UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
Commission File Number 1-31824
FIRST POTOMAC REALTY TRUST
(Exact name of registrant as specified in its charter)
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MARYLAND
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37-1470730 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
7600 Wisconsin Avenue, 11th Floor, Bethesda, MD
(Address of principal executive offices)
20814
(Zip Code)
(301) 986-9200
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange upon Which Registered |
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Common Shares of beneficial interest, $0.001 par value per share
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New York Stock Exchange |
7.750% Series A Cumulative Redeemable Perpetual Preferred shares
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New York Stock Exchange |
of beneficial interest, $0.001 par value per share |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
Securities Act. YES þ NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES o NO þ
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
Indicated by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K
is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment of this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company (see the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act).
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Large Accelerated Filer o
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Accelerated Filer þ
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Non-Accelerated Filer o
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2 of the Act) YES o NO þ
The aggregate fair value of the registrants common shares of beneficial interest, $0.001 par value
per share, at June 30, 2010, held by those persons deemed by the registrant to be non-affiliates
was $518,050,499.
As of March 4, 2011,
there were 50,086,050 common shares of beneficial interest, par value $0.001
per share, outstanding.
Documents Incorporated By Reference
Portions of the Companys
definitive proxy statement relating to the 2011 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission, are incorporated by
reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.
FIRST POTOMAC REALTY TRUST
FORM 10-K
INDEX
2
PART I
Overview
First Potomac Realty Trust (the Company) is a leader in the ownership, management,
development and redevelopment of office and industrial properties in the greater Washington, D.C.
region. The Company classifies its properties into three distinct segments, which it refers to as
the Maryland, Northern Virginia and Southern Virginia reporting segments. In 2010, the Company
entered into the corporate office market in Washington, D.C., with the acquisition of four
properties located in downtown Washington D.C., including one property purchased through an
unconsolidated joint venture. The Company includes its properties located in Washington D.C. in its
Northern Virginia reporting segment. The Company strategically focuses on acquiring and
redeveloping properties that it believes can benefit from its intensive property management and
seeks to reposition these properties to increase their profitability and value. The Companys
portfolio contains a mix of single-tenant and multi-tenant office and industrial properties as well
as business parks. Office properties are single-story and multi-story buildings that are used
primarily for office use; business parks contain buildings with office features combined with some
industrial property space; and industrial properties generally are used as warehouse, distribution
or manufacturing facilities.
References in these financial statements to we, our or First Potomac, refer to the
Company and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.
The Company conducts its business through First Potomac Realty Investment Limited Partnership;
the Companys operating partnership (the Operating Partnership). At December 31, 2010, the
Company was the sole general partner of, and owned a 98.1% interest in, the Operating Partnership.
The remaining interests in the Operating Partnership, which are presented as noncontrolling
interests in the Operating Partnership in the accompanying consolidated financial statements, are
limited partnership interests, some of which are owned by several of the Companys executive
officers and trustees who contributed properties and other assets to the Company upon its
formation, and other unrelated parties.
At December 31, 2010, the Company wholly-owned or had a controlling interest in properties
totaling 13.2 million square feet and had an ownership interest in properties totaling an
additional 0.5 million square feet through four unconsolidated joint ventures. The Companys
consolidated properties were 82.3% occupied by 592 tenants. Excluding the Companys fourth quarter
2010 acquisitions of Atlantic Corporate Park, which was vacant at acquisition, and Redland
Corporate Center II, which was 99% vacant at acquisition, the Companys consolidated portfolio was
85.2% occupied at December 31, 2010. The Company does not include square footage that is in
development or redevelopment in its occupancy calculation. As of December 31, 2010, the Companys
largest tenant was the U.S. Government, which along with government contractors, accounted for over
20% of the Companys total annualized rental revenue. The Company also owned land that can
accommodate approximately 1.7 million square feet of additional development. The Company derives
substantially all of its revenue from leases of space within its properties. The Company operates
so as to qualify as a real estate investment trust (REIT) for federal income tax purposes.
For the year ended December 31, 2010, the Company had consolidated net revenues of
approximately $140 million and consolidated total assets of $1.4 billion. Required financial
information related to the Companys three reporting segments is set forth in footnote 18, Segment
Information, to the Companys consolidated financial statements.
The Companys principal executive offices are located at 7600 Wisconsin Avenue,
11th Floor, Bethesda, Maryland 20814. The Company leases approximately 18,000 square
feet at this location and believes this space is sufficient to meet its current needs. The Company
has five other offices for its property management operations, which occupy approximately 23,000
square feet within buildings it owns.
The Companys History
Our operating partnership was formed in December 1997 by Louis T. Donatelli, our former
Chairman, Douglas J. Donatelli, our current Chairman and Chief Executive Officer and Nicholas R.
Smith, our Executive Vice President and Chief Investment Officer, to focus on the acquisition,
redevelopment and development of industrial properties and business parks, primarily in the
suburban markets of the Washington, D.C. metropolitan area. The Company completed its initial
public offering (IPO) in October 2003, raising net proceeds of approximately $118 million. At
December 31, 2003, the Company owned 17 properties totaling approximately 2.9 million square feet
and had revenues of $18.4 million and total assets of $244.1 million. Through its business strategy
and operating model, by December 31, 2006, the Company had almost quadrupled its square footage
owned and had more than quadrupled its revenues and total assets. During 2007 and 2008, the
Companys management team chose not to expand the Companys portfolio given the increase in asset
prices. The company therefore focused on maximizing the value
of its assets under management and maintaining a flexible balance sheet. In 2009, the Company
began seeing attractive acquisition opportunities and determined that it was the appropriate time
to begin growing its portfolio again, expanding its platform to include more multi-story office
properties. In 2010, the Company entered the office market in Washington, D.C., with the
acquisition of four properties, including one property purchased through an unconsolidated joint
venture.
3
Narrative Description of Business
The Operating Partnership was formed in 1997 and has used managements knowledge of and
experience in the greater Washington, D.C. region to transform the Company into a leading office
and industrial property, as well as business park, owner in the region. The Company is well
positioned given its reputation and access to capital combined with the large number of properties
meeting its investment criteria.
The Companys acquisition strategies focus on properties in its target markets that generally
meet the following investment criteria:
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below-market rents; and/or |
The Company uses its contacts, relationships and local market knowledge to identify and
opportunistically acquire office buildings, office parks, business parks and industrial properties
in its target markets. The Company also believes that its reputation for professional property
management and its transparency as a public company allow it to attract high-quality tenants to the
properties that it acquires, leading, in some cases, to increased profitability and value for its
properties.
The Company also targets properties that it believes can be converted, in whole or in part, to
a higher use. With business parks in particular, the Company has found that, over time, the
property can be improved by converting space that is primarily warehouse space into space that
contains more office use. Because office rents are generally higher than warehouse rents, the
Company has been able to opportunistically add revenue and value by converting space as market
demand allows.
Significant 2010 Activity and Subsequent Transactions
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In 2010, completed eight acquisitions for total consideration of $286.2
million; |
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In 2011, completed a two property portfolio acquisition for $33.8 million; |
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Completed two additional acquisitions through unconsolidated joint ventures
for total consideration of $73.0 million; |
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Raised net proceeds of $264.8 million through the issuance of 18.3 million common
shares; |
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In 2011, the Company raised net proceeds of $111.3 million through the issuance of 4.6
million 7.750% Series A Preferred Shares; |
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Executed 2.3 million square feet of leases, generating over 163,000 square feet of
positive net absorption; |
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In 2010, sold two properties in the Maryland region for net proceeds of $11.4 million;
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In 2011, sold a property in the Maryland region for net proceeds of $10.8 million |
Total assets were $1.4 billion at December 31, 2010 compared with $1.1 billion at December 31,
2009.
4
Competitive Advantages
The Company believes that its business strategy and operating model distinguish it from other
owners, operators and acquirers of real estate in a number of ways, which include:
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Experienced Management Team. The Companys executive officers average more than 30
years of real estate experience in the greater Washington, D.C. region. |
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Focused Strategy. The Company focuses on office and industrial properties, as well as
business parks, in the greater Washington, D.C. region. The Company believes the greater
Washington, D.C. region is one of the largest, most stable markets in the U.S. for assets
of this type. |
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Value-Added Management Approach. Through the Companys hands-on approach to
management, leasing, renovation and repositioning, the Company endeavors to add
significant value to the properties that it acquires from absentee institutional
landlords and smaller, less effective owners by improving tenant quality and increasing
occupancy rates and net rent per square foot. |
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Strong Market Dynamics. The Companys target markets exhibit stable rental rates and
strong tenant bases. |
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Local Market Knowledge. The Company has established relationships with local owners,
the brokerage community, prospective tenants and property managers in its markets. The
Company believes these relationships enhance its efforts to locate attractive acquisition
opportunities and lease space in its properties. |
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Favorable Lease Terms. As of December 31, 2010, 521 of the Companys 789 leases
(representing 71.4% of the leased space in the Companys consolidated portfolio) were
triple-net leases, under which tenants are contractually obligated to reimburse the
Company for virtually all costs of occupancy, including property taxes, utilities,
insurance and maintenance. In addition, the Companys leases generally provide for
revenue growth through contractual rent increases. |
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High Quality Tenant Mix. At
December 31, 2010, over 20% of the Companys total annualized
rental revenue was derived from the U.S. Government, state governments or government
contractors. The Companys non-government related tenant base is highly diverse.
Approximately 45% of the Companys annualized base rent is generated from its 30 largest
tenants, and its largest 100 tenants generate roughly two-thirds of its annualized base
rent. The balance of the Companys tenants, which is comprised of over 500 different
companies, generates the remaining one-third of its annualized base rent. The Company
believes its high concentration of government related revenue, coupled with its
diversified tenant base, provide a desirable mix of stability, diversity and growth
potential. |
5
Executive Officers of the Company
The following table sets forth information with respect to the Companys executive officers:
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Douglas J. Donatelli
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Chairman of the Board of Trustees and Chief Executive Officer
Douglas J. Donatelli is a co-founder of the Company and has
served as Chairman since May 2007 and Chief Executive
Officer and trustee of the Company since its predecessors
founding in 1997. Mr. Donatelli previously was Executive
Vice President of Donatelli & Klein, Inc. (now Donatelli
Development, Inc. (DDI)), a real estate development and
investment firm located in Washington, D.C., and from 1985
to 1991, President of D&K Broadcasting, a communications
subsidiary of DDI that owned Fox network affiliated
television stations. Mr. Donatelli is active in many
charitable and community organizations. He serves on the
Board of Directors of the Greater Washington Board of Trade
and the Catholic Charities Foundation of Washington, D.C.
and is a member of the Urban Land Institute and the National
Association of Real Estate Investment Trusts (NAREIT). Mr.
