##### 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 September 30, 2010.
 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
(State or other jurisdiction of 
incorporation or organization)
    
    37-1470730
(I.R.S. Employer
Identification No.)
 7600 Wisconsin Avenue, 11 th Floor, Bethesda, MD 20814
 (301) 986-9200
 YES þ NO o
 YES o NO o
  o Large Accelerated Filer
    
    þ Accelerated Filer
    
    o Non-Accelerated Filer
    
    o Smaller Reporting Company
 YES o NO þ




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##### 



FIRST POTOMAC REALTY TRUST
FORM 10-Q
 INDEX
 PagePart I: Financial InformationItem 1. Condensed Consolidated Financial StatementsConsolidated balance sheets as of September 30, 2010 (unaudited) and December 31, 2009
    
    
    3Consolidated statements of operations (unaudited) for the three and nine months ended September 30, 2010 and 2009
    
    
    4Consolidated statements of cash flows (unaudited) for the nine months ended September 30, 2010 and 2009
    
    
    5Notes to condensed consolidated financial statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    46Part II: Other InformationItem 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3. Defaults Upon Senior Securities
    
    
    46Item 4. Removed and Reserved
    
    
    46Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    47Signatures
    
    
    48Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



FIRST POTOMAC REALTY TRUST
 
 
 
   September 30, 2010
    
    
    December 31, 2009(unaudited)Assets:Rental property, net
    
    $
    1,024,056
    
    
    $
    987,475Cash and cash equivalents
    
    
    9,110
    
    
    
    9,320Escrows and reserves
    
    
    9,094
    
    
    
    9,978Accounts and other receivables, net of allowance for doubtful accounts of $2,890 and $2,346, respectively
    
    
    7,101
    
    
    
    7,049Accrued straight-line rents, net of allowance for doubtful accounts of $734 and $1,185, respectively
    
    
    12,395
    
    
    
    10,915Investment in affiliates
    
    
    2,827
    
    
    
    1,819Deferred costs, net
    
    
    22,374
    
    
    
    21,208Prepaid expenses and other assets
    
    
    17,628
    
    
    
    6,625Intangible assets, net
    
    
    22,976
    
    
    
    20,103Total assets
    
    $
    1,127,561
    
    
    $
    1,074,492Liabilities:Mortgage loans
    
    $
    324,118
    
    
    $
    301,463Exchangeable senior notes, net
    
    
    29,796
    
    
    
    48,718Senior notes
    
    
    75,000
    
    
    
    75,000Secured term loans
    
    
    60,000
    
    
    
    60,000Unsecured revolving credit facility
    
    
    128,000
    
    
    
    159,900Financing obligation
    
    
    
    
    
    
    5,066Accounts payable and other liabilities
    
    
    20,092
    
    
    
    16,419Accrued interest
    
    
    3,737
    
    
    
    2,072Rents received in advance
    
    
    7,048
    
    
    
    7,267Tenant security deposits
    
    
    4,853
    
    
    
    5,235Deferred market rent, net
    
    
    4,614
    
    
    
    6,008Total liabilities
    
    
    657,258
    
    
    
    687,148Noncontrolling interests in the Operating Partnership
    
    
    10,919
    
    
    
    9,585Shareholders equity:Common shares, $0.001 par value, 100,000 common
shares authorized: 38,434 and 30,589 shares issued and outstanding, respectively
    
    
    38
    
    
    
    31Additional paid-in capital
    
    
    624,797
    
    
    
    517,940Accumulated other comprehensive loss
    
    
    (997
    )
    
    
    (1,879
    )Dividends in excess of accumulated earnings
    
    
    (164,454
    )
    
    
    (138,333
    )Total shareholders equity
    
    
    459,384
    
    
    
    377,759Total liabilities, noncontrolling interests and shareholders equity
    
    $
    1,127,561
    
    
    $
    1,074,492
   3




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##### Table of Contents



FIRST POTOMAC REALTY TRUST
 
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Rental
    
    $
    28,325
    
    
    $
    26,789
    
    
    $
    83,063
    
    
    $
    79,776Tenant reimbursements and other
    
    
    6,332
    
    
    
    5,661
    
    
    
    20,265
    
    
    
    17,932Total revenues
    
    
    34,657
    
    
    
    32,450
    
    
    
    103,328
    
    
    
    97,708Operating expenses:Property operating
    
    
    7,932
    
    
    
    7,966
    
    
    
    25,160
    
    
    
    23,941Real estate taxes and insurance
    
    
    3,059
    
    
    
    3,136
    
    
    
    9,670
    
    
    
    9,562General and administrative
    
    
    3,475
    
    
    
    3,553
    
    
    
    10,858
    
    
    
    9,408Acquisition costs
    
    
    361
    
    
    
    56
    
    
    
    2,025
    
    
    
    79Depreciation and amortization
    
    
    10,892
    
    
    
    10,180
    
    
    
    31,355
    
    
    
    30,035Impairment of real estate asset
    
    
    3,448
    
    
    
    
    
    
    
    3,448
    
    
    
    Contingent consideration related to acquisition of property
    
    
    
    
    
    
    
    
    
    
    710
    
    
    
    Total operating expenses
    
    
    29,167
    
    
    
    24,891
    
    
    
    83,226
    
    
    
    73,025Operating income
    
    
    5,490
    
    
    
    7,559
    
    
    
    20,102
    
    
    
    24,683Other expenses (income):Interest expense
    
    
    8,439
    
    
    
    7,929
    
    
    
    25,360
    
    
    
    24,368Interest and other income
    
    
    (89
    )
    
    
    (148
    )
    
    
    (290
    )
    
    
    (400
    )Equity in losses of affiliates
    
    
    75
    
    
    
    38
    
    
    
    134
    
    
    
    92Gains on early retirement of debt
    
    
    
    
    
    
    (640
    )
    
    
    (164
    )
    
    
    (6,346
    )Total other expenses (income)
    
    
    8,425
    
    
    
    7,179
    
    
    
    25,040
    
    
    
    17,714(Loss) income from continuing operations
    
    
    (2,935
    )
    
    
    380
    
    
    
    (4,938
    )
    
    
    6,969Discontinued operations:Income (loss) from operations of disposed properties
    
    
    
    
    
    
    244
    
    
    
    (728
    )
    
    
    445Gain on sale of real estate properties
    
    
    
    
    
    
    
    
    
    
    557
    
    
    
    Income (loss) from discontinued operations
    
    
    
    
    
    
    244
    
    
    
    (171
    )
    
    
    445Net (loss) income
    
    
    (2,935
    )
    
    
    624
    
    
    
    (5,109
    )
    
    
    7,414Less: Net loss (income) attributable to noncontrolling
interests in the Operating Partnership
    
    
    55
    
    
    
    (16
    )
    
    
    103
    
    
    
    (202
    )Net (loss) income attributable to common shareholders
    
    $
    (2,880
    )
    
    $
    608
    
    
    $
    (5,006
    )
    
    $
    7,212Net (loss) income attributable to common shareholders per
share  basic and diluted:(Loss) income from continuing operations
    
    $
    (0.08
    )
    
    $
    0.01
    
    
    $
    (0.15
    )
    
    $
    0.24Income (loss) from discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    (0.01
    )
    
    
    0.01Net (loss) income
    
    $
    (0.08
    )
    
    $
    0.02
    
    
    $
    (0.16
    )
    
    $
    0.25Weighted average common shares outstanding -
basic
    
    
    37,269
    
    
    
    28,134
    
    
    
    34,804
    
    
    
    27,434Weighted average common shares outstanding -
diluted
    
    
    37,269
    
    
    
    28,231
    
    
    
    34,804
    
    
    
