##### 



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
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
   FIRST POTOMAC REALTY TRUST
  MARYLAND
    
    37-1470730(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 7600 Wisconsin Avenue, 11 th Floor, Bethesda, MD 20814
 (301) 986-9200
 þ o
 þ o
    1




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##### 



FIRST POTOMAC REALTY TRUST
FORM 10-Q
 INDEX
 PagePart I:
    
    Financial InformationItem 1.
    
    Financial StatementsCondensed consolidated balance sheets  as of June 30, 2005 (unaudited) and December 31, 2004
    
    3Condensed consolidated statements of operations (unaudited) for the three and six months ended June 30, 2005 and 2004
    
    4Condensed consolidated statements of cash flows (unaudited) for the six months ended June 30, 2005 and 2004
    
    5Notes to condensed consolidated financial statements (unaudited)
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    14Item 3.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    23Item 4.
    
    Controls and Procedures
    
    23Part II:
    
    Other InformationItem 6.
    
    Exhibits and Reports on Form 8-K
    
    24Signatures
 2




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##### 



FIRST POTOMAC REALTY TRUST
 June 30, 2005(Unaudited)
    
    
    December 31, 2004Assets:Rental property, net
    
    $
    531,145,135
    
    
    $
    463,936,562Intangible assets, net
    
    
    26,325,464
    
    
    
    26,008,351Cash and cash equivalents
    
    
    1,701,928
    
    
    
    2,532,269Escrows and reserves
    
    
    10,381,862
    
    
    
    6,301,465Accounts and other receivables, net of
allowance for doubtful accounts of
$404,590 and $147,649, respectively
    
    
    3,173,053
    
    
    
    2,767,879Accrued straight-line rents, net of
allowance for doubtful accounts of
$37,770 and $18,209 respectively
    
    
    2,982,376
    
    
    
    2,309,576Deferred costs, net
    
    
    4,542,695
    
    
    
    4,196,229Prepaid expenses and other assets
    
    
    3,073,748
    
    
    
    2,023,823Total assets
    
    $
    583,326,261
    
    
    $
    510,076,154Liabilities:Mortgage loans
    
    $
    286,311,059
    
    
    $
    259,039,281Credit facility
    
    
    45,151,000
    
    
    
    39,679,912Accounts payable and accrued expenses
    
    
    3,845,338
    
    
    
    4,058,025Accrued interest
    
    
    1,661,335
    
    
    
    799,974Rents received in advance
    
    
    2,760,903
    
    
    
    1,744,022Tenant security deposits
    
    
    3,399,529
    
    
    
    2,804,287Deferred market rent, net
    
    
    5,609,033
    
    
    
    5,266,728Total liabilities
    
    
    348,738,197
    
    
    
    313,392,229Minority interests
    
    
    14,744,805
    
    
    
    18,991,052Shareholders equity:Common stock, $0.001 par value, 100,000,000
shares authorized: 16,540,584 and
14,154,000 shares and outstanding,
respectively
    
    
    16,541
    
    
    
    14,154Additional paid-in capital
    
    
    258,054,727
    
    
    
    209,268,156Deficit
    
    
    (38,228,009
    )
    
    
    (31,589,437
    )Total shareholders equity
    
    
    219,843,259
    
    
    
    177,692,873Total liabilities and shareholders equity
    
    $
    583,326,261
    
    
    $
    510,076,154
  3




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##### 



FIRST POTOMAC REALTY TRUST
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Rental
    
    $
    15,857,391
    
    
    $
    7,157,385
    
    
    $
    29,994,042
    
    
    $
    13,683,830Tenant reimbursements and other
    
    
    2,174,533
    
    
    
    1,052,407
    
    
    
    4,466,120
    
    
    
    2,039,421Total revenue
    
    
    18,031,924
    
    
    
    8,209,792
    
    
    
    34,460,162
    
    
    
    15,723,251Operating expenses:Property operating
    
    
    3,147,866
    
    
    
    1,399,282
    
    
    
