10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
 
OR

  [  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File Number 1-9997

CRT PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)

FLORIDA	59-2898045
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
225 NE Mizner Blvd., Suite 200
Boca Raton, Florida	33432
(Address of principal executive offices)	(Zip code)
Registrant’s telephone number, including area code: (561) 395-9666
Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class	Name of Exchange on Which Registered
1. Common Stock, Par Value $.01	New York Stock Exchange
2. Common Stock Purchase Rights	New York Stock Exchange
3. 8-1/2% Series A Cumulative Redeemable Preferred Stock, Par Value $.01	New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: NONE

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 [X] No [  ]

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.   [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).   Yes [X] No [  ]

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2004 was approximately $602,192,768 based upon the last reported sale price of $23.12 on the New York Stock Exchange on such date.

The number of shares of registrant’s Common Stock outstanding on February 28, 2005 was 31,816,244.

Documents Incorporated by Reference

Portions of the proxy statement for the Annual Meeting of Shareholders to be held in 2005 are incorporated by reference into Part III of this report.

TABLE OF CONTENTS

Item No.	Description	Page No.
PART I
1.	BUSINESS		1
2.	PROPERTIES		13
3.	LEGAL PROCEEDINGS		19
4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		19
PART II
5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES		19
6.	SELECTED FINANCIAL DATA		22
7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		23
7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		36
8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		37
9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		68
9A.	CONTROLS AND PROCEDURES, MANAGEMENT AND INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING		68
PART III
10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT		70
11.	EXECUTIVE COMPENSATION		70
12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		70
13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		70
14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		70
PART IV
15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		71

 

PART I

Item 1.    BUSINESS

General

As used herein, the terms “we,” “our” or “us” or the “Company” in this report refer collectively to CRT Properties, Inc. a Florida corporation incorporated in 1988 under the name Koger Equity, Inc., individually or together with our subsidiaries and our predecessors. We are a fully integrated, self-administered and self-managed equity real estate investment trust (a “REIT”) which develops, owns, operates, leases and manages office buildings in metropolitan areas in the southeastern United States, Maryland, and Texas. We conducted our initial public offering in 1988. Our common shares are listed on the NYSE under the symbol CRO and our Series A Cumulative Redeemable Preferred Stock is listed on the NYSE under the symbol CROPRA. As of December 31, 2004, we owned 136 office buildings totaling 11.4 million rentable square feet, located in 26 suburban and urban office projects in 12 metropolitan areas in the southeastern United States, Maryland and Texas. In addition to our office projects, we own approximately 68.6 acres of unencumbered land held for development and approximately six acres of land that are not suitable for development. A majority of the land held for development adjoins six of our office projects, which have infrastructure, including roads and utilities, in place. We intend over time to develop and construct office buildings using this land and to acquire additional land for development in the future.

Our revenues are dependent in large part on the occupancy of our portfolio of office buildings. Over the past few years, as the national economy experienced white-collar job losses and a resulting general oversupply of office space in many markets, occupancy rates declined in most of our markets. The office building sector continues to experience comparatively low occupancy rates in most markets. As of December 31, 2004, our portfolio was 82% occupied compared to 81% as of December 31, 2003. We use a number of approaches to maintain and increase occupancy, including prioritizing efforts to retain existing tenants, using rental concessions such as free rent and improvement allowances, offering market-specific broker incentives and employing highly skilled and proactive management and leasing professionals.

Two major governmental tenants, when all of their respective departments and agencies which lease space in our buildings are combined, lease more than ten percent of the rentable area of our buildings and contribute more than ten percent of our annualized rentals as of December 31, 2004. At that date, the United States of America leased 10.1 percent of our rentable square feet and accounted for an aggregate of 9.7 percent of our annualized gross rents. In addition, the State of Florida leased 7.3 percent of our rentable square feet and accounted for 6.5 percent of our annualized gross rents. In addition to the United States of America and the State of Florida, some of our principal tenants are Blue Cross and Blue Shield, Alston & Bird, Bechtel Corporation, Six Continents Hotels, CitiFinancial, Spirent, Cigna General Life Insurance, Landstar System Holdings, Citigroup, and Zurich Insurance. Governmental tenants (including the State of Florida and the United States of America), which account for 17.4 percent of our leased space, may be subject to budget reductions in times of recession and governmental austerity measures.

As of December 31, 2004, we had approximately 170 employees, 120 of which are located at the office projects, and the remaining 50 employees are located at our corporate office. An on-site general manager, property manager or leasing manager is responsible for the leasing and operations of all buildings in an office center, building or metropolitan area. Our five senior officers have an average of twenty-two years experience in the real estate industry.

Our principal executive office is located at 225 NE Mizner Blvd., Suite 200, Boca Raton, Florida 33432 and our telephone number is (561) 395-9666. Our website is located at http://www.crtproperties.com. On our website, you can obtain a copy of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings that we make with the SEC.

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Significant Transactions During 2004 and 2003

The following is a list of significant transactions in which we were involved during 2003 and 2004. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report for further details relating to these and other transactions.

On December 30, 2004, we acquired, through a joint venture, a 66.7% interest in a 437,000 rentable square foot Class A office building known as Signature Place in Dallas, Texas for a purchase price of approximately $38.5 million plus closing and other costs.

On November 24, 2004, we acquired 100% of a partnership which had ownership interests in two Class A office buildings comprising 469,000 rentable square feet known as the Las Olas Centre in the central business district of Fort Lauderdale, Florida, for a purchase price of approximately $138.0 million plus closing and other costs.

On November 9, 2004, the Company entered into a 15-year lease agreement whereby the State of Florida will occupy 568,000 rentable square feet in the Company’s Tallahassee, Florida office project. This lease agreement will generate rental revenues totaling approximately $160.5 million over the life of the lease and removes cancellation provisions for this space which were contained in previous State of Florida leases. Under the terms of the agreement, in 2004 the Company was required to pay $11.1 million and $4.8 million of tenant improvement costs and leasing commissions, respectively.

On August 16, 2004, we acquired, through a joint venture, a 80.3% interest in a six-story, 184,000 square foot, Class A office building known as the Westchase Corporate Center located in Houston, Texas, for a purchase price of approximately $20.3 million plus closing and other costs.

On July 23, 2004, we acquired, through a joint venture, an 88.1% interest in a five-story, 224,000 square foot, single-tenant, Class A office building known as Baymeadows Way located in Jacksonville, Florida, for a purchase price of approximately $20.8 million plus closing and other costs.

On April 2, 2004, we acquired four properties, including two Class A four-story office buildings comprising approximately 155,000 square feet of rentable space , a ground lease and an undeveloped parcel of land located in the Decoverly Office Park in Rockville, Maryland, for a purchase price of approximately $42.0 million plus closing and other costs.

On January 27, 2004, we acquired Atlantic Center Plaza, a twenty-three story, 502,000 square foot building located in Atlanta, Georgia, for a purchase price of approximately $116.5 million plus closing and other costs.

On January 12, 2004, we acquired a 30% joint venture interest in Broward Financial Centre (approximately 42% of this interest is held by minority partners), a single twenty-four story office building containing approximately 326,000 rentable square feet located in the central business district of Fort Lauderdale, Florida.

On December 30, 2003, we acquired two class A suburban office buildings containing 202,000 square feet and 8.5 acres of undeveloped land suitable for development in the McGinnis Park office complex in Atlanta, Georgia through a joint venture in which we own a 75% interest. We contributed approximately $13.9 million to the joint venture in connection with this acquisition.

On September 11, 2003, we acquired two suburban office buildings known as 6600 Campus Circle formerly known as CIGNA Plaza and Tollway Crossing which are comprised of 127,000 square feet and 152,000 square feet, respectively, for a purchase price of approximately $33.1 million plus closing and other costs and located in Dallas, Texas.

Business Strategy

Our primary business objectives are to achieve long-term sustainable per share earnings and cash flow growth and to maximize stockholder value by acquiring, developing, owning and operating office properties primarily in markets throughout the southeastern United States, Texas and Maryland, that we believe exhibit strong, long-term growth characteristics. We believe we utilize our knowledge of our core markets to effectively evaluate market conditions and determine whether those conditions favor acquisition, development or disposition of assets. During the last four years, we have actively deployed capital between acquisitions and development in order to create a

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portfolio with strong long-term growth prospects. In addition to seeking growth through acquisitions and development, we continue to strive to retain tenants and attract new tenants in our existing portfolio. We believe that our focus on our local relationships in our core markets, on customer service, primarily through superior property management, and on fast and responsive leasing initiatives has enabled us to maintain strong portfolio performance in a challenging office market.

Our principal segment of operations is real estate property operations, which consists primarily of commercial property ownership. Virtually all of our operating revenues for the year ended December 31, 2004 were associated with our real estate property operations. Other business activities, including development and property management services, are included in other operations.

Market Focus

We have properties in twelve metropolitan areas in the United States, concentrated in the Southeast, Texas and Maryland. During 2004, virtually all of our total property operating income was derived from these markets. Each of our markets is managed by a senior executive who is responsible for maximizing returns on our existing portfolio and pursuing investment, development and service opportunities. These executives ensure that we are consistently meeting the needs of our customers, identifying new growth or capital deployment opportunities and sustaining active relationships with real estate brokers. Because of their ties and experience in the local markets, our property and market executives have extensive knowledge of local conditions in their respective markets and are invaluable in building our local operations and investment strategies.

Our property rentable square footage by market for the year ended December 31, 2004 was as follows (excluding our unconsolidated joint venture):

Market	Percent of Rentable Square Footage for the Year Ended 12/31/04
Atlanta, Georgia		27.0	%
Charlotte, North Carolina		6.2	%
Dallas, Texas		6.3	%
Fort Lauderdale, Florida		4.1	%
Houston, Texas		12.2	%
Jacksonville, Florida		12.2	%
Memphis, Tennessee		4.7	%
Orlando, Florida		11.4	%
Richmond, Virginia		1.3	%
Rockville, Maryland		1.4	%
St. Petersburg, Florida		5.9	%
Tallahassee, Florida		7.3	%
Total		100	%

 

We regularly re-evaluate our investment focus between our markets and periodically reallocate capital between them. As part of our continuing evaluation of our portfolio, we have determined that we will be better positioned in this market environment by concentrating our focus in markets where we have greater scale and market penetration, which we believe will enable us to reduce overhead while maintaining our growth initiatives and the diversification of our tenant base. In addition, as part of our ongoing portfolio evaluation process, we review from time to time entering into new markets where we believe that we can successfully compete with existing property owners and obtain attractive returns on our investments.

Investment Strategy and Policies

We seek to capitalize on some of our competitive advantages, such as the experience of our senior management team and our knowledge of the markets in which we operate, our operating systems, development expertise, acquisition expertise and expertise in developing unimproved land. We have established a set of physical,

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geographic and financial criteria to evaluate how we allocate our capital resources among investment choices. Our disciplined investment strategy is adjusted from time to time in response to market changes or corporate priorities between markets or asset types depending upon the market or the investment opportunity. In general, we focus our investing on high quality assets that improve our quality of cash flows via the location of the asset, its physical characteristics and/or the creditworthiness of the property’s tenants. Consistent with this strategy, we are currently focusing our new investment capital on upgrading our portfolio by seeking to acquire Class A properties primarily in the southeastern United States, Texas and Maryland and pursuing investments opportunistically in other markets.

Investors should note, however, that our investment policies may be changed by our directors at any time without notice to, or a vote of, shareholders. We also may not necessarily limit our development and acquisitions activities to any particular area or areas. Although we have no fixed policy that limits the percentage of our assets which may be invested in any one type of investment or the geographic areas in which we may acquire properties, we intend to continue to operate so as to qualify for tax treatment as a REIT. We may in the future invest in other types of office buildings, apartment buildings, shopping centers, and other properties. We also may invest in the securities (including mortgages) of companies primarily engaged in real estate activities; however, we do not intend to become an investment company regulated under the Investment Company Act of 1940.

Acquisitions and Dispositions

From time to time, we have been very active in acquiring office properties. We believe that our responsiveness to seller timing and structural parameters helps provide us with a competitive advantage in consummating acquisitions in a highly-competitive marketplace. During 2004, we acquired three operating properties and we entered into three new joint ventures that acquired four additional operating properties (including an interest in an unconsolidated entity). Total acquisitions involved properties totaling approximately 2.3 million rentable square feet and our investment was approximately $381.0 million including assumed debt. We will continue to selectively pursue acquisitions in our markets where attractive opportunities exist, particularly when pricing yields make acquisitions of existing properties attractive in comparison to new property development. We currently expect that our acquisitions will exceed our dispositions in 2005 as we continue to implement our strategy and upgrade our portfolio.

We continually review our markets and their returns. Accordingly, we also may dispose of assets that become inconsistent with our long-term strategic or return objectives. We may then redeploy the proceeds from the dispositions into other office properties, or use them to fund development operations or to support other corporate needs. We also may contribute properties that we own to joint ventures with third parties.

Development

Development of office properties is a component of our long-term growth strategy. We believe that long-term investment returns resulting from stabilized properties we develop should generally exceed those from properties we acquire. In the current environment, we have maintained our strategy of reduced speculative development activities and we instead have focused on fee-based development services for third parties and the development of build-to-suit pre-leased projects.

Financing

We manage our capital structure to reflect a flexible, long-term investment approach, generally seeking to match the stable return nature of our assets with a mix of equity and various debt instruments. We mainly use fixed rate debt instruments in order to match the returns from our real estate assets. We also utilize variable rate debt for short-term financing purposes.

Joint Ventures

We use joint venture arrangements selectively to reduce investment risk by diversifying capital deployment and to enhance returns on invested capital through fee income derived from service arrangements with joint ventures. For example, in 2003-4, we acquired the controlling interest in four joint ventures with third parties and a minority interest in a fifth joint venture. We believe these ventures present the opportunity for long term, high quality returns although the immediate returns in two of the joint ventures are lower than optimal due to property vacancy levels. We provide management and leasing services to three of the five joint ventures.

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Competition

We compete in the leasing of office space with a considerable number of other realty concerns, including local, regional and national companies, some of which have greater resources than us. Through our ownership and management of suburban and urban office buildings, we seek to attract tenants by offering office space that has, among other advantages, convenient access to desirable residential areas, major expressways, airports and retail and entertainment venues. In recent years, local, regional and national concerns have built competing office parks and buildings in suburban areas in which our office projects are located. In addition, we compete for tenants with large high-rise office buildings generally located in the downtown business districts of these metropolitan areas. Although competition from other lessors of office space varies from city to city, we have been able to achieve and maintain what we consider satisfactory occupancy levels at satisfactory rental rates, given current market and economic conditions.

Corporate Governance

Since 2003, we have implemented the following corporate governance initiatives to address certain legal requirements promulgated under the Sarbanes-Oxley Act of 2002, as well as the recently adopted New York Stock Exchange corporate governance listing standards:

•   On October 1, 2004, we appointed Mr. Peter J. Farrell and Mr. Randall E. Paulson to our Board of Directors. Their appointment brings the number of directors that we have determined to be “independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act to eight (of a total of nine directors);

•   On February 26, 2004, our Board of Directors adopted a new Audit Committee Charter, Compensation Committee Charter and Nomination and Corporate Governance Committee Charter;

•   Our Board of Directors has determined that each member of the Compensation Committee, Audit Committee and Nominating and Corporate Governance Committee is “independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act;

•   Our Board of Directors determined that George F. Staudter, the Chairman of our Audit Committee, qualifies as an “audit committee financial expert” as such term is defined under Item 401 of Regulation S-K;

•   Our Audit Committee adopted, and our Board of Directors approved on February 26, 2004, our Audit and Non-Audit Services Pre-Approval Policy, which sets forth the procedures and the conditions pursuant to which permissible services to be performed by our independent public accountants may be pre-approved;

•   On February 26, 2004, our Board of Directors adopted a revised Code of Business Conduct and Ethics, which governs business decisions made and actions taken by our directors, officers and employees; and

•   Our Board of Directors adopted Corporate Governance Guidelines that sets forth our corporate governance philosophy and the governance policies we have implemented to support that philosophy.

•   A copy of our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters for our Audit, Compensation and Nominating and Corporate Governance Committees are available on our website at http://www.crtproperties.com, under the heading “Investor Relations,” and subheading “Corporate Governance.” A copy of this Code is also available in print to any stockholder upon written request addressed to Investor Relations, 225 NE Mizner Blvd., Suite 200, Boca Raton, Florida 33432.

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their businesses without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. We desire to take advantage of the “safe harbor” provisions of the Act.

This Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the captions “Business and Growth Strategies,” “Risk Factors” and

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

•   general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);

•   risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments;

•   failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully;

•   risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities);

•   risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;

•   costs of compliance with the Americans with Disabilities Act and other similar laws;

•   potential liability for uninsured losses and environmental contamination;

•   risks associated with our potential failure to qualify as a REIT under the Internal Revenue Code of 1986, as amended, and possible adverse changes in tax and environmental laws; and

•   risks associated with our dependence on key personnel whose continued service is not guaranteed.

The risks included here are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.

Risk Factors

Ownership of our securities involves various risks, including those described below, which you should consider carefully. This section includes forward-looking statements.

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Risks Related to Real Estate Financing and Investments

We face risks associated with the use of debt to fund acquisitions and developments, including refinancing risk.

The Company’s use of leverage can adversely impact its operations, cash flow, and ability to make distributions and its financial condition will be negatively impacted if it cannot repay or refinance its indebtedness as it becomes due. The Company is subject to risks normally associated with debt financing, including: the risk that its cash flow will be insufficient to meet required payments of principal and interest; the risk that the existing debt with respect to its properties, which in most cases will not have been fully amortized at maturity, will not be able to be refinanced; and the risk that the terms of any refinancing of any existing debt will not be as favorable as the terms of the existing debt.

At December 31, 2004, the Company had outstanding debt of approximately $623.5 million, all of which is secured by liens on certain of its properties. Approximately $415.6 million of this debt will mature by 2009. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, the Company expects that its cash flow will not be sufficient to repay its debts maturing in 2007, 2008, and 2009 referenced above. Furthermore, prevailing interest rates or other factors at the time of refinancing, such as the reluctance of lenders to make commercial real estate loans, may result in higher interest rates upon refinancing than the interest rates on the existing debt. Consequently, the interest expense relating to the refinanced debt would increase and adversely affect our cash flow and the amount of distributions the Company could make to its shareholders. Where the Company mortgages a property to secure payment of debt, if the Company is unable to meet the mortgage payments, then the mortgagee may foreclose upon, or otherwise take control of, the mortgaged property, with a consequent loss of income and asset value to the Company.

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

Increases in interest rates on the Company’s variable rate debt could increase the Company’s interest expense, which would adversely affect its cash flow and ability to pay dividends to shareholders. At December 31, 2004, the Company had $185.8 million in term loans with variable interest rates and the Company may incur additional variable rate debt in the future. Increases in interest rates on this variable rate debt could increase the Company’s interest expense and adversely affect cash flow and the ability to pay dividends to shareholders. The Company may be required to purchase interest rate protection products in connection with future variable rate debt, which may further increase borrowing costs.

Policy of limiting debt level may be changed and our indebtedness may increase.

The Company’s board of directors can increase the Company’s total debt ratio without shareholder approval and any such increase could adversely affect cash flow and cash available for distribution to shareholders. As of December 31, 2004, the ratio of the Company’s total consolidated debt to the sum of the market value of issued and outstanding capital stock plus total consolidated debt was approximately 43%. Additionally, the Company had a $165.0 million revolving line of credit facility available for use and none was outstanding as of December 31, 2004. The Company’s policy regarding this debt to total market capitalization ratio is not subject to any limitation in its organizational documents. Accordingly, the Company’s board of directors could establish policies which would allow the Company to increase its debt to total market capitalization ratio, subject to any existing debt covenants. If this action were taken, the Company could become more highly leveraged, resulting in increased debt service costs that (a) could adversely affect cash flow and, consequently, the amount of cash available for distribution to its shareholders and (b) could increase the risk of default on the Company’s debt. For purposes of establishing and evaluating the Company’s debt policy, the Company measures its leverage by reference to total market capitalization rather than by reference to the book value of its assets, which are mainly comprised of the depreciated value of real property, the Company’s primary tangible asset. The Company uses total market capitalization because it believes the book value of its assets does not accurately reflect its ability to borrow and meet debt service requirements. The Company’s market capitalization is more variable than book value and does not necessarily reflect the fair market value of its assets at all times. The Company considers factors other than market capitalization in making decisions regarding the incurrence of indebtedness such as the purchase price of properties to be acquired with debt financing, the estimated market value of properties upon refinancing and its ability to generate cash flow to cover expected debt service expenses.

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We are dependent upon the economic climates of our core markets — southeastern United States, Maryland and Texas.

Since the Company’s properties are concentrated in the southeastern United States, Maryland and Texas, the Company’s performance and ability to pay dividends to shareholders is dependent on economic conditions in the markets where its properties are located. The Company’s revenues and the value of its properties may be affected by a number of factors, including (a) the regional and local economic climates of the metropolitan areas in which the properties are located, which may be adversely impacted by business layoffs or downsizing, industry slowdowns, changing demographics and other factors, and (b) the regional and local real estate conditions in these areas, including oversupply of, or reduced demand for, office and other competing commercial properties. All of the Company’s office projects are located in the southeastern United States, Maryland and Texas. There is also the risk of over building in certain sub-markets located in markets which the Company currently serves. While the Company has generally avoided acquiring or developing property in over built sub-markets, over built conditions may occur in sub-markets where the Company currently own properties. The Company’s performance and ability to pay dividends to shareholders is dependent on economic conditions in the markets where its properties are located. The Company’s historical growth has occurred during periods when the economy in the southeastern United States has out-performed the national economy. There can be no assurance as to the continued growth of the economy in the southeastern United States, Maryland and Texas or the Company’s future growth rate.

We may face difficulties or delays in renewing leases or re-leasing space.

If the Company is unable to promptly relet or renew leases as they expire, the Company’s cash flow and ability to pay expected dividends to shareholders may be adversely affected. The Company is subject to the risks that upon expiration of leases for space located in its buildings (a) such leases may not be renewed, (b) such space may not be relet or (c) the terms of renewal or reletting, taking into account the cost of required renovations, may be less favorable than the current lease terms. Leases on a total of 15.1% and 14.7% of the total rentable square feet leased in the Company’s buildings will expire in 2005 and 2006, respectively. If the Company is unable to promptly relet, or renew the leases for, a substantial portion of the space located in its buildings, or if the rental rates upon such renewal or reletting are significantly lower than expected rental rates, or if the Company’s reserves for these purposes prove inadequate, the Company’s cash flow and ability to pay expected dividends to shareholders may be adversely affected. If the Company’s tenants declare bankruptcy or are unable to make rental payments, the Company’s cash flow and ability to pay dividends to shareholders will be adversely affected. At any time, a tenant of the Company’s building(s) may seek the protection of the bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in the Company’s cash flow and ability to pay dividends to shareholders. No assurance can be given that tenants will not file for bankruptcy protection in the future or, if any tenants file, that they will affirm their leases and continue to make rental payments in a timely manner. In addition, tenants from time to time may experience a downturn in their business which may weaken their financial condition and result in their failure to make rental payments when due. If a tenant’s lease is not affirmed following bankruptcy or if a tenant’s financial condition weakens, the Company’s income may be adversely affected.

We are dependent upon the lease revenue from the United States and the State of Florida.

As of December 31, 2004 the United States of America and the State of Florida combined lease more than ten percent of the rentable area of our buildings and contribute more than ten percent of our annualized rentals. At that date, the United States of America leased 10.1 percent of our rentable square feet and accounted for an aggregate of 9.7 percent of our annualized gross rents. The State of Florida leased 7.3 percent of our rentable square feet and accounted for 6.5 percent of our annualized gross rents. During times of recession and government shortage measures the United States and the State of Florida, which account for 17.4% of our leased space, may be subject to budget reductions and there can be no assurance that government appropriations for rents may not be reduced.

Our business is subject to a number of general real estate investment risks.

If the Company’s properties do not generate revenues sufficient to meet operating expenses, the Company’s cash flow and ability to pay dividends to shareholders will be adversely affected. Real property investments are subject to varying degrees of risk. The yields available from equity investments in real estate depend in large part on the amount of income generated and expenses incurred. If the Company’s properties do not generate revenues

8

sufficient to meet operating expenses, including current levels of debt service, tenant improvements, leasing commissions and other capital expenditures, the Company may have to borrow additional amounts to cover fixed costs and the Company’s cash flow and ability to pay dividends to shareholders will be adversely affected. The Company’s net revenues and the value of its properties may be adversely affected by a number of factors, including national, regional and local economic climates; regional and local real estate conditions; the perceptions of prospective tenants as to the attractiveness of the Company’s properties; the Company’s ability to provide adequate management, maintenance and insurance; and increased operating costs, including real estate taxes and utilities. Real estate values and income from properties are also affected by applicable laws, including tax laws, interest rate levels and the availability of financing. In addition, since real estate investments are generally illiquid, the Company’s ability to adapt to changing economic and other conditions will be limited. Equity real estate investments are relatively illiquid. Such illiquidity will limit the Company’s ability to vary its portfolio promptly in response to changes in economic or other conditions. In the event of a downturn in the economy, the Company may suffer a material adverse impact to the value of its investments.

Our business faces significant competition.

The Company faces intense competition that affects its ability to lease properties and the Company’s failure to attract and retain tenants could adversely impact its cash flow and ability to pay dividends to shareholders. Numerous office buildings compete with the Company’s properties in attracting tenants to lease space. Some of these competing buildings are newer, have better locations or have better capitalization. The Company believes that major national or regional commercial property developers will continue to seek development opportunities in the southeastern and southwestern United States. These developers may have greater financial resources than the Company does. The number of competitive commercial properties in a particular area could have a material adverse effect on the Company’s ability to lease space in its office projects or at newly developed or acquired properties or on the amount of rents charged. In order to secure tenants or remain competitive, the Company may have to increase its marketing and administrative efforts and related expenses in connection with filling vacant space, reduce the rent the Company requires tenants to pay, and make modifications to its properties. Such efforts, as well as the Company’s failure to attract and retain tenants, could adversely impact the Company’s cash flow and ability to pay dividends to shareholders.

Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs.

The Company faces numerous and changing regulations that result in significant unanticipated expenditures that could have an adverse effect on its cash flow and ability to pay dividends. The Company’s properties are subject to various federal, state and local regulatory requirements, such as requirements of the Americans with Disabilities Act (the “ADA”) and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. The Company believes that its properties are currently in substantial compliance with all these regulatory requirements. However, there can be no assurance that these requirements will not be changed or that new requirements will not be imposed which would require significant unanticipated expenditures that could have an adverse effect on the Company’s cash flow and ability to pay dividends. Under the ADA, all public accommodations and commercial facilities are required to meet certain federal requirements relating to access and use by disabled persons. These requirements became effective in 1992. Compliance with the requirements of the ADA could require removal of access barriers and non-compliance could result in the imposition of fines by the U.S. Government or an award of damages to private litigants. Although the Company believes its properties are substantially in compliance with these requirements, the Company may incur additional costs to comply with the ADA. Although the Company believes that such costs will not have a material adverse effect, if required changes involve a greater expenditure than the Company currently anticipates, its ability to pay dividends to shareholders could be adversely affected.

Potential liability for environmental contamination could result in substantial costs.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property and may be held liable to a governmental entity or to third parties for

9

property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew, or caused the presence, of the contaminants, and the liability under these laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of environmental contaminants may be substantial, and the presence of these substances, or the failure to properly remediate the contamination on the property, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. Any person who arranges for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility also may be liable for the costs of removal or remediation of a release of hazardous or toxic substances at the disposal or treatment facility, whether or not the facility is owned or operated by the person. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs that it incurs in connection with the contamination. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site.

Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos-containing materials when such materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. Such laws may impose liability for release of asbestos-containing materials and may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated with these materials. In connection with the Company’s ownership and operation of properties, the Company may be potentially liable for costs associated with asbestos-containing materials.

The Company’s environmental assessment of its properties has not revealed any environmental liability that the Company believes would have a material adverse effect on its business, assets or results of operations taken as a whole, nor is the Company aware of any such material environmental liability. Nevertheless, it is possible that the Company’s assessments did not reveal all environmental liabilities or that there are material environmental liabilities of which the Company is unaware. Moreover, there can be no assurance that future laws, ordinances or regulations will not impose any material environmental liability or that the current environmental condition of the Company’s properties will not be affected by tenants, by the condition of land or operations in the vicinity of the Company’s properties, such as the presence of underground storage tanks, or by third parties unrelated to the Company.

If the Company suffers an uninsured loss or a loss exceeding its policy limits, the Company could lose both the capital invested in, and anticipated profits from, one or more of its properties. The Company currently carries comprehensive liability, fire, and flood (where appropriate), extended coverage and rental loss insurance with respect to its properties, with policy specifications and insured limits customary for similar properties. There are, however, certain types of losses, such as from earthquakes, wars or certain acts of terrorism, including nuclear, chemical, and biological attacks that may be either uninsurable or not economically insurable. Should an uninsured loss or a loss exceeding policy limits occur, the Company could lose both the capital invested in, and anticipated profits from, one or more of its properties.

We face risks involved in property ownership through partnerships and joint ventures.

Since the Company owns certain properties through partnership and joint venture arrangements, the Company may not maintain sufficient control of its investment to permit its business objectives to be achieved. Although the Company has generally owned 100% of the interests in all its properties, in December 2003, the Company entered into a joint venture arrangement to acquire a 75% interest in two Class A mid-rise office buildings and undeveloped land suitable for development in the McGinnis Park office complex in Alpharetta, Georgia. Furthermore, in January 2004, the Company entered into a joint venture arrangement to acquire a 30% interest in the Broward Financial Centre in Fort Lauderdale, Florida. In July and August of 2004, respectively, the Company entered into a joint venture arrangement to acquire an 88.1% interest in Baymeadows Way in Jacksonville, Florida and an 80.3% interest in the Westchase Corporate Center in Houston, Texas. In December 2004, the Company also entered into a joint venture arrangement to acquire a 66.7% interest in Signature Place in Dallas, Texas. In the future, the Company could, if then permitted by the covenants in its loan agreements and its financial position, participate with other entities in property ownership through partnerships or joint ventures. Partnership or joint venture investments may, under certain circumstances, involve risks not otherwise present in property ownership, including the possibility that (a) the Company’s partners or co-ventures might become bankrupt, (b) such partners or co-ventures might at any time have economic or other business interests or goals that are inconsistent with the Company’s

10

business interests or goals, and (c) such partners or co-ventures may be in a position to take action contrary to the Company’s instructions or requests or contrary to the Company’s policies or objectives, including the Company’s policy to maintain its qualification as a REIT. There is no limitation under the Company’s organizational documents as to the amount of available funds that may be invested in partnerships or joint ventures.

We face risks associated with the impact of inflation.

The Company may experience increases in its expenses, including debt service, as well as decreased occupancy rates as a result of inflation. The Company’s exposure to inflationary cost increases in property level expenses is reduced by escalation clauses, which are included in most of its leases. However, market conditions may prevent the Company from escalating rents. Inflationary pressure may increase operating expenses, including labor and energy costs and, indirectly, real estate taxes, above expected levels at a time when it may not be possible for the Company to increase lease rates to offset these higher operating expenses. In addition, inflation can have secondary effects upon occupancy rates by decreasing the demand for office space in many of the markets in which the Company operates.

We face risks associated with the effect of market interest rates on the price of our common and preferred stock.

An increase in market interest rates could reduce cash available for distribution to shareholders and adversely affect the market price of the Company’s common stock. One of the factors that will influence the market price of the Company’s common stock in public markets is the annual dividend yield on the share price reflected by dividends paid by the Company as compared to the yields on other financial instruments. An increase in market interest rates may lead prospective investors to demand a higher annual yield which could reduce the market price of the Company’s common stock. An increase in market interest rates also could increase the Company’s debt service expense and thus, reduce cash available for distribution to shareholders.

Our investment in property development may be more costly than anticipated.

The Company faces numerous development, construction and acquisition risks that could have an adverse effect on its cash flow and ability to pay dividends. Within the constraints of the Company’s policy concerning leverage, the Company has and will continue to develop and construct office buildings, particularly on its undeveloped land. Risks associated with the Company’s development and construction activities, including activities relating to its undeveloped land, may include abandonment of development opportunities, construction costs of a property exceeding original estimates and possibly making the completion of a property uneconomical, occupancy rates and rents at a newly completed property insufficient to make the property profitable, unavailability of financing on favorable terms for development of a property, and the failure to complete construction and lease-up on schedule, resulting in increased debt service expense and construction costs.

In addition, new development activities, regardless of whether or not they are ultimately successful, typically require a substantial portion of management’s time and attention. Development activities are subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations.

The Company will continue to acquire office buildings. Acquisitions of office buildings entail risks that investments will fail to perform in accordance with expectations. Estimates of the cost of improvements to bring an acquired building up to standards established for the market position intended for such building may prove inaccurate. In addition, there are general investment risks associated with any new real estate investment.

The Company anticipates that any future developments and acquisitions would be financed through a combination of internally generated cash, equity investments and secured or unsecured financing. If new developments are financed through construction loans, there is a risk that, upon completion of construction, permanent financing for newly developed properties may not be available or may be available only on disadvantageous terms.

We can make adverse changes in Company policies without shareholder approval.

The Company can change its investment, financing, borrowing, distribution, and other policies without shareholder approval, in a manner that could adversely affect its financial condition or results of operations or the

11

market price of its common stock. The Company’s investment, financing, borrowing and distribution policies, as well as its policies with respect to all other activities, including growth, capitalization and operations, are determined by the Company’s board of directors. Although the board of directors has no present intention to do so, these policies may be amended or revised at any time and from time to time at the discretion of the board of directors without a vote of the Company’s shareholders. A change in these policies could adversely affect the Company’s financial condition or results of operations or the market price of its common stock.

Failure to qualify as a real estate investment trust could cause us to be taxed as a corporation, which would substantially reduce funds available for payment of dividends.

The Company’s failure to qualify as a REIT may have a material adverse impact on an investment in the Company’s capital stock. The Company believes that it qualifies as a REIT under the Internal Revenue Code, which affords the Company significant tax advantage. The requirements for this qualification, however, are complex. If the Company fails to meet these requirements, its dividends will not be deductible by the Company and the Company will be subject to a corporate level tax on its taxable income. This would substantially reduce the Company’s cash available to pay dividends and investors’ yield on their investment. In addition, incurring corporate income tax liability might cause the Company to borrow funds, liquidate some of its investments or take other steps that could negatively affect its operating results. Moreover, if the Company’s REIT status is terminated because of its failure to meet a REIT qualification requirement or if the Company voluntarily revokes its election, the Company would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost.

Certain requirements for REIT qualification may in the future limit the Company’s ability to increase fee development, management and leasing operations conducted, and related services offered, by its subsidiaries without jeopardizing its qualification as a REIT.

We face possible adverse changes in tax laws.

The Jobs and Growth Tax Relief Reconciliation Act of 2003, which was enacted into law on May 28, 2003, among other things, generally reduces to 15% the maximum marginal rate of tax payable by domestic non-corporate taxpayers on dividends received from a regular C corporation. This reduced tax rate, however, will not apply to dividends paid to domestic non-corporate taxpayers by a REIT on its stock, except for certain limited amounts. Although the earnings of a REIT that are distributed to its stockholders still generally will be subject to less federal income taxation than earnings of a non-REIT C corporation that are distributed to its stockholders net of corporate-level income tax, this legislation could cause domestic non-corporate investors to view the stock of regular C corporations as more attractive relative to the stock of a REIT than was the case prior to the enactment of the legislation, because the dividends from regular C corporations will generally be taxed at a lower rate while dividends from REITs will generally be taxed at the same rate as the individual’s other ordinary income. The Company cannot predict what effect, if any, the enactment of this legislation may have on the value of the stock of REITs in general or on its common or preferred stock in particular, either in terms of price or relative to other investments.

Our success depends on key personnel whose continued service is not guaranteed.

We depend on the efforts of key personnel, particularly Thomas J. Crocker, our Chief Executive Officer. Among the reasons that Mr. Crocker is important to our success is that he has a national reputation, which attracts business and investment opportunities and assists us in negotiations with lenders. If we lost his services, our relationships with lenders, potential tenants and industry personnel could diminish.

Further issuances of equity securities may be dilutive to our current shareholders.

The interests of our existing shareholders could be diluted if additional equity securities are issued to finance future developments, acquisitions, or repay indebtedness. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity.

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Item 2.    PROPERTIES

General

As of December 31, 2004, the Company, directly or through subsidiaries, owned 136 office buildings (excluding Broward Financial Center in which the Company owns a 30% interest) located in the twelve metropolitan areas of Jacksonville, Orlando, St. Petersburg, Fort Lauderdale and Tallahassee, Florida; Atlanta, Georgia; Charlotte, North Carolina; Memphis, Tennessee; Rockville, Maryland; Richmond, Virginia; and Houston and Dallas, Texas. The office projects are generally low-rise, mid-rise, and high-rise structures of contemporary design and constructed of masonry, concrete and steel, with facings of brick, concrete and glass. The office projects are generally located with easy access, via expressways, to the central business district and to desirable shopping and residential areas in the respective communities. The properties are well maintained and adequately covered by insurance.

Leases on the office projects include net leases (under which the tenant pays a proportionate share of operating expenses, such as utilities, insurance, property taxes and repairs), base year leases (under which the tenant pays a proportionate share of operating expenses in excess of a fixed amount), and gross leases (under which the Company pays all such items). Most leases are on a base year basis and are for initial terms generally ranging from 3 to 5 years. In some instances, such as when a tenant rents the entire building, leases are for initial terms of up to 20 years. As of December 31, 2004, the office projects were on average 82 percent occupied and the average annual base rent per rentable square foot occupied was $17.93. The office projects are occupied by numerous tenants (approximately 1,041 leases), many of whom lease relatively small amounts of space, conducting a broad range of commercial activities.

New leases and renewals of existing leases are negotiated at the current market rate at the date of execution. The Company endeavors to include escalation provisions in all of its leases. As of December 31, 2004, approximately two percent of the Company’s annualized gross rental revenues were derived from existing leases containing rental escalation provisions based upon changes in the Consumer Price Index (some of which contain maximum rates of increases); approximately 97% percent of such revenues were derived from leases containing escalation provisions based upon fixed steps or real estate tax and operating expense increases; and approximately one percent of such revenues were derived from leases without escalation provisions. Some of the Company’s leases contain options which allow the tenant to renew for varying periods, generally at the same rental rate and subject, in most instances, to Consumer Price Index escalation provisions.

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Property Location and Other Information

The following table sets forth information relating to the properties owned by the Company (which excludes the Broward Financial Center, a property owned by an unconsolidated entity) as of December 31, 2004.

Office/Project Location	Number of Buildings		Weighted Average Age of Buildings (in Years) (1)		Rentable Sq. Ft.		Land Improved With Bldgs. (in Acres)		Unimproved Land (in Acres)
Atlanta Atlantic Center Plaza		1		3		501,184		0.6
Atlanta Chamblee		21		22		1,127,912		76.2		2.5
Atlanta Gwinnett		3		8		262,806		15.9		5.2
Atlanta McGinnis Park		2		3		202,243		13.3		8.5
Atlanta Perimeter		1		19		181,862		5.3
Atlanta Three Ravinia		1		13		804,876		3.8
Birmingham Colonnade										16.5
Charlotte University		2		6		182,891		18.7
Charlotte Vanguard		13		21		527,443		39.7		17.1
Columbia Spring Valley										1.0
Dallas Campus Circle		1		5		127,226		8.6
Dallas Signature Place		1		6		437,352		10.1
Dallas Tollway Crossing		1		7		152,163		6.0
Fort Lauderdale Las Olas		2		6		468,843		3.4
Greensboro Wendover										9.1
Greenville Park Central										3.5
Houston Post Oak		3		24		1,201,143		11.4
Houston Westchase Corporate Center		1		5		184,259		10.0
Jacksonville Baymeadows		7		12		751,138		51.1
Jacksonville Baymeadows Way		1		12		224,281		6.7
Jacksonville JTB		4		5		416,773		32.0
Memphis Germantown		6		11		532,971		34.6
Orlando Central		21		33		615,905		44.7		1.3
Orlando Lake Mary		2		6		303,540		20.2
Orlando University		5		10		383,816		27.1
Richmond Paragon		1		19		145,127		8.1
St. Petersburg		15		21		671,398		68.7		6.7
Tallahassee		19		22		836,326		62.7
Washington D.C. Decoverly		2		16		154,787		16.9		3.2
Total		136				11,398,265		595.8		74.6
Weighted Average				15

 

(1) The age of each office building was weighted by the rentable square feet for such office building to determine the weighted average age.

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Percent Occupied and Average Rental Rates

The following table sets forth, with respect to each office project, the number of buildings, number of leases, rentable square feet, percent occupied, and the average annual rent per rentable square foot occupied as of December 31, 2004.

Office Project/Location	Number of Buildings		Number of Leases		Rentable Square Feet		Percent Occupied (1)			Average Annual Base Rent Per Square Foot (2)
Atlanta Atlantic Center Plaza (3)		1		25		501,184		88	%	$	27.50
Atlanta Chamblee		21		101		1,127,912		88	%	$	18.22
Atlanta Gwinnett		3		48		262,806		90	%		19.62
Atlanta McGinnis Park (3)		2		23		202,243		70	%		17.47
Atlanta Perimeter		1		9		181,862		59	%		18.56
Atlanta Three Ravinia (3)		1		18		804,876		61	%		17.66	(4)
Charlotte University		2		13		182,891		60	%		18.17
Charlotte Vanguard		13		56		527,443		57	%		15.25
Dallas Campus Circle (3)		1		2		127,226		89	%		22.41
Dallas Signature Place(3)		1		48		437,352		65	%		20.88
Dallas Tollway Crossing (3)		1		4		152,163		100	%		22.10
Fort Lauderdale Las Olas Centre (3)		2		42		468,843		91	%		20.51
Houston Post Oak (3)		3		89		1,201,143		76	%		17.82
Houston Westchase Corporate Center (3)		1		15		184,259		94	%		22.83
Jacksonville Baymeadows		7		27		751,138		93	%		13.55	(4)
Jacksonville Baymeadows Way (3)		1		1		224,281		100	%		9.50	(4)
Jacksonville JTB		4		7		416,773		100	%		12.91	(4)
Memphis Germantown		6		95		532,971		89	%		18.01
Orlando Central		21		129		615,905		84	%		16.69
Orlando Lake Mary		2		20		303,540		82	%		17.23
Orlando University		5		67		383,816		78	%		19.63
Richmond Paragon		1		26		145,127		96	%		19.35
St. Petersburg		15		117		671,398		90	%		16.57
Tallahassee		19		54		836,326		76	%		16.76
Washington D.C. Decoverly (3)		2		5		154,787		93	%		24.10
Total (5)		136		1,041		11,398,265

 

Weighted Average — Total Company — 136 Buildings	82	%	$	17.93
Weighted Average — Same Store — 120 Buildings	83	%	$	16.75
Weighted Average — Acquisition — 16 Buildings	79	%	$	19.89

 

(1) The percent occupied rates have been calculated by dividing total rentable square feet occupied in a building by rentable square feet in such building.

(2) Rental rates are computed by dividing (a) total annualized base rents (which excludes expense pass-throughs and reimbursements) for an office project as of December 31, 2004 by (b) the rentable square feet applicable to such total annualized base rents.

(3) Properties acquired subsequent to January 1, 2002 (the Acquisition properties).

(4) Leases are “triple net” where tenants pay substantially all operating costs in addition to base rent.

(5) Does not include investment in unconsolidated entity that contains 325,583 of rentable square feet and was 86% occupied at December 31, 2004.

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Lease Expirations on the Company’s Properties

The following schedule sets forth with respect to all of the office projects (a) the number of leases which will expire in calendar years 2005 through 2013, (b) the total rentable area in square feet covered by such leases, (c) the percentage of total rentable square feet leased represented by such leases, (d) the average annual rent per square foot for such leases, (e) the current annualized base rents represented by such leases, and (f) the percentage of gross annualized base rents contributed by such leases. This information is based on the buildings owned by the Company on December 31, 2004 and on the terms of leases in effect as of December 31, 2004, on the basis of then existing base rentals, and without regard to the exercise of options to renew. Furthermore, the information below does not reflect that some leases have provisions for early termination for various reasons, including, in the case of government entities, lack of budget appropriations. Leases were renewed on approximately 66 percent, 53 percent and 64 percent of the Company’s square feet, which were scheduled to expire during 2004, 2003 and 2002, respectively.

Period	Number of Leases Expiring		Number of Square Feet Expiring		Percentage of Total Square Feet Leased Represented by Expiring Leases			Average Annual Rent Per Square Foot Under Expiring Leases		Total Annualized Rents Under Expiring Leases		Percentage of Total Annual Rents Represented by Expiring Leases
2005		317		1,400,439		15.1	%	$	17.41	$	24,380,832		14.6	%
2006		207		1,363,528		14.7	%		18.95		25,838,064		15.5	%
2007		189		1,126,185		12.1	%		18.96		21,347,664		12.8	%
2008		105		951,924		10.2	%		18.48		17,593,824		10.6	%
2009		113		1,788,203		19.2	%		17.88		31,976,652		19.2	%
2010		34		331,851		3.6	%		17.37		5,764,668		3.5	%
2011		24		344,128		3.7	%		15.92		5,476,848		3.3	%
2012		20		447,962		4.8	%		18.97		8,496,780		5.1	%
2013		3		281,147		3.0	%		26.65		7,491,924		4.5	%
Other		29		1,257,837		13.6	%		14.55		18,300,732		10.9	%
Total		1,041		9,293,204		100.0	%	$	17.93	$	166,667,988		100.0	%

 

Building Improvements, Tenant Improvements and Deferred Tenant Costs on the Company’s Properties

The following table sets forth certain information with respect to the building improvements made, and tenant improvement costs and deferred tenant costs (leasing commissions and tenant relocation costs) incurred, by the Company during the three years ended December 31, 2004. The information set forth below is not necessarily indicative of future expenditures for these items.

	Building Improvements					Tenant Improvements					Deferred Tenant Costs
Year	Total		Per Average Rentable Sq. Ft. Owned		Total		Per Average Rentable Sq. Ft. Owned		Total			Per Average Rentable Sq. Ft. Owned
2002 (1)	$	4,383,000	$	0.69	$	5,156,000	$	0.81	$	1,338,000		$	0.21
2003 (2)		2,332,000		0.34		9,517,000		1.41		1,787,000			0.26
2004 (3)		3,341,000		0.48		11,669,000		1.68		8,565,000			1.23

 

(1) Excludes the 8 buildings constructed and the 2 properties acquired during 2000, 2001 and 2002.

(2) Excludes the 2 buildings constructed and the 5 properties acquired during 2001, 2002 and 2003.

(3) Excludes 11 properties acquired during 2002, 2003 and 2004. Amounts include $4.8 million of deferred tenant costs related to a 15-year lease with the State of Florida.

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Top 10 Tenants by Square Feet

	Tenant	Square Feet		% of Portfolio
1	U.S. Government		934,517		10.1	%
2	State of Florida		680,520		7.3	%
3	Blue Cross and Blue Shield		563,057		6.1	%
4	Bechtel Corporation		371,021		4.0	%
5	Six Continents Hotels		309,641		3.3	%
6	Alston & Bird		229,394		2.5	%
7	Landstar System Holdings		176,000		1.9	%
8	CitiFinancial		159,827		1.7	%
9	Cigna General Life Insurance		107,380		1.2	%
10	Spirent		104,583		1.1	%
	Total % of portfolio square feet				39.2	%
	Total % of portfolio revenue				38.4	%

 

17

Fixed Rate Indebtedness on the Company’s Properties

The following table sets forth with respect to each office project the principal amount (dollars in thousands) of, and the weighted average interest rate on, the indebtedness of the Company having a fixed interest rate and encumbering the Company’s properties in such office project as of December 31, 2004.

Office Project	Mortgage Loan Balance		Weighted Average Interest Rate
Atlanta Chamblee	$	—		—
Atlanta Gwinnett		10,388		8.33	%
Atlanta McGinnis Park		978		8.00	%
Atlanta Perimeter		6,711		8.19	%
Atlanta Three Ravinia		85,000		5.26	%
Atlanta Atlantic Center Plaza		—		—
Charlotte University		—		—
Charlotte Vanguard		18,157		8.20	%
Dallas Campus Circle		—		—
Dallas Tollway Crossing		—		—
Dallas Signature Place		—		—
Fort Lauderdale Las Olas		98,980		5.32	%
Houston Post Oak		—		—
Houston Westchase Corporate Center		15,190		5.39	%
Jacksonville Baymeadows		31,524		8.33	%
Jacksonville Baymeadows Way		13,800		5.55	%
Jacksonville JTB		16,228		8.26	%
Memphis Germantown		22,684		7.10	%
Orlando Central		24,542		8.26	%
Orlando Lake Mary		11,908		8.26	%
Orlando University		19,390		7.25	%
Richmond Paragon		—		—
St. Petersburg		25,887		8.26	%
Tallahassee		36,300		8.10	%
Washington, D.C. Decoverly		—		—
Total	$	437,667		6.71	%

 

A mortgage loan with Northwestern Mutual Life Insurance Company ($205.6 million as of December 31, 2004) encumbers several office projects and the outstanding principal amount on this mortgage loan has been allocated based upon the square footage of the collateral in the applicable office project. For additional information on these loans see Note 3, “Mortgages and Loans Payable” of the Notes to Consolidated Financial Statements.

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Indebtedness with Variable Interest Rates

As of December 31, 2004, the Company had an outstanding balance of $185.8 million in term loans with variable interest rates encumbering certain of the Company’s properties. The following table sets forth historical information with respect to indebtedness having variable interest rates (dollars in thousands):

Year Ended December 31	Balance at End of Period			Weighted Average Int. Rate at End of Period			Maximum Amount Outstanding		Average Amount Outstanding		Weighted Ave. Int. Rate During the Year
2004	$	185,800	(1)		4.5	%	$	248,874	$	167,034		3.7	%
2003		93,468			4.2	%		122,499		102,600		4.0	%
2002		104,509			4.2	%		192,509		75,498		4.1	%

 

(1) Included in this amount is an $80.0 million loan (3.88% as of December 31, 2004) which will convert into a fixed interest rate loan on January 1, 2005 at 5.49% for 10 years.

Item 3.    LEGAL PROCEEDINGS

None.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

Item 5.     MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange under the ticker symbol “CRO”. The high and low closing sales prices for the periods indicated in the table below were:

Quarter Ended	High		Low		Distributions
December 31, 2004	$	25.00	$	21.53	$	0.35
September 30, 2004		24.02		21.05		0.35
June 30, 2004		23.64		20.07		0.35
March 31, 2004		24.30		20.45		0.35
December 31, 2003		21.60		18.90		0.35
September 30, 2003		18.88		16.75		0.35
June 30, 2003		17.60		15.48		0.35
March 31, 2003		16.10		15.00		0.35

 

Any dividend paid in respect of our common stock during the last quarter of each year will, if necessary, be adjusted to satisfy the REIT qualification requirement that, at least 90 percent of the our REIT taxable income for such taxable year be distributed among other requirements. Our secured revolving credit facility requires that we maintain certain financial ratios, which includes a limitation on dividends. However, this covenant does not restrict us from paying the dividends required to maintain our qualification as a REIT.

We have determined that, for federal income tax purposes, approximately 59% of the distributions for each of the four quarters of 2004 represented ordinary dividend income and the remaining 41% represented return of capital to our common shareholders.

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On January 28, 2005, we paid a quarterly common stock dividend of $0.35 per share to shareholders of record on December 31, 2004. On February 17, 2005, our Board of Directors declared a dividend on our preferred stock of $0.53125 per share payable on March 15, 2005, to shareholders of record on March 1, 2005. Also, on February 17, 2005, our Board of Directors declared a dividend on our common stock of $0.35 per share payable on April 29, 2005, to shareholders of record on March 31, 2005.

We currently intend to pay quarterly dividends to our stockholders. Distributions on our common stock are declared at the discretion of the board of directors and will depend on our financial liquidity from cash provided by recurring real estate activities that include both operating activities and asset disposition activities, our financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Code and other factors the board of directors may deem relevant. The board of directors may modify our distribution policy from time to time.

On February 28, 2005, there were approximately 965 shareholders of record and the closing price of our common stock on the NYSE was $22.62.

Long-Term Incentive Compensation Plan

On December 20, 2004, the Company’s Board of Directors adopted a long-term incentive compensation plan for certain senior officers effective as of January 1, 2005, which replaced its previous plan adopted effective January 1, 2002. The Compensation Committee, comprised of certain members of the Board of Directors, administers this plan. Under the plan, payments to certain senior officers are based on the performance of the Company’s common stock on a one-year and over a three-year measurement period and the performance of the Company’s common stock compared to Morgan Stanley’s Weekly Supplement Index on Real Estate Investment Trusts in its peer group on a one-year and over a three-year measurement period. Payments under the plan are dependent on the achievement of certain performance goals and on satisfaction of certain vesting requirements. In January and February 2005, the Company issued 200,685 of restricted common stock to certain senior executives currently participating in the long-term compensation plan.

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INFORMATION ABOUT OUTSTANDING STOCK OPTIONS

Information about securities underlying CRT Properties, Inc.’s outstanding stock options at December 31, 2004 is as follows:

Plan Category	Issued upon Exercise of Outstanding Options			Exercise Price of Outstanding Options		Remaining Available for Future Issuance
Equity Compensation Plans Approved by Stockholders		372,380		$	21.24		1,161,200
Equity Compensation Plans Not Approved by Stockholders		1,345,398	(1)		17.37		325,406	(2)
Total		1,717,778		$	18.21		1,486,606

 

(1) Includes the following options, all of which were granted at an exercise price equal to the closing market price on the date of grant with a term of ten years:

(a)   Options to purchase 1,225,000 shares granted to certain current and former employees in connection with their initial employment with the Company. These grants are summarized as follows:

Officer	Title	Number of Options		Exercise Price		Date of Grant	Vesting
Thomas J. Crocker	Chief Executive Officer		700,000	$	16.0625	February 17, 2000		100	%
Thomas C. Brockwell	Senior Vice President		200,000		17.5625	June 14, 2000		100	%
Christopher L. Becker	Senior Vice President		200,000		17.5625	June 14, 2000		100	%
David B. Hiley	Former Chief Financial Officer		125,000		22.8125	February 18, 1998		100	%

 

(b)   Options to purchase 8,998 shares granted to employees other than those listed above.

(c)   Options to purchase 44,000 shares granted in 1997 to the then outside directors. These grants are summarized as follows:

	Title	Number of Options		Exercise Price		Date of Grant	Vesting
D. Pike Aloian	Director		4,000	$	19.8125	August 19, 1997		100	%
Benjamin C. Bishop, Jr.	Director		4,000		19.8125	August 19, 1997		100	%
Irvin H. Davis	Former Director		4,000		19.8125	August 19, 1997		100	%
David B. Hiley	Director		4,000		19.8125	August 19, 1997		100	%
John R.S. Jacobsson	Former Director		4,000		19.8125	August 19, 1997		100	%
G. Christian Lantzsch	Former Director		4,000		19.8125	August 19, 1997		100	%
William L. Mack	Former Director		4,000		19.8125	August 19, 1997		100	%
Lee S. Neibart	Former Director		4,000		19.8125	August 19, 1997		100	%
Edward Scheetz	Former Director		4,000		19.8125	August 19, 1997		100	%
George F. Staudter	Director		4,000		19.8125	August 19, 1997		100	%
S.D. Stoneburner	Former Director		4,000		19.8125	August 19, 1997		100	%

 

(d)   Options to purchase 42,400 shares granted pursuant to a non-statutory stock option plan available to all employees of the Company.

