First Potomac Realty Trust ReportsThird Quarter 2009 Results

http://www.businesswire.com/news/home/20091029006397/en

BETHESDA, Md.--(Business Wire)--
First Potomac Realty Trust (NYSE: FPO), a self-administered, self-managed real
estate investment trust that focuses on owning, operating, developing and
redeveloping business parks and industrial properties in the Washington, D.C.
metropolitan area and other major markets in Virginia and Maryland, reported
results for the three and nine months ended September 30, 2009.

Third Quarter and Subsequent Event Highlights:

* Funds From Operations of $10.7 million, or $0.37 per diluted share, including
$0.02 from gains on the retirement of debt.
* Retires $8.5 million of its Exchangeable Senior Notes at a 12% discount,
resulting in a gain of $0.6 million.
* Same-property net operating income increases by 3.3% on an accrual basis.
* Executes 450,000 square feet of leases.
* Completes acquisition totaling 174,000 square feet for $25.5 million.

The Company`s funds from operations ("FFO") for the third quarter of 2009 were
$10.7 million, or $0.37 per diluted share ($0.35 per diluted share, excluding
gains on the retirement of debt), compared with $9.4 million, or $0.38 per
diluted share, during the third quarter of 2008. The Company`s net income
attributable to common shareholders for the third quarter of 2009 increased to
$0.6 million, or $0.02 per diluted share, compared with net income attributable
to common shareholders of $0.3 million, or $0.01 per diluted share, for the
third quarter of 2008.

The Company's FFO for the first nine months of 2009 increased to $37.1 million,
or $1.31 per diluted share ($1.09 per diluted share, excluding gains on the
retirement of debt), compared with $32.0 million, or $1.28 per diluted share
($1.16 per diluted share, excluding gains on the retirement of debt), for the
first nine months of 2008. The Company reported net income attributable to
common shareholders for the first nine months of 2009 of $7.2 million, or $0.25
per diluted share, compared with net income attributable to common shareholders
of $17.8 million, or $0.73 per diluted share, for the first nine months of 2008,
which included a gain from the sale of a property of $14.3 million, or $0.57 per
diluted share after noncontrolling interests.

Douglas J. Donatelli, chief executive officer of First Potomac Realty Trust
stated "Our performance in the third quarter demonstrates the strength of our
operating model and the resiliency of the markets in which we operate. We
continued to successfully execute leases, which contributed to our positive NOI
growth in the quarter. Due to the efforts of our strong team, the quality of our
assets, and our locations, most of our properties are out-performing the market
in net absorption, leasing and rental rates."

Mr. Donatelli continued, "In terms of our investment strategy, we have always
adhered to a disciplined approach and avoided the aggressive asset pricing of
the past few years. We now believe there will be more opportunities, such as our
recent acquisition of Cloverleaf Center in Germantown, Maryland. We have
continued to improve our financial flexibility through the retirement of debt
and the cost-effective issuance of capital under our controlled equity offering
program. We will continue to focus on improving our balance sheet by extending
our maturities in order to be positioned to pursue other select opportunities
that will contribute to our growth as we move forward."

The Company`s consolidated portfolio (excludes a property owned through an
unconsolidated joint venture that was 100% leased and occupied) was 86.9% leased
and 86.6% occupied at September 30, 2009. A list of the Company's properties, as
well as additional information regarding the Company`s results of operations can
be found in the Company's Third Quarter 2009 Supplemental Financial Report,
which is posted on the Company's website, www.first-potomac.com.

Property Operations

During the third quarter of 2009, the Company executed 450,000 square feet of
leases, consisting of 80,000 square feet of new leases and 370,000 square feet
of renewal leases. Significant new leases included 24,000 square feet at 1400
Cavalier Boulevard, which is located in the Company`s Southern Virginia region,
and 18,000 square feet at Annapolis Commerce Park East, which is located in the
Company`s Maryland region. Rent from the majority of these leases is expected to
commence by the end of the first quarter of 2010. The 325,000 square feet of
renewal leases in the quarter reflects a 90% retention rate. Renewal leases
during the quarter included 79,000 square feet at Annapolis Commerce Park East,
66,000 square feet at Crossways Commerce Center and 59,000 square feet at
Frederick Industrial Park.

