First Potomac Realty Trust Provides Update of Strategic and Capital Plan

  First Potomac Realty Trust Provides Update of Strategic and Capital Plan

  Accelerates Portfolio Transformation with the Marketing of its Industrial
                                  Properties

  New Dividend Policy Preserves Capital to Fortify Balance Sheet and Support
                                Future Growth

Business Wire

WASHINGTON -- January 24, 2013

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, today announced an updated strategic and
capital plan. The Company is continuing to execute on its strategy of
repositioning its portfolio to focus on high-quality office properties in the
Washington, D.C. metropolitan region. Key aspects of the plan include:

  *Exploring the sale of the Company’s industrial properties, consisting of
    approximately 4.3 million square feet, approximately 2.6 million square
    feet of which is located in Southern Virginia.
  *Implementing targeted portfolio management initiatives to drive operating
    efficiencies and improve occupancy.
  *Executing steps designed to increase balance sheet capacity and expand the
    sources of capital necessary to achieve investment-grade credit metrics
    over time.
  *In connection with these initiatives, declaring a quarterly dividend of
    $0.15 per common share, which equates to an annualized dividend of $0.60
    per common share, representing a 25% decrease from its prior annualized
    dividend of $0.80 per share.

The Company believes that the execution of these initiatives, which is already
underway, will result in a portfolio with a greater concentration of
high-quality office properties in the Washington, D.C. metropolitan region,
improved occupancy and performance within the core portfolio, and additional
financial flexibility.

“Over the past three years, we have significantly improved our portfolio
through the acquisition and development of office properties in the
Washington, D.C. metropolitan region. The updated strategic and capital plan
we are providing today continues our evolution and will result in a more
focused Company, with a growth-oriented portfolio and a stronger balance
sheet. The steps identified in our plan are designed to position us in the
coming years to be the leading owner of high-quality office properties in the
region,” stated Douglas J. Donatelli, Chairman and Chief Executive Officer of
First Potomac Realty Trust. “We believe our strengthened management team,
increased focus on operations, and enhanced capital strategy position us to
improve occupancy, increase sustainable portfolio cash flow going forward, and
achieve a balance sheet that will provide access to multiple forms of
attractively priced capital to support future growth initiatives.”

Industrial Portfolio Sale

First Potomac is currently marketing 24 institutional-quality industrial
properties, representing approximately 4.3 million square feet, in a portfolio
sale through Eastdil Secured. Sixteen of those assets, representing
approximately 2.6 million square feet are located in Southern Virginia. The
industrial portfolio was approximately 80% leased as of September 30, 2012 and
represents approximately 17% of the Company’s net operating income.

The Company believes that a portfolio sale of its industrial properties
provides the most efficient means of de-levering the balance sheet, while
preserving net asset value for shareholders. Potential proceeds from the sale
of the industrial properties will largely be utilized to repay outstanding
debt. In addition to providing capital to improve balance sheet flexibility,
the potential sale of the Company’s industrial portfolio is expected to
strengthen First Potomac’s operating metrics, and further streamline the
Company’s focus on office properties, which would represent more than 50% of
total revenue after the sale.

The Company believes that the quality of the assets, the cash flow, and the
availability of low cost financing for unencumbered institutional-quality real
estate represent positive characteristics of a sale transaction. However, the
Company can provide no assurances regarding the timing or pricing of the
industrial portfolio sale, or that the sale will occur at all. First Potomac
expects to provide an update on the disposition of the portfolio in the coming
months.

Portfolio Management

As part of the strategic plan, the Company has strengthened its portfolio
management function, which now reports directly to Chief Executive Officer,
Mr. Donatelli. The portfolio management group is responsible for developing
and implementing dynamic strategic plans for each asset in order to maximize
the cash flows on the existing portfolio. Some of the specific initiatives
include centralizing portfolio management at the Company’s headquarters to
maximize daily interaction with the executive team, providing direction to the
operating team based on the corporate strategy and goals, improving portfolio
occupancy through closer interaction with the leasing team, maximizing
operating efficiencies with property management personnel, and ensuring that
capital expenditures are in-line with the individual strategic asset plans.
Additionally, the portfolio management function will be integrated with the
acquisitions department to ensure that the long-term strategic plan at the
time of acquisition is implemented, monitored, and updated, if necessary,
based on market conditions. Portfolio management will also provide strategic
recommendations for potential dispositions, and will be accountable for
forecasting and delivering property performance.

