##### 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, 2006
 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.)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 þ




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##### 



PAGEPART I  FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements (unaudited)Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005
    
    
    3Consolidated Statements of Operations and Comprehensive Income for the three and nine
months ended September 30, 2006 and 2005 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2006
and 2005 (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
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1. Not ApplicableItem 1A.
Risk Factors
    
    
    20Item 2. Not ApplicableItem 3. Not ApplicableItem 4. Not ApplicableItem 5. Not ApplicableItem 6. Exhibits
    
    
    20Signatures
    
    
    21Ratio of Fixed Charges302 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
(in thousands, except share amounts)
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSReal estate at cost:Land
    
    $
    37,736
    
    
    $
    32,800Buildings and improvements
    
    
    327,904
    
    
    
    280,861Tenant origination costs
    
    
    76,656
    
    
    
    60,405Real estate under development
    
    
    2,115
    
    
    
    16,577Furniture and equipment
    
    
    475
    
    
    
    456444,886
    
    
    
    391,099Accumulated depreciation
    
    
    (25,091
    )
    
    
    (13,295
    )419,795
    
    
    
    377,804Cash and cash equivalents
    
    
    5,685
    
    
    
    4,857Restricted cash escrows
    
    
    5,286
    
    
    
    16,887Tenant receivables
    
    
    9,494
    
    
    
    6,873Notes receivable from tenant
    
    
    552
    
    
    
    603Deferred costs, net
    
    
    3,856
    
    
    
    4,020Real estate deposits
    
    
    
    
    
    
    450Other assets
    
    
    928
    
    
    
    1,583Total assets
    
    $
    445,596
    
    
    $
    413,077LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable and accrued expenses
    
    $
    6,134
    
    
    $
    8,420Dividends payable
    
    
    2,337
    
    
    
    3,110Lines of credit
    
    
    35,080
    
    
    
    17,500Mortgage notes payable
    
    
    251,623
    
    
    
    225,033Total liabilities
    
    
    295,174
    
    
    
    254,063Stockholders equity:Common stock ($0.01 par value;
50,000,000 shares authorized,
20,773,136 and 20,721,612 shares
issued and outstanding at September
30, 2006 and December 31, 2005,
respectively)
    
    
    206
    
    
    
    206Additional paid-in capital
    
    
    189,918
    
    
    
    189,123Accumulated deficit
    
    
    (40,725
    )
    
    
    (30,916
    )Accumulated other comprehensive income
    
    
    1,023
    
    
    
    601Total stockholders equity
    
    
    150,422
    
    
    
    159,014Total liabilities and stockholders equity
    
    $
    445,596
    
    
    $
    413,077
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GOVERNMENT PROPERTIES TRUST, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited and in thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenueRental income
    
    $
    11,696
    
    
    $
    7,822
    
    
    $
    32,527
    
    
    $
    18,287Tenant reimbursements
    
    
    698
    
    
    
    442
    
    
    
    1,873
    
    
    
    754Total revenue
    
    
    12,394
    
    
    
    8,264
    
    
    
    34,400
    
    
    
    19,041ExpensesProperty operations
    
    
    2,017
    
    
    
    1,343
    
    
    
    5,720
    
    
    
    3,322Real estate taxes
    
    
    1,017
    
    
    
    897
    
    
    
    2,955
    
    
    
    1,922Depreciation and amortization
    
    
    4,135
    
    
    
    2,946
    
    
    
    11,796
    
    
    
    6,611General and administrative
    
    
    1,306
    
    
    
    1,304
    
    
    
    3,945
    
    
    
    3,644Total expenses
    
    
    8,475
    
    
    
    6,490
    
    
    
    24,416
    
    
    
    15,499Operating income
    
    
    3,919
    
    
    
    1,774
    
    
    
    9,984
    
    
    
    3,542Other income (expense)Interest income
    
    
    100
    
    
    
    249
    
    
    
    333
    
    
    
    1,348Interest expense
    
    
    (4,269
    )
    
    
    (2,755
    )
    
    
    (11,668
    )
    
    
    (6,226
    )Amortization of deferred financing fees
    
    
    (243
    )
    
    
    (67
    )
    
