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, 2009.
 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
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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FIRST POTOMAC REALTY TRUST
FORM 10-Q
 INDEX
 PagePart I: Financial InformationItem 1. Financial StatementsConsolidated balance sheets as of March 31, 2009 (unaudited) and December 31,
2008 (as adjusted  see footnote 2 (q))
    
    
    3Consolidated statements of operations (unaudited) for the three months ended
March 31, 2009 and 2008 (as adjusted  see footnote 2 (q))
    
    
    4Consolidated statements of cash flows (unaudited) for the three months ended
March 31, 2009 and 2008 (as adjusted  see footnote 2 (q))
    
    
    5Notes to consolidated financial statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    40Part II: Other InformationItem 1. Legal Proceedings
    
    
    42Item 1A. Risk Factors
    
    
    42Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults Upon Senior Securities
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    42Signatures
 2




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##### 



FIRST POTOMAC REALTY TRUST
 
 
 March 31, 2009
    
    
    December 31, 2008(unaudited)
    
    
    (as adjusted  seefootnote 2 (q))Assets:Rental property, net
    
    $
    967,970
    
    
    $
    994,913Cash and cash equivalents
    
    
    8,302
    
    
    
    16,352Escrows and reserves
    
    
    10,783
    
    
    
    8,808Accounts and other receivables, net of
allowance for doubtful accounts of $1,268
and $935, respectively
    
    
    7,631
    
    
    
    6,872Accrued straight-line rents, net of
allowance for doubtful accounts of $697
and $575, respectively
    
    
    9,125
    
    
    
    8,727Investment in affiliate
    
    
    2,004
    
    
    
    Deferred costs, net
    
    
    17,514
    
    
    
    17,165Prepaid expenses and other assets
    
    
    5,588
    
    
    
    6,365Intangible assets, net
    
    
    17,669
    
    
    
    21,047Total assets
    
    $
    1,046,586
    
    
    $
    1,080,249Liabilities:Mortgage loans
    
    $
    303,126
    
    
    $
    322,846Exchangeable senior notes, net
    
    
    64,661
    
    
    
    80,435Senior notes
    
    
    75,000
    
    
    
    75,000Secured term loans
    
    
    100,000
    
    
    
    100,000Unsecured revolving credit facility
    
    
    85,500
    
    
    
    75,500Financing obligation
    
    
    4,260
    
    
    
    11,491Accounts payable and other liabilities
    
    
    18,009
    
    
    
    18,022Accrued interest
    
    
    4,163
    
    
    
    2,491Rents received in advance
    
    
    6,209
    
    
    
    4,812Tenant security deposits
    
    
    5,086
    
    
    
    5,243Deferred market rent, net
    
    
    7,198
    
    
    
    8,489Total liabilities
    
    
    673,212
    
    
    
    704,329Noncontrolling interests in the Operating
Partnership (redemption value of $5,679 and
$7,186, respectively)
    
    
    10,543
    
    
    
    10,627Shareholders equity:Common shares, $0.001 par value, 100,000 common
shares authorized: 27,455 and 27,353 shares
issued and outstanding, respectively
    
    
    27
    
    
    
    27Additional paid-in capital
    
    
    485,356
    
    
    
    484,825Accumulated other comprehensive loss
    
    
    (2,514
    )
    
    
    (3,823
    )Dividends in excess of accumulated earnings
    
    
    (120,038
    )
    
    
    (115,736
    )Total shareholders equity
    
    
    362,831
    
    
    
    365,293Total liabilities and shareholders equity
    
    $
    1,046,586
    
    
    $
    1,080,249
  3




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##### 



FIRST POTOMAC REALTY TRUST
 
 
 Three Months Ended March 31,2009
    
    
    2008(as adjusted  seefootnote 2 (q))Revenues:Rental
    
    $
    27,027
    
    
    $
    24,666Tenant reimbursements and other
    
    
    6,599
    
    
    
    5,475Total revenues
    
    
    33,626
    
    
    
    30,141Operating expenses:Property operating
    
    
    8,317
    
    
    
    6,705Real estate taxes and insurance
    
    
    3,313
    
    
    
    2,917General and administrative
    
    
    2,956
    
    
    
    2,701Depreciation and amortization
    
    
    10,046
    
    
    
    9,239Total operating expenses
    
    
    24,632
    
    
    
    21,562Operating income
    
    
    8,994
    
    
    
    8,579Other expenses (income):Interest expense
    
    
    8,327
    
    
    
    9,550Interest and other income
    
    
    (139
    )
    
    
    (131
    )Equity in losses of affiliate
    
    
    7
    
    
    
    Gain on early retirement of debt
    
    
    (4,339
    )
    
    
    (1,395
    )Total other expenses
    
    
    3,856
    
    
    
    8,024Income from continuing operations
    
    
    5,138
    
    
    
    555Income from operations of disposed property
    
    
    
    
    
    
    685Net income
    
    
    5,138
    
    
    
    1,240Less: Net income attributable to noncontrolling interests in the
Operating Partnership
    
    
    (141
    )
    
    
    (39
    )Net income attributable to common shareholders
    
    $
    4,997
    
    
    $
    1,201Net income attributable to common shareholders per share  basic and diluted:Income from continuing operations
    
    $
    0.18
    
    
    $
    0.02Income from discontinued operations
    
    
    
    
    
    
    0.03Net income
    
    $
    0.18
    
    
    $
    0.05Weighted average common shares outstanding  basic
    
    
    26,999
    
    
    
    24,097Weighted average common shares outstanding  diluted
    
    
    27,029
    
    
    
    24,135
  4




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##### 



FIRST POTOMAC REALTY TRUST
 
 
 Three Months Ended March 31,2009
    
    
    2008(as adjusted  seefootnote 2 (q))Cash flows from operating activities:Net income attributable to common shareholders
    
