##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission File Number 1-31824
 FIRST POTOMAC REALTY TRUST
  MARYLAND
(State or other jurisdiction of
    
    37-1470730
(I.R.S. Employerincorporation or organization)
    
    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, 2010 (unaudited) and December 31, 2009
    
    
    3Consolidated statements of operations (unaudited) for the three months ended March 31, 2010 and 2009
    
    
    4Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2010 and 2009
    
    
    5Notes to condensed consolidated financial statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    42Part II: Other InformationItem 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43Signatures
    
    
    45EX-31.1EX-31.2EX-32.1EX-32.2
  2




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FIRST POTOMAC REALTY TRUST
 
   March 31, 2010
    
    
    December 31, 2009(unaudited)Assets:Rental property, net
    
    $
    960,987
    
    
    $
    987,475Assets held for sale
    
    
    7,743
    
    
    
    Cash and cash equivalents
    
    
    11,240
    
    
    
    9,320Escrows and reserves
    
    
    9,174
    
    
    
    9,978Accounts and other receivables, net of
allowance for doubtful accounts of $2,522
and $2,346, respectively
    
    
    7,944
    
    
    
    7,049Accrued straight-line rents, net of
allowance for doubtful accounts of $1,119
and $1,185, respectively
    
    
    11,501
    
    
    
    10,915Investment in affiliates
    
    
    3,218
    
    
    
    1,819Deferred costs, net
    
    
    20,632
    
    
    
    21,208Prepaid expenses and other assets
    
    
    5,083
    
    
    
    6,625Intangible assets, net
    
    
    17,721
    
    
    
    20,103Total assets
    
    $
    1,055,243
    
    
    $
    1,074,492Liabilities:Mortgage loans
    
    $
    290,069
    
    
    $
    301,463Exchangeable senior notes, net
    
    
    48,950
    
    
    
    48,718Senior notes
    
    
    75,000
    
    
    
    75,000Secured term loans
    
    
    60,000
    
    
    
    60,000Unsecured revolving credit facility
    
    
    77,000
    
    
    
    159,900Financing obligation
    
    
    
    
    
    
    5,066Accounts payable and other liabilities
    
    
    15,459
    
    
    
    16,419Accrued interest
    
    
    3,915
    
    
    
    2,072Rents received in advance
    
    
    7,034
    
    
    
    7,267Tenant security deposits
    
    
    4,932
    
    
    
    5,235Deferred market rent, net
    
    
    5,518
    
    
    
    6,008Total liabilities
    
    
    587,877
    
    
    
    687,148Noncontrolling interests in the Operating
Partnership (redemption value of $11,009 and
$9,207, respectively)
    
    
    11,009
    
    
    
    9,585Shareholders equity:Common shares, $0.001 par value, 100,000 common
shares authorized: 37,069 and 30,589 shares
issued and outstanding, respectively
    
    
    37
    
    
    
    31Additional paid-in capital
    
    
    603,999
    
    
    
    517,940Accumulated other comprehensive loss
    
    
    (1,072
    )
    
    
    (1,879
    )Dividends in excess of accumulated earnings
    
    
    (146,607
    )
    
    
    (138,333
    )Total shareholders equity
    
    
    456,357
    
    
    
    377,759Total liabilities and shareholders equity
    
    $
    1,055,243
    
    
    $
    1,074,492
  3




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##### Table of Contents



FIRST POTOMAC REALTY TRUST
 
    Three Months Ended March 31,2010
    
    
    2009Revenues:Rental
    
    $
    27,425
    
    
    $
    26,742Tenant reimbursements and other
    
    
    7,860
    
    
    
    6,528Total revenues
    
    
    35,285
    
    
    
    33,270Operating expenses:Property operating
    
    
    10,185
    
    
    
    8,144Real estate taxes and insurance
    
    
    3,382
    
    
    
    3,268General and administrative
    
    
    3,728
    
    
    
    2,956Depreciation and amortization
    
    
    9,985
    
    
    
    9,963Contingent consideration related to acquisition of property
    
    
    710
    
    
    
    Total operating expenses
    
    
    27,990
    
    
    
    24,331Operating income
    
    
    7,295
    
    
    
    8,939Other expenses (income):Interest expense
    
    
    8,861
    
    
    
    8,327Interest and other income
    
    
    (115
    )
    
    
    (138
    )Equity in losses of affiliates
    
    
    38
    
    
    
    7Gains on early retirement of debt
    
    
    
    
    
    
    (4,339
    )Total other expenses, net
    
    
    8,784
    
    
    
    3,857(Loss) income from continuing operations
    
    
    (1,489
    )
    
    
    5,082Discontinued operations
    
    
    (719
    )
    
    
    56Net (loss) income
    
    
    (2,208
    )
    
    
    5,138Less: Net loss (income) attributable to noncontrolling interests in the
Operating Partnership
    
    
    49
    
    
    
    (141
    )Net (loss) income attributable to common shareholders
    
    $
    (2,159
    )
    
    $
    4,997Net (loss) income attributable to common shareholders per share  basic and
diluted:(Loss) income from continuing operations
    
    $
    (0.05
    )
    
    $
    0.18(Loss) income from discontinued operations
    
    
    (0.03
    )
    
    
    Net (loss) income
    
    $
    (0.08
    )
    
    $
    0.18Weighted average common shares outstanding  basic
    
    
    30,560
    
    
    
    26,999Weighted average common shares outstanding  diluted
    
    
    30,560
    
    
    
    27,029
  4




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FIRST POTOMAC REALTY TRUST
 
    Three Months Ended March 31,2010
    
    
    2009Cash flows from operating activities:Net (loss) income
    
    $
    (2,208
    )
    
    $
    5,138Adjustments to reconcile net (loss) income to net cash
provided by operating activities:Discontinued operations:Depreciation and amortization
    
    
    152
    
    
    
    83Impairment of real estate asset
    
    
    565
    
    
    
    Depreciation and amortization
    
    
    10,197
    
    
    
    10,183Stock based compensation
    
    
    1,053
    
    
    
    563Bad debt expense
    
    
    324
    
    
    
    423Amortization of deferred market rent
    
    
    (381
    )
    
