First Potomac Realty Trust Reports Third Quarter 2012 Results

  First Potomac Realty Trust Reports Third Quarter 2012 Results

Business Wire

WASHINGTON -- October 25, 2012

First Potomac Realty Trust (NYSE: FPO), a leader in the ownership, management,
development and redevelopment of office and industrial properties in the
greater Washington, D.C. region, reported results for the three and nine
months ended September 30, 2012.

Highlights:

  *Core Funds From Operations of $15.3 million, or $0.29 per diluted share.
  *Same-property net operating income increased by 3.2% on an accrual basis
    and 1.6% on a cash basis.
  *Executed 475,000 square feet of leases, including 143,000 square feet of
    new leases.
  *Sold its 95% interest in an unconsolidated joint venture that owned 1200
    17^th Street, NW, an office building in Washington, D.C., for $43.7
    million, which resulted in a $3.0 million gain on the sale.

Douglas J. Donatelli, Chairman and CEO of First Potomac Realty Trust, stated,
“Over the last few months, we made solid progress executing our capital
strategy, leasing our office portfolio, and improving our liquidity position.
With the sale of 1200 17th Street, NW, we were able to monetize an investment
after adding value in just a short time, bringing our year-to-date
dispositions to $56 million, and in turn lowering our Debt to EBITDA ratio. We
also completed several property-level financings, which have enhanced our
liquidity profile and improved our cost of debt. Additionally, we are pleased
to welcome our new CFO, Andy Blocher, whose extensive experience and fiscal
discipline will further enhance our Company’s efforts. While we still have
work to do, the steps we have taken are considerable, and we are demonstrating
our focus on building sustainable growth and improving occupancy in our
portfolio.”

Funds From Operations (“FFO”) and Core FFO increased for the three months
ended September 30, 2012 compared with the same period in 2011 primarily due
to an increase in the Company’s net operating income. Increases in net
operating income also resulted in an increase in Core FFO for the nine months
ended September 30, 2012 compared with the same period in 2011. The increase
in net operating income in 2012 compared with 2011 was the result of higher
occupancy in the Company’s portfolio.

FFO decreased for the nine months ended September 30, 2012 compared with the
same period in 2011 due to costs associated with the Company’s internal
investigation, certain remedial and enhancement measures implemented in
response to such investigation and debt extinguishment charges. In the third
quarter of 2012, the Company incurred a $0.7 million of legal and accounting
fees associated with the internal investigation and $0.4 million of personnel
separation costs in connection with the previously disclosed departure of the
Company’s former chief financial officer. The Company recorded $13.2 million
of debt extinguishment charges and $2.5 million of legal and accounting fees
associated with the Company’s internal investigation in the second quarter of
2012. The Company may incur additional expenses in connection with the
implementation of certain of the remedial actions and enhancement measures
(including certain additional personnel actions) that are described in greater
detail later in this press release.

A reconciliation between Core FFO and FFO available to common shareholders for
the three and nine months ended September 30, 2012 and 2011 is presented below
(in thousands, except per share amounts):

                                                                   
                   Three Months Ended September 30,                    Nine Months Ended September 30,
                   2012                    2011                       2012                     2011
                               Per                     Per                        Per                     Per
                                diluted                  diluted                     diluted                  diluted
                   Amount       share       Amount       share         Amount        share       Amount       share
Core FFO           $ 15,297     $ 0.29      $ 14,001     $ 0.27        $ 46,779      $ 0.88      $ 41,152     $ 0.80
Acquisition          (8     )     -           (1,737 )     (0.03 )       (49     )     -           (4,475 )     (0.09 )
costs
Contingent
consideration
related to           (112   )     -           1,487        0.03          (112    )     -           1,487        0.03
acquisition of
property
Deferred
abatement and        1,567        0.03                                   1,567         0.03        -
straight-line
amortization^(1)
Change in tax        4,327        0.08                                   4,327         0.08
regulations^(2)
Internal
investigation        (743   )     (0.01 )     -            -             (3,276  )     (0.06 )     -            -
costs
Personnel            (397   )     (0.01 )     -            -             (397    )     (0.01 )     -            -
separation costs
Loss on debt        -          -         -          -           (13,325 )    (0.25 )    -          -     
extinguishment
FFO available to
common             $ 19,931    $ 0.38     $ 13,751    $ 0.27       $ 35,514     $ 0.67     $ 38,164    $ 0.74  
shareholders
Net income         $ 7,435                  $ (3,712 )                 $ (9,261  )               $ (6,853 )
(loss)
Net income
(loss) per         $ 0.08                   $ (0.12  )                 $ (0.35   )               $ (0.27  )
diluted common
share
                                                                                                              

       Represents the accelerated amortization of the straight-line balance
^(1)  and the deferred abatement for a tenant at I-66 Commerce Center that is
       terminating its lease prior to completion. The tenant is expected to
       vacate the property at the end of March 2013.
^(2)   Reflects the one-time non-cash impact of new tax regulations enacted by
       the District of Columbia that became effective in September 2012.
       

