##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
 COMMISSION FILE NUMBER 001-31962
 
 GOVERNMENT PROPERTIES TRUST, INC.
  MARYLAND
    
    20-0611663(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 13625 CALIFORNIA STREET, SUITE 310OMAHA, NEBRASKA 68154
    
    (402) 391-0010(Address of principal executive
    
    (Registrants telephone number,offices, including zip code)
    
    including area code)
  þ o
  o þ
  o o




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PAGEPART I  FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements (unaudited)Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004
    
    
    3Consolidated Statements of Operations and Comprehensive Income for the three months and nine months
ended September 30, 2005 and 2004 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1. Not applicable
    
    
    21Item 2. Changes in Securities and Use of Proceeds
    
    
    21Item 3. Not applicable
    
    
    21Item 4. Not applicable
    
    
    21Item 5. Not applicable
    
    
    21Item 6. Exhibits and Reports on Form 8-K
    
    
    21Signatures
    
    
    22302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  2




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GOVERNMENT PROPERTIES TRUST, INC.
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2005
    
    
    2004(UNAUDITED)ASSETSReal estate at costLand
    
    $
    32,873,237
    
    
    $
    13,713,237Buildings and improvements
    
    
    259,575,597
    
    
    
    117,069,518Tenant origination costs
    
    
    53,527,970
    
    
    
    26,628,718Real estate under development
    
    
    12,225,197
    
    
    
    1,180,523Furniture and equipment
    
    
    422,956
    
    
    
    185,818358,624,957
    
    
    
    158,777,814Accumulated depreciation
    
    
    (10,018,185
    )
    
    
    (3,407,147
    )348,606,772
    
    
    
    155,370,667Cash and cash equivalents
    
    
    6,813,679
    
    
    
    93,814,813Restricted cash escrows
    
    
    20,429,447
    
    
    
    2,103,338Tenant receivables
    
    
    5,633,123
    
    
    
    1,501,850Notes receivable from tenant
    
    
    618,702
    
    
    
    665,216Deferred costs, net
    
    
    2,283,290
    
    
    
    937,156Real estate deposits
    
    
    300,000
    
    
    
    685,993Other assets
    
    
    1,681,207
    
    
    
    1,241,554Total assets
    
    $
    386,366,220
    
    
    $
    256,320,587LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesAccounts payable and accrued expenses
    
    $
    9,679,018
    
    
    $
    3,226,655Dividends payable
    
    
    3,108,242
    
    
    
    3,104,340Mortgage notes payable
    
    
    211,192,223
    
    
    
    77,584,897Total liabilities
    
    
    223,979,483
    
    
    
    83,915,892Stockholders equityCommon stock ($0.01 par value;
50,000,000 shares authorized, 20,721,612
and 20,695,567 shares issued and
outstanding at September 30, 2005 and
December 31, 2004, respectively)
    
    
    205,820
    
    
    
    205,223Additional paid-in capital
    
    
    188,941,858
    
    
    
    188,259,230Accumulated deficit
    
    
    (26,955,345
    )
    
    
    (16,059,758
    )Accumulated other comprehensive income
    
    
    194,404
    
    
    
    Total stockholders equity
    
    
    162,386,737
    
    
    
    172,404,695Total liabilities and stockholders equity
    
    $
    386,366,220
    
    
    $
    256,320,587
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GOVERNMENT PROPERTIES TRUST, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (UNAUDITED)
    
    
    (UNAUDITED)THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSEPTEMBER 30,
    
    
    SEPTEMBER 30,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenueRental income
    
    $
    7,821,816
    
    
    $
    2,338,335
    
    
    $
    18,286,917
    
    
    $
    5,060,076Tenant reimbursements and other
    
    
    442,275
    
    
    
    41,656
    
    
    
    754,048
    
    
    
    205,851Total revenue
    
    
    8,264,091
    
    
    
    2,379,991
    
    
    
    19,040,965
    
    
    
    5,265,927ExpensesProperty operations
    
    
    1,343,177
    
    
    
    543,020
    
    
    
    3,321,627
    
    
    
