SUBJECT TO COMPLETION — DATED OCTOBER 14, 2005

                    , 2005

Merger Proposal — Your Vote Is Very Important

      Dear Common Shareholder:

      You are cordially invited to attend a special meeting of shareholders of Capital Automotive REIT, a Maryland real estate investment trust, to be held on                     ,                     , 2005 at            a.m. local time at the                     .

      On September 2, 2005, we entered into a merger agreement with Flag Fund V LLC, a Delaware limited liability company advised by DRA Advisors LLC, pursuant to which CA Acquisition REIT, a wholly-owned subsidiary of Flag Fund V, will merge with and into us and we will be the surviving REIT, with all of our common shares owned by Flag Fund V. If the merger is completed, our common shareholders will receive cash consideration of $38.75 per common share. The $38.75 share price represents a premium of approximately 8.6% compared to the average closing price of our common shares during the ten-day trading period prior to September 2, 2005, the date on which we entered into the merger agreement. On                     , 2005, the last trading day prior to the printing of the proxy statement that accompanies this letter, the closing price of our common shares on the Nasdaq National Market was $           per share. At the special meeting of shareholders, we will ask you to consider and vote on the approval of the merger agreement and the merger.

      An independent special committee formed by our board of trustees, together with its advisors, negotiated the $38.75 share price and other terms of the merger with Flag Fund V and its parent. The special committee consists of four members of the board of trustees who are not employees of, or otherwise affiliated with us, our affiliates, Flag Fund V or its affiliates.

      Upon the unanimous recommendation of the special committee, and after careful consideration, our board of trustees unanimously approved the merger agreement and the merger and determined that the merger is advisable, fair to and in the best interests of our company and our shareholders. Our board of trustees unanimously recommends that you vote “FOR” the proposal to approve the merger agreement and the merger.

      In arriving at its recommendation, our board of trustees gave careful consideration to a number of factors described in the accompanying proxy statement, including an opinion from Wachovia Capital Markets, LLC, the special committee’s financial advisor, that the $38.75 in cash per common share to be received by you pursuant to the merger agreement is fair, from a financial point of view, to you, as a holder of our common shares. A copy of the fairness opinion is attached as Annex B to the accompanying proxy statement.

      Your vote is important. The merger agreement and the merger must be approved by the affirmative vote of holders of at least a majority of our outstanding common shares that are entitled to vote at the special meeting. The completion of the merger is also subject to the satisfaction or waiver of customary closing conditions. More information about the merger is contained in the accompanying proxy statement. We encourage you to read the accompanying proxy statement in its entirety because it describes the terms of the proposed merger, the documents related to the merger and related transactions and provides specific information about the special meeting.

      Whether or not you plan to attend the special meeting, please sign, date and promptly return the proxy card in the enclosed prepaid return envelope, or, if you would prefer, follow the instructions on your proxy card for telephonic or Internet proxy authorization, as soon as possible. If your shares are held in an account at a brokerage firm or bank or by another nominee, you should instruct your broker, bank or other nominee how to vote by following the voting instruction form furnished by your broker, bank or other nominee. If you do not

vote or do not instruct your broker, bank or other nominee how to vote, it will have the same effect as voting against the approval of the merger agreement and the merger.

      If you sign, date and send us your proxy but do not indicate how you want to vote, your proxy will be voted “FOR” the approval of the merger agreement and the merger.

      On behalf of our board of trustees, we thank you for your continued support of our company and urge you to vote for the approval of the merger agreement and the merger.

      This proxy statement is dated                     , 2005 and is first being mailed to shareholders on or about                     , 2005.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held                     , 2005

      To the Common Shareholders of Capital Automotive REIT:

      A special meeting of the shareholders of Capital Automotive REIT, a Maryland real estate investment trust, will be held on                     ,                     , 2005, at            a.m., local time, at the                     , to consider and vote on the following proposals:

      1. To approve the Agreement and Plan of Merger, dated as of September 2, 2005, by and among Capital Automotive REIT, Flag Fund V LLC, CA Acquisition REIT, Capital Automotive L.P. and CALP Merger L.P., and to approve the merger; and

      2. To transact any other business that may properly come before the special meeting or any adjournment or postponement of the special meeting.

      Only holders of record of our common shares at the close of business on                     , 2005, the record date for the special meeting, may vote at the special meeting and any adjournments or postponements of the special meeting. In accordance with our declaration of trust, as amended, holders of our Series A preferred shares and Series B preferred shares are not entitled to notice of or to vote at the special meeting. Your vote is very important. Please submit your proxy or voting instructions as soon as possible to make sure that your shares are represented and voted at the special meeting, whether or not you plan to attend the special meeting.

      You may revoke a proxy at any time before it is voted. If you are the record holder of your common shares, you may revoke the proxy: (a) by filing with our corporate secretary a duly executed revocation of proxy; (b) by submitting a duly executed proxy with a later date to our corporate secretary; or (c) by appearing at the special meeting and voting in person. Attendance at the special meeting without voting will not itself revoke a proxy. If your shares are held in an account at a brokerage firm, bank or other nominee, you must contact your broker, bank or nominee to revoke your proxy.

      For more information about the special meeting, the proposed merger and the other transactions contemplated by the merger agreement, please review the accompanying proxy statement and the merger agreement attached to it as Annex A. If you have any questions or need special assistance, please call our proxy solicitor, Morrow & Co., Inc., at (800) 607-0088.

McLean, Virginia

                    , 2005

TABLE OF CONTENTS

	Capital Automotive REIT

	Capital Automotive L.P.

	Flag Fund V LLC

	DRA Advisors LLC

	CA Acquisition REIT

	CALP Merger L.P.

	Company Merger

	Partnership Merger

	Sequence of Transactions

	•	determined that it was advisable, fair to and in the best interests of our company and our shareholders for us to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement; and
	•	approved the merger agreement and the merger.

	•	vote to approve the merger agreement and the merger; and
	•	consider and act upon such other business that may properly come before the special meeting or any adjournment or postponement of the special meeting.

	•	in accordance with the terms of the original compensation awards, each outstanding option to purchase our common shares held by our trustees will be accelerated so that these options will be fully vested immediately prior to the consummation of the merger, and, at the time the merger is consummated,

		will be converted into the right to receive an amount in cash equal to the $38.75 per share merger consideration, less the exercise price for each common share underlying the option;
	•	our executive officers hold restricted shares as to which, in accordance with the terms of the original compensation awards, the restrictions will lapse and the restricted shares will vest in full immediately prior to the effective time of the merger, so that each restricted share will, at the completion of the merger, be converted into the right to receive the $38.75 per share merger consideration;
	•	our executive officers hold phantom shares and deferred restricted shares which will vest in full immediately prior to the completion of the merger and, therefore, will be considered outstanding common shares entitled to receive the $38.75 per share merger consideration for each phantom share or deferred restricted share;
	•	our executive officers will receive, as a result of the merger, change of control benefits consisting of lump sum cash payments and the continuation of medical benefits, as provided for under their existing employment agreements with us;
	•	our executive officers have agreed, conditioned upon the completion of the merger, to enter into new employment agreements with the surviving partnership or a management entity providing for employment with the surviving partnership or such management entity following the completion of the merger;
	•	certain of our executive officers are involved in negotiations with Flag Fund V with respect to the executives making an equity investment in the surviving partnership that would entitle them to receive their share of partnership profits distributed to all unit holders of the surviving partnership and, in addition, if the return to all unit holders exceeds a specified percentage, a preferential return;
	•	certain of our trustees will be entitled to receive payment of their interests in our deferred compensation plan for trustees, upon termination as a trustee which is expected to occur as a result of the merger;
	•	our trustees and officers will continue to be indemnified for six years after the completion of the merger and will have the benefit of directors’ and officers’ liability insurance for six years after completion of the merger; and
	•	our trustees who own common units of limited partnership in our operating partnership will, as a result of the merger, have the right to receive either $38.75 per common unit or a membership interest in a newly formed limited liability company that will be an affiliate of Flag Fund V and will own as its sole asset after the partnership merger a common limited partnership interest in the surviving partnership.

	Conditions to the Merger (page 44)

	•	approval of the merger agreement and the merger by our common shareholders;
	•	receipt of a legal opinion regarding our qualification as a REIT for federal income tax purposes;
	•	continued accuracy of the respective representations and warranties and compliance with the covenants made by us and Flag Fund V in the merger agreement;
	•	there has been no event, change or occurrence that has had a material adverse effect on our company; and
	•	other customary closing conditions.

	•	the requirement that our common shareholders approve the merger agreement and the merger; or
	•	any court order or law preventing the closing of the merger.

	Termination of the Merger Agreement (page 47)

	•	the required approval by our common shareholders has not been obtained at the special meeting;
	•	any order, decree, ruling or other action of a governmental entity permanently restraining, enjoining or otherwise prohibiting the merger has become final and non-appealable; or
	•	the merger has not been completed by February 3, 2006, provided, however, that in the event that, on or before December 26, 2005, this proxy statement has not been cleared by the SEC for dissemination, the February 3, 2006 date may be extended by either Flag Fund V or us through a date on or before March 31, 2006; provided further, however, that in such event the closing of the merger will not occur prior to March 15, 2006 unless the parties otherwise agree (we sometimes refer to the February 3, 2006 date or the extension date, as applicable, as the “final closing date”).

	•	we have breached or failed to perform in any material respect any of our representations, warranties or covenants contained in the merger agreement, which would lead to the failure of a condition to the completion of the merger that is incapable of being cured prior to the final closing date;
	•	Flag Fund V has not, as of the closing of the merger, received a legal opinion from our tax counsel regarding our qualification as a REIT for federal income tax purposes; or

	•	our board of trustees fails to recommend in this proxy statement that our common shareholders approve the merger agreement and the merger, withdraws or modifies its recommendation of the merger agreement and the merger, or recommends that shareholders accept or approve a third-party acquisition proposal.

	•	Flag Fund V has breached or failed to perform in any material respect any of its representations, warranties or covenants contained in the merger agreement, which would lead to the failure of a condition to the completion of the merger that is incapable of being cured prior to the applicable final closing date; or
	•	we enter into a definitive agreement to effect a superior proposal with a third party, provided that we have given Flag Fund V at least three business days’ prior written notice and we pay Flag Fund V the termination fee described below under “— Termination Fee and Expenses.”

	Termination Fee and Expenses (page 48)

A:	You are being asked to:

	•	approve the Agreement and Plan of Merger, dated as of September 2, 2005, by and among Capital Automotive REIT, Flag Fund V LLC, CA Acquisition REIT, Capital Automotive L.P. and CALP Merger L.P., and approve the merger; and
	•	transact any other business that may properly come before the special meeting or any adjournment or postponement of the special meeting.

A:

The proposed merger is the acquisition of all of our common shares by Flag Fund V pursuant to the merger agreement you are being asked to approve. Once the merger agreement and the merger have been approved by our common shareholders and the other closing conditions under the merger agreement have been satisfied or waived, CA Acquisition REIT will merge with and into us. We will be the surviving REIT in the merger and all of our issued and outstanding common shares will be owned by Flag Fund V. For additional information about the merger, please review the merger agreement attached to this proxy statement as Annex A. We encourage you to read the merger agreement carefully and in its entirety. It is the principal document governing the merger.

A:	Our common shareholders will receive cash consideration for each outstanding common share of $38.75, without interest, less any required withholding for taxes.

A:	The special meeting of shareholders will take place on                     ,                     , 2005, at                      a.m. local time, at the                     .

A:

All holders of record of our common shares as of the close of business on                     , 2005, the record date for the special meeting, are entitled to receive notice of and to attend and vote at the special meeting, or any postponement or adjournment thereof. In accordance with our declaration of trust, as amended, holders of our Series A preferred shares and Series B preferred shares are not entitled to notice of or to vote at the special meeting.

A:

Approval of the merger requires the affirmative vote of at least a majority of our outstanding common shares that are entitled to vote at the special meeting. We urge you to complete, execute and return the enclosed proxy card, or follow the instructions on your proxy card for telephonic or Internet proxy authorization, to assure the representation of your shares at the special meeting. The merger does not require the approval of the holders of units of limited partnership interest of Capital Automotive L.P., our operating partnership (other than from us in our capacity as general partner and limited partner of the operating partnership), or the approval of any holders of our preferred shares.

Q:	Besides the vote of our shareholders, what are the other conditions to the completion of the merger?

A:

The merger agreement provides for a number of other conditions to the completion of the merger, and these conditions are described in this proxy statement under “The Merger Agreement — Conditions to the Merger.” These conditions include, among other things, the absence of a material adverse change to our company, the correctness and accuracy, as of the closing of the merger, of both parties’ representations and warranties contained in the merger agreement, and the receipt by Flag Fund V of an opinion, dated as of the closing of the merger, from our tax counsel relating to our qualification as a REIT.

Q:	How does our board of trustees recommend that I vote?

A:	Our board of trustees unanimously recommends that our shareholders vote “FOR” the proposal to approve the merger agreement and the merger.

Q:	Why is our board of trustees recommending that I vote in favor of the proposal to approve the merger agreement and the merger?

A:

Upon the unanimous recommendation of the special committee of our board of trustees, consisting of four of our independent trustees, none of whom is an employee of, or otherwise affiliated with us, our affiliates, Flag Fund V or its affiliates, and after careful consideration, our board of trustees unanimously approved the merger agreement and the merger, and unanimously determined that the merger is advisable, fair to and in the best interests of our company and our shareholders. In reaching its decision to approve the merger agreement and the merger and to recommend the approval of the merger agreement and the merger by our shareholders, our board of trustees consulted with the special committee and management, as well as with our, and the special committee’s, legal and financial advisors, and considered the terms of the proposed merger agreement and the transactions contemplated by the merger agreement. Our board of trustees also considered each of the items set forth on pages 23 through 25 under “Approval of the Merger Agreement and the Merger — Factors Considered by Our Board of Trustees and Reasons for the Merger.”

Q:	Why was the special committee of our board of trustees appointed?

A:

Certain of our trustees and executive officers have interests in the merger and the other transactions contemplated by the merger agreement that differ from those of our other shareholders. In order to limit or eliminate any possible effect that those potential conflicts of interest might have in connection with the evaluation by our board of trustees and management of the merger and the related transactions, our board of trustees appointed a special committee, consisting of four of our independent trustees, none of whom is an employee of, or otherwise affiliated with us, our affiliates, Flag Fund V or its affiliates, to review and

	evaluate the proposed merger and the related transactions. For more information about the interests of our trustees and executive officers, you should read “Approval of the Merger Agreement and the Merger — Interests of Our Trustees and Executive Officers in the Merger” on page 31.

Q:	How do I cast my vote?

A:

If you were a holder of record of our common shares on                     , 2005, you may vote in person at the special meeting or submit a proxy for the special meeting. You can submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed, postage paid envelope or, if you would prefer, follow the instructions on your proxy card for telephonic or Internet proxy authorization.

Q:	How do I cast my vote if my common shares are held of record in “street name” by my bank, broker or another nominee?

A:

If your shares are held of record by a broker, bank or other nominee, which is often referred to as holding your shares in “street name,” you must obtain a proxy form from the broker, bank or other nominee that is the record holder of your shares and provide the record holder of your shares with instructions on how to vote your shares in accordance with the voting directions provided by your broker, bank or nominee. If you do not provide the record holder of your shares with instructions on how to vote your shares, the record holder generally will not be permitted to vote your shares. The inability of your record holder to vote your shares, often referred to as a “broker non-vote,” will have the same effect as a vote against the approval of the merger agreement and the merger. If your shares are held in “street name,” please refer to the voting instruction card used by your broker, bank or other nominee, or contact them directly, to see if you may submit voting instructions using the Internet or telephone.

Q:	What will happen if I abstain from voting or fail to vote?

A:	If you abstain from voting, fail to cast your vote in person or by proxy or fail to give voting instructions to the record holder of your shares, it will have the same effect as a vote against approval of the merger agreement and the merger.

Q:	Can I change my vote after I have delivered my proxy?

A:

Yes. If you are a record holder, you can change your vote at any time before your proxy is voted at the special meeting by delivering a later-dated, signed proxy card to our corporate secretary, by authorizing a subsequent proxy telephonically or over the Internet, or by attending the special meeting in person and voting. You also may revoke your proxy by delivering a notice of revocation to our corporate secretary prior to the vote at the special meeting. If your shares are held in street name, you must contact your broker, bank or nominee to determine how to revoke your proxy. In general, submitting a subsequent proxy executed by the party that executed the original proxy will revoke the earlier proxy.

Q:	What should I do if I receive more than one set of voting materials?

A:

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive. You may also follow the instructions on the proxy cards for telephonic or Internet proxy authorization for each proxy card that you receive.

Q:	Does Capital Automotive expect to continue to pay regular quarterly dividends on its common shares?

A:

Yes, we will continue to declare and pay regular quarterly dividends to holders of record of our common shares for each full fiscal quarter ending prior to the closing of the merger. There will be no pro rated dividend paid for the quarter in which the closing occurs. If the closing occurs prior to February 7, 2006, which is our previously scheduled record date for the fourth quarter of 2005, you will not receive a dividend for the fourth quarter of 2005. If the closing occurs on or after February 7, 2006, you will receive a dividend for the fourth quarter of 2005. We currently expect that the closing will occur promptly following the special meeting, on or about                     , 2005, in which case you will not receive a dividend for the fourth quarter of 2005.

Q:	Do common or preferred shareholders who object to the merger have dissenters’ rights or appraisal rights with respect to the merger?

A:	No. We are organized as a REIT under Maryland law. Under Maryland law, because our common shares and preferred shares are quoted on the Nasdaq National Market and our preferred shares are not entitled to vote on the merger, holders of our common shares and preferred shares who object to the merger do not have any appraisal rights or dissenters’ rights in connection with the merger.

A:	Generally, yes. The receipt of the merger consideration in cash for each of our common shares pursuant to the merger will be a taxable transaction for United States federal income tax purposes. Generally for United States federal income tax purposes, you will recognize gain or loss as a result of the merger measured by the difference, if any, between the merger consideration per share and your adjusted tax basis in that share.
	You should read “Approval of the Merger Agreement and the Merger — Material United States Federal Income Tax Consequences” on page 36 for a more complete discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated, and the tax consequences of the merger to you will depend on your particular tax situation. We urge you to consult your tax advisor regarding the tax consequences of the merger to you.

A:	No. Promptly after the merger is completed, each holder of record of our common shares at the effective time of the merger will be sent written instructions for exchanging your share certificates for the $38.75 per share merger consideration payable to you. These instructions will tell you how and where to send in your certificates in return for the merger consideration.

A:	We are working to complete the merger as quickly as possible. We currently expect to complete the merger on or about                     , 2005. However, we cannot predict the exact timing of the merger because the merger is subject to specified closing conditions. See “The Merger Agreement — Conditions to the Merger.”

A:	If you have any questions about the proposals or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card, you should contact:

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

      This proxy statement contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “intend,” “anticipate,” “expect,” “believe,” “will,” “may,” “should,” “would,” and similar expressions are intended to identify forward-looking statements. These statements are based on the current expectations and beliefs of our management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These statements are not guarantees of future performance, involve certain risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. Therefore, actual outcomes and results may differ materially from what is expressed in a forward-looking statement.

      In any forward-looking statement in which we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement or expectation or belief will result or be achieved or accomplished. Risks and uncertainties pertaining to the following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:

      Many of these and other important factors are detailed in this proxy statement or in various SEC filings made periodically by us, particularly our most recent report on Form 10-K and subsequent reports on Form 10-Q as well as our Current Report on Form 8-K/ A filed on March 11, 2005, copies of which are available from us without charge or online at http://www.capitalautomotive.com. Please review this proxy statement and these filings and do not place undue reliance on these forward-looking statements.

      You should consider the cautionary statements contained or referred to in this section in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We do not undertake any obligation to release publicly any revisions to any forward-looking statements contained in this proxy statement to reflect events or circumstances that occur after the date of this proxy statement or to reflect the occurrence of unanticipated events.

THE SPECIAL MEETING

      We are furnishing this proxy statement to our shareholders as part of the solicitation of proxies by our board of trustees in connection with the special meeting of our shareholders.

Date, Time and Place

      We will hold the special meeting on                     ,                     , 2005, at           a.m., local time, at the                     .

Purpose of the Special Meeting

      At the special meeting, we are asking holders of record of our common shares to consider and vote on the following proposals:

Recommendation of Our Board of Trustees

      Upon the unanimous recommendation of the special committee of our board of trustees, consisting of four of our independent trustees, none of whom is an employee of, or otherwise affiliated with us, our affiliates, Flag Fund V or its affiliates, our board of trustees has unanimously determined that it is advisable, fair to and in the best interests of our company and our shareholders for our company to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement.

      Our board of trustees unanimously recommends that our shareholders vote “FOR” the approval of the merger agreement and the merger.

Record Date; Shareholders Entitled to Vote; Quorum

      Only holders of record of our common shares at the close of business on                     , 2005, the record date, are entitled to notice of and to vote at the special meeting. In accordance with our declaration of trust, as amended, holders of our Series A preferred shares and Series B preferred shares are not entitled to notice of or to vote at the special meeting. On the record date,                     of our common shares were issued and outstanding and held by                     holders of record. Holders of record of our common shares on the record date are entitled to one vote per share on any proposal at the special meeting.

      A quorum is necessary to hold a valid special meeting. A quorum will be present if the holders of a majority of our common shares are present at the special meeting, either in person or by proxy. If a quorum is not present, a vote cannot occur. In deciding whether a quorum is present, abstentions and any broker non-votes will be counted as shares that are represented at the special meeting.

Vote Required for Approval of the Merger Agreement and the Merger

      The approval of the merger agreement and the merger by our shareholders requires the affirmative vote of the holders of a majority of our outstanding common shares that are entitled to vote at the special meeting. Because the vote is based on the number of shares outstanding rather than the number of votes cast, a failure to vote your shares, an abstention and a broker non-vote each will have the same effect as voting against the approval of the merger agreement and the merger.

Partnership Merger Vote Requirement

      Our consent, as the general partner of our operating partnership, and the consent of the holders of two-thirds of the outstanding common units of limited partnership interest in our operating partnership, is required to approve the partnership merger. Since we hold, and expect to hold as of the date of the vote to approve the partnership merger, 100% of the general partnership interests in our operating partnership and more than two-thirds of the outstanding common units of limited partnership interest in our operating partnership, the partnership merger will be approved if we approve it, without the need for any other holder of common units of limited partnership interest to approve the partnership merger. Provided we do not accept a superior proposal, we have indicated to Flag Fund V that we intend to vote our common units of limited partnership interest in our operating partnership FOR the approval of the partnership merger.

Voting; Proxies

      At the special meeting, you may vote by proxy or, if you are the record holder of your shares, in person.