    27,502
   4




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##### Table of Contents



FIRST POTOMAC REALTY TRUST
 
   Nine Months Ended September 30,2010
    
    
    2009Cash flows from operating activities:Net (loss) income
    
    $
    (5,109
    )
    
    $
    7,414Adjustments to reconcile net (loss) income to net cash provided by operating activities:Discontinued operations:Gain on sale of real estate properties
    
    
    (557
    )
    
    
    Depreciation and amortization
    
    
    231
    
    
    
    148Impairment of real estate asset
    
    
    565
    
    
    
    Depreciation and amortization
    
    
    31,978
    
    
    
    30,680Stock based compensation
    
    
    2,869
    
    
    
    2,226Bad debt expense
    
    
    767
    
    
    
    1,780Amortization of deferred market rent
    
    
    (1,044
    )
    
    
    (1,107
    )Amortization of financing costs and fair value discounts
    
    
    539
    
    
    
    2,010Amortization of rent abatement
    
    
    1,806
    
    
    
    1,329Equity in losses of affiliates
    
    
    134
    
    
    
    92Distributions from investments in affiliates
    
    
    437
    
    
    
    Contingent consideration related to acquisition of property
    
    
    710
    
    
    
    Change in financing obligation
    
    
    
    
    
    
    (320
    )Gains on early retirement of debt
    
    
    (164
    )
    
    
    (6,347
    )Impairment of real estate asset
    
    
    3,448
    
    
    
    Changes in assets and liabilities:Escrows and reserves
    
    
    (955
    )
    
    
    (1,580
    )Accounts and other receivables
    
    
    (1,349
    )
    
    
    (905
    )Accrued straight-line rents
    
    
    (1,220
    )
    
    
    (2,188
    )Prepaid expenses and other assets
    
    
    (497
    )
    
    
    (1,661
    )Tenant security deposits
    
    
    (155
    )
    
    
    (176
    )Accounts payable and accrued expenses
    
    
    1,160
    
    
    
    1,797Accrued interest
    
    
    1,716
    
    
    
    1,374Rents received in advance
    
    
    (174
    )
    
    
    1,200Deferred costs
    
    
    (5,500
    )
    
    
    (4,585
    )Total adjustments
    
    
    34,745
    
    
    
    23,767Net cash provided by operating activities
    
    
    29,636
    
    
    
    31,181Cash flows from investing activities:Purchase deposits on future acquisitions
    
    
    (3,018
    )
    
    
    (2,500
    )Purchase of mortgage loan
    
    
    (7,970
    )
    
    
    Proceeds from sale of real estate assets
    
    
    11,414
    
    
    
    Acquisition of rental property and associated intangible assets
    
    
    (81,492
    )
    
    
    Additions to rental property
    
    
    (12,017
    )
    
    
    (17,818
    )Additions to construction in progress
    
    
    (2,484
    )
    
    
    (905
    )Cash held by joint venture at deconsolidation
    
    
    (896
    )
    
    
    Net cash used in investing activities
    
    
    (96,463
    )
    
    
    (21,223
    )Cash flows from financing activities:Financing costs
    
    
    (1,327
    )
    
    
    (1
    )Issuance of debt
    
    
    90,000
    
    
    
    31,500Issuance of stock, net
    
    
    94,258
    
    
    
    22,277Repayments of debt
    
    
    (94,782
    )
    
    
    (47,026
    )Dividends to shareholders
    
    
    (21,115
    )
    
    
    (20,520
    )Distributions to noncontrolling interests
    
    
    (439
    )
    
    
    (572
    )Stock option exercises
    
    
    22
    
    
    
    Net cash provided by (used in) financing activities
    
    
    66,617
    
    
    
    (14,342
    )Net decrease in cash and cash equivalents
    
    
    (210
    )
    
    
    (4,384
    )Cash and cash equivalents, beginning of period
    
    
    9,320
    
    
    
    16,352Cash and cash equivalents, end of period
    
    $
    9,110
    
    
    $
    11,968
   5




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##### Table of Contents



FIRST POTOMAC REALTY TRUST
  2010
    
    
    2009Cash paid for interest, net
    
    $
    23,059
    
    
    $
    22,882Non-cash investing and financing activities:Conversion of Operating Partnership units into common shares
    
    
    55
    
    
    
    507
    Investment in Affiliates.
  6




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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




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##### Table of Contents



(b) Use of Estimates
   (c) Revenue Recognition
   (d) Cash and Cash Equivalents
  (e) Escrows and Reserves
  (f) Deferred Costs
   8




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##### Table of Contents



(g) Rental Property
  Buildings
    
    39 yearsBuilding improvements
    
    5 to 15 yearsFurniture, fixtures and equipment
    
    5 to 15 yearsTenant improvements
    
    Shorter of the useful lives of the assets or the terms of the related leases
      9




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##### Table of Contents



(h) Purchase Accounting
  
    
    the fair value of leases in-place on the date of acquisition based on the leasing
origination costs at the date of the acquisition, which approximates the fair value of the
lease origination costs had the in-place leases been originated on the date of acquisition;
the fair value of in-place leases represents absorption costs for the estimated lease-up
period in which vacancy and foregone revenue are incurred;
 
    
    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 twelve years; and
 
    
    the fair value of intangible tenant or customer relationships.
  (i) Investment in Affiliates
 .
  ( j) Sales of Real Estate
    10




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##### Table of Contents



(k) Intangible Assets
   (l) Derivatives and Hedging
   (m) Income Taxes
   11




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##### Table of Contents



(n) Noncontrolling Interests
   (o) Earnings Per Share
   12




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator for basic and diluted (loss) earnings per share calculations:(Loss) income from continuing operations
    
    $
    (2,935
    )
    
    $
    380
    
    
    $
    (4,938
    )
    
    $
    6,969Income (loss) from discontinued operations
    
    
    
    
    
    
    244
    
    
    
    (171
    )
    
    
    445Net (loss) income
    
    
    (2,935
    )
    
    
    624
    
    
    
    (5,109
    )
    
    
    7,414Less: Net loss (income) from continuing operations attributable to
noncontrolling interests in the Operating Partnership
    
    
    55
    
    
    
    (10
    )
    
    
    98
    
    
    
    (190
    )Less: Net (income) loss from discontinued operations attributable to
noncontrolling interests in the Operating Partnership
    
    
    
    
    
    
    (6
    )
    
    
    5
    
    
    
    (12
    )Net (loss) income attributable to common shareholders
    
    
    (2,880
    )
    
    
    608
    
    
    
    (5,006
    )
    
    
    7,212Less: Allocation to participating securities
    
    
    (151
    )
    
    
    (153
    )
    
    
    (455
    )
    
    
    (363
    )Total attributable to common shareholders
    
    $
    (3,031
    )
    
    $
    455
    
    
    $
    (5,461
    )
    
    $
    6,849Denominator for basic and diluted (loss) earnings per share calculations:Weighted average shares outstanding  basic
    
    
    37,269
    
    
    
    28,134
    
    
    
    34,804
    
    
    
    27,434Effect of dilutive shares:Employee stock options and non-vested shares
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    68Weighted average shares outstanding  diluted
    
    
    37,269
    
    
    
    28,231
    
    
    
    34,804
    
    
    
    27,502Amounts attributable to common shareholders per share  basic and diluted:(Loss) income from continuing operations
    
    $
    (0.08
    )
    
    $
    0.01
    
    
    $
    (0.15
    )
    
    $
    0.24Income (loss) from discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    (0.01
    )
    
    
    0.01Net (loss) income
    
    $
    (0.08
    )
    
    $
    0.02
    
    
    $
    (0.16
    )
    
    $
    0.25
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock option awards
    
    
    832
    
    
    
    763
    
    
    
    843
    
    
    
    771Non-vested share awards
    
    
    310
    
    
    
