##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly period ended March 31, 2011.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission File Number 1-31824
 FIRST POTOMAC REALTY TRUST
  MARYLAND
    
    37-1470730(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 7600 Wisconsin Avenue, 11 th Floor, Bethesda, MD 20814
 (301) 986-9200
 þ o
 o o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company o
 o þ




---



##### 



FIRST POTOMAC REALTY TRUST
 FORM 10-Q
 INDEX
 PagePart I: Financial InformationItem 1. Condensed Consolidated Financial StatementsConsolidated balance sheets as of March 31, 2011 (unaudited) and December 31, 2010
    
    
    3Consolidated statements of operations (unaudited) for the three months ended March 31, 2011 and 2010
    
    
    4Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2011 and 2010
    
    
    5Notes to condensed consolidated financial statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    47Item 4. Controls and Procedures
    
    
    47Part II: Other InformationItem 1. Legal Proceedings
    
    
    48Item 1A. Risk Factors
    
    
    48Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 3. Defaults Upon Senior Securities
    
    
    48Item 4. Submission of Matters to a Vote of Security Holders
    
    
    48Item 5. Other Information
    
    
    48Item 6. Exhibits
    
    
    48SignaturesExhibit 4.3Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



FIRST POTOMAC REALTY TRUST
 
   March 31, 2011
    
    
    December 31, 2010(unaudited)Assets:Rental property, net
    
    $
    1,326,027
    
    
    $
    1,217,897Cash and cash equivalents
    
    
    18,681
    
    
    
    33,280Escrows and reserves
    
    
    13,504
    
    
    
    8,070Accounts and other receivables, net of allowance
for doubtful accounts of $3,351 and $3,246,
respectively
    
    
    8,602
    
    
    
    7,238Accrued straight-line rents, net of allowance for
doubtful accounts of $893 and $849, respectively
    
    
    13,549
    
    
    
    12,771Notes receivable, net
    
    
    24,760
    
    
    
    24,750Investment in affiliates
    
    
    23,994
    
    
    
    23,721Deferred costs, net
    
    
    22,260
    
    
    
    20,174Prepaid expenses and other assets
    
    
    14,966
    
    
    
    14,230Intangible assets, net
    
    
    54,673
    
    
    
    34,551Total assets
    
    $
    1,521,016
    
    
    $
    1,396,682Liabilities:Mortgage loans
    
    $
    391,573
    
    
    $
    319,096Exchangeable senior notes, net
    
    
    30,076
    
    
    
    29,936Senior notes
    
    
    75,000
    
    
    
    75,000Secured term loans
    
    
    100,000
    
    
    
    110,000Unsecured revolving credit facility
    
    
    116,000
    
    
    
    191,000Accounts payable and other liabilities
    
    
    34,342
    
    
    
    16,827Accrued interest
    
    
    3,736
    
    
    
    2,170Rents received in advance
    
    
    7,234
    
    
    
    7,049Tenant security deposits
    
    
    5,620
    
    
    
    5,390Deferred market rent, net
    
    
    5,676
    
    
    
    6,032Total liabilities
    
    
    769,257
    
    
    
    762,500Noncontrolling interests in the Operating Partnership
    
    
    37,420
    
    
    
    16,122Equity:Series A Preferred Shares, $25 par value, 50,000
shares authorized: 4,600 and 0 shares issued and
outstanding, respectively
    
    
    115,000
    
    
    
    Common shares, $0.001 par value, 150,000 common
shares authorized: 50,041 and 49,922 shares issued
and outstanding, respectively
    
    
    50
    
    
    
    50Additional paid-in capital
    
    
    790,596
    
    
    
    794,051Noncontrolling interests in consolidated partnership
    
    
    3,077
    
    
    
    3,077Accumulated other comprehensive loss
    
    
    (293
    )
    
    
    (545
    )Dividends in excess of accumulated earnings
    
    
    (194,091
    )
    
    
    (178,573
    )Total equity
    
    
    714,339
    
    
    
    618,060Total liabilities, noncontrolling interests and equity
    
    $
    1,521,016
    
    
    $
    1,396,682
   3




---



##### Table of Contents



FIRST POTOMAC REALTY TRUST
 
    Three Months Ended March 31,2011
    
    
    2010Revenues:Rental
    
    $
    32,359
    
    
    $
    27,016Tenant reimbursements and other
    
    
    8,111
    
    
    
    7,757Total revenues
    
    
    40,470
    
    
    
    34,773Operating expenses:Property operating
    
    
    10,958
    
    
    
    10,012Real estate taxes and insurance
    
    
    4,002
    
    
    
    3,328General and administrative
    
    
    4,008
    
    
    
    3,709Acquisition costs
    
    
    2,185
    
    
    
    19Depreciation and amortization
    
    
    12,770
    
    
    
    9,858Impairment of real estate assets
    
    
    2,711
    
    
    
    Contingent consideration related to acquisition of property
    
    
    
    
    
    
    710Total operating expenses
    
    
    36,634
    
    
    
    27,636Operating income
    
    
    3,836
    
    
    
    7,137Other expenses, net:Interest expense
    
    
    8,633
    
    
    
    8,861Interest and other income
    
    
    (825
    )
    
    
    (112
    )Equity in losses of affiliates
    
    
    32
    
    
    
    38Total other expenses, net
    
    
    7,840
    
    
    
    8,787Loss from continuing operations before income taxes
    
    
    (4,004
    )
    
    
    (1,650
    )Benefit from income taxes
    
    
    313
    
    
    
    Loss from continuing operations
    
    
    (3,691
    )
    
    
    (1,650
    )Loss from discontinued operations
    
    
    (201
    )
    
    
    (558
    )Net loss
    
    
    (3,892
    )
    
    
    (2,208
    )Less: Net loss attributable to noncontrolling interests
    
    
    138
    
    
    
    49Net loss attributable to First Potomac Realty Trust
    
    
    (3,754
    )
    
    
    (2,159
    )Less: Dividends on preferred shares
    
    
    (1,783
    )
    
    
    Net loss available to common shareholders
    
    $
    (5,537
    )
    
    $
    (2,159
    )Basic and diluted earnings per share:Loss from continuing operations
    
    $
    (0.12
    )
    
    $
    (0.06
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net loss
    
    $
    (0.12
    )
    
    $
    (0.08
    )Weighted average common shares outstanding: Basic and diluted
    
    
    49,234
    
    
    
    30,560
   4




---



##### Table of Contents



FIRST POTOMAC REALTY TRUST
 
 
 Three Months Ended March 31,2011
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (3,892
    )
    
    $
    (2,208
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Discontinued operations:Depreciation and amortization
    
    
    129
    
    
    
    279Impairment of real estate asset
    
    
    
    
    
    
    565Depreciation and amortization
    
    
    12,976
    
    
    
    10,070Stock based compensation
    
    
    691
    
    
    
    1,053Bad debt expense
    
    
    330
    
    
    
    324Benefit from income taxes
    
    
    (313
    )
    
    
    Amortization of deferred market rent
    
    
    172
    
    
    
    246Amortization of financing costs and fair value discounts
    
    
    566
    
    
    
    178Equity in losses of affiliates
    
    
    31
    
    
    
    38Distributions from investments in affiliates
    
    
    9
    
    
    
    81Contingent consideration related to acquisition of property
    
    
    
    
    
    
    710Impairment of real estate asset
    
    
    2,711
    
    
    
    Changes in assets and liabilities:Escrows and reserves
    
    
    (5,434
    )
    
    
    (1,035
    )Accounts and other receivables
    
    
    (1,630
    )
    
    
    (1,372
    )Accrued straight-line rents
    
    
    (1,416
    )
    
    
    (647
    )Prepaid expenses and other assets
    
    
    126
    
    
    
    1,266Tenant security deposits
    
    
    230
    
    
    
    (116
    )Accounts payable and accrued expenses
    
    
    140
    
    
    
    (734
    )Accrued interest
    
    
    1,565
    
    
    
    1,894Rents received in advance
    
    
    184
    
    
    
    (158
    )Deferred costs
    
    
    (2,911
    )
    
    
    (1,612
    )Total adjustments
    
    
    8,156
    
    
    
    11,030Net cash provided by operating activities
    
    
    4,264
    
    
    
    8,822Cash flows from investing activities:Purchase deposit on future acquisitions
    