    
    (473
    )Amortization of financing costs and fair value discounts
    
    
    178
    
    
    
    743Amortization of rent abatement
    
    
    627
    
    
    
    416Equity in losses of affiliates
    
    
    38
    
    
    
    7Distributions from investments in affiliates
    
    
    81
    
    
    
    Contingent consideration related to acquisition of property
    
    
    710
    
    
    
    Change in financing obligation
    
    
    
    
    
    
    (221
    )Gain on early retirement of debt
    
    
    
    
    
    
    (4,339
    )Changes in assets and liabilities:Escrows and reserves
    
    
    (1,035
    )
    
    
    (3,223
    )Accounts and other receivables
    
    
    (1,372
    )
    
    
    (1,323
    )Accrued straight-line rents
    
    
    (647
    )
    
    
    (486
    )Prepaid expenses and other assets
    
    
    1,266
    
    
    
    486Tenant security deposits
    
    
    (116
    )
    
    
    (122
    )Accounts payable and accrued expenses
    
    
    (734
    )
    
    
    1,614Accrued interest
    
    
    1,894
    
    
    
    1,757Rents received in advance
    
    
    (158
    )
    
    
    1,486Deferred costs
    
    
    (1,612
    )
    
    
    (1,858
    )Total adjustments
    
    
    11,030
    
    
    
    5,716Net cash provided by operating activities
    
    
    8,822
    
    
    
    10,854Cash flows from investing activities:Additions to rental property
    
    
    (2,534
    )
    
    
    (5,620
    )Additions to construction in progress
    
    
    (319
    )
    
    
    (379
    )Deconsolidation of joint venture
    
    
    (896
    )
    
    
    Net cash used in investing activities
    
    
    (3,749
    )
    
    
    (5,999
    )Cash flows from financing activities:Financing costs
    
    
    (33
    )
    
    
    (1
    )Issuance of stock, net
    
    
    87,068
    
    
    
    Issuance of debt
    
    
    
    
    
    
    10,000Repayments of debt
    
    
    (83,934
    )
    
    
    (13,341
    )Distributions to noncontrolling interests
    
    
    (146
    )
    
    
    (263
    )Dividends to shareholders
    
    
    (6,116
    )
    
    
    (9,300
    )Stock option exercises
    
    
    8
    
    
    
    Net cash used in financing activities
    
    
    (3,153
    )
    
    
    (12,905
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,920
    
    
    
    (8,050
    )Cash and cash equivalents, beginning of period
    
    
    9,320
    
    
    
    16,352Cash and cash equivalents, end of period
    
    $
    11,240
    
    
    $
    8,302
  5




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FIRST POTOMAC REALTY TRUST
  2010
    
    2009Cash paid for interest, net
    
    $
    6,954
    
    
    $
    6,898
  Investment in Affiliates.
 6




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




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




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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
   Discontinued Operations
   (h) Purchase Accounting
  9




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§
    
    the fair value of leases in-place on the date of acquisition based on the leasing
origination costs at the date of the acquisition, which approximates the fair value of the
lease origination costs had the in-place leases been originated on the date of acquisition;
the fair value of in-place leases represents absorption costs for the estimated lease-up
period in which vacancy and foregone revenue are incurred;
 §
    
    the fair value of above and below-market in-place leases based on the present value
(using a discount rate that reflects the risks associated with the acquired leases) of the
difference between the contractual rent amounts to be paid under the lease and the
estimated market lease rates for the corresponding spaces over the remaining non-cancelable
terms of the related leases, which range from one to fourteen years; and
 §
    
    the intangible fair value of tenant or customer relationships.
  (i) Investment in Affiliates
 .
 Application of New Accounting
Standards
  ( j) Sales of Real Estate
   10




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##### Table of Contents



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




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##### Table of Contents



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




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Three Months Ended March 31,2010
    
    
    2009Numerator for basic and diluted (loss) earnings per share
calculations:(Loss) income from continuing operations
    
    $
    (1,489
    )
    
    $
    5,082(Loss) income from discontinued operations
    
    
    (719
    )
    
    
    56Net (loss) income
    
    
    (2,208
    )
    
    
    5,138Less: Net loss (income) attributable to
noncontrolling interests in the Operating
Partnership
    
    
    49
    
    
    
    (141
    )Net (loss) income attributable to common shareholders
    
    
    (2,159
    )
    
    
    4,997Less: Allocation to participating securities
    
    
    (147
    )
    
    
    (120
    )(Loss) income attributable to common shareholders
    
    $
    (2,306
    )
    
    $
    4,877Denominator for basic and diluted (loss) earnings per
share calculations:Weighted average shares outstanding  basic
    
    
    30,560
    
    
    
    26,999Effect of dilutive shares:Employee stock options and non-vested shares
    
    
    
    
    
    
    30Weighted average shares outstanding  diluted
    
    
    30,560
    
    
    
    27,029Amounts attributable to common shareholders per share -
basic and diluted:(Loss) income from continuing operations
    
    $
    (0.05
    )
    
    $
    0.18(Loss) income from discontinued operations
    
    
    (0.03
    )
    
    
    Net (loss) income
    
    $
    (0.08
    )
    
    $
    0.18Amounts attributable to common shareholders:(Loss) income from continuing operations
    
    $
    (1,456
    )
    
    $
    4,943(Loss) income from discontinued operations
    
    
    (703
    )
    
    
    54Net (loss) income
    
    $
    (2,159
    )
    
    $
    4,997
  Three Months Ended March 31,2010
    
    
    2009Stock option awards
    
    
    850
    
    
    
    783Non-vested share awards
    
    
    351
    
    
    
    174Conversion of Exchangeable Senior Notes
    
    
    1,416
    
    
    
    1,9072,617
    
    
    
    2,864
 13




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(p) Share-Based Compensation
 Stock Options Summary
   WeightedAverageWeighted
    
    Remaining
    
    AggregateAverage
    
    Contractual
    
    IntrinsicShares
    
    Exercise Price
    
    Term
    
    ValueOutstanding, December 31, 2009
    
    
    751,404
    
    
    $
    17.27
    
    
    5.4 years
    
    $
    307,380Granted
    
    
    106,750
    
    
    
    12.57Exercised
    
    
    (812
    )
    
