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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[Fee Required]

For the fiscal year ended December 31, 2003 or

[No Fee Required]

For the transition period from                      to                     

Commission file number 0-6201

BRESLER & REINER, INC.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.01 par value

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 (§229.405 of this chapter) 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.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant (556,268 shares) was approximately $23,836,000 as of June 30, 2003. The aggregate market value was computed by reference to the last sale of the Common Stock of the Registrant at $42.85 per share. For purposes of this computation, directors, officers and holders of 5% or more of the Registrant’s Common Stock are considered affiliates of the Registrant at that date.

As of March 29, 2004 there were 2,738,606 shares of the Registrant’s Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.

Certain information is incorporated by reference to the Proxy Statement for the Registrant’s 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.

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BRESLER & REINER, INC.

ANNUAL REPORT ON FORM 10-K

DECEMBER 31, 2003

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PART I

Forward-Looking Statements

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

Item 1. Business

Bresler & Reiner, Inc. (“B&R” and, together with its subsidiaries and affiliates, “we,” the “Company” or “us”) was incorporated under the laws of the State of Delaware in 1970 and has been publicly traded since 1971. We engage in real estate business activities including commercial, residential, and hospitality property ownership, residential and commercial property development, land development and residential property management, through either direct ownership or through joint ventures with unrelated third parties. We engage in these activities in the Washington, DC, Orlando, Florida and Philadelphia, Pennsylvania metropolitan areas.

As an opportunistic investor in real estate, we evaluate a broad range of investment opportunities available in the marketplace, for their ability to generate significant cash returns on our invested capital. Our evaluation of these investment opportunities includes an analysis of the type of real estate assets to be acquired, the percentage of capital to be invested by asset type, the percentage ownership interest in particular assets to be acquired, and any resulting liabilities to be assumed. Our investment strategy is adjusted from time-to-time to adapt to changing marketplaces and phases in the real estate cycle. Prior to making an investment, we conduct appropriate due diligence studies to evaluate risks and opportunities of each prospective investment and the likelihood of generating a cash return on our equity investment that meets or exceeds our internal target rates.

In general, we employ independent management companies to perform on-site management, leasing, maintenance, and development activities. We also partner with well-respected regional and national developers to develop and reposition properties. Post-acquisition, we perform asset-management services, conducting a management process that includes the development of short and long-term capital replacement plans, review and approval of detailed annual budgets, and review of monthly operations variance analysis reports that allow us to monitor property performance and operations, and leasing and development activities. We also have an internal audit function that documents and tests controls and procedures at the management companies to ensure compliance with our operating, accounting, and reporting policies and procedures.

Segments of Business

We report segment information for the following four real estate categories:

Commercial Rental Property

This segment includes the rental income derived by commercial properties from leases of office, industrial and retail space and other related revenue sources. Commercial leases generally provide for a fixed monthly rental over terms that range from three to 10 years, with the tenant normally providing a security deposit. At December 31, 2003 we owned, or had an ownership interest in, 21 commercial property buildings containing approximately 1,435,000 square feet of space. The properties are located in the Washington, DC and Philadelphia, Pennsylvania metropolitan areas. The table below sets forth these commercial rental properties.

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Also included in this segment is income generated from management and leasing activities associated with our 50% ownership interest in Redwood Commercial Management, LLC (“Redwood”), a commercial management company. Redwood manages approximately 1,488,000 square feet of commercial office space, approximately 488,000 of which is owned by entities in which we have an ownership interest.

Residential Rental Property

This segment includes the rental income derived from residential properties from leases of apartment units and other related revenue sources. Apartment leases generally provide for a fixed monthly rental over a one-year term with the tenant normally providing a security deposit. At December 31, 2003 we owned, or had a material ownership interest in, three residential properties containing a total of 942 apartment units. The properties are located in the Washington, DC and Orlando, Florida metropolitan areas. The table below sets forth these residential rental properties.

Included in this segment are fees generated from a wholly owned subsidiary that manages residential properties owned both by us and by an affiliated third party. During the year ended December 31, 2003 the management contracts on two residential properties that we managed for an affiliated third party, containing 414 apartment units and 20 townhouses, were terminated. As of December 31, 2003, we continued to manage two residential properties containing 434 apartment units, one of which is owned by us and one is owned by an affiliated third party. We anticipate that these two remaining contracts will be terminated by mutual agreement in 2004.

Hospitality Properties

This segment includes revenue and income from two hospitality properties: The Inn at the Colonnade located in Baltimore, Maryland and the Holiday Inn Express located in Camp Springs, Maryland. The Inn at the Colonnade, which is a Doubletree branded property, is managed by a third party manager, while the Holiday Inn Express is managed by a wholly owned subsidiary of the company.

Commercial, Residential and Land Development

This segment primarily includes the development of homes and residential condominium units, the development of commercial buildings and the development of lots as part of residential subdivisions. Also included are the revenues and costs associated with undeveloped commercial land sales, and other construction activity. At December 31, 2003 we owned, or had ownership interests in: two vacant buildings located in Philadelphia, Pennsylvania, one of which we are developing into 32 for-sale residential condominium units and the other of which we plan to develop into an approximately 135 unit rental apartment property; the Waterfront Complex

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located in Washington DC that is being redeveloped (see Item 2. Properties, below); a parcel of undeveloped land in Clarksburg, Maryland, which is subdivided into 159 residential lots, 11 of which we had developed and sold through December 31, 2003; and undeveloped commercial land subdivided into 26 land parcels, 13 of which had been sold by December 31, 2003.

Competition

In virtually all aspects of our real estate activities we operate in highly competitive marketplaces. During the acquisition process we compete primarily based on offer prices and the ability to fund the acquisition and close the transaction in a timely manner. In our commercial rental, residential rental and hospitality segments we compete for tenants and guests primarily based on price, location and amenities offered.

During the acquisition process we compete against other acquirers of real estate, including both public and private real estate investment trusts, real estate development companies, investment firms, investment funds and financial institutions. This competition may affect our ability to acquire properties at prices that enable us to generate cash returns on invested capital that meet or exceed our target rates of return.

Oversupply of office space as a result of the weak economy, slowdown in the high-tech sector, and low job growth have led to low demand from tenants, thereby increasing the competitive pressure on our commercial properties. Competition from other developers, managers, and owners could produce material adverse effects on our ability to lease space and on the rents realized or concessions granted. Such a situation could materially and adversely affect our results of operations and cash flows.

The development of new residential properties and rent abatement offers by competitors, in addition to the low interest rate environment which has enabled potential tenants to seek home ownership, have all added to the competitive pressure on our residential properties, which could produce material adverse effects on our ability to rent apartment units.

The general marketplace for lodging in the Baltimore/Washington area is highly competitive and subject to general economic conditions and possible adverse effects from homeland security issues. This competition tends to adversely affect occupancy rates and exert pricing pressure on room rates at our hospitality properties. This pricing pressure will increase due to the planned development of several new hotels in the downtown Baltimore area in the next two years.

Employment

On December 31, 2003, we employed 63 persons.

Risk Factors That May Affect Our Future Results

The Value Of and Our Income from Our Real Property Investments May Decline

Our real estate properties and businesses can be affected by changes in national economic and market conditions, as well as local economic and market conditions. The national economic factors include: a decline in the national economy leading to a lack of job growth and lower demand for office space; an increase in interest rates; a drop in consumer and corporate confidence; and a tightening of the availability of credit. The more specific factors that could adversely affect occupancy levels, leasing rates and property values of a property include: lower tenant retention, the failure of tenants that lease significant amounts of space to renew their leases; an adverse change in prospective tenant perception about the attractiveness of the property; the physical deterioration of the property; community opposition to development or construction on a specific site; the inability to collect rents; and a substantial increase in uncontrollable operating expenses. Furthermore, properties can be adversely affected by competitive pressures such as newly developed properties within the same geographic market, and rent abatements offered by competitors. These competitive pressures could adversely affect our ability to lease space and the rental rates at which we lease them, thereby deteriorating our results of operations.

Development of New Projects or the Repositioning Of Existing Projects Could Be Adversely Affected

Plans for future development of commercial properties, residential communities, and the repositioning of our commercial properties can be affected by a number of factors including: time delays in obtaining necessary governmental permits and approvals, an inability to secure tenants necessary to support the project, the availability of financing, and an increase in construction costs.