The Company’s consolidated portfolio was 84.9% leased and 83.2% occupied at
September 30, 2012 compared with 85.4% leased and 84.0% occupied at June 30,
2012 and 84.7% leased and 81.2% occupied at September 30, 2011. The sequential
decline in leased and occupied square footage was due primarily to the Company
adding approximately 80,000 additional square feet of vacancy from completed
redevelopment efforts to its consolidated portfolio. Excluding the additional
redevelopment square footage, the Company’s consolidated portfolio would have
been 85.4% leased and 83.7% occupied. On a year-over-year basis, the increase
in both the leased and occupied percentages reflects strong lease up of
previously vacant space in the Company’s portfolio. A list of the Company's
properties, as well as additional information regarding the Company’s results
of operations can be found in the Company's Third Quarter 2012 Supplemental
Financial Report, which is posted on the Company's website,
www.first-potomac.com.

A reconciliation of net income (loss) to FFO available to common shareholders
and Core FFO, as well as definitions and statements of purpose, are included
below in the financial tables accompanying this press release and under
“Non-GAAP Financial Measures,” respectively.

Internal Investigation

As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, the Audit Committee of the Board of Trustees
completed its internal investigation regarding the material weakness
previously identified in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2011, and briefed the Board of Trustees regarding the
results of the investigation and recommendations as to certain remedial and
enhancement measures. In response to the recommendations of the Audit
Committee, the Board of Trustees adopted a number of measures designed to
remediate the underlying causes of the material weakness, as well as certain
other enhancement measures unrelated to the material weakness. These remedial
actions and enhancement measures include enhancements to debt covenant
compliance controls, enhancements to financial reporting controls, enhancement
of the role of the Company’s legal and accounting functions, and general
control enhancements regarding, among other things, enterprise risk management
and communication by management with the Audit Committee and outside legal
counsel.

Several of the foregoing remedial actions and enhancement measures have been
completed or are currently underway, including, as previously disclosed, the
hiring of a new chief financial officer and the engagement of a new
third-party accounting firm to perform the Company’s internal audit function.
Management continues to work toward the full implementation of these remedial
actions and enhancement measures and will continue to provide periodic reports
on the implementation of these measures to the Audit Committee. Management
believes that it has made progress remediating the material weakness; however,
because some of the remedial actions must be successfully tested for multiple
periods, management believes that it needs to continue to monitor the
successful implementation of those steps before management is able to conclude
that the material weakness has been remediated.

Property Operations

During the third quarter, the Company executed 475,000 square feet of leases,
which consisted of 143,000 square feet of new leases and 332,000 square feet
of renewal leases. Significant new leases included 33,000 square feet at
Diamond Hill Distribution Center and 17,000 square feet at Hampton Roads
Center, both of which are located in the Company’s Southern Virginia region,
and 18,000 square feet at Van Buren Office Park, which is located in the
Company’s Northern Virginia region. The 332,000 square feet of renewal leases
in the quarter reflects a 75% retention rate. Renewal leases during the
quarter included 122,000 square feet at Crossways Commerce Center, 100,000
square feet at Diamond Hill Distribution Center and 32,000 square feet at
Ammendale Commerce Center.

Same-property net operating income (“Same-Property NOI”) increased 3.2% and
2.8% for the three and nine months ended September 30, 2012, respectively,
compared with the same periods in 2011. Same-Property NOI increased 10.4%,
1.6% and 1.3% for the Company’s Maryland, Washington, D.C. and Southern
Virginia regions, respectively, for the three months ended September 30, 2012.
The increase in Same-Property NOI for the Company’s Maryland region was
primarily due to an increase in occupancy, particularly at Redland Corporate
Center II, which was 99% vacant at the time of acquisition in the fourth
quarter of 2010 and was 80% occupied at September 30, 2012. The increases in
Same-Property NOI for the Washington, D.C. and Southern Virginia regions were
due to higher recoveries of tenant expenses. Same-Property NOI decreased 1.1%
for the Company’s Northern Virginia region for the three months ended
September 30, 2012 compared with the same period in 2011 due to an increase in
vacancy for the three months ended September 30, 2012 compared with 2011.