    
    9.30Forfeited
    
    
    (5,185
    )
    
    
    22.68Outstanding, March 31, 2010
    
    
    852,157
    
    
    $
    16.65
    
    
    5.7 years
    
    $
    807,979Exercisable, March 31, 2010
    
    
    621,703
    
    
    $
    17.86
    
    
    4.5 years
    
    $
    140,853Options expected to vest,
March 31, 2010
    
    
    199,159
    
    
    $
    13.53
    
    
    8.9 years
    
    $
    570,015
   2010Risk-free interest rate
    
    
    2.69
    %Expected volatility
    
    
    46.6
    %Expected dividend yield
    
    
    5.15
    %Weighted average expected term of options
    
    5 years
  Option Exercises
  Non-vested share awards
  14




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##### Table of Contents



WeightedNon-vested
    
    Average GrantShares
    
    Date Fair ValueNon-vested at December 31, 2009
    
    
    766,314
    
    
    $
    11.55Granted
    
    
    197,468
    
    
    
    12.90Vested
    
    
    (107,960
    )
    
    
    13.88Expired
    
    
    (9,279
    )
    
    
    16.09Non-vested at March 31, 2010
    
    
    846,543
    
    
    $
    11.49
   Risk-free interest rate
    
    
    3.6
    %Volatility
    
    
    42.4
    %Dividend yield
    
    
    7.5
    %
 (q) Reclassifications
  (r) Application of New Accounting Standards
 Investment in Affiliates
  15




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##### Table of Contents



Fair Value Measurements
 (3) Rental Property
  March 31, 2010
    
    
    December 31, 2009Land
    
    $
    231,776
    
    
    $
    237,385Buildings and improvements
    
    
    784,164
    
    
    
    795,901Construction in process
    
    
    8,703
    
    
    
    9,832Tenant improvements
    
    
    73,808
    
    
    
    75,940Furniture, fixtures and equipment
    
    
    9,894
    
    
    
    9,8981,108,345
    
    
    
    1,128,956Less: accumulated depreciation
    
    
    (147,358
    )
    
    
    (141,481
    )$
    960,987
    
    
    $
    987,475
 Rental Property
 Investment in Affiliates.
 Development and Redevelopment Activity
   (4) Investment in Affiliates
  16




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March 31, 2010
    
    
    December 31, 2009Assets:Rental property, net
    
    $
    38,994
    
    
    $
    25,037Cash and cash equivalents
    
    
    2,252
    
    
    
    357Other assets
    
    
    3,389
    
    
    
    1,879Total assets
    
    $
    44,635
    
    
    $
    27,273Liabilities:Mortgage loans
    
    $
    28,000
    
    
    $
    18,144Other liabilities
    
    
    3,128
    
    
    
    1,443Total liabilities
    
    
    31,128
    
    
    
    19,587Equity:
    
    
    13,507
    
    
    
    7,686Total liabilities and equity
    
    $
    44,635
    
    
    $
    27,273
  The period fromMarch 17, 2009Three Months Ended
    
    
    through March 31,March 31, 2010
    
    
    2009Total revenues
    
    $
    1,118
    
    
    $
    108Total operating expenses
    
    
    (352
    )
    
    
    (29
    )Net operating income
    
    
    766
    
    
    
    79Depreciation and amortization
    
    
    (453
    )
    
    
    (58
    )Interest expense
    
    
    (466
    )
    
    
    (49
    )Net loss
    
    $
    (153
    )
    
    $
    (28
    )
 (5) Discontinued Operations
  17




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Rental Property
  Three Months EndedMarch 31,2010
    
    2009Revenues
    
    $
    86
    
    
    $
    356Net (loss) income
    
    
    (719
    )
    
    
    56
 (6) Debt
  March 31,
    
    
    December 31,2010
    
    
    2009Mortgage loans, effective interest rates ranging from 5.19% to 8.53%, maturing at various dates
through June 2021
    
    $
    290,069
    
    
    $
    301,463Exchangeable senior notes, net of discounts, effective interest rate of 5.84%, maturing December
2011(1)
    
    
    48,950
    
    
    
    48,718Series A senior notes, effective interest rate of 6.41%, maturing June 2013
    
    
    37,500
    
    
    
    37,500Series B senior notes, effective interest rate of 6.55%, maturing June 2016
    
    
    37,500
    
    
    
    37,500Secured term loan, effective interest rate of LIBOR plus 2.50%, maturing January 2014(2)(3)
    
    
    40,000
    
    
    
    40,000Secured term loan, effective interest rate of LIBOR plus 2.50%, maturing August 2011(3)(4)
    
    
    20,000
    
    
    
    20,000Unsecured revolving credit facility, effective interest rate of LIBOR plus 3.25%, maturing January
2014(3)(5)
    
    
    77,000
    
    
    
    159,900$
    551,019
    
    
    $
    645,081
 
 (1)
    
    The principal balance of the Exchangeable Senior Notes was $50.5
million at March 31, 2010 and December 31, 2009.(2)
    
    The loan is divided into four $10 million loans, with their maturities
staggered in one-year intervals beginning January 15, 2011 and ending on January 15, 2014.
Interest on the loan is LIBOR plus 250 basis points, which increases by 100 basis points each
year beginning on January 1, 2011, to a maximum of 550 basis points.(3)
    
    The Company has entered into two separate swap agreements that fix
LIBOR at 2.71% on $50.0 million of its outstanding variable rate debt and fix LIBOR at 3.33%
on $35.0 million of its outstanding variable rate debt.(4)
    
    The loan, which matures in August 2010, has a one-year extension at the
Companys option, which it intends to exercise.(5)
    
    The unsecured revolving credit facility matures in 2013 with a one-year
extension at the Companys option, which it intends to exercise. The variable rate on the
facility is LIBOR plus 275 to 375 basis points, depending on the Companys overall leverage,
and includes a LIBOR floor of 1.0% (LIBOR was 0.25% at March 31, 2010) for any amounts that
are not hedged. 18




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(a) Mortgage Loans
  EffectiveContractual