    1,126,570Real estate taxes
    
    
    896,790
    
    
    
    257,403
    
    
    
    1,921,859
    
    
    
    578,428Depreciation and amortization
    
    
    2,946,201
    
    
    
    673,396
    
    
    
    6,611,038
    
    
    
    1,436,990General and administrative
    
    
    1,303,690
    
    
    
    1,037,025
    
    
    
    3,644,599
    
    
    
    3,026,211Total expenses
    
    
    6,489,858
    
    
    
    2,510,844
    
    
    
    15,499,123
    
    
    
    6,168,199Operating income (loss)
    
    
    1,774,233
    
    
    
    (130,853
    )
    
    
    3,541,842
    
    
    
    (902,272
    )Other income (expense)Interest income
    
    
    249,303
    
    
    
    607,884
    
    
    
    1,348,237
    
    
    
    1,238,417Interest expense
    
    
    (2,755,315
    )
    
    
    (660,373
    )
    
    
    (6,225,992
    )
    
    
    (1,426,521
    )Expense from issuance and exercise of warrant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,097,900
    )Amortization of deferred financing fees
    
    
    (66,809
    )
    
    
    (91,571
    )
    
    
    (234,922
    )
    
    
    (170,085
    )Loss from continuing operations
    
    
    (798,588
    )
    
    
    (274,913
    )
    
    
    (1,570,835
    )
    
    
    (3,358,361
    )Discontinued operations:Income from operations of disposed property
    
    
    
    
    
    
    42,156
    
    
    
    
    
    
    
    88,524Net loss
    
    $
    (798,588
    )
    
    $
    (232,757
    )
    
    $
    (1,570,835
    )
    
    $
    (3,269,837
    )Earnings per share (basic and diluted):Loss from continuing operations
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.08
    )
    
    $
    (0.18
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.08
    )
    
    $
    (0.18
    )Distributions declared per share
    
    $
    0.15
    
    
    $
    0.15
    
    
    $
    0.45
    
    
    $
    0.45Weighted average shares outstanding (basic and diluted)
    
    
    20,578,402
    
    
    
    20,514,716
    
    
    
    20,564,662
    
    
    
    18,585,837Net loss
    
    $
    (798,588
    )
    
    $
    (232,757
    )
    
    $
    (1,570,835
    )
    
    $
    (3,269,837
    )Other
Comprehensive IncomeUnrealized derivative gain on forward-starting
interest rate swaps
    
    
    1,562,669
    
    
    
    
    
    
    
    194,404
    
    
    
    Comprehensive income (loss)
    
    $
    764,081
    
    
    $
    (232,757
    )
    
    $
    (1,376,431
    )
    
    $
    (3,269,837
    )
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GOVERNMENT PROPERTIES TRUST, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)NINE MONTHS ENDEDSEPTEMBER 30,2005
    
    
    2004Operating activitiesNet loss
    
    $
    (1,570,835
    )
    
    $
    (3,269,837
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    6,611,038
    
    
    
    1,436,990Amortization of deferred financing fees
    
    
    234,922
    
    
    
    170,085Amortization of premium on mortgage notes payable
    
    
    25,264
    
    
    
    Compensation expense
    
    
    543,222
    
    
    
    508,997Expense from issuance and exercise of warrant
    
    
    
    
    
    
    2,097,900Changes in assets and liabilities:Tenant receivables
    
    
    (4,131,273
    )
    
    
    (420,068
    )Other assets
    
    
    (245,249
    )
    
    
    (913,091
    )Accounts payable and accrued expenses
    
    
    3,824,576
    
    
    
    909,425Net cash provided by operating activities
    
    
    5,291,665
    
    
    
    520,401Investing activitiesExpenditures for real estate
    
    
    (170,643,851
    )
    
    
    (68,955,751
    )Deposits on future real estate purchases
    
    
    (300,000
    )
    
    
    (1,550,000
    )Development of real estate assets
    
    
    (8,276,884
    )
    
    
    Restricted cash escrows
    
    
    (18,326,109
    )
    