    212
    
    
    
    327
    
    
    
    252Conversion of Exchangeable Senior Notes(1)
    
    
    854
    
    
    
    1,587
    
    
    
    1,180
    
    
    
    1,8411,996
    
    
    
    2,562
    
    
    
    2,350
    
    
    
    2,864
 (1)
    
    At September 30, 2010 and 2009, each $1,000 principal amount of the Exchangeable Senior Notes was convertible into 28.039 shares. (p) Share-Based Compensation
   13




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##### Table of Contents



(q) Reclassifications
  (r) Application of New Accounting Standards
 Fair Value Measurements
 (3) Rental Property
  September 30, 2010
    
    
    December 31, 2009Land
    
    $
    246,613
    
    
    $
    237,385Buildings and improvements
    
    
    821,432
    
    
    
    795,901Construction in process
    
    
    29,179
    
    
    
    9,832Tenant improvements
    
    
    80,134
    
    
    
    75,940Furniture, fixtures and equipment
    
    
    9,894
    
    
    
    9,8981,187,252
    
    
    
    1,128,956Less: accumulated depreciation
    
    
    (163,196
    )
    
    
    (141,481
    )$
    1,024,056
    
    
    $
    987,475
 Rental Property
 (a) Development and Redevelopment Activity
   14




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##### Table of Contents



(b) Acquisitions
  Leased andOccupied at
    
    
    AggregateSeptember 30,
    
    
    PurchaseLocation
    
    Acquisition Date
    
    Property Type
    
    Square Feet
    
    
    2010
    
    
    PriceThree Flint Hill
    
    Oakton, VA
    
    4/28/2010
    
    Office
    
    
    173,762
    
    
    
    0
    %(1)
    
    $
    13,653500 First Street, NW
    
    Washington, DC
    
    6/30/2010
    
    Office
    
    
    129,035
    
    
    
    100
    %(2)
    
    
    67,838302,797
    
    
    
    
    
    
    $
    81,491
 (1)
    
    The property was vacant at acquisition. The Company began re-development efforts and
plans to fully renovate the building.(2)
    
    At acquisition, the property was in the final stage of a full-building renovation.
The renovation of the remaining 14,000 square feet was completed in September 2010. The
Company financed a portion of the acquisition with a new $39.0 million mortgage loan.    Land
    
    $
    22,311Acquired tenant improvements
    
    
    1,570Building and improvements
    
    
    49,461In-place leases
    
    
    6,030Acquired leasing commissions
    
    
    1,584Customer relationships intangible
    
    
    651Total assets acquired
    
    
    81,607Below-market leases assumed
    
    
    (116
    )Net assets acquired
    
    $
    81,491
   15




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##### Table of Contents



(4) Investment in Affiliates
      September 30, 2010
    
    
    December 31, 2009Assets:Rental property, net
    
    $
    38,003
    
    
    $
    25,037Cash and cash equivalents
    
    
    697
    
    
    
    357Other assets
    
    
    3,044
    
    
    
    1,879Total assets
    
    
    41,744
    
    
    
    27,273Liabilities:Mortgage loans
    
    
    28,000
    
    
    
    18,144Other liabilities
    
    
    1,804
    
    
    
    1,443Total liabilities
    
    
    29,804
    
    
    
    19,587Net assets
    
    $
    11,940
    
    
    $
    7,686
  16




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The period fromMarch 17, 2009Three Months Ended
    
    
    Nine Months Ended
    
    
    throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Total revenues
    
    $
    1,158
    
    
    $
    703
    
    
    $
    3,459
    
    
    $
    1,426Total operating expenses
    
    
    (237
    )
    
    
    (185
    )
    
    
    (887
    )
    
    
    (326
    )Net operating income
    
    
    921
    
    
    
    518
    
    
    
    2,572
    
    
    
    1,100Depreciation and amortization
    
    
    (751
    )
    
    
    (365
    )
    
    
    (1,705
    )
    
    
    (814
    )Interest expense, net
    
    
    (471
    )
    
    
    (303
    )
    
    
    (1,402
    )
    
    
    (653
    )Net loss
    
    $
    (301
    )
    
    $
    (150
    )
    
    $
    (535
    )
    
    $
    (367
    )
 (5) Discontinued Operations
     Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    
    
    
    $
    424
    
    
    $
    274
    
    
    $
    1,312Gain on sale of real estate properties
    
    
    
    
    
    
    
    
    
    
    557
    
    
    
    Net income (loss)
    
    
    
    
    
    
    244
    
    
    
    (728
    )
    
    
    445
  17




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##### Table of Contents



(6) Debt
  September 30,
    
    
    December 31,2010
    
    
    2009Mortgage loans, effective interest rates ranging from 5.19% to 7.28%, maturing at various dates through June 2021
    
    $
    324,118
    
    
    $
    301,463Exchangeable senior notes, net of discounts, effective interest rate of 5.84%, maturing December 2011(1)
    
    
    29,796
    
    
    
    48,718Series 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 2.50%, maturing January 2014(2)
    
    
    40,000
    
    
    
    40,000Secured term loan, effective interest rate of LIBOR plus 2.50%, maturing August 2011(3)
    
    
    20,000
    
    
    
    20,000Unsecured revolving credit facility, effective interest rate of LIBOR plus 3.00%, maturing January 2014(4)
    
    
    128,000
    
    
    
    159,900$
    616,914
    
    
    $
    645,081
 
 (1)
    
    During the nine months ended September 30, 2010, the Company retired $20.1
million of its Exchangeable Senior Notes. The face value of the Exchangeable Senior Notes was
$30.4 million at September 30, 2010 compared with $50.5 million at December 31, 2009.(2)
    
    The loan is divided into four $10 million loans, with their maturities staggered in
one-year intervals beginning January 15, 2011 and ending on January 15, 2014. Interest on the
loan is LIBOR plus 250 basis points, which increases by 100 basis points each year beginning
on January 1, 2011, to a maximum of 550 basis points.(3)
    
    During the third quarter of 2010, the Company exercised its one-year extension
option on a $20 million secured term loan, which will mature in August 2011.(4)
    
    The unsecured revolving credit facility matures in January 2013 with a one-year
extension at the Companys option, which it intends to exercise. (a) Mortgage Loans
  EffectiveContractual
    
    
    Interest
    
    
    Maturity
    
    
    September 30,
    
    
    December 31,Encumbered Property
    
    Interest Rate
    
    
    Rate
    
    
    Date
    
    2010
    
    
    20094212 Tech Court(1)
    
    
    8.53
    %
    
    
    8.53
    %
    
    June 2010
    
    $
    
    
    
    $
    1,665Park Central II(2)
    
    
    8.32
    %
    
    
    5.66
    %
    
    November 2010
    
    
    5,345
    
    
    
    5,591Enterprise Center (3)
    
    
    8.03
    %
    
    
    5.20
    %
    
    December 2010
    
    
    16,839
    
    
    
    17,393Indian Creek Court (3)
    
    
    7.80
    %
    
    
    5.90
    %
    
    January 2011
    
    
    12,093
    
    
    
    12,413403/405 Glenn Drive
    
    
    7.60
    %
    
    
    5.50
    %
    
    July 2011
    
    
    8,035
    
    
    
    8,2524612 Navistar Drive (3)
    
    
    7.48
    %
    
    
    5.20
    %
    
    July 2011
    
    
    12,315
    
    
    
    12,672RiversPark I (4)
    
    LIBOR+2.50%
    
    
    5.97
    %
    
    September 2011
    
    
    
    
    
    
    9,856Campus at Metro Park (3)
    
    
    7.11
    %
    
    
    5.25
    %
    
    February 2012
    
    
    22,770
    
    
    