    
    Interest

    
    Maturity

    
    March 31,

    
    December 31,Encumbered Property
    
    Interest Rate

    
    Rate

    
    Date

    
    2010

    
    20094212 Tech Court
    
    
    8.53
    %
    
    
    8.53
    %
    
    June 2010
    
    $
    1,658
    
    
    $
    1,665Park Central II
    
    
    8.32
    %
    
    
    5.66
    %
    
    November 2010
    
    
    5,510
    
    
    
    5,591Enterprise Center (1)
    
    
    8.03
    %
    
    
    5.20
    %
    
    December 2010
    
    
    17,207
    
    
    
    17,393Indian Creek Court (1)
    
    
    7.80
    %
    
    
    5.90
    %
    
    January 2011
    
    
    12,305
    
    
    
    12,413403/405 Glenn Drive
    
    
    7.60
    %
    
    
    5.50
    %
    
    July 2011
    
    
    8,179
    
    
    
    8,2524612 Navistar Drive (1)
    
    
    7.48
    %
    
    
    5.20
    %
    
    July 2011
    
    
    12,554
    
    
    
    12,672RiversPark I (2)
    
    LIBOR+2.50%
    
    
    5.97
    %
    
    September 2011
    
    
    
    
    
    
    9,856Campus at Metro Park (1)
    
    
    7.11
    %
    
    
    5.25
    %
    
    February 2012
    
    
    23,175
    
    
    
    23,3761434 Crossways Blvd Building II
    
    
    7.05
    %
    
    
    5.38
    %
    
    August 2012
    
    
    9,759
    
    
    
    9,852Crossways Commerce Center
    
    
    6.70
    %
    
    
    6.70
    %
    
    October 2012
    
    
    24,497
    
    
    
    24,607Newington Business Park Center
    
    
    6.70
    %
    
    
    6.70
    %
    
    October 2012
    
    
    15,453
    
    
    
    15,522Prosperity Business Center
    
    
    6.25
    %
    
    
    5.75
    %
    
    January 2013
    
    
    3,605
    
    
    
    3,627Aquia Commerce Center I
    
    
    7.28
    %
    
    
    7.28
    %
    
    February 2013
    
    
    453
    
    
    
    4861434 Crossways Blvd Building I
    
    
    6.25
    %
    
    
    5.38
    %
    
    March 2013
    
    
    8,425
    
    
    
    8,493Linden Business Center
    
    
    6.01
    %
    
    
    5.58
    %
    
    October 2013
    
    
    7,195
    
    
    
    7,224Owings Mills Business Center
    
    
    5.85
    %
    
    
    5.75
    %
    
    March 2014
    
    
    5,526
    
    
    
    5,552Annapolis Commerce Park East
    
    
    5.74
    %
    
    
    6.25
    %
    
    June 2014
    
    
    8,581
    
    
    
    8,613Cloverleaf Center
    
    
    6.75
    %
    
    
    6.75
    %
    
    October 2014
    
    
    17,409
    
    
    
    17,490Plaza 500, Van Buren Business Park, Rumsey Center, Snowden Center, Greenbrier
Technology Center II, Norfolk Business Center, Northridge I & II and 15395 John Marshall Highway
    
    
    5.19
    %
    
    
    5.19
    %
    
    August 2015
    
    
    99,625
    
    
    
    99,625Hanover Business Center:Building D
    
    
    8.88
    %
    
    
    6.63
    %
    
    August 2015
    
    
    728
    
    
    
    756Building C
    
    
    7.88
    %
    
    
    6.63
    %
    
    December 2017
    
    
    1,127
    
    
    
    1,154Chesterfield Business Center:Buildings C,D,G and H
    
    
    8.50
    %
    
    
    6.63
    %
    
    August 2015
    
    
    1,901
    
    
    
    1,972Buildings A,B,E and F
    
    
    7.45
    %
    
    
    6.63
    %
    
    June 2021
    
    
    2,514
    
    
    
    2,540Gateway Centre Building I
    
    
    7.35
    %
    
    
    5.88
    %
    
    November 2016
    
    
    1,312
    
    
    
    1,340Airpark Business Center
    
    
    7.45
    %
    
    
    6.63
    %
    
    June 2021
    
    
    1,371
    
    
    
    1,392Total Mortgage Debt
    
    
    
    
    
    
    5.68
    %(3)
    
    
    
    
    
    $
    290,069
    
    
    $
    301,463
 
 (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 calculates interest expense
using the effective interest method over the anticipated period during which it expects the
debt to be outstanding.(2)
    
    On January 1, 2010, the Company deconsolidated RiversPark I and,
therefore, the assets and liabilities, which include $9.9 million of mortgage debt, and the
operating results of RiversPark I, are no longer included in the Companys condensed
consolidated financial statements. For more information see footnote 4, Investment in
Affiliates.(3)
    
    Weighted average interest rate on total mortgage debt. (b) Unsecured Revolving Credit Facility
  19




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##### Table of Contents



(c) Interest Rate Swap Agreements
  Non-Financial Covenants in Mortgage Loan Documents
  (7) Derivative Instruments and Comprehensive Income (Loss)
  
    
    available interest rate hedging may not correspond directly with the interest rate risk
for which the Company seeks protection;
 
    
    the duration of the hedge may not match the duration of the related liability;
 
    
    the party owing money in the hedging transaction may default on its obligation to pay;
and
 
    
    the credit quality of the party owing money on the hedge may be downgraded to such an
extent that it impairs the Companys ability to sell or assign its side of the hedging
transaction.
 20




---



##### Table of Contents



Interest RateContractual
    
    Fixed EffectiveTransaction Date
    
    Maturity Date
    
    Amount
    
    
    Component
    
    Interest RateJanuary 2008
    
    August 2010
    
    $
    50,000
    
    
    LIBOR
    
    
    2.71
    %August 2008
    
    August 2010
    
    
    35,000
    
    
    LIBOR
    
    
    3.33
    %$
    85,000
    Three Months Ended March 31,2010
    
    
    2009Net (loss) income
    
    $
    (2,208
    )
    
    $
    5,138Unrealized gain on derivative instruments
    
    
    528
    
    
    
    619Total comprehensive (loss) income
    
    
    (1,680
    )
    
    
    5,757Comprehensive loss (income) attributable
to noncontrolling interests in the Operating
Partnership
    
    
    39
    
    
    