(e)   Options to purchase 25,000 shares granted to the Company’s assistant secretary. Harold F. McCart, Jr. was granted this option on May 19, 1998 at an exercise price of $21.25. This option is fully vested.

(2) Includes the following options available for grant at an exercise price equal to at least the closing market price on the date of grant for a term not to exceed ten years:

(a)   Options to purchase up to 119,706 shares available for grant pursuant to an option plan available to employees other than those listed above.

(b)   Options to purchase up to 205,700 shares available for grant pursuant to a non-statutory stock option plan available for all employees of the Company.

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Item 6.    SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements (as defined below) and the notes thereto.

	(In thousands except per share and property data)
	2004			2003			2002			2001			2000
Income Information
Rental revenues and other rental services	$	166,868		$	146,076		$	126,404		$	165,623		$	164,733
Total operating revenues		167,227			146,407			129,751			169,703			166,526
Property operations expense		65,140			57,381			46,235			61,608			61,868
Depreciation and amortization		41,628			32,687			27,908			35,099			34,244
Interest income		407			307			405			776			700
Mortgage and loan interest		32,242			29,249			25,145			26,112			28,157
General and administrative expense		13,052			11,138			11,381			8,412			20,217
Net income available to common shareholders		9,550			14,696			16,423			73,223			27,153
Earnings per share — diluted		0.35			0.69			0.77			2.75			1.01
Dividends declared per common share		1.40			1.40			1.40			3.14			1.40
Dividends declared per preferred share		2.125			.56666	(1)		—			—			—
Weighted average shares outstanding — diluted		27,137			21,448			21,378			26,610			26,962
Balance Sheet Information
Operating properties (before accumulated depreciation)	$	1,356,393		$	962,002		$	897,158		$	663,286		$	946,780
Undeveloped land		14,628			14,016			13,826			13,855			13,975
Total assets		1,284,266			848,201			805,085			690,585			851,022
Mortgages and loans payable		623,467			408,716			431,698			248,683			343,287
Total shareholders’ equity		593,959			402,975			343,068			354,542			448,493
Other Information
FFO available to common shareholders (2)	$	50,911		$	46,479		$	43,855		$	69,681		$	56,159
Number of buildings (at end of period)		136			128			124			120			194
Percent occupied (at end of period)		82	%		81	%		84	%		90	%		90	%

 

(1) This preferred stock was issued on September 10, 2003 and the 2003 dividend covers the five-day period from September 10, 2003 through September 14, 2003, and the quarter beginning September 15, 2003 through December 14, 2003.

(2) Funds from Operations (“FFO”) is a non-GAAP financial measure that is a widely used performance measure for real estate companies and is provided as a supplemental measure of operating performance. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. The National Association of Real Estate Investment Trusts (“NAREIT”) adopted the definition of FFO in order to promote an industry standard measure of REIT financial and operating performance. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. NAREIT defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles (GAAP), excluding gains (losses) from sales of property, plus depreciation and amortization of real estate assets and after adjustments for unconsolidated partnerships and joint ventures.

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Given the nature of the Company’s business as a real estate owner and operator, the Company believes that FFO is helpful to investors in measuring its operational performance because in excluding real estate related depreciation and amortization, and gains and losses from sales of property, it provides a supplemental performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. In addition, since most equity REITs provide FFO information to investors, FFO can also be a useful supplemental measure for comparing the Company’s results to other equity REITs.

FFO excludes depreciation and amortization, however, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact the Company’s results from operations, therefore, the utility of FFO as a measure of performance is limited. Moreover, while the Company believes its computation of FFO conforms to the NAREIT definition, it may not be comparable to FFO reported by REITs that interpret the definition differently or that do not define FFO in accordance with the NAREIT definition at all. Accordingly, FFO (i) should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company’s financial performance, (ii) is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, and (iii) is not indicative of funds available to fund the Company’s cash needs, including its ability to pay dividends or make distributions, because of needed capital replacement or expansion, debt service obligations, or other cash commitments and uncertainties.

NAREIT’s definition of FFO discussed in its White Paper defining Funds From Operations provides for an inclusion of all gains on the sale or disposition of non-operating properties (i.e., vacant land). In order to conform to the NAREIT definition, the Company has restated its FFO available to common shareholders to include all gains on the sale or disposition of non-operating properties for the years 2003, 2002, and 2000, resulting in an increase in FFO of $573,000, $21,000, and $52,000, respectively.

A reconciliation of FFO to net income available to common stockholders in accordance with GAAP is provided under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds from Operations.”

Item 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the selected financial data and the consolidated financial statements (the “Consolidated Financial Statements”) appearing elsewhere in this report. Historical results and percentage relationships in the Consolidated Financial Statements, including trends which might appear, should not be taken as indicative of future operations or financial position.

General

The Company has prepared, and is responsible for, the accompanying Consolidated Financial Statements and the related consolidated financial information included in this report. These Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include amounts determined using management’s best judgments and estimates of the expected effects of events and transactions that are being accounted for currently.

The Company maintains accounting and other control systems which we believe provide reasonable assurance that the Company’s assets are safeguarded and that the Company’s books and records reflect our authorized transactions, although there are inherent limitations in any internal control structure, as well as cost versus benefit considerations. The Audit Committee of the Company’s Board of Directors, which is composed exclusively of directors who are not officers of the Company and who meet the independence requirements of the New York Stock Exchange and the United States Securities and Exchange Commission, directs matters relating to audit functions, annually appoints the auditors subject to ratification by our Board of Directors, reviews the auditors’ independence, reviews the scope and results of the annual audit, and periodically reviews the adequacy of our internal control structure with our internal auditors and our senior management.

23

Recent Developments

On September 11, 2003, we acquired Tollway Crossing, formerly known as the Rosemeade Building, and Campus Circle in Dallas, Texas for approximately $33.1 million. These properties contain two office buildings with approximately 280,000 square feet of rentable space. As of December 31, 2004, the Tollway Crossing and Campus Circle were 100% and 89% occupied, respectively.

On December 30, 2003, we completed a joint venture agreement with Triangle W/Development to acquire a 75% interest in a joint venture that owns two mid-rise office buildings encompassing 202,000 square feet and 8.5 acres of undeveloped land suitable for development located in the McGinnis Park office complex in Atlanta, Georgia. The Company contributed approximately $13.9 million to pay off an existing mortgage plus an additional amount for closing costs and working capital, funded from its secured line of credit. The joint venture assumed an existing mortgage on the undeveloped land of approximately $978,000. As of December 31, 2004, the two McGinnis Park office buildings were 70% occupied.

On January 12, 2004, the Company acquired a 30% interest in a joint venture that owns the Broward Financial Center (“BFC”), resulting in a total investment of $5.3 million (including closing costs and fees) which includes a DownREIT minority contribution of $2.1 million resulting in approximately 42% of the Company’s interest in the property being held by minority partners. As of December 31, 2004, BFC was 86% occupied.

On January 27, 2004, we acquired Atlantic Center Plaza, a twenty-three story 502,000 square foot building located in Atlanta, Georgia, for a purchase price of $116.5 million plus closing and other costs. As of December 31, 2004, approximately 88% of the property’s rentable space was occupied. Under the terms of the acquisition agreement, the Company assumed a 3-year variable interest rate secured loan of approximately $75.9 million with an interest rate of LIBOR plus 160 basis points. Simultaneously, at closing, the Company assumed a second 3-year variable interest rate secured loan of $10.0 million with an interest rate of LIBOR plus 600 basis points and immediately prepaid the loan in full. The Company funded the remainder of the purchase price with a portion of the net proceeds from its January 2004 common stock offering.

On April 2, 2004, we acquired four properties, including two Class A four-story office buildings, a ground lease and an undeveloped parcel of land located in the Decoverly Office Park in Rockville, Maryland for a purchase price of $42.0 million plus closing and other costs. The two office buildings aggregate approximately 155,000 square feet of rentable space and were 93% occupied as of December 31, 2004. The undeveloped land parcel contains 3.2 acres with an approved site plan for a four-story 105,000 square foot office building. The funds required for this acquisition were provided by the proceeds from the Company’s January 2004 common stock offering.

On July 23, 2004, we acquired Baymeadows Way, a five-story, 224,000 square foot, single-tenant, Class A office building located in Jacksonville, Florida, for a purchase price of $20.8 million, plus closing and other costs. As part of this transaction, the Company issued 33,202 DownREIT limited partnership units in exchange for a $760,985 contribution from a related minority partner (Thomas J. Crocker, the Company’s Chief Executive Officer) in a joint venture with the Company (see Note 2 to the consolidated financial statements). A DownREIT is a controlled partnership which holds real estate and is owned by the REIT and minority partners. The Company received an additional minority interest contribution of $154,107 from an unrelated third party. The acquisition of the Baymeadows Way property was financed in part with the proceeds of a secured loan in the amount of approximately $13.8 million, which bears interest at a fixed rate of 5.55% and matures in 2014. As of December 31, 2004, approximately 100% of the property’s rentable space was occupied.

On August 16, 2004, we acquired the Westchase Corporate Center located in Houston, Texas; a six-story, 184,000 square foot, Class A office building for a purchase price of $20.3 million, plus closing and other costs. As part of this transaction, the Company issued 28,584 DownREIT limited partnership units in exchange for a $639,015 contribution from a related minority partner (Thomas J. Crocker, the Company’s Chief Executive Officer) in a joint venture with the Company (see Note 2). The Company received an additional minority interest contribution of $545,893 from an unrelated third party. The Company financed the acquisition of the Westchase property in part with the proceeds of a secured loan totaling approximately $15.2 million, which bears interest at a fixed rate of 5.39% and matures in 2014. As of December 31, 2004, approximately 94% of the property’s rentable space was occupied.

24

On October 4, 2004, we sold approximately 14.5 acres of undeveloped land located across the street from our Atlanta Gwinnett Center for approximately $3.25 million. This transaction resulted in a gain of approximately $211,000.

On November 24, 2004, we acquired the partnership interests in two Class A office buildings known as the Las Olas Centre located in the central business district of Fort Lauderdale, Florida, for a purchase price of $138.0 million plus closing costs. The Las Olas Centre comprises approximately 469,000 rentable square feet and, as of December 31, 2004, was 91% occupied. The transaction was financed with a 10-year, $99.0 million 5.32% fixed interest rate loan and a draw on the Company’s line of credit.

On December 30, 2004, we acquired a 437,000 rentable square foot Class A office building known as Signature Place, for a purchase price of approximately $38.5 million (plus closing and other costs). The building, located in Dallas, Texas, is comprised of two interconnected towers consisting of Tower 1 with 8 floors, and Tower 2 with 11 floors, and is situated on approximately 10.1 acres with a four-story parking garage. In connection with this acquisition, the Company entered into a joint venture with Wilcox Capital Group, whereby the Company owns 66.7% of the venture. This transaction was financed with proceeds from a $28.8 million variable interest rate non-recourse mortgage and the balance of the equity required was funded by remaining cash from the Company’s December 2004 common stock issuance. As of December 31, 2004, the Signature Place office building was 65% occupied.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements that appear elsewhere in this report. A full summary of the significant accounting policies used in preparing the consolidated financial statements is set forth in Note 1 to those statements. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingencies at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ materially from estimates made. The Company believes that the specific accounting policies discussed below are critical in preparing its consolidated financial statements due to the increased level of assumptions used or estimates made in determining their impact on its consolidated financial statements.

Revenue Recognition.  The Company generates principally all of its operating revenues from leasing space to various tenants in office buildings owned by the Company. Tenants include for-profit companies across a number of industries as well as various federal and state departments and agencies. The Company’s twenty five largest tenants comprise over half of the Company’s occupied space and generate over half of the Company’s annual operating revenues. Rental income generally commences at the commencement of the lease and is recognized based on the terms of the individual leases. Many of the Company’s leases call for annual fixed increases in rental payments and in such case, rental income is recognized over the terms of the lease on a straight-line basis. Certain other leases call for annual increases based upon an inflation index, such as the Consumer Price Index. For these leases, since the annual dollar increase in rental income cannot be determined at the commencement of the lease, rental income increases each year after applying the inflation index. Where rental concessions (such as free rent) are given to tenants, the Company also recognizes rental income on a straight-line basis over the full term of the leases. The Company may require certain tenants to pay a security deposit in addition to their first month’s rent; the Company records such security deposits as a liability. Many of the Company’s leases require tenants to pay their prorata portion of property operating expenses in addition to their base rent, such amounts typically being in excess of a “base year” amount.

Impairment or Disposal of Long-Lived Assets.  The Company evaluates its real estate assets quarterly to assess whether any impairment indicators are present that affect the recovery of the carrying amount. Factors considered consist of, but are not limited to: current and projected occupancy rates, market conditions in different geographic regions, and management’s plans with respect to its properties. Changes in the supply or demand of tenants for the Company’s properties could impact its ability to lease available space. Should a significant amount of available space exist for an extended period, the Company’s investment in a particular office building may be impaired. If management were to conclude that expected cash flows would not enable the Company to recover the carrying amount of its investments, losses would be recorded and asset values would be reduced. No such impairments in value were recognized during 2004, 2003 or 2002.

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Real estate assets are classified as held for sale or held and used in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. In accordance with SFAS No. 144, the Company records assets held for sale at the lower of carrying amount or fair value less costs to sell. With respect to assets classified as operating properties which are held and used, the Company periodically reviews these assets to determine whether its carrying amount will be recovered. A long-lived asset is considered impaired if its carrying value exceeds the estimated fair value. Fair value is based on the estimated and realizable contract sales price (if available) for the asset less estimated costs to sell. If a sales price is not available, the estimated undiscounted cash flows of the asset for the remaining estimated holding period are used to determine if the carrying value is recoverable. Upon impairment, the Company would recognize an impairment loss to reduce the carrying value of the long-lived asset to its estimated fair value. The Company’s estimate of fair value and cash flows to be generated from its properties requires it to make assumptions that are highly subjective and based on a variety of factors, including but not limited to: existing leases, future leasing and terminations, market rental rates, capital improvements, tenant improvements, leasing commissions, inflation and other variables. If one or more assumptions proves incorrect or if the Company’s assumptions change, the recognition of an impairment loss on one or more properties may be necessary in the future, which would result in a decrease in net income. No impairment losses were recognized during the years 2004, 2003, and 2002.

Depreciation.  Depreciation of buildings and parking garages is computed using the straight-line method over an estimated useful life of 3 to 39 years. Depreciation of building improvements is computed using the straight-line method over the estimated useful life of the improvement. Tenant improvements are generally amortized over the term of the respective leases. If the Company were to incorrectly estimate the useful lives of its operating properties, it may be required to adjust future depreciation expense. Therefore, a change in the estimated useful lives assigned to buildings and improvements would result in either an increase or decrease in depreciation expense, which would result in an increase or decrease in net income.

Cost of Real Estate Acquired.  The Company accounts for its acquisitions of real estate in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations,” which requires the fair value of the real estate acquired to be allocated to the acquired tangible assets, consisting of land, building, building improvements and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above and below market leases, customer relationships, lease costs and the value of in-place leases.

The allocation to intangible assets is based upon various factors including the above or below market component of in-place leases, the value of in-place leases, leasing commissions, legal fees and the value of customer relationships. The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using an interest rate which reflects the risks associated with the lease) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using current fair market rates over the remaining term of the lease. The amounts allocated to above or below market leases are included in other assets in the balance sheet and are amortized to rental income over the average remaining term of the respective leases. The remaining purchase price is allocated among various categories of tangible assets (building and land) and is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Differing assumptions and methods could result in different estimates of fair value and thus, a different purchase price allocation and corresponding increase or decrease in depreciation and amortization expense.

Allowance for Doubtful Accounts.  Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Our accounts receivable are comprised primarily of rents and operating expense recoveries due from tenants. Changes in general economic conditions, or in the industries in which our tenants operate, could impact our tenants’ ability to honor their lease obligations, which could in turn affect our recorded revenues and estimates of the collectibility of our receivables. Revenue from real estate rentals is recognized and accrued as earned on a pro rata basis over the term of the lease. The Company regularly evaluates the adequacy of its allowance for doubtful accounts considering such factors as credit quality of our tenants, delinquency of payment, historical trends and current economic conditions. The Company provides an allowance for doubtful

26

accounts for tenant balances that are over 90 days past due and for specific tenant receivables for which collection is considered doubtful. Actual write-offs may differ from these estimates, which could result in an increase or decrease in bad debt expense.

Results of Operations

Rental Revenues.  Rental and other rental services revenues increased $20,792,000 or 14.2 percent from the year ended December 31, 2003 to the year ended December 31, 2004. This increase resulted primarily from recent acquisitions as follows (in thousands):

Center Name	Date of Acquisition	Total 2004 Rental Revenues		Total 2003 Rental Revenues		Variance
Atlantic Center Plaza	January 27, 2004	$	13,672	$	—	$	13,672
Decoverly	April 2, 2004		4,065		—		4,065
Tollway Crossing	September 11, 2003		4,094		1,183		2,911
McGinnis Park	December 30, 2003		2,179		—		2,179
Campus Circle	September 11, 2003		3,000		1,162		1,838
Westchase Corporate Center	August 16, 2004		1,700		—		1,700
Las Olas Centre	November 24, 2004		1,473		—		1,473
Baymeadows Way	July 23, 2004		1,101		—		1,101
Total		$	31,284	$	2,345	$	28,939

 

The effect of these increases was partially offset by (i) a decrease in rental revenues from the Lakes on Post Oak and Three Ravinia Drive ($1,814,000 and $1,451,000, respectively), (ii) a reduction in rates per square foot, and (iii) a reduction in revenues from same store properties ($4,608,000). Rental and other rental services revenues increased $19,672,000 or 15.5 percent from the year ended December 31, 2002 to the year ended December 31, 2003. This increase resulted primarily from (i) the acquisition of Tollway Crossing and Campus Circle in September 2003 ($2,345,000), (ii) an increase in revenues from the Lakes on Post Oak property acquired in December 2002 ($16,236,000), and (iii) an increase in revenues from the Three Ravinia Drive property ($3,197,000). The effect of these increases was partially offset by (i) a reduction in rates per square foot and (ii) a decrease in overall occupancy rates, resulting in a reduction in revenues from same store properties.

Management Fee Revenues.  For 2004, management fee revenues increased $28,000 as compared to 2003. For 2003, management fee revenues decreased $3,016,000 as compared to 2002. This decrease was due primarily to the loss of fees associated with a property management agreement with AP-Knight LP that was terminated in December 2002, partially offset by asset management fees received from Crocker Realty Trust. This asset management agreement ended in May 2003.

Expenses.  Property operations expense includes such charges as utilities, real estate taxes, janitorial, maintenance, property insurance, provision for uncollectible rents and management costs. During 2004, property operations expense increased $7,759,000, compared to 2003. This increase was mostly attributable to (i) the acquisition of Atlantic Center Plaza in January 2004 ($4,410,000), (ii) the acquisition Campus Circle and Tollway Crossing in September 2003 ($2,848,000), and (ii) the acquisition of Decoverly in April 2004 ($1,281,000). This increase was partially offset by a decrease in operating expenses with respect to the Company’s same store properties ($1,582,000). During 2003, property operations expense increased $11,146,000, compared to 2002, primarily due to (i) the acquisition of the Lakes on Post Oak in Houston, Texas, in December 2002 ($8,278,000), (ii) the acquisition of the Dallas Campus Circle andTollway Crossing on September 11, 2003 ($817,000), and (iii) increases in the Company’s insurance and real estate tax expenses. For 2004, 2003 and 2002, property operations expense as a percentage of total rental and other rental services revenues was 39.0 percent, 39.2 percent and 36.5 percent, respectively.

Depreciation and Amortization.  Depreciation expense has been calculated on the straight-line method based upon the useful lives of the Company’s depreciable assets, generally 3 to 39 years. For 2004, depreciation expense increased $6,968,000, compared to 2003. This was primarily due to 2004 acquisitions ($5,248,000) and an increase in tenant and building improvements at the Lakes on Post Oak and other office projects. For 2003, depreciation

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expense increased $3,631,000, compared to 2002. This increase was mostly attributable to the acquisition of The Lakes on Post Oak in December 2002 and Tollway Crossing and Campus Circle in September 2003.

In 2004, amortization expense increased $1,973,000, compared to 2003. This increase was due primarily to $877,000 of additional amortization of leasing commissions resulting from increased leasing activity in 2004. Additionally, $1,108,000 of this was due to an increase in the amortization of the fair value of in-place leases resulting from recent acquisitions. In 2003, amortization expense increased $1,148,000, compared to 2002. This increase was due primarily to amortization of the fair value of in-place leases in the amount of $966,000. Additionally, $176,000 of this was due to amortization related to deferred tenant costs.

Interest Expense.  Interest expense increased $2,993,000 during 2004, compared to 2003, primarily due to an increase in the Company’s average outstanding debt resulting from its 2004 acquisition of Atlantic Center Plaza. This increase was partially offset by a decrease in the weighted average interest rate on the Company’s variable rate loans. Interest expense increased $4,104,000 during 2003, compared to 2002, primarily due to an increase in the average balance of mortgages and loans payable as a result of the financing of Three Ravinia Drive and The Lakes on Post Oak acquisitions during 2002. During 2004, 2003, and 2002, the weighted average interest rate on the Company’s variable rate loans was 3.7 percent, 4.0 percent and 4.1 percent, respectively. The Company’s average outstanding amount under such loans during 2004, 2003, and 2002 was $167,034,000, $102,600,000, and $75,498,000, respectively. During 2004, 2003, and 2002, the weighted average interest rate on the Company’s fixed rate loans was 7.1 percent, 7.3 percent and 7.3 percent, respectively. The Company’s average outstanding amount under its fixed rate loans during 2004, 2003, and 2002 was $331,363,000, $316,747,000, and $248,206,000, respectively.

General and Administrative Expense.  For 2004, general and administrative expenses increased $1,914,000 as compared to 2003. This increase was the result of a one-time payment of $540,000 made to the Company’s Chief Executive Officer (as described in Note 2 to the consolidated financial statements), as well as an overall increase in payroll related costs resulting from increased staffing requirements due to recent acquisitions ($1,134,000 for the year ended December 31, 2004) and increased administrative costs, including costs incurred in connection with changing the Company name and increased audit fees resulting from compliance with the Sarbanes-Oxley Act of 2002 ($815,000). This increase was partially offset by a decrease in pension related costs ($235,000) and a one-time severance payment made during 2003 to the Company’s former Chief Financial Officer ($702,000). For 2003, general and administrative expenses decreased $243,000, compared to 2002. This decrease resulted from a reduction in compensation expense ($1,049,000) that was partially offset by increased professional fees, pension costs, a one-time severance payment made during 2003 to the Company’s former Chief Financial Officer, and expenses related to the Company’s corporate office relocation. The Company also reduced its allocation of general and administrative expenses under the terms of certain management agreements. These agreements were cancelled at the end of 2002 and in 2003. During 2003, the Company also incurred a one-time curtailment loss of $418,000 related to the resignation of a participant in the Company’s retirement plan. The Company also experienced increases in professional fees for internal audit, legal, and personnel recruiting services.

Management Fee Expense.  Direct costs of management fees decreased $88,000 during 2004, compared to 2003. Direct costs of management fees decreased $3,247,000 during 2003, compared to 2002. This decrease was due primarily to the loss of fees associated with a property management agreement with AP-Knight LP that was terminated in December 2002. This decrease was partially offset by asset management fees received for the management of Crocker Realty Trust. This asset management agreement ended in May 2003.

Liquidity and Capital Resources

General

Our principal liquidity needs for the next twelve months are:

•   fund normal recurring expenses;

•   meet debt service requirements including the repayment or refinancing of $83.1 million of indebtedness that matures within the twelve month period;

•   fund capital expenditures, including tenant improvements and leasing costs;

•   fund current development costs not covered under construction loans; and

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•   make the distributions required to maintain our REIT qualification under the Internal Revenue Code of 1986, as amended.

We believe that these needs will be satisfied using cash flows generated by operations and provided by financing activities, which could include borrowings on our $165.0 million secured revolving credit facility. Rental revenue, recovery income from tenants, and other income from operations are our principal sources of fund used to pay operating expenses, debt service, recurring capital expenditures and the minimum distribution required to maintain our REIT qualification. We seek to increase income from our existing properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Consequently, we believe our revenue, together with proceeds from financing activities, will continue to provide the necessary funds for our short-term liquidity needs. However, material changes in these factors may adversely affect our net cash flows. Such changes, in turn, would adversely affect our ability to fund distributions, debt service payments and tenant improvements.

Our principal liquidity needs for periods beyond twelve months are for the costs of developments, property acquisitions, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements. We expect to satisfy these needs using one or more of the following:

•   construction loans;

•   long-term secured and unsecured indebtedness;

•   income from operations;

•   joint ventures;

•   sales of real estate;

•   issuances of additional common and preferred stock; and

•   our secured revolving line of credit or other credit facilities.

We also draw on multiple financing sources to fund our long-term capital needs. Our primary external sources of funds are bank borrowings, mortgage financings, and public and private offerings of equity securities. For the year ended December 31, 2004, our largest sources of cash from financing activities were proceeds from the registered sale of our common stock ($213.0 million) and proceeds from mortgages and loans (267.4 million). Our $165.0 million secured line of credit is utilized primarily for acquisitions and other general corporate uses.

Cash Flow Summary

The following summary discussion of our cash flows is based on the consolidated statements of cash flows in “Item 8. Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

Cash and cash equivalents were $32.7 million and $9.2 million at December 31, 2004 and December 31, 2003, respectively, representing an increase of $23.5 million. The increase was a result of the following increases and decreases in cash flows:

	Years ended December 31,
	2004			2003			Increase (Decrease)
	(in thousands)
Net cash provided by operating activities	$	49,224		$	46,034		$	3,190
Net cash used in investing activities	$	(349,850	)	$	(66,804	)	$	(283,046	)
Net cash provided by financing activities	$	324,180		$	25,306		$	298,874

 

Operating Activities.  Our principal source of cash flow is related to the operation of our office properties. The average term of a tenant lease is approximately 3.5 years with occupancy rates historically in the range of 75% to 85%. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly dividend and distribution payment requirements. As a REIT

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for Federal income tax purposes, the Company is required to pay out annually, as dividends, at least 90 percent of its REIT taxable income. In the past, the Company has paid out dividends in amounts at least equal to its REIT taxable income. The Company believes that its cash provided by operating activities and its current cash balance will be sufficient to cover debt service payments and to pay the dividends required to maintain its REIT status.

During the year ended December 31, 2004, the Company generated approximately $49.2 million in net cash from operating activities, approximately $3.2 million more than 2003. The Company’s increased generation of cash from operations is primarily attributable to growth in the rate of increases in accounts payable, accrued liabilities and other liabilities (approximately $18.9 million). The increase in cash generated by operations was partly offset by a decrease in net income (approximately $0.7 million) and an increase in the growth rate of accounts receivable of $24.1 million (which was primarily attributable to an increase in free rent concessions on new leases).

The level of cash flow generated by rents depends primarily on the occupancy rates of the Company’s buildings and changes in rental rates on new and renewed leases and under escalation provisions contained in most leases. As of December 31, 2004, approximately 99% percent of the Company’s annualized gross rental revenues were derived from existing leases containing provisions for rent escalations. However, market conditions may prevent the Company from escalating rents under such provisions.

During 2004, the Company sold approximately 14.5 acres of undeveloped land at its Atlanta Gwinnett Center for approximately $3.25 million, which resulted in a gain of approximately $211,000. During 2003, the Company recognized a total gain on the sale of assets of $573,000 which consists of a gain of $585,000 related to the sale of 7.7 acres of unimproved land at Charlotte Carmel and minimal losses on the disposition of certain assets.

As of December 31, 2004, leases representing approximately 15.1 percent of the gross annualized rent from the Company’s properties, without regard to the exercise of options to renew, were due to expire during 2005. This represents approximately 317 leases for space in buildings located in 20 of the Company’s 26 office projects (which includes an interest in an unconsolidated entity). Certain of these tenants may not renew their leases or may reduce their demand for space. Leases were renewed on approximately 66 percent, 53 percent, and 64 percent of the Company’s rentable square feet, which expired during 2004, 2003 and 2002, respectively. For those leases which renewed during 2004, the average base rental rate decreased from $17.93 to $17.33, a decrease of 3.5 percent. Current market conditions in certain markets may require that rental rates at which leases are renewed or at which vacated space is leased be lower than rental rates under existing leases. Based upon the amount of leases which will expire during 2004 and the competition for tenants in the markets in which the Company operates, the Company has offered, and expects to continue to offer, incentives to certain new and renewal tenants. These incentives may include the payment of tenant improvement allowances and, in certain markets, reduced rents during initial lease periods.

The Company has historically benefited from generally positive economic conditions and stable occupancy levels in many of the metropolitan areas in which the Company owns office buildings. The Company believes that the southeastern United States, Maryland and Texas provide significant economic growth potential due to the areas’ diverse regional economies, expanding metropolitan areas, skilled work force and moderate labor costs. Due to general economic trends, however, the Company recently has experienced moderately weak demand for office space in the markets in which it owns office buildings. Cash flow from operations could be reduced if economic conditions resulted in lower occupancy, declining market rental rates, and lower rental income for the Company’s office buildings, which may in turn affect the amount of dividends paid by the Company. For the properties owned on December 31, 2004, occupancy was 82 percent.

Governmental tenants (including the State of Florida and the United States of America), which accounted for 17.4 percent of the Company’s leased space as of December 31, 2004, may be subject to budget reductions in times of recession and governmental austerity measures. Consequently, there can be no assurance that governmental appropriations for rents may not be reduced. Additionally, certain of the Company’s private-sector tenants may reduce their current demands, or curtail their future need, for additional office space.

During 2000, the Company reached an agreement with Crocker Realty Trust (“Crocker”) to provide asset management services for the 6.1 million square foot portfolio of CRT. Mr. Thomas J. Crocker, the Company’s

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President and Chief Executive Officer, was Chairman of the Board and Chief Executive Officer of Crocker, owning 2.8 percent of the outstanding Crocker shares, Mr. Robert E. Onisko (the Company’s former Chief Financial Officer) was the Treasurer and Chief Financial Officer owning 0.2 percent of the outstanding shares and Apollo Knight, L.P. was a principal shareholder owning 49 percent of the outstanding Crocker shares. The Company was paid a fee for these services based upon the value of Crocker’s assets. The terms of this agreement were approved by a committee of the Company’s Board of Directors whose members were not affiliated with Crocker, and who determined that such terms were similar to those that could be obtained from an unaffiliated third party. The agreement was terminated in May 2003. During 2004, 2003 and 2002, the Company earned fees of $0, $237,000 and $603,000, respectively, under this agreement.

Investing Activities.  At December 31, 2004, substantially all of the Company’s invested assets were in office buildings and land. Improvements to the Company’s existing properties have been financed principally through recent stock offerings and internal operations. During the years ended December 31, 2004 and December 31, 2003, the Company’s primary use of cash for investing activities was the acquisition of additional office buildings. Of the $349.9 million and $66.8 million utilized in investing activities during the twelve months ended December 31, 2004 and December 31, 2003, respectively, $302.5 million and $52.9 million was for property acquisitions.

On January 12, 2004, the Company acquired a 30% interest in a joint venture that owns the Broward Financial Center, resulting in a total investment of $5.3 million (including closing costs and fees) which includes a DownREIT minority contribution of $2.1 million.

On January 27, 2004, the Company acquired Atlantic Center Plaza, a twenty-three story 502,000 square foot building located in Atlanta, Georgia, for a purchase price of $116.5 million plus closing and other costs. The Company initially allocated approximately $10.0 million and $108.1 million of the net purchase price to value of the acquired land and building, respectively.

On April 2, 2004, the Company acquired four properties, including two Class A four-story office buildings, a ground lease and an undeveloped parcel of land located in the Decoverly Office Park in Rockville, Maryland for a purchase price of $42.0 million plus closing and other costs. The two office buildings aggregate approximately 155,000 square feet of rentable space and the undeveloped land parcel contains 3.2 acres with an approved site plan for a four-story 105,000 square foot office building. The Company initially allocated approximately $19.7 million and $22.8 million of the net purchase price to value of the acquired land and buildings, respectively.

On July 23, 2004 the Company acquired Baymeadows Way, a five-story, 224,000 square foot, single-tenant, Class A office building located Jacksonville, Florida, for a purchase price of $20.8 million, plus closing and other costs. As part of this transaction, the Company issued 33,202 DownREIT limited partnership units in exchange for a $760,985 contribution from a related minority partner (Thomas J. Crocker, the Company’s Chief Executive Officer) in a joint venture with the Company (see Note 9). The Company received an additional minority interest contribution of $154,107 from an unrelated third party. The Company initially allocated approximately $2.4 million and $18.6 million of the net purchase price to value of the acquired land and building, respectively.

On August 16, 2004, the Company acquired the Westchase Corporate Center located in Houston, Texas; a six-story, 184,000 square foot, Class A office building for a purchase price of $20.3 million, plus closing and other costs. As part of this transaction, the Company issued 28,584 DownREIT limited partnership units in exchange for a $639,015 contribution from a related minority partner (Thomas J. Crocker, the Company’s Chief Executive Officer) in a joint venture with the Company (see Note 9). The Company received an additional minority interest contribution of $545,893 from an unrelated third party. The Company initially allocated approximately $1.4 million and $19.4 million of the net purchase price to value of the acquired land and building, respectively.

On October 4, 2004, the Company sold approximately 14.5 acres of undeveloped land located across the street from its Atlanta Gwinnet Center for approximately $3.25 million. This transaction resulted in a gain of approximately $211,000.

On November 24, 2004, the Company acquired the partnership interests in two Class A office buildings known as the Las Olas Centre, which comprises approximately 469,000 rentable square feet located in the central business district of Fort Lauderdale, Florida, for a purchase price of $138.0 million plus closing costs. The Company initially allocated approximately $7.4 million and $130.8 million of the net purchase price to value of the acquired land and buildings, respectively.

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On December 30, 2004, the Company acquired a 437,000 rentable square foot Class A office building known as Signature Place, for a purchase price of approximately $38.5 million (plus closing and other costs). The building, located in Dallas, Texas, is comprised of two interconnected towers consisting of Tower 1 with 8 floors, and Tower 2 with 11 floors, and is situated on approximately 10.1 acres with a four-story parking garage. In connection with this acquisition, the Company entered into a joint venture with Wilcox Capital Group, whereby the Company owns 66.7% of the venture. The Company initially allocated approximately $5.8 million and $32.8 million of the net purchase price to value of the acquired land and building, respectively.

On September 11, 2003, the Company acquired Tollway Crossing, formerly known as the Rosemeade Building, and Campus Circle in Dallas, Texas for approximately $33.1 million. These properties consist of two office buildings with a total of approximately 280,000 square feet of rentable space. The Company initially allocated approximately $6.0 million and $27.1 million of the net purchase price to value of the acquired land and buildings, respectively.

On December 30, 2003, the Company, through a joint venture with Triangle W/Development, acquired two mid-rise office buildings encompassing 202,279 square feet plus 8.5 acres of undeveloped land suitable for development located in the McGinnis Park office complex in Atlanta, Georgia. The Company contributed approximately $13.9 million to pay off an existing mortgage plus an additional amount for closing costs and working capital, funded from its secured line of credit. The joint venture assumed an existing mortgage on the undeveloped land of approximately $978,000. The Company initially allocated approximately $5.6 million and $14.1 million of the net purchase price to value of the acquired land and buildings, respectively.

The Company’s expenditures for first generation tenant and building improvements was $24,149,000 and $10,625,000 during 2004 and 2003, respectively. These expenditures were primarily due to re-designing office space for new tenants.

Financing Activities.  The Company’s primary external sources of cash are bank borrowings, mortgage financings, and public and private offerings of equity securities. The proceeds of these financings are used by the Company to acquire buildings and land and to refinance debt. The Company generated $324.2 million and $25.3 million of cash from financing activities in the twelve months ended December 31, 2004 and December 31, 2003, respectively. For the twelve months ended December 31, 2004, the Company’s largest sources of cash from financing activities were proceeds from the registered sale of common stock ($213.0 million) and proceeds from mortgages and loans ($267.4 million). In the same time period, the Company’s largest uses of cash for financing activities were principal payments on mortgages and loans payable ($128.5 million) and dividends paid ($42.1 million). For the twelve months ended December 31, 2003, the Company’s largest sources of cash from financing activities were proceeds from the registered sale of preferred stock ($72.1 million) and proceeds from mortgages and loans ($52.0 million). In the same time period, the Company’s largest uses of cash for financing activities were principal payments on mortgages and loans payable ($75.0 million) and dividends paid ($31.5 million).

Loan maturities and normal amortization of mortgages and loans payable during 2005 are expected to total approximately $83.1 million. In order to generate funds sufficient to make principal payments in respect of indebtedness of the Company over the long term, as well as necessary capital and tenant related expenditures, the Company will be required to successfully refinance its indebtedness or procure additional equity capital. However, there can be no assurance that any such refinancing or equity financing will be achieved or will generate adequate funds on a timely basis for these purposes. If additional funds are raised by issuing equity securities, further dilution to existing shareholders may result. Unfavorable conditions in the financial markets, the degree of leverage of the Company and various other factors may limit the ability of the Company to successfully undertake any such financings, and no assurance can be given as to the availability of alternative sources of funds. In June 2004, the Company filed a shelf registration statement with respect to the issuance of up to $500 million of its common stock, preferred stock, and/or debt securities or any combination thereof. As of December 31, 2004, the Company has issued $114.9 million of its common stock under this registration statement. The Company may occasionally issue new common or preferred shares or debt securities under an existing or new shelf registration.

In addition, in the event the Company is unable to generate sufficient funds both to meet principal payments in respect of its indebtedness and to satisfy distribution requirements of at least 90 percent of annual REIT taxable income to its shareholders, the Company may be unable to qualify as a REIT. In such an event, (i) the Company will incur federal income taxes and perhaps penalties, (ii) if the Company is then paying dividends, it may be

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required to decrease any dividend payments to its shareholders, and (iii) the market price of the Company’s common stock may decrease. The Company would also be prohibited from requalifying as a REIT for five years.

Debt and Equity Financings

On February 9, 2005, the Company refinanced its $77.0 million loan held by Column Financial, Inc. with a $78.0 million loan from ING USA Annuity and Life Insurance Company. The new loan has an initial maturity date of March 1, 2010, with two one-year extension options. The loan bears monthly interest at variable rate of LIBOR plus 1.25% (the LIBOR monthly contract rate in effect for this loan was 2.59% as of February 9, 2005) and is interest only for the first twelve months. Beginning March 1, 2006, monthly principal payments based on a 25 year amortization schedule will be due along with interest payments. This indebtedness will be collateralized by property with a carrying value of approximately $110.7 million at December 31, 2004. This new loan will require a $6.0 million Letter of Credit in lieu of lender escrows for leasing costs.

During the year 2004, the Company replaced its previous $100 million secured revolving credit facility led by Fleet Bank, which had an outstanding balance of $15.0 million as of December 31, 2003 and was scheduled to mature in December 2004, with a $165 million secured revolving credit facility led by Wells Fargo Bank, which had no outstanding balance as of December 31, 2004 and a maturity date of August 23, 2007. The Company’s secured revolving credit facility provides for monthly interest payments and requires the Company to maintain certain minimum financial ratios and abide by various other covenants.

In December 2004, the Company issued 4,749,300 shares of its common stock (including 399,300 shares issued in connection with the exercise of an over-allotment option granted to Morgan Stanley and Company, Inc., the Company’s principal underwriter) at a price to the public of $24.20 per share. The net proceeds of approximately $112,938,000 were used to pay down the Company’s secured revolving credit facility ($90.0 million) and fund a portion of the purchase price of Signature Place ($7.3 million), with the remainder intended for general corporate purposes, acquisitions and development.

On April 21, 2004, the Company amended and extended the loan agreement governing its $75.9 million loan with MetLife assumed in connection with the acquisition of Atlantic Center Plaza. As part of the amendment, the existing variable interest rate (LIBOR plus 160 basis points) remained in place through December 31, 2004 and the Company borrowed an additional $4.1 million prior to December 31, 2004. Effective January 1, 2005, the rate will be fixed at 5.49% until maturity, which is December 31, 2014.

In January 2004, the Company issued 5,175,000 shares of its common stock (including 675,000 shares issued in connection with the exercise of an over-allotment option granted to Morgan Stanley and Company, Inc., the Company’s principal underwriter) at a price to the public of $20.45 per share. The net proceeds of approximately $100,535,000 were used to pay down the Company’s revolving credit facility ($15 million) and fund a portion of the acquisition of Atlantic Center Plaza ($40.5 million), with the remainder intended for general corporate purposes, including subsequent acquisitions.

On September 10, 2003, the Company issued 2,990,000 shares of 8-1/2% Series A Cumulative Redeemable Preferred Stock, including 390,000 shares issued in connection with the exercise of an over-allotment option granted to the Company’s underwriter. The offering resulted in approximately $72.1 million in net proceeds, of which $33.1 million was used to fund the acquisition of the Tollway Crossing and Campus Circle in Dallas, Texas. In addition, $34 million was used to pay down the Company’s secured revolving credit facility. The remaining proceeds were used for general corporate purposes.

Prior to 1999, the Company’s Board of Directors approved the repurchase of up to one million shares of the Company’s common stock. The Company repurchased 54,000 common shares for approximately $852,000 during 1999. During 2000, the Board approved the repurchase of up to 2.65 million common shares and the Company repurchased 1,209,980 common shares for approximately $20.4 million for a remaining balance of approximately 1.44 million common shares approved. The Company did not repurchase any common shares during 2001, 2003 or 2004. During 2002, the Company repurchased 32,800 common shares for approximately $503,000.

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Contractual Obligations
(In thousands)

	Total		Less than One Year			1–3 Years		3–5 Years		More than Five Years
Long-Term Debt Obligations (a)	$	623,467	$	83,067	(c)	$	121,822	$	210,753	$	207,825
Purchase Obligations (b)		14,302		14,302			—		—		—

 

(a) Increases in interest rates on variable rate debt could increase the Company’s interest expense and adversely affect cash flow and the ability to pay dividends to shareholders. The Company may be required to purchase interest rate protection products in connection with future variable rate debt, which may further increase borrowing costs. The Company’s use of leverage can adversely impact its operations, cash flow, and ability to make distributions and its financial condition will be negatively impacted if it cannot repay or refinance its indebtedness as it becomes due. The Company is subject to risks normally associated with debt financing, including: the risk that its cash flow will be insufficient to meet required payments of principal and interest; the risk that the existing debt with respect to its properties, which in most cases will not have been fully amortized at maturity, will not be able to be refinanced; and the risk that the terms of any refinancing of any existing debt will not be as favorable as the terms of the existing debt.

(b) These amounts represent tenant improvement allowance obligations for leases in place as of December 31, 2004 ($13,655,000), as well as a contractual commitment related to the renovation of The Lakes on Post Oak in Houston, Texas ($647,000). In connection with the loan of the Lakes on Post Oak, the Company obtained a $1,705,000 letter of credit in lieu of additional cash escrows for tenant improvements and leasing commissions.

(c) $77 million of this variable interest rate debt was refinanced on February 9, 2005, and has a new maturity date of March 1, 2010.

As of December 31, 2004 and December 31 2003, the Company’s mortgage notes payable were comprised of the following (in thousands):

Mortgage	As of December 31, 2004		As of December 31, 2003		Current Interest Rate			Maturity Date
Variable rate mortgages (a)	$	185,800	$	93,468		3.88% to 5.27	%		12/09/05 to 01/01/15
Fixed rate mortgages		437,667		315,248		5.26% to 8.33	%		12/01/06 to 12/11/14
Total mortgage notes payable	$	623,467	$	408,716

 

(a) Effective January 1, 2005, $80,000,000 of the variable rate mortgages was to be converted to a 5.49% fixed rate mortgage which has a maturity of January 1, 2015.

The weighted average interest rate on the Company’s mortgages was 6.07% and 6.58% as of December 31, 2004 and December 31, 2003, respectively.

Off-Balance Sheet Arrangements

On January 12, 2004, the Company, through a newly formed subsidiary DownREIT limited partnership called CRT BFC, Ltd. (formerly known as Koger BFC, Ltd.), acquired all of the partnership interests in Broward Financial Center (“BFC”) in downtown Fort Lauderdale, Florida, in a joint venture with an affiliate of Investcorp Properties Limited of New York (“Investcorp”), for approximately $60.1 million. BFC is a twenty-four story office building containing approximately 326,000 rentable square feet. CRT has a 30% interest in the joint venture. Approximately 14% of the existing partnership interests in BFC were owned by entities in which the Company’s Chief Executive Officer, Thomas J. Crocker had a 50% ownership interest (“Crocker Affiliate”). The decision to acquire BFC and the terms thereof were approved by the members of the Company’s board of directors and finance committee without the participation of Mr. Crocker. Investcorp, as the joint venture partner acquiring 70% of the economic interests, played a substantial role in negotiating the purchase. The Company acquired the partnership interests held by Crocker Affiliate by issuing 97,948 limited partnership units (“Units”) in exchange for the contribution of its

34

partnership interests. The Units will be entitled to receive quarterly distributions equivalent to the quarterly dividend declared on the Company’s common stock. Commencing on the first anniversary of the transaction, Crocker Affiliate can cause the Units to be redeemed in exchange for cash (at a price per Unit equal to the lesser of the per share price for a share of the Company’s common stock at the time of redemption and the average per share closing price of the Company’s common stock for the thirty trading days preceding the redemption) or, at the Company’s option, shares of the Company’s common stock (one share of the Company’s common stock per Unit). The Company’s total investment in this joint venture is $5.3 million including DownREIT minority contributions ($2.1 million) and closing costs. The Company accounts for this investment using the equity method of accounting as it does not have a controlling interest over the operating and financial policies of the joint venture, nor is it the primary beneficiary under Financial Accounting Standards Board Interpretation No. 46(R), “Consolidation of Variable Interest Entities.” As a result, the assets and liabilities of this joint venture are not included in the Company’s balance sheet. This investment was recorded initially at cost and subsequently adjusted for equity in earnings and cash contributions and distributions.

Funds from Operations

Funds from Operations (“FFO”) is a non-GAAP financial measure that is a widely used performance measure for real estate companies and is provided as a supplemental measure of operating performance. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. The National Association of Real Estate Investment Trusts (“NAREIT”) adopted the definition of FFO in order to promote an industry standard measure of REIT financial and operating performance. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. NAREIT defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles (GAAP), excluding gains (losses) from sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.

Given the nature of the Company’s business as a real estate owner and operator, the Company believes that FFO is helpful to investors as a starting point in measuring its operational performance because in excluding real estate related depreciation and amortization, and gains and losses from sales of property, it provides a supplemental performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. In addition, since most equity REITs provide FFO information to investors, FFO can also be a useful supplemental measure for comparing the Company’s results to other equity REITs.

FFO excludes depreciation and amortization, however, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact the Company’s results from operations, therefore the utility of FFO as a measure of performance is limited. Moreover, while the Company believes its computation of FFO conforms to the NAREIT definition, it may not be comparable to FFO reported by REITs that interpret the definition differently or that do not define FFO in accordance with the NAREIT definition at all. Accordingly, FFO (i) should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company’s financial performance, (ii) is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, and (iii) is not indicative of funds available to fund the Company’s cash needs, including its ability to pay dividends or make distributions, because of needed capital replacement or expansion, debt service obligations, or other cash commitments and uncertainties.

35

FFO available to common shareholders is calculated as follows (in thousands):

	2004			2003			2002		2001			2000
Net income	$	15,902		$	16,691		$	16,423	$	73,223		$	27,153
Dividends on preferred stock		(6,352	)		(1,995	)		—		—			—
Depreciation — real estate		36,610			29,546			25,889		32,261			31,720
Depreciation — unconsolidated entity		447			—			—		—			—
Amortization — deferred tenant costs		2,576			1,700			1,523		2,172			1,923
Amortization — goodwill		—			—			—		170			170
Minority interest (net of add-backs)		62			—			20		1,044			1,156
Amortization — fair value of acquired leases		1,666			537			—		—			—
Gain on sale or disposition of operating properties		—			—			—		(39,189	)		(5,963	)
FFO available to common shareholders	$	50,911		$	46,479		$	43,855	$	69,681		$	56,159

 

NAREIT’s definition of FFO discussed in its White Paper defining Funds From Operations provides for an inclusion of all gains on the sale or disposition of non-operating properties (i.e., vacant land). In order to conform to the NAREIT definition, the Company has restated its FFO available to common shareholders to include all gains on the sale or disposition of non-operating properties for the years 2003, 2002, and 2000, resulting in an increase in FFO of $573,000, $21,000, and $52,000, respectively.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company currently has a $165 million secured revolving credit facility and term loans with variable interest rates. The Company may incur additional variable rate debt in the future to meet its financing needs. Increases in interest rates on such debt could increase the Company’s interest expense, which would adversely affect the Company’s cash flow and its ability to pay dividends to its shareholders. The Company has not entered into any interest rate hedge contracts in order to mitigate the interest rate risk with respect to the secured revolving credit facility. As of December 31, 2004, the Company had $185.8 million outstanding under loans with variable interest rates. If the weighted average interest rate on this variable rate debt were 100 basis points higher or lower, annual interest expense would be increased or decreased by approximately $1,858,000. Additionally, the Company had $437.7 million outstanding under loans with fixed interest rates as of December 31, 2004. The Company may incur additional fixed rate debt in the future to meet its financing needs. If the market interest rate on this fixed rate debt were 100 basis points lower, the fair value of the Company’s fixed rate debt would increase to $460.1 million.

36

Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

	Page No.
Report of Independent Registered Public Accounting Firm	38
Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2004 and 2003	39
Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 2004	40
Consolidated Statements of Changes in Shareholders’ Equity for Each of the Three Years in the Period Ended December 31, 2004	41
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2004	42
Notes to Consolidated Financial Statements for Each of the Three Years in the Period Ended December 31, 2004	43
Financial Statement Schedules: Schedule II — Valuation and Qualifying Accounts for the Three Years Ended December 31, 2004	65
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2004	66–67

 

37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
CRT Properties, Inc.
Boca Raton, Florida:

We have audited the accompanying consolidated balance sheets of CRT Properties, Inc. and subsidiaries (the “Company”), formerly Koger Equity, Inc. and subsidiaries, as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedules listed in the Index at Item 8. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of CRT Properties, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

DELOITTE & TOUCHE LLP
CERTIFIED PUBLIC ACCOUNTANTS
West Palm Beach, Florida
March 15, 2005

38

CRT PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
(In Thousands Except Share Data)

	2004			2003
ASSETS
Real estate investments:
Operating properties:
Land	$	162,988		$	119,973
Buildings		1,189,658			838,430
Furniture and equipment		3,747			3,599
Accumulated depreciation		(215,587	)		(179,569	)
Operating properties — net		1,140,806			782,433
Undeveloped land held for investment		14,628			10,975
Undeveloped land held for sale		—			3,041
Cash and cash equivalents		32,717			9,163
Restricted cash		15,964			11,114
Accounts receivable, net of allowance for uncollectible accounts of $1,169 and $939		22,957			16,236
Investment in unconsolidated entity		3,217			—
Other assets		53,977			15,239
TOTAL ASSETS	$	1,284,266		$	848,201
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Mortgages and loans payable	$	623,467		$	408,716
Accounts payable		8,584			4,299
Accrued real estate taxes payable		2,414			1,853
Accrued liabilities — other		24,259			11,016
Dividends payable		11,365			7,824
Advance rents and security deposits		9,039			6,846
Total Liabilities		679,128			440,554
Minority interest		11,179			4,672
Commitments and contingencies (Notes 3 and 10)		—			—
Shareholders’ equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; liquidation preference of $25 per share; 2,990,000 shares issued and outstanding		30			30
Common stock, $.01 par value; 100,000,000 shares authorized; issued: 40,115,540 and 30,011,225 shares; outstanding: 31,614,502 and 21,495,956 shares		401			300
Capital in excess of par value		762,642			546,968
Notes receivable from stock sales to related parties		—			(5,092	)
Accumulated other comprehensive loss		(536	)		(241	)
Dividends in excess of net income		(37,110	)		(7,405	)
Treasury stock, at cost; 8,501,038 and 8,515,269 shares		(131,468	)		(131,585	)
Total Shareholders’ Equity		593,959			402,975
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,284,266		$	848,201

 

See Notes to Consolidated Financial Statements.

39

CRT PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004
(In Thousands Except Per Share Data)

	2004			2003			2002
Revenues
Rental and other rental services	$	166,868		$	146,076		$	126,404
Management fees		359			331			3,347
Total operating revenues		167,227			146,407			129,751
Expenses
Property operations		65,140			57,381			46,235
Depreciation and amortization		41,628			32,687			27,908
General and administrative		13,052			11,138			11,381
Direct cost of management fees		—			88			3,335
Other		169			147			143
Total operating expenses		119,989			101,441			89,002
Operating Income		47,238			44,966			40,749
Other Income (Expense)
Interest income		407			307			405
Mortgage and loan interest		(32,242	)		(29,249	)		(25,145	)
Total other income (expense)		(31,835	)		(28,942	)		(24,740	)
Income Before Gain on Sale or Disposition of Assets, Income Taxes and Minority Interest and Equity in Earnings of Unconsolidated Subsidiary		15,403			16,024			16,009
Gain on sale or disposition of assets		211			573			21
Income Before Income Taxes and Minority Interest and Equity in Earnings of Unconsolidated Subsidiary		15,614			16,597			16,030
Income tax benefit		—			94			413
Income Before Minority Interest and Equity in Earnings of Unconsolidated Subsidiary		15,614			16,691			16,443
Minority interest		(124	)		—			(20	)
Equity in earnings of unconsolidated subsidiary		412			—			—
Net Income		15,902			16,691			16,423
Dividends on preferred stock		(6,352	)		(1,995	)		—
Net Income Available to Common Shareholders	$	9,550		$	14,696		$	16,423
Earnings Per Share Available to Common Shareholders:
Basic	$	0.36		$	0.69		$	0.77
Diluted	$	0.35		$	0.69		$	0.77
Weighted Average Shares:
Basic		26,792			21,337			21,269
Diluted		27,137			21,448			21,378

 

See Notes to Consolidated Financial Statements.

40

CRT PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2004
(In Thousands)

	Preferred Stock			Common Stock		Capital in Excess	Notes Receivable	Accum. Other	Retained Earnings (Dividends in Excess		Total
	Shares Issued		Par Value	Shares Issued	Par Value	of Par Value	from Stock Sales	Comp. Loss	of Net Income)	Treasury Stock	Shareholders’ Equity
BALANCE, DECEMBER 31, 2001		—	$ —	29,663	$297	$469,779	$(5,066)	$ —	$ 21,180	$(131,648)	$354,542
Common stock sold						145				430	575
Stock loans to related parties							(200)				(200)
Treasury stock purchased										(503)	(503)
Options exercised				163	1	2,232					2,233
Unrecognized loss on defined benefit plan								(212)			(212)
Dividends declared									(29,790)		(29,790)
Net income									16,423		16,423
BALANCE, DECEMBER 31, 2002				29,826	298	472,156	(5,266)	(212)	7,813	(131,721)	343,068
Preferred stock issued		2,990	30			72,079					72,109
Common stock sold						147				136	283
Unrecognized loss on defined benefit plan								(29)			(29)
Options exercised				185	2	2,586					2,588
Stock loan repayments							174				174
Dividends declared									(31,909)		(31,909)
Net income									16,691		16,691
BALANCE, DECEMBER 31, 2003		2,990	30	30,011	300	546,968	(5,092)	(241)	(7,405)	(131,585)	402,975
Common stock sold				9,924	99	212,753				117	212,969
Unrecognized loss on defined benefit plan								(295)			(295)
Options exercised				180	2	2,921					2,923
Stock loan repayments							5,092				5,092
Dividends declared									(45,607)		(45,607)
Net income									15,902		15,902
BALANCE, DECEMBER 31, 2004		2,990	$30	40,115	$401	$762,642	$—	$(536)	$(37,110)	$(131,468)	$593,959

 

See Notes to Consolidated Financial Statements.