    $
    4,997
    
    
    $
    1,201Adjustments to reconcile net income to net cash provided
by operating activities:Discontinued operations:Depreciation and amortization
    
    
    
    
    
    
    281Depreciation and amortization
    
    
    10,266
    
    
    
    9,733Stock based compensation
    
    
    563
    
    
    
    385Bad debt expense
    
    
    423
    
    
    
    107Amortization of deferred market rent
    
    
    (473
    )
    
    
    (450
    )Amortization of deferred financing costs and bond discount
    
    
    743
    
    
    
    872Amortization of rent abatement
    
    
    416
    
    
    
    359Net income attributable to noncontrolling interests
    
    
    141
    
    
    
    39Equity in losses of affiliate
    
    
    7
    
    
    
    Change in financing obligation
    
    
    (221
    )
    
    
    Gain on early retirement of debt
    
    
    (4,339
    )
    
    
    (1,395
    )Changes in assets and liabilities:Escrows and reserves
    
    
    (3,223
    )
    
    
    (502
    )Accounts and other receivables
    
    
    (1,323
    )
    
    
    (133
    )Accrued straight-line rents
    
    
    (486
    )
    
    
    (593
    )Prepaid expenses and other assets
    
    
    486
    
    
    
    (388
    )Tenant security deposits
    
    
    (122
    )
    
    
    (195
    )Accounts payable and accrued expenses
    
    
    1,614
    
    
    
    (1,324
    )Accrued interest
    
    
    1,757
    
    
    
    2,312Rents received in advance
    
    
    1,486
    
    
    
    (360
    )Deferred costs
    
    
    (1,858
    )
    
    
    (1,254
    )Total adjustments
    
    
    5,857
    
    
    
    7,494Net cash provided by operating activities
    
    
    10,854
    
    
    
    8,695Cash flows from investing activities:Additions to rental property
    
    
    (5,620
    )
    
    
    (3,780
    )Additions to construction in progress
    
    
    (379
    )
    
    
    (2,632
    )Net cash used in investing activities
    
    
    (5,999
    )
    
    
    (6,412
    )Cash flows from financing activities:Financing costs
    
    
    (1
    )
    
    
    (48
    )Proceeds from debt
    
    
    10,000
    
    
    
    27,500Repayments of debt
    
    
    (13,341
    )
    
    
    (22,043
    )Dividends to shareholders
    
    
    (9,300
    )
    
    
    (8,250
    )Distributions to noncontrolling interests
    
    
    (263
    )
    
    
    (265
    )Redemption of partnership units
    
    
    
    
    
    
    (12
    )Net cash used in financing activities
    
    
    (12,905
    )
    
    
    (3,118
    )Net decrease in cash and cash equivalents
    
    
    (8,050
    )
    
    
    (835
    )Cash and cash equivalents, beginning of period
    
    
    16,352
    
    
    
    5,198Cash and cash equivalents, end of period
    
    $
    8,302
    
    
    $
    4,363
  5




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##### 



FIRST POTOMAC REALTY TRUST
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Description of Business
    (2) Summary of Significant Accounting Policies
 (a) Principles of Consolidation
    (b) Use of Estimates
  6




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##### 



(c) Revenue Recognition
 Accounting for Leases
  Recognition of Receipts from Made-Up Rental
Shortfalls
 (d) Cash and Cash Equivalents
  (e) Escrows and Reserves
  (f) 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
  7




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##### 



Capitalization of Interest Cost
 (g) Purchase Accounting
  §
    
    the 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 market value of the lease
origination costs had the in-place leases been originated on the date of acquisition; the
value of in-place leases represents absorption costs for the estimated lease-up period in
which vacancy and foregone revenue are incurred;§
    
    the 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 lease and the
estimated fair market lease rates for the corresponding spaces over the remaining
non-cancelable terms of the related leases, which range from one to nineteen years; and§
    
    the intangible value of tenant or customer relationships.
  (h) Investment in Affiliate
 Consolidation of Variable Interest Entities.
 8




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##### 



( i) Sales of Real Estate
 Accounting for
Sales of Real Estate
   (j) Intangible Assets
   9




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##### 



Goodwill and Other Intangibles
 Business Combinations Determination of the Useful Life of Intangible
Assets Summary of Significant Accounting Policies Application of New Accounting Standards
 (k) Derivatives and Hedging
   (l) Income Taxes
  (m) Noncontrolling Interests
 Noncontrolling
Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 Summary of Significant Accounting
 10




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##### 



Policies Application of New Accounting
Standards
   (n) Earnings Per Share
 Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 11




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##### 



Three Months Ended March 31,2009
    
    
    2008Numerator for basic and diluted earnings per share
calculations:Income from continuing operations
    
    $
    5,138
    
    
    $
    555Income from discontinued operations
    
    
    
    
    
    
    685Net income
    
    
    5,138
    
    
    
    1,240Less: Net income attributable to noncontrolling interests
    
    
    (141
    )
    
    
    (39
    )Net income attributable to common shareholders
    
    
    4,997
    
    
    
    1,201Less: Allocation to participating securities
    
    
    (120
    )
    
    
    (50
    )Income available to common shareholders
    
    $
    4,877
    
    
    $
    1,151Denominator for basic and diluted earnings per share
calculations:Weighted average shares outstanding  basic
    
    
    26,999
    
    
    
    24,097Effect of dilutive shares:Employee stock options and non-vested shares
    
    
    30
    
    
    
    38Weighted average shares outstanding  diluted
    
    
    27,029
    
    
    
    24,135Net income
available to common shareholders per share  basic
and diluted:Income from continuing operations
    
    $
    0.18
    
    
    $
    0.02Income from discontinued operations
    
    
    
    
    
    
    0.03Net income
    
    $
    0.18
    
    
    $
    0.05Amounts available to common shareholders:Income from continuing operations
    
    $
    4,997
    
    
    $
    538Income from discontinued operations
    
    
    
    
    