    6,154,752
    
    
    
    2,842,923Real estate taxes and insurance
    
    
    1,523,087
    
    
    
    789,788
    
    
    
    2,918,491
    
    
    
    1,462,826General and administrative
    
    
    1,766,836
    
    
    
    1,280,546
    
    
    
    3,637,574
    
    
    
    2,103,734Depreciation and amortization
    
    
    5,828,019
    
    
    
    2,609,715
    
    
    
    10,904,714
    
    
    
    5,149,837Total operating expenses
    
    
    12,265,808
    
    
    
    6,079,331
    
    
    
    23,615,531
    
    
    
    11,559,320Operating income
    
    
    5,766,116
    
    
    
    2,130,461
    
    
    
    10,844,631
    
    
    
    4,163,931Other expenses (income):Interest expense
    
    
    4,673,600
    
    
    
    2,236,903
    
    
    
    9,188,994
    
    
    
    4,304,509Interest and other income
    
    
    (22,647
    )
    
    
    (29,068
    )
    
    
    (37,185
    )
    
    
    (64,130
    )Loss from early retirement of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212,250Total other expenses
    
    
    4,650,953
    
    
    
    2,207,835
    
    
    
    9,151,809
    
    
    
    4,452,629Income (loss) from continuing
operations before minority interests
and discontinued operations
    
    
    1,115,163
    
    
    
    (77,374
    )
    
    
    1,692,822
    
    
    
    (288,698
    )Minority interests
    
    
    (76,810
    )
    
    
    6,832
    
    
    
    (128,165
    )
    
    
    36,283Income (loss) from continuing operations
    
    
    1,038,353
    
    
    
    (70,542
    )
    
    
    1,564,657
    
    
    
    (252,415
    )Income from discontinued operations
    
    
    
    
    
    
    12,674
    
    
    
    
    
    
    
    23,941Net income (loss)
    
    $
    1,038,353
    
    
    $
    (57,868
    )
    
    $
    1,564,657
    
    
    $
    (228,474
    )Weighted average common shares
outstanding  basic
    
    
    16,440,039
    
    
    
    9,119,275
    
    
    
    15,345,158
    
    
    
    8,876,637Weighted average common shares
outstanding  diluted
    
    
    16,634,743
    
    
    
    9,119,275
    
    
    
    15,529,363
    
    
    
    8,876,637Income (loss) per share from continuing
operations and income (loss) per share
 basic and diluted
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    0.10
    
    
    $
    (0.03
    )
  4




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##### 



FIRST POTOMAC REALTY TRUST
 Six Months Ended June 30,2005
    
    
    2004Cash flow from operating activitiesNet income (loss)
    
    $
    1,564,657
    
    
    $
    (228,474
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Discontinued operations:Depreciation and amortization
    
    
    
    
    
    
    129,582Minority interests
    
    
    
    
    
    
    3,851Depreciation and amortization
    
    
    11,342,119
    
    
    
    5,485,680Bad debt expense
    
    
    309,743
    
    
    
    213,281Stock based compensation
    
    
    172,256
    
    
    
    55,002Amortization of deferred market rent
    
    
    (565,175
    )
    
    
    135,093Minority interests
    
    
    128,165
    
    
    
    36,285Loss from early retirement of debt
    
    
    
    
    
    
    212,250Changes in assets and liabilities:Escrows and reserves
    
    
    (4,080,397
    )
    
    
    417,970Accounts and other receivables
    
    
    (695,356
    )
    
    
    (469,942
    )Accrued straight-line rents
    
    
    (692,361
    )
    
    
    (167,478
    )Prepaid expenses and other assets
    
    
    440,547
    
    
    
    (741,257
    )Tenant security deposits
    
    
    595,242
    
    
    
    771,863Accounts payable and accrued expenses
    
    
    (222,339
    )
    
    
    1,014,183Accrued interest
    
    
    861,361
    
    
    
    238,235Rent received in advance
    
    
    1,016,881
    
    
    