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We May Be Unable to Sell or Finance Underperforming Properties

The ability to sell or finance underperforming properties may be adversely affected by the illiquid nature of real estate and by market conditions, including the weakening of capital markets thereby affecting the availability of credit. This situation could lead to operating losses and potential write-downs in the value of our properties.

Our Operating Results and Cash Flows May Be Adversely Affected By Tenant Defaults and High Tenant Turnover

If a significant number of tenants are unable to meet their rental obligations or choose not to renew their leases, or if we are unable to substantially lease on economically favorable terms, our operating results and cash flows could be adversely affected. Tenant defaults may result in significant collection expenses. In addition, the failure to renew the leases of major tenants or relet vacant space could adversely affect operating results and cash flows. At our residential properties, which typically have twelve-month lease terms there is increased exposure to tenants not renewing their leases.

Changes in Tax Laws Could Adversely Affect Operating Results

We believe that our recorded tax reserves are adequate. However, we cannot predict the future effect of possible changes in the tax laws or regulations. These changes, if made, could have a material adverse effect on operating results.

Environmental Matters

Under various federal, state, and local environmental laws, an owner or operator of real property may become liable for the costs associated with the investigation, removal, and remediation of hazardous or toxic substances at the property. Environmental laws often impose liability without regard to the owner/operator’s knowledge of, or responsibility for, the presence of the hazardous or toxic substances. The presence of, or failure to remediate, hazardous or toxic substances may adversely affect an owner’s ability to sell or rent the property or to borrow funds with the property as collateral. In some instances, the laws require abatement or removal of specific toxic-containing materials in the event of demolition, renovations, remodeling, damage, or decay.

We could be held liable for the environmental costs associated with the release of regulated substances or related claims, whether by us, our tenants, former owners or tenants of the affected property, or others. The presence of hazardous substances on a property could result in personal injury or other claims by private parties. These claims could result in costs or liabilities that could exceed the value of that property. We are aware of asbestos-containing materials that exist in the Waterfront Complex that will require remediation as part of the property’s redevelopment. A $3,000,000 escrow account to address the asbestos removal project at the Waterfront Complex has been established with our contributing 54% of the escrow funds. We cannot provide assurance that this reserve is adequate to complete the remediation of this project. Any additional costs would have an adverse affect on our cash flows. We are not aware of any notification by any party or governmental authority of any claim in connection with environmental conditions at any of our other properties that we believe will involve any material expenditure. However, we cannot provide assurance that any non-compliance, liability, claim, or expenditure will not arise with respect to other properties in our portfolio.

Increase in Interest Rates Would Raise our Cost of Capital and May Affect Our Ability to Obtain New Mortgage Debt and Refinance Existing Mortgage Debt

An increase in interest rates would affect our ability to obtain new mortgage debt and to refinance existing mortgage debt and would limit our ability to make future acquisitions, through increasing our cost of capital. Higher interest rates would also decrease cash flow from operations, negatively impacting our earnings and lowering our cash returns as a percentage of our invested equity. In addition a rise in interest rates would raise the cost of servicing our variable rate debt, thereby negatively impacting earnings.

We May Have Difficulty Obtaining Financing

Weak real estate markets not only affect the prices for which real estate properties can be purchased or sold, and rental revenues, but also affect the availability of financing. During weak real estate markets, lenders are reluctant to make or renew loans secured by real estate. Therefore, even if we would like to purchase properties, or refinance debt, during weak markets, we may have difficulty obtaining the funds to do so.

New Accounting Pronouncements and Regulations Could Have an Impact on our Earnings

We are required to implement new accounting pronouncements and regulations applicable to our business when issued by the Financial Accounting Standards Board, SEC and other regulatory organizations within the accounting profession. Currently a pronouncement is being considered that may impact the real estate industry. The proposal, “Accounting for Certain Costs and Activities Related to Property, Plant and Equipment,” would eliminate the capitalization of various development costs and would require depreciation of different asset components based upon each of their lives. The proposal is still in the adoption process and has not been finalized. Accordingly, there can be no assurance that it will be adopted in its current form or at all. If adopted, the final form of this proposal and others being considered could have an impact on our earnings.

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Access to Company Information

We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports, with the Securities and Exchange Commission (the “SEC”). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, by responding to requests addressed to our investor relations department, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. These reports can also be accessed on the Company’s website (http://www.breslerandreiner.com).

Item 2. Properties

Commercial Rental Property

Following is a description of our asset portfolio at December 31, 2003:

900 Northbrook— In November 2003, a joint venture in which we own an 87.5% interest and unaffiliated third-parties own the remaining 12.5% interest, acquired a 66,285 square foot office building located in a commercial office park in Bucks County, Pennsylvania. The purchase price for the office building was $12,050,000. We invested $1,312,500 for our interest in the joint venture. At the time of the acquisition, the joint venture placed a 10-year, 5.98% fixed rate mortgage of $11,200,000 on this property. At December 31, 2003, the property was 94.0% leased.

Washington Business Park—In November 2001, a joint venture in which we own an 80% interest and an unaffiliated third party owns the balance, acquired two office buildings containing 105,320 square feet and seven flex and warehouse buildings containing 462,862 square feet, for a total purchase price of $46,300,000. These buildings constitute a portion of the Washington Business Park located in Lanham, Maryland. We invested $8,806,000 for our interest in the joint venture. In December 2001, the joint venture placed a 30-year, 7.63% fixed-rate mortgage of $40,000,000 on these properties. The unaffiliated third party has a right through May 2004, to acquire an additional 30% ownership interest in the joint venture by making additional capital contributions that equalize the members’ capital accounts. At December 31, 2003, this portfolio of buildings was 91.1% leased.

Versar Center—In January 2002, we acquired two office buildings located in Springfield, Virginia, called the Versar Center, that contain 217,350 square feet of office space, for a purchase price of approximately $20,000,000. In May 2002, we placed a ten-year, 6.18% fixed rate mortgage of $18,500,000 on this property. At December 31, 2003, these buildings were 95.7% leased.

1925 K Street—In June 2002, a joint venture in which we own an 85% interest and an unaffiliated third-party owns the balance, acquired a 149,414 square foot office building located in the central business district of Washington, DC. The purchase price for the office building was $27,150,000. We invested $6,800,000 for our interest in the joint venture. At the time of the acquisition, the joint venture placed a five-year, variable rate (one month LIBOR + 235 basis points) mortgage of $20,438,000 on this property, of which $4,343,000 is guaranteed by us. At December 31, 2003, the property was 98.3% leased.

Madison Building—In August 2002, a joint venture in which we own a 24.9% interest and an unaffiliated third-party owns the balance, acquired a 81,875 square foot office building and an adjacent developable parcel located in McLean, Virginia. The adjacent parcel is currently used for parking for the office building. We invested $2,200,000 for our interest in this joint venture. In August 2002, the joint venture placed a 10-year, 6.345% fixed rate mortgage of $14,600,000 on this property. At December 31, 2003, the property was 97.0% leased

Fort Hill Office Building—In September 2000, a joint venture in which we hold an 80% interest and an unaffiliated third party owns the balance, purchased, for $7,050,000, a 66,072 square foot office building located in Centreville, Virginia. We invested $1,340,000 for our interest in the joint venture. In February 2001, the joint venture placed a 10-year, 7.7% fixed-rate mortgage of $5,750,000 on this property. At December 31, 2003, the building was 98.2% occupied.

Congressional South—In December 2002, we contributed approximately $2,800,000 for a 25% limited partnership interest in a partnership that owns a shopping center located in Rockville, Maryland. The center contains 81,374 square feet of retail space, in addition to retail space that is currently being redeveloped. The partnership also owns a parcel of ground adjacent to the shopping center that is leased on a net basis to an apartment developer who is currently constructing approximately 400 apartment units thereon. The unaffiliated third parties who own the remaining 75% interest have an option to purchase our interest in the partnership for the original contributed capital plus a 20% return per annum thereon, less any distributions paid through the repurchase date. At December 31, 2003, the property was 32.8% leased. Occupancy rates have been adversely affected by the redevelopment of a portion of the retail space.