A reconciliation of net income (loss) to Same-Property NOI and a definition
and statement of purpose are included below in the financial tables
accompanying this press release and under “Non-GAAP Financial Measures,”
respectively.

Dispositions

On August 24, 2012, the Company sold its 95% interest in an unconsolidated
joint venture that owned an office building at 1200 17^th Street, NW in
Washington D.C. for $43.7 million, which after repayment of the mortgage loan
encumbering the property resulted in net proceeds to the Company of $25.7
million. The Company purchased its 95% interest in the joint venture in
October 2011 for $37.7 million. After acquisition, the joint venture
encumbered the property with a $20.0 million mortgage loan. The property
consists of a land parcel that contains an 85,000 square foot office building.
The Company used the net proceeds from the sale, together with available cash,
to repay $26.0 million of the outstanding balance under its unsecured
revolving credit facility. The Company recorded a $3.0 million gain on the
sale of its interest in the joint venture in its third quarter 2012 results.

As previously disclosed, in June 2012, the Company entered into a binding
contract to sell two buildings totaling 39,000 square feet at Owings Mills
Business Park, a six-building, 219,300 square foot business park in Owings
Mills, Maryland. The sale is expected to be completed in the fourth quarter of
2012. In connection with this pending sale, on October 16, 2012, the Company
used available cash of $5.7 million as a defeasance payment for the mortgage
loan encumbering four buildings at Owings Mills Business Park, including the
two buildings that are under contract to be sold. At September 30, 2012, the
Company continued to classify the two buildings as “held-for-sale” and
reflected their operating results as discontinued operations in its
consolidated statements of operations for each of the periods presented in
this press release. During the third quarter of 2012, the Company reduced its
intended holding period for two additional buildings at Owings Mills Business
Park. Based on an analysis of the property’s anticipated cash flows over the
Company’s reduced holding period for the property, the Company recorded a $0.5
million impairment charge within income (loss) from continuing operations in
the third quarter of 2012.

Financing Activity

On August 5, 2012, the Company repaid an $8.9 million mortgage loan that
encumbered 1434 Crossways Boulevard Building II with proceeds from a draw
under its unsecured revolving credit facility.

On September 27, 2012, the Company repaid $65.0 million of the outstanding
balance under its unsecured revolving credit facility with proceeds from the
issuance of a $68.4 million mortgage loan encumbering its Redland Corporate
Center property. The mortgage loan has a contractual interest rate of 4.2% and
matures in November 2017.

On October 1, 2012, the Company repaid a $23.4 million mortgage loan that
encumbered Crossways Commerce Center and a $14.7 million mortgage loan that
encumbered Newington Business Park Center with proceeds from a draw under its
unsecured revolving credit facility.

On October 17, 2012, the Company repaid $16.0 million of the outstanding
balance under its unsecured revolving credit facility with a portion of its
share of the proceeds from a $22.0 million mortgage loan on 1005 First Street,
NE, in which the Company has a 97% ownership interest through a consolidated
joint venture. The mortgage loan incurs interest at a variable rate of LIBOR
plus a spread of 2.75% (with a floor of 5.0%) and matures in October 2014,
with a one-year extension at the Company’s option. The Company’s total portion
of the proceeds from the loan (after the payment of fees and allocation of its
joint venture partner’s interest) was $19.1 million. The Company used the
remaining proceeds for general corporate purposes.

Balance Sheet

The Company had $921.3 million of debt outstanding at September 30, 2012, of
which $442.3 million was fixed-rate debt and $350.0 million was variable-rate
debt that had been swapped to a fixed interest rate. The remainder of the
Company’s debt, $129.0 million, was variable-rate debt that consisted of
borrowings under its secured term loan and unsecured revolving credit
facility.

Dividends

On October 24, 2012, the Company declared a dividend of $0.20 per common
share, equating to an annualized dividend of $0.80 per common share. The
dividend will be paid on November 9, 2012, to common shareholders of record as
of November 5, 2012. The Company also declared a dividend of $0.484375 per
share on its Series A Preferred Shares. The dividend will be paid on November
15, 2012 to preferred shareholders of record as of November 2, 2012.