     Voting in Person

      If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held on your behalf by a broker, bank or other nominee as record holder (often referred to as being held in “street name”) and you wish to vote at the special meeting, you must contact your broker, bank or other nominee to vote your proxy.

     Voting by Proxy

      All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the shareholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted FOR the approval of the merger agreement and the merger.

      Only shares affirmatively voted for the approval of the merger agreement and the merger and properly executed proxies that do not contain voting instructions will be counted as favorable votes for the merger proposal. Common shares held by persons attending the special meeting but not voting, and common shares for which we received proxies but with respect to which holders of those shares have abstained from voting or failed to provide instructions to their brokers resulting in a broker non-vote, will have the same effect as votes against the approval of the merger agreement and the merger.

Adjournments; Other Business

      Adjournments of the special meeting may be made for the purpose of, among other things, soliciting additional proxies. An adjournment may be made from time to time by approval of the holders of shares representing a majority of the votes present in person or by proxy at the special meeting, whether or not a quorum exists, without further notice other than by an announcement made at the special meeting of the date, time and place at which the meeting will be reconvened. If the adjournment is to a date more than 120 days from the initially established record date for the special meeting, or if after the adjournment a new record date is fixed by our board of trustees for the adjourned meeting, a notice of the adjourned meeting will be given to each shareholder of record on the new record date and entitled to vote at the meeting. We do not currently intend to seek an adjournment of the special meeting.

      We do not expect that any matter other than the proposal to approve the merger agreement and the merger will be brought before the special meeting. If, however, other matters are properly presented at the special meeting, the persons named as proxies will vote in accordance with their discretion with respect to those matters.

Revocation of Proxies

      Submitting a proxy on the enclosed form does not preclude a shareholder of record from voting in person at the special meeting. A shareholder of record may revoke a proxy at any time before it is voted by filing with our corporate secretary a duly executed revocation of proxy, by submitting a duly executed proxy to our corporate secretary with a later date or by appearing at the special meeting and voting in person. A shareholder of record may revoke a proxy by any of these methods, regardless of the method used to deliver the shareholder’s previous proxy. Attendance at the special meeting without voting will not itself revoke a proxy. If your shares are held in street name, you must contact your broker, bank or other nominee to revoke your proxy.

Solicitation of Proxies

      We are soliciting proxies for the special meeting from our shareholders. We will bear the entire cost of soliciting proxies from our shareholders. We will pay approximately [$                    ] (plus reimbursement of out-of-pocket expenses) to Morrow & Co., Inc., our proxy solicitor. In addition to the solicitation of proxies by mail, we will request that banks, brokers and other record holders send proxies and proxy materials to the beneficial owners of our common shares held by them and secure their voting instructions if necessary. We will reimburse those record holders for their reasonable expenses in so doing. Some of our regular employees or trustees, who will not be specially compensated, may solicit proxies from our shareholders, either personally or by telephone, Internet, telegram, facsimile or special delivery letter.

Dissenters’ Rights

      We are organized as a REIT under Maryland law. Under Maryland law, because our common shares and preferred shares are quoted on the Nasdaq National Market and our preferred shares are not entitled to vote on the merger, holders of our common shares and preferred shares who object to the merger do not have any appraisal rights or dissenters’ rights in connection with the merger.

Assistance

      If you need assistance in completing your proxy card or authorizing your proxy telephonically or over the Internet, or if you have questions regarding our special meeting, please contact:

      or

APPROVAL OF THE MERGER AGREEMENT

AND THE MERGER

      The following is a description of the material aspects of the merger. While we believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this proxy statement, including the merger agreement attached as Annex A, for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement.

General Description of the Merger

      Under the merger agreement, CA Acquisition REIT will merge with and into us and we will be the surviving REIT, with all of our common shares owned by Flag Fund V. Pursuant to the merger agreement, each of our outstanding common shares, par value $0.01 per share (other than shares owned by Flag Fund V and its subsidiaries, which will be cancelled, and which we collectively refer to as the “unconverted shares”), will be converted into the right to receive cash consideration of $38.75, without interest, less any required withholding for taxes (we sometimes refer in this proxy statement to the aggregate consideration to be received by our common shareholders as the “merger consideration”). Our existing Series A preferred shares and Series B preferred shares will remain issued and outstanding as preferred shares of the surviving REIT. The surviving REIT will continue to pay the required quarterly dividends on our preferred shares. However, in a letter to us, Flag Fund V has indicated that it intends to offer to purchase our Series A preferred shares and Series B preferred shares for cash, at par, effective upon the completion of the merger or within a reasonable time thereafter, subject to, among other things, its ability to obtain sufficient funds to purchase the preferred shares.

      All outstanding unvested options to purchase our common shares will be accelerated so that these options will be fully vested prior to the consummation of the merger. Upon consummation of the merger, all unexercised options to purchase our common shares will be cancelled and converted into the right to receive the merger consideration in cash, less the exercise price for each common share underlying the options.

      All outstanding restricted shares, phantom shares and deferred restricted shares will vest in full immediately prior to the effective time of the merger and will be considered for all purposes of the merger agreement to be outstanding common shares that will receive the same per share merger consideration as our other common shares.

Background of the Merger

      The chronology of events and actions of our board of trustees, the special committee and management leading to the proposed merger is outlined below. Each meeting of our board of trustees or the special committee, as the case may be, was attended by at least a majority of our trustees or a majority of our trustees who are members of the special committee. Certain of our board of trustees or special committee meetings were also attended by our key executive officers and our and the special committee’s outside advisors, including Wachovia Securities and legal counsel.

      In pursuing its objective of enhancing shareholder value, our board of trustees has from time to time considered opportunities for a variety of transactions involving our company, including business combinations and other strategic transactions. Over the course of the past several years, our company has had informal discussions with various parties for the purpose of exploring their potential interest in, and the feasibility of, a strategic business combination or other strategic transaction with the objective of enhancing shareholder value. In addition, our board of trustees and management have considered diversification of our business lines and asset type. However, our board of trustees and management determined that diversification was not in our company’s or our shareholders’ best interests because, among other factors, diversification was counter to management’s expertise and our strategic objectives and would likely not enhance shareholder value.

      During a meeting of our board of trustees on July 27, 2004, a financial advisor to our company made a presentation to our board of trustees during which it discussed the benefits and risks of pursuing a strategic

transaction or diversifying our business lines and asset type and recommending, among other items, that the company market itself to a limited target list of potential buyers. Our board subsequently instructed our management to investigate these potential strategic transactions.

      From 2003 through February 2005, our management had informal discussions with five entities, including a commercial finance company, a pension fund and a public REIT, regarding potential strategic transactions. For various reasons primarily associated with the size of our company and the specialty nature of our assets, none of the entities was interested in pursuing a strategic transaction with us.

      During March and April 2005, our management had discussions with DRA Advisors and a public REIT which together were considering a joint venture to acquire our company. During that time, our management also had discussions with two public net-lease REITs about a non-cash merger. Our management determined that a merger with either of these companies would be dilutive to our shareholder value, in that the companies were in separate and distinct asset classes from our company and were trading at lower multiples than our company or lacked sufficient financial resources to engage in a transaction with us, and therefore did not further pursue these alternatives. Discussions with DRA Advisors and its proposed joint venture partner continued.

      On May 9, 2005, Thomas D. Eckert, our president and chief executive officer, received a call from DRA Advisors’ potential joint venture partner explaining that it had completed its investment committee process and determined not to move forward with an offer because its preliminary analysis was that a joint venture would not generate sufficient returns for its investors.

      On May 10, 2005, during our board of trustees annual meeting, Mr. Eckert informed our board of the discussions with DRA Advisors and its potential joint venture partner. Our board of trustees considered various factors relating to whether a merger or other sale of our company was advisable, including the near and long term value of our company, increased competition and rising interest rates. At this meeting, our board of trustees determined that it should consider bona fide proposals to acquire our company and, to avoid any issues of independence in evaluating a proposed transaction, the board resolved to form a special committee of our board of trustees that would consist of trustees who were neither part of our management nor holders of units of limited partnership interest in our operating partnership. The board then appointed Paul M. Higbee, William E. Hoglund, David B. Kay and R. Michael McCullough as the members of the special committee, to evaluate and investigate bona fide offers, negotiate with any prospective purchaser and do whatever else is necessary or appropriate to act in our shareholders’ best interests.

      On May 19, 2005, Mr. Eckert sent to our board of trustees a memorandum summarizing discussions that our management had with David Luski, executive vice president, and Brian Summers, chief financial officer, of DRA Advisors on May 18, 2005. Mr. Eckert informed our board of trustees that DRA Advisors was interested in acquiring not only our existing portfolio but that any offer would be expressly contingent upon our management and other key personnel committing to remain with the surviving REIT for an extended period of time in order to manage and continue to grow the portfolio.

      On June 9, 2005, Mr. Eckert and David S. Kay, our senior vice president and chief financial officer (no relation to David B. Kay), met with Messrs. Luski and Summers of DRA Advisors in New York to discuss a potential merger transaction. Later that same day, DRA Advisors submitted an offer (in the form of a non-binding term sheet) to acquire all of our outstanding common shares of beneficial interest at a price of $38.00 per share. On June 10, 2005, Mr. Eckert forwarded that offer to the special committee for their evaluation. Our management informed DRA Advisors that a special committee had been formed and was evaluating the offer.

      On June 13, 2005, the special committee held its first meeting during which it discussed the need for the special committee to hire a financial advisor and to potentially hire counsel independent of management and our company.

      On June 15, 2005, the special committee held a meeting during which it discussed with Latham & Watkins LLP its role as legal counsel to our company and the importance of the special committee engaging independent counsel.

      On June 16, 2005, Mr. Higbee, on behalf of the special committee, contacted Venable LLP and engaged Venable to act as independent special legal counsel to the special committee. Between June 16, 2005 and June 22, 2005, members of our management, Mr. Higbee, Latham & Watkins and Venable had discussions regarding the DRA Advisors offer and the process to be followed in evaluating and considering the DRA Advisors offer.

      On June 22, 2005, the special committee held a meeting during which it discussed DRA Advisors’ offer, the respective roles of legal counsel in assisting our company and the special committee and the engagement of a financial advisor.

      On each of June 27, 2005 and June 28, 2005, the special committee held a meeting during which it considered several potential financial advisors, including a financial advisor recommended by our management. Although not the financial advisor recommended by our management, the special committee determined to engage Wachovia Securities as its financial advisor based on its experience in the market, reputation and the fact that Wachovia Securities did not have a substantial prior business relationship with our company or our management. In considering potential financial advisors, the special committee considered but determined not to engage two financial advisors solely because of their significant prior business relationship with our company and our management.

      Commencing on June 28, 2005, Mr. Higbee and Venable, with assistance from our management and Latham & Watkins and after consultation with the other members of the special committee, had discussions with Wachovia Securities regarding its representation of the special committee and the scope of its engagement. Wachovia Securities was engaged on June 30, 2005 to assist the special committee in reviewing and evaluating the various strategic alternatives available to our company and, in connection with such review, to perform valuation analyses with respect to our company.

      On July 7, 2005, the special committee held a meeting during which the independence of and standard of conduct applicable to the special committee members were considered. At the meeting, Mr. Higbee was appointed chair of the special committee. In addition, Mr. Eckert, at the request of the special committee, participated in a portion of the meeting and gave a presentation to the special committee regarding his view on whether our company should consider a change of control transaction. Mr. Eckert summarized the reasons supporting the pursuit of a change of control transaction, including that the REIT market was experiencing historically high multiples of funds from operations and dividend yields were extremely low by historical measures. Additionally, the emergence of increased competition and the resulting lower investment yields, combined with rising interest rates, created significantly more potential down-side risk for our shareholders in the foreseeable future. Overall, Mr. Eckert asserted that he believed our share price was high in correlation to our peers, and our net asset value and our share price could be significantly lower in the near term if interest rates were to increase.

      On July 12, 2005, the special committee held a meeting. Wachovia Securities reviewed the strategic alternatives available to our company and discussed its preliminary valuation analyses of the company. Wachovia Securities also provided a list of other potential bidders, which included a cross-section of pension funds, pension fund advisors, commingled/closed-end funds and buyout funds as well as potential strategic bidders, consisting primarily of other REITs. The special committee directed Wachovia Securities to contact potential bidders and to simultaneously pursue negotiations with DRA Advisors regarding its proposal.

      Following the July 12, 2005 meeting of the special committee, Wachovia Securities and our management contacted DRA Advisors and stated that the special committee had determined to pursue negotiations regarding the sale of our company and had directed management and Wachovia Securities to lead the negotiations on its behalf.

      On July 15, 2005, Blank Rome LLP, legal counsel to DRA Advisors, sent a draft merger agreement to Latham & Watkins.

      Between July 18, 2005 and July 20, 2005, management, Wachovia Securities, Latham & Watkins and Venable had numerous discussions regarding the proposed merger agreement and, on July 20, 2005, a revised draft of the merger agreement which included aggregate comments was sent to Blank Rome. Open issues in

the merger agreement included, among others, the price, the structure of the merger with regard to our operating partnership, the level of representations being made by our company, the need for DRA Advisors to have its financing guaranteed, the conduct of business between execution of the merger agreement and closing, and the degree to which our board of trustees could consider alternative proposals to the merger with DRA Advisors after execution of the merger agreement. This draft of the merger agreement was provided to the special committee on July 21, 2005.

      During July 2005 and while the negotiations with DRA Advisors were proceeding, Wachovia Securities contacted seven potential bidders previously identified to the special committee. Five of the seven parties contacted expressed no interest in moving forward with a transaction, citing valuation concerns, a lack of available capital to engage in an acquisition of our size and the specialty nature of our assets. We provided publicly available information to a sixth bidder, which ultimately decided not to proceed in view of our existing share price and the size of the required financial commitment to a specialty sector.

      On July 19, 2005, the seventh potential bidder entered into a confidentiality agreement with our company and commenced due diligence. On July 26, 2005, this bidder informed Wachovia Securities that our recent share trading ranges were too high in its view, and that it was not willing to pursue a transaction.

      Between July 20, 2005 and July 27, 2005, Wachovia Securities, Latham & Watkins and our management had numerous negotiations with DRA Advisors and its counsel regarding various aspects of the merger agreement and proposed merger. The special committee and Venable were provided with status updates and consulted with on aspects of the negotiations by our management.

      On July 26, 2005, our board of trustees held a meeting. During the meeting, Wachovia Securities presented to the entire board the materials it previously presented to the special committee on July 12, 2005. In addition, our board of trustees, at the request of the special committee, adopted resolutions further clarifying the scope of authority of the committee.

      On July 27, 2005, Blank Rome circulated a revised draft of the merger agreement.

      On August 1, 2005, the special committee held a meeting. During the meeting, Wachovia Securities updated the special committee on the results of its contacts with potential bidders, other than DRA Advisors, and its views on whether other potential bidders existed. After discussion, the special committee determined that the risks associated with contacting a broader group of potential bidders, including the associated risk that DRA Advisors might withdraw its offer, outweighed the potential benefit that an alternative bidder would emerge. During this meeting, Wachovia Securities also updated the special committee as to the status of negotiations with DRA Advisors. Legal counsel advised the special committee that any employment arrangement between our management and DRA Advisors should be fully negotiated prior to our company entering into a merger agreement with DRA Advisors, so that the special committee could fully evaluate all components of the transaction before deciding how to proceed.

      On August 3, 2005, a revised draft of the merger agreement was sent to DRA Advisors and its counsel including comments from management, Latham & Watkins, Venable and Wachovia Securities. Issues related to the structure of the merger of our operating partnership, pricing, the termination provisions (including the breakup fee and expense reimbursement, and the circumstances under which such amounts would be payable) and certain other items remained outstanding.

      Between August 3, 2005 and August 10, 2005, negotiations continued with DRA Advisors.

      On August 10, 2005, Mr. Higbee, in his role as chair of the special committee, Wachovia Securities and Venable engaged in discussions regarding the status of negotiations with DRA Advisors and negotiation strategy.

      Between August 11, 2005 and August 19, 2005, management, Wachovia Securities, Latham & Watkins and Venable engaged in discussions regarding open issues in the merger agreement and revised drafts of the merger agreement were circulated, including to the special committee.

      Throughout the second half of August 2005, our management, along with their advisors, negotiated new forms of employment agreements with DRA Advisors providing terms of employment with the surviving partnership or a management entity following the merger.

      Also in late August 2005, John J. Pohanka, one of our trustees and a significant holder of units of limited partnership interest in our operating partnership, met with DRA Advisors in New York to discuss the form of consideration to be offered to the holders of units in our operating partnership. In addition, representatives of DRA Advisors met with Robert M. Rosenthal, another trustee and significant unit holder of the company, in Nantucket to discuss the same. In addition, David S. Kay and John M. Weaver, our senior vice president, general counsel and secretary, met with Mr. Summers and Jean Marie Apruzzese of DRA Advisors to continue the negotiation of the employment agreements to be entered into by our management as a condition of their employment following the merger.

      On August 29, 2005, our management provided the special committee a summary of the proposed compensation to be received by our management from DRA Advisors following the merger as well as the change of control payments to our management arising under their current employment agreements as a result of the merger. On August 31, 2005, our management provided the special committee with a form of employment agreement to be entered into by Messrs. Eckert, Kay, Weaver and Ferriero and Ms. Clements in connection with their continued employment following the merger.

      On August 30, 2005, Mr. Higbee, Wachovia Securities and Venable discussed the status of price negotiations with DRA Advisors. Wachovia Securities explained that price discussions had been ongoing for several weeks, but that a final agreement had not yet been reached. Wachovia Securities further explained that DRA Advisors had recently indicated to our management that $38.50 per share was the highest price it could pay. Mr. Higbee instructed Wachovia Securities to contact DRA Advisors regarding the possibility of increasing its offer price.

      From August 30, 2005 through September 1, 2005, Wachovia Securities and Messrs. Eckert and Kay engaged in discussions with DRA Advisors regarding the offer price. Wachovia Securities also reviewed DRA Advisors’ expected acquisition financing terms as a means of assessing the ability of DRA Advisors to raise its offer price. As a result of these discussions, DRA Advisors increased its offer price to $38.75 per share. Concurrently with these discussions, legal counsel to the company and DRA Advisors discussed the remaining open issues in the merger agreement, including the termination provisions. Based on these discussions, DRA Advisors agreed, among other things, to reduce the expense reimbursement payable if the merger agreement is terminated under specified circumstances from a maximum amount of $10.0 million to $7.5 million (or $5.0 million if the termination results from shareholder approval not being obtained at the special meeting).

      On September 2, 2005, the special committee held a meeting to consider the merger. In advance of the meeting, each member of the special committee received a copy of the merger agreement and related documents. At the meeting, Venable reviewed the terms of the proposed merger agreement and our board’s standard of conduct under Maryland law. During the meeting, Wachovia Securities presented its financial analysis of the merger to the special committee. Wachovia Securities rendered an oral opinion to the committee (and subsequently to our board of trustees), later confirmed in writing, that as of that date and based upon and subject to various considerations and assumptions described in the written opinion, the consideration to be received by the holders of our common shares pursuant to the merger agreement was fair from a financial point of view to such holders. Mr. Eckert, at the request of the committee, participated in a portion of the meeting to provide his views on the merger and to answer questions from the special committee regarding the merger negotiations and our management’s compensation following the merger. Mr. Eckert summarized prior discussions that our management had with other potential bidders and other strategic options for our company that were considered. The special committee unanimously determined to recommend that our board of trustees approve the merger.

      On September 2, 2005, our board of trustees held a meeting following the special committee meeting. In advance of the meeting, each trustee received a copy of the merger agreement and related documents. At the meeting, Wachovia Securities reviewed its financial analysis of the merger with our board of trustees. Latham & Watkins reviewed the terms of the proposed merger agreement and our board’s standard of conduct

under Maryland law. Our board of trustees discussed at length the terms of the proposed merger and a variety of positive and negative considerations concerning the transaction and the overall strategic alternatives available to our company. (These factors are described in more detail below under “— Factors Considered by Our Board of Trustees and Reasons for the Merger.”) Wachovia Securities rendered an oral opinion to our board of trustees, subsequently confirmed in writing, that as of that date and based upon and subject to various considerations and assumptions described in the written opinion, the consideration to be received by the holders of our common shares pursuant to the merger agreement was fair, from a financial point of view, to such holders. Our board of trustees then unanimously approved the merger, the merger agreement and the other transactions contemplated by the merger agreement and directed that they be submitted for consideration by the holders of our common shares at a special meeting of shareholders.

      Later in the afternoon of September 2, 2005, after the special meeting of our board of trustees had concluded and counsel had resolved the remaining open issues, the parties executed the merger agreement. On September 6, 2005, prior to the opening of the financial markets, we issued a press release announcing the merger.

Factors Considered by Our Board of Trustees and Reasons for the Merger

      In reaching its decision to approve the merger agreement and the merger and to recommend that our shareholders approve the merger agreement and the merger, our board of trustees consulted with the special committee of independent trustees and management as well as with its, and the special committee’s, legal and financial advisors. These consultations included discussions regarding our strategic business plan, the historical prices of our stock, our past and current business operations and financial condition, our future prospects, the potential merger with Flag Fund V and other strategic alternatives. Our board of trustees also consulted with Wachovia Securities as to the fairness, from a financial point of view, to our common shareholders of the merger consideration.

      Our board of trustees identified and considered a number of potentially positive factors in its deliberations, including:

      Our board of trustees also identified and considered a number of potentially negative factors in its deliberations concerning the merger, including:

      Our board of trustees concluded, however, that the potentially negative factors could be managed or mitigated by us or were unlikely to have a material impact on the completion of the merger or on our company or its shareholders, and that, overall, the potentially negative factors associated with the merger were outweighed by the benefits of the merger.

      The above discussion of the factors considered by our board of trustees is not intended to be exhaustive, but does set forth the principal factors considered by our board of trustees. Our board of trustees reached the conclusion to approve the merger agreement and the merger in light of the various factors described above and other factors that each member of our board of trustees felt were appropriate. In view of the wide variety of factors considered by our board of trustees in connection with its evaluation of the merger and the complexity of these matters, our board of trustees did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, our board of trustees made its recommendation based on the totality of information presented to, and the investigation conducted by, our board of trustees. In considering the factors discussed above, individual trustees may have given different weight to different factors.

Recommendation of Our Board of Trustees

      Our board of trustees, at a special meeting held on September 2, 2005, after due consideration and upon recommendation of the special committee of our board of trustees, unanimously:

      Our board of trustees unanimously recommends that our shareholders vote “FOR” the approval of the merger agreement and the merger.

Opinion of Our Financial Advisor

      The special committee of our board of trustees retained Wachovia Securities to act as its exclusive financial advisor with respect to a possible sale of our company. The special committee selected Wachovia Securities to act as its exclusive financial advisor based on Wachovia Securities’ qualifications, expertise and reputation. Wachovia Securities rendered its oral opinion to the special committee of our board of trustees and our board of trustees and subsequently confirmed it with its written opinion that, as of September 2, 2005, subject to and based on the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken, as set forth in its opinion, the $38.75 in cash per common share to be received by holders of our common shares pursuant to the merger agreement was fair, from a financial point of view, to such holders.