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7800 Building—We own a 15,460 square foot office building located in Manassas, Virginia, which was 100% leased at December 31, 2003. We are currently holding this property for sale. It is anticipated that some of the tenants in the building will relocate to one of the new buildings planned for a nearby site. (see Paradise Developers below).

Paradise Developers—We own approximately 31 acres of undeveloped commercial land in Manassas, Virginia. We plan to develop three office buildings, on approximately 10 of these acres, one of which will be offered for sale as condominium office units. The three buildings will contain a total of between 150,000 and 180,000 square feet of office space.

Bank Building—We own a 3,478 square foot building located in Manassas, Virginia, which is 100% leased to a bank. The lease terminates in December 2006, with the tenant holding options to renew the lease for up to three successive five-year terms.

Paradise Sudley North Office Buildings—Four office buildings, containing 185,602 square feet of space, have been developed on a 16.35-acre parcel located in Manassas, Virginia. Three of the buildings (Buildings A, B and C) are owned by Paradise Sudley North Limited Partnership (“Sudley”), of which we are the sole general partner and 98.8% owner. The fourth building (Building D) is owned by Paradise Sudley North Building D Partnership, a joint venture in which Sudley is a 50% partner and a limited liability company controlled by a Co-Chairman of B&R is the remaining 50% owner.

In March 2002, we placed a 10-year, 7.47% fixed rate mortgage of $18,010,000 on the Bank Building and the four Paradise Sudley North Office Buildings.

At December 31, 2003, Building A was 85.9% occupied and Buildings B, C and D were 100% occupied.

Convenience Stores—We previously owned sixteen parcels of improved real estate, located in the southern and southeastern United States that were leased to convenience store operators. Through December 31, 2003, eight of the properties have been sold. Five further properties, all of which have leases that expire in February 2005, are being held for sale and as such are accounted for as discontinued operations in our financial statements. The remaining three sites are vacant. We have established an impairment reserve of approximately $197,000 for these assets.

WMC Management Company—WMC Management Company, Inc. (“WMC”), a wholly owned subsidiary of ours, has contracts to act as managing agent and, in certain cases, leasing agent, for residential properties, owned by both wholly-owned subsidiaries of ours as well as by partnerships in which we have a partnership interest and the Co-Chairmen, officers, directors, and principal shareholders of the Company, have substantial interests, and by partnerships in which we have no interest and the Co-Chairmen, officers, directors, and principal shareholders of the Company, have substantial interests. In November, 2003, three of WMC’s five management contracts were terminated by mutual consent of the parties. We anticipate that the remaining two contracts will be terminated in 2004 by mutual consent of the parties.

Redwood Commercial Management, LLC—In December 2001, we and an unaffiliated third party, created a property management and leasing company, known as Redwood Commercial Management, LLC (“Redwood”). Each member holds a 50% ownership interest in Redwood with the other member managing Redwood on a day-to-day basis. Redwood performs management and leasing services for properties containing approximately 1,488,000 square feet of office, commercial and warehouse space, approximately 488,000 square feet of which are in our properties and the remainder of which are in properties that are owned by unaffiliated third parties.

Residential Rental Property

Fountains at Waterford Lakes— In September 2003 we acquired a 400 unit apartment community, located in Orange County, Florida, called The Fountains at Waterford Lakes (“The Fountains”). The purchase price of The Fountains was $35,100,000. We assumed $24,600,000 of mortgage debt on the property as apart of the transaction. This loan bears interest at 5.00% per annum, is non-amortizing and matures in December 2007. No prepayments on the loan are permitted prior to December 2005. At December 31, 2003, the property was 94.5% leased.

Victoria Place Apartments— In July 2003, we acquired an 85% membership interest in Victoria Place Apartments, LLC (“Victoria Place”) which owns a 364 unit apartment complex located in Orange County, Florida. An unaffiliated third-party acquired the remaining 15% interest as part of the same transaction. The purchase price for Victoria Place was $39,500,000. We invested $8,500,000 for our 85% interest in the venture. At the time of the acquisition, the joint venture placed a 10-year, 4.72% fixed rate mortgage of $34,120,000 on this property. $30,620,000 of the mortgage funds were disbursed at closing and the remaining $3,500,000 were disbursed in February 2004, upon the property achieving certain occupancy and debt service coverage goals. At December 31, 2003, the property was 95.1% leased.

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Charlestown North— We constructed, own and operate a 178 unit apartment project called Charlestown North, which is located in Greenbelt, Maryland. At December 31, 2003, the apartment building was 85.4% leased.

The Commons— We constructed a 116 unit apartment project in southwest Washington, DC called The Commons. In December, 2003 we sold 95% of our interest in The Commons for a sales price of $9,918,000. The purchaser has a call option to purchase, and we have a corresponding put option to sell, the remaining 5% interest in The Commons for a price of $522,000, beginning December 2004. It is our intention to exercise our put option.

Town Center East Apartment Buildings— We are the sole general partner, with a 1% interest, of Third Street Southwest Investors (“Third Street”), a limited partnership, which owns two high-rise apartment buildings containing 256 units. A wholly-owned subsidiary of ours also acts as the management agent for the buildings. The Co-Chairmen of the Company own approximately 8% of the limited partnership interests in Third Street.

Hospitality Properties

Holiday Inn Express—We own and operate a 151 room Holiday Inn Express located in Camp Springs, Maryland, opposite the main entrance to Andrews Air Force Base. The Holiday Inn Express commenced business in March 1970. Under our franchise agreement with Holiday Inns, Inc., we pay Holiday Inns a monthly royalty fee and additional reimbursements for advertising and trading services. The Holiday Inn Express license agreement expires in March 2007. In July 2001, we placed a ten-year, 7.875% fixed rate mortgage of $3,800,000 on this property.

For the year ended December 31, 2003 the average occupancy level was 69.7% and the average daily room rate was $75.38. For the year ended December 31, 2002 the average occupancy level was 61.2% and the average daily room rate was $73.41.

The Inn at the Colonnade—We own a portion of The Colonnade Building, which is a multi-purpose residential condominium, hotel, office and retail building located across from the Johns Hopkins University campus in Baltimore, Maryland. The portion of the building that we own consists of 125 hotel rooms operated for us by ARAMARK Corporation as a Doubletree Hotel, a 5,200 square foot restaurant, leased to an unrelated operator, 7,600 square feet of retail and office space and a 137 parking space garage. In September 2001, we placed a 10-year, 7.45% fixed rate mortgage of $10,300,000 on this property.

For the year ended December 31, 2003 the average occupancy level was 67.1% and the average daily room rate was $130.37. For the year ended December 31, 2002 the average occupancy level was 65.0% and the average daily room rate was $133.22.

Commercial, Residential and Land Development

900 Northbrook Development Parcel —On November 26, 2003 we acquired for $2,000,000 a 9.6-acre tract of land adjacent to the 900 Northbrook building in the commercial office park in Trevose, Pennsylvania. We plan to develop a commercial office building on the land.

699 North Broad Street Associates, L.P.— On August 27, 2003 a joint venture in which we own a 95% interest, and two unaffiliated third parties own the balance, acquired a historic building in Philadelphia, PA, called the Divine Lorraine, for a purchase price of $2,295,000. The joint venture plans to redevelop the building into an approximately 135 unit apartment property. We invested $2,375,000 for our interest in the joint venture.

Cigar Factory Apartments L.P.— On July 24, 2003, we invested $1,000,000 in exchange for a 66.7% interest in Cigar Factory Apartments L.P. (“Cigar Factory”). Two unaffiliated third parties own the remaining 33.3% interest. Cigar Factory owns a warehouse in Philadelphia, PA, which is being redeveloped into a 32 unit for-sale condominium property, together with parking and associated spaces. Cigar Factory has obtained an acquisition and construction loan in the amount of $5,370,000. We have provided a payment guarantee for 66.7% of the loan balance outstanding, with the remaining balance guaranteed by the other members of Cigar Factory.

