—		323,639
Stock grants	—	—		—	—		—			42,600		—		—			449		—		449
Net income	—	—		—	—		—			—		—		—			—		162,829		162,829
Distributions	—	—		—	—		(46,000		)	—		—		(145,374		)	—		—		(191,374		)
Balance at December 31, 2004	8,000,000	193,086		12,000,000	289,849		(130,663		)	177,316,525		1,773		(1,729,587		)	2,394,946		1,287,790		2,307,194
Issuance of shares, net	—	—		—	—		—			32,500,000		325		—			383,649		—		383,974
Stock grants	—	—		—	—		—			44,100		1		—			564		—		565
Net income	—	—		—	—		—			—		—		—			—		164,984		164,984
Distributions	—	—		—	—		(46,000		)	—		—		(165,231		)	—		—		(211,231		)
Balance at December 31, 2005	8,000,000	$	193,086	12,000,000	$	289,849	$	(176,663	)	209,860,625		$	2,099	$	(1,894,818	)	$	2,779,159	$	1,452,774	$	2,645,486

See accompanying notes

F-5

HRPT PROPERTIES TRUST

CONSOLIDATED STATEMENT OF CASH FLOWS

(amounts in thousands)

	Year Ended December 31,
	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	164,984		$	162,829		$	114,446
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	111,951			95,977			79,661
Amortization of note discounts and premiums and deferred financing fees	2,488			4,341			5,975
Amortization of acquired real estate leases	23,025			13,271			6,954
Other amortization	8,871			6,139			5,563
Loss on early extinguishment of debt	—			2,866			3,238
Equity in earnings of equity investments	(14,352		)	(15,457		)	(23,525		)
Gain on sale of shares of equity investments	(5,522		)	(21,550		)	—
Gain on issuance of shares by equity investees	(6,241		)	(8,436		)	—
Distributions of earnings from equity investments	14,352			15,457			21,383
Gain on sale of properties	(7,592		)	—			—
Change in assets and liabilities:
Decrease (increase) in restricted cash	3,909			(11,583		)	1,858
Increase in rents receivable and other assets	(69,972		)	(54,346		)	(32,346		)
Increase in accounts payable and accrued expenses	1,043			7,175			11,139
Increase in rent collected in advance	2,650			2,073			2,200
Increase in security deposits	1,902			2,400			1,076
(Decrease) increase in due to affiliates	(5,542		)	8,048			2,834
Cash provided by operating activities	225,954			209,204			200,456
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and improvements	(576,082		)	(765,091		)	(832,826		)
Distributions in excess of earnings from equity investments	8,294			9,115			6,021
Proceeds from sale of common shares of equity investment	16,976			73,275			—
Proceeds from sale of real estate	20,078			—			385
Cash used for investing activities	(530,734		)	(682,701		)	(826,420		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares, net	383,974			323,639			124,618
Proceeds from borrowings	1,058,247			1,660,436			1,223,454
Payments on borrowings	(921,555		)	(1,302,580		)	(564,989		)
Deferred financing fees	(7,171		)	(6,189		)	(3,319		)
Distributions to common shareholders	(165,231		)	(145,374		)	(108,658		)
Distributions to preferred shareholders	(46,000		)	(46,000		)	(46,000		)
Cash provided by financing activities	302,264			483,932			625,106
(Decrease) increase in cash and cash equivalents	(2,516		)	10,435			(858		)
Cash and cash equivalents at beginning of period	21,961			11,526			12,384
Cash and cash equivalents at end of period	$	19,445		$	21,961		$	11,526

See accompanying notes

F-6

	Year Ended December 31,
	2005			2004			2003
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	141,890		$	101,255		$	82,771
NON-CASH INVESTING ACTIVITIES:
Real estate acquisitions	$	(29,274	)	$	(119,958	)	$	—
NON-CASH FINANCING ACTIVITIES:
Issuance of common shares	$	565		$	449		$	972
Assumption of mortgage notes payable	29,274			119,958			—

See accompanying notes

F-7

HRPT PROPERTIES TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Organization

HRPT Properties Trust is a Maryland real estate investment trust, or REIT, which was organized on October 9, 1986.  At December 31, 2005, we had investments in 442 properties and owned 10.7% and 5.6% of the common shares of Senior Housing Properties Trust, or Senior Housing, and Hospitality Properties Trust, or Hospitality Properties, respectively.

Note 2.  Summary of Significant Accounting Policies

Basis of Presentation.  The consolidated financial statements include our investments in 100% owned subsidiaries.  Our investments in 50% or less owned companies over which we can exercise influence, but do not control, are accounted for using the equity method of accounting.  All intercompany transactions have been eliminated.  Significant influence is present through common representation on the board of trustees.  Our two managing trustees are also managing trustees of Senior Housing and Hospitality Properties, and directors of Reit Management & Research LLC, or RMR, which is the investment manager to us, Senior Housing and Hospitality Properties.  As of December 31, 2005, RMR was owned by one of our managing trustees and our executive vice president.  We use the income statement method to account for issuance of common shares of beneficial interest by Senior Housing and Hospitality Properties.  Under this method, gains and losses reflecting changes in the value of our investments at the date of issuance of additional common shares by Senior Housing or Hospitality Properties are recognized in our income statement.

Real Estate Properties.  Real estate properties are recorded at cost.  Depreciation on real estate investments is provided for on a straight line basis over estimated useful lives ranging up to 40 years.

We have historically allocated the purchase prices of properties to land, building and improvements, and each component generally has a different useful life. For properties acquired subsequent to June 1, 2001, the effective date of Financial Accounting Standard No. 141, “Business Combinations”, or FAS 141, we allocate the value of real estate acquired among land, building and improvements and identified intangible assets and liabilities, consisting of the value of above market and below market leases, the value of in place leases, and the value of tenant relationships. Purchase price allocations and the determination of useful lives are based on management’s estimates and, under some circumstances, studies commissioned from independent real estate appraisal firms.

Purchase price allocations to land, building and improvements are based on management’s determination of the relative fair values of these assets assuming the property is vacant. Management determines the fair value of a property using methods similar to those used by independent appraisers. Purchase price allocations to above market and below market leases are based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in place leases and (ii) our estimate of fair market lease rates for the corresponding leases, measured over a period equal to the remaining non-cancelable terms of the respective leases.  Purchase price allocations to in place leases and tenant relationships are determined as the excess of (i) the purchase price paid for a property after adjusting existing in place leases to market rental rates over (ii) the estimated fair value of the property as if vacant.  This aggregate value is allocated between in place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in place lease value because such value and related amortization expense is immaterial for acquisitions reflected in our financial statements.  Factors we consider in performing these analyses include estimates of carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs to execute similar leases in current market conditions, such as leasing commissions, legal and other related costs.  If the value of tenant relationships is material in the future, those amounts will be separately allocated and amortized over the estimated life of the relationships.

F-8

Capitalized above market lease values (included in acquired real estate leases in the accompanying consolidated balance sheet) are amortized as a reduction to rental income over the remaining non-cancelable terms of the respective leases.  Capitalized below market lease values (presented as acquired real estate lease obligations in the accompanying consolidated balance sheet) are amortized as an increase to rental income over the non-cancelable periods of the respective leases.  Such amortization resulted in changes to rental income of ($7.4) million, ($3.0) million and $1.1 million during the years ended December 31, 2005, 2004 and 2003, respectively. The value of in place leases exclusive of the value of above market and below market in place leases is amortized to expense over the remaining non-cancelable periods of the respective leases.  Such amortization amounted to $15.7 million, $10.3 million and $8.0 million during the years ended December 31, 2005, 2004 and 2003, respectively.  If a lease is terminated prior to its stated expiration, the unamortized amount relating to that lease is written off.

Intangible lease assets and liabilities recorded by us for properties acquired in 2005 totaled $42.0 million and $5.4 million, respectively.  Intangible lease assets and liabilities recorded by us for properties acquired in 2004 totaled $99.1 million and $12.4 million, respectively.  Accumulated amortization of capitalized above and below market lease values was $10.1 million and $2.7 million at December 31, 2005 and 2004, respectively.  Accumulated amortization of the value of in place leases exclusive of the value of above and below market in place leases was $33.0 million and $17.4 million at December 31, 2005 and 2004, respectively.  Future amortization of intangible lease assets and liabilities to be recognized by us during the current terms of our leases as of December 31, 2005, are approximately $26.9 million in 2006, $23.5 million in 2007, $21.2 million in 2008, $17.9 million in 2009, $14.8 million in 2010 and $18.5 million thereafter.

Impairment losses on investments are recognized where indicators of impairment are present and the undiscounted cash flow estimated to be generated by our investments is less than the carrying amount of such investments.  The determination of undiscounted cash flow includes consideration of many factors including income to be earned from the investment, holding costs (exclusive of interest), estimated selling prices, and prevailing economic and market conditions.

Cash and Cash Equivalents.  Cash and short term investments with original maturities of three months or less at the date of purchase are carried at cost plus accrued interest.

Restricted Cash.  Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service.

Other Assets, Net.  Other assets consist principally of deferred financing fees, deferred leasing costs and prepaid property operating expenses.  Deferred financing fees include issuance costs related to borrowings and are capitalized and amortized over the terms of the respective loans.  At December 31, 2005 and 2004, deferred financing fees totaled $34.3 million and $27.2 million, respectively, and accumulated amortization for deferred financing fees totaled $15.5 million and $12.2 million, respectively.  Deferred leasing costs include brokerage, legal and other fees associated with the successful negotiation of leases and are amortized on a straight line basis over the terms of the respective leases.  Deferred leasing costs totaled $74.8 million and $56.4 million at December 31, 2005 and 2004, respectively, and accumulated amortization for deferred leasing costs totaled $18.9 million and $14.1 million, respectively.  Future amortization of deferred financing fees and leasing costs to be recognized by us during the current terms of our loans and leases as of December 31, 2005, are approximately $13.2 million in 2006, $12.1 million in 2007, $11.1 million in 2008, $8.7 million in 2009, $7.0 million in 2010 and $22.6 million thereafter.

Revenue Recognition.  Rental income from operating leases is recognized on a straight line basis over the life of the lease agreements.

Allowance for Doubtful Accounts.  We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make payments required under their leases.  The computation of the allowance is based on the tenant’s payment history and current credit profile, as well as other considerations.

Earnings Per Common Share.  Basic earnings per common share is computed using the weighted average number of common shares outstanding during the period.  We have no common share equivalents, instruments convertible into common shares or other dilutive instruments.

Reclassifications.  Reclassifications have been made to the prior years’ financial statements and footnotes, including our selected quarterly financial data, to conform to the current year’s presentation.