    
    663Net income
    
    $
    4,997
    
    
    $
    1,201In accordance with SFAS No. 128, Earnings Per Share, (SFAS 128) the Company did not include
the following anti-dilutive shares in its calculation of diluted earnings per share (amounts in
thousands).Three Months Ended March 31,2009
    
    
    2008Stock option awards
    
    
    783
    
    
    
    702Non-vested share awards
    
    
    174
    
    
    
    88957
    
    
    
    790
  (o) Share-Based Compensation
 Stock Options Summary
  12




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##### 



WeightedAverageRemaining
    
    AggregateWeighted Average
    
    Contractual
    
    IntrinsicShares
    
    Exercise Price
    
    Term
    
    ValueOutstanding, December 31, 2008
    
    
    683,469
    
    
    $
    18.49
    
    
    5.9 years
    
    $
    Granted
    
    
    103,250
    
    
    
    9.30Forfeited
    
    
    (5,625
    )
    
    
    17.01Outstanding, March 31, 2009
    
    
    781,094
    
    
    $
    17.29
    
    
    6.2 years
    
    $
    Exercisable, March 31, 2009
    
    
    575,323
    
    
    $
    17.90
    
    
    5.2 years
    
    $
    Options expected to vest,
March 31, 2009
    
    
    177,692
    
    
    $
    15.86
    
    
    9.0 years
    
    $
    
   2009Risk-free interest rate
    
    
    1.55
    %Expected volatility
    
    
    39.6
    %Expected dividend yield
    
    
    5.54
    %Weighted average expected life of options
    
    5 years
  Non-vested share awards
   WeightedNon-vested
    
    Average GrantShares
    
    Date Fair ValueNon-vested at December 31, 2008
    
    
    354,398
    
    
    $
    15.35Granted
    
    
    102,714
    
    
    
    6.45Vested
    
    
    (2,500
    )
    
    
    17.05Non-vested at March 31, 2009
    
    
    454,612
    
    
    $
    13.33
 13




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##### 



(p) Reclassifications
  (q) Application of New Accounting Standards
 Fair Value
Measurements Effective Date of FASB Statement No. 157 Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active
 Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
   
    
    Net income attributable to noncontrolling interests is no longer included in the
Companys calculation of net income; however, these amounts will continue to be deducted
in the Companys determination of net income available to common shareholders. As a
result of implementation of SFAS 160, net income increased $141 thousand and $39
thousand for the three months ended March 31, 2009 and 2008, respectively;
    
    The Company will continue to report its noncontrolling interests in the mezzanine
section of its balance sheets as its Operating Partnership units, which can be redeemed
for cash or common shares, do not meet the requirements for permanent equity
classification;
    
    The Company is required to report its noncontrolling interests at the greater of its
carrying value, which includes adjustments for income attributable to the noncontrolling
interests and distributions received by noncontrolling interests, or its redemption
value. As of March 31, 2009, the redemption value of the Companys noncontrolling
interests was $5.7 million, which was below the carrying value of the Companys
noncontrolling interests; and
    
    The Company allocated a portion of its Accumulated Other Comprehensive Loss to the
noncontrolling interests in an amount equivalent to their respective share in earning
and losses. As of March 31, 2009 and December 31, 2008, the Company allocated $71
thousand and $108 thousand, respectively, of its Accumulated Other Comprehensive Loss to
its noncontrolling interests on its balance sheets.
 14




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##### 



Disclosures about Derivative Instruments and Hedging Activities an Amendment of FASB Statement No.
133 Accounting for Derivative Instruments and Hedging Activities
 Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including
Partial Cash Settlement)
 
    
    Interest expense for the three months ended March 31, 2009 and 2008 includes $0.8
million and $1.2 million, respectively, of contractual cash interest expense and $0.4
million and $0.6 million, respectively, of non-cash interest expense related to the
amortization of discounts;
    
    Additional paid in capital increased by the total discount recorded of $8.7 million,
with a shareholders equity increase of $3.4 million at December 31, 2008;
    
    Due to the adoption of FSP APB 14-1, the gain on the early retirement of debt
previously reported was reduced by $0.7 million for the three months ended March 31,
2008;
    
    The unamortized FSP APB 14-1 discount was $2.5 million and $3.4 million at March 31,
2009 and December 31, 2008, respectively; and
    
    The total impact of FSP APB 14-1 was a reduction in net income attributable to
common shareholders of $0.9 million, or $0.03 per diluted share, and $1.1 million, or
$0.05 per diluted share, for the three months ended March 31, 2009 and 2008,
respectively.
 Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
 Disclosures about Fair
Value of Financial Instruments, an amendment of APB No. 28, Interim Financial Reporting
 15




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##### 



Recognition and Presentation of Other-Than-Temporary Impairments
 (3) Rental Property
  March 31, 2009
    
    
    December 31, 2008Land
    
    $
    230,684
    
    
    $
    235,911Buildings and improvements
    
    
    767,257
    
    
    
    786,401Construction in process
    
    
    13,378
    
    
    
    12,687Tenant improvements
    
    
    65,047
    
    
    
    61,674Furniture, fixtures and equipment
    
    
    9,898
    
    
    
    9,8981,086,264
    
    
    
    1,106,571Less: accumulated depreciation
    
    
    (118,294
    )
    
    
    (111,658
    )$
    967,970
    
    
    $
    994,913
 (a) Development and Redevelopment Activity
   (b) Acquisitions
 Investment in Affiliate
 (4) Investment in Affiliate
  16




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##### 



March 31, 2009Assets:Rental property, net
    
    $
    25,598Cash and cash equivalents
    
    
    656Other assets
    
    
    2,288Total assets
    
    $
    28,542Liabilities:Mortgage loan
    
    $
    18,144Other liabilities
    
    
    1,970Total liabilities
    
    
    20,114Total equity
    
    
    8,428Total liabilities and equity
    
    $
    28,542
  The period March 17,2009 throughMarch 31, 2009Total revenues
    
    $
    108Total operating expenses
    
    
    (29
    )Operating income
    
    
    79Depreciation and amortization
    
    
    (58
    )Interest expense
    
    
    (49
    )Net loss
    
    $
    (28
    )
 (5) Discontinued Operations
   Three Months EndedMarch 31, 2008Revenue
    