Core FFO Guidance

The Company increased, and narrowed the range for, its full-year 2012 Core FFO
guidance to $1.15 to $1.18 per diluted share. The Company’s full-year Core FFO
guidance includes $0.02 per diluted share from termination fee income that was
recorded in its second quarter results and $0.01 per diluted share from
termination fee income that is expected to be recorded in its fourth quarter
results. The following is a summary of the assumptions that the Company used,
which were updated based on the Company’s activity in the first three quarters
of 2012, in arriving at its guidance (unaudited, amounts in thousands except
percentages and per share amounts):

                                          
                                            Expected Ranges^(1)
                                                            
  Portfolio NOI^(2)                          $ 124,000     -   $ 126,000
  Interest and Other Income                    5,500       -     6,500
  FFO from Unconsolidated Joint Ventures       5,000       -     6,000
                                                               
  Interest Expense                           $ (43,000 )   -   $ (45,000 )
  G&A^(3)                                      (19,000 )   -     (19,500 )
  Preferred Dividends                          (11,964 )   -     (11,964 )
                                                               
  Weighted Average Shares                      52,900      -     53,100
  Average Occupancy                            83%        -     84%     
  Same-Property NOI Growth – Accrual Basis   2.5%      -   3.5%    
                                                               

       Does not take into consideration any additional acquisitions,
^(1)  dispositions (other than the two buildings classified as held-for-sale
       at Owings Mills Business Park at September 30, 2012) or asset
       impairments.
       Does not include the straight-line rent impact of a tenant that has
       notified the Company of its intention to terminate its lease at the end
       of the first quarter of 2013. The Company anticipates its net income to
^(2)   increase by approximately $1.5 million per quarter through the first
       quarter of 2013 as a result of amortizing such tenant’s deferred
       abatement and straight-line balance over the tenant’s remaining lease
       term.
^(3)   Does not include any legal or accounting costs associated with the
       Company’s internal investigation or any personnel separation costs.
       

The Company’s guidance is also based on a number of other assumptions, many of
which are outside the Company’s control and all of which are subject to
change. The Company may change its guidance as actual and anticipated results
vary from these assumptions.

                                                                
Guidance Range for 2012                                Low Range  High Range
Net loss attributable to common shareholders per        $ (0.42)    $ (0.39)
diluted share^(1)
Real estate depreciation                                1.31        1.31
Net loss attributable to
noncontrolling interests and items excluded from Core
FFO
per diluted share((2))                                  0.26        0.26
Core FFO per diluted share                              $ 1.15      $ 1.18
                                                                
                                                                    

       Net loss attributable to common shareholders includes $13.2 million of
^(1)  costs associated with the prepayment of the Senior Notes and the
       write-off of costs primarily associated with amending the unsecured
       term loan in May 2012.
       Items excluded from Core FFO consist of acquisition costs, contingent
       consideration, debt retirement charges, debt modification charges,
       personnel separation costs, legal and accounting costs associated with
^(2)   the Company’s internal investigation and the acceleration of the
       amortizations of deferred abatement and straight-line balance mentioned
       above in footnote 2 to the table above regarding the Company’s expected
       ranges.
       

Investor Conference Call and Webcast

First Potomac Realty Trust will host a conference call on Friday, October 26,
2012 at 9:00 AM ET, to discuss third quarter results. The conference call can
be accessed by dialing (877) 705-6003 or (201) 493-6725 for international
participants. A replay of the conference call will be available from 12:00
Noon ET on Friday, October 26, 2012 until midnight ET on Friday, November 2,
2012. The replay can be accessed by dialing (877)870-5176 or (858) 384-5517
for international callers, and entering pin number 400785.

A live broadcast of the conference call will also be available online and can
be accessed from the Investor Information page of the Company's website,
www.first-potomac.com, on Friday, October 26, 2012, beginning at 9:00 AM ET.
An online replay will be available on the above site shortly after the call
and will continue for 90 days.

About First Potomac Realty Trust

First Potomac Realty Trust is a self-administered, self-managed real estate
investment trust that focuses on owning, operating, developing and
redeveloping office and industrial properties in the greater Washington, D.C.
region. As of September 30, 2012, the Company's consolidated portfolio totaled
approximately 14 million square feet. Based on annualized cash basis rent, the
Company’s portfolio consists of 43% office properties, 36% business parks and
21% industrial properties. A key element of First Potomac's overarching
strategy is its dedication to sustainability. Nearly a million square feet of
First Potomac property is LEED Certified, with another million square feet
currently in development. Approximately half of theportfolio'stotal square
footage of multi-story office property is either LEED or Energy Star Certified
and 82% of First Potomac’s Washington, DC portfolio is Energy Star Certified.
FPO common shares (NYSE:FPO) and preferred shares (NYSE:FPO-PA) are publicly
traded on the New York Stock Exchange.