    
    (3,465
    )
    
    
    Proceeds from sale of real estate asset
    
    
    10,824
    
    
    
    Acquisition of rental property and associated intangible assets
    
    
    (9,974
    )
    
    
    Additions to rental property
    
    
    (6,303
    )
    
    
    (2,534
    )Acquisition of land parcel
    
    
    (7,500
    )
    
    
    Additions to construction in progress
    
    
    (2,807
    )
    
    
    (319
    )Investment in unconsolidated joint ventures
    
    
    (260
    )
    
    
    Deconsolidation of joint venture
    
    
    
    
    
    
    (896
    )Net cash used in investing activities
    
    
    (19,485
    )
    
    
    (3,749
    )Cash flows from financing activities:Financing costs
    
    
    (920
    )
    
    
    (33
    )Issuance of shares, net
    
    
    111,016
    
    
    
    87,068Issuance of debt
    
    
    30,000
    
    
    
    Repayments of debt
    
    
    (128,652
    )
    
    
    (83,934
    )Distributions to noncontrolling interests
    
    
    (191
    )
    
    
    (146
    )Dividends to shareholders
    
    
    (10,649
    )
    
    
    (6,116
    )Stock option exercises
    
    
    18
    
    
    
    8Net cash provided by (used in) financing activities
    
    
    622
    
    
    
    (3,153
    )Net (decrease) increase in cash and cash equivalents
    
    
    (14,599
    )
    
    
    1,920Cash and cash equivalents, beginning of period
    
    
    33,280
    
    
    
    9,320Cash and cash equivalents, end of period
    
    $
    18,681
    
    
    $
    11,240
   5




---



##### Table of Contents



FIRST POTOMAC REALTY TRUST
  2011
    
    
    2010Cash paid for interest, net
    
    $
    6,452
    
    
    $
    6,954Non-cash investing and financing activities:Debt assumed in connection with
acquisitions of real estate
    
    
    86,464
    
    
    
    Contingent consideration recorded at
acquisition
    
    
    9,356
    
    
    
    Conversion of Operating Partnership units
into common shares
    
    
    19
    
    
    
    Issuance of Operating Partnership units
in exchange for limited partnership
interests
    
    
    21,721
    
    
    
    
     6




---



##### Table of Contents



FIRST POTOMAC REALTY TRUST
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (1) Description of Business
     (2) Summary of Significant Accounting Policies
 (a) Principles of Consolidation
     7




---



##### Table of Contents



(b) Use of Estimates
  ) Rental Property
  Buildings
    
    39 yearsBuilding improvements
    
    5 to 20 yearsFurniture, fixtures and equipment
    
    5 to 15 yearsTenant improvements
    
    Shorter of the useful lives of the
assets or the terms of the related
leases
      8




---



##### Table of Contents



(d) Notes Receivable
   (e) Reclassifications
  (f) Application of New Accounting Standards
 Fair Value
Measurements
  (3) Earnings Per Share
   9




---



##### Table of Contents



Three Months Ended March 31,2011
    
    
    2010Numerator for basic and diluted earnings per share:Loss from continuing operations
    
    $
    (3,691
    )
    
    $
    (1,650
    )Loss from discontinued operations
    
    
    (201
    )
    
    
    (558
    )Net loss
    
    
    (3,892
    )
    
    
    (2,208
    )Less: Net loss from continuing operations
attributable to noncontrolling interests
    
    
    134
    
    
    
    37Less: Net loss from discontinued operations
attributable to noncontrolling interests
    
    
    4
    
    
    
    12Net loss attributable to First Potomac Realty Trust
    
    
    (3,754
    )
    
    
    (2,159
    )Less: Dividends on preferred shares
    
    
    (1,783
    )
    
    
    Net loss available to common shareholders
    
    
    (5,537
    )
    
    
    (2,159
    )Less: Allocation to participating securities
    
    
    (137
    )
    
    
    (147
    )Net loss available to common shareholders
    
    $
    (5,674
    )
    
    $
    (2,306
    )Denominator for basic and diluted earnings per share:Weighted average shares outstanding  basic and diluted
    
    
    49,234
    
    
    
    30,560Basic and diluted earnings per share:Loss from continuing operations
    
    $
    (0.12
    )
    
    $
    (0.06
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net loss
    
    $
    (0.12
    )
    
    $
    (0.08
    )
  Three Months Ended March 31,2011
    
    
    2010Stock option awards
    
    
    902
    
    
    
    850Non-vested share awards
    
    
    421
    
    
    
    351Conversion of Exchangeable Senior Notes(1)
    
    
    854
    
    
    
    1,416Series A Preferred Shares(2)
    
    
    7,302
    
    
    
    9,479
    
    
    
    2,617
 (1)
    
    At March 31, 2011 and 2010, each $1,000 principal amount of the
Exchangeable Senior Notes was convertible into 28.039 shares.(2)
    
    The Companys Series A Preferred Shares are only convertible into shares of the
Companys common stock upon a change in control of the Company.  10




---



##### Table of Contents



(4) Rental Property
  March 31, 2011
    
    
    December 31, 2010Land
    
    $
    336,735
    
    
    $
    315,229Buildings and improvements
    
    
    998,055
    
    
    
    930,077Construction in process
    
    
    56,337
    
    
    
    41,685Tenant improvements
    
    
    102,021
    
    
    
    92,002Furniture, fixtures and equipment
    
    
    10,370
    
    
    
    9,8941,503,518
    
    
    
    1,388,887Less: accumulated depreciation
    
    
    (177,491
    )
    
    
    (170,990
    )$
    1,326,027
    
    
    $
    1,217,897
 (a) Development and Redevelopment Activity
  Active
    
    
    ActiveReporting Segment
    
    Developable Land
    
    
    Development
    
    
    RedevelopmentMaryland
    
    
    150
    
    
    
    
    
    
    
    Northern Virginia
    
    
    568
    
    
    
    
    
    
    
    227Southern Virginia
    
    
    959
    
    
    
    48
    
    
    
    39Washington, D.C.
    
    
    43
    
    
    
    
    
    
    
    1351,720
    
    
    
    48
    
    
    
    401
  (b) Acquisitions
  Leased and
    
    
    Aggregate
    
    
    MortgageAcquisition
    
    Property
    
    Square
    
    
    Occupied at
    
    
    Purchase
    
    
    DebtLocation
    
    Date
    
    Type
    
    Feet
    
    
    Acquisition
    
    
    Price
    
    
    Assumed(1)440 First Street, NW (2)
    
    Washington, D.C.
    
    1/11/2011
    
    Office
    
    
    
    
    
    
    
    
    
    $
    8,000
    
    
    $
    Cedar Hill / Merrill Lynch
    
    Virginia / Maryland (3)
    
    2/22/2011
    
    Office
    
    
    239,013
    
    
    
    100.0
    %
    
    
    33,795
    
    
    
    29,982840 First Street, NE
    
    Washington, D.C.
    
    3/25/2011
    
    Office
    
    
    244,298
    
    
    
    100.0
    %
    
    
    97,738
    
    
    
    56,482483,311
    
    
    
    
    
    
    $
    139,533
    
    
    $
    86,464
 (1)
    
    Reflects the fair value of the mortgage debt at the time of acquisition.(2)
    
    On December 28, 2010, the Company acquired 440 First Street, NW, a vacant
eight-story, 105,000 square foot office building in Washington, D.C., for $15.3 million. On
January 11, 2011, the Company purchased the fee interest in the propertys ground lease for
$8.0 million. Also, in the first quarter of 2011, the Company purchased 30,000 square feet of
transferable development rights for $0.3 million, which can be developed into leasable space.(3)
    
    Cedar Hill and Merrill Lynch were acquired in a portfolio acquisition. Cedar Hill
is located in Tysons Corner, Virginia and Merrill Lynch is located in Columbia, Maryland.  11




---



##### Table of Contents



Fair Value Measurements
  Land
    
    $
    32,193Acquired tenant improvements
    
    
    6,094Building and improvements
    
    
    78,992In-place leases
    
    
    19,484Acquired leasing commissions
    
    
    1,563Customer relationships
    
    
    243Above-market leases acquired
    
    
    1,127Total assets acquired
    
    
    139,696Below-market leases acquired
    
    
    (163
    )Debt assumed
    
    
    (86,464
    )Acquisition related contingent consideration
    
    
    (9,356
    )Net assets acquired
    
    $
    43,713
    Pro Forma Financial Information
  2011
    
    
    2010Pro forma total revenues
    
    $
    44,006
    
    
    $
    39,076Pro forma net loss
    
    $
    (3,667
    )
    