    $
    1,445Income from operations of disposed property
    
    
    685
 17




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##### 



(6) Debt
  March 31,2009
    
    December 31, 2008(as adjusted  seefootnote 2 (q))Mortgage loans, effective interest rates ranging from 5.13% to 8.53%,
maturing at various dates through     June 2021(1)
    
    $
    303,126
    
    
    $
    322,846Exchangeable senior notes, net of discounts, effective interest rate of
5.84%, maturing December 2011(2)
    
    
    64,661
    
    
    
    80,435Series 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 3.81%, maturing August
2011(3)(4)
    
    
    50,000
    
    
    
    50,000Secured term loan, effective interest rate of 5.83%, maturing August
2011(4)(5)
    
    
    35,000
    
    
    
    35,000Secured term loan, effective interest rate of LIBOR plus 2.50%, maturing
August 2011(4)(5)
    
    
    15,000
    
    
    
    15,000Unsecured revolving credit facility, effective interest rate of LIBOR plus
1.20%, maturing April 2011(4)(6)
    
    
    85,500
    
    
    
    75,500$
    628,287
    
    
    $
    653,781
 
 (1)
    
    Mortgage loans include a variable interest rate mortgage of $9.9 million for
RiversPark I, which has an interest rate of LIBOR plus 2.50%. In September 2008, the
Company entered into an interest rate swap agreement that fixed the underlying interest
rate on the loan at 5.97%.(2)
    
    The Exchangeable Senior Notes principal balance was $68.0 million and $85.0
million at March 31, 2009 and December 31, 2008, respectively.(3)
    
    The term loan has a contractual interest rate of LIBOR plus 1.10%. In January
2008, the Company entered into an interest rate swap agreement that fixed the underlying
interest rate on the loan at 2.71% plus a spread of 70 to 125 basis points.(4)
    
    The unsecured revolving credit facility and secured term loans mature in April
2010 and August 2010, respectively, and provide for a one-year extension of the maturity
date at the Companys option, which the Company intends to exercise. The table above
assumes the exercise by the Company of the one-year extension of the maturity date. The
one-year extension is conditioned upon the payment of an extension fee, the absence of an
existing default under the loan agreement and the continued accuracy of the representations
and warranties contained in the loan agreement.(5)
    
    In August 2008, the Company entered into a $35.0 million variable-rate secured
term loan and an interest rate swap agreement that fixed the underlying interest rate on
the loan. In December 2008, the Company borrowed an additional $15.0 million under an
amendment to the loan, which increased its total obligation to $50.0 million. The
transaction increased the contractual interest rate on the entire loan balance by 0.25% to
LIBOR plus 250 basis points. As of March 31, 2009, the initial term loan balance is fixed
at 5.83%.(6)
    
    The unsecured revolving credit facility has a contractual interest rate of LIBOR
plus a spread of 80 to 135 basis points. 
 18




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##### 



(a) Mortgage Loans
  Contractual
    
    
    Effective
    
    
    Maturity

    
    March 31,
    
    
    December 31,Property
    
    Interest Rate
    
    
    Interest Rate
    
    
    Date

    
    2009
    
    
    2008Glenn Dale Business Center
    
    
    7.83
    %
    
    
    5.13
    %
    
    May 2009
    
    $
    8,061
    
    
    $
    8,1524200 Tech Court (1)
    
    
    8.07
    %
    
    
    8.07
    %
    
    October 2009
    
    
    1,719
    
    
    
    1,726Park Central I
    
    
    8.00
    %
    
    
    5.66
    %
    
    November 2009
    
    
    4,691
    
    
    
    4,7544212 Tech Court
    
    
    8.53
    %
    
    
    8.53
    %
    
    June 2010
    
    
    1,683
    
    
    
    1,689Park Central II
    
    
    8.32
    %
    
    
    5.66
    %
    
    November 2010
    
    
    5,826
    
    
    
    5,902Enterprise Center (1)
    
    
    8.03
    %
    
    
    5.20
    %
    
    December 2010
    
    
    17,925
    
    
    
    18,102Indian Creek Court (1)
    
    
    7.80
    %
    
    
    5.90
    %
    
    January 2011
    
    
    12,717
    
    
    
    12,818403/405 Glenn Drive
    
    
    7.60
    %
    
    
    5.50
    %
    
    July 2011
    
    
    8,460
    
    
    
    8,5294612 Navistar Drive (1)
    
    
    7.48
    %
    
    
    5.20
    %
    
    July 2011
    
    
    13,018
    
    
    
    13,130RiversPark I and II (2)
    
    LIBOR+2.50%
    
    
    5.97
    %
    
    September 2011
    
    
    9,856
    
    
    
    28,000Campus at Metro Park (1)
    
    
    7.11
    %
    
    
    5.25
    %
    
    February 2012
    
    
    23,964
    
    
    
    24,1541434 Crossways Blvd Building II
    
    
    7.05
    %
    
    
    5.38
    %
    
    August 2012
    
    
    10,114
    
    
    
    10,202Crossways Commerce Center
    
    
    6.70
    %
    
    
    6.70
    %
    
    October 2012
    
    
    24,904
    
    
    
    25,008Newington Business Park Center
    
    
    6.70
    %
    
    
    6.70
    %
    
    October 2012
    
    
    15,710
    
    
    
    15,775Prosperity Business Center
    
    
    6.25
    %
    
    
    5.75
    %
    
    January 2013
    
    
    3,723
    
    
    
    3,752Aquia Commerce Center I
    
    
    7.28
    %
    
    
    7.28
    %
    
    February 2013
    
    
    579
    
    
    