F-9

Income Taxes.  We are a real estate investment trust under the Internal Revenue Code of 1986, as amended.  Accordingly, we expect not to be subject to federal income taxes if we continue to distribute our taxable income and meet other requirements for qualifying as a real estate investment trust.  However, we are subject to some state and local taxes on our income and property.

Use of Estimates.  Preparation of these financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that may affect the amounts reported in these financial statements and related notes.  The actual results could differ from these estimates.

Note 3.  Real Estate Properties

During 2005 we purchased 29 office properties for $360.6 million, plus closing costs, and 8.2 million square feet of industrial lands for $115.5 million, plus closing costs.  We also funded $121.1 million of improvements to our owned properties.  We funded all of these transactions with cash on hand, by borrowing under our revolving credit facility and the assumption of $25.5 million of secured mortgage debt.  We allocated $42.0 million of our total 2005 acquisition costs to acquired real estate leases and $5.4 million to acquired real estate lease obligations.  During 2005 we sold three industrial properties for net proceeds of $20.1 million and recognized gains of $7.6 million.  Net proceeds from these sales were used to reduce amounts outstanding on our revolving credit facility.

As of December 31, 2005, we had an outstanding agreement to purchase 12 office properties containing 459,000 square feet of space for $51.6 million, plus closing costs.  These properties were acquired in January 2006.

Our real estate properties are generally leased on gross lease, modified gross lease or triple net lease bases pursuant to non-cancelable, fixed term operating leases expiring from 2006 to 2051.  The triple net leases generally require the lessee to pay all property operating costs.  Our gross leases and modified gross leases require us to pay all or some property operating expenses and to provide all or most property management services.  We committed $69.1 million for expenditures related to 5.0 million square feet of leases executed during 2005.  Committed but unspent tenant related obligations based on executed leases as of December 31, 2005, were $51.0 million.

The future minimum lease payments scheduled to be received by us during the current terms of our leases as of December 31, 2005, are approximately $592.9 million in 2006, $544.5 million in 2007, $487.0 million in 2008, $439.4 million in 2009, $397.9 million in 2010 and $1.8 billion thereafter.

Note 4.  Equity Investments

At December 31, 2005 and 2004, we had the following equity investments (dollars in thousands):

	Ownership Percentage				Equity in Earnings				Equity Investments
	December 31,				Year Ended December 31,				December 31,
	2005		2004		2005		2004		2005		2004
Senior Housing	10.7	%	12.6	%	$	7,291	$	8,583	$	94,952	$	108,668
Hospitality Properties	5.6		6.0		7,061		6,874		99,345		99,136
					$	14,352	$	15,457	$	194,297	$	207,804

At December 31, 2005, we owned 7,710,738 common shares of beneficial interest of Senior Housing with a carrying value of $95.0 million and a market value, based on quoted market prices, of $130.4 million.  Senior Housing is a real estate investment trust that invests principally in senior housing real estate.  At December 31, 2005, Senior Housing owned 188 senior housing properties.

In December 2005 Senior Housing issued 3,250,000 common shares in a public offering for $18.90 per common share, raising net proceeds of $58.2 million, and we recognized a gain of $1.5 million pursuant to the income statement method of accounting.  Simultaneously with this offering, we sold 950,000 common shares we owned of Senior Housing for $18.90 per common share, for gross proceeds of $18.0 million (net $17.0 million) and we recognized a gain of $5.5 million.  Our ownership percentage in Senior Housing was reduced from 12.6% prior to these transactions to 10.7% after these transactions.

F-10

In January 2004 Senior Housing issued 5,000,000 common shares in a public offering for $18.20 per common share, raising net proceeds of $86.1 million, and we recognized a gain of $966,000 pursuant to the income statement method of accounting.  Simultaneously with this offering, we sold 3,148,500 common shares we owned of Senior Housing for $18.20 per common share, for gross proceeds of $57.3 million (net $54.4 million) and we recognized a gain of $14.8 million.  In December 2004 Senior Housing issued another 5,000,000 common shares in a public offering for $19.86 per common share, raising net proceeds of $94.1 million, and we recognized a gain of $3.4 million pursuant to the income statement method of accounting.  Simultaneously with this offering, we sold 1,000,000 common shares we owned of Senior Housing for $19.86 per common share, for gross proceeds of $19.9 million (net $18.9 million) and we recognized a gain of $6.7 million.  Our ownership percentage in Senior Housing was reduced from 21.9% prior to these transactions to 12.6% after these transactions.

Summarized financial data of Senior Housing is as follows (amounts in thousands, except per share data):

	December 31,
	2005		2004
Real estate properties, net	$	1,447,138	$	1,401,720
Cash and cash equivalents	14,642		3,409
Other assets	37,868		42,601
Total assets	$	1,499,648	$	1,447,730
Unsecured revolving bank credit facility	$	64,000	$	37,000
Senior unsecured notes due 2012 and 2015, net of discount	394,018		393,775
Other liabilities	123,653		126,288
Shareholders’ equity	917,977		890,667
Total liabilities and shareholders’ equity	$	1,499,648	$	1,447,730

	Year Ended December 31,
	2005		2004		2003
Revenues	$	163,187	$	148,523	$	131,148
Expenses	110,413		93,000		84,114
Income from continuing operations	52,774		55,523		47,034
Gain (loss) on sale of properties	5,931		1,219		(1,160		)
Net income	$	58,705	$	56,742	$	45,874
Weighted average shares outstanding	68,757		63,406		58,445
Basic and diluted earnings per share:
Income from continuing operations	$	0.77	$	0.88	$	0.80
Gain (loss) on sale of properties	$	0.08	$	0.01	$	(0.02	)
Net income	$	0.85	$	0.89	$	0.78

At December 31, 2005, we owned 4,000,000 common shares of beneficial interest of Hospitality Properties with a carrying value of $99.3 million and a market value, based on quoted market prices, of $160.4 million.  Hospitality Properties is a real estate investment trust that owns hotels.  At December 31, 2005, Hospitality Properties owned 298 hotels.

In 2005 Hospitality Properties issued 4,700,000 common shares in a public offering for $44.39 per common share, raising net proceeds of $199.2 million.  Our ownership percentage in Hospitality Properties was reduced from 6.0% prior to this transaction to 5.6% after this transaction, and we recognized a gain of $4.7 million pursuant to the income statement method of accounting.

In 2004 Hospitality Properties issued 4,600,000 common shares in a public offering for $43.93 per common share, raising net proceeds of $192.7 million.  Our ownership percentage in Hospitality Properties was reduced from 6.4% prior to this transaction to 6.0% after this transaction, and we recognized a gain of $4.1 million pursuant to the income statement method of accounting.

F-11

Summarized financial data of Hospitality Properties is as follows (amounts in thousands, except per share data):

	December 31,
	2005		2004
Real estate properties, net	$	3,013,686	$	2,624,473
Other assets	100,921		64,952
	$	3,114,607	$	2,689,425
Revolving credit facility	$	35,000	$	72,000
Senior notes, net of discounts	921,606		621,679
Security deposits	185,304		175,304
Other liabilities	117,242		134,569
Shareholders’ equity	1,855,455		1,685,873
	$	3,114,607	$	2,689,425

	Year Ended December 31,
	2005			2004			2003
Revenues	$	834,412		$	645,368		$	552,801
Expenses	704,509			518,480			314,588
Income before gain on sale of real estate	129,903			126,888			238,213
Gain on sale of real estate	—			203			—
Net income	129,903			127,091			238,213
Preferred distributions	(7,656		)	(9,674		)	(14,780		)
Excess of liquidation preference over carrying value of preferred shares	—			(2,793		)	—
Net income available for common shareholders	$	122,247		$	114,624		$	223,433
Weighted average common shares outstanding	69,866			66,503			62,576
Basic and diluted earnings per common share:
Net income available for common shareholders	$	1.75		$	1.72		$	3.57

Note 5.  Shareholders’ Equity

We have reserved 6,445,978 of our common shares under the terms of our 2003 Incentive Share Award Plan, or the Award Plan.  Shares were awarded prior to July 2003 pursuant to our 1992 Incentive Share Award Plan.  During the years ended December 31, 2005, 2004 and 2003, 39,600 common shares with an aggregate market value of $512,000, 38,100 common shares with an aggregate market value of $409,000 and 19,500 common shares with an aggregate market value of $181,000, respectively, were awarded to our officers and employees of RMR pursuant to these plans.  In addition, our independent trustees were each awarded 1,500 common shares in 2005 and 2004 and 500 common shares in 2003 as part of their annual fees.  The total market values of the common shares awarded to our independent trustees were $53,000, $40,000 and $18,000 for the years ended December 31, 2005, 2004 and 2003, respectively.  A portion of the shares awarded to our officers and employees of RMR vested immediately and the balance will vest over a two year period.  The shares awarded to our independent trustees vested immediately.  We include the value of awarded common shares in general and administrative expenses.  At December 31, 2005, 6,339,278 of our common shares remain available for issuance under the Award Plan.

Cash distributions per common share paid by us in 2005, 2004 and 2003, were $0.84, $0.82 and $0.80 per year, respectively.  The characterization of our distributions paid in 2005, 2004 and 2003 was 63.2%, 66.5% and 69.1% ordinary income, respectively, 32.7%, 32.9% and 30.9% return of capital, respectively, and 4.1% and 0.6% capital gain for 2005 and 2004, respectively.  We declared a distribution of $0.21 per common share which was paid on February 23, 2006, to shareholders of record on January 20, 2006.  Our credit facility and term loan agreements contain a number of financial and other covenants, including a covenant which limits the amount of aggregate distributions on common shares to 90% of operating cash flow available for shareholder distributions as defined in the agreements.

F-12

Our 8,000,000 series A cumulative redeemable preferred shares required dividends of $2.46875, 9 7/8%, per annum per share, payable in equal quarterly payments and had a liquidation preference of $25.00 per share.  Our series A preferred shares were redeemed for $25.00 each plus accrued and unpaid dividends in March 2006.  Our 12,000,000 series B cumulative redeemable preferred shares carry dividends of $2.1875, 8 ¾%, per annum, payable in equal quarterly payments.  Each series B preferred share has a liquidation preference of $25.00 and is redeemable, at our option, for $25.00 each plus accrued and unpaid dividends at any time on or after September 12, 2007.

We have adopted a Shareholders Rights Plan pursuant to which a right to purchase securities is distributable to shareholders in certain circumstances.  Each right entitles the holder to purchase or to receive securities or other assets of ours upon the occurrence of certain events.  The rights expire on October 17, 2014, and are redeemable at our option.