    (158
    )Comprehensive (loss) income attributable to
common shareholders
    
    $
    (1,641
    )
    
    $
    5,599
 (8) Fair Value Measurements
      21




---



##### Table of Contents



Balance atMarch 31, 2010
    
    Level 1
    
    Level 2
    
    Level 3Non-recurring Measurements:Impaired real estate asset
    
    $
    7,604
    
    
    $
    
    
    
    $
    7,604
    
    
    $
    Recurring Measurements:Derivative instrument-swap agreements
    
    
    821
    
    
    
    
    
    
    
    821
    
    
    
    Acquisition related contingent consideration
    
    
    1,398
    
    
    
    
    
    
    
    
    
    
    
    1,398
 Impairment of Real Estate Assets
  Interest Rate Derivatives
  Contingent Consideration
   Balance at December 31, 2009
    
    $
    688Contingent consideration charge recognized in earnings
    
    
    710Balance at March 31, 2010
    
    $
    1,398
  22




---



##### Table of Contents



March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueMortgage debt
    
    $
    290,069
    
    
    $
    279,574
    
    
    $
    301,463
    
    
    $
    289,679Exchangeable senior notes
    
    
    48,950
    
    
    
    49,539
    
    
    
    48,718
    
    
    
    48,164Series A senior notes
    
    
    37,500
    
    
    
    37,646
    
    
    
    37,500
    
    
    
    37,118Series B senior notes
    
    
    37,500
    
    
    
    36,785
    
    
    
    37,500
    
    
    
    36,146Secured term loans
    
    
    60,000
    
    
    
    54,935
    
    
    
    60,000
    
    
    
    54,390Unsecured revolving credit facility
    
    
    77,000
    
    
    
    76,113
    
    
    
    159,900
    
    
    
    143,953Total
    
    $
    551,019
    
    
    $
    534,592
    
    
    $
    645,081
    
    
    $
    609,450
 (9) Shareholders Equity
    RedeemableFirst Potomac
    
    
    noncontrollingRealty Trust
    
    
    interestsBalance, December 31, 2009
    
    $
    377,759
    
    
    $
    9,585Net loss
    
    
    (2,159
    )
    
    
    (49
    )Changes in ownership
    
    
    86,355
    
    
    
    1,609Distributions to owners
    
    
    (6,116
    )
    
    
    (146
    )Other comprehensive income
    
    
    518
    
    
    
    10Balance, March 31, 2010
    
    $
    456,357
    
    
    $
    11,009
 (10) Segment Information
   23




---



##### Table of Contents



Three Months Ended March 31, 2010Maryland
    
    
    Northern Virginia
    
    
    Southern Virginia
    
    
    ConsolidatedNumber of buildings
    
    
    73
    
    
    
    51
    
    
    
    54
    
    
    
    178Square feet (unaudited)
    
    
    3,621,438
    
    
    
    3,016,532
    
    
    
    5,264,052
    
    
    
    11,902,022Total revenues
    
    $
    11,751
    
    
    $
    11,089
    
    
    $
    12,445
    
    
    $
    35,285Property operating expense
    
    
    (3,671
    )
    
    
    (3,232
    )
    
    
    (3,282
    )
    
    
    (10,185
    )Real estate taxes and insurance
    
    
    (1,151
    )
    
    
    (1,172
    )
    
    
    (1,059
    )
    
    
    (3,382
    )Total property operating income
    
    $
    6,929
    
    
    $
    6,685
    
    
    $
    8,104
    
    
    
    21,718Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,985
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,728
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,494
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (719
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,208
    )Total assets(1)
    
    $
    390,385
    
    
    $
    311,962
    
    
    $
    321,369
    
    
    $
    1,055,243Capital expenditures(2)
    
    $
    325
    
    
    $
    927
    
    
    $
    1,548
    
    
    $
    2,853Three Months Ended March 31, 2009Maryland(3)
    
    
    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
    
    $
    11,402
    
    
    $
    9,895
    
    
    $
    11,973
    
    
    $
    33,270Property operating expense
    
    
    (2,992
    )
    
    
    (2,418
    )
    
    
    (2,734
    )
    
    
    (8,144
    )Real estate taxes and insurance
    
    
    (1,062
    )
    
    
    (1,122
    )
    
    
    (1,084
    )
    
    
    (3,268
    )Total property operating income
    
    $
    7,348
    
    
    $
    6,355
    
    
    $
    8,155
    
    
    
    21,858Depreciation and amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,963
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,956
    )Other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,857
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,138Total assets(1)
    
    $
    391,127
    
    
    $
    289,712
    
    
    $
    316,281
    
    
    $
    1,046,586Capital expenditures(2)
    
    $
    1,850
    
    
    $
    1,606
    
    
    $
    2,507
    
    
    $
    5,999
 
 (1)
    
    Corporate assets not allocated to any of our reportable segments totaled $31,527
and $49,466 at March 31, 2010 and 2009, respectively.(2)
    
    Capital expenditures for corporate assets not allocated to any of our reportable
segments totaled $53 and $36 at March 31, 2010 and 2009, respectively.(3)
    
    Includes the results of a three-building, 160,470 square foot property
that is owned by the Company through a consolidated joint venture. (11) Subsequent Event
  24




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##### Table of Contents



The following discussion and analysis of the Companys financial condition and results of
operations should be read in conjunction with the 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
  Significant First Quarter and Subsequent Event Transactions
 
    
    Issued 6.3 million common shares, generating net proceeds totaling $87.1 million, after issuance costs;
    
    Fully leased Ashburn Center, which was 45% leased when acquired on December 31, 2009;
    
    Executed 764,000 square feet of leases, which include 435,000 square feet of new
leases;
    
    On April 23, 2010, the Company sold a Baltimore area property for net proceeds
totaling $7.5 million; and
 25




---



##### Table of Contents




    
    On April 28, 2010, the Company acquired an eight-story 174,000 square foot office
building in Fairfax County, Virginia for $13.6 million.
 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 upon
completion of land use documents. 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 commence. 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; and
    
    Gateway 270  a 42,000 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.
  Critical Accounting Policies and Estimates
   26