    $
    (5,802
    )Pro forma net loss per share  basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.19
    )
  12




---



##### Table of Contents



(5) Investment in Affiliates
   March 31, 2011
    
    
    December 31, 2010Assets:Rental property, net
    
    $
    103,807
    
    
    $
    104,559Cash and cash equivalents
    
    
    2,746
    
    
    
    1,706Other assets
    
    
    10,812
    
    
    
    11,442Total assets
    
    
    117,365
    
    
    
    117,707Liabilities:Mortgage loans(1)
    
    
    59,646
    
    
    
    59,914Other liabilities
    
    
    3,626
    
    
    
    4,316Total liabilities
    
    
    63,272
    
    
    
    64,230Net assets
    
    $
    54,093
    
    
    $
    53,477
 (1)
    
    Of the total mortgage debt that encumbers the Companys unconsolidated
properties, $7.0 million is recourse to the Company.  Three Months EndedMarch 31,2011
    
    
    2010Total revenues
    
    $
    3,078
    
    
    $
    1,118Total operating expenses
    
    
    (1,136
    )
    
    
    (352
    )Net operating income
    
    
    1,942
    
    
    
    766Depreciation and amortization
    
    
    (1,302
    )
    
    
    (453
    )Other expenses, net
    
    
    (723
    )
    
    
    (466
    )Net loss
    
    $
    (83
    )
    
    $
    (153
    )
 (6) Discontinued Operations
    13




---



##### Table of Contents



Three Months EndedMarch 31,2011
    
    
    2010Revenues
    
    $
    44
    
    
    $
    598Net loss
    
    
    (201
    )
    
    
    (558
    )
 (7) Debt
  March 31,
    
    
    December 31,2011
    
    
    2010Mortgage loans, effective interest rates ranging from 4.40% to 7.29%, maturing at various dates
through June 2021
    
    $
    391,573
    
    
    $
    319,096Exchangeable senior notes, net of discounts, effective interest rate of 5.84%, maturing December
2011(1)
    
    
    30,076
    
    
    
    29,936Series A senior notes, effective interest rate of 6.41%, maturing June 2013
    
    
    37,500
    
    
    
    37,500Series B senior notes, effective interest rate of 6.55%, maturing June 2016
    
    
    37,500
    
    
    
    37,500Secured term loan, effective interest rate of LIBOR plus 3.50%, maturing January 2014(2)
    
    
    30,000
    
    
    
    40,000Secured term loan, effective interest rate of LIBOR plus 2.50%, maturing August 2011
    
    
    20,000
    
    
    
    20,000Secured term loan, effective interest rate of LIBOR plus 3.50%, maturing May 2011
    
    
    50,000
    
    
    
    50,000Unsecured revolving credit facility, effective interest rate of LIBOR plus 3.00%, maturing January
2014(3)
    
    
    116,000
    
    
    
    191,000$
    712,649
    
    
    $
    725,032
 
 (1)
    
    The principal balance of the Exchangeable Senior Notes was $30.4
million at March 31, 2011 and December 31, 2010.(2)
    
    On January 1, 2011, the loans applicable interest rate increased to
LIBOR plus 3.50% and will continue to increase by 100 basis points every year, to a maximum of
550 basis points.(3)
    
    The unsecured revolving credit facility matures in 2013 with a one-year
extension at the Companys option, which it intends to exercise.  14




---



##### Table of Contents



(a)
    
    Mortgage Loans The following table provides a summary of the Companys mortgage debt at March 31, 2011 and
December 31, 2010 (dollars in thousands): EffectiveContractual
    
    
    Interest
    
    
    Maturity
    
    March 31,
    
    
    December 31,Encumbered Property
    
    Interest Rate
    
    
    Rate
    
    
    Date

    
    2011
    
    
    2010Indian Creek Court (1)
    
    
    7.80
    %
    
    
    5.90
    %
    
    January 2011
    
    $
    
    
    
    $
    11,982403/405 Glenn Drive
    
    
    7.60
    %
    
    
    5.50
    %
    
    July 2011
    
    
    7,883
    
    
    
    7,9604612 Navistar Drive (2)
    
    
    7.48
    %
    
    
    5.20
    %
    
    July 2011
    
    
    12,065
    
    
    
    12,189Campus at Metro Park (2)
    
    
    7.11
    %
    
    
    5.25
    %
    
    February 2012
    
    
    22,345
    
    
    
    22,5561434 Crossways Blvd Building II
    
    
    7.05
    %
    
    
    5.38
    %
    
    August 2012
    
    
    9,388
    
    
    
    9,484Crossways Commerce Center
    
    
    6.70
    %
    
    
    6.70
    %
    
    October 2012
    
    
    24,061
    
    
    
    24,179Newington Business Park Center
    
    
    6.70
    %
    
    
    6.70
    %
    
    October 2012
    
    
    15,178
    
    
    
    15,252Prosperity Business Center
    
    
    6.25
    %
    
    
    5.75
    %
    
    January 2013
    
    
    3,479
    
    
    
    3,502Aquia Commerce Center I(3)
    
    
    7.28
    %
    
    
    7.28
    %
    
    February 2013
    
    
    318
    
    
    
    353Cedar Hill
    
    
    6.00
    %
    
    
    6.58
    %
    
    February 2013
    
    
    16,146
    
    
    
    Merrill Lynch Building
    
    
    6.00
    %
    
    
    7.29
    %
    
    February 2013
    
    
    13,769
    
    
    
    1434 Crossways Blvd Building I
    
    
    6.25
    %
    
    
    5.38
    %
    
    March 2013
    
    
    8,154
    
    
    
    8,225Linden Business Center
    
    
    6.01
    %
    
    
    5.58
    %
    
    October 2013
    
    
    7,039
    
    
    
    7,080840 First Street, NE
    
    
    5.18
    %
    
    
    6.05
    %
    
    October 2013
    
    
    56,381
    
    
    
    Owings Mills Business Center
    
    
    5.85
    %
    
    
    5.75
    %
    
    March 2014
    
    
    5,420
    
    
    
    5,448Annapolis Commerce Park East
    
    
    5.74
    %
    
    
    6.25
    %
    
    June 2014
    
    
    8,457
    
    
    
    8,491Cloverleaf Center
    
    
    6.75
    %
    
    
    6.75
    %
    
    October 2014
    
    
    17,127
    
    
    
    17,204Plaza 500, Van Buren Business
Park, Rumsey Center, Snowden
Center, Greenbrier Technology
Center II, Norfolk Business Center,
Northridge I & II and 15395 John
Marshall Highway
    
    
    5.19
    %
    
    
    5.19
    %
    
    August 2015
    
    
    98,791
    
    
    
    99,151Hanover Business Center:Building D
    
    
    8.88
    %
    
    
    6.63
    %
    
    August 2015
    
    
    612
    
    
    
    642Building C
    
    
    7.88
    %
    
    
    6.63
    %
    
    December 2017
    
    
    1,012
    
    
    
    1,041Chesterfield Business Center:Buildings C,D,G and H
    
    
    8.50
    %
    
    
    6.63
    %
    
    August 2015
    
    
    1,605
    
    
    
    1,681Buildings A,B,E and F
    
    
    7.45
    %
    
    
    6.63
    %
    
    June 2021
    
    
    2,358
    
    
    
    2,3987458 Candlewood Road  Note 1
    
    
    4.67
    %
    
    
    6.04
    %
    
    January 2016
    
    
    4,741
    
    
    
    4,7617458 Candlewood Road  Note 2
    
    
    6.57
    %
    
    
    6.30
    %
    
    January 2016
    
    
    9,891
    
    
    
    9,938Gateway Centre, Building I
    
    
    7.35
    %
    
    
    5.88
    %
    
    November 2016
    
    
    1,146
    
    
    
    1,189500 First Street, NW
    
    
    5.72
    %
    
    
    5.79
    %
    
    July 2020
    
    
    38,667
    
    
    
    38,793Battlefield Corporate Center
    
    
    4.26
    %
    
    
    4.40
    %
    
    November 2020
    
    
    4,254
    
    
    