    
    (671
    )
    
    
    (235
    )Net loss
    
    $
    (493
    )
    
    $
    (799
    )
    
    $
    (2,022
    )
    
    $
    (1,571
    )Earnings per share (basic and diluted)Net loss
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.10
    )
    
    $
    (0.08
    )Distributions declared per share
    
    $
    0.1125
    
    
    $
    0.15
    
    
    $
    0.375
    
    
    $
    0.45Weighted average shares outstanding (basic and diluted)
    
    
    20,636
    
    
    
    20,578
    
    
    
    20,624
    
    
    
    20,565Net loss
    
    $
    (493
    )
    
    $
    (799
    )
    
    $
    (2,022
    )
    
    $
    (1,571
    )Other comprehensive (loss) incomeUnrealized derivative (loss) gain on
forward-starting interest rate swaps
    
    
    (2,410
    )
    
    
    1,563
    
    
    
    462
    
    
    
    194Comprehensive (loss) income
    
    $
    (2,903
    )
    
    $
    764
    
    
    $
    (1,560
    )
    
    $
    (1,377
    )
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GOVERNMENT PROPERTIES TRUST, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
 Nine Months EndedSeptember 30,2006
    
    
    2005Operating activitiesNet loss
    
    $
    (2,022
    )
    
    $
    (1,571
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    11,796
    
    
    
    6,611Amortization of deferred financing fees
    
    
    671
    
    
    
    235Amortization of premium on mortgage notes payable
    
    
    (75
    )
    
    
    (25
    )Compensation expense
    
    
    550
    
    
    
    543Changes in assets and liabilities:Tenant receivables
    
    
    (2,621
    )
    
    
    (4,131
    )Restricted cash escrows
    
    
    (180
    )
    
    
    (2,967
    )Other assets
    
    
    1,078
    
    
    
    (245
    )Accounts payable and accrued expenses
    
    
    2,021
    
    
    
    3,825Net cash provided by (used in) operating activities
    
    
    11,218
    
    
    
    2,275Investing activitiesExpenditures for real estate
    
    
    (36,929
    )
    
    
    (170,644
    )Deposits on future real estate purchases
    
    
    
    
    
    
    (300
    )Development of real estate assets
    
    
    (11,578
    )
    
    
    (8,277
    )Restricted cash escrows
    
    
    11,781
    
    
    
    (15,359
    )Note receivable from tenant
    
    
    50
    
    
    
    46Expenditures for furniture and equipment
    
    
    (18
    )
    
    
    (237
    )Net cash used in investing activities
    
    
    (36,694
    )
    
    
    (194,771
    )Financing activitiesFinancing fees
    
    
    (507
    )
    
    
    (1,581
    )Net borrowings under lines of credit
    
    
    17,580
    
    
    
    Proceeds from mortgage notes payable
    
    
    19,950
    
    
    
    117,582Principal payments on mortgage notes payable
    
    
    (2,159
    )
    
    
    (1,185
    )Dividends paid
    
    
    (8,560
    )
    
    
    (9,321
    )Net cash provided by financing activities
    
    
    26,304
    
    
    
    105,495Net increase (decrease) in cash and cash equivalents
    
    
    828
    
    
    
    (87,001
    )Cash and cash equivalents, beginning of period
    
    
    4,857
    
    
    
    93,815Cash and cash equivalents, end of period
    
    $
    5,685
    
    
    $
    6,814Non-Cash Investing ActivityAccounts payable and accrued expenses included in real estate, net
    
    $
    4,220
    
    
    $
    2,767Non-Cash Financing ActivityAssumption of mortgage note payable included in real estate, net
    
    $
    8,876
    
    
    $
    15,753
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GOVERNMENT PROPERTIES TRUST, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Basis of Presentation
   Nature of Business and Operations
  Recently Issued Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109
 Common Stock and Earnings Per Share
  Deferred Costs
  September 30,
    
    
    December 31,2006
    
    
    2005Financing costs
    
    $
    5,163
    
    
    $
    4,656Accumulated amortization
    
    
    (1,307
    )
    
    
    (636
    )$
    3,856
    
    
    $
    4,020
 Equity Incentive Plan
 Share-Based Payment
 6




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Mortgage Notes Payable and Line-of-Credit
  September 30,
    
    
    December 31,2006
    
    
    2005Mortgage 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, 2006 and December 31, 2005 was
5.83% and 5.80%, respectively.
    