Donatelli holds a Bachelor of Science degree in Business
Administration from Wake Forest University. |
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Barry H. Bass
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Executive Vice President, Chief Financial Officer
Barry H. Bass served as Senior Vice President and Chief
Financial Officer since joining the Company in 2002 and was
elected Executive Vice President in February 2005. From
1999 to 2002, Mr. Bass was a senior member of the real
estate investment banking group of Legg Mason Wood Walker,
Inc. where he advised a number of public and private real
estate companies in their capital raising efforts. From
1996 to 1999, Mr. Bass was Executive Vice President of the
Artery Organization in Bethesda, Maryland, an owner and
operator of real estate assets in the Washington, D.C. area,
and prior to that a Vice President of Winthrop Financial
Associates, a real estate firm with over $6 billion of
assets under management, where he oversaw the Companys
asset management group. Mr. Bass is a graduate of Dartmouth
College and is a member of NAREIT. |
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Joel F. Bonder
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Executive Vice President, General Counsel and Secretary
Joel F. Bonder has served as Executive Vice President,
General Counsel and Secretary since joining the Company in
January 2005. Mr. Bonder was Counsel at Bryan Cave LLP from
2003 to 2004 in Washington, D.C., where he specialized in
corporate and real estate law and project finance. He was
Executive Vice President and General Counsel of Apartment
Investment and Management Company (AIMCO), a public traded
apartment REIT, from 1997 to 2002, and General Counsel of
National Corporation for Housing Partnerships, an owner of
FHA-insured multifamily housing, and its publicly traded
parent company, NHP Incorporated, from 1994 to 1997. Mr.
Bonder is a graduate of the University of Rochester and
received his JD degree from Washington University School of
Law. He is admitted to the bar in the District of Columbia,
Massachusetts and Illinois. |
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James H. Dawson
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Executive Vice President, Chief Operating Officer
James H. Dawson served as Senior Vice President and Chief
Operating Officer of the Company since 1998 and was elected
Executive Vice President in February 2005. Mr. Dawson has
coordinated the Companys management and leasing activities
since joining the Company in 1998. Prior to joining the
Company, Mr. Dawson spent 18 years with Reico Distributors,
a large user of business park and industrial product in the
Baltimore/Washington corridor. At Reico, he was responsible
for the construction and management of the firms warehouse
portfolio. Mr. Dawson received his Bachelor of Science
degree in Business Administration from James Madison
University and is a member of the Northern Virginia Board of
Realtors, the Virginia State Board of Realtors and the
Institute of Real Estate Management. |
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Position and Background |
Nicholas R. Smith
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Executive Vice President, Chief Investment Officer
Nicholas R. Smith is one of the founders of the Company and
has served as Executive Vice President and Chief Investment
Officer since the founding of our Predecessor in 1997. He
has over 25 years experience in commercial real estate in
the Washington, D.C. area, including seven years with DDI
and D&K Management. Prior to joining DDI, Mr. Smith was
with Garrett & Smith, Inc., a real estate investment and
development firm based in Mclean, Virginia and Transwestern
(formerly Barrueta & Associates, Inc.), a Washington,
D.C.-based commercial real estate brokerage and property
management firm. Mr. Smith is a graduate of the Catholic
University of America. He currently serves on the Council
of Advisors for the University of Marylands School of
Architecture, Planning and Preservation Graduate Programs in
Real Estate and is a member of the Board of Directors of the
Choral Arts Society of Washington. He is also a member of
the National Association of Industrial and Office Parks, the
Urban Land Institute and NAREIT. |
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Michael H. Comer
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Senior Vice President, Chief Accounting Officer
Michael H. Comer served as the Companys Vice President and
Chief Accounting Officer since August 2003 and was elected
Senior Vice President in February 2005. Prior to joining the
Company, Mr. Comer was Controller at Washington Real Estate
Investment Trust (WRIT), a Washington, D.C.-based,
diversified real estate investment trust, where from 1999 to
2003 he was responsible for overseeing the Companys
accounting operations and its internal and external
financial reporting. Prior to his tenure at WRIT, he was a
manager in corporate accounting at The Federal Home Loan
Mortgage Corp., and, prior to that position, was with KPMG
LLP in Washington, D.C. where he performed audit,
consultation and advisory services from 1990 to 1994. He is
a CPA and a graduate of the University of Maryland where he
received a Bachelor of Science degree in Accounting. Mr.
Comer is a member of the American Institute of Certified
Public Accountants and NAREIT. |
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Timothy M. Zulick
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Senior Vice President, Leasing
Timothy M. Zulick has served as Senior Vice President,
Leasing since August 2004. Prior to joining the Company, Mr.
Zulick was Senior Vice President at Trammell Crow Company
where, from 1998 to 2004, he concentrated on leasing, sales
and development of business park and industrial properties
in the Baltimore-Washington Corridor. From 1994 to 1998, he
worked as a tenant and landlord representative with Casey
ONCOR International where he also focused on leasing and
sales of industrial properties. Prior to that, Mr. Zulick
was with Colliers Pinkard and specialized in the valuation
of commercial real estate in Maryland. He received a
Bachelor of Science degree in Business Administration from
Roanoke College. Mr. Zulick is a licensed real estate person
and an active member of the Society of Industrial and Office
Realtors (SIOR). |
The Companys Market
The Company operates, invests in, and develops, office, business parks and industrial
properties in the greater Washington, D.C. region. Within this area, the Companys primary markets
are the Washington, D.C. metropolitan statistical area (MSA), which includes Washington D.C.,
northern Virginia and suburban Maryland, and the Richmond and Norfolk MSAs. The Company derives
approximately 64% of its annualized base rent from the Washington, D.C. MSA, and, in the aggregate,
the Richmond and Norfolk MSAs contribute approximately 31% of the Companys annualized base rent.
The Company also owns and operates assets in the Baltimore, Maryland, market, which represent 5% of
its annualized base rent.
According to data from CB Richard Ellis, a real estate research and services provider, the
Washington, D.C. MSA contains approximately 380 million square feet of office property and over 150
million of business park and industrial property.
The Washington, D.C. MSA has the largest economy of the Companys target markets. In addition
to its size, the Washington, D.C. MSA also boasts one of the most stable regional economies in the
country, primarily attributable to the presence of the U.S. Government and the numerous contractors
that service the U.S. Government. The regional economy is supported by the spending of the U.S.
Government, which accounts for over $140 billion of annual spending in the Washington D.C. MSA. In
2010, the D.C. MSA led the nation in job creation with over 57,000 jobs created in 2010, according
to BLS data, and as of January 2011 had the lowest unemployment rate of large cities at 5.7%.
The outlook for the Washington D.C. region remains steady, with job creation expected to
average over 40,000 annually between 2011 and 2015 based on economic projections from the Center
for Regional Analysis at George Mason University (GMU-CRA). Regional GDP is also expected to
track above the national average through 2015, based on GMU-CRA
projections.
7
Norfolk, Virginia, is the Companys second largest market when measured by annualized base
rent and square footage. The Company owns approximately 3.5 million square feet in Norfolk and
derives approximately 21% of its annualized base rent from the market. Norfolk is home to the
largest military installation in the world, according to the United States Navy, and has an even
larger percentage of federal government employees than Washington, D.C. In December of 2010, the
Norfolk MSA (formally known as the Virginia Beach, Norfolk-Newport News metropolitan statistical
area) had the fifth lowest unemployment rate for large metropolitan areas at 7.0% based on BLS
data. In addition, the Norfolk port is the third busiest port, in terms of container volume, on
the East Coast of the United States and experienced an overall volume increase of roughly 11% in
2010. The Norfolk port is the only East Coast container port currently capable of handling next
generation (post 2014) Panama Canal ships.
The Company owns approximately 1.7 million square feet in Richmond, Virginia, and derives
approximately 10% of its annualized base rent from the market. Richmond, the capital of Virginia,
maintains a market demand for smaller to mid-size tenants and, as the state capital, benefits from
the sizable presence of state government. Several Fortune 500 companies also choose to make
Richmond their headquarters, complementing the strong government demand. The unemployment rate in
the Richmond MSA at December 31, 2010 was 7.3%, markedly better than the 9.7% national average.
Competition
We compete with other REITs, public and private real estate companies, private real estate
investors and lenders in acquiring properties. Many of these entities have greater resources than
we do or other competitive advantages. We also face competition in leasing or subleasing available
properties to prospective tenants.
We believe that our managements experience and relationships in, and local knowledge of, the
markets in which we operate put us at a competitive advantage when seeking acquisitions. However,
many of our competitors have greater resources that we do, or may have a more flexible capital
structure when seeking to finance acquisitions. We also face competition in leasing or subleasing
available properties to prospective tenants. Some real estate operators may be willing to enter
into leases at lower rental rates (particularly if tenants, due to the economy, seek lower rents).
However, we believe that our intensive management services are attractive to tenants, and serve as
a competitive advantage.
Environmental Matters
Under various federal, state and local environmental laws and regulations, a current or
previous owner, operator or tenant of real estate property may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases or threats of releases at such
property, and may be held liable to a government entity or to third parties for property damage and
for investigation, clean up and monitoring costs incurred by such parties in connection with the
actual or threatened contamination. Such laws typically impose clean up responsibility and
liability without regard to fault, or whether or not the owner, operator or tenant knew of or
caused the presence of the contamination. The liability under such laws may be joint and several
for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred
or actions to be undertaken. These costs may be substantial, and can exceed the fair value of the
property. The presence of contamination or the failure to properly remediate contamination on such
property may adversely affect the ability of the owner, operator or tenant to sell or rent such
property or to borrow using such property as collateral, and may adversely impact our investment in
a property.
Federal regulations require building owners and those exercising control over a buildings
management to identify and warn, via signs and labels, of potential hazards posed by workplace
exposure to installed asbestos-containing materials and potentially asbestos-containing materials
in their building. The regulations also set forth employee training, record keeping and due
diligence requirements pertaining to asbestos-containing materials and potentially
asbestos-containing materials. Significant fines can be assessed for violation of these
regulations. Building owners and those exercising control over a buildings management may be
subject to an increased risk of personal injury lawsuits by workers and others exposed to
asbestos-containing materials and potentially asbestos-containing materials as a result of the
regulations. Federal, state and local laws and regulations also govern the removal, encapsulation,
disturbance, handling and/or disposal of asbestos-containing materials. Such laws may impose
liability for improper handling or a release to the environment of asbestos-containing materials.
8
We also may incur liability arising from mold growth in the buildings we own or operate. When
excessive moisture accumulates in buildings or on building materials, mold growth may occur,
particularly if the moisture problem remains undiscovered or is not addressed over a period of
time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem
from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other
biological
contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or
irritants can be alleged to cause a variety of adverse health effects and symptoms, including
allergic or other reactions. As a result, the presence of significant mold or other airborne
contaminants at any of our properties could require us to undertake a costly remediation program to
contain or remove the mold or other airborne contaminants or increase ventilation. In addition, the
presence of significant mold or other airborne contaminants could expose us to liability from our
tenants, employees of our tenants, and others if property damage or personal injury occurs.
Prior to closing any property acquisition, if appropriate, the Company obtains such
environmental assessments as may be prudent in order to attempt to identify potential environmental
concerns at such properties. These assessments are carried out in accordance with an appropriate
level of due diligence and generally may include a physical site inspection, a review of relevant
federal, state and local environmental and health agency database records, one or more interviews
with appropriate site-related personnel, review of the propertys chain of title and review of
historic aerial photographs. The Company may also conduct limited subsurface investigations and
test for substances of concern where the results of the first phase of the environmental
assessments or other information, indicates possible contamination or where the Companys
consultants recommend such procedures.
The Company believes that its properties are in compliance in all material respects with all
federal and state regulations regarding hazardous or toxic substances and other environmental
matters. The Company has not been notified by any governmental authority of any material
non-compliance, liability or claim relating to hazardous or toxic substances or other environmental
matter in connection with any of its properties.
Employees
The Company had 144 employees as of February 15, 2011. The Company believes relations with
its employees are good.