    
    (423,685
    )Note receivable from tenant
    
    
    46,514
    
    
    
    (568,349
    )Expenditures for furniture and equipment
    
    
    (237,138
    )
    
    
    Restricted cash for letter of credit
    
    
    
    
    
    
    (17,426,515
    )Net cash used in investing activities
    
    
    (197,737,468
    )
    
    
    (88,924,300
    )Financing activitiesFinancing fees
    
    
    (1,581,056
    )
    
    
    (785,300
    )Net repayment under lines of credit
    
    
    
    
    
    
    (3,047,655
    )Proceeds from mortgage notes payable
    
    
    117,582,219
    
    
    
    29,000,000Payments on mortgage notes payable  affiliate
    
    
    
    
    
    
    (1,639,219
    )Repayments of advances from affiliate
    
    
    
    
    
    
    (102,873
    )Principal payments on mortgage notes payable
    
    
    (1,235,644
    )
    
    
    (455,031
    )Proceeds from sale of common stock
    
    
    
    
    
    
    193,202,100Offering costs paid
    
    
    
    
    
    
    (16,242,443
    )Dividends paid
    
    
    (9,320,850
    )
    
    
    (6,351,685
    )Net cash provided by financing activities
    
    
    105,444,669
    
    
    
    193,577,894Net (decrease) increase in cash and cash equivalents
    
    
    (87,001,134
    )
    
    
    105,173,995Cash and cash equivalents, beginning of period
    
    
    93,814,813
    
    
    
    760,859Cash and cash equivalents, end of period
    
    $
    6,813,679
    
    
    $
    105,934,854Non-Cash Financing ActivityAssumption of mortgage note payable included in real estate, net
    
    $
    15,753,309
    
    
    $
    Non-Cash Operating ActivityAccounts payable and accrued expenses included in real estate, net
    
    $
    2,767,790
    
    
    $
    
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##### Table of Contents



GOVERNMENT PROPERTIES TRUST, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Basis of Presentation
   Nature of Business and Operations
    Common Stock and Earnings Per Share
  Deferred Costs
  September 30,
    
    
    December 31,2005
    
    
    2004Financing costs
    
    $
    2,799,037
    
    
    $
    1,217,981Accumulated amortization
    
    
    (515,747
    )
    
    
    (280,825
    )$
    2,283,290
    
    
    $
    937,156
 6




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##### Table of Contents



Equity Incentive Plan
 The Company has a 2003 Equity Incentive Compensation Plan (the Plan), which reserved 1,000,000
shares of Common Stock for issuance thereunder. In connection with the original issuance of shares
during the first quarter of 2004, the Company adopted the fair value recognition provisions of SFAS
No. 123, Accounting for Stock Based Compensation and SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure  an amendment of FASB Statement No. 123.The Company recognizes compensation expense for restricted shares issued based upon the fair market
value of the common stock at the grant date. Compensation expense is primarily recognized on a
straight-line basis over the vesting period. From the original issuance of shares in the first
quarter of 2004 through September 30, 2005, the Company granted 216,243 restricted shares pursuant
to the Plan. The fair value of the shares at the time of the grants ranged from $9.70 to $13.90 per
share. Of the shares issued, 76,478 shares have vested and 184 shares were cancelled. The
remaining 139,581 restricted shares were outstanding at September 30, 2005 and vest over periods of
two to five years. Compensation expense recognized and included in general and administrative
expense in the accompanying consolidated statement of operations was $181,074 and $248,274 for the
three months ended September 30, 2005 and 2004, respectively and $543,222 and $508,997 for the nine
months ended September 30, 2005 and 2004, respectively. As of September 30, 2005, there are 783,941
shares available for grant under the Plan.
 Mortgage Notes Payable and Line-of-Credit
  SEPTEMBER 30,
    
    
    DECEMBER 31,2005
    
    
    2004MORTGAGE
NOTES PAYABLE (A), (B), (C)Mortgage notes payable to various financial institutions, collateralized by
various properties, interest at fixed rates ranging from 5.09% to 8.23% per
annum, with principal and interest payable monthly through 2026. The weighted
average interest rate at September 30, 2005 and December 31, 2004 was 5.81%
and 5.87%, respectively
    