Capital Plan

First Potomac is pursuing several near-term initiatives designed to improve
liquidity and enhance financial flexibility to execute its long-term capital
strategy. The Company expects to close on a $40 million short-term secured
term loan to preserve borrowing capacity on the revolving credit facility and
pay off approximately $40 million of mortgages scheduled to mature in early
2013. The loan, which will be provided by KeyBank, is expected to have an
interest rate of LIBOR plus 215 basis points and an initial term of nine
months, with a three-month extension option.

First Potomac is in the process of working with its lenders to amend its
revolving credit facility and existing term loans to provide increased
flexibility on a short-term basis under certain financial covenants,
specifically extending the December 31, 2012 consolidated total leverage,
unencumbered pool leverage and consolidated debt yield covenants in the near
term, and proactively addressing the impact that the potential industrial
portfolio sale would have on the tangible net worth and dispositions as a
percentage of gross asset value covenants.

In conjunction with the capital plan, the Company is exploring options related
to the Greyhound Bus Terminal site at 1005 First Street, NE in downtown
Washington, D.C., including a potential joint venture of its interests. While
the Company does not currently intend to incur significant additional costs
related to the project without bringing in a capital partner, it is continuing
to market the site to potential users, and believes that the mixed-use project
will greatly enhance the NOMA submarket and the First Potomac portfolio.

First Potomac believes that achieving investment grade credit metrics is
necessary to operate with increased liquidity, expand the sources of capital
available to the Company, and reduce the cost of that capital. This strategic
goal will require a significant reduction of leverage, which would be
initially facilitated through the use of proceeds from the potential sale of
the industrial portfolio.  In addition to reducing leverage to achieve balance
sheet metrics in-line with an investment grade credit rating, the Company
plans to increase its asset base and the size of its unencumbered asset pool,
which would occur through acquisitions financed with an appropriate mix of
equity and other capital. Over time, First Potomac intends to achieve balance
sheet metrics commensurate with an investment grade credit rating, including
achieving a 6-times Debt to EBITDA ratio.

Quarterly Dividend

For the fourth quarter of 2012, First Potomac's Board of Trustees declared a
dividend of $0.15 per common share, equating to an annualized dividend of
$0.60 per common share. The dividend will be paid on February 15, 2013, to
common shareholders of record as of February 8, 2013. The dividend represents
a 25% reduction from the previous dividend rate and allows First Potomac to
retain approximately $10.4 million of additional cash on an annual basis. The
Company believes this reduction is consistent with the strategic and capital
plan, and will enable the Company to improve its balance sheet and finance
future growth.

The Board of Trustees also declared a dividend of $0.484375 per share on the
Company’s Series A Preferred Shares, payable on February 15, 2013, to Series A
preferred shareholders of record as of February 8, 2013.

Fourth Quarter Earnings Release and Conference Call

First Potomac plans to issue its earnings release for the fourth quarter after
the markets close on February 21, 2013, and will host a conference call on
February 22, 2013 at 9:00 AM ET. The Company will provide 2013 Core FFO
Guidance along with fourth quarter earnings, as well as discuss the strategic
and capital plan in greater detail on this conference call.

The conference call can be accessed by dialing (877) 705-6003 or (201)
493-6725 for international participants. A replay of the call will be
available from 12:00 Noon ET on February 22, 2013, until midnight ET on
February 29, 2013. The replay can be accessed by dialing (877) 870-5176 or
(858) 384-5517 for international callers, and entering pin number 407568.

A live broadcast of the conference call will also be available online at the
Company’s website, www.first-potomac.com, on February 22, 2013, beginning at
9:00 AM ET. An online replay will follow 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.

Forward Looking Statements

The forward-looking statements contained in this press release, including
statements regarding the proposed financing transactions, the potential sale
of the Company’s industrial properties and expected benefits from the
implementation of the strategic and capital plan, 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
for the year ended December 31, 2011 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.

Contact:

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