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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 MARCH 31, 2005 COMMISSION FILE NUMBER 001-31962   GOVERNMENT PROPERTIES TRUST, INC.  MARYLAND
(State or other jurisdiction of
incorporation or organization)
    
    20-0611663
(I.R.S. Employer
Identification No.)10250 REGENCY CIRCLE, SUITE 100 OMAHA, NEBRASKA 68114
(Address of principal executive
offices, including zip code)
    
    (402) 391-0010
(Registrants telephone number,
including area code)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ As of April 29, 2005, approximately 20.7 million shares of common stock of the registrant were
outstanding.




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TABLE OF CONTENTS PAGEPART I - FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements (unaudited)Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004
    
    3Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited)
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited)
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    17Item 4.
    
    Controls and Procedures
    
    17PART II - OTHER INFORMATION
    
    18Item 1.
    
    Not applicableItem 2.
    
    Changes in Securities and Use of Proceeds
    
    18Item 3.
    
    Not applicableItem 4.
    
    Not applicableItem 5.
    
    Not applicableItem 6.
    
    Exhibits and Reports on Form 8-K
    
    18Signatures
    
    19302 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 March 31,
    
    
    December 31,2005
    
    
    2004(UNAUDITED)ASSETSReal estate at costLand
    
    $
    19,893,237
    
    
    $
    13,713,237Buildings and improvements
    
    
    154,111,381
    
    
    
    117,069,518Tenant origination costs
    
    
    33,422,192
    
    
    
    26,628,718Real estate under development
    
    
    1,819,206
    
    
    
    1,180,523Furniture and equipment
    
    
    188,207
    
    
    
    185,818209,434,223
    
    

    
    158,777,814Accumulated depreciation
    
    
    (4,729,364
    )
    
    
    (3,407,147
    )204,704,859
    
    
    
    155,370,667Cash and cash equivalents
    
    
    78,764,801
    
    
    
    93,814,813Restricted cash escrows
    
    
    14,298,107
    
    
    
    2,103,338Tenant receivables
    
    
    1,733,123
    
    
    
    1,501,850Notes receivable from tenant
    
    
    650,014
    
    
    
    665,216Deferred costs, net
    
    
    2,000,316
    
    
    
    937,156Real estate deposits
    
    
    1,652,581
    
    
    
    685,993Other assets
    
    
    2,600,986
    
    
    
    1,241,554Total assets
    
    $
    306,404,787
    
    
    $
    256,320,587LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesAccounts payable and accrued expenses
    
    $
    3,830,846
    
    
    $
    3,226,655Dividends payable
    
    
    3,108,269
    
    
    
    3,104,340Mortgage notes payable
    
    
    129,908,060
    
    
    
    77,584,897Total liabilities
    
    
    136,847,175
    
    
    
    83,915,892Stockholders equityCommon stock ($0.01 par value; 50,000,000 shares
authorized, 20,721,796 and 20,695,567 shares issued and
outstanding at March 31, 2005 and December 31, 2004,
respectively)
    
    
    205,690
    
    
    
    205,223Additional paid-in capital
    
    
    188,579,840
    
    
    
    188,259,230Accumulated deficit
    
    
    (19,227,918
    )
    
    
    (16,059,758
    )Total stockholders equity
    
    
    169,557,612
    
    
    
    172,404,695Total liabilities and stockholders equity
    
    $
    306,404,787
    
    
    $
    256,320,587
 See accompanying notes. 3




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GOVERNMENT PROPERTIES TRUST, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)THREE MONTHS ENDEDMARCH 31,2005
    
    
    2004RevenueRental income
    
    $
    4,324,110
    
    
    $
    1,043,993Tenant reimbursements
    
    
    179,654
    
    
    
    Total revenue
    
    
    4,503,764
    
    
    
    1,043,993ExpensesProperty operations
    
    
    855,002
    
    
    
    247,778Real estate taxes
    
    
    456,204
    
    
    
    148,097Depreciation and amortization
    
    
    1,322,217
    
    
    
    280,109General and administrative
    
    
    1,140,272
    
    
    
    1,030,544Total expenses
    
    
    3,773,695
    
    
    
    1,706,528Operating income (loss)
    
    
    730,069
    
    
    
    (662,535
    )Other income (expense)Interest income
    
    
    658,193
    
    
    
    243,269Interest expense
    
    
    (1,337,727
    )
    
    
    (398,829
    )Expense from issuance and exercise of warrant
    
    
    
    
    
    
    (2,097,900
    )Amortization of deferred financing fees
    
    
    (110,426
    )
    
    
    (3,614
    )Loss from continuing operations
    
    
    (59,891
    )
    
    
    (2,919,609
    )Discontinued operationsIncome from operations of disposed property
    
    
    
    
    
    
    3,871Net loss
    
    $
    (59,891
    )
    
    $
    (2,915,738
    )Earnings per share (basic and diluted)Loss from continuing operations
    
    $
    
    
    
    $
    (0.20
    )Income from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    
    
    
    $
    (0.20
    )Distributions declared per share
    
    $
    0.15
    
    
    $
    0.15Weighted average shares outstanding (basic and diluted)
    
    
    20,539,767
    
    
    
    14,712,297
 See accompanying notes. 4




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GOVERNMENT PROPERTIES TRUST, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)THREE MONTHS ENDEDMARCH 31,2005
    
    
    2004Operating activitiesNet loss
    
    $
    (59,891
    )
    
    $
    (2,915,738
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,322,217
    
    
    