    $
    209,735,310
    
    
    $
    77,584,897LINE-OF-CREDITRevolving line-of-credit with a financial institution (maximum borrowing $50,000,000 and
available through December 27, 2005), interest at the financial institutions prime rate.
There were no advances made on the line-of-credit. Interest, if any, is due monthly.
Advances up to $25,000,000 are unsecured. Any advances in excess of $25,000,000 are
secured by a mortgage on the acquired property and are due upon the earlier of permanent
financing or termination of the line-of-credit
    
    $
    
    
    
    $
    
 
 (A)
    
    The mortgages notes payable are subject to various operating covenants. In addition, the
Company must periodically fund and maintain escrow accounts for future real estate taxes,
repairs and maintenance and insurance payments, as well as to fund certain tenant releasing
costs. These are included in restricted cash escrows.(B)
    
    A portion of the Companys real estate assets have been pledged as collateral for its
mortgage notes payable. The amount of gross assets that have been encumbered is $276,066,254
and $105,174,043 at September 30, 2005 and December 31, 2004.(C)
    
    Amounts exclude a premium of $1,456,913 and $0 at September 30, 2005 and December 31, 2004,
respectively, related to the above market interest rate on a mortgage assumed.  Derivative Instruments and Hedging Activities
  7




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##### Table of Contents



Concentration of Credit Risk
  Related Party Transactions
    8




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##### Table of Contents



Property Acquisitions
  Acquisition
    
    
    MonthProperty
    
    Location
    
    Cost
    
    
    Acquired2004 acquisitions(A):Bureau of Public Debt (Mineral Wells BPD
Property)(B)
    
    Mineral Wells, WV
    
    $
    5,109,486
    
    
    MarchFederal Bureau of Investigation (Pittsburgh FBI
Property)
    
    Pittsburgh, PA
    
    
    28,682,675
    
    
    MayUSDA District Offices (Lenexa FDA Property)
    
    Lenexa, KS
    
    
    10,525,293
    
    
    JuneVeterans Administration Outpatient Clinic
(Baton Rouge VA Property)
    
    Baton Rouge, LA
    
    
    5,931,242
    
    
    SeptemberFederal Courthouse (Charleston Fed Court Property)
    
    Charleston, SC
    
    
    19,277,829
    
    
    SeptemberFood & Drug Administration (College Park FDA
Property)(C)
    
    College Park, MD
    
    
    22,895,421
    
    
    OctoberImmigration Services (Pittsburgh USCIS Property)
    
    Pittsburgh, PA
    
    
    10,582,553
    
    
    OctoberBureau of Public Debt (Parkersburg BPD
Property)(D)
    
    Parkersburg, WV
    
    
    20,227,362
    
    
    November$
    123,231,8612005 acquisitions(A):1201 Lloyd Boulevard (Portland Property)(E)
    
    Portland, OR
    
    $
    50,015,337
    
    
    MarchNiagara Center (Buffalo Niagara Center Property)
    
    Buffalo, NY
    
    
    71,672,611
    
    
    MaySocial Security Administration (Buffalo SSA
Property)
    
    Buffalo, NY
    
    
    5,434,681
    
    
    MayDrug Enforcement Administration (Sterling DEA
Property)(F)
    
    Sterling, VA
    
    
    21,219,744
    
    
    JuneInternal Revenue Service (Martinsburg IRS
Property)(G)
    
    Martinsburg, WV
    
    
    30,642,912
    
    
    JulySocial Security Administration (Dallas SSA
Property)
    
    Dallas, TX
    
    
    9,580,046
    
    
    September$
    188,565,331
 
 (A)
    
    In accordance with SFAS 141, the Company allocated the purchase price for these properties to
net tangible and identified intangible assets acquired based on their fair values (including
land, buildings, tenant improvements, acquired above and below market leases and the
origination cost of acquired in-place leases) and acquired liabilities, and allocated the
purchase price based on these assessments, including land at appraised value and buildings at
replacement costs. The Company assessed fair value based on estimated cash flow projections
that utilize discount and capitalization rates deemed appropriate by management and available
market information. Such estimates are subject to refinement as additional valuation
information is received. The value of tenant origination costs are amortized over the
remaining term of the respective leases.(B)
    