    6101434 Crossways Blvd Building I
    
    
    6.25
    %
    
    
    5.38
    %
    
    March 2013
    
    
    8,684
    
    
    
    8,749Linden Business Center
    
    
    6.01
    %
    
    
    5.58
    %
    
    October 2013
    
    
    7,342
    
    
    
    7,379Owings Mills Business Center
    
    
    5.85
    %
    
    
    5.75
    %
    
    March 2014
    
    
    5,625
    
    
    
    5,650Annapolis Commerce Park East
    
    
    5.74
    %
    
    
    6.25
    %
    
    June 2014
    
    
    8,698
    
    
    
    8,728Plaza 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
    
    
    100,000
    
    
    
    100,000Hanover Business Center:Building D
    
    
    8.88
    %
    
    
    6.63
    %
    
    August 2015
    
    
    836
    
    
    
    862Building C
    
    
    7.88
    %
    
    
    6.63
    %
    
    December 2017
    
    
    1,234
    
    
    
    1,260Chesterfield Business Center:Buildings C,D,G and H
    
    
    8.50
    %
    
    
    6.63
    %
    
    August 2015
    
    
    2,179
    
    
    
    2,245Buildings A,B,E and F
    
    
    7.45
    %
    
    
    6.63
    %
    
    June 2021
    
    
    2,660
    
    
    
    2,695Gateway Centre Building I
    
    
    7.35
    %
    
    
    5.88
    %
    
    November 2016
    
    
    1,467
    
    
    
    1,505Airpark Business Center
    
    
    7.45
    %
    
    
    6.63
    %
    
    June 2021
    
    
    1,451
    
    
    
    1,470Total Mortgage Debt
    
    
    
    
    
    
    5.63
    %(3)
    
    
    
    
    
    $
    303,126
    
    
    $
    322,846
 
 (1)
    
    The maturity date on 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 Company determines the accounting treatment of
its increasing rate debt and interest expense in accordance with EITF 86-15, Increasing Rate
Debt. The Company calculates interest expense using the effective interest method over the
anticipated period during which it expects the debt to be outstanding.(2)
    
    On March 17, 2009, the Company deconsolidated RiversPark II and, therefore, the
assets, liabilities and operating results of RiversPark II are no longer consolidated on the
Companys financial statements, which includes $18.1 million of mortgage debt. For more
information, see footnote 4, Investment in Affiliate.(3)
    
    Weighted average interest rate on total mortgage debt. (b) Exchangeable Senior Notes
 Summary of Significant Accounting Policies  Application of New Accounting
Standards
 19




---



##### 



(c) Unsecured Revolving Credit Facility
  (7) Derivative Instruments and Comprehensive Income
  
    
    available interest rate hedging may not correspond directly with the interest rate risk
for which we seek 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 our ability to sell or assign our side of the hedging transaction.
  Transaction Date
    
    Instrument
    
    
    Amount
    
    
    Contractual Interest Rate

    
    
    Effective Interest RateJanuary 2008
    
    Term Loan
    
    $
    50,000
    
    
    LIBOR plus variable spread(1)
    
    
    2.71
    % plus a variable
spread(1)August 2008
    
    Term Loan
    
    
    35,000
    
    
    LIBOR plus 250 basis points
    
    
    5.83
    %September 2008
    
    Mortgage Loan(2)
    
    
    9,856
    
    
    LIBOR plus 250 basis points
    
    
    5.97
    %
 
 (1)
    
    At March 31, 2009, the contractual interest rate on the Companys $50 million term
loan was LIBOR plus 1.10% and the effective interest rate was 3.81%.(2)
    
    Excludes the $18.1 million mortgage loan for RiversPark II, which was deconsolidated
with the assets, liabilities and operating results of RiversPark II on March 17, 2009. The
swap agreement associated with the $18.1 million deconsolidated mortgage remains in effect and
under the same terms as the consolidated mortgage.  Three Months EndedMarch 31, 2009
    
    
    March 31, 2008Net income
    
    $
    5,138
    
    
    $
    1,240Unrealized gain (loss) on derivative instruments
    
    
    619
    
    
    
    (296
    )Total comprehensive income
    
    
    5,757
    
    
    
    944Comprehensive income attributable to noncontrolling interests
    
    
    (158
    )
    
    
    (30
    )Comprehensive income attributable to common shareholders
    
    $
    5,599
    
    
    $
    914
 (8) Fair Value of Financial Instruments
  20




---



##### 



Balance atMarch 31, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Liabilities:Derivative instrument-swap agreements
    
    $
    2,396
    
    
    $
    
    
    
    $
    2,396
    
    
    $
    
  (9) Segment Information
   21




---



##### 



Three Months Ended March 31, 2009Maryland(1)
    
    
    Northern Virginia
    
    
    Southern Virginia
    
    
    ConsolidatedNumber of buildings
    
    
    72
    
    
    
    47
    
    
    
    54
    
    
    
    173Square feet (unaudited)
    
    
    3,609,610
    
    
    
    2,816,856
    
    
    
    5,257,155
    
    
    
    11,683,621Total revenues
    
    $
    11,758
    
    
    $
    9,895
    
    
    $
    11,973
    
    
    $
    33,626Property operating expense
    
    
    (3,165
    )
    
    
    (2,418
    )
    
    
    (2,734
    )
    
    
    (8,317
    )Real estate taxes and insurance
    
    
    (1,107
    )
    
    
    (1,122
    )
    
    
    (1,084
    )
    
    
    (3,313
    )Total property operating income
    
    $
    7,486
    
    
    $
    6,355
    
    
    $
    8,155
    
    
    
    21,996Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,046
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,956
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,856
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,138Total assets(2)
    
    $
    391,127
    
    
    $
    289,712
    
    
    $
    316,281
    
    
    $
    1,046,586Capital expenditures(3)
    