    280,109Amortization of deferred financing fees
    
    
    110,426
    
    
    
    3,614Compensation expense
    
    
    181,074
    
    
    
    108,751Expense from issuance of warrant
    
    
    
    
    
    
    2,097,900Changes in assets and liabilities:Restricted cash escrows
    
    
    (12,194,769
    )
    
    
    69,087Tenant receivables
    
    
    (231,273
    )
    
    
    (53,180
    )Note receivable from tenant
    
    
    15,202
    
    
    
    (704,111
    )Other assets
    
    
    (1,361,821
    )
    
    
    (337,476
    )Accounts payable and accrued expenses
    
    
    744,194
    
    
    
    555,086Net cash used in operating activities
    
    
    (11,474,641
    )
    
    
    (895,958
    )Investing activitiesExpenditures for real estate
    
    
    (50,015,337
    )
    
    
    (4,416,735
    )Deposits on future real estate purchases
    
    
    (966,588
    )
    
    
    (600,000
    )Development of real estate assets
    
    
    (638,683
    )
    
    
    Restricted cash for letter of credit
    
    
    
    
    
    
    (17,336,718
    )Cash used in investing activities
    
    
    (51,620,608
    )
    
    
    (22,353,453
    )Financing activitiesFinancing fees
    
    
    (1,173,586
    )
    
    
    Net (repayment) borrowing under lines of credit
    
    
    
    
    
    
    (3,047,655
    )Proceeds from mortgage notes payable
    
    
    52,632,219
    
    
    
    Payments on
mortgage notes payable - affiliate
    
    
    
    
    
    
    (1,639,219
    )Repayments of advances from affiliate
    
    
    
    
    
    
    (102,873
    )Principal payments on mortgage notes payable
    
    
    (309,056
    )
    
    
    (78,118
    )Proceeds from sale of common stock
    
    
    
    
    
    
    193,202,100Offering costs paid
    
    
    
    
    
    
    (16,176,798
    )Dividends paid
    
    
    (3,104,340
    )
    
    
    (147,536
    )Net cash provided by financing activities
    
    
    48,045,237
    
    
    
    172,009,901Net (decrease) increase in cash and cash equivalents
    
    
    (15,050,012
    )
    
    
    148,760,490Cash and cash equivalents, beginning of period
    
    
    93,814,813
    
    
    
    760,859Cash and cash equivalents, end of period
    
    $
    78,764,801
    
    
    $
    149,521,349
 See accompanying notes. 5




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GOVERNMENT PROPERTIES TRUST, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Government Properties
Trust, Inc., a Maryland corporation (the Company), have been prepared pursuant to Securities and
Exchange Commission (SEC) rules and regulations and should be read in conjunction with the
consolidated financial statements and notes thereto included in the 2004 Form 10-K. The
accompanying consolidated financial statements highlight significant changes to the Notes included
in the 2004 Form 10-K and present interim disclosures as required by the SEC. The accompanying
consolidated financial statements reflect, in the opinion of management, all adjustments considered
necessary for a fair presentation of the interim financial statements. All such adjustments are of
a normal and recurring nature. The preparation of the consolidated financial statements in conformity with U.S. generally accepted
accounting principles (GAAP) requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expense during the
reporting periods. Our results for the quarter ended March 31, 2005 are not necessarily indicative
of our results for any future interim period or for the full fiscal year. 2. Nature of Business and Operations The Company was incorporated in Michigan in 1998. In January 2004, the Company completed a public
offering of its common stock and listed its common stock on the New York Stock Exchange. In
connection with this offering, the Company reincorporated in Maryland and changed its name to
Government Properties Trust, Inc. The historical operations included in the consolidated financial
statements are those of its predecessor company (Gen-Net Lease Income Trust, Inc.). References to
the Company for periods prior to 2004 refer to Gen-Net Lease Income Trust, Inc. and to Government
Properties Trust, Inc. for subsequent periods. The Company has elected to be taxed as a real estate
investment trust (REIT) under the Internal Revenue Code of 1986, as amended, beginning in 2003. The Company began formal operations with its first property acquisition in December 2002 and, as of
March 31, 2005, the Company owned thirteen properties located throughout the United States. The
Company acquires properties through various operating entities, which are wholly owned by the
Company. The Company operates in one segment. Between October 2002 and August 2003, the Company sold 955,552 shares of its common stock at $10
per share. In January 2004, the Company sold 19.3 million shares of its common stock (the
Offering) at $10 per share and listed its common stock on the New York Stock Exchange. The
Offering raised approximately $177 million in net proceeds. 3. Common Stock and Earnings Per Share The Company reports earnings per share pursuant to Statement of Financial Accounting Standards No.
128, Earnings Per Share. Basic and diluted loss per share attributable for all periods presented
is computed by dividing the loss to common stockholders by the weighted average number of common
shares and potential common stock outstanding during the period. The Company had nonvested stock
grants of 181,896 and 62,084 shares outstanding during the three months ended March 31, 2005 and
2004, respectively, which were not included in the computation of diluted earnings per share
because the effect would have been anti-dilutive. 4. Deferred Costs Deferred costs consist of the following: MARCH 31,
    
    
    DECEMBER 31,2005
    
    
    2004Financing costs
    
    $
    2,391,567
    
    
    $
    1,217,981Accumulated amortization
    
    
    (391,251
    )
    