Note 6.  Transactions with Affiliates

We have agreements with RMR to originate and present investment opportunities to our board of trustees, and to provide property management and administrative services to us.  These agreements are subject to the annual review and approval of our independent trustees.  Prior to October 1, 2005, RMR was beneficially owned by Gerard M. Martin and Barry M. Portnoy, who also serve as our managing trustees.  Effective October 1, 2005, Mr. Portnoy and his son, Adam D. Portnoy, who is our executive vice president, acquired Mr. Martin’s ownership in RMR.  Mr. Martin remains a director of RMR and, together with Mr. Barry Portnoy, continues to serve as one of our managing trustees.  RMR is compensated at an annual rate equal to 0.7% of our real estate investments up to $250 million and 0.5% of investments thereafter, plus property management fees equal to 3.0% of gross rents and construction management fees equal to 5.0% of certain construction costs.  RMR is also entitled to an incentive fee which is paid in restricted shares of our common stock based on a formula.  Incentive fees earned for the year ended December 31, 2005, were approximately $1.2 million.  No incentive fees were earned for the years ended December 31, 2004 and 2003.  At December 31, 2005, affiliates of RMR owned 1,351,126 of our common shares.  RMR also leases approximately 23,000 square feet of office space from us at rental rates which we believe to be commercially reasonable.

Amounts resulting from transactions with affiliates are as follows (dollars in thousands):

	Year Ended December 31,
	2005		2004		2003
Investment and administration related fees, incentive fees and internal audit costs paid to RMR	$	26,973	$	22,534	$	16,904
Distributions paid to beneficial owners of RMR and their affiliates	1,132		1,102		1,056
Rental income received from RMR	495		401		362
Management fees paid to RMR	22,481		19,337		15,663
Dividends received from Hospitality Properties	11,560		11,520		11,520
Dividends received from Senior Housing	11,086		13,052		15,884

F-13

Note 7.  Indebtedness

At December 31, 2005 and 2004, our outstanding indebtedness included the following (dollars in thousands):

	December 31,
	2005		2004
Unsecured revolving credit facility, due April 2009, at LIBOR plus a premium	$	256,000	$	175,000
Term Loan, due August 2009, at LIBOR plus a premium	350,000		350,000
Senior Notes, due 2005 at 6.70%	—		100,000
Senior Notes, due 2010 at 8.875%	30,000		30,000
Senior Notes, due 2010 at 8.625%	20,000		20,000
Senior Notes, due 2012 at 6.95%	200,000		200,000
Senior Notes, due 2013 at 6.50%	200,000		200,000
Senior Notes, due 2014 at 5.75%	250,000		250,000
Senior Notes, due 2015 at 6.40%	200,000		200,000
Senior Notes, due 2015 at 5.75%	250,000		—
Senior Notes, due 2016 at 6.25%	400,000		400,000
Mortgage Notes Payable, due 2007 at 8.40%	—		10,044
Mortgage Notes Payable, due 2008 at 7.02%	16,328		16,589
Mortgage Notes Payable, due 2008 at 8.00%	5,114		6,546
Mortgage Notes Payable, due 2009 at 5.17%	4,603		5,944
Mortgage Notes Payable, due 2011 at 6.814%	245,965		249,219
Mortgage Notes Payable, due 2012 at 8.05%	25,489		—
Mortgage Notes Payable, due 2012 at 6.0%	5,468		5,580
Mortgage Notes Payable, due 2020 at 8.70%	—		76,039
Mortgage Notes Payable, due 2028 at 8.50%	29,399		29,750
Mortgage Notes Payable, due 2029 at 6.794%	42,713		43,407
	2,531,079		2,368,118
Less unamortized net premiums and discounts	10,923		13,087
	$	2,520,156	$	2,355,031

In 2005 we issued $250 million of unsecured senior notes in a public offering, raising net proceeds of $247.2 million.  The notes bear interest at 5.75%, require semiannual interest payments and mature in November 2015.  Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility and for general business purposes.  We also repaid our $100 million 6.7% senior notes when they became due in February 2005, and prepaid $84.9 million of 8.4% and 8.7% secured mortgage debt in July and August 2005.

We have an unsecured revolving credit facility that we use for acquisitions, working capital and general business purposes.  In January 2005, we amended this credit facility to increase the available borrowing amount from $560 million to $750 million and to extend the maturity date from April 2006 to April 2009, with an option to extend the maturity by one additional year.  The annual interest payable for amounts drawn under the facility was reduced from LIBOR plus 0.80% to LIBOR plus 0.65%.  In certain circumstances, the amount of unsecured borrowings available under this facility may be increased to $1.5 billion.  Certain financial and other covenants in this facility were also amended to reflect current market conditions.  The average interest rate on amounts outstanding under our credit facility during 2005 was 4.0%.

Our public debt indentures and credit facility and term loan agreements contain a number of financial and other covenants, including a credit facility and term loan covenant which limits the amount of aggregate distributions on common shares to 90% of operating cash flow available for shareholder distributions as defined in the agreements.

As part of our 2005 acquisitions, we assumed $25.5 million of secured debt which was recorded at its fair value of $29.3 million.  The related premium on this debt is being amortized to interest expense through its maturity date.

F-14

At December 31, 2005, 13 office complexes comprised of 49 properties costing $791.6 million with an aggregate net book value of $671.9 million were secured by mortgage notes totaling $375.1 million maturing from 2008 through 2029 which, net of unamortized premiums and discounts, amounted to $374.2 million.

The required principal payments due during the next five years under all our outstanding debt at December 31, 2005, are $8.3 million in 2006, $8.9 million in 2007, $25.0 million in 2008, $612.4 million in 2009, $56.7 million in 2010 and $1.8 billion thereafter.

Note 8.  Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, rents receivable, equity investments, senior notes, mortgage notes payable, accounts payable and other accrued expenses and security deposits.  At December 31, 2005 and 2004, the fair values of our financial instruments were not materially different from their carrying values, except as follows (dollars in thousands):

	2005				2004
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Equity investments	$	194,297	$	290,789	$	207,804	$	348,034
Senior notes and mortgage notes payable	1,914,156		1,997,924		1,830,031		1,986,637

The fair value of our equity investments are based on quoted per share prices for Hospitality Properties of $40.10 and $46.00 at December 31, 2005 and 2004, respectively, and quoted per share prices for Senior Housing of $16.91 and $18.94 at December 31, 2005 and 2004, respectively.  The fair values of our senior notes and mortgage notes payable are based on estimates using discounted cash flow analyses and current interest rates ranging from 5.3% to 5.9%.

Note 9.  Segment Information

Our primary business is the ownership and operation of office properties.  We also own and operate industrial properties, including leased industrial land in Oahu, HI.  Beginning in 2004, we changed the composition of our reportable segments to account for our office and industrial properties in eight geographic operating segments for financial reporting purposes based on our method of internal reporting.  Prior to 2004, we reported only one segment, owning and operating office and industrial properties.  Our segments by geographic area include Metro Philadelphia, PA, Metro Washington DC, Oahu, HI, Metro Boston, MA, Southern California, Metro Atlanta, GA, Metro Austin, TX and Other Markets, which includes properties that are located throughout the United States.

The following items are accounted for on a corporate level and are not allocated among our segments: depreciation and amortization expense, general and administrative expense, interest income and expense, loss on early extinguishment of debt, and equity in earnings and gains from ownership of common shares of Senior Housing and Hospitality Properties.  The accounting policies of our segments are the same as the accounting policies described in our summary of significant accounting policies.

Property level net operating income is property level revenues reduced by property level operating expenses, excluding net operating income from discontinued operations.  Property level net operating income is not a measure of operating results or cash flows from operating activities as measured by U.S. generally accepted accounting principles, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.  All companies may not calculate property level net operating income in the same manner.  We consider property level net operating income to be an appropriate supplemental measure to net income because it helps both investors and management to understand the operations of our properties.

As of December 31, 2005, we owned 307 office properties and 135 industrial properties.  Property level information by geographic area and property type is as follows (dollars in thousands):

F-15

For the year ended December 31, 2005:

	Office Properties		Industrial Properties		Totals
Property level revenue:
Metro Philadelphia, PA	$	133,390	$	—	$	133,390
Metro Washington DC	77,751		—		77,751
Oahu, HI	—		51,343		51,343
Metro Boston, MA	57,932		—		57,932
Southern California	47,553		—		47,553
Metro Atlanta, GA	34,889		—		34,889
Metro Austin, TX	23,798		15,970		39,768
Other Markets	230,368		37,764		268,132
Totals	$	605,681	$	105,077	$	710,758
Property level net operating income:
Metro Philadelphia, PA	$	72,909	$	—	$	72,909
Metro Washington DC	50,316		—		50,316
Oahu, HI	—		41,561		41,561
Metro Boston, MA	38,898		—		38,898
Southern California	32,374		—		32,374
Metro Atlanta, GA	21,661		—		21,661
Metro Austin, TX	10,316		7,834		18,150
Other Markets	139,565		25,016		164,581
Totals	$	366,039	$	74,411	$	440,450

As of December 31, 2005, our investments in office and industrial properties, net of accumulated depreciation, was $3,783,442 and $903,451, respectively.

For the year ended December 31, 2004:

	Office Properties		Industrial Properties		Totals
Property level revenue:
Metro Philadelphia, PA	$	131,469	$	—	$	131,469
Metro Washington DC	66,234		—		66,234
Oahu, HI	—		42,205		42,205
Metro Boston, MA	52,157		—		52,157
Southern California	42,622		—		42,622
Metro Atlanta, GA	14,813		—		14,813
Metro Austin, TX	21,577		16,740		38,317
Other Markets	189,956		22,983		212,939
Totals	$	518,828	$	81,928	$	600,756
Property level net operating income:
Metro Philadelphia, PA	$	71,676	$	—	$	71,676
Metro Washington DC	42,752		—		42,752
Oahu, HI	—		34,582		34,582
Metro Boston, MA	37,724		—		37,724
Southern California	27,823		—		27,823
Metro Atlanta, GA	9,404		—		9,404
Metro Austin, TX	10,011		8,162		18,173
Other Markets	115,548		15,783		131,331
Totals	$	314,938	$	58,527	$	373,465

As of December 31, 2004, our investments in office and industrial properties, net of accumulated depreciation, was $3,437,904 and $792,754, respectively.