41

CRT PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004
(In Thousands)

	2004			2003			2002
Operating Activities
Net income	$	15,902		$	16,691		$	16,423
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of unconsolidated entity		(412	)		—			—
Depreciation and amortization		41,628			32,687			27,908
Amortization of deferred loan costs		1,669			1,465			1,894
Provision for uncollectible accounts		447			476			445
Minority interest		124			—			20
Gain on sale or disposition of assets		(211	)		(573	)		(21	)
Changes in assets and liabilities:
Increase in accounts receivable and other assets		(29,908	)		(5,831	)		(2,338	)
Increase in accounts payable, accrued liabilities and other liabilities		19,985			1,119			2,376
Net cash provided by operating activities		49,224			46,034			46,707
Investing Activities
Proceeds from sales of non-operating assets		3,250			1,580			81
Decrease (increase) in restricted cash		(4,850	)		2,226			(13,340	)
Purchase of limited partner interests		—			—			(16,465	)
Investment in unconsolidated entity		(3,466	)		—			—
Dividends from unconsolidated entity		661			—			—
Property acquisitions		(302,536	)		(52,896	)		(228,299	)
Tenant improvements to first generation space		(10,912	)		(5,180	)		(1,479	)
Tenant improvements to second generation space		(7,035	)		(4,660	)		(5,207	)
Building improvements		(13,237	)		(5,445	)		(4,907	)
Deferred tenant costs		(11,577	)		(2,150	)		(1,951	)
Additions to furniture and equipment		(148	)		(279	)		(272	)
Net cash used in investing activities		(349,850	)		(66,804	)		(271,839	)
Financing Activities
Proceeds from mortgages and loans		267,396			51,978			250,000
Proceeds from issuance of preferred stock		—			72,109			—
Proceeds from sales of common stock		212,969			283			575
Proceeds from exercise of stock options		2,923			2,588			2,233
Decrease (increase) in notes receivable from related parties		5,092			174			(200	)
Principal payments on mortgages and loans		(128,519	)		(74,960	)		(66,985	)
Dividends paid		(42,064	)		(31,538	)		(66,495	)
Distributions paid to minority interest holders		(144	)		—			(398	)
Treasury stock purchased		—			—			(503	)
Contributions from minority interest		6,527			4,672			—
Financing costs		—			—			(1,838	)
Net cash provided by financing activities		324,180			25,306			116,389
Net increase (decrease) in cash and cash equivalents		23,554			4,536			(108,743	)
Cash and cash equivalents — beginning of year		9,163			4,627			113,370
Cash and cash equivalents — end of year	$	32,717		$	9,163		$	4,627

 

See Notes to Consolidated Financial Statements.

42

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004

1.  SUMMARY OF ACCOUNTING POLICIES AND ESTIMATES

Organization.  The Company is a self-administered and self-managed real estate investment trust (“REIT”). At December 31, 2004, the Company owned 136 office buildings in 26 office projects totaling 11.4 million net rentable square feet, located in twelve metropolitan areas in the southeastern United States, Maryland, and Texas. Thirteen of the Company’s 26 office projects are owned directly by CRT; 12 of the remaining 13 office projects are owned by various affiliated entities, all of which are fully consolidated. The sole unconsolidated office project, Broward Financial Centre, is owned 30% by CRT. The Company manages 22 of the 26 office projects (including Broward Financial Centre); two office projects are managed by third parties. The remaining two office projects are managed by the Company’s respective joint venture partners.

Principles of Consolidation.  The consolidated financial statements include the accounts of CRT, its wholly-owned subsidiaries (the “Company”), and majority-owned joint ventures. All material intercompany transactions and accounts have been eliminated in consolidation. The Company accounts for an investment in an unconsolidated entity using the equity method of accounting, as it does not have a controlling interest over the operating and financial policies of the joint venture. As a result, the assets and liabilities of the joint venture are not included in the Company’s balance sheet. FASB Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities,” requires existing unconsolidated Variable Interest Entities (“VIE”) to be consolidated by their primary beneficiaries. The primary beneficiary of a VIE is the party that absorbs a majority of the entity’s expected losses or receives a majority of its expected residual returns, or both. The Company accounts for its investment in an unconsolidated entity using the equity method of accounting rather than consolidation under FIN 46(R) since the Company has determined that it is not the primary beneficiary of the entity. This investment was initially recorded at cost and subsequently adjusted for equity in earnings and cash contributions and distributions.

43

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

1.  SUMMARY OF ACCOUNTING POLICIES AND ESTIMATES (Continued)

Earnings Per Common Share.  Basic earnings per common share has been computed based on the weighted average number of shares of common stock outstanding for each period. Diluted earnings per common share is similar to basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had been issued. The treasury stock method is used to calculate dilutive shares. This method reduces the gross number of dilutive shares by the number of shares purchasable from the proceeds of the options assumed to be exercised. Following is a reconciliation of the number of shares (in thousands) used in the computation of basic and diluted earnings per share.

EARNINGS PER SHARE COMPUTATIONS
(In Thousands Except Per Share Data)

	2004		2003		2002
EARNINGS PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE:
Net income available to common shareholders	$	9,550	$	14,696	$	16,423
Shares:
Weighted average number of common shares outstanding — Basic		26,792		21,337		21,269
EARNINGS PER SHARE — BASIC	$	0.36	$	0.69	$	0.77
Shares:
Weighted average number of common shares outstanding — Basic		26,792		21,337		21,269
Effect of dilutive securities (a):
Stock options		345		111		109
Adjusted common shares — Diluted		27,137		21,448		21,378
EARNINGS PER SHARE — DILUTED	$	0.35	$	0.69	$	0.77

 

(a) Shares issuable were derived using the “Treasury Stock Method” for all dilutive potential shares. As of December 31, 2004, the Company excluded approximately 125,000 antidilutive stock options from the above calculation.

Statements of Cash Flows.  For 2004, 2003 and 2002, total interest payments were $29,767,000, $27,540,000 and $22,949,000, respectively. No interest was capitalized during 2004, 2003 and 2002. For 2004, 2003 and 2002, payments for income taxes totaled $0, $0 and $23,000, respectively. For 2004, non cash items for the issuance of limited partner units and assumption of debt from real estate acquisitions were $2,041,000 and $75,874,000, respectively.

Significant Accounting Policies and Estimates.  The Company believes the following significant accounting policies affect the significant estimates and assumptions used in the preparation of its consolidated financial statements:

Investments in Real Estate.  Rental property and improvements, including interest and other costs capitalized during construction, are included in real estate investments and are stated at cost. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements, which improve or extend the useful life of the assets, are capitalized. Except for amounts attributed to land, rental property and improvements are depreciated as described below.

The Company recognizes gains on the sale of property in accordance with SFAS No. 66. Revenues from sales of property are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

44

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

1.  SUMMARY OF ACCOUNTING POLICIES AND ESTIMATES (Continued)

Acquisitions of Real Estate.  The Company assesses the fair value of acquired tangible and intangible assets, including land, buildings, tenant improvements, above and below market leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and allocates the purchase price to the acquired assets and assumed liabilities, including land at appraised value and buildings based on estimated fair value. The Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, as well as available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends, and market and economic conditions. Results of operations of acquired entities are included in consolidated earnings from the date of acquisition. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenant’s credit quality and expectations of lease renewals.

Depreciation and Amortization.  The Company computes depreciation on its operating properties using the straight-line method based on estimated useful lives of 3 to 39 years. A significant portion of the acquisition cost of each operating property is allocated to the acquired buildings (usually 85% to 90%). The allocation of the acquisition cost to buildings and the determination of the useful lives are based on the Company’s estimates. If the Company were to allocate acquisition costs inappropriately to buildings or to incorrectly estimate the useful lives of its operating properties, it may be required to adjust future depreciation expense. Deferred tenant costs (leasing commissions and tenant relocation costs) are amortized over the term of the related leases.

Impairment of Long-Lived Assets.  The Company’s long-lived assets include investments in real estate. The Company assesses impairment of long-lived assets whenever changes or events indicate that the carrying value may not be recoverable. The Company assesses impairment of operating properties based on the operating cash flows of the properties. In performing its assessment, the Company must make assumptions on a quarterly basis regarding estimated future cash flows and other factors to determine the fair value of the respective assets. During the years 2004, 2003 and 2002, no impairment charges were recorded. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges.

Cost of Real Estate Acquired.  The Company accounts for its acquisitions of real estate in accordance with SFAS No. 141, “Business Combinations,” which requires the fair value of the real estate acquired to be allocated to the acquired tangible assets, consisting of land, building, building improvements and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above and below market leases, customer relationships, lease costs and the value of in-place leases.

The allocation to intangible assets is based upon various factors including the above or below market component of in-place leases, the value of in-place leases, leasing commissions, legal fees and the value of customer relationships. The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using an interest rate which reflects the risks associated with the lease) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using current fair market rates over the remaining term of the lease. The amounts allocated to above or below market leases are included in other assets in the balance sheet and are amortized to rental income over the average remaining term of the respective leases. The remaining purchase price is allocated among various categories of tangible assets (building and land) and is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Differing assumptions and methods could result in different estimates of fair value and thus, a different purchase price allocation and corresponding increase or decrease in depreciation and amortization expense.

45

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

1.  SUMMARY OF ACCOUNTING POLICIES AND ESTIMATES (Continued)

Revenue Recognition.  Rental income is generally recognized over the lives of leases according to provisions of the underlying lease agreements. Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments increase during the term of the lease. For these leases, the Company records rental income for the full term of each lease on a straight-line basis. For 2004, 2003 and 2002, the recognition of rental revenues on a straight-line basis for applicable leases increased rental revenues by $8,281,000, $4,109,000 and $2,128,000, respectively, over the amount which would have been recognized based upon the contractual provisions of these leases.

The Company has historically generated management fees and leasing commissions by providing on-site property management and leasing services to a limited number of third party owners. Management fees are generally earned monthly and are based on a percentage of the managed properties’ monthly rental and other operating revenues. Leasing commissions are earned when the Company, on behalf of the third party owner, negotiates or assists in the negotiation of new leases, renewals and expansions of existing leases, and are generally based on a percentage of rents to be received under the initial term of the respective leases.

Allowances for Doubtful Accounts.  The Company maintains allowances for doubtful accounts for estimated losses due to the inability of its tenants to make required payments for rents and other rental services. In assessing the recoverability of these receivables, the Company makes assumptions regarding the financial condition of the tenants based primarily on past payment trends and certain financial information that tenants submit to the Company. If the financial condition of the Company’s tenants were to deteriorate and result in an impairment of their ability to make payments, the Company may be required to increase its allowances by recording additional bad debt expense. Likewise, should the financial condition of its tenants improve and result in payments or settlements of previously reserved amounts, the Company may be required to record a reduction in bad debt expense.

Federal Income Taxes.  The Company is qualified and has elected tax treatment as a real estate investment trust under the Internal Revenue Code (a “REIT”). A corporate REIT is a legal entity that owns income-producing real property, and through distributions of income to its shareholders, is permitted to reduce or avoid the payment of federal income taxes at the corporate level. To maintain qualification as a REIT, the Company must, among other requirements, distribute to shareholders at least 90 percent of REIT taxable income. To the extent that the Company pays dividends equal to 100 percent of REIT taxable income, the earnings of the Company are taxed at the shareholder level. However, the use of net operating loss carryforwards, which may reduce REIT taxable income to zero, are limited for alternative minimum tax purposes. Distributed capital gains on sales of real estate are not subject to tax at the REIT level; however, undistributed capital gains are taxed at the REIT level. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes and will not be able to qualify as a REIT for five years. Although CRT Realty Services, Inc. (“CRTRSI”), a taxable REIT subsidiary, is consolidated with the Company for financial reporting purposes, this entity is subject to federal income tax and files separate federal and state income tax returns.

46

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

1.  SUMMARY OF ACCOUNTING POLICIES AND ESTIMATES (Continued)

Stock Options.  SFAS No. 123, “Accounting for Stock-Based Compensation” requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply Accounting Principles Board Opinion No. 25 (“APB 25”), which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the binomial option-pricing model. No options were granted in 2004, 2003, and 2002, respectively. In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This statement replaces SFAS 123 and establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company will be subject to the provisions of this statement effective September 30, 2005. The Company has continued to apply APB 25 to its stock based compensation awards to employees and has disclosed the required pro forma effect on net income and earnings per share as follows:

	2004		2003			2002
Net income available to common shareholders — As reported	$	9,550,000	$	14,696,000		$	16,423,000
Stock-based employee compensation expense determined under fair value method for all forfeitures (awards)		90,000		(2,446,000	)		(1,284,000	)
Pro forma net income available to common shareholders	$	9,640,000	$	12,250,000		$	15,139,000
EARNINGS PER SHARE:
Basic — as reported	$	0.36	$	0.69		$	0.77
Basic — pro forma	$	0.36	$	0.57		$	0.71
Diluted — as reported	$	0.35	$	0.69		$	0.77
Diluted — pro forma	$	0.36	$	0.57		$	0.72

 

Investment in Unconsolidated Entity.  The Company accounts for an investment in an unconsolidated entity using the equity method of accounting, as it does not have a controlling interest over the operating and financial policies of the joint venture. As a result, the assets and liabilities of the joint venture are not included in the Company’s balance sheet. FASB Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities,” requires existing unconsolidated Variable Interest Entities (“VIE”) to be consolidated by their primary beneficiaries. The primary beneficiary of a VIE is the party that absorbs a majority of the entity’s expected losses or receives a majority of its expected residual returns, or both. The Company accounts for its investment in an unconsolidated entity using the equity method of accounting rather than consolidation under FIN 46(R) since the Company has determined that it is not the primary beneficiary of the entity. This investment was initially recorded at cost and subsequently adjusted for equity in earnings and cash contributions and distributions.

Fair Value of Financial Instruments.  The Company believes the carrying amount of its financial instruments (temporary investments, accounts receivable, and accounts payable) is a reasonable estimate of fair value of these instruments. Based on an estimated market interest rate of 5.5 and 7.0 percent, the fair value of the Company’s mortgages and loans payable would be approximately $646.0 million and $412.7 million at December 31, 2004 and December 31, 2003, respectively.

47

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

1.  SUMMARY OF ACCOUNTING POLICIES AND ESTIMATES (Continued)

Fair Value of In-Place Leases.  SFAS No. 142 “Goodwill and Other Intangible Assets,” requires the separate recognition of intangible assets acquired as part of an asset acquisition, including the value attributable to leases in place and certain customer relationships. These intangible assets are being amortized on a straight-line basis over the remaining term of the existing leases (generally averages 4 to 5 years). As of December 31, 2004, the Company had intangible assets relating to in-place leases as follows (in thousands):

	Initial Cost		Accumulated Amortization			Net Carrying Value of in-place leases		Weighted Average Amortization Period (in years)
Three Ravinia	$	274	$	(144	)	$	130		5.5
The Lakes on Post Oak		1,500		(781	)		719		4
Campus Circle & Tollway Crossing		500		(161	)		339		4
Baymeadows Way		242		(10	)		232		10
Decoverly		654		(164	)		490		3
Atlantic Center Plaza		9,400		(861	)		8,539		10
McGinnis Park		329		(83	)		246		4
Total	$	12,899	$	(2,204	)	$	10,695

 

The Company’s aggregate amortization for the year ended December 31, 2004, was $2.2 million. Amortization expense is calculated on a straight-line basis and the Company’s estimated aggregate amortization expense is expected to be $2.2 million for the years ended December 31, 2005 through 2008, and $1.0 million for the year ended December 31, 2009.

The Company is currently evaluating any other intangible assets that may have arisen resulting from its more recent acquisitions including: Westchase Corporate Center in Houston, Texas; Signature Place located in Dallas, Texas; and Las Olas Centre, located in Fort Lauderdale, Florida.

Cash and Cash Equivalents.  Cash in excess of daily requirements is invested in short-term monetary securities. Such temporary cash investments have an original maturity of less than three months and are deemed to be cash equivalents for purposes of the condensed consolidated financial statements.

Restricted Cash.  Restricted cash represents amounts contractually placed in escrow for purposes of making payments for certain future building improvements, tenant allowances, leasing commissions, real estate taxes, and debt service.

Estimates.  The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. These estimates are based on historical experience and various other factors that are believed to be reasonable under the circumstances. However, actual results could differ from the Company’s estimates under different assumptions or conditions. On an ongoing basis, the Company evaluates the reasonableness of its estimates.

New Accounting Standards.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees of Indebtedness of Others.” FIN No. 45 requires certain guarantees to be recorded at fair value and also requires significant new disclosures related to guarantees, even when the likelihood of making any payments under the guarantee is remote. FIN No. 45 generally applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes

48

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

1.  SUMMARY OF ACCOUNTING POLICIES AND ESTIMATES (Continued)

in an underlying variable that is related to an asset, liability, or an equity security of the guaranteed party. FIN No. 45 is effective for guarantees issued or modified after December 31, 2002. The Company adopted FIN No. 45 effective January 1, 2003. The Company’s adoption of FIN No. 45 has not had a material impact on its condensed consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148 does not amend SFAS No. 123 to require companies to account for their employee stock-based awards using the fair value method. However, the disclosure provisions are required for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS No. 123 or the intrinsic value method described in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 148’s transition provisions are effective for fiscal years ending after December 15, 2002. The Company adopted the interim disclosure provisions of SFAS No. 148 effective January 1, 2003. The Company’s adoption of SFAS No. 148 has not had a material impact on its condensed consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement was effective for contracts entered into or modified after June 30, 2003. The Company’s adoption of SFAS No. 149 has not had a material impact on its consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Company’s adoption of SFAS No. 150 has not had a material impact on its consolidated financial statements.

In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” (SAB No. 104), which codifies, revises and rescinds certain sections of SAB No. 101, “Revenue Recognition”, in order to make this interpretive guidance consistent with current authoritative guidance. The Company’s adoption of SAB No. 104 did not have a material impact on its consolidated financial statements.

In December 2003, FASB Interpretation No. (“FIN”) 46(R), “Consolidation of Variable Interest Entities” was issued. FIN 46(R) replaces FIN 46 and addresses consolidation by business enterprises of variable interest entities. The provisions of FIN 46(R) are effective for the first reporting period that ends after December 15, 2003 for variable interests in those entities commonly referred to as special-purpose entities. Application of the provisions of FIN 46(R) for all other entities is effective for the first reporting period ending after March 15, 2004. The Company’s adoption of FIN 46(R) has not had a material impact on its consolidated financial statements.

In December 2003, the FASB issued SFAS No. 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement replaces SFAS 132 and requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. This statement was effective for fiscal periods ending after December 15, 2003. The Company’s adoption of SFAS No. 132(R) has not had a material impact on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This statement replaces SFAS 123 and establishes standards for the accounting for transactions in which an entity exchanges its equity instruments

49

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

1.  SUMMARY OF ACCOUNTING POLICIES AND ESTIMATES (Continued)

for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. Public entities that do not file as small business issuers are subject to the provisions of this Statement effective September 30, 2005. The Company’s is currently evaluating the effects of SFAS No. 123(R) on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets.” This statement establishes standards for the measurement of exchanges of non-monetary assets and eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Non-monetary Transactions,” and replaces it with an exception for exchanges that do no have commercial substance. SFAS No. 153’s transition provisions are effective for fiscal periods beginning after June 15, 2005. The Company is currently evaluating the effects of SFAS No. 153 on its consolidated financial statements.

2.  TRANSACTIONS WITH RELATED PARTIES

On February 17, 2000, and in conjunction with the Company’s plan (the “Repurchase Plan”) to repurchase up to 2.65 million shares of common stock (the “Shares”), the Company entered into an agreement to, from time to time, loan to Mr. Thomas J. Crocker, Chief Executive Officer, and Mr. Robert E. Onisko, former Chief Financial Officer (collectively, the “Officers”), certain amounts in connection with their purchase of up to 500,000 shares and 150,000 shares, respectively, of the Company’s common stock (collectively the “Loan Stock”). For Loan Stock purchases consummated pursuant to the Company’s 1998 Equity and Cash Incentive Plan, the Company had agreed to advance up to 100% of the purchase price of the shares. For Loan Stock purchases consummated in the open market or pursuant to the Repurchase Plan, the Company had agreed to advance up to 50% of the purchase price of the shares. Each Officer’s loan was collateralized by any Loan Stock purchased by such Officer. Aside from an Officer’s equity interest in Loan Shares, the Company has limited or no personal recourse against an Officer for the principal amount of any outstanding loan balance. The Officers, under the terms of the plan, are personally obligated to make any and all interest payments. Each loan bears interest at 150 basis points over the applicable LIBOR rate, which interest is payable quarterly. The outstanding principal amount of each loan and all accrued but unpaid interest is due on the earlier of (i) February 17, 2010 or (ii) the second anniversary of the Officer’s termination by the Company for cause. During the year ended December 31, 2004, Thomas J. Crocker made interest payments of $60,481 and Robert E. Onisko made interest payments of $35,647. As of July 1, 2004, Mr. Crocker had purchased 320,370 shares of Loan Stock and the aggregate outstanding principal balance of his loans was approximately $3,800,000 all of which had been repaid as of July 26, 2004. For some time, the Company’s Board of Directors has considered the possibility of eliminating any further commitment to loan funds to Mr. Crocker and to have Mr. Crocker’s loans repaid in full, in the belief that eliminating this arrangement would be in the Company’s best interest. Based on a proposal initially submitted by Mr. Crocker and approved by a special committee comprised of the Company’s independent directors as well as the Company’s entire board of directors, on July 16, 2004, the Company and Mr. Crocker entered into a definitive agreement whereby: (1) Mr. Crocker agreed to repay the outstanding loans and terminate his rights to future loans upon the acquisition of Baymeadows Way; (2) the Company agreed to make a one time payment of $540,000 to Mr. Crocker as additional compensation to defray a portion of the costs and expenses incurred by Mr. Crocker in connection with his negotiation of the agreement with the Company; and (3) the Company and Mr. Crocker agreed to co-invest in a joint venture to acquire the Baymeadows Way and Westchase properties (the “Properties”), acquired during the quarter ended September 30, 2004. The joint venture arrangement between the Company and Mr. Crocker was created in part to effect for the benefit of Mr. Crocker a tax-deferred, like-kind exchange of a hotel in Boca Raton, Florida for the Properties. This arrangement requires the Company to protect Mr. Crocker’s ability to defer recognition of taxable gains through certain restrictions on the Company’s ability to sell or finance the Properties. Mr. Crocker contributed $1.4 million and owns approximately 10% of the joint venture in the form of a DownREIT limited partnership interest. The one time payment of $540,000 was made to Mr. Crocker and charged to compensation expense on July 30, 2004. Mr. Crocker repaid his outstanding loans in full on July 26, 2004. The arrangements above

50

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

2.  TRANSACTIONS WITH RELATED PARTIES (Continued)

are described in detail in a Form 8-K filed by the Company on July 30, 2004. As of December 31, 2004, Mr. Onisko has purchased 102,490 shares of Loan Stock. On December 27, 2004, Mr. Onisko repaid his outstanding loans in full. However, the Company has no discretion or termination right under this agreement since the Company’s loan to Mr. Onisko was made under the terms of a contract which precedes the Sarbanes-Oxley Act, and Mr. Onisko can purchase more shares of Loan Stock and request to borrow funds pursuant to the loan agreement to purchase these shares.

3.  MORTGAGES AND LOANS PAYABLE

The Company has non-recourse loans with an original amount of $235.0 million ($205.6 million of which was outstanding on December 31, 2004) payable to Northwestern Mutual Life Insurance Company (“Northwestern”). These loans are divided into (i) a tranche in the amount of $87.1 million which matures on January 2, 2007 and an average interest rate of 8.19 percent, (ii) a tranche in the amount of $77.5 million which matures on January 2, 2009 and an interest rate of 8.33 percent, (iii) a tranche in the amount of $13.4 million which matures on January 2, 2007 and an interest rate of 7.1 percent and (iv) a tranche in the amount of $27.6 million which matures on January 2, 2009 and an interest rate of 7.1 percent. Monthly payments on this loan include principal amortization based on a 25-year amortization period. This indebtedness requires the Company to maintain certain financial ratios and is collateralized by properties with a carrying value of approximately $360.5 million at December 31, 2004.

The Company has a $77.0 million non-recourse loan ($77.0 million of which was outstanding on December 31, 2004) with Column Financial, Inc., which is secured by the Company’s The Lakes on Post Oak property. The loan bears monthly interest at the one-month LIBOR rate (the LIBOR monthly contract rate in effect for this loan was 2.40% as of December 31, 2004) + 2.87% with all principal originally due on December 9, 2004. This loan has three consecutive one-year extensions (one of which was exercised during 2004), with 0.25% in extension fees in the second and third years, and are available at the Company’s option. These extensions are contingent on the Company’s compliance with certain covenants. This indebtedness is collateralized by property with a carrying value of approximately $110.7 million at December 31, 2004.

The Company has an $85 million non-recourse loan ($85.0 million of which was outstanding on December 31, 2004) with Metropolitan Life which is secured by the Company’s Three Ravinia Drive property. The loan bears monthly interest at a fixed rate of 5.26% with all principal due on January 1, 2008. This indebtedness is collateralized by property with a carrying value of approximately $120.2 million at December 31, 2004.

The Company has a $13.8 million non-recourse loan ($13.8 million of which was outstanding on December 31, 2004) with Nomura which is secured by the Company’s Baymeadows Way property. The loan bears monthly interest at a fixed rate of 5.55% and is interest only for the first five years, with all remaining principal due on August 11, 2014. Beginning August 11, 2009, monthly principal and interest payments of $78,754 will be due. This indebtedness is collateralized by property with a carrying value of approximately $20.6 million at December 31, 2004.

The Company has a $99.0 million non-recourse loan ($99.0 million of which was outstanding on December 31, 2004) with Nomura which is secured by the Company’s Las Olas Centre property. This interest only loan bears monthly interest at a fixed rate of 5.32% with all principal due on September 11, 2014. This indebtedness is collateralized by property with a carrying value of approximately $138.0 million at December 31, 2004.

The Company has a $28.8 million non-recourse loan ($28.8 million of which was outstanding on December 31, 2004) with New York Life Insurance Company which is secured by the Company’s Signature Place property. The loan bears monthly interest at variable rate of LIBOR plus 2.0% (the LIBOR monthly contract rate in effect for this loan was 2.42% as of December 31, 2004) and is interest only for the first thirty months, with all principal due on January 10, 2008. Beginning August 10, 2007, monthly principal payments based on a 25 year amortization

51

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

3.  MORTGAGES AND LOANS PAYABLE (Continued)

schedule will be due along with interest payments. This indebtedness is collateralized by property with a carrying value of approximately $38.6 million at December 31, 2004.

The Company has an $80.0 million non-recourse loan ($80.0 million of which was outstanding on December 31, 2004) provided by Metropolitan Life Insurance Company which was assumed by the Company in connection with the January 27, 2004, acquisition of Atlantic Center Plaza. The loan currently bears interest at a variable rate of LIBOR plus 160 basis points (the LIBOR monthly contract rate in effect for this loan was 2.28% as of December 31, 2004). The loan was amended by the Company in April 2004, to extend the maturity date and convert the loan into a fixed interest rate loan. Effective January 1, 2005, the interest rate will be fixed at 5.49% for ten years. This loan will be interest only through January 1, 2010. Beginning February 1, 2010, monthly principal payments based on a 30 year amortization period will be due along with interest payments. All remaining principal is due on January 1, 2015. This indebtedness is collateralized by property with a carrying value of approximately $106.2 million at December 31, 2004.

The Company has a $15.2 million non-recourse loan ($15.2 million of which was outstanding on December 31, 2004) with Nomura which is secured by the Company’s Westchase Corporate Center property. The loan bears monthly interest at a fixed rate of 5.39%. The loan is interest only for the first five years. Beginning September 11, 2009, monthly principal and interest payments of $85,202 will be due, with all remaining principal due on September 11, 2014. This indebtedness is collateralized by property with a carrying value of approximately $20.8 million at December 31, 2004.

During the year 2004, the Company replaced its previous $100 million secured revolving credit facility led by Fleet Bank, which had an outstanding balance of $15.0 million as of December 31, 2003 and was scheduled to mature in December 2004, with a $165 million secured revolving credit facility led by Wells Fargo Bank, which had no outstanding balance as of December 31, 2004. This $165.0 million secured revolving credit facility is collateralized by three office parks and three freestanding buildings. Based on the Company’s election, the interest rate on this revolving credit facility will be either (i) the LIBOR rate plus either 90, 100, 110, 130, or 150 basis points (depending on the Company’s leverage ratio) or (ii) the lender’s prime rate. Interest payments are due monthly on this credit facility which has an original term of three years. This credit facility matures in August 2007 and has a one-year extension option. This indebtedness requires the Company to maintain certain financial ratios, and further requires a limitation on dividends of 90% of Funds From Operations and is collateralized by properties with a carrying value of approximately $177.2 million at December 31, 2004.

The Company has two other non-recourse loans with outstanding balances of $18.1 million and $1.0 million, respectively, in conjunction with certain property acquisitions. The contractual interest rates on these loans are 8.2% and 8.0% , respectively. Amortization with respect to the $18.1 million loan is based on equal monthly installments based on 25-year amortization periods. These two loans mature in 2006 and 2008, respectively. This indebtedness is collateralized by properties with a carrying value of approximately $35.0 million at December 31, 2004.

The Company is in compliance with all of the above referenced debt covenants as of December 31, 2004.

52

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

3.  MORTGAGES AND LOANS PAYABLE (Continued)

The annual maturities of mortgages and loans payable (excluding extensions at the Company’s option), as of December 31, 2004, are summarized as follows:

Year Ending December 31,	Amount (In thousands)
2005	$	83,067
2006		23,657
2007		98,165
2008		118,226
2009		92,527
Subsequent Years		207,825
Total	$	623,467

 

4. LEASES

The Company’s operations consist principally of owning and leasing office space. Terms of the leases generally range from three to five years. The Company principally pays all operating expenses, including real estate taxes and insurance. At December 31, 2004, approximately 99% percent of the Company’s annualized rentals were subject to rent escalations based on changes in the Consumer Price Index, fixed rental increases or increases in real estate taxes and certain operating expenses. A substantial number of leases contain options that allow leases to renew for varying periods.

The Company’s leases are operating leases and expire at various dates through 2021. Minimum future rental revenues from leases in effect at December 31, 2004, determined without regard to renewal options, are summarized as follows:

Year Ending December 31,	Amount (In thousands)
2005	$	192,421
2006		168,467
2007		134,862
2008		112,439
2009		79,903
Subsequent Years		564,293
Total	$	1,252,385

 

The above minimum future rental revenue does not include reimbursements of certain operating expenses that may be received under provisions of the lease agreements. Of the total rental revenues recorded by the Company, these expense reimbursements amounted to $13,074,000, $13,260,000 and $10,380,000 for the years 2004, 2003, and 2002, respectively.

At December 31, 2004 annualized rental revenues totaled approximately $17,231,000 (9.7 percent) and $11,587,000 (6.5 percent), respectively, for the United States of America and the State of Florida, when all of their departments and agencies which lease space in the Company’s buildings are combined.

53

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

5.  STOCK OPTIONS AND RIGHTS

1993 Stock Option Plan.  The Company’s 1993 Stock Option Plan (the “1993 Plan”) provides for the granting of options to purchase up to 1,000,000 shares of its common stock to certain employees of the Company and its affiliates. To exercise the option, payment of the option price is required before the option shares are delivered. These options expire ten years from the date of grant and are generally exercisable beginning one year from the date of the grant at the rate of 20 percent per annum of the shares covered by each option on a cumulative basis, being fully exercisable five years after the date of grant.

1996 Stock Option Plan.  The Company’s 1996 Stock Option Plan (the “1996 Plan”) provides for the granting of options to purchase up to 650,000 shares of its common stock to certain employees of the Company. To exercise the option, payment of the option price is required before the option shares are delivered. These options expire ten years from the date of grant and are exercisable beginning one year from the date of the grant at the rate of 20 percent per annum of the shares covered by each option on a cumulative basis, being fully exercisable five years after the date of grant.

1998 Equity and Cash Incentive Plan.  The Company’s 1998 Equity and Cash Incentive Plan (the “1998 Plan”) provides for the issuance of up to 2,000,000 shares of its common stock pursuant to the grant of awards under this plan which may include stock options, stock appreciation rights, restricted stock, unrestricted stock, deferred stock and performance awards (in cash or stock or combinations thereof). Options granted pursuant to the 1998 Plan would expire ten years from the date of grant.

A summary of the status of fixed stock option grants as of December 31, 2004, 2003 and 2002, and changes during the years ending on those dates is presented below:

	2004					2003					2002
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding — beginning of year		1,919,414		$	18.01		2,154,007		$	17.60		2,517,277		$	17.37
Granted		—			—		—			—		—			—
Exercised		(180,015	)		16.37		(184,593	)		14.07		(163,270	)		13.70
Expired		—			—		—			—		—			—
Forfeited		(21,621	)		16.20		(50,000	)		16.06		(200,000	)		17.56
Outstanding — end of year		1,717,778		$	18.21		1,919,414		$	18.01		2,154,007		$	17.60

 

There were no options granted during the years 2004, 2003, and 2002.

54

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

5.  STOCK OPTIONS AND RIGHTS (Continued)

The following table summarizes information about fixed stock options outstanding at December 31, 2004:

Exercise Price	Options Outstanding		Options Exercisable		Weighted Average Remaining Life
					(Months)
11.5000		4,880		4,880		16
15.3750		21,500		21,500		23
15.8750		26,400		17,500		62
16.0625		700,000		700,000		62
17.5625		400,000		400,000		66
19.8125		52,998		52,998		31
20.0000		82,000		82,000		44
21.2500		25,000		25,000		41
21.8750		280,000		280,000		38
22.8125		125,000		125,000		38
		1,717,778		1,708,878		54

 

A total of 8,900 outstanding non-exercisable options as of December 31, 2004 will become exercisable during the year 2005.

Shareholder Rights Plan.  Pursuant to a Shareholder Rights Plan (the “Rights Plan”), on September 30, 1990, the Board of Directors of the Company declared a dividend of one common stock purchase right (the “Rights”) for each outstanding share of common stock of the Company. Under the terms of the Rights Plan, the rights which were distributed to the shareholders of record on October 11, 1990, trade together with the Company’s Shares and are not exercisable until the occurrence of certain events (none of which have occurred through December 31, 2004), including acquisition of, or commencement of a tender offer for, 15 percent or more of the Company’s common stock. In such event, each right entitles its holder (other than the acquiring person or bidder) to acquire additional shares of the Company’s common stock at a 50 percent discount from the market price. The rights are redeemable under circumstances as specified in the Rights Plan. The Rights Plan was amended effective October 10, 1996. Pursuant to an amendment to the Common Stock Rights Agreement dated as of August 17, 2000, the Rights have been extended ten years, through September 30, 2010. In May 2004, the Company amended its Rights Plan to remove the “dead-hand” feature. The “dead-hand” feature was designed to prevent a new board of directors from being elected without the consent of the existing board of directors. The Company also established a committee comprised of independent directors to evaluate whether the Plan continues to be in the best interests of the Company and its shareholders.

6.  STOCK INVESTMENT PLAN

The Company has a voluntary stock investment plan (the “SIP”) which provides for regular purchases of the Company’s Shares by all employees and directors. The SIP provides for monthly payroll and directors’ fees deductions up to $2,100 per month with the Company making monthly contributions for the account of each participant as follows: (i) 25 percent of amounts up to $50; (ii) 20 percent of amounts between $50 and $100; and (iii) 15 percent of amounts between $100 and $2,100, which amounts are used by an unaffiliated Administrator to purchase Shares from the Company.

The Company has reserved a total of 200,000 Shares for issuance under the SIP. The Company’s contribution and the expenses incurred in administering the SIP totaled approximately $52,200, $39,100 and $42,300 for 2004, 2003 and 2002, respectively. As of December 31, 2004, 200,000 Shares have been issued under the SIP. In January 2005, the Company suspended the SIP pending shareholder approval of additional reserved shares at its 2005 annual meeting.

55

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

7.  EMPLOYEE BENEFIT AND COMPENSATION PLANS

The Company has a 401(k) plan (the “401(k) Plan”) which permits contributions by employees. For 2004, 2003, and 2002, the Company’s contributions to the 401(k) Plan totaled $217,000, $160,000, and $206,000, respectively.

On December 20, 2004, the Company’s Board of Directors adopted a long-term incentive compensation plan for senior officers effective as of January 1, 2005, which replaced its previous plan adopted effective January 1, 2002. The Compensation Committee, comprised of certain members of the Board of Directors, administers this plan. Under the plan, payments to senior officers are based on the performance of the Company’s common stock on a one-year and over a three-year measurement period and the performance of the Company’s common stock compared to real estate investment trusts in its peer group over a three-year measurement period. Payments under the plan are dependent on the achievement of certain performance goals and on satisfaction of certain vesting requirements. During 2004, 2003, and 2002, the Company recognized plan-related compensation expense of $561,000, $0, and $0, respectively. As of December 31, 2004, the company has not made any plan-related payments.

The Company has a supplemental executive retirement plan (the “SERP”), an unfunded defined benefit plan. The purpose of the SERP is to facilitate the retirement of select key executive employees by supplementing their benefits under the Company’s 401(k) Plan. The benefits are based on years of service and the employee’s average base salary during the last three calendar years of employment. The SERP was curtailed during 2000 and 2002 as part of a corporate reorganization. SERP benefits were settled, via single cash payments for 9 individuals. Currently, there are five retired participants (all receiving monthly benefits) and no active participants in the SERP.

56

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

7.  EMPLOYEE BENEFIT AND COMPENSATION PLANS (Continued)

Net periodic pension cost for the SERP for 2004, 2003 and 2002 was as follows (in thousands):

	2004		2003		2002
Service cost	$	—	$	—	$	—
Interest cost		228		235		243
Amortization of unrecognized prior service cost		—		—		—
Amortization of unrecognized net loss		—		—		—
Net periodic benefit cost		228		235		243
Curtailment — unrecognized prior service cost acceleration		—		—		418
Curtailment gain		—		—		—
Termination benefit cost		—		—		—
Total Cost	$	228	$	235	$	661

 

Assumptions used in the computation of net periodic pension cost for the SERP were as follows:

	2004			2003			2002
Discount rate		6.5	%		6.5	%		6.5	%
Rate of increase in salary levels		—			—			—

 

The Company expects to contribute approximately $373,000 to the SERP plan during 2005. Benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows:

Year Ending December 31,	Amount (In thousands)
2005		$   373
2006		370
2007		366
2008		362
2009		358
2010 through 2014		1,699
Total		$3,528

 

57

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

7.  EMPLOYEE BENEFIT AND COMPENSATION PLANS (Continued)

The following table provides a reconciliation of benefit obligations, the status of the unfunded SERP and the amounts included in accrued liabilities-other in the Consolidated Balance Sheet at December 31, 2004 and 2003 (in thousands):

	2004			2003
Change in benefit obligation
Benefit obligation at beginning of year	$	3,664		$	3,774
Service cost		—			—
Interest cost		228			234
Amendments		—			—
Actuarial (gain)/loss		295			29
Benefits paid		(373	)		(373	)
Termination benefit cost		—			—
Benefit obligation at end of year		3,814			3,664
Change in plan assets
Fair value of plan assets at beginning of year		—			—
Expected return on plan assets		—			—
Employer contribution		373			373
Benefits paid		(373	)		(373	)
Fair value of plan assets at end of year		—			—
Unfunded accumulated benefit obligation		(3,814	)		(3,664	)
Unrecognized prior service cost		—			—
Unrecognized actuarial loss		536			241
Net amount recognized	$	(3,278	)	$	(3,423	)
Amounts recognized in the statement of financial position consist of:
Accrued benefit liability	$	(3,278	)	$	(3,423	)
Additional minimum liability		(536	)		(241	)
Intangible asset		—			—
Accrued pension benefits	$	(3,814	)	$	(3,664	)

 

In conjunction with the Company’s SERP plan, the Company also has a postretirement medical benefit plan (“PMBP”). The purpose of the PMBP is to provide for the cost of medical benefits to selected key executive employees by supplementing their benefits under the Company’s SERP and 401(k) Plan.

58

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

7.  EMPLOYEE BENEFIT AND COMPENSATION PLANS (Continued)

Net periodic postretirement benefit cost for the PMBP for 2004, 2003 and 2002 was as follows (in thousands):

	2004		2003		2002
Service cost	$	—	$	—	$	—
Interest cost		99		19		15
Amortization of unrecognized prior service cost		—		—		—
Amortization of unrecognized net loss		87		8		5
Net periodic benefit cost		186		27		20
Curtailment — unrecognized prior service cost acceleration		—		—		—
Curtailment gain		—		—		—
Termination benefit cost		—		—		—
Net Periodic Postretirement Benefit Cost	$	186	$	27	$	20

 

Assumptions used in the computation of net periodic post retirement benefit cost for the PMBP were as follows:

	2004			2003			2002
Discount rate		6.5	%		6.5	%		6.5	%
Rate of increase in salary levels		—			—			—

 

The Company expects to contribute approximately $140,000 to the PMBP plan during 2005. Health care cost trend rates, as of December 31, 2004, are expected to be 8% for the year ended December 31, 2005, decreasing by 1% annually, to 4% for the year ended December 31, 2009 and all subsequent years. The effect on the plan’s benefit obligation of a one percent change in the health care cost trend rate would be $218,400 and $(190,000) for a one percent increase and decrease, respectively. The effect on the plan’s total service cost and interest cost of a one percent change in the health care cost trend rate would be $10,700 and $(9,300) for a one percent increase and decrease, respectively. During the year ended December 31, 2004, the Company’s PMBP plan recognized an actuarial loss of $1,603,000. This was the result of increased health premium costs paid on behalf of the plan’s participants.

Benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows:

Year Ending December 31,	Amount (In thousands)
2005		$   140
2006		145
2007		148
2008		149
2009		148
2010 through 2014		718
Total		$1,448

 

59

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

7.  EMPLOYEE BENEFIT AND COMPENSATION PLANS (Continued)

The following table provides a reconciliation of benefit obligations, the status of the unfunded PMBP and the amounts included in accrued liabilities — other in the Consolidated Balance Sheet at December 31, 2004 and 2003 (in thousands):

	2004			2003
Change in projected benefit obligation
Benefit obligation at beginning of year	$	286		$	239
Service cost		—			—
Interest cost		99			19
Plan participants’ contributions		14			14
Actuarial (gain)/loss		1,603			72
Benefits paid		(122	)		(58	)
Termination benefit cost		—			—
Benefit obligation at end of year		1,880			286
Change in plan assets
Fair value of plan assets at beginning of year		—			—
Expected return on plan assets		—			—
Plan participants’ contributions		14			14
Employer contribution		108			44
Benefits paid		(122	)		(58	)
Fair value of plan assets at end of year		—			—
Unfunded accumulated benefit obligation		(1,880	)		(286	)
Unrecognized prior service cost		—			—
Unrecognized actuarial loss		1,697			181
Net amount recognized	$	(183	)	$	(105	)
Amounts recognized in the statement of financial position consist of:
Accrued benefit liability	$	(183	)	$	(105	)
Additional minimum liability		(1,697	)		(181	)
Intangible asset		—			—
Accrued postretirement benefits	$	(1,880	)	$	(286	)

 

8.  DIVIDENDS

During 2004, 2003 and 2002, the Company paid a total of $1.40 per share per year of regular dividends. During 2004 and 2003, the Company paid a total of $2.125 and $0.56666 per share of preferred dividends, respectively. For income tax purposes, the components of the dividends paid during 2004 are as follows:

Common Dividends

Payment Date	Dividend Amount		Return of Capital		Taxable Ordinary Dividend
February 5, 2004	$	0.350	$	0.144640	$	0.205360
May 6, 2004		0.350		0.144640		0.205360
August 5, 2004		0.350		0.144640		0.205360
November 1, 2004		0.350		0.144640		0.205360
Total	$	1.400	$	0.578560	$	0.821440

 

60

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

8.  DIVIDENDS (Continued)

Preferred Dividends

Payment Date	Dividend Amount		Return of Capital		Taxable Ordinary Dividend
March 15, 2004	$	0.53125		—	$	0.53125
June 15, 2004	$	0.53125		—	$	0.53125
September 15, 2004	$	0.53125		—	$	0.53125
December 15, 2004	$	0.53125		—	$	0.53125
Total	$	2.12500		—	$	2.12500

 

The Company intends that the quarterly dividend payout in the last quarter of each year will be adjusted to reflect the distribution of at least 90 percent of the Company’s REIT taxable income as required by the Federal income tax laws. The Company’s secured revolving credit facility requires the Company to maintain certain financial ratios, which includes a limitation on dividends of 90% of Funds From Operations. During December 2004, the Company’s Board of Directors declared a quarterly dividend of $0.35 per share payable on January 28, 2005, to shareholders of record on December 31, 2004.

9.  FEDERAL INCOME TAXES

The Company is operated in a manner so as to qualify and has elected tax treatment as a REIT. As a REIT, the Company is required to distribute to shareholders at least 90 percent of its REIT taxable income. For the three years in the period ended December 31, 2004, the Company has paid out dividends in amounts at least equal to its REIT taxable income. For the year ended December 31, 2004, the Company’s estimated taxable income prior to the dividends paid deduction was approximately $19,291,000 (the Company’s 2004 dividends paid deduction was $35,710,000). The Company’s taxable income prior to the dividends paid deduction for the years ended December 31, 2003 and 2002 was approximately $20,858,000 and $23,207,000, respectively. The difference between net income for financial reporting purposes and taxable income results primarily from different methods of accounting for bad debts, depreciable lives related to the properties owned, advance rents received and net operating loss carry forwards.

The following table reconciles the Company’s net income to REIT taxable income (which excludes non-REIT operations) for the years ended December 31, 2004, 2003 and 2002 (in thousands):

	2004 Estimate			2003			2002
Net Income	$	15,902		$	16,691		$	16,423
Less: Net (income) loss of taxable REIT Subsidiary		24			(124	)		196
Net income from REIT operations		15,926			16,567			16,619
Add: Book depreciation and amortization		42,160			32,687			27,908
Less: Tax depreciation and amortization		(31,696	)		(24,521	)		(22,373	)
Book/tax difference on gains from capital transactions		(211	)		(339	)		0
Other book/tax differences, net		(6,723	)		(3,312	)		1,053
Taxable income before adjustments		19,456			21,082			23,207
Less: Capital gains distributions		0			(224	)		0
Taxable ordinary income before adjustments		19,456			20,858			23,207
Less: Net operating loss carryforward		0			0			0
Adjusted taxable income subject to 90 percent dividend requirement	$	19,456		$	20,858		$	23,207

 

61

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

9.  FEDERAL INCOME TAXES (Continued)

The Company’s net operating loss carryforward available to offset REIT taxable income for 2004 is approximately $2,414,000. The use of net operating loss carryforwards and other tax attributes by the Company is subject to certain limitations imposed by Internal Revenue Code Sections 382 and 383. These limitations apply to both regular and alternative minimum taxes. These net operating loss carryforwards and other tax attributes can be used in varying degrees to offset REIT taxable income or tax through 2007.

10.  COMMITMENTS AND CONTINGENCIES

At December 31, 2004, the Company had a contractual commitment of approximately $647,000 related to the renovation of The Lakes on Post Oak in Houston, Texas.

At December 31, 2004, the Company has provided limited guarantees on notes payable on behalf of certain wholly and majority owned subsidiaries as follows (in thousands):

Subsidiary Name	Outstanding Balance December 31, 2004
CRT ACP, LLC	$	80,000
CRT Baymeadows, Ltd		13,800
CRT Westchase, LP		15,190
ELO Associates II, Ltd		98,980
CRT Signature Place, LP		28,800
CRT Ravinia, LLC		85,000
CRT Vanguard Partners, LP		18,157
CRT Post Oak, LP		77,000
TOTAL GUARANTEES OUTSTANDING AS OF DECEMBER 31, 2004	$	416,927

 

Additionally, in lieu of lender cash escrows, the Company guarantees $703,265 of a $99.0 million loan obtained in connection with the acquisition of the Las Olas Centre in November 2004. CRT has also provided limited guarantees on a note payable on behalf of a minority-owned unconsolidated joint venture, which had an outstanding balance of $46.5 million as of December 31, 2004.

11.  SEGMENT REPORTING

The Company operates in one business segment, real estate. The Company’s primary business is the ownership, development, and operation of income-producing office properties. Management operates each property as an individual operating segment and has aggregated these operating segments into a single segment for financial reporting purposes due to the fact that all of the individual operating segments have similar economic characteristics. All of the Company’s operations are located in the Southeastern United States, Maryland and Texas.

62

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

12.  PREFERRED STOCK

On September 10, 2003, the Company issued 2,990,000 shares of 8-1/2% Series A Cumulative Redeemable Preferred Stock, including 390,000 shares issued in connection with the exercise of an over-allotment option granted to the Company’s underwriter. This preferred stock has a liquidation preference of $25 per share and will not be redeemable before September 10, 2008, except under limited circumstances intended to preserve the Company’s REIT status as a real estate investment trust for federal income tax purposes. Beginning September 10, 2008, the Company may redeem the Series A Preferred Stock, in whole or in part, at $25.00 per share plus accrued and unpaid dividends. Dividends on the Series A Preferred Stock will be cumulative from the date of issuance and are payable quarterly. The Series A Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any of the Company’s other securities. The issuance resulted in approximately $72.1 million in net proceeds, of which $33.1 million was used to fund the acquisition of the Tollway Crossing and Campus Circle in Dallas, Texas, and $34 million was used to pay down the Company’s secured revolving credit facility, with the remaining proceeds used for general corporate purposes. For the year ended and as of December 31, 2004, the Company paid and accrued approximately $6,354,000 and $300,000 in preferred dividends, respectively. For the year ended and as of December 31, 2003, the Company paid and accrued approximately $1,695,000 and $300,000 in preferred dividends, respectively.

13.  COMMON STOCK

In January 2004, the Company issued 5,175,000 shares of its common stock (including 675,000 shares issued in connection with the exercise of an over-allotment option granted to the Company’s underwriter) at a price to the public of $20.45 per share. The net proceeds of the offering were used to pay down the Company’s revolving credit facility ($15 million) and fund a portion of the acquisition of Atlantic Center Plaza ($40.5 million), with the remainder intended for general corporate purposes, including subsequent acquisitions.

In December 2004, the Company issued 4,749,300 shares of its common stock (including 399,300 shares issued in connection with the exercise of an over-allotment option granted to the Company’s underwriter) at a price to the public of $24.20 per share. The net proceeds of the offering were used to pay down the Company’s secured revolving credit facility ($90.0 million), fund a portion of the purchase price of Signature Place, with the remainder intended for general corporate purposes, including subsequent acquisitions and development.

14.  SUBSEQUENT EVENTS

On February 9, 2005, the Company refinanced its $77.0 million loan held by Column Financial, Inc. with a $78.0 million loan from ING USA Annuity and Life Insurance Company. The new loan has an initial maturity date of March 1, 2010, with two one-year extension options. The loan bears monthly interest at variable rate of LIBOR plus 1.25% (the LIBOR monthly contract rate in effect for this loan was 2.59% as of February 9, 2005) and is interest only for the first twelve months. Beginning March 1, 2006, monthly principal payments based on a 25 year amortization schedule will be due along with interest payments. This indebtedness will be collateralized by property with a carrying value of approximately $110.7 million at December 31, 2004. This new loan will require a $6.0 million Letter of Credit in lieu of lender escrows for leasing costs.

In January and February 2005, the Company issued 200,685 of restricted common stock to certain senior executives currently participating in the long-term compensation plan.

15.  INTERIM FINANCIAL INFORMATION (UNAUDITED)

Selected quarterly information for the two years in the period ended December 31, 2004 is presented below (in thousands except per share amounts):

63

CRT PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2004 (Continued)

15.  INTERIM FINANCIAL INFORMATION (UNAUDITED) (Continued)

Quarters Ended	Total Rental Revenues		Total Operating Revenues		Net Income		Diluted Earnings Per Share
March 31, 2003	$	36,280	$	36,490	$	4,271	$	0.20
June 30, 2003		35,964		36,090		3,450		0.16
September 30, 2003		35,163		35,163		3,290		0.15
December 31, 2003		38,664		38,664		3,685		0.17
March 31, 2004		39,468		39,534		3,246		0.12
June 30, 2004		40,931		41,039		2,999		0.11
September 30, 2004		40,974		41,063		580		0.02
December 31, 2004		45,495		45,591		2,725		0.06

 

64

SCHEDULE II

CRT PROPERTIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2004
(In Thousands)

			Additions
Description	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts		Write-offs		Balance at end of period
2004
Allowance for uncollectible accounts	$	939	$	447	$	0	$	217	$	1,169
2003
Allowance for uncollectible accounts	$	1,280	$	476	$	0	$	817	$	939
2002
Allowance for uncollectible accounts	$	1,114	$	445	$	0	$	279	$	1,280

 

65

Schedule III

CRT PROPERTIES, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2004
(in thousands)

	Initial Cost				Costs Capitalized Subsequent to Acquisition					Total Cost
Center/Location	Land		Bldgs & Improv.		Improve- ments			Carrying Costs		Land		Bldgs & Improv.		(b)(c) Total		(d) Accum. Depr.		(a) Mort- gages		Date Acquired		Depreciable Life
OPERATING REAL ESTATE:
ATLANTA CHAMBLEE	$	14,667	$	68,712	$	23,455		$	0	$	14,667	$	92,167	$	106,834	$	37,884	$	0		1988–2001		3–39 YRS.
ATLANTA GWINNETT		3,100		21,392		4,103			0		3,100		25,495		28,595		6,344		10,388		1993–2000		3–39 YRS.
ATLANTA MCGINNIS PARK		3,315		15,398		985			0		2,922		16,776		19,698		735		978		2003		3–39 YRS.
ATLANTA PERIMETER		2,785		18,407		2,745			0		2,785		21,152		23,937		4,607		6,711		1997		3–39 YRS.
ATLANTA THREE RAVINIA		6,960		118,390		2,400			0		6,960		120,790		127,750		9,218		85,000		2002		3–39 YRS.
ATLANTIC CENTER PLAZA		10,368		97,510		1,116			0		10,367		98,627		108,994		3,037		80,000		2004		3–39 YRS.
CHARLOTTE UNIVERSITY		3,132		20,007		539			0		3,132		20,546		23,678		2,850		0		1999		3–39 YRS.
CHARLOTTE VANGUARD		5,136		48,019		(125	)		0		4,512		48,518		53,030		9,660		18,157		1998		3–39 YRS..
CORPORATE		0		760		0			0		0		760		760		274		0		2003		3–39 YRS.
DALLAS CIGNA PLAZA		2,809		12,112		156			0		2,809		12,268		15,077		422		0		2003		3–39 YRS.
DALLAS TOLLWAY CROSSING		3,195		14,486		326			0		3,195		14,812		18,007		504		0		2003		3–39 YRS.
DALLAS SIGNATURE PLACE		5,800		32,793		0			0		5,800		32,793		38,593		0		28,800		2004		3–39 YRS.
FORT LAUDERDALE LAS OLAS		7,400		130,873		0			0		7,400		130,873		138,273		279		98,980		2004		3–39 YRS.
HOUSTON POST OAK		12,400		90,662		13,752			0		12,400		104,414		116,814		6,097		77,000		2002		3–39 YRS.
HOUSTON WESTCHASE		1,425		19,202		188			0		1,425		19,390		20,815		178		15,190		2004		3–39 YRS.
JACKSONVILLE BAYMEADOWS		10,514		39,250		5,062			0		10,514		44,312		54,826		13,193		31,524		1993–1998		3–39 YRS.
JACKSONVILLE BAYMEADOWS WAY		2,157		18,704		0			0		2,157		18,704		20,861		232		13,800		2004		3–39 YRS
JACKSONVILLE JTB		5,554		35,151		3,317			0		5,554		38,468		44,022		6,848		16,228		1997–2001		3–39 YRS.
MEMPHIS GERMANTOWN		8,472		38,559		9,716			0		8,472		48,275		56,747		17,433		22,684		1988–2000		3–39 YRS.
ORLANDO CENTRAL		8,092		29,825		13,823			0		8,092		43,648		51,740		21,339		24,542		1988–1993		3–39 YRS.
ORLANDO LAKE MARY		5,506		35,523		1,718			0		5,506		37,241		42,747		5,036		11,908		1999		3–39 YRS.
ORLANDO UNIVERSITY		5,780		27,063		7,352			0		5,780		34,415		40,195		10,816		19,390		1990–2001		3–39 YRS..
RICHMOND PARAGON		1,422		15,144		2,334			0		1,422		17,478		18,900		4,226		0		1998		3–39 YRS.
ST. PETERSBURG		7,135		36,020		14,852			0		7,135		50,872		58,007		20,553		25,887		1988–2000		3–39 YRS.
TALLAHASSEE		10,624		59,536		13,911			0		10,623		73,448		84,071		30,228		36,300		1988–1997		3–39 YRS.
WASHINGTON D.C. DECOVERLY		16,259		22,028		34			0		16,259		22,062		38,321		788		0		2004		3–39 YRS.
SUBTOTALS		164,007		1,065,526		121,759			0		162,988		1,188,304		1,351,292		212,781		623,467
FURNITURE & EQUIPMENT		0		3,320		427			0		0		3,747		3,747		2,806		0				3–15 YRS.
IMPROVEMENTS IN PROGRESS		0		0		1,354			0		0		1,354		1,354		0		0
TOTAL OPERATING REAL ESTATE		164,007		1,068,846		123,540			0		162,988		1,193,405		1,356,393		215,587		623,467
UNIMPROVED LAND:
ATLANTA GWINNETT		958		0		0			0		958		0		958		0		0		1993
ATLANTA MCGINNIS PARK		980		0		0			0		980		0		980		0		0		2003
BIRMINGHAM COLONNADE		4,886		0		0			0		4,886		0		4,886		0		0		1998
CHARLOTTE VANGUARD		1,516		0		0			0		1,516		0		1,516		0		0		1998
COLUMBIA SPRING VALLEY		76		0		0			0		76		0		76		0		0		1993
GREENSBORO WENDOVER		680		0		0			0		680		0		680		0		0		1993
GREENVILLE PARK CENTRAL		409		0		0			0		409		0		409		0		0		1997
ORLANDO CENTRAL		817		0		0			0		817		0		817		0		0		1989
ST. PETERSBURG		707		0		0			0		707		0		707		0		0		1993
WASHINGTON, D.C. DECOVERLY		3,599		0		0			0		3,599		0		3,599		0		0		2004
TOTAL UNIMPROVED LAND		14,628		0		0			0		14,628		0		14,628		0		0
TOTAL	$	178,635	$	1,068,846	$	123,540		$	0	$	177,616	$	1,193,405	$	1,371,021	$	215,587	$	623,467

 

66

Schedule III (Continued)

CRT PROPERTIES, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2004
(in thousands)

(a)   At December 31, 2004, the outstanding balance of mortgages payable was $623,467. In addition, the Company has a secured revolving credit facility with variable interest rates which is collateralized by mortgages on a pool of buildings. At December 31, 2004, the Company’s secured revolving credit facility had no outstanding balance.