      The full text of Wachovia Securities’ written opinion, dated September 2, 2005, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. You should carefully read the opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

      Wachovia Securities’ opinion did not address the merits of the underlying business decision to enter into the merger agreement and does not constitute a recommendation to any holder of our common shares as to how such holder should vote in connection with the merger agreement.

      In arriving at its opinion, Wachovia Securities, among other things:

      In connection with its review, Wachovia Securities relied upon the accuracy and completeness of the foregoing financial and other information, including all accounting, legal and tax information and did not assume any responsibility for any independent verification of such information and assumed such accuracy and completeness for purposes of its opinion. With respect to financial forecasts furnished to Wachovia Securities by our management, Wachovia Securities assumed that they were reasonably prepared and reflected the best current estimates and judgments of management as to our future financial performance. Wachovia Securities assumed no responsibility for and expressed no view as to our financial forecasts or the assumptions upon which they are based. In arriving at its opinion, Wachovia Securities did not prepare or obtain any independent evaluations or appraisals of our assets or liabilities, including any contingent liabilities.

      In rendering its opinion, Wachovia Securities assumed that the merger will be consummated on the terms described in the merger agreement, without waiver of any material terms or conditions, and that in the course of obtaining any necessary legal, regulatory or third-party consents and/or approvals, no restrictions will be imposed or other actions will be taken that will have an adverse effect on the merger or other actions contemplated by the merger agreement in any way meaningful to its analysis.

      Wachovia Securities’ opinion is necessarily based on economic, market, financial and other conditions and the information made available to Wachovia Securities as of the date of its opinion. In addition, Wachovia Securities expressed no view on the terms of the transaction related to the partnership merger and expressed no view on whether any holder of common units of limited partnership interest in our operating partnership should exchange its common units of limited partnership interest for membership interests being offered by the affiliate of DRA Advisors. Additionally, Wachovia Securities expressed no view on whether any holder of common units of limited partnership interest in our operating partnership should convert or exchange its common units of limited partnership interest into or for our common shares. Wachovia Securities’ opinion does not address the relative merits of the merger or other actions contemplated by the merger agreement compared with other business strategies or transactions that may have been considered by our management, or our board of trustees or any committee thereof. Wachovia Securities did not consider for the purposes of its

opinion the prices at which our common shares might trade following the announcement of the merger. Although subsequent developments may affect Wachovia Securities’ opinion, Wachovia Securities does not have an obligation to update, revise or reaffirm its opinion.

      The summary set forth below does not purport to be a complete description of the analyses performed by Wachovia Securities, but describes, in summary form, the material analyses of Wachovia Securities in connection with its fairness opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its fairness opinion, Wachovia Securities considered the results of all its analyses as a whole and did not attribute any particular weight to any analysis or factors considered by it. Accordingly, the analyses listed in the tables and described below must be considered as a whole. Considering any portion of such analyses and the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Wachovia Securities’ opinion.

      Wachovia Securities reviewed publicly available historical trading prices and volumes for our common shares for the twelve-month period ended September 1, 2005. In the twelve-month period preceding the announcement, the high closing price for our common shares was $40.07 (on July 11, 2005) and the low closing price for our common shares was $30.00 (on September 14, 2004). In addition, Wachovia Securities compared the $38.75 in cash per common share to be received by holders of our common shares pursuant to the merger agreement to the closing trading price of our common shares on September 1, 2005 and the average closing trading prices of our common shares during the 10-day, 30-day, 60-day, 90-day, and 180-day periods preceding the announcement of the merger. The $38.75 per share offer price represents a premium to the average closing prices of our common shares as follows:

      Wachovia Securities compared our financial, operating and stock market data to the following publicly traded REITs that own or operate net leased properties:

      Wachovia Securities calculated, among other things, the multiple of per share closing prices to projected funds from operations (FFO) for 2006 for the comparable companies, based upon projected financial information from the SNL Financial (SNL) consensus estimates and closing share prices on September 1, 2005. Wachovia Securities calculated a range consisting of the high, mean, median and low multiples of per share price to projected FFO for the comparable companies and applied this range to our management’s and SNL’s consensus estimates of projected FFO for 2006. This analysis produced an implied per share value

range for our common shares of $32.29 to $44.63. The range of implied share prices for our common shares is outlined below:

      Wachovia Securities selected the companies reviewed in the comparable companies analyses because of, among other reasons, their specialization in the net lease REIT sector, asset quality, market capitalization, and capital structure. None of the companies utilized in the above analyses, however, is identical to our company. Accordingly, a complete analysis of the results of the foregoing calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the comparable companies and other factors that could affect the public trading value of the comparable companies, as well as the potential trading value of our company.

      Wachovia Securities examined selected transactions involving publicly traded net lease and retail real estate companies announced from 2001 through September 1, 2005 and reviewed information relating to FFO and premiums paid in connection with these transactions. Using publicly available information, including estimates of 2006 FFO published by SNL and our management’s 2006 FFO estimate, Wachovia compared transaction multiples of FFO and premiums paid for the merger with the selected transactions. The selected transactions were:

      Wachovia Securities calculated, among other things, a range consisting of the high, mean, median and low transaction prices to forward FFO multiples for the selected transactions and applied this range to our management’s and SNL’s consensus estimates of our FFO for 2006. This analysis produced an implied per share value range for our common shares of $19.47 to $47.00. Based upon transaction multiples, Wachovia Securities calculated the following range of implied share prices:

      Because the market conditions, rationale and circumstances surrounding each of the transactions analyzed were specific to each transaction and because of the inherent differences between our businesses, operations and prospects and those of the comparable companies, Wachovia Securities believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the analysis. Accordingly, Wachovia Securities also made qualitative judgments concerning differences between the characteristics of these transactions and the proposed merger that could affect our acquisition values and those of such acquired companies.

      In addition, Wachovia Securities analyzed the premium or discount paid by the acquiror in all of the transactions used in the selected transactions analysis, in relation to the average closing market price of the targets’ common shares on the day prior to announcement of the transaction, and the 10-day, 30-day, 60-day and 90-day average closing prices prior to the announcement of the transaction and the transaction price as of the day of announcement.

      Using publicly available information, Wachovia Securities calculated, among other things, a range consisting of the high, mean, median and low premium paid in these transactions and applied this range to the closing share price per common share of $35.44 on September 1, 2005. This analysis resulted in the following range of implied share prices for each common share:

Selected Publicly Traded Real Estate Transactions Announced 2001 — 2004

      Because the market conditions, rationale and circumstances surrounding each of the transactions analyzed in the various selected transaction analyses were specific to each transaction and because of the inherent differences between our businesses, operations and prospects and those of the comparable acquired companies, Wachovia Securities believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the analysis. Accordingly, Wachovia Securities also made qualitative judgments concerning differences between the characteristics of these transactions and the proposed merger that could affect our acquisition values and those of such acquired companies.

      Wachovia Securities performed a discounted dividend analysis on our company using our management projections for FFO per share and dividend payouts per share for 2006 through 2009. Wachovia Securities calculated the implied present values of projected cash dividends for our company for 2005 through 2009 using discount rates ranging from 9.0% to 11.0%. Wachovia Securities then calculated implied terminal values in 2010 based on multiples ranging from 11.0x FFO to 13.0x FFO. These implied terminal values were then discounted to implied present values using discount rates ranging from 9.0% to 11.0%. Wachovia Securities derived a range of per share values for our common shares based on the implied present values of our cash dividends and the implied present values of our terminal values in 2010. The analysis resulted in a range of implied values per common share of $31.39 to $38.47.

      Using information provided by our management, Wachovia Securities calculated the net asset value per common share. For this analysis, Wachovia Securities applied a range of blended capitalization rates from 7.00% to 9.00% to our management’s projected twelve-month forward adjusted cash net operating income. The resulting gross real estate value was added to the gross value of our other assets, less our outstanding debt and other liabilities, to arrive at an estimated net asset value per common share. In applying the range of blended capitalization rates, Wachovia Securities took into consideration current market conditions and property characteristics. The net asset valuation analysis produced an estimated per share value range of $25.01 to $38.18 for our common shares.

* * *

      In performing its analyses, Wachovia Securities made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond our control. No company, transaction or business used in the analyses described above is identical to our company or the proposed merger. Any estimates contained in Wachovia Securities’ analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by these estimates. The analyses performed were prepared solely as a part of Wachovia Securities’ analysis of the fairness, from a financial point of view, to the holders of our common shares, as of September 2, 2005, and subject to and based on the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken in such opinion, of the $38.75 in cash per common share to be received by such holders pursuant to the terms of the merger agreement, and were conducted in connection with the delivery by Wachovia Securities of its fairness opinion, dated September 2, 2005.

      Wachovia Securities’ opinion was one of the many factors taken into consideration by our board of trustees in making its determination to approve the merger. Wachovia Securities’ analyses summarized above should not be viewed as determinative of the opinion of our board of trustees with respect to the value of our common shares or of whether our board of trustees would have been willing to agree to a different form of consideration.

      Wachovia Securities is a nationally recognized investment banking and advisory firm, and a subsidiary of Wachovia Corporation. Wachovia Securities, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Wachovia Securities and its affiliates (including Wachovia Corporation and its affiliates) maintain relationships with our company and DRA Advisors, as well as certain of their principals or affiliates. An affiliate of Wachovia Securities has approximately $84 million of outstanding loans to affiliates of DRA Advisors, and Wachovia Securities served as syndication agent on our credit facility and has approximately $37 million of committed exposure. Subsequent to the date on which Wachovia Securities delivered its opinion, an affiliate of Wachovia Securities provided approximately $360 million of debt financing to an affiliate of DRA Advisors. Additionally, in the ordinary course of its business, Wachovia Securities may trade in our securities and affiliates of DRA Advisors for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

      Pursuant to a letter agreement dated June 30, 2005, the special committee of our board of trustees engaged Wachovia Securities as its exclusive financial advisor with respect to a possible sale of our company. Pursuant to the terms of this agreement, we have agreed to pay Wachovia Securities a customary fee in connection with the consummation of a merger, a portion of which became payable upon delivery of its fairness opinion to the special committee of our board of trustees and our board of trustees, and this fee will be credited in full against any advisory fees paid in connection with the merger. In addition, we have agreed to reimburse Wachovia Securities for its expenses and to indemnify Wachovia Securities and certain related parties against certain liabilities and expenses related to or arising out of Wachovia Securities’ engagement.

Interests of Our Trustees and Executive Officers in the Merger

      In considering the recommendation of our board of trustees to vote for the proposal to approve the merger agreement and the merger, you should be aware that our trustees and executive officers may have agreements or arrangements that provide them with interests in the merger that differ from, or are in addition to, yours. The special committee and our board of trustees were aware of these agreements and arrangements as they relate to our trustees and executive officers during their deliberations of the merits of the merger agreement and in determining to recommend to our shareholders that they vote to approve the merger agreement and the merger. In addition, the number of our common shares owned by our trustees and executive officers as of September 30, 2005 appears below under “Securities Ownership of Certain Beneficial Owners and Management” on page 51.

      In accordance with the terms of the original compensation awards, all outstanding unvested options to purchase our common shares will be accelerated so that these options will be fully vested immediately prior to the consummation of the merger. Upon consummation of the merger, all unexercised options to purchase our common shares will be cancelled and converted into the right to receive the merger consideration in cash, less the exercise price for each share underlying the options.

      As of September 30, 2005, our trustees held share options to acquire an aggregate of 175,000 of our common shares, with a weighted average exercise price of $26.55 per share, consisting of vested options representing approximately $1.8 million of aggregate value and unvested options representing $292,748 of aggregate value, based on the $38.75 per share merger consideration. Our trustees will be entitled to receive the following amounts (based upon the merger consideration) with respect to their existing share options:

      Restricted share awards issued to our executive officers as long-term incentive compensation generally are subject to forfeiture if the executive officer ceases to be an executive officer prior to the end of the vesting period for the restricted shares. In accordance with the terms of the original compensation awards, as a result of the merger, any restrictions or forfeiture provisions will terminate or lapse and the restricted shares will vest in full immediately prior to the effective time of the merger and will be treated under the merger agreement in the same manner as our other common shares and, accordingly, will have the right to receive the $38.75 per share merger consideration. As of September 30, 2005, our executive officers held an aggregate of 328,841 restricted shares and will be entitled to receive the cash amounts indicated in the table below with respect to their existing restricted shares.

      Phantom shares are share equivalents that are purchased by our executive officers with a portion of their annual bonus. The phantom shares are credited at a price equal to 80% of the fair market value of our common

shares on the date of grant. The phantom shares awarded upon the deferral of a portion of annual bonuses generally are paid on the third anniversary of the date of grant. Certain of our executive officers have elected to defer receipt of their vested phantom shares, which are included in the phantom share amounts indicated in the table below. In addition, certain of our executive officers have elected to defer receipt of their vested restricted shares, which are shown in the deferred restricted share column in the table below.

      Phantom shares and deferred restricted shares will become fully vested and, therefore, will be treated under the merger agreement in the same manner as our other common shares, including having the right to receive the $38.75 per share merger consideration. As of September 30, 2005, our executive officers will be entitled to receive the cash amounts indicated in the table below with respect to their existing phantom shares and deferred restricted shares.

      The following table sets forth the number of restricted shares, deferred restricted shares and phantom shares held by each of our executive officers as of September 30, 2005, and the dollar amount payable to each officer for those shares upon consummation of the merger.

      Our trustees are permitted to defer their fees into our deferred compensation and stock plan. Deferred fees either earn interest at a stated percentage or are deemed to be invested in common share equivalents. Upon termination as a trustee, the trustees become entitled to payment of their deferred compensation accounts. At the completion of the merger, our trustees will cease to be trustees of the REIT and will be entitled to payment of their deferred compensation accounts. It is estimated that our trustees will be entitled to the following deferred compensation payments as a result of the merger:

      Under the terms of our existing employment agreements with Thomas D. Eckert, our president and chief executive officer, David S. Kay, our senior vice president, chief financial officer and treasurer, John M. Weaver, our senior vice president, general counsel and secretary, Jay M. Ferriero, our senior vice president and director of acquisitions, and Lisa M. Clements, our vice president and chief accounting officer, change of control payments will be paid to each of these executives as a result of the merger. In addition, if any amounts payable to any of these executives is subject to the excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the Code), an additional payment, referred to as a gross up payment, will be made

to such executive so that after the payment of all income and excise taxes, the executive will be in the same after-tax position as if no excise tax under Section 4999 of the Code had been imposed.

      The following table sets forth the aggregate change of control payments to which each of our executive officers will be entitled upon completion of the merger.

      We have agreed to distribute to all employees, including the executive officers, the 2005 long-term performance restricted share grants and bonuses that they have earned for 2005 upon the earlier of (a) the closing of the merger and (b) the date on which such compensation would otherwise have been granted or paid, in accordance with past practices, which is typically no later than January 31st of each year. According to the terms of the merger agreement, in lieu of the typical annual grant of restricted shares, if the final closing date occurs prior to the date on which such restricted shares otherwise would have been awarded, the executive officer will be paid the $38.75 per share merger consideration for each restricted share. The table below sets forth the amount owed to each executive officer for 2005 compensation awards, assuming the merger is completed by December 31, 2005. If the closing occurs on or after January 1, 2006, all employees, including the executive officers, will receive an additional cash payment on the final closing date equal to the number of days elapsed in calendar year 2006 divided by 365, multiplied by the sum of the 2005 long-term compensation award and the 2006 target bonus that will be set at a later date.

      In connection with the merger agreement, Flag Fund V and each of Messrs. Eckert, Kay, Weaver and Ferriero and Ms. Clements have agreed, conditioned upon the consummation of the merger, to enter into new employment agreements with the surviving partnership or a management entity providing terms of employment with the surviving partnership or such management entity for the three-year period (and in the case of Ms. Clements for the one-year period) following the closing of the merger. The new employment agreements with Messrs. Eckert, Kay, Weaver and Ferriero and Ms. Clements provide for initial base salaries of $640,000, $412,000, $276,000, $412,000 and $230,000, respectively, and the opportunity for each executive to earn annual bonus compensation based upon certain performance criteria set forth in each executive’s employment agreement of up to an annual target amount of $660,000, $360,000, $300,000, $390,000 and $180,000, respectively. Each of the executives will also receive a long term incentive award payable in the case of Messrs. Eckert, Kay, Weaver and Ferriero in equal quarterly installments (based on a maximum of twelve installments) on the last day of each quarter in which they are employed by the surviving partnership pursuant to their new three-year employment agreements and in the case of Ms. Clements in equal quarterly

installments (based on a maximum of four installments) on the last day of each quarter in which she is employed by the surviving partnership pursuant to her new one-year employment agreement. These long term incentive awards are intended to substitute for the equity component of the executives’ compensation under their existing employment agreements. The maximum aggregate amount of the long term incentive award payable to each of Messrs. Eckert, Kay, Weaver and Ferriero and Ms. Clements under his or her new employment agreement (assuming he or she remains employed by the surviving partnership for the full term of his or her employment agreement) is approximately $5.8 million, $2.5 million, $2.2 million, $2.9 million and $300,000, respectively.

      These executives’ new employment agreements contain terms substantially similar to those of their existing employment agreements with respect to, among other things, the termination rights of the surviving partnership and the executives, the health benefits provided to the executives, the confidentiality obligations of the executives, as well as non-competition and non-solicitation restrictions to which the executives will be subject during their employment and for a two-year period after termination of employment.

      In addition, Flag Fund V and Messrs. Eckert, Ferriero, Kay and Weaver are involved in negotiations with respect to the executives making an equity investment in the surviving partnership in the aggregate amount of approximately $3.0 to $6.0 million (at $38.75 per common unit) that would entitle them to receive their share of partnership profits distributed to all unit holders of the surviving partnership. In further consideration of the executives’ equity investment in common units and their agreement to continue as management of the surviving partnership, it is currently anticipated that 1,000 units of a new class of contingent ownership interests in the surviving partnership (performance units) will be granted for no additional consideration as follows: 340 performance units to Mr. Eckert; 220 performance units to Mr. Ferriero; 220 performance units to Mr. Kay; and 220 performance units to Mr. Weaver. The holders of the performance units will be entitled to receive a percentage of the surviving partnership’s cash available for distribution in the aggregate amount of (a) 10% after the other partners receive an annually compounded internal rate of return in excess of 17%, to be calculated on a portfolio basis, and (b) 20% after the other partners receive an annually compounded internal rate of return in excess of 19%, to be calculated on a portfolio basis; provided that these distributions will be subject to compliance by each holder with the non-competition provisions of his employment agreement and none of these distributions will be made to any of the foregoing persons who is no longer employed by the surviving partnership unless the employment was terminated (i) by the surviving partnership without “cause,” (ii) by the employee for “good reason” or (iii) as a result of a reduction in compensation (as these terms are defined in the employment agreements). In such event, the portion of the distribution otherwise distributable to such holder will instead be distributed to holders of the common units of limited partnership interest.

      The merger agreement provides that for a period of six years from and after the completion of the merger, the surviving REIT will indemnify and hold harmless each of our trustees and officers in respect of acts or omissions at or prior to the consummation of the merger to the fullest extent permitted under applicable law.

      The merger agreement also provides that the surviving REIT will maintain a prepaid officers’ and directors’ liability insurance policy that will provide coverage on a basis comparable to the existing coverage for a period of six years after the consummation of the merger. In addition, if Flag Fund V, the surviving REIT or any of its successors or assigns merges into any other person and is not the surviving REIT or transfers or conveys all or substantially all of its assets to any person, proper provisions must be made so that the successors and assigns of Flag Fund V or the surviving REIT will assume, jointly and severally, all of the obligations set forth in the section of the merger agreement relating to trustees’ and officers’ liability.

      In connection with the partnership merger, the holders of common units of limited partnership interest in our operating partnership, other than us, will have the right to receive either $38.75 per common unit or, if a

holder of a common unit of limited partnership interest so elects, subject to certain conditions, a membership interest in a newly formed Delaware limited liability company that will be an affiliate of Flag Fund V and will own as its sole asset after the partnership merger a common limited partnership interest in the surviving partnership equal to the aggregate limited partnership interest represented by the total common units held by the holders making such elections. The descriptions contained in this proxy statement of the anticipated rights and obligations of holders of common limited partnership interest do not constitute an offer to receive a membership interest in the newly formed limited liability company. That offer will be made separately to holders of common units of limited partnership interest other than us.

      Holders of common limited partnership interest who are permitted to elect to exchange their common units of limited partnership interest in our operating partnership for membership interests may be able to utilize that structure to defer potential taxable gain they might otherwise recognize in an all-cash transaction, but holders of partnership interests should consult their tax advisors regarding the specific tax consequences of this election. It is anticipated that three of the members of our board of trustees (none of whom served on the special committee) may seek to acquire membership interests in the new enterprise. These three unit holders are John J. Pohanka, a trustee and the chairman of our board of trustees, and entities affiliated with Mr. Pohanka (774,462 units of limited partnership interest), Robert M. Rosenthal, a trustee, and entities affiliated with Mr. Rosenthal (2,703,678 units of limited partnership interest) and Vincent A. Sheehy, a trustee, and entities affiliated with Mr. Sheehy (25,984 units of limited partnership interest). We have no information concerning whether or not these or other holders of common limited partnership interest who are offered the right to exchange their interests for membership interests in the newly formed limited liability company will accept the offer.

Dividends

      The merger agreement authorizes us to continue to declare and pay regular quarterly dividends to holders of record of our common shares for each full fiscal quarter that ends prior to the closing of the merger. There will be no pro rated dividend paid on our common shares for the quarter in which the closing occurs. If the closing occurs prior to February 7, 2006, which is our previously scheduled record date for the fourth quarter of 2005, you will not receive a dividend for the fourth quarter of 2005. If the closing occurs on or after February 7, 2006, you will receive a dividend for the fourth quarter of 2005. We currently expect that the closing will occur promptly following the special meeting, on or about                     , 2005, in which case you will not receive a dividend for the fourth quarter of 2005.

Regulatory Matters

      No material federal or state regulatory requirements, other than the filing and distribution of this proxy statement, must be complied with or approvals obtained by us or Flag Fund V in connection with the merger.

Dissenters’ Rights

      We are organized as a REIT under Maryland law. Under Section 3-202 of the Maryland General Corporation Law, because our common shares and preferred shares are quoted on the Nasdaq National Market and our preferred shares are not entitled to vote on the merger, holders of our common shares and preferred shares who object to the merger do not have any appraisal rights or dissenters’ rights in connection with the merger. As a result, if holders of our common shares do not vote in favor of the merger and the merger takes place anyway, these shareholders will be bound by the terms of the merger agreement and entitled only to the merger consideration in exchange for their shares under the merger agreement.