    
    (280,825
    )$
    2,000,316
    
    
    $
    937,156
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5. Equity Incentive Plan The Company has a 2003 Equity Incentive Compensation Plan, which has 1,000,000 shares of Common
Stock reserved 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 recognized on a straight-line
basis over the vesting period. From the original issuance of shares in the first quarter of 2004
through March 31, 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, 63,481 shares have vested. The remaining 152,762 restricted shares were outstanding
at March 31, 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 $108,751 for the three months ended March 31, 2005 and 2004,
respectively. As of March 31, 2005, there are 783,757 shares available for grant under the Plan. 6. Mortgage Notes Payable and Line-of-Credit Mortgage notes payable and line-of-credit consisted of the following: MARCH 31,
    
    
    DECEMBER 31,2005
    
    
    2004MORTGAGE NOTES PAYABLE(A),(B)Mortgage notes payable to various financial institutions, collateralized by
various properties, interest at fixed rates ranging from 5.13% to 8.23% per
annum, with principal and interest payable monthly through 2026. The weighted
average interest rate at March 31, 2005 and December 31, 2004 was 5.77%
and 5.87%, respectively
    
    $
    129,908,060
    
    
    $
    77,584,897LINE OF CREDITRevolving line-of-credit with a financial institution (maximum borrowing $50,000,000 and
available through April 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.
Any advances 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 to fund 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 $154,815,486
and $105,174,043 for March 31, 2005 and December 31, 2004. Total interest paid on the mortgage notes payable was $1,095,036 and $505,096 for the three months
ended March 31, 2005 and 2004, respectively. Included in the amount paid for the three months
ended March 31, 2004 was $1,973 incurred and paid to an affiliate. 7. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk are
primarily cash investments and accounts receivable from tenants. In order to limit credit risk,
the Company places its cash and investments in investment-grade short-term instruments with high
quality financial institutions. The cash and investment account balances at each financial
institution typically exceed Federal Deposit Insurance Corporation (FDIC) insurance coverage. 8. Related Party Transactions Genesis, the sponsor of the initial public offering by the predecessor company Gen-Net Lease Income
Trust, Inc., provided the Company with property acquisition services through January 2005 for a fee
of up to 1% of the property purchase price plus up to 2% of the acquisition fee for acquisition
related expenses. The Company did not incur any acquisition fees with Genesis for the three 7




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months ended March 31, 2005. The Company incurred and paid acquisition fees of $1,090,486 for the
year ended December 31, 2004 which is included in real estate, at cost in the Consolidated Balance
Sheets. Prior to the January 2004 public offering of common stock, Genesis also provided administration
services for a fee of 3% of gross rental revenue and property management services also for a fee of
3% of gross rental revenue. The total amount incurred and paid for the three months ended March
31, 2004 was $10,888 in property management fees and $10,237 in administrative fees. These amounts
are included in property operations and general and administrative expenses in the Consolidated
Statements of Operations, respectively. Advances from Genesis totaling $102,873 were outstanding at December 31, 2003 and were repaid in
2004 with funds received in connection with the Offering. In addition, Genesis owed the Company
$310,000 (included in other assets) at March 31, 2005 and December 31, 2004 for previous offering
costs pursuant to a conditional agreement between Genesis and the Company. The amount owed is
non-interest bearing and is secured by an irrevocable letter of credit which expires on June 30,
2005 unless extended to no later than June 30, 2006. 9. Property Acquisitions The Company acquired the following properties during the three months ended March 31, 2005 and
during the year ended December 31, 2004. The results of their operations are included in the
Companys consolidated statements of operations from their respective dates of acquisition. 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
    
    
    March
   (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. 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 payable to seller to be
paid in April 2005. 8




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(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 March 31, 2005 the Company held
$11.1 million of restricted cash escrows to fund, in part, the cost of the expansion. Cost
capitalized as of March 31, 2005 and December 31, 2004 totaled $1,634,010 and $1,180,523,
respectively and is reflected in real estate under development in the accompanying Balance
Sheets.(E)
    
    Excluded from the acquisition cost amount is $1.1 million of restricted cash escrows paid by
the Company and held 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. 10. Issuance and Exercise of Warrant In connection with providing a line of credit to the Company in 2003, an affiliate of one of the
Companys underwriters in the Offering was issued a warrant to purchase up to 210,000 shares of
common stock. The underwriters affiliate exercised the warrant and the Company recognized an
expense of approximately $2.1 million in the first quarter of 2004. 11. Discontinued Operations In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
the Company reflects the historical operating results of properties sold or held for sale, as well
as the gain or loss on sale from these properties, as discontinued operations in the consolidated
statements of operations for periods prior to their sale. In October 2004, the Company sold the
Harahan property for a gain of $313,857, upon receiving sales proceeds of $1,457,223 net of the
assumption of the related mortgage note payable of $3,112,770. The results of discontinued
operations related to the Harahan property were comprised of the following for the three months
ended March 31, 2004: Rental income
    
    $
    90,860Property operations
    
    
    6,412Depreciation and amortization
    
    
    29,359Total expense
    
    
    35,771Operating income
    
    
    55,089Amortization of deferred financing fees
    
    
    (421
    )Interest expense
    
    
    (50,797
    )Income from property held for sale
    
    $
    3,871
 12. Unaudited Pro Forma Condensed Consolidated Financial Information The accompanying unaudited Pro Forma Condensed Consolidated Financial Information are presented as
if, at January 1, 2004, the Company acquired the properties described in Note 9  Property
Acquisitions and the shares outstanding at March 31, 2005 were also outstanding at January 1, 2004.
The properties listed as follows began operations in 2004 and therefore their historical results of
operations are included in the Pro Forma Condensed Consolidated Financial Information from the date
indicated. In managements opinion, all adjustments necessary to reflect the effects of the above
transactions have been made. Date
Property Began OperationPittsburgh USCIS Property
    