F-16

For the year ended December 31, 2003:

	Office Properties		Industrial Properties		Totals
Property level revenue:
Metro Philadelphia, PA	$	139,647	$	—	$	139,647
Metro Washington DC	61,399		—		61,399
Oahu, HI	—		2,944		2,944
Metro Boston, MA	41,497		—		41,497
Southern California	38,593		—		38,593
Metro Atlanta, GA	—		—		—
Metro Austin, TX	25,448		17,227		42,675
Other Markets	163,577		8,463		172,040
Totals	$	470,161	$	28,634	$	498,795
Property level net operating income:
Metro Philadelphia, PA	$	80,374	$	—	$	80,374
Metro Washington DC	40,484		—		40,484
Oahu, HI	—		2,495		2,495
Metro Boston, MA	30,552		—		30,552
Southern California	25,937		—		25,937
Metro Atlanta, GA	—		—		—
Metro Austin, TX	12,873		9,000		21,873
Other Markets	100,128		6,523		106,651
Totals	$	290,348	$	18,018	$	308,366

The following table reconciles our reported segment information to our consolidated financial statements for the years ended December 31, 2005, 2004 and 2003 (dollars in thousands):

	2005			2004			2003
Property level net operating income	$	440,450		$	373,465		$	308,366
Depreciation and amortization	(136,307		)	(111,986		)	(92,851		)
General and administrative	(30,446		)	(25,170		)	(19,338		)
Operating income	273,697			236,309			196,177
Interest income	1,490			638			411
Interest expense	(143,663		)	(118,212		)	(101,144		)
Loss on early extinguishment of debt	(168		)	(2,866		)	(3,238		)
Equity in earnings of equity investments	14,352			15,457			23,525
Gain on sale of shares of equity investments	5,522			21,550			—
Gain on issuance of shares by equity investees	6,241			8,436			—
Income from continuing operations	157,471			161,312			115,731
(Loss) income from discontinued operations	(79		)	1,517			(1,285		)
Gain on sale of properties	7,592			—			—
Net income	164,984			162,829			114,446
Preferred distributions	(46,000		)	(46,000		)	(46,000		)
Net income available for common shareholders	$	118,984		$	116,829		$	68,446

The United States Government is our only tenant which is responsible for more than five percent of our revenues.  For the years ended December 31, 2005, 2004 and 2003, office segment revenues from the United States Government were $110.0 million, $96.7 million and $88.9 million, respectively.

F-17

Note 10.  Selected Quarterly Financial Data (Unaudited)

The following is a summary of our unaudited quarterly results of operations for 2005 and 2004 (dollars in thousands, except per share amounts):

	2005
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Total revenues	$	167,031	$	174,289	$	183,372	$	186,066
Net income available for common shareholders	20,735		39,246		26,797		32,206
Per common share data:
Net income available for common shareholders	0.12		0.20		0.13		0.15

	2004
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Total revenues	$	136,329	$	138,693	$	158,346	$	167,388
Net income available for common shareholders	37,875		23,560		24,901		30,493
Per common share data:
Net income available for common shareholders	0.22		0.13		0.14		0.17

Note 11.  Pro Forma Information (unaudited)

We purchased 70 properties including 8.2 million square feet of leased industrial lands, for $476.1 million in 2005, plus closing costs, and 136 properties for $818.3 million in 2004, plus closing costs.  The following table presents our pro forma results of operations as if our 2004 and 2005 acquisitions and financings were completed on January 1, 2004.  This pro forma data is not necessarily indicative of what actual results of operations would have been for the years presented, nor does it represent the results of operations for any future period.  Differences could result from, but are not limited to, additional property sales or investments, changes in interest rates and changes in our debt or equity capital structure.  Amounts are in thousands, except per share data.

	Year Ended December 31,
	2005		2004
Total revenues	$	751,220	$	733,465
Net income available for common shareholders	$	109,100	$	119,023
Per common share data:
Net income available for common shareholders	$	0.52	$	0.57

Note 12.  Subsequent Events

In February 2006 we issued 6,000,000 series C cumulative redeemable preferred shares in a public offering for net proceeds of approximately $145 million.  Each series C preferred share requires dividends of $1.78125, 7 1/8%, per annum, payable in equal quarterly payments and has a liquidation preference of $25.00.  Our series C preferred shares are redeemable, at our option, for $25.00 each plus accrued and unpaid dividends at any time on or after February 15, 2011.  We applied the net proceeds from this offering to reduce amounts outstanding on our revolving credit facility.  Thereafter, we funded the redemption of all $200 million of our 9.875% series A preferred shares on March 2, 2006, by borrowing under our revolving credit facility.

In January 2006 we acquired 12 office properties containing 459,000 square feet of space for $51.6 million, plus closing costs.  In January and February 2006, we agreed to acquire 25 properties for $174.9 million plus closing costs.  The acquisitions of these properties are subject to various closing conditions customary in real estate transactions and no assurances can be given as to when or if these properties will be acquired.

F-18

HRPT PROPERTIES TRUST

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

December 31, 2005

(dollars in thousands)

	Balance at		Charged to					Balance at
	Beginning of		Costs and					End of
Description	Period		Expenses		Deductions			Period
Year Ended December 31, 2003:
Allowance for doubtful accounts	$	4,977	$	2,410	$	(2,319	)	$	5,068	(1)
Year Ended December 31, 2004:
Allowance for doubtful accounts	$	5,068	$	2,021	$	(2,495	)	$	4,594
Year Ended December 31, 2005:
Allowance for doubtful accounts	$	4,594	$	848	$	(1,675	)	$	3,767

(1)  Includes allowances for real estate mortgages receivable of $500 as of December 31, 2003.

S-1

HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2005

(dollars in thousands)

				Initial Cost to Company				Costs Capitalized			Cost Amount Carried at Close of Period									Original
Location	State	Encumbrances		Land		Buildings and Equipment		Subsequent to Acquisition			Land		Buildings and Equipment		Total(1)		Accumulated Depreciation(2)		Date Acquired	Construction Date
Petersburg	AK	$	—	$	189	$	811	$	32		$	189	$	843	$	1,032	$	185	3/31/97	1983
Safford	AZ	—		635		2,729		128			647		2,845		3,492		616		3/31/97	1992
Tucson	AZ	—		765		3,280		139			779		3,405		4,184		774		3/31/97	1993
Phoenix	AZ	—		2,687		11,532		710			2,729		12,200		14,929		2,596		5/15/97	1997
Tempe	AZ	—		1,125		10,122		326			1,125		10,448		11,573		1,690		6/30/99	1987
Phoenix	AZ	—		1,828		16,453		(1		)	1,828		16,452		18,280		2,656		7/30/99	1982
Phoenix	AZ	—		1,899		14,872		224			1,899		15,096		16,995		1,473		2/1/02	1999
Phoenix	AZ	—		1,041		8,023		974			1,041		8,997		10,038		996		2/1/02	1987
Tucson	AZ	—		3,261		26,357		2,517			3,261		28,874		32,135		2,977		2/27/02	1986
Tolleson	AZ	—		1,257		9,210		4			1,257		9,214		10,471		470		12/19/03	1990
San Diego	CA	—		992		9,040		4,911			992		13,951		14,943		2,131		12/5/96	1985
San Diego	CA	—		1,228		11,199		6,084			1,228		17,283		18,511		2,639		12/5/96	1985
San Diego	CA	—		1,985		18,096		9,831			1,985		27,927		29,912		4,265		12/5/96	1985
San Diego	CA	—		502		4,526		827			502		5,353		5,855		1,163		12/31/96	1984
San Diego	CA	—		294		2,650		484			294		3,134		3,428		681		12/31/96	1984
San Diego	CA	—		313		2,820		515			313		3,335		3,648		725		12/31/96	1984
San Diego	CA	—		316		2,846		520			316		3,366		3,682		731		12/31/96	1984
Kearney Mesa	CA	—		2,916		12,456		959			2,969		13,362		16,331		2,877		3/31/97	1994
San Diego	CA	—		4,269		18,316		475			4,347		18,713		23,060		4,101		3/31/97	1996
San Diego	CA	—		2,984		12,859		2,302			3,038		15,107		18,145		3,326		3/31/97	1981
Los Angeles	CA	34,351		5,076		49,884		2,660			5,071		52,549		57,620		11,457		5/15/97	1979
Los Angeles	CA	34,547		5,055		49,685		3,209			5,060		52,889		57,949		11,536		5/15/97	1979
Los Angeles	CA	—		1,921		8,242		430			1,955		8,638		10,593		1,857		7/11/97	1996
Anaheim	CA	—		691		6,223		2			692		6,224		6,916		1,323		12/5/97	1992
San Diego	CA	—		461		3,830		1			461		3,831		4,292		339		6/24/02	1986
San Diego	CA	—		685		5,530		—			685		5,530		6,215		490		6/24/02	1986
San Diego	CA	—		475		4,264		785			474		5,050		5,524		544		6/24/02	1986
Fresno	CA	—		7,276		61,118		8			7,277		61,125		68,402		5,157		8/29/02	1971
Santa Ana	CA	—		1,363		10,158		(279		)	1,362		9,880		11,242		527		11/10/03	2000
Rancho Cordova	CA	—		116		1,048		—			116		1,048		1,164		38		7/16/04	1977
Rancho Cordova	CA	—		116		1,072		3			116		1,075		1,191		39		7/16/04	1977
Rancho Cordova	CA	—		89		822		—			89		822		911		30		7/16/04	1977
Sacramento	CA	—		134		720		93			134		813		947		38		7/16/04	1977