Litigation Relating to the Merger

      We are aware of a class action lawsuit relating to the merger filed against us and each of our trustees in the Circuit Court for Baltimore, Maryland. The lawsuit, Adams Family Trust et al. v. Capital Automotive REIT et al., filed on September 28, 2005, alleges, among other things, that the merger consideration to be paid to our common shareholders in the merger is unfair and inadequate and unfairly favors insiders. Particularly,

the complaint alleges that our trustees failed to exercise ordinary care and diligence in the exercise of their fiduciary obligations toward the plaintiff and other shareholders, by, among other things, failing to take all reasonable steps to assure the maximization of shareholder value by implementing a process to obtain the highest possible price for our publicly traded shares. The complaint seeks, among other relief, certification of the lawsuit as a class action, a declaration that the merger agreement was entered into in breach of our board’s fiduciary duties, and is therefore unlawful and unenforceable, and an injunction preventing completion of the merger unless and until we adopt and implement a process such as an auction to obtain the highest possible price for the company, awarding appropriate compensatory damages to the plaintiffs and the class, attorneys’ fees and expenses, along with such other relief as the court might find just and proper.

Material United States Federal Income Tax Consequences

      The following is a summary of the material United States federal income tax consequences of the merger to holders of our common shares who receive cash for their shares pursuant to the merger. This summary is based on current law, is for general information only and is not tax advice. This summary is based on the Code, applicable Treasury Regulations, and administrative and judicial interpretations thereof, each as in effect as of the date hereof, all of which are subject to change or different interpretations, possibly with retroactive effect. This summary assumes that our common shares are held as capital assets. We have not requested, and do not plan to request, any rulings from the Internal Revenue Service (the IRS) concerning our tax treatment or the tax treatment of the merger, and the statements in this proxy are not binding on the IRS or any court. We can provide no assurance that the tax consequences contained in this discussion will not be challenged by the IRS, or if challenged, will be sustained by a court. This summary does not address all of the tax consequences that may be relevant to holders of our common shares in light of their personal circumstances, or to particular types of holders, including, without limitation:

      In addition, this discussion does not address any state, local or foreign tax consequences of the merger. You are urged to consult your tax advisors regarding the specific tax consequences to you of the merger and our election to be taxed as a REIT.

      For purposes of this discussion, a “U.S. Holder” means a holder of our common shares that is:

      A “Non-U.S. Holder” is a holder of our common shares other than a U.S. Holder.

      If a partnership or other pass-through entity holds our common shares, the tax treatment of a partner in the partnership or member in the other entity will generally depend upon the status of the partner or member and the activities of the partnership or other entity. Partnerships or other pass-through entities holding our common shares, and partners in such partnerships or members in such other entities, should consult their tax advisors regarding the tax consequences of the merger to them.

      A U.S. Holder’s receipt of cash in exchange for our common shares pursuant to the merger will be a taxable transaction for United States federal income tax purposes. In general, a U.S. Holder will recognize capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the amount of cash received and such holder’s adjusted tax basis in the common shares exchanged pursuant to the merger. Such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the common shares for more than one year at the time of the merger. However, if a U.S. Holder recognizes loss upon the receipt of cash in the merger in exchange for common shares that it has held for six months or less, after applying certain holding period rules, the loss recognized will be treated as a long-term capital loss to the extent such holder received distributions from us which were required to be treated as long-term capital gains. Long-term capital gains of noncorporate taxpayers generally are taxable at a maximum federal income tax rate of 15%. Capital gains of corporate shareholders generally are taxable at the regular tax rates applicable to corporations. The deductibility of capital losses may be subject to limitations.

      Gain realized by Non-U.S. Holders on the exchange of our common shares for cash in the merger generally will not be subject to United States federal income or withholding tax unless:

      A Non-U.S. Holder who is an individual described in clause (i) above will be subject to a flat 30% United States federal income tax on the gain derived from the merger, which may be offset by United States source capital losses, even though the Non-U.S. Holder is not considered a resident of the United States. A Non-U.S. Holder whose gain is described in clause (ii) above generally will be required to pay United States federal income tax on the net gain derived from the merger. If the Non-U.S. Holder is a corporation, then it may also be required to pay a branch profits tax at a 30% rate (or such lower rate as may be prescribed under an applicable United States income tax treaty) on any such effectively connected gain. Non-U.S. Holders should consult any applicable income tax treaties that may provide for different rules.

      Our common shares will not constitute a “United States real property interest” if we are a “domestically controlled qualified investment entity” at the time of the merger. A “qualified investment entity” includes a REIT. Provided we qualify as a REIT, we will be a “domestically controlled qualified investment entity” at the effective time of the merger if non-United States persons held directly or indirectly less than 50% in value of our shares at all times during the five-year period ending with the effective time of the merger. No assurances can be given that the actual ownership of our shares has been or will be sufficient for us to qualify as a “domestically controlled qualified investment entity” at the effective time of the merger.

      Even if we do not qualify as a “domestically controlled qualified investment entity” at the time of the merger, gain realized by a Non-U.S. Holder from the exchange of our common shares in the merger would not be subject to tax under FIRPTA as a sale of a “United States real property interest” if:

      If gain on the exchange of our common shares in the merger were subject to taxation under FIRPTA, the Non-U.S. Holder would be required to pay United States income tax with respect to such gain in the same manner as a taxable U.S. Holder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). Corporate Non-U.S. Holders may also be required to pay a 30% branch profits tax. In addition, under FIRPTA, the consideration received in the merger by a Non-U.S. Holder will be subject to income tax withholding at a rate of 10%. Such a Non-U.S. Holder may be entitled to a refund or credit against its United States tax liability, if any, with respect to the amount withheld, provided that the required information is furnished to the IRS on a timely basis.

      Backup withholding may apply to payments made in connection with the merger. Backup withholding will not apply, however, to a holder who (a) in the case of a U.S. Holder, furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding on the substitute IRS Form W-9 or successor form, (b) in the case of a Non-U.S. Holder, furnishes an applicable IRS Form W-8 or successor form, or (c) is otherwise exempt from backup withholding. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holder’s United States federal income tax liability provided the required information is furnished to the IRS.

      THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE MERGER AND IS NOT TAX ADVICE. THEREFORE, HOLDERS OF OUR COMMON SHARES ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

Delisting and Deregistration of Our Shares

      If the merger is completed, our common shares will no longer be listed on the Nasdaq National Market and will be deregistered under the Exchange Act. Our Series A preferred shares and Series B preferred shares will continue to be registered and listed on the Nasdaq National Market. However, in a letter to us, Flag Fund V has indicated that it intends to offer to purchase our Series A preferred shares and Series B preferred shares for cash, at par, effective upon the completion of the merger or within a reasonable time thereafter, subject to, among other things, its ability to obtain sufficient funds to purchase the preferred shares. Once the merger has been consummated, for such time as the preferred shares remain outstanding, Flag Fund V may seek to deregister our Series A preferred shares and Series B preferred shares under the Exchange Act and delist our Series A preferred shares and Series B preferred shares from the Nasdaq National Market. In

addition, if the Nasdaq National Market advises the surviving REIT that it believes that either our Series A preferred shares or Series B preferred shares, or both, do not meet Nasdaq’s listing requirements, Flag Fund V has indicated that it does not intend to contest any threatened delisting, nor does it intend to seek to list these shares on another trading market. For these reasons, there is no assurance that an active trading market for either our Series A preferred shares or Series B preferred shares will continue to exist, although the terms and requirements of those securities will remain the same.

THE MERGER AGREEMENT

      The following summary of the merger agreement is qualified by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and is incorporated in this proxy statement by reference.

      The merger agreement attached as Annex A to this proxy statement has been included to provide you with information regarding its terms. Except for its status as a contractual document that establishes and governs the legal relations among the parties thereto with respect to the transactions described above, the merger agreement is not intended to be a source of factual, business or operational information about the parties.

      The representations, warranties and covenants made by the parties in the merger agreement are qualified, including by information in the schedules referenced in the merger agreement that we delivered in connection with the execution of the merger agreement, and subject to important limitations agreed to by the parties in connection with negotiating the terms of the merger agreement. Certain representations and warranties made by the parties in the merger agreement may have been used as a tool to allocate risks between the respective parties to the merger agreement, including where the parties do not have complete knowledge of all facts, instead of establishing these matters as facts. Furthermore, the representations and warranties may be subject to standards of materiality applicable to the contracting parties, which may differ from those applicable to you. These representations and warranties may or may not have been accurate as of any specific date and do not purport to be accurate as of the date of this proxy statement. Accordingly, these representations, warranties and covenants should not be relied upon as statements of factual information.

      As a shareholder you are not a third party beneficiary of the merger agreement and therefore you may not directly enforce any of its terms and conditions. You should also be aware that none of the representations or warranties contained in the merger agreement has any legal effect among the parties to the merger agreement after the effective time of the merger, nor will the parties to the merger agreement be able to assert the inaccuracy of the representations and warranties as a basis for refusing to close the transaction unless all such inaccuracies as a whole would have or would reasonably be likely to have a material adverse effect on the party that made the representations and warranties.

The Mergers

      Pursuant to the merger agreement, CA Acquisition REIT will merge with and into us and we will be the surviving REIT, with all of our common shares owned by Flag Fund V. At the effective time of the merger, all of our property, rights, privileges, immunities, powers and franchises before the merger will remain with our company as the surviving REIT and all of our debts, liabilities and duties before the merger will continue as the debts, liabilities and duties of our company as the surviving REIT. Following the merger, the trustees and officers of CA Acquisition REIT at the effective time of the merger will be the trustees and officers of the surviving REIT.

      Under the merger agreement, immediately following the merger, CALP Merger L.P. will merge with and into our operating partnership, with our operating partnership continuing as the surviving partnership. The partnership merger will become effective when the certificate of merger is accepted by the Secretary of State

of the State of Delaware. Under the merger agreement, the partnership merger may not occur unless the company merger has been completed.

      Our company, as the surviving REIT in the merger, will continue to be the sole general partner of the surviving partnership immediately following the partnership merger.

Merger Consideration

      The merger agreement provides that each of our common shares outstanding immediately prior to the effective time of the merger will be converted into the right to receive the merger consideration. Holders of our common shares, other than unconverted shares, will cease to have any rights with respect to such shares other than the right to receive the merger consideration. In accordance with the terms of the original compensation awards, all unvested share options will vest, and holders of share options will receive a per-share amount equal to the merger consideration, less the exercise price of such option. Also in accordance with the terms of the original compensation awards, all restricted shares, phantom shares and deferred restricted shares will vest in full immediately prior to the effective time of the merger and, therefore, will be considered for all purposes of the merger agreement as outstanding common shares, entitling the holders of such shares to receive the same per share merger consideration as the other holders of our common shares. Our existing Series A preferred shares and Series B preferred shares will remain issued and outstanding as preferred shares of the surviving REIT. The surviving REIT will continue to pay the required quarterly dividends on our preferred shares. However, in a letter to us, Flag Fund V has indicated that it intends to offer to purchase our Series A preferred shares and Series B preferred shares for cash, at par, effective upon the completion of the merger or within a reasonable time thereafter, subject to, among other things, its ability to obtain sufficient funds to purchase the preferred shares.

Dividends

      The merger agreement authorizes us to continue to declare and pay regular quarterly dividends to holders of record of our common shares for each full fiscal quarter that ends prior to the closing of the merger. There will be no pro rated dividend on our common shares for the quarter in which the closing occurs. If the closing occurs prior to February 7, 2006, which is our previously scheduled record date for the fourth quarter of 2005, you will not receive a dividend for the fourth quarter of 2005. If the closing occurs on or after February 7, 2006, you will receive a dividend for the fourth quarter of 2005. We currently expect that the closing will occur promptly following the special meeting, on or about                     , 2005, in which case you will not receive a dividend for the fourth quarter of 2005.

Treatment of Common Units of Limited Partnership Interest in Our Operating Partnership

      In connection with the partnership merger, each common unit of limited partnership interest in our operating partnership, other than common units held by us, will be converted into and cancelled in exchange for the right to receive either $38.75 per common unit or, if a holder of a common unit of limited partnership interest so elects, subject to certain conditions, a membership interest in OP LP LLC, a newly formed Delaware limited liability company that will be an affiliate of Flag Fund V and will own as its sole asset after the partnership merger a common limited partnership interest in the surviving partnership equal to the aggregate limited partnership interest represented by the total common units held by the holders making such elections. The ability of one or more of the holders of common units of limited partnership interest in our operating partnership to receive membership interests in OP LP LLC will depend upon the availability of an exemption from registration for the offering of the membership interests under federal and state securities laws. As described above under “Approval of the Merger Agreement and the Merger — Interests of Our Trustees and Executive Officers in the Merger — Election Option for Unit Holders” on page 34, some of our trustees and related entities own common units of limited partnership interest in our operating partnership and are eligible to participate in this exchange.

      An affiliate of DRA Advisors will act as the managing member of OP LP LLC and will receive an annual advisory fee, a capital markets fee if it provides brokerage services in connection with capital markets transactions such as refinancings and sales of assets and a carried interest in OP LP LLC.

      The following description of the anticipated rights and obligations of holders of common limited partnership interest does not constitute an offer to receive a membership interest in the newly formed limited liability company. That offer will be made separately to holders of common units of limited partnership interest other than us. The interests in OP LP LLC will have an initial capital account balance equal to the fair market value of the common units of limited partnership interest exchanged by the electing holders (net of liabilities secured by such property that OP LP LLC is considered to assume or take subject to). In addition, the holders of such interests in OP LP LLC may elect to require the surviving REIT to purchase a portion of such interests upon (a) a public offering by the surviving REIT or the shareholders of the surviving REIT of common shares of the surviving REIT, (b) the sale or transfer by the beneficial owners of Flag Fund V (as determined immediately after the merger) and, accordingly, the indirect beneficial owners of Flag Fund V’s interests in the surviving REIT, of a specified percentage of issued and outstanding common shares of the surviving REIT (other than to an affiliate of such entities or to an entity managed or advised by DRA Advisors), and (c) the sale or transfer by the surviving REIT of a specified percentage of its interests in the surviving partnership (other than to an affiliate of the surviving REIT or to an entity managed or advised by DRA Advisors).

Payment Procedures

      Flag Fund V will cause to be deposited with the paying agent, American Stock Transfer & Trust Company, cash in the amount of the aggregate merger consideration payable to holders of our common shares, share options and our operating partnership’s unit holders who do not elect to receive a membership interest in OP LP LLC. A letter of transmittal will be sent to each of our common shareholders within three business days following the closing of the merger that will include detailed instructions on how our common shareholders may exchange their common shares for the cash consideration they will receive in the merger. The paying agent will pay our former common shareholders who submit their duly completed letters of transmittal and their share certificates the merger consideration they are entitled to receive, net of any applicable withholding tax. No interest will be paid on any cash paid pursuant to the merger. Flag Fund V will also deposit with the paying agent the aggregate amount of cash payable to holders of our share options and holders of common units of limited partnership interest in our operating partnership who do not elect to receive a membership interest in OP LP LLC.

Representations and Warranties

      We, and in some instances, our operating partnership, have made a number of customary representations and warranties to Flag Fund V that expire upon the completion of the merger relating to, among other things:

      Flag Fund V, CA Acquisition REIT and CALP Merger L.P. have made a number of representations and warranties to us that expire upon the completion of the merger regarding various matters pertinent to the merger. The topics covered by these representations and warranties include the following:

Conduct of Our Business Pending the Merger

      Until the completion of the merger, we have agreed that, unless permitted by obtaining Flag Fund V’s prior written consent or except as contemplated by the merger agreement, we will, and will cause our subsidiaries to, among other things:

      In addition, pending the merger, we have agreed that, without Flag Fund V’s prior written consent or except as contemplated by the merger agreement, we will not, and will cause our subsidiaries not to, among other things:

Conditions to the Merger

      Our obligations and the obligations of Flag Fund V to complete the merger are subject to the fulfillment or, where permissible, waiver of the following conditions:

      The obligations of Flag Fund V to complete the merger are subject to the satisfaction or, where permissible, waiver of the following additional conditions:

      Our obligations to complete the merger are subject to the satisfaction or, where permissible, waiver of the following additional conditions:

      As used in the merger agreement in connection with our company or Flag Fund V, a “material adverse effect” means any change, effect or circumstance that materially adversely affects the business, properties, assets, financial condition or results of operations of our company and its subsidiaries or Flag Fund V and its

subsidiaries, as the case may be, taken as a whole, including in the case of our company and its subsidiaries, the filing of any bankruptcy, insolvency or similar proceeding by or against specified tenants, but excluding, in each case, any changes, effects or circumstances arising from:

No Solicitation

      We have agreed that, until the termination of the merger agreement, we will not, nor will we authorize or cause our officers, trustees or employees, investment bankers, financial advisors, attorneys, accountants or other representatives to, solicit, initiate or knowingly encourage any inquiries with respect to, make any proposal for, or participate in any discussions or negotiations regarding, any “acquisition proposal.” The merger agreement defines “acquisition proposal” as any inquiry, offer or proposal regarding any:

      If we receive an unsolicited bona fide acquisition proposal, we may furnish information to, and participate in discussions and negotiations with, the party making the proposal if our board of trustees determines in good faith that (a) failure to do so would be reasonably likely to be inconsistent with our board’s duties to us or our shareholders, and (b) the acquisition proposal is reasonably likely to lead to a transaction that would be more favorable to our common shareholders than the merger (a superior proposal).

      We have agreed that we will notify Flag Fund V within two business days after receipt of any acquisition proposal, including its material terms and conditions. We generally are under no duty, however, to notify or update Flag Fund V on the status of discussions or negotiations or the identity of the party making the proposal.

      Under the merger agreement, prior to shareholder approval of the merger, our board of trustees may not, unless a superior proposal has been made and our board determines that failure to take these actions would be reasonably likely to be inconsistent with our board’s duties to us or our shareholders and we notify Flag Fund V of our decision to withdraw or modify our board’s approval or recommendation of the merger agreement and the merger:

      If our board of trustees makes the determination described in the preceding paragraph regarding a superior proposal, and we therefore withdraw or modify our board’s approval and recommendation of the merger agreement and the merger, we may not enter into a definitive agreement in connection with a superior proposal until three business days after we have provided Flag Fund V with written notice that we intend to terminate the merger agreement.

Financing and Guaranty

      Flag Fund V has represented to us that at the closing of the merger it will have sufficient funds to pay the aggregate merger consideration and to pay any and all fees and expenses in connection with the merger or the financing thereof. Additionally DRA Growth & Income Fund V LLC, an affiliate of Flag Fund V, has guaranteed the obligations of Flag Fund V, CA Acquisition REIT and CALP Merger L.P. under the merger agreement, including but not limited to their payment obligations, pursuant to a written guaranty dated September 2, 2005 executed in favor of us and our operating partnership. Flag Fund V expects to obtain debt and equity financing from third parties, on its own behalf or on behalf of the surviving REIT or surviving partnership, in order to satisfy these payment obligations.

Termination of the Merger Agreement

      The merger agreement may be terminated and the merger abandoned at any time prior to the effective time, whether before or after approval of the merger by our shareholders:

Effect of Termination

      Except for provisions in the merger agreement regarding confidentiality of non-public information, public announcements, payment of fees and expenses and specified miscellaneous provisions, if the merger agreement is terminated as described above, the merger agreement will become null and void and have no effect. In addition, if the merger agreement is so terminated, there will be no liability on the part of Flag Fund V or us (other than the obligations relating to payment of fees and expenses under specified conditions, as described below under “— Termination Fee and Expenses”), except to the extent that the termination results from any fraud or willful breach by any party of any of its representations, warranties, covenants or agreements contained in the merger agreement or a failure or refusal by any party to consummate the transactions contemplated by the merger agreement when that party was obligated to do so in accordance with the merger agreement. The confidentiality agreement, dated April 8, 2005, between us and DRA Advisors will continue in effect notwithstanding any termination of the merger agreement.

Termination Fee and Expenses

      We will pay Flag Fund V a termination fee in any of the following circumstances:

      If we terminate the merger agreement, payment of any applicable termination fee is due immediately upon termination. If Flag Fund V terminates the merger agreement, payment of any applicable termination fee is due within three business days of termination. If the termination fee is payable because we consummate a third-party acquisition within twelve months, as described above, the termination fee is payable on the same day the third-party acquisition is consummated.

      The termination fee that Flag Fund V may be entitled to receive in the event of the foregoing will be an amount equal to the lesser of (a) $40.0 million and (b) the maximum amount that can be paid to Flag Fund V without causing Flag Fund V to fail to meet the REIT income requirements under the Code. The unpaid amount, if any, will be placed in escrow and will be paid in subsequent years to the extent the payment would not cause Flag Fund V to fail to meet the REIT income requirements under the Code. Our obligation to pay any unpaid portion of the termination fee will terminate five years after the unpaid amount is placed in escrow.

      All fees, costs and expenses incurred in connection with the merger agreement and related transactions will be paid by the party incurring such expenses. However, if either party terminates the merger agreement because of the other party’s material breach of a representation, warranty or covenant, the breaching party must reimburse the other for out-of-pocket expenses incurred in connection with the merger and related transactions, in an amount not to exceed the lesser of the actual amount of the costs and expenses incurred and $7.5 million.

      We have also agreed to pay Flag Fund V’s out-of-pocket expenses incurred in connection with the merger and related transactions, in an amount not to exceed the lesser of the actual amount of the costs and expenses incurred and $5.0 million if the merger agreement is terminated by us or Flag Fund V because the requisite shareholder approval is not obtained.

      Additionally, we have agreed to pay Flag Fund V’s out-of-pocket expenses incurred in connection with the merger and related transactions, in an amount not to exceed the lesser of the actual amount of the costs and expenses incurred and $7.5 million:

      In any case in which we are required to pay a termination fee, as described above, the amount of any expenses that we pay to Flag Fund V will be credited against the amount of the termination fee so that the total amount of the termination fee and expense reimbursement will not exceed $40.0 million.

Waiver and Amendment of the Merger Agreement

      The merger agreement may be amended by the parties in writing by action of our board of trustees at any time before or after shareholder approval is obtained, but after shareholder approval, no amendment may be made which by law requires the further approval of our shareholders without obtaining that further approval. If the merger agreement is amended after the mailing of this proxy statement and your vote is required for the amendment, we will resolicit your vote.

      At any time before the completion of the merger, the parties may, in writing:

      By law, neither Flag Fund V nor we can waive:

      Whether any of the other conditions would be waived would depend on the facts and circumstances as determined by the reasonable business judgment of the managers of Flag Fund V and our board of trustees, as the case may be.