    March 2004Baton Rouge VA Property
    
    June 2004College Park FDA Property
    
    September 2004Parkersburg BPD Property
    
    September 2004
 The unaudited Pro Forma Condensed Consolidated Financial Information are not necessarily indicative
of what the actual results of operations would have been assuming the above mentioned transaction
had occurred at the dates indicated above, nor do they purport to represent our future results of
operations. 9




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Pro Forma Condensed Consolidated Financial Information(Unaudited) Three MonthsEnded March 31,2005
    
    
    2004Total Revenue
    
    $
    4,860,168
    
    
    $
    3,113,128Loss from continuing operations
(A)
    
    $
    265,107
    
    
    $
    (3,245,031
    )Loss per diluted common
share
    
    $
    0.01
    
    
    $
    (0.16
    )
   (A)
    
    Includes expense of approximately $2.1 million in the first quarter of 2004 for issuance
and exercise of warrants in the first quarter of 2004  See Note 10. 13. Subsequent Events In April 2005, we obtained financing related to the acquisition of our Portland property through a
$39.1 million loan from Artesia Mortgage Capital Corporation, which matures on May 11, 2015. The
unpaid principal balance of the note bears interest at a rate of 5.49% per annum. Accrued interest
only payments are due monthly through November 11, 2006. From December 11, 2006 through November
11, 2013, monthly payments are amortized on a 30-year schedule. From December 11, 2013 through
April 11, 2015, monthly payments are amortized on a 25-year schedule, with a balloon payment due
May 11, 2015. In May 2005, the Company acquired the Niagara Center Property located in Buffalo, New York for an
approximate purchase price of $70.6 million. The acquisition was acquired with cash. The Niagara
Center Property, completed in December 2004, totals approximately 268,000 rentable square feet of
office space. The approximately 3.5 acre site will also include, upon
the completion of a separate parking garage in September 2005, surface and indoor parking
with 638 parking stalls. The Niagara Center Property is currently 86%
occupied by multiple federal government agencies. Also in May 2005, the Company acquired the Social Security Administration Property located at
186 Exchange Street, in Buffalo, New York (the Buffalo SSA Property) for approximately $5.4 million
in cash. The Buffalo SSA Property was completed in
December 2003. The Buffalo SSA Property totals approximately 35,000 rentable square feet and is
100% occupied by the Social Security Administration, Environmental Protection Agency and the
Railroad Retirement Board. 10




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements. These forward-looking statements include estimates
regarding:  
    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. Forward-looking statements can be identified by the use of words such as may, will, should,
expects, plans, anticipates, believes, estimates, predicts, intends, continues, or
the negative of such terms, or other comparable terminology. Forward-looking statements also
include the assumptions underlying or relating to any of the foregoing statements. Our actual
results could differ materially from those anticipated in these forward-looking statements as a
result of various factors. The risks included here are not exhaustive, and additional factors could
adversely affect our business and financial performance, including factors and risks included in
other sections of this report. In addition, we discussed a number of material risks in our annual
report on Form 10-K for the year ended December 31, 2004. Those risks continue to be relevant to
our performance and financial condition. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not possible for
management to predict all such risk factors, nor can it assess the impact of all such risk factors
on our companys business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking statements. Given
these risks and uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results. All forward-looking statements included in this report are based on information available to us on
the date hereof. We assume no obligation to update any forward-looking statements. The following is a discussion of our interim results of operations, financial condition and
liquidity and capital resources for the three months ended March 31, 2005 compared to the
corresponding periods in 2004. It should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included herein and the 2004 Form 10-K. OVERVIEW We primarily invest in single tenant properties under long-term leases to the U.S. government,
state governments, local governments, and government-sponsored enterprises. We are a self-managed,
self-administered company that has elected to be taxed as a real estate investment trust, or REIT,
under the federal tax laws. We believe that we are the only public company focused solely on
investing in government-leased properties. We own each of our properties through separate, wholly
owned entities. Our business consists of buying and managing recently built or renovated office
properties primarily leased to the federal government, acting through the General Services
Administration (GSA), under long-term leases. At March 31, 2005, we owned thirteen primarily
GSA-leased properties. These properties are 97% occupied. The pace of property acquisitions
determines the speed with which capital is invested in real property and that affects operating
profit and cash available for distribution. Management has been focused during the reporting
period on increasing the pace of acquisitions. RISK FACTORS WHICH MAY INFLUENCE FUTURE RESULTS OF OPERATIONS We acquired eight properties for an amount of $123.2 million in 2004 and one property for an amount
of $50.0 million in the first quarter of 2005. Net income from the properties we own has been
significantly less than the dividends we have paid to date. To 11