Availability of Reports Filed with the Securities and Exchange Commission
A copy of this Annual Report on Form 10-K, as well as the Companys quarterly reports on Form
10-Q, current reports on Form 8-K and any amendments to such reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are
available, free of charge, on its Internet Web site (www.first-potomac.com). All of these reports
are made available on the Companys Web site as soon as reasonably practicable after they are
electronically filed with or furnished to the Securities and Exchange Commission (the SEC). The
Companys Governance Guidelines and Code of Business Conduct and Ethics and the charters of the
Audit, Finance and Investment, Compensation and Nominating and Governance Committees of the Board
of Trustees are also available on the Companys Web site at www.first-potomac.com, and are
available in print to any shareholder upon request in writing to First Potomac Realty Trust, c/o
Investor Relations, 7600 Wisconsin Avenue, 11th Floor, Bethesda, MD 20814. The
information on the Companys Web site is not, and shall not be deemed to be, a part of this report
or incorporated into any other filing it makes with the SEC.
9
ITEM 1A. RISK FACTORS
An investment in our Company involves various risks, including the risk that an investor might
lose its entire investment. The following discussion concerns some of the risks associated with
our business. These risks are interrelated and should be considered collectively. The risks
described below are not the only risks that may affect us. Additional risks and uncertainties not
presently known to us or not identified below, may also materially and adversely affect our
business, financial condition, results of operations and ability to make distributions to our
security holders.
Risks Related to Our Business and Properties
Real estate investments are inherently risky, which could materially adversely affect our
results of operations and cash flow.
Real estate investments are subject to varying degrees of risk. If we acquire or develop
properties and they do not generate sufficient operating cash flow to meet operating expenses,
including debt service, capital expenditures and tenant improvements, our results of operations,
cash flow and ability to make distributions to our security holders will be materially adversely
affected. Income from properties may be adversely affected by, among other things,:
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downturns in the national, regional and local economic conditions (particularly in the
greater Washington D.C. region, where our properties are located); |
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declines in the financial condition of our tenants (including tenant bankruptcies) and
our ability to collect rents from our tenants; |
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decreases in rent and/or occupancy rates due to competition, oversupply or other
factors; |
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increases in operating costs such as real estate taxes, insurance premiums, site
maintenance (including snow removal costs, which have been higher in recent years) and
utilities; |
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vacancies and the need to periodically repair, renovate and re-lease space, or
significant capital expenditures; |
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reduced capital investment in or demand for real estate in the future; |
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costs of remediation and liabilities associated with environmental conditions and laws; |
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terrorist acts or acts of war which may result in uninsured or underinsured losses; |
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decreases in the underlying value of our real estate; |
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changes in interest rates and the availability of financing; and |
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changes in laws and governmental regulations, including those governing real estate
usage, zoning and taxes. |
We significantly increased the size of our portfolio during 2010 and may continue to
meaningfully grow our portfolio, and newly developed and acquired properties may initially be
dilutive and/or may not produce the returns that we expect, which could materially adversely affect
our results of operations and growth prospects.
During 2010, we focused our efforts on the acquisition, development and redevelopment of
business parks and industrial and office properties, and we significantly increased the size of our
portfolio. We intend to continue to acquire and develop additional business park and industrial and
office properties, and the size of our portfolio could meaningfully increase even further. These
acquisitions may be initially dilutive to our net income. In deciding whether to acquire or
develop a particular property, we make assumptions regarding the expected future performance of
that property. In particular, we estimate the return on our investment based on expected occupancy
and rental rates. We have acquired, and may continue to acquire, properties not fully leased, and
the cash flow from existing operations may be insufficient to pay the operating expenses and debt
service associated with that property until the property is more fully leased at favorable rental
rates. If our estimated return on investment for the property proves to be inaccurate and the
property is unable to achieve the expected occupancy and rental rates, it may fail to perform as we
expected in originally analyzing the investment (including, without limitation, as a result of
tenant
bankruptcies, tenant concessions, our inability to collect rents and higher than anticipated
operating costs), thereby having a material adverse effect on our results of operations. This risk
may be particularly pronounced for properties placed into development or acquired shortly before
the recent economic downturn, where we estimated occupancy and rental rates without the benefit of
knowing how those assumptions might be impacted by the changing economic conditions that followed.
10
In addition, when we acquire certain properties that are significantly under-leased, we often
plan to reposition or redevelop them with the goal of increasing profitability. Our estimate of
the costs of repositioning or redeveloping such properties may prove to be inaccurate, which may
result in our failure to meet our profitability goals. If one or more of these new properties do
not perform as expected, our results of operations may be materially adversely affected.
Our business strategy contemplates expansion through acquisition and we may not be able to
adapt our management and operational systems (including leasing and property management) to
successfully integrate new properties into our portfolio without unanticipated disruption or
expense, which could have a material adverse effect on our results of operations and financial
condition.
Our business strategy contemplates expansion through acquisition, and we significantly
increased the size of our portfolio during 2010. The size of our portfolio could meaningfully
increase further, as we execute our business plan. As we increase the size of our portfolio, we
cannot assure you that we will be able to adapt our management, administrative, accounting and
operational systems, or hire and retain sufficient operational staff to integrate new properties
into our portfolio or manage any future acquisitions of properties without operating disruptions or
unanticipated costs. In particular, because we have begun acquiring large, multi-tenant office
properties, we cannot assure you that our leasing and property management functions will
successfully and efficiently lease and operate such properties. Our acquisitions of properties
will generate additional operating expenses that we will be required to pay. Our past growth has
required, and our growth will continue to require, increased investment in management personnel,
professional fees, other personnel, financial and management systems and controls and facilities,
which could cause our operating margins to decline from historical levels, especially in the
absence of revenue growth. As we acquire additional properties, we will be subject to risks
associated with managing new properties, including tenant retention and mortgage default. Our
failure to successfully integrate acquisitions into our portfolio and manage our growth could have
a material adverse effect on our results of operations and financial condition.
We have limited experience in owning, developing and operating large, multi-tenant office
properties, particularly in downtown Washington, D.C., which could have a material adverse effect
on our results of operations.
During 2010, we acquired four multi-story office buildings, including one through an
unconsolidated joint venture, located in downtown Washington D.C. comprising approximately 0.5
million square feet of gross leasable area. These office properties have the capacity to support
multiple tenants. Prior to 2010, our portfolio was comprised principally of business parks and
industrial properties and smaller office properties located outside of downtown Washington, D.C.
We have very limited experience in owning, developing, leasing and operating large, multi-tenant
office properties that require, among other things, additional leasing and property management
capability. We cannot assure you that managements past experience will be sufficient to
successfully own, develop, lease, manage and operate such office properties (or additional office
properties that we may acquire in the future), particularly in the downtown Washington, D.C. market
where we have limited operating experience, the failure of which could have a material adverse
effect on our results of operations.
If current adverse global market and economic conditions worsen or do not fully recover, our
business, results of operations, cash flow and financial condition may be materially adversely
affected.
Overall financial market and economic conditions have been challenging in recent years,
beginning with the credit crisis and a recession in 2008. Challenging economic conditions
persisted throughout 2010 and have continued to some degree into 2011. These conditions, which
could continue, combined with the ongoing difficult financial conditions still being faced by
numerous financial institutions, high unemployment and residential and commercial real estate
markets that are slow to recover, among other things, have contributed to ongoing market volatility
and uncertain expectations for the U.S. and other economies.
As a result of these conditions, the cost and availability of credit has been and may continue
to be adversely affected in the markets in which we own properties and we and our tenants conduct
operations. Concern about the stability of the markets generally and the strength of numerous
financial institutions specifically has led many lenders and institutional investors to reduce, and
in some cases, cease, to provide funding to borrowers, which may adversely affect our liquidity and
financial condition, and the liquidity and financial condition of our tenants and our lenders. If
these conditions do not fully recover, they may limit our ability, and the ability of our tenants,
to replace or renew maturing liabilities on a timely basis, access the capital markets to meet
liquidity and capital expenditure requirements and may result in material adverse effects on our
and our tenants
financial condition and results of operations. In particular, if our tenants businesses or
ability to obtain financing deteriorates further, they may be unable to pay rent to us, which could
have a material adverse effect on our cash flow.
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In addition, our access to funds under our revolving credit facility depends on the ability of
the lenders that are parties to such facility to meet their funding commitment to us. We cannot
assure you that continuing long-term disruptions in the global economy and the continuation of
tighter credit conditions among, and potential failures of, third party financial institutions as a
result of such disruptions, will not have an adverse effect on our lenders. If our lenders are not
able to meet their funding commitment to us, our business, results of operation, cash flow and
financial condition would be materially adversely affected.
We cannot predict the duration or severity of the current economic challenges, and it these
conditions worsen or do not fully recover, our business, results of operations, cash flow and
financial condition may be materially adversely affected.
We may not be able to access adequate cash to fund our business or growth strategy, which
could have a material adverse effect on our results of operations, financial condition and cash
flow.
Our business requires access to adequate cash to finance our operations, distributions,
capital expenditures, debt service obligations, development and redevelopment costs and property
acquisition costs, if any. We expect to generate the cash to be used for these purposes primarily
with operating cash flow, borrowings under our unsecured revolving credit facility, proceeds from
sales of strategically identified assets and potential joint ventures and, when market conditions
permit, through the issuance of debt and equity securities from time to time. We may not be able
to generate sufficient cash to fund our business, particularly if we are unable to renew leases,
lease vacant space or re-lease space as leases expire according to expectations. This risk may be
even more pronounced given the ongoing challenging economic conditions being faced by some of our
tenants.
Moreover, we rely on third-party sources to fund our capital needs. We may not be able to
obtain the financing on favorable terms, in the time period we desire, or at all. Our access to
third-party sources of capital depends, in part, on:
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general market conditions; |
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the markets view of the quality of our assets; |
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the markets perception of our growth potential; |
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our current debt levels; |
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our current and expected future earnings; |
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our cash flow and cash distributions; and |
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the market price per share of our common stock. |
If we cannot obtain capital from third-party sources, we may not be able to acquire or develop
properties when strategic opportunities exist, satisfy our principal and interest obligations or
make the distributions to our shareholders.
We are subject to the credit risk of our tenants, who may declare bankruptcy or otherwise fail
to make lease payments, which could have a material adverse effect on our results of operations and
cash flow.
We are subject to the credit risk of our tenants. We cannot assure you that our tenants will
not default on their leases and fail to make rental payments to us. In particular, the recent
global recession and disruptions in the financial and credit markets, local economic conditions and
other factors affecting the industries in which our tenants operate may affect our tenants ability
to obtain financing to operate their businesses or continue to profitability execute their business
plans. This, in turn, may cause our tenants to be unable to meet their financial obligations,
including making rental payments to us, which may result in their bankruptcy or insolvency. A
tenant in bankruptcy may be able to restrict our ability to collect unpaid rent and interest during
the bankruptcy proceeding and may reject the lease. In the event of the tenants breach of its
obligations to us or its rejection of the lease in bankruptcy proceedings, we may be unable to
locate a replacement tenant in a timely manner or on comparable or better terms. The loss of
rental revenues from any of our larger tenants, a number of our smaller tenants or any combination
thereof, combined with our inability to replace such tenants on a timely basis may materially
adversely affect our results of operations and cash flow.