Same-property net operating income ("Same-Property NOI") increased $0.7 million,
or 3.3%, and $1.5 million, or 2.3%, on an accrual basis for the three and nine
months ended September 30, 2009, respectively. The Company`s Virginia properties
continued to benefit from the Company`s successful 2008 leasing year as
Same-Property NOI increased 9.1% and 7.4% for the Company`s Northern Virginia
region and 9.8% and 10.3% for the Company`s Southern Virginia region during the
three and nine months ended September 30, 2009, respectively. Same-Property NOI
decreased 8.7% and 10.1% for the Maryland region for the three and nine months
ended September 30, 2009, respectively, due to an increase in vacancy and
reserves for anticipated bad debt expense, particularly among the Company`s
Baltimore-area properties. The Company recorded reserves for estimated
uncollectible revenues of $0.4 million and $1.8 million for the three and nine
months ended September 30, 2009, respectively. At September 30, 2009, the
annualized revenue associated with tenants with bad debt reserves for the entire
Company comprised approximately 2% of the Company`s total annualized revenue.

Liquidity and Financing Activity

During the third quarter and through the date of this release, the Company sold
1.7 million common shares through its cost-effective controlled equity offering
agreement at a weighted average offering price of $10.73 per share, generating
net proceeds of approximately $17.9 million. The Company used the proceeds to
retire a portion of its Exchangeable Senior Notes at a discount, to reduce a
portion of its unsecured revolving credit facility and to fund the cash portion
of the Cloverleaf Center acquisition, which closed in October 2009. Since May
and through the date of this release, the Company has sold a total of 2.2
million common shares through its controlled equity offering agreement,
generating net proceeds of $23.3 million.

In the third quarter 2009, the Company retired $8.5 million, of its Exchangeable
Senior Notes, at a weighted average discount of 12%, which resulted in a gain of
$0.6 million, or $0.02 per diluted share after noncontrolling interests, net of
deferred financing costs and discounts. For the nine months ended September 30,
2009, the Company retired $34.5 million of its Exchangeable Senior Notes, which
resulted in a gain of $6.3 million, or $0.22 per diluted share after
noncontrolling interests, net of deferred financing costs and discounts.

Balance Sheet

The Company had $614.6 million of debt outstanding at September 30, 2009. Of the
total debt outstanding, $405.4 million was fixed-rate debt with a weighted
average effective interest rate of 5.8% and a weighted average maturity of 3.9
years. The Company had $94.8 million of variable-rate term debt, which was
hedged through various interest rate swap agreements that fixed the loans`
respective interest rates. These loans had a weighted average effective interest
rate of 4.8% and a weighted average maturity of 1.9 years. At September 30,
2009, the Company`s variable interest rates consisted of borrowings of $99.4
million on its unsecured revolving credit facility and $15.0 million on a
secured term loan. These obligations had a weighted average interest rate of
1.6% and a maturity of 1.6 years. The Company`s interest coverage ratio was 2.3
times for the quarter ended September 30, 2009.

As of September 30, 2009, approximately $30 million, or 4.9%, of the Company`s
debt was scheduled to mature prior to January 1, 2011. In October 2009, the
Company repaid a $1.7 million mortgage loan encumbering 4200 Tech Court with
available cash. As a result, the Company now has $4.5 million in debt maturing
in 2009 and approximately $24 million maturing in late 2010. The above figures
do not include the Company`s two secured term loans and its unsecured revolving
credit facility, which all mature in 2010 and have one-year extensions that are
exercisable at the Company`s option. The Company intends to exercise its
extension options on the applicable debt instruments or refinance the debt
before it reaches maturity.

Subsequent Events

In October, the Company closed on Cloverleaf Center, a four-building, 174,000
square foot business park for $25.5 million in Germantown, Maryland. The
property is 97% leased to seven tenants. The acquisition was financed with a
$17.5 million mortgage loan and available cash.

Dividends

On October 27, 2009, the Company declared a dividend of $0.20 per common share.
The dividend will be paid on November 13, 2009, to common shareholders of record
as of November 6, 2009.