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continue to pay dividends at their current level the Company will be required to use some of the
equity capital we raised in its January 2004 Offering for at least the remainder of 2005. Rent from the U.S. government represented approximately 100% of our revenues for the three months
ended March 31, 2005 and for the year ended December 31, 2004. In addition, the U.S. government
leased 91% of our total leased square feet of property as of March 31, 2005. Any default by the
U.S. government, or its failure to renew its leases with us upon their expiration, could cause
interruptions in the receipt of lease revenue or result in vacancies, or both, which would reduce
our revenue until the affected property is leased, and could decrease the ultimate value of the
affected property upon sale. Further, failure on the part of a tenant to comply with the terms of a
lease may cause us to find another tenant. We cannot assure you that we would be able to find
another tenant without incurring substantial costs, or at all, or that, if another tenant were
found, we would be able to enter into a new lease on favorable terms. We have had historical accounting losses of $2.7 million and $59,000 for the year ended December
31, 2004 and the three months ended March 31, 2005, respectively. We had an accumulated deficit of
$19.2 million, of which $16.0 million was for dividends, as of March 31, 2005. We cannot assure you
that we will not have similar losses in the future. CRITICAL ACCOUNTING POLICIES Refer to our 2004 Annual Report on Form 10-K for a discussion of our critical accounting policies,
which include our revenue recognition of related lease agreements, recording of real estate at
depreciated cost and allocation of the purchase price of properties we acquire to net tangible and
identified intangible assets. During the first three months of 2005, there were no material changes
to our critical accounting policies. RESULTS OF OPERATIONS The following table compares our operating results for the three months ended March 31, 2005 and
2004. Increase2005
    
    
    2004
    
    
    (Decrease)Revenue:Rental income
    
    $
    4,324,110
    
    
    $
    1,043,993
    
    
    $
    3,280,117Tenant reimbursements
    
    
    179,654
    
    
    
    
    
    
    
    179,654Total revenue
    
    
    4,503,764
    
    
    
    1,043,993
    
    
    
    3,459,771Expenses:Property Operations
    
    
    855,002
    
    
    
    247,778
    
    
    
    607,224Real estate taxes
    
    
    456,204
    
    
    
    148,097
    
    
    
    308,107Depreciation and Amortization
    
    
    1,322,217
    
    
    
    280,109
    
    
    
    1,042,108General and administrative
    
    
    1,140,272
    
    
    
    1,030,544
    
    
    
    109,728Total expenses
    
    
    3,773,695
    
    
    
    1,706,528
    
    
    
    2,067,167Operating income (loss)
    
    
    730,069
    
    
    
    (662,535
    )
    
    
    1,392,604Interest income
    
    
    658,193
    
    
    
    243,269
    
    
    
    414,924Interest expense
    
    
    (1,337,727
    )
    
    
    (398,829
    )
    
    
    (938,898
    )Expense from issuance and exercise of warrant
    
    
    
    
    
    
    (2,097,900
    )
    
    
    2,097,900Amortization of deferred financing fees
    
    
    (110,426
    )
    
    
    (3,614
    )
    
    
    (106,812
    )Loss from continuing operations
    
    
    (59,891
    )
    
    
    (2,919,609
    )
    
    
    2,859,718Discontinued operations: Income from
operations of disposed property
    
    
    
    
    
    
    3,871
    
    
    
    (3,871
    )Net loss
    
    $
    (59,891
    )
    
    $
    (2,915,738
    )
    
    $
    2,855,847
 Comparison of three months ended March 31, 2005 to March 31, 2004 Rental income revenue was $4,324,110 for 2005 and $1,043,993 for 2004. The increase was due to our
acquisition of eight additional properties during 2004 and 2005. Tenant reimbursements revenue was $179,654 for 2005 and $0 for 2004. This amount represents the
tenants reimbursements for real estate tax expense in excess of the real estate tax base amount as
defined in the respective lease agreement. The amount of revenue 12




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recognized during 2005 represents the real estate tax expense in excess of the real estate base
amount for all properties owned as of March 31, 2005. Property operations expense was $855,002 for 2005 and $247,778 for 2004. The increase was due to
the expansion of our operations from four properties owned as of the beginning of 2004 to thirteen
properties owned as of March 31, 2005. Real estate tax expense was $456,204 for 2005 and $148,097 for 2004. The increase was due to the
expansion of our operations from four properties owned as of the beginning of 2004 to thirteen
properties owned as of March 31, 2005. Depreciation and amortization was $1,322,217 for 2005 and $280,109 for 2004. The increase was due
to the expansion of our operations from four properties owned as of the beginning of 2004 to
thirteen properties owned as of March 31, 2005. General and administrative expense was $1,140,272 for 2005 and $1,030,544 for 2004. The increase
was due to the expansion of our operations to become self-managed and to increase our acquisition
activity. The increase was primarily due to the increase in our acquisition staff and related
activity. Interest income was $658,193 for 2005 and $243,269 for 2004. The increase was primarily due to an
increase in interest rates earned on short-term investments. In addition, a portion of the
increase was due to the proceeds raised in the January 2004 Offering were available for investing
for the entire three months in 2005 versus only two months in 2004. Interest expense was $1,337,727 for 2005 and $398,829 for 2004. The increase was due to
approximately $105 million of new mortgage debt incurred by us since March 2004. Amortization of deferred financing fees was $110,426 in 2005 and $3,614 in 2004. The increase was
due to the amortization of financing fees being recognized of approximately $71,000 related to the
$50 million revolving credit facility obtained in April 2004 and the remaining amount from
amortization of financing fees incurred from new mortgages obtained since March 2004. Income from discontinued operations was $3,871 in 2004. This represents the operating results for
our Harahan property which was sold in October 2004. LIQUIDITY AND CAPITAL RESOURCES Our short-term liquidity requirements consist primarily of funds to acquire properties and to pay
for operating expenses, dividends, and other expenditures directly associated with our properties,
such as:  
    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. Historically, we have satisfied our short-term liquidity requirements through our existing working
capital and cash provided from borrowings. 13