    200,564Deferred costs
    
    
    (570,143
    )
    
    
    (189,779
    )Total adjustments
    
    
    8,040,543
    
    
    
    7,272,815Net cash provided by operating activities
    
    
    9,605,200
    
    
    
    7,044,341Cash flows from investing activitiesPurchase deposit on future acquisitions
    
    
    (1,530,000
    )
    
    
    (5,000,000
    )Additions to rental property
    
    
    (1,710,003
    )
    
    
    (1,327,095
    )Acquisition of rental property and associated intangible
assets
    
    
    (45,778,470
    )
    
    
    (22,212,916
    )Net cash used in investing activities
    
    
    (49,018,473
    )
    
    
    (28,540,011
    )Cash flows from financing activitiesFinancing costs
    
    
    (360,465
    )
    
    
    (460,837
    )Repayments of debt
    
    
    (48,905,316
    )
    
    
    (25,610,206
    )Dividends to shareholders
    
    
    (8,203,229
    )
    
    
    (2,590,200
    )Distributions to minority interests
    
    
    (710,250
    )
    
    
    (418,657
    )Proceeds from debt
    
    
    51,800,000
    
    
    
    18,000,000Proceeds from issuance of shares, net
    
    
    44,962,192
    
    
    
    91,817,843Net cash provided by financing activities
    
    
    38,582,932
    
    
    
    80,737,943Net (decrease) increase in cash and cash equivalents
    
    
    (830,341
    )
    
    
    59,242,273Cash and cash equivalents at beginning of period
    
    
    2,532,269
    
    
    
    16,307,508Cash and cash equivalents at end of period
    
    $
    1,701,928
    
    
    $
    75,549,781
  5




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##### 



FIRST POTOMAC REALTY TRUST
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (1) Summary of Significant Accounting Policies
 (a) Description of Business
   (b) Principles of Consolidation
    (c) Revenue Recognition
   6




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##### 



(d) Intangible Assets
    (e) Income Taxes
  (f) Minority Interests
  7




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##### 



(g) Income Per Share
   Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2004
    
    
    June 30, 2005
    
    
    June 30, 2004Numerator for basic and diluted per share
calculations:Income (loss) from continuing operations
    
    $
    1,038,353
    
    
    $
    (70,542
    )
    
    $
    1,564,657
    
    
    $
    (252,415
    )Income from discontinued operations
    
    
    
    
    
    
    12,674
    
    
    
    
    
    
    
    23,941Net income (loss)
    
    $
    1,038,353
    
    
    $
    (57,868
    )
    
    $
    1,564,657
    
    
    $
    (228,474
    )Denominator for basic and diluted per share
calculations:Weighted average shares outstanding  basic:
    
    
    16,440,039
    
    
    
    9,119,275
    
    
    
    15,345,158
    
    
    
    8,876,637Effect of dilutive shares:Employee stock option awards
    
    
    194,704
    
    
    
    
    
    
    
    184,205
    
    
    
    Denominator for diluted per share amounts
    
    
    16,634,743
    
    
    
    9,119,275
    
    
    
    15,529,363
    
    
    
    8,876,637Income from continuing operations and netincome (loss) per share, basic and diluted
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    0.10
    
    
    $
    (0.03
    )
 (h) Stock Based Compensation
    8




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##### 



Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2004
    
    
    June 30, 2005
    
    
    June 30, 2004Net income (loss), as reported
    
    $
    1,038,353
    
    
    $
    (57,868
    )
    
    $
    1,564,657
    
    
    $
    (228,474
    )Add: total stock-based
compensation included in
reported net income (loss)
    
    
    90,306
    
    
    
    
    
    
    
    172,256
    
    
    
    Deduct: total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of minority interests
    
    
    (156,135
    )
    
    
    (44,024
    )
    
    
    (300,625
    )
    
    
    (88,048
    )Pro forma net income (loss)
    
    $
    972,524
    
    
    $
    (101,892
    )
    