(b)   Aggregate cost basis for Federal income tax purposes was $1,369,097 at December 31, 2004.

(c)   Reconciliation of total real estate carrying value for the years ended December 31, 2004, 2003 and 2002 is as follows:

	2004			2003			2002
Balance at beginning of year	$	976,018		$	910,984		$	677,141
Acquisitions and construction (net of fair value of acquired leases)		368,834			50,796			228,930
Improvements		30,121			15,701			11,593
Sale of unimproved land		(2,986	)		(991	)		(29	)
Sale or disposition of operating real estate		(966	)		(472	)		(6,651	) (1)
Balance at close of year	$	1,371,021		$	976,018		$	910,984

 

(1)   Includes a carrying value reduction of approximately $6.3 million made to the assets of CRT Vanguard Partners, LP (“CVP”) as part of the Company’s acquisition of the remaining limited partnership units of CVP. This reduction represents payments made to the former limited partners of CVP in excess of their capital accounts.

(d)   Reconciliation of accumulated depreciation for the years ended December 31, 200 4, 2003 and 2002 is as follows:

	2004			2003			2002
Balance at beginning of year	$	179,569		$	149,830		$	123,999
Depreciation expense:
Operating real estate		36,611			29,546			25,889
Furniture and equipment		373			469			546
Sale or disposition of operating real estate		(966	)		(276	)		(604	)
Balance at close of year	$	215,587		$	179,569		$	149,830

 

67

Item 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.     CONTROLS AND PROCEDURES

The Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2004. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.

68

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
CRT Properties, Inc.
Boca Raton, Florida

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that CRT Properties, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’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 opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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 of 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the 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 the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2004 of the Company and our report dated March 15, 2005 expressed an unqualified opinion on those financial statements and financial statement schedules.

DELOITTE & TOUCHE LLP
CERTIFIED PUBLIC ACCOUNTANTS
West Palm Beach, Florida
March 15, 2005

69

PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information about directors and executive officers of the Company is contained in the Company’s 2005 Proxy Statement (the“2005 Proxy Statement”) and is incorporated herein by reference.

Item 11.    EXECUTIVE COMPENSATION

Information regarding executive compensation is incorporated by reference from the 2005 Proxy Statement

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The stock ownership of each person known to the Company to be the beneficial owner of more than five percent (5%) of its outstanding common stock is incorporated by reference to the section headed “Information About CRT Properties Common Stock Ownership” of the 2005 Proxy Statement. The beneficial ownership of common stock of all directors of the Company is incorporated by reference to the section headed “Election of Directors” contained in the 2005 Proxy Statement.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is made to Item 1. “Business,” 2. “Properties,” 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 “Transactions With Related Parties” to the Notes to Consolidated Financial Statements contained in this Report and to the heading “Certain Relationships and Transactions” contained in the 2005 Proxy Statement for information regarding certain relationships and related transactions which information is incorporated herein by reference.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding Principal Accountant Fees and Services is incorporated herein by reference to the section headed “Auditors’ Fees and Pre-Approval Policies” in the 2005 Proxy Statement.

70

PART IV

Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)	See “Item 8 — Financial Statements and Supplementary Data — Index to Consolidated Financial Statements and Financial Statement Schedules” for a list of the financial statements included in this report.
(2)	The consolidated supplemental financial statement schedules required by Regulation S-X are included on pages 65 through 68 in this Form.
(b)	The following exhibits are filed as part of this report:

 

Number	Description
3.1	Amended and Restated Articles of Incorporation of Koger Equity, Inc., dated May 18, 2000, as amended by Articles of Amendment to the Amended and Restated Articles of Incorporation, dated September 9, 2003 (31)
3.2	Koger Equity, Inc. By Laws, as Amended and Restated on February 17, 2000 (1)
4.1	Koger Equity, Inc. Rights Agreement (the “Rights Agreement”) dated as of September 30, 1990 between the Company and Wachovia Bank and Trust Company, N.A. as Rights Agent (“Wachovia”) (2)
4.2	First Amendment to the Rights Agreement, dated as of March 22, 1993, between the National Bank of North Carolina, as Rights Agent (“First Union”) (3)
4.3	Second Amendment to the Rights Agreement, dated as of December 21, 1993, between the Company and First Union (4)
4.4	Third Amendment to Rights Agreement, dated as of October 10, 1996, between Koger Equity, Inc. and First Union (5)
4.5	Fourth Amendment to Rights Agreement, dated as of February 27, 1997, between Koger Equity, Inc. and First Union (6)
4.6	Fifth Amendment to Rights Agreement, dated as of November 23, 1999, between Koger Equity, Inc. and Norwest Bank Minnesota, National Association, as successor Rights Agent (7)
4.7	Sixth Amendment to Rights Agreement, dated as of August 17, 2000, between Koger Equity, Inc. and Wells Fargo Bank Minnesota, N.A., as successor Rights Agent (8)
4.8	Seventh Amendment to the Rights Agreement between Koger Equity, Inc. and Wells Fargo Bank Minnesota, N.A., as successor Rights Agent (9)
10.1	Koger Equity, Inc. Amended and Restated 1988 Stock Option Plan (10)
10.2	Form of Stock Option Agreement pursuant to Koger Equity, Inc. Amended and Restated 1988 Stock Option Plan (10)
10.3	Form of Amendment to Stock Option Agreement pursuant to Koger Equity, Inc. Amended and Restated 1988 Stock Option Plan (11)
10.4	Koger Equity, Inc. 1993 Stock Option Plan (12)
10.5	Form of Stock Option Agreement pursuant to Koger Equity, Inc. 1993 Stock Option Plan (13)
10.6	Form of Amendment to Stock Option Agreement pursuant to Koger Equity, Inc. 1993 Stock Option Plan (11)
10.7	Koger Equity, Inc. 1996 Stock Option Plan (11)
10.8	Form of Stock Option Agreement pursuant to Koger Equity, Inc. 1996 Stock Option Plan (11)
10.9	Form of Koger Equity, Inc. Restricted Stock Award effective as of May 1, 1999 (14)

71

Number	Description
10.10	Koger Equity, Inc. 1998 Equity and Cash Incentive Plan, as Amended and Restated (15)
10.11	Stock Option Agreement between Koger Equity, Inc. and Thomas J. Crocker, dated as of February 17, 2000 (16)
10.12	Amended and Restated Supplemental Executive Retirement Plan, effective as of May 20, 1999 (14)
10.13	Form of Indemnification Agreement between Koger Equity, Inc. and its Directors and certain of its officers (18)
10.14	Employment Agreement between Koger Equity, Inc. and Thomas J. Crocker, effective January 1, 2002 (19)
10.15	Employment Agreement between Koger Equity, Inc. and Thomas C. Brockwell effective January 1, 2002 (19)
10.16	Promissory Note (No Recourse Note), dated as of February 17, 2000, executed by Thomas J. Crocker as maker in favor of Koger Equity, Inc. as lender (16)
10.17	Promissory Note (25% Recourse Note), dated as of February 17, 2000, executed by Thomas J. Crocker as maker in favor of Koger Equity, Inc. as lender (16)
10.18	Stock Pledge Security Agreement between Koger Equity, Inc. and Thomas J. Crocker dated as of February 17, 2000 (16)
10.19	Stock Purchase and Loan Agreement between Thomas J. Crocker and Koger Equity, Inc., dated as of February 17, 2000 (16)
10.20	Master Loan Agreement, made as of December 6, 2001, between Koger Equity, Inc. and The Northwestern Mutual Life Insurance Company (21)
10.21	Koger Equity, Inc. Tranche A Promissory Note, dated December 16, 1996, in the principal amount of $100,500,000 payable to The Northwestern Mutual Life Insurance Company (20)
10.22	Koger Equity, Inc. Tranche B Promissory Note, dated December 16, 1996, in the principal amount of $89,500,000 payable to The Northwestern Mutual Life Insurance Company (20)
10.23	Koger Equity, Inc. Tranche C Promissory Note, dated September 2, 1999, in the principal amount of $14,700,000 payable to The Northwestern Mutual Life Insurance Company (22)
10.24	Koger Equity, Inc. Tranche D Promissory Note, dated September 2, 1999, in the principal amount of $30,000,000 payable to The Northwestern Mutual Life Insurance Company (22)
10.25	First Amendment of Tranche B Promissory Note, dated August 11, 2000, between Koger Equity, Inc. and The Northwestern Mutual Life Insurance Company (1)
10.26	Third Amendment to Tranche A Promissory Note, dated December 6, 2001, between Koger Equity, Inc. and The Northwestern Mutual Life Insurance Company (21)
10.27	Second Amendment to Tranche B Promissory Note, dated December 6, 2001, between Koger Equity, Inc. and The Northwestern Mutual Life Insurance Company (21)
10.28	First Amendment to Tranche C Promissory Note, dated December 6, 2001, between Koger Equity, Inc. and The Northwestern Mutual Life Insurance Company (21)
10.29	First Amendment to Tranche D Promissory Note, dated December 6, 2001, between Koger Equity, Inc. and The Northwestern Mutual Life Insurance Company (21)
10.30	The Revolving Credit Loan Agreement dated as of August 24, 2004 among CRT Properties, Inc. and Wells Fargo Bank, N.A., as Sole Lead Arranger and Administrative Agent, and the lenders named therein *
10.31	The Revolving Credit Note dated January 8, 2002 issued by Koger Equity, Inc. to Fleet National Bank in the principal amount of up to $55,000,000 (23)

72

Number	Description
10.32	The Revolving Credit Note dated December 28, 2001 issued by Koger Equity, Inc. to Wells Fargo Bank, National Association, in the principal amount of up to $40,000,000 (23)
10.33	The Revolving Credit Note dated December 28, 2001 issued by Koger Equity, Inc. to Compass Bank, an Alabama banking corporation, in the principal amount of up to $20,000,000 (23)
10.34	The Revolving Credit Note dated January 8, 2002 issued by Koger Equity, Inc. to Comerica Bank in the principal amount of up to $10,000,000 (23)
10.35	The Swingline Note dated December 28, 2001 issued by Koger Equity, Inc. to Fleet National Bank in the principal amount of up to $2,500,000 (23)
10.36	Revolving Credit Note, dated December 16, 2002 in the principal amount of up to $50,000,000 executed and delivered in connection with the Fleet Credit Loan Agreement (26)
10.37	Management Agreement, dated June 16, 2000, between Koger Equity, Inc. and Crocker Realty Trust, L.P., a Delaware limited partnership (27)
10.38	Purchase and Sale Agreement by and among Koger Equity, Inc., as Seller, and AREIF II Realty Trust, Inc., a Maryland corporation, as Buyer, dated as of August 23, 2001 (28)
10.39	Amended and Restated Agreement of Limited Partnership of Koger-Vanguard Partners, L.P., dated as of October 22, 1998, between Koger Equity, Inc. as General Partner and certain persons as Limited Partners of Koger-Vanguard Partners, L.P. (29)
10.40	Promissory Note dated December 17, 2002 between Koger Ravinia, LLC, and Metropolitan Life Insurance Company, in the principal amount of $85,000,000 (30)
10.41	Loan Agreement, dated as of December 6, 2002 between Koger Post Oak Limited Partnership and Column Financial, Inc.
10.42	Promissory Note dated December 6, 2002 between Koger Post Oak Limited Partnership and Column Financial, Inc. in the principal sum of $77,000,000
10.43	Third Amended and Restated Agreement of Limited Partnership of CRT BMWCX, LTD., dated August 16, 2004, by & between CRTP OP LP, Thomas J. Crocker, CCA III, Inc., and Westchase Corporate Center Associates, LTD. (32)
10.44	Agreement of Sale of Partnership Interests, dated September 30, 2004, by and between Koger Acquisition, LLC, East Las Olas Investors II, WLD Realty, Ltd., and Halmos Holdings, Inc. (32)
10.45	Reinstatement and First Amendment to Agreement of Sale of Partnership Interests, dated October 15, 2004, by & between Koger Acquisition, LLC, East Las Olas Investors II, WLD Realty, Ltd., and Halmos Holdings, Inc. (32)
12.1	Statements re Computation of Ratios*
21.1	Subsidiaries of the Registrant*
23	Consent of Independent Registered Public Accounting Firm*
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

* Filed herewith

(1) Incorporated by Reference to the Company’s Form 10-Q for the three months ended September 30, 2000

(2) Incorporated by Reference to the Company’s Registration Statement on Form 8-A, dated October 3, 1990

(3) Incorporated by Reference to the Company’s Form 10-Q for the three months ended March 31, 1993

73

(4) Incorporated by Reference to the Amendment on Form 8-A/A, dated December 21, 1993, to the Company’s Registration Statement on Form 8-A, dated October 3, 1990

(5) Incorporated by Reference to the Amendment on Form 8-A/A, dated October 10, 1996 to the Company’s Registration Statement on Form 8-A, dated October 3, 1990

(6) Incorporated by Reference to the Amendment on Form 8-A/A, dated March 17, 1997, to the Company’s Registration Statement on Form 8-A, dated October 3, 1990

(7) Incorporated by Reference to the Amendment on Form 8-A/A, dated November 23, 1999, to the Company’s Registration Statement on Form 8-A, dated October 3, 1990

(8) Incorporated by Reference to the Amendment on Form 8-A/A, dated August 17, 2000, to the Company’s Registration Statement on Form 8-A, dated January 28, 2000

(9) Incorporated by Reference to the Amendment on Form 8-A/A, dated December 21, 2001, to the Company’s Registration Statement on Form 8-A, dated January 28, 2000

(10) Incorporated by Reference to the Company’s Form 10-Q for the three months ended June 30, 1992

(11) Incorporated by Reference to the Company’s Form 10-K for the year ended December 31, 1996

(12) Incorporated by Reference to the Company’s Proxy Statement dated June 30, 1993

(13) Incorporated by Reference to the Company’s Form 10-K for the year ended December 31, 1994

(14) Incorporated by Reference to the Company’s Form 10-Q for the three months ended June 30, 1999

(15) Incorporated by Reference to the Company’s Proxy Statement dated April 18, 2000

(16) Incorporated by Reference to the Company’s Form 10-Q for the three months ended June 30, 2000

(17) Incorporated by Reference to the Company’s Form 10-Q for the three months ended June 30, 1995

(18) Incorporated by Reference to the Company’s Form 10-K for the year ended December 31, 1995

(19) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated January 5, 2004, as filed with the Commission on January 5, 2004.

(20) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated December 16, 1996, as filed with the Commission on March 10, 1997

(21) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated December 6, 2001, as filed with the Commission on March 21, 2002

(22) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated September 2, 1999, as filed with the Commission on November 17, 1999

(23) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated December 28, 2001, as filed with the Commission on February 28, 2002

(24) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated April 5, 2002, as filed with the Commission on June 6, 2002

(25) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated June 10, 2002, as filed with the Commission on June 21, 2002

(26) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated December 16, 2002, as filed with the Commission on January 29, 2003

(27) Incorporated by Reference to the Company’s Form 10-K for the year ended December 31, 2000

(28) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated August 23, 2001, as filed with the Commission on August 27, 2001

(29) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated October 22, 1998, as filed with the Commission on December 31, 1998

(30) Incorporated by Reference to the Company’s Current Report on Form 8-K, dated December 17, 2002, as filed with the Commission on January 16, 2003

(31) Incorporated by Reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003

(32) Incorporated by Reference to the Company’s Form 10-Q for the three months ended September 30, 2004

75

SIGNATURES

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

Date: March 8, 2005

CRT PROPERTIES, INC.

By: /s/ Victor A. Hughes, Jr.Victor A. Hughes, Jr.
Chairman of the Board

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/ Victor A. Hughes, Jr. (VICTOR A. HUGHES, JR.)	Chairman of the Board	March 8, 2005
/s/ Thomas J. Crocker (THOMAS J. CROCKER)	Chief Executive Officer and Director (Principal Executive Officer)	March 8, 2005
/s/ Randal L. Martin (RANDAL L. MARTIN)	Controller (Principal Financial and Accounting Officer)	March 8, 2005
/s/ Terence D. McNally (TERENCE D. MCNALLY)	Senior Vice President and Chief Financial Officer	March 8, 2005
/s/ D. Pike Aloian (D. PIKE ALOIAN)	Director	March 8, 2005
/s/ Benjamin C. Bishop (BENJAMIN C. BISHOP)	Director	March 8, 2005
/s/ Peter J. Farrell (PETER J. FARRELL)	Director	March 8, 2005
/s/ David B. Hiley (DAVID B. HILEY)	Director	March 8, 2005
/s/ Randall E. Paulson (RANDALL E. PAULSON)	Director	March 8, 2005
/s/ George F. Staudter (GEORGE F. STAUDTER)	Director	March 8, 2005
/s/ James C. Teagle (JAMES C. TEAGLE)	Director	March 8, 2005

 

76

EX-10.30

EXECUTION COPY

CREDIT AGREEMENT

Dated as of August 24, 2004

by and among

CRT PROPERTIES, INC., and
CRTP OP LP

as Borrower

THE FINANCIAL INSTITUTIONS PARTY HERETO
AND THEIR ASSIGNEES UNDER SECTION 13.5.,

as Lenders

each of

COMMERZBANK AG NEW YORK AND GRAND CAYMAN BRANCHES,

PNC BANK, NATIONAL ASSOCIATION,

and

UNION BANK OF CALIFORNIA N.A.,

as Documentation Agent

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Sole Lead Arranger

and

as Administrative Agent

TABLE OF CONTENTS

Article I. Definitions		6
	Section 1.1. Definitions	6
	Section 1.2. General; References to San Francisco Time	29
Article II. Credit Facility		30
	Section 2.1. Revolving Loans	30
	Section 2.2. Letters of Credit	31
	Section 2.3. Swingline Loans	35
	Section 2.4. Rates and Payment of Interest on Loans	36
	Section 2.5. Number of Interest Periods	37
	Section 2.6. Repayment of Loans	37
	Section 2.7. Prepayments	37
	Section 2.8. Late Charges	38
	Section 2.9. Continuation	38
	Section 2.10. Conversion	39
	Section 2.11. Notes	39
	Section 2.12. Voluntary Reductions of the Commitment	39
	Section 2.13. Extension of Termination Date	40
	Section 2.14. Expiration or Maturity Date of Letters of Credit Past Termination Date	40
	Section 2.15. Amount Limitations	40
	Section 2.16. Increase in Commitments	40
	Section 2.17. Joint and Several Liability	41
	Section 2.18. Actions of the Borrower	42
Article III. Payments, Fees and Other General Provisions		43
	Section 3.1. Payments	43
	Section 3.2. Pro Rata Treatment	43
	Section 3.3. Sharing of Payments, Etc	44
	Section 3.4. Several Obligations	44
	Section 3.5. Minimum Amounts	45
	Section 3.6. Fees	45
	Section 3.7. Computations	46
	Section 3.8. Usury	46
	Section 3.9. Statements of Account	47
	Section 3.10. Defaulting Lenders	47
	Section 3.11. Taxes	48
Article IV. Collateral Properties And Appraisals		49
	Section 4.1. Eligibility of Properties	49
	Section 4.2. Release of Properties	51
	Section 4.3. Frequency of Appraisals	52
	Section 4.4. Frequency of Calculations of Borrowing Base	53

Article V. Yield Protection, Etc.		54
	Section 5.1. Additional Costs; Capital Adequacy	54
	Section 5.2. Suspension of LIBOR Loans	55
	Section 5.3. Illegality	56
	Section 5.4. Compensation	56
	Section 5.5. Treatment of Affected Loans	57
	Section 5.6. Change of Lending Office	57
	Section 5.7. Affected Lenders	58
	Section 5.8. Assumptions Concerning Funding of LIBOR Loans	58
Article VI. Conditions Precedent		58
	Section 6.1. Initial Conditions Precedent	58
	Section 6.2. Conditions Precedent to All Loans and Letters of Credit	61
	Section 6.3. Conditions Precedent to a Property Becoming a Collateral Property	61
	Section 6.4. Conditions as Covenants	63
Article VII. Representations and Warranties		64
	Section 7.1. Representations and Warranties	64
	Section 7.2. Survival of Representations and Warranties, Etc	70
Article VIII. Affirmative Covenants		70
	Section 8.1. Preservation of Existence and Similar Matters	70
	Section 8.2. Compliance with Applicable Law and Material Contracts	70
	Section 8.3. Maintenance of Property	70
	Section 8.4. Conduct of Business	71
	Section 8.5. Insurance	71
	Section 8.6. Payment of Taxes and Claims	72
	Section 8.7. Books and Records; Inspections	72
	Section 8.8. Use of Proceeds	72
	Section 8.9. Environmental Matters	73
	Section 8.10. Further Assurances	73
	Section 8.11. REIT Status	73
	Section 8.12. Exchange Listing	73
	Section 8.13. Guarantors	73
Article IX. Information		75
	Section 9.1. Quarterly Financial Statements	75
	Section 9.2. Year-End Statements	75
	Section 9.3. Compliance Certificate	76
	Section 9.4. Other Information	76
Article X. Negative Covenants		78
	Section 10.1. Financial Covenants	78
	Section 10.2. Restricted Payments	80
	Section 10.3. Indebtedness	81
	Section 10.4. Negative Pledge	81

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	Section 10.5. Restrictions on Intercompany Transfers	82
	Section 10.6. Merger, Consolidation, Sales of Assets and Other Arrangements	82
	Section 10.7. Plans	83
	Section 10.8. Fiscal Year	83
	Section 10.9. Modifications of Organizational Documents and Material Contracts	83
	Section 10.10. Property Management Agreements and Major Leases	83
	Section 10.11. Transactions with Affiliates	84
Article XI. Default		84
	Section 11.1. Events of Default	84
	Section 11.2. Remedies Upon Event of Default	88
	Section 11.3. Remedies Upon Default	89
	Section 11.4. Marshaling; Payments Set Aside	89
	Section 11.5. Allocation of Proceeds	89
	Section 11.6. Letter of Credit Collateral Account	90
	Section 11.7. Rescission of Acceleration by Requisite Lenders	91
	Section 11.8. Performance by Agent	92
	Section 11.9. Rights Cumulative	92
Article XII. The Agent		92
	Section 12.1. Appointment and Authorization	92
	Section 12.2. Wells Fargo as Lender	93
	Section 12.3. Collateral Matters; Protective Advances	93
	Section 12.4. Post-Foreclosure Plans	94
	Section 12.5. Approvals of Lenders	95
	Section 12.6. Notice of Defaults	96
	Section 12.7. Agent’s Reliance	96
	Section 12.8. Indemnification of Agent	97
	Section 12.9. Lender Credit Decision, Etc	97
	Section 12.10. Successor Agent	98
	Section 12.11. Titled Agents	99
Article XIII. Miscellaneous		99
	Section 13.1. Notices	99
	Section 13.2. Expenses	100
	Section 13.3. Setoff	101
	Section 13.4. Litigation; Jurisdiction; Other Matters; Waivers	101
	Section 13.5. Successors and Assigns	102
	Section 13.6. Amendments and Waivers	104
	Section 13.7. Nonliability of Agent and Lenders	106
	Section 13.8. Confidentiality	106
	Section 13.9. Indemnification	106
	Section 13.10. Termination; Survival	108
	Section 13.11. Severability of Provisions	108
	Section 13.12. GOVERNING LAW	109

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Section 13.13. Counterparts	109
Section 13.14. Obligations with Respect to Loan Parties	109
Section 13.15. Independence of Covenants	109
Section 13.16. Limitation of Liability	109
Section 13.17. Entire Agreement	109
Section 13.18. Construction	110
Section 13.19. Patriot Act Notification	110

SCHEDULE 1.1.	List of Loan Parties
SCHEDULE 4.1.	Initial Collateral Properties
SCHEDULE 7.1.(b)	Ownership Structure
SCHEDULE 7.1.(f)	Properties
SCHEDULE 7.1.(g)	Indebtedness; Total Liabilities; Liens
SCHEDULE 7.1.(h)	Material Contracts
SCHEDULE 7.1.(i)	Litigation
SCHEDULE 7.1.(r)	Affiliate Transactions

EXHIBIT A	Form of Assignment and Assumption Agreement
EXHIBIT B	Form of Borrowing Base Certificate
EXHIBIT C	Form of Environmental Indemnity Agreement
EXHIBIT D	Form of Guaranty
EXHIBIT E	Form of Notice of Borrowing
EXHIBIT F	Form of Notice of Continuation/Conversion
EXHIBIT G	[Reserved]
EXHIBIT H	Form of Notice of Swingline Borrowing
EXHIBIT I	Form of Property Management Contract Assignment
EXHIBIT J	Form of Revolving Note
EXHIBIT K	Form of Swingline Note
EXHIBIT L	Form of Opinion of Counsel
EXHIBIT M	Form of Compliance Certificate

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          THIS CREDIT AGREEMENT dated as of August 24, 2004 by and among CRT PROPERTIES, INC., (formerly known as “Koger Equity, Inc.”) a corporation formed under the laws of the State of Florida (“CRT”), CRTP OP LP, a limited partnership formed under the laws of the state of Delaware (the “Operating Partnership”, and, together with CRT, each a “Borrower” and collectively the “Borrower”), each of the financial institutions initially a signatory hereto together with their assignees under Section 13.5. (the “Lenders”), each of COMMERZBANK AG NEW YORK AND GRAND CAYMAN BRANCHES, PNC BANK, NATIONAL ASSOCIATION and UNION BANK OF CALIFORNIA N.A., as Documentation Agent (each a “Documentation Agent”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”) as the Sole Lead Arranger (the “Sole Lead Arranger”) and as contractual representative of the Lenders to the extent and in the manner provided in Article XII. (in such capacity, the “Agent”).

          WHEREAS, the Agent and the Lenders desire to make available to the Borrower a $165,000,000 revolving credit facility, which will include a $20,000,000 swingline subfacility and a $25,000,000 letter of credit subfacility, on the terms and conditions contained herein.

          NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto agree as follows:

ARTICLE I. DEFINITIONS

Section 1.1. Definitions.

          In addition to terms defined elsewhere herein, the following terms shall have the following meanings for the purposes of this Agreement:

          “Accession Agreement” means an Accession Agreement substantially in the form of Annex I to the Guaranty.

          “Accommodation Guarantor” means any Person Guaranteeing any of the Obligations as contemplated by Section 8.13.(c) and which is not otherwise required to be a Guarantor under subsection (a) of such Section.

          “ACP J/V” means an entity which owns a certain parcel of land of approximately 2.46 acres located at the southwestern corner of the intersection of West Peachtree Street and 14^th Street in Atlanta, Georgia.

          “ACP J/V Transaction” means a transaction entered into by the Borrower and a Person unaffiliated with the Borrower pursuant to which the Borrower will transfer approximately 21% of the outstanding Equity Interest in the ACP SPE to such unaffiliated Person and such unaffiliated Person will transfer approximately 79% of the outstanding Equity Interest in the ACP J/V to the Borrower.

          “ACP SPE” means Koger ACP, LLC, a Delaware limited liability company, a special purpose entity which owns the real property known as Atlantic Center Plaza in Atlanta, Georgia.

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          “Additional Costs” has the meaning given that term in Section 5.1.

          “Adjusted EBITDA” means, for a given period, (a) EBITDA for such period, minus (b) the Reserve for Replacements for such period.

          “Adjusted Net Operating Income” means, for any Property and for a given period, (a) the Net Operating Income of such Property for such period minus (b) the Reserve for Replacements for such Property for such period minus (c) the amount, if any, by which (i) an imputed management fee in an amount equal to 4% of the gross revenues for such Property for such period exceeds (ii) the actual property management fee paid during such period with respect to such Property, all as determined in accordance with GAAP.

          “Affiliate” means any Person (other than the Agent or any Lender): (a) directly or indirectly controlling, controlled by, or under common control with, the Borrower; (b) directly or indirectly owning or holding five percent (5.0%) or more of any Equity Interest in the Borrower; or (c) five percent (5.0%) or more of whose voting stock or other Equity Interest is directly or indirectly owned or held by the Borrower. For purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”) means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise. The Affiliates of a Person shall include any officer or director of such Person. In no event shall the Agent or any Lender be deemed to be an Affiliate of the Borrower.

          “Agent” means Wells Fargo Bank, National Association or any successor Agent appointed pursuant to Section 12.10.

          “Agreement Date” means the date as of which this Agreement is dated.

          “Applicable Law” means all applicable provisions of constitutions, statutes, rules, regulations and orders of all governmental bodies and all orders and decrees of all courts, tribunals and arbitrators.

          “Applicable Margin” means the percentage rate set forth below corresponding to the ratio of Total Liabilities to Gross Asset Value as determined in accordance with Section 10.1.(a) in effect at such time:

Level	Ratio of Total Liabilities to Gross Asset Value	Applicable Margin for LIBOR Loans	Applicable Margin for Base Rate Loans
1	Less than 0.35 to 1.00	.90%	0%
2	Greater than or equal to 0.35 to 1.00 but less than 0.45 to 1.00	1.00%	0%
3	Greater than or equal to 0.45 to 1.00 but less than 0.55 to 1.00	1.10%	0%
4	Greater than or equal to 0.55 to 1.00 but less than 0.60 to 1.00	1.30%	0%
5	Greater than or equal to 0.60 to 1.00	1.50%	0%

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The Applicable Margin for LIBOR Loans and for Base Rate Loans for each Level shall be increased by 0.20% during any quarter following a quarter in which the aggregate principal amount of all outstanding Loans, together with the aggregate amount of all Letter of Credit Liabilities, exceeded 65% of aggregate Borrowing Base Values of the Collateral Properties. The Applicable Margin for Revolving Loans shall be determined by the Agent from time to time, based on the ratio of Total Liabilities to Gross Asset Value as set forth in the Compliance Certificate most recently delivered by the Borrower pursuant to Section 9.3. Any such adjustment to such Applicable Margin shall be effective as of the first day of the calendar month immediately following the month during which the Borrower delivers to the Agent the applicable Compliance Certificate pursuant to Section 9.3. If the Borrower fails to deliver a Compliance Certificate pursuant to Section 9.3., the Applicable Margin shall equal the percentages corresponding to Level 5 until the date of the delivery of the required Compliance Certificate. Notwithstanding the foregoing, for the period from the Effective Date through but excluding the date on which the Applicable Margin is determined as set forth above, the Applicable Margin shall equal the percentage corresponding to Level 2. Thereafter, the Applicable Margin shall be adjusted from time to time as set forth in this definition.

          “Appraisal” means, with respect to any Property, an M.A.I. appraisal commissioned by and addressed to the Agent (acceptable to the Agent as to form, substance and appraisal date), prepared by a professional appraiser acceptable to the Agent, having at least the minimum qualifications required under Applicable Law governing the Agent and the Lenders, including without limitation, FIRREA, and determining the “as is” market value of such Property as between a willing buyer and a willing seller. An Appraisal shall disregard any value associated with any unimproved land located within the applicable Property.

          “Appraised Value” means, with respect to any Property, the “as is” market value of such Property as reflected in the most recent Appraisal of such Property as the same may have been reasonably adjusted by the Agent based upon its internal review of such Appraisal which is based on criteria and factors then generally used and considered by the Agent in determining the value of similar real estate Properties, which review shall be conducted prior to acceptance of such Appraisal by the Agent and in any event within 10 Business Days after receipt by the Agent of such Appraisal (after which 10 Business Day period the Appraisal will be deemed approved by the Agent unless Agent has advised Borrower otherwise).

          “Assignee” has the meaning given that term in Section 13.5.(c).

          “Assignment and Assumption” means an Assignment and Assumption Agreement among a Lender, an Assignee and the Agent, substantially in the form of Exhibit A.

          “Assignment of Leases and Rents” means an Assignment of Leases and Rents executed by any Loan Party in favor of the Agent for the benefit of the Lenders in form and substance reasonably satisfactory to the Agent.

          “Base Rate” means the greater of (a) the rate of interest per annum publicly announced from time to time by the Lender then acting as Agent at its principal office as its “prime rate” (which rate of interest may not be the lowest rate charged by the Lender then acting as Agent or

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any of the other Lenders on similar loans) and (b) the Federal Funds Rate plus one-half of one percent (0.5%). Each change in the Base Rate shall become effective without prior notice to the Borrower or the Lenders automatically as of the opening of business on the date of such change in the Base Rate.

          “Base Rate Loan” means a Revolving Loan bearing interest at a rate based on the Base Rate.

          “Benefit Arrangement” means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group.

          “Borrower” has the meaning set forth in the introductory paragraph hereof and shall include each Borrower’s respective successors and permitted assigns.

          “Borrowing Base” means an amount equal to 70% of the sum of the Borrowing Base Values of the Collateral Properties as determined and adjusted from time to time in accordance with Section 4.3. If the amount of the Borrowing Base otherwise attributable to Non-Stabilized Properties would exceed 50% of the Borrowing Base, then such excess shall be excluded when determining the Borrowing Base.

          “Borrowing Base Adjusted NOI” means, for any period, the Adjusted Net Operating Income for all Collateral Properties during such period.

          “Borrowing Base Certificate” means a report in substantially the form of Exhibit B, certified by the principal financial officer of the Borrower, setting forth the calculations required to establish the Borrowing Base Value for each Collateral Property and the Borrowing Base for all Collateral Properties as of a specified date, all in form and detail reasonably satisfactory to the Agent.

          “Borrowing Base Value” means, for a Collateral Property (a) that is a Stabilized Property, an amount equal to the lesser of (i) the Appraised Value of such Property and (ii) (A) the Adjusted Net Operating Income of such Eligible Property for the two fiscal quarters most recently ended multiplied by (B) two and divided by (C) the applicable Capitalization Rate and (b) that is a Non-Stabilized Property, an amount equal to the Appraised Value of such Property. Notwithstanding clause (a) above, the value of any Stabilized Property acquired during the two fiscal quarters most recently ended from any date of determination of the Borrowing Base Value of such Property shall be the lesser of (i) the Appraised Value of such Property and (ii) the purchase price paid by the Borrower or any Subsidiary for any such Property. The Borrowing Base Value of a Collateral Property shall equal $0 if (x) at any time such Property shall cease to be an Eligible Property or (y) the Agent shall cease to hold a valid and perfected first priority Lien in such Property.

          “Business Day” means (a) any day other than a Saturday, Sunday or other day on which banks in San Francisco, California are authorized or required to close and (b) with reference to a

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LIBOR Loan, any such day that is also a day on which dealings in Dollar deposits are carried out in the London interbank market.

          “Capitalization Rate” means (a) 8.5% for Class A Stabilized Properties and (b) 9.5% with respect to all other Properties.

          “Capitalized Lease Obligation” means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. The amount of a Capitalized Lease Obligation is the capitalized amount of such obligation determined in accordance with GAAP.

          “Class A Stabilized Property” means any Stabilized Property designated as such by the Borrower which designation has been approved by the Requisite Lenders. As of the Agreement Date the Class A Stabilized Properties shall include any Property designated as such on Schedule 7.1.(f).

          “Collateral” means any real or personal property directly or indirectly securing any of the Obligations or any other obligation of a Person under or in respect of any Loan Document to which it is a party, and includes, without limitation, all “Mortgaged Property” under and as defined in any Security Deed, all “Assigned Contracts” as defined in any Property Management Contract Assignment, all “Leases” and “Rents” as defined in any Assignment of Leases and Rents and all other property subject to a Lien created by a Security Document relating to a Collateral Property.

          “Collateral Property” means an Eligible Property which the Agent and the Lenders have agreed to include in calculations of the Borrowing Base pursuant to Section 4.1. and with respect to which all of the conditions contained in Section 6.3. have been satisfied.

          “Commitment” means, as to each Lender, such Lender’s obligation to make Revolving Loans pursuant to Section 2.1., to participate in Letters of Credit pursuant to Section 2.2.(i), and to participate in Swingline Loans pursuant to Section 2.3.(e), in an amount up to, but not exceeding the amount set forth for such Lender on its signature page hereto as such Lender’s “Commitment Amount” or as set forth in the applicable Assignment and Assumption Agreement, as the same may be reduced from time to time pursuant to Section 2.12. or otherwise reduced or increased pursuant to the terms of this Agreement or as appropriate to reflect any assignments to or by such Lender effected in accordance with Section 13.5.

          “Compliance Certificate” has the meaning given that term in Section 9.3.

          “Continue”, “Continuation” and “Continued” each refers to the continuation of a LIBOR Loan from one Interest Period to another Interest Period pursuant to Section 2.9.

          “Convert”, “Conversion” and “Converted” each refers to the conversion of a Revolving Loan of one Type into a Revolving Loan of another Type pursuant to Section 2.10.

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          “Credit Event” means any of the following: (a) the making (or deemed making) of any Loan, (b) the Conversion of Revolving Loan, (c) the Continuation of a LIBOR Loan and (d) the issuance of a Letter of Credit.

          “CRT” has the meaning set forth in the introductory paragraph hereof and shall include CRT’s successors and permitted assigns.

          “Default” means any of the events specified in Section 11.1., whether or not there has been satisfied any requirement for the giving of notice, the lapse of time, or both.

          “Defaulting Lender” has the meaning given that term in Section 3.10.

          “Derivatives Contract” means any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement. Not in limitation of the foregoing, the term “Derivatives Contract” includes any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement, including any such obligations or liabilities under any such master agreement.

          “Derivatives Termination Value” means, in respect of any one or more Derivatives Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Derivatives Contracts, (a) for any date on or after the date such Derivatives Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Derivatives Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Derivatives Contracts (which may include the Agent or any Lender).

          “Development Property” means a Property currently under development that has not achieved an Occupancy Rate of 75% or more or, subject to the last sentence of this definition, on which the improvements (other than tenant improvements on unoccupied space) related to the development have not been completed. The term “Development Property” shall include real property of the type described in the immediately preceding sentence to be (but not yet) acquired by the Borrower, any Subsidiary or any Unconsolidated Affiliate upon completion of construction pursuant to a contract in which the seller of such real property is required to develop or renovate prior to, and as a condition precedent to, such acquisition. A Development Property

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on which all improvements (other than tenant improvements on unoccupied space) related to the development of such Property have been completed for at least 12 months shall cease to constitute a Development Property notwithstanding the fact that such Property has not achieved an Occupancy Rate of at least 75%.

          “Dollars” or “$” means the lawful currency of the United States of America.

          “EBITDA” means, including for any period and without duplication, net earnings (loss) of the Borrower and its Subsidiaries determined on a consolidated basis for such period (including equity in net earnings or net loss of Unconsolidated Affiliates) excluding the following amounts (but only to the extent included in determining net earnings (loss) for such period): (a) depreciation and amortization expense and other non-cash charges for such period; (b) Interest Expense for such period; (c) income tax expense in respect of such period; (d) extraordinary and nonrecurring gains and losses for such period. For purposes of this definition, net earnings (loss) shall be determined before minority interests and distributions to holders of Preferred Stock.

          “Effective Date” means the later of (a) the Agreement Date and (b) the date on which all of the conditions precedent set forth in Section 6.1. shall have been fulfilled or waived in accordance with the provisions of Section 13.6.

          “Eligible Assignee” means any Person that is: (a) an existing Lender; (b) a commercial bank, trust company, savings and loan association, savings bank, insurance company, investment bank or pension fund organized under the laws of the United States of America, any state thereof or the District of Columbia, and having total assets in excess of $5,000,000,000; or (c) a commercial bank organized under the laws of any other country which is a member of the Organisation for Economic Co-operation and Development, or a political subdivision of any such country, and having total assets in excess of $10,000,000,000, provided that such bank is acting through a branch or agency located in the United States of America. If such entity is not currently a Lender, such entity’s (or in the case of a bank which is a subsidiary, such bank’s parent’s) senior unsecured long term indebtedness must be rated BBB or higher by Standard & Poor’s Rating Services, Baa2 or higher by Moody’s Investors Service, Inc. or the equivalent or higher of either such rating by another rating agency acceptable to the Agent.

          “Eligible Property” means a Property which satisfies all of the following requirements as confirmed by the Agent: (a) such Property is owned in fee simple by the Borrower or a Wholly Owned Subsidiary; (b) such Property is developed for use as office space; (c) such Property is located in a State of the United States of America or in the District of Columbia; (d) regardless of whether such Property is owned by the Borrower or a Subsidiary, the Borrower has the right directly, or indirectly through a Subsidiary, to take the following actions without the need to obtain the consent of any Person: (i) to create Liens on such Property as security for Indebtedness of the Borrower or such Subsidiary, as applicable, and (ii) to sell, transfer or otherwise dispose of such Property; (e) neither such Property, nor if such Property is owned by a Subsidiary, any of the Borrower's direct or indirect ownership interest in such Subsidiary is subject to (i) any Lien other than Permitted Liens or (ii) any Negative Pledge; (f) such Property is not a Development Property or a Major Redevelopment Property; and (g) to the Borrower’s

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knowledge, such Property is free of all structural defects, title defects, environmental conditions or other adverse matters except for defects, conditions or matters individually or collectively which are not material to the profitable operation of such Property.

          “Environmental Indemnity Agreement” means an Environmental Indemnity Agreement executed by any Loan Party in favor of the Agent and the Lenders and substantially in the form of Exhibit C.

          “Environmental Laws” means any Applicable Law relating to environmental protection or the manufacture, storage, remediation, disposal or clean-up of Hazardous Materials including, without limitation, the following: Clean Air Act, 42 U.S.C. § 7401 et seq.; Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; National Environmental Policy Act, 42 U.S.C. § 4321 et seq.; regulations of the Environmental Protection Agency and any applicable rule of common law and any judicial interpretation thereof relating primarily to the environment or Hazardous Materials.

          “Equity Interest” means, with respect to any Person, any share of capital stock of (or other ownership or profit interests in) such Person, any warrant, option or other right for the purchase or other acquisition from such Person of any share of capital stock of (or other ownership or profit interests in) such Person whether or not certificated, any security convertible into or exchangeable for any share of capital stock of (or other ownership or profit interests in) such Person or warrant, right or option for the purchase or other acquisition from such Person of such shares (or such other interests), and any other ownership or profit interest in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such share, warrant, option, right or other interest is authorized or otherwise existing on any date of determination.

          “Equity Issuance” means any issuance or sale by a Person of any Equity Interest in such Person.

          “ERISA” means the Employee Retirement Income Security Act of 1974, as in effect from time to time.

          “ERISA Group” means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code.

          “Event of Default” means any of the events specified in Section 11.1., provided that any requirement for notice or lapse of time or any other condition has been satisfied.

          “Excluded Subsidiary” means any Subsidiary (a) holding title to assets which are or are to become collateral for any secured Indebtedness of such Subsidiary and (b) which is prohibited from Guarantying the Indebtedness of any other Person pursuant to (i) any document, instrument

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or agreement evidencing such secured Indebtedness or (ii) a provision of such Subsidiary’s organizational documents which provision was included in such Subsidiary’s organizational documents as a condition to the extension of such secured Indebtedness.

          “Existing Credit Agreement” means that certain Revolving Credit Loan Agreement dated as of December 28, 2001 by and among the Borrower, the lenders party thereto, and Fleet National Bank, as Administrative Agent.

          “Facility Interest Expense” means that portion of Interest Expense attributable to the Obligations.

          “Fair Market Value” means, with respect to any asset, the price which could be negotiated in an arm’s-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction. Except as otherwise provided herein, Fair Market Value shall be determined by the Board of Directors of the Borrower (or an authorized committee thereof) acting in good faith conclusively evidenced by a board resolution thereof delivered to the Agent or, with respect to any asset valued at no more than $1,000,000, such determination may be made by the principal financial officer of the Borrower evidenced by an officer’s certificate delivered to the Agent.

          “Federal Funds Rate” means, for any day, the rate per annum (rounded upward to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent by federal funds dealers selected by the Agent on such day on such transaction as determined by the Agent.

          “Fees” means the fees and commissions provided for or referred to in Section 3.6. and any other fees payable by the Borrower hereunder or under any other Loan Document.

          “FIRREA” means the Financial Institution Recovery, Reform and Enforcement Act of 1989, as amended.

          “Fixed Charges” means, for any period, the sum of (a) Interest Expense for such period, (b) all regularly scheduled principal payments made with respect to Indebtedness of the Borrower and its Subsidiaries during such period, other than any balloon, bullet or similar principal payment which repays such Indebtedness in full, and (c) all Preferred Dividends paid by the Borrower or any Subsidiary during such period (other than any paid to the Borrower or any Subsidiary). The Borrower’s Ownership Share of the Fixed Charges of Unconsolidated Affiliates (other than intercompany amounts) of the Borrower shall be included in determinations of Fixed Charges.

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          “Funds From Operations” means, with respect to a Person and for a given period, net income (computed in accordance with GAAP) excluding gains (or losses) from debt restructuring and sales of property, plus real estate depreciation and amortization (other than amortization of deferred financing costs), and after adjustments for Unconsolidated Affiliates. Adjustments for Unconsolidated Affiliates will be calculated to reflect Funds From Operations on the same basis.

          “GAAP” means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

          “Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities.

          “Governmental Authority” means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, bureau, commission, board, department or other entity (including, without limitation, the Federal Deposit Insurance Corporation, the Comptroller of the Currency or the Federal Reserve Board, any central bank or any comparable authority) or any arbitrator with authority to bind a party at law.

          “Gross Asset Value” means, at a given time, the sum of the following (without duplication): (a) the Operating Property Value at such time, plus (b) all cash and cash equivalents (excluding tenant deposits and other cash and cash equivalents the disposition of which is restricted) of the Borrower and its Subsidiaries at such time, plus (c) the current book value of all real property of the Borrower and its Subsidiaries upon which construction is then in progress and all land held for development, plus (d) the Borrower’s respective Ownership Shares of the current book values of all real property of each Unconsolidated Affiliate upon which construction is in progress and all lands held for development, plus (e) the book value of promissory notes owned solely by the Borrower or any of its Subsidiaries, which promissory notes are (i) secured by a Lien on either real property or all of the Equity Interests of a single purpose entity which owns real estate and (ii) not in default, plus (f) the contractual purchase price of Properties of the Borrower and its Subsidiaries subject to purchase obligations, repurchase obligations, forward commitments and unfunded obligations to the extent such obligations and commitments are included in determinations of Total Liabilities. If the amount of Gross Asset Value otherwise attributable to assets of the type described in the preceding clause (e) would exceed 10% of the Gross Asset Value, then such excess shall be excluded when determining the Gross Asset Value.

          “Guarantor” means any Person that is party to the Guaranty as a “Guarantor” and shall in any event include each Wholly Owned Subsidiary of the Borrower required to become a Guarantor under Section 8.13. The term “Guarantor” shall not include any Accommodation Guarantor.

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          “Guaranty”, “Guaranteed” or to “Guarantee” as applied to any obligation means and includes: (a) a guaranty (other than by endorsement of negotiable instruments for collection in the ordinary course of business), directly or indirectly, in any manner, of any part or all of such obligation, or (b) an agreement, direct or indirect, contingent or otherwise, and whether or not constituting a guaranty, the practical effect of which is to assure the payment or performance (or payment of damages in the event of nonperformance) of any part or all of such obligation whether by: (i) the purchase of securities or obligations, (ii) the purchase, sale or lease (as lessee or lessor) of property or the purchase or sale of services primarily for the purpose of enabling the obligor with respect to such obligation to make any payment or performance (or payment of damages in the event of nonperformance) of or on account of any part or all of such obligation, or to assure the owner of such obligation against loss, (iii) the supplying of funds to or in any other manner investing in the obligor with respect to such obligation, (iv) repayment of amounts drawn down by beneficiaries of letters of credit (including Letters of Credit), or (v) the supplying of funds to or investing in a Person on account of all or any part of such Person’s obligation under a Guaranty of any obligation or indemnifying or holding harmless, in any way, such Person against any part or all of such obligation. As the context requires, “Guaranty” shall also mean the guaranty executed and delivered pursuant to Section 6.1. or 8.13. and substantially in the form of Exhibit D.

          “Hazardous Materials” means all or any of the following: (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable Environmental Laws as “hazardous substances”, “hazardous materials”, “hazardous wastes”, “toxic substances” or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, “TCLP” toxicity, or “EP toxicity”; (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or synthetic gas and drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (c) any flammable substances or explosives or any radioactive materials; (d) asbestos in any form; (e) toxic mold; and (f) electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty parts per million.

          “Indebtedness” means, with respect to a Person, at the time of computation thereof, all of the following (without duplication): (a) all obligations of such Person in respect of money borrowed; (b) all obligations of such Person (other than trade debt incurred in the ordinary course of business), whether or not for money borrowed (i) represented by notes payable, or drafts accepted, in each case representing extensions of credit, (ii) evidenced by bonds, debentures, notes or similar instruments, or (iii) constituting purchase money indebtedness, conditional sales contracts, title retention debt instruments or other similar instruments, upon which interest charges are customarily paid or that are issued or assumed as full or partial payment for property; (c) Capitalized Lease Obligations of such Person; (d) all reimbursement obligations of such Person under or in respect of any letters of credit or acceptances (whether or not the same have been presented for payment); (e) all Off-Balance Sheet Obligations of such Person; (f) net obligations under any Derivative Contract in an amount equal to the Derivatives Termination Value thereof; (g) all Indebtedness of other Persons which (i) such Person has Guaranteed or is otherwise recourse to such Person or (ii) is secured by a Lien on any property of

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such Person; (h) all Indebtedness of any partnership of which such Person is a general partner (provided, that to the extent such partnership has other general partners, or Guarantors of its Indebtedness, with sufficient net worth, as reasonably determined by Agent, to bear their pro rata share of such Indebtedness, such Person’s Indebtedness will not include such other general partner’s or Guarantor’s pro rata share thereof) and (i) such Person’s Ownership Share of the Indebtedness of any Unconsolidated Affiliate of such Person, including Nonrecourse Indebtedness of such Person.

          “Indemnity Proceeding” has the meaning given that term in Section 13.9.(a).

          “Intellectual Property” has the meaning given that term in Section 7.1.(s).

          “Interest Expense” means, for any period, without duplication, (a) all paid, accrued or capitalized interest expense (other than capitalized interest funded from a construction loan interest reserve account held by another lender and not included in the calculation of cash for balance sheet reporting purposes) of the Borrower and its Subsidiaries determined on a consolidated basis, and in any event shall include all interest expense with respect to any Indebtedness for which the Borrower or any Subsidiary is wholly or partially liable whether pursuant to any repayment, interest carry, performance Guarantee or otherwise, plus (b) to the extent not already included in the preceding clause (a) the Borrower’s Ownership Share of all paid, accrued or capitalized interest expense of Unconsolidated Affiliates of the Borrower for such period.

          “Interest Period” means, with respect to any LIBOR Loan, each period commencing on the date such LIBOR Loan is made or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrower may select in a Notice of Borrowing or Notice of Continuation/Conversion, as the case may be, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. In addition to such periods, the Borrower may, from time to time, obtain Interest Periods for LIBOR Loans having durations of less than one month so long as the requested period is available from each Lender. Notwithstanding the foregoing: (i) if any Interest Period would otherwise end after the Termination Date, such Interest Period shall end on the Termination Date; and (ii) each Interest Period that would otherwise end on a day which is not a Business Day shall end on the immediately following Business Day (or, if such immediately following Business Day falls in the next calendar month, on the immediately preceding Business Day).

          “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.

          “Investment” means, with respect to any Person, any acquisition or investment (whether or not of a controlling interest) by such Person, whether by means of any of the following: (a) the purchase or other acquisition of any Equity Interest in another Person, (b) a loan, advance or extension of credit to, capital contribution to, Guaranty of Indebtedness of, or purchase or other acquisition of any Indebtedness of, another Person, including any partnership or joint venture

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interest in such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute the business or a division or operating unit of another Person. Any commitment to make an Investment in any other Person, as well as any option of another Person to require an Investment in such Person, shall constitute an Investment. Except as expressly provided otherwise, for purposes of determining compliance with any covenant contained in a Loan Document, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

          “L/C Commitment Amount” has the meaning given to that term in Section 2.2.

          “Lender” means each financial institution from time to time party hereto as a “Lender”, together with its respective successors and permitted assigns, and, as the context requires, includes the Swingline Lender.

          “Lending Office” means, for each Lender and for each Type of Loan, the office of such Lender specified as such on its signature page hereto or in the applicable Assignment and Assumption Agreement, or such other office of such Lender as such Lender may notify the Agent in writing from time to time.

          “Letter of Credit” has the meaning given that term in Section 2.2.(a).

          “Letter of Credit Collateral Account” means a special deposit account maintained by the Agent and under its sole dominion and control.

          “Letter of Credit Documents” means, with respect to any Letter of Credit, collectively, any application therefor, any certificate or other document presented in connection with a drawing under such Letter of Credit and any other agreement, instrument or other document governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations.