    23,3761434 Crossways Blvd Building II
    
    
    7.05
    %
    
    
    5.38
    %
    
    August 2012
    
    
    9,576
    
    
    
    9,852Crossways Commerce Center
    
    
    6.70
    %
    
    
    6.70
    %
    
    October 2012
    
    
    24,290
    
    
    
    24,607Newington Business Park Center
    
    
    6.70
    %
    
    
    6.70
    %
    
    October 2012
    
    
    15,322
    
    
    
    15,522Prosperity Business Center
    
    
    6.25
    %
    
    
    5.75
    %
    
    January 2013
    
    
    3,543
    
    
    
    3,627Aquia Commerce Center I
    
    
    7.28
    %
    
    
    7.28
    %
    
    February 2013
    
    
    387
    
    
    
    4861434 Crossways Blvd Building I
    
    
    6.25
    %
    
    
    5.38
    %
    
    March 2013
    
    
    8,292
    
    
    
    8,493Linden Business Center
    
    
    6.01
    %
    
    
    5.58
    %
    
    October 2013
    
    
    7,120
    
    
    
    7,224Owings Mills Business Center
    
    
    5.85
    %
    
    
    5.75
    %
    
    March 2014
    
    
    5,475
    
    
    
    5,552Annapolis Commerce Park East
    
    
    5.74
    %
    
    
    6.25
    %
    
    June 2014
    
    
    8,523
    
    
    
    8,613Cloverleaf Center
    
    
    6.75
    %
    
    
    6.75
    %
    
    October 2014
    
    
    17,275
    
    
    
    17,490Plaza 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
    
    
    99,507
    
    
    
    99,625Hanover Business Center:Building D
    
    
    8.88
    %
    
    
    6.63
    %
    
    August 2015
    
    
    671
    
    
    
    756Building C
    
    
    7.88
    %
    
    
    6.63
    %
    
    December 2017
    
    
    1,070
    
    
    
    1,154Chesterfield Business Center:Buildings C,D,G and H
    
    
    8.50
    %
    
    
    6.63
    %
    
    August 2015
    
    
    1,755
    
    
    
    1,972Buildings A,B,E and F
    
    
    7.45
    %
    
    
    6.63
    %
    
    June 2021
    
    
    2,437
    
    
    
    2,540Gateway Centre Building I
    
    
    7.35
    %
    
    
    5.88
    %
    
    November 2016
    
    
    1,230
    
    
    
    1,340500 First Street, NW
    
    
    5.72
    %
    
    
    5.79
    %
    
    August 2020
    
    
    38,918
    
    
    
    Airpark Business Center
    
    
    7.45
    %
    
    
    6.63
    %
    
    June 2021
    
    
    1,330
    
    
    
    1,392Total Mortgage Debt
    
    
    
    
    
    
    5.68
    %(5)
    
    
    
    
    
    $
    324,118
    
    
    $
    301,463
 
 (1)
    
    The loan was repaid on June 1, 2010 with available cash.(2)
    
    The loan was repaid on November 1, 2010 with available cash.  18




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##### Table of Contents



(3)
    
    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.(4)
    
    On January 1, 2010, the Company deconsolidated RiversPark I and, therefore, the
assets and liabilities, which include $9.9 million of mortgage debt, and the operating results
of RiversPark I, are no longer included in the Companys condensed consolidated financial
statements. For more information see footnote 4, Investment in Affiliates.(5)
    
    Weighted average interest rate on total mortgage debt. Non-Financial Covenants in Mortgage Loan Documents
  (b) Senior Notes
  (c) Unsecured Revolving Credit Facility
   19




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##### Table of Contents



(7) Derivative Instruments and Comprehensive Income (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.
  Interest RateContractual
    
    Fixed EffectiveTransaction Date
    
    Maturity Date
    
    Amount
    
    
    Component
    
    Interest RateConsolidated:July 2010
    
    January 2014
    
    $
    50,000
    
    
    LIBOR
    
    
    1.474
    %Unconsolidated:September 2008
    
    September 2011
    
    
    28,000
    (1)
    
    LIBOR
    
    
    3.47
    %
 (1)
    
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net (loss) income
    
    $
    (2,935
    )
    
    $
    624
    
    
    $
    (5,109
    )
    
    $
    7,414Unrealized (loss) gain on
derivative instruments
    
    
    (518
    )
    
    
    154
    
    
    
    605
    
    
    
    785Total comprehensive (loss) income
    
    
    (3,453
    )
    
    
    778
    
    
    
    (4,504
    )
    
    
    8,199Comprehensive loss (income)
attributable to noncontrolling
interests in the Operating
Partnership
    
    
    65
    
    
    
    (20
    )
    
    
    89
    
    
    
    (223
    )Comprehensive (loss) income
attributable to common
shareholders
    
    $
    (3,388
    )
    
    $
    758
    
    
    $
    (4,415
    )
    
    $
    7,976
  20




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##### Table of Contents



(8) Fair Value Measurements
        Balance atSeptember 30,2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Non-recurring Measurements:Impaired real estate asset
    
    $
    10,950
    
    
    $
    
    
    
    $
    10,950
    
    
    $
    Recurring Measurements:Derivative instrument-swap agreement
    
    
    804
    
    
    
    
    
    
    
    804
    
    
    
    Contingent consideration related to
acquisition of property
    
    
    1,398
    
    
    
    
    
    
    
    
    
    
    
    1,398
 Impairment of Real Estate Assets
   21




---



##### Table of Contents



Interest Rate Derivative
  Contingent Consideration
   Balance at December 31, 2009
    
    $
    688Contingent consideration charge recognized in earnings
    
    
    710Balance at September 30, 2010
    
    $
    1,398
   September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueMortgage debt
    
    $
    324,118
    
    
    $
    330,623
    
    
    $
    301,463
    
    
    $
    289,679Exchangeable senior notes(1)
    
    
    29,796
    
    
    
    30,145
    
    
    
    48,718
    
    
    
    48,164Series A senior notes
    
    
    37,500
    
    
    
    38,349
    
    
    
    37,500
    
    
    
    37,118Series B senior notes
    
    
    37,500
    
    
    
    38,113
    
    
    
    37,500
    
    
    
    36,146Secured term loans
    
    
    60,000
    
    
    
    57,065
    
    
    
    60,000
    
    
    
    54,390Unsecured revolving credit facility
    
    
    128,000
    
    
    
    125,284
    
    
    
    159,900
    
    
    
    143,953Total
    
    $
    616,914
    
    
    $
    619,579
    
    
    $
    645,081
    
    
    $
    609,450
 (1)
    
    During 2010, the Company retired $20.1 million of its Exchangeable Senior Notes. (9) Shareholders Equity
   22




---



##### Table of Contents



RedeemableFirst Potomac
    
    
    noncontrollingRealty Trust
    
    
    interestsBalance, December 31, 2009
    
    $
    377,759
    
    
    $
    9,585Net loss
    
    
    (5,006
    )
    
    
    (103
    )Changes in ownership
    
    
    107,155
    
    
    
    1,862Distributions
    
    
    (21,115
    )
    
    
    (439
    )Other comprehensive income
    
    
    591
    
    
    
    14Balance, September 30, 2010
    
    $
    459,384
    
    
    $
    10,919
 RedeemableFirst Potomac
    
    
    noncontrollingRealty Trust
    
    
    interestsBalance, December 31, 2008
    
    $
    365,293
    
    
    $
    10,627Net income
    
    
    7,212
    
    
    
    202Changes in ownership
    
    
    25,651
    
    
    
    (478
    )Distributions to owners
    
    
    (20,520
    )
    
    
    (572
    )Other comprehensive income
    
    
    764
    
    
    