    $
    1,436,288
    
    
    $
    (316,522
    )Net income (loss) per share,
as reported   basic and
diluted
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    0.10
    
    
    $
    (0.03
    )Pro forma net income (loss)
per share  basic and
diluted
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    0.09
    
    
    $
    (0.04
    )
 (i) Derivatives
  (j) Use of Estimates
  (k) Application of New Accounting Standards
  (l) Reclassifications
  9




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##### 



(2) Rental Property
  June 30, 2005
    
    
    December 31, 2004Land
    
    $
    120,254,392
    
    
    $
    109,757,972Buildings and improvements
    
    
    422,721,143
    
    
    
    361,025,011Tenant improvements
    
    
    12,335,047
    
    
    
    10,542,159Furniture, fixtures and equipment
    
    
    9,739,637
    
    
    
    9,705,397565,050,219
    
    
    
    491,030,539Less: accumulated depreciation
    
    
    (33,905,084
    )
    
    
    (27,093,977
    )$
    531,145,135
    
    
    $
    463,936,562
      Acquired tenant
    
    
    Building and
    
    
    In-place leases
    
    
    Above and belowLand
    
    
    improvements
    
    
    improvements
    
    
    intangible
    
    
    market leases, net
    
    
    TotalReston Business Campus
    
    $
    1,996,358
    
    
    $
    383,612
    
    
    $
    8,371,884
    
    
    $
    1,006,761
    
    
    $
    (15,330
    )
    
    $
    11,743,2851400 Cavalier Boulevard
    
    
    1,387,481
    
    
    
    24,475
    
    
    
    11,323,652
    
    
    
    824,436
    
    
    
    (253,297
    )
    
    
    13,306,747Enterprise Center
    
    
    3,727,580
    
    
    
    197,726
    
    
    
    27,067,104
    
    
    
    1,339,867
    
    
    
    (150,975
    )
    
    
    32,181,302Glenn Dale Business Center
    
    
    3,369,189
    
    
    
    206,210
    
    
    
    14,288,458
    
    
    
    860,410
    
    
    
    (328,948
    )
    
    
    18,395,319Total
    
    $
    10,480,608
    
    
    $
    812,023
    
    
    $
    61,051,098
    
    
    $
    4,031,474
    
    
    $
    (748,550
    )
    
    $
    75,626,653
 10




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##### 



Pro Forma Financial Information
   Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2004
    
    
    June 30, 2005
    
    
    June 30, 2004Pro forma total revenues
    
    $
    18,623,520
    
    
    $
    18,018,607
    
    
    $
    37,242,714
    
    
    $
    35,947,290Pro forma net income
    
    
    968,022
    
    
    
    739,467
    
    
    
    1,678,057
    
    
    
    1,097,893Pro forma diluted net
income per share
    
    $
    0.06
    
    
    $
    0.04
    
    
    $
    0.11
    
    
    $
    0.07
 (3) Discontinued Operations
   Three Months Ended
    
    
    Six Months EndedJune 30, 2004
    
    
    June 30, 2004Revenue
    
    $
    189,441
    
    
    $
    388,482Property expenses
    
    
    109,945
    
    
    
    231,108Depreciation and amortization
    
    
    64,793
    
    
    
    129,582Income from operations
    
    
    14,703
    
    
    
    27,792Minority interests in discontinued operations
    
    
    2,029
    
    
    
    3,851Income from discontinued operations
    
    $
    12,674
    
    
    $
    23,941
 (4) Borrowings
  June 30,
    
    
    December 31,2005
    
    
    2004Mortgage debt with interest rates
ranging from 4.9% to 8.5% maturing
at various dates through February
2013.
    
    $
    286,311,059
    
    
    $
    259,039,281Credit facility with a variable rate
    
    
    45,151,000
    
    
    
    39,679,912$
    331,462,059
    
    
    $
    298,719,193
 11




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##### 



(a) Credit Facility
   (b) Mortgage Debt
   June 30,
    
    
    December 31,2005
    
    
    2004Van Buren Business Park, 6600 Business Parkway, 13129 Airpark Road and Plaza 500, 7.26%,
matures December 2007.
    