S-2

			Initial Cost to Company		Costs Capitalized	Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition	Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Sacramento	CA	—	116	1,032	45	116	1,077	1,193	51	7/16/04	1977
Sacramento	CA	—	67	393	44	67	437	504	14	7/16/04	1977
Sacramento	CA	—	116	952	24	116	976	1,092	36	7/16/04	1977
Sacramento	CA	—	67	361	—	67	361	428	13	7/16/04	1977
Sacramento	CA	—	134	676	—	134	676	810	25	7/16/04	1977
Sacramento	CA	—	116	1,017	9	116	1,026	1,142	39	7/16/04	1977
Sacramento	CA	—	116	720	60	116	780	896	27	7/16/04	1977
Sacramento	CA	—	60	349	22	60	371	431	15	7/16/04	1977
Sacramento	CA	—	60	333	25	60	358	418	12	7/16/04	1977
Sacramento	CA	—	116	936	20	116	956	1,072	36	7/16/04	1977
Sacramento	CA	—	116	976	24	116	1,000	1,116	40	7/16/04	1977
Sacramento	CA	—	134	1,186	23	134	1,209	1,343	50	7/16/04	1977
Sacramento	CA	—	91	819	35	91	854	945	30	7/16/04	1977
Sacramento	CA	—	74	574	33	74	607	681	24	7/16/04	1977
Sacramento	CA	—	402	4,056	—	402	4,056	4,458	148	7/16/04	1977
Sacramento	CA	—	80	623	35	80	658	738	25	7/16/04	1977
Sacramento	CA	—	206	1,970	95	206	2,065	2,271	72	7/16/04	1977
San Diego	CA	—	284	2,992	307	284	3,299	3,583	130	7/16/04	1980
San Diego	CA	—	654	5,467	133	654	5,600	6,254	214	7/16/04	1982
San Diego	CA	—	280	2,421	293	280	2,714	2,994	109	7/16/04	1980
San Diego	CA	—	286	2,512	216	286	2,728	3,014	98	7/16/04	1980
San Diego	CA	—	330	2,843	43	330	2,886	3,216	104	7/16/04	1978
San Diego	CA	—	387	3,339	40	387	3,379	3,766	122	7/16/04	1978
Golden	CO	—	494	152	5,990	495	6,141	6,636	1,183	3/31/97	1997
Aurora	CO	—	1,152	13,272	—	1,152	13,272	14,424	2,817	11/14/97	1993
Lakewood	CO	—	1,855	16,691	366	1,856	17,056	18,912	2,583	11/22/99	1980
Lakewood	CO	—	787	7,085	160	788	7,244	8,032	1,096	11/22/99	1980
Englewood	CO	—	1,708	14,616	393	1,707	15,010	16,717	1,578	11/2/01	1984
Lakewood	CO	—	936	9,160	109	936	9,269	10,205	750	10/11/02	1981
Lakewood	CO	—	915	9,106	131	916	9,236	10,152	746	10/11/02	1981
Lakewood	CO	—	1,035	9,271	152	1,036	9,422	10,458	760	10/11/02	1981
Englewood	CO	—	649	5,232	51	642	5,290	5,932	403	12/19/02	1984
Longmont	CO	—	3,714	24,397	18	3,715	24,414	28,129	774	10/26/04	1982

S-3

			Initial Cost to Company		Costs Capitalized		Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition		Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Wallingford	CT	—	640	10,017	1,587		640	11,604	12,244	2,222	6/1/98	1986
Wallingford	CT	—	367	3,301	867		366	4,169	4,535	761	12/22/98	1988
Meriden	CT	—	768	6,164	19		768	6,183	6,951	379	7/24/03	1982
Windsor	CT	—	1,376	11,212	241		1,376	11,453	12,829	676	8/29/03	1988
Milford	CT	—	1,712	13,969	—		1,712	13,969	15,681	160	7/29/05	1987
Washington	DC	—	2,485	22,696	4,983		2,485	27,679	30,164	6,132	9/13/96	1976
Washington	DC	—	12,008	51,528	29,132		12,227	80,441	92,668	14,895	3/31/97	1996
Washington	DC	21,967	6,979	29,949	1,435		7,107	31,256	38,363	6,973	3/31/97	1989
Washington	DC	—	1,851	16,511	2,572		1,887	19,047	20,934	4,060	12/19/97	1966
Washington	DC	30,328	5,975	53,778	2,900		5,975	56,678	62,653	10,558	6/23/98	1991
Wilmington	DE	—	4,409	39,681	10,309		4,413	49,986	54,399	8,090	7/23/98	1986
Wilmington	DE	—	1,478	13,306	554		1,477	13,861	15,338	2,225	7/13/99	1984
Orlando	FL	—	—	362	1		36	327	363	57	2/19/98	1997
Orlando	FL	—	722	6,499	(59	)	716	6,446	7,162	1,271	2/19/98	1997
Orlando	FL	—	256	2,308	64		263	2,365	2,628	466	2/19/98	1997
Miami	FL	—	144	1,297	319		144	1,616	1,760	443	3/19/98	1987
Savannah	GA	—	544	2,330	575		553	2,896	3,449	567	3/31/97	1990
Atlanta	GA	460	197	1,757	30		197	1,787	1,984	69	7/16/04	1972
Atlanta	GA	729	265	2,382	495		265	2,877	3,142	140	7/16/04	1972
Atlanta	GA	418	202	1,580	21		202	1,601	1,803	58	7/16/04	1972
Atlanta	GA	686	280	2,657	21		280	2,678	2,958	97	7/16/04	1972
Atlanta	GA	2,355	1,070	8,930	155		1,070	9,085	10,155	347	7/16/04	1972
Atlanta	GA	389	157	1,505	15		157	1,520	1,677	55	7/16/04	1972
Atlanta	GA	617	223	2,006	431		223	2,437	2,660	112	7/16/04	1972
Atlanta	GA	475	199	1,811	39		199	1,850	2,049	67	7/16/04	1972
Atlanta	GA	501	212	1,921	28		212	1,949	2,161	70	7/16/04	1972
Atlanta	GA	455	192	1,746	24		192	1,770	1,962	64	7/16/04	1972
Atlanta	GA	—	1,521	11,826	—		1,521	11,826	13,347	431	7/16/04	1972
Atlanta	GA	464	210	1,779	12		210	1,791	2,001	65	7/16/04	1972
Atlanta	GA	494	206	1,875	49		206	1,924	2,130	69	7/16/04	1972
Atlanta	GA	2,696	1,209	9,747	673		1,209	10,420	11,629	379	7/16/04	1972
Atlanta	GA	1,916	1,126	6,930	207		1,126	7,137	8,263	258	7/16/04	1972
Atlanta	GA	526	245	2,006	19		245	2,025	2,270	74	7/16/04	1972

S-4

			Initial Cost to Company		Costs Capitalized		Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition		Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Atlanta	GA	783	346	2,899	131		346	3,030	3,376	109	7/16/04	1967
Atlanta	GA	1,124	480	4,328	41		480	4,369	4,849	158	7/16/04	1967
Atlanta	GA	—	1,713	7,649	150		1,713	7,799	9,512	280	7/16/04	1967
Atlanta	GA	624	289	2,403	—		289	2,403	2,692	88	7/16/04	1967
Atlanta	GA	—	372	3,600	21		372	3,621	3,993	131	7/16/04	1967
Atlanta	GA	—	364	3,527	20		364	3,547	3,911	129	7/16/04	1967
Atlanta	GA	1,070	425	4,119	71		425	4,190	4,615	150	7/16/04	1967
Atlanta	GA	—	1,122	10,867	27		1,122	10,894	12,016	397	7/16/04	1967
Atlanta	GA	3,772	1,620	13,661	988		1,620	14,649	16,269	563	7/16/04	1967
Atlanta	GA	124	52	483	—		52	483	535	18	7/16/04	1967
Atlanta	GA	553	257	2,119	10		257	2,129	2,386	78	7/16/04	1972
Atlanta	GA	625	268	2,380	46		268	2,426	2,694	88	7/16/04	1972
Atlanta	GA	1,518	685	5,837	25		685	5,862	6,547	214	7/16/04	1972
Atlanta	GA	2,187	939	8,387	108		939	8,495	9,434	307	7/16/04	1972
Atlanta	GA	2,260	1,154	8,454	139		1,154	8,593	9,747	309	7/16/04	1972
Atlanta	GA	716	303	2,595	189		303	2,784	3,087	95	7/16/04	1972
Atlanta	GA	498	235	1,906	8		235	1,914	2,149	70	7/16/04	1972
Atlanta	GA	—	917	—	—		917	—	917	—	7/16/04	1972
Atlanta	GA	364	156	1,400	16		156	1,416	1,572	51	7/16/04	1972
Atlanta	GA	—	2,197	—	3		2,197	3	2,200	—	7/16/04	1972
Atlanta	GA	—	2,459	18,549	142		2,463	18,687	21,150	640	8/24/04	1985
Atlanta	GA	—	952	7,643	73		952	7,716	8,668	247	9/9/04	1983
Atlanta	GA	—	2,524	20,407	—		2,524	20,407	22,931	191	8/23/05	1985
Roswell	GA	—	624	5,491	17		624	5,508	6,132	40	9/2/05	1974
Oahu	HI	—	156,939	4,320	997		157,420	4,836	162,256	236	12/5/03	—
Oahu	HI	—	93,821	—	147		93,728	240	93,968	2	12/5/03	—
Oahu	HI	—	78,842	4,789	(95	)	78,752	4,784	83,536	244	12/5/03	—
Oahu	HI	—	7,982	—	(10	)	7,972	—	7,972	—	12/5/03	—
Oahu	HI	—	66,253	—	(83	)	66,170	—	66,170	—	12/5/03	—
Oahu	HI	—	718	—	(1	)	717	—	717	—	12/5/03	—
Oahu	HI	—	43,419	223	1,774		33,737	11,679	45,416	316	12/5/03	—
Oahu	HI	—	11,450	—	(13	)	11,437	—	11,437	—	12/5/03	—
Oahu	HI	—	9,671	—	(11	)	9,660	—	9,660	—	12/5/03	—

S-5

			Initial Cost to Company		Costs Capitalized		Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition		Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Oahu	HI	—	2,114	456	(3	)	2,112	455	2,567	23	12/5/03	—
Oahu	HI	—	1,343	—	(1	)	1,342	—	1,342	—	12/5/03	—
Oahu	HI	—	2,038	—	—		2,038	—	2,038	—	6/15/05	—
Oahu	HI	—	1,354	—	—		1,354	—	1,354	—	6/15/05	—
Oahu	HI	—	3,547	—	—		3,547	—	3,547	—	6/15/05	—
Oahu	HI	—	1,572	—	—		1,572	—	1,572	—	6/15/05	—
Oahu	HI	—	1,232	—	—		1,232	—	1,232	—	6/15/05	—
Oahu	HI	—	434	3,983	—		434	3,983	4,417	54	6/15/05	—
Oahu	HI	—	11,645	—	—		11,645	—	11,645	—	6/15/05	—
Oahu	HI	—	1,509	—	—		1,509	—	1,509	—	6/15/05	—
Oahu	HI	—	1,725	—	—		1,725	—	1,725	—	6/15/05	—
Oahu	HI	—	2,190	—	—		2,190	—	2,190	—	6/15/05	—
Oahu	HI	—	2,672	—	—		2,672	—	2,672	—	6/15/05	—
Oahu	HI	—	1,764	—	—		1,764	—	1,764	—	6/15/05	—
Oahu	HI	—	294	2,297	—		294	2,297	2,591	31	6/15/05	—
Oahu	HI	—	27,455	—	—		27,455	—	27,455	—	6/15/05	—
Oahu	HI	—	13,904	—	—		13,904	—	13,904	—	6/15/05	—
Oahu	HI	—	651	—	—		651	—	651	—	6/15/05	—
Oahu	HI	—	1,497	—	—		1,497	—	1,497	—	6/15/05	—
Oahu	HI	—	963	—	—		963	—	963	—	6/15/05	—
Oahu	HI	—	1,624	—	—		1,624	—	1,624	—	6/15/05	—
Oahu	HI	—	1,244	—	—		1,244	—	1,244	—	6/15/05	—
Oahu	HI	—	707	—	—		707	—	707	—	6/15/05	—
Oahu	HI	—	381	—	—		381	—	381	—	6/15/05	—
Oahu	HI	—	717	—	—		717	—	717	—	6/15/05	—
Oahu	HI	—	553	—	—		553	—	553	—	6/15/05	—
Oahu	HI	—	243	1,457	—		243	1,457	1,700	20	6/15/05	—
Oahu	HI	—	536	—	—		536	—	536	—	6/15/05	—
Oahu	HI	—	2,949	—	—		2,949	—	2,949	—	6/15/05	—
Oahu	HI	—	1,393	—	—		1,393	—	1,393	—	6/15/05	—
Oahu	HI	—	714	—	—		714	—	714	—	6/15/05	—
Oahu	HI	—	419	—	—		419	—	419	—	6/15/05	—
Oahu	HI	—	1,384	—	—		1,384	—	1,384	—	6/15/05	—