Non-GAAP Financial Measures

Funds from Operations – Funds from operations (“FFO”) represents net income
(computed in accordance with U.S. generally accepted accounting principles
(“GAAP”)), excluding gains (losses) on sales of real estate and impairments of
real estate assets, plus real estate-related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures. On
October 31, 2011, NAREIT issued revised guidance regarding the exclusion of
impairment write-downs of depreciable assets reported in FFO. As a result, the
Company began excluding impairment losses from FFO in the fourth quarter of
2011 and has restated FFO from prior periods to exclude such charges
consistent with NAREIT’s guidance. The Company also excludes, from its FFO
calculation, any depreciation and amortization related to third parties from
its consolidated joint ventures. The Company considers FFO a useful measure of
performance for an equity REIT because it facilitates an understanding of the
operating performance of its properties without giving effect to real estate
depreciation and amortization, which assume that the value of real estate
assets diminishes predictably over time. Since real estate values have
historically risen or fallen with market conditions, the Company believes that
FFO provides a meaningful indication of its performance. The Company also
considers FFO an appropriate performance measure given its wide use by
investors and analysts. The Company computes FFO in accordance with standards
established by the Board of Governors of NAREIT in its March 1995 White Paper
(as amended in November 1999, April 2002 and January 2012), which may differ
from the methodology for calculating FFO utilized by other equity real estate
investment trusts (“REITs”) and, accordingly, may not be comparable to such
other REITs. Further, FFO does not represent amounts available for
management’s discretionary use because of needed capital replacement or
expansion, debt service obligations or other commitments and uncertainties,
nor is it indicative of funds available to fund the Company’s cash needs,
including its ability to make distributions. The Company presents FFO per
diluted share calculations that are based on the outstanding dilutive common
shares plus the outstanding Operating Partnership units for the periods
presented.

The Company’s presentation of FFO in accordance with the NAREIT white paper,
or as adjusted by the Company, should not be considered as an alternative to
net income (computed in accordance with GAAP) as an indicator of the Company’s
financial performance or to cash flow from operating activities (computed in
accordance with GAAP) as an indicator of its liquidity. The Company’s FFO
calculations are reconciled to net income in the Company’s Consolidated
Statements of Operations included in this release.

Core FFO – Management believes that the computation of FFO in accordance with
NAREIT’s definition includes certain items that are not indicative of the
results provided by the Company’s operating portfolio and affect the
comparability of the Company’s period-over-period performance. These items
include, but are not limited to, gains and losses on the retirement of debt,
legal and accounting costs related to the Company’s internal investigation,
personnel separations costs, contingent consideration charges and acquisition
costs. The Company provides a reconciliation of FFO to Core FFO in the
financial tables accompanying this press release.

NOI – The Company defines net operating income (“NOI”) as operating revenues
(rental income, tenant reimbursements and other income) less property and
related expenses (property expenses, real estate taxes and insurance).
Management believes that NOI is a useful measure of the Company’s property
operating performance as it provides a performance measure of the revenues and
expenses directly associated with owning, operating, developing and
redeveloping office and industrial properties, and provides a perspective not
immediately apparent from net income or FFO. Other REITs may use different
methodologies for calculating NOI, and accordingly, the Company’s NOI may not
be comparable to other REITs. The Company’s NOI calculations are reconciled to
total revenues and total operating expenses at the end of this release.

Same-Property NOI – Same-Property Net Operating Income (“Same-Property NOI”),
defined as operating revenues (rental, tenant reimbursements and other
revenues) less operating expenses (property operating expenses, real estate
taxes and insurance) from the properties owned by the Company for the entirety
of the periods presented, is a primary performance measure the Company uses to
assess the results of operations at its properties. As an indication of the
Company’s operating performance, Same-Property NOI should not be considered an
alternative to net income calculated in accordance with GAAP. A reconciliation
of the Company’s Same-Property NOI to net income from its consolidated
statements of operations is presented below. The Same-Property NOI results
exclude corporate-level expenses, as well as certain transactions, such as the
collection of termination fees, as these items vary significantly
period-over-period thus impacting trends and comparability. Also, the Company
eliminates depreciation and amortization expense, which are property level
expenses, in computing Same-Property NOI as these are non-cash expenses that
are based on historical cost accounting assumptions and do not offer the
investor significant insight into the operations of the property. This
presentation allows management and investors to distinguish whether growth or
declines in net operating income are a result of increases or decreases in
property operations or the acquisition of additional properties. While this
presentation provides useful information to management and investors, the
results below should be read in conjunction with the results from the
consolidated statements of operations to provide a complete depiction of total
Company performance.