          “Letter of Credit Liabilities” means at any time and in respect of any Letter of Credit, the sum, without duplication, of (a) the Stated Amount of such Letter of Credit plus (b) the aggregate unpaid principal amount of all Reimbursement Obligations of the Borrower at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Lender (other than the Lender then acting as Agent) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest under Section 2.2. in the related Letter of Credit, and the Lender then acting as Agent shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit after giving effect to the acquisition by the Lenders (other than the Lender then acting as Agent) of their participation interests under such Section.

          “LIBOR” means, for the Interest Period for any LIBOR Loan, the rate of interest, rounded upward to the nearest whole multiple of one-one hundredth of one percent (0.01%), quoted by the Agent as London InterBank Offered Rate for deposits in Dollars at approximately 9:00 a.m. San Francisco time, 2 Business Days prior to the date of commencement of such

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Interest Period for purposes of calculating effective rates of interest for loans or obligations making reference thereto for an amount approximately equal to the applicable LIBOR Loan and for a period of time approximately equal to such Interest Period.

          “LIBOR Loan” means a Revolving Loan bearing interest at a rate based on LIBOR.

          “Lien” as applied to the property of any Person means: (a) any security interest, encumbrance, mortgage, deed to secure debt, deed of trust, assignment of leases or rents, pledge, lien, charge or lease constituting a Capitalized Lease Obligation, conditional sale or other title retention agreement, or other security title or encumbrance of any kind in respect of any property of such Person, or upon the income, rents or profits therefrom; (b) any arrangement, express or implied, under which any property of such Person is transferred, sequestered or otherwise identified for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to the payment of the general, unsecured creditors of such Person; (c) the filing of any financing statement under the UCC or its equivalent in any jurisdiction; and (d) any agreement by such Person to grant, give or otherwise convey any of the foregoing.

          “Loan” means a Revolving Loan or a Swingline Loan.

          “Loan Document” means this Agreement, each Note, each Security Document, each Letter of Credit Document and each other document or instrument now or hereafter executed and delivered by a Loan Party in connection with, pursuant to or relating to this Agreement.

          “Loan Party” means each of the Borrower, each other Person (other than an Accommodation Guarantor) who guarantees all or a portion of the Obligations and/or who pledges any Collateral to secure all or a portion of the Obligations. Schedule 1.1.(A) sets forth the Loan Parties in addition to the Borrower as of the Agreement Date.

          “Major Lease” means a lease with respect to 20,000 square feet or more of the gross rentable square footage of a Collateral Property and any guaranty of such lease.

          “Major Redevelopment Property” means a Property (a) on which the existing building or other improvements are undergoing renovation and redevelopment and for which any of the following has occurred (i) construction has commenced or (ii) the Borrower, any Subsidiary or any Unconsolidated Affiliate, as the case may be, has entered into a binding construction contract or (iii) the Borrower, any Subsidiary or any Unconsolidated Affiliate, as the case may be, has entered into a binding agreement by an anchor tenant to enter into a lease of any such Property, (b) either (i) that has not achieved an Occupancy Rate of 60% or more or (ii) on which the improvements (other than tenant improvements on unoccupied space) related to the renovation and redevelopment have not been completed within the last twelve months and (c) with respect to which at least one third of the net rentable square footage of such Property is or will be required to remain unoccupied at any time during any such renovation or redevelopment. The term “Major Redevelopment Property” shall include real property of the type described in the immediately preceding sentence to be (but not yet) acquired by any such Person upon

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completion of construction pursuant to a contract in which the seller of such real property is required to renovate prior to, and as a condition precedent to, such acquisition

          “Major Tenant” means, as to any Major Lease, any tenant that is a party to such Major Lease and any guarantor of the obligations of such tenant under such Major Lease.

          “Material Adverse Effect” means a materially adverse effect on (a) the business, assets, liabilities, condition (financial or otherwise), results of operations or business prospects of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower or any other Loan Party to perform its obligations under any Loan Document to which it is a party, (c) the validity or enforceability of any of the Loan Documents, (d) the rights and remedies of the Lenders and the Agent under any of the Loan Documents or (e) the timely payment of the principal of or interest on the Loans or other amounts payable in connection therewith or the timely payment of all Reimbursement Obligations.

          “Material Contract” means (a) each Property Management Agreement, if any, with respect to a Collateral Property and (b) any other contract or other arrangement (other than Loan Documents), whether written or oral, to which the Borrower, any Subsidiary or any other Loan Party is a party and as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect.

          “Material Plan” means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $10,000,000.

          “Maximum Loan Availability” means, at any time, the lesser of (i) the Borrowing Base and (ii) the aggregate amount of the Commitments at such time.

          “Multiemployer Plan” means at any time a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period.

          “Negative Pledge” means, with respect to a given asset, any provision of a document, instrument or agreement (other than any Loan Document) which prohibits or purports to prohibit the creation or assumption of any Lien on such asset as security for Indebtedness of the Person owning such asset or any other Person.

          “Net Operating Income” means, for any Property and for a given period, the sum of the following (without duplication and determined on a basis consistent with prior periods): (a) rents and other revenues received or accrued in the ordinary course from or with respect to such Property as determined in accordance with GAAP (excluding pre-paid rents and revenues and security deposits except to the extent applied in satisfaction of tenants' obligations for rent) minus (b) all expenses paid or accrued related to the ownership, operation or maintenance of such Property, excluding the Borrower’s allocation of costs entitled corporate allocation, division allocation and center allocation and other general overhead expenses, but including, without

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limitation, the actual property management fee paid during such period with respect to such Property.

          “Net Proceeds” means with respect to an Equity Issuance by a Person, the aggregate amount of all cash or the Fair Market Value of all other property received by such Person in respect of such Equity Issuance net of investment banking fees, legal fees, accountants fees, underwriting discounts and commissions and other customary fees and expenses actually incurred by such Person in connection with such Equity Issuance.

          “Nonrecourse Indebtedness” means, with respect to a Person, Indebtedness for borrowed money in respect of which recourse for payment (except for customary exceptions for fraud, misapplication of funds, environmental indemnities, and other similar customary exceptions to recourse liability (but not exceptions relating to bankruptcy, insolvency, receivership or other similar events) in a form reasonably acceptable to the Agent) is contractually limited to specific assets of such Person encumbered by a Lien securing such Indebtedness.

          “Non-Stabilized Property” means any Property that (a) as of the end of any quarter, is not a Stabilized Property or (b) is designated as a Non-Stabilized Property by the Borrower, which designation has been approved by the Agent, in its sole discretion. Schedule 7.1.(f) sets forth the Non-Stabilized Properties of the Borrower and its Subsidiaries as of the Agreement Date.

          “Note” means a Revolving Note or a Swingline Note.

          “Notice of Borrowing” means a notice substantially in the form of Exhibit E to be delivered to the Agent pursuant to Section 2.1.(b) evidencing the Borrower’s request for a borrowing of Revolving Loans, which request is not in connection with a request for a Continuation or Conversion.

          “Notice of Continuation/Conversion” means a notice substantially in the form of Exhibit F to be delivered to the Agent pursuant to Section 2.9. evidencing the Borrower’s request for the Continuation of a LIBOR Loan, the Conversion of a Loan from one Type to another Type and/or a borrowing to be made in connection with a Continuation or Conversion.

          “Notice of Swingline Borrowing” means a notice substantially in the form of Exhibit H to be delivered to the Swingline Lender pursuant to Section 2.3.(b) evidencing the Borrower’s request for a Swingline Loan.

          “Obligations” means, individually and collectively: (a) the aggregate principal balance of, and all accrued and unpaid interest on, all Loans; (b) all Reimbursement Obligations and all other Letter of Credit Liabilities; and (c) all other indebtedness, liabilities, obligations, covenants and duties of the Borrower or any of the other Loan Parties owing to the Agent or any Lender of every kind, nature and description, under or in respect of this Agreement or any of the other Loan Documents, including, without limitation, the Fees and indemnification obligations,

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whether direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any promissory note.

          “Occupancy Rate” means, with respect to a Property at any time, the ratio, expressed as a percentage, of (a) the net rentable square footage of such Property actually occupied by tenants or subtenants paying rent pursuant to binding leases as to which no default exists to (b) the aggregate net rentable square footage of such Property.

          “Off-Balance Sheet Obligations” means liabilities and obligations of the Borrower, any Subsidiary or any other Person in respect of “off-balance sheet arrangements” (as defined in the SEC Off-Balance Sheet Rules) which the Borrower would be required to disclose in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Borrower’s report on Form 10-Q or Form 10-K (or their equivalents) which the Borrower is required to file with the Securities and Exchange Commission (or any Governmental Authority substituted therefor). As used in this definition, the term “SEC Off-Balance Sheet Rules” means the Disclosure in Management’s Discussion and Analysis About Off-Balance Sheet Arrangements, Securities Act Release No. 33-8182, 68 Fed. Reg. 5982 (Feb. 5, 2003) (codified at 17 CFR pts. 228, 229 and 249).

          “Operating Partnership” has the meaning set forth in the introductory paragraph hereof and shall include the Operating Partnership’s successors and permitted assigns.

          “Operating Property Value” means, as of a given date, the sum of (a) the Adjusted Net Operating Income for the two fiscal quarters most recently ended for all Stabilized Properties (except those Stabilized Properties acquired or disposed of by the Borrower or any Subsidiary during the immediately preceding two fiscal quarters) owned by the Borrower and its Subsidiaries, multiplied by 2 and divided by the applicable Capitalization Rate, plus (b) the purchase price paid by the Borrower or any Subsidiary for any Stabilized Property acquired by the Borrower or such Subsidiary during the immediately preceding two fiscal quarters, plus, (c) for each Non-Stabilized Property which is a Collateral Property, the Appraised Value of such Property, plus (d) for each Non-Stabilized Property of the Borrower or any Subsidiary which is not a Collateral Property, the book value of such Property (exclusive of depreciation) calculated in accordance with GAAP; provided, however, that with respect to this clause (d), if the book value of any such Non-Stabilized Property would, either individually or together with all other such Non-Stabilized Properties, exceed 10% of Gross Asset Value, the inclusion of the book value of such Non-Stabilized Property in determining Operating Property Value shall be subject to the approval of the Requisite Lenders. For purposes of determining Operating Property Value with respect to a Property owned by a Subsidiary that is not a Wholly Owned Subsidiary, only the Borrower’s Ownership Share of the Net Operating Income of such Property shall be used.

          “Ownership Share” means, with respect to any Subsidiary of a Person (other than a Wholly Owned Subsidiary) or any Unconsolidated Affiliate of a Person, the greater of (a) such Person’s relative nominal direct and indirect ownership interest (expressed as a percentage) in such Subsidiary or Unconsolidated Affiliate or (b) subject to compliance with Section 9.4.(q), such Person’s relative direct and indirect economic interest (calculated as a percentage) in such Subsidiary or Unconsolidated Affiliate determined in accordance with the applicable provisions

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of the declaration of trust, articles or certificate of incorporation, articles of organization, partnership agreement, joint venture agreement or other applicable organizational document of such Subsidiary or Unconsolidated Affiliate.

          “Participant” has the meaning given that term in Section 13.5.(b).

          “PBGC” means the Pension Benefit Guaranty Corporation and any successor agency.

          “Permitted Liens” means, with respect to any asset or property of a Person, (a) Liens securing taxes, assessments and other charges or levies imposed by any Governmental Authority (excluding any Lien imposed pursuant to any of the provisions of ERISA or pursuant to any Environmental Laws) or the claims of materialmen, mechanics, carriers, warehousemen or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, which are not at the time required to be paid or discharged under Section 8.6.; (b) Liens consisting of deposits or pledges made, in the ordinary course of business, in connection with, or to secure payment of, obligations under workers’ compensation, unemployment insurance or similar Applicable Laws; (c) Liens consisting of encumbrances in the nature of zoning restrictions, easements, and rights or restrictions of record on the use of real property, which do not materially detract from the value of such property or impair the intended use thereof in the business of such Person; (d) the rights of tenants under leases or subleases not interfering with the ordinary conduct of business of such Person; (e) Liens in existence as of the Agreement Date and described in Schedule 7.1.(g); (f) Liens on a Collateral Property listed on Schedule B to the title insurance policy insuring the Agent’s Lien in such Property; and (g) Liens in favor of the Agent for the benefit of the Lenders.

          “Person” means an individual, corporation, partnership, limited liability company, association, trust or unincorporated organization, or a government or any agency or political subdivision thereof.

          “Plan” means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group.

          “Post-Default Rate” means, in respect of any principal of any Loan or any other Obligation that is not paid when due (whether at stated maturity, by acceleration, by optional or mandatory prepayment or otherwise), a rate per annum equal to the Base Rate as in effect from time to time, plus the Applicable Margin for Base Rate Loans, plus 4.0%.

          “Preferred Dividends” means, for any period and without duplication, all Restricted Payments paid during such period on Preferred Stock issued by the Borrower or a Subsidiary. Preferred Dividends shall not include dividends or distributions (a) paid or payable solely in

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Equity Interests payable to holders of such class of Equity Interests or (b) paid or payable to the Borrower or a Subsidiary.

          “Preferred Stock” means, with respect to any Person, shares of capital stock of, or other Equity Interests in, such Person which are entitled to preference or priority over any other capital stock of, or other Equity Interest in, such Person in respect of the payment of dividends or distribution of assets upon liquidation or both.

          “Principal Office” means the Agent’s office located at 2120 East Park Place, El Segundo, California 90245, as such may be changed from time to time by notice from the Agent to the Borrower and the Lenders.

          “Pro Rata Share” means, as to each Lender, the ratio, expressed as a percentage, of (a) the amount of such Lender’s Commitment to (b) the aggregate amount of the Commitments of all Lenders hereunder; provided, however, that if at the time of determination the Commitments have terminated or been reduced to zero, the “Pro Rata Share” of each Lender shall be the Pro Rata Share of such Lender in effect immediately prior to such termination or reduction.

          “Property” means a parcel (or group of related parcels) of real property, together with any building, facility, equipment or other asset located on such parcel or parcels of real property.

          “Property Management Agreements” means, collectively, all agreements entered into by a Loan Party pursuant to which such Loan Party engages a Person to advise it with respect to the management of a given Property.

          “Property Management Contract Assignment” means a Property Management Contract Assignment executed by any Loan Party in favor of the Agent for the benefit of the Lenders substantially in the form of Exhibit I or otherwise in form and substance satisfactory to the Agent. Such document may, at the Agent’s election, constitute a subordination of Property Management Agreement, rather than an assignment thereof.

          “Protective Advance” means all sums expended as determined by the Agent to be necessary or appropriate after the Borrower fails to do so when required: (a) to protect the validity, enforceability, perfection or priority of the Liens in any of the Collateral and the instruments evidencing the Obligations; (b) to prevent the value of any Collateral from being materially diminished (assuming the lack of such a payment within the necessary time frame could potentially cause such Collateral to lose value); or (c) to protect any of the Collateral from being materially damaged, impaired, mismanaged or taken, including, without limitation, any amounts expended in connection therewith in accordance with Section 13.2.

          “Regulatory Change” means, with respect to any Lender, any change effective after the Agreement Date in Applicable Law (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks, including such Lender, of or under any Applicable Law (whether or not having the force of law and whether or not failure to

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comply therewith would be unlawful) by any Governmental Authority or monetary authority charged with the interpretation or administration thereof or compliance by any Lender with any request or directive regarding capital adequacy.

          “Reimbursement Obligation” means the absolute, unconditional and irrevocable obligation of the Borrower to reimburse the Agent for any drawing honored by the Agent under a Letter of Credit.

          “REIT” means a Person qualifying for treatment as a “real estate investment trust” under the Internal Revenue Code.

          “Requisite Lenders” means, as of any date, Lenders (which shall include the Lender then acting as Agent) having at least 66-2/3% of the aggregate amount of the Commitments, or, if the Commitments have been terminated or reduced to zero, Lenders holding at least 66-2/3% of the principal amount of the outstanding Loans and Letter of Credit Liabilities; provided, however, if there are fewer than three Lenders, the Requisite Lenders means all Lenders.

          “Reserve for Replacements” means, for any period and with respect to any Property, an amount equal to (a) the aggregate square footage of all completed space of such Property times (b) $0.50 times (c) the number of days in such period divided by (d) 365. If the term Reserve for Replacements is used without reference to any specific Property, then it shall be determined on an aggregate basis with respect to all Properties and the applicable Ownership Shares of all real property of all Unconsolidated Affiliates.

          “Restricted Payment” means: (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock or other Equity Interest of the Borrower or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class; (b) any redemption, conversion, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock or other Equity Interest of the Borrower or any of its Subsidiaries now or hereafter outstanding; and (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire any Equity Interests of the Borrower or any of its Subsidiaries now or hereafter outstanding.

          “Revolving Loan” means a loan made by a Lender to the Borrower pursuant to Section 2.1.(a).

          “Revolving Note” means a promissory note of the Borrower substantially in the form of Exhibit J, payable to the order of a Lender in a principal amount equal to the amount of such Lender’s Commitment as originally in effect and otherwise duly completed.

          “Securities Act” means the Securities Act of 1933, as amended from time to time, together with all rules and regulations issued thereunder.

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          “Security Deed” means a Deed to Secure Debt, Deed of Trust or other Mortgage executed by any Loan Party in favor of the Agent, for the benefit of the Lenders, in form and substance satisfactory to the Agent.

          “Security Document” means the Guaranty, any Security Deed, any Assignment of Leases and Rents, any Property Management Contract Assignments, and any other security agreement, financing statement, or other document, instrument or agreement creating, evidencing or perfecting the Agent’s Liens in any of the Collateral.

          “Solvent” means, when used with respect to any Person, that (a) the fair value and the fair salable value of its assets (excluding any Indebtedness due from any affiliate of such Person) are each in excess of the fair valuation of its total liabilities (including all contingent liabilities); (b) such Person is able to pay its debts or other obligations in the ordinary course as they mature; and (c) such Person has capital not unreasonably small to carry on its business.

          “Stabilized Property” means (a) a Property with an Occupancy Rate of 60% or more, or (b) any Property which the Borrower designates as a Stabilized Property; provided, however, that with respect to clause (b), the Borrower may only designate a Property which would otherwise be a Non-Stabilized Property as a Stabilized Property if (i) such Property is not a Collateral Property and (ii) if such designation would result in such Property representing a lower contribution to Gross Asset Value. Schedule 7.1.(f) sets forth the Stabilized Properties as of the Agreement Date.

          “Stated Amount” means the amount available to be drawn by a beneficiary under a Letter of Credit from time to time, as such amount may be increased or reduced from time to time in accordance with the terms of such Letter of Credit.

          “Subsidiary” means, for any Person, any corporation, partnership, limited liability company or other entity of which at least a majority of the Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other individuals performing similar functions of such corporation, partnership or other entity (without regard to the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person, and shall include all Persons the accounts of which are consolidated with those of such Person pursuant to GAAP.

          “Substantial Amount” means, at the time of determination thereof, an amount equal to more than 25.0 % of the amount of total assets in the most recent quarterly GAAP consolidated balance sheet (exclusive of depreciation) at such time of the Borrower and its Subsidiaries determined on a consolidated basis.

          “Swingline Commitment” means the Swingline Lender’s obligation to make Swingline Loans pursuant to Section 2.3. in an amount up to, but not exceeding the amount set forth in Section 2.3., as such amount may be reduced from time to time in accordance with the terms hereof.

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          “Swingline Lender” means Wells Fargo Bank, National Association, together with its respective successors and assigns.

          “Swingline Loan” means a loan made by the Swingline Lender to the Borrower pursuant to Section 2.3.

          “Swingline Note” means the promissory note of the Borrower substantially in the form of Exhibit K, payable to the order of the Swingline Lender in a principal amount equal to the amount of the Swingline Commitment as originally in effect and otherwise duly completed.

          “Swingline Termination Date” means the date which is 7 Business Days prior to the Termination Date.

          “Tangible Net Worth” means, as of a given date, the total consolidated shareholders’ equity of the Borrower and its Subsidiaries deferred on a consolidated basis plus, increases in accumulated depreciation and amortization accrued after the Agreement Date, minus (to the extent reflected in shareholders’ equity of the Borrower and its Subsidiaries): (a) the amount of any write-up in the book value of any assets reflected in any balance sheet resulting from revaluation thereof or any write-up in excess of the cost of such assets acquired, and (b) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, service marks, trade names, goodwill, treasury stock, experimental or organizational expenses and other like assets which would be classified as intangible assets under GAAP (excluding fair value of leases acquired intangible assets in accordance with Statements of Financial Accounting Standards No. 142), all determined on a consolidated basis.

          “Taxes” has the meaning given that term in Section 3.11.

          “Termination Date” means August 23, 2007 or as such date may be extended in accordance with Section 2.13.

          “Tie-In Jurisdiction” means a jurisdiction in which a “tie-in” endorsement may be obtained for a title insurance policy covering property located in such jurisdiction which endorsement effectively ties coverage to other title insurance policies covering properties located in other jurisdictions.

          “Total Budgeted Cost” means, with respect to a Development Property or a Major Redevelopment Property, and at any time, the aggregate amount of all costs budgeted to be paid, incurred or otherwise expended or accrued by the Borrower, a Subsidiary or an Unconsolidated Affiliate with respect to such Property to achieve an Occupancy Rate of 75%, including without limitation, all amounts budgeted with respect to all of the following: (a) acquisition of land and any related improvements; (b) a reasonable and appropriate reserve for construction interest; (c) a reasonable and appropriate operating deficit reserve; (d) tenant improvements, (e) leasing commissions and infrastructure costs and (f) other hard and soft costs associated with the development or redevelopment of such Property.

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          “Total Liabilities” means, as to any Person as of a given date, all liabilities which would, in conformity with GAAP, be properly classified as a liability on a consolidated balance sheet of such Person as of such date, and in any event shall include (without duplication): (a) all Indebtedness of such Person (whether or not Nonrecourse Indebtedness and whether or not secured by a Lien), including without limitation, Capitalized Lease Obligations and reimbursement obligations with respect to any letter of credit; (b) all accounts payable and accrued expenses of such Person; (c) all purchase and repurchase obligations and forward commitments of such Person to the extent such obligations or commitments are evidenced by a binding purchase agreement (forward commitments shall include without limitation (i) forward equity commitments and (ii) commitments to purchase any real property under development, redevelopment or renovation); (d) all unfunded obligations of such Person; (e) all lease obligations of such Person (including ground leases) to the extent required under GAAP to be classified as a liability on a balance sheet of such Person; (f) all contingent obligations of such Person including, without limitation, all Guarantees of Indebtedness by such Person; (g) all liabilities of any Unconsolidated Affiliate of such Person, which liabilities such Person has Guaranteed or is otherwise obligated on a recourse basis; (h) all recourse liabilities of any partnership of which such Person is a general partner (provided, that to the extent such partnership has other general partners or Guarantors of such recourse liabilities, with sufficient net worth, as reasonably determined by Agent, to bear their pro rata share of such liabilities, such Person’s Total Liabilities will not include such other general partner’s or Guarantor’s pro rata share thereof); and (i) such Person’s Ownership Share of the Indebtedness of any Unconsolidated Affiliate of such Person, including Nonrecourse Indebtedness of such Person. For purposes of clauses (c) and (d) of this definition, the amount of Total Liabilities of a Person at any given time in respect of (x) a contract to purchase or otherwise acquire unimproved or fully developed real property shall be equal to (i) the total purchase price payable by such Person under such contract if, at such time, the seller of such real property would be entitled to specifically enforce such contract against such Person, otherwise, (ii) the aggregate amount of due diligence deposits, earnest money payments and other similar payments made by such Person under such contract which, at such time, would be subject to forfeiture upon termination of the contract and (y) a contract relating to the acquisition of real property which the seller is required to develop or renovate prior to, and as a condition precedent to, such acquisition, shall equal the maximum amount reasonably estimated to be payable by such Person under such contract assuming performance by the seller of its obligations under such contract, which amount shall include, without limitation, any amounts payable after consummation of such acquisition which may be based on certain performance levels or other related criteria. For purposes of this definition, if the assets of a Subsidiary of a Person consist solely of Equity Interests in one Unconsolidated Affiliate of such Person and such Person is not otherwise obligated in respect of the Indebtedness of such Unconsolidated Affiliate, then only such Person’s Ownership Share of the Indebtedness of such Unconsolidated Affiliate shall be included as Total Liabilities of such Person.

          “Type” with respect to any Revolving Loan, refers to whether such Loan is a LIBOR Loan or a Base Rate Loan.

          “UCC” means the Uniform Commercial Code as in effect in any applicable jurisdiction.

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          “Unconsolidated Affiliate” means, with respect to any Person, any other Person in whom such Person holds an Investment, which Investment is accounted for in the financial statements of such Person on an equity basis of accounting and whose financial results would not be consolidated under GAAP with the financial results of such Person on the consolidated financial statements of such Person.

          “Unfunded Liabilities” means, with respect to any Plan at any time, the amount (if any) by which (a) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (b) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.

          “Wells Fargo” means Wells Fargo Bank, National Association, and its successors and permitted assigns.

          “Wholly Owned Subsidiary” means any Subsidiary of a Person in respect of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors’ qualifying shares) are at the time directly or indirectly owned or controlled by such Person or one or more other Subsidiaries of such Person or by such Person and one or more other Subsidiaries of such Person.

Section 1.2. General; References to San Francisco Time.

          Unless otherwise indicated, all accounting terms, ratios and measurements shall be interpreted or determined in accordance with GAAP; provided that, if at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Requisite Lenders shall so request, the Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Requisite Lenders); provided further that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. References in this Agreement to “Sections”, “Articles”, “Exhibits” and “Schedules” are to sections, articles, exhibits and schedules herein and hereto unless otherwise indicated. References in this Agreement to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, (b) shall include all documents, instruments or agreements issued or executed in replacement thereof, to the extent permitted hereby and (c) shall mean such document, instrument or agreement, or replacement or predecessor thereto, as amended, supplemented, restated or otherwise modified from time to time to the extent not prohibited hereby and in effect at any given time. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the

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masculine, the feminine and the neuter. Unless explicitly set forth to the contrary, a reference to “Subsidiary” means a Subsidiary of the Borrower or a Subsidiary of such Subsidiary and a reference to an “Affiliate” means a reference to an Affiliate of the Borrower. Titles and captions of Articles, Sections, subsections and clauses in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. Unless otherwise indicated, all references to time are references to San Francisco, California time.

ARTICLE II. CREDIT FACILITY

Section 2.1. Revolving Loans.

     (a) Making of Revolving Loans. Subject to the terms and conditions set forth in this Agreement, including without limitation, Section 2.15. below, each Lender severally and not jointly agrees to make Revolving Loans to the Borrower during the period from and including the Effective Date to but excluding the Termination Date, in an aggregate principal amount at any one time outstanding up to, but not exceeding, such Lender’s Pro Rata Share of the Maximum Loan Availability (but in no event in excess of such Lender’s Commitment). Within the foregoing limits and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow Revolving Loans.

     (b) Requests for Revolving Loans. Not later than 9:00 a.m. San Francisco time at least two (2) Business Days prior to a borrowing of Base Rate Loans and not later than 9:00 a.m. San Francisco time at least three (3) Business Days prior to a borrowing of LIBOR Loans, the Borrower shall deliver to the Agent a Notice of Borrowing or, if the borrowing is to be made in connection with a Continuation or Conversion, a Notice of Continuation/Conversion. Each Notice of Borrowing shall specify the aggregate principal amount of the Revolving Loans to be borrowed, the date such Revolving Loans are to be borrowed (which must be a Business Day), the use of the proceeds of such Revolving Loans, the Type of the requested Revolving Loans, and if such Revolving Loans are to be LIBOR Loans, the initial Interest Period for such Revolving Loans. Each Notice of Borrowing or Notice of Continuation/Conversion shall be irrevocable once given and binding on the Borrower. Prior to delivering a Notice of Borrowing, the Borrower may (without specifying whether a Revolving Loan will be a Base Rate Loan or a LIBOR Loan) request that the Agent provide the Borrower with the most recent LIBOR available to the Agent. The Agent shall provide such quoted rate to the Borrower and to the Lenders on the date of such request or as soon as possible thereafter.

     (c) Funding of Revolving Loans. Promptly after receipt of a Notice of Borrowing or Notice of Continuation/Conversion under the immediately preceding subsection (b), the Agent shall notify each Lender by telex or telecopy, or other similar form of transmission of the proposed borrowing. Each Lender shall deposit an amount equal to the Revolving Loan to be made by such Lender to the Borrower with the Agent at the Principal Office, in immediately available funds not later than 9:00 a.m. San Francisco time on the date of such proposed Revolving Loans. Subject to fulfillment of all applicable conditions set forth herein, the Agent shall make available to the Borrower at the Principal Office, not later than 10:00 a.m. San Francisco time on the date of the requested borrowing of Revolving Loans, the proceeds of such amounts received by the Agent. No Lender shall be responsible for the failure of any other Lender to make a Loan or to perform any other obligation to be made or performed by such other

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Lender hereunder, and the failure of any Lender to make a Loan or to perform any other obligation to be made or performed by it hereunder shall not relieve the obligation of any other Lender to make any Loan or to perform any other obligation to be made or performed by such other Lender.

     (d) Assumptions Regarding Funding by Lenders. With respect to Revolving Loans to be made after the Effective Date, unless the Agent shall have been notified by any Lender that such Lender will not make available to the Agent a Revolving Loan to be made by such Lender, the Agent may assume that such Lender will make the proceeds of such Revolving Loan available to the Agent in accordance with this Section and the Agent may (but shall not be obligated to), in reliance upon such assumption, make available to the Borrower the amount of such Revolving Loan to be provided by such Lender.

Section 2.2. Letters of Credit.

     (a) Letters of Credit. Subject to the terms and conditions of this Agreement, including without limitation, Section 2.15., the Agent, on behalf of the Lenders, agrees to issue for the account of the Borrower during the period from and including the Effective Date to, but excluding, the date 30 days prior to the Termination Date, one or more standby letters of credit (each a “Letter of Credit”) up to a maximum aggregate Stated Amount at any one time outstanding not to exceed $25,000,000 as such amount may be reduced from time to time in accordance with the terms hereof (the “L/C Commitment Amount”).

     (b) Terms of Letters of Credit. At the time of issuance, the amount, form, terms and conditions of each Letter of Credit, and of any drafts or acceptances thereunder, shall be subject to approval by the Agent and the Borrower. Notwithstanding the foregoing, in no event may (i) the expiration date of any Letter of Credit extend beyond the Termination Date or (ii) any Letter of Credit have an initial duration in excess of one year; provided, however, a Letter of Credit may contain a provision providing for the automatic extension of the expiration date in the absence of a notice of non-renewal from the Agent but in no event shall any such provision permit the extension of the expiration date of such Letter of Credit beyond the Termination Date.

     (c) Requests for Issuance of Letters of Credit. The Borrower shall give the Agent written notice at least 5 Business Days prior to the requested date of issuance of a Letter of Credit, such notice to describe in reasonable detail the proposed terms of such Letter of Credit and the nature of the transactions or obligations proposed to be supported by such Letter of Credit, and in any event shall set forth with respect to such Letter of Credit the proposed (i) initial Stated Amount, (ii) the beneficiary, and (iii) expiration date. The Borrower shall also execute and deliver such customary applications and agreements for standby letters of credit, and other forms as requested from time to time by the Agent. Provided the Borrower has given the notice prescribed by the first sentence of this subsection and delivered such application and agreements referred to in the preceding sentence, subject to the other terms and conditions of this Agreement, including the satisfaction of any applicable conditions precedent set forth in Article 6.2., the Agent shall issue the requested Letter of Credit on the requested date of issuance for the benefit of the stipulated beneficiary but in no event later than the date 5 Business Days following the date after which the Agent has received all of the items required to be delivered to it under this subsection. Upon the written request of the Borrower, the Agent shall deliver to the

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Borrower a copy of (i) any Letter of Credit proposed to be issued hereunder prior to the issuance thereof and (ii) each issued Letter of Credit within a reasonable time after the date of issuance thereof. To the extent any term of a Letter of Credit Document is inconsistent with a term of any Loan Document, the term of such Loan Document shall control. Within 5 Business Days after the issuance of the requested Letter of Credit, the Agent shall notify each Lender of the issuance of such Letter of Credit including the date such Letter of Credit was issued and such information concerning the Letter of Credit delivered by the Borrower pursuant to the first sentence of this subsection.

     (d) Reimbursement Obligations. Upon receipt by the Agent from the beneficiary of a Letter of Credit of any demand for payment under such Letter of Credit, the Agent shall promptly notify the Borrower of the amount to be paid by the Agent as a result of such demand and the date on which payment is to be made by the Agent to such beneficiary in respect of such demand. The Borrower hereby absolutely, unconditionally and irrevocably agrees to pay and reimburse the Agent for the amount of each demand for payment under such Letter of Credit at or prior to the date on which payment is to be made by the Agent to the beneficiary thereunder, without presentment, demand, protest or other formalities of any kind. Upon receipt by the Agent of any payment in respect of any Reimbursement Obligation, the Agent shall promptly pay to each Lender that has acquired a participation therein under the second sentence of the following subsection (i) such Lender’s Pro Rata Share of such payment.

     (e) Manner of Reimbursement. Upon its receipt of a notice referred to in the immediately preceding subsection (d), the Borrower shall advise the Agent whether or not the Borrower intends to borrow hereunder to finance its obligation to reimburse the Agent for the amount of the related demand for payment and, if it does, the Borrower shall submit a timely request for such borrowing as provided in the applicable provisions of this Agreement. If the Borrower fails to so advise the Agent, or if the Borrower fails to reimburse the Agent for a demand for payment under a Letter of Credit by the date of such payment, then the Agent shall give each Lender prompt notice thereof and of the amount of the demand for payment, specifying such Lender’s Pro Rata Share of the amount of the related demand for payment and the provisions of subsection (j) of this Section shall apply.

     (f) Effect of Letters of Credit on Commitments. Upon the issuance by the Agent of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Commitment of each Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to the product of (i) such Lender’s Pro Rata Share and (ii) the sum of (A) the Stated Amount of such Letter of Credit plus (B) any related Reimbursement Obligations then outstanding.

     (g) Agent’s Duties Regarding Letters of Credit; Unconditional Nature of Reimbursement Obligations. In examining documents presented in connection with drawings under Letters of Credit and making payments under such Letters of Credit against such documents, the Agent shall only be required to use the same standard of care as it uses in connection with examining documents presented in connection with drawings under letters of credit in which it has not sold participations and making payments under such letters of credit. The Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit

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by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, neither the Agent nor any of the Lenders shall be responsible for (i) the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of or any drawing honored under any Letter of Credit even if such document should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit, or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telex, telecopy or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit, or of the proceeds thereof; (vii) the misapplication by the beneficiary of any Letter of Credit, or of the proceeds of any drawing under any Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Agent or the Lenders. None of the above shall affect, impair or prevent the vesting of any of the Agent’s rights or powers hereunder. Any action taken or omitted to be taken by the Agent under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not create against the Agent any liability to the Borrower or any Lender. In this connection, the obligation of the Borrower to reimburse the Agent for any drawing made under any Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement or any other applicable Letter of Credit Document under all circumstances whatsoever, other than Agent’s gross negligence or willful misconduct as determined by a final order of a court of competent jurisdiction for which no appeal or further review is pending and for which all applicable periods for appeal or further review have expired, including without limitation, the following circumstances: (A) any lack of validity or enforceability of any Letter of Credit Document or any term or provisions therein; (B) any amendment or waiver of or any consent to departure from all or any of the Letter of Credit Documents; (C) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against the Agent, any Lender, any beneficiary of a Letter of Credit or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or in the Letter of Credit Documents or any unrelated transaction; (D) any breach of contract or dispute between the Borrower, the Agent, any Lender or any other Person; (E) any demand, statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein or made in connection therewith being untrue or inaccurate in any respect whatsoever; (F) any non-application or misapplication by the beneficiary of a Letter of Credit or of the proceeds of any drawing under such Letter of Credit; (G) payment by the Agent under the Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of the Letter of Credit; and (H) any other act, omission to act, delay or circumstance whatsoever that might, but for the provisions of this Section, constitute a legal or equitable defense to or discharge of the Borrower’s Reimbursement Obligations.

     (h) Amendments, Etc. The issuance by the Agent of any amendment, supplement or other modification to any Letter of Credit shall be subject to the same conditions applicable

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under this Agreement to the issuance of new Letters of Credit (including, without limitation, that the request therefor be made through the Agent), and no such amendment, supplement or other modification shall be issued unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such amended, supplemented or modified form or (ii) the Agent and Requisite Lenders shall have consented thereto. In connection with any such amendment, supplement or other modification, the Borrower shall pay the fees, if any, payable under the last sentence of Section 3.6.(c).

     (i) Lenders’ Participation in Letters of Credit. Immediately upon the issuance by the Agent of any Letter of Credit each Lender shall be deemed to have absolutely, irrevocably and unconditionally purchased and received from the Agent, without recourse or warranty, an undivided interest and participation to the extent of such Lender’s Pro Rata Share of the liability of the Agent with respect to such Letter of Credit and each Lender thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Agent to pay and discharge when due, such Lender’s Pro Rata Share of the Agent’s liability under such Letter of Credit. In addition, upon the making of each payment by a Lender to the Agent in respect of any Letter of Credit pursuant to the immediately following subsection (j), such Lender shall, automatically and without any further action on the part of the Agent or such Lender, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Agent by the Borrower in respect of such Letter of Credit and (ii) a participation in a percentage equal to such Lender’s Pro Rata Share in any interest or other amounts payable by the Borrower in respect of such Reimbursement Obligation (other than the Fees payable to the Agent pursuant to the last sentence of Section 3.6.(c)).

     (j) Payment Obligation of Lenders. Each Lender severally agrees to pay to the Agent on demand in immediately available funds in Dollars the amount of such Lender’s Pro Rata Share of each drawing paid by the Agent under each Letter of Credit to the extent such amount is not reimbursed by the Borrower pursuant to the immediately preceding subsection (d); provided, however, that in respect of any drawing under any Letter of Credit, the maximum amount that any Lender shall be required to fund, whether as a Revolving Loan or as a participation, shall not exceed such Lender’s Pro Rata Share of such drawing. Each Lender’s obligation to make such payments to the Agent under this subsection, and the Agent’s right to receive the same, shall be absolute, irrevocable and unconditional and shall not be affected in any way by any circumstance whatsoever, including without limitation, (i) the failure of any other Lender to make its payment under this subsection, (ii) the financial condition of the Borrower or any other Loan Party, (iii) the existence of any Default or Event of Default, including any Event of Default described in Section 11.1.(e) or (f) or (iv) the termination of the Commitments. Each such payment to the Agent shall be made without any offset, abatement, withholding or deduction whatsoever.

     (k) Information to Lenders. Promptly following any change in Letters of Credit outstanding, the Agent shall deliver to each Lender and the Borrower a notice describing the aggregate amount of all Letters of Credit outstanding at such time. Upon the request of any Lender from time to time, the Agent shall deliver any other information reasonably requested by such Lender with respect to each Letter of Credit then outstanding. Other than as set forth in this subsection and the last sentence of subsection (c) above, the Agent shall have no duty to notify the Lenders regarding the issuance or other matters regarding Letters of Credit issued hereunder.

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The failure of the Agent to perform its requirements under this subsection or under the last sentence of subsection (c) above shall not relieve any Lender from its obligations under the immediately preceding subsection (j).

Section 2.3. Swingline Loans.

          (a) Swingline Loans. Subject to the terms and conditions hereof, including without limitation Section 2.15., the Swingline Lender agrees to make Swingline Loans to the Borrower, during the period from the Effective Date to but excluding the Swingline Termination Date, in an aggregate principal amount at any one time outstanding up to, but not exceeding, $20,000,000, as such amount may be reduced from time to time in accordance with the terms hereof. If at any time the aggregate principal amount of the Swingline Loans outstanding at such time exceeds the Swingline Commitment in effect at such time, the Borrower shall immediately pay the Agent for the account of the Swingline Lender the amount of such excess. Subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow Swingline Loans hereunder. The borrowing of a Swingline Loan shall not constitute usage of any Lender’s Commitment for purposes of calculation of the fee payable under Section 3.6.(b).

          (b) Procedure for Borrowing Swingline Loans. The Borrower shall give the Agent and the Swingline Lender notice pursuant to a Notice of Swingline Borrowing delivered no later than 9:00 a.m. San Francisco time on the proposed date of such borrowing. Any such telephonic notice shall include all information to be specified in a written Notice of Swingline Borrowing. Not later than 11:00 a.m. San Francisco time on the date of the requested Swingline Loan and subject to satisfaction of the applicable conditions set forth in Article 6.2. for such borrowing, the Swingline Lender will make the proceeds of such Swingline Loan available to the Borrower in Dollars, in immediately available funds, at the account specified by the Borrower in the Notice of Swingline Borrowing.

          (c) Interest. Swingline Loans shall bear interest at a per annum rate equal to the Base Rate as in effect from time to time plus the Applicable Margin for Base Rate Loans or at such other rate or rates as the Borrower and the Swingline Lender may agree from time to time in writing. All accrued and unpaid interest on Swingline Loans shall be payable on the dates and in the manner provided in Section 2.4. with respect to interest on Base Rate Loans (except as the Swingline Lender and the Borrower may otherwise agree in writing in connection with any particular Swingline Loan).

          (d) Swingline Loan Prepayments, Etc. The Borrower must give the Swingline Lender prior written notice of any prepayment of Swingline Loans no later than 10:00 a.m. San Francisco time on the day prior to the date of such prepayment. The Swingline Loans shall, in addition to this Agreement, be evidenced by the Swingline Note.

          (e) Repayment and Participations of Swingline Loans. The Borrower agrees to repay each Swingline Loan within 7 Business Days after the date such Swingline Loan was made. Notwithstanding the foregoing, the Borrower shall repay the entire outstanding principal amount of, and all accrued but unpaid interest on, the Swingline Loans on the Swingline Termination Date (or such earlier date as the Swingline Lender and the Borrower may agree in writing). In lieu of demanding repayment of any outstanding Swingline Loan from the Borrower, the

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Swingline Lender may, on behalf of the Borrower (which hereby irrevocably directs the Swingline Lender to act on its behalf), request a borrowing of Base Rate Loans from the Lenders in an amount equal to the principal balance of such Swingline Loan. The amount limitations contained in the second sentence of Section 2.1. shall not apply to any borrowing of Base Rate Loans made pursuant to this subsection. The Swingline Lender shall give notice to the Agent of any such borrowing of Base Rate Loans not later than 9:00 a.m. San Francisco time at least one Business Day prior to the proposed date of such borrowing. Not later than 9:00 a.m. San Francisco time on the proposed date of such borrowing, each Lender will make available to the Agent at the Principal Office for the account of the Swingline Lender, in immediately available funds, the proceeds of the Base Rate Loan to be made by such Lender. The Agent shall pay the proceeds of such Base Rate Loans to the Swingline Lender, which shall apply such proceeds to repay such Swingline Loan. If the Lenders are prohibited from making Loans required to be made under this subsection for any reason whatsoever, including without limitation, the occurrence of any of the Defaults or Events of Default described in Sections 11.1.(e) or (f), each Lender shall purchase from the Swingline Lender, without recourse or warranty, an undivided interest and participation to the extent of such Lender’s Pro Rata Share of such Swingline Loan, by directly purchasing a participation in such Swingline Loan in such amount and paying the proceeds thereof to the Agent for the account of the Swingline Lender in Dollars and in immediately available funds. A Lender’s obligation to purchase such a participation in a Swingline Loan shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including without limitation, (i) any claim of setoff, counterclaim, recoupment, defense or other right which such Lender or any other Person may have or claim against the Agent, the Swingline Lender or any other Person whatsoever, (ii) the occurrence or continuation of a Default or Event of Default (including without limitation, any of the Defaults or Events of Default described in Sections 11.1. (e) or (f)), or the termination of any Lender’s Commitment, (iii) the existence (or alleged existence) of an event or condition which has had or could have a Material Adverse Effect, (iv) any breach of any Loan Document by the Agent, any Lender, the Borrower or any other Loan Party, or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If such amount is not in fact made available to the Swingline Lender by any Lender, the Swingline Lender shall be entitled to recover such amount on demand from such Lender, together with accrued interest thereon for each day from the date of demand thereof, at the Federal Funds Rate. If such Lender does not pay such amount forthwith upon the Swingline Lender’s demand therefor, and until such time as such Lender makes the required payment, the Swingline Lender shall be deemed to continue to have outstanding Swingline Loans in the amount of such unpaid participation obligation for all purposes of the Loan Documents (other than those provisions requiring the other Lenders to purchase a participation therein). Further, such Lender shall be deemed to have assigned any and all payments made of principal and interest on its Loans, and any other amounts due it hereunder, to the Swingline Lender to fund Swingline Loans in the amount of the participation in Swingline Loans that such Lender failed to purchase pursuant to this Section until such amount has been purchased (as a result of such assignment or otherwise).

Section 2.4. Rates and Payment of Interest on Loans.

     (a) Rates. The Borrower promises to pay to the Agent for the account of each Lender interest on the unpaid principal amount of each Loan made by such Lender for the period from

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and including the date of the making of such Loan to but excluding the date such Loan shall be paid in full, at the following per annum rates:

     (i) during such periods as such Loan is a Base Rate Loan, at the Base Rate (as in effect from time to time), plus the Applicable Margin for Base Rate Loans; and

     (ii) during such periods as such Loan is a LIBOR Loan, at LIBOR for such Loan for the Interest Period therefor, plus the Applicable Margin for LIBOR Loans.

Notwithstanding the foregoing, during the continuance of an Event of Default, the Borrower shall pay to the Agent for the account of each Lender interest at the Post-Default Rate on the outstanding principal amount of any Loan made by such Lender, on all Reimbursement Obligations and on any other amount payable by the Borrower hereunder or under the Notes held by such Lender to or for the account of such Lender (including without limitation, accrued but unpaid interest to the extent permitted under Applicable Law).

     (b) Payment of Interest. All accrued and unpaid interest on the outstanding principal amount of each Loan shall be payable (i) monthly in arrears on the first day of each month, commencing with the first full calendar month occurring after the Effective Date and (ii) on any date on which the principal balance of such Loan is due and payable in full (whether at maturity, due to acceleration or otherwise). Interest payable at the Post-Default Rate shall be payable from time to time on demand. All determinations by the Agent of an interest rate hereunder shall be conclusive and binding on the Lenders and the Borrower for all purposes, absent manifest error.

Section 2.5. Number of Interest Periods.

     There may be no more than 8 different Interest Periods outstanding at the same time.

Section 2.6. Repayment of Loans.

     The Borrower shall repay the entire outstanding principal amount of, and all accrued but unpaid interest on, the Revolving Loans on the Termination Date.

Section 2.7. Prepayments.

     (a) Optional. Subject to Section 5.4., the Borrower may prepay any Loan at any time without premium or penalty. The Borrower shall give the Agent at least 3 Business Days prior written notice of the prepayment of any Loan.

     (b) Mandatory.

     (i) Commitment Overadvance. If at any time the aggregate principal amount of all outstanding Loans, together with the aggregate amount of all Letter of Credit Liabilities, exceeds the aggregate amount of the Commitments, the Borrower shall immediately upon demand pay to the Agent for the account of the Lenders, the amount of such excess.

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     (ii) Borrowing Base Overadvance. If at any time the aggregate principal amount of all outstanding Loans, together with the aggregate amount of all Letter of Credit Liabilities, exceeds the Borrowing Base, the Borrower shall within 30 days of the Borrower obtaining knowledge of the occurrence of any such excess, deliver to the Agent for prompt distribution to each Lender a written plan acceptable to all of the Lenders to eliminate such excess. If such excess is not eliminated within 90 days of the Borrower obtaining knowledge of the occurrence thereof, then the entire outstanding principal balance of all Loans, together with all accrued interest thereon, and an amount equal to all Letter of Credit Liabilities for deposit into the Letter of Credit Collateral Account, shall be immediately due and payable in full.

All payments under this subsection (b) shall be applied to pay all amounts of excess principal outstanding on the applicable Loans and any applicable Reimbursement Obligations in accordance with Section 3.2., and the remainder, if any, shall be deposited into the Letter of Credit Collateral Account for application to any Reimbursement Obligations as and when due.

Section 2.8. Late Charges.

     If any payment required under this Agreement is not paid within 10 days after it becomes due and payable, the Borrower shall pay a late charge for late payment to compensate the Lenders for the loss of use of funds and for the expenses of handling the delinquent payment, in an amount equal to four percent (4%) of such delinquent payment. Such late charge shall be paid in any event not later than the due date of the next subsequent installment of principal and/or interest. In the event the maturity of the Obligations hereunder occurs or is accelerated pursuant to Section 11.2., this Section shall apply only to payments overdue prior to the time of such acceleration. This Section shall not be deemed to be a waiver of the Lenders’ right to accelerate payment of any of the Obligations as permitted under the terms of this Agreement.

Section 2.9. Continuation.

     So long as no Default or Event of Default exists, the Borrower may on any Business Day, with respect to any LIBOR Loan, elect to maintain such LIBOR Loan or any portion thereof as a LIBOR Loan by selecting a new Interest Period for such LIBOR Loan. Each new Interest Period selected under this Section shall commence on the last day of the immediately preceding Interest Period. Each selection of a new Interest Period shall be made by the Borrower giving to the Agent a Notice of Continuation/Conversion not later than 9:00 a.m. on the third Business Day prior to the date of any such Continuation. Such notice by the Borrower of a Continuation shall be by telecopy, electronic mail or other form of communication in the form of a Notice of Continuation/Conversion, specifying (a) the proposed date of such Continuation, (b) the LIBOR Loan and portion thereof subject to such Continuation and (c) the duration of the selected Interest Period, all of which shall be specified in such manner as is necessary to comply with all limitations on Loans outstanding hereunder. Each Notice of Continuation/Conversion shall be irrevocable by and binding on the Borrower once given. Promptly after receipt of a Notice of Continuation/Conversion, the Agent shall notify each Lender by telecopy, electronic mail or other similar form of transmission of the proposed Continuation. If the Borrower shall fail to select in a timely manner a new Interest Period for any LIBOR Loan in accordance with this Section, such Loan will automatically, on the last day of the current Interest Period therefor,

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Convert into a Base Rate Loan notwithstanding failure of the Borrower to comply with Section 2.10.

Section 2.10. Conversion.

     So long as no Default or Event of Default exists, the Borrower may on any Business Day, upon the Borrower’s giving of a Notice of Continuation/Conversion to the Agent, Convert all or a portion of a Loan of one Type into a Loan of another Type. Any Conversion of a LIBOR Loan into a Base Rate Loan shall be made on, and only on, the last day of an Interest Period for such LIBOR Loan and, upon Conversion of a Base Rate Loan into a LIBOR Loan, the Borrower shall pay accrued interest to the date of Conversion on the principal amount so Converted. Each such Notice of Continuation/Conversion shall be given not later than 9:00 a.m. one Business Day prior to the date of any proposed Conversion into Base Rate Loans and three Business Days prior to the date of any proposed Conversion into LIBOR Loans. Promptly after receipt of a Notice of Continuation/Conversion, the Agent shall notify each Lender by telecopy, electronic mail or other similar form of transmission of the proposed Conversion. Subject to the restrictions specified above, each Notice of Continuation/Conversion shall be by telecopy in the form of a Notice of Continuation/Conversion specifying (a) the requested date of such Conversion, (b) the Type of Loan to be Converted, (c) the portion of such Type of Loan to be Converted, (d) the Type of Loan such Loan is to be Converted into and (e) if such Conversion is into a LIBOR Loan, the requested duration of the Interest Period of such Loan. Each Notice of Continuation/Conversion shall be irrevocable by and binding on the Borrower once given.

Section 2.11. Notes.

     The Revolving Loans made by each Lender shall, in addition to this Agreement, also be evidenced by a Revolving Note, payable to the order of such Lender in a principal amount equal to the amount of its Commitment as originally in effect and otherwise duly completed. The Swingline Loans made by the Swingline Lender to the Borrower shall, in addition to this Agreement, also be evidenced by a Swingline Note payable to the order of the Swingline Lender.

Section 2.12. Voluntary Reductions of the Commitment.

     The Borrower may terminate or reduce the amount of the Commitments (for which purpose use of the Commitments shall be deemed to include the aggregate principal amount of all outstanding Swingline Loans) at any time and from time to time without penalty or premium upon not less than five (5) Business Days prior notice to the Agent of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction and shall be irrevocable once given and effective only upon receipt by the Agent (“Prepayment Notice”); provided, however, the Borrower may not reduce the aggregate amount of the Commitments below $100,000,000 unless the Borrower is terminating the Commitments in full. Promptly after receipt of a Prepayment Notice the Agent shall notify each Lender by telecopy, or other similar form of transmission of the proposed termination or Commitment reduction. The Commitments, once reduced pursuant to this Section, may not be increased. The Borrower shall pay all interest and fees, on the Loans accrued to the date of such reduction or termination of the Commitments to the Agent for the account of the Lenders, including but not

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limited to any applicable compensation due to each Lender in accordance with Section 5.4. of this Agreement.

Section 2.13. Extension of Termination Date.

     (a) Generally. The Borrower shall have the right, exercisable one time, to extend the current Termination Date by one year. To exercise such right the Borrower shall execute and deliver a written request to the Agent at least 90 days but not more than 120 days prior to the Termination Date. If the Agent shall receive such a request, the Agent shall forward a copy of it to each Lender promptly upon receipt thereof. Subject to satisfaction of the following conditions, the Termination Date shall be extended for one year: (a) immediately prior to such extension and immediately after giving effect thereto, (i) no Default or Event of Default shall exist and (ii) the representations and warranties made or deemed made by the Borrower and each other Loan Party in the Loan Documents to which any of them is a party, shall be true and correct in all material respects on and as of the date of such extension with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct on and as of such earlier date) and except for changes in factual circumstances not prohibited under the Loan Documents and (b) the Borrower shall have paid the Fees payable under Section 3.6.(d).

Section 2.14. Expiration or Maturity Date of Letters of Credit Past Termination Date.

     If on the date the Commitments are terminated or reduced to zero (whether voluntarily, by reason of the occurrence of an Event of Default or otherwise), there are any Letters of Credit outstanding hereunder, the Borrower shall, on such date, pay to the Agent an amount of money equal to the Stated Amount of such Letter(s) of Credit for deposit into the Letter of Credit Collateral Account.

Section 2.15. Amount Limitations.

     Notwithstanding any other term of this Agreement or any other Loan Document, no Lender shall be required to make any Loan, and the Agent shall not be required to issue any Letter of Credit if, immediately after the making of such Loan or issuance of such Letter of Credit the aggregate principal amount of all outstanding Loans, together with the aggregate amount of all Letter of Credit Liabilities, would exceed the Maximum Loan Availability.

Section 2.16. Increase in Commitments.