S-6

			Initial Cost to Company		Costs Capitalized		Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition		Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Oahu	HI	—	218	—	—		218	—	218	—	6/15/05	—
Oahu	HI	—	568	—	—		568	—	568	—	6/15/05	—
Oahu	HI	—	5,839	—	—		5,839	—	5,839	—	6/15/05	—
Oahu	HI	—	1,296	—	—		1,296	—	1,296	—	6/15/05	—
Oahu	HI	—	1,601	—	—		1,601	—	1,601	—	6/15/05	—
Oahu	HI	—	1,829	—	—		1,829	—	1,829	—	6/15/05	—
Oahu	HI	—	1,985	—	—		1,985	—	1,985	—	6/15/05	—
Oahu	HI	—	2,658	—	—		2,658	—	2,658	—	6/15/05	—
Oahu	HI	—	7,609	—	—		7,609	—	7,609	—	6/15/05	—
Oahu	HI	—	724	—	—		724	—	724	—	6/15/05	—
Oahu	HI	—	490	—	—		490	—	490	—	6/15/05	—
Oahu	HI	—	3,802	—	—		3,802	—	3,802	—	6/15/05	—
Deerfield	IL	—	2,515	20,186	—		2,515	20,186	22,701	21	12/14/05	1986
Lake Forest	IL	—	1,258	9,630	—		1,258	9,630	10,888	10	12/14/05	2001
Waukegan	IL	—	1,769	15,141	—		1,769	15,141	16,910	16	12/14/05	1990
Waukegan	IL	—	1,746	14,753	—		1,746	14,753	16,499	15	12/14/05	1998
Bannockburn	IL	25,489	5,846	48,568	—		5,846	48,568	54,414	51	12/29/05	1999
Indianapolis	IN	—	7,495	60,465	700		7,495	61,165	68,660	956	5/10/05	1977
Indianapolis	IN	—	665	5,215	—		665	5,215	5,880	71	6/17/05	1987
Kansas City	KS	—	1,042	4,469	2,763		1,061	7,213	8,274	1,479	3/31/97	1990
Erlanger	KY	—	2,022	9,545	(40	)	2,020	9,507	11,527	605	6/30/03	1999
Boston	MA	—	3,378	30,397	7,082		3,378	37,479	40,857	8,483	9/28/95	1915
Boston	MA	—	1,447	13,028	252		1,448	13,279	14,727	3,374	9/28/95	1993
Boston	MA	—	1,500	13,500	1,070		1,500	14,570	16,070	3,602	12/18/95	1875
Charlton	MA	—	141	1,269	8		141	1,277	1,418	275	5/15/97	1988
Fitchburg	MA	—	223	2,004	10		223	2,014	2,237	434	5/15/97	1994
Grafton	MA	—	37	336	4		37	340	377	73	5/15/97	1930
Milford	MA	—	144	1,297	266		401	1,306	1,707	282	5/15/97	1989
Millbury	MA	—	34	309	4		34	313	347	68	5/15/97	1950
Northbridge	MA	—	32	290	5		32	295	327	64	5/15/97	1962
Spencer	MA	—	211	1,902	11		211	1,913	2,124	412	5/15/97	1992
Sturbridge	MA	—	83	751	6		83	757	840	163	5/15/97	1986
Webster	MA	—	315	2,834	14		315	2,848	3,163	614	5/15/97	1995

S-7

			Initial Cost to Company		Costs Capitalized		Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition		Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Westborough	MA	—	42	381	5		42	386	428	83	5/15/97	1900
Westborough	MA	—	396	3,562	15		396	3,577	3,973	771	5/15/97	1986
Worcester	MA	—	354	3,189	14		354	3,203	3,557	691	5/15/97	1985
Worcester	MA	—	895	8,052	41		895	8,093	8,988	1,745	5/15/97	1990
Worcester	MA	—	111	1,000	292		397	1,006	1,403	217	5/15/97	1986
Worcester	MA	—	265	2,385	12		265	2,397	2,662	517	5/15/97	1972
Worcester	MA	—	158	1,417	7		157	1,425	1,582	307	5/15/97	1992
Worcester	MA	—	1,132	10,186	43		1,132	10,229	11,361	2,204	5/15/97	1989
Lexington	MA	—	1,054	9,487	4,830		1,054	14,317	15,371	1,919	1/30/98	1968
Quincy	MA	—	1,668	11,097	2,354		1,668	13,451	15,119	3,347	4/3/98	1988
Quincy	MA	—	2,477	16,645	4,382		2,477	21,027	23,504	3,683	4/3/98	1988
Auburn	MA	—	647	5,827	22		650	5,846	6,496	883	12/27/99	1977
Leominster	MA	—	778	7,003	26		781	7,026	7,807	1,061	12/27/99	1966
Stoneham	MA	—	931	8,062	756		931	8,818	9,749	888	9/28/01	1945
Foxborough	MA	—	3,021	25,721	—		3,021	25,721	28,742	1,849	2/13/03	1989
Mansfield	MA	—	1,550	13,908	2,429		1,550	16,337	17,887	856	8/1/03	1981
Mansfield	MA	—	1,358	11,658	(7	)	1,357	11,652	13,009	692	8/1/03	2002
Mansfield	MA	—	1,183	9,749	46		1,182	9,796	10,978	579	8/1/03	1978
Mansfield	MA	—	1,033	—	—		1,033	—	1,033	—	8/1/03	—
Mansfield	MA	—	1,262	11,103	40		1,261	11,144	12,405	637	9/5/03	1988
Mansfield	MA	—	1,023	8,954	45		1,023	8,999	10,022	514	9/5/03	1988
Quincy	MA	—	774	5,815	59		779	5,869	6,648	277	2/24/04	1999
Quincy	MA	—	2,586	16,493	—		2,586	16,493	19,079	533	9/21/04	1980
Quincy	MA	—	3,585	23,144	457		3,585	23,601	27,186	747	9/21/04	1981
Gaithersburg	MD	—	4,381	18,798	1,091		4,461	19,809	24,270	4,294	3/31/97	1995
Germantown	MD	—	2,305	9,890	276		2,347	10,124	12,471	2,209	3/31/97	1995
Oxon Hill	MD	—	3,181	13,653	2,041		3,131	15,744	18,875	3,175	3/31/97	1992
Riverdale	MD	—	9,423	40,433	7,018		9,595	47,279	56,874	9,146	3/31/97	1994
Baltimore	MD	—	—	12,430	2,382		—	14,812	14,812	3,960	11/18/97	1988
Rockville	MD	—	3,251	29,258	2,255		3,248	31,516	34,764	6,175	2/2/98	1986
Baltimore	MD	—	900	8,097	343		901	8,439	9,340	1,505	10/15/98	1989
Pikesville	MD	—	589	5,305	421		590	5,725	6,315	962	8/11/99	1987
Baltimore	MD	—	6,328	54,645	3,194		6,328	57,839	64,167	4,155	1/28/03	1990

S-8

			Initial Cost to Company		Costs Capitalized	Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition	Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Baltimore	MD	—	2,830	22,996	3,702	2,830	26,698	29,528	838	7/16/04	1972
Rockville	MD	—	2,751	22,741	752	2,751	23,493	26,244	845	7/16/04	1980
Rockville	MD	—	1,961	16,064	2	1,961	16,066	18,027	586	7/20/04	2002
Rockville	MD	—	2,145	17,571	2	2,145	17,573	19,718	641	7/20/04	2002
Rockville	MD	—	3,532	28,937	45	3,533	28,981	32,514	1,055	7/20/04	2002
Dearborn	MI	—	163	1,388	91	163	1,479	1,642	63	7/16/04	1973
Dearborn	MI	—	227	2,108	356	227	2,464	2,691	80	7/16/04	1973
Dearborn	MI	—	163	1,466	—	163	1,466	1,629	53	7/16/04	1973
Dearborn	MI	—	163	1,320	33	163	1,353	1,516	50	7/16/04	1973
Dearborn	MI	—	210	1,885	9	210	1,894	2,104	69	7/16/04	1973
Dearborn	MI	—	153	1,321	13	153	1,334	1,487	53	7/16/04	1973
Dearborn	MI	—	92	551	—	92	551	643	20	7/16/04	1973
Dearborn	MI	—	118	1,049	59	118	1,108	1,226	39	7/16/04	1973
Dearborn	MI	—	4,158	33,184	2,596	4,158	35,780	39,938	1,334	7/16/04	1973
Dearborn	MI	—	179	1,352	—	179	1,352	1,531	49	7/16/04	1992
Dearborn	MI	—	223	1,059	4	223	1,063	1,286	39	7/16/04	1992
Dearborn	MI	—	179	1,473	—	179	1,473	1,652	54	7/16/04	1992
Dearborn	MI	—	52	479	24	52	503	555	18	7/16/04	1992
Dearborn	MI	—	51	439	—	51	439	490	16	7/16/04	1992
Dearborn	MI	—	153	1,230	7	153	1,237	1,390	45	7/16/04	1973
Dearborn	MI	—	221	1,582	345	221	1,927	2,148	58	7/16/04	1973
Dearborn	MI	—	104	939	—	104	939	1,043	34	7/16/04	1973
Bloomington	MN	—	1,898	17,081	2,258	1,898	19,339	21,237	4,554	3/19/98	1957
Eagan	MN	—	1,424	12,822	20	1,425	12,841	14,266	2,498	3/19/98	1986
Mendota Heights	MN	—	533	4,795	—	533	4,795	5,328	934	3/19/98	1995
Minneapolis	MN	—	870	7,831	1,705	870	9,536	10,406	1,725	8/3/99	1987
Minneapolis	MN	—	695	6,254	1,293	695	7,547	8,242	1,302	8/3/99	1986
Plymouth	MN	—	563	5,064	935	563	5,999	6,562	913	8/3/99	1987
St. Paul	MN	—	696	6,263	1,498	695	7,762	8,457	1,210	8/3/99	1987
Minneapolis	MN	—	1,891	17,021	1,659	1,893	18,678	20,571	3,022	9/30/99	1980
Roseville	MN	4,049	672	6,045	844	672	6,889	7,561	963	12/1/99	1987
Roseville	MN	1,634	295	2,658	99	295	2,757	3,052	402	12/1/99	1987
Roseville	MN	1,252	185	1,661	492	185	2,153	2,338	376	12/1/99	1987