Forward Looking Statements

The forward-looking statements contained in this press release are subject to
various risks and uncertainties. Although the Company believes the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, there can be no assurance that its expectations will
be achieved. Certain factors that could cause actual results to differ
materially from the Company’s expectations include changes in general or
regional economic conditions; the Company’s ability to timely lease or
re-lease space at current or anticipated rents; changes in interest rates;
changes in operating costs; the Company’s ability to complete acquisitions on
acceptable terms; the Company’s ability to manage its current debt levels and
repay or refinance its indebtedness upon maturity or other required payment
dates; the Company’s ability to maintain financial covenant compliance under
its debt agreements; the Company’s ability to remediate the material weakness
in its internal controls over financial reporting described in its 10-K for
the year ended December 31, 2011 and to re-establish and maintain effective
internal controls over financial reporting and disclosure controls and
procedures; the impact of the Company’s recently completed internal
investigation, including any remedial actions and enhancement measures
implemented in response to the internal investigation; the Company’s ability
to obtain debt and/or financing on attractive terms, or at all; changes in the
assumptions underlying the Company’s earnings and FFO guidance and other risks
detailed in the Company’s Annual Report on Form 10-K and described from time
to time in the Company’s filings with the SEC. Many of these factors are
beyond the Company’s ability to control or predict. Forward-looking statements
are not guarantees of performance. For forward-looking statements herein, the
Company claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
The Company assumes no obligation to update or supplement forward-looking
statements that become untrue because of subsequent events.


FIRST POTOMAC REALTY TRUST
Consolidated Statements of Operations
(unaudited, amounts in thousands, except per share amounts)
                                                 
                  Three Months Ended September       Nine Months Ended
                  30,                                September 30,
                    2012          2011           2012       2011    
Revenues:
Rental            $  39,800        $  35,729         $ 114,844     $ 101,810
Tenant
reimbursements      8,821          8,899          28,276      24,515  
and other
                                                                   
Total revenues      48,621         44,628         143,120     126,325 
                                                                   
Operating
expenses:
Property             11,811           10,995           33,404        30,721
operating
Real estate
taxes and            4,672            4,191            14,341        12,105
insurance
General and          5,645            4,354            17,787        12,546
administrative
Acquisition          8                1,737            49            4,475
costs
Depreciation
and                  16,633           15,934           48,844        44,911
amortization
Impairment of
real estate          496              -                2,444         -
assets
Contingent
consideration
related to          112            (1,487  )       112         (1,487  )
acquisition of
property
                                                                   
Total operating     39,377         35,724         116,981     103,271 
expenses
                                                                   
Operating           9,244          8,904          26,139      23,054  
income
                                                                   
Other expenses,
net:
Interest             10,555           11,126           32,654        30,066
expense
Interest and         (1,522  )        (1,533  )        (4,529  )     (3,768  )
other income
Equity in
losses of            30               81               52            112
affiliates
Gain on sale of      (2,951  )        -                (2,951  )     -
investment
Loss on debt        -              -              13,221      -       
extinguishment
                                                                   
Total other         6,112          9,674          38,447      26,410  
expenses, net
                                                                   
Income (loss)
from continuing
operations          3,132          (770    )       (12,308 )    (3,356  )
before income
taxes
                                                                   
Benefit from        4,304          195            4,142       656     
income taxes
                                                                   
Income (loss)
from continuing     7,436          (575    )       (8,166  )    (2,700  )
operations
                                                                   
Discontinued
operations:
Loss from            (1      )        (3,137  )        (1,256  )     (6,107  )
operations
Gain on sale of
real estate         -              -              161         1,954   
property
                                                                   
Loss from
discontinued        (1      )       (3,137  )       (1,095  )    (4,153  )
operations
                                                                   
Net income          7,435          (3,712  )       (9,261  )    (6,853  )
(loss)
                                                                   
Less: Net
(income) loss
attributable to     (232    )       265            876         469     
noncontrolling
interests
                                                                   
Net income
(loss)
attributable to     7,203          (3,447  )       (8,385  )    (6,384  )
First Potomac
Realty Trust
                                                                   
Less: Dividends
on preferred        (3,100  )       (2,228  )       (8,864  )    (6,239  )
shares
                                                                   
Net income
(loss)
attributable to   $  4,103        $  (5,675  )      $ (17,249 )   $ (12,623 )
common
shareholders
                                                                   
Depreciation
and
amortization:
Real estate          16,633           15,934           48,844        44,911
assets
Discontinued         -                154              131           990
operations
Unconsolidated       1,487            520              4,456         1,556
joint ventures
Consolidated         (46     )        (21     )        (129    )     (61     )
joint ventures
Impairment of
real estate          496              3,111            3,517         5,821
assets
Gain on sale         (2,951  )        -                (3,112  )     (1,954  )
Net income
(loss)
attributable to
noncontrolling      209            (272    )       (944    )    (476    )
interests in
the Operating
Partnership
                                                                   