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Our current mortgage debt obligations are set forth below: BALANCE AS OFMARCH 31,LENDER
    
    COLLATERAL
    
    2005(IN MILLIONS)Operating Properties:CW Capital
    
    Bakersfield DEA property
    
    $
    1.4CW Capital
    
    Baton Rouge VA property
    
    
    4.8LaSalle Bank/GEMSA
    
    Charleston SSA property
    
    
    13.7LaSalle Bank/GEMSA
    
    Clarksburg GSA property
    
    
    8.2CW Capital
    
    Charleston Federal Courthouse property
    
    
    14.6Bank of America
    
    Kingsport SSA property
    
    
    2.2PNC Bank
    
    Pittsburgh FBI property
    
    
    20.8Wachovia Bank
    
    Lenexa FDA property
    
    
    7.9Capital Realty
    
    College Park FDA property
    
    
    16.5Bank of New York
    
    Parkersburg BPD property
    
    
    31.8Nomura Credit
    
    Pittsburgh USCIS property
    
    
    8.0Total
    
    
    
    $
    129.9
 We financed the acquisition of our Bakersfield DEA property in February 2005 through a $1.4 million
loan from CW Capital, which matures on March 1, 2020. The unpaid principal balance of the note
bears interest at a rate of 5.867% per annum. Monthly payments are amortized on a 30-year schedule,
with a balloon payment due March 1, 2020. We financed the acquisition of our Baton Rouge VA property in February 2005 through a $4.8 million
loan from CW Capital, which matures on March 1, 2020. The unpaid principal balance of the note
bears interest at a rate of 5.867% per annum. Monthly payments are amortized on a 30-year schedule,
with a balloon payment due March 1, 2020. We financed the acquisition of our Charleston SSA property in April 2003 through a $14 million loan
from LaSalle Bank, which matures on May 1, 2013. The unpaid principal balance of the note bears
interest at a rate of 5.74% per annum. Monthly payments are amortized on a 30-year schedule, with a
balloon payment due May 1, 2013. We financed the acquisition of our Clarksburg GSA property in April 2003 through an approximately
$8.3 million loan from LaSalle Bank, which matures on May 1, 2013. The unpaid principal balance of
the note bears interest at a rate of 5.74% per annum. Monthly payments are amortized on a 30-year
schedule, with a balloon payment due May 1, 2013. We financed the acquisition of our Charleston Federal Courthouse property in February 2005 through
a $14.6 million loan from CW Capital, which matures on March 1, 2020. The unpaid principal balance
of the note bears interest at a rate of 5.867% per annum. Monthly payments are amortized on a
30-year schedule, with a balloon payment due March 1, 2020. We financed the acquisition of our Kingsport SSA property in April 2003 through the assumption of
the sellers first mortgage loan in the amount of $2.3 million from Bank of America, which matures
on April 1, 2010, and an unsecured loan issued by the seller in the amount of $0.2 million which we
repaid in July 2004. The unpaid principal balance of the first mortgage loan bears interest at a
rate of 8.23% per annum, with monthly payments being amortized on a 25-year schedule and has a
balloon payment due April 1, 2010. We obtained financing related to the acquisition of our Pittsburgh FBI property in July 2004
through a $21.0 million loan from PNC Bank, which matures on August 1, 2009. The unpaid principal
balance of the note bears interest at a rate of 5.5% per annum. Monthly payments are amortized on a
26-year schedule, with a balloon payment due August 1, 2009. We obtained financing related to the acquisition of our Lenexa FDA property in July 2004 through an
$8.0 million loan from Wachovia Bank, which matures on August 11, 2009. The unpaid principal
balance of the note bears interest at a rate of 5.44% per annum. Monthly payments are amortized on
a 27-year schedule, with a balloon payment due August 11, 2009. We financed the acquisition of our College Park FDA property in October 2004 through the assumption
of the sellers loan of $16.7 million loan from Capital Realty, which matures on October 26, 2026.
The unpaid principal balance of the note bears interest at a rate of 6.75% per annum. Payments are
made monthly through October 26, 2026. 14