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A majority of our tenants hold leases covering less than 10,000 square feet. Many of these
tenants are small companies with nominal net worth, and therefore may be challenged in operating
their businesses during economic downturns. In addition,
certain of our properties are, and may be in the future be, substantially leased to a single
tenant and, therefore, such propertys operating performance and our ability to service the
propertys debt is particularly exposed to the economic condition of the tenant. The loss of rental
revenues from any of our larger tenants or a number of our smaller tenants may materially adversely
affect our results of operations and cash flow.
Loss of the U.S. Government as a tenant could have a material adverse effect on our results of
operations and cash flow, and could cause an impairment of the value of some of our properties.
The U.S.
Government accounted for 11% of our total annualized rental revenue as of December
31, 2010, and the U.S. Government combined with government contractors accounted for over 20% of
our total annualized rental revenue as of December 31, 2010. Some of our leases with the U.S.
Government are for relatively short terms or provide for early termination rights, including
termination for convenience or in the event of a budget shortfall. Further, on July 31, 2003, the
United States Department of Defense issued the Unified Facilities Criteria (the UFC), which
establish minimum antiterrorism standards for the design and construction of new and existing
buildings leased by the departments and agencies of the Department of Defense. The loss of the
federal government as a tenant resulting from our inability to comply with the UFC standards or for
any other reason, including pursuant to the governments contractual termination rights or
significant reductions in federal government spending, or the loss of a future significant tenant
would have a material adverse effect on our results of operations and could cause the value of our
affected properties to be impaired. A reduction or elimination of rent from the U.S. Government or
other significant tenants would also materially reduce our cash flow and adversely affect our
ability to make distributions to our security holders.
We may be unable to renew expiring leases or re-lease vacant space on a timely basis or on
attractive terms, which could have a material adverse effect on our results of operations and cash
flow.
Approximately 14% of our annualized base rent is scheduled to expire in 2011, and
approximately 8% of our annualized base rent is scheduled to expire during 2012. Current tenants
may not renew their leases upon the expiration of their terms. Alternatively, current tenants may
attempt to terminate their leases prior to the expiration of their current terms. For example, as
discussed in the risk factor above, our leases with the U.S. Government include favorable tenant
termination provisions. If non-renewals or terminations occur, we may not be able to locate
qualified replacement tenants (particularly in light of the ongoing challenging economic conditions
in the U.S.) and, as a result, we could lose a significant source of revenue while remaining
responsible for the payment of our financial obligations. Moreover, the terms of a renewal or new
lease, including the amount of rent, may be less favorable to us than the current lease terms, or
we may be forced to provide tenant improvements at our expense or provide other concessions or
additional services to maintain or attract tenants. Any of these factors could cause a decline in
lease revenue, which would have a material adverse effect on our results of operations and cash
flow.
Our debt level may have a negative impact on our results of operations, financial condition,
cash flow and our ability to pursue growth through acquisitions and development projects.
As of December 31, 2010, we had approximately $725 million of outstanding indebtednesses,
consisting principally of our mortgage debt, convertible notes, senior unsecured notes, terms loans
and amounts outstanding under our credit facility. In connection with our acquisition and
development activity, we significantly increased our debt during 2010. We will incur additional
indebtedness in the future in connection with, among other things, our acquisition, development and
operating activities.
Our use of debt financing creates risks, including risks that:
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our cash flow will be insufficient to make required payments of principal and interest; |
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we will be unable to refinance some or all of our indebtedness or that any refinancing
will not be on terms as favorable as those of the existing indebtedness; |
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required debt payments will not be reduced if the economic performance of any property
declines; |
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debt service obligations will reduce funds available for distribution to our security
holders and funds available for acquisitions; |
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most of our secured debt obligations require the lender to be made whole to the extent
we decide to pay off the debt prior to the maturity date; |
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any default on our indebtedness could result in acceleration of those obligations and
possible loss of property to foreclosure; and |
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certain defaults under our mortgage loan documents or other indebtedness could cause a
default under, and the acceleration of payments related to, certain of our indebtedness,
including as of December 31, 2010 our Senior Series A and Series B Notes in the aggregate
outstanding principal amount of $75 million, our unsecured revolving credit facility in an
aggregate outstanding amount of $191 million, our secured term loans in the aggregate
outstanding amount of $110 million, and our Exchangeable Senior Notes in an aggregate
outstanding amount of $30.5 million. |
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If the economic performance of any of our properties declines, our ability to make debt
service payments would be adversely affected. If a property is mortgaged to secure payment of
indebtedness and we are unable to meet mortgage payments, we may lose that property to lender
foreclosure with a resulting loss of income and asset value.
In addition, under the covenants of our unsecured revolving credit facility, secured term
loans and senior notes, we have certain restrictions on the amount of debt we are allowed to incur
and such covenants otherwise place restrictions on our operations (including, among other things,
requirements to maintain specified coverage ratios and other financial covenants, and limitations
on our ability to make dividends, enter into joint ventures, develop properties and engage in
certain business combination transactions), which could limit our ability to execute our business
plan and would adversely affect our financial condition, results of operations and ability to make
distributions to our shareholders. Our leverage levels may make it difficult to obtain additional
financing based on our current portfolio or to refinance existing debt on favorable terms or at
all. Failure to obtain additional financing could impede our ability to grow and develop our
business through, among other things, acquisitions and developments. Our leverage levels also may
adversely affect the market price of our securities if an investment in our Company is perceived to
be more risky than an investment in our peers. Furthermore, the restrictions placed on our
business pursuant to the terms of our debt instruments may restrict our ability to pursue some
business initiatives or effect certain transactions that may otherwise be beneficial to our
company.
We may be required to repay or refinance a portion of our mortgage indebtedness prior to its
maturity date, which could have a material adverse effect on our financial condition and results of
operations
Certain of our subsidiaries are borrowers on mortgage indebtedness, the terms of which
prohibit certain direct or indirect transfers of ownership interests in the borrower subsidiary (a
Prohibited Transfer). Under the terms of the mortgage loan documents, a lender could assert that
a Prohibited Transfer includes the trading of our common shares on the NYSE, the issuance of common
shares by us, or the issuance of units of limited partnership interest in our operating
partnership. As of December 31, 2010, we believe that there were eleven mortgage loans with such
Prohibited Transfer provisions, representing an aggregate principal amount outstanding of
approximately $112 million. Two of these mortgage loans were entered into prior to our initial
public offering (IPO) in 2003 and nine were assumed subsequent to our IPO. In January 2011, the
Company repaid, with available cash, a $12.0 million mortgage with a Prohibited Transfer provision
that was assumed subsequent to its IPO. In addition, in January 2011, the Company agreed to a
modification of a $22.1 million mortgage loan to expressly permit such trading and issuances. In
each instance, we received the consent of the mortgage lender to consummate our IPO (for the two
pre-IPO loans) or to acquire the property or the ownership interests of the borrower (for the
post-IPO loans), including the assumption by our subsidiary of the mortgage loan. Generally, the
underlying mortgage documents, previously applicable to a privately held owner, were not changed
at the time of the IPO or the later loan assumptions, although we believe that each of the lenders
or servicers was aware that the borrowers ultimate parent was or would become a publicly traded
company.
Subsequent to the IPO and the assumption of these additional mortgage loans, the Company has
issued new common shares and shares of the Company have been transferred on the NYSE. Similarly,
our operating partnership has issued units of limited partnership interest. To date, no lender or
servicer has asserted that a Prohibited Transfer has occurred as a result of any such transfer of
shares or units of limited partnership interest. However, we can provide no assurance that, in the
future, a mortgage lender would not seek to assert that a Prohibited Transfer has occurred and to
seek to accelerate the amounts due under the mortgage loan and demand immediate repayment. In such
event, we believe that we have strong defenses to any such claims and would vigorously defend
against any such action. Nonetheless, if a lender were to be successful in any such action, we
could be required to immediately repay or refinance the amounts outstanding, or the lender may be
able to foreclose on the property securing the loan or take other adverse actions. In addition, in
certain cases a Prohibited Transfer could result in the loan becoming full recourse to us or our
operating partnership. We can provide no assurance that we would be able to repay or refinance one
or more mortgage loans on favorable terms or at all if it were to be successfully accelerated by
the lender(s) thereof, which could have a material adverse affect on our financial condition and
results of operations. In addition, as described above in the risk factor entitled Our debt level
may have a negative impact on our results of operations, financial condition, cash flow and our
ability to pursue growth through acquisitions and development projects, if a violation of a
Prohibited Transfer provision were to occur that would permit our mortgage lenders to accelerate
the indebtedness owed to them, it could result in an event of default under our Senior Unsecured
Series A and Series B Notes, our unsecured revolving credit facility, our two secured term loans
and our Exchangeable Senior Notes.
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Our variable rate debt subjects us to interest rate risk.
We have an unsecured revolving credit facility, secured term loans in an aggregate amount of
$110.0 million and certain other debt, some of which is unhedged, that bears interest at a variable
rate. As of December 31, 2010, we had $301.0 million of variable rate debt, none of which, was
hedged through interest rate swap agreements. In July 2010, we entered into an interest rate swap
agreement that, beginning on January 18, 2011, fixed LIBOR at 1.474% on $50.0 million of the our
variable rate debt.
The interest rate swap will mature on January 15, 2014. We may incur additional variable rate
debt in the future. Increases in interest rates on variable rate debt would increase our interest
expense, if not hedged properly or at all, which would adversely affect net earnings and cash
available for payment of our debt obligations and distributions to our security holders. For
example, if market rates of interest on our variable rate debt outstanding as of December 31, 2010
increased by 1%, or 100 basis points, the increase in interest expense on our existing variable
rate debt would decrease future earnings and cash flow by approximately $3.0 million annually.
We have and may continue to engage in hedging transactions, which can limit our gains and
increase exposure to losses.
We have and may continue to enter into hedging transactions to attempt to protect us from the
effects of interest rate fluctuations on floating rate debt, or in some cases, prior to a proposed
debt issuance. Our hedging transactions may include entering into interest rate swap agreements or
interest rate cap or floor agreements, or other interest rate exchange contracts. Hedging
activities may not have the desired beneficial impact on our results of operations or financial
condition. No hedging activity can completely insulate us from the risks associated with changes in
interest rates. Moreover, interest rate hedging could fail to protect us or adversely affect us
because, among other things:
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available interest rate hedging may not correspond directly with the interest rate risk
for which we seek protection; |
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the duration of the hedge may not match the duration of the related liability; |
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the party owing money in the hedging transaction may default on its obligation to pay; |
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the credit quality of the party owing money on the hedge may be downgraded to such an
extent that it impairs our ability to sell or assign our side of the hedging transaction;
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the value of derivatives used for hedging may be adjusted from time to time in
accordance with accounting rules to reflect changes in fair value. Downward adjustments, or
mark-to-market losses, would reduce our equity. |
Hedging involves risk and typically involves costs, including transaction costs that may
reduce our overall returns on our investments. These costs increase as the period covered by the
hedging increases and during periods of rising and volatile interest rates. These costs will also
limit the amount of cash available for distribution to shareholders. We generally intend to hedge
as much of the interest rate risk as management determines is in our best interests given the cost
of such hedging transactions. REIT qualification rules may limit our ability to enter into hedging
transactions by, among other things, requiring us to limit our income from hedges. If we are unable
to hedge effectively because of the REIT rules, we will face greater interest rate exposure.
We compete with other parties for tenants and property acquisitions.