Shareholder Meeting

      We have agreed to call a meeting of our common shareholders as promptly as practicable. Our board of trustees has unanimously agreed to recommend the approval of the merger agreement and the merger by our shareholders (subject to the board’s right to change its recommendation under specified circumstances, as discussed above under “ — No Solicitation”), and we have agreed to use our reasonable best efforts to obtain the required shareholder approval of the merger agreement and the merger subject at all times to our and our trustees’ right and duty to act in a manner consistent with their fiduciary duties.

Indemnification; Directors’ and Officers’ Insurance

      Under the merger agreement, the surviving REIT will indemnify and hold harmless each person who has been at any time on or before September 2, 2005, or who becomes before the completion of the merger, an officer or trustee of our company or any of its subsidiaries to the same extent provided to these persons by our company and its subsidiaries immediately prior to the completion of the merger in each entity’s respective governing documents or under employment agreements or indemnification agreements, as applicable, as in effect on September 2, 2005 in respect of actions or omissions occurring at or prior to the closing of the merger (including the transactions contemplated in the merger agreement).

      After the completion of the merger, the surviving REIT will be obligated to promptly pay and advance reasonable expenses and costs incurred by each of these persons as they become due and payable in advance of the final disposition of any claim, action, suit, proceeding or investigation to the full extent and in the manner permitted by law. The merger agreement also provides that the surviving REIT will maintain a liability insurance policy that will provide our trustees and officers with coverage for a period of six years on terms comparable to those currently provided by our company to such persons.

Employment Benefit Arrangements

      On and after the closing of the merger, Flag Fund V has agreed to cause the surviving REIT to honor all of our employment agreements, severance agreements, retention bonus agreements and other bonus, retention and severance obligations of our company in accordance with their terms. Pursuant to the terms of these agreements, we, or the surviving REIT, will also make certain payments to our officers on or before the effective time of the merger. For a more complete discussion of these agreements, please see “Approval of the Merger Agreement and the Merger — Interests of our Trustees and Executive Officers in the Merger” on page 31.

Equity Raising Property Sales

      During the period between September 2, 2005 and the 30th day preceding the date of the special meeting, Flag Fund V has agreed, upon our written request, to promptly purchase (in no event later than 30 days following receipt of our written request) all of our right, title and interest in and to one or more of our properties identified by us in our sole discretion from a list of properties previously provided to Flag Fund V for an aggregate purchase price of up to $25.0 million. We and Flag Fund V have agreed that the purchase price of the identified properties selected for sale will be determined by dividing the then current base rent on such identified properties by seven percent. However, in the event that following Flag Fund V’s acquisition of these properties the merger agreement is terminated:

      The right to repurchase or sell these properties, as applicable, on the terms set forth above shall automatically terminate unless exercised within the time periods set forth above.

      In addition, during the period between September 2, 2005 and the special meeting, upon written notice to Flag Fund V, we may sell, in one or more transactions, all of our right, title and interest in and to one or more of the identified properties not previously sold or then under contract for sale to Flag Fund V, to any third parties for an aggregate purchase price of up to $200.0 million provided such sales meet certain guidelines previously agreed to between us and Flag Fund V.

SECURITIES OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth information regarding the beneficial ownership of our common shares as of September 30, 2005, by: (a) each trustee; (b) our chief executive officer and each of our other four most highly compensated executive officers (named executive officers); (c) all named executive officers and trustees as a group; and (d) all other shareholders known by us to be beneficial owners of more than five percent of our common shares. The number of common shares “beneficially owned” by each shareholder is determined under rules of the SEC regarding the beneficial ownership of securities. Under these rules, beneficial ownership of common shares includes (i) any shares as to which the person or entity has sole or shared voting power or investment power, and (ii) any shares as to which the person or entity has the right to acquire beneficial ownership within 60 days, including certain securities that are redeemable or exercisable for shares (which, therefore, includes common units of limited partnership interest in our operating partnership).

      The information in the table below is based in part on Schedule 13D or Schedule 13G reports filed with the SEC. If you wish, you may obtain these reports from the SEC. Except as otherwise indicated, each individual named has a business address of 8270 Greensboro Drive, Suite 950, McLean, Virginia 22102, and has sole investment and voting power with respect to the securities shown.

STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING

      If the merger agreement described in this proxy statement is approved and the merger completed, our common shares will no longer be listed on the Nasdaq National Market and will be deregistered under the Exchange Act. Our Series A preferred shares and Series B preferred shares will continue to be registered and listed on the Nasdaq National Market. However, in a letter to us, Flag Fund V has indicated that it intends to offer to purchase our Series A preferred shares and Series B preferred shares for cash, at par, effective upon the completion of the merger or within a reasonable time thereafter, subject to, among other things, its ability to obtain sufficient funds to purchase the preferred shares. Once the merger has been consummated, for such time as the preferred shares remain outstanding, Flag Fund V may seek to deregister our Series A preferred shares and Series B preferred shares under the Exchange Act and delist our Series A preferred shares and Series B preferred shares from the Nasdaq National Market. If our Series A preferred shares and Series B preferred shares are delisted by the Nasdaq National Market (Flag Fund V has indicated that it does not intend to contest such a delisting), we will no longer have any public shareholders and will not hold an annual meeting of shareholders in 2006. However, if the merger is not completed for any reason or if, following the merger, our Series A preferred shares and/or Series B preferred shares continue to be listed on the Nasdaq National Market, we expect to hold a 2006 annual meeting of shareholders in or about May 2006. Under Rule 14a-8 of the Exchange Act, our shareholders may present proper proposals for inclusion in our proxy statement and for consideration at the 2006 annual meeting by submitting proposals to us in a timely manner. In order to be included for the 2006 annual meeting, shareholder proposals must be received by us a reasonable time before we begin to print and mail our proxy materials and must otherwise comply with Rule 14a-8. In addition, if we have not received notice of any matter a shareholder intends to propose for a vote at the 2006 annual meeting by a reasonable time before we begin to print and mail our proxy materials, then a proxy solicited by our board of trustees may be voted on such matter in the discretion of the proxy holders, without discussion of the matter in the proxy statement soliciting such proxy and without such matter appearing as a separate matter on the proxy card.

      For more information you may contact our corporate secretary. The address of our corporate secretary is 8270 Greensboro Drive, Suite 950, McLean, Virginia 22102 — Attention: Corporate Secretary.

OTHER MATTERS

      As of the date of this proxy statement, our board of trustees knows of no other matters which may be presented for consideration at the special meeting. However, if any other matter is presented properly for consideration and action at the meeting, or any adjournment or postponement thereof, it is intended that the proxies will be voted with respect thereto in accordance with the best judgment and in the discretion of the proxy holders.

WHERE YOU CAN FIND MORE INFORMATION

      We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549.

      Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from commercial document retrieval services and at the website maintained by the SEC at http://www.sec.gov.

      You should rely only on the information contained in this proxy statement. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement does not extend to you. This proxy statement is dated                    , 2005. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, unless the information specifically indicates that another date applies. The mailing of this proxy statement to our shareholders does not create any implication to the contrary.

McLean, Virginia

                    , 2005

ANNEX A

AGREEMENT AND PLAN OF MERGER

among

FLAG FUND V LLC,

CA ACQUISITION REIT,

CAPITAL AUTOMOTIVE REIT,

CALP MERGER L.P.,

and

CAPITAL AUTOMOTIVE L.P.

dated as of September 2, 2005

TABLE OF CONTENTS

AGREEMENT AND PLAN OF MERGER

      THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of September 2, 2005, is by and among Flag Fund V LLC, a Delaware limited liability company (“Parent”), CA Acquisition REIT, a Maryland real estate investment trust (“Merger Sub”), Capital Automotive REIT, a Maryland real estate investment trust (the “Company”), CALP Merger L.P., a Delaware limited partnership (the “Merger Partnership”) and Capital Automotive L.P., a Delaware limited partnership (the “Partnership”).

WITNESSETH:

      WHEREAS, the parties wish to effect a business combination through a merger of Merger Sub with and into the Company (the “REIT Merger”) on the terms and conditions set forth in this Agreement and in accordance with Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended (the “Maryland REIT Law”);

      WHEREAS, the parties also wish to effect a merger of the Merger Partnership with and into the Partnership, immediately following the consummation of the REIT Merger (the “Partnership Merger” and, together with the REIT Merger, the “Mergers”), on the terms and subject to the conditions set forth in this Agreement and in accordance with Section 17-211 of the Delaware Revised Uniform Limited Partnership Act, as amended (“DRULPA”);

      WHEREAS, the Company is the sole general partner of the Partnership through which the Company operates its business;

      WHEREAS, as of the date hereof, the Company owns approximately 85% of the common units of limited partnership interest in the Partnership (“Partnership Common Units”) as well as 100% of the Series A, Series B, Convertible and Monthly Income Preferred units of limited partnership interest in the Partnership (“Partnership Preferred Units”). The Partnership Common Units and Partnership Preferred Units are collectively referred to herein as “Partnership Units;”

      WHEREAS, the Board of Trustees of the Company (the “Company Board”), upon recommendation of the Special Committee of the Company Board, has approved this Agreement, the REIT Merger and the other transactions contemplated by this Agreement and deems it advisable and in the best interests of the Company shareholders to enter into this Agreement and to consummate the REIT Merger on the terms and conditions set forth herein;

      WHEREAS, Parent, as the sole shareholder of Merger Sub, has approved this Agreement, the REIT Merger and the transactions contemplated by this Agreement pursuant to action taken by unanimous written consent in accordance with the requirements of the Maryland REIT Law and the declaration of trust and bylaws of Merger Sub;

      WHEREAS, the Company, as the sole general partner of the Partnership, has determined that it is advisable and in the best interests of the Partnership and the limited partners of the Partnership for the Partnership to enter into this Agreement and to consummate the Partnership Merger on the terms and conditions set forth herein;

      WHEREAS, prior to the Partnership Merger, the holders of Partnership Common Units other than the Company (the “Minority Limited Partners”) may elect, on the terms and conditions specified herein, to receive, in exchange for Partnership Common Units, membership interests (“OP LP LLC Membership Interests”) in a newly created Delaware limited liability company (“OP LP LLC”) simultaneously with the Partnership Merger (each such Minority Limited Partner, an “Electing Limited Partner”). In the Partnership Merger, any Partnership Common Units held by any Minority Limited Partners not making the foregoing election will be converted into the right to receive cash per Partnership Common Unit (each such Minority Limited Partner, a “Cash-Out Limited Partner”) in an amount as described in Section 2.2(a);

      WHEREAS, Merger Sub, the general partner of Merger Partnership, has approved this Agreement and the Partnership Merger and deems it advisable and in the best interests of the limited partners of Merger

Partnership for Merger Partnership to enter into this Agreement and consummate the Partnership Merger on the terms and subject to the conditions set forth herein; and

      WHEREAS, Parent, Partnership, Merger Sub, Merger Partnership and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Mergers, and also to prescribe various conditions to the Mergers.

      NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, and intending to be legally bound, Parent, Partnership, Merger Sub, Merger Partnership and the Company hereby agree as follows:

ARTICLE I

The Mergers

      1.1     The Mergers.

      (a) Subject to the terms and conditions of this Agreement, at the REIT Merger Effective Time (as defined herein), the Company and Merger Sub shall consummate the REIT Merger, pursuant to which (i) Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease and (ii) the Company shall be the surviving REIT in the REIT Merger (the “Surviving REIT”) and shall become a direct Subsidiary of Parent by virtue of ownership of all of the Company Common Shares, as defined below. The corporate existence of the Company, with all its purposes, rights, privileges, franchises, powers and objects, shall continue unaffected and unimpaired by the REIT Merger and, as the Surviving REIT, it shall be governed by the laws of the State of Maryland.

      (b) Subject to the terms and conditions of this Agreement, and in accordance with Section 17-211 of DRULPA, at the Partnership Merger Effective Time (as defined herein), Merger Partnership and the Partnership shall consummate the Partnership Merger pursuant to which (i) Merger Partnership shall be merged with and into the Partnership and the separate existence of Merger Partnership shall thereupon cease and (ii) the Partnership shall be the surviving partnership in the Partnership Merger (the “Surviving Partnership”). The Partnership Merger shall have the effects specified in Section 17-211 of DRULPA.

      1.2     Declaration of Trust and Bylaws.

      (a) The name of the Surviving REIT shall be “Capital Automotive REIT.”

      (b) The declaration of trust of the Company, as in effect immediately prior to the REIT Merger Effective Time, shall be the declaration of trust of the Surviving REIT until thereafter amended as provided therein or by Law (as hereinafter defined) (the “Surviving REIT Declaration of Trust”).

      (c) The bylaws of the Company, as in effect immediately prior to the REIT Merger Effective Time, shall be the bylaws of the Surviving REIT until thereafter amended as provided by Law, by the Surviving REIT Declaration of Trust or by such bylaws (the “Surviving REIT Bylaws”).

      (d) The name of the Surviving Partnership shall be “Capital Automotive L.P.”

      (e) The limited partnership agreement of the Partnership, as amended pursuant to the term sheet described in Section 2.2(a) hereof, shall be the limited partnership agreement of the Surviving Partnership until thereafter amended as provided therein or by Law (the “Surviving Partnership Agreement”).

      1.3     Effective Times.

      (a) On the Closing Date, Merger Sub and the Company shall duly execute and file articles of merger (the “Articles of Merger”) with the State Department of Assessments and Taxation of Maryland (the “SDAT”) in accordance with the Maryland REIT Law. The REIT Merger shall become effective upon the filing date of the Articles of Merger with the SDAT (the “REIT Merger Effective Time”).

      (b) On the Closing Date, immediately after the REIT Merger Effective Time, the Partnership shall file with the Secretary of State of the State of Delaware (the “DSOS”) a certificate of merger (the “Partnership Merger Certificate”), executed in accordance with the applicable provisions of DRULPA, and shall make all

other filings or recordings required under DRULPA to effect the Partnership Merger. The Partnership Merger shall become effective after the REIT Merger Effective Time upon such time as the Partnership Merger Certificate has been accepted by the DSOS (the “Partnership Merger Effective Time”).

      (c) Unless otherwise agreed, the parties shall cause the REIT Merger Effective Time and the Partnership Merger Effective Time to occur on the Closing Date (as defined below).

      1.4     Closing. The closing of the Mergers (the “Closing”) shall occur as promptly as practicable (but in no event later than the second (2nd) Business Day) after all of the conditions set forth in Article VII (other than conditions that by their terms are required to be satisfied or waived as of the Closing Date (as hereinafter defined)) shall have been satisfied or, to the extent permitted by applicable Law, waived by the party entitled to the benefit of the same (unless extended by the mutual agreement of the parties hereto), and, subject to the foregoing, shall take place at 10:00 a.m., local time, on such date (the “Closing Date”), provided that the Closing Date shall not be earlier than December 1, 2005, at the offices of Blank Rome LLP, 405 Lexington Avenue, 24th Floor, New York, NY 10174, or at such other time and place as mutually agreed to by the parties hereto.

      1.5     Trustees and Officers of the Surviving REIT. The trustees of Merger Sub immediately prior to the REIT Merger Effective Time shall become the trustees of the Surviving REIT as of the REIT Merger Effective Time and the officers of Merger Sub immediately prior to the REIT Merger Effective Time shall become the officers of the Surviving REIT as of the REIT Merger Effective Time, each to hold office in accordance with the Surviving REIT Declaration of Trust and Surviving REIT Bylaws. Resignations shall be tendered for all current trustees of the Company effective upon the REIT Merger Effective Time.

      1.6     Partnership Matters. The Surviving REIT shall be the general partner and OP LP LLC shall be the limited partner of the Surviving Partnership following the Partnership Merger Effective Time.

ARTICLE II

Merger Consideration; Effect of Mergers on Shares of Capital Stock of

the Constituent Companies, Company Share Options and Partnership Units

      2.1     Effect on Shares. At the REIT Merger Effective Time, by virtue of the REIT Merger and without any action on the part of any holder thereof:

      The Company Common Shares, Company Series A Preferred Shares and Company Series B Preferred Shares shall be sometimes collectively referred to herein as the “Company Shares.”

      2.2     Effect on Partnership Interests. As of the Partnership Merger Effective Time, by virtue of the Partnership Merger and without any action on the part of the holder of any partnership interest of the Partnership:

      2.3     Exchange of Certificates

      2.4     Withholding Rights. The Surviving REIT, Surviving Partnership or the Paying Agent, as applicable, shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Common Shares, Company Share Options or to any holders of Partnership Common Units such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code (as defined herein), and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax Law. To the extent that amounts are so withheld by the Surviving REIT, Surviving Partnership or the Paying Agent, as applicable, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Company Common Shares, Partnership Common Units or Company Share Options in respect of which such deduction and withholding was made by the Surviving REIT, Surviving Partnership or the Paying Agent, as applicable.

      2.5     Dissenters’ Rights. No dissenters’ or appraisal rights shall be available with respect to the Mergers.

      2.6     Adjustment of Company Common Share Merger Consideration, Partnership Merger Consideration or OP LP LLC Membership Interests. In the event that, subsequent to the date of this Agreement but prior to the REIT Merger Effective Time or Partnership Merger Effective Time, as applicable, the Company Common Shares or Partnership Common Units issued and outstanding shall, through a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the capitalization of the Company or Partnership, as applicable, increase or decrease in number or be changed into or exchanged for a different kind or number of securities, then an appropriate and proportionate adjustment shall be made to the Company Common Share Merger Consideration, Partnership Merger Consideration or OP LP LLC Membership Interests, provided, however, that nothing set forth in this Section 2.6 shall be construed to supersede or in any way limit the prohibitions set forth in Section 5.1 hereof.

ARTICLE III

Representations and Warranties of the Company

      Except as set forth in the disclosure schedule attached to this Agreement (the “Company Disclosure Schedule”), the Company and the Partnership represent and warrant to Parent, Merger Sub and Merger Partnership as follows:

      3.1     Existence; Good Standing; Authority; Compliance with Law.

      (a) The Company is a real estate investment trust duly formed, validly existing and in good standing under the laws of the State of Maryland. The Amended and Restated Declaration of Trust of the Company, as amended through the date hereof (the “Company Declaration of Trust”) is in effect and no dissolution, revocation or forfeiture proceedings regarding the Company have been commenced. The Company is duly qualified or licensed to do business as a foreign entity and is in good standing under the laws of any other jurisdiction in which the character of the properties owned, leased or operated by it therein or in which the transaction of its business makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed does not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect (as hereinafter defined). The Company has all requisite trust power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted.

      (b) The Partnership is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. The certificate of limited partnership of the Partnership is in effect and no dissolution, revocation or forfeiture proceedings regarding the Partnership have been commenced. The Partnership is duly qualified or licensed to do business as a foreign limited partnership and is in good standing under the laws of any other jurisdiction in which the character of the properties owned, leased or operated by it therein or in which the transaction of its business makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed does not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. The Partnership has all requisite partnership power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted.

      (c) Section 3.1(c) of the Company Disclosure Schedule sets forth:

      Except as listed in Section 3.1(c) of the Company Disclosure Schedule, the Company does not own, directly or indirectly, beneficially or of record, any shares of stock or other security of any other entity or any other investment in any other entity, which would be deemed a Subsidiary of the Company.

      (d) Each of the Company’s Subsidiaries is duly qualified or licensed to do business and in good standing under the laws of each jurisdiction in which the character of the properties owned, leased or operated by it therein or in which the transaction of its business makes such qualification or licensing necessary, other than in

such jurisdictions where the failure to be so qualified or licensed does not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect.

      (e) Except as set forth in Section 3.1(e) of the Company Disclosure Schedule, all of the outstanding equity or voting securities or other interests of each of the Company’s Subsidiaries have been validly issued and are (A) fully paid and nonassessable, (B) owned by the Company or by one of the Company’s Subsidiaries, and (C) owned, directly or indirectly, free and clear of any Lien (as hereinafter defined) (including any restriction on the right to vote or sell the same, except as may be provided as a matter of Law), and all equity or voting interests in each of the Company’s Subsidiaries that is a partnership, joint venture, limited liability company or trust which are owned by the Company, by one of the Company’s Subsidiaries or by the Company and one of the Company’s Subsidiaries are owned free and clear of any Lien (including any restriction on the right to vote or sell the same, except as may be provided as a matter of Law). For purposes of this Agreement, “Lien” means, with respect to any asset (including any security), any mortgage, claim, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset.

      (f) The Company has previously provided to Parent true and complete copies of the Company Declaration of Trust and the Second Amended and Restated Bylaws of the Company (the “Company Bylaws”), each as amended through the date hereof, and any other organizational documents (and in each such case, all amendments thereto) of the Company as currently in effect.

      (g) The Company has previously provided to Parent true and complete copies of the Partnership’s Certificate of Limited Partnership and Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”), each as amended through the date hereof, and the other organizational documents (and in each such case, all amendments thereto) of the Partnership as currently in effect.

      3.2     Capitalization.

      (a) The authorized shares of beneficial interest of the Company consist of 100,000,000 Company Common Shares, of which, as of August 31, 2005, 46,453,994 were issued and outstanding and 20,000,000 Company Preferred Shares of which, as of August 31, 2005, 3,950,000 designated as Company Series A Preferred Shares were issued and outstanding and 2,600,000 designated as Company B Preferred Shares were issued and outstanding. 3,092,672 Company Common Shares have been reserved for issuance upon conversion of the Company’s 6% Convertible Notes due 2024 (“Convertible Notes”) and 357,865 Company Common Shares have been reserved for issuance pursuant to the Company Share Option Plan, Phantom Share Purchase Program, Restricted Share dividend equivalent rights and Trustees Deferred Compensation Plan as listed in Section 3.2(c) of the Company Disclosure Schedule, subject to adjustment on the terms set forth in such plans and/or agreements, and 208,129 Company Share Options, 141,995 Phantom Shares, 6,506 Fee Shares and 1,235 Restricted Share dividend equivalent rights were outstanding as of August 31, 2005. As of the date of this Agreement, the Company had no Company Common Shares reserved for issuance or required to be reserved for issuance other than as described above. All such issued and outstanding shares of the Company are, and all shares subject to issuance as specified above, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable will be, when issued, duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights under any provisions of the Maryland REIT Law, the Company Declaration of Trust or Company Bylaws or any agreement to which the Company is a party or is otherwise bound.

      (b) The Company has issued and outstanding the secured and unsecured debt instruments listed in Section 3.2(b) of the Company Disclosure Schedule. Section 3.2(b) of the Company Disclosure Schedule sets forth an accurate list of all such instruments, their outstanding principal amounts as of June 30, 2005, interest rates and maturity dates. Except as listed in Section 3.2(b) of the Company Disclosure Schedule, no obligation under such debt instruments shall be accelerated nor shall any Person have the right to accelerate such obligation, and none of the other provisions of such debt instruments shall be affected in any material respect, by virtue of the REIT Merger. Except for the Convertible Notes, the Company has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the shareholders of the Company on any matter.