    4,289Airpark Business Center
    
    
    7.45
    %
    
    
    6.63
    %
    
    June 2021
    
    
    1,286
    
    
    
    1,308Total Mortgage Debt
    
    
    
    
    
    
    5.84
    %(4)
    
    
    
    
    
    $
    391,573
    
    
    $
    319,096
 
 (1)
    
    The loan was repaid on January 3, 2011 with available cash.(2)
    
    The maturity date presented for these loans represents the anticipated
repayment date of the loans, after which date the interest rates on the loans will increase to
a predetermined amount identified in the debt agreement. The effective interest rate was
calculated based on the anticipated period the debt is expected to be outstanding.(3)
    
    The loan was repaid on April 1, 2011 with available cash.(4)
    
    Weighted average interest rate on total mortgage debt.    15




---



##### Table of Contents



(b) Secured Term Loans
   (c) Unsecured Revolving Credit Facility
  (d) Interest Rate Swap Agreement
  (e) Debt Covenants
    16




---



##### Table of Contents



(8) Income Taxes
     (9) Derivative Instruments and Comprehensive Loss
  
    
    available interest rate hedging may not correspond directly with the interest rate risk
for which the Company seeks protection;
 
    
    the duration of the hedge may not match the duration of the related liability;
 
    
    the party owing money in the hedging transaction may default on its obligation to pay;
and
 
    
    the credit quality of the party owing money on the hedge may be downgraded to such an
extent that it impairs the Companys ability to sell or assign its side of the hedging
transaction.
  17




---



##### Table of Contents



Interest RateContractual
    
    
    Fixed EffectiveTransaction Date
    
    Maturity Date
    
    Amount
    
    
    Component
    
    
    Interest RateConsolidated:
    
    July 2010(1)
    
    January 2014
    
    $
    50,000
    
    
    LIBOR
    
    
    1.474
    %Unconsolidated:
    
    September 2008
    
    September 2011
    
    
    28,000
    (2)
    
    LIBOR
    
    
    3.47
    %
 (1)
    
    The interest rate swap agreement became effective on January 18, 2011.(2)
    
    The Company remains liable, in the event of default by the joint venture, for
$7.0 million, or 25% of the total, which reflects its ownership percentage in the joint
venture.   Three Months Ended March 31,2011
    
    
    2010Net loss
    
    $
    (3,892
    )
    
    $
    (2,208
    )Unrealized gain on derivative instruments
    
    
    257
    
    
    
    528Total comprehensive loss
    
    
    (3,635
    )
    
    
    (1,680
    )Comprehensive loss attributable to noncontrolling interests
    
    
    95
    
    
    
    39Comprehensive loss attributable to First Potomac Realty Trust
    
    $
    (3,540
    )
    
    $
    (1,641
    )
 (10) Fair Value Measurements
        18




---



##### Table of Contents



Balance atMarch 31,2011
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Non-recurring Measurements:Impaired real estate asset
    
    $
    4,766
    
    
    $
    
    
    
    $
    4,766
    
    
    $
    Recurring Measurements:Derivative instrument-swap agreement
    
    
    193
    
    
    
    
    
    
    
    193
    
    
    
    Contingent consideration related to acquisition of:Ashburn Center
    
    
    1,398
    
    
    
    
    
    
    
    
    
    
    
    1,398840 First Street, NE
    
    
    9,356
    
    
    
    
    
    
    
    
    
    
    
    9,356
 Balance atDecember 31,2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Non-recurring Measurements:Impaired real estate asset
    
    $
    10,950
    
    
    $
    
    
    
    $
    10,950
    
    
    $
    Recurring Measurements:Derivative instrument-swap agreement
    
    
    396
    
    
    
    
    
    
    
    396
    
    
    
    Contingent consideration related to acquisition of:Ashburn Center
    
    
    1,398
    
    
    
    
    
    
    
    
    
    
    
    1,398
 Impairment of Real Estate Assets
     19




---



##### Table of Contents



Interest Rate Derivatives
    Three months endedMarch 31,2011
  
  2010Balance at
December 31,
  
  $
  396
  
  
  $
  1,741Deconsolidation (1)
  
  
  —
  
  
  
  (396
  )Unrealized gain
  
  
  (203
  )
  
  
  (524
  )Balance at
March 31,
  
  $
  193
  
  
  $
  821
  (1)
  
  On January 1, 2010, the Company deconsolidated RiversPark I and all
its assets and liabilities, including its interest rate derivative liability,
were removed from the Company’s consolidated balance sheets.  Contingent Consideration
    20




---



##### Table of Contents



Three months endedMarch 31,2011
  
  2010Balance at
December 31,
  
  $
  1, 398
  
  
  $
  688Increase in fair value
  
  
  —
  
  
  
  710Additions to contingent
consideration obligation
  
  
  9,356
  
  
  
  —Balance at
March 31,
  
  $
  10,754
  
  
  $
  1,398
  Financial Instruments
  March 31, 2011
    
    
    December 31, 2010Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueFinancials Assets:Note
receivable(1)
    
    $
    24,760
    
    
    $
    27,226
    
    
    $
    24,750
    
    
    $
    24,750Financial Liabilities:Mortgage debt
    
    $
    391,573
    
    
    $
    386,835
    
    
    $
    319,096
    
    
    $
    316,169Exchangeable senior notes(2)
    
    
    30,076
    
    
    
    30,564
    
    
    
    29,936
    
    
    
    30,412Series A senior notes
    
    
    37,500
    
    
    
    38,037
    
    
    
    37,500
    
    
    
    37,850Series B senior notes
    
    
    37,500
    
    
    
    37,816
    
    
    
    37,500
    
    
    
    37,251Secured term loans
    
    
    100,000
    
    
    
    100,044
    
    
    
    110,000
    
    
    
    109,976Unsecured revolving credit facility
    
    
    116,000
    
    
    
    117,625
    
    
    
    191,000
    
    
    
    191,073Total
    
    $
    712,649
    
    
    $
    710,921
    
    
    $
    725,032
    
    
    $
    722,731
 (1)
    
    The face value of the note receivable was $25.0 million at March 31, 2011 and
December 31, 2010.(2)
    
    The face value of the notes was $30.4 million at March 31, 2011 and December 31,
2010. (11) Equity
   21




---



##### Table of Contents



Non-First
    
    
    redeemable
    
    
    
    
    
    
    RedeemablePotomac
    
    
    noncontrolling
    
    
    
    
    
    
    noncontrollingRealty Trust
    
    
    interests
    
    
    Total Equity
    
    
    interestsBalance, December 31, 2010
    
    $
    614,983
    
    
    $
    3,077
    
    
    $
    618,060
    
    
    $
    16,122Net loss
    
    
    (3,754
    )
    
    
    (2
    )
    
    
    (3,756
    )
    
    
    (136
    )Changes in ownership, net
    
    
    110,430
    
    
    
    2
    
    
    
    110,424
    
    
    
    21,620Distributions to owners
    
    
    (10,649
    )
    
    
    
    
    
    
    (10,641
    )
    
    
    (191
    )Other comprehensive income
    
    
    252
    
    
    
    
    
    
    
    252
    
    
    
    5Balance, March 31, 2011
    
    $
    711,262
    
    
    $
    3,077
    
    
    $
    714,339
    
    
    $
    37,420
 Non-First
    
    
    redeemable
    
    
    
    
    
    
    RedeemablePotomac
    
    
    noncontrolling
    
    
    
    
    
    
    noncontrollingRealty Trust
    
    
    interests
    
    
    Total Equity
    
    
    interestsBalance, December 31, 2009
    
    $
    377,759
    
    
    $
    
    
    
    $
    377,759
    
    
    $
    9,585Net loss
    
    
    (2,159
    )
    
    
    
    
    
    
    (2,159
    )
    
    
    (49
    )Changes in ownership, net
    
    
    86,355
    
    
    
    
    
    
    
    86,355
    
    
    
    1,609Distributions to owners
    
    
    (6,116
    )
    
    
    
    
    
    
    (6,116
    )
    
    
    (146
    )Other comprehensive income
    
    
    518
    
    
    
    
    
    
    
    518
    
    
    
    10Balance, March 31, 2010
    
    $
    456,357
    
    
    $
    
    
    