    $
    250,268
    
    
    $
    223,601Lines of CreditLine-of-credit with a financial
institution for property acquisitions
(maximum borrowing level of $65
million and available through
November 20, 2008). The weighted
average interest rate at September
30, 2006 and December 31, 2005 was
equal to 6.73% and 5.57%,
respectively. Advances are
collateralized by various
properties.(D)
    
    $
    35,080
    
    
    $
    17,500Line-of-credit with a financial
institution for property acquisitions
(maximum borrowing level of $10
million and available through April
2007). Advances are unsecured.(E)
    
    $
    
    
    
    $
    
 
 (A)
    
    The mortgages notes payable are subject to various operating covenants. In addition, the
Company must periodically fund and maintain escrow accounts, to make 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)
    
    Certain of the Companys real estate assets have been pledged as collateral for its mortgages
notes payable. The amount of gross assets that have been encumbered is $360.3 million and
$309.0 million at September 30, 2006 and December 31, 2005, respectively.(C)
    
    Amounts exclude a premium of $1.4 million at September 30, 2006 and December 31, 2005 related
to the above market interest rate on a mortgage assumed.(D)
    
    This line-of-credit facility was obtained in November 2005 and bears an interest rate equal
to either (a) a base rate determined by the higher of the prime rate or the federal funds rate
plus 1/2 of 1%, or (b) an applicable margin, based upon the Companys total indebtedness to
total asset value, plus LIBOR. At September 30, 2006 and December 31, 2005, the margin was
LIBOR plus 1.40% and LIBOR plus 1.20%, respectively. Payments are interest only through the
term and are payable at least quarterly. The line-of-credit facility contains certain
covenants including maintenance of leverage, minimum fixed charge coverage ratios, minimum
tangible net worth and limitations on certain indebtedness, guarantees and cash dividends.
Advances under the line-of- 7




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credit totaled $17.58 million for the nine months ended September 30, 2006 and $17.5 million
during the year ended December 31, 2005. In addition, the Company has drawn a total of $9.5
million of Letters of Credit during 2006. The line-of-credit facility is guaranteed by the
Company. The amount of gross assets that have been encumbered is $82.0 million at September 30,
2006 and $81.5 million at December 31, 2005. In April 2006, the maximum borrowing level of the
line-of-credit was increased from $50 million to $65 million.(E)
    
    This line-of-credit facility was obtained in April 2006 and is subject to the covenants
described above in Item (D). Borrowings under this facility bear an interest rate equal to an
applicable margin, based upon our total indebtedness to total asset value, plus the three
month LIBOR rate. Any borrowings on the credit facility would be priced at LIBOR plus 2.40% as
of September 30, 2006. Payments are interest only through the term of the credit facility and
are payable monthly.  Derivative Instruments and Hedging Activities
   Related Party Transactions
  Property Acquisitions
  8




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Acquisition
    
    
    MonthProperty
    
    Location
    
    Cost
    
    
    Acquired(in thousands)2005 acquisitions(A):1201 Lloyd Boulevard (Portland Property)
    
    Portland, OR
    
    $
    50,653
    
    
    MarchNiagara Center (Buffalo Niagara Center Property)
    
    Buffalo, NY
    
    
    71,673
    
    
    MaySocial Security Administration (Buffalo SSA Property)
    
    Buffalo, NY
    
    
    5,435
    
    
    MayDrug Enforcement Administration (Sterling DEA Property)(B)
    
    Sterling, VA
    
    
    21,070
    
    
    SeptemberInternal Revenue Service (Martinsburg IRS Property)(C)
    
    Martinsburg, WV
    
    
    30,643
    
    
    JulySocial Security Administration (Dallas SSA Property)
    
    Dallas, TX
    
    
    9,583
    
    
    SeptemberArmy Corps of Engineers (Vicksburg MS Property)
    
    Vicksburg, MS
    
    
    26,850
    
    
    November$
    215,9072006 acquisitions(A):Riverside County (Riverside Property)(D)
    