    $
    38,421,946
    
    
    $
    38,719,5874200 Tech Court, 8.07%, matures October 2009.
    
    
    1,807,979
    
    
    
    1,818,1784212 Tech Court, 8.53% matures June 2010.
    
    
    1,756,890
    
    
    
    1,765,342Crossways Commerce Center, 6.70%, matures October 2012.
    
    
    26,207,335
    
    
    
    26,338,201Newington Business Park Center, 6.70%, matures October 2012.
    
    
    16,531,529
    
    
    
    16,614,078Interstate Plaza, 7.45%, effective interest rate of 5.30%, matures January 2007.
    
    
    8,675,014
    
    
    
    8,795,754Herndon Corporate Center, 5.11%, effective interest rate of 5.66%, matures April 2008.
    
    
    8,817,124
    
    
    
    8,877,703Aquia Commerce Center, 6.50%, effective interest rate of 6.50%, matures February 2013.
    
    
    977,455
    
    
    
    1,022,811Suburban Maryland Portfolio, 6.71%, effective interest rate of 5.54%, matures September 2008.
    
    
    79,068,207
    
    
    
    80,129,447Norfolk Commerce Park II, 6.90%, effective interest rate of 5.28%, matures August 2008.
    
    
    7,818,907
    
    
    
    7,804,6344612 Navistar Drive, 7.48%, effective interest rate of 5.20%, matures July 2011.
    
    
    14,561,979
    
    
    
    14,753,542Campus at Metro Park North, 7.11%, effective interest rate of 5.25%, matures February 2012.
    
    
    26,583,554
    
    
    
    26,900,004Greenbrier Technology Center II and Norfolk Business Center, floating rate mortgage of LIBOR
+ 2.45%, matures November 2005.
    
    
    10,500,000
    
    
    
    10,500,000Rumsey Center and Snowden Center, floating rate mortgage of LIBOR + 2.35%, matures December
2006.
    
    
    15,000,000
    
    
    
    15,000,000Enterprise Center, 8.03%, effective interest rate of 5.20%, matures December 2010.
    
    
    20,306,613
    
    
    
    Glenn Dale Business Center, 7.83% effective interest rate of 5.13%, matures May 2009.
    
    
    9,276,527
    
    
    
    $
    286,311,059
    
    
    $
    259,039,281
 12




---



##### 



(5) Segment Information
  (6) Shareholders Equity
  (7) Supplemental Disclosure of Cash Flow Information
  2005
    
    
    2004Cash paid for interest on indebtedness
    
    $
    8,951,444
    
    
    $
    3,789,259Non-cash financing activitiesIssuance of common share to trustees
    
    $
    56,348
    
    
    $
    Debt assumed in connection with
acquisitions of real estate
    
    $
    29,848,182
    
    
    $
    9,979,067Conversion of operating partnership units
    
    $
    3,664,162
    
    
    $
    
 (8) Subsequent Events
  13




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##### 



Executive Summary
   Significant Second Quarter Transactions
 
    
    Acquired the following properties:
 
    
    1400 Cavalier Boulevard, a 300,000-square-foot industrial property in Chesapeake,
Virginia, for $13.2 million. The acquisition was funded with borrowings under the
Companys credit facility;
    
    Enterprise Center, a four-building, 189,116-square-foot flex property in Chantilly,
Virginia, for $29.5 million. The acquisition was financed, in part, by the assumption
of a $17.9 million first mortgage loan; the balance of the acquisition cost was funded
with borrowings under the Companys credit facility;
    
    Glenn Dale Business Center, a 315,191-square-foot industrial property in Glenn Dale,
Maryland, for $17.5 million. The acquisition was financed, in part by the assumption
of an $8.5 million first mortgage loan; the balance of the acquisition cost was funded
with borrowings under the Companys credit facility; and
 