Our business strategy contemplates expansion through acquisition. The commercial real estate
industry is highly competitive, and we compete with substantially larger companies, including
substantially larger REITs and institutional investment funds, for the acquisition, development and
leasing of properties. As a result, we may not be able or have the opportunity to make suitable
investments on favorable terms in the future, which may impede our growth and/or have a material
adverse effect on our results of operations. In addition, competition for acquisitions make require
us to, among other things, make concessions to sellers and/or agree to higher non-refundable
deposits, which could require us to agree to acquisition terms less favorable to us.
We also face significant competition for tenants in our properties from owners and operators
of business park and industrial and office properties who may be more willing to make space
available to prospective tenants at lower prices than comparable spaces in our properties,
especially in difficult economic times. Thus, competition could negatively affect our ability to
attract and retain tenants and may reduce the rents we are able to charge, which could materially
and adversely affect our results of operations.
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All of our properties are located in the greater Washington D.C. region, making us vulnerable
to changes in economic, regulatory or other conditions in that region that could have a material
adverse effect on our results of operations.
All of our properties are located in the greater Washington D.C. region, exposing us to
greater risks than if we owned properties in multiple geographic regions. Economic conditions in
the greater Washington D.C. region may significantly affect the occupancy and rental rates of our
properties. A decline in occupancy and rental rates, in turn, may significantly affect our
profitability and our ability to satisfy our financial obligations. There can be no assurance that
these markets will continue to grow or that favorable economic conditions will exist. Further, the
economic condition of the region may also depend on one or more industries and, therefore, an
economic downturn in one of these industry sectors may adversely affect our performance. For
example, the U.S. Government, which has a large presence in our
markets, accounted for 11% of our
total annualized rental revenue as of December 31, 2010, and the U.S. Government combined with
government contractors accounted for over
20% of our total annualized rental revenue as of December 31, 2010. We are therefore directly
affected by decreases in federal government spending (either directly through the potential loss of
a U.S. Government tenant or indirectly if the businesses of tenants that contract with the U.S.
Government are negatively impacted). In addition to economic conditions, we may also be subject to
changes in the regions regulatory environment (such as increases in real estate and other taxes,
costs of complying with government regulations or increased regulation and other factors) or other
adverse conditions or events (such as natural disasters). Thus, adverse developments and/or
conditions in the greater Washington D.C. region could reduce demand for space, impact the
credit-worthiness of our tenants or force our tenants to curtail operations, which could impair
their ability to meet their rent obligations to us and, accordingly, could have a material adverse
effect on our results of operations.
Development and construction risks could materially adversely affect our results of operations
and growth prospects.
Our renovation, redevelopment, development and related construction activities may subject us
to the following risks:
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we may be unable to obtain, or suffer delays in obtaining, necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations, which could
result in increased costs or our abandonment of these projects; |
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we may incur construction costs for a property that exceeds our original estimates due
to increased costs for materials or labor or other costs that we did not anticipate; |
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we may not be able to obtain financing on favorable terms, if at all, which may render
us unable to proceed with our development activities; and |
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we may be unable to complete construction and lease-up of a property on schedule, which
could result in increased debt service expense or construction costs. |
Additionally, the time frame required for development, construction and lease-up of these
properties means that we may have to wait years for a significant cash return. Because we are
required to make cash distributions to our shareholders, if the cash flow from operations or
refinancing is not sufficient, we may be forced to borrow additional money to fund such
distributions. Any of these conditions could materially adversely affect our results of operations
and growth prospects.
Failure to succeed in new markets may limit our growth and/or have a material adverse effect
on our results of operations.
We may make selected acquisitions outside our current geographic market from time to time as
appropriate opportunities arise. Our historical experience is in the greater Washington D.C.
region, and we may not be able to operate successfully in other market areas where we have limited
or no experience. We may be exposed to a variety of risks if we choose to enter new markets.
These risks include, among others:
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a lack of market knowledge and understanding of the local economies; |
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an inability to identify promising acquisition or development opportunities; |
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an inability to identify and cultivate relationships that, similar to our relationships
in the greater Washington D.C. region, are important to successfully effecting our business
plan; |
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an inability to employ construction trades people; and |
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a lack of familiarity with local government and permitting procedures. |
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Any of these factors could adversely affect the profitability of projects outside our current
markets and limit the success of our acquisition and development strategy. If our acquisition and
development strategy is negatively affected, our growth may be impeded and our results of
operations materially adversely affected.
In addition, during 2010 we entered the downtown Washington, D.C. market in connection with
our acquisition of a number of downtown Washington, D.C. real estate assets. See We have limited
experience in owning, developing and operating large, multi-tenant office properties, particularly
in downtown Washington, D.C., which could have a material adverse effect on our
results of operations, above. We have no previous experience with owning and operating
properties in downtown Washington, D.C., which could have a material adverse effect on our results
of operations.
We have limited experience in engaging in lending activities, which could have a material
adverse effect on our results of operations.
During 2010, we structured an investment in a Washington, D.C. office property in the form of
a $25 million loan to the owners of the property, which is secured by a portion of the equity
interests in the entities that own the underlying real estate, bears interest at a rate of 12.5%
per annum, is interest only and matures on April 1, 2017. This loan is effectively subordinate to
a senior mortgage loan on the property. We may engage in additional lending activities in the
future, including mezzanine financing activities. These types of loans involve a higher degree of
risk than long-term senior mortgage lending secured by income-producing real property, because the
loan may become unsecured as a result of foreclosure by the senior lender. In addition, mezzanine
loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less
equity in the property and increasing the risk of loss of principal. If a borrower defaults on our
mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine
loan will be satisfied only after the senior debt is paid in full. Where debt senior to our loan
exists, the presence of intercreditor arrangements between the holder of the mortgage loan and us,
as the mezzanine lender, may limit our ability to amend our loan documents, assign our loans,
accept prepayments, exercise our remedies and control decisions made in bankruptcy proceedings
relating to borrowers. As a result, we may not recover some or all of our investment, which could
result in losses. In addition, even if we are able to foreclose on the underlying collateral
following a default on a mezzanine loan, we would be substituted for the defaulting borrower and,
to the extent income generated on the underlying property is insufficient to meet outstanding debt
obligations on the property, may need to commit substantial additional capital to stabilize the
property and prevent additional defaults to lenders with existing liens on the property.
Significant losses related to mezzanine loans could have a material adverse effect on our results
of operations and our ability to make distributions to our shareholders.
Under some of our leases, tenants have the right to terminate prior to the scheduled
expiration of the lease, which could have a material adverse effect on our results of operations
and cash flow.
Some of our leases for our current properties provide tenants with the right to terminate
prior to the scheduled expiration of the lease. If a tenant terminates its lease with us prior to
the expiration of the term, we may be unable to re-lease that space on as favorable terms, or at
all, which could materially adversely affect our results of operations, cash flow and our ability
to make distributions to our security holders. This risk may be more pronounced with respect to
our U.S Government tenants. See Loss of the U.S. Government as a tenant could have a material
adverse effect on our results of operations and cash flow, and could cause an impairment of the
value of some of our properties, above.
Property owned through joint ventures, or in limited liability companies and partnerships in
which we are not the sole equity holder, may limit our ability to act exclusively in our interests.
We have, and may in the future, make investments through partnerships, limited liability
companies or joint ventures, some of which may be significant in size. In particular, during 2010
and thus far in 2011, we have entered a number of joint ventures in connection with our acquisition
and development of various real estate assets. Partnership, limited liability company or joint
venture investments may involve various risks, including the following:
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our partners, co-members or joint ventures might become bankrupt (in which event we and
any other remaining general partners or joint ventures would generally remain liable for
the liabilities of the partnership or joint venture); |
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our partners, co-members or joint ventures might at any time have economic or other
business interests or goals that are inconsistent with our business interests or goals; |
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our partners, co-members or joint ventures may be in a position to take action contrary
to our instructions, requests, policies, or objectives, including our current policy with
respect to maintaining our qualification as a real estate investment trust; and |
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agreements governing joint ventures, limited liability companies and partnerships often
contain restrictions on the transfer of a joint ventures, members or partners interest
or buy-sell or other provisions that may result in a purchase or sale of the interest at
a disadvantageous time or on disadvantageous terms. |
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Our organizational documents do not limit the amount of available funds that we may invest in
partnerships, limited liability companies or joint ventures. The occurrence of one or more of the
events described above could adversely affect our financial
condition, results of operations, cash flow and ability to make distributions with respect to,
and the market price of, our securities.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse
changes in the performance of our properties and have a material adverse effect on our results of
operations, financial condition and cash flow.
Because real estate investments are relatively illiquid, our ability to promptly sell one or
more properties in our portfolio in response to adverse changes in the performance of such
properties may be limited. The real estate market is affected by many factors that are beyond our
control, including:
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adverse changes in national and local economic and market conditions; |
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changes in interest rates and in the availability, cost and terms of debt financing; |
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changes in governmental laws and regulations, fiscal policies and zoning ordinances and
costs of compliance with laws and regulations, fiscal policies and ordinances; |
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the ongoing need for capital improvements, particularly in older buildings; |
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changes in operating expenses; and |
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civil unrest, acts of war and natural disasters, including earthquakes and floods, which
may result in uninsured and underinsured losses. |
We cannot predict whether we will be able to sell any property for the price or on the terms
set by us, or whether any price or other terms offered by a prospective purchaser would be
acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and
to close the sale of a property. Moreover, the REIT rules governing property sales and agreements
that we may enter into with joint venture partners or contributors to our operating partnership not
to sell certain properties for a period of time may interfere with our ability to dispose of
properties on a timely basis without incurring significant additional costs.
We may be required to expend funds to correct defects or to make improvements before a
property can be sold. We cannot assure you that we will have funds available to correct those
defects or to make those improvements. In acquiring a property, we may agree to lock-out
provisions that materially restrict us from selling that property for a period of time or impose
other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that
property. We may also acquire properties that are subject to a mortgage loan that may limit our
ability to sell the properties prior to the loans maturity. These factors and any others that
would impede our ability to respond to adverse changes in the performance of our properties could
have a material adverse effect on our results of operations, financial condition, cash flow as well
as our ability to make distributions to our security holders.
Liabilities under environmental laws for contamination may have a material adverse effect on
our results of operations, financial condition and cash flow.
Our operating expenses could be higher than anticipated due to liability created under,
existing or future federal, state, or local environmental laws and regulations for contamination.
An owner or operator of real property can face strict, joint and several liability for
environmental contamination created by the presence or discharge of hazardous substances, including
petroleum-based products at, on, under or from the property. Similarly, a former owner or operator
of real property can face the same liability for the disposal of hazardous substances that occurred
during the time of ownership or operation. We may face liability regardless of:
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our lack of knowledge of the contamination; |
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the extent of the contamination; |
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the timing of the release of the contamination; or |
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whether or not we caused the contamination. |
Environmental liability for contamination may include the following, without limitation:
investigation and feasibility study costs, remediation costs, litigation costs, oversight costs,
monitoring costs, institutional control costs, penalties from state and federal agencies, and
third-party claims. Moreover, operations on-site may be required to be suspended until certain
environmental contamination is remediated and/or permits are received and environmental laws can
impose permanent restrictions on the manner in which a property may be used depending on the extent
and nature of the contamination. This may result in a default of the terms of the lease entered
into with our tenants. Environmental laws also may create liens on contaminated sites in favor of
the government for damages and costs it incurs to address such contamination. In addition, the
presence of hazardous substances at, on, under or from a property may adversely affect our ability
to sell the property or borrow using the property as collateral, thus harming our financial
condition.