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We obtained financing related to the acquisition of our Parkersburg BPD property in March 2005
through a combined $31.8 million loan from the Bank of New York, which matures on March 15, 2021.
The loan is comprised of two notes totaling $26.8 million and $5.0 million, respectively. The
unpaid principal balance of the $26.8 million note bears interest at a rate of 5.40% per annum.
Monthly payments are amortized on a 25-year schedule, with a balloon payment due March 15, 2021.
The $5.0 million note bears interest at 5.75% with interest payments due monthly and principal due
March 15, 2021. We obtained financing related to the acquisition of our Pittsburgh USCIS property in December 2004
through an $8.0 million loan from Nomura Credit, which matures on December 11, 2011. The unpaid
principal balance of the note bears interest at a rate of 5.13% per annum. Monthly payments are
amortized on a 25-year schedule, with a balloon payment due December 11, 2011. In April 2005, we obtained financing related to the acquisition of our Portland property through a
$39.1 million loan from Artesia Mortgage Capital Corporation, which matures on May 11, 2015. The
unpaid principal balance of the note bears interest at a rate of 5.49% per annum. Accrued interest
only payments are due monthly through November 11, 2006. From December 11, 2006 through November
11, 2013, monthly payments are amortized on a 30-year schedule. From December 11, 2013 through
April 11, 2015, monthly payments are amortized on a 25-year schedule, with a balloon payment due
May 11, 2015. The mortgages on our properties and our existing lines of credit contain customary restrictive
covenants, including provisions that may limit the borrowing subsidiarys ability, without the
prior consent of the lender, to incur additional indebtedness, further mortgage or transfer the
applicable property, purchase or acquire additional property, discontinue insurance coverage,
change the conduct of its business or make loans or advances to, enter into any transaction of
merger or consolidation with, or acquire the business, assets or equity of, any third party. We entered into a $50 million revolving credit facility in April 2004 led by First National Bank of
Omaha. Outstanding amounts under this facility accrue interest at the floating prime rate, as
published by the Wall Street Journal, which will not be lower than 4%. We paid a commitment fee
equal to 0.50% of the total commitment and will pay an advance fee of 0.50% of each advance. All
amounts provided pursuant to this facility will be due in May 2005. The facility contains customary
restrictive covenants, including limitations on our ability to purchase properties under
development or through unconsolidated affiliates. We are also required to maintain a minimum
tangible net worth of not less than $90 million, a total liabilities to tangible net worth ratio of
no more than 4.0 to 1, and a minimum debt service coverage ratio of 1.2 to 1. We are not allowed to
make distributions that exceed the greater of (i) such amount as is required to be distributed as a
condition our continued status as a REIT, or (ii) $0.25 per common share per quarter. The proceeds
of this facility will be used for short-term acquisition financing for the purchase of federal
government-leased properties that have a minimum remaining lease term of 10 years. This facility
may also be used to provide deposits for purchase contracts or good faith deposits. No amounts
were outstanding under the revolving credit facility at March 31, 2005 and December 31, 2004. The revolving credit facility was to expire on April, 27, 2005. In April 2005, the Company and
First National Bank of Omaha entered into an agreement to extend the expiration of the revolving
credit facility through July 27, 2005. Our long-term liquidity requirements consist primarily of funds to pay for property acquisitions,
scheduled debt maturities, renovations, expansions and other non-recurring capital expenditures
that need to be made periodically to our properties, the costs associated with acquisitions of
properties that we pursue and dividend payments to stockholders. Historically, we have satisfied
our long-term liquidity requirements through various sources of capital, including our existing
working capital, cash provided by operations, sales of equity securities, and long-term mortgage
indebtedness. We intend to establish sinking fund reserves, based on independent third-party
reports, for future capital expenditures. Since we became self-managed in January 2004, we have increased cash expenditures for general and
administrative expenses, including salaries, directors and officers insurance, rent, professional
fees, public company expense, and other corporate level activity. We estimate that our annualized
general and administrative cash expenses for the year ending December 31, 2005 to be in the range
of $3.9 million to $4.3 million. The increase in 2005 general and administrative cash expenses as
compared to the amount incurred in 2004 is in part due to the expected increase in professional
fees to be incurred to be in compliance with Sarbanes Oxley Section 404. The remaining expected
increase in 2005 as compared to 2004 is due a full years effect of being fully staffed in 2005 as
compared to only a portion of 2004. General and administrative cash expenses exclude compensation
expense from the issuance of stock grants which amounted to $864,673 for the year ended December
31, 2004. We believe that our existing cash will be sufficient to fund our operations for at least the next
twelve months. 15




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##### Table of Contents



CASH DISTRIBUTION POLICY We have elected to be treated as a REIT under the federal tax laws commencing as of our taxable
year beginning January 1, 2003. To qualify as a REIT, we must, among other things, distribute at
least 90% of our ordinary taxable income to our stockholders. We intend to comply with these
requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate
federal income taxes on taxable income we distribute (in accordance with the federal tax laws and
applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year,
we will be subject to federal income taxes at regular corporate rates and may not be able to
qualify as a REIT for four subsequent tax years. Even as a REIT, we may be subject to certain state
and local taxes on our income and property and to federal income and excise taxes on our
undistributed taxable income, i.e., taxable income not distributed in the amounts and in the time
frames prescribed by the federal tax laws and applicable regulations thereunder. We intend to pay to our stockholders, within the time periods prescribed by the federal tax laws
(in our case by January 31 of the following year), all or substantially all of our annual taxable
income, including gains from the sale of real estate and recognized gains on sale of securities. We
will continue our policy of making sufficient cash distributions to stockholders for us maintain
REIT status under the federal tax laws and to avoid corporate income and excise tax on
undistributed income. INFLATION Our GSA leases generally contain provisions designed to mitigate the adverse impact of inflation.
These provisions increase rental rates during the terms of the leases by indexed escalations based
on the Consumer Price Index. In addition, our GSA leases generally require the tenant to pay a
share of increases in operating expenses and all increases in real estate taxes. This may reduce
our exposure to increases in costs and operating expenses resulting from inflation. However,
increases in property operating costs above the escalation amount would harm our cash flow and may
harm our ability to pay dividends. FUNDS FROM OPERATIONS REIT analysts generally consider funds from operations or FFO an alternative measure of performance
for an equity REIT. The National Association of Real Estate Investment Trusts, or NAREIT, defines
funds from operations as net income, computed in accordance with accounting principles generally
accepted in the United States (GAAP), excluding gains or losses from sales of properties, but
including real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. We believe that FFO is helpful to investors as one
of several measures of the performance of an equity REIT. We further believe that by excluding the
effect of depreciation, amortization and gains or losses from sales of real estate, all of which
are based on historical costs, which may be of limited relevance in evaluating current performance,
FFO can facilitate comparison of operating performance between periods and between other equity
REITs. Investors should review FFO along with GAAP Net Income Available for Common Shares and cash
flow from operating activities, investing activities and financing activities, when evaluating an
equity REITs operating performance. We compute FFO in accordance with standards established by
NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current NAREIT definition
differently than us. FFO does not represent cash generated from operating activities in accordance
with GAAP, nor does it represent cash available to pay distributions and should not be considered
as an alternative to net income, determined in accordance with GAAP, as an indication of our
financial performance, or to cash flow from operating activities, determined in accordance with
GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash
needs, including our ability to make cash distributions. 16