    
    Entered into a first amendment to its unsecured revolving credit facility with Key Bank
N.A. and Wells Fargo National Bank.
 14




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##### 



Critical Accounting Policies and Estimates
   Revenue Recognition
   Investments in Real Estate and Real Estate Entities
   Buildings and improvements
    
    39 yearsTenant improvements
    
    Shorter of the useful lives or the terms of the related leasesFurniture, fixtures, and equipment
    
    5 to 15 years
  15




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##### 



Purchase Accounting
   16




---



##### 



Results of Operations
 Comparison of the Three and Six Months Ended June 30, 2005 to the Three and Six Months Ended
June 30, 2004
  2004 Acquisitions
  2005 Acquisitions
   Total Revenues
  Three Months
    
    
    Six MonthsThree Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    ChangeRental income
    
    $
    15,857,391
    
    
    $
    7,157,385
    
    
    $
    29,994,042
    
    
    $
    13,683,830
    
    
    $
    8,700,006
    
    
    
    122
    %
    
    $
    16,310,212
    
    
    
    119
    %Tenant reimbursements & other
    
    
    2,174,533
    
    
    
    1,052,407
    
    
    
    4,466,120
    
    
    
    2,039,421
    
    
    
    1,122,126
    
    
    
    107
    %
    
    
    2,426,699
    
    
    
    119
    %
 Rental Revenues
   17




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##### 



Tenant Reimbursement and Other Revenues
  Total Expenses
 Property Operating Expenses
  Three Months
    
    
    Six MonthsThree Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    ChangeProperty operating expenses
    
    $
    3,147,866
    
    
    $
    1,399,282
    
    
    $
    6,154,752
    
    
    $
    2,842,923
    
    
    $
    1,748,584
    
    
    
    125
    %
    
    $
    3,311,829
    
    
    
    116
    %Real estate taxes & insurance
    
    
    1,523,087
    
    
    
    789,788
    
    
    
    2,918,491
    
    
    
    1,462,826
    
    
    
    733,299
    
    
    
    93
    %
    
    
    1,455,665
    
    
    
    100
    %
 Property Operating Expenses.
 Real Estate Taxes and Insurance.
 Other Operating Expenses
  Three Months
    
    
    Six MonthsThree Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent2005
    
    2004
    
    
    2005
    
    
    2004
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    Change$1,766,836
    
    $
    1,280,546
    
    
    $
    3,637,574
    
    
    $
    2,103,734
    
    
    $
    486,290
    
    
    
    38
    %
    
    $
    1,533,840
    
    
    
    73
    %
   Three Months
    
    
    Six MonthsThree Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent2005
    
    2004
    
    
    2005
    
    
    2004
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    Change$5,828,019
    
    $
    2,609,715
    
    
    $
    10,904,714
    
    
    $
    5,149,837
    
    
    $
    3,218,304
    
    
    
    123
    %
    
    $
    5,754,877
    
    
    
    112
    %
 18




---



##### 



Interest Expense and Loss from Early Retirement of Debt
  Three Months
    
    
    Six MonthsThree Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent2005
    
    2004
    
    
    2005
    
    
    2004
    
    
    Increase
    
    
    Change
    
    
    Increase
    
    
    Change$4,673,600
    
    $
    2,236,903
    
    
    $
    9,188,994
    
    
    $
    4,304,509
    
    
    $
    2,436,697
    
    
    
    109
    %
    
    $
    4,884,485
    
    
    
    113
    %
   Minority Interests
  Three Months
    
    
    Six MonthsThree Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent2005
    
    2004
    
    
    2005
    
    
    2004
    
    
    Change
    
    
    Change
    
    
    Change
    
    
    Change$(76,810)
    
    $
    6,832
    
    
    $
    (128,165
    )
    
    $
    36,283
    
    
    $
    (83,642
    )
    
    
    1224
    %
    
    $
    (164,448
    )
    