    Included in the acquisition cost amount is a note receivable from tenant in the amount of
$694,293 which the Company assumed with the purchase of this property. The interest on the
note receivable is fixed at 8% per annum with principal and interest payable monthly through
2012.(C)
    
    In connection with the purchase of this property, the Company assumed a first mortgage note
in the amount of $16,650,000. Acquisition cost includes $1,200,000 which was paid to the
seller in April 2005.(D)
    
    The federal government has exercised a consolidation option whereby the Company will expand
the Parkersburg Property by an additional 102,000 rentable square feet. The cost of the
expansion to the Property will total approximately $22.5 million and will be paid over the
term of the expansion scheduled for completion in 2006. At September 30, 2005 the Company
held $11.1 million of restricted cash escrows to fund, in part, the cost of the expansion.
Costs capitalized as of September 30, 2005 and December 31, 2004 totaled $11,611,937 and
$1,180,523, respectively and is included in real estate under development in the accompanying
Balance Sheets. 9




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##### Table of Contents



(E)
    
    Excluded from the acquisition cost amount is $1.1 million of restricted cash escrows paid by
the Company and held in escrow pending the final determination of the base rent amount for
certain tenants held under signed tenant leases. The final determination of the base rent
amount and the receipt of cash held in escrow, if any, are expected to be completed prior to
the end of 2005.(F)
    
    In connection with the purchase of this property, the Company assumed a first mortgage note
in the amount of $15,753,309. Also included in the acquisition cost is an amount of
$1,482,178 related to the premium recognized on the above market interest rate on the assumed
mortgage.(G)
    
    Under terms of the existing lease, the federal government has an option to purchase the
Martinsburg IRS Property for approximately $24.8 million. Issuance and Exercise of Warrant
  Discontinued Operations
  Three Months
    
    
    Nine monthsEnded
    
    
    endedSeptember 30,
    
    
    September 30,2004
    
    
    2004Rental income
    
    $
    90,860
    
    
    $
    272,580Property operations
    
    
    3,235
    
    
    
    12,853Depreciation and amortization
    
    
    
    
    
    
    29,358Total expense
    
    
    3,235
    
    
    
    42,211Operating income
    
    
    87,625
    
    
    
    230,369Amortization of deferred financing fees
    
    
    
    
    
    
    (422
    )Interest expense
    
    
    (45,469
    )
    
    
    (141,423
    )Income from property held for sale
    
    $
    42,156
    
    
    $
    88,524
 Unaudited Pro Forma Condensed Consolidated Financial Information
  Date PropertyBegan OperationPittsburgh USCIS Property
    

    March 2004Baton Rouge VA Property
    

    June 2004College Park FDA Property
    

    September 2004Parkersburg BPD Property
    

    September 2004Buffalo Niagara Center Property
    

    December 2004Buffalo SSA Property
    

    June 2005Dallas SSA Property
    

    August 2005
 10




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##### Table of Contents



Pro Forma Condensed Consolidated Financial Information  (Unaudited)
 Nine MonthsEnded September 30,2005
    
    
    2004Total Revenue
    
    $
    23,512,188
    
    
    $
    13,584,611Loss from continuing operations
(A)
    
    $
    (2,952,557
    )
    
    $
    (5,809,387
    )Loss per diluted common
share
    
    $
    (0.14
    )
    
    $
    (0.28
    )
 
 (A)
    
    Includes expense of approximately $2.1 million in 2004 for the issuance and exercise of
warrants  See Note 11. 11