Clarksburg Ridge—On March 18, 2003 we purchased a 100% interest in Clarksburg Ridge, LLC (“Clarksburg Ridge”). Clarksburg Ridge owns a parcel of undeveloped residential land in Clarksburg, Maryland, which is subdivided into 159 residential lots. Simultaneous with the acquisition, we entered into an approximately $7,000,000 development management agreement with a third party for the site grading, sewer installation, street paving and other infrastructure. In July 2002, Clarksburg Ridge entered into a sales contract with NVR, Inc. (“NVR”) that provides for the structured takedown of lots commencing in 2003 and completing in 2005. With the execution of the sales contract, NVR paid Clarksburg Ridge a non-refundable deposit of $4,950,000. Also in July 2002, Clarksburg Ridge entered into a loan agreement for the acquisition, development, interest reserve, and real estate taxes associated with the property. The variable rate loan bears interest at the lender’s prime rate of interest plus 100 basis points. As security for this loan, we have deposited $2,000,000 in an investment account with the lender. The aggregate purchase price of Clarksburg Ridge of $12,200,000, was funded through $5,000,000 in cash, the assumption of the outstanding balance on the Bank loan of $4,200,000, and

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the application of $3,000,000 of deposit proceeds from NVR. The remaining $1,950,000 of the NVR deposit was refunded to NVR and an appropriate amendment made to the NVR sales contract to reflect the return of deposit monies. We had sold eleven of the residential lots through December 31, 2003.

Undeveloped Land at Washington Business Park—In November 2001, a joint venture in which we own an 80% interest and an unaffiliated third party owns the balance, acquired approximately 26 parcels on 79 acres of undeveloped land in the Washington Business Park located in Lanham, Maryland. The purchase price was $8,700,000. In December 2001, the joint venture placed a $5,000,000 mortgage loan on this property. Interest on the loan is calculated at the lender’s Prime Rate of Interest plus 75 basis points. The loan matures in November 2004. We invested $4,194,000 for our 80% interest in the joint venture. The unaffiliated third party has a right through May 2004, to acquire an additional 30% ownership interest in the joint venture by making additional capital contributions that equalize the members’ capital accounts. The joint venture may sell one or more land parcels while holding other land parcels for development opportunities. Through December 31, 2003, the joint venture has sold 13 land parcels totaling approximately 29 acres.

Waterfront Complex—Beginning in 1964, we developed, on a portion of the southwest Washington, D.C. Urban Renewal Area, a shopping-office center (“Complex”) containing approximately 1,144,000 square feet of office, retail and storage space, consisting of two high-rise office buildings (“Office Buildings”) containing approximately 326,000 square feet, an enclosed center (“Center”) consisting of approximately 740,000 square feet, most of which is office space and the balance consisting of retail space, approximately 1,100 parking spaces and approximately 78,000 square feet of storage space. These improvements were constructed on ground leased from The District of Columbia Redevelopment Land Agency (“RLA”) for a term expiring in 2058 with an option to extend for an additional 20 years.

We assigned our interests in the Complex to a joint venture entity, B&R Waterfront Properties, LLC (“BRW”). We are the managing member and hold a 54% interest in BRW. A partnership in which Co-Chairmen of the company are among the partners holds a portion of the remaining 46% interest. The results of operation of BRW have been reported on a consolidated basis with elimination of the minority interest.

Prior to September 2002, the United States General Services Administration (“GSA”) leased all of the space in the two Office Buildings, as well as the second and third floors of the adjacent Center and a portion of another smaller structure, totaling approximately 955,000 square feet, or 89.6% of the total office and retail space in the complex, under a thirty year lease agreement. In September 2002 the GSA lease expired and was not subsequently renewed.

On October 1, 2002, BRW formed a joint venture, called Waterfront Associates LLC (“WALLC”), with K/FCE Investment LLC (“K/FCE”), a joint venture between the Washington DC based developer, The Kaempfer Company, Inc., and the national developer, Forest City Enterprises, Inc., to redevelop and reposition the Complex. BRW contributed the leasehold improvements relating to the Complex to WALLC. Affiliates of K/FCE are marketing, leasing, redeveloping, and managing the complex. K/FCE has the right, subject to certain conditions, to increase its ownership in the joint venture up to 50% by the making of capital contributions or by causing the joint venture to make capital distributions. To the extent required, K/FCE has committed to contribute the first $25,000,000 of redevelopment funds. If necessary, BRW may be required to contribute a portion of the additional equity required in excess of the $25,000,000. K/FCE, as the managing member of WALLC, has sole responsibility for the management, control, and operation of the LLC, as well as for the formulation and execution of its business and investment policy. Since BRW does not have a controlling interest in WALLC, it accounts for its investment in the joint venture by the equity method.

While WALLC still operates the retail space, the expiration of the GSA lease adversely affected the retail tenants in the Complex who relied heavily on business generated by the employees who occupied the GSA space and several have since vacated their premises. BRW is obligated to pay the costs associated with tenant relocation expenses for the remaining tenants in connection with the redevelopment of the Complex. Such costs would be considered part of redevelopment, however we cannot determine at this time the amount or timing of these relocation expenses.

As part of the redevelopment of the Waterfront Complex, BRW may incur significant costs relating to the remediation of hazardous materials. A reserve has been established in the amount of $3,000,000, $1,620,000 of which was contributed by us and the balance was contributed by the minority partners of BRW.

WALLC is currently active in the preliminary planning and development phase of the redevelopment and is pursuing its first tenant. Through December 31, 2003, approximately $8,000,000 of planning and development costs had been incurred by the joint venture and funded by capital contributions from K/FCE.

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Item 3. Legal Proceedings

We are not presently involved in any litigation nor to our knowledge is any litigation threatened against us or our subsidiaries that, in management’s opinion, would result in any material adverse effect on our ownership, financial condition, management or operation of our properties.

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

No matters were submitted to the vote of the security holders during the fourth quarter of 2003.

The following list is included as an unnumbered Item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on June 16, 2004.

Executive Officers of Registrant (included pursuant to instruction 3 to Item 401(b) of Regulation S-K).

In accordance with Article V of the By-Laws of the Company, each officer was elected to serve until his successor is chosen and shall have qualified or until his earlier resignation or removal.

The instances of family relationships are as follows: Mr. Sidney M. Bresler is the son of Mr. Charles S. Bresler and Mr. William L. Oshinsky is the brother-in-law of Mr. Burton J. Reiner.

Each officer has held the above positions as his principal occupation for more than the past five years with the exception of Mr. Sidney M. Bresler, Ms. Jean S. Cafardi and Mr. Darryl M. Edelstein. Prior to June 2000 and during his sixteen years of employment with the Company, Mr. Bresler has served in various capacities. Prior to November 2000 and during her thirty-seven years of employment with the Company, Ms. Jean S. Cafardi has served in various capacities.

Mr. Darryl M. Edelstein joined us in August 2003, as our Chief Financial Officer. During the past five years Mr. Edelstein has worked in various finance capacities for Crestline Capital Corporation. During the eight years prior to that he worked at Host Marriott Corporation, Kraft Foods Inc. and Ernst & Young, LLP. Mr. Edelstein is a Certified Public Accountant.

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PART II

Item 5. Market for the Company’s Common Equity and Related Stockholder Matters

Our Common Stock is traded in the over-the-counter market. The following table presents the high and low bid quotations for the periods shown, as reported by the National Quotation Bureau, Inc. No dividends were declared or paid during the years reported.

The above quotations represent prices between dealers and do not include retail markup, markdown or commissions and do not represent actual transactions. As of March 26, 2004, there were 80 record holders of Common Stock.

The Company has not declared any dividends since inception.

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Item 6. Selected Financial Data

The following table sets forth selected consolidated financial data (in thousands, except per share amounts) for us, including our consolidated subsidiaries. The historical financial data should be read in conjunction with the consolidated financial statements and accompanying notes and the discussion set forth in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this Form 10-K.

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

The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this document.

Overview

We are a real estate owner and developer with a portfolio that includes commercial, residential and hospitality properties as well as undeveloped and developed land. We earn our revenues and profits primarily from leasing commercial office space and residential apartment units, operating hospitality properties, selling residential properties, and selling both developed and undeveloped land.