    
    453
    %
  Liquidity and Capital Resources
  19




---



##### 



20




---



##### 



Cash Flows
  Six Months Ended June 30,2005
    
    
    2004
    
    
    ChangeCash and cash equivalents
    
    $
    1,701,928
    
    
    $
    75,549,781
    
    
    $
    (73,847,853
    )Cash provided by operating activities
    
    
    9,244,735
    
    
    
    7,044,341
    
    
    
    2,200,394Cash used in investing activities
    
    
    (49,018,473
    )
    
    
    (28,540,011
    )
    
    
    (20,478,462
    )Cash provided by financing activities
    
    
    38,943,397
    
    
    
    80,737,943
    
    
    
    (41,794,546
    )
    Dividends and Distributions
   Funds From Operations
  21




---



##### 



Funds From Operations
    
    
    Funds From OperationsThree Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    1,038,353
    
    
    $
    (57,868
    )
    
    $
    1,564,657
    
    
    $
    (228,474
    )Add: Real estate
depreciation and
amortization
    
    
    5,828,019
    
    
    
    2,609,715
    
    
    
    10,904,714
    
    
    
    5,149,837Add: Discontinued
operations depreciation
and amortization
    
    
    
    
    
    
    64,793
    
    
    
    
    
    
    
    129,582Add: Minority interests
    
    
    76,810
    
    
    
    (4,803
    )
    
    
    128,165
    
    
    
    (32,432
    )FFO available to common
shareholders and
unitholders
    
    $
    6,943,182
    
    
    $
    2,611,837
    
    
    $
    12,597,536
    
    
    $
    5,018,513
 Forward Looking Statements
  22




---



##### 



23




---



##### 



PART II: OTHER INFORMATION
 Item 6. Exhibits
 No.
    
    Description10.1
    
    Enterprise Purchase Agreement (incorporated by reference to Exhibit
10.1 to the Companys current report on Form 8-K/A filed on March 18,
2005).10.2
    
    Consent to Sub-Sublease and Sub-Sublease (incorporated by reference
to Exhibit 10.2 to the Companys current report on Form 8-K filed on
April 28, 2005).10.3
    
    First Amendent No. 1 to Revolving Credit Agreement
among First Potomac Realty Investment Limited Partnership, Key Bank N. A., Wells Fargo
National Bank, and Key Bank N.A. as managing administrative agent, dated June 28, 2005
(incorporated by reference to Exhibit 10.3 to the Companys current report on Form 8-K
filed on June 30, 2005).99.1
    
    Purchase Agreement dated March 25, 2005, by and between RREEF
America, LLC and the Company (incorporated by reference to Exhibit
99.1 to the Companys current report on Form 8-K filed on June 30,
2005).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.)
 24




---



##### 



FIRST POTOMAC REALTY TRUSTDate: August 9, 2005
    
    /s/ Douglas J. DonatelliDouglas J. DonatelliPresident and Chief Executive OfficerDate: August 9, 2005
    
    /s/ Barry H. BassBarry H. BassExecutive Vice President and Chief Financial Officer(Principal Financial Officer)
 25




---



##### 



No.
    
    Description10.1
    
    Enterprise Purchase Agreement (incorporated by reference to Exhibit
10.1 to the Companys current report on Form 8-K/A filed on March 18,
2005).10.2
    
    Consent to Sub-Sublease and Sub-Sublease (incorporated by reference
to Exhibit 10.2 to the Companys current report on Form 8-K filed on
April 28, 2005).10.3
    
    First Amendent No. 1 to Revolving Credit Agreement
among First Potomac Realty Investment Limited Partnership, Key Bank N. A., Wells Fargo
National Bank, and Key Bank N.A. as managing administrative agent, dated June 28, 2005
(incorporated by reference to Exhibit 10.3 to the Companys current report on Form 8-K
filed on June 30, 2005).99.1
    
    Purchase Agreement dated March 25, 2005, by and between RREEF
America, LLC and the Company (incorporated by reference to Exhibit
99.1 to the Companys current report on Form 8-K filed on June 30,
2005).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.)