There may be environmental liabilities associated with our properties of which we are unaware.
For example, some of our properties contain, or may have contained in the past, underground tanks
for the storage of hazardous substances, petroleum-based or waste products, or some of our
properties have been used, or may have been used, historically to conduct industrial operations,
and any of these circumstances could create a potential for release of hazardous substances.
Non-compliance with environmental laws at our properties may have a material adverse effect on
our results of operations, financial condition and cash flow.
Our properties are subject to various federal, state, and local environmental laws.
Non-compliance with these environmental laws could subject us or our tenants to liability and
changes in these laws could increase the potential costs of compliance or increase liability for
noncompliance. Although our leases generally require our tenants to operate in compliance with all
applicable laws and to indemnify us against any environmental liabilities arising from a tenants
activities on the property, we could nonetheless be subject to strict liability by virtue of our
ownership interest for environmental liabilities created by our tenants, and we cannot be sure that
our tenants would satisfy their indemnification obligations under the applicable sales agreement or
lease. Moreover, these environmental liabilities could affect our tenants ability to make rental
payments to us. Non-compliance with environmental laws at our properties could have a material
adverse effect on our results of operations, financial condition, cash flow and our ability to make
distributions to our security holders.
Liabilities arising from the presence of hazardous building materials at our properties may
have a material adverse effect on our results of operations, financial condition and cash flow.
As the owner or operator of real property, we may also incur liability based on various
building conditions. For example, buildings and other structures on properties that we currently
own or operate or those we acquire or operate in the future contain, may contain, or may have
contained, asbestos-containing material, or ACM. Environmental, health and safety laws require that
ACM be properly managed and maintained and may impose fines or penalties on owners, operators or
employers for non-compliance with those requirements. These requirements include special
precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during
maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In
addition, we may be subject to liability for personal injury or property damage sustained as a
result of exposure to ACM or releases of ACM into the environment.
The Companys properties may contain or develop harmful mold or suffer from other indoor air
quality issues, which could lead to liability for adverse health effects, property damage, or
remediation costs.
When excessive moisture accumulates in buildings or on building materials, mold growth may
occur, particularly if the moisture problem remains undiscovered or is not addressed over a period
of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also
stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other
biological contaminants such as pollen, viruses, and bacteria. Concern about indoor exposure to
airborne toxins or irritants, including mold, has been increasing as exposure to these airborne
contaminants have been alleged to cause a variety of adverse health effects and symptoms, including
allergic or other reactions. As a result, the presence of significant mold or other airborne
contaminants at any of our properties could require us to undertake a costly remediation program to
contain or remove the mold or other airborne contaminants from the affected property or to increase
ventilation. In addition, the presence of significant mold or other airborne contaminants could
expose us to liability from our tenants, employees of our tenants, and others if property damage or
health concerns arise.
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Compliance with the Americans with Disabilities Act and fire, safety and other regulations may
require us to make unintended expenditures that materially adversely impact our cash flow.
All of our properties are required to comply with the Americans with Disabilities Act, or the
ADA. The ADA has separate compliance requirements for public accommodations and commercial
facilities, but generally requires that buildings be
made accessible to people with disabilities. Compliance with the ADA requirements could
require removal of access barriers and non-compliance could result in the imposition of fines by
the U.S. Government or an award of damages to private litigants, or both. While the tenants to
whom we lease properties are obligated by law to comply with the ADA provisions, and typically
under our leases are obligated to cover costs associated with compliance, if required changes
involve greater expenditures than anticipated, or if the changes must be made on a more accelerated
basis than anticipated, the ability of these tenants to cover costs could be adversely affected and
we could be required to expend our own funds to comply with the provisions of the ADA, which could
adversely affect our results of operations and financial condition and our ability to make
distributions to security holders. In addition, we are required to operate our properties in
compliance with fire and safety regulations, building codes and other land use regulations, as they
may be adopted by governmental agencies and bodies and become applicable to our properties. We may
be required to make substantial capital expenditures to comply with those requirements and these
expenditures could have a material adverse effect on our cash flow and ability to make
distributions to our security holders.
An uninsured loss or a loss that exceeds the policies on our properties could have a material
adverse effect on our results of operations, financial condition and cash flow.
Under the terms and conditions of most of the leases currently in force on our properties our
tenants generally are required to indemnify and hold us harmless from liabilities resulting from
injury to persons, air, water, land or property, on or off the premises, due to activities
conducted on the properties, except for claims arising from the negligence or intentional
misconduct of us or our agents. Additionally, tenants are generally required, at the tenants
expense, to obtain and keep in full force during the term of the lease, liability and full
replacement value property damage insurance policies. However, our largest tenant, the federal
government, is not required to maintain property insurance at all. We have obtained comprehensive
liability, casualty, flood and rental loss insurance policies on our properties. All of these
policies may, depending on the nature of the loss, involve substantial deductibles and certain
exclusions. In addition, we cannot assure you that our tenants will properly maintain their
insurance policies or have the ability to pay the deductibles. Should a loss occur that is
uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or
in the event of a loss that is subject to a substantial deductible under an insurance policy, we
could lose all or part of our capital invested in, and anticipated revenue from, one or more of the
properties, which could have a material adverse effect on our results of operations, financial
condition, cash flow and our ability to make distributions to our security holders.
Terrorist attacks and other acts of violence or war may affect any market on which our
securities trade, the markets in which we operate, our business and our results of operations.
Terrorist attacks may negatively affect our business and our results of operations. These
attacks or armed conflicts may directly impact the value of our properties through damage,
destruction, loss or increased security costs. In particular, we may be directly exposed in
Washington, D.C., a large metropolitan area that has been, or may be in the future, a target of
actual or threatened terrorism attacks. The terrorism insurance that we obtain may not be
sufficient to cover loss for damages to our properties as a result of terrorist attacks. In
addition, certain losses resulting from these types of events are uninsurable and others would not
be covered by our current terrorism insurance. Additional terrorism insurance may not be available
at a reasonable price or at all. If the properties in which we invest are unable to obtain
sufficient and affordable insurance coverage, the value of those investments could decline, and in
the event of an uninsured loss, we could lose all or a portion of an investment.
The United States may enter into armed conflicts in the future. The consequences of any armed
conflicts are unpredictable, and we may not be able to foresee events that could have an adverse
effect on our business.
Any of these events could result in increased volatility in or damage to the United States and
worldwide financial markets and economy. They also could result in a continuation of the current
economic uncertainty in the United States or abroad. Adverse economic conditions could affect the
ability of our tenants to pay rent, which could have a material adverse effect on our operating
results and financial condition, as well as our ability to make distributions to our security
holders, and may adversely affect and/or result in volatility in the market price for our
securities.
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We face risks associated with our tenants being designated Prohibited Persons by the Office
of Foreign Assets Control.
Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the
U.S. Department of the Treasury, or OFAC, maintains a list of persons designated as terrorists or
who are otherwise blocked or banned, or Prohibited Persons. OFAC regulations and other laws
prohibit conducting business or engaging in transactions with Prohibited Persons. Certain of our
loan and other agreements may require us to comply with these OFAC requirements. If a tenant or
other party with whom we contract is placed on the OFAC list, we may be required by the OFAC
requirements to terminate the lease or
other agreement. Any such termination could result in a loss of revenue or a damage claim by
the other party that the termination was wrongful.
Our properties may suffer from air quality issues, which could lead to liability for adverse
health effects and costs of remediation.
Inquiries about indoor air quality may necessitate special investigation and, depending on the
results, remediation beyond our regular indoor air quality testing and maintenance programs. Indoor
air quality issues can stem from inadequate ventilation, chemical contaminants from indoor or
outdoor sources, and biological contaminants such as molds, pollen, viruses and bacteria. Indoor
exposure to chemical or biological contaminants above certain levels can be alleged to cause a
variety of adverse health effects and symptoms, including allergic and other reactions. If these
conditions were to occur at one of our properties, we may need to undertake a targeted remediation
program, including without limitation, steps to increase indoor ventilation rates and eliminate
sources of contaminants. Such remediation programs could be costly, necessitate the temporary
relocation of some or all of the propertys tenants or require rehabilitation of the affected
property. In addition, these conditions could expose us to liability from our tenants and others if
property damage occurs or health concerns arise.
Rising energy costs may have an adverse effect on our results of operations.
Electricity and natural gas, the most common sources of energy used by commercial buildings,
are subject to significant price volatility. In recent years, energy costs, including energy
generated by natural gas and electricity, have fluctuated significantly. Some of our properties may
be subject to leases that require our tenants to pay all utility costs while other leases may
provide that tenants will reimburse us for utility costs in excess of a base year amount. It is
possible that some or all of our tenants will not fulfill their lease obligations and reimburse us
for their share of any significant energy rate increases and that we will not be able to retain or
replace our tenants if energy price fluctuations continue. Also, to the extent under a lease we
agree to pay for such costs, rising energy prices will have an adverse effect on our results of
operations.
Risks Related to Our Organization and Structure
Our executive officers have agreements that provide them with benefits in the event of a
change in control of our Company or if their employment agreement is terminated without cause or
not renewed, which could prevent or deter a change in control of our Company.
We have entered into employment agreements with our executive officers, Douglas J. Donatelli,
Nicholas R. Smith, Barry H. Bass, James H. Dawson and Joel F. Bonder, that provide them with
severance benefits if their employment ends under certain circumstances following a change in
control of our Company, terminated without cause, or if the executive officer resigns for good
reason as defined in the employment agreements. These benefits could increase the cost to a
potential acquirer of our Company and thereby prevent or deter a change in control of the Company
that might involve a premium price for our securities or otherwise be in the interests of our
security holders.
We may experience conflicts of interest with several members of our board of trustees and our
executive officers relating to their ownership of units of our Operating Partnership.
Some of our trustees and executive officers may have conflicting duties because, in their
capacities as our trustees and executive officers, they have a duty to our Company, and in our
capacity as general partner of our Operating Partnership, they have a fiduciary duty to the limited
partners, and some of them are themselves limited partners and own a significant number of units of
limited partner interest in our Operating Partnership. These conflicts of interest could lead to
decisions that are not in your best interest. Conflicts may arise when the interests of our
shareholders and the limited partners of our Operating Partnership diverge, particularly in
circumstances in which there may be an adverse tax consequence to the limited partners, such as
upon the sale of assets or the repayment of indebtedness.
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We depend on key personnel, particularly Mr. Douglas J. Donatelli, with long-standing
business relationships, the loss of whom could threaten our ability to operate our business
successfully and have other negative implications under certain of our indebtedness.
Our future success depends, to a significant extent, upon the continued services of our senior
management team, including Douglas J. Donatelli. In particular, the extent and nature of the
relationships that Mr. Donatelli has developed in the real estate community in our markets is
critically important to the success of our business. Although we have an employment agreement with
Mr. Donatelli and other key executive officers, there is no guarantee that Mr. Donatelli or our
other key executive officers
will remain employed with us. We do not maintain key person life insurance on any of our
officers. The loss of services of one or more members of our senior management team, particularly
Mr. Donatelli, would harm our business and prospects. Further, loss of a member of our senior
management team could be negatively perceived in the capital markets, which could have an adverse
effect on the market price of our securities.