Earnings and FFO Guidance

The Company raised its FFO guidance range for 2009 to $1.62 to $1.64 per diluted
share from the prior range of $1.56 to $1.62 per diluted share. The revised
range reflects the gain on the retirement of debt realized in the third quarter
along with better than anticipated property performance in the third quarter,
partially offset by a higher share count and anticipated tenant move-outs during
the fourth quarter.

Investor Conference Call and Webcast

First Potomac Realty Trust will host a conference call on Friday, October 30,
2009 at 9:00 a.m. ET, to discuss third quarter results. The number to call for
this interactive teleconference is (877) 407-0784 or (201) 689-8560 for
international participants. A replay of the conference call will be available
through November 13, 2009, by dialing (877) 660-6853 or (201) 612-7415 for
international callers, and entering account number 3055 and confirmation number,
334038 when prompted for the pass code.

A live broadcast of the conference call will be available online and can be
accessed from the Investor Information page of the Company's website,
www.first-potomac.com, on Friday, October 30, 2009, beginning at 9:00 a.m. ET.
An online replay will be available on the above site shortly after the call and
will continue for 90 days.

About First Potomac Realty Trust

First Potomac Realty Trust is a self-administered, self-managed real estate
investment trust that focuses on owning, operating, developing and redeveloping
business parks and industrial properties in the Washington, D.C. metropolitan
area and other major markets in Virginia and Maryland. The Company`s portfolio
totals approximately 12 million square feet. The Company's largest tenant is the
U.S. Government, which along with government contractors, accounts for
approximately 20% of the Company`s revenue.

Non-GAAP Financial Measures

Funds from Operations - Funds from operations represents net income before
minority interests (computed in accordance with U.S. generally accepted
accounting principles ("GAAP")), plus real estate-related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures and gains or losses on the sale of property. The Company also excludes,
from its FFO calculation, any depreciation and amortization related to third
parties from its consolidated joint venture. The Company considers FFO a useful
measure of performance for an equity REIT because it facilitates an
understanding of the operating performance of its properties without giving
effect to real estate depreciation and amortization, which assume that the value
of real estate assets diminishes predictably over time. Since real estate values
have historically risen or fallen with market conditions, the Company believes
that FFO provides a meaningful indication of its performance. The Company also
considers FFO an appropriate performance measure given its wide use by investors
and analysts. The Company computes FFO in accordance with standards established
by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in
November 1999 and April 2002), which may differ from the methodology for
calculating FFO utilized by other equity real estate investment trusts ("REITs")
and, accordingly, may not be comparable to such other REITs. Further, FFO does
not represent amounts available for management`s discretionary use because of
needed capital replacement or expansion, debt service obligations or other
commitments and uncertainties, nor is it indicative of funds available to fund
the Company`s cash needs, including its ability to make distributions. The
Company presents FFO per diluted share calculations that are based on the
outstanding dilutive common shares plus the outstanding Operating Partnership
units for the periods presented.

The Company`s presentation of FFO in accordance with the NAREIT white paper, or
as adjusted by the Company, should not be considered as an alternative to net
income (computed in accordance with GAAP) as an indicator of the Company`s
financial performance or to cash flow from operating activities (computed in
accordance with GAAP) as an indicator of its liquidity. The Company`s FFO
calculations are reconciled to net income in the Company`s Consolidated
Statements of Operations included in this release.

NOI - The Company defines net operating income ("NOI") as operating revenues
(rental income, tenant reimbursements and other income) less property and
related expenses (property expenses, real estate taxes and insurance).
Management believes that NOI is a useful measure of the Company`s property
operating performance as it provides a performance measure of the revenues and
expenses directly associated with owning, developing, redeveloping and operating
industrial properties and business parks, and provides a prospective not
immediately apparent from net income or FFO. Other REITs may use different
methodologies for calculating NOI, and accordingly, the Company`s NOI may not be
comparable to other REITs. The Company`s NOI calculations are reconciled to
total revenues and total operating expenses at the end of this release.

Same-Property NOI - The Company defines same-property NOI as NOI for the
Company`s properties wholly owned during the entirety of the periods reported.
The Company`s same-property NOI calculations are reconciled to NOI at the end of
this release.