---



##### Table of Contents



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
    27




---



##### Table of Contents



Purchase Accounting
  §
    
    the fair value of leases in-place on the date of acquisition based on the leasing
origination costs at the date of the acquisition, which approximates the fair value of the
lease origination costs had the in-place leases been originated on the date of acquisition;
the fair value of in-place leases represents absorption costs for the estimated lease-up
period in which vacancy and foregone revenue are incurred;§
    
    the fair value of above and below-market in-place leases based on the present value
(using a discount rate that reflects the risks associated with the acquired leases) of the
difference between the contractual rent amounts to be paid under the lease and the
estimated market lease rates for the corresponding spaces over the remaining non-cancelable
terms of the related leases, which range from one to fourteen years; and§
    
    the intangible fair value of tenant or customer relationships.
  Derivative Instruments
   Share-Based Compensation
  28




---



##### Table of Contents



Results of Operations
 Comparison of the Three Months Ended March 31, 2010 with the Three Months Ended March 31, 2009
 Non-comparable Properties
   Total Revenues
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Increase
    
    ChangeRental
    
    $
    27,425
    
    
    $
    26,742
    
    
    $
    683
    
    
    
    3
    %Tenant reimbursements and other
    
    $
    7,860
    
    
    $
    6,528
    
    
    $
    1,332
    
    
    
    20
    %
 Rental Revenue
   Tenant Reimbursements and Other Revenues
   29




---



##### Table of Contents



Total Expenses
 Property Operating Expenses
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Increase
    
    ChangeProperty operating
    
    $
    10,185
    
    
    $
    8,144
    
    
    $
    2,041
    
    
    
    25
    %Real estate taxes and insurance
    
    $
    3,382
    
    
    $
    3,268
    
    
    $
    114
    
    
    
    3
    %
   Other Operating Expenses
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Increase
    
    Change$
    3,728
    
    
    $
    2,956
    
    
    $
    772
    
    
    
    26
    %
   Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Increase
    
    Change$
    9,985
    
    
    $
    9,963
    
    
    $
    22
    
    
    
    
  30




---



##### Table of Contents



Three Months Ended  March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Increase
    
    Change$
    710
    
    
    $
    
    
    
    $
    710
    
    
    
    
  Other Expenses (Income)
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Increase
    
    Change$
    8,861
    
    
    $
    8,327
    
    
    $
    534
    
    
    
    6
    %
     31




---



##### Table of Contents



Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Decrease
    
    Change$
    115
    
    
    $
    138
    
    
    $
    23
    
    
    
    17
    %
   Three Months Ended  March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Increase
    
    Change$
    38
    
    
    $
    7
    
    
    $
    31
    
    
    
    443
    %
   Three Months Ended  March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Decrease
    
    Change$
    
    
    
    $
    4,339
    
    
    $
    4,339
    
    
    
    100
    %
  Discontinued Operations
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Decrease
    
    Change$
    (719
    )
    
    $
    56
    
    
    $
    775
    
    
    
    1384
    %
 32




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##### Table of Contents



Net loss (income) attributable to noncontrolling interests in the Operating Partnership
  Three Months Ended March 31,
    
    
    
    
    
    Percent(amounts in thousands)
    
    2010
    
    2009
    
    Increase
    
    Change$
    49
    
    
    $
    (141
    )
    
    $
    190
    
    
    
    135
    %
  Same Property Net Operating Income
  33




---



##### Table of Contents



Comparison of the Three Months Ended March 31, 2010 with the Three Months Ended March 31, 2009
  Three Months Ended March 31,(dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    167
    
    
    
    167
    
    
    
    
    
    
    
    Same property revenuesRental
    
    $
    26,179
    
    
    $
    25,962
    
    
    $
    217
    
    
    
    0.8Tenant reimbursements and other
    
    
    7,089
    
    
    
    6,077
    
    
    
    1,012
    
    
    
    16.7Total same property revenues
    
    
    33,268
    
    
    
    32,039
    
    
    
    1,229
    
    
    
    3.8Same property operating expensesProperty
    
    
    9,470
    
    
    
    7,550
    
    
    
    1,920
    
    
    
    25.4Real estate taxes and insurance
    
    
    3,207
    
    
    
    3,200
    
    
    
    7
    
    
    
    0.2Total same property operating expenses
    
    
    12,677
    
    
    
    10,750
    
    
    
    1,927
    
    
    
    17.9Same property net operating income
    
    $
    20,591
    
    
    $
    21,289
    
    
    $
    (698
    )
    
    
    (3.3
    )Reconciliation to net (loss) income:Same property net operating income
    
    $
    20,591
    
    
    $
    21,289Non-comparable net operating income(2)
    
    
    1,127
    
    
    
    569General and administrative expenses
    
    
    (3,728
    )
    
    
    (2,956
    )Depreciation and amortization
    
    
    (9,985
    )
    
    
    (9,963
    )Other expenses, net
    
    
    (9,494
    )
    
    
    (3,857
    )Discontinued operations(3)
    
    
    (719
    )
    
    
    56Net (loss) income
    
    $
    (2,208
    )
    
    $
    5,138
 Weighted Average Occupancyat March 31,2010
    
    2009Same Properties
    
    
    85.3
    %
    
    
    86.7
    %Total
    
    
    84.8
    %
    
    
    86.4
    %
 
 (1)
    
    Same property comparisons are based upon those properties
owned for the entirety of the periods presented. Same property results exclude
the results of the following non same-properties: Deer Park, RiversPark I and
II, Cloverleaf Center and Ashburn Center.(2)
    
    Non-comparable net operating income has been adjusted
to reflect a normalized management fee percentage in lieu of an administrative
overhead allocation for comparative purposes.(3)
    
    Discontinued operations consists of the operating
results of the Companys Deer Park property, which was classified as
held-for-sale at March 31, 2010 and subsequently sold in the second quarter of 2010.  34




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##### Table of Contents



Maryland
 Three Months Ended March 31,(dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    65
    
    
    
    65
    
    
    
    
    
    
    
    Same property revenuesRental
    
    $
    8,295
    
    
    $
    8,465
    
    
    $
    (170
    )
    
    
    (2.0
    )Tenant reimbursements and other
    
    
    2,230
    
    
    
    1,905
    
    
    
    325
    
    
    