Our four segments, commercial property rentals; residential apartment rentals; hospitality; and commercial, residential and land development, provide us with a diversified portfolio of assets across the real estate spectrum. Our strategy revolves around using our strong liquidity position to invest in commercial and residential real estate through acquisitions of both operational and development properties. We also acquire other forms of real estate, such as undeveloped commercial and residential land as such opportunities arise. We are an active owner of our real estate assets, focusing on maximizing profitability throughout our portfolio. We work closely with the third party management companies that manage our properties to increase profitability through identifying revenue generation and expense reduction opportunities. In the past our strategy included performing property management services, however while we continue to provide these services for two residential properties and one hospitality property, we will no longer be focused on this area of the business. When acquiring properties we will look to local third party management companies to provide these services. We may, however continue to invest in third party management companies, while not controlling the day-today operations of these companies.

Historically our real estate investments were primarily limited to the Washington DC metropolitan area. During the year ended December 31, 2003 we expanded the geography of our portfolio to include the Orlando, Florida and Philadelphia, Pennsylvania metropolitan areas. We anticipate continuing to acquire assets principally in these three metropolitan areas, while at the same time exploring opportunities in other geographical areas.

With the goal of achieving the highest possible risk-adjusted return on our invested capital, we typically try to minimize the amount of equity we put into any one acquisition property or investment. In the low interest rate environment of the last two years we were able to do this through obtaining or assuming high levels of debt relative to the purchase price of the assets we acquired, while still maintaining strong debt service coverage ratios on our mortgage debt. In some instances we further reduced our required equity contributions through entering into joint venture agreements with unaffiliated third party investors. During the year ended December 31, 2003 we acquired, through both wholly-owned subsidiaries and joint venture entities with unaffiliated third parties that we consolidate in our financial statements, approximately $103,500,000 of real estate, including two undeveloped parcels of land, two residential apartment properties, two residential development properties and one commercial property. We took advantage of the low

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interest rate environment, obtaining fixed-rate mortgage debt totaling $45,320,000 at an average interest rate of 5.0%, and assumed $28,800,000 of fixed-rate mortgage debt at an average interest rate of 5.0%. Since the year ended December 31, 2003, as more fully described in Footnote 18 to the Consolidated Financial Statements, (Subsequent Events), we acquired, through both wholly-owned and joint venture entities with unaffiliated third parties, $99,114,000 of real estate assets consisting of three commercial properties and one development property. In connection with the acquisitions we obtained and assumed fixed-rate mortgage debt of $80,530,000, at an average interest rate of 5.7%, and obtained variable rate mortgage debt of $6,000,000. While interest rates remain low our strategy will continue to involve obtaining high debt levels relative to the purchase price of acquired properties. However, should interest rates increase we may be required to obtain lower levels of debt and look for greater participation from our equity partners or invest larger amounts of our own equity. A higher interest rate environment would also raise our cost of capital, thereby making it more difficult to find acquisition opportunities that have the potential to meet or exceed our required returns on investment.

While we are focused on growing our portfolio of assets, we also divest underperforming or older properties that either do not generate adequate returns or do not fit with our overall strategy. During the year ended December 31, 2003 we sold a commercial building leased to a nursing home operator and a residential apartment complex. We are currently holding for sale a commercial building containing 15,460 square feet of office space and five commercial properties leased to convenience store operators. In the future we may continue to divest properties that either do not generate adequate cash returns or do not fit in with our overall goals and objectives.

Our biggest challenge in 2003 was the replacement of the revenue and income that was previously generated from the GSA lease at the Waterfront Complex (see Item 2. Properties). To help replace this revenue and income, while the Waterfront Complex is under development, we aggressively acquired commercial, residential and development properties and land in 2003 and continued this trend in the first quarter of 2004. In 2004 the benefits of our acquisition activity will be more fully realized with a full year of operations of the commercial and residential properties we acquired in 2003 and partial year of operations of the properties we have acquired in the first quarter of 2004. We will also generate income from the sale of residential apartment units and residential lots that are currently under development. Our biggest challenge in 2004 will be to continue to utilize our cash and other sources of financing available to purchase real estate that has the potential to generate strong cash returns on our investment, in an interest-rate environment that may not be as accommodating as it has been in recent years, and to maximize the cash returns on our existing assets.

In preparing our financial statements, we have made best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this MD&A, whether as a result of new information, future events, changes in assumptions, or otherwise.

The discussion that follows is based primarily on our consolidated balance sheets as of December 31, 2003 and 2002, and the results of operations for the years ended December 31, 2003, 2002 and 2001 and should be read along with the “Selected Financial Data,” and our consolidated financial statements and related notes. The ability to compare one period to another may be significantly affected by operating properties in the process of being repositioned, acquisitions and dispositions of commercial and residential properties, residential subdivisions fully developed and completed, the acquisition and subsequent partial sale of undeveloped commercial and residential lots, and the acquisition and subsequent partial development and sale of residential lots. Historical results set forth in the “Selected Financial Data” and our consolidated financial statements are not necessarily indicative of our future financial position and results of our operations.

Application of Critical Accounting Policies

Certain of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters. Our accounting policies comply with accounting principles generally accepted in the United States, although a change in the facts and circumstances of the underlying transactions could significantly change the application of an accounting policy and the resulting financial statement impact. We have listed below those policies that we believe are critical and require the use of significant judgment in their application.

Rental Property and Equipment

On an annual basis, we assess whether there are any indicators that the value of the real estate properties may be impaired. A property’s value is impaired only if our estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. Our estimate is based on a subjective assessment that considers factors such as expected future operating income, trends, and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has occurred, an impairment reserve is established, resulting in an immediate negative adjustment to net income. The impairment amount is measured as the excess of the carrying amount of the property over the fair value of the property, such fair value calculated on a discounted future cash flow basis using a risk-adjusted discount rate. The assessment of impairment could affect both our earnings and the carrying value of property on our balance sheet.

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Acquisition of Real Estate

In accordance with FAS 141 “Business Combinations”, we evaluate the purchase price of our commercial and residential acquisitions to determine an appropriate apportionment of the purchase price to land, building, furniture and fixtures and acquired leases. Acquired leases are valued relative to their market value. Acquired leases with above-market terms result in the recognition of an intangible asset, while acquired leases with below-market terms result in the recognition of an intangible liability. This intangible asset or liability is then amortized over the term of the lease as a reduction, in the case of an intangible asset, and an increase, in the case of an intangible liability, to rental revenue.

In order to determine the value to be allocated to the acquired leases, we are required to make several assumptions regarding the relative value of the in-place leases when compared to market value. Some of the judgments required as a part of this exercise include:

As a result of the significant judgment required in the assigning a value to the in-place leases, the actual value of leases acquired could differ from the value presented in our financial statements. Since the useful life of in-place leases typically differs substantially from that of a building’s useful life, this could affect the amount of depreciation and amortization recorded.

In accordance with FAS 141, we are also required to reflect on our balance sheet the fair value of debt assumed in connection with our acquisitions. In order to calculate the fair value of assumed debt we are required to estimate the market rate of interest for a loan of that type, taking into account such factors as the cash flow generated by the property, any guarantees of indebtedness, and the amount of debt relative to the property’s fair market value. The estimate of fair value of the assumed debt will affect our interest expense and the carrying amount of the assumed debt on our balance sheet.

Real Estate Sales

We follow the provisions of Statement of Financial Accounting Standards (“FASB”) No. 66, “Accounting for Sales of Real Estate” for reporting the disposition of homes, residential lots held for sale, and commercial land held for development. Homebuilding and related costs are charged to the cost of the homes sold under the specific identification method. Land development costs are charged to the cost of land parcels sold on a relative sales value basis. An inaccurate allocation of costs could affect our gains on sale of homes and developed land.

Investments in Joint Ventures

For all our joint ventures created after January 31, 2003, we are required to determine if the entity is a variable interest entity (VIE). Such a determination includes, among other requirements, that we evaluate whether the equity investment at risk is sufficient to allow the entity to finance its activities without additional subordinated support from others. If the equity at risk is not sufficient then the entity is considered a VIE and is subject to consolidation based on the guidelines of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). If the equity at risk is sufficient, and various other conditions are met, then the entity is not considered to be a VIE and is accounted for based on other control considerations.

If a joint venture of ours is subject to FIN 46, we are required to determine whether we are the primary beneficiary through being subject to a majority of the potential variability in gains or losses of the VIE (with the primary focus on losses). If we are the primary beneficiary, then we consolidate our investment in the joint venture. If we are not the primary beneficiary, then we account for our investment by the equity method.