    Riverside, CA
    
    $
    18,415
    
    
    FebruaryUnited States Citizenship and Immigration Service (Harlingen USCIS Property)
    
    Harlingen, TX
    
    
    27,330
    
    
    May$
    45,745
 
 (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)
    
    In connection with the purchase of this property, the Company assumed a first mortgage note
in the amount of $15.8 million. Also included in the acquisition cost is an amount of $1.5
million related to the premium recognized on the above market interest rate on the assumed
mortgage.(C)
    
    Under terms of the existing lease, the federal government has an option to purchase the
Martinsburg IRS Property for approximately $24.8 million. Real estate at cost, net of
accumulated depreciation of the Martinsburg IRS Property, was $29.4 million at September 30,
2006.(D)
    
    In connection with the purchase of this property, the Company assumed a first mortgage note
in the amount of $8.9 million. Real Estate Development
  Unaudited Pro Forma Condensed Consolidated Financial Information
  Date PropertyBegan OperationBuffalo SSA Property
    
    June 2005Dallas SSA Property
    
    August 2005
 9




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Pro Forma Condensed Consolidated Financial Information  (Unaudited and in thousands, except per share amounts)
 Nine MonthsEnded September 30,2006
    
    
    2005Total revenue
    
    $
    35,817
    
    
    $
    30,110Net loss
    
    $
    (1,936
    )
    
    $
    (2,161
    )Loss per diluted common share
    
    $
    (0.09
    )
    
    $
    (0.10
    )
 Subsequent Events
  10




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
    
    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;
    
    our adequacy of our available capital for future capital requirements;
    
    our capital expenditures;
    
    the impact of changes in interest rates; and
    
    the completion of our merger agreement with Record Realty Trust.
        11




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Comparison of three months ended September 30, 2006 to September 30, 2005
   Acquired
    
    
    General &Same Properties Portfolio
    
    
    Properties
    
    
    Administrative
    
    
    Total Portfolio(in thousands)
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    ChangeRevenue:Rental income
    
    $
    5,231
    
    
    $
    4,314
    
    
    $
    917
    
    
    $
    6,465
    
    
    $
    3,508
    
    
    $
    
    
    
    $
    
    
    
    $
    11,696
    
    
    $
    7,822
    
    
    $
    3,874Tenant
reimbursements and
other
    
    
    255
    
    
    
    298
    
    
    
    (43
    )
    
    
    443
    
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    442
    
    
    
    256Total revenue
    
    
    5,486
    
    
    
    4,612
    
    
    
    874
    
    
    
    6,908
    
    
    
    3,652
    
    
    
    
    
    
    
    
    
    
    
    12,394
    
    
    
    8,264
    
    
    
    4,130Expenses:Property operations
    
    
    716
    
    
    
    648
    
    
    
    68
    
    
    
    1,301
    
    
    
    695
    
    
    
    
    
    
    
    
    
    
    
    2,017
    
    
    
    1,343
    
    
    
    674Real estate taxes
    
    
    614
    
    
    
    685
    
    
    
    (71
    )
    
    
    403
    
    
    
    212
    
    
    
    
    
    
    
    
    
    
    
    1,017
    
    
    
    897
    
    
    
    120Depreciation and
amortization
    
    
    1,515
    
    
    
    1,298
    
    
    
    217
    
    
    
    2,601
    
    
    
    1,639
    
    
    
    19
    
    
    
    9
    
    
    
    4,135
    
    
    
    2,946
    
    
    
    1,189General and
administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,306
    
    
    
    1,304
    
    
    
    1,306
    
    
    
    1,304
    
    
    
    2Total expenses
    
    
    2,845
    
    
    
    2,631
    
    
    
    214
    
    
    
    4,305
    
    
    
    2,546
    
    
    
    1,325
    
    
    
    1,313
    
    
    
    8,475
    
    
    
    6,490
    
    
    
    1,985Operating
income(loss)
    
    
    2,641
    
    
    
    1,981
    
    
    
    660
    
    
    
    2,603
    
    
    
    1,106
    
    
    
    (1,325
    )
    
    
    (1,313
    )
    