     The Borrower shall have the right to request increases in the aggregate amount of the Commitments by providing written notice to the Agent, which notice shall be irrevocable once given; provided, however, that after giving effect to any such increases the aggregate amount of the Commitments shall not exceed $250,000,000. Each such increase in the Commitments must be an aggregate minimum amount of $20,000,000 and integral multiples of $5,000,000 in excess thereof. The Agent shall promptly notify each Lender of any such request. No Lender shall be obligated in any way whatsoever to increase its Commitment. If a new Lender becomes a party

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to this Agreement, or if any existing Lender agrees to increase its Commitment, such Lender shall on the date it becomes a Lender hereunder (or in the case of an existing Lender, increases its Commitment) (and as a condition thereto) purchase from the other Lenders its Pro Rata Share (determined with respect to the Lenders’ relative Commitments and after giving effect to the increase of Commitments) of any outstanding Loans, by making available to the Agent for the account of such other Lenders, in same day funds, an amount equal to the sum of (A) the portion of the outstanding principal amount of such Loans to be purchased by such Lender plus (B) interest accrued and unpaid to and as of such date on such portion of the outstanding principal amount of such Loans. The Borrower shall pay to the Lenders amounts payable, if any, to such Lenders under Section 5.4. as a result of the prepayment of any such Loans. No increase of the Commitments may be effected under this Section if either (x) a Default or Event of Default shall be in existence on the effective date of such increase or (y) any representation or warranty made or deemed made by the Borrower or any other Loan Party in any Loan Document to which such Loan Party is a party is not (or would not be) true or correct on the effective date of such increase except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted hereunder. In connection with any increase in the aggregate amount of the Commitments pursuant to this Section (a) any Lender becoming a party hereto shall execute such documents and agreements as the Agent may reasonably request, (b) the Borrower shall make appropriate arrangements so that each new Lender, and any existing Lender increasing its Commitment, receives a new or replacement Note, as appropriate, in the amount of such Lender’s Commitment at the time of the effectiveness of the applicable increase in the aggregate amount of Commitments and (c) the Borrower shall deliver, or cause to be delivered, such modifications to any of the Security Documents, and endorsements to any title insurance polices relating to any of the Collateral Properties, in each case, as the Agent may request to evidence the increase of the aggregate amount of the Commitments, and in connection therewith, and the Borrower will pay any and all stamp, intangible, registration, recordation and similar taxes, fees or charges which may be payable or determined to be payable in connection with the execution, delivery or recording of any such modifications to the Security Documents, Lenders will cooperate reasonably with Borrower to structure the replacement of documents so as to minimize applicable taxes.

Section 2.17. Joint and Several Liability.

     (a) The obligations of each Borrower hereunder and under the other Loan Documents to which either Borrower is a party shall be joint and several, and accordingly, each Borrower confirms that it is liable for the full amount of the Obligations, regardless of whether incurred by such Borrower or the other Borrower.

     (b) Each Borrower represents and warrants to the Agent and the Lenders that each Borrower, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses as an integrated operation and have determined it to be in their mutual best interests to obtain financing from the Lenders through their collective efforts.

     (c) None of the Lenders or the Agent shall be obligated or required before enforcing any Loan Document against a Borrower: (a) to pursue any right or remedy any of them may

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have against the other Borrower, any Guarantor or any other Person or commence any suit or other proceeding against the other Borrower, any Guarantor or any other Person in any court or other tribunal; (b) to make any claim in a liquidation or bankruptcy of the other Borrower, any Guarantor or any other Person; or (c) to make demand of the other Borrower, any Guarantor or any other Person or to enforce or seek to enforce or realize upon any collateral security held by the Lenders or the Agent which may secure any of the Obligations.

     (d) It is the intent of each Borrower, the Agent and the Lenders that in any proceeding of the types described in Sections 11.1.(e) or 11.1.(f), a Borrower’s maximum obligation hereunder shall equal, but not exceed, the maximum amount which would not otherwise cause the obligations of such Borrower hereunder (or any other obligations of such Borrower to the Agent and the Lenders) to be avoidable or unenforceable against such Borrower in such proceeding as a result of Applicable Law, including without limitation, (i) Section 548 of the Bankruptcy Code and (ii) any state fraudulent transfer or fraudulent conveyance act or statute applied in such proceeding, whether by virtue of Section 544 of the Bankruptcy Code or otherwise. The Applicable Laws under which the possible avoidance or unenforceability of the obligations of such Borrower hereunder (or any other obligations of such Borrower to the Agent and the Lenders) shall be determined in any such proceeding are referred to as the “Avoidance Provisions”. Accordingly, to the extent that the obligations of either Borrower hereunder would otherwise be subject to avoidance under the Avoidance Provisions, the maximum Obligations for which such Borrower shall be liable hereunder shall be reduced to that amount which, as of the time any of the Obligations are deemed to have been incurred under the Avoidance Provisions, would not cause the obligations of such Borrower hereunder (or any other obligations of such Borrower to the Agent and the Lenders), to be subject to avoidance under the Avoidance Provisions. This subsection is intended solely to preserve the rights of the Agent and the Lenders hereunder to the maximum extent that would not cause the obligations of either Borrower hereunder to be subject to avoidance under the Avoidance Provisions, and no Borrower or any other Person shall have any right or claim under this Section as against the Agent and the Lenders that would not otherwise be available to such Person under the Avoidance Provisions.

     (e) Each Borrower assumes all responsibility for being and keeping itself informed of the financial condition of the other Borrower and the Guarantors, and of all other circumstances bearing upon the risk of nonpayment of any of the Obligations and the nature, scope and extent of the risks that such Borrower assumes and incurs hereunder, and agrees that none of the Agent or the Lenders shall have any duty whatsoever to advise either Borrower of information regarding such circumstances or risks.

Section 2.18. Actions of the Borrower.

     Each of the Borrowers hereby appoints the other Borrower to act as its agent for all purposes under the Loan Documents (including, without limitation, with respect to all matters related to the borrowing and repayment of Loans as described in Articles II. and III.). Each of the Borrowers acknowledges and agrees that (a) one Borrower may execute such documents on behalf of the other Borrower as such Borrower deems appropriate in its sole discretion and each Borrower shall be bound by and obligated by all of the terms of any such document executed by either Borrower, (b) any notice or other communication delivered by the Agent or any Lender

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hereunder to CRT shall be deemed to have been delivered to each Borrower and (c) the Agent and each of the Lenders shall accept (and shall be permitted to rely on) any document or agreement executed by either Borrower on behalf of the Borrower collectively, or each Borrower individually. Each Borrower agrees that any action taken by one Borrower without the consent of, or notice to, the other Borrower shall not release or discharge either Borrower from its obligations hereunder.

ARTICLE III. PAYMENTS, FEES AND OTHER GENERAL PROVISIONS

Section 3.1. Payments.

     Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrower under this Agreement, the Notes or any other Loan Document shall be made in Dollars, in immediately available funds, without setoff, deduction or counterclaim, to the Agent at the Principal Office, not later than 11:00 a.m. San Francisco time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Subject to Section 11.5., the Borrower shall, at the time of making each payment under this Agreement or any other Loan Document, specify to the Agent the amounts payable by the Borrower hereunder to which such payment is to be applied. Each payment received by the Agent for the account of a Lender under this Agreement or any Note shall be paid to such Lender by wire transfer of immediately available funds in accordance with the wiring instructions provided by such Lender to the Agent from time to time, for the account of such Lender at the applicable Lending Office of such Lender. In the event the Agent fails to pay such amounts to such Lender within one Business Day of receipt of such amounts, the Agent shall pay interest on such amount at a rate per annum equal to the Federal Funds Rate from time to time in effect. If the due date of any payment under this Agreement or any other Loan Document would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall continue to accrue at the rate, if any, applicable to such payment for the period of such extension.

Section 3.2. Pro Rata Treatment.

     Except to the extent otherwise provided herein: (a) each borrowing from Lenders under Section 2.1. shall be made from the Lenders, each payment of the fees under Sections 3.6., as applicable, shall be made for the account of the Lenders, and each termination or reduction of the amount of the Commitments under Section 2.12. or otherwise pursuant to this Agreement shall be applied to the respective Commitments of the Lenders, pro rata according to the amounts of their respective Commitments; (b) each payment or prepayment of principal of Revolving Loans by the Borrower shall be made for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Revolving Loans held by them, provided that if immediately prior to giving effect to any such payment in respect of any Revolving Loans the outstanding principal amount of the Revolving Loans shall not be held by the Lenders pro rata in accordance with their respective Commitments in effect at the time such Loans were made, then such payment shall be applied to the Revolving Loans in such manner as shall result, as nearly as is practicable, in the outstanding principal amount of the Revolving Loans being held by the Lenders pro rata in accordance with their respective Commitments; (c) each payment of interest

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on Revolving Loans by the Borrower shall be made for the account of the Lenders pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Lenders; (d) the Conversion and Continuation of Revolving Loans of a particular Type (other than Conversions provided for by Section 5.1.) shall be made pro rata among the Lenders according to the amounts of their respective Revolving Loans and the then current Interest Period for each Lender’s portion of each Revolving Loan of such Type shall be coterminous; and (e) the Lenders’ participation in, and payment obligations in respect of, Swingline Loans under Section 2.3., shall be in accordance with their respective Pro Rata Shares; and (f) the Lenders’ participation in, and payment obligations in respect of, Letters of Credit under Section 2.2., shall be pro rata in accordance with their respective Commitments. All payments of principal, interest, fees and other amounts in respect of the Swingline Loans shall be for the account of the Swingline Lender only (except to the extent any Lender shall have acquired a participating interest in any such Swingline Loan pursuant to Section 2.3.).

Section 3.3. Sharing of Payments, Etc.

     If a Lender shall obtain payment of any principal of, or interest on, any Loan under this Agreement or shall obtain payment on any other Obligation owing by the Borrower or any other Loan Party through the exercise of any right of set-off, banker’s lien or counterclaim or similar right or otherwise or through voluntary prepayments directly to a Lender or other payments made by the Borrower or any other Loan Party to a Lender not in accordance with the terms of this Agreement and such payment should be distributed to the Lenders in accordance with Section 3.2. or Section 11.5., such Lender shall promptly purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans made by the other Lenders or other Obligations owed to such other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such payment (net of any reasonable expenses which may actually be incurred by such Lender in obtaining or preserving such benefit) in accordance with the requirements of Section 3.2. or Section 11.5., as applicable. To such end, all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees that any Lender so purchasing a participation (or direct interest) in the Loans or other Obligations owed to such other Lenders may exercise all rights of set-off, banker’s lien, counterclaim or similar rights with the respect to such participation as fully as if such Lender were a direct holder of Loans in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower.

Section 3.4. Several Obligations.

     No Lender shall be responsible for the failure of any other Lender to make a Loan or to perform any other obligation to be made or performed by such other Lender hereunder, and the failure of any Lender to make a Loan or to perform any other obligation to be made or performed by it hereunder shall not relieve the obligation of any other Lender to make any Loan or to perform any other obligation to be made or performed by such other Lender.

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Section 3.5. Minimum Amounts.

     (a) Borrowings. Each borrowing of Base Rate Loans shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof. Each borrowing of and Continuation of, and each Conversion of Base Rate Loans into, LIBOR Loans shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount. Each Swingline Loan shall be in the minimum amount of $500,000 and integral multiples of $500,000 in excess thereof, or such other minimum amounts agreed to by the Swingline Lender and the Borrower.

     (b) Prepayments. Each voluntary prepayment of Revolving Loans shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $1,000 in excess thereof. Any voluntary prepayment of a Swingline Loan must be in integral multiples of $1,000 or the aggregate principal amount of all outstanding Swingline Loans (or such other minimum amounts upon which the Swingline Lender and the Borrower may agree).

     (c) Reductions of Commitments. Each reduction of the Commitments under Section 2.12. shall be in an aggregate minimum amount of $20,000,000 and integral multiples of $5,000,000 in excess thereof.

Section 3.6. Fees.

     (a) Closing Fee. On the Effective Date, the Borrower agrees to pay to the Agent and each Lender all loan fees as have been agreed to in writing by the Borrower and the Agent or each Lender, as applicable.

     (b) Facility Fees. During the period from the Effective Date to but excluding the Termination Date, the Borrower agrees to pay to the Agent for the account of the Lenders an unused facility fee with respect to the average daily difference (such difference being the “Unused Amount”) between the (i) aggregate amount of the Commitments and (ii) the aggregate principal amount of all outstanding Revolving Loans plus the aggregate amount of all Letter of Credit Liabilities. Such fee shall be computed by multiplying the Unused Amount with respect to such quarter by the corresponding per annum rate set forth below:

Unused Amount	Unused Fee
Less than one-third of the aggregate amount of Commitments		0.075	%
Greater than or equal to one-third, but less than two-thirds, of the aggregate amount of Commitments		0.15	%
Greater than or equal to two-thirds of the aggregate amount of Commitments		0.225	%

Such fee shall be computed on a daily basis and payable quarterly in arrears on the first day of each January, April, July and October during the term of this Agreement and on the Termination Date or any earlier date of termination of the Commitments or reduction of the Commitments to zero.

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     (c) Letter of Credit Fees. The Borrower agrees to pay to the Agent for the account of each Lender a letter of credit fee at a rate per annum equal to the Applicable Margin for LIBOR Loans times the initial Stated Amount of each Letter of Credit; provided, however, in no event shall the amount of any such fee be less than $1,000; provided further, however, while an Event of Default exists, the Borrower shall pay to the Agent for the account of each Lender a letter of credit fee at a rate per annum equal to the Post-Default Rate times the initial Stated Amount of each Letter of Credit. In addition, the Borrower shall pay to the Agent solely for its own account, a fronting fee in respect of each Letter of Credit at the rate equal to one-eighth of one percent (0.125%) per annum on the initial Stated Amount of such Letter of Credit. The fees provided for in the immediately preceding two sentences shall be nonrefundable and payable at the time of issuance of each respective Letter of Credit. The Borrower shall pay directly to the Agent from time to time on demand all commissions, charges, costs and expenses in the amounts customarily charged by the Agent from time to time in like circumstances with respect to the issuance of each Letter of Credit, drawings, amendments and other transactions relating thereto.

     (d) Extension Fee. If, pursuant to Section 2.13., the Borrower exercises its right to extend the Termination Date, the Borrower agrees to pay to the Agent for the account the Lenders an extension fee equal to 0.20% of the aggregate amount of the Lenders’ Commitments at such time. Such fee shall be paid to the Agent prior to, and as a condition to, such extension.

     (e) Collateral Property Fee. If, pursuant to Section 4.1.(c), Lenders accept a Property as a Collateral Property at any time after the Agreement Date, the Borrower will pay to the Agent for the account of each Lender accepting such Property as a Collateral Property fee equal to $2,500 per accepting Lender.

     (f) Administrative and Other Fees. The Borrower agrees to pay the administrative and other fees of the Agent as may be agreed to in writing from time to time.

Section 3.7. Computations.

     Unless otherwise expressly set forth herein, any accrued interest on any Loan, any Fees or other Obligations due hereunder shall be computed on the basis of a year of 360 days and the actual number of days elapsed.

Section 3.8. Usury.

     In no event shall the amount of interest due or payable on the Loans or other Obligations exceed the maximum rate of interest allowed by Applicable Law and, if any such payment is paid by the Borrower or received by any Lender, then such excess sum shall be credited as a payment of principal, unless the Borrower shall notify the respective Lender in writing that the Borrower elects to have such excess sum returned to it forthwith. It is the express intent of the parties hereto that the Borrower not pay and the Lenders not receive, directly or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by the Borrower under Applicable Law. The parties hereto hereby agree and stipulate that the only charge imposed upon the Borrower for the use of money in connection with this Agreement is and shall be the interest specifically described in Section 2.4.(a) and with respect to Swingline Loans, in Section 2.3.(c). Notwithstanding the foregoing, the parties hereto further agree and stipulate that all

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agency fees, syndication fees, facility fees, letter of credit fees, underwriting fees, default charges, late charges, funding or “breakage” charges, increased cost charges, attorneys’ fees and reimbursement for costs and expenses paid by the Agent or any Lender to third parties or for damages incurred by the Agent or any Lender, are charges made to compensate the Agent or any such Lender for underwriting or administrative services and costs or losses performed or incurred, and to be performed or incurred, by the Agent and the Lenders in connection with this Agreement and shall under no circumstances be deemed to be charges for the use of money. All charges other than charges for the use of money shall be fully earned and nonrefundable when due.

Section 3.9. Statements of Account.

     The Agent will account to the Borrower monthly with a statement of Loans, Letters of Credit, accrued interest and Fees, charges and payments made pursuant to this Agreement and the other Loan Documents, and such account rendered by the Agent shall be deemed conclusive upon the Borrower absent manifest error. The Agent will account to the Borrower on changes in Letters of Credit in accordance with 2.2.(k). The failure of the Agent to deliver such a statement of accounts shall not relieve or discharge the Borrower from any of its obligations hereunder.

Section 3.10. Defaulting Lenders.

     If for any reason any Lender (a “Defaulting Lender”) shall fail or refuse to perform any of its obligations under this Agreement or any other Loan Document to which it is a party within the time period specified for performance of such obligation or, if no time period is specified, if such failure or refusal continues for a period of 2 Business Days after notice from the Agent, then, in addition to the rights and remedies that may be available to the Agent or the Borrower under this Agreement or Applicable Law, such Defaulting Lender’s right to participate in the administration of the Loans, this Agreement and the other Loan Documents, including without limitation, any right to vote in respect of, to consent to or to direct any action or inaction of the Agent or to be taken into account in the calculation of Requisite Lenders, shall be suspended during the pendency of such failure or refusal. If for any reason a Lender fails to make timely payment to the Agent of any amount required to be paid to the Agent hereunder (without giving effect to any notice or cure periods), in addition to other rights and remedies which the Agent or the Borrower may have under the immediately preceding provisions or otherwise, the Agent shall be entitled (i) to collect interest from such Defaulting Lender on such delinquent payment for the period from the date on which the payment was due until the date on which the payment is made at the Federal Funds Rate, (ii) to withhold or setoff and to apply in satisfaction of the defaulted payment and any related interest, any amounts otherwise payable to such Defaulting Lender under this Agreement or any other Loan Document and (iii) to bring an action or suit against such Defaulting Lender in a court of competent jurisdiction to recover the defaulted amount and any related interest. Any amounts received by the Agent in respect of a Defaulting Lender’s Loans shall not be paid to such Defaulting Lender and shall be held by the Agent and paid to such Defaulting Lender upon the Defaulting Lender’s curing of its default.

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Section 3.11. Taxes.

     (a) Taxes Generally. All payments by the Borrower of principal of, and interest on, the Loans and all other Obligations shall be made free and clear of and without deduction for any present or future excise, stamp or other taxes, fees, duties, levies, imposts, charges, deductions, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding (i) franchise taxes, (ii) any taxes (other than withholding taxes) that would not be imposed but for a connection between the Agent or a Lender and the jurisdiction imposing such taxes (other than a connection arising solely by virtue of the activities of the Agent or such Lender pursuant to or in respect of this Agreement or any other Loan Document), (iii) any taxes imposed on or measured by any Lender’s assets, net income, receipts or branch profits and (iv) any taxes arising after the Agreement Date solely as a result of or attributable to a Lender changing its designated Lending Office after the date such Lender becomes a party hereto (such non-excluded items being collectively called “Taxes”). If any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any Applicable Law, then the Borrower will:

     (i) pay directly to the relevant Governmental Authority the full amount required to be so withheld or deducted;

     (ii) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such Governmental Authority; and

     (iii) pay to the Agent for its account or the account of the applicable Lender, as the case may be, such additional amount or amounts as is necessary to ensure that the net amount actually received by the Agent or such Lender will equal the full amount that the Agent or such Lender would have received had no such withholding or deduction been required.

     (b) Tax Indemnification. If the Borrower fails to pay any Taxes when due to the appropriate Governmental Authority or fails to remit to the Agent, for its account or the account of the respective Lender, as the case may be, the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Lenders for any incremental Taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. For purposes of this Section, a distribution hereunder by the Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower.

     (c) Tax Forms. Prior to the date that any Lender or Participant organized under the laws of a jurisdiction outside the United States of America becomes a party hereto, such Person shall deliver to the Borrower and the Agent such certificates, documents or other evidence, as required by the Internal Revenue Code or Treasury Regulations issued pursuant thereto (including Internal Revenue Service Forms W-8ECI and W-8BEN, as applicable, or appropriate successor forms), properly completed, currently effective and duly executed by such Lender or Participant establishing that payments to it hereunder and under the Notes are (i) not subject to United States Federal backup withholding tax and (ii) not subject to United States Federal withholding tax under the Code. Each such Lender or Participant shall (x) deliver further copies of such forms or other appropriate certifications on or before the date that any such forms expire

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or become obsolete and after the occurrence of any event requiring a change in the most recent form delivered to the Borrower and (y) obtain such extensions of the time for filing, and renew such forms and certifications thereof, as may be reasonably requested by the Borrower or the Agent. The Borrower shall not be required to pay any amount pursuant to last sentence of subsection (a) above to any Lender or Participant that is organized under the laws of a jurisdiction outside of the United States of America or the Agent, if it is organized under the laws of a jurisdiction outside of the United States of America, if such Lender, Participant or the Agent, as applicable, fails to comply with the requirements of this subsection. If any such Lender or Participant fails to deliver the above forms or other documentation, then the Agent may withhold from such payment to such Lender such amounts as are required by the Code. If any Governmental Authority asserts that the Agent did not properly withhold or backup withhold, as the case may be, any tax or other amount from payments made to or for the account of any Lender, such Lender shall indemnify the Agent therefor, including all penalties and interest, any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, and costs and expenses (including all fees and disbursements of any law firm or other external counsel and the allocated cost of internal legal services and all disbursements of internal counsel) of the Agent. The obligation of the Lenders under this Section shall survive the termination of the Commitments, repayment of all Obligations and the resignation or replacement of the Agent.

ARTICLE IV. COLLATERAL PROPERTIES AND APPRAISALS

Section 4.1. Eligibility of Properties.

     (a) Initial Collateral Properties. As of the date hereof, the Lenders have approved for inclusion in calculations of the Borrowing Base, the Properties identified on Schedule 4.1., as well as the Borrowing Base Value initially attributable to each such Property. Upon satisfaction on or after the Effective Date of the conditions set forth in Section 6.3. with respect to such Properties, such Properties shall be deemed to be Collateral Properties.

     (b) Additional Collateral Properties. If after the Effective Date the Borrower desires that the Lenders include any additional Property in calculations of the Borrowing Base, the Borrower shall so notify the Agent in writing. No Property will be evaluated by the Lenders unless and until the Borrower delivers to the Agent the following, in form and substance satisfactory to the Agent:

     (i) An executive summary of the Property including, at a minimum, the following information relating to such Property: (A) a description of such Property, such description to include the age, location, site plan, current occupancy rate and physical condition of such Property; (B) the purchase price paid or to be paid for such Property; (C) the current and projected condition of the regional market and specific submarket in which such Property is located; and (D) the current projected capital plans and, if applicable, current renovation plans for such Property;

     (ii) An operating statement for such Property audited or certified by a representative of the Borrower as being true and correct in all material respects and prepared in accordance with GAAP for the previous two fiscal years, provided that, with

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respect to any period such Property was not owned by the Borrower or a Subsidiary, such information shall only be required to be delivered to the extent reasonably available to the Borrower and such certification may be based upon the best of the Borrower’s knowledge and provided further, that if such Property has been operating for less than two years, the Borrower shall provide such projections and other information concerning the anticipated operation of such Property as the Agent may reasonably request;

     (iii) A current rent roll for such Property certified by a representative of the Borrower as being true and correct in all material respects, and two-year occupancy history of such Property certified by a representative of the Borrower to be true and correct, provided that, with respect to any period such Property was not owned by the Borrower or a Subsidiary, such information shall only be required to be delivered to the extent reasonably available to the Borrower and such certification may be based upon the best of the Borrower’s knowledge;

     (iv) A “Phase I” environmental assessment of such Property not more than 12 months old, which report (1) has been prepared by an environmental engineering firm acceptable to the Agent and (2) complies with the requirements contained in the Agent's guidelines adopted from time to time by the Agent to be used in its lending practice generally and any other environmental assessments or other reports relating to such Property, including any “Phase II” environmental assessment prepared or recommended by such environmental engineering firm to be prepared for such Property;

     (v) An engineering report for such Property not more than 12 months old and prepared by an engineering firm acceptable to the Agent;

     (vi) A Borrowing Base Certificate showing the Borrowing Base after inclusion of such Property as a Collateral Property; and

     (vii) Such other information the Agent may reasonably request in order to evaluate the Property.

If, after receipt and review of the foregoing documents and information, the Agent is prepared to recommend acceptance of such Property as a Collateral Property (such recommendation not to be unreasonably withheld), the Agent will so notify the Borrower and each Lender within 10 Business Days after receipt and review of all of such documents and information. Within 5 Business Days of the Agent’s giving such notice to the Lenders, the Agent will send the foregoing documents and information to each of the Lenders.

     (c) Appraisal; Final Approval. Promptly upon receiving all of the documents and information set forth in the immediately preceding subsection (b) with respect to any such Property that the Borrower desires to include in the calculations of the Borrowing Base, the Agent shall commission, at the Agent’s discretion and the Borrower’s expense, an Appraisal of such Property, to be in form and substance satisfactory to the Agent. Within 10 Business Days of receipt of such Appraisal, the Agent shall review such Appraisal and shall determine the Appraised Value of such Property. If after such review and determination the Agent is unwilling

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to recommend acceptance of such Property as a Collateral Property, the Agent shall promptly notify the Borrower and the Lenders (if the Agent had previously notified the Lenders of the Borrower’s request to include such Property as a Collateral Property under the immediately preceding subsection (b)) and the consideration by the Agent and the Lenders of such Property shall cease. If after such review and determination the Agent remains prepared to recommend acceptance of such Property as a Collateral Property, the Agent shall forward a copy of such Appraisal to the Lenders together with notice of such Appraised Value. Within 10 Business Days of the date on which a Lender has received all of the items referred to in this subsection and the immediately preceding subsection (b), such Lender shall notify the Agent in writing whether or not such Lender accepts such Property as a Collateral Property. If a Lender fails to give such notice within such time period, such Lender shall be deemed to have rejected such Property as a Collateral Property. Such Property shall become a Collateral Property upon written approval of the Requisite Lenders and upon execution and delivery to the Agent of the documents and items described in Section 6.3., and such other items or documents as may be appropriate under the circumstances, including updates of the documents described in the immediately preceding subsections (b)(i), (b)(ii), (b)(iii) and (b)(iv), and satisfaction of all other closing requirements reasonably required by the Agent. Notwithstanding the foregoing, the unanimous consent of all of the Lenders shall be required to approve the acceptance of any Non-Stabilized Property as a Collateral Property if the aggregate Borrowing Base Values of all Non-Stabilized Properties that are Collateral Properties exceeds, or upon such acceptance would exceed, 35% of the total aggregate Borrowing Base Values for all Collateral Properties.

Section 4.2. Release of Properties.

     (a) Property Release. From time to time the Borrower may request, upon not less than 30 days prior written notice to the Agent, that all or any portion of any Collateral Property be released from the Liens created by the Security Documents applicable thereto, which release (the “Property Release”) shall be effected by the Agent if the Agent determines all of the following conditions are satisfied as of the date of such Property Release:

     (i) No Default or Event of Default exists or will exist immediately after giving effect to such Property Release and the reduction in the Borrowing Base by reason of the release of such Property;

     (ii) The Borrower shall have delivered to the Agent a Borrowing Base Certificate demonstrating on a pro forma basis, and the Agent shall have determined to its satisfaction (which determination may be based on Appraisals ordered pursuant to Section 4.3.(b)(iii)), that the outstanding principal balance of the Loans, together with the Letter of Credit Liabilities, will not exceed the Borrowing Base after giving effect to such request and any prepayment to be made and/or the acceptance of any Property as an additional or replacement Collateral Property to be given concurrently with such request; and

     (iii) The Borrower shall have delivered to the Agent all documents and instruments reasonably requested by the Agent in connection with such Property Release including, without limitation, the following:

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     (A) the quitclaim deed or other instrument to be used to effect such Property Release; and

     (B) an appropriate endorsement to the mortgagee title insurance policy in effect with respect to the affected Collateral Property.

     (b) Developmental Property Release. Notwithstanding subsection (a) above, the Borrower may request, upon not less than 30 days prior written notice to the Agent, that a portion of a Collateral Property that is a developable parcel upon which no building has been constructed be released from the Liens created by the Security Documents applicable thereto, which release (“Developmental Property Release”) shall be effected by the Agent if the Agent reasonably determines all of the following conditions are satisfied as of the date of such Developmental Property Release:

     (i) No Default or Event of Default exists at the time of such Developmental Property Release;

     (ii) The Borrower shall have delivered to the Agent any easement over and upon such developmental parcel which the Agent reasonably determines is necessary to maintain functional ingress to and egress from any adjacent Collateral Property after giving effect to the Developmental Property Release;

     (iii) The Borrower shall have delivered to the Agent evidence reasonably satisfactory to the Agent that the release and development of such developmental parcel will not cause any adjacent Collateral Property to violate the parking requirements of the applicable zoning code after giving effect to the Developmental Property Release;

     (iv) The Borrower shall have delivered to the Agent the plans and specifications, which plans and specifications shall be approved by the Agent, which approval shall not be unreasonably withheld, for any structure which will be constructed on any portion of the Collateral Property that will remain subject to the Liens created by the Security Documents applicable thereto after such Development Property Release; and

     (v) The Borrower shall have delivered to the Agent the plat or replat relating to such developmental parcel, which plat or replat shall be approved by the Agent in connection with the Agent’s review of the deliveries made with respect to subsections (ii) through (iv) above, which approval shall not be unreasonably withheld.

Except as set forth in this Section 4.2., no Collateral Property, or any portion thereof, shall be released from the Liens created by the Security Documents applicable thereto.

Section 4.3. Frequency of Appraisals.

     The Appraised Value of a Collateral Property shall be determined or redetermined, as applicable, under each of the following circumstances:

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     (a) In connection with the acceptance of a Property as a Collateral Property the Agent will determine the Appraised Value thereof as provided in Section 4.1.; or

     (b) From time to time upon at least 5 Business Days written notice to the Borrower and at the Borrower’s expense, the Agent may (and shall at the direction of the Requisite Lenders) redetermine the Appraised Value of a Collateral Property (based on a new Appraisal obtained by the Agent) in any of the following circumstances:

     (i) if necessary in order to comply with FIRREA or other Applicable Law relating to the Agent or the Lenders;

     (ii) if the Agent determines an Appraisal of such Property is necessary in connection with its determination under Section 4.2.(b) regarding the release of a Collateral Property;

     (iii) with respect to Non-Stabilized Properties, upon (i) the cancellation or termination of a Major Lease (other than with the express prior written consent of the Agent or pursuant to the terms of such Major Lease) or (ii) upon the occurrence of a breach of the terms of a Major Lease which breach (A) would allow a Major Tenant to cancel, terminate, revoke or rescind a Major Lease within a specified period of time and (B) continues for 30 days (or, if such condition or breach is not reasonably capable of being cured within such 30 day period, such additional period of time as may be required in order to cure such condition or breach not to exceed 60 days); or

     (iv) upon the occurrence and during the continuation of an Event of Default; or

     (c) At any time during the period commencing 18 months after the later of (i) the Effective Date or (ii) the date a Non-Stabilized Property is admitted as a Collateral Property, and ending on the date 6 months prior to the Termination Date, the Agent may (and shall at the written direction of the Requisite Lenders) determine or redetermine the Appraised Value of a Non-Stabilized Property which is a Collateral Property (based on a new Appraisal obtained by the Agent), at the Borrower’s expense; or

     (d) Upon a Collateral Property initially classified as a Stabilized Property becoming a Non-Stabilized Property.

Section 4.4. Frequency of Calculations of Borrowing Base.

     Initially, the Borrowing Base shall be the amount set forth as such in the Borrowing Base Certificate delivered under Section 6.1. Thereafter, the Borrowing Base shall be the amount set forth as such in the Borrowing Base Certificate delivered from time to time under Article IX. or 4.2.(b). Any increase in the Borrowing Base Value of a Collateral Property shall become effective as of the next determination of the Borrowing Base Value as provided in this Section, provided that prior to such date of determination (a) if such increase is the result of an increase in (i) the Appraised Value of such Collateral Property, the Agent shall have given its written approval of such increase or (ii) the Adjusted Net Operating Income for such Property, the applicable Borrowing Base Certificate substantiates such increase and (b) the Borrower delivers

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to the Agent the following: (i) if the Property is not located in a Tie-In Jurisdiction and such increase is the result of an increase in the Appraised Value of such Property, an endorsement to the title insurance policy in favor of the Agent with respect to such Property increasing the coverage amount thereof as related to such Property to not less than 100% of the Appraised Value for such Property and (ii) if the Property is located in a Tie-In Jurisdiction, an endorsement to the title insurance policy in favor of the Agent with respect to such Property increasing the coverage amount thereof as related to such Property to not less than the portion of the Borrowing Base attributable to such Property, as well as endorsements to all other existing title insurance policies issued to the Agent with respect to all other Properties located in Tie-In Jurisdictions reflecting an increase in the aggregate insured amount under the “tie-in” endorsements to an amount equal to the Borrowing Base (including the Property which experienced the increase in Borrowing Base Value) but in no event in an amount in excess of the aggregate amount of the Commitments.

ARTICLE V. YIELD PROTECTION, ETC.

Section 5.1. Additional Costs; Capital Adequacy.

     (a) Additional Costs. The Borrower shall promptly pay to the Agent for the account of a Lender from time to time such amounts as such Lender may reasonably determine to be necessary to compensate such Lender for any costs incurred by such Lender that it reasonably determines are attributable to its making or maintaining of any LIBOR Loans or its obligation to make any LIBOR Loans hereunder, any reduction in any amount receivable by such Lender under this Agreement or any of the other Loan Documents in respect of any of such LIBOR Loans or such obligation or the maintenance by such Lender of capital in respect of its LIBOR Loans or its Commitment (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), resulting from any Regulatory Change that: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or any of the other Loan Documents in respect of any of such LIBOR Loans or its Commitment (other than taxes imposed on or measured by the overall net income of such Lender or of its Lending Office for any of such LIBOR Loans by the jurisdiction in which such Lender has its principal office or such Lending Office), or (ii) imposes or modifies any reserve, special deposit or similar requirements (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System or other similar reserve requirement applicable to any other category of liabilities or category of extensions of credit or other assets by reference to which the interest rate on LIBOR Loans is determined) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, or other credit extended by, or any other acquisition of funds by such Lender (or its parent corporation), or any commitment of such Lender (including, without limitation, the Commitment of such Lender hereunder) or (iii) has or would have the effect of reducing the rate of return on capital of such Lender to a level below that which such Lender could have achieved but for such Regulatory Change (taking into consideration such Lender’s policies with respect to capital adequacy).

     (b) Lender’s Suspension of LIBOR Loans. Without limiting the effect of the provisions of the immediately preceding subsection (a), if by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender that

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includes deposits by reference to which the interest rate on LIBOR Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender that includes LIBOR Loans and Borrower is unwilling, in its sole discretion, to bear such Additional Costs or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold, then, if such Lender so elects by notice to the Borrower (with a copy to the Agent), the obligation of such Lender to make or Continue, or to Convert Base Rate Loans into, LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.5. shall apply).

     (c) Additional Costs in Respect of Letters of Credit. Without limiting the obligations of the Borrower under the preceding subsections of this Section (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement heretofore or hereafter issued by any Governmental Authority there shall be imposed, modified or deemed applicable any tax, reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit and the result shall be to increase the cost to the Agent of issuing (or any Lender of purchasing participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit or reduce any amount receivable by the Agent or any Lender hereunder in respect of any Letter of Credit, then, upon demand by the Agent or such Lender, the Borrower shall pay immediately to the Agent for its account or the account of such Lender, as applicable, from time to time as specified by the Agent or a Lender, such additional amounts as shall be sufficient to compensate the Agent or such Lender for such increased costs or reductions in amount.

     (d) Notification and Determination of Additional Costs. Each of the Agent and each Lender, as the case may be, agrees to notify the Borrower of any event occurring after the Agreement Date entitling the Agent or such Lender to compensation under any of the preceding subsections of this Section as promptly as practicable; provided, however, that the failure of the Agent or any Lender to give such notice shall not release the Borrower from any of its obligations hereunder. The Agent and each Lender, as the case may be, agrees to furnish to the Borrower (and in the case of a Lender to the Agent as well) a certificate setting forth the basis and amount of each request for compensation under this Section. Determinations by the Agent or such Lender, as the case may be, of the effect of any Regulatory Change shall be conclusive, provided that such determinations are made on a reasonable basis and in good faith.

Section 5.2. Suspension of LIBOR Loans.

     Anything herein to the contrary notwithstanding, if, on or prior to the determination of LIBOR for any Interest Period:

     (a) the Agent reasonably determines (which determination shall be conclusive absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of LIBOR are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for LIBOR Loans as provided herein or is otherwise unable to determine LIBOR, or

     (b) the Agent reasonably determines (which determination shall be conclusive absent manifest error) that the relevant rates of interest referred to in the definition of

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LIBOR upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined are not likely to adequately cover the cost to any Lender of making or maintaining LIBOR Loans for such Interest Period;

then the Agent shall give the Borrower and each Lender prompt notice thereof and, so long as such condition remains in effect, the Lenders shall be under no obligation to, and shall not, make additional LIBOR Loans, Continue LIBOR Loans or Convert Loans into LIBOR Loans and the Borrower shall, on the last day of each current Interest Period for each outstanding LIBOR Loan, either prepay such Loan or Convert such Loan into a Base Rate Loan.

Section 5.3. Illegality.

     Notwithstanding any other provision of this Agreement, if any Lender shall determine (which determination shall be conclusive and binding absent manifest error) that it is unlawful for such Lender to honor its obligation to make or maintain LIBOR Loans hereunder, then such Lender shall promptly notify the Borrower thereof (with a copy of such notice to the Agent) and such Lender’s obligation to make or Continue, or to Convert Revolving Loans of any other Type into, LIBOR Loans shall be suspended until such time as such Lender may again make and maintain LIBOR Loans (in which case the provisions of Section 5.5. shall be applicable).

Section 5.4. Compensation.

     The Borrower shall pay to the Agent for the account of each Lender, upon the request of such Lender through the Agent, such amount or amounts as shall be sufficient to compensate such Lender for any loss, cost or expense that such Lender reasonably determines is attributable to:

     (a) any payment or prepayment (whether mandatory or optional) of a LIBOR Loan, or Conversion of a LIBOR Loan, made by such Lender for any reason (including, without limitation, acceleration) on a date other than the last day of the Interest Period for such Loan; or

     (b) any failure by the Borrower for any reason (including, without limitation, the failure of any of the applicable conditions precedent specified in Article 6.2. to be satisfied) to borrow a LIBOR Loan from such Lender on the date for such borrowing, or to Convert a Base Rate Loan into a LIBOR Loan or Continue a LIBOR Loan on the requested date of such Conversion or Continuation.

Not in limitation of the foregoing, such reasonable compensation shall include, without limitation, in the case of a LIBOR Loan, an amount equal to the then present value of (A) the amount of interest that would have accrued on such LIBOR Loan for the remainder of the Interest Period at the rate applicable to such LIBOR Loan, less (B) the amount of interest that would accrue on the same LIBOR Loan for the same period if LIBOR were set on the date on which such LIBOR Loan was repaid, prepaid or Converted or the date on which the Borrower failed to borrow, Convert or Continue such LIBOR Loan, as applicable, calculating present value by using as a discount rate LIBOR quoted on such date. Upon the Borrower’s request (made through the Agent), any Lender seeking compensation under this Section shall provide the

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Borrower with a statement setting forth the reasonable basis for requesting such compensation and the method for determining the amount thereof, which basis and method shall include, without limitation, the basis for interest calculated pursuant to clause (B) above. Any such statement shall be conclusive absent manifest error.

Section 5.5. Treatment of Affected Loans.

     If the obligation of any Lender to make LIBOR Loans or to Continue, or to Convert Base Rate Loans into, LIBOR Loans shall be suspended pursuant to Section 5.1.(b), Section 5.2., or Section 5.3. then such Lender’s LIBOR Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for LIBOR Loans (or, in the case of a Conversion required by Section 5.1.(b), Section 5.2., or Section 5.3. on such earlier date as such Lender may specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 5.1., Section 5.2., or Section 5.3. that gave rise to such Conversion no longer exist:

     (a) to the extent that such Lender’s LIBOR Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender’s LIBOR Loans shall be applied instead to its Base Rate Loans; and

     (b) all Revolving Loans that would otherwise be made or Continued by such Lender as LIBOR Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into LIBOR Loans shall remain as Base Rate Loans.

     If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 5.1. or 5.3. that gave rise to the Conversion of such Lender’s LIBOR Loans pursuant to this Section no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when LIBOR Loans made by other Lenders are outstanding, then such Lender’s Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding LIBOR Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding LIBOR Loans and by such Lender are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments.

Section 5.6. Change of Lending Office.

     Each Lender agrees that it will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate an alternate Lending Office with respect to any of its Loans affected by the matters or circumstances described in Sections 3.11., 5.1. or 5.3. to reduce the liability of the Borrower or avoid the results provided thereunder, so long as such designation is not materially disadvantageous to such Lender as determined by such Lender in its sole discretion, except that such Lender shall have no obligation to designate a Lending Office located in the United States of America.

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Section 5.7. Affected Lenders.

     If (a) a Lender requests compensation pursuant to Section 3.11. or 5.1., and the Requisite Lenders are not also doing the same, or (b) the obligation of any Lender to make LIBOR Loans or to Continue, or to Convert Base Rate Loans into LIBOR Loans shall be suspended pursuant to Section 5.1., 5.2. or 5.3. but the obligation of the Requisite Lenders shall not have been suspended under such Sections, then, so long as there does not then exist any Default or Event of Default, the Borrower may demand that such Lender (the “Affected Lender”), and upon such demand the Affected Lender shall promptly, assign its Commitments to an Eligible Assignee subject to and in accordance with the provisions of Section 13.5.(c) for a purchase price equal to the aggregate principal balance of Loans then owing to the Affected Lender plus any accrued but unpaid interest thereon and accrued but unpaid fees owing to the Affected. Each of the Agent, the Borrower and the Affected Lender shall reasonably cooperate in effectuating the replacement of such Affected Lender under this Section, but at no time shall the Agent, such Affected Lender nor any other Lender be obligated in any way whatsoever to initiate any such replacement or to assist in finding an Eligible Assignee. The exercise by the Borrower of its rights under this Section shall be at the Borrower’s sole cost and expenses and at no cost or expense to the Agent, the Affected Lender or any of the other Lenders; provided, however, the Borrower shall not be obligated to reimburse or otherwise pay an Affected Lender’s administrative or legal costs incurred as a result of the Borrower’s exercise of its rights under this Section. The terms of this Section shall not in any way limit the Borrower’s obligation to pay to any Affected Lender compensation owing to such Affected Lender pursuant to Section 3.11. or 5.1.

Section 5.8. Assumptions Concerning Funding of LIBOR Loans.

     Calculation of all amounts payable to a Lender under this Article shall be made as though such Lender had actually funded LIBOR Loans through the purchase of deposits in the relevant market bearing interest at the rate applicable to such LIBOR Loans in an amount equal to the amount of the LIBOR Loans and having a maturity comparable to the relevant Interest Period; provided, however, that each Lender may fund each of its LIBOR Loans in any manner it sees fit and the foregoing assumption shall be used only for calculation of amounts payable under this Article.

ARTICLE VI. CONDITIONS PRECEDENT

Section 6.1. Initial Conditions Precedent.

     The obligation of the Lenders to effect or permit the occurrence of the first Credit Event hereunder, whether as the making of a Loan or the issuance of a Letter of Credit, is subject to the satisfaction or waiver of the following conditions precedent:

     (a) The Agent shall have received each of the following, in form and substance satisfactory to the Agent:

     (i) counterparts of this Agreement executed by each of the parties hereto;

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     (ii) Revolving Notes executed by the Borrower, payable to each Lender and complying with the terms of Section 2.11. and the Swingline Note executed by the Borrower, payable to the Swingline Lender;

     (iii) the Guaranty executed by each of the Guarantors initially to be a party thereto;

     (iv) an opinion of White & Case LLP, counsel to the Borrower and the Guarantors, and addressed to the Agent and the Lenders and covering the matters set forth in Exhibit L;

     (v) the certificate or articles of incorporation, articles of organization, certificate of limited partnership, declaration of trust or other comparable organizational instrument (if any) of each Loan Party certified as of a recent date by the Secretary of State of the state of formation of such Person;

     (vi) a certificate of good standing (or certificate of similar meaning) with respect to each Loan Party issued as of a recent date by the Secretary of State of the state of formation of each such Person and certificates of qualification to transact business or other comparable certificates issued by each Secretary of State (and any state department of taxation, as applicable) of each state in which such Person is required to be so qualified;

     (vii) a certificate of incumbency signed by the Secretary or Assistant Secretary (or other individual performing similar functions) of each Loan Party with respect to each of the officers of such Person authorized to execute and deliver the Loan Documents to which such Person is a party, and in the case of the Borrower, authorized to execute and deliver on behalf of the Borrower Notices of Borrowing, Notices of Swingline Borrowing, requests for Letters of Credit, Notices of Conversion and Notices of Continuation;

     (viii) copies certified by the Secretary or Assistant Secretary of each Loan Party (or other individual performing similar functions) of (A) the by-laws of such Person, if a corporation, the operating agreement, if a limited liability company, the partnership agreement, if a limited or general partnership, or other comparable document in the case of any other form of legal entity and (B) all corporate, partnership, member or other necessary action taken by such Person to authorize the execution, delivery and performance of the Loan Documents to which it is a party;

     (ix) a Borrowing Base Certificate calculated as of the Effective Date;

     (x) a Compliance Certificate calculated on a pro forma basis for the Borrower’s fiscal quarter ending March 31, 2004;

     (xi) evidence of such insurance as is required pursuant to Section 8.5.;

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     (xii) with respect to each Property identified on Schedule 4.1., each of the items referred to in Section 6.3. required to be delivered in connection with any Collateral Property;

     (xiii) evidence satisfactory to the Agent that the Fees, if any, then due and payable under Section 3.6., together with all other fees, expenses and reimbursement amounts due and payable to the Agent and any of the Lenders, including without limitation, the fees and expenses of counsel to the Agent, have been paid;

     (xiv) Letters from the administrative agent under the Existing Credit Agreement providing information regarding the payment in full of amounts outstanding thereunder and providing for the termination thereof and all Liens granted in connection therewith; and

     (xv) such other documents and instruments as the Agent, or any Lender through the Agent, may reasonably request; and

     (b) In the good faith judgment of the Agent:

     (i) There shall not have occurred or become known to the Agent or any of the Lenders any event, condition, situation or status since the date of the information contained in the financial and business projections, budgets, pro forma data and forecasts concerning the Borrower and its Subsidiaries delivered to the Agent and the Lenders prior to the Agreement Date that has had or could reasonably be expected to result in a Material Adverse Effect;

     (ii) No litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding shall be pending or threatened which could reasonably be expected to (A) result in a Material Adverse Effect or (B) restrain or enjoin, impose materially burdensome conditions on, or otherwise materially and adversely affect, the ability of any Loan Party to fulfill its obligations under the Loan Documents to which it is a party;

     (iii) The Borrower and the other Loan Parties shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby without the occurrence of any default under, conflict with or violation of (A) any Applicable Law or (B) any agreement, document or instrument to which any Loan Party is a party or by which any of them or their respective properties is bound, except for such approvals, consents, waivers, filings and notices the receipt, making or giving of which, or the failure to make, give or receive which, would not reasonably be likely to (1) have a Material Adverse Effect, or (2) restrain or enjoin, impose materially burdensome conditions on, or otherwise materially and adversely affect the ability of the Borrower or any other Loan Party to fulfill its obligations under the Loan Documents to which it is a party; and

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     (iv) There shall not have occurred or exist any other material disruption of financial or capital markets that could reasonably be expected to materially and adversely affect the transactions contemplated by the Loan Documents.

Section 6.2. Conditions Precedent to All Loans and Letters of Credit.

     The obligations of (i) Lenders to make any Loans, and (ii) the Agent to issue Letters of Credit, are each subject to the further conditions precedent that: (a) no Default or Event of Default shall exist as of the date of the making of such Loan or date of issuance of such Letter of Credit or would exist immediately after giving effect thereto, and the condition described in Section 2.15. would exist after giving effect thereto; (b) the representations and warranties made or deemed made by the Borrower and each other Loan Party in the Loan Documents to which any of them is a party, shall be true and correct on and as of the date of the making of such Loan or date of issuance of such Letter of Credit with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted hereunder and (c) in the case of the borrowing of Revolving Loans, the Agent shall have received a timely Notice of Borrowing or Notice of Continuation/Conversion, or in the case of a Swingline Loan, the Swingline Lender shall have received a timely Notice of Swingline Borrowing. Each Credit Event shall constitute a certification by the Borrower to the effect set forth in the preceding sentence (both as of the date of the giving of notice relating to such Credit Event and, unless the Borrower otherwise notifies the Agent prior to the date of such Credit Event, as of the date of the occurrence of such Credit Event). In addition, the Borrower shall be deemed to have represented to the Agent and the Lenders at the time such Loan is made or such Letter of Credit is issued that all conditions to the making of such Loan or issuing of such Letter of Credit contained in this Article VI. have been satisfied.

Section 6.3. Conditions Precedent to a Property Becoming a Collateral Property.

     No Property shall become a Collateral Property until the Borrower shall have (or shall have caused to be) executed and delivered to the Agent all documents and instruments required under Section 4.1., and the Requisite Lenders shall have approved such Property as provided in such Section, and the Borrower shall have (or shall cause to be) executed and delivered to the Agent the following instruments, documents and agreements in respect of such Property, each to be in form and substance satisfactory to the Agent:

     (a) A Security Deed encumbering such Property in favor of the Agent for the benefit of the Lenders, the form of such Security Deed to be modified as appropriate to conform to the Applicable Laws of the jurisdiction in which such Property is located;

     (b) An Assignment of Leases and Rents, the form of such Assignment of Leases and Rents to be modified as appropriate to conform to the Applicable Laws of the jurisdiction in which such Property is located;

     (c) An Environmental Indemnity Agreement;

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     (d) Copies of (1) all Property Management Agreements and all other Material Contracts relating to the use, occupancy, operation, maintenance, enjoyment or ownership of such Property, if any, and (2) in any event copies of all tenant leases with respect to such Property (or, if acceptable to the Agent, a summary of the terms thereof);

     (e) A Property Management Contract Assignment covering the Property Management Agreement, if any, for such Property;

     (f) If requested by the Agent, collateral assignments of the other Material Contracts relating to the use, occupancy, operation, maintenance, enjoyment or ownership of such Property;

     (g) An ALTA 1992 Form mortgagee's Policy of Title Insurance (without any creditor's rights exclusion) or other form acceptable to the Agent in favor of the Agent for the benefit of the Lenders with respect to such Property, including endorsements with respect to such items of coverage as the Agent may request and which endorsements are available, in the amount of coverage required in the following sentence, issued by a title insurance company acceptable to the Agent and with coinsurance or reinsurance (with direct access agreements) with title insurance companies acceptable to the Agent, showing the fee simple title to the land and improvements described in the applicable Security Deed as vested in the Borrower or a Subsidiary, and insuring that the Lien granted by such Security Deed is a valid Lien against said property, subject only to such restrictions, encumbrances, easements and reservations as are acceptable to the Agent. The amount of coverage under such policy must equal (i) 100% of the Appraised Value of such Property (excluding the value of any personal property located at such Property) if such Property is not located in a Tie-In Jurisdiction or (ii) the Borrowing Base Value of such Property at such time if such Property is located in a Tie-In Jurisdiction;

     (h) Copies of all documents of record reflected in Schedule B of such Policy of Title Insurance;

     (i) If such Property is located in a Tie-In Jurisdiction, endorsements to all other existing title insurance policies issued to the Agent with respect to all other Properties located in Tie-In Jurisdictions reflecting an increase in the aggregate insured amount under the “tie-in” endorsements to an amount equal to the aggregate amount of the Borrowing Base Values of all such Properties (including the Property to be included as a Collateral Property) but in no event in an amount in excess of the aggregate amount of the Commitments;

     (j) UCC, tax, judgment and lien search reports with respect to the Borrower (or Subsidiary if the Property is owned by a Subsidiary) and such Property in all necessary or appropriate jurisdictions indicating that there are no Liens of record on such Property or any of the Collateral relating thereto other than Permitted Liens;

     (k) Estoppel certificates and copies of leases from tenants leasing in aggregate at least 75% of the occupied net rentable square footage of such Property, and subordination, non-disturbance and attornment agreements from all Major Tenants leasing any of such Property;

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     (l) A certified survey of such Property certified by a surveyor licensed in the applicable jurisdiction to have been prepared in accordance with the then effective Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, sufficiently current to cause the title insurer to issue a policy without exception for matters of survey;

     (m) If not adequately covered by the survey certification provided for above, a certificate from a licensed engineer or other professional satisfactory to the Agent that such Property is not located in a Special Flood Hazard Area as defined by the Federal Insurance Administration;

     (n) Evidence that such Property complies with applicable zoning and land use laws;

     (o) An opinion of counsel admitted to practice law in the jurisdiction in which such Property is located and acceptable to the Agent, addressed to the Agent and each Lender covering such legal matters relating to the transactions contemplated hereby as the Agent may reasonably request;

     (p) An opinion of counsel admitted to practice law in the jurisdiction in which the Borrower is formed (and if the Property is owned by a Subsidiary, also in the jurisdiction where such Subsidiary is formed) acceptable to the Agent, addressed to the Agent and each Lender covering such legal matters relating to the formation and existence and power of the Person executing documents, and the due authorization, execution and delivery of the Security Documents and other documents for consummating the transactions contemplated hereby as the Agent may reasonably request;

     (p) If such Property is owned by a Subsidiary of the Borrower, all of the items required to be delivered to the Agent under Section 8.13.;

     (q) Final certificates of occupancy and any other Governmental Approvals relating to such Property to the extent available;

     (s) If requested by the Agent, plans and specifications for such Property, provided the same shall only be required to the extent reasonably available to the Borrower; and

     (t) Such other instruments, documents, agreements, financing statements, certificates, opinions and other Security Documents as the Agent may reasonably request.

Section 6.4. Conditions as Covenants.

     If the Lenders permit the making of any Loans, or the Agent issues a Letter of Credit, prior to the satisfaction of all conditions precedent set forth in Sections 6.1. and 6.2., the Borrower shall nevertheless cause such condition or conditions to be satisfied within 5 Business Days after the date of the making of such Loans or the issuance of such Letter of Credit. Unless set forth in writing to the contrary, the making of its initial Loan by a Lender shall constitute a confirmation by such Lender to the Agent and the other Lenders that insofar as such Lender is

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concerned the Borrower has satisfied the conditions precedent for initial Loans set forth in Sections 6.1. and 6.2.

ARTICLE VII. REPRESENTATIONS AND WARRANTIES

Section 7.1. Representations and Warranties.

     In order to induce the Agent and each Lender to enter into this Agreement and to make Loans and, in the case of the Agent, to issue Letters of Credit, and, in the case of the Lenders, to acquire participations in Letters of Credit, the Borrower represents and warrants to the Agent and each Lender as follows:

     (a) Organization; Power; Qualification. Each of the Loan Parties and the other Subsidiaries is a corporation, limited liability company, partnership or other legal entity, duly organized or formed, validly existing and in good standing under the jurisdiction of its incorporation or formation, has the power and authority to own or lease its respective properties and to carry on its respective business as now being and hereafter proposed to be conducted and is duly qualified and is in good standing as a foreign corporation, limited liability company, partnership or other legal entity, and authorized to do business, in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization and where the failure to be so qualified or authorized could reasonably be expected to have, in each instance, a Material Adverse Effect.

     (b) Ownership Structure. Part I of Schedule 7.1.(b) is, as of the Agreement Date, a complete and correct list of all Subsidiaries of the Borrower setting forth for each such Subsidiary, (i) the jurisdiction of organization of such Person, (ii) each Person holding any Equity Interest in such Person, (iii) the nature of the Equity Interests held by each such Person, (iv) the percentage of ownership of such Person represented by such Equity Interests and (v) whether such Subsidiary is an Excluded Subsidiary. Except as disclosed in such Schedule, (A) each of the Borrower and its Subsidiaries owns, free and clear of all Liens, and has the unencumbered right to vote, all outstanding Equity Interests in each Person shown to be held by it on such Schedule, (B) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (C) there are no outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders’ or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of capital stock of any class, or partnership, limited liability company or other ownership interests of any type in, any such Person. Part II of Schedule 7.1.(b) correctly sets forth all Unconsolidated Affiliates of the Borrower, including the correct legal name of such Person, the type of legal entity which each such Person is, and all ownership interests in such Person held directly or indirectly by the Borrower.