Our evaluation of the sufficiency of equity at risk and our determination of the primary beneficiary is based on subjective assessments that involve our estimating a number of possible future outcomes of the entity as well as the probability of each outcome occurring. This process includes our estimating future operating income and losses, taking into account industry trends, the impact of macro economic forces, as well as the effects of demand, competition and other factors. The evaluation of the sufficiency of equity of a joint venture and the determination of the primary beneficiary will effect the presentation of that joint venture in the consolidated balance sheet and results of operations.

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Depreciation Expense

We use judgment in order to allocate the purchase price of all acquired assets and assign useful lives to those assets that have finite lives. Depreciation expense is generally computed using the straight-line method applied over the deemed useful life of depreciable assets. Tennant improvements are capitalized and amortized over the term of the corresponding lease. Repairs, maintenance and minor improvements are expensed as incurred. The allocation of assets or assignment of useful lives will affect the amount of depreciation recorded.

Balance Sheet Overview

The following table reflects certain condensed balance sheet items from our audited consolidated balance sheets as of the dates presented (in thousands):

Material changes in assets include:

Material changes in liabilities include:

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Financial Overview

The following table reflects key line items from our audited statements of operations for the years ended December 31, 2003 and December 31, 2002 (in thousands, except percentages):

General Overview. Relative to the year ended December 31, 2002, our results for the year ended December 31, 2003 were adversely impacted by the September 2002 expiration of the GSA lease at the Waterfront Complex and fewer home sales. During the year ended December 31, 2002, revenue and pre-tax net income earned from the Waterfront Complex totaled $19,555,000 and $6,910,000, respectively. In 2003, we incurred a $33,000 pre-tax loss from our equity ownership in the remaining operations at the Waterfront Complex. In 2002 we earned $7,986,000 of revenue and $827,000 of pre-tax income related to home sales, compared to $183,000 in revenue and $43,000 in pre-tax income in 2003.

Our revenue was positively impacted by the following transactions in 2003, which helped to offset this reduction in revenue:

Our net income also benefited from the following transactions in 2003:

Commercial Rental Property.

At December 31, 2003, our commercial portfolio of properties owned by entities that we consolidate, excluding properties we are holding for sale, contained approximately 1,107,000 square feet of commercial space, compared to approximately 1,041,000 square feet at December 31, 2002, an increase of approximately 66,000 square feet. The average lease space available during 2003 decreased from 2002 by approximately 776,000 square feet, primarily as a result of the September 2002 expiration of the GSA lease at the Waterfront Complex, and subsequent deconsolidation of the entity that owns the Complex, which comprised of approximately 1,066,000 square feet of commercial space. At December 31, 2003 the total commercial property portfolio was 93.8% leased, compared to 89.9% at December 31, 2002.

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The $18,472,000 revenue decrease in 2003 relative to 2002 can be primarily attributed to a $19,555,000 decrease in revenue related to the GSA lease at the Waterfront Complex, partially offset by a $604,000 increase in revenue related to the January, 2002 acquisition of the Versar Center and the November, 2003 acquisition of the 900 Northbrook building, and a $450,000 increase in revenue at Washington Business Park and the Sudley North Buildings due to higher occupancy rates.

Operating expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. Operating expenses in 2003 decreased relative to 2002 by $3,838,000 primarily due to a $4,922,000 decrease in expenses related to the GSA lease at the Waterfront Complex, partially offset by a $433,000 increase in expenses related to the Versar Center and the 900 Northbrook building acquisitions and a $651,000 increase in expenses related to all other commercial buildings principally as a result of higher snow removal and utility costs due to severe weather conditions and record snowfalls in the Washington, DC region during the first quarter of 2003.

We expect that both rental revenues and operating expenses will increase in 2004 due to the acquisitions we have made in 2003 and the first quarter of 2004.

Residential Rental Property.

Our residential portfolio of properties owned by entities that we consolidate contained 942 apartment units at December 31, 2003, compared to 178 apartment units at December 31, 2002. The average number of apartment units available during 2003 increased from 2002 by 282 units as a result of the July 2003 acquisition of 364 units at Victoria Place and the September 2003 acquisition of 400 units at The Fountains, partially offset by the December 2003 sale of 95% of our interest in the Commons, which contains 116 units. At December 31, 2003 the residential rental portfolio was 93.0% leased compared to 85.4% at December 31, 2002.

The $3,014,000 increase in residential rental revenue over prior year can be primarily attributed to a $3,055,000 increase in revenue from the acquisitions of Victoria Place and The Fountains.

Operating expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. The increase in residential operating expenses of $1,051,000 over the prior year can be primarily attributed to a $1,025,000 increase in operating expenses from the acquisitions of Victoria Place and The Fountains.

Depreciation expense in 2003 increased by $807,000 over the prior year primarily due to acquisitions made in 2003.

We expect that both rental revenues and operating expenses will increase in 2004 due to the acquisitions we have made in 2003.

Hospitality Properties.

The average daily room rate at The Inn at the Colonnade decreased to $130.37 from $133.22 in the prior year, while occupancy increased to 67.1% from 65.0%. The average daily room rate at the Holiday Inn increased to $75.38 from $73.41 in the prior year, while occupancy increased to 69.7% from 61.2%.

The $325,000 increase in revenue over the prior year reflects a $405,000 increase in revenue at the Holiday Inn, partially offset by a $80,000 decrease in revenues at the Inn at the Colonnade. The increase in revenue at the Holiday Inn is primarily due to increased military operations at neighboring Andrews Air Force Base. The decrease in revenue at the Inn at the Colonnade is indicative of the continued weak demand in the hospitality industry as a result of the slow economy, the war in Iraq and homeland security threats.

Operating expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. The increase in operating expenses of $485,000 over the prior year is due in part to the cost of snow removal at both properties as a result of the heavier than normal snowfall experienced in the region. Additionally, the Inn at the Colonnade incurred higher payroll costs relative to the prior year, in part due to the hiring of a property controller during 2003.

Homebuilding, Residential Lots and other construction. Homebuilding, residential lots and other construction revenue in 2003 decrease by $6,543,000 compared to the prior year. The decrease can be primarily attributed to the following:

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The cost of homebuilding, residential lots and other construction in 2003 decreased by $5,609,000 compared to the prior year. The decrease can be primarily attributed to a $7,019,000 decline in expenses related to fewer home and lot sales in the Yorkshire Knolls and St. Mary’s subdivisions, partially offset by a $1,421,000 increase in expenses related to the cost of sales of the Clarksburg Ridge lots.

Interest Income. Interest income in 2003 totaled decreased by $697,000 compared to the prior year. The decrease is attributable to lower interest rates compared to the prior year, coupled with a lower balance in our short-term investment portfolio relative to the prior year, due to the use of funds for investment purposes.

Income from Equity Investments. Income from investments in joint ventures and partnerships consists of our share of profits and losses generated by non-consolidated joint ventures and partnerships in which we hold an equity interest. Income from equity investments increased in 2003 by $118,000 over the prior year. The increase can be primarily attributed to a $439,000 increase related to the operations at Congressional South, in which we invested in December 2002 and a $712,000 increase related to 1925K Street, which was acquired in June 2002, partially offset by a $1,016,000 decrease related to WBP Undeveloped Land, due to lower margins on land parcel sales.

General and Administrative Expense . The increase in general and administrative expense of $265,000 over the prior year is primarily due to an increase in salaries, pension costs and legal, accounting and consulting fees, partially offset by a decrease in bonuses. In 2002 a $1,000,000 performance bonus was paid to the Company’s Co-Chairman Charles S. Bresler.

Interest Expense. The increase in interest expense of $947,000 over the prior year is primarily due to interest on debt obtained or assumed in 2003 in connection with the acquisitions of Victoria Place and The Fountains as well as interest on the debt placed on the Paradise Sudley North Office Buildings in 2002.

Minority Interest. Minority interest expense in 2003 decreased by $6,373,000 primarily due to the expiration of the GSA lease at the Waterfront Complex. The lease expiration and the subsequent contribution of the Complex to an unconsolidated joint venture, resulted in a reduction in minority interest expense of $5,915,000.