      (c) Except for the Company Share Options, Restricted Shares, Phantom Shares, Deferred Restricted Shares, Fee Shares and any dividend equivalent rights thereon (collectively, the “Company Stock Rights”), the Convertible Notes, the Partnership Common Units and the Partnership Preferred Units, there are no existing options, warrants, calls, subscription rights, convertible securities or other rights, agreements or commitments (contingent or otherwise) which obligate the Company to issue, transfer or sell any shares of beneficial interest (or similar ownership interest) of the Company or any investment which is convertible into or exercisable or exchangeable for any such shares. Section 3.2(c) of the Company Disclosure Schedule sets forth a true, complete and correct list of the Company Stock Rights, including the name of the Person to whom such Company Stock Right has been granted, the number of shares subject to each Company Stock Right, the type of Company Stock Right, the per share exercise price or purchase price for each Company Stock Right that is a Company Share Option, whether the Company Share Option is qualified and the vesting schedule for each Company Stock Right as of the date of this Agreement. Except for the Company Stock Rights, the Company has not issued any share appreciation rights, dividend equivalent rights, performance awards, restricted stock unit awards or “phantom” shares. True and complete copies of all instruments (or the forms of such instruments) referred to in this Section 3.2(c) have been furnished or made available to Parent.

      (d) Except as set forth in Section 3.2(d) of the Company Disclosure Schedule and Article VIII of the Company Declaration of Trust, there are no agreements or understandings to which the Company is a party with respect to the voting of any shares of beneficial interest of the Company or which restrict the transfer of any such shares, nor does the Company have knowledge of any third party agreements or understandings with respect to the voting of any such shares or which restrict the transfer of any such shares.

      (e) Except as set forth in Section 3.2(c) and Section 3.2(e) of the Company Disclosure Schedule, there are no outstanding contractual obligations of the Company to repurchase, redeem, exchange, convert or otherwise acquire any shares of beneficial interest or any other securities of the Company.

      (f) Except as set forth in Section 3.2(f) of the Company Disclosure Schedule, the Company is under no obligation, contingent or otherwise, by reason of any agreement to register the offer and sale or resale of any of its securities under the Securities Act.

      (g) The Company is the sole general partner of the Partnership and, as of the date hereof, owns approximately 85% of the Partnership Common Units as well as 100% of the Partnership Preferred Units. Section 3.2(g) of the Company Disclosure Schedule sets forth a list of all other holders of the Partnership Common Units, such holder’s most recent address and the exact number (e.g., general, limited, etc.) of Partnership Common Units held. There are no existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate the Partnership to issue, transfer or sell any partnership interests of such Partnership. Except as set forth in Section 3.2(g) of the Company Disclosure Schedule, there are no outstanding contractual obligations of the Partnership to issue, repurchase, redeem or otherwise acquire any partnership interests of the Partnership. Except as set forth in Section 3.2(g) of the Company Disclosure Schedule, the partnership interests owned by the Company are subject only to the restrictions on transfer set forth in the Partnership Agreement, and those imposed by applicable securities laws.

      (h) As of the date hereof, there are fewer than 300 holders of record, as such term is defined in Rule 12g5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of each of the Company Series A Preferred Shares, the Company Series B Preferred Shares and the Company’s 6.75% Senior Unsecured Monthly Income Notes due 2019.

      3.3     Authority Relative to this Agreement; Shareholder Approval.

      (a) The Company has all necessary power and authority to execute and deliver this Agreement and to consummate the REIT Merger and the other transactions contemplated hereby. No other proceedings on the part of the Company or any of its Subsidiaries are necessary to authorize this Agreement or to consummate the REIT Merger and the other transactions contemplated hereby (other than, with respect to the REIT Merger and this Agreement, to the extent required by Law, the Company Shareholder Approval (as hereinafter defined)). This Agreement has been duly and validly executed and delivered by the Company and,

assuming due authorization, execution and delivery hereof by each of Parent, Merger Sub, and Merger Partnership, constitutes a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with and subject to its terms and conditions, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles.

      (b) The Company Board has duly and validly authorized the execution and delivery of this Agreement and approved the consummation of the REIT Merger and the other transactions contemplated hereby, and no other actions are required to be taken by the Company Board for the consummation of the REIT Merger and the other transactions contemplated hereby. The Company Board has directed that this Agreement be submitted to the shareholders of the Company for their approval to the extent required by Law and the Company Declaration of Trust and, subject to the provisions of Section 6.4(b) hereof, will recommend to the shareholders that they vote in favor of the REIT Merger. The affirmative approval of this Agreement and the REIT Merger by the holders of Company Common Shares voting together as a single class, representing at least a majority of all votes entitled to be cast by the holders of all outstanding Company Common Shares as of the record date for the Company Shareholders’ Meeting (the “Company Shareholder Approval”) is the only vote of the holders of any class or series of stock of the Company necessary to adopt this Agreement and approve the REIT Merger.

      (c) The Partnership has all necessary power and authority to execute and deliver this Agreement and to consummate the Partnership Merger and the other transactions contemplated hereby. No other proceedings on the part of the Partnership are necessary to authorize this Agreement or to consummate the Partnership Merger and the other transactions contemplated hereby (other than with respect to the Partnership Merger and this Agreement, to the extent required by Law, the Partnership Approval (as defined below). This Agreement has been duly and validly executed and delivered by the Partnership and, assuming due authorization, execution and delivery hereof by each of Parent, Merger Sub, and Merger Partnership, constitutes a valid, legal and binding agreement of the Partnership, enforceable against the Partnership in accordance with and subject to its terms and conditions, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles. “Partnership Approval” means the consent of the holders of at least two-thirds (2/3rd) of the Partnership Common Units, including Partnership Common Units owned by the Company.

      3.4     Reports; Financial Statements. Except as set forth in Section 3.4 of the Company Disclosure Schedule, the Company and each of its Subsidiaries has filed all required forms, reports and documents with the SEC from January 1, 2002 through the date hereof, each of which has complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act, and the rules and regulations promulgated thereunder applicable to such forms, reports and documents, each as in effect on the dates such forms, reports and documents were filed, except to the extent that such forms, reports and documents have been modified or superceded by later forms, reports and documents filed prior to the date of this Agreement. The Company has made available to Parent, in the form filed with the SEC (including any amendments thereto), (i) its Annual Reports on Form 10-K for each of the fiscal years ended December 31, 2002, 2003 and 2004, respectively, (ii) all definitive proxy statements relating to the Company’s meetings of shareholders (whether annual or special) held since January 1, 2002, and (iii) all other reports or registration statements filed by the Company with the SEC since January 1, 2002 (collectively, the “Company SEC Reports”). Except as set forth in Section 3.4 of the Company Disclosure Schedule, none of such forms, reports or documents, including any financial statements or schedules included or incorporated by reference therein, contained, when filed, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent that such statements have been modified or superceded by later Company SEC Reports filed prior to the date of this Agreement. To the extent required, the Company has complied in all material respects with the requirements of the Sarbanes-Oxley Act of 2002 (the “S-O Act”) that are currently in effect, including, without limitation, those applicable to an “accelerated filer” as such term is defined thereunder. Except as set

forth in Section 3.4 of the Company Disclosure Schedule, the consolidated financial statements of the Company and its Subsidiaries included in the Company SEC Reports (except to the extent such statements have been amended or modified by later Company SEC Reports filed prior to the date of this Agreement) filed prior to the date of this Agreement complied as to form in all material respects with applicable accounting standards and the published rules and regulations of the SEC with respect thereto and fairly present in all material respects, in conformity with generally accepted accounting principles (“GAAP”) (except, in the case of interim financial statements, as permitted by the applicable rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto), the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments).

      3.5     No Undisclosed Liabilities. Except (i) as set forth in Section 3.5 of the Company Disclosure Schedule, (ii) as disclosed in the Company SEC Reports filed prior to the date hereof and (iii) for fees and expenses incident to the consummation of the transactions contemplated hereby, none of the Company or its Subsidiaries had any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth in a consolidated balance sheet of the Company or in the notes thereto, except for any such liabilities or obligations which do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect, after taking into account any assets acquired or services provided in connection with the incurrence of such liabilities or obligations.

      3.6     Absence of Changes. Except as set forth in Section 3.6 of the Company Disclosure Schedule or disclosed in the Company SEC Reports, from January 1, 2005 through the date hereof, the Company has conducted its businesses only in the ordinary course of business and consistent with past practice, and there has not been: (a) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of beneficial interest of the Company, except for the payment of dividends in the aggregate amounts of $58,527,456.08 on Company Common Shares, $5,554,687.50 on Company Series A Preferred Shares, and $3,900,000 on Company Series B Preferred Shares (and corresponding regular quarterly distributions payable to each class or series of holders of units of partnership interests in the Partnership); (b) any material commitment, contractual obligation (including, without limitation, any management or franchise agreement, any lease (capital or otherwise) or any letter of intent), borrowing, lending commitment, liability, guaranty, capital expenditure or transaction (each, a “Commitment”) entered into by the Company outside the ordinary course of business; (c) any split, combination or reclassification of any Company Shares or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for, or giving the right to acquire by exchange or exercise, shares of its beneficial interest or any issuance of an ownership interest in, any of the Company’s Subsidiaries, except as contemplated by this Agreement or for the issuance or exercise of Company Stock Rights; (d) any damage, destruction or loss, whether or not covered by insurance, that has had, would have and would reasonably be likely to have a Material Adverse Effect; (e) any material change in the Company’s accounting principles, practices or methods except insofar as may have been required by a change in GAAP; (f) any amendment of any employment, consulting, severance, retention or any other agreement between the Company and any officer of the Company; or (g) any event or occurrence of any condition that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

      3.7     Consents and Approvals; No Violations. Assuming the receipt of the Company Shareholder Approval, and except (a) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the Securities Act, the Nasdaq Stock Market, state securities or state “blue sky” laws, the HSR Act (as hereinafter defined) or any other antitrust law and (b) the filing of the Articles of Merger, Partnership Merger Certificate, or as otherwise set forth in Section 3.7 of the Company Disclosure Schedule, none of the execution, delivery or performance of this Agreement by the Company, the consummation by the Company of the Mergers or compliance by the Company with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the organizational documents of the Company or any of its Subsidiaries, (ii) require any filing by the Company or any of its Subsidiaries with, notice to, or permit, authorization, consent or approval of, any state or federal government or

governmental authority or by any United States or state court of competent jurisdiction (a “Governmental Entity”), (iii) require any consent or notice under, result in a violation or breach by the Company or any of its Subsidiaries of, constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, result in the triggering of any payment, or result in the creation of any lien or other encumbrance on any property or asset of the Company or any of its Subsidiaries pursuant to, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement, permit, franchise or other instrument or obligation or Company Material Contract to which the Company or any of its Subsidiaries is a party or by which they or any of their respective properties or assets may be bound or (iv) violate any law, order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its Subsidiaries or any of their respective properties or assets (each, a “Law” and collectively, the “Laws”), excluding from the foregoing clauses (ii), (iii) and (iv) such filings, notices, permits, authorizations, consents, approvals, violations, breaches, trigger events, creation of liens or defaults which, individually or in the aggregate, (A) would not prevent or materially delay consummation of the Mergers, (B) would not otherwise prevent or materially delay performance by the Company or the Partnership of its material obligations under this Agreement or (C) do not have and would not reasonably be likely to have a Material Adverse Effect.

      3.8     No Default. Neither the Company nor any of its Subsidiaries is in violation of (i) any material term of the Company Declaration of Trust or Company Bylaws (or other similar organizational documents), (ii) any agreement or instrument related to indebtedness for borrowed money or any other agreement to which it is a party or by which it is bound, or (iii) any Law applicable to the Company, its Subsidiaries or any of their respective properties or assets, in each case with respect to clauses (ii) and (iii) above, except as do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect.

      3.9     Litigation. Except (i) as listed in Section 3.9 of the Company Disclosure Schedule, (ii) as set forth in the Company SEC Reports filed prior to the date of this Agreement, or (iii) for suits, claims, actions, proceedings or investigations arising from the usual, regular and ordinary course of operations of the Company and its Subsidiaries involving (A) collection matters or (B) personal injury or other tort litigation which are covered by adequate insurance (subject to customary deductibles), there is no Dispute (as hereinafter defined) pending or, to the Company’s knowledge, threatened in writing against the Company or any of its Subsidiaries or any of its or their respective properties or assets that (1) involves amounts in excess of $100,000 individually or in excess of $1,000,000 in the aggregate, (2) questions the validity of this Agreement or any action to be taken by the Company or the Partnership in connection with the consummation of the Mergers or (3) reasonably can be expected to have a Material Adverse Effect. None of the Company or its Subsidiaries is subject to any order, judgment, writ, injunction or decree, except as would not reasonably be expected to have a Material Adverse Effect.

      3.10     Compliance with Applicable Law. Except as listed in Section 3.10 of the Company Disclosure Schedule, the Company and each of its Subsidiaries hold all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities and third parties necessary for the lawful conduct of their respective businesses (the “Company Permits”), except for Company Permits the absence of which do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. The Company and each of its Subsidiaries are in compliance with the terms of the Company Permits, except where the failure to so comply does not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect The businesses of the Company and each of its Subsidiaries are not being conducted in violation of any Law applicable to the Company or its Subsidiaries except as would not reasonably be expected to have a Material Adverse Effect. Except as would not reasonably be expected to have a Material Adverse Effect, no investigation, review or proceeding by any Governmental Entity with respect to the Company, its Subsidiaries or their operations is pending nor, to the Company’s knowledge is threatened in writing, and to the Company’s knowledge, no Governmental Entity has indicated an intention to conduct the same.

      Notwithstanding the foregoing, nothing contained in this Section 3.10 shall be construed to limit the statements set forth in Section 3.14 hereof.

      3.11     Properties.

      (a) Section 3.11(a) of the Company Disclosure Schedule sets forth a correct and complete list and address of all real property owned or leased by the Company and its Subsidiaries (including its headquarters and leases of office space) as of the date of this Agreement and a list of expected construction completion dates of all buildings, structures and other improvements being funded by or on behalf of the Company (all such real property, together with all buildings, structures and other improvements and fixtures located on or under such real property and all easements, rights and other appurtenances to such real property, are individually referred to herein as “Company Property” and collectively referred to herein as the “Company Properties”). Each of the Company Properties is owned or leased by the Company and its Subsidiaries, as indicated in Section 3.11(a) of the Company Disclosure Schedule. The Company and its Subsidiaries own or, if so indicated in Section 3.11(a) of the Company Disclosure Schedule, lease each of the Company Properties, in each case free and clear of any Liens, title defects, contractual restrictions, covenants or reservations of interests in title (collectively, “Property Restrictions”), except for (i) Permitted Liens, (ii) Property Restrictions imposed or promulgated by Law or by any Governmental Entity which are customary and typical for similar properties or (iii) Property Restrictions which do not, individually or in the aggregate, interfere materially with the current use of such property, except in the case of clauses (i), (ii) and (iii) above as do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. There are no defaults under any of the Property Restrictions, except as do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. For purposes of this Agreement, “Permitted Liens” means (i) Liens for Taxes not yet due or delinquent or as to which there is a good faith dispute and for which there are adequate reserves on the financial statements of the Company (if such reserves are required pursuant to GAAP), (ii) with respect to real property, any title exception disclosed in the Company Title Insurance Policies (as defined herein) made available to Parent (whether material or immaterial), Liens and obligations arising under the Company Material Contracts (including any lien securing mortgage debt disclosed in Section 3.2(b) of the Company Disclosure Schedule), the Company Leases (as defined herein) and any other Lien which does not, individually or in the aggregate, interfere materially with the current use of such property (assuming its continued use in the manner in which it is currently used) or materially adversely affect the value or marketability of such property, (iii) inchoate materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s liens arising in the usual, regular and ordinary course and not past due and payable or the payment of which is being contested in good faith by appropriate proceedings and for which there are adequate reserves on the financial statements of the Company (if such reserves are required pursuant to GAAP) and (iv) mortgages and deeds of trust (which are listed in the Company Disclosure Schedule).

      (b) Section 3.11(b) of the Company Disclosure Schedule sets forth a correct and complete list of all agreements for the pending acquisition, sale, option to sell, right of first refusal, right of first offer or any other contractual right to sell, dispose of, or lease (by merger, purchase or sale of assets or stock or otherwise) any personal property valued at $50,000 or more. The Company and each of its Subsidiaries have good and sufficient title to all the material personal and non-real properties and assets reflected in their books and records as being owned by them (including those reflected in the consolidated balance sheet of the Company and its Subsidiaries as of June 30, 2005, except as since sold or otherwise disposed of in the usual, regular and ordinary course of business), free and clear of all Liens, except for Permitted Liens.

      (c) Except as provided for in Section 3.11(c) of the Company Disclosure Schedule, to the Company’s knowledge, the Company or its Subsidiaries has good, marketable and insurable fee simple title to or a valid leasehold interest in the Company Properties and valid policies of title insurance (each a “Company Title Insurance Policy”) have been issued insuring, as of the effective date of each such Company Title Insurance Policy, the Company’s or the applicable Subsidiary’s (or the applicable predecessor’s or acquiror’s) fee simple title to or leasehold interest in the Company Properties, subject only to the matters disclosed on the Company Title Insurance Policies and Permitted Liens, and to the Company’s knowledge, such policies are, at the date hereof, valid and in full force and effect and no written claim has been made against any such policy. A correct and complete copy of each Company Title Insurance Policy has been previously made available to Parent.

      (d) Except as set forth in Section 3.11(d) of the Company Disclosure Schedule, the Company has no knowledge (i) that any certificate, permit or license from any Governmental Entity having jurisdiction over any of the Company Properties or any agreement, easement or other right of an unlimited duration which is necessary to permit the lawful use and operation of the buildings and improvements on any of the Company Properties or which is necessary to permit the lawful use and operation of all utilities, parking areas, detention ponds, driveways, roads and other means of egress and ingress to and from any of the Company Properties has not been obtained, is not in full force and effect and for which a renewal application has not been timely filed, except for such failures to obtain, to have in full force and effect or to renew, which do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect, or of any pending written threat of modification or cancellation of any of same, which have or would reasonably be likely to have a Material Adverse Effect; (ii) of written notice of any uncured violation of or liability under any Laws, including Environmental Laws, affecting any of the Company Properties or operations which have or would reasonably be likely to have a Material Adverse Effect; (iii) of any structural defects relating to any Company Properties which have or would reasonably be likely to have a Material Adverse Effect; (iv) of any Company Properties whose building systems are not in working order to an extent which have or would reasonably be likely to have a Material Adverse Effect; or (v) of any physical damage to any Company Properties to an extent which have or would reasonably be likely to have a Material Adverse Effect.

      (e) Except as provided for in Section 3.11(e) of the Company Disclosure Schedule, to the Company’s knowledge, neither the Company nor any of the Company’s Subsidiaries has received any written notice to the effect that (i) any condemnation or rezoning proceedings are pending or threatened with respect to any of the Company Properties, or (ii) any Laws including, without limitation, any zoning regulation or ordinance, building or similar law, code, ordinance, order or regulation has been violated for any Company Property, in the case of clauses (i) and (ii) above which have or would reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect.

      (f) Except as provided for in Section 3.11(f) of the Company Disclosure Schedule, the rent rolls for the Company Properties dated as of July 2005 which have previously been made available to Parent, list each lease, sublease, ground lease or other right of occupancy that the Company or its Subsidiaries are party to as landlord with respect to each of the applicable Company Properties including all amendments, modifications, supplements, renewals, extensions and guarantees related thereto (except for discrepancies or omissions that do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect (the “Company Leases”), and are correct and complete in all respects (except for discrepancies that do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect). The Company has made available to Parent correct and complete copies of all Company Leases, as of the date hereof. Except as set forth in Section 3.11(f) of the Company Disclosure Schedule, neither the Company nor any of the Company’s Subsidiaries, on the one hand, nor, to the knowledge of the Company, any other party, on the other hand, is conducting or has conducted business in violation of or in a manner which would reasonably be expected to result in liability under any Environmental Laws at or related to the Company Property that is the subject of such Company Lease or in default under any Company Lease, except for violations or defaults that are disclosed in the rent rolls or that do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. No purchase option, option to sell, right of first refusal, right of first offer, right of first negotiation or any similar option or right has been exercised under any of the Company Leases, except options whose exercise has been evidenced by a written document as described in Section 3.11(f) of the Company Disclosure Schedule.

      (g) Except as provided for in Section 3.11(g) of the Company Disclosure Schedule, all work required to be performed, payments required to be made and actions required to be taken prior to the date hereof pursuant to any application, submission or agreement the Company or any of its Subsidiaries has entered into with a Governmental Entity in connection with a site approval, zoning reclassification or other similar action relating to any Company Properties (e.g., local improvement district, road improvement district, environmental compliance and environmental remediation, abatement and/or mitigation) have been and are being performed, paid or taken, as the case may be, in accordance with said application, submission or agreement and

with applicable Laws, other than those where, individually or in the aggregate, the failure does not have and would not reasonably be likely to have a Material Adverse Effect.

      (h) Section 3.11(h) of the Company Disclosure Schedule sets forth a correct and complete list of each ground lease pursuant to which the Company or any of its Subsidiaries is a lessee (individually, “Ground Lease” and collectively, “Ground Leases”). Each Ground Lease is in full force and effect and is valid, binding and enforceable in accordance with its terms against (a) the Company or any of its Subsidiaries, and (b) to the knowledge of the Company, the other parties thereto, except as do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. Except as listed in Section 3.11(h) of the Company Disclosure Schedule or which do not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect, the Company or any of its Subsidiaries have performed all obligations required to be performed by it to date under each of the Ground Leases and neither the Company nor any of its Subsidiaries, nor to the knowledge of the Company, any other party, is in default under any Ground Lease, which default has or would reasonably be expected to have a Material Adverse Effect (and to the Company’s knowledge, no event has occurred which, with due notice or lapse of time or both, would constitute such a default). The Company has made available to Parent a correct and complete copy of each Ground Lease and all amendments thereto.

      (i) All rent has been properly calculated and billed to tenants in all material respects pursuant to the Company Leases.

      (j) Except as set forth in Section 3.11(j) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has granted any unexpired option agreements or rights of first refusal with respect to the purchase of a Company Property or any portion thereof or any other unexpired rights in favor of any Third Party to purchase or otherwise acquire a Company Property or any portion thereof or entered into any contract for sale, ground lease or letter of intent to sell or ground lease any Company Property or any portion thereof.

      (k) Section 3.11(k) of the Company Disclosure Schedule sets forth a correct and complete list of all of the contracts, documents or other agreements which are currently in effect whereby the Company or any of its Subsidiaries is entitled to receive site work or other reimbursements from any Third Party, pursuant to which the Company or any of its Subsidiaries is currently entitled to receive in excess of $250,000 (the “Reimbursement Agreements”).