    21Balance, September 30, 2009
    
    $
    378,400
    
    
    $
    9,800
 (10) Segment Information
    23




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##### Table of Contents



Three Months Ended September 30, 2010Maryland
    
    
    Northern Virginia(1)
    
    
    Southern Virginia
    
    
    ConsolidatedNumber of buildings
    
    
    68
    
    
    
    52
    
    
    
    54
    
    
    
    174Square feet (unaudited)
    
    
    3,414,417
    
    
    
    3,318,233
    
    
    
    5,263,025
    
    
    
    11,995,675Total revenues
    
    $
    11,196
    
    
    $
    11,510
    
    
    $
    11,951
    
    
    $
    34,657Property operating expense
    
    
    (2,675
    )
    
    
    (2,578
    )
    
    
    (2,679
    )
    
    
    (7,932
    )Real estate taxes and insurance
    
    
    (1,127
    )
    
    
    (936
    )
    
    
    (996
    )
    
    
    (3,059
    )Total property operating income
    
    $
    7,394
    
    
    $
    7,996
    
    
    $
    8,276
    
    
    
    23,666Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,892
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,475
    )Acquisition costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,873
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,935
    )Capital expenditures(2)
    
    $
    2,477
    
    
    $
    2,953
    
    
    $
    2,851
    
    
    $
    8,336
 Three Months Ended September 30, 2009Maryland(4)
    
    
    Northern Virginia
    
    
    Southern Virginia
    
    
    ConsolidatedNumber of buildings
    
    
    72
    
    
    
    48
    
    
    
    54
    
    
    
    174Square feet (unaudited)
    
    
    3,610,072
    
    
    
    2,820,535
    
    
    
    5,262,230
    
    
    
    11,692,837Total revenues
    
    $
    10,282
    
    
    $
    10,010
    
    
    $
    12,158
    
    
    $
    32,450Property operating expense
    
    
    (2,683
    )
    
    
    (2,281
    )
    
    
    (3,002
    )
    
    
    (7,966
    )Real estate taxes and insurance
    
    
    (1,095
    )
    
    
    (971
    )
    
    
    (1,070
    )
    
    
    (3,136
    )Total property operating income
    
    $
    6,504
    
    
    $
    6,758
    
    
    $
    8,086
    
    
    
    21,348Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,180
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,553
    )Acquisition costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,179
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    624Capital expenditures(2)
    
    $
    391
    
    
    $
    1,941
    
    
    $
    1,401
    
    
    $
    3,763
 Nine Months Ended September 30, 2010Maryland
    
    
    Northern Virginia(1)
    
    
    Southern Virginia
    
    
    ConsolidatedTotal revenues
    
    $
    34,145
    
    
    $
    32,850
    
    
    $
    36,333
    
    
    $
    103,328Property operating expense
    
    
    (8,647
    )
    
    
    (7,840
    )
    
    
    (8,673
    )
    
    
    (25,160
    )Real estate taxes and insurance
    
    
    (3,355
    )
    
    
    (3,225
    )
    
    
    (3,090
    )
    
    
    (9,670
    )Total property operating income
    
    $
    22,143
    
    
    $
    21,785
    
    
    $
    24,570
    
    
    
    68,498Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,355
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,858
    )Acquisition costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,025
    )Contingent consideration related to
acquisition of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (710
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,488
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (171
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,109
    )Total assets(3)
    
    $
    373,688
    
    
    $
    401,454
    
    
    $
    328,124
    
    
    $
    1,127,561Capital expenditures(2)
    
    $
    3,400
    
    
    $
    4,648
    
    
    $
    6,247
    
    
    $
    14,501
  24




---



##### Table of Contents



Nine Months Ended September 30, 2009Maryland(4)
    
    
    Northern Virginia
    
    
    Southern Virginia
    
    
    ConsolidatedTotal revenues
    
    $
    31,991
    
    
    $
    29,636
    
    
    $
    36,081
    
    
    $
    97,708Property operating expense
    
    
    (8,392
    )
    
    
    (6,822
    )
    
    
    (8,727
    )
    
    
    (23,941
    )Real estate taxes and insurance
    
    
    (3,172
    )
    
    
    (3,204
    )
    
    
    (3,186
    )
    
    
    (9,562
    )Total property operating income
    
    $
    20,427
    
    
    $
    19,610
    
    
    $
    24,168
    
    
    
    64,205Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,035
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,408
    )Acquisition costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,714
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    445Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,414Total assets(3)
    
    $
    383,701
    
    
    $
    294,577
    
    
    $
    318,954
    
    
    $
    1,043,582Capital expenditures(2)
    
    $
    4,068
    
    
    $
    7,605
    
    
    $
    6,988
    
    
    $
    18,723
 (1)
    
    Includes 500 First Street, NW, a nine-story office building located in
Washington, DC that was acquired on June 30, 2010.(2)
    
    Capital expenditures for corporate assets not allocated to any of the Companys
reportable segments totaled $55 and $30 for the three months ended September 30, 2010 and 2009
respectively, and $206 and $62 for the nine months ended September 30, 2010 and 2009,
respectively(3)
    
    Corporate assets not allocated to any of our reportable segments totaled $24,295 and
$46,350 at September 30, 2010 and 2009, respectively.(4)
    
    Includes the results of a three-building, 160,470 square foot property that
is owned through a joint venture that was consolidated prior to January 1, 2010. (11) Subsequent Events
     25




---



##### Table of Contents



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
    26




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##### Table of Contents



Significant Third Quarter Activity and Subsequent Acquisitions
 
    
    Executed 760,000 square feet of leases, generating almost 100,000 square feet of
positive net absorption;
    
    Occupancy increased to 85.7%, up 1.7 percentage points compared with the prior
quarter;
    
    Sold 480,000 common shares through its controlled equity offering program, generating
net proceeds of $7.3 million; and
    
    Completed four acquisitions for total consideration of $83.7 million.
 Development and Redevelopment Activity
   Development
 
    
    Greenbrier Technology Center III  a 48,000 square foot, three-story Class A office
building has been designed, permits have been processed and construction is set to
commence. Costs to date include civil, architectural, mechanical, electrical and plumbing
design, as well as permit fees; and
 
    
    Sterling Park Business Center, Lot 7  a 57,000 square foot office building, of which a
portion has been pre-leased, all permits have been processed and construction commenced in
late June 2010. Costs to date include civil, architectural, mechanical, electrical and
plumbing design, and permit fees as well as site, concrete, steel, and roof work.
 Redevelopment
 
    
    Enterprise Parkway  a 70,000 square foot multi-tenanted office building. Costs incurred
to date include building, lobby, common corridor, and bathroom renovations; design
documents and permit fees for future tenant layouts are in progress; and
 
    
    Three Flint Hill  a 174,000 square foot eight-story Class A office building has been
designed and permits are in process. Costs incurred to date include architectural and
engineering design fees. Construction is set to commence in the fourth quarter of 2010.
   27




---



##### Table of Contents



Critical Accounting Policies and Estimates
   Revenue Recognition
    Investments in Real Estate and Real Estate Entities
   Buildings
    
    39 yearsBuilding improvements
    
    5 to 15 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
  28




---



##### Table of Contents



Purchase Accounting
  
    
    the fair value of leases in-place on the date of acquisition based on the leasing
origination costs at the date of the acquisition, which approximates the fair value of the
lease origination costs had the in-place leases been originated on the date of acquisition;
the fair value of in-place leases represents absorption costs for the estimated lease-up
period in which vacancy and foregone revenue are incurred;
 
    
    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 twelve years; and
 
    
    the fair value of intangible tenant or customer relationships.
   29




---



##### Table of Contents



Derivative Instruments
   Share-Based Compensation
  Results of Operations
 Comparison of the Three and Nine Months Ended September 30, 2010 with the Three and Nine Months
Ended September 30, 2009
   Total Revenues
  Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    ChangeRental
    