    $
    456,357
    
    
    $
    11,009
 (12) Noncontrolling Interests in Operating Partnership
 (a) Noncontrolling Interests in Operating Partnership
    22




---



##### Table of Contents



(b) Noncontrolling Interests in Consolidated Partnership
   (13) Share-Based Compensation
  Stock Options Summary
   WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOutstanding, December 31, 2010
    
    
    811,580
    
    
    $
    16.72
    
    
    4.8 years
    
    $
    1,641,148Granted
    
    
    132,500
    
    
    
    16.68Exercised
    
    
    (1,719
    )
    
    
    10.25Forfeited
    
    
    (16,944
    )
    
    
    18.46Outstanding, March 31, 2011
    
    
    925,417
    
    
    $
    16.69
    
    
    5.3 years
    
    $
    1,062,668Exercisable, March 31, 2011
    
    
    671,297
    
    
    $
    17.53
    
    
    3.9 years
    
    $
    576,076Options expected to vest,
March 31, 2011
    
    
    223,598
    
    
    $
    14.44
    
    
    9.0 years
    
    $
    434,905
   23




---



##### Table of Contents



2011Risk-free interest rate
    
    
    2.01
    %Expected volatility
    
    
    48.0
    %Expected dividend yield
    
    
    3.55
    %Weighted average expected life of options
    
    5 years
  Option Exercises
  Non-vested share awards
    WeightedNon-vested
    
    
    Average GrantShares
    
    
    Date Fair ValueNon-vested at December 31, 2010
    
    
    702,753
    
    
    $
    11.76Granted
    
    
    162,079
    
    
    
    16.35Vested
    
    
    (50,358
    )
    
    
    9.87Expired
    
    
    (32,041
    )
    
    
    14.70Non-vested at March 31, 2011
    
    
    782,433
    
    
    $
    12.70
  (14) Segment Information
   24




---



##### Table of Contents



Three months ended March 31, 2011Maryland
    
    
    Washington, D.C.
    
    
    Northern Virginia
    
    
    Southern Virginia
    
    
    ConsolidatedNumber of buildings
    
    
    71
    
    
    
    4
    
    
    
    57
    
    
    
    55
    
    
    
    187Square feet
    
    
    3,986,034
    
    
    
    633,452
    
    
    
    3,512,734
    
    
    
    5,361,332
    
    
    
    13,493,552Total revenues
    
    $
    13,400
    
    
    $
    3,572
    
    
    $
    10,930
    
    
    $
    12,568
    
    
    $
    40,470Property operating expense
    
    
    (4,045
    )
    
    
    (721
    )
    
    
    (3,090
    )
    
    
    (3,102
    )
    
    
    (10,958
    )Real estate taxes and insurance
    
    
    (1,195
    )
    
    
    (573
    )
    
    
    (1,217
    )
    
    
    (1,017
    )
    
    
    (4,002
    )Total property operating income
    
    $
    8,160
    
    
    $
    2,278
    
    
    $
    6,623
    
    
    $
    8,449
    
    
    
    25,510Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,770
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,008
    )Acquisition costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,185
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,238
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,892
    )Total assets(1)
    
    $
    482,565
    
    
    $
    265,313
    
    
    $
    367,836
    
    
    $
    340,953
    
    
    $
    1,521,016Capital expenditures(2)
    
    $
    2,799
    
    
    $
    260
    
    
    $
    3,608
    
    
    $
    1,755
    
    
    $
    9,110
 Three months ended March 31, 2010Maryland
    
    
    Washington, D.C.
    
    
    Northern Virginia
    
    
    Southern Virginia
    
    
    ConsolidatedNumber of buildings
    
    
    73
    
    
    
    
    
    
    
    51
    
    
    
    54
    
    
    
    178Square feet
    
    
    3,621,438
    
    
    
    
    
    
    
    3,016,532
    
    
    
    5,264,052
    
    
    
    11,902,022Total revenues
    
    $
    11,239
    
    
    $
    
    
    
    $
    11,089
    
    
    $
    12,445
    
    
    $
    34,773Property operating expense
    
    
    (3,498
    )
    
    
    
    
    
    
    (3,232
    )
    
    
    (3,282
    )
    
    
    (10,012
    )Real estate taxes and insurance
    
    
    (1,097
    )
    
    
    
    
    
    
    (1,172
    )
    
    
    (1,059
    )
    
    
    (3,328
    )Total property operating income
    
    $
    6,644
    
    
    $
    
    
    
    $
    6,685
    
    
    $
    8,104
    
    
    
    21,433Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,858
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,709
    )Acquisition costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,497
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (558
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,208
    )Total assets(1)
    
    $
    393,603
    
    
    $
    
    
    
    $
    311,962
    
    
    $
    321,369
    
    
    $
    1,055,243Capital expenditures(2)
    
    $
    325
    
    
    $
    
    
    
    $
    927
    
    
    $
    1,548
    
    
    $
    2,853
 (1)
    
    Corporate assets not allocated to any of our reportable segments totaled $64,349 and
$28,309 at March 31, 2011 and 2010, respectively.(2)
    
    Capital expenditures for corporate assets not allocated to any of our reportable
segments totaled $688 and $53 at March 31, 2011 and 2010, respectively.  25




---



##### Table of Contents



(15) Subsequent Events
    26




---



##### Table of Contents



ITEM 2:
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of the Companys financial condition and results of
operations should be read in conjunction with the condensed consolidated financial statements and
notes thereto appearing elsewhere in this Form 10-Q . The discussion and analysis is derived from
the consolidated operating results and activities of First Potomac Realty Trust.
      
    
    maintain and increase occupancy rates and/or increase rental rates at its
properties;
    
    sell assets to third parties at favorable prices or contribute properties to
joint ventures; and
    
    continue to grow its portfolio through acquisition of new properties, potentially
through joint ventures.
 Executive Summary
   27




---



##### Table of Contents



Significant Transactions
 
    
    Completed four acquisitions, including one acquisition in April 2011, for total
consideration of $184.1 million and sold a property for net proceeds of $10.8 million;
 
    
    Executed 417,000 square feet of leases; and
 
    
    Raised net proceeds of approximately $111 million through the issuance of 4.6 million
7.75% Series A Preferred Shares.
 Development and Redevelopment Activity
    Development
 
    
    Greenbrier Technology Center III  a 48,000 square foot three-story office building in
the Companys Southern Virginia reporting segment has been designed and all permits have
been received. Costs to date include civil, architectural, mechanical, electrical and
plumbing design as well as permit fees.
 Redevelopment
 
    
    Three Flint Hill  a 174,000 square foot eight-story Class A office building has been
designed, permitted, and is under construction. Costs incurred to date include
architectural and engineering design fees and permit fees as well as demolition, glass,
HVAC, electrical, plumbing, and finish work;
 
    
    Davis Drive  a 54,000 square foot building has been designed and permitted. Costs
incurred to date include architectural and engineering design fees and permit fees; and
 
    
    440 First Street, NW  105,000 square foot vacant office building in Washington, D.C.
that was acquired on December 28, 2010. The Company intends to spend approximately $13
million to redevelop the entire building, which may include adding an additional 30,000
square feet.
   28




---



##### Table of Contents



Critical Accounting Policies and Estimates
   Revenue Recognition
   Accounts Receivable
  Investments in Real Estate and Real Estate Entities
   29




---



##### Table of Contents



Buildings
    
    39 yearsBuilding improvements
    
    5 to 20 yearsFurniture, fixtures and equipment
    
    5 to 15 yearsTenant improvements
    
    Shorter of the useful lives of
the assets or the terms of the
related leasesLease related intangible assets
    
    Term of related lease
     Purchase Accounting
  
    
    the fair value of leases in-place on the date of acquisition is based on absorption
costs for the estimated lease-up period in which vacancy and foregone revenue are avoided
due to the presence of the acquired leases;
 
    
    the fair value of above and below-market in-place leases based on the present value
(using a discount rate that reflects the risks associated with the acquired leases) of the
difference between the contractual rent amounts to be paid under the assumed lease and the
estimated market lease rates for the corresponding spaces over the remaining non-cancelable
terms of the related leases, which range from one to fifteen years; and
 
    
    the fair value of intangible tenant or customer relationships.
  30




---



##### Table of Contents



Derivative Instruments
   Share-Based Compensation
  Results of Operations
 Comparison of the Three months ended March 31, 2011 with the Three Months Ended March 31, 2010
      31