Funds from
operations
available to      $  19,931       $  13,751        $ 35,514     $ 38,164  
common
shareholders
                                                                             

                                                  
FIRST POTOMAC REALTY TRUST
Consolidated Statements of Operations
(unaudited, amounts in thousands, except per share amounts)
                                                       
                      Three Months Ended               Nine Months Ended
                      September 30,                    September 30,
                        2012        2011          2012      2011   
                                                                    
Funds from            $  23,031       $ 15,979         $ 44,378     $ 44,403
operations (FFO)
Dividends on            (3,100  )     (2,228 )        (8,864 )    (6,239 )
preferred shares
FFO available to         19,931         13,751           35,514       38,164
common shareholders
                                                                    
Acquisition costs        8              1,737            49           4,475
Contingent
consideration
related to               112            (1,487 )         112          (1,487 )
acquisition of
property
Deferred abatement
and straight-line        (1,567  )      -                (1,567 )     -
amortization
Change in tax            (4,327  )      -                (4,327 )     -
regulations^(1)
Internal                 743            -                3,276        -
investigation costs
Personnel                397            -                397          -
separation costs
Loss on debt            -            -              13,325     -      
extinguishment^(2)
                                                                    
Core FFO              $  15,297      $ 14,001        $ 46,779    $ 41,152 
                                                                    
Basic and diluted
earnings per common
share:
Income (loss) from
continuing            $  0.08         $ (0.05  )       $ (0.33  )   $ (0.19  )
operations
Income (loss) from
discontinued            -            (0.07  )        (0.02  )    (0.08  )
operations
Net income (loss)     $  0.08        $ (0.12  )       $ (0.35  )   $ (0.27  )
                                                                    
Weighted average
common shares
outstanding:
Basic                    50,267         49,308           50,049       49,275
Diluted                  50,346         49,308           50,049       49,275
                                                                    
FFO available to
common shareholders   $  0.38         $ 0.27           $ 0.67       $ 0.74
per share – basic
and diluted
Core FFO per share    $  0.29         $ 0.27           $ 0.88       $ 0.80
– diluted
                                                                    
Weighted average
common shares and
units outstanding:
Basic                    52,869         51,714           52,802       51,230
Diluted                  52,947         51,830           52,884       51,380
                                                                             

^(1)  Reflects the one-time non-cash impact of new tax regulations enacted by
       the District of Columbia that became effective in September 2012.
       Includes $0.1 million of costs incurred in conjunction with the
^(2)   expansion of the Company’s unsecured term loan in the first quarter of
       2012, which are included in “Interest expense” in the Company’s
       consolidated statements of operations.
       

                                                         
FIRST POTOMAC REALTY TRUST
Consolidated Balance Sheets
(Amounts in thousands, except per share amounts)
                                                             
                                      September 30, 2012     December 31, 2011
                                      (unaudited)
Assets:
Rental property, net                  $   1,440,813          $   1,439,661
Assets held for sale                      3,579                  5,297
Cash and cash equivalents                 12,040                 16,749
Escrows and reserves                      14,657                 18,455
Accounts and other receivables, net
of allowance for doubtful accounts        14,034                 11,404
of $2,471 and $3,065, respectively
Accrued straight-line rents, net of
allowance for doubtful accounts of        25,440                 18,028
$444 and $369, respectively
Notes receivable, net                     54,713                 54,661
Investment in affiliates                  51,113                 72,518
Deferred costs, net                       38,894                 34,683
Prepaid expenses and other assets         9,166                  9,275
Intangible assets, net                   49,788               59,021     
                                                             
Total assets                          $   1,714,237         $   1,739,752  
                                                             
Liabilities:
Mortgage loans                        $   437,014            $   432,023
Senior notes                              -                      75,000
Secured term loans                        20,000                 30,000
Unsecured term loan                       300,000                225,000
Unsecured revolving credit facility       159,000                183,000
Liabilities held for sale                 5,345                  -
Accounts payable and other                62,436                 53,507
liabilities
Accrued interest                          2,352                  2,782
Rents received in advance                 9,761                  11,550
Tenant security deposits                  5,944                  5,603
Deferred market rent, net                4,005                4,815      
                                                             
Total liabilities                        1,005,857            1,023,280  
                                                             
Noncontrolling interests in the           35,383                 39,981
Operating Partnership
                                                             