S-9

			Initial Cost to Company		Costs Capitalized	Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition	Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Roseville	MN	6,203	979	8,814	1,791	978	10,606	11,584	1,507	12/1/99	1987
Roseville	MN	3,190	586	5,278	94	586	5,372	5,958	797	12/1/99	1987
St. Paul	MN	—	1,303	10,451	37	1,304	10,487	11,791	403	6/2/04	1970
Kansas City	MO	—	1,443	6,193	2,086	1,470	8,252	9,722	1,661	3/31/97	1995
St. Louis	MO	—	903	7,602	19	903	7,621	8,524	404	11/7/03	1998
Arnold	MO	—	834	7,302	34	838	7,332	8,170	344	2/11/04	1999
Kansas City	MO	—	1,346	9,531	—	1,346	9,531	10,877	30	11/1/05	1984
Manchester	NH	—	2,201	19,957	12	2,210	19,960	22,170	3,306	5/10/99	1979
Vorhees	NJ	—	673	4,232	924	589	5,240	5,829	1,236	5/26/98	1990
Vorhees	NJ	—	445	2,798	306	584	2,965	3,549	598	5/26/98	1990
Vorhees	NJ	—	1,053	6,625	1,449	998	8,129	9,127	1,459	5/26/98	1990
Florham Park	NJ	—	1,412	12,709	5,110	1,412	17,819	19,231	4,470	7/31/98	1979
Albuquerque	NM	—	493	2,119	140	503	2,249	2,752	486	3/31/97	1984
Sante Fe	NM	—	1,551	6,650	837	1,578	7,460	9,038	1,561	3/31/97	1987
Albuquerque	NM	—	173	1,553	26	172	1,580	1,752	252	8/31/99	1984
Albuquerque	NM	—	422	3,797	264	422	4,061	4,483	613	8/31/99	1984
Albuquerque	NM	—	877	7,895	138	876	8,034	8,910	1,270	8/31/99	1984
Albuquerque	NM	—	441	3,970	146	441	4,116	4,557	663	8/31/99	1984
Albuquerque	NM	—	40	141	35	40	176	216	16	2/12/02	1985
Albuquerque	NM	—	129	1,217	100	129	1,317	1,446	135	2/12/02	1985
Albuquerque	NM	—	39	351	8	39	359	398	35	2/12/02	1985
Albuquerque	NM	—	1,778	14,407	995	1,778	15,402	17,180	1,625	2/12/02	1985
Albuquerque	NM	—	444	3,890	133	444	4,023	4,467	381	2/12/02	1987
Albuquerque	NM	—	152	1,526	229	152	1,755	1,907	205	2/12/02	1985
Albuquerque	NM	—	1,968	17,210	386	1,967	17,597	19,564	1,340	12/6/02	1974
Albuquerque	NM	—	794	5,568	—	794	5,568	6,362	319	9/17/03	1975
Albuquerque	NM	—	3,235	24,490	1	3,235	24,491	27,726	1,403	9/17/03	1975
White Plains	NY	—	1,200	10,870	872	1,200	11,742	12,942	2,836	2/6/96	1952
Brooklyn	NY	—	775	7,054	143	775	7,197	7,972	1,693	6/6/96	1971
Buffalo	NY	4,603	4,405	18,899	1,566	4,485	20,385	24,870	4,340	3/31/97	1994
Irondoquoit	NY	—	1,910	17,189	978	1,910	18,167	20,077	3,371	6/30/98	1986
Islandia	NY	—	813	7,319	943	809	8,266	9,075	1,349	6/11/99	1987
Minneola	NY	—	3,419	30,774	2,716	3,416	33,493	36,909	5,851	6/11/99	1971

S-10

			Initial Cost to Company		Costs Capitalized	Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition	Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Syracuse	NY	—	1,788	16,096	2,656	1,789	18,751	20,540	3,394	6/29/99	1972
Melville	NY	—	3,155	28,395	459	3,155	28,854	32,009	4,640	7/22/99	1985
Syracuse	NY	—	466	4,196	1,294	467	5,489	5,956	1,245	9/24/99	1990
DeWitt	NY	—	454	4,086	653	457	4,736	5,193	820	12/28/99	1987
Pittsford	NY	—	530	4,109	6	531	4,114	4,645	117	11/30/04	1998
Pittsford	NY	—	683	4,889	73	684	4,961	5,645	140	11/30/04	1999
Pittsford	NY	—	1,018	7,618	16	1,020	7,632	8,652	218	11/30/04	2000
Pittsford	NY	—	526	3,755	19	528	3,772	4,300	108	11/30/04	2003
Pittsford	NY	4,592	662	4,993	9	663	5,001	5,664	143	11/30/04	2002
Pittsford	NY	876	119	937	24	119	961	1,080	27	11/30/04	2002
Pittsford	NY	—	307	2,083	167	308	2,249	2,557	60	11/30/04	2004
Rochester	NY	—	761	6,597	12	762	6,608	7,370	186	11/30/04	2002
Mason	OH	—	1,528	13,748	13	1,528	13,761	15,289	2,596	6/10/98	1994
Solon	OH	—	161	1,570	26	161	1,596	1,757	59	7/16/04	1975
Solon	OH	—	66	586	16	66	602	668	21	7/16/04	1975
Solon	OH	—	82	717	57	82	774	856	37	7/16/04	1975
Solon	OH	—	77	693	88	77	781	858	49	7/16/04	1975
Solon	OH	—	116	1,035	9	116	1,044	1,160	38	7/16/04	1975
Solon	OH	—	400	4,157	71	400	4,228	4,628	152	7/16/04	1975
Solon	OH	—	122	1,111	8	122	1,119	1,241	41	7/16/04	1975
Solon	OH	—	146	1,352	47	146	1,399	1,545	53	7/16/04	1975
Solon	OH	—	514	4,856	74	514	4,930	5,444	178	7/16/04	1975
Solon	OH	—	96	843	29	96	872	968	33	7/16/04	1975
Solon	OH	—	100	889	15	100	904	1,004	33	7/16/04	1975
Solon	OH	—	344	3,144	260	344	3,404	3,748	133	7/16/04	1975
Solon	OH	—	122	1,018	39	122	1,057	1,179	39	7/16/04	1975
Solon	OH	—	206	1,950	48	206	1,998	2,204	74	7/16/04	1975
Mason	OH	—	808	6,665	—	808	6,665	7,473	7	12/30/05	1999
Sharonville	OH	—	956	8,290	—	956	8,290	9,246	9	12/30/05	1999
Oklahoma City	OK	—	4,596	19,721	1,083	4,680	20,720	25,400	4,593	3/31/97	1992
Edmund	OK	—	226	2,036	26	229	2,059	2,288	328	8/13/99	1993
Midwest City	OK	—	246	2,213	28	249	2,238	2,487	357	8/13/99	1993
Oklahoma City	OK	—	1,426	12,826	156	1,441	12,967	14,408	2,066	8/13/99	1993

S-11

			Initial Cost to Company		Costs Capitalized	Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition	Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Oklahoma City	OK	—	203	1,828	23	205	1,849	2,054	295	8/13/99	1993
FT. Washington	PA	—	1,872	8,816	644	1,872	9,460	11,332	1,875	9/22/97	1960
FT. Washington	PA	—	1,184	5,559	91	1,184	5,650	6,834	1,156	9/22/97	1967
FT. Washington	PA	—	683	3,198	690	680	3,891	4,571	779	9/22/97	1970
Horsham	PA	—	741	3,611	209	741	3,820	4,561	763	9/22/97	1983
King of Prussia	PA	—	634	3,251	1,015	634	4,266	4,900	700	9/22/97	1964
Philadelphia	PA	42,713	7,884	71,002	3,073	7,883	74,076	81,959	15,315	11/13/97	1980
FT. Washington	PA	—	1,154	7,722	439	1,154	8,161	9,315	1,550	1/15/98	1996
Plymouth Meeting	PA	—	1,412	7,415	2,742	1,413	10,156	11,569	1,848	1/15/98	1996
King of Prussia	PA	—	354	3,183	728	354	3,911	4,265	718	2/2/98	1968
King of Prussia	PA	—	552	2,893	232	552	3,125	3,677	583	2/2/98	1996
Pittsburgh	PA	—	720	9,589	1,657	720	11,246	11,966	2,392	2/27/98	1991
Philadelphia	PA	59,824	3,462	111,946	18,045	3,462	129,991	133,453	25,326	3/30/98	1983
Greensburg	PA	—	780	7,026	414	780	7,440	8,220	1,336	6/3/98	1997
Philadelphia	PA	—	24,753	222,775	34,084	24,747	256,865	281,612	45,044	6/30/98	1990
Moon Township	PA	—	1,663	14,966	634	1,663	15,600	17,263	2,954	9/14/98	1994
FT. Washington	PA	—	631	5,698	500	634	6,195	6,829	1,220	12/1/98	1998
Philadelphia	PA	—	931	8,377	1,227	930	9,605	10,535	1,772	6/11/99	1987
Moon Township	PA	—	202	1,814	391	202	2,205	2,407	401	8/23/99	1992
Moon Township	PA	—	555	4,995	993	555	5,988	6,543	1,211	8/23/99	1991
Moon Township	PA	—	502	4,519	625	502	5,144	5,646	857	8/23/99	1987
Moon Township	PA	—	410	3,688	500	410	4,188	4,598	743	8/23/99	1988
Moon Township	PA	—	489	4,403	390	490	4,792	5,282	833	8/23/99	1989
Moon Township	PA	—	612	5,507	251	612	5,758	6,370	915	8/23/99	1990
Moon Township	PA	—	6,936	—	822	7,758	—	7,758	—	8/23/99	—
Blue Bell	PA	—	268	2,414	129	268	2,543	2,811	392	9/14/99	1988
Blue Bell	PA	—	723	6,507	879	723	7,386	8,109	1,161	9/14/99	1988
Blue Bell	PA	—	709	6,382	772	709	7,154	7,863	1,146	9/14/99	1988
Philadelphia	PA	—	18,758	167,487	18,069	18,758	185,556	204,314	14,359	10/10/02	1974
Monroeville	PA	—	6,558	51,775	60	6,564	51,829	58,393	1,673	9/16/04	1971
Pittsburgh	PA	—	574	4,943	—	574	4,943	5,517	36	9/16/05	1990
Pittsburgh	PA	—	345	2,798	—	345	2,798	3,143	20	9/16/05	1994
Pittsburgh	PA	—	469	3,884	—	469	3,884	4,353	28	9/16/05	1994