    $
    28,325
    
    
    $
    26,789
    
    
    $
    83,063
    
    
    $
    79,776
    
    
    $
    1,536
    
    
    
    6
    %
    
    $
    3,287
    
    
    
    4
    %Tenant reimbursements & other
    
    $
    6,332
    
    
    $
    5,661
    
    
    $
    20,265
    
    
    $
    17,932
    
    
    $
    671
    
    
    
    12
    %
    
    $
    2,333
    
    
    
    13
    %
  30




---



##### Table of Contents



Rental Revenue
   Tenant Reimbursements and Other Revenues
    Total Expenses
 Property Operating Expenses
  Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Decrease
    
    
    Change
    
    
    Increase
    
    
    ChangeProperty operating
    
    $
    7,932
    
    
    $
    7,966
    
    
    $
    25,160
    
    
    $
    23,941
    
    
    $
    34
    
    
    
    
    
    
    $
    1,219
    
    
    
    5
    %Real estate taxes and insurance
    
    $
    3,059
    
    
    $
    3,136
    
    
    $
    9,670
    
    
    $
    9,562
    
    
    $
    77
    
    
    
    2
    %
    
    $
    108
    
    
    
    1
    %
  31




---



##### Table of Contents



Other Operating Expenses
  Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Decrease
    
    
    Change
    
    
    Increase
    
    
    Change$
    3,475
    
    
    $
    3,553
    
    
    $
    10,858
    
    
    $
    9,408
    
    
    $
    78
    
    
    
    2
    %
    
    $
    1,450
    
    
    
    15
    %
    32




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##### Table of Contents



Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    Change$
    361
    
    
    $
    56
    
    
    $
    2,025
    
    
    $
    79
    
    
    $
    305
    
    
    
    545
    %
    
    $
    1,946
    
    
    
    2463
    %
   Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    Change$
    10,892
    
    
    $
    10,180
    
    
    $
    31,355
    
    
    $
    30,035
    
    
    $
    712
    
    
    
    7
    %
    
    $
    1,320
    
    
    
    4
    %
   Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    Change$
    3,448
    
    
    $
    
    
    
    $
    3,448
    
    
    $
    
    
    
    $
    3,448
    
    
    
    
    
    
    $
    3,448
    
    
    
    
   Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    Increase
    
    
    Change$
    
    
    
    $
    
    
    
    $
    710
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    710
    
    
    
    
  33




---



##### Table of Contents



Other Expenses (Income)
  Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    Change$
    8,439
    
    
    $
    7,929
    
    
    $
    25,360
    
    
    $
    24,368
    
    
    $
    510
    
    
    
    6
    %
    
    $
    992
    
    
    
    4
    %
     34




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Decrease
    
    
    Change
    
    
    Decrease
    
    
    Change$
    89
    
    
    $
    148
    
    
    $
    290
    
    
    $
    400
    
    
    $
    59
    
    
    
    40
    %
    
    $
    110
    
    
    
    28
    %
   Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    Change$
    75
    
    
    $
    38
    
    
    $
    134
    
    
    $
    92
    
    
    $
    37
    
    
    
    97
    %
    
    $
    42
    
    
    
    46
    %
   Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Decrease
    
    
    Change
    
    
    Decrease
    
    
    Change$
    
    
    
    $
    640
    
    
    $
    164
    
    
    $
    6,346
    
    
    $
    640
    
    
    
    100
    %
    
    $
    6,182
    
    
    
    97
    %
    35




---



##### Table of Contents



Discontinued Operations
  Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Decrease
    
    
    Change
    
    
    Decrease
    
    
    Change$
    
    
    
    $
    244
    
    
    $
    (171
    )
    
    $
    445
    
    
    $
    244
    
    
    
    100
    %
    
    $
    616
    
    
    
    138
    %
  Net loss (income) attributable to noncontrolling interests in the Operating Partnership
  Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    Change
    
    
    Change$
    55
    
    
    $
    (16
    )
    
    $
    103
    
    
    $
    (202
    )
    
    $
    71
    
    
    
    444
    %
    
    $
    305
    
    
    
    151
    %
  Same Property Net Operating Income
   36




---



##### Table of Contents



Comparison of the Three and Nine Months Ended September 30, 2010 with the Three and Nine Months
Ended September 30, 2009
  Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    $
    
    
    %
    
    
    September 30,
    
    
    $
    
    
    %(dollars in thousands)
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    ChangeNumber of buildings (1)
    
    
    166
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    166
    
    
    
    
    
    
    
    Same property revenueRental
    
    $
    26,209
    
    
    $
    26,447
    
    
    $
    (238
    )
    
    
    (0.9
    )
    
    $
    78,300
    
    
    $
    78,314
    
    
    $
    (14
    )
    
    
    Tenant reimbursements
    
    
    5,483
    
    
    
    5,475
    
    
    
    8
    
    
    
    0.1
    
    
    
    17,759
    
    
    
    17,204
    
    
    
    555
    
    
    
    3.2Total same property revenue
    
    
    31,692
    
    
    
    31,922
    
    
    
    (230
    )
    
    
    (0.7
    )
    
    
    96,059
    
    
    
    95,518
    
    
    
    541
    
    
    
    0.6Same property operating expensesProperty
    
    
    7,482
    
    
    
    7,325
    
    
    
    157
    
    
    
    2.1
    
    
    
    23,248
    
    
    
    22,269
    
    
    
    979
    
    
    
    4.4Real estate taxes and insurance
    
    
    2,714
    
    
    
    3,096
    
    
    
    (382
    )
    
    
    (12.3
    )
    
    
    8,994
    
    
    
    9,415
    
    
    
    (421
    )
    
    
    (4.5
    )Total same property operating expenses
    
    
    10,196
    
    
    
    10,421
    
    
    
    (225
    )
    
    
    (2.2
    )
    
    
    32,242
    
    
    
    31,684
    
    
    
    558
    
    
    
    1.8Same property net operating income
    
    $
    21,496
    
    
    $
    21,501
    
    
    $
    (5
    )
    
    
    
    
    
    $
    63,817
    
    
    $
    63,834
    
    
    $
    (17
    )
    
    
    Reconciliation to net incomeSame property net operating income
    
    $
    21,496
    
    
    $
    21,501
    
    
    
    
    
    
    
    
    
    
    $
    63,817
    
    
    $
    63,834Non-comparable net operating income
(loss) (2) (3)
    
    
    2,170
    
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    4,681
    
    
    
    371General and administrative expenses
    
    
    (3,475
    )
    
    
    (3,553
    )
    
    
    
    
    
    
    
    
    
    
    (10,858
    )
    
    
    (9,408
    )Acquisition costs
    
    
    (361
    )
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    (2,025
    )
    
    
    (79
    )Depreciation and amortization
    
    
    (10,892
    )
    
    
    (10,180
    )
    
    
    
    
    
    
    
    
    
    
    (31,355
    )
    
    
    (30,035
    )Contingent consideration related to acquisition of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (710
    )
    
    
    Other expenses, net
    
    
    (11,873
    )
    
    
    (7,179
    )
    
    
    
    
    
    
    
    
    
    
    (28,488
    )
    
    
    (17,714
    )Discontinued operations (4)
    
    
    
    
    
    
    244
    
    
    
    
    
    
    
    
    
    
    
    (171
    )
    
    
    445Net (loss) income
    
    $
    (2,935
    )
    
    $
    624
    
    
    
    
    
    
    
    
    
    
    $
    (5,109
    )
    
    $
    7,414Weighted Average
    
    
    
    
    
    
    
    
    
    
    Weighted AverageOccupancy at September 30,
    
    
    
    
    
    
    
    
    
    
    Occupancy at September 30,2010
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    2009Same Properties
    