Other expenses. Other expenses during 2003 decreased by $3,101,000. The decrease can be attributed to the following:

Income from Discontinued Operations, net of Tax. The increase in income from discontinued operations, net of tax, of $6,966,000 is primarily attributable to a $1,711,000 gain, net of tax, related to the sale of Maplewood Manor and a $5,419,000 gain, net of tax, related to the sale of The Commons.

Results of Operations – Comparison of the results of operations for the year ended December 31, 2002 compared to 2001.

The following table reflects key line items from our audited statements of operations for the years presented (in thousands, except for percentages):

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The increase in total revenue was primarily due to an increase in revenue from home sales and an increase in revenue generated from our November 2001 acquisition of Washington Business Park, and our January 2002 acquisition of the Versar Center, partially offset by decreased revenue at the Waterfront Complex as a result of the September 2002 GSA lease expiration. The decrease in net income is primarily due to increased interest expense on mortgage loans closed in 2002 and 2001, as well as increased general and administration costs in 2002 and accruals for removal of hazardous materials and asset impairment write-downs in 2002.

Commercial Rental Property.

At December 31, 2002, our commercial portfolio of properties owned by entities that we consolidate, excluding properties we are holding for sale, contained approximately 1,041,000 square feet of commercial space, compared to approximately 1,902,000 square feet at December 31, 2001, a decrease of approximately 861,000 square feet. The decrease is primarily due to the joint venture agreement with K/FCE and the resulting deconsolidation of the entity that owns the Waterfront Complex, partially offset by the acquisition of the Versar Center. At December 31, 2002 the total commercial property portfolio was 90.1% leased, compared to 99.0% at December 31, 2001.

The $2,719,000 revenue increase in 2002 over the prior year can primarily be attributed to a $6,984,000 increase in revenue related to Washington Business Park, which was acquired in November 2001 and a $3,396,000 increase in revenue related to the Versar Center, which was acquired in January 2002, partially offset by a $6,001,000 decrease in revenue related to the expiration of the GSA lease at the Waterfront Complex.

The $823,000 increase in operating expenses in 2002 over the prior year can primarily be attributed to a $2,398,000 increase in expenses related to the Washington Business Park operating properties and a $1,296,000 increase in expenses related to the Versar Center property, partially offset by a $2,736,000 decrease in expenses related to the expiration of the GSA lease at the Waterfront Complex.

Depreciation expense increased by $1,091,000 over the prior year primarily due to the acquisitions of Washington Business Park and the Versar Center, partially offset by the contribution of the Waterfront Complex to an unconsolidated joint venture.

Residential Rental Property.

Revenue was comparable with the prior year since average occupancy levels remained stable.

The $141,000 increase in operating expenses over the prior year resulted primarily from increased operating expenses at the Company’s Charlestown North Apartments. Expense increases occurred in payroll costs, electricity charges, repair and maintenance costs, and property insurance.

Hospitality Properties.

The average daily room rate at The Inn at the Colonnade increased to $133.22 from $128.48 in the prior year, while occupancy decreased to 65.0% from 68.5%. The average daily room rate at the Holiday Inn increased to $73.41 from $72.71 in the prior year, while occupancy decreased to 61.2% from 62.6%.

The $140,000 decrease in revenue in 2002 reflects a $90,000 decrease at the Inn at the Colonnade and a $50,000 decrease at the Holiday Inn. The decrease in revenue at both properties reflects the post September 11^th drop in demand for lodging and the decreased business and personal travel due to a weak economy.

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Operating expenses in 2002 were comparable with the prior year.

Homebuilding, Residential Lots and other construction. Homebuilding, residential lots and other construction revenues, comprised principally of home and residential lot sales, increased in 2002 over the prior year by $3,211,000. The growth in revenue was primarily due to increased unit sales of homes and lots. The number of homes sold increased to 49 in 2002 from 31 in 2001. The average sales price per home increased by $2,000 to an average 2002 price of $157,000. Residential lots sold also increased to seven lots in 2002 from one lot in 2001. The gross profit margin percentage increased to 64.5% in 2002 from 52.2% in 2001.

The cost of homebuilding, residential lots and other construction increased in 2002 by $2,457,000 compared to the prior year as a result of the increase in home and residential lot sales.

At December 31, 2002, all the lots at the St. Mary’s County subdivision had been sold and only one home remained in inventory at the Yorkshire Knolls residential subdivision.

Income from Equity Investments. The increase in income from equity investments in 2002 of $1,477,000 over the prior year can be primarily attributed to equity income of $1,218,000 as a result of WBP Undeveloped Land ground parcel sales in 2002 and equity income of $217,000 from 1925K, in which we invested in June 2002.

General and Administrative Expense. General and administrative expense increased in 2002 by $1,325,000 over the prior year primarily due to a $1,000,000 performance bonus paid to the Company’s Co-Chairman in 2002, as well as an increase in professional fees.

Interest Expense

Interest expense increased in 2002 by $5,078,000 over the prior year as a result of mortgage loans placed on the Sudley North Buildings, the Washington Business Park Buildings and the Versar Center in 2002 and 2001.

Minority Interest . Minority interest expense deceased in 2002 by $803,000 compared to the prior year primarily due to the expiration of the GSA lease at the Waterfront Complex and the subsequent contribution of the Complex to an unconsolidated joint venture during 2002.

Other expenses. Other expenses during 2002 increased by $2,853,000 over the prior year. The increase can be attributed to an accrual established in 2002 for $1,620,000 associated with the removal of hazardous materials at the Waterfront Complex, an impairment allowance established in 2002 for $891,000 for both a write-down of our 50% share of Tech High Leasing and a write-down of three vacant properties that had previously been leased to convenience store operators, and a write-off in 2002 for $585,000 of cash advances made to a partnership during that year, of which collection was uncertain.

Funds From Operations

We consider Funds From Operations (“FFO”) to be a meaningful measure of our performance and we evaluate management based on FFO and FFO per share. We provide FFO as a supplemental measure for reviewing our comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance). FFO is a recognized metric used extensively by the real estate industry. Accounting for real estate assets using historical cost accounting under generally accepted accounting principles (“GAAP”) assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of real estate companies. As a result, the National Association of Real Estate Investment Trusts (“NAREIT”) created the concept of FFO as a standard supplemental measure of operating performance that excludes historical cost depreciation from – or “adds it back” to – GAAP net income.

While we are not a real estate investment trust (“REIT”), in light of the fact that we are a real estate company with large amounts of depreciable and amortizable real estate assets and we compete against REITS, we believe FFO to be a relevant measurement of our performance.

FFO as defined by the NAREIT is “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis”. Our FFO measure differs from NAREIT’S definition in that we exclude income tax expense related to property sales. The exclusion of income tax expense on property sales is consistent with the objective of presenting comparative period operating performance. FFO should not be considered an alternative to net income as an indicator of

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our operating performance, or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. Additionally, the FFO measure presented by us is not calculated in the same manner as FFO measures of other real estate companies and therefore may not necessarily be comparable. We believe that FFO provides relevant information about our operations and is useful, along with net income, for an understanding of our operating activities.

Our funds from operations were $9,753,000 in 2003, compared to $11,221,000 in 2002, a decrease of $1,468,000. The reduction is primarily the result of the GSA lease expiration and fewer home sales, partially offset by an increase in funds from operations from land sales as well as from properties acquired in 2003 and 2002.

Our funds from operations were $11,221,000 in 2002, compared to $13,864,000 in 2001, a decrease of $2,643,000. The decrease is primarily the result of the GSA lease expiration and from mortgage loans placed on properties in 2002, partially offset by properties acquired and investments made in joint ventures in 2002 and 2001.

The following table reflects the calculation of funds from operations (in thousands):

Liquidity and Capital Resources

Cash Flows

Our principal sources of cash are cash from our operations, our ability to obtain mortgage financing and additional financing through various financial markets, and asset dispositions. Our principal uses of cash are real estate acquisitions, investments in real estate joint ventures, funding working capital requirements and payments of debt, capital expenditures, operating costs and corporate expenses. With current cash and cash equivalents and investments that are principally short-term in nature, totaling $66,196,000 our sources of cash are sufficient to meet our liquidity needs; however we cannot be assured that our actual cash requirements will not be greater than we currently expect.