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##### Table of Contents



The following table presents a reconciliation of GAAP to our funds from operations for the periods
presented: THREE MONTHSENDEDMARCH 31,2005
    
    
    2004Net loss
    
    $
    (59,891
    )
    
    $
    (2,915,738
    )Adjustments to reconcile to funds from
Operations:Real estate depreciation and amortization (a)
    
    
    1,314,817
    
    
    
    277,740Funds from Operations
    
    $
    1,254,926
    
    
    
    (2,637,998
    )Funds from Operations per common share
    
    $
    0.06
    
    
    $
    (0.18
    )Weighted average common shares outstanding
    
    
    20,539,767
    
    
    
    14,712,297
   (a)
    
    Excludes depreciation of non-real estate assets of $7,400 and $2,368 for the three months
ended March 31, 2005 and 2004, respectively. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our future income, cash flows and fair values relevant to financial instruments depend upon
prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in
market prices and interest rates. Market Risk Related to Fixed-Rate Debt As of March 31, 2005, our debt included fixed-rate mortgage notes with a carrying value of
$129.9 million. Changes in market interest rates on our fixed-rate debt impacts the fair market
value of the debt, but it has no impact on interest incurred or cash flow. The sensitivity analysis
related to our fixed debt assumes an immediate 100 basis point move in interest rates from their
actual March 31, 2005 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair
value of our fixed-rate debt by approximately $3.7 million at March 31, 2005. A 100 basis point
decrease in market interest rates would result in an increase in the fair market value of our
fixed-rate debt by approximately $4.0 million at March 31, 2005. INTEREST RATE SENSITIVITY The following table provides information about our financial instruments that are subject to
interest rate sensitivity. The table presents our mortgage notes payable by expected maturity date
and weighted average interest rate as of March 31, 2005. INTEREST RATE SENSITIVITY2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    THEREAFTER
    
    
    TOTALMORTGAGE NOTES PAYABLE:Fixed rate amount
    
    $
    1,574,363
    
    
    $
    2,406,166
    
    
    $
    2,540,099
    
    
    $
    2,702,810
    
    
    $
    28,872,381
    
    
    $
    91,812,241
    
    
    $
    129,908,060Weighted-average interest rate
    
    
    5.91
    %
    
    
    5.76
    %
    
    
    5.76
    %
    
    
    5.77
    %
    
    
    5.51
    %
    
    
    5.85
    %
    
    
    5.77
    %
 
 ITEM 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. Our management continues to review our
internal controls and procedures and the effectiveness of those controls. As of the end of the
period covered by this report, we carried out an evaluation, under the supervision and with the
participation of our CEO and CFO, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of
1934. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective in timely alerting them to material information relating to us (including
our consolidated subsidiaries) required to be included in our periodic SEC filings. Changes in internal control over financial reporting. There have been no significant changes
in the Companys internal controls or in other factors that could significantly affect internal
controls during the quarter ended March 31, 2005. 17




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##### Table of Contents



PART II - OTHER INFORMATION 
 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS We completed a registered public offering on January 26, 2004. The SEC declared the
registration statement for this offering (Form S-11, file nos. 333-109565 and 333-112219) effective
on January 26, 2004. We registered 19,320,000 shares of common stock, including 2,520,000 shares
subject to the underwriters over-allotment option, with an aggregate public offering price of
$193.2 million. The offering terminated upon its completion. We registered for the public offering
through an underwriting syndicate managed by Friedman, Billings, Ramsey & Co., Inc., BB&T Capital
Markets, a Division of Scott & Stringfellow, Inc., and Flagstone Securities, LLC. Our expenses for
the offering included approximately $13.5 million for underwriting discounts and commissions, $0.7
million for reimbursement of underwriter expenses, $2.0 million for other expenses, for a total of
$16.2 million. All of these expenses were paid directly to the recipients and none were paid to any
of our officers, directors, ten percent or greater stockholders, or affiliates. After payment of the foregoing expenses, we received approximately $177.0 million in net
proceeds from the offering. As of
May 3, 2005, we had
used the proceeds as follows:  approximately $5.0 million to repay outstanding indebtedness; 
approximately $105.2 million, net of related mortgages, to complete acquisitions;  approximately $15.5 million for dividend payments. The remainder of the net proceeds are temporarily invested in money market investments and
will ultimately be used for acquisitions, dividends and working capital. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 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
 (b) Reports on Form 8-K: On March 2, 2005 we filed a current report on Form 8-K to furnish our earnings press release
and Supplemental Operating and Financial Data package of financial results for the three months and
year ended December 31, 2004. On March 30, 2005 we filed a current report on Form 8-K to report the acquisition of the
property at 1201 Lloyd Boulevard, Portland, Oregon. 18




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##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOVERNMENT PROPERTIES TRUST, INC.Date: May 5, 2005
    
    By: /s/ NANCY D. OLSONNancy D. OlsonChief Financial Officer and Treasurer(principal financial officer)
 19