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##### Table of Contents




    
    our estimated general and administrative expense;
    
    our risk mitigation strategy;
    
    our policy to reserve for operating expenses and capital costs;
    
    our distribution policy;
    
    our operating expenses;
    
    the adequacy of our available capital for future capital requirements;
    
    our capital expenditures; and
    
    the impact of changes in interest rates.
      12




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##### Table of Contents



Increase2005
    
    
    2004
    
    
    (Decrease)Revenue:Rental income
    
    $
    7,821,816
    
    
    $
    2,338,335
    
    
    $
    5,483,481Tenant reimbursements and other
    
    
    442,275
    
    
    
    41,656
    
    
    
    400,619Total revenue
    
    
    8,264,091
    
    
    
    2,379,991
    
    
    
    5,884,100Expenses:Property Operations
    
    
    1,343,177
    
    
    
    543,020
    
    
    
    800,157Real estate taxes
    
    
    896,790
    
    
    
    257,403
    
    
    
    639,387Depreciation and Amortization
    
    
    2,946,201
    
    
    
    673,396
    
    
    
    2,272,805General and administrative
    
    
    1,303,690
    
    
    
    1,037,025
    
    
    
    266,665Total expenses
    
    
    6,489,858
    
    
    
    2,510,844
    
    
    
    3,979,014Operating income (loss)
    
    
    1,774,233
    
    
    
    (130,853
    )
    
    
    1,905,086Interest income
    
    
    249,303
    
    
    
    607,884
    
    
    
    (358,581
    )Interest expense
    
    
    (2,755,315
    )
    
    
    (660,373
    )
    
    
    (2,094,942
    )Amortization of deferred financing fees
    
    
    (66,809
    )
    
    
    (91,571
    )
    
    
    24,762Loss from continuing operations
    
    
    (798,588
    )
    
    
    (274,913
    )
    
    
    (523,675
    )Discontinued operations: Income from
operations of disposed property
    
    
    
    
    
    
    42,156
    
    
    
    (42,156
    )Net loss
    
    $
    (798,588
    )
    
    $
    (232,757
    )
    
    $
    (565,831
    )
 Comparison of three months ended September 30, 2005 to September 30, 2004
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i ii iii iv v vi vii viii) (ix)
    Increase2005
    
    
    2004
    
    
    (Decrease)Revenue:Rental income
    
    $
    18,286,917
    
    
    $
    5,060,076
    
    
    $
    13,226,841Tenant reimbursements and other
    
    
    754,048
    
    
    
    205,851
    
    
    
    548,197Total revenue
    
    
    19,040,965
    
    
    
    5,265,927
    
    
    
    13,775,038Expenses:Property Operations
    
    
    3,321,627
    
    
    
    1,126,570
    
    
    
    2,195,057Real estate taxes
    
    
    1,921,859
    
    
    
    578,428
    
    
    
    1,343,431Depreciation and Amortization
    
    
    6,611,038
    
    
    
    1,436,990
    
    
    
    5,174,048General and administrative
    
    
    3,644,599
    
    
    
    3,026,211
    
    
    
    618,388Total expenses
    
    
    15,499,123
    
    
    
    6,168,199
    
    
    
    9,330,924Operating income (loss)
    
    
    3,541,842
    
    
    
    (902,272
    )
    
    
    4,444,114
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Increase2005
    
    
    2004
    
    
    (Decrease)Interest income
    
    
    1,348,237
    
    
    
    1,238,417
    
    
    
    109,820Interest expense
    
    
    (6,225,992
    )
    
    
    (1,426,521
    )
    
    
    (4,799,471
    )Expense from issuance and exercise of warrant
    
    
    
    
    
    
    (2,097,900
    )
    
    
    2,097,900Amortization of deferred financing fees
    
    
    (234,922
    )
    
    
    (170,085
    )
    
    
    (64,837
    )Loss from continuing operations
    
    
    (1,570,835
    )
    
    
    (3,358,361
    )
    
    
    1,787,526Discontinued operations: Income from
operations of disposed property
    
    
    
    
    
    
    88,524
    
    
    
    (88,524
    )Net loss
    
    $
    (1,570,835
    )
    
    $
    (3,269,837
    )
    