    
    3,919
    
    
    
    1,774
    
    
    
    2,145Interest income
    
    
    38
    
    
    
    104
    
    
    
    (66
    )
    
    
    6
    
    
    
    24
    
    
    
    56
    
    
    
    121
    
    
    
    100
    
    
    
    249
    
    
    
    (149
    )Interest expense
    
    
    (1,858
    )
    
    
    (1,740
    )
    
    
    (118
    )
    
    
    (1,816
    )
    
    
    (1,015
    )
    
    
    (595
    )
    
    
    
    
    
    
    (4,269
    )
    
    
    (2,755
    )
    
    
    (1,514
    )Amortization of
deferred financing
fees
    
    
    (55
    )
    
    
    (54
    )
    
    
    (1
    )
    
    
    (18
    )
    
    
    (6
    )
    
    
    (170
    )
    
    
    (7
    )
    
    
    (243
    )
    
    
    (67
    )
    
    
    (176
    )Net income (loss)
    
    $
    766
    
    
    $
    291
    
    
    $
    475
    
    
    $
    775
    
    
    $
    109
    
    
    $
    (2,034
    )
    
    $
    (1,199
    )
    
    $
    (493
    )
    
    $
    (799
    )
    
    $
    306
   12




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##### Table of Contents



Comparison of nine months ended September 30, 2006 to September 30, 2005
  Acquired
    
    
    General &Same Properties Portfolio
    
    
    Properties
    
    
    Administrative
    
    
    Total Portfolio(in thousands)
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    ChangeRevenue:Rental income
    
    $
    14,651
    
    
    $
    12,935
    
    
    $
    1,716
    
    
    $
    17,876
    
    
    $
    5,352
    
    
    $
    
    
    
    $
    
    
    
    $
    32,527
    
    
    $
    18,287
    
    
    $
    14,240Tenant
reimbursements and
other
    
    
    660
    
    
    
    482
    
    
    
    178
    
    
    
    1,213
    
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    1,873
    
    
    
    754
    
    
    
    1,119Total revenue
    
    
    15,311
    
    
    
    13,417
    
    
    
    1,894
    
    
    
    19,089
    
    
    
    5,624
    
    
    
    
    
    
    
    
    
    
    
    34,400
    
    
    
    19,041
    
    
    
    15,359Expenses:Property operations
    
    
    2,073
    
    
    
    2,184
    
    
    
    (111
    )
    
    
    3,647
    
    
    
    1,138
    
    
    
    
    
    
    
    
    
    
    
    5,720
    
    
    
    3,322
    
    
    
    2,398Real estate taxes
    
    
    1,791
    
    
    
    1,594
    
    
    
    197
    
    
    
    1,164
    
    
    
    328
    
    
    
    
    
    
    
    
    
    
    
    2,955
    
    
    
    1,922
    
    
    
    1,033Depreciation and
amortization
    
    
    4,373
    
    
    
    3,892
    
    
    
    481
    
    
    
    7,367
    
    
    
    2,694
    
    
    
    56
    
    
    
    25
    
    
    
    11,796
    
    
    
    6,611
    
    
    
    5,185General and
administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,945
    
    
    
    3,644
    
    
    
    3,945
    
    
    
    3,644
    
    
    
    301Total expenses
    
    
    8,237
    
    
    
    7,670
    
    
    
    567
    
    
    
    12,178
    
    
    
    4,160
    
    
    
    4,001
    
    
    
    3,669
    
    
    
    24,416
    
    
    
    15,499
    
    
    
    8,917Operating
income(loss)
    
    
    7,074
    
    
    
    5,747
    
    
    
    1,327
    
    
    
    6,911
    
    
    
    1,464
    
    
    
    (4,001
    )
    
    
    (3,669
    )
    
    
    9,984
    
    
    
    3,542
    
    
    
    6,442Interest income
    
    
    194
    
    
    
    216
    
    
    
    (22
    )
    
    
    33
    
    
    
    39
    
    
    
    106
    
    
    
    1,093
    
    
    
    333
    
    
    
    1,348
    
    
    
    (1,015
    )Interest expense
    
    
    (5,398
    )
    
    
    (4,814
    )
    