    17.1Total same property revenues
    
    
    10,525
    
    
    
    10,370
    
    
    
    155
    
    
    
    1.5Same property operating expensesProperty
    
    
    3,263
    
    
    
    2,595
    
    
    
    668
    
    
    
    25.7Real estate taxes and insurance
    
    
    1,059
    
    
    
    995
    
    
    
    64
    
    
    
    6.4Total same property operating expenses
    
    
    4,322
    
    
    
    3,590
    
    
    
    732
    
    
    
    20.4Same property net operating income
    
    $
    6,203
    
    
    $
    6,780
    
    
    $
    (577
    )
    
    
    (8.5
    )Reconciliation to total property operating income:Same property net operating income
    
    $
    6,203
    
    
    $
    6,780Non-comparable net operating income(2)
    
    
    726
    
    
    
    568Total property operating income
    
    $
    6,929
    
    
    $
    7,348
 Weighted Average Occupancyat March 31,2010
    
    2009Same Properties
    
    
    82.3
    %
    
    
    86.7
    %Total
    
    
    82.3
    %
    
    
    85.7
    %
 
 (1)
    
    Same property comparisons are based upon those properties
owned for the entirety of the periods presented. Same property results exclude
the results of the following non same-properties: RiversPark I and II,
Cloverleaf Center and Deer Park.(2)
    
    Non-comparable net operating income has been adjusted
to reflect a normalized management fee percentage in lieu of an administrative
overhead allocation for comparative purposes.  35




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##### Table of Contents



Northern Virginia
 Three Months Ended March 31,(dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    48
    
    
    
    48
    
    
    
    
    
    
    
    Same property revenuesRental
    
    $
    8,163
    
    
    $
    7,916
    
    
    $
    247
    
    
    
    3.1Tenant reimbursements and other
    
    
    2,453
    
    
    
    1,979
    
    
    
    474
    
    
    
    24.0Total same property revenues
    
    
    10,616
    
    
    
    9,895
    
    
    
    721
    
    
    
    7.3Same property operating expensesProperty
    
    
    3,055
    
    
    
    2,347
    
    
    
    708
    
    
    
    30.2Real estate taxes and insurance
    
    
    1,092
    
    
    
    1,122
    
    
    
    (30
    )
    
    
    (2.7
    )Total same property operating expenses
    
    
    4,147
    
    
    
    3,469
    
    
    
    678
    
    
    
    19.5Same property net operating income
    
    $
    6,469
    
    
    $
    6,426
    
    
    $
    43
    
    
    
    0.7Reconciliation to total property operating incomeSame property net operating income
    
    $
    6,469
    
    
    $
    6,426Non-comparable net operating income (loss)(2)
    
    
    216
    
    
    
    (71
    )Total property operating income
    
    $
    6,685
    
    
    $
    6,355
 Weighted Average Occupancyat March 31,2010
    
    2009Same Properties
    
    
    86.4
    %
    
    
    89.4
    %Total
    
    
    84.5
    %
    
    
    89.4
    %
 
 (1)
    
    Same property comparisons are based upon those properties
owned for the entirety of the periods presented. Same property results exclude
the results of Ashburn Center.(2)
    
    Non-comparable net operating income (loss) has been
adjusted to reflect a normalized management fee percentage in lieu of an
administrative overhead allocation for comparative purposes.  36




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##### Table of Contents



Southern Virginia
 Three Months Ended March 31,(dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNumber of buildings (1)
    
    
    54
    
    
    
    54
    
    
    
    
    
    
    
    Same property revenuesRental
    
    $
    9,721
    
    
    $
    9,581
    
    
    $
    140
    
    
    
    1.5Tenant reimbursements and other
    
    
    2,406
    
    
    
    2,193
    
    
    
    213
    
    
    
    9.7Total same property revenues
    
    
    12,127
    
    
    
    11,774
    
    
    
    353
    
    
    
    3.0Same property operating expensesProperty
    
    
    3,152
    
    
    
    2,608
    
    
    
    544
    
    
    
    20.9Real estate taxes and insurance
    
    
    1,056
    
    
    
    1,083
    
    
    
    (27
    )
    
    
    (2.5
    )Total same property operating expenses
    
    
    4,208
    
    
    
    3,691
    
    
    
    517
    
    
    
    14.0Same property net operating income
    
    $
    7,919
    
    
    $
    8,083
    
    
    $
    (164
    )
    
    
    (2.0
    )Reconciliation to total property operating incomeSame property net operating income
    
    $
    7,919
    
    
    $
    8,083Non-comparable net operating income(2)
    
    
    185
    
    
    
    72Total property operating income
    
    $
    8,104
    
    
    $
    8,155
 Weighted Average Occupancyat March 31,2010
    
    2009Same Properties
    
    
    86.7
    %
    
    
    85.4
    %Total
    
    
    86.7
    %
    
    
    85.4
    %
 
 (1)
    
    Same property comparisons are based upon those properties owned for the entirety of the periods presented.(2)
    
    Non-comparable property net operating income has been adjusted to reflect a normalized management
fee percentage in lieu of an administrative overhead allocation for comparative purposes.  Liquidity and Capital Resources
 Overview
  37




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##### Table of Contents



Financial
Covenants
  Unsecured Revolving Credit Facility and Secured Term Loans
 UnsecuredRevolving CreditFacility and 2007
    
    
    
    
    
    2008 SecuredSecured Term Loan
    
    Covenant
    
    Term Loan
    
    CovenantUnencumbered Pool Leverage(1)
    
    
    43.9
    %
    
    
    ≤ 65
    %
    
    
    
    
    
    
    Unencumbered Pool Debt Service Coverage Ratio(1)
    
    
    2.82
    x
    
    
    ≥1.75
    x
    
    
    
    
    
    
    Maximum Consolidated Total Indebtedness
    
    
    52.8
    %
    
    
    ≤ 65
    %
    
    
    49.9
    %
    
    
    ≤ 60
    %Minimum Tangible Net Worth
    
    $
    517,828
    
    
    
    ≥ $449,172
    
    
    $
    580,939
    
    
    
    ≥ $449,172Fixed Charge Coverage Ratio
    
    
    1.92
    x
    
    
    ≥ 1.50
    x
    
    
    1.92
    x
    
    
    ≥ 1.50
    xMaximum Dividend Payout Ratio(1)
    