    $
    1,699,002
 Comparison of nine months ended September 30, 2005 to September 30, 2004
        i ii iii iv v vi vii viii) (ix)
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
    
    acquisition costs, deposits on properties and purchases of properties;
    
    recurring maintenance, repairs and other operating expenses necessary to maintain our properties;
    
    property taxes, state and local tax assessments, and insurance expenses;
    
    interest expense and scheduled principal payments on outstanding indebtedness;
    
    capital expenditures incurred to facilitate the leasing of space at our
properties, including tenant improvements and leasing commissions;
    
    general and administrative expenses; and
    
    future distributions paid to our stockholders.
   BALANCE AS OFLENDER
    
    COLLATERAL
    

SEPT. 30, 2005(IN MILLIONS)CW Capital
    
    Bakersfield DEA property
    
    $
    1.4CW Capital
    
    Baton Rouge VA property
    
    
    4.8LaSalle Bank/GEMSA
    
    Charleston SSA property
    
    
    13.6LaSalle Bank/GEMSA
    
    Clarksburg GSA property
    
    
    8.1Charleston FederalCW Capital
    
    Courthouse property
    
    
    14.5Capital Realty
    
    College Park FDA property
    
    
    16.4Key Bank
    
    Dallas SSA property
    
    
    6.2Bank of America
    
    Kingsport SSA property
    
    
    2.2Wachovia Bank
    
    Lenexa FDA property
    
    
    7.9PNC Bank
    
    Martinsburg IRS property
    
    
    19.6Bank of New York
    
    Parkersburg BPD property
    
    
    31.8PNC Bank
    
    Pittsburgh FBI property
    
    
    20.6Nomura Credit
    
    Pittsburgh USCIS property
    
    
    7.9Wachovia Bank
    
    Portland property
    
    
    39.1Northwestern Mutual
    
    Sterling DEA property
    
    
    15.6209.7Premium on mortgage debt
    
    
    
    
    1.5Total  Mortgage Notes Payable
    
    
    
    $
    211.2
    16




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THREE MONTHS
    
    
    NINE MONTHSENDED
    
    
    ENDEDSEPTEMBER 30,
    
    
    SEPTEMBER 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (798,588
    )
    
    $
    (232,757
    )
    
    $
    (1,570,835
    )
    
    $
    (3,269,837
    )Adjustments to reconcile to funds from
Operations:Real estate depreciation and amortization (a)
    
    
    2,935,914
    
    
    
    666,214
    
    
    
    6,585,935
    
    
    
    1,420,729Funds from Operations
    
    $
    2,137,326
    
    
    $
    433,457
    
    
    $
    5,015,100
    
    
    $
    (1,849,108
    )Funds from Operations per common share
    
    $
    0.10
    
    
    $
    0.02
    
    
    $
    0.24
    
    
    $
    (0.10
    )Weighted average common shares outstanding
    
    
    20,578,402
    
    
    
    20,514,716
    
    
    
    20,564,662
    
    
    
    18,585,837
 
 (a)
    
    Excludes depreciation of non-real estate assets of $10,287 and $7,182 for the three months
ended September 30, 2005 and 2004, respectively and $25,103 and $16,261 for the nine months
ended September 30, 2005 and 2004, respectively. 
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2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    THEREAFTER
    
    TOTALMORTGAGE NOTES PAYABLE:Fixed rate amount
    
    $
    2,172,675
    
    
    $
    3,707,784
    
    
    $
    4,625,476
    
    
    $
    31,167,774
    
    
    $
    4,590,913
    
    
    $
    163,470,688
    
    
    $
    209,735,310Weighted-average interest rate
    
    
    6.34
    %
    
    
    5.99
    %
    
    
    5.91
    %
    
    
    5.55
    %
    
    
    5.99
    %
    
    
    5.84
    %
    
    
    5.81
    %
 
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31.1
    
    Certification of Chief Executive Officer pursuant to SEC Rule
13a-14, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to SEC Rule
13a-14, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    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 200232.2
    
    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
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GOVERNMENT PROPERTIES TRUST, INC.Date: November 3, 2005
    
    By:   /s/ NANCY D. OLSONNancy D. OlsonChief Financial Officer and Treasurer(principal financial officer)
 22