Further, the terms of certain of our debt instruments, including one of our term loans,
includes a default provision whereby if any two of Douglas Donatelli, Nicholas Smith or Barry Bass,
three of our executive officers, cease to maintain their current positions or duties at our company
for any reason, a default under such debt could be triggered unless, within six months, our board
has appointed a qualified substitute individual acceptable to the majority of the lenders in their
sole discretion.
One of our trustees may have conflicts of interest with our Company.
One of our Companys trustees, Terry L. Stevens, currently serves as Senior Vice President and
Chief Financial Officer of Highwoods Properties, Inc., a fully integrated, North Carolina-based
REIT that owns, leases, manages, develops and constructs office and retail properties, some of
which are located in our target markets. As a result, conflicts may arise when we and Highwoods
Properties, Inc. compete in the same markets for properties, tenants, personnel and other services.
Our rights and the rights of our security holders to take action against our trustees and
officers are limited, which could limit your recourse in the event of actions not in your best
interests.
Maryland law generally provides that a trustee has no liability for actions taken as a
trustee, but may not be relieved of any liability to the company or its security holders for
actions taken in bad faith, with willful misfeasance, gross negligence or reckless disregard for
his or her duties. Our amended and restated declaration of trust authorizes us to indemnify, and
to pay or reimburse reasonable expenses to, our trustees and officers for actions taken by them in
those capacities to the maximum extent permitted by Maryland law. In addition, our declaration of
trust limits the liability of our trustees and officers for money damages, except as otherwise
prohibited by Maryland law or for liability resulting from:
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actual receipt of an improper benefit or profit in money, property or services; or |
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a final judgment or other final adjudication based upon a finding of active and
deliberate dishonesty by the trustee or officer that was material to the cause of action
adjudicated. |
As a result, we and our security holders may have more limited rights against our trustees
than might otherwise exist. Our amended and restated bylaws require us to indemnify each trustee
or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to
which he or she is made a party by reason of his or her service to us. In addition, we may be
obligated to fund the defense costs incurred by our trustees and officers.
Our Series A Preferred Shares have, and future issuances of our preferred shares may have,
terms that may discourage a third party from acquiring us.
In January 2011, we issued 4.6 million of our Series A Cumulative Redeemable Perpetual
Preferred Shares. Our Series A Preferred Shares have certain conversion and redemption features
that could be triggered upon a change of control, which may make it more difficult for or
discourage a party from taking over our company. In addition, our declaration of trust permits our
board of trustees to issue up to 50 million preferred shares, issuable in one or more classes or
series. Our board of trustees may increase the number of preferred shares authorized by our
declaration of trust without shareholder approval. Our board of trustees may also classify or
reclassify any unissued preferred shares and establish the preferences and rights (including the
right to vote, to participate in earnings and to convert into securities) of any such preferred
shares, which rights may be superior to those of our common shares. Thus, in addition to our
Series A Preferred Shares, our board of trustees could authorize the issuance of preferred shares
with terms and conditions that could have the effect of discouraging a takeover or other
transaction in which holders of some or a majority of the common shares might receive a premium for
their shares over the then current market price of our common shares.
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Our ownership limitations may restrict business combination opportunities.
To qualify as a REIT under the Internal Revenue Code, no more than 50% of the value of our
outstanding shares of beneficial interest may be owned, directly or under applicable attribution
rules, by five or fewer individuals (as defined to include certain entities) during the last half
of each taxable year (other than our first REIT taxable year). To preserve our REIT qualification,
our declaration of trust generally prohibits direct or indirect beneficial ownership (as defined
under the Code) by any person of (i) more than 8.75% of the number or value of our outstanding
common shares or (ii) more than 8.75% of the value of our
outstanding shares of all classes. In addition, pursuant to the Articles Supplementary
setting forth the terms of our Series A Preferred Shares, no person may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.8% (by value or number of shares,
whichever is more restrictive) of our Series A Preferred Shares. Generally, shares owned by
affiliated owners will be aggregated for purposes of the ownership limitation. Our declaration of
trust has created a special higher ownership limitation of no more than 14.9% for the group
comprised of Louis T. Donatelli, Douglas J. Donatelli and certain related persons. Unless the
applicable ownership limitation is waived by our board of trustees prior to transfer, any transfer
of our common shares that would violate the ownership limitation will be null and void, and the
intended transferee will acquire no rights in such shares. Common shares that would otherwise be
held in violation of the ownership limit will be designated as shares-in-trust and transferred
automatically to a trust effective on the day before the purported transfer or other event giving
rise to such excess ownership. The beneficiary of the trust will be one or more charitable
organizations named by us. The ownership limitation could have the effect of delaying, deterring
or preventing a change in control or other transaction in which holders of common shares might
receive a premium for their common shares over the then current market price or that such holders
might believe to be otherwise in their best interests. The ownership limitation provisions also
may make our common shares an unsuitable investment vehicle for any person seeking to obtain,
either alone or with others as a group, ownership of (i) more than 8.75% of the number or value of
our outstanding common shares or (ii) more than 8.75% in value of our outstanding shares of all
classes.
Our board of trustees may change our investment and operational policies and practices without
a vote of our security holders, which limits your control of our policies and practices.
Our major policies, including our policies and practices with respect to investments,
financing, growth, debt capitalization, REIT qualification and distributions, are determined by our
board of trustees. Although we have no present intention to do so, our board of trustees may amend
or revise these and other policies from time to time without a vote of our security holders.
Accordingly, our security holders have limited control over changes in our policies.
Our declaration of trust and bylaws do not limit the amount of indebtedness that we or our
Operating Partnership may incur. If we become highly leveraged, then the resulting increase in
debt service could adversely affect our ability to make payments on our outstanding indebtedness
and harm our financial condition.
Our declaration of trust contains provisions that make removal of our trustees difficult,
which could make it difficult for our shareholders to effect changes to our management.
Our declaration of trust provides that a trustee may be removed, with or without cause, only
upon the affirmative vote of holders of a majority of our outstanding common shares. Vacancies may
be filled by the board of trustees. This requirement makes it more difficult to change our
management by removing and replacing trustees.
Our bylaws may only be amended by our board of trustees, which could limit your control of
certain aspects of our corporate governance.
Our board of trustees has the sole authority to amend our bylaws. Thus, the board is able to
amend the bylaws in a way that may be detrimental to your interests.
Maryland law may discourage a third party from acquiring us.
Maryland law provides broad discretion to our board of trustees with respect to their duties
as trustees in considering a change in control of our Company, including that our board is subject
to no greater level of scrutiny in considering a change in control transaction than with respect to
any other act by our board.
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The Maryland Business Combination Act restricts mergers and other business combinations
between our Company and an interested shareholder for five years after the most recent date on
which the shareholder becomes an interested shareholder, and thereafter imposes special shareholder
voting requirements on these combinations. An interested shareholder is defined as any person
who is the beneficial owner of 10% or more of the voting power of our common shares and also
includes any of our affiliates or associates that, at any time within the two year period prior to
the date of a proposed merger or other business combination, was the beneficial owner of 10% or
more of our voting power. Additionally, the control shares provisions of the Maryland General
Corporation Law, or MGCL, are applicable to us as if we were a corporation. These provisions
eliminate the voting rights of issued and outstanding shares acquired in quantities so as to
constitute control shares, as defined under the MGCL, unless our shareholders approve such voting
rights by the affirmative vote of at least two-thirds of all votes entitled to be cast on the
matter, excluding all interested shares and shares held by our trustees and officers. Control
shares are generally defined as shares which, when aggregated with other shares controlled by the
shareholder, entitle the shareholder to exercise one
of three increasing ranges of voting power in electing trustees. Our amended and restated
declaration of trust and/or bylaws, provide that we are not bound by the Maryland Business
Combination Act or the control share acquisition statute. However, in the case of the control
share acquisition statute, our board of trustees may opt to make this statute applicable to us at
any time by amending our bylaws, and may do so on a retroactive basis. We could also opt to make
the Maryland Business Combination Act applicable to us by amending our declaration of trust by a
vote of a majority of our outstanding common shares. Finally, the unsolicited takeovers
provisions of the MGCL permit our board of trustees, without shareholder approval and regardless of
what is currently provided in our declaration of trust or bylaws, to implement certain provisions
that may have the effect of inhibiting a third party from making an acquisition proposal for our
Company or of delaying, deferring or preventing a change in control of our Company under
circumstances that otherwise could provide the holders of our common shares with the opportunity to
realize a premium over the then current market price or that shareholders may otherwise believe is
in their best interests.
Tax Risks of our Business and Structure
If we fail to remain qualified as a REIT for federal income tax purposes, we will not be able
to deduct our distributions, and our income will be subject to taxation, which would reduce the
cash available for distribution to our shareholders.
We elected to be taxed as a REIT under the Internal Revenue Code commencing with our short
taxable year ended December 31, 2003. The requirements for qualification as a REIT, however, are
complex and interpretations of the federal income tax laws governing REITs are limited. The REIT
qualification rules are even more complicated for a REIT that invests through an operating
partnership, in various joint ventures, in other REITs and in both equity and debt investments.
Our continued qualification as a REIT will depend on our ability to meet various requirements
concerning, among other things, the ownership of our outstanding shares of stock, the nature of our
assets, the sources of our income and the amount of our distributions to our shareholders. If we
fail to meet these requirements and do not qualify for certain statutory relief provisions, our
distributions to our shareholders will not be deductible by us and we will be subject to a
corporate level tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates, substantially reduce our cash available to make distributions to our
shareholders. In addition, if we failed to qualify as a REIT, we would no longer be required to
make distributions for U.S. federal income tax purposes. Incurring corporate income tax liability
might cause us to borrow funds, liquidate some of our investments or take other steps that could
negatively affect our operating results. Moreover, if our REIT status is terminated because of our
failure to meet a REIT qualification requirement or if we voluntarily revoke our election, unless
relief provisions applicable to certain REIT qualification failures apply, we would be disqualified
from electing treatment as a REIT for the four taxable years following the year in which REIT
status is lost. We may not qualify for relief provisions for REIT qualification failures and even
if we can qualify for such relief, we may be required to make penalty payments, which could be
significant in amount.
Even if we maintain our qualification as a REIT, we will be subject to any applicable state,
local or foreign taxes and our taxable REIT subsidiaries are be subject to federal, state and local
income taxes at regular corporate rates.
Failure of our operating partnership to be treated as a partnership for federal income tax
purposes would result in our failure to qualify as a REIT.
Failure of our operating partnership (or a subsidiary partnership) to be treated as a
partnership would have serious adverse consequences to our shareholders. If the IRS were to
successfully challenge the tax status of our operating partnership or any of its subsidiary
partnerships for federal income tax purposes, our operating partnership or the affected subsidiary
partnership would be taxable as a corporation. In such event, we would fail to meet the gross
income tests and certain of the asset tests applicable to REITs and, accordingly, would cease to
qualify as a REIT.
24
Distribution requirements relating to qualification as a REIT for federal income tax purposes
limit our flexibility in executing our business plan.
Our business plan contemplates growth through acquisitions. To maintain our qualification as
a REIT for federal income tax purposes, we generally are required to distribute to our shareholders
at least 90% of our REIT taxable income each year. REIT taxable income is determined without
regard to the deduction for dividends paid and by excluding net capital gains. To the extent that
we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income,
we will be subject to federal corporate income tax on our undistributed income. In addition, we
are required to pay a 4% nondeductible excise tax on the amount, if any, by which actual
distributions we pay with respect to any calendar year are less than the sum of 85% of our
ordinary income for that calendar year, 95% of our capital gain net income for the calendar
year and any amount of our undistributed taxable income required to be distributed from prior
years.