    
    84.6
    %
    
    
    86.9
    %
    
    
    
    
    
    
    
    
    
    
    85.0
    %
    
    
    86.8
    %Total
    
    
    84.8
    %
    
    
    86.9
    %
    
    
    
    
    
    
    
    
    
    
    84.9
    %
    
    
    86.8
    %
 
 (1)
    
    Represents properties owned for the entirety of the periods presented.(2)
    
    Non-comparable Properties include: Rivers Park I and II, Cloverleaf Center, Ashburn Center, Three Flint Hill and 500 First Street, NW.(3)
    
    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.(4)
    
    Discontinued operations represent the results of operations for Deer Park and 7561 Lindbergh Drive, which were both sold in the second quarter of 2010.  37




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##### Table of Contents



Maryland
 Three Months Ended
    
    
    
    
    
    
    
    
    
    

    Nine Months EndedSeptember 30,
    
    
    $
    
    
    %
    
    
    September 30,
    
    
    $
    
    
    %(dollars in thousands)
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    ChangeNumber of buildings (1)
    
    
    64
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    64
    
    
    
    
    
    
    
    Same property revenueRental
    
    $
    8,263
    
    
    $
    8,293
    
    
    $
    (30
    )
    
    
    (0.4
    )
    
    $
    24,626
    
    
    $
    25,007
    
    
    $
    (381
    )
    
    
    (1.5
    )Tenant reimbursements
    
    
    1,686
    
    
    
    1,512
    
    
    
    174
    
    
    
    11.5
    
    
    
    5,397
    
    
    
    5,006
    
    
    
    391
    
    
    
    7.8Total same property revenue
    
    
    9,949
    
    
    
    9,805
    
    
    
    144
    
    
    
    1.5
    
    
    
    30,023
    
    
    
    30,013
    
    
    
    10
    
    
    
    Same property operating expensesProperty
    
    
    2,335
    
    
    
    2,235
    
    
    
    100
    
    
    
    4.5
    
    
    
    7,570
    
    
    
    7,331
    
    
    
    239
    
    
    
    3.3Real estate taxes and insurance
    
    
    1,049
    
    
    
    1,058
    
    
    
    (9
    )
    
    
    (0.9
    )
    
    
    3,096
    
    
    
    3,036
    
    
    
    60
    
    
    
    2.0Total same property operating expenses
    
    
    3,384
    
    
    
    3,293
    
    
    
    91
    
    
    
    2.8
    
    
    
    10,666
    
    
    
    10,367
    
    
    
    299
    
    
    
    2.9Same property net operating income
    
    $
    6,565
    
    
    $
    6,512
    
    
    $
    53
    
    
    
    0.8
    
    
    $
    19,357
    
    
    $
    19,646
    
    
    $
    (289
    )
    
    
    (1.5
    )Reconciliation to total property operating income:Same property net operating income
    
    $
    6,565
    
    
    $
    6,512
    
    
    
    
    
    
    
    
    
    
    $
    19,357
    
    
    $
    19,646Non-comparable net operating income (loss)(2) (3)
    
    
    829
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    2,786
    
    
    
    781Total property operating income
    
    $
    7,394
    
    
    $
    6,504
    
    
    
    
    
    
    
    
    
    
    $
    22,143
    
    
    $
    20,427Weighted Average
    
    
    
    
    
    
    
    
    
    
    Weighted AverageOccupancy at September 30,
    
    
    
    
    
    
    
    
    
    
    Occupancy at September 30,2010
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    2009Same Properties
    
    
    82.0
    %
    
    
    83.1
    %
    
    
    
    
    
    
    
    
    
    
    82.0
    %
    
    
    84.8
    %Total
    
    
    82.9
    %
    
    
    83.1
    %
    
    
    
    
    
    
    
    
    
    
    82.9
    %
    
    
    84.8
    %
 
 (1)
    
    Represents properties owned for the entirety of the periods presented.(2)
    
    Non-comparable Properties include: Cloverleaf Center and RiversPark I
and II.(3)
    
    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.  38




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##### Table of Contents



Northern Virginia
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    $
    
    
    %
    
    
    September 30,
    
    
    $
    
    
    %(dollars in thousands)
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    ChangeNumber of buildings (1)
    
    
    48
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    48
    
    
    
    
    
    
    
    Same property revenueRental
    
    $
    8,013
    
    
    $
    8,214
    
    
    $
    (201
    )
    
    
    (2.4
    )
    
    $
    24,232
    
    
    $
    24,061
    
    
    $
    171
    
    
    
    0.7Tenant reimbursements
    
    
    1,462
    
    
    
    1,796
    
    
    
    (334
    )
    
    
    (18.6
    )
    
    
    5,525
    
    
    
    5,575
    
    
    
    (50
    )
    
    
    (0.9
    )Total same property revenue
    
    
    9,475
    
    
    
    10,010
    
    
    
    (535
    )
    
    
    (5.3
    )
    
    
    29,757
    
    
    
    29,636
    
    
    
    121
    
    
    
    0.4Same property operating expensesProperty
    
    
    2,119
    
    
    
    2,230
    
    
    
    (111
    )
    
    
    (5.0
    )
    
    
    6,958
    
    
    
    6,633
    
    
    
    325
    
    
    
    4.9Real estate taxes and insurance
    
    
    674
    
    
    
    970
    
    
    
    (296
    )
    
    
    (30.5
    )
    
    
    2,819
    
    
    
    3,204
    
    
    
    (385
    )
    
    
    (12.0
    )Total same property operating expenses
    
    
    2,793
    
    
    
    3,200
    
    
    
    (407
    )
    
    
    (12.7
    )
    
    
    9,777
    
    
    
    9,837
    
    
    
    (60
    )
    
    
    (0.6
    )Same property net operating income
    
    $
    6,682
    
    
    $
    6,810
    
    
    $
    (128
    )
    
    
    (1.9
    )
    
    $
    19,980
    
    
    $
    19,799
    
    
    $
    181
    
    
    
    0.9Reconciliation to total property operating incomeSame property net operating income
    
    $
    6,682
    
    
    $
    6,810
    
    
    
    
    
    
    
    
    
    
    $
    19,980
    
    
    $
    19,799Non-comparable net operating income 
(loss)(2) (3)
    
    
    1,314
    
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    1,805
    
    
    
    (189
    )Total property operating income
    
    $
    7,996
    
    
    $
    6,758
    
    
    
    
    
    
    
    
    
    
    $
    21,785
    
    
    $
    19,610Weighted Average
    
    
    
    
    
    
    
    
    
    
    Weighted AverageOccupancy at
    
    
    
    
    
    
    
    
    
    
    Occupancy atSeptember 30,
    
    
    
    
    
    
    
    
    
    
    September 30,2010
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    2009Same Properties
    
    
    85.3
    %
    
    
    88.3
    %
    
    
    
    
    
    
    
    
    
    
    85.8
    %
    
    
    88.8
    %Total
    
    
    85.0
    %
    
    
    88.3
    %
    
    
    
    
    
    
    
    
    
    
    84.8
    %
    
    
    88.8
    %
 
 (1)
    
    Represents properties owned for the entirety of the periods presented.(2)
    
    Non-comparable Properties include: Ashburn Center, Three Flint Hill and 500 First Street, NW.(3)
    
    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




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##### Table of Contents



Southern Virginia
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    $
    
    
    %
    
    
    September 30,
    
    
    $
    
    
    %(dollars in thousands)
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    ChangeNumber of buildings (1)
    
    
    54
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    54
    
    
    
    
    
    
    
    Same property revenueRental
    
    $
    9,933
    
    
    $
    9,940
    
    
    $
    (7
    )
    
    
    (0.1
    )
    
    $
    29,442
    
    
    $
    29,246
    
    
    $
    196
    
    
    