---



##### Table of Contents



Total Revenues
  Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    ChangeRental
    
    $
    32,359
    
    
    $
    27,016
    
    
    $
    5,343
    
    
    
    20
    %Tenant reimbursements and other
    
    $
    8,111
    
    
    $
    7,757
    
    
    $
    354
    
    
    
    5
    %
 Rental Revenue
   Tenant Reimbursements and Other Revenues
    32




---



##### Table of Contents



Total Expenses
 Property Operating Expenses
  Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    ChangeProperty operating
    
    $
    10,958
    
    
    $
    10,012
    
    
    $
    946
    
    
    
    9
    %Real estate taxes and insurance
    
    $
    4,002
    
    
    $
    3,328
    
    
    $
    674
    
    
    
    20
    %
   Other Operating Expenses
  Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    Change$
    4,008
    
    
    $
    3,709
    
    
    $
    299
    
    
    
    8
    %
   Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    Change$
    2,185
    
    
    $
    19
    
    
    $
    2,166
    
    
    
    114
    %
   33




---



##### Table of Contents



Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    Change$
    12,770
    
    
    $
    9,858
    
    
    $
    2,912
    
    
    
    30
    %
   Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    Change$
    2,711
    
    
    $
    
    
    
    $
    2,711
    
    
    
    
   Three Months Ended  March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Decrease
    
    
    Change$
    
    
    
    $
    710
    
    
    $
    710
    
    
    
    100
    %
   34




---



##### Table of Contents



Other Expenses (Income)
  Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Decrease
    
    
    Change$
    8,633
    
    
    $
    8,861
    
    
    $
    228
    
    
    
    3
    %
        Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    Change$
    825
    
    
    $
    112
    
    
    $
    713
    
    
    
    637
    %
  35




---



##### Table of Contents



Three Months Ended  March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Decrease
    
    
    Change$
    32
    
    
    $
    38
    
    
    $
    6
    
    
    
    16
    %
  Benefit from Income Taxes
  Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    Change$
    313
    
    
    $
    
    
    
    $
    313
    
    
    
    
  Discontinued Operations
  Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Decrease
    
    
    Change$
    201
    
    
    $
    558
    
    
    $
    357
    
    
    
    64
    %
   36




---



##### Table of Contents



Net loss attributable to noncontrolling interests
  Three Months Ended March 31,
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2011
    
    
    2010
    
    
    Increase
    
    
    Change$
    138
    
    
    $
    49
    
    
    $
    89
    
    
    
    182
    %
   Same Property Net Operating Income
   37




---



##### Table of Contents



Comparison of the Three months ended March 31, 2011 with the Three Months Ended March 31, 2010
  Three Months Ended March 31,(dollars in thousands)
    
    2011
    
    
    2010
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    171
    
    
    
    171
    
    
    
    
    
    
    
    Same property revenuesRental
    
    $
    26,969
    
    
    $
    26,870
    
    
    $
    99
    
    
    
    0.4Tenant reimbursements and other
    
    
    6,607
    
    
    
    7,301
    
    
    
    (694
    )
    
    
    (9.5
    )Total same property revenues
    
    
    33,576
    
    
    
    34,171
    
    
    
    (595
    )
    
    
    (1.7
    )Same property operating expensesProperty
    
    
    8,597
    
    
    
    9,688
    
    
    
    (1,091
    )
    
    
    (11.3
    )Real estate taxes and insurance
    
    
    3,048
    
    
    
    3,302
    
    
    
    (254
    )
    
    
    (7.7
    )Total same property operating expenses
    
    
    11,645
    
    
    
    12,990
    
    
    
    (1,345
    )
    
    
    (10.4
    )Same property net operating income
    
    $
    21,931
    
    
    $
    21,181
    
    
    $
    750
    
    
    
    3.5Reconciliation to net (loss) income:Same property net operating income
    
    $
    21,931
    
    
    $
    21,181Non-comparable net operating income(2)
    
    
    3,579
    
    
    
    252General and administrative expenses
    
    
    (4,008
    )
    
    
    (3,709
    )Depreciation and amortization
    
    
    (12,770
    )
    
    
    (9,858
    )Other expenses, net
    
    
    (12,423
    )
    
    
    (9,516
    )Discontinued operations(3)
    
    
    (201
    )
    
    
    (558
    )Net loss
    
    $
    (3,892
    )
    
    $
    (2,208
    )
 Weighted Average Occupancyat March 31,2011
    
    
    2010Same Properties
    
    
    83.9
    %
    
    
    85.0
    %
 
 (1)
    
    Same property comparisons are based
upon those properties owned for the entirety of the periods
presented. Same property results exclude the results of
the following non same-properties: Three Flint Hill, 500
First Street, NW, Battlefield Corporate Center, Redland
Corporate Center, Atlantic Corporate Park, NW, 440 First
Street, NW, 7458 Candlewood Road, 1750 H Street, NW, Cedar
Hill, Merrill Lynch, 840 First Street, NE, Davis Drive and
Sterling Park  Building 7.(2)
    
    Non-comparable net operating
income has been adjusted to reflect a normalized management
fee percentage in lieu of an administrative
overhead allocation for comparative purposes.(3)
    
    Discontinued operations consists
of the operating results of Old Courthouse Square, which
was sold in the first quarter of 2011, and Deer Park and
7561 Lindbergh Drive, which were both sold in the second
quarter of 2010.   38




---



##### Table of Contents



Maryland
 Three Months Ended March 31,(dollars in thousands)
    
    2011
    
    
    2010
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    67
    
    
    
    67
    
    
    
    
    
    
    
    Same property revenuesRental
    
    $
    8,884
    
    
    $
    8,771
    
    
    $
    113
    
    
    
    1.3Tenant reimbursements and other
    
    
    2,140
    
    
    
    2,417
    
    
    
    (277
    )
    
    
    (11.5
    )Total same property revenues
    
    
    11,024
    
    
    
    11,188
    
    
    
    (164
    )
    
    
    (1.5
    )Same property operating expensesProperty
    
    
    3,037
    
    
    
    3,410
    
    
    
    (373
    )
    
    
    (10.9
    )Real estate taxes and insurance
    
    
    993
    
    
    
    1,094
    
    
    
    (101
    )
    
    
    (9.2
    )Total same property operating expenses
    
    
    4,030
    
    
    
    4,504
    
    
    
    (474
    )
    
    
    (10.5
    )Same property net operating income
    
    $
    6,994
    
    
    $
    6,684
    
    
    $
    310
    
    
    
    4.6Reconciliation to total property operating income:Same property net operating income
    
    $
    6,994
    
    
    $
    6,684Non-comparable net operating income (loss)(2)
    
    
    1,166
    
    
    
    (40
    )Total property operating income
    
    $
    8,160
    
    
    $
    6,644
 Weighted Average Occupancyat March 31,2011
    
    
    2010Same Properties
    
    
    81.3
    %
    
    
    82.8
    %
 
 (1)
    
    Same property comparisons are
based upon those properties owned for the entirety
of the periods presented. Same property results
exclude the results of the following non
same-properties: Redland Corporate Center, 7458
Candlewood Road and Merrill Lynch.(2)
    
    Non-comparable net
operating income has been adjusted to reflect a
normalized management fee percentage in lieu of an
administrative overhead allocation for comparative
purposes.   39




---



##### Table of Contents



Northern Virginia
 Three Months Ended March 31,(dollars in thousands)
    
    2011
    
    
    2010
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    50
    
    
    
    50
    
    
    
    
    
    
    
    Same property revenuesRental
    
    $
    8,368
    
    
    $
    8,378
    
    
    $
    (10
    )
    
    
    (0.1
    )Tenant reimbursements and other
    
    
    2,144
    
    
    
    2,478
    
    
    
    (334
    )
    
    
    (13.5
    )Total same property revenues
    
    
    10,512
    
    
    
    10,856
    
    
    
    (344
    )
    
    
    (3.2
    )Same property operating expensesProperty
    
    
    2,697
    
    
    
    3,126
    
    
    
    (429
    )
    
    
    (13.7
    )Real estate taxes and insurance
    
    
    1,074
    
    
    
    1,152
    
    
    
    (78
    )
    
    
    (6.8
    )Total same property operating expenses
    
    
    3,771
    
    
    
    4,278
    
    
    
    (507
    )
    