      (l) Except for the applicable tenant’s management obligations as set forth in the Company Leases, neither the Company nor any of its Subsidiaries is a party to any agreement relating to the management of any of the Company Properties by a party other than the Company or any wholly-owned Company Subsidiaries (a “Third Party”).

      (m) Except as set forth in Section 3.11(m) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any agreement pursuant to which the Company or any of its Subsidiaries manages any real properties for any Third Party.

      (n) Except for those contracts or agreements set forth in Section 3.11(n) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has entered into any contract or agreement (collectively, the “Participation Agreements”) with any Third Party or any employee, consultant, Affiliate or other person (the “Participation Party”) which provides for a right of such Participation Party to participate, invest, join, partner, have any interest in whatsoever (whether characterized as a contingent fee, profits interest, equity interest or otherwise) or have the right to any of the foregoing in any proposed or anticipated investment opportunity, joint venture, partnership or any other current or future transaction or property in which the Company or any Subsidiary has or will have an interest, including but not limited to those transactions or properties identified, sourced, produced or developed by such Participation Party (a “Participation Interest”). Section 3.11(n) of the Company Disclosure Schedule sets forth the only transactions or Company Properties for which any Participation Party currently has a Participation Interest pursuant to such Participation Agreements.

      (o) Section 3.11(o) of the Company Disclosure Schedule sets forth a list of all notices to the Company from lenders or insurance carriers currently requiring material repairs or other material alterations to Company Properties.

      (p) Except as set forth in Section 3.11(p) of the Company Disclosure Schedule, there is no Company-funded renovation, restoration or other work in progress (or commitments related thereto) above $500,000 in each case and $5,000,000 in the aggregate to any Company Properties.

      3.12     Employee Plans.

      (a) All employees of the Company or any of its Subsidiaries are employed by the Company or the Partnership. Section 3.12(a) of the Company Disclosure Schedule sets forth a list of all “employee benefit plans,” as defined in Section 3(3) of the Employment Retirement Income Security Act of 1974, as amended (“ERISA”), and all other material employee benefit plans or other benefit arrangements or payroll practices including bonus plans, fringe benefits, executive compensation, consulting or other compensation agreements, change in control agreements, incentive, equity or equity-based compensation, deferred compensation arrangements, stock purchase, severance pay, sick leave, vacation pay, salary continuation, hospitalization, medical benefits, life insurance, other welfare benefits, scholarship programs, directors’ benefit, bonus or other incentive compensation, which the Company or the Partnership sponsors, maintains, contributes to or has any obligation to contribute to (each a “Company Employee Benefit Plan” and collectively, the “Company Employee Benefit Plans”). None of the Company Employee Benefit Plans is or has been subject to Title IV of ERISA, or is or has been subject to Sections 4063 or 4064 of ERISA, nor is the Company, its Subsidiaries or any ERISA Affiliate obligated to contribute to a multiemployer plan, as defined in Section 3(37) of ERISA (a “Multiemployer Plan”). Neither the Company nor any ERISA Affiliate has incurred any material present or contingent liability under Title IV of ERISA, nor does any condition exist which could reasonably be likely to result in any such liability.

      (b) Correct and complete copies of the following documents, with respect to each of the Company Employee Benefit Plans, other than a Multiemployer Plan, have been made available to Parent by the Company: (i) plan and related trust documents, and amendments thereto; (ii) the three most recent Forms 5500 and schedules thereto, if applicable; (iii) the most recent Internal Revenue Service (“IRS”) opinion letter or determination letter (which resulted from a proper and timely filing with the IRS), if any; (iv) the three most recent financial statements and actuarial valuations, if applicable; and (v) summary plan descriptions, if applicable.

      (c) Except as would not have and would not reasonably be likely to have, a Material Adverse Effect, (i) the Company and the Partnership have performed all obligations required to be performed by them under all Company Employee Benefit Plans; (ii) the Company Employee Benefit Plans have been administered in compliance with their terms and the requirements of ERISA, the Code and other applicable Laws; (iii) all contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the Company Employee Benefit Plans to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof and all contributions for any period ending on or before the Closing Date which are not yet due will have been paid or accrued prior to the Closing Date; (iv) there are no actions, suits, arbitrations, investigations, audits or claims (other than routine claims for benefits) filed, or to the knowledge of the Company or the Partnership, threatened in writing with respect to any Company Employee Benefit Plan; and (v) the Company and the Partnership have no liability as a result of any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) for any excise Tax or civil penalty.

      (d) Neither the Company nor the Partnership is subject to any unsatisfied withdrawal liability with respect to any Multiemployer Plan.

      (e) Each of the Company Employee Benefit Plans which is intended to be “qualified” within the meaning of Section 401(a) of the Code has received an opinion letter or determination letter from the IRS. The Company and the Partnership know of no fact which would adversely affect the qualified status of any such Company Employee Benefit Plan or the exemption of such trust.

      (f) Except as set forth in Section 3.12(f) of the Company Disclosure Schedule, none of the Employee Benefit Plans provide for continuing post-employment health, life insurance coverage or other welfare benefits for any participant or any beneficiary of a participant except as may be required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or similar state law (“COBRA”).

      (g) No stock or other security issued by the Company forms or has formed a material part of the assets of any tax qualified Company Employee Benefit Plan.

      (h) Except as set forth in Section 3.12(h) of the Company Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation of the Mergers will (i) result in any material payment becoming due, or materially increase the amount of compensation due, to any current or former employee of the Company or any of its Subsidiaries; (ii) materially increase any benefits otherwise payable under any Company Employee Benefit Plan; or (iii) result in the acceleration of the time of payment or vesting of any such material benefits.

      3.13     Labor Matters.

      (a) Section 3.13(a) of the Company Disclosure Schedule sets forth a list of all temporary staffing, labor or collective bargaining agreements to which the Company or any Subsidiary is party (excluding personal services contracts) and, except as set forth therein, there are no such temporary staffing, labor or collective bargaining agreements that pertain to the Company or any of its Subsidiaries. The Company has heretofore made available to Parent correct and complete copies of the labor or collective bargaining agreements listed on Section 3.13(a) of the Company Disclosure Schedule, together with all material amendments, modifications, supplements and side letters affecting the duties, rights and obligations of any party thereunder.

      (b) Except as disclosed in Section 3.13(b) of the Company Disclosure Schedule, (i) no employees of the Company or any of its Subsidiaries are represented by any labor organization; (ii) no labor organization or group of employees of the Company or any of its Subsidiaries has made a written demand for recognition or certification; (iii) to the Company’s knowledge, there are no representation or certification proceedings or petitions seeking a representation proceeding presently filed, or to the Company’s knowledge, threatened in writing to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority; (iv) to the Company’s knowledge, there are no organizing activities involving the Company or any of its Subsidiaries pending with any labor organization or group of employees of the Company or any of its Subsidiaries, and (v) the Company and its Subsidiaries are not affected and have not been affected in the past by any actual or threatened work stoppage strike or other labor disturbance.

      (c) There are no unfair labor practice charges, grievances or complaints filed or, to the Company’s knowledge, threatened in writing by or on behalf of any employee or group of employees of the Company or any of its Subsidiaries.

      (d) Except as set forth in Section 3.13(d) of the Company Disclosure Schedule, there are no complaints, charges or claims against the Company or any of its Subsidiaries filed or, to the knowledge of the Company, threatened in writing to be brought or filed, with any federal, state or local Governmental Entity or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by the Company or any of its Subsidiaries.

      (e) Except as set forth in Section 3.13(e) of the Company Disclosure Schedule, (i) the Company and each of its Subsidiaries is in compliance in all material respects with all Laws relating to the employment of labor, including all such Laws relating to wages, hours, the Worker Adjustment and Retraining Notification Act and any similar state or local “mass layoff” or “plant closing” Law (“WARN”), collective bargaining, discrimination, civil rights, affirmative action, safety and health, workers’ compensation and the collection and payment of withholding and/or social security Taxes and any similar Tax, except for any non-compliance which does not have and would not reasonably be likely to have, a Material Adverse Effect; and (ii) there has been no “mass layoff” or “plant closing” as defined by WARN with respect to the Company or any of its Subsidiaries within the last six (6) months.

      3.14     Environmental Matters. Except as disclosed in Section 3.14 of the Company Disclosure Schedule or as does not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect, (i) each of the Company and its Subsidiaries is and has been, and at all times during the Company’s and each of its Subsidiaries’ ownership and operation of the Company Properties, the Company Properties are and have been (and with respect to former Subsidiaries and properties formerly owned, leased or operated by the Company or said former Subsidiaries, to the knowledge of the Company or any Subsidiary, was during the period owned, leased or operated by any of them) in compliance with Environmental Laws; (ii) each of the Company and its Subsidiaries has obtained and currently possess and maintain all Company Permits required by Environmental Laws (collectively, “Company Environmental Permits”) for each of their respective operations, all such Company Environmental Permits are in good standing and renewals timely applied for, and each of the Company and its current Subsidiaries is and has been in compliance with the terms and conditions of such Company Environmental Permits, and each of the Company’s former Subsidiaries was in compliance with the terms and conditions of such Company Environmental Permits at all times during the periods in which such former Subsidiaries were Subsidiaries of the Company or prior thereto; (iii) none of the Company and its Subsidiaries or real property currently or, to the knowledge of the Company or any Subsidiary, formerly owned, leased or operated by the Company or its current and former Subsidiaries or any of their respective predecessors is subject to any pending or, to the knowledge of the Company or any Subsidiary, threatened Environmental Claim; (iv) none of the Company, its current Subsidiaries, its former Subsidiaries (pertaining only to the periods in which such former Subsidiaries were Subsidiaries of the Company or prior thereto) and, to the knowledge of the Company or any such Subsidiary, no other party whose liability would be attributable to the Company or any such Subsidiary, has generated, arranged for the disposal of or otherwise caused to be disposed of any Hazardous Material at any off-site location at which the Company or any such Subsidiary would reasonably be expected to be liable for undertaking or paying for any investigation or any other action to respond to the release or, to the knowledge of the Company or any such Subsidiary, threatened release of any Hazardous Material or would reasonably be expected to be required to pay natural resource damages; (v) no Company Property or any property currently or, to the knowledge of the Company or any Subsidiary, formerly owned, leased or operated by the Company and its current and former Subsidiaries or any of their respective predecessors has been the subject of any treatment, storage, disposal, accumulation, generation, release or threatened release of Hazardous Materials in any manner which has given or would reasonably be expected to give rise to liability under Environmental Laws or need to undertake any action to respond to such Hazardous Materials or has an adverse environmental condition that has resulted in or would reasonably be expected to result in an Environmental Claim against the Company or its Subsidiaries; (vi) to the knowledge of the Company or any Subsidiary, there are no wetlands (as that term is defined in Section 404 of the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1254, and applicable state laws) at any of the Company Properties nor is any Company Property subject to any current or, to the knowledge of the Company or any Subsidiary, threatened environmental deed restriction, use restriction, institutional or engineering control or order or agreement with any Governmental Entity or any other restriction of record; (vii) no capital expenditures are presently re quired to maintain or achieve compliance with Environmental Laws; (viii) to the knowledge of the Company or any Subsidiary, there are no underground storage tanks, polychlorinated biphenyls (“PCB”) or PCB-containing equipment, except for PCB or PCB-containing equipment owned by utility companies, or asbestos or asbestos-containing materials at any Company Property; (ix) there have been no material incidents of water damage or visible evidence of mold, bacteria or toxic growth at any of the Company Properties; (x) except for customary terms in favor of lenders in mortgages and trusts, none of the Company or its Subsidiaries has assumed any liability of or duty to indemnify or pay contribution to any other party for any claim, damage or loss arising out of any Hazardous Material or pursuant to any Environmental Law; (xi) no party who has agreed to indemnify, defend and/or hold harmless the Company or its Subsidiaries with respect to any Environmental Claims or liabilities under any Environmental Laws has or, to the knowledge of the Company or any Subsidiary, is reasonably likely to default upon said obligations; (xii) no filing, notification or other submission to any Governmental Entity or any approval from any Governmental Entity is required under any Environmental Law for the execution of this Agreement or for the consummation of the Mergers or any of the other transactions contemplated hereby; and (xiii) to the knowledge of the Company or any Subsidiary, neither the Company nor any of its

Subsidiaries has received any request for information from any Governmental Entity, pursuant to Section 104(e) of CERCLA (as defined below) or any similar Environmental Law.

      As used in this Agreement:

      “Environmental Claims” means any and all administrative, regulatory, judicial or third-party claims, demands, notices of violation or non-compliance, directives, proceedings, investigations, orders, decrees, judgments or other allegations of noncompliance with or liability or potential liability relating in any way to any Environmental Law or any Company Environmental Permit, as the case may be.

      “Environmental Laws” means all applicable federal, state, and local Laws, rules and regulations, orders, judgments, decrees and other legal requirements including, without limitation, common law relating to pollution or the regulation and protection of human health, safety, the environment or natural resources, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.) (“CERCLA”); the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section. 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section. 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et seq.); the Toxic Substances Control Act, as amended (42 U.S.C. Section. 7401 et seq.); the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section 651 et seq.); the Safe Drinking Water Act, as amended (42 U.S.C. Section 300f et seq.); and their state and local counterparts or equivalents and any transfer of ownership notification or approval statute.

      “Hazardous Material” means all substances, pollutants, chemicals, compounds, wastes, including, without limitation, petroleum and any fraction thereof or substances otherwise potentially injurious to human health and the environment, including without limitation bacteria, mold, fungi or other toxic growth, regulated under Environmental Laws.

      The Company and its Subsidiaries have made available to Parent all material environmental audits, reports and other material environmental documents and reports in their possession or control relating to their current and, to the extent the Company or its Subsidiaries have knowledge that they are potentially liable, their or any of their respective predecessors’ formerly owned or operated properties, facilities or operations.

      3.15     Tax Matters.

      (a) All federal and all other material Tax Returns (as hereinafter defined) required to be filed by or on behalf of the Company or any of its Subsidiaries have been filed with the appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns, as amended, were accurate and complete in all material respects. Except as and to the extent publicly disclosed by the Company in the Company SEC Reports filed prior to the date of this Agreement, (i) all Taxes payable by or on behalf of the Company or any of its Subsidiaries (whether or not shown in a Tax Return) have been fully and timely paid or adequately provided for in accordance with GAAP, and (ii) adequate reserves or accruals for Taxes have been provided in accordance with GAAP with respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing or for which Taxes are being contested in good faith. Neither the Company nor any of its Subsidiaries has executed or filed with the IRS or any other taxing authority any agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitation), and no power of attorney with respect to any Tax matter is currently in force, except in connection with the appeals of local tax assessments described in Section 3.15(a) of the Company Disclosure Schedule.

      (b) The Company (i) for all taxable years commencing in 1998, the year in which the Company first made a REIT tax election, through the most recent December 31, has been subject to taxation as a real estate investment trust (a “REIT”) within the meaning of Section 856 of the Code and has satisfied all requirements to qualify as a REIT for such years, (ii) has operated, and intends to continue to operate, in such a manner as to qualify as a REIT for the taxable year including the date the REIT Merger becomes effective

and (iii) has not taken or omitted to take any action which would reasonably be likely to result in a challenge to its status as a REIT, and, to the Company’s knowledge, no challenge to the Company’s status as a REIT is pending or threatened in writing. Each Subsidiary of the Company that is a partnership, joint venture, or limited liability company (i) has been since its formation and continues to be treated for federal income tax purposes as a partnership or disregarded entity, as the case may be, and not as a corporation or an association taxable as a corporation and (ii) has not since the later of its formation or the acquisition by the Company of a direct or indirect interest therein, owned any assets (including, without limitation, securities) that would cause the Company to violate Section 856(c)(4) of the Code. Each Subsidiary of the Company that is a corporation has been since the later of the date of its formation or the date on which such Subsidiary became a Subsidiary of the Company a “qualified REIT subsidiary” pursuant to Section 856(i) of the Code or a “taxable REIT subsidiary” pursuant to Section 856(l) of the Code. Neither the Company nor any of its Subsidiaries holds any asset (i) the disposition of which would be subject to rules similar to Section 1374 of the Code, whether or not as a result of (A) an election under IRS Notice 88-19 or Treasury regulations Section 1.337(d)-5T or Section 1.337(d)-6 or (B) the application of Treasury regulations Section 1.337(d)-7, or (ii) which is subject to a consent filed pursuant to section 341(f) of the Code and the regulations thereunder.

      (c) Since January 1, 2000, the Company has incurred no liability for excise taxes under Sections 857(b), 860(c) or 4981 of the Code, including without limitation any excise tax arising from a prohibited transaction described in Section 857(b)(6) of the Code or any tax arising from “redetermined rents, redetermined deductions and excess interest” described in Section 857(b)(7) of the Code, and neither the Company nor any of its Subsidiaries has incurred any material liability for Taxes other than in the usual, regular and ordinary course of business. No event has occurred and no condition or circumstance exists which presents a material risk that any material Tax described in the preceding sentence will be imposed upon the Company or its Subsidiaries.

      (d) There are no material deficiencies asserted or assessments made as a result of any examinations by the IRS or any other taxing authority of the Tax Returns of or covering or including the Company or any of its Subsidiaries, and, to the knowledge of the Company, there are no other audits relating to any material Taxes by any taxing authority in progress, nor has the Company or any of its Subsidiaries received any written notice from any taxing authority that it intends to conduct such an audit.

      (e) The Company and its Subsidiaries (i) have complied in all material respects with all applicable Laws, rules and regulations relating to the payment and withholding of Taxes; (ii) have duly and timely withheld from employee salaries, wages and other compensation and have paid over to the appropriate taxing authorities all material amounts required to be withheld and paid over on or prior to the due date thereof under all applicable Laws; and (iii) have in all material respects properly completed and timely filed all IRS forms W-2 and 1099 required thereof.

      (f) The Company has made available to Parent correct and complete copies of (A) all federal and other Tax Returns of the Company and its Subsidiaries relating to the taxable periods ending since December 31, 2002 which have been filed and (B) any audit report issued within the last five years relating to any Taxes due from or with respect to the Company or any of its Subsidiaries.

      (g) Except for written claims involving amounts of less than $100,000 in the aggregate, no claim has been made in writing by a taxing authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns such that the Company or any such Subsidiary is or may be subject to taxation by that jurisdiction.

      (h) Except as set forth in Section 3.15(h) of the Company Disclosure Schedule, neither the Company nor any other Person on behalf of the Company or any of its Subsidiaries has requested any extension of time within which to file any income Tax Return, which income Tax Return has since not been filed.

      (i) Except as set forth in Section 3.15(i) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any Tax sharing or similar agreement or arrangement other than any agreement or arrangement between the Company and any of its Subsidiaries, pursuant to which it will have any obligation to make any payments after the Closing.

      (j) Except as set forth in Section 3.15(j) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has requested a private letter ruling from the IRS or comparable rulings from other taxing authorities.

      (k) Except as set forth in Section 3.12(h) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any contract, agreement, plan or arrangement covering any persons that, individually or collectively, could give rise to the payment of any amount that would not be deductible by reason of Section 280G of the Code, or would constitute compensation in excess of the limitations set forth in Section 162(m) of the Code.

      (l) Each of the Company and its Subsidiaries have disclosed to the Internal Revenue Service on the appropriate Tax Returns any Reportable Transaction in which it has participated. Each of the Company and its Subsidiaries have retained all documents and other records pertaining to any Reportable Transaction in which it has participated, including documents and other records listed in Treasury Regulation Section 1.6011-4(g) and any other documents and other records which are related to any Reportable Transaction in which it has participated but not listed in Treasury Regulation Section 1.6011-4(g).

      (m) For purposes of this Agreement, “Tax” or “Taxes” shall mean all taxes, charges, fees, imposts, levies, gaming or other assessments, including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) and shall include any transferee or successor liability in respect of taxes, any liability in respect of taxes under Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign Law, or imposed by contract, tax sharing agreement, tax indemnity agreement or any similar agreement. “Tax Returns” shall mean any report, return, document, declaration or any other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns, any document with respect to or accompanying payments or estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return document, declaration or other information. “Reportable Transaction” shall have the meaning set forth in Section 1.6011-4(b) of the Treasury Regulations.

      (n) Except as set forth in Section 3.15(n) of the Company Disclosure Schedule, there are no Tax Protection Agreements. For purposes of this Section 3.15(n), “Tax Protection Agreements” shall mean any agreement to which the Company or any of its Subsidiaries is a party pursuant to which (a) any liability to holders of Partnership Units relating to Taxes may arise, whether or not as a result of the consummation of the transactions contemplated by this Agreement; (b) in connection with the deferral of income Taxes of a holder of Partnership Units, the Company or any of it Subsidiaries have agreed to; (i) maintain a minimum level of debt or continue a particular debt, (ii) retain or not dispose of assets for a period of time that has not since expired, (iii) make or refrain from making Tax elections, (iv) operate (or refrain from operating) in a particular manner, and/or (v) only dispose of assets in a particular manner; (c) limited partners of any Partnership have guaranteed debt of the Partnership; and/or (d) any other agreement that would require the general partner of a Partnership to consider separately the interests of the limited partners.

      (o) The Company has no class of outstanding stock that is not regularly traded on an established securities market under Section 1445(b)(6) of the Code.