     (c) Authorization of Agreement, Notes, Loan Documents and Borrowings. The Borrower has the right and power, and has taken all necessary action to authorize it, to borrow. The Borrower and each other Loan Party has the right and power to obtain other extensions of credit hereunder, and has taken all necessary action to authorize it, to execute, deliver and perform each of the Loan Documents to which it is a party in accordance with their respective

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terms and to consummate the transactions contemplated hereby and thereby. The Loan Documents to which the Borrower or any other Loan Party is a party have been duly executed and delivered by the duly authorized officers of such Person and each is a legal, valid and binding obligation of such Person enforceable against such Person in accordance with its respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and the availability of equitable remedies for the enforcement of certain obligations contained herein or therein may be limited by equitable principles generally.

     (d) Compliance of Agreement, Etc. with Laws. The execution, delivery and performance of this Agreement and the other Loan Documents to which any Loan Party is a party in accordance with their respective terms and the borrowings and other extensions of credit hereunder do not and will not, by the passage of time, the giving of notice, or both: (i) require any Governmental Approval or violate any Applicable Law (including all Environmental Laws) relating to any Loan Party; (ii) conflict with, result in a breach of or constitute a default under the organizational documents of the Borrower or any other Loan Party, or any indenture, agreement or other instrument to which any other Loan Party is a party or by which it or any of its respective properties may be bound; or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any Loan Party other than in favor of the Agent for the benefit of the Lenders.

     (e) Compliance with Law; Governmental Approvals. Each Loan Party and each other Subsidiary is in compliance with each Governmental Approval and all other Applicable Laws relating to it except for noncompliances which, and Governmental Approvals the failure to possess which, could not, individually or in the aggregate, reasonably be expected to cause a Default or Event of Default or have a Material Adverse Effect.

     (f) Title to Properties; Liens. Schedule 7.1.(f) is, as of the Agreement Date, a complete and correct listing of all real estate assets of the Loan Parties and the other Subsidiaries, setting forth, for each such Property, the current occupancy status of such Property, whether such Property is a Development Property or Major Redevelopment Property (and, if such Property is a Development Property or Major Redevelopment Property, the status of completion of such Property), whether such Property is a Stabilized Property or a Non-Stabilized Property (and, if such Property is a Stabilized Property, whether such Property is a Class A Stabilized Property). Each of the Loan Parties and all other Subsidiaries has good, marketable and legal title to, or a valid leasehold interest in, its respective assets. None of the Collateral is subject to any Lien other than Permitted Liens.

     (g) Existing Indebtedness; Total Liabilities. Part I of Schedule 7.1.(g) is, as of the Agreement Date, a complete and correct listing of all Indebtedness (including all Guarantees) of each of the Loan Parties and the other Subsidiaries, and if such Indebtedness is secured by any Lien, a description of all of the property subject to such Lien. As of the Agreement Date, the Loan Parties and the other Subsidiaries have performed and are in compliance with all of the terms of such Indebtedness and all instruments and agreements relating thereto, and no default or event of default, or event or condition which with the giving of notice, the lapse of time, or both, would constitute a default or event of default, exists with respect to any such Indebtedness. Part

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II of Schedule 7.1.(g) is, as of the Agreement Date, a complete and correct listing of all Total Liabilities of the Loan Parties and the other Subsidiaries (excluding any Indebtedness set forth on Part I of such Schedule).

     (h) Material Contracts. Schedule 7.1.(h) is, as of the Agreement Date, a true, correct and complete listing of all Material Contracts. Each of the Loan Parties and the other Subsidiaries that are parties to any Material Contract has performed and is in compliance with all of the terms of such Material Contract, and no default or event of default, or event or condition which with the giving of notice, the lapse of time, or both, would constitute such a default or event of default, exists with respect to any such Material Contract.

     (i) Litigation. Except as set forth on Schedule 7.1.(i), there are no actions, suits or proceedings pending (nor, to the knowledge of any Loan Party, are there any actions, suits or proceedings threatened, nor is there any basis therefor) against or in any other way relating adversely to or affecting, any Loan Party, any other Subsidiary or any of their respective property in any court or before any arbitrator of any kind or before or by any other Governmental Authority which, if adversely determined, could reasonably be expected to have a Material Adverse Effect, and there are no strikes, slow downs, work stoppages or walkouts or other labor disputes in progress or threatened relating to, any Loan Party or any other Subsidiary.

     (j) Taxes. All federal, state and other tax returns of, each Loan Party and each other Subsidiary required by Applicable Law to be filed have been duly filed, and all federal, state and other taxes, assessments and other governmental charges or levies upon, each Loan Party and each other Subsidiary and their respective properties, income, profits and assets which are due and payable have been paid, except any such nonpayment or non-filing which is at the time permitted under Section 8.6. As of the Agreement Date, none of the United States income tax returns of, any Loan Party or any other Subsidiary is under audit. All charges, accruals and reserves on the books of the Borrower and each of its Subsidiaries in respect of any taxes or other governmental charges are in accordance with GAAP.

     (k) Financial Statements. The Borrower has furnished to each Lender copies of (i) the audited consolidated balance sheet of CRT and its consolidated Subsidiaries for the fiscal years ended December 31, 2002 and December 31, 2003, and the related consolidated statements of operations, shareholders’ equity and cash flow for the fiscal years ended on such dates, with the opinion thereon of Deloitte & Touche LLP, and (ii) the unaudited consolidated balance sheet of CRT and its consolidated Subsidiaries for the fiscal quarter ended March 31, 2004, and the related consolidated statements of operations, shareholders’ equity and cash flow of CRT and its consolidated Subsidiaries for the fiscal quarter period ended on such date. Such balance sheets and statements (including in each case related schedules and notes) are complete and correct in all material respects and present fairly, in accordance with GAAP consistently applied throughout the periods involved, the consolidated financial position of CRT and its consolidated Subsidiaries as at their respective dates and the results of operations and the cash flow for such periods (subject, as to interim statements, to changes resulting from normal year-end audit adjustments). Neither the Borrower nor any of its Subsidiaries has on the Agreement Date any material contingent liabilities, liabilities, liabilities for taxes, unusual or long-term commitments

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or unrealized or forward anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said financial statements.

     (l) No Material Adverse Change. Since December 31, 2003, there has been no material adverse change in the consolidated financial condition, results of operations, business or prospects of the Borrower and its consolidated Subsidiaries taken as a whole. Each of the Borrower, the other Loan Parties and the other Subsidiaries is Solvent.

     (m) ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.

     (n) Absence of Defaults. None of the Loan Parties or the other Subsidiaries is in default under its articles of incorporation, bylaws, partnership agreement or other similar organizational documents, and no event has occurred, which has not been remedied, cured or waived: (i) which constitutes a Default or an Event of Default; or (ii) which constitutes, or which with the passage of time, the giving of notice, or both, would constitute, a default or event of default by, any Loan Party or any other Subsidiary under any agreement (other than this Agreement) or judgment, decree or order to which any such Person is a party or by which any such Person or any of its respective properties may be bound where such default or event of default could, individually or in the aggregate, have a Material Adverse Effect.

     (o) Environmental Laws. In the ordinary course of business and from time to time each of the Loan Parties and the other Subsidiaries conducts reviews of the effect of Environmental Laws on its respective business, operations and properties, including without limitation, its respective Properties, in the course of which such Loan Party or such other Subsidiary identifies and evaluates associated liabilities and costs (including, without limitation, determining whether any capital or operating expenditures are required for clean-up or closure of properties presently or previously owned, determining whether any capital or operating expenditures are required to achieve or maintain compliance in all material respects with Environmental Laws or required as a condition of any Governmental Approval, any contract, or any related constraints on operating activities, determining whether any costs or liabilities exist in connection with off-site disposal of wastes or Hazardous Materials, and determining whether any actual or potential liabilities to third parties, including employees, and any related costs and expenses exist). Each of the Loan Parties and the other Subsidiaries is in compliance with all applicable Environmental Laws and has obtained all Governmental Approvals which are required under Environmental Laws and is in compliance with all terms and conditions of such Governmental Approvals, where with respect to each of the foregoing the failure to obtain or to

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comply with could be reasonably expected to have a Material Adverse Effect. Except for any of the following matters that could not be reasonably expected to have a Material Adverse Effect, no Loan Party is aware of, nor has it received notice of, any past or present events, conditions, circumstances, activities, practices, incidents, actions, or plans which, with respect to any Loan Party or any other Subsidiary, may unreasonably interfere with or prevent compliance or continued compliance with Environmental Laws, or may give rise to any common-law or legal liability, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling or the emission, discharge, release or threatened release into the environment, of any Hazardous Material; and there is no civil, criminal, or administrative action, suit, demand, claim, hearing, notice, or demand letter, notice of violation, investigation, or proceeding pending or, to the Borrower’s knowledge, threatened, against any Loan Party or any other Subsidiary relating in any way to Environmental Laws which, if determined adversely to such Loan Party or such other Subsidiary, could be reasonably expected to have a Material Adverse Effect.

     (p) Investment Company; Public Utility Holding Company. No Loan Party, nor any other Subsidiary is (i) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, (ii) a “holding company” or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other Applicable Law which purports to regulate or restrict its ability to borrow money or obtain other extensions of credit or to consummate the transactions contemplated by this Agreement or to perform its obligations under any Loan Document to which it is a party.

     (q) Margin Stock. No Loan Party nor any other Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System.

     (r) Affiliate Transactions. Except as permitted by Section 10.10. or as otherwise set forth on Schedule 7.1.(r), no Loan Party nor any other Subsidiary is a party to or bound by any agreement or arrangement (whether oral or written) with any Affiliate.

     (s) Intellectual Property. Each of the Loan Parties and each other Subsidiary owns or has the right to use, under valid license agreements or otherwise, all patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights, trade secrets and copyrights (collectively, “Intellectual Property”) necessary to the conduct of its businesses, without known conflict with any patent, license, franchise, trademark, trade secret, trade name, copyright, or other proprietary right of any other Person. All such Intellectual Property is fully protected and/or duly and properly registered, filed or issued in the appropriate office and jurisdictions for such registrations, filing or issuances. No material claim has been asserted by any Person with respect to the use of any such Intellectual Property, or challenging or questioning the validity or effectiveness of any such Intellectual Property.

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     (t) Business. As of the Agreement Date, the Loan Parties and the other Subsidiaries are engaged in the business of acquiring, developing, owning, managing, leasing and operating real property and business activities and investments incidental thereto.

     (u) Broker’s Fees. No broker’s or finder’s fee, commission or similar compensation will be payable with respect to the transactions contemplated hereby. No other similar fees or commissions will be payable by any Loan Party for any other services rendered to any Loan Party or any other Subsidiaries ancillary to the transactions contemplated hereby.

     (v) Accuracy and Completeness of Information. All written information, reports and other papers and data furnished to the Agent or any Lender by, on behalf of, or at the direction of, any Loan Party or any other Subsidiary were, at the time the same were so furnished, complete and correct in all material respects, to the extent necessary to give the recipient a true and accurate knowledge of the subject matter, or, in the case of financial statements, present fairly, in accordance with GAAP consistently applied throughout the periods involved, the financial position of the Persons involved as at the date thereof and the results of operations for such periods. No fact is known to any Loan Party which has had, or may in the future have (so far as any Loan Party can reasonably foresee), a Material Adverse Effect which has not been set forth in the financial statements referred to in Section 7.1.(k) or in such information, reports or other papers or data or otherwise disclosed in writing to the Agent and the Lenders prior to the Effective Date. No document furnished or written statement made to the Agent or any Lender in connection with the negotiation, preparation or execution of, or pursuant to, this Agreement or any of the other Loan Documents contains or will contain any untrue statement of a fact material to the creditworthiness of any Loan Party or any other Subsidiary or omits or will omit to state a material fact necessary in order to make the statements contained therein not misleading.

      (w) Not Plan Assets; No Prohibited Transactions. None of the assets of any Loan Party or any other Subsidiary constitutes “plan assets” within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder, of any Plan. The execution, delivery and performance of the Loan Documents by the Loan Parties, and the borrowing, other credit extensions and repayment of amounts thereunder, do not and will not constitute “prohibited transactions” under ERISA or the Internal Revenue Code.

     (x) Collateral. Each Property included in calculations of the Borrowing Base satisfies all requirements under the Loan Documents for being an Eligible Property.

     (y) Tax Shelter Regulations. Neither any Loan Party nor any subsidiary of any Loan Party intends to treat the Loans or the transactions contemplated by this Agreement and the other Loan Documents as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4). If any Loan Party determines to take any action inconsistent with such intention, Borrower will promptly notify the Agent thereof. If Borrower so notifies the Agent, Borrower acknowledges that the Agent and any Lender may treat the Loans as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and the Agent and such Lenders, will maintain the lists and other records, including the identity of the applicable party to the Loans as required by such Treasury Regulation.

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Section 7.2. Survival of Representations and Warranties, Etc.

     All statements contained in any certificate, financial statement or other instrument delivered by or on behalf of any Loan Party or any other Subsidiary to the Agent or any Lender pursuant to or in connection with this Agreement or any of the other Loan Documents (including, but not limited to, any such statement made in or in connection with any amendment thereto or any statement contained in any certificate, financial statement or other instrument delivered by or on behalf of any Loan Party prior to the Agreement Date and delivered to the Agent or any Lender in connection with the underwriting or closing the transactions contemplated hereby) shall constitute representations and warranties made by the Borrower under this Agreement. All representations and warranties made under this Agreement and the other Loan Documents shall be deemed to be made at and as of the Agreement Date, the Effective Date and at and as of the date of the occurrence of each Credit Event, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date) and except for changes in factual circumstances specifically permitted hereunder. All such representations and warranties shall survive the effectiveness of this Agreement, the execution and delivery of the Loan Documents and the making of the Loans and the issuance of the Letters of Credit.

ARTICLE VIII. AFFIRMATIVE COVENANTS

     For so long as this Agreement is in effect, unless the Requisite Lenders (or, if required pursuant to Section 13.6., all of the Lenders) shall otherwise consent in the manner provided for in Section 13.6., the Borrower shall comply with the following covenants:

Section 8.1. Preservation of Existence and Similar Matters.

     Except as otherwise permitted under Section 10.6., the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, preserve and maintain its respective existence, rights, franchises, licenses and privileges in the jurisdiction of its incorporation or formation and qualify and remain qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification and authorization and where the failure to be so authorized and qualified could reasonably be expected to have a Material Adverse Effect.

Section 8.2. Compliance with Applicable Law and Material Contracts.

     The Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, comply with (a) all Applicable Law, including the obtaining of all Governmental Approvals, the failure with which to comply could reasonably be expected to have a Material Adverse Effect, and (b) all terms and conditions of all Material Contracts to which it is a party.

Section 8.3. Maintenance of Property.

     In addition to the requirements of any of the other Loan Documents, the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, (a) protect and preserve all of its material properties, including, but not limited to, all Intellectual Property necessary to the conduct of its respective business, and maintain in good repair, working order and condition all tangible properties, ordinary wear and tear excepted, and (b) from time to time make or cause to be made all needed and appropriate repairs, renewals, replacements and additions to such properties, so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

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conduct of its respective business, and maintain in good repair, working order and condition all tangible properties, ordinary wear and tear excepted, and (b) from time to time make or cause to be made all needed and appropriate repairs, renewals, replacements and additions to such properties, so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

Section 8.4. Conduct of Business.

     The Borrower shall, and shall cause the other Loan Parties and each other Subsidiary to, carry on its respective businesses as described in Section 7.1.(t) and not enter into any line of business not otherwise engaged in by such Person as of the Agreement Date except businesses described in Section 7.1.(t).

Section 8.5. Insurance.

     The Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, maintain insurance with financially sound and reputable insurance companies against such risks and in such amounts as is customarily maintained by similar businesses or as may be required by Applicable Law. Such insurance shall, in any event, include the following with respect to each Collateral Property:

     (a) Insurance against loss to such Properties on an “all risk” policy form, covering insurance risks no less broad than those covered under a Standard Multi Peril (SMP) policy form, which contains a Commercial ISO “Causes of Loss-Special Form,” in the then current form, and such other risks as the Agent may reasonably require and with such endorsements as the Agent may require, insuring the Agent, for the benefit of the Lenders, against damage to the Property and the improvements in and amount acceptable to the Agent, which policy must affirmatively cover losses sustained by acts of terrorism;

     (b) Flood insurance, as required by applicable governmental regulations or as deemed necessary by the Agent;

     (c) Commercial general liability insurance with limits as required by the Agent, insuring against liability for injury and/or death to any person and/or damage to any property occurring on the Property and or in the improvements on such Property form any cause whatsoever; and

     (d) Such other insurance relating to the Properties and the uses and operation thereof as Agent may, from time to time, reasonably require.

The Borrower shall provide to the Agent the originals of all required insurance policies, or other evidence of insurance acceptable to the Agent. All insurance policies shall provide that the insurance shall not be cancelable or materially changed without 10 days prior written notice to the Agent. The Agent, for the benefit of the Lenders, shall be named under a Lender’s Loss Payable Endorsement on all insurance policies which the Borrower actually maintains with respect to the Property and improvements thereon. The provisions of this Section shall include any insurance required to be maintained by a tenant under a lease, with the Agent to be named an

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additional insured (or loss payee, as applicable) in each case where the Borrower is entitled to be so named. The Borrower shall provide to the Agent evidence of any other hazard insurance that the Requisite Lenders may deem necessary at any time.

Section 8.6. Payment of Taxes and Claims.

     The Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, pay and discharge when due (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any properties belonging to it, and (b) all lawful claims of materialmen, mechanics, carriers, warehousemen and landlords for labor, materials, supplies and rentals which, if unpaid, might become a Lien on any properties of such Person; provided, however, that this Section shall not require the payment or discharge of any such tax, assessment, charge, levy or claim which is being contested in good faith by appropriate proceedings which operate to suspend the collection thereof and for which adequate reserves have been established on the books of such Person in accordance with GAAP.

Section 8.7. Books and Records; Inspections.

     The Borrower will, and will cause each other Loan Party and each other Subsidiary to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each other Loan Party and each other Subsidiary to, permit representatives of the Agent or any Lender to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants (in the Borrower’s presence if an Event of Default does not then exist), all at such reasonable times during business hours and as often as may reasonably be requested and so long as no Event of Default exists, with reasonable prior notice. The Borrower shall be obligated to reimburse the Agent and the Lenders for their costs and expenses incurred in connection with the exercise of their rights under this Section only if such exercise occurs while a Default or Event of Default exists.

Section 8.8. Use of Proceeds.

     The Borrower will only use the proceeds of Loans (a) for the payment of pre-development and development costs incurred in connection with Properties owned by the Borrower or any Subsidiary; (b) to finance acquisitions and equity investments not prohibited by this Agreement; (c) to finance capital expenditures and the repayment of Indebtedness of the Borrower and its Subsidiaries; and (d) to provide for the general working capital needs of the Borrower and its Subsidiaries and for other general corporate purposes of the Borrower and its Subsidiaries. The Borrower shall only use Letters of Credit for the same purposes for which it may use the proceeds of Loans. The Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, use any part of such proceeds to purchase or carry, or to reduce or retire or refinance any credit incurred to purchase or carry, any margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any such margin stock.

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Section 8.9. Environmental Matters.

     The Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, comply with all Environmental Laws the failure with which to comply could reasonably be expected to have a Material Adverse Effect. If any Loan Party or any other Subsidiary shall (a) receive notice that any violation of any Environmental Law may have been committed or is about to be committed by such Person, (b) receive notice that any administrative or judicial complaint or order has been filed or is about to be filed against any such Person alleging violations of any Environmental Law or requiring any such Person to take any action in connection with the release of Hazardous Materials or (c) receive any notice from a Governmental Authority or private party alleging that any such Person may be liable or responsible for costs associated with a response to or cleanup of a release of Hazardous Materials or any damages caused thereby, and such notices, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, the Borrower shall provide the Agent with a copy of such notice within 10 days after the receipt thereof by such Person or any of the Subsidiaries. The Loan Parties and the other Subsidiaries shall promptly take all actions necessary to prevent the imposition of any Liens on any of their respective properties arising out of or related to any Environmental Laws.

Section 8.10. Further Assurances.

     At the Borrower’s cost and expense and upon request of the Agent, the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, duly execute and deliver or cause to be duly executed and delivered, to the Agent such further instruments, documents and certificates, and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Agent to carry out more effectively the provisions and purposes of this Agreement and the other Loan Documents.

Section 8.11. REIT Status.

     CRT shall at all times maintain its status as a REIT.

Section 8.12. Exchange Listing.

     The Borrower shall at all times maintain at least one class of common shares of the Borrower having trading privileges on the New York Stock Exchange or the American Stock Exchange.

Section 8.13. Guarantors.

     (a) New Guarantors. The Borrower shall cause each Wholly Owned Subsidiary (other than an Excluded Subsidiary) of the Borrower that is not already a Guarantor and to which any of the following conditions apply (each a “New Guarantor”), to execute and deliver to the Agent an Accession Agreement to the Guaranty, together with the other items required to be delivered under the immediately following subsection (b):

          (i) such Subsidiary owns any parcel of real property;

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          (ii) such Subsidiary incurs, or otherwise becomes obligated in respect of, any Indebtedness other than Indebtedness described in clause (c), (d), (e), (f) or (i) of the definition of Indebtedness; or

          (iii) such Subsidiary, together with the Excluded Subsidiaries and any other Subsidiaries that are not Guarantors hereunder, hold at any time cash or cash equivalents (excluding tenant deposits and other cash and cash equivalents the disposition of which is restricted) in an amount which exceed $10,000,000.

Any such Accession Agreement and the other items required under such subsection (b) must be delivered to the Agent no later than 45 days following the last day of the Borrower’s fiscal quarter during which the provisions of this subsection first apply to such Subsidiary. The provisions of this subsection shall apply to any Excluded Subsidiary upon it ceasing to be subject to the restriction which prevented it from becoming a Guarantor on the Effective Date or delivering an Accession Agreement pursuant to this Section.

     (b) Required Deliveries. Each Accession Agreement delivered by a New Guarantor under the immediately preceding subsection (a) shall be accompanied by (i) the items that would have been delivered under Sections 6.1.(iv) through (viii) if such New Guarantor had been a Guarantor on the Agreement Date and (ii) such other documents and instruments as the Agent may reasonably request.

     (c) Accommodation Guarantors. The Borrower may, at its option, cause any Person that is not already a Guarantor and which owns Equity Interests issued by a Borrower or a Subsidiary of a Borrower to Guarantee all or any portion of the Obligations by executing and delivering to the Agent a guaranty agreement in form and substance satisfactory to the Borrower and the applicable Accommodation Guarantor. Any such guaranty agreement may provide that it is a guaranty of collection and not of payment and may only be enforced by the Agent after all other rights and remedies against any other Person have been fully exercised by the Agent, and may otherwise contain limitations on the scope of such guaranty, including release provisions and such other provisions as Borrower and the Accommodation Guarantors determine.

     (d) Release of Certain Guarantors. The Borrower may request in writing that the Agent release a Guarantor if (i) such Guarantor, upon its release as a Guarantor, will become an Excluded Subsidiary or will cease to be a Subsidiary, and (ii) no Default or Event of Default shall then be in existence or would occur as a result of such release. Together with any such request, the Borrower shall deliver to the Agent a certificate signed by the principal financial officer of the Borrower certifying that the conditions set forth in immediately preceding clauses (i) and (ii) will be true and correct upon the release of such Guarantor. No later than 10 Business Days following the Agent’s receipt of any such written request and the related certificate, and so long as the conditions set forth in immediately preceding clauses (i) and (ii) will be true and correct, such release shall be effective and Agent shall execute and deliver, at the sole cost and expense of the Borrower, such documents as Borrower may reasonably request to evidence such release. In addition to the foregoing, the Borrower may at anytime request that the Agent release an Accommodation Guarantor from the applicable guaranty agreement. No later

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than 10 Business Days following the Agent’s receipt of any such written request to release an Accommodation Guarantor, such release shall be effective and Agent shall execute and deliver, at the sole cost and expense of the Borrower, such documents as Borrower may reasonably request to evidence such release.

     (e) Accommodation Guarantor Indemnity. Not in limitation of any of the Borrower’s obligations under Section 13.2.(c) or 13.9., the Borrower shall and hereby agrees to indemnify, defend and hold harmless the Agent, each Lender and each other Indemnified Party from and against any and all losses, costs, claims, damages, liabilities, deficiencies, judgments or expenses of every kind and nature (including, without limitation, amounts paid in settlement, court costs and the fees and disbursements of counsel incurred in connection with any litigation, investigation, claim or proceeding or any advice rendered in connection therewith) incurred by an Indemnified Party in connection with, arising out of, or by reason of, any Indemnity Proceeding (other than an action to enforce the Accommodation Guarantor’s guaranty) which is in any way related directly or indirectly to any Accommodation Guarantor Guaranteeing any of the Obligations.

Article IX. Information

     For so long as this Agreement is in effect, unless the Requisite Lenders (or, if required pursuant to Section 13.6., all of the Lenders) shall otherwise consent in the manner set forth in Section 13.6., the Borrower shall furnish to each Lender (or to the Agent if so provided below) at its Lending Office:

Section 9.1. Quarterly Financial Statements.

     As soon as available and in any event within 5 days after the same is required to be filed with the Securities and Exchange Commission (but in no event later than 45 days after the end of each of the first, second and third fiscal quarters of the Borrower), the unaudited consolidated balance sheet of CRT and its Subsidiaries as at the end of such period and the related unaudited consolidated statements of operations, shareholders’ equity and cash flows of CRT and its Subsidiaries for such period, setting forth in each case in comparative form the figures as of the end of and for the corresponding periods of the previous fiscal year, all of which shall be certified by the principal financial officer of CRT, in his or her opinion, to present fairly, in accordance with GAAP, the consolidated financial position of CRT and its Subsidiaries as at the date thereof and the results of operations for such period (subject to normal year?end audit adjustments).

Section 9.2. Year-End Statements.

     As soon as available and in any event within 5 days after the same is required to be filed with the Securities and Exchange Commission (but in no event later than 90 days after the end of each fiscal year of the Borrower), the audited consolidated balance sheet of CRT and its Subsidiaries as at the end of such fiscal year and the related audited consolidated statements of operations, shareholders’ equity and cash flows of CRT and its Subsidiaries for such fiscal year, setting forth in comparative form the figures as at the end of and for the previous fiscal year, all of which shall be certified by the principal financial officer of CRT, in his or her opinion, to

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present fairly, in accordance with GAAP, the financial position of CRT and its Subsidiaries as at the date thereof and the result of operations for such period.

Section 9.3. Compliance Certificate.

     At the time the financial statements are furnished pursuant to the immediately preceding Sections 9.1. and 9.2., a certificate substantially in the form of Exhibit M (a “Compliance Certificate”) executed on behalf of the Borrower by the principal financial officer of CRT (a) setting forth as of the end of such quarterly accounting period or fiscal year, as the case may be, the calculations required to establish whether the Borrower was in compliance with the covenants contained in Section 10.1.; and (b) stating that no Default or Event of Default exists, or, if such is not the case, specifying such Default or Event of Default and its nature, when it occurred and the steps being taken by the Borrower with respect to such event, condition or failure.

Section 9.4. Other Information.

     (a) Promptly upon receipt thereof, copies of all reports, if any, submitted to the Borrower or its Board of Directors by its independent public accountants including, without limitation, any management report;

     (b) Within 5 Business Days of the filing thereof, copies of all registration statements (excluding the exhibits thereto and any registration statements on Form S?8 or its equivalent), reports on Forms 10?K, 10?Q and 8?K (or their equivalents) and all other periodic reports which any Loan Party or any other Subsidiary shall file with the Securities and Exchange Commission (or any Governmental Authority substituted therefor) or any national securities exchange;

     (c) Promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed and promptly upon the issuance thereof copies of all press releases issued by the Borrower, any Subsidiary or any other Loan Party;

     (d) As soon as available and in any event within 45 days after the end of each fiscal quarters of CRT, a Borrowing Base Certificate setting forth the information to be contained therein, as of the last day of such fiscal quarter. The Borrower shall also deliver a Borrowing Base Certificate as required pursuant to Sections 4.2.(b) and 6.3.(p).

      (e) Within 45 days after the end of each fiscal quarter of CRT, an operating summary with respect to each Collateral Property, including without limitation, a quarterly and year-to-date statement of Net Operating Income and a leasing/occupancy status report together with a current rent roll for such Property.

      (f) No later than 45 days before each quarter of CRT ending prior to the Termination Date, projected cash flow statements of CRT and its Subsidiaries on a consolidated basis for the next succeeding four quarter period, all itemized in reasonable detail. The foregoing shall be accompanied by pro forma calculations, together with detailed assumptions, required to establish whether or not the Borrower, and when appropriate its consolidated Subsidiaries, will be in

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compliance with the covenants contained in Sections 10.1. and at the end of each succeeding four fiscal quarters.

     (g) No later than 30 days before the end of each fiscal year of CRT ending prior to the Termination Date, a property budget for each Property for the coming fiscal year of CRT, together with any explanatory materials that the Agent may reasonably request.

     (h) If and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the controller of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take;

     (i) To the extent any Loan Party or any other Subsidiary is aware of the same, prompt notice of the commencement of any proceeding or investigation by or before any Governmental Authority and any action or proceeding in any court or other tribunal or before any arbitrator against or in any other way relating adversely to, or adversely affecting, the any Loan Party or any other Subsidiary or any of their respective properties, assets or businesses which, if determined or resolved adversely to such Person, could reasonably be expected to have a Material Adverse Effect, and prompt notice of the receipt of notice that any United States income tax returns of any Loan Party or any other Subsidiary are being audited;

     (j) Prompt notice of any change in the senior management of the Borrower, any Subsidiary or any other Loan Party and any change in the business, assets, liabilities, financial condition, results of operations or business prospects of any Loan Party or any other Subsidiary which has had or could have Material Adverse Effect;

     (k) Prompt notice of the occurrence of any Default or Event of Default or any event which constitutes or which with the passage of time, the giving of notice, or otherwise, would constitute a default or event of default by any Loan Party or any other Subsidiary under any

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Material Contract to which any such Person is a party or by which any such Person or any of its respective properties may be bound;

     (l) Promptly upon entering into any Material Contract after the Agreement Date, a copy of such Material Contract to the Agent;

     (m) Prompt notice of the failure of any Major Tenant to comply with any material terms, covenants, conditions or agreements under any Major Lease;

     (n) No later than five (5) Business Days prior to the effective date thereof, a copy of any proposed lease which would be a Major Lease together with the most recent financial statements of such proposed tenant and any guarantor, which proposed Major Lease shall be acceptable to the Agent in its reasonable discretion;

     (o) Prompt notice of any order, judgment or decree in excess of $1,000,000 having been entered against any Loan Party or any other Subsidiary or any of their respective properties or assets;

     (p) At the time the financial statements are furnished pursuant to Sections 9.1. and 9.2., notice of any acquisition, incorporation or other creation of any Subsidiary during such reporting period, together with the purpose for such Subsidiary, the nature of the assets and liabilities thereof and whether such Subsidiary is a Wholly Owned Subsidiary of the Borrower;

     (q) Promptly upon the request of the Agent, evidence of the Borrower’s calculation of the Ownership Share with respect to a Subsidiary or an Unconsolidated Affiliate, such evidence to be in form and detail satisfactory to the Agent; and

     (r) From time to time and promptly upon each request, such data, certificates, reports, statements, opinions of counsel, documents or further information regarding any Property or the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower or any of its Subsidiaries as the Agent or any Lender may reasonably request.

ARTICLE X. NEGATIVE COVENANTS

     For so long as this Agreement is in effect, unless the Requisite Lenders (or, if required pursuant to Section 13.6., all of the Lenders) shall otherwise consent in the manner set forth in Section 13.6., the Borrower shall comply with the following covenants:

Section 10.1. Financial Covenants.

     (a) Ratio of Total Liabilities to Gross Asset Value. The Borrower shall not permit the ratio of (i) Total Liabilities of the Borrower and its Subsidiaries determined on a consolidated basis to (ii) Gross Asset Value, to exceed 0.650 to 1.00 at any time.

     (b) Ratio of Adjusted EBITDA to Fixed Charges. The Borrower shall not permit the ratio of (i) Adjusted EBITDA for any fiscal quarter ending during the term of this Agreement to

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(ii) Fixed Charges for such fiscal quarter, to be less than 1.50 to 1.00 at the end of such fiscal quarter.

     (c) Ratio of Adjusted Net Operating Income to Indebtedness. The Borrower shall not permit the ratio of (i) Adjusted Net Operating Income for all of the Properties of the Borrower and its Subsidiaries determined on a consolidated basis for any fiscal quarter ending during the term of this Agreement at the end of such fiscal quarter multiplied by 4 to (ii) Indebtedness of the Borrower and its Subsidiaries determined on a consolidated basis at the end of such fiscal quarter, to be less than 0.1275 to 1.00 at the end of such fiscal quarter. For purposes of determining Adjusted Net Operating Income with respect to a Property owned by a Subsidiary that is not a Wholly Owned Subsidiary, only the Borrower’s Ownership Share of the Net Operating Income of such Property shall be used.

     (d) Ratio of Borrowing Base Adjusted NOI to Facility Interest Expense. The Borrower shall not permit the ratio of (i) Borrowing Base Adjusted NOI for any fiscal quarter ending during the term of this Agreement to (ii) Facility Interest Expense for such fiscal quarter, to be less than 2.00 to 1.00 at the end of such fiscal quarter.

     (e) Minimum Tangible Net Worth. The Borrower shall not permit its Tangible Net Worth at the end of any fiscal quarter to be less than (i) $325,000,000 plus (ii) 85% of the Net Proceeds of all Equity Issuances effected at any time after March 31, 2004 by the Borrower or any of its Subsidiaries to any Person other than the Borrower or any of its Subsidiaries.

     (f) Permitted Investments. The Borrower shall not, and shall not permit any Loan Party or other Subsidiary to, make an Investment in or otherwise own the following items which would cause the aggregate value of such holdings of such Persons to exceed the indicated percentages of Gross Asset Value at any time:

          (i) Properties that are developed but that are developed for uses other than for office space, such that the value of all such Properties exceeds 5.0% of Gross Asset Value;

          (ii) land on which no development (other than improvements that are not material and are temporary in nature) has occurred, such that the value of all such land exceeds 5.0% of Gross Asset Value;

          (iii) promissory notes secured by a Lien on either real property or all of the Equity Interests of a single purpose entity which owns real estate, such that the value of all such promissory notes exceeds 20.0% of Gross Asset Value;

          (iv) Equity Interests and other Investments in Persons that are not Subsidiaries or Unconsolidated Affiliates, such that the aggregate value of such Investments exceeds 5.0% of Gross Asset Value;

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          (v) Equity Interests and other Investments in (x) Subsidiaries that are not Wholly Owned Subsidiaries and (y) Unconsolidated Affiliates, such that the aggregate value of such Investments exceeds 25.0% of Gross Asset Value;

          (vi) Development Properties and Major Redevelopment Properties, such that the aggregate Total Budgeted Costs for all such Properties exceeds 20.0% of Gross Asset Value; and

          (vii) Non-Stabilized Properties, Development Properties and Major Redevelopment Properties, such that the aggregate value of such Non-Stabilized Properties determined in accordance with definition Operating Property Value, together with the aggregate Total Budgeted Costs for all such Development Properties and Major Redevelopment Properties, exceeds 50.0% of Gross Asset Value.

In addition to the foregoing limitations, the aggregate value of all of the items subject to the limitations in the preceding clauses (i) through (v) shall not exceed 30.0% of Gross Asset Value. For purposes of determining compliance with this 30% aggregate limitation, any asset that can be included under more than one of the preceding clauses shall only be included in one applicable clause. For purposes of clause (v) above, the value of the Borrower’s Investment in a Subsidiary or Unconsolidated Affiliate shall equal the Borrower’s Ownership Share of (A) the value of the assets of such Person determined in a manner consistent with how Gross Asset Value is calculated, less (B) the Total Liabilities of such Person. For purposes of each clause above, other than clause (v), the value of an item shall equal the lower of cost or market price as determined in accordance with GAAP. For purposes of clause (vi) and (vii), the Total Budgeted Costs with respect to any Development Property or Major Redevelopment Property owned by an Unconsolidated Affiliate of the Borrower shall equal the greater of (i) the product of (x) the Borrower’s Ownership Share in such Unconsolidated Affiliate and (y) the Total Budgeted Costs for such Property and (ii) the amount of Indebtedness of such Unconsolidated Affiliate which is recourse to the Borrower or any Subsidiary (other than Indebtedness under Guarantees of performance and Guarantees of liabilities arising from customary exceptions to Nonrecourse Indebtedness as described in the definition of such term). The limitations of clause (v) of this subsection shall not apply to the ACP J/V Transaction so long as the Borrower, directly or indirectly through Wholly Owned Subsidiaries, (1) owns at least 70% of the outstanding Equity Interest of the ACP J/V and (2) has the exclusive right to encumber, sell, transfer, assign or otherwise dispose of all or any portion of the assets owned by the ACP J/V and to dissolve or otherwise terminate the ACP J/V at any time.

     (g) Aggregate Occupancy Rates. The Borrower shall not permit the weighted average aggregate Occupancy Rate (weighted on the basis of aggregate square footage) of all Stabilized Properties that are Collateral Properties to be less than or equal to 75.0% at any time.

Section 10.2. Restricted Payments.

     The Borrower shall not, and shall not permit any of its Subsidiaries to, declare or make any Restricted Payment; provided, however, that the Borrower and any Subsidiary may declare and make the following Restricted Payments so long as no Default or Event of Default would result therefrom:

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     (a) CRT may declare or make cash distributions to its shareholders during the period of four consecutive fiscal quarters most recently ending in an aggregate amount not to exceed the greater of: (i) 95.0% of Funds From Operations for such period; and (ii) 100% of CRT’s REIT taxable income (as determined in accordance with the Internal Revenue Code); provided, however, that distributions limited by this Section 10.2.(a) shall not include distributions to holders of Preferred Stock, to the extent that such distributions have been deducted from Funds From Operations and CRT’s REIT taxable income, respectively, for such period;

     (b) CRT may make cash distributions to its shareholders of capital gains resulting from gains from certain asset sales to the extent necessary to avoid payment of taxes on such asset sales imposed under Sections 857(b)(3) and 4981 of the Internal Revenue Code; and

     (c) Subsidiaries and the Operating Partnership may pay Restricted Payments to a Borrower, any other Subsidiary or, in accordance with such Subsidiary’s or the Operating Partnership’s articles or certificate of incorporation or formation, certificate of partnership, by?laws, partnership agreement, operating agreement or other similar organizational documents, to the holders of Equity Interests in any such Subsidiary or the Operating Partnership.

Notwithstanding the foregoing, if a Default or Event of Default exists, (i) CRT may only declare or make cash distributions to its shareholders during any fiscal year in an aggregate amount not to exceed the minimum amount necessary for CRT to remain in compliance with Section 8.11., (ii) in the event CRT declares or makes cash distributions to its shareholders in accordance with clause (i) above, the Operating Partnership may declare or make cash distributions (A) to CRT in an aggregate amount not to exceed the amount permitted to be declared or made by CRT in accordance with clause (i) and (B) to the other holders of Equity Interests in the Operating Partnership, on a pro rata basis, and (iii) the Subsidiaries may make Restricted payments in accordance with the subsection (c) above.

Section 10.3. Indebtedness.

     The Borrower shall not, and shall not permit any Loan Party or any other Subsidiary to, incur, assume, or otherwise become obligated in respect of any Indebtedness after the Agreement Date if immediately prior to the assumption, incurring or becoming obligated in respect thereof, or immediately thereafter and after giving effect thereto, a Default or Event of Default is or would be in existence, including without limitation, a Default or Event of Default resulting from a violation of any of the covenants contained in Section 10.1.

Section 10.4. Negative Pledge.

     The Borrower shall not, and shall not permit any other Loan Party to, create, assume or suffer to exist any Lien on any Collateral Property or any of the other Collateral, now owned or hereafter acquired, except for Permitted Liens; provided, that Borrower shall have a period of thirty (30) days after receiving notice thereof to discharge, transfer to bond or otherwise remove from the Collateral Property any Lien not intentionally imposed by Borrower.

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Section 10.5. Restrictions on Intercompany Transfers.

     The Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary (other than an Excluded Subsidiary) to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary to: (i) pay dividends or make any other distribution on any of such Subsidiary’s capital stock or other equity interests owned by the Borrower or any other Subsidiary; (ii) pay any Indebtedness owed to the Borrower or any other Subsidiary; (iii) make loans or advances to the Borrower or any other Subsidiary; or (iv) transfer any of its property or assets to the Borrower or any other Subsidiary.

Section 10.6. Merger, Consolidation, Sales of Assets and Other Arrangements.

     The Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, (a) enter into any transaction of merger or consolidation; (b) liquidate, windup or dissolve itself (or suffer any liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any Substantial Amount of its business or assets, or the capital stock of or other Equity Interests in any of its Subsidiaries, whether now owned or hereafter acquired; or (d) acquire a Substantial Amount of the assets of, or make an Investment of a Substantial Amount in, any other Person; provided, however, that:

          (i) any Subsidiary may merge with a Loan Party so long as such Loan Party is the survivor;

          (ii) any Subsidiary may sell, transfer or dispose of its assets to a Loan Party;

          (iii) CRT may sell, transfer or otherwise dispose of its assets to the Operating Partnership;

          (iv) any Loan Party and any other Subsidiary may, directly or indirectly, (A) acquire (whether by purchase, acquisition of Equity Interests of a Person, or as a result of a merger or consolidation) a Substantial Amount of the assets of, or make an Investment of a Substantial Amount in, any other Person, (B) merge with or into any other Person, (C) sell, lease, transfer or otherwise dispose of, whether by one or a series of transactions, a Substantial Amount of its business or assets (including capital stock or other securities of Subsidiaries) to any other Person and (D) liquidate, windup or dissolve itself (other than, with respect to this subclause (D), the Borrower or any Loan Party which owns a Collateral Property), so long as, in each case, (1) the Borrower shall have given the Agent and the Lenders at least 30 days prior written notice of such consolidation, merger, acquisition, Investment, sale, lease or other transfer; (2) immediately prior thereto, and immediately thereafter and after giving effect thereto, no Default or Event of Default is or would be in existence; (3) in the case of a consolidation or merger involving a Loan Party which owns a Collateral Property, such Loan Party shall be the survivor thereof and (4) at the time the Borrower gives notice pursuant to clause (1) of this subsection, the Borrower shall have delivered to the Agent and the Lenders a Compliance Certificate, calculated on a pro forma basis, evidencing the

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continued compliance by the Loan Parties with the terms and conditions of this Agreement and the other Loan Documents, including without limitation, the financial covenants contained in Section 10.1., after giving effect to such consolidation, merger, acquisition, Investment, sale, lease or other transfer; and

          (v) the Loan Parties and the other Subsidiaries may lease and sublease their respective assets, as lessor or sublessor (as the case may be), in the ordinary course of their business.

Further, no Loan Party nor any Subsidiary, shall enter into any sale?leaseback transactions or other transaction by which such Person shall remain liable as lessee (or the economic equivalent thereof) of any real or personal property that it has sold or leased to another Person; provided, that the foregoing prohibition will not include a reverse exchange acquisition under Section 1031 of the Internal Revenue Code which does not have a Material Adverse Effect and which would not otherwise be prohibited in this Agreement or any other Loan Document.

Section 10.7. Plans.

     The Borrower shall not, and shall not permit any Subsidiary to, permit any of its respective assets to become or be deemed to be “plan assets” within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder.

Section 10.8. Fiscal Year.

     The Borrower shall not, and shall not permit any Loan Party or other Subsidiary to, change its fiscal year from that in effect as of the Agreement Date.

Section 10.9. Modifications of Organizational Documents and Material Contracts.

     The Borrower shall not, and shall not permit any Loan Party or other Subsidiary to, amend, supplement, restate or otherwise modify its articles or certificate of incorporation, by?laws, partnership agreement, operating agreement or other similar organizational documents without the prior written consent of the Requisite Lenders unless such amendment, supplement, restatement or other modification could not reasonably be expected to have a Material Adverse Effect. The Borrower shall not, and shall not permit any Subsidiary or other Loan Party to, enter into any amendment or modification to any Material Contract that could reasonably be expected to have a Material Adverse Effect or default in the performance of any obligations of any Loan Party or other Subsidiary in any Material Contract or permit any Material Contract to be canceled or terminated prior to its stated maturity.

Section 10.10. Property Management Agreements and Major Leases.

     The Borrower shall not, and shall not permit any Subsidiary or other Loan Party to, (a) materially amend, supplement or modify any Major Lease or Property Management Agreement relating to a Collateral Property, (b) forgive any rent payment, or any portion of a rent payment, owed to the Borrower or any other Loan Party by a Major Tenant, (c) terminate, cancel or assign any Major Lease or Property Management Agreement relating to a Collateral Property, or (d)

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permit to exist any condition which would result in the termination or cancellation of, or which would relieve the performance of any material obligations of any Major Tenant, each without the prior written consent of the Agent.

Section 10.11. Transactions with Affiliates.

     The Borrower shall not permit to exist or enter into, and will not permit any Loan Party or other Subsidiary to permit to exist or enter into, any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Borrower or with any director, officer or employee of any Loan Party, except (a) as set forth on Schedule 7.1.(r) or (b) transactions in the ordinary course of and pursuant to the reasonable requirements of the business of the Borrower or any of its Subsidiaries and upon fair and reasonable terms which are no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arm’s length transaction with a Person that is not an Affiliate. Notwithstanding the forgoing, no payments may be made with respect to any items set forth on such Schedule upon the occurrence and during the continuation of a Default or Event of Default.

ARTICLE XI. DEFAULT

Section 11.1. Events of Default.

     Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of Applicable Law or pursuant to any judgment or order of any Governmental Authority:

     (a) Default in Payment. The Borrower shall fail to pay (i) the principal of any Loan or any Reimbursement Obligation when due (whether upon demand, at maturity, by reason of acceleration or otherwise), or (ii) any interest on any Loan or other Obligation, or shall fail to pay any of the other payment Obligations owing by the Borrower under this Agreement or any other Loan Document, or any other Loan Party shall fail to pay when due any payment obligation owing by such Loan Party under any Loan Document to which it is a party, solely in the case of this clause (ii), within 10 Business Days of the due date thereof.

     (b) Default in Performance.

          (i) Any Loan Party shall fail to perform or observe any term, covenant, condition or agreement on its part to be performed or observed and contained in Section 9.4.(k) or Article X.; or

          (ii) Any Loan Party shall fail to perform or observe any term, covenant, condition or agreement contained in this Agreement or any other Loan Document to which it is a party and not otherwise mentioned in this Section and such failure shall continue for a period of 30 calendar days (or, if such failure is not reasonably capable of being remedied within such 30 day period, such additional period of time as may be required in order to remedy such condition or breach, not to exceed 60 days) after the earlier of (x) the date upon which any Loan Party obtains knowledge of such failure or

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(y) the date upon which the Borrower has received written notice of such failure from the Agent;

     (c) Misrepresentations. Any written statement, representation or warranty made or deemed made by or on behalf of any Loan Party under this Agreement or under any other Loan Document, or any amendment hereto or thereto, or in any other writing or statement at any time furnished by, or at the direction of, any Loan Party to the Agent or any Lender, shall at any time prove to have been incorrect or misleading in any material respect when furnished or made or deemed made.

     (d) Indebtedness Cross?Default.

          (i) Any Loan Party shall fail to pay when due and payable the principal of, or interest on, any Indebtedness (other than the Loans) having an aggregate outstanding principal amount of $10,000,000 or more (or $25,000,000 or more in the case of Nonrecourse Indebtedness) (“Material Indebtedness”) and in any such case such failure shall continue beyond any applicable notice and cure periods; or

          (ii) (x) The maturity of any Material Indebtedness shall have been accelerated in accordance with the provisions of any indenture, contract or instrument evidencing, providing for the creation of or otherwise concerning such Material Indebtedness or (y) any Material Indebtedness shall have been required to be prepaid or repurchased prior to the stated maturity thereof; or

          (iii) Any other event shall have occurred and be continuing which, with or without the passage of time, the giving of notice, or otherwise, would permit any holder or holders of any Material Indebtedness, any trustee or agent acting on behalf of such holder or holders or any other Person, to accelerate the maturity of any Material Indebtedness or require any Material Indebtedness to be prepaid or repurchased prior to its stated maturity.

     (e) Voluntary Bankruptcy Proceeding. The Borrower, any other Loan Party or any other Subsidiary shall: (i) commence a voluntary case under the Bankruptcy Code of 1978, as amended, or other federal bankruptcy laws (as now or hereafter in effect); (ii) file a petition seeking to take advantage of any other Applicable Laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding?up, or composition or adjustment of debts; (iii) consent to, or fail to contest in a timely and appropriate manner, any petition filed against it in an involuntary case under such bankruptcy laws or other Applicable Laws or consent to any proceeding or action described in the immediately following subsection (f); (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign; (v) admit in writing its inability to pay its debts as they become due; (vi) make a general assignment for the benefit of creditors; (vii) make a conveyance fraudulent as to creditors under any Applicable Law; or (viii) take any corporate or partnership action for the purpose of effecting any of the foregoing.

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     (f) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be commenced against the Borrower, any other Loan Party or any other Subsidiary in any court of competent jurisdiction seeking: (i) relief under the Bankruptcy Code of 1978, as amended or other federal bankruptcy laws (as now or hereafter in effect) or under any other Applicable Laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding?up, or composition or adjustment of debts; or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such Person, or of all or any substantial part of the assets, domestic or foreign, of such Person, and in the case of either clause (i) or (ii) such case or proceeding shall continue undismissed or unstayed for a period of 60 consecutive calendar days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such Bankruptcy Code or such other federal bankruptcy laws) shall be entered.

     (g) Revocation of Loan Documents. Any Loan Party shall (or shall attempt to) disavow, revoke or terminate any Loan Document to which it is a party or shall otherwise challenge or contest in any action, suit or proceeding in any court or before any Governmental Authority the validity or enforceability of any Loan Document.

     (h) Judgment. A judgment or order for the payment of money shall be entered against the Borrower, any other Loan Party or any other Subsidiary, by any court or other tribunal and (i) such judgment or order shall continue for a period of 30 days without being paid stayed or dismissed through appropriate appellate proceedings and (ii) either (A) the amount for which insurance has not been acknowledged in writing by the applicable insurance carrier (or the amount as to which the insurer has denied liability) exceeds, individually or together with all other such judgments or orders entered against the Borrower, the other Loan Parties and the other Subsidiaries, $10,000,000 or (B) such judgment or order could reasonably be expected to have a Material Adverse Effect.

     (i) Attachment. A warrant, writ of attachment, execution or similar process shall be issued against any property of the Borrower, any other Loan Party or any other Subsidiary, which exceeds, individually or together with all other such warrants, writs, executions and processes, $10,000,000 in amount and such warrant, writ, execution or process shall not be paid, discharged, vacated, stayed or bonded for a period of 30 days; provided, however, that if a bond has been issued in favor of the claimant or other Person obtaining such warrant, writ, execution or process, the issuer of such bond shall execute a waiver or subordination agreement in form and substance satisfactory to the Agent pursuant to which the issuer of such bond subordinates its right of reimbursement, contribution or subrogation to the Obligations and waives or subordinates any Lien it may have on the assets of any Loan Party.

     (j) ERISA . Any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $1,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material

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Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $10,000,000.

     (k) Loan Documents. An Event of Default (as defined therein) shall occur under any of the other Loan Documents.

     (l) Change of Control/Change in Management.

          (i) Any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 15% of the total voting power of the then outstanding voting stock of CRT (for purposes of this subsection the outstanding voting stock of CRT shall include any voting stock of the Operating Partnership that is convertible into, or exchangeable for, shares of voting stock of CRT);

          (ii) During any period of 12 consecutive months ending after the Agreement Date, individuals who at the beginning of any such 12?month period constituted the Board of Directors of the Borrower (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Borrower was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office;

          (iii) If Thomas Crocker ceases for any reason to be principally involved in the senior management of CRT, and CRT shall have failed to replace the resulting vacancy in senior management with an individual reasonably acceptable to the Requisite Lenders within a period of 60 days; or

          (iv) CRT ceases either to be the sole general partner or to own 100% of the outstanding Equity Interest of the sole general partner of the Operating Partnership;

     (m) Damage; Strike; Casualty. Any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than 30 consecutive days beyond the coverage period of any applicable business interruption insurance, the cessation or substantial curtailment of revenue producing activities of the Borrower or its Subsidiaries taken as a whole and only if any such event or circumstance could reasonably be expected to have a Material Adverse Effect.

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     (n) Failure of Security. The Agent shall cease to have a valid and perfected first priority security interest in the Collateral, in each case, for any reason other than the failure of the Agent to take any action within its control.

     (o) Material Adverse Effect. There shall occur any event that has or is reasonably likely to have a Material Adverse Effect.

Section 11.2. Remedies Upon Event of Default.

     Upon the occurrence of an Event of Default the following provisions shall apply:

     (a) Acceleration; Termination of Facilities.

          (i) Automatic. Upon the occurrence of an Event of Default specified in Sections 11.1.(e) or 11.1.(f), (1)(A) the principal of, and all accrued interest on, the Loans and the Notes at the time outstanding, (B) an amount equal to the Stated Amount of all Letters of Credit outstanding as of the date of the occurrence of such Event of Default and (C) all of the other Obligations of the Borrower, including, but not limited to, the other amounts owed to the Lenders and the Agent under this Agreement, the Notes or any of the other Loan Documents shall become immediately and automatically due and payable by the Borrower without presentment, demand, protest, or other notice of any kind, all of which are expressly waived by the Borrower, and (2) the Commitments and the Swingline Commitment, the obligation of the Lenders to make Loans hereunder, and the obligation of the Agent to issue Letters of Credit hereunder, shall all immediately and automatically terminate.

          (ii) Optional. If any other Event of Default shall exist, the Agent may, and at the direction of the Requisite Lenders shall: (1) declare (A) the principal of, and accrued interest on, the Loans and the Notes at the time outstanding, (B) an amount equal to the Stated Amount of all Letters of Credit outstanding as of the date of the occurrence of such Event of Default and (C) all of the other Obligations, including, but not limited to, the other amounts owed to the Lenders and the Agent under this Agreement, the Notes or any of the other Loan Documents to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower, and (2) terminate the Commitments and the obligation of the Lenders to make Loans hereunder and the obligation of the Agent to issue Letters of Credit hereunder. If the Agent has exercised any of the rights provided under the preceding sentence, the Swingline Lender shall: (x) declare the principal of, and accrued interest on, the Swingline Loans and the Swingline Notes at the time outstanding, and all of the other Obligations owing to the Swingline Lender, to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower and (y) terminate the Swingline Commitment and the obligation of the Swingline Lender to make Swingline Loans.

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     (b) Loan Documents. The Requisite Lenders may direct the Agent to, and the Agent if so directed shall, exercise any and all of its rights under any and all of the other Loan Documents.

     (c) Applicable Law. The Requisite Lenders may direct the Agent to, and the Agent if so directed shall, exercise all other rights and remedies it may have under any Applicable Law.

     (d) Appointment of Receiver. To the extent permitted by Applicable Law, the Agent and the Lenders shall be entitled to the appointment of a receiver for the assets and properties of the Borrower and its Subsidiaries, without notice of any kind whatsoever and without regard to the adequacy of any security for the Obligations or the solvency of any party bound for its payment, to take possession of all or any portion of the Collateral and/or the business operations of the Borrower and its Subsidiaries and to exercise such power as the court shall confer upon such receiver.