    
    (11.9
    )Same property net operating income
    
    $
    6,741
    
    
    $
    6,578
    
    
    $
    163
    
    
    
    2.5Reconciliation to total property operating incomeSame property net operating income
    
    $
    6,741
    
    
    $
    6,578Non-comparable net operating (loss) income(2)
    
    
    (118
    )
    
    
    107Total property operating income
    
    $
    6,623
    
    
    $
    6,685
 Weighted Average Occupancyat March 31,2011
    
    
    2010Same Properties
    
    
    84.8
    %
    
    
    84.5
    %
 
 (1)
    
    Same property comparisons are based upon those properties owned for the entirety of the periods
presented. Same property results exclude
the results of Three Flint Hill, Atlantic Corporate Park, Cedar Hill, Davis Drive and Sterling Park-Building 7.(2)
    
    Non-comparable net operating income (loss) has been adjusted to reflect a normalized management fee
percentage in lieu of an administrative overhead allocation for comparative purposes.   40




---



##### Table of Contents



Southern Virginia
 Three Months Ended March 31,(dollars in thousands)
    
    2011
    
    
    2010
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    54
    
    
    
    54
    
    
    
    
    
    
    
    Same property revenuesRental
    
    $
    9,717
    
    
    $
    9,721
    
    
    $
    (4
    )
    
    
    Tenant reimbursements and other
    
    
    2,323
    
    
    
    2,406
    
    
    
    (83
    )
    
    
    (3.4
    )Total same property revenues
    
    
    12,040
    
    
    
    12,127
    
    
    
    (87
    )
    
    
    (0.7
    )Same property operating expensesProperty
    
    
    2,863
    
    
    
    3,152
    
    
    
    (289
    )
    
    
    (9.2
    )Real estate taxes and insurance
    
    
    981
    
    
    
    1,056
    
    
    
    (75
    )
    
    
    (7.1
    )Total same property operating expenses
    
    
    3,844
    
    
    
    4,208
    
    
    
    (364
    )
    
    
    (8.7
    )Same property net operating income
    
    $
    8,196
    
    
    $
    7,919
    
    
    $
    277
    
    
    
    3.5Reconciliation to total property operating incomeSame property net operating income
    
    $
    8,196
    
    
    $
    7,919Non-comparable net operating income(2)
    
    
    253
    
    
    
    185Total property operating income
    
    $
    8,449
    
    
    $
    8,104
 Weighted Average Occupancyat March 31,2011
    
    
    2010Same Properties
    
    
    85.4
    %
    
    
    86.7
    %
 
 (1)
    
    Same property comparisons are based
upon those properties owned for the entirety of the periods
presented. Same property results exclude
the results of Battlefield Corporate Center.(2)
    
    Non-comparable property net
operating income has been adjusted to reflect a normalized
management fee percentage in lieu of an administrative
overhead allocation for comparative purposes.  Liquidity and Capital Resources
 Overview
   41




---



##### Table of Contents



Financial Covenants
  Unsecured Revolving Credit Facility and Secured Term Loans
 UnsecuredRevolving CreditFacility and 2007Secured Term
    
    
    
    
    
    
    2008 SecuredLoan
    
    
    Covenant
    
    
    Term Loan
    
    
    CovenantUnencumbered Pool Leverage(1)
    
    
    34.3
    %
    
    
    ≤ 62.5
    %
    
    
    
    
    
    
    Unencumbered Pool Debt Service Coverage
Ratio(1),(2)
    
    
    3.76
    x
    
    
    ≥ 1.75
    x
    
    
    
    
    
    
    Maximum Consolidated Total Indebtedness
    
    
    48.7
    %
    
    
    ≤ 62.5
    %
    
    
    46.6
    %
    
    
    ≤ 60
    %Minimum Tangible Net Worth
    
    $
    820,371
    
    
    
    ≥$690,290
    
    
    $
    891,919
    
    
    
    ≥$690,290Fixed Charge Coverage Ratio
    
    
    2.02
    x
    
    
    ≥ 1.50
    x
    
    
    2.02
    x
    
    
    ≥ 1.50
    xMaximum Dividend Payout Ratio
    
    
    81.3
    %
    
    
    ≤ 95
    %
    
    
    81.3
    %
    
    
    ≤ 95
    %Maximum Secured Debt
    
    
    32.2
    %
    
    
    ≤ 40
    %
    
    
    30.8
    %
    
    
    ≤ 40
    %
 
 (1)
    
    Covenant does not apply to the Companys secured term loans.(2)
    
    Covenant applies only to the Companys unsecured revolving credit facility.  42




---



##### Table of Contents



Senior Notes
 Senior Notes
    
    
    CovenantUnencumbered Pool Leverage
    
    
    3.01
    x
    
    
    ≥ 1.50
    xUnencumbered Pool Debt Service Coverage Ratio(1),(2)
    
    
    3.79
    x
    
    
    ≥ 1.75
    xMaximum Consolidated Total Indebtedness
    
    
    47.6
    %
    
    
    ≤ 65
    %Minimum Tangible Net Worth
    
    $
    855,061
    
    
    
    ≥ $690,290Fixed Charge Coverage Ratio
    
    
    2.02
    x
    
    
    ≥ 1.50
    xMaximum Dividend Payout Ratio
    
    
    81.3
    %
    
    
    ≤ 95
    %Maximum Secured Debt
    
    
    31.5
    %
    
    
    ≤ 40
    %
 Non-Financial Covenants in Mortgage Loan Documents
  Cash Flows
    43




---



##### Table of Contents



Three Months EndedMarch 31,(amounts in thousands)
    
    2011
    
    
    2010
    
    
    ChangeCash provided by operating activities
    
    $
    4,264
    
    
    $
    8,822
    
    
    $
    (4,558
    )Cash used in investing activities
    
    
    (19,485
    )
    
    
    (3,749
    )
    
    
    (15,736
    )Cash provided by (used in) financing activities
    
    
    622
    
    
    
    (3,153
    )
    
    
    3,775
    Contractual Obligations
    44




---



##### Table of Contents



Distributions
  Dividends
  Funds From Operations
   45




---



##### Table of Contents



Three Months Ended March 31,2011
    
    
    2010Net loss available to common shareholders
    
    $
    (5,537
    )
    
    $
    (2,159
    )Add: Depreciation and amortization:Real estate assets
    
    
    12,770
    
    
    
    9,858Discontinued operations
    
    
    129
    
    
    
    279Unconsolidated joint ventures
    
    
    524
    
    
    
    114Consolidated joint venture
    
    
    (19
    )
    
    
    Net loss attributable to noncontrolling
interests in the Operating Partnership
    
    
    (136
    )
    
    
    (49
    )FFO available to common shareholders and unitholders
    
    $
    7,731
    
    
    $
    8,043Weighted average common shares and Operating
Partnership units outstanding  diluted
    
    
    50,506
    
    
    
    31,489
 Off-Balance Sheet Arrangements
 Investment in Affiliates.
 Forward Looking Statements
   46




---



##### Table of Contents



ITEM 3:
    
    QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
   Fair Value Measurements
 
 ITEM 4:
    
    CONTROLS AND PROCEDURES
    47




---



##### Table of Contents



PART II: OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Removed and Reserved
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 No.
    