    0.7Tenant reimbursements
    
    
    2,335
    
    
    
    2,167
    
    
    
    168
    
    
    
    7.8
    
    
    
    6,837
    
    
    
    6,623
    
    
    
    214
    
    
    
    3.2Total same property revenue
    
    
    12,268
    
    
    
    12,107
    
    
    
    161
    
    
    
    1.3
    
    
    
    36,279
    
    
    
    35,869
    
    
    
    410
    
    
    
    1.1Same property operating expensesProperty
    
    
    3,028
    
    
    
    2,860
    
    
    
    168
    
    
    
    5.9
    
    
    
    8,720
    
    
    
    8,305
    
    
    
    415
    
    
    
    5.0Real estate taxes and insurance
    
    
    991
    
    
    
    1,068
    
    
    
    (77
    )
    
    
    (7.2
    )
    
    
    3,079
    
    
    
    3,175
    
    
    
    (96
    )
    
    
    (3.0
    )Total same property operating
expenses
    
    
    4,019
    
    
    
    3,928
    
    
    
    91
    
    
    
    2.3
    
    
    
    11,799
    
    
    
    11,480
    
    
    
    319
    
    
    
    2.8Same property net operating income
    
    $
    8,249
    
    
    $
    8,179
    
    
    $
    70
    
    
    
    0.9
    
    
    $
    24,480
    
    
    $
    24,389
    
    
    $
    91
    
    
    
    0.4Reconciliation to total
property operating incomeSame property net operating income
    
    $
    8,249
    
    
    $
    8,179
    
    
    
    
    
    
    
    
    
    
    $
    24,480
    
    
    $
    24,389Non-comparable net operating
income (loss) (2)
    
    
    27
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    (221
    )Total property operating income
    
    $
    8,276
    
    
    $
    8,086
    
    
    
    
    
    
    
    
    
    
    $
    24,570
    
    
    $
    24,168Weighted Average
    
    
    
    
    
    
    
    
    
    
    Weighted AverageOccupancy at
    
    
    
    
    
    
    
    
    
    
    Occupancy atSeptember 30,
    
    
    
    
    
    
    
    
    
    
    September 30,2010
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    2009Same Properties
    
    
    86.0
    %
    
    
    88.6
    %
    
    
    
    
    
    
    
    
    
    
    86.4
    %
    
    
    87.0
    %Total
    
    
    86.0
    %
    
    
    88.6
    %
    
    
    
    
    
    
    
    
    
    
    86.4
    %
    
    
    87.0
    %
 
 (1)
    
    Represents properties owned for the entirety of the periods presented.(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.   40




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##### Table of Contents



Liquidity and Capital Resources
 Overview
     Financial Covenants
  Unsecured Revolving Credit Facility and Secured Term Loans
 UnsecuredRevolving CreditFacility and 2007
    
    
    
    
    
    
    2008 SecuredSecured Term Loan
    
    
    Covenant
    
    
    Term Loan
    
    
    CovenantUnencumbered Pool Leverage(1)
    
    
    46.0
    %
    
    
    ≤ 65
    %
    
    
    
    
    
    
    Unencumbered Pool Debt Service Coverage Ratio(1),(2)
    
    
    3.04
    x
    
    
    ≥ 1.75
    x
    
    
    
    
    
    
    Maximum Consolidated Total Indebtedness
    
    
    52.2
    %
    
    
    ≤ 65
    %
    
    
    49.4
    %
    
    
    ≤ 60
    %Minimum Tangible Net Worth
    
    $
    597,141
    
    
    
    ≥ $464,938
    
    
    $
    666,689
    
    
    
    ≥ $464,938Fixed Charge Coverage Ratio
    
    
    1.95
    x
    
    
    ≥ 1.50
    x
    
    
    1.95
    x
    
    
    ≥ 1.50
    xMaximum Dividend Payout Ratio
    
    
    82.8
    %
    
    
    ≤ 95
    %
    
    
    82.8
    %
    
    
    ≤ 95
    %
 
 (1)
    
    Covenant does not apply to the Companys 2007 and 2008 secured term loans.(2)
    
    Covenant applies only to the Companys unsecured revolving credit facility.  41




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##### Table of Contents



Senior Notes
 Senior Notes
    
    
    CovenantUnencumbered Pool Leverage
    
    
    44.7
    %
    
    
    ≤ 65
    %Maximum Consolidated Total Indebtedness
    
    
    50.8
    %
    
    
    ≤ 65
    %Minimum Tangible Net Worth
    
    $
    630,861
    
    
    
    ≥ $464,938Fixed Charge Coverage Ratio
    
    
    1.95
    x
    
    
    ≥ 1.50
    xMaximum Dividend Payout Ratio
    
    
    82.8
    %
    
    
    ≤ 95
    %Maximum Secured Debt
    
    
    30.5
    %
    
    
    ≤ 40
    %
 Non-Financial Covenants in Mortgage Loan Documents
  Cash Flows
  Nine Months EndedSeptember 30,(amounts in thousands)
    
    2010
    
    
    2009
    
    
    ChangeCash provided by operating activities
    
    $
    29,636
    
    
    $
    31,181
    
    
    $
    (1,545
    )Cash used in investing activities
    
    
    (96,463
    )
    
    
    (21,223
    )
    
    
    (75,240
    )Cash provided by (used in) financing activities
    
    
    66,617
    
    
    
    (14,342
    )
    
    
    80,959
   42




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##### Table of Contents



Contractual Obligations
      43




---



##### Table of Contents



Distributions
  Dividends
  Funds From Operations
    44




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net (loss) income attributable to common shareholders
    
    $
    (2,880
    )
    
    $
    608
    
    
    $
    (5,006
    )
    
    $
    7,212Add: Depreciation and amortization:Real estate assets
    
    
    10,892
    
    
    
    10,180
    
    
    
    31,355
    
    
    
    30,035Discontinued operations
    
    
    
    
    
    
    (48
    )
    
    
    231
    
    
    
    148Unconsolidated joint ventures
    
    
    188
    
    
    
    91
    
    
    
    426
    
    
    
    202Consolidated joint ventures
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    (652
    )Gain on sale of real estate properties
    
    
    
    
    
    
    
    
    
    
    (557
    )
    
    
    Net (loss) income attributable to noncontrolling
interests in the Operating Partnership
    
    
    (55
    )
    
    
    16
    
    
    
    (103
    )
    
    
    202FFO available to common shareholders and unitholders
    
    $
    8,145
    
    
    $
    10,698
    
    
    $
    26,346
    
    
    $
    37,147Weighted average common shares and Operating
Partnership units outstanding  diluted
    
    
    38,165
    
    
    
    28,991
    
    
    
    35,718
    
    
    
    28,271
 Off-Balance Sheet Arrangements
 Investment in Affiliates.
 Forward Looking Statements
  
    45




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##### Table of Contents



Fair Value Measurements
 
    
 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
   46




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##### Table of Contents



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
    
    
    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
    
    
    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).4.3
    
    
    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).4.4
    
    
    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).4.5
    
    
    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).4.6
    
    
    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).4.7
    
    
    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).4.8
    
    
    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).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.)
  47




---



##### Table of Contents



FIRST POTOMAC REALTY TRUSTDate: November 8, 2010
    /s/ Douglas J. DonatelliDouglas J. DonatelliChairman of the Board and Chief Executive OfficerDate: November 8, 2010
    /s/ Barry H. BassBarry H. BassExecutive Vice President and Chief Financial Officer  48




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##### 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
    
    
    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
    
    
    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).4.3
    
    
    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).4.4
    
    
    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).4.5
    
    
    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).4.6
    
    
    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).4.7
    
    
    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).4.8
    
    
    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).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.)