S-12

			Initial Cost to Company		Costs Capitalized		Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition		Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Pittsburgh	PA	—	616	5,280	—		616	5,280	5,896	38	9/16/05	1994
Pittsburgh	PA	—	1,049	8,739	—		1,049	8,739	9,788	64	9/16/05	1995
Pittsburgh	PA	—	1,151	9,664	408		1,151	10,072	11,223	74	9/16/05	1995
Pittsburgh	PA	—	907	7,381	—		907	7,381	8,288	54	9/16/05	1996
Pittsburgh	PA	—	858	7,130	—		858	7,130	7,988	52	9/16/05	1996
Pittsburgh	PA	—	1,057	8,899	—		1,057	8,899	9,956	65	9/16/05	1987
Lincoln	RI	—	320	7,690	—		320	7,690	8,010	1,647	11/13/97	1997
Memphis	TN	—	2,206	19,856	1,782		2,212	21,632	23,844	4,334	8/31/98	1985
Memphis	TN	—	2,113	18,201	15		2,114	18,215	20,329	778	4/28/04	2000
Memphis	TN	—	1,201	9,973	195		1,201	10,168	11,369	364	7/29/04	1983
Austin	TX	6,930	1,218	11,040	1,236		1,218	12,276	13,494	2,589	12/5/97	1986
Austin	TX	6,498	1,226	11,126	301		1,226	11,427	12,653	2,364	12/5/97	1997
Austin	TX	12,846	2,317	21,037	1,660		2,317	22,697	25,014	4,508	12/5/97	1996
Austin	TX	8,797	1,621	14,594	915		1,621	15,509	17,130	3,681	12/5/97	1997
Austin	TX	7,823	1,402	12,729	1,102		1,402	13,831	15,233	2,924	12/5/97	1997
Waco	TX	—	2,030	8,708	450		2,060	9,128	11,188	1,778	12/23/97	1997
Austin	TX	—	466	4,191	1,182		850	4,989	5,839	881	1/27/98	1980
Irving	TX	—	846	7,616	3,089		846	10,705	11,551	2,080	3/19/98	1995
Irving	TX	—	542	4,879	55		542	4,934	5,476	951	3/19/98	1995
Austin	TX	—	1,439	6,137	6,008		1,439	12,145	13,584	2,655	3/24/98	1975
Austin	TX	—	1,529	13,760	266		1,529	14,026	15,555	2,625	7/16/98	1993
Austin	TX	—	1,436	12,927	(7	)	1,436	12,920	14,356	2,329	10/7/98	1998
Austin	TX	—	4,878	43,903	1,172		4,875	45,078	49,953	8,108	10/7/98	1968
Austin	TX	—	9,085	—	6,669		11,640	4,114	15,754	—	10/7/98	—
Austin	TX	3,725	562	5,054	1,721		562	6,775	7,337	1,046	10/20/98	1998
Austin	TX	10,662	2,072	18,650	281		2,072	18,931	21,003	3,421	10/20/98	1998
Austin	TX	7,667	1,476	13,286	340		1,476	13,626	15,102	2,398	10/20/98	1998
Austin	TX	—	688	6,192	1,027		697	7,210	7,907	1,280	6/3/99	1985
Austin	TX	—	539	4,849	1,057		538	5,907	6,445	933	6/16/99	1999
Austin	TX	—	906	8,158	2,158		902	10,320	11,222	1,623	6/16/99	1999
Austin	TX	—	1,731	14,921	2,557		1,731	17,478	19,209	2,891	6/30/99	1975
Austin	TX	—	1,574	14,168	1,820		1,573	15,989	17,562	2,452	8/3/99	1982
San Antonio	TX	—	259	2,331	636		264	2,962	3,226	478	8/3/99	1986

S-13

			Initial Cost to Company		Costs Capitalized	Cost Amount Carried at Close of Period					Original
Location	State	Encumbrances	Land	Buildings and Equipment	Subsequent to Acquisition	Land	Buildings and Equipment	Total(1)	Accumulated Depreciation(2)	Date Acquired	Construction Date
Austin	TX	—	626	5,636	1,360	621	7,001	7,622	1,276	8/18/99	1987
Austin	TX	—	2,028	18,251	374	2,027	18,626	20,653	2,894	10/8/99	1985
Austin	TX	—	2,038	18,338	1,465	2,037	19,804	21,841	3,163	10/8/99	1997
Austin	TX	—	460	3,345	1	460	3,346	3,806	379	6/15/01	2001
Ft. Worth	TX	—	4,793	38,530	148	4,785	38,686	43,471	2,537	5/23/03	1996
Fairfax	VA	—	569	5,122	558	569	5,680	6,249	1,325	12/4/96	1990
Falls Church	VA	—	3,456	14,828	1,425	3,519	16,190	19,709	3,422	3/31/97	1993
Arlington	VA	—	810	7,289	999	811	8,287	9,098	1,559	8/26/98	1987
Alexandria	VA	—	2,109	18,982	938	2,109	19,920	22,029	3,721	12/30/98	1987
Fairfax	VA	—	780	7,022	4	781	7,025	7,806	1,105	9/29/99	1988
Fairfax	VA	—	594	5,347	23	594	5,370	5,964	842	9/29/99	1988
Norfolk	VA	—	591	4,048	123	592	4,170	4,762	366	10/25/02	1999
Norfolk	VA	—	1,273	11,083	3,479	1,273	14,562	15,835	1,015	10/25/02	1987
Norfolk	VA	—	559	4,535	1,186	559	5,721	6,280	447	10/25/02	1986
Virginia Beach	VA	—	682	5,431	50	686	5,477	6,163	199	6/4/04	1991
Richland	WA	5,114	3,970	17,035	640	4,042	17,603	21,645	3,897	3/31/97	1995
Bellevue	WA	—	3,555	30,244	1,334	3,555	31,578	35,133	1,210	7/16/04	1980
Kent	WA	—	137	993	—	137	993	1,130	36	7/16/04	1978
Kent	WA	—	258	1,797	14	258	1,811	2,069	66	7/16/04	1978
Kent	WA	—	101	753	24	101	777	878	28	7/16/04	1978
Tukwila	WA	—	82	681	—	82	681	763	25	7/16/04	1975
Tukwila	WA	—	91	778	—	91	778	869	28	7/16/04	1975
Tukwila	WA	—	82	582	336	82	918	1,000	25	7/16/04	1975
Tukwila	WA	—	137	1,250	19	137	1,269	1,406	47	7/16/04	1975
Tukwila	WA	—	108	923	79	108	1,002	1,110	34	7/16/04	1975
Tukwila	WA	—	77	674	—	77	674	751	25	7/16/04	1975
Tukwila	WA	—	96	841	—	96	841	937	31	7/16/04	1975
Tukwila	WA	—	101	1,000	—	101	1,000	1,101	36	7/16/04	1975
Tukwila	WA	—	93	844	—	93	844	937	31	7/16/04	1975
Tukwila	WA	—	92	827	—	92	827	919	30	7/16/04	1975
Tukwila	WA	—	105	938	17	105	955	1,060	34	7/16/04	1975
Tukwila	WA	—	76	625	5	76	630	706	23	7/16/04	1975
Tukwila	WA	—	75	676	—	75	676	751	25	7/16/04	1975

S-14

				Initial Cost to Company				Costs Capitalized		Cost Amount Carried at Close of Period									Original
Location	State	Encumbrances		Land		Buildings and Equipment		Subsequent to Acquisition		Land		Buildings and Equipment		Total(1)		Accumulated Depreciation(2)		Date Acquired	Construction Date
Tukwila	WA	—		109		967		5		109		972		1,081		35		7/16/04	1975
Falling Waters	WV	—		906		3,886		177		922		4,047		4,969		881		3/31/97	1993
Cheyenne	WY	—		1,915		8,217		544		1,950		8,726		10,676		1,865		3/31/97	1995
		$	375,079	$	1,085,357	$	3,800,695	$	350,049	$	1,081,635	$	4,154,466	$	5,236,101	$	549,208

S-15

Analysis of the carrying amount of real estate and equipment and accumulated depreciation:

	Real Estate and			Accumulated
	Equipment			Depreciation
Balance at January 1, 2003	$	3,074,656		$	284,548
Additions	818,800			79,661
Disposals	(1,490		)	(1,194		)
Balance at December 31, 2003	3,891,966			363,015
Additions	798,335			95,977
Disposals	(5,232		)	(4,581		)
Balance at December 31, 2004	4,685,069			454,411
Additions	580,125			111,951
Disposals	(29,093		)	(17,154		)
Balance at December 31, 2005	$	5,236,101		$	549,208

(1)Excludes value of acquired real estate leases.  Aggregate cost for federal income tax purposes is approximately $5,261,432.

(2)Depreciation is provided for on buildings and improvements for periods ranging up to 40 years and on equipment up to 12 years.

S-16

SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HRPT PROPERTIES TRUST
By:	/s/ John A. Mannix
	John A. Mannix
	President and Chief Operating Officer
	Dated: March 10, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, in the capacities and on the dates indicated.

Signature	Title	Date
/s/ John A. Mannix	President and Chief Operating Officer	March 10, 2006
John A. Mannix
/s/ John C. Popeo	Treasurer, Chief Financial Officer and Secretary	March 10, 2006
John C. Popeo	(principal financial officer and principal
	accounting officer)
/s/ Frederick N. Zeytoonjian	Trustee	March 10, 2006
Frederick N. Zeytoonjian
/s/ Patrick F. Donelan	Trustee	March 10, 2006
Patrick F. Donelan
/s/ Gerard M. Martin	Trustee	March 10, 2006
Gerard M. Martin
/s/ Barry M. Portnoy	Trustee	March 10, 2006
Barry M. Portnoy