Forward Looking Statements

The forward-looking statements contained in this press release are subject to
various risks and uncertainties. Although the Company believes the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, there can be no assurance that its expectations will be achieved.
Certain factors that could cause actual results to differ materially from the
Company`s expectations include changes in general or regional economic
conditions; the Company`s ability to timely lease or re-lease space at current
or anticipated rents; changes in interest rates; changes in operating costs; the
Company`s ability to complete acquisitions on acceptable terms; and other risks
detailed in the Company`s Annual Report on Form 10-K and described from time to
time in the Company`s filings with the SEC. Many of these factors are beyond the
Company`s ability to control or predict. Forward-looking statements are not
guarantees of performance. For forward-looking statements herein, the Company
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. The Company
assumes no obligation to update or supplement forward-looking statements that
become untrue because of subsequent events.

FIRST POTOMAC REALTY TRUST
Consolidated Statements of Operations
(unaudited, amounts in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008

Revenues:
Rental $ 27,149 $ 25,491 $ 80,885 $ 75,316
Tenant reimbursements and other 5,725 5,577 18,134 16,304

Total revenues 32,874 31,068 99,019 91,620
Operating expenses:
Property operating 8,149 7,160 24,518 20,091
Real estate taxes and insurance 3,183 3,173 9,709 9,122
General and administrative 3,609 2,797 9,487 8,336
Depreciation and amortization 10,132 9,113 30,183 27,373

Total operating expenses 25,073 22,243 73,897 64,922

Operating income 7,801 8,825 25,122 26,698
Other expenses (income):
Interest expense 7,929 8,635 24,368 27,302
Interest and other income (150 ) (142 ) (406 ) (377 )
Equity in losses of affiliate 38 - 92 -
Gain on early retirement of debt (640 ) - (6,346 ) (3,006 )

Total other expenses 7,177 8,493 17,708 23,919
Income from continuing operations 624 332 7,414 2,779

Discontinued operations:
Income from operations of disposed property - - - 1,335
Gain on sale of disposed property - - - 14,274

Income from discontinued operations - - - 15,609

Net income 624 332 7,414 18,388
Less: Net income attributable to noncontrolling interests in the Operating Partnership (16 ) (10 ) (202 ) (567 )

Net income attributable to common shareholders $ 608 $ 322 $ 7,212 $ 17,821

Depreciation and amortization:
Real estate assets 10,132 9,113 30,183 27,373
Discontinued operations - - - 479
Unconsolidated joint venture 91 - 202 -
Consolidated joint venture (149 ) - (652 ) -
Gain on sale of disposed property - - - (14,274 )
Net income attributable to noncontrolling interests 16 10 202 567

Funds from operations (FFO) $ 10,698 $ 9,445 $ 37,147 $ 31,966

Net income attributable to common shareholders per share - basic and diluted:
Income from continuing operations $ 0.02 $ 0.01 $ 0.25 $ 0.10
Income from discontinued operations - - - 0.63
Net income $ 0.02 $ 0.01 $ 0.25 $ 0.73

Weighted average common shares outstanding - basic 28,134 24,150 27,434 24,121
Weighted average common shares outstanding - diluted 28,231 24,204 27,502 24,172

FFO per share - basic $ 0.37 $ 0.38 $ 1.32 $ 1.28
FFO per share - diluted $ 0.37 $ 0.38 $ 1.31 $ 1.28
FFO per share - diluted, excluding gain on early retirement of debt $ 0.35 $ 0.38 $ 1.09 $ 1.16

Weighted average common shares and units outstanding - basic 28,894 24,927 28,203 24,901
Weighted average common shares and units outstanding - diluted 28,991 24,980 28,271 24,952

FIRST POTOMAC REALTY TRUST
Consolidated Balance Sheets
(Amounts in thousands, except per share amounts)

September 30, 2009 December 31, 2008
(unaudited)
Assets:
Rental property, net $ 961,340 $ 994,913
Cash and cash equivalents 11,968 16,352
Escrows and reserves 9,141 8,808
Accounts and other receivables, net of allowance for
doubtful accounts of $2,050 and $935, respectively 6,257 6,872
Accrued straight-line rents, net of allowance for
doubtful accounts of $1,034 and $575, respectively 10,424 8,727
Investment in affiliate 1,909 -
Deferred costs, net 17,619 17,165
Prepaid expenses and other assets 9,835 6,365
Intangible assets, net 15,089 21,047