    Description3.1
    
    
    Amended and Restated Declaration of Trust of the Registrant (incorporated by reference to Exhibit
3.1 to the Registrants Registration Statement on Form S-11 (Registration No. 333-107172), as filed
with the SEC on October 1, 2003).3.2
    
    
    Articles Supplementary designating First Potomac Realty Trusts 7.750% Series A Cumulative
Redeemable Perpetual Preferred Shares, liquidation preference $25.00 per share, par value $0.001 per
share (incorporated by reference to Exhibit 3.2 to the Companys Form 8-A filed on January 18, 2011)3.3
    
    
    Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrants Registration Statement on Form S-11 (Registration No. 333-107172), as filed with the
SEC on October 1, 2003).4.1
    
    
    Amended and Restated Agreement of Limited Partnership of First Potomac Realty Investment, L.P. dated
September 15, 2003 (incorporated by reference to Exhibit 3.3 to the Registrants Registration
Statement on Form S-11 (Registration No. 333-107172), as filed with the SEC on October 1, 2003).4.2
    
    
    Amendment No. 13 to Amended and Restated Limited Partnership Agreement of First Potomac Realty
Investment Limited Partnership (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on January 19, 2011).4.3
    *
    
    Amendment No. 14 to Amended and Restated Limited Partnership Agreement of First Potomac Realty
Investment Limited Partnership.4.4
    
    
    Form of First Potomac Realty Investment Limited Partnership 6.41% Senior Notes, Series A, due 2013
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K as filed
with the SEC
on June 23, 2006).4.5
    
    
    Form of First Potomac Realty Investment Limited Partnership 6.55% Senior Notes, Series B, due 2016
(incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K as filed
with the SEC
on June 23, 2006).4.6
    
    
    Note Purchase Agreement by and among the Registrant, First Potomac Realty Investment Limited
Partnership and the several Purchasers listed on the signature pages thereto, dated as of June 22,
2006 (incorporated by reference to Exhibit 4.3 to the Registrants Current Report on Form 8-K filed
on June 23, 2006).4.7
    
    
    First Amendment, Consent and Waiver dated as of November 5, 2010 to the Note Purchase Agreement
dated as of June 22, 2006, by and among the Registrant, First Potomac Realty Investment Limited
Partnership and the several Purchasers listed on the signature pages thereto (incorporated by
reference to Exhibit 4.6 to the Registrants Annual Report on Form 10-K for the year ended December
31, 2010).
  48




---



##### Table of Contents



No.
    
    Description4.8
    
    
    Trust Guaranty, entered into by the Registrant, dated as of June 22, 2006 (incorporated by reference
to Exhibit 4.4 to the Registrants Current Report on Form 8-K filed on June 23, 2006).4.9
    
    
    Subsidiary Guaranty, dated as of June 22, 2006 (incorporated by reference to Exhibit 4.5 to the
Registrants Current Report on Form 8-K filed on June 23, 2006).4.10
    
    
    Indenture, dated as of December 11, 2006, by and among First Potomac Realty Investment Limited
Partnership, the Registrant, as Guarantor, and Wells Fargo Bank, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on
December 12, 2006).4.11
    
    
    Form of First Potomac Realty
Investment Limited Partnership
4.0% Exchangeable Senior Note due
2011 (incorporated by reference
to Exhibit 4.2 to the
Registrants Current Report on
Form 8-K filed on December 12,
2006).10.1
    
    
    Form of Restricted Stock Agreement
(Time Vesting) (incorporated by
reference to Exhibit 10.1 to the
Registrants Current Report on Form
8-K filed on February 28, 2011)31.1
    *
    
    Certification of Chief Executive
Officer pursuant to Rule
13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    *
    
    Certification of Chief Financial
Officer pursuant to Rule
13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    *
    
    Certification of Chief Executive
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002 (This exhibit shall not
be deemed filed for purposes of
Section 18 of the Securities
Exchange Act of 1934, as amended, or
otherwise subject to the liability
of that section. Further, this
exhibit shall not be deemed to be
incorporated by reference into any
filing under the Securities Act of
1933, as amended, or the Securities
Exchange Act of 1934, as amended.)32.2
    *
    
    Certification of Chief Financial
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002 (This exhibit shall not
be deemed filed for purposes of
Section 18 of the Securities
Exchange Act of 1934, as amended, or
otherwise subject to the liability
of that section. Further, this
exhibit shall not be deemed to be
incorporated by reference into any
filing under the Securities Act of
1933, as amended, or the Securities
Exchange Act of 1934, as amended.)
 
 *
    
    Filed herewith.  49




---



##### Table of Contents



FIRST POTOMAC REALTY TRUSTDate: May 6, 2011
    /s/ Douglas J. DonatelliDouglas J. DonatelliChairman of the Board and Chief Executive OfficerDate: May 6, 2011
    /s/ Barry H. BassBarry H. BassExecutive Vice President and Chief Financial Officer  50




---



##### Table of Contents



EXHIBIT INDEX
 No.

    
    Description3.1
    
    
    Amended and Restated Declaration of Trust of the Registrant (incorporated by reference to Exhibit
3.1 to the Registrants Registration Statement on Form S-11 (Registration No. 333-107172), as filed
with the SEC on October 1, 2003).3.2
    
    
    Articles Supplementary designating First Potomac Realty Trusts 7.750% Series A Cumulative
Redeemable Perpetual Preferred Shares, liquidation preference $25.00 per share, par value $0.001 per
share (incorporated by reference to Exhibit 3.2 to the Companys Form 8-A filed on January 18, 2011)3.3
    
    
    Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrants Registration Statement on Form S-11 (Registration No. 333-107172), as filed with the
SEC on October 1, 2003).4.1
    
    
    Amended and Restated Agreement of Limited Partnership of First Potomac Realty Investment, L.P. dated
September 15, 2003 (incorporated by reference to Exhibit 3.3 to the Registrants Registration
Statement on Form S-11 (Registration No. 333-107172), as filed with the SEC on October 1, 2003).4.2
    
    
    Amendment No. 13 to Amended and Restated Limited Partnership Agreement of First Potomac Realty
Investment Limited Partnership (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on January 19, 2011).4.3
    *
    
    Amendment No. 14 to Amended and Restated Limited Partnership Agreement of First Potomac Realty
Investment Limited Partnership.4.4
    
    
    Form of First Potomac Realty Investment Limited Partnership 6.41% Senior Notes, Series A, due 2013
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K as filed
with the SEC
on June 23, 2006).4.5
    
    
    Form of First Potomac Realty Investment Limited Partnership 6.55% Senior Notes, Series B, due 2016
(incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K as filed
with the SEC
on June 23, 2006).4.6
    
    
    Note Purchase Agreement by and among the Registrant, First Potomac Realty Investment Limited
Partnership and the several Purchasers listed on the signature pages thereto, dated as of June 22,
2006 (incorporated by reference to Exhibit 4.3 to the Registrants Current Report on Form 8-K filed
on June 23, 2006).4.7
    
    
    First Amendment, Consent and Waiver dated as of November 5, 2010 to the Note Purchase Agreement
dated as of June 22, 2006, by and among the Registrant, First Potomac Realty Investment Limited
Partnership and the several Purchasers listed on the signature pages thereto (incorporated by
reference to Exhibit 4.6 to the Registrants Annual Report on Form 10-K for the year ended December
31, 2010).4.8
    
    
    Trust Guaranty, entered into by the Registrant, dated as of June 22, 2006 (incorporated by reference
to Exhibit 4.4 to the Registrants Current Report on Form 8-K filed on June 23, 2006).4.9
    
    
    Subsidiary Guaranty, dated as of June 22, 2006 (incorporated by reference to Exhibit 4.5 to the
Registrants Current Report on Form 8-K filed on June 23, 2006).4.10
    
    
    Indenture, dated as of December 11, 2006, by and among First Potomac Realty Investment Limited
Partnership, the Registrant, as Guarantor, and Wells Fargo Bank, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on
December 12, 2006).4.11
    
    
    Form of First Potomac Realty
Investment Limited Partnership
4.0% Exchangeable Senior Note due
2011 (incorporated by reference
to Exhibit 4.2 to the
Registrants Current Report on
Form 8-K filed on December 12,
2006).10.1
    
    
    Form of Restricted Stock Agreement
(Time Vesting) (incorporated by
reference to Exhibit 10.1 to the
Registrants Current Report on Form
8-K filed on February 28, 2011)31.1
    *
    
    Certification of Chief Executive
Officer pursuant to Rule
13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    *
    
    Certification of Chief Financial
Officer pursuant to Rule
13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    *
    
    Certification of Chief Executive
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002 (This exhibit shall not
be deemed filed for purposes of
Section 18 of the Securities
Exchange Act of 1934, as amended, or
otherwise subject to the liability
of that section. Further, this
exhibit shall not be deemed to be
incorporated by reference into any
filing under the Securities Act of
1933, as amended, or the Securities
Exchange Act of 1934, as amended.)32.2
    *
    
    Certification of Chief Financial
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002 (This exhibit shall not
be deemed filed for purposes of
Section 18 of the Securities
Exchange Act of 1934, as amended, or
otherwise subject to the liability
of that section. Further, this
exhibit shall not be deemed to be
incorporated by reference into any
filing under the Securities Act of
1933, as amended, or the Securities
Exchange Act of 1934, as amended.)
 
 *
    
    Filed herewith.