      3.16     Material Contracts.

      (a) Section 3.16(a) of the Company Disclosure Schedule sets forth a list of all Company Material Contracts (as hereinafter defined). The Company has heretofore made available to Parent correct and complete copies of all written Company Material Contracts and described the principal terms and conditions of all known oral Company Material Contracts (and in each case all amendments, modifications and supplements thereto and all side letters to which the Company or any of its Subsidiaries is a party affecting the obligations of any party thereunder) to which the Company, or any of its Subsidiaries is a party or by which

any of its properties or assets are bound. For the purposes of this Agreement, “Company Material Contracts” means: (i) (A) employment, severance, change in control, labor, collective bargaining, leasing and property management agreements, consulting agreement, brokerage agreements and agreements relating to tenant improvements (but excluding (x) personal service contracts and (y) contracts which provide for payments of not more than $50,000 individually and not more than $500,000 in the aggregate), (B) non-competition contracts which the failure of the Company to have would reasonably be expected to have a Material Adverse Effect, and (C) indemnification contracts with officers, trustees, and directors of the Company or any of its Subsidiaries; (ii) material partnership or material joint venture agreements entered into with any Third Party; (iii) agreements for the pending sale, option to sell, right of first refusal, right of first offer or any other contractual right to sell, dispose of, or lease, by merger, purchase or sale of assets or stock or otherwise (other than pursuant to this Agreement), (A) the Company Properties or any other real property or (B) except as in the usual, regular and ordinary course of business consistent with past practice, any personal property; (iv) material loan or credit agreements, letters of credit, bonds, mortgages, indentures, guarantees, or other material agreements or instruments evidencing indebtedness for borrowed money by or to the Company or any of its Subsidiaries or any such agreement pursuant to which indebtedness for borrowed money may be incurred or credit may be extended, or evidencing security for any of the foregoing (such agreements may be listed by cross-reference to Section 3.2(b) of the Company Disclosure Schedule, where appropriate); (v) agreements that purport to limit, curtail or restrict the ability of the Company or any of its Subsidiaries to compete in any geographic area or line of business, other than exclusive lease provisions, non-compete provisions and other similar leasing restrictions entered into by the Company in the usual, regular and ordinary course of business consistent with past practice contained in the Company Leases and in other recorded documents by which real property was conveyed by the Company to any user, or to hire or solicit the hire for employment of any individual or group; (vi) contracts or agreements that would be required to be filed as an exhibit to the Form 10-K or Forms 10-Q filed by the Company with the SEC since June 30, 2005; (vii) tax protection agreements; (viii) each contract (including, without limitation, any brokerage agreements) entered into by the Company or any of its Subsidiaries, which may result in total payments by or liability of the Company or any Subsidiary of the Company in excess of $100,000 annually, other than any Company Leases and any documents relating to the indebtedness described in Section 3.15(a)(iv); provided, however, any contract under clause (viii) above that, by its terms, is terminable within thirty (30) days (without termination fee or penalty) of the date of this Agreement shall not be deemed to be a Company Material Contract; (ix) the material contracts included in Section 3.11 of the Company Disclosure Schedule; and (x) contracts and agreements to enter into any of the foregoing. Section 3.2(b) of the Company Disclosure Schedule lists, as of June 30, 2005, the outstanding principal balance, maturity date and applicable interest rate (including the method or formula for calculating any interest that is not a fixed percentage of the principal balance) for the indebtedness evidenced by each loan listed on the Company Disclosure Schedule pursuant to Section 3.16(a)(iv) hereof.

      (b) Each of the Company Material Contracts is in full force and effect and constitutes the valid and legally binding obligation of the Company or its Subsidiaries, enforceable against the Company or its Subsidiaries, as the case may be, and, to the knowledge of the Company, the other parties thereto, in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles). To the Company’s knowledge, there is no default (nor does there exist any condition which upon the passage of time or the giving of notice or both would cause such a violation or default) under any Company Material Contract so listed by the Company as has or would reasonably be likely to have a Material Adverse Effect.

      (c) To the Company’s knowledge, the Company Material Contacts in which the Company is the lender or mortgagee (the “Lending Contracts”) are listed in Section 3.16(c) of the Company Disclosure Schedule. The Lending Contracts are enforceable against the Company or its Subsidiaries, as the case may be, and, to the knowledge of the Company, the other parties thereto, in accordance with their terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles), and the

security interests and liens purported to be executed in favor of the Company thereby are, to the Company’s knowledge, valid, perfected and first priority security interests and liens.

      (d) To the extent not set forth in response to the requirements of Section 3.16(a) hereof, Section 3.16(d) of the Company Disclosure Schedule sets forth each interest rate cap, interest rate collar, interest rate swap, currency hedging transaction, and any other agreement relating to a similar transaction to which the Company or any of its Subsidiaries is a party or an obligor with respect thereto.

      (e) Except as set forth in Section 3.16(e) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has (i) any continuing material contractual liability for indemnification or otherwise under any agreement relating to the sale of real estate previously owned, whether directly or indirectly, by the Company or any of its Subsidiaries, except for standard indemnification provisions entered into in the normal course of business, (ii) any continuing liability to make any material reprorations or adjustments to prorations that may previously have been made with respect to any property currently or formerly owned by the Company or any of its Subsidiaries, or (iii) any continuing material contractual liability to pay any additional purchase price for any of the Company Properties.

      3.17     Opinion of Financial Advisor. The Company has received an opinion of Wachovia Capital Markets, LLC to the effect that the Merger Consideration is fair to the holders of Company Common Shares from a financial point of view. A copy of such opinion shall be delivered to Parent promptly after the date hereof.

      3.18     Brokers. The Company has not entered into any contract, arrangement or understanding with any Person or firm which may result in the obligation of the Company, Parent, Partnership, Merger Sub or Merger Partnership to pay any finder’s fees, brokerage or agent’s commissions or other like payments in connection with the negotiations leading to this Agreement or consummation of the Mergers, except that the Company has retained Wachovia Capital Markets, LLC as financial advisor to the Special Committee of the Company Board in connection with the Mergers. The Company has furnished to Parent a true, complete and correct copy of all agreements between the Company and Wachovia Capital Markets, LLC relating to the Mergers, which agreements disclose all fees payable by the Company or any of its Affiliates to Wachovia Capital Markets, LLC.

      3.19     Takeover Statutes. The Company has taken all action required to be taken by it in order to exempt this Agreement and the Mergers from, and this Agreement and the Mergers are exempt from, the requirements of any “moratorium,” “control share,” “fair price,” “affiliate transaction,” “business combination” or other takeover Laws and regulations of the Maryland Business Combination Act and Maryland Control Share Acquisition Act or any takeover provision in the Company Declaration of Trust, Company Bylaws or other organizational document to which the Company is a party (collectively, “Takeover Statutes”).

      3.20     Related Party Transactions. Except as set forth and identified as Related Party Transactions in Section 3.16(a) of the Company Disclosure Schedule or as disclosed in the Company SEC Reports filed prior to the date of this Agreement and except for usual, regular and ordinary course advances to employees, set forth in Section 3.20 of the Company Disclosure Schedule is a list of all agreements and contracts entered into by the Company or any of the Company’s Subsidiaries under which continuing obligations exist with any Person who is an officer, trustee or Affiliate (as defined below) of the Company or any of the Company’s Subsidiaries, any member of the “immediate family” (as such term is defined in Item 404 of Regulation S-K promulgated under the Securities Act) of any of the foregoing or any entity of which any of the foregoing is an Affiliate. As used in this Agreement, the term “Affiliate” shall have the same meaning as such term is defined in Rule 405 promulgated under the Securities Act.

      3.21     Investment Company Act of 1940. Neither the Company nor any of the Company’s Subsidiaries are, or at the Closing Date will be, required to be registered under the Investment Company Act of 1940, as amended.

      3.22     Trademarks, Patents and Copyrights. Except as set forth in Section 3.22 of the Company Disclosure Schedule, neither the Company nor its Subsidiaries is a party to any material licenses, contracts or

agreements with respect to use by the Company or its Subsidiaries of any trademarks or patents other than licenses, contracts or agreements arising from the purchase of “off the shelf” products. The intellectual property that the Company and its Subsidiaries own, license or otherwise possess legally enforceable rights to use constitutes all of the intellectual property necessary to carry on the business of the Company and its Subsidiaries as currently conducted, except where the failure to own, be so licensed or otherwise possess such intellectual property does not and would not reasonably be expected to have a Material Adverse Effect. The Company intellectual property is valid and has not been cancelled, forfeited, expired or abandoned, and neither the Company nor any Subsidiary has received any written, or to the Company’s knowledge, non-written, notice challenging the validity or enforceability of Company intellectual property, other than as does not and would not reasonably be expected to have a Material Adverse Effect. To the Company’s knowledge, the conduct of the business of the Company and its Subsidiaries does not violate, misappropriate or infringe upon the intellectual property rights of any Third Party. The consummation of the transactions contemplated by this Agreement will not result in the material loss or material impairment of the right of the Company or any Company Subsidiary to own or use any of the Company’s intellectual property, and the Surviving REIT and its Subsidiaries will have substantially the same rights to own or use the Company intellectual property following the consummation of such transaction as the Company and its Subsidiaries had prior to the consummation of such transactions, except such rights as do not and would not reasonably be expected to have a Material Adverse Effect.

      3.23     Insurance. Section 3.23 of the Company Disclosure Schedule sets forth a correct and complete list of the insurance policies held by, or for the benefit of, the Company or any of its Subsidiaries including the underwriter of such policies and the amount of coverage thereunder. The Company and each of its Subsidiaries have paid, or caused to be paid, all premiums due under such policies and are not in default with respect to any obligations under such policies other than as do not and would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received any written notice of cancellation or termination with respect to any existing insurance policy set forth in Section 3.23 of the Company Disclosure Schedule that is held by, or for the benefit of, any of the Company or any of its Subsidiaries or that relates to any Company Property.

      3.24     Disclosure Controls and Procedures. Since December 31, 2003, the Company and each Company Subsidiary has had in place “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) designed and maintained to ensure that (i) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (ii) all information (both financial and non-financial) required to be disclosed by the Company or any Company Subsidiary in the reports that it files or submits to the SEC is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (iii) all such information is accumulated and communicated to management as appropriate to allow the Chief Executive Officer and Chief Financial Officer of the Company to make the certifications required under the Exchange Act with respect to such reports. To the Company’s knowledge, none of the Company or any Company Subsidiary’s records, systems, controls, data or information are recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of Company or the applicable Company Subsidiary or their accountants.

      3.25     Definition of the Company’s Knowledge. As used in this Agreement, the phrase “to the knowledge of the Company,” “to the knowledge of the Subsidiary” or any similar phrase means the actual (as opposed to constructive or imputed) knowledge of those individuals identified in Section 3.25 of the Company Disclosure Schedule. All employees of the Company or any of its Subsidiaries not listed in Section 3.25 of the Company Disclosure Schedule report directly or indirectly to at least one of the individuals identified in Section 3.25 of the Company Disclosure Schedule.

      3.26     Proxy Statement; Company Information. The information relating to the Company and its Subsidiaries to be contained in the Proxy Statement (as defined in Section 6.1) and other documents to be filed with the SEC in connection herewith will not, on the date the Proxy Statement is first mailed to holders

of Company Common Shares or at the time of the Company Shareholders Meeting contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make statements therein not false or misleading at the time and in light of the circumstances under which such statement is made, except that no representation is made by the Company with respect to the information supplied by Parent, Merger Sub or Merger Partnership explicitly for inclusion therein. All documents that the Company is responsible for filing with the SEC in connection with the REIT Merger, the Partnership Merger or the other transactions contemplated by this Agreement will comply as to form and substance in all material respects with the applicable requirements of the Securities Act and the rules and regulations thereunder and the Exchange Act and the rules and regulations thereunder.

ARTICLE IV

Representations and Warranties of Parent and Merger Sub

      Parent, Merger Sub and Merger Partnership hereby jointly and severally represent and warrant to the Company as follows:

      4.1     Corporate Organization.

      (a) Parent is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware. The certificate of formation of Parent is in effect and no dissolution, revocation or forfeiture proceedings regarding Parent have been commenced. Parent is duly qualified or licensed to do business as a foreign entity and is in good standing under the laws of any other jurisdiction in which the character of the properties owned, leased or operated by it therein or in which the transaction of its business makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed does not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. Parent has all requisite power and authority to own, lease and operate its properties and to carry on its businesses as now conducted and proposed by Parent to be conducted.

      (b) Merger Sub is a real estate investment trust duly formed, validly existing and in good standing under the laws of the State of Maryland. The declaration of trust of Merger Sub is in effect and no dissolution, revocation or forfeiture proceedings regarding Merger Sub have been commenced. Merger Sub is duly qualified or licensed to do business as a foreign entity and is in good standing under the laws of any other jurisdiction in which the character of the properties owned, leased or operated by it therein or in which the transaction of its business makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed does not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. Merger Sub has all requisite power and authority to own, lease and operate its properties and to carry on its businesses as now conducted and proposed by Merger Sub to be conducted.

      (c) Merger Partnership is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. The certificate of limited partnership of the Merger Partnership is in effect and no dissolution, revocation or forfeiture proceedings regarding the Merger Partnership have been commenced. The Merger Partnership is duly qualified or licensed to do business as a foreign limited partnership and is in good standing under the laws of any other jurisdiction in which the character of the properties owned, leased or operated by it therein or in which the transaction of its business makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed does not have and would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect. Merger Partnership has all requisite power and authority to own, lease and operate its properties and to carry on its businesses as now conducted and proposed by Merger Partnership to be conducted.

      4.2     Authority Relative to this Agreement.

      (a) Each of Parent, Merger Sub and Merger Partnership has all necessary power and authority to execute and deliver this Agreement and to consummate the Mergers and the other transactions contemplated

hereby. No other proceedings on the part of Parent, Merger Sub or Merger Partnership, or any of their respective Subsidiaries, are necessary to authorize this Agreement or to consummate the Mergers and the other transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of Parent, Merger Sub and Merger Partnership and, assuming due authorization, execution and delivery hereof by each of the Company and Partnership, constitutes a valid, legal and binding agreement of each of Parent, Merger Sub and Merger Partnership, enforceable against each of Parent, Merger Sub and Merger Partnership in accordance with and subject to its terms and conditions, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles.

      (b) The Managers of Parent, Board of Trustees of Merger Sub and general partner of Merger Partnership have each duly and validly authorized the execution and delivery of this Agreement and approved the consummation of the Mergers and the other transactions contemplated hereby, and taken all corporate actions required to be taken by the Managers of Parent, Board of Trustees of Merger Sub and general partner of Merger Partnership for the consummation of the Mergers and the other transactions contemplated hereby.

      4.3     Consents and Approvals; No Violations. Except (a) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the Securities Act, state securities or state “blue sky” laws, the HSR Act or any other antitrust law and (b) for filing of the Articles of Merger, none of the execution, delivery or performance of this Agreement by Parent, Merger Sub or Merger Partnership, the consummation by Parent, Merger Sub or Merger Partnership of the Mergers or compliance by Parent, Merger Sub or Merger Partnership with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the organizational documents of Parent, Merger Sub or Merger Partnership, (ii) require any filing by Parent, Merger Sub or Merger Partnership with, notice to, or permit, authorization, consent or approval of, any Governmental Entity, (iii) require any consent or notice under, result in a violation or breach by Parent, Merger Sub or Merger Partnership of, constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, result in the triggering of any payment, or result in the creation of any lien or other encumbrance on any property or asset of Parent, Merger Sub or Merger Partnership pursuant to, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement, permit, franchise or other instrument or obligation or material contract to which Parent, Merger Sub or Merger Partnership is a party or by which they or any of their respective properties or assets may be bound or (iv) violate any Laws, excluding from the foregoing clauses (ii), (iii) and (iv) such filings, notices, permits, authorizations, consents, approvals, violations, breaches or defaults which, individually or in the aggregate, (A) would not prevent or materially delay consummation of the Mergers, (B) would not otherwise prevent or materially delay performance by Parent, Merger Sub or Merger Partnership of its material obligations under this Agreement or (C) do not have and would not reasonably be likely to have a Material Adverse Effect.

      4.4     Litigation. There is no Dispute pending or, to Parent’s knowledge, threatened in writing against Parent or any of its Subsidiaries or any of its or their respective properties or assets that (i) includes amounts in excess of $100,000 individually or in excess of $1,000,000 in the aggregate, (ii) questions the validity of this Agreement or any action to be taken by Parent, Merger Sub or Merger Partnership in connection with the consummation of the Mergers, or (iii) reasonably can be expected to have a Material Adverse Effect.

      4.5     Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission payable by the Company in connection with the Mergers based upon arrangements made by and on behalf of Parent, Merger Sub or Merger Partnership or any of their Subsidiaries.

      4.6     Available Funds; Guaranty.

      (a) Parent currently has or has reasonable access to, and on the Closing Date Merger Sub will have available, all funds necessary to pay the Merger Consideration and to satisfy its other obligations hereunder and in connection with the Mergers. The obligations of Parent and Merger Sub hereunder are not subject to any conditions regarding the ability of Parent or Merger Sub to obtain financing for the consummation of the transactions contemplated hereby.

      (b) Concurrently with the execution of this Agreement, Parent and Merger Sub have delivered to the Company a guaranty executed by DRA Growth & Income Fund V LLC (“Guarantor”) in the form attached as Exhibit B to this Agreement, guaranteeing the obligations of Parent, Merger Sub and Merger Partnership up to and including the Closing Date.

      4.7     Takeover Statutes. Each of Parent and Merger Sub has taken all actions required to be taken by it in order to exempt this Agreement and the Mergers from, and this Agreement and the Mergers are exempt from, the requirements of any “moratorium,” “control share,” “fair price,” “affiliate transaction,” “business combination” or other takeover Laws and regulations of the Maryland Business Combination Act, Maryland Control Share Acquisition Act, Delaware General Corporation Law or any takeover provision in the certificate of organization, limited liability company agreement or other organizational document or other agreement to which Parent is a party, or the declaration of trust, bylaws or other organizational document or other agreement to which Merger Sub is a party.

      4.8     Ownership of Merger Sub and Merger Partnership; No Prior Activities. Merger Sub is a direct wholly-owned Subsidiary of Parent and Merger Partnership is a direct wholly-owned Subsidiary of Merger Sub. Neither Merger Sub nor Merger Partnership has conducted any activities other than in connection with its organization, the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby. Neither Merger Sub nor Merger Partnership has any Subsidiaries except as set forth in the first sentence above.

      4.9     No Ownership of Company Capital Stock. As of the date of this Agreement, neither Parent nor any of its Subsidiaries, including Merger Sub and Merger Partnership, own any Company Common Shares or other securities of the Company or the Partnership.

      4.10     Proxy Statement. The information, if any, supplied by Parent, Merger Sub or Merger Partnership to the Company explicitly for inclusion in the Proxy Statement or other documents to be filed with the SEC in connection herewith will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make statements therein not false or misleading at the time and in light of the circumstances under which such statement is made.

ARTICLE V

Conduct of Business Pending the Mergers

      5.1     Conduct of Business by the Company. During the period (the “Interim Period”) from the date of this Agreement to the earlier of the Closing Date and the termination of this Agreement in accordance with Section 8.1 hereof, except as otherwise contemplated or permitted by this Agreement, the Company shall, and shall cause the Partnership to, in all material respects, carry on their respective businesses in the usual, regular and ordinary course, consistent with past practice (except as otherwise provided in the budget set forth in Section 5.1(g) of the Company Disclosure Schedule (the “Corporate Budget”)) in material compliance with all Laws and in material compliance with the Corporate Budget, and use their reasonable best efforts to preserve intact (i) their present business organizations, (ii) the services of their present officers and employees and (iii) their goodwill and relationships with tenants and others having business dealings with them. The Company shall confer on a regular basis with Parent, report on material operational matters and advise Parent orally and in writing of any Material Adverse Effect or any matter that could reasonably be expected to result in the Company being unable to deliver the certificate described in Section 7.2(a). Without limiting the generality of the foregoing, during the Interim Period, the Company will not and the Company shall cause the Partnership not to (except as expressly permitted by this Agreement or as contemplated by the transactions contemplated hereby, as set forth in Section 5.1 of the Company Disclosure Schedule or to the extent that Parent shall otherwise consent in writing (it being understood that Parent shall respond within three (3) Business Days to the Company’s communications soliciting such consent from Parent):

      5.2     Distribution by Company and Partnership of REIT Taxable Income. Except as provided in Section 6.13 of this Agreement, prior to the Closing Date, the Company and the Partnership may declare and pay a dividend to its shareholders or holders of Partnership Units distributing cash in an amount reasonably determined by the Company to be required to be distributed in order for the Company to qualify as a REIT for such tax year and to avoid to the extent reasonably possible the incurrence of income or excise tax by the Company.

ARTICLE VI

Covenants

      6.1     Preparation of the Proxy Statement; Shareholders Meeting.

      (a) As soon as practicable following the date of this Agreement, the Company shall prepare and file with the SEC a proxy statement in preliminary form (the “Proxy Statement”) and the Company shall respond as promptly as practicable to any comments of the SEC with respect thereto. Parent, Merger Sub and Merger

Partnership shall cooperate with the Company in connection with the preparation of the Proxy Statement, including, but not limited to, furnishing to the Company any and all information regarding Parent, Merger Sub and Merger Partnership and their respective Affiliates as may be required to be disclosed therein as promptly as possible after the date hereof. The parties shall notify each other promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and shall supply each other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the REIT Merger.

      (b) If, at any time prior to the receipt of the Company Shareholder Approval, any event occurs with respect to the Company, Partnership, Parent, Merger Sub or Merger Partnership or any change occurs with respect to other information to be included in the Proxy Statement, which is required to be described in an amendment of, or a supplement to, the Proxy Statement, the Company or Parent, as the case may be, shall promptly notify the other party of such event and the Company shall promptly file with the SEC, with Parent’s input and cooperation, any necessary amendment or supplement to the Proxy Statement.

      (c) The Company shall, as soon as practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of the holders of the Company Common Shares (the “Company Shareholders Meeting”) for the purpose of seeking the Company Shareholder Approval. The Company shall cause the Proxy Statement to be mailed to such holders as promptly as practicable after the date of this Agreement. The Company shall, through the Company Board, recommend to holders of the Company Common Shares that they give the Company Shareholder Approval (the “Company Recommendation”), except to the extent that the Company Board shall have withdrawn or modified its adoption of this Agreement and its recommendation in the Proxy Statement, as permitted by and determined in accordance with Section 6.4(b). Notwithstanding anything to the contrary contained in this Agreement, the Company may adjourn or postpone the Company Shareholders Meeting to the extent necessary to ensure that any necessary supplement or amendment to the Proxy Statement is provided to the holders of Company Common Shares sufficiently in advance of a vote on this Agreement and the REIT Merger to ensure that such vote occurs on the basis of full and complete information as required under applicable Law.

      6.2     Other Filings. As soon as practicable following the date of this Agreement, the Company, Parent and Merger Sub each shall properly prepare and file any other filings required under the Exchange Act or any other federal, state or foreign law relating to the Mergers (including filings, if any, required under the HSR Act) (collectively, the “Other Filings”). Each of the Company, Parent and Merger Sub shall promptly notify the other of the receipt of any comments on, or any request for amendments or supplements to, any of the Other Filings by the SEC or any other Governmental Entity or official, and each of the Company, Parent and Merger Sub shall supply the other with copies of all correspondence between it and each of its representatives, on the one hand, and the SEC or the members of its staff or any other appropriate governmental official, on the other hand, with respect to any of the Other Filings. The Company, Parent and Merger Sub each shall promptly obtain and furnish the other (a) the information which may be reasonably required in order to make such Other Filings and (b) any additional information which may be requested by a Governmental Entity and which the parties reasonably deem appropriate.

      6.3     Additional Agreements. Subject to the terms and conditions herein provided, but subject to the obligation to act in good faith, and subject at all times to the Company’s and its trustees’ right and duty to act in a manner consistent with their duties under applicable Law, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the Mergers and to cooperate with each other in connection with the foregoing, including the taking of such actions as are necessary to obtain any necessary consents, approvals, orders, exemptions and authorizations by or from any public or private Third Party, including, without limitation, any that are required to be obtained under any federal, state or local law or regulation or any contract, agreement or instrument to which the Company is a party or by which any of their respective properties or assets are bound, to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the Mergers, to effect all necessary registrations and Other Filings and submissions of information requested by a Governmental Entity, and use