Total assets $ 1,043,582 $ 1,080,249

Liabilities:
Mortgage loans $ 291,747 $ 322,846
Exchangeable senior notes, net 48,485 80,435
Senior notes 75,000 75,000
Secured term loans 100,000 100,000
Unsecured revolving credit facility 99,400 75,500
Financing obligation 4,157 11,491
Accounts payable and other liabilities 15,465 18,022
Accrued interest 3,780 2,491
Rents received in advance 5,924 4,812
Tenant security deposits 5,031 5,243
Deferred market rent, net 6,393 8,489

Total liabilities 655,382 704,329

Noncontrolling interests in the Operating Partnership
(redemption value of $8,470 and $7,186, respectively) 9,800 10,627

Shareholders' equity:
Common shares, $0.001 par value, 100,000 shares
authorized; 29,966 and 27,353 shares issued and
outstanding, respectively 30 27
Additional paid-in capital 509,807 484,825
Accumulated other comprehensive loss (2,394 ) (3,823 )
Dividends in excess of accumulated earnings (129,043 ) (115,736 )

Total shareholders' equity 378,400 365,293

Total liabilities, noncontrolling interests and shareholders` equity $ 1,043,582 $ 1,080,249

FIRST POTOMAC REALTY TRUST
Same-Property Analysis
(unaudited, dollars in thousands)

Same-Property NOI(1)(2) Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Total base rent $ 26,452 $ 25,431 $ 78,332 $ 75,257
Tenant reimbursements and other 5,511 5,475 17,195 15,294
Property operating expenses (7,404 ) (6,971 ) (22,433 ) (19,247 )
Real estate taxes and insurance (3,121 ) (3,177 ) (9,493 ) (9,161 )
Same-property NOI - accrual basis 21,438 20,758 63,601 62,143
Straight-line revenue, net (359 ) (123 ) (314 ) (396 )
Deferred market rental revenue, net (242 ) (454 ) (1,051 ) (1,366 )
Same-property NOI - cash basis $ 20,837 $ 20,181 $ 62,236 $ 60,381

Change in same-property NOI - accrual basis 3.3 % 2.3 %
Change in same-property NOI - cash basis 3.3 % 3.1 %

Changes in Same-Property NOI - accrual basis
Rental revenue increase $ 1,021 $ 3,075
Tenant reimbursements and other increase 36 1,901
Expense increase (377 ) (3,518 )
$ 680 $ 1,458
Same-property percentage of total portfolio (sf) 97.3 % 97.3 %

Reconciliation of Consolidated NOI to Same-property NOI Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Total revenues $ 32,874 $ 31,068 $ 99,019 $ 91,620
Property operating expenses (8,149 ) (7,160 ) (24,518 ) (20,091 )
Real estate taxes and insurance (3,183 ) (3,173 ) (9,709 ) (9,122 )
NOI 21,542 20,735 64,792 62,407

Less: Non-same property NOI(3) (104 ) 23 (1,191 ) (264 )
Same-property NOI - accrual basis 21,438 20,758 63,601 62,143
Straight-line revenue, net (359 ) (123 ) (314 ) (396 )
Deferred market rental revenue, net (242 ) (454 ) (1,051 ) (1,366 )
Same-property NOI - cash basis $ 20,837 $ 20,181 $ 62,236 $ 60,381

Three Months Ended Nine Months Ended
Change in Same-Property NOI by Region September 30, 2009 September 30, 2009
Maryland -8.7 % -10.1 %
Northern Virginia 9.1 % 7.4 %
Southern Virginia 9.8 % 10.3 %

(1)Same property comparisons are based upon those properties owned for the entirety of the periods presented. Same property results exclude the results of the following non same-properties: Alexandria Corporate Park, Triangle Business Center and RiversPark I and II.
(2)Excludes a 76,000 square foot redevelopment building at Ammendale Commerce Center, which was placed in service during the fourth quarter of 2008.
(3)Non-same property NOI has been adjusted to reflect a normalized management fee percentage in lieu of an administrative overhead allocation for comparative purposes.

First Potomac Realty Trust
Barry H. Bass, 301-986-9200
Chief Financial Officer
bbass@first-potomac.com

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