    
    (584
    )
    
    
    (4,872
    )
    
    
    (1,412
    )
    
    
    (1,398
    )
    
    
    
    
    
    
    (11,668
    )
    
    
    (6,226
    )
    
    
    (5,442
    )Amortization of
deferred financing
fees
    
    
    (163
    )
    
    
    (147
    )
    
    
    (16
    )
    
    
    (49
    )
    
    
    (10
    )
    
    
    (459
    )
    
    
    (78
    )
    
    
    (671
    )
    
    
    (235
    )
    
    
    (436
    )Net income (loss)
    
    $
    1,707
    
    
    $
    1,002
    
    
    $
    705
    
    
    $
    2,023
    
    
    $
    81
    
    
    $
    (5,752
    )
    
    $
    (2,654
    )
    
    $
    (2,022
    )
    
    $
    (1,571
    )
    
    $
    (451
    )
  13




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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; and
    
    general and administrative expenses.
   Balance as ofLender
    
    Collateral
    
    September 30, 2006(In Millions)CW Capital
    
    Bakersfield DEA property
    
    $
    1.4CW Capital
    
    Baton Rouge VA property
    
    
    4.7LaSalle Bank/GEMSA
    
    Charleston SSA property
    
    
    13.4LaSalle Bank/GEMSA
    
    Clarksburg GSA property
    
    
    8.0Charleston FederalCW Capital
    
    Courthouse property
    
    
    14.3Capital Realty
    
    College Park FDA property
    
    
    16.0Key Bank
    
    Dallas SSA property
    
    
    6.2CW Capital
    
    Harlingen USCIS property
    
    
    19.9Bank of America
    
    Kingsport SSA property
    
    
    2.2Wachovia Bank
    
    Lenexa FDA property
    
    
    7.7PNC Bank
    
    Martinsburg IRS property
    
    
    19.6Bank of New York
    
    Parkersburg BPD property
    
    
    31.5PNC Bank
    
    Pittsburgh FBI property
    
    
    20.2Nomura Credit
    
    Pittsburgh USCIS property
    
    
    7.7Wachovia Bank
    
    Portland property
    
    
    39.1Northwestern Mutual
    
    Sterling DEA property
    
    
    15.2J.P. Morgan Chase
    
    Riverside County property
    
    
    8.8Merrill Lynch
    
    Vicksburg property
    
    
    14.4250.3Premium on mortgage debt (Sterling DEA property)
    
    
    
    
    1.4Total  Mortgage Notes Payable
    
    
    
    $
    251.7
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Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (493
    )
    
    $
    (799
    )
    
    $
    (2,022
    )
    
    $
    (1,571
    )Adjustments to reconcile to funds from operations:Real estate depreciation and amortization (a)
    
    
    4,116
    
    
    
    2,936
    
    
    
    11,740
    
    
    
    6,586Funds from operations
    
    $
    3,623
    
    
    $
    2,137
    
    
    $
    9,718
    
    
    $
    5,015Funds from operations per common share
    
    $
    0.18
    
    
    $
    0.10
    
    
    $
    0.47
    
    
    $
    0.24
 
 (a)
    
    Excludes depreciation of non-real estate assets of $19,000 and $10,000 for the three months
ended September 30, 2006 and 2005, respectively, and $56,000 and $25,000 for the nine months
ended September 30, 2006 and 2005, respectively. 19




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2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    THEREAFTER
    
    
    TOTALMORTGAGE NOTES PAYABLE:Fixed rate amount
    
    $
    4,142
    
    
    $
    4,468
    
    
    $
    31,000
    
    
    $
    4,418
    
    
    $
    4,695
    
    
    $
    201,545
    
    
    $
    250,268Weighted-average interest rate
    
    
    5.98
    %
    
    
    5.98
    %
    
    
    5.56
    %
    
    
    6.07
    %
    
    
    6.08
    %
    
    
    5.86
    %
    
    
    5.83
    %
 
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12.1
    
    Ratio of Fixed Charges31.1
    
    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 5, 2006
    
    By:
    
    /s/ NANCY D. OLSONNancy D. Olson
        Chief Financial Officer and Treasurer
        (principal financial officer)
 23