Operating Activities:

During 2003 net cash used in operating activities was $6,470,000. This primarily resulted from the purchase of the Clarksburg Ridge development parcel and the purchase of the Cigar Factory.

Investing Activities:

During 2003, net cash used in investing activities totaled $32,009,000. Cash used for investments primarily resulted from cash outflows of $72,157,000 primarily for the acquisition of: the Victoria Place and The Fountains apartment complexes; the 900 Northbrook commercial building and development parcel; and the 699 North Broad Street building.

These outflows were reduced by cash inflows totaling $40,148,000 primarily consisting of proceeds received from: the liquidation of a portion of our municipal bond investments; the sale of Maplewood Manor and The Commons; and distributions from joint ventures.

At December 31, 2003 we had made deposits totaling approximately $2,044,000 for the acquisition of properties (see Footnote 18 Subsequent Events, for discussion).

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Financing Activities:

With interest rates at historical lows, we used the favorable interest rate climate to help finance acquisitions.

During 2003, net cash generated by financing activities totaled $44,956,000. This primarily resulted from the placement of mortgage debt related to the acquisition of Victoria Place and the 900 Northbrook building, the placement of $6,000,000 of unsecured debt and partially offset by principal payments on mortgage debt.

Excess cash flow generated from our properties, from distributions from joint ventures and from proceeds of new mortgage loans placed on unencumbered properties and refinancing of existing debt, is typically invested in municipal bonds that are short-term in nature. These investments are then liquidated as needed for our real estate acquisitions and investments in joint ventures. At December 31, 2003, we had $52,635,000 of such investments.

Future Capital Requirements

Several current factors are positive with respect to our cash flow and capital requirements:

Unanticipated funding requirements could surface during 2004 or in the immediately ensuing years including:

Furthermore, pursuant to our $6,000,000 unsecured loan, we are required to maintain a minimum liquidity of $30,000,000.

Longer term our main challenge will be to refinance our existing fixed-rate debt at interest rates that will allow us to continue to maximize cash returns on our investments. At December 31, 2003 the weighted average interest rate on our fixed-rate mortgage debt was 6.4%. Based on the fixed-rate debt outstanding at December 31, 2003, a 100 basis point increase in the weighted average interest rate on our debt would increase our annual financing costs by approximately $1,700,000. Our fixed-rate mortgage debt begins to mature in 2007 (see annual contractual principal payments schedule in the footnotes to the financial statements).

Off-Balance Sheet Commitments

As of December 31, 2003, our off-balance sheet commitments were as follows:

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Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2003 (in thousands):

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in interest rates. Our market risk arises from interest rate risk inherent in our investment assets and our variable rate debt. Interest rate risk is the possibility that changes in interest rates will cause unfavorable changes in net income or in the value of interest rate-sensitive assets, liabilities and commitments.

We do not believe that we have any material exposures to adverse changes in interest rates associated with our investment assets. We invest in investment grade state and local government issues with short-term maturities and fixed rates of return. The short-term nature of the investments provides opportunities for reinvestment at higher interest rates, as those rates increase.

We have $7,606,000 of variable-rate development loans outstanding, that are subject to interest-rate sensitivity. In addition, we have an unsecured $6,000,000 variable-rate loan outstanding that matures in 2005, and a joint venture, in which we have an 85% non-controlling interest has a $20,187,000 variable-rate loan outstanding that matures in 2007. Based on the total variable-rate debt outstanding at December 31, 2003, a 100 basis point increase in market interest rates would impact our pre-tax earnings by approximately $308,000. Assuming the rate increase is not caused by an increase in credit spreads and that there is a proportionate 100 basis point increase in returns on our cash, cash equivalents and investments, our annual interest income would increase by approximately $662,000.

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Based upon requirements for assessing the market value of debt instruments, we estimate the fair market value by discounting future cash payments at interest rates that approximate the current market. Based on these parameters, at December 31, 2003, the carrying amount of our total fixed-rate debt was $169,536,000 compared to an estimated fair value of $176,603,000.

Item 8. Financial Statements and Supplementary Data

The financial statements are listed under Item 15 in this annual report and are included therein.

No supplementary data are supplied because none are required.

Item 9. Disagreements on Accounting and Financial Disclosure

On June 27, 2002, upon the recommendation of our Audit Committee, the Board of Directors dismissed Arthur Andersen LLP (Arthur Andersen) as our independent auditors and appointed Ernst & Young LLP (Ernst & Young) to serve as our independent auditors for the fiscal year ending on December 31, 2002.

Arthur Andersen’s reports on our consolidated financial statements for the fiscal years ended December 31, 2001 and 2000 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles.

During the fiscal years ended December 31, 2001 and 2000 and through the date of dismissal there were: (i) no disagreements with Arthur Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersen’s satisfaction, would have caused them to make reference to the subject matter in connection with their report on our consolidated financial statements for such periods; and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

During each of 2000 and 2001 and through the date of their appointment, we did not consult Ernst & Young with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or (ii) any matter that was either the subject of a disagreement, within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or any “reportable event,” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

Since the date of their appointment, there were: (i) no disagreements with Ernst & Young on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Ernst & Young’s satisfaction, would have caused them to make reference to the subject matter in connection with their report on our consolidated financial statements for the fiscal years ended December 31, 2003, 2002 and 2001; and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

PART III

Item 10. Directors and Executive Officers of the Company

The information required by this item will be incorporated by reference to a definitive proxy statement involving the election of directors, which is expected to be filed by us pursuant to Regulation 14A, within 120 days after the close of our fiscal year.

Item 11. Executive Compensation

The information required by this item will be incorporated by reference to a definitive proxy statement involving the election of directors, which is expected to be filed by us pursuant to Regulation 14A, within 120 days after the close of our fiscal year, except for the information contained under such definitive proxy statement under the captions “Board Compensation Committee Report on Executive Compensation” and “Performance Graph.”

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item will be incorporated by reference to a definitive proxy statement involving the election of directors, which is expected to be filed by the Company pursuant to Regulation 14A, within 120 days after the close of our fiscal year.

Item 13. Certain Relationships and Related Transactions

The information required by this item will be incorporated by reference to a definitive proxy statement involving the election of directors, which is expected to be filed by the Company pursuant to Regulation 14A, within 120 days after the close of our fiscal year.

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Item 14. Controls and Procedures

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of a date within 90 days of the filing date of this annual report, the evaluation date (“Evaluation Date”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in informing them of material information relating to the Company that is required to be included in our reports filed or submitted under the Exchange Act of 1934 (the “Exchange Act”). Since the Evaluation Date, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls.

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in such reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decision regarding required disclosure.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

A. FINANCIAL STATEMENTS

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 2003 and 2002

Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001

Notes to the Consolidated Financial Statements

Schedule III – Real estate and accumulated depreciation as of December 31, 2003

Schedule IV – Mortgage loans on real estate as of December 31, 2003

Schedules other than those listed above have been omitted because they are not required, not applicable, or the required information is set forth in the financial statements or notes thereto.

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B. Exhibits

C. Reports on Form 8-K

We filed one report on Form 8-K during the fourth quarter of 2003.

On December 9, 2003, we filed a Report on Form 8-K/A for the purpose of amending the Form 8-K filed on September 29, 2003 that provided certain information regarding our acquisition of the Fountains at Waterford Lakes.

Shareholders may obtain a copy of any financial statement schedules and any exhibits filed with Form 10-K by writing to: Mr. Darryl M. Edelstein, 11140 Rockville Pike, Suite 620, Rockville, MD 20852. Mr. Edelstein will advise shareholders of the fee for any exhibit.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 2004.

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 Company and in the capacities indicated on March 30, 2004.

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BRESLER & REINER, INC.

FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2003 and 2002

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Report of Independent Auditors

To the Shareholders of Bresler & Reiner, Inc.

We have audited the accompanying consolidated balance sheets of Bresler & Reiner, Inc. (a Delaware corporation, the Company) as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These consolidated financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bresler & Reiner Inc., at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related 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.

/s/ Ernst & Young LLP

McLean, Virginia

March 26, 2004

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Bresler & Reiner, Inc.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2003 AND 2002

See Notes to Consolidated Financial Statements

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