    $
    1,850
    
    
    $
    1,606
    
    
    $
    2,507
    
    
    $
    5,999
 Three Months Ended March 31, 2008Maryland
    
    
    Northern Virginia
    
    
    Southern Virginia
    
    
    ConsolidatedNumber of buildings
    
    
    63
    
    
    
    48
    
    
    
    53
    
    
    
    164Square feet (unaudited)
    
    
    3,365,297
    
    
    
    2,973,671
    
    
    
    5,086,503
    
    
    
    11,425,471Total revenues
    
    $
    10,291
    
    
    $
    8,757
    
    
    $
    11,093
    
    
    $
    30,141Property operating expense
    
    
    (2,290
    )
    
    
    (1,930
    )
    
    
    (2,485
    )
    
    
    (6,705
    )Real estate taxes and insurance
    
    
    (963
    )
    
    
    (929
    )
    
    
    (1,025
    )
    
    
    (2,917
    )Total property operating income
    
    $
    7,038
    
    
    $
    5,898
    
    
    $
    7,583
    
    
    
    20,519Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,239
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,701
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,024
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    685Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,240Total assets(2)
    
    $
    384,120
    
    
    $
    325,638
    
    
    $
    309,007
    
    
    $
    1,052,469Capital expenditures(3)
    
    $
    2,460
    
    
    $
    2,506
    
    
    $
    1,421
    
    
    $
    6,412
 
 (1)
    
    Includes the results of a three-building, 160,470 square foot property that
is owned by the Company through a consolidated joint venture.(2)
    
    Corporate assets not allocated to any of our reportable segments totaled $49,466 and
$33,704 at March 31, 2009 and 2008, respectively.(3)
    
    Capital expenditures for corporate assets not allocated to any of our reportable
segments totaled $36 and $25 at March 31, 2009 and 2008, respectively. (10) Supplemental Disclosure of Cash Flow Information
  2009
    
    2008Cash paid for interest, net
    
    $
    6,898
    
    
    $
    7,151Non-cash investing and financing activities:Conversion of Operating Partnership units into common
shares
    
    
    
    358
 22




---



##### 



Investment in Affiliate.
 23




---



##### 



The following discussion and analysis of the Companys financial condition and results of
operations should be read in conjunction with the 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 or contribute properties to joint ventures; and
    
    continue to grow its portfolio through acquisition of new properties, potentially
through joint ventures.
  Executive Summary
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)
 Significant First Quarter Transactions
 
    
    During the first quarter of 2009, the Company executed 144,000 square feet of new
leases, including 34,000 square feet at Interstate Plaza in Northern Virginia and 33,000
square feet at Diamond Hill Distribution Center and 19,000
 24




---



##### 



square feet at Chesterfield Business Center in Southern Virginia. Rent is expected to
commence for all new leases by the end of the third quarter of 2009;
    
    During the first quarter of 2009, the Company executed 513,000 square feet of renewal
leases, including 153,000 square feet at Diamond Hill Distribution Center, 123,000 square
feet at Rivers Bend Center, 51,000 square feet at Newington Business Park Center and
40,000 square feet at Lafayette Business Park; and
    
    During the first quarter of 2009, the Company realized gains on the retirement of debt
of $4.3 million, or $0.15 per diluted share.
 Development and Redevelopment Activity
   Development
 
    
    Greenbrier Technology Center III  a 48,000 square foot three-story office building has
been designed, all 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, adjacent to
a recently completed building, has been designed, all permits have been processed and
construction is ready to begin. Costs to date include civil site preparation work,
architectural, mechanical, electrical and plumbing design as well as permit fees.
 Redevelopment
 
    
    Enterprise Parkway  a 71,000 square foot multi-tenanted office redevelopment. Costs
incurred to date include building, lobby and common corridor renovations; design documents
and permit fees as well as schematic architectural and engineering design for future tenant
layouts;
    
    Gateway 270  a 55,000 square foot business park redevelopment. Costs incurred to date
include architectural and engineering design and permitting; demolition, metal framing,
plumbing, mechanical and electrical rough-in work; and
    
    Interstate Plaza  a 56,000 square foot multi-tenanted office and warehouse
redevelopment. Costs incurred to date include architectural and engineering design for
multi-tenant layouts and exterior renovation work.
  Critical Accounting Policies and Estimates
  25




---



##### 



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
   Purchase Accounting
  26




---



##### 



§
    
    the 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 market value of the lease
origination costs had the in-place leases been originated on the date of acquisition; the
value of in-place leases represents absorption costs for the estimated lease-up period in
which vacancy and foregone revenue are incurred;§
    
    the 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 lease and the
estimated fair market lease rates for the corresponding spaces over the remaining
non-cancelable terms of the related leases, which range from one to nineteen years; and§
    
    the intangible value of tenant or customer relationships.
  Goodwill and Impairment Analysis
 Goodwill and Other Intangibles
 Investment in Affiliate
 Consolidation of Variable Interest Entities.
  27




---



##### 



Derivative Instruments
   Share-Based Compensation
 Share-Based
Payment
 Results of Operations
 Comparison of the Three Months Ended March 31, 2009 to the Three Months Ended March 31, 2008
 2008 Acquisitions
   Total Revenues
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Increase
    
    ChangeRental
    
    $
    27,027
    
    
    $
    24,666
    
    
    $
    2,361
    
    
    
    10
    %Tenant reimbursements and other
    
    $
    6,599
    
    
    $
    5,475
    
    
    $
    1,124
    
    
    
    21
    %
 Rental Revenue
  28




---



##### 



Tenant Reimbursements and Other Revenues
   Total Expenses
 Property Operating Expenses
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Increase
    
    ChangeProperty operating
    
    $
    8,317
    
    
    $
    6,705
    
    
    $
    1,612
    
    
    
    24
    %Real estate taxes and insurance
    
    $
    3,313
    
    
    $
    2,917
    
    
    $
    396
    
    
    