Equity:
Preferred Shares, $0.001 par value,
50,000 shares authorized; Series A
Preferred Shares, $25 liquidation         160,000                115,000
preference, 6,400 and 4,600 shares
issued and outstanding,
respectively
Common shares, $0.001 par value,
150,000 shares authorized; 50,994         51                     50
and 50,321 shares issued and
outstanding, respectively
Additional paid-in capital                803,190                798,171
Noncontrolling interests in               4,321                  4,245
consolidated partnerships
Accumulated other comprehensive           (11,937     )          (5,849     )
loss
Dividends in excess of accumulated       (282,628    )         (235,126   )
earnings
                                                             
Total equity                             672,997              676,491    
                                                             
Total liabilities, noncontrolling     $   1,714,237         $   1,739,752  
interests and equity
                                                                            


FIRST POTOMAC REALTY TRUST
Same-Property Analysis
(unaudited, dollars in thousands)
                                               
                                                   
Same-Property     Three Months Ended September     Nine Months Ended September
NOI^(1)           30,                              30,
                    2012         2011          2012       2011
Total base rent   $  36,230        $ 34,777        $ 94,748       $ 91,978
Tenant
reimbursements       8,316           8,373           18,992       19,520
and other
Property
operating            (10,895  )      (10,624 )       (26,049 )    (26,259    )
expenses
Real estate
taxes and           (4,300   )     (4,094  )      (10,915 )    (10,540    )
insurance
                                                                             
Same-Property
NOI - accrual        29,351          28,432          76,776       74,699
basis
                                                                             
Straight-line        (331     )      (16     )       (301    )    269
revenue, net
Deferred market
rental revenue,     (110     )     32            (533    )    (695       )
net
                                                                             
Same-Property
NOI - cash        $  28,910       $ 28,448       $ 75,942      $ 74,273   
basis
                                                                  
Change in
same-property        3.2      %                      2.8     %
NOI - accrual
basis
Change in
same-property        1.6      %                      2.2     %
NOI - cash
basis
Changes in
Same-Property                                                     
NOI - accrual
basis
Rental revenue    $  1,453                         $ 2,770
increase
Tenant
reimbursements       (57      )                      (528    )
and other
decrease
Expense             (477     )                     (165    )
increase
                  $  919                          $ 2,077   
                                                                  
Same-property
percentage of        95.9     %                      90.7    %
total portfolio
(sf)
                                                   
Reconciliation
of Consolidated   Three Months Ended September     Nine Months Ended September
NOI to            30,                              30,
Same-Property
NOI
                    2012          2011          2012         2011    
Total revenues    $  48,621        $ 44,628        $ 143,120       $ 126,325
Property
operating            (11,811  )      (10,995 )       (33,404 )       (30,721 )
expenses
Real estate
taxes and           (4,672   )     (4,191  )      (14,341 )      (12,105 )
insurance
NOI                  32,138          29,442          95,375          83,499
                                                                   
Less: Non-same
property            (2,787   )     (1,010  )      (18,599 )      (8,800  )
NOI^(2)
                                                                             
Same-Property
NOI – accrual       29,351        28,432        76,776        74,699  
basis
                                                                   
                                                                   
                 Three Months     Percentage      Nine Months     Percentage
                  Ended            of              Ended           of
Change in
Same-Property     September 30,    Base Rent       September       Base Rent
NOI by Region     2012                             30, 2012
(accrual basis)
Washington,          1.6      %      10      %       1.4     %       7       %
D.C.
Maryland             10.4     %      32      %       11.7    %       34      %
Northern             (1.1     )      30      %       2.2     %       29      %
Virginia                      %
Southern             1.3      %      27      %       (5.1    )%      30      %
Virginia

Change in
Same-Property
NOI by Property
Type (accrual
basis)
Business Park        2.9      %      37      %       0.9     %       42      %
Industrial           (5.5     )%     20      %       (6.1    )%      23      %
Office / Office      9.1      %      42      %       14.5    %       36      %
Park

     
       Same-property comparisons are based upon those consolidated properties
       owned for the entirety of the periods presented. Same-property results
       exclude the operating results of the following non same-properties:
^(1)   Three Flint Hill, 440 First Street, NW, Greenbrier Towers I & II, 1005
       First Street, NE, Hillside Center, Davis Drive and two buildings at
       Owings Mills Business Park. The nine months ended September 30, 2012
       and 2011 also exclude the operating results of One Fair Oaks, Cedar
       Hill I & III, Merrill Lynch and 840 First Street, NE.
       Non-same property NOI has been adjusted reflect a normalized management
^(2)   fee percentage in lieu of an administrative overhead allocation for
       comparative purposes.

Contact:

First Potomac Realty Trust
Jaime Marcus, Manager, Investor Relations, 301-986-9200
jmarcus@first-potomac.com
 
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