     (e) Enforcement of Remedies. Notwithstanding the foregoing, with respect to an Event of Default occurring under Section 11.1.(b)(i) solely as a result of the Borrower’s failure to perform or observe the covenants contained in Section 10.1., the Lenders may not exercise their remedies set forth in the immediately preceding subsections (a) through (d) until the date which is 30 days following the date on which such Event of Default occurred.

Section 11.3. Remedies Upon Default.

     Upon the occurrence of a Default specified in Sections 11.1.(e) or 11.1.(f), the Commitments shall immediately and automatically terminate.

Section 11.4. Marshaling; Payments Set Aside.

     Neither the Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Loan Party or any other party or against or in payment of any or all of the Obligations. To the extent that any Loan Party makes a payment or payments to the Agent and/or any Lender, or the Agent and/or any Lender enforce their security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

Section 11.5. Allocation of Proceeds.

     If an Event of Default exists and maturity of any of the Obligations has been accelerated, all payments received by the Agent under any of the Loan Documents, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrower hereunder or thereunder, shall be applied in the following order and priority:

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          (a) amounts due to the Agent and the Lenders in respect of Fees and expenses due under Section 13.2.;

          (b) amounts due to the Agent and the Lenders in respect of Protective Advances;

          (c) payments of interest on Swingline Loans;

          (d) payments of interest on all other Loans, to be applied for the ratable benefit of the Lenders, in such order as the Lenders may determine in their sole discretion;

          (e) payment of principal on Swingline Loans;

          (f) payments of principal of all other Loans, to be applied for the ratable benefit of the Lenders, in such order as the Lenders may determine in their sole discretion;

          (g) amounts to be deposited into the Letter of Credit Collateral Account in respect of Letters of Credit;

          (h) amounts due to the Agent and the Lenders pursuant to Sections 12.8. and 13.9.;

          (i) payments of all other amounts due under any of the Loan Documents, if any, to be applied for the ratable benefit of the Lenders; and

          (j) any amount remaining after application as provided above, shall be paid to the Borrower or whomever else may be legally entitled thereto.

Section 11.6. Letter of Credit Collateral Account.

     (a) As collateral security for the prompt payment in full when due of all Letter of Credit Liabilities and the other Obligations, the Borrower hereby pledges and grants to the Agent, for the benefit of the Agent and the Lenders as provided herein, a security interest in all of its right, title and interest in and to the Letter of Credit Collateral Account and the balances from time to time in the Letter of Credit Collateral Account (including the investments and reinvestments therein provided for below). The balances from time to time in the Letter of Credit Collateral Account shall not constitute payment of any Letter of Credit Liabilities until applied by the Agent as provided herein. Anything in this Agreement to the contrary notwithstanding, funds held in the Letter of Credit Collateral Account shall be subject to withdrawal only as provided in this Section.

     (b) Amounts on deposit in the Letter of Credit Collateral Account shall be invested and reinvested by the Agent in such cash equivalents as the Agent shall determine in its sole discretion. All such investments and reinvestments shall be held in the name of and be under the sole dominion and control of the Agent, for the ratable benefit of the Lenders. The Agent shall

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exercise reasonable care in the custody and preservation of any funds held in the Letter of Credit Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Agent accords other funds deposited with the Agent, it being understood that the Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any funds held in the Letter of Credit Collateral Account.

           (c) If a drawing pursuant to any Letter of Credit occurs on or prior to the expiration date of such Letter of Credit, the Borrower and the Lenders authorize the Agent to use the monies deposited in the Letter of Credit Collateral Account to make payment to the beneficiary with respect to such drawing or the payee with respect to such presentment.

           (d) If an Event of Default exists, the Requisite Lenders may, in their discretion, at any time and from time to time, instruct the Agent to liquidate any investments contained in the Letter of Credit Collateral Account and apply proceeds thereof and any other funds then on deposit in the Letter of Credit Collateral Account to the Obligations in accordance with Section 11.5.

           (e) So long as no Default or Event of Default exists, and to the extent amounts on deposit in the Letter of Credit Collateral Account exceed the aggregate amount of the Letter of Credit Liabilities then due and owing, the Agent shall, from time to time, at the request of the Borrower, deliver to the Borrower within 10 Business Days after the Agent’s receipt of such request from the Borrower, against receipt but without any recourse, warranty or representation whatsoever, such of the balances in the Letter of Credit Collateral Account as exceed the aggregate amount of the Letter of Credit Liabilities at such time.

           (f) The Borrower shall pay to the Agent from time to time such fees as the Agent normally charges for similar services in connection with the Agent’s administration of the Letter of Credit Collateral Account and investments of funds therein.

Section 11.7. Rescission of Acceleration by Requisite Lenders.

          If at any time after acceleration of the maturity of the Loans and the other Obligations, the Borrower shall pay all arrears of interest and all payments on account of principal of the Obligations which shall have become due other than by acceleration (with interest on principal and, to the extent permitted by Applicable Law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Defaults (other than nonpayment of principal of and accrued interest on the Obligations due and payable solely by virtue of acceleration) shall become remedied or waived to the satisfaction of the Requisite Lenders, then by written notice to the Borrower, the Requisite Lenders may elect, in the sole discretion of such Requisite Lenders, to rescind and annul the acceleration and its consequences. The provisions of the preceding sentence are intended merely to bind all of the Lenders to a decision which may be made at the election of the Requisite Lenders, and are not intended to benefit the Borrower and do not give the Borrower the right to require the Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are satisfied.

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Section 11.8. Performance by Agent.

           If the Borrower shall fail to perform any covenant, duty or agreement contained in any of the Loan Documents, the Agent may perform or attempt to perform such covenant, duty or agreement on behalf of the Borrower after the expiration of any cure or grace periods set forth herein. In such event, the Borrower shall, at the request of the Agent, promptly pay any amount reasonably expended by the Agent in such performance or attempted performance to the Agent, together with interest thereon at the applicable Post-Default Rate from the date of such expenditure until paid. Notwithstanding the foregoing, neither the Agent nor any Lender shall have any liability or responsibility whatsoever for the performance of any obligation of the Borrower under this Agreement or any other Loan Document.

Section 11.9. Rights Cumulative.

           The rights and remedies of the Agent and the Lenders under this Agreement and each of the other Loan Documents shall be cumulative and not exclusive of any rights or remedies which any of them may otherwise have under Applicable Law. In exercising their respective rights and remedies the Agent and the Lenders may be selective and no failure or delay by the Agent or any of the Lenders in exercising any right shall operate as a waiver of it, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right.

Article XII. The Agent

Section 12.1. Appointment and Authorization.

           Each Lender hereby irrevocably appoints and authorizes the Agent to take such action as contractual representative on such Lender’s behalf and to exercise such powers under this Agreement and the other Loan Documents as are specifically delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Not in limitation of the foregoing, each Lender authorizes and directs the Agent to enter into the Loan Documents for the benefit of the Lenders. Each Lender hereby agrees that, except as otherwise set forth herein, any action taken by the Requisite Lenders in accordance with the provisions of this Agreement or the Loan Documents, and the exercise by the Requisite Lenders of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders. Nothing herein shall be construed to deem the Agent a trustee or fiduciary for any Lender or to impose on the Agent duties or obligations other than those expressly provided for herein. Without limiting the generality of the foregoing, the use of the terms “Agent”, “agent” and similar terms in the Loan Documents with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead, use of such terms is merely a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. The Agent will furnish to any Lender, upon the request of such Lender, a copy (or, where appropriate, an original) of any document, instrument, agreement, certificate or notice furnished to the Agent by the Borrower, any Loan Party or any other Affiliate of the Borrower, pursuant to this Agreement or any

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other Loan Document not already delivered to such Lender pursuant to the terms of this Agreement or any such other Loan Document. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of any of the Obligations), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Requisite Lenders (or all of the Lenders if explicitly required under any other provision of this Agreement), and such instructions shall be binding upon all Lenders and all holders of any of the Obligations; provided, however, that, notwithstanding anything in this Agreement to the contrary, the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or any other Loan Document or Applicable Law. Not in limitation of the foregoing, the Agent shall exercise any right or remedy it or the Lenders may have under any Loan Document upon the occurrence of a Default or an Event of Default unless the Requisite Lenders have directed the Agent otherwise. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Requisite Lenders, or where applicable, all the Lenders.

Section 12.2. Wells Fargo as Lender.

           Wells Fargo, as a Lender, shall have the same rights and powers under this Agreement and any other Loan Document as any other Lender and may exercise the same as though it were not the Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include Wells Fargo in each case in its individual capacity. Wells Fargo and its affiliates may each accept deposits from, maintain deposits or credit balances for, invest in, lend money to, act as trustee under indentures of, serve as financial advisor to, and generally engage in any kind of business with the Borrower, any other Loan Party or any other affiliate thereof as if it were any other bank and without any duty to account therefor to the other Lenders. Further, the Agent and any affiliate may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the other Lenders. The Lenders acknowledge that, pursuant to such activities, Wells Fargo or its affiliates may receive information regarding the Borrower, other Loan Parties, other Subsidiaries and other Affiliates (including information that may be subject to confidentiality obligations in favor of such Person) and acknowledge that the Agent shall be under no obligation to provide such information to them.

Section 12.3. Collateral Matters; Protective Advances.

           (a) Each Lender hereby authorizes the Agent, without the necessity of any notice to or further consent from any Lender, from time to time prior to an Event of Default, to take any action with respect to any Collateral or Loan Documents which may be necessary to perfect and maintain perfected the Liens upon the Collateral granted pursuant to any of the Loan Documents.

           (b) The Lenders hereby authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any Collateral (i) upon termination of the Commitments and indefeasible payment and satisfaction in full of all of the Obligations or (ii) as expressly permitted by, but only in accordance with, the terms of the applicable Loan Document.

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Upon request by the Agent at any time, the Lenders will confirm in writing the Agent’s authority to release particular types or items of Collateral pursuant to this Section.

           (c) Upon any sale and transfer of Collateral which is expressly permitted pursuant to the terms of this Agreement, and upon at least 5 Business Days’ prior written request by the Borrower, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Lenders herein or pursuant hereto upon the Collateral that was sold or transferred; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent’s opinion, would expose the Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of the Borrower or any other Loan Party in respect of) all interests retained by the Borrower or any other Loan Party, including (without limitation) the proceeds of such sale or transfer, all of which shall continue to constitute part of the Collateral. In the event of any sale or transfer of Collateral, or any foreclosure with respect to any of the Collateral, the Agent shall be authorized to deduct all of the expenses reasonably incurred by the Agent from the proceeds of any such sale, transfer or foreclosure.

           (d) The Agent shall have no obligation whatsoever to the Lenders or to any other Person to assure that the Collateral exists or is owned by the Borrower, any other Loan Party or any other Subsidiary or is cared for, protected or insured or that the Liens granted to the Agent herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or fidelity any of the rights, authorities and powers granted or available to the Agent in this Section or in any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent’s own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to the Lenders, except to the extent resulting from its gross negligence or willful misconduct.

           (e) The Agent may make, and shall be reimbursed by the Lenders (in accordance with their Pro Rata Shares) to the extent not reimbursed by the Borrower for, Protective Advances during any one calendar year with respect to each Property that is Collateral up to the sum of (i) amounts expended to pay real estate taxes, assessments and governmental charges or levies imposed upon such Property; (ii) amounts expended to pay insurance premiums for policies of insurance related to such Property; and (iii) $500,000. Protective Advances in excess of said sum during any calendar year for any Property that is Collateral shall require the consent of the Requisite Lenders. The Borrower agrees to pay on demand all Protective Advances.

Section 12.4. Post-Foreclosure Plans.

           If all or any portion of the Collateral is acquired by the Agent as a result of a foreclosure or the acceptance of a deed or assignment in lieu of foreclosure, or is retained in satisfaction of all or any part of the Obligations, the title to any such Collateral, or any portion thereof, shall be held in the name of the Agent or a nominee or Subsidiary of the Agent, as agent, for the ratable

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benefit of all Lenders. The Agent shall prepare a recommended course of action for such Collateral (a “Post-Foreclosure Plan”), which shall be subject to the approval of the Requisite Lenders. In accordance with the approved Post-Foreclosure Plan, the Agent shall manage, operate, repair, administer, complete, construct, restore or otherwise deal with the Collateral acquired, and shall administer all transactions relating thereto, including, without limitation, employing a management agent, leasing agent and other agents, contractors and employees, including agents for the sale of such Collateral, and the collecting of rents and other sums from such Collateral and paying the expenses of such Collateral. Actions taken by the Agent with respect to the Collateral, which are not specifically provided for in the approved Post-Foreclosure Plan or reasonably incidental thereto, shall require the written consent of the Requisite Lenders by way of supplement to such Post-Foreclosure Plan. Upon demand therefor from time to time, each Lender will contribute its share (based on its Pro Rata Share) of all reasonable costs and expenses incurred by the Agent pursuant to the approved Post-Foreclosure Plan in connection with the construction, operation, management, maintenance, leasing and sale of such Collateral. In addition, the Agent shall render or cause to be rendered to each Lender, on a monthly basis, an income and expense statement for such Collateral, and each Lender shall promptly contribute its Pro Rata Share of any operating loss for such Collateral, and such other expenses and operating reserves as the Agent shall deem reasonably necessary pursuant to and in accordance with the approved Post-Foreclosure Plan. To the extent there is net operating income from such Collateral, the Agent shall, in accordance with the approved Post-Foreclosure Plan, determine the amount and timing of distributions to the Lenders. All such distributions shall be made to the Lenders in accordance with their respective Pro Rata Shares. The Lenders acknowledge and agree that if title to any Collateral is obtained by the Agent or its nominee, such Collateral will not be held as a permanent investment but will be liquidated as soon as practicable. The Agent shall undertake to sell such Collateral, at such price and upon such terms and conditions as the Requisite Lenders reasonably shall determine to be most advantageous to the Lenders. Any purchase money mortgage or deed of trust taken in connection with the disposition of such Collateral in accordance with the immediately preceding sentence shall name the Agent, as agent for the Lenders, as the beneficiary or mortgagee. In such case, the Agent and the Lenders shall enter into an agreement with respect to such purchase money mortgage or deed of trust defining the rights of the Lenders in the same Pro Rata Shares as provided hereunder, which agreement shall be in all material respects similar to this Article insofar as the same is appropriate or applicable.

Section 12.5. Approvals of Lenders.

           All communications from the Agent to any Lender requesting such Lender’s determination, consent, approval or disapproval (a) shall be given in the form of a written notice to such Lender, (b) shall be accompanied by a description of the matter or issue as to which such determination, approval, consent or disapproval is requested, or shall advise such Lender where information, if any, regarding such matter or issue may be inspected, or shall otherwise describe the matter or issue to be resolved, (c) shall include, if reasonably requested by such Lender and to the extent not previously provided to such Lender, written materials and a summary of all oral information provided to the Agent by the Borrower in respect of the matter or issue to be resolved, and (d) shall include the Agent’s recommended course of action or determination in respect thereof. Unless a Lender shall give written notice to the Agent that it specifically objects to the recommendation or determination of the Agent (together with a reasonable written

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explanation of the reasons behind such objection) within 10 Business Days (or such lesser or greater period as may be specifically required under the express terms of the Loan Documents) of receipt of such communication, such Lender shall be deemed to have conclusively approved of or consented to such recommendation or determination.

Section 12.6. Notice of Defaults.

           The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing with reasonable specificity such Default or Event of Default and stating that such notice is a “notice of default.” If any Lender (excluding the Lender which is also serving as the Agent) becomes aware of any Default or Event of Default, it shall promptly send to the Agent such a “notice of default”. Further, if the Agent receives such a “notice of default,” the Agent shall give prompt notice thereof to the Lenders.

Section 12.7. Agent’s Reliance

           Notwithstanding any other provisions of this Agreement or any other Loan Documents, neither the Agent nor any of its directors, officers, agents, employees or counsel shall be liable for any action taken or not taken by it under or in connection with this Agreement or any other Loan Document, except for its or their own gross negligence or willful misconduct in connection with its duties expressly set forth herein or therein. Without limiting the generality of the foregoing, the Agent: may consult with legal counsel (including its own counsel or counsel for the Borrower or any other Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts. Neither the Agent nor any of its directors, officers, agents, employees or counsel: (a) makes any warranty or representation to any Lender or any other Person and shall be responsible to any Lender or any other Person for any statement, warranty or representation made or deemed made by the Borrower, any other Loan Party or any other Person in or in connection with this Agreement or any other Loan Document; (b) shall have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document or the satisfaction of any conditions precedent under this Agreement or any Loan Document on the part of the Borrower or other Persons or inspect the property, books or records of the Borrower or any other Person; (c) shall be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document, any other instrument or document furnished pursuant thereto or any Collateral covered thereby or the perfection or priority of any Lien in favor of the Agent on behalf of the Lenders in any such Collateral; (d) shall have any liability in respect of any recitals, statements, certifications, representations or warranties contained in any of the Loan Documents or any other document, instrument, agreement, certificate or statement delivered in connection therewith; and (e) shall incur any liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telephone, telecopy or electronic mail) believed by it to be genuine and signed, sent or given by the proper party or parties. The Agent may execute any of its duties under the Loan Documents by or through agents, employees or attorneys-in-fact and shall not be responsible for the

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negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct.

Section 12.8. Indemnification of Agent.

           Regardless of whether the transactions contemplated by this Agreement and the other Loan Documents are consummated, each Lender agrees to indemnify the Agent (to the extent not reimbursed by the Borrower and without limiting the obligation, if any, of the Borrower to do so) pro rata in accordance with such Lender’s respective Pro Rata Share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against the Agent (in its capacity as Agent but not as a “Lender”) in any way relating to or arising out of the Loan Documents, any transaction contemplated hereby or thereby or any action taken or omitted by the Agent under the Loan Documents (collectively, “Indemnifiable Amounts”); provided, however, that no Lender shall be liable for any portion of such Indemnifiable Amounts to the extent resulting from the Agent’s gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, non-appealable judgment; provided, however, that no action taken in accordance with the directions of the Requisite Lenders (or all of the Lenders, if expressly required hereunder) shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limiting the generality of the foregoing, each Lender agrees to reimburse the Agent (to the extent not reimbursed by the Borrower and without limiting the obligation, if any, of the Borrower to do so) promptly upon demand for its ratable share of any out-of-pocket expenses (including the reasonable fees and expenses of the counsel to the Agent) incurred by the Agent in connection with the preparation, negotiation, execution, administration, or enforcement (whether through negotiations, legal proceedings, or otherwise) of, or legal advice with respect to the rights or responsibilities of the parties under, the Loan Documents, any suit or action brought by the Agent to enforce the terms of the Loan Documents and/or collect any Obligations, any “lender liability” suit or claim brought against the Agent and/or the Lenders, and any claim or suit brought against the Agent and/or the Lenders arising under any Environmental Laws. Such out-of-pocket expenses (including counsel fees) shall be advanced by the Lenders on the request of the Agent notwithstanding any claim or assertion that the Agent is not entitled to indemnification hereunder upon receipt of an undertaking by the Agent that the Agent will reimburse the Lenders if it is actually and finally determined by a court of competent jurisdiction that the Agent is not so entitled to indemnification. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder or under the other Loan Documents and the termination of this Agreement. If the Borrower shall reimburse the Agent for any Indemnifiable Amount following payment by any Lender to the Agent in respect of such Indemnifiable Amount pursuant to this Section, the Agent shall share such reimbursement on a ratable basis with each Lender making any such payment.

Section 12.9. Lender Credit Decision, Etc.

           Each Lender expressly acknowledges and agrees that neither the Agent nor any of its officers, directors, employees, agents, counsel, attorneys-in-fact or other affiliates has made any representations or warranties to such Lender and that no act by the Agent hereafter taken, including any review of the affairs of the Borrower, any other Loan Party or any other Subsidiary

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or Affiliate, shall be deemed to constitute any such representation or warranty by the Agent to any Lender. Each Lender acknowledges that it has, independently and without reliance upon the Agent, any other Lender or counsel to the Agent, or any of their respective officers, directors, employees, agents or counsel, and based on the financial statements of the Borrower, the other Loan Parties, the other Subsidiaries and other Affiliates, and inquiries of such Persons, its independent due diligence of the business and affairs of the Borrower, the other Loan Parties, the other Subsidiaries and other Persons, its review of the Loan Documents, the legal opinions required to be delivered to it hereunder, the advice of its own counsel and such other documents and information as it has deemed appropriate, made its own credit and legal analysis and decision to enter into this Agreement and the transactions contemplated hereby. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, any other Lender or counsel to the Agent or any of their respective officers, directors, employees and agents, and based on such review, advice, documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under the Loan Documents. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower or any other Loan Party of the Loan Documents or any other document referred to or provided for therein or to inspect the properties or books of, or make any other investigation of, the Borrower, any other Loan Party or any other Subsidiary. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent under this Agreement or any of the other Loan Documents, the Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Borrower, any other Loan Party or any other Affiliate thereof which may come into possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or other Affiliates. Each Lender acknowledges that the Agent’s legal counsel in connection with the transactions contemplated by this Agreement is only acting as counsel to the Agent and is not acting as counsel to such Lender.

Section 12.10. Successor Agent.

           The Agent may resign at any time as Agent under the Loan Documents by giving written notice thereof to the Lenders and the Borrower. The Agent may be removed as Agent under the Loan Documents for gross negligence or willful misconduct by all Lenders (other than the Lender then acting as Agent) upon 30-day’s prior notice. Upon any such resignation or removal, the Requisite Lenders (which, in the case of the removal of the Agent as provided in the immediately preceding sentence, shall be determined without regard to the Commitment of the Lender then acting as Agent) shall have the right to appoint a successor Agent which appointment shall, provided no Default or Event of Default exists, be subject to the Borrower’s approval, which approval shall not be unreasonably withheld or delayed (except that the Borrower shall, in all events, be deemed to have approved each Lender and any of its affiliates as a successor Agent). If no successor Agent shall have been so appointed in accordance with the immediately preceding sentence, and shall have accepted such appointment, within 30 days after the current Agent’s giving of notice of resignation or the Lenders’ removal of the current Agent, then the current Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a Lender, if any Lender shall be willing to serve, and otherwise shall be an Eligible Assignee. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers,

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privileges and duties of the current Agent, and the current Agent shall be discharged from its duties and obligations under the Loan Documents. After any Agent’s resignation or removal hereunder as Agent, the provisions of this Article shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents. Notwithstanding anything contained herein to the contrary, the Agent may assign its rights and duties under the Loan Documents to any of its affiliates by giving the Borrower and each Lender prior written notice; provided, that Agent will bear any expenses incurred by Borrower or any other Loan Party in connection with such assignment.

Section 12.11. Titled Agents.

           Each of the Documentation Agents and the Sole Lead Arranger (each a “Titled Agent”) in each such respective capacity, assumes no responsibility or obligation hereunder, including, without limitation, for servicing, enforcement or collection of any of the Loans, nor any duties as an agent hereunder for the Lenders. The titles given to the Titled Agents are solely honorific and imply no fiduciary responsibility on the part of the Titled Agents to the Agent, any Lender, the Borrower or any other Loan Party and the use of such titles does not impose on the Titled Agents any duties or obligations greater than those of any other Lender or entitle the Titled Agents to any rights other than those to which any other Lender is entitled.

Article XIII. Miscellaneous

Section 13.1. Notices.

           Unless otherwise provided herein, communications provided for hereunder shall be in writing and shall be mailed, telecopied or delivered as follows:

           If to the Borrower:

CRT Properties, Inc.
225 NE Mizner Boulevard, Suite 200
Boca Raton, Florida 33432
Attention: William J. Wedge, Esq.
Telecopy Number: (561) 394-7712
Telephone Number: (561) 395-9666

           With a copy to:

White & Case LLP
Wachovia Financial Center, Suite 4900
200 South Biscayne Boulevard
Miami, Florida 33131
Attention: H. William Walker, Esq.
Telecopy Number: (305) 358-5744
Telephone Number: (305) 371-2700

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           If to the Agent or a Lender:

To such Lender’s address or telecopy number, as applicable, set forth on its signature page hereto or in the applicable Assignment and Assumption Agreement.

or, as to each party at such other address as shall be designated by such party in a written notice to the other parties delivered in compliance with this Section; provided, a Lender shall only be required to give notice of any such other address to the Agent and the Borrower. All such notices and other communications shall be effective (i) if mailed, when received; (ii) if telecopied, when transmitted; or (iii) if hand delivered, when delivered. Notwithstanding the immediately preceding sentence, all notices or communications to the Agent or any Lender under Articles II., III. and IX. shall be effective only when actually received. Any notice to the Borrower received by any individual designated by the Borrower to receive such notice shall be effective notwithstanding the fact that any other individual designated by the Borrower to receive a copy of such notice did not receive such copy. Neither the Agent nor any Lender shall incur any liability to the Borrower (nor shall the Agent incur any liability to the Lenders) for acting upon any telephonic notice referred to in this Agreement which the Agent or such Lender, as the case may be, believes in good faith to have been given by a Person authorized to deliver such notice or for otherwise acting in good faith hereunder.

Section 13.2. Expenses.

           The Borrower agrees (a) to pay or reimburse the Agent for all of its reasonable out-of-pocket costs and reasonable expenses incurred in connection with the preparation, negotiation and execution of, and any amendment, supplement or modification to, any of the Loan Documents (including due diligence expense and reasonable travel expenses related to closing), and the consummation of the transactions contemplated thereby, including the reasonable fees and disbursements of counsel to the Agent incurred with respect to any action undertaken by such counsel as a result of any request made by the Borrower of the Agent relating to such amendment, supplement or modification to the Loan Documents and all costs and expenses of the Agent in connection with the review of Properties for inclusion in calculations of the Borrowing Base and the Agent’s other activities under Article IV., including the cost of all Appraisals and the reasonable fees and disbursements of counsel to the Agent relating to all such activities, (b) to pay or reimburse the Agent and the Lenders for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under the Loan Documents, including the reasonable fees and disbursements of their respective counsel (including the allocated fees and expenses of in-house counsel) and any payments in indemnification or otherwise payable by the Lenders to the Agent pursuant to the Loan Documents, (c) to pay, and indemnify and hold harmless the Agent and the Lenders from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any failure to pay or delay in paying, documentary, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of any of the Loan Documents, or consummation of any amendment, supplement or modification of, or any waiver or consent under or in respect of, any Loan Document and (d) to the extent not already covered by any of the preceding subsections, to pay the fees and disbursements of counsel to the Agent and any Lender incurred in connection with the representation of the Agent

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or such Lender in any matter relating to or arising out of any bankruptcy or other proceeding of the type described in Sections 11.1.(e) or 11.1.(f), including, without limitation (i) any motion for relief from any stay or similar order, (ii) the negotiation, preparation, execution and delivery of any document relating to the Obligations and (iii) the negotiation and preparation of any debtor-in-possession financing or any plan of reorganization of the Borrower or any other Loan Party, whether proposed by the Borrower, such Loan Party, the Lenders or any other Person, and whether such fees and expenses are incurred prior to, during or after the commencement of such proceeding or the confirmation or conclusion of any such proceeding.

Section 13.3. Setoff.

           Subject to Section 3.3. and in addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, the Agent, each Lender and each Participant is hereby authorized by the Borrower, at any time or from time to time while an Event of Default exists, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, but in the case of a Lender or a Participant subject to receipt of the prior written consent of the Agent exercised in its sole discretion, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Agent, such Lender or any affiliate of the Agent or such Lender, to or for the credit or the account of the Borrower against and on account of any of the Obligations, irrespective of whether or not any or all of the Loans and all other Obligations have been declared to be, or have otherwise become, due and payable as permitted by Section 11.2., and although such obligations shall be contingent or unmatured.

Section 13.4. Litigation; Jurisdiction; Other Matters; Waivers.

           (a) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN OR AMONG THE BORROWER, THE AGENT OR ANY OF THE LENDERS WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW AND FACT AND WOULD RESULT IN DELAY AND EXPENSE TO THE PARTIES. ACCORDINGLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE LENDERS, THE AGENT AND THE BORROWER HEREBY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST ANY PARTY HERETO ARISING OUT OF THIS AGREEMENT, THE NOTES, OR ANY OTHER LOAN DOCUMENT OR IN CONNECTION WITH ANY COLLATERAL OR ANY LIEN OR BY REASON OF ANY OTHER SUIT, CAUSE OF ACTION OR DISPUTE WHATSOEVER BETWEEN OR AMONG THE BORROWER, THE AGENT OR ANY OF THE LENDERS OF ANY KIND OR NATURE RELATING IN ANY WAY TO ANY OF THE LOAN DOCUMENTS.

           (b) EACH OF THE BORROWER, THE AGENT AND EACH LENDER HEREBY AGREES THAT THE FEDERAL DISTRICT COURT OF THE NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE AGENT, ANY STATE COURT LOCATED IN ATLANTA, GEORGIA, SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG THE BORROWER, THE AGENT OR

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ANY OF THE LENDERS, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE LOANS AND LETTERS OF CREDIT, THE NOTES OR ANY OTHER LOAN DOCUMENT OR TO ANY MATTER ARISING HEREFROM OR THEREFROM OR THE COLLATERAL (OTHER THAN ACTIONS TO ENFORCE ANY SECURITY DEED WHICH ARE REQUIRED TO BE BROUGHT IN THE JURISDICTION IN WHICH THE COLLATERAL PROPERTY IS LOCATED). THE BORROWER AND EACH OF THE LENDERS EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS. THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE BORROWER AT ITS ADDRESS FOR NOTICES PROVIDED FOR HEREIN. SHOULD THE BORROWER FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THIRTY DAYS AFTER THE MAILING THEREOF, THE BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. EACH PARTY FURTHER WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT FORUM AND EACH AGREES NOT TO PLEAD OR CLAIM THE SAME. THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE BRINGING OF ANY ACTION BY THE AGENT OR ANY LENDER OR THE ENFORCEMENT BY THE AGENT OR ANY LENDER OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE JURISDICTION.

           (c) THE PROVISIONS OF THIS SECTION HAVE BEEN CONSIDERED BY EACH PARTY WITH THE ADVICE OF COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE THE PAYMENT OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS, THE TERMINATION OR EXPIRATION OF ALL LETTERS OF CREDIT AND THE TERMINATION OF THIS AGREEMENT.

Section 13.5. Successors and Assigns.

           (a) Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of is rights under this Agreement without the prior written consent of all the Lenders (and any such assignment or transfer to which all of the Lenders have not consented shall be void).

           (b) Participations. Any Lender may at any time grant to an affiliate of such Lender, or one or more banks or other financial institutions (each a “Participant”) participating interests in its Commitment or the Obligations owing to such Lender. Except as otherwise provided in Section 13.3., no Participant shall have any rights or benefits under this Agreement or any other

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Loan Document. In the event of any such grant by a Lender of a participating interest to a Participant, such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided, however, such Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase such Lender’s Commitment, (ii) extend the date fixed for the payment of principal on the Loans or portions thereof owing to such Lender beyond that permitted by Section 2.13., (iii) reduce the rate at which interest is payable thereon or (iv) a release of all or substantially all of the Collateral. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

           (c) Assignments. Any Lender may with the prior written consent of the Agent and the Borrower (which consent in each case, shall not be unreasonably withheld) at any time assign to one or more Eligible Assignees (each an “Assignee”) all or a portion of its rights and obligations under this Agreement and the Notes; provided, however, (i) no such consent by the Borrower shall be required (x) if a Default under Section 11.1(a) or any Event of Default shall exist or (y) in the case of an assignment to another Lender or an affiliate of another Lender; (ii) any partial assignment shall be in an amount at least equal to $10,000,000 and after giving effect to such assignment the assigning Lender retains a Commitment, or if the Commitments have been terminated, holds Notes having an aggregate outstanding principal balance, of at least $10,000,000, and (iii) each such assignment shall be effected by means of an Assignment and Assumption Agreement. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Assignee, such Assignee shall be deemed to be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with a Commitment as set forth in such Assignment and Assumption Agreement, and the transferor Lender shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Lender, the Agent and the Borrower shall make appropriate arrangements so the new Notes are issued to the Assignee and such transferor Lender, as appropriate. In connection with any such assignment, the transferor Lender shall pay to the Agent an administrative fee for processing such assignment in the amount of $3,500. Anything in this Section to the contrary notwithstanding, no Lender may assign or participate any interest in any Loan held by it hereunder to the Borrower, or any of its respective affiliates or Subsidiaries.

           (d) Federal Reserve Bank Assignments. In addition to the assignments and participations permitted under the foregoing provisions of the Section, and without the need to comply with any of the formal or procedural requirements of this Section, any Lender may at any time and from time to time, pledge and assign all or any portion of its rights under all or any of the Loan Documents to a Federal Reserve Bank; provided that no such pledge of assignment

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shall release such Lender from its obligations thereunder. To facilitate any such pledge or assignment, Agent shall, at the request of such Lender, enter into a letter agreement with the Federal Reserve Bank in, or substantially in, the form of the exhibit to Appendix C to the Federal Reserve Bank of New York Operating Circular No 10, as amended from time to time. No such pledge or assignment shall release the assigning Lender from its obligations hereunder.

           (e) Information to Assignee, Etc. A Lender may furnish any information concerning the Borrower, any Subsidiary or any other Loan Party in the possession of such Lender from time to time to Assignees and Participants (including prospective Assignees and Participants).

Section 13.6. Amendments and Waivers.

           (a) Generally. Except as otherwise expressly provided in this Agreement, (i) any consent or approval required or permitted by this Agreement or in any Loan Document to be given by the Lenders may be given, (ii) any term of this Agreement or of any other Loan Document (other than any fee letter solely between the Borrower and the Agent) may be amended, (iii) the performance or observance by the Borrower or any other Loan Party of any terms of this Agreement or such other Loan Document (other than any fee letter solely between the Borrower and the Agent) may be waived, and (iv) the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Requisite Lenders (or the Agent at the written direction of the Requisite Lenders), and, in the case of an amendment to any Loan Document, the written consent of each Loan Party which is party thereto. Notwithstanding the previous sentence, the Agent, shall be authorized on behalf of all the Lenders, without the necessity of any notice to, or further consent from, any Lender, to waive the imposition of the late fees provided in Section 2.8., up to a maximum of 3 times per calendar year.

           (b) Unanimous Consent. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing, and signed by all of the Lenders (or the Agent at the written direction of all of the Lenders), do any of the following:

      (i) increase the Commitments of the Lenders (excluding any increase as a result of an assignment of Commitments permitted under Section 13.5.) or subject the Lenders to any additional obligations except for any increases contemplated under Section 2.16.;

      (ii) reduce the principal of, or interest rates that have accrued or that will be charged on the outstanding principal amount of, any Loans or other Obligations;

      (iii) reduce the amount of any Fees payable to the Lenders hereunder;

      (iv) postpone any fixed for any payment of principal of, or interest on, any Loans or for the payment of Fees or any other Obligations, or extend the expiration date of any Letter of Credit beyond the Termination Date or otherwise change the Termination Date other than in accordance with Section 2.13.;

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      (v) change the Pro Rata Shares (excluding any change as a result of an assignment of Commitments permitted under Section 13.5. or an increase of Commitments effected pursuant to Section 2.16.;);

      (vi) amend this Section or amend the definitions of the terms used in this Agreement or the other Loan Documents insofar as such definitions affect the substance of this Section;

      (vii) modify the definition of the term “Requisite Lenders” or modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof;

      (viii) release any Guarantor from its obligations under the Guaranty except as contemplated under Section 8.13.(d);

      (ix) waive a Default or Event of Default under Section 11.1.(a);

      (x) amend, or waive the Borrower’s compliance with Section 2.7.(b);

      (xi) amend or waive the Borrower’s compliance with Section 10.4.;

      (xii) release or dispose of any Collateral Property unless released or disposed of as permitted by, and in accordance with, Section 4.2.;

      (xiii) amend, or waive a Loan Party’s compliance with Section 10.1.(a); or

      (xiv) modify the definitions of the terms “Total Liabilities”, “Gross Asset Value”, “Operating Property Value”, “Borrowing Base” (or the definitions used in such definitions or the percentages or rates used in the calculation thereof).

          (c) Amendment of Agent’s Duties, Etc. No amendment, waiver or consent unless in writing and signed by the Agent, in addition to the Lenders required hereinabove to take such action, shall affect the rights or duties of the Agent under this Agreement or any of the other Loan Documents. Any amendment, waiver or consent relating to Section 2.3. or the obligations of the Swingline Lender under this Agreement or any other Loan Document shall, in addition to the Lenders required hereinabove to take such action, require the written consent of the Swingline Lender. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon and any amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose set forth therein. No course of dealing or delay or omission on the part of the Agent or any Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. Any Event of Default occurring hereunder shall continue to exist until such time as such Event of Default is waived in writing in accordance with the terms of this Section, notwithstanding any attempted cure or other action by the Borrower, any other Loan Party or any other Person subsequent to the occurrence of such Event of Default. Except as otherwise explicitly provided for herein or in any other Loan Document, no notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances.

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Section 13.7. Nonliability of Agent and Lenders.

           The relationship between the Borrower, on the one hand, and the Lenders and the Agent, on the other hand, shall be solely that of borrower and lender. Neither the Agent nor any Lender shall have any fiduciary responsibilities to the Borrower and no provision in this Agreement or in any of the other Loan Documents, and no course of dealing between or among any of the parties hereto, shall be deemed to create any fiduciary duty owing by the Agent or any Lender to any Lender, the Borrower, any Subsidiary or any other Loan Party. Neither the Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower’s business or operations.

Section 13.8. Confidentiality.

           Except as otherwise provided by Applicable Law, the Agent and each Lender shall utilize all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential or proprietary by the Borrower in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices but in any event may make disclosure: (a) to any of their respective affiliates (provided any such affiliate shall agree to keep such information confidential in accordance with the terms of this Section); (b) as reasonably requested by any bona fide Assignee, Participant or other transferee in connection with the contemplated transfer of any Commitment or participations therein as permitted hereunder (provided they shall agree to keep such information confidential in accordance with the terms of this Section); (c) as required or requested by any Governmental Authority or representative thereof or pursuant to legal process or in connection with any legal proceedings; (d) to the Agent’s or such Lender’s independent auditors and other professional advisors (provided they shall be notified of the confidential nature of the information); (e) if an Event of Default exists, to any other Person, in connection with the exercise by the Agent or the Lenders of rights hereunder or under any of the other Loan Documents; and (f) to the extent such information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Agent or any Lender on a nonconfidential basis from a source other than the Borrower or any Affiliate.

Section 13.9. Indemnification.

           (a) The Borrower shall and hereby agrees to indemnify, defend and hold harmless the Agent, any affiliate of the Agent and each of the Lenders and their respective directors, officers, shareholders, agents, employees and counsel (each referred to herein as an “Indemnified Party”) from and against any and all losses, costs, claims, damages, liabilities, deficiencies, judgments or expenses of every kind and nature (including, without limitation, amounts paid in settlement, court costs and the fees and disbursements of counsel incurred in connection with any litigation, investigation, claim or proceeding or any advice rendered in connection therewith, but excluding losses, costs, claims, damages, liabilities, deficiencies, judgments or expenses indemnification in respect of which is specifically covered by Section 3.11. or 5.1. or expressly excluded from the coverage of such Sections) incurred by an Indemnified Party in connection with, arising out of, or by reason of, any suit, cause of action, claim, arbitration, investigation or settlement, consent decree or other proceeding (the foregoing referred to herein as an “Indemnity Proceeding”)

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which is in any way related directly or indirectly to: (i) this Agreement or any other Loan Document or the transactions contemplated thereby; (ii) the making of any Loans or issuance of Letters of Credit hereunder; (iii) any actual or proposed use by the Borrower of the proceeds of the Loans or Letters of Credit; (iv) the Agent’s or any Lender’s entering into this Agreement; (v) the fact that the Agent and the Lenders have established the credit facility evidenced hereby in favor of the Borrower; (vi) the fact that the Agent and the Lenders are creditors of the Borrower and have or are alleged to have information regarding the financial condition, strategic plans or business operations of the Borrower and the Subsidiaries; (vii) the fact that the Agent and the Lenders are material creditors of the Borrower and are alleged to influence directly or indirectly the business decisions or affairs of the Borrower and the Subsidiaries or their financial condition; (viii) the exercise of any right or remedy the Agent or the Lenders may have under this Agreement or the other Loan Documents including, but not limited to, the foreclosure upon, or seizure of, any Collateral or the exercise of any other rights of a secured party; provided, however, that the Borrower shall not be obligated to indemnify any Indemnified Party for any acts or omissions of such Indemnified Party in connection with matters described in this clause (viii) that constitute gross negligence or willful misconduct; or (ix) any violation or non-compliance by the Borrower or any Subsidiary of any Applicable Law (including any Environmental Law) including, but not limited to, any Indemnity Proceeding commenced by (A) the Internal Revenue Service or state taxing authority or (B) any Governmental Authority or other Person under any Environmental Law, including any Indemnity Proceeding commenced by a Governmental Authority or other Person seeking remedial or other action to cause the Borrower or its Subsidiaries (or its respective properties) (or the Agent and/or the Lenders as successors to the Borrower) to be in compliance with such Environmental Laws.

          (b) The Borrower’s indemnification obligations under this Section shall apply to all Indemnity Proceedings arising out of, or related to, the foregoing whether or not an Indemnified Party is a named party in such Indemnity Proceeding. In this connection, this indemnification shall cover all costs and expenses of any Indemnified Party in connection with any deposition of any Indemnified Party or compliance with any subpoena (including any subpoena requesting the production of documents). This indemnification shall, among other things, apply to any Indemnity Proceeding commenced by other creditors of the Borrower or any Subsidiary, any shareholder of the Borrower or any Subsidiary (whether such shareholder(s) are prosecuting such Indemnity Proceeding in their individual capacity or derivatively on behalf of the Borrower), any account debtor of the Borrower or any Subsidiary or by any Governmental Authority.

          (c) This indemnification shall apply to any Indemnity Proceeding arising during the pendency of any bankruptcy proceeding filed by or against the Borrower and/or any Subsidiary.

          (d) All out-of-pocket fees and expenses of, and all amounts paid to third-persons by, an Indemnified Party shall be advanced by the Borrower at the request of such Indemnified Party notwithstanding any claim or assertion by the Borrower that such Indemnified Party is not entitled to indemnification hereunder upon receipt of an undertaking by such Indemnified Party that such Indemnified Party will reimburse the Borrower if it is actually and finally determined by a court of competent jurisdiction that such Indemnified Party is not so entitled to indemnification hereunder.

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          (e) An Indemnified Party may conduct its own investigation and defense of, and may formulate its own strategy with respect to, any Indemnity Proceeding covered by this Section and, as provided above, all reasonable costs and expenses incurred by such Indemnified Party shall be reimbursed by the Borrower. No action taken by legal counsel chosen by an Indemnified Party in investigating or defending against any such Indemnity Proceeding shall vitiate or in any way impair the obligations and duties of the Borrower hereunder to defend, indemnify and hold harmless each such Indemnified Party; provided, however, that (i) if the Borrower is required to indemnify an Indemnified Party pursuant hereto and (ii) the Borrower has provided evidence reasonably satisfactory to such Indemnified Party that the Borrower has the financial wherewithal to reimburse such Indemnified Party for any amount paid by such Indemnified Party with respect to such Indemnity Proceeding, such Indemnified Party shall not settle or compromise any such Indemnity Proceeding without the prior written consent of the Borrower (which consent shall not be unreasonably withheld or delayed).

          (f) If and to the extent that the obligations of the Borrower hereunder are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under Applicable Law.

          (g) The Borrower’s obligations hereunder shall survive any termination of this Agreement and the other Loan Documents and the payment in full in cash of the Obligations, and are in addition to, and not in substitution of, any of the other obligations set forth in this Agreement or any other Loan Document to which it is a party.

Section 13.10. Termination; Survival.

           At such time as (a) all of the Commitments have been terminated, (b) none of the Lenders is obligated any longer under this Agreement to make any Loans and (c) all Obligations (other than obligations which survive as provided in the following sentence) have been paid and satisfied in full, this Agreement shall terminate. The indemnities to which the Agent and the Lenders are entitled under the provisions of Sections 3.11., 5.1., 5.4., 12.8., 13.2. and 13.9. and any other provision of this Agreement and the other Loan Documents, and the provisions of Section 13.4., shall continue in full force and effect and shall protect the Agent and the Lenders (i) notwithstanding any termination of this Agreement, or of the other Loan Documents, against events arising after such termination as well as before and (ii) at all times after any such party ceases to be a party to this Agreement with respect to all matters and events existing on or prior to the date such party ceased to be a party to this Agreement.

Section 13.11. Severability of Provisions.

           Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions or affecting the validity or enforceability of such provision in any other jurisdiction.

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Section 13.12. GOVERNING LAW.

           THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.

Section 13.13. Counterparts.

           This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument.

Section 13.14. Obligations with Respect to Loan Parties.

           The obligations of the Borrower to direct or prohibit the taking of certain actions by the other Loan Parties as specified herein shall be absolute and not subject to any defense the Borrower may have that the Borrower does not control such Loan Parties.

Section 13.15. Independence of Covenants.

           All covenants hereunder shall be given in any jurisdiction independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.

Section 13.16. Limitation of Liability.

           Neither the Agent nor any Lender, nor any affiliate, officer, director, employee, attorney, or agent of the Agent or any Lender shall have any liability with respect to, and the Borrower hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by the Borrower in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. The Borrower hereby waives, releases, and agrees not to sue the Agent or any Lender or any of the Agent’s or any Lender’s affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or financed hereby.

Section 13.17. Entire Agreement.

           This Agreement, the Notes, the Security Documents and the other Loan Documents referred to herein embody the final, entire agreement among the parties hereto and supersede any and all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof and thereof and may not be contradicted or varied by

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evidence of prior, contemporaneous, or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto.

Section 13.18. Construction.

           The Agent, the Borrower and each Lender acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by the Agent, the Borrower and each Lender.

Section 13.19. Patriot Act Notification.

          Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Act (Title III of Pub. L. 107-56 (signed into law on October 26, 2001) (the "Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act. The Borrower agrees to cooperate with each Lender and provide true, accurate and complete information to such Lender in response to any such request.

[Signatures on Following Pages]

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          IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be executed by their authorized officers all as of the day and year first above written.

BORROWER:
CRT PROPERTIES, INC.
By:
	Name: Christopher L. Becker
	Title: Senior Vice President

CRTP OP LP
By:	CRTP GP, LLC, its sole general partner
	By:	CRT Properties, Inc., its sole member
	By:	/s/ Christopher L. Becker
		Name: Christopher L. Becker
		Title: Senior Vice President

[Signatures Continued on Next Page]

Signature Page to Credit Agreement dated as of
August 24, 2004 with CRT Properties, Inc.

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent, Swingline Lender and as a Lender
By:
	Name:
	Title:
Commitment Amount:
$75,000,000.00
Lending Office (all Types of Loans) and
Address for Notices:
Wells Fargo Real Estate Group
Suite 1450 (N2732-140)
401 East Jackson Street
Tampa, Florida 33602
Attn: Ed Poole
Telecopier: (813) 202-7201
Telephone: (813) 202-7205

[Signatures Continued on Next Page]

Signature Page to Credit Agreement dated as of
August 24, 2004 with CRT Properties, Inc.

COMMERZBANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By:	/s/ Douglas Traynor
	Name: Douglas Traynor
	Title: Senior Vice President
By:	/s/ Ralph C. Marra
	Name: Ralph C. Marra
	Title: Vice President
Commitment Amount:
$25,000,000.00
Lending Office (all Types of Loans) and
Address for Notices:
2 World Financial Center
New York, NY 10281-1050
Attn: Ralph C. Marra, Vice President
Telecopier: (212) 266-7565
Telephone: (212) 266-7761

[Signatures Continued on Next Page]

Signature Page to Credit Agreement dated as of
August 24, 2004 with CRT Properties, Inc.

PNC BANK, NATIONAL ASSOCIATION
By:	/s/ Andrew White
	Name: Andrew White
	Title: Assistant Vice President
Commitment Amount:
$25,000,000.00
Lending Office (all Types of Loans) and
Address for Notices:
249 Fifth Avenue
One PNC Plaza 19th Floor
Real Estate Finance Department
Pittsburgh, PA 15222
Mailstop P1-POPP-19-2
Attn: Victoria Dixon
Telecopier: (412) 768-3930
Telephone: (412) 762-2276

[Signatures Continued on Next Page]

Signature Page to Credit Agreement dated as of
August 24, 2004 with CRT Properties, Inc.

UNION BANK OF CALIFORNIA N.A.
By:	/s/ David Murphy
	Name: David Murphy
	Title: Senior Vice President
Commitment Amount:
$25,000,000.00
Lending Office (all Types of Loans) and
Address for Notices:
18300 Von Karman Avenue
Irvine, CA 92612
Attn: Amelida Carreno
Telecopier: (949) 533-7123
Telephone: (949) 553-2568

[Signatures Continued on Next Page]

Signature Page to Credit Agreement dated as of
August 24, 2004 with CRT Properties, Inc.

COMPASS BANK, an Alabama Banking Corporation
By:	/s/ Jo Paley
	Name: Jo Paley
	Title: Senior Vice President
Commitment Amount:
$15,000,000.00
Lending Office (all Types of Loans) and
Address for Notices:
15 South 20th Street, 15th Floor
Birmingham, AL 35233
Attn: Rosie Fletcher
Telecopier: (205) 297-7994
Telephone: (205) 297-3282

EX-12.1

EXHIBIT 12.1

CRT PROPERTIES, INC.
Ratio of Earnings to Fixed Charges
(In Thousands except Ratios)

	(For the Years Ended December 31,)
	2004			2003			2002			2001			2000
EARNINGS:
Net Income	$	15,902		$	16,691		$	16,423		$	73,223		$	27,153
Adjustments:
Income tax (benefit) provision		—			(94	)		(413	)		684			(21	)
Minority Interest		124			—			20			1,044			1,156
Equity in earnings of unconsolidated subsidiary		—			—			—			(81	)		(645	)
Interest Expense		30,573			27,784			23,252			25,204			27,268
Amortization of loan costs		1,669			1,465			1,893			908			888
Distributed income of equity investees		—			—			2,750			—			438
Interest capitalized		—			—			—			(207	)		(1,059	)
Gain on sale of assets		(211	)		(573	)		(21	)		(39,189	)		(6,015	)
Earnings	$	48,057		$	45,273		$	43,904		$	61,586		$	49,163
FIXED CHARGES:
Dividends on preferred stock	$	6,352		$	1,995		$	—		$	—		$	—
Interest Expense		30,573			27,784			23,252			25,204			27,268
Interest Capitalized		—			—			—			207			1,059
Amortization of loan costs		1,669			1,465			1,893			908			888
Total Fixed Charges	$	38,594		$	31,244		$	25,145		$	26,319		$	29,215
RATIO OF EARNINGS TO FIXED CHARGES		1.25			1.45			1.75			2.34			1.68

 

76

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Name of Subsidiaries	State of Incorporation or Organization
ACP Fitness Center, LLC	Georgia
C/Dallas I, Inc.	Delaware
C/Dallas II, Inc.	Delaware
CR Decoverly 15200, LLLP	Maryland
CR Decoverly 15204, LLLP	Maryland
CR Decoverly 9501, LLLP	Maryland
CR Decoverly 9509, LLLP	Maryland
CR Decoverly, LLC	Maryland
CRT ACP, LLC	Delaware
CRT Acquisition, LLC	Florida
CRT Baymeadows, Ltd.	Florida
CRT BFC GP, LLC	Florida
CRT BFC, Ltd.	Florida
CRT BM GP, LLC	Delaware
CRT BMWCX, Ltd.	Florida
CRT Dallas I Limited Partnership	Delaware
CRT Dallas II Limited Partnership	Delaware
CRT ELO GP, LLC	Delaware
CRT Germantown GP, Inc.	Delaware
CRT Germantown, LP	Delaware
CRT Las Olas GP, LLC	Delaware
CRT Las Olas, LP	Delaware
CRT Management, LLC	Florida
CRT McGinnis Park, LLC	Florida
CRTP OP LP	Delaware
CRT Post Oak Limited Partnership	Delaware
CRT Post Oak, Inc.	Delaware
CRT PR Management, Inc.	Delaware
CRT Ravinia, LLC	Delaware
CRT Real Estate Services, Inc.	Florida
CRT Realty Services, Inc.	Florida
CRT Signature Place GP, LLC	Delaware
CRT Signature Place, LP	Delaware
CRT Texas GP, LLC	Delaware
CRT Texas, LP	Delaware
CRT WC GP, LLC	Delaware
CRT Westchase, LP	Delaware
CRT WPB Cityplace, LLC	Florida
CRT WPB Cityplace, Ltd.	Florida
CRT/McGinnis Office, LLC	Florida
CRT/McGinnis Office, Ltd.	Florida
CRT/McGinnis Undeveloped, LLC	Florida
CRT/McGinnis Undeveloped, Ltd.	Florida
CRTP GP, LLC	Delaware

77

EXHIBIT 21.1 (continued)

Name of Subsidiaries	State of Incorporation or Organization
CRT-Vanguard Partners, L.P.	Delaware
CTA Partners, LP	Delaware
ELO Associates II, Ltd.	Florida
McGinnis Park, Ltd.	Florida
Southeast Properties Holding Corporation, Inc.	Florida
TRC Holdings, LLC	Georgia

 

78

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 33-55179 of CRT Properties, Inc. on Form S-3, Registration Statement No. 333-116056 of CRT Properties, Inc. on Form S-3, Registration Statement No. 33-54621 of CRT Properties, Inc. on Form S-8, Registration Statement No. 33-54765 of CRT Properties, Inc. on Form S-3, Registration Statement No. 33-54617 of CRT Properties, Inc. on Form S-8, Registration Statement No. 333-20975 of CRT Properties, Inc. on Form S-3, Registration Statement No. 333-23429 of CRT Properties, Inc. on Form S-8, Registration Statement No. 333-37919 of CRT Properties, Inc. on Form S-3, Registration Statement No. 333-33388 of CRT Properties, Inc. on Form S-8 and Registration Statement No. 333-38712 of CRT Properties, Inc. on Form S-8 of our reports dated March 15, 2005, relating to the financial statements and financial statement schedules of CRT Properties, Inc., and management’s report on the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K of CRT Properties, Inc. for the year ended December 31, 2004.

DELOITTE & TOUCHE LLP
West Palm Beach, Florida
March 15, 2005

79

EX-31.1

EXHIBIT 31.1

CERTIFICATE OF
PRINCIPAL EXECUTIVE OFFICER

1. I have reviewed this annual report on Form 10-K of CRT Properties, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 8, 2005

/s/ Thomas J. CrockerThomas J. Crocker
Chief Executive Officer
(Principal Executive Officer)
CRT Properties, Inc.

80

EX-31.2

EXHIBIT 31.2

CERTIFICATE OF
PRINCIPAL FINANCIAL OFFICER

1. I have reviewed this annual report on Form 10-K of CRT Properties, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 8, 2005

/s/ Randal L. MartinRandal L. Martin
Controller
(Principal Financial and Accounting Officer)
CRT Properties, Inc.

81

EX-32.1

EXHIBIT 32.1

CERTIFICATE OF
PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER

Each of the undersigned hereby certifies in his capacity as an officer of CRT Properties, Inc. (the “Company”) that he has reviewed this annual report and, to the best of his knowledge and belief, the annual report of the Company on Form 10-K for the annual period ended December 31, 2004 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, that the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the report not misleading, and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations and cash flows of the Company for such period.

Dated: March 8, 2005

/s/ Thomas J. CrockerThomas J. Crocker
Chief Executive Officer
(Principal Executive Officer)
CRT Properties, Inc.

Dated: March 8, 2005

/s/ Randal L. MartinRandal L. Martin
Controller
(Principal Financial and Accounting Officer)
CRT Properties, Inc.

82