    14
    %
   29




---



##### 



Other Operating Expenses
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Increase
    
    ChangeGeneral and administrative
    
    $
    2,956
    
    
    $
    2,701
    
    
    $
    255
    
    
    
    9
    %
   Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Increase
    
    ChangeDepreciation and amortization
    
    $
    10,046
    
    
    $
    9,239
    
    
    $
    807
    
    
    
    9
    %
  Other Expenses (Income)
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Decrease
    
    ChangeInterest expense
    
    $
    8,327
    
    
    $
    9,550
    
    
    $
    1,223
    
    
    
    13
    %
    30




---



##### 



Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Increase
    
    ChangeInterest and other income
    
    $
    139
    
    
    $
    131
    
    
    $
    8
    
    
    
    6
    %
   Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Increase
    
    ChangeEquity in losses of affiliate
    
    $
    7
    
    
    $
    
    
    
    $
    7
    
    
    
    
   Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Increase
    
    ChangeGain on early
retirement of debt
    
    $
    4,339
    
    
    $
    1,395
    
    
    $
    2,944
    
    
    
    211
    %
  31




---



##### 



Noncontrolling Interests
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Increase
    
    ChangeNoncontrolling interests
    
    $
    141
    
    
    $
    39
    
    
    $
    102
    
    
    
    262
    %
  Income from Discontinued Operations
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2009
    
    2008
    
    Decrease
    
    ChangeIncome from
discontinued
operations
    
    $
    
    
    
    $
    685
    
    
    $
    685
    
    
    
    100
    %
  Liquidity and Capital Resources
    32




---



##### 



Cash Flows
  Three Months EndedMarch 31,(amounts in thousands)
    
    2009
    
    2008
    
    ChangeCash provided by operating activities
    
    $
    10,854
    
    
    $
    8,695
    
    
    $
    2,159Cash used in investing activities
    
    
    (5,999
    )
    
    
    (6,412
    )
    
    
    413Cash used in financing activities
    
    
    (12,905
    )
    
    
    (3,118
    )
    
    
    (9,787
    )
    33




---



##### 



Same-Property Net Operating Income
  Comparison of the Three Months Ended March 31, 2009 to the Three Months Ended March 31, 2008
  Three Months Ended March 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    165
    
    
    
    165
    
    
    
    
    
    
    
    Same-property revenuesRental
    
    $
    25,879
    
    
    $
    24,666
    
    
    $
    1,213
    
    
    
    4.9Tenant reimbursements and other
    
    
    6,048
    
    
    
    4,898
    
    
    
    1,150
    
    
    
    23.5Total same-property revenues
    
    
    31,927
    
    
    
    29,564
    
    
    
    2,363
    
    
    
    8.0Same-property operating expensesProperty
    
    
    7,510
    
    
    
    6,398
    
    
    
    1,112
    
    
    
    17.4Real estate taxes and insurance
    
    
    3,221
    
    
    
    2,914
    
    
    
    307
    
    
    
    10.5Total same-property operating expenses
    
    
    10,731
    
    
    
    9,312
    
    
    
    1,419
    
    
    
    15.2Same-property net operating income
    
    $
    21,196
    
    
    $
    20,252
    
    
    $
    944
    
    
    
    4.7Reconciliation to net income:Same-property net operating income
    
    $
    21,196
    
    
    $
    20,252Non-comparable operating income(2) (3)
    
    
    800
    
    
    
    267General and administrative expenses
    
    
    (2,956
    )
    
    
    (2,701
    )Depreciation and amortization
    
    
    (10,046
    )
    
    
    (9,239
    )Other expenses, net
    
    
    (3,856
    )
    
    
    (8,024
    )Income from discontinued operations(4)
    
    
    
    
    
    
    685Net income
    
    $
    5,138
    
    
    $
    1,240Weighted Average Occupancyat March 31,2009
    
    2008Same-Properties
    
    
    87.1
    %
    
    
    86.2
    %Total
    
    
    86.4
    %
    
    
    86.0
    %
 
 (1)
    
    Represents properties owned for the entirety of the periods presented. 34




---



##### 



(2)
    
    Same-Properties exclude a 76,000 square foot redevelopment building at Ammendale Commerce Center, which was placed in service during the fourth quarter of 2008, and a 57,000
square foot space at Interstate Plaza that is currently under redevelopment.(3)
    
    Non-same property NOI has been adjusted to reflect a normalized management fee percentage in lieu of an administrative
overhead allocation for comparative purposes and does not include any termination fee income as these amounts can vary year
over year.(4)
    
    Income from discontinued operations consistof the operations of Alexandria Corporate Park, which was sold in the second
quarter of 2008.  Maryland
 Three Months Ended March 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    64
    
    
    
    64
    
    
    
    
    
    
    
    Same-property revenuesRental
    
    $
    8,382
    
    
    $
    8,544
    
    
    $
    (162
    )
    
    
    (1.9
    )Tenant reimbursements and other
    
    
    1,876
    
    
    
    1,747
    
    
    
    129
    
    
    
    7.4Total same-property revenues
    
    
    10,258
    
    
    
    10,291
    
    
    
    (33
    )
    
    
    (0.3
    )Same-property operating expensesProperty
    
    
    2,597
    
    
    
    2,200
    
    
    
    397
    
    
    
    18.0Real estate taxes and insurance
    
    
    1,017
    
    
    
    982
    
    
    
    35
    
    
    
    3.6Total same-property operating expenses
    
    
    3,614
    
    
    
    3,182
    
    
    
    432
    
    
    
    13.6Same-property net operating income
    
    $
    6,644
    
    
    $
    7,109
    
    
    $
    (465
    )
    
    
    (6.5
    )Reconciliation to total property operating income:Same-property net operating income
    
    $
    6,644
    
    
    $
    7,109Non-comparable net operating income (loss)(2) (3)
    
    
    842
    
    
    