    
    63.3
    %
    
    
    ≤ 95
    %
    
    
    63.3
    %
    
    
    ≤ 95
    %
 
 (1)
 Senior Notes
 Senior Notes
    
    CovenantUnencumbered Pool Leverage
    
    
    42.6
    %
    
    
    ≤ 65
    %Maximum Consolidated Total Indebtedness
    
    
    51.4
    %
    
    
    ≤ 65
    %Minimum Tangible Net Worth
    
    $
    548,427
    
    
    
    ≥ $449,172Fixed Charge Coverage Ratio
    
    
    1.92
    x
    
    
    ≥ 1.50
    xMaximum Dividend Payout Ratio
    
    
    63.3
    %
    
    
    ≤ 95
    %Maximum Secured Debt
    
    
    31.7
    %
    
    
    ≤ 40
    %
 38




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##### Table of Contents



Non-Financial Covenants in Mortgage Loan Documents
  Cash Flows
  Three Months EndedMarch 31,(amounts in thousands)
    
    2010
    
    2009
    
    ChangeCash provided by operating activities
    
    $
    8,822
    
    
    $
    10,854
    
    
    $
    (2,032
    )Cash used in investing activities
    
    
    (3,749
    )
    
    
    (5,999
    )
    
    
    2,250Cash used in financing activities
    
    
    (3,153
    )
    
    
    (12,905
    )
    
    
    9,752
    39




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##### Table of Contents



Contractual Obligations
    Distributions
  Dividends
  Funds From Operations
  40




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##### Table of Contents



Three Months Ended March 31,2010
    
    
    2009Net (loss) income attributable to common shareholders
    
    $
    (2,159
    )
    
    $
    4,997Add: Depreciation and amortization:Real estate assets
    
    
    9,985
    
    
    
    9,963Discontinued operations
    
    
    152
    
    
    
    83Unconsolidated joint venture
    
    
    114
    
    
    
    14Consolidated joint venture
    
    
    
    
    
    
    (373
    )Net (loss) income attributable to
noncontrolling interests
    
    
    (49
    )
    
    
    141FFO available to common shareholders and unitholders
    
    $
    8,043
    
    
    $
    14,825Weighted average common shares and Operating
Partnership units outstanding  diluted
    
    
    31,489
    
    
    
    27,801
 Off-Balance Sheet Arrangements
 Investment in
Affiliates.
 Forward Looking Statements
  41




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##### Table of Contents



Fair Value Measurements
  
    42




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##### Table of Contents



PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Removed and Reserved
 
 Item 5. Other Information
  
 Item 6. Exhibits
 No.
    
    Description3.1
    
    Amended and Restated Declaration of Trust of the Registrant (incorporated by reference to Exhibit
3.1 to the Registrants Registration Statement on Form S-11 (Registration No. 333-107172), as filed
with the SEC on October 1, 2003).3.2
    
    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).10.1
    
    Form of Restricted Stock Agreement (Time Vesting). (1)10.2
    
    Form of Restricted Stock Agreement (Performance Vesting).(2)
 43




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##### Table of Contents



No.
    
    Description31.1
    
    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.)
 
 (1)
    
    Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on March 3, 2010.(2)
    
    Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on March 3, 2010. 44




---



##### Table of Contents



FIRST POTOMAC REALTY TRUSTDate: May 7, 2010
    /s/ Douglas J. DonatelliDouglas J. DonatelliChairman of the Board and Chief Executive OfficerDate: May 7, 2010
    /s/ Barry H. BassBarry H. BassExecutive Vice President and Chief Financial Officer 45




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##### Table of Contents



EXHIBIT INDEX
 No.
    
    Description3.1
    
    Amended and Restated Declaration of Trust of the Registrant (incorporated by reference to Exhibit
3.1 to the Registrants Registration Statement on Form S-11 (Registration No. 333-107172), as filed
with the SEC on October 1, 2003).3.2
    
    Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrants Registration Statement on Form S-11 (Registration No. 333-107172), as filed with the
SEC on October 1, 2003).4.1
    
    Amended and Restated Agreement of Limited Partnership of First Potomac Realty Investment, L.P. dated
September 15, 2003 (incorporated by reference to Exhibit 3.3 to the Registrants Registration
Statement on Form S-11 (Registration No. 333-107172), as filed with the SEC on October 1, 2003).4.2
    
    Form of First Potomac Realty Investment Limited Partnership 6.41% Senior Notes, Series A, due 2013
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K as filed
with the SEC
on June 23, 2006).4.3
    
    Form of First Potomac Realty Investment Limited Partnership 6.55% Senior Notes, Series B, due 2016
(incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K as filed
with the SEC
on June 23, 2006).4.4
    
    Note Purchase Agreement by and among the Registrant, First Potomac Realty Investment Limited
Partnership and the several Purchasers listed on the signature pages thereto, dated as of June 22,
2006 (incorporated by reference to Exhibit 4.3 to the Registrants Current Report on Form 8-K filed
on June 23, 2006).4.5
    
    Trust Guaranty, entered into by the Registrant, dated as of June 22, 2006 (incorporated by reference
to Exhibit 4.4 to the Registrants Current Report on Form 8-K filed on June 23, 2006).4.6
    
    Subsidiary Guaranty, dated as of June 22, 2006 (incorporated by reference to Exhibit 4.5 to the
Registrants Current Report on Form 8-K filed on June 23, 2006).4.7
    
    Indenture, dated as of December 11, 2006, by and among First Potomac Realty Investment Limited
Partnership, the Registrant, as Guarantor, and Wells Fargo Bank, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on
December 12, 2006).4.8
    
    Form of First Potomac Realty
Investment Limited Partnership 4.0%
Exchangeable Senior Note due 2011
(incorporated by reference to Exhibit 4.2
to the Registrants Current Report on
Form 8-K filed on December 12, 2006).10.1
    
    Form of Restricted Stock Agreement (Time Vesting). (1)10.2
    
    Form of Restricted Stock Agreement (Performance Vesting).(2)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.)
 
 (1)
    
    Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on March 3, 2010.(2)
    
    Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on March 3, 2010.