    (71
    )Total property operating income
    
    $
    7,486
    
    
    $
    7,038Weighted Average Occupancyat March 31,2009
    
    2008Same-Properties
    
    
    86.3
    %
    
    
    89.3
    %Total
    
    
    85.6
    %
    
    
    89.3
    %
 
 (1)
    
    Represents properties owned for the entirety of the periods presented.(2)
    
    Same-Properties exclude a 76,000 square foot redevelopment building of Ammendale Commerce Center, which was placed in service during the fourth quarter of 2008.(3)
    
    Non-same property NOI has been adjusted to reflect a normalized management fee percentage in lieu of an administrative overhead
allocation for comparative purposes and does not include any termination fee income as these amounts can vary year over year. 35




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##### 



Northern Virginia
 Three Months Ended March 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    47
    
    
    
    47
    
    
    
    
    
    
    
    Same-property revenuesRental
    
    $
    7,916
    
    
    $
    7,297
    
    
    $
    619
    
    
    
    8.5Tenant reimbursements and other
    
    
    1,979
    
    
    
    1,460
    
    
    
    519
    
    
    
    35.5Total same-property revenues
    
    
    9,895
    
    
    
    8,757
    
    
    
    1,138
    
    
    
    13.0Same-property operating expensesProperty
    
    
    2,305
    
    
    
    1,850
    
    
    
    455
    
    
    
    24.6Real estate taxes and insurance
    
    
    1,122
    
    
    
    908
    
    
    
    214
    
    
    
    23.6Total same-property operating expenses
    
    
    3,427
    
    
    
    2,758
    
    
    
    669
    
    
    
    24.3Same-property net operating income
    
    $
    6,468
    
    
    $
    5,999
    
    
    $
    469
    
    
    
    7.8Reconciliation to total property operating incomeSame-property net operating income
    
    $
    6,468
    
    
    $
    5,999Non-comparable net operating loss(2)(3)
    
    
    (113
    )
    
    
    (101
    )Total property operating income
    
    $
    6,355
    
    
    $
    5,898Weighted Average Occupancyat March 31,2009
    
    2008Same-Properties
    
    
    91.4
    %
    
    
    87.4
    %Total
    
    
    89.4
    %
    
    
    85.7
    %
 
 (1)
    
    Represents properties owned for the entirety of the periods presented.(2)
    
    Same-Properties exclude a 57,000 square foot space at Interstate Plaza that is currently under redevelopment.(3)
    
    Non-same property NOI has been adjusted to reflect a normalized management fee percentage in lieu of an administrative overhead
allocation for comparative purposes and does not include any termination fee income as these amounts can vary year over year.  36




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##### 



Southern Virginia
 Three Months Ended March 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    54
    
    
    
    54
    
    
    
    
    
    
    
    Same-property revenuesRental
    
    $
    9,581
    
    
    $
    8,825
    
    
    $
    756
    
    
    
    8.6Tenant reimbursements and other
    
    
    2,193
    
    
    
    1,691
    
    
    
    502
    
    
    
    29.7Total same-property revenues
    
    
    11,774
    
    
    
    10,516
    
    
    
    1,258
    
    
    
    12.0Same-property operating expensesProperty
    
    
    2,608
    
    
    
    2,348
    
    
    
    260
    
    
    
    11.1Real estate taxes and insurance
    
    
    1,082
    
    
    
    1,024
    
    
    
    58
    
    
    
    5.7Total same-property operating expenses
    
    
    3,690
    
    
    
    3,372
    
    
    
    318
    
    
    
    9.4Same-property net operating income
    
    $
    8,084
    
    
    $
    7,144
    
    
    $
    940
    
    
    
    13.2Reconciliation to total property operating incomeSame-property net operating income
    
    $
    8,084
    
    
    $
    7,144Non-comparable net operating income(2)
    
    
    71
    
    
    
    439Total property operating income
    
    $
    8,155
    
    
    $
    7,583Weighted Average Occupancyat March 31,2009
    
    2008Same-Properties
    
    
    85.4
    %
    
    
    83.9
    %Total
    
    
    85.4
    %
    
    
    83.9
    %
 
 (1)
    
    Represents properties owned for the entirety of the periods resented.(2)
    
    Non-same property NOI has been adjusted to reflect a normalized management fee percentage in lieu of an administrative overhead
allocation for comparative purposes and does not include any termination fee income as these amounts can vary year over year.  Contractual Obligations
   37




---



##### 



Dividends and Distributions
   Funds From Operations
    38




---



##### 



Three Months Ended March 31,2009
    
    
    2008Net income attributable to common shareholders
    
    $
    4,997
    
    
    $
    1,201Add: Depreciation and amortization:Real estate assets
    
    
    10,046
    
    
    
    9,239Discontinued operations
    
    
    
    
    
    
    281Unconsolidated joint venture
    
    
    14
    
    
    
    Consolidated joint venture
    
    
    (373
    )
    
    
    Net income attributable to noncontrolling interests
    
    
    141
    
    
    
    39FFO available to common shareholders and unitholders
    
    $
    14,825
    
    
    $
    10,760Weighted average common shares and Operating Partnership
units outstanding  diluted
    
    
    27,801
    
    
    
    24,920
 Off-Balance Sheet Arrangements
 Investment in Affiliate
 Forward Looking Statements
  39




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##### 



40




---



##### 



41




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##### 



PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Recent disruptions in the financial markets could affect our ability to obtain financing on
reasonable terms and have other adverse effects on us and the market price of our common shares.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 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
    
    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
 42




---



##### 



No.
    
    Description(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.)
 43




---



##### 



FIRST POTOMAC REALTY TRUSTDate: May 8, 2009
    /s/ Douglas J. DonatelliDouglas J. DonatelliChairman of the Board and Chief Executive Officer Date: May 8, 2009
    /s/ Barry H. BassBarry H. BassExecutive Vice President and Chief Financial
Officer 44




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##### 



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.)