We have distributed, and intend to continue to distribute, to our shareholders all or
substantially all of our REIT taxable income each year in order to comply with the distribution
requirements of the Internal Revenue Code and to eliminate all federal income tax liability at the
REIT level and liability for the 4% nondeductible excise tax. Our distribution requirements limit
our ability to accumulate capital for other business purposes, including funding acquisitions, debt
maturities and capital expenditures. Thus, our ability to grow through acquisitions will be limited
if we are unable to obtain debt or equity financing. In addition, differences in timing between the
receipt of income and the payment of expenses in arriving at REIT taxable income and the effect of
required debt amortization payments could require us to borrow funds or make a taxable distribution
of our shares or debt securities to meet the distribution requirements that are necessary to
achieve the tax benefits associated with qualifying as a REIT.
Our disposal of properties may have negative implications, including unfavorable tax
consequences.
If we make a sale of a property directly or through an entity that is treated as a partnership
or a disregarded entity, for federal income tax purposes, and it is deemed to be a sale of dealer
property or inventory, the sale may be deemed to be a prohibited transaction under the federal
income tax laws applicable to REITs, in which case our gain, or our share of the gain, from the
sale would be subject to a 100% penalty tax. If we believe that a sale of a property might be
treated as a prohibited transaction, we may seek to conduct that sales activity through a taxable
REIT subsidiary, in which case the gain from the sale would be subject to corporate income tax but
not the 100% prohibited transaction tax. We cannot assure you, however, that the Internal Revenue
Service will not assert successfully that sales of properties that we make directly or through an
entity that is treated as a partnership or a disregarded entity, for federal income tax purposes
are sales of dealer property or inventory, in which case the 100% penalty tax would apply.
Moreover, we have entered and may enter into agreements with joint venture partners or contributors
to our operating partnership that require us to avoid taxable property sales and to maintain
property-level indebtedness on contributed properties for a period of years. Sales of properties
or repayment of indebtedness may result in adverse consequences to our partners for which we may
have full or partial indemnification obligations.
We may be subject to adverse legislative or regulatory tax changes that could reduce the
market price of our securities.
At any time, the federal income tax laws or regulations governing REITs or the administrative
interpretations of those laws or regulations may be amended. We cannot predict when or if any new
federal income tax law, regulation or administrative interpretation, or any amendment to any
existing federal income tax law, regulation or administrative interpretation, will be adopted,
promulgated or become effective and any such law, regulation or interpretation may take effect
retroactively. We and our shareholders, as the well as the market price of our securities, could be
adversely affected by any such change in, or any new, federal income tax law, regulation or
administrative interpretation.
We may in the future choose to pay dividends in our own shares, in which case you may be
required to pay income taxes in excess of the cash dividends you receive.
We may in the future distribute taxable dividends that are payable in cash and our common
shares at the election of each shareholder. Under IRS Revenue Procedures 2009-15 and 2010-12, up
to 90% of any such taxable dividend for 2009, 2010 and 2011 could be payable in our shares.
Taxable shareholders receiving such dividends will be required to include the full amount of the
dividend as ordinary income to the extent of our current and accumulated earnings and profits for
federal income tax purposes. As a result, a U.S. shareholder may be required to pay income taxes
with respect to such dividends in excess of the cash dividends received. If a U.S. shareholder
sells the shares it receives as a dividend in order to pay this tax, the sales proceeds may be less
than the amount included in income with respect to the dividend, if the market value of our shares
decreases following the distribution. Furthermore, with respect to non-U.S. shareholders, we may be
required to withhold U.S. tax with respect to such dividends, including in respect of all or a
portion of such dividend that is payable in shares. In addition, if a significant number of our
shareholders determine to sell shares of our common shares in order to pay taxes owed on dividends,
it may put downward pressure on the trading price of our common shares.
25
Dividends payable by REITs do not qualify for the reduced tax rates available for some
dividends.
The maximum tax rate applicable to income from qualified dividends payable to U.S.
shareholders taxed at individual rates has been reduced by legislation to 15% through the end of
2012. Dividends payable by REITs, however, generally are not eligible for the reduced rates.
Although this legislation does not adversely affect the taxation of REITs or dividends payable by
REITs, the more favorable rates applicable to regular corporate qualified dividends could cause
investors who are taxed at
individual rates to perceive investments in REITs to be relatively less attractive than
investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect
the market price of the stock of REITs, including our common shares.
Complying with REIT requirements may force us to sell otherwise attractive investments.
To qualify as a REIT, we must satisfy certain requirements with respect to the character of
our assets. If we fail to comply with these requirements at the end of any calendar quarter, we
must correct such failure within 30 days after the end of the calendar quarter (by, possibly,
selling assets notwithstanding their prospects as an investment) to avoid losing our REIT status.
If we fail to comply with these requirements at the end of any calendar quarter, and the failure
exceeds a de minimis threshold, we may be able to preserve our REIT status if (a) the failure was
due to reasonable cause and not to willful neglect, (b) we dispose of the assets causing the
failure within six months after the last day of the quarter in which we identified the failure, (c)
we file a schedule with the Internal Revenue Service describing each asset that caused the failure,
and (d) we pay an additional tax of the greater of $50,000 or the product of the highest applicable
tax rate multiplied by the net income generated on those assets. As a result, we may be required
to liquidate otherwise attractive investments.
If we or our predecessor entity failed to qualify as an S corporation for any of our tax years
prior to our initial public offering, we may fail to qualify as a REIT.
To qualify as a REIT, we may not have at the close of any year undistributed earnings and
profits accumulated in any non-REIT year, including undistributed earnings and profits
accumulated in any non-REIT year for which we or our predecessor, First Potomac Realty Investment
Trust, Inc., did not qualify as an S corporation. Although we believe that we and our predecessor
corporation qualified as an S corporation for federal income tax purposes for all tax years prior
to our initial public offering, if it is determined that we did not so qualify, we will not qualify
as a REIT. Any such failure to qualify may also prevent us from qualifying as a REIT for any of
the following four tax years.
If First Potomac Management, Inc. failed to qualify as an S corporation during any of its tax
years, we may be responsible for any entity level taxes due.
We believe First Potomac Management, Inc. qualified as an S corporation for federal and state
income tax purposes from the time of its incorporation in 1997 through the date it merged into our
Company in 2006. However, the Company may be responsible for any entity-level taxes imposed on
First Potomac Management, Inc. if it did not qualify as an S corporation at any time prior to the
merger. First Potomac Management, Inc.s former shareholders have severally indemnified us against
any such loss; however, in the event one or more of its former shareholders is unable to fulfill
its indemnification obligation, we may not be reimbursed for a portion of the taxes.
Risks Related to an Investment in Our Equity Securities
Our common and preferred shares trade in a limited market which could hinder your ability to
sell our common or preferred shares.
Our common shares experience relatively limited trading volume; many investors, particularly
institutions, may not be interested (or be permitted) in owning our common shares because of the
inability to acquire or sell a substantial block of our common shares at one time. This
illiquidity could have an adverse effect on the market price of our common shares. In addition, a
shareholder may not be able to borrow funds using our common shares as collateral because lenders
may be unwilling to accept the pledge of common shares having a limited market, thereby making our
common shares a less attractive investment for some investors. In addition, an active trading
market on the NYSE for our Series A Preferred Shares issued in January 2011 (which were our first
issuance of preferred shares) may not develop or, if it does develop, may not last, in which case
the trading price of our Series A Preferred Shares could be adversely affected. If an active
trading market does develop on the NYSE, our Series A Preferred Shares may trade at prices lower
than the initial offering price.
26
The market price and trading volume of our common and preferred shares may be volatile.
The market price of our common shares has been and is likely to continue to be more volatile
than in prior years and subject to wide fluctuations. In addition, the trading volume in our
common and preferred shares may fluctuate and cause significant price variations to occur. Common
and preferred share prices for REITs have experienced significant downward pressure in recent years
in connection with the disruptions in the real estate and credit markets and the current economic
downturn and may continue to experience such downward pressures in the future. Some of the factors
that could negatively affect our share price or result in fluctuations in the price or trading
volume of our common and preferred shares include:
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actual or anticipated declines in our quarterly operating results or distributions; |
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reductions in our funds from operations; |
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declining occupancy rates or increased tenant defaults; |
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general market and economic conditions, including continued volatility in the financial
and credit markets; |
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increases in market interest rates that lead purchasers of our securities to demand a
higher dividend yield; |
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changes in market valuations of similar companies; |
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adverse market reaction to any increased indebtedness we incur in the future; |
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additions or departures of key management personnel; |
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actions by institutional shareholders; |
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our issuance of additional debt or preferred equity securities; |
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speculation in the press or investment community; and |
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unanticipated charges due to the vesting of equity based compensation awards upon
achievement of certain performance measures that cause our operating results to decline or
fail to meet market expectations. |
Broad market fluctuations could negatively impact the market price of our common or preferred
shares.
The stock market has experienced extreme price and volume fluctuations that have affected the
market price of many companies that have been unrelated to these companies operating performances.
These broad market fluctuations could reduce the market price of our common or preferred shares,
regardless of our operating performance. Furthermore, our operating results and prospects may be
below the expectations of investors or may be lower than those of companies with comparable market
capitalizations, which could lead to a material decline in the market price of our common or
preferred shares.
An increase in market interest rates may have an adverse effect on the market price of our
common shares.
One of the factors that investors may consider in deciding whether to buy or sell our common
shares is our distribution rate as a percentage of our share price, relative to market interest
rates. If market interest rates increase, prospective investors may desire a higher distribution
rate on our common shares or seek securities paying higher dividends or interest. The market price
of our common shares likely will be based primarily on the earnings that we derive from rental
income with respect to our properties and our related distributions to shareholders, and not from
the underlying appraised value of the properties themselves. As a result, interest rate
fluctuations and capital market conditions can affect the market price of our common shares. For
instance, if interest rates rise without an increase in our distribution rate, the market price of
our common shares could decrease because potential investors may require a higher yield on our
common shares as market rates on interest-bearing securities, such as bonds, rise. In addition,
rising interest rates would result in increased interest expense on our non-hedged variable rate
debt, thereby adversely affecting cash flow and our ability to service our indebtedness and make
distributions to our shareholders.
27
We have not established a minimum dividend payment level and we cannot assure of our ability
to pay dividends in the future or the amount of any dividends.
We intend to make quarterly distributions to our shareholders in amounts such that we
distribute all or substantially all of our taxable income in each year, subject to certain
adjustments. Even though we have made distributions on our common shares each fiscal quarter since
January 1, 2004, we have not established a minimum dividend payment level and our ability to make
distributions may be adversely affected by the risk factors described in this Annual Report on Form
10-K and any risk factors in our subsequent Securities and Exchange Commission filings. For
example, we significantly reduced our quarterly distribution during 2009. Comparable companies to
ours have also reduced and, in some cases, eliminated their distribution payments. All
distributions will be made at the discretion of our board of trustees and their payment and amount
will depend on our earnings, our financial condition, maintenance of our REIT status and other
factors as our board of trustees may deem relevant from time to time. We cannot assure you of our
ability to make distributions in the future or that the distributions will be made in amounts
similar to our historic distributions. In particular, our outstanding debt, and the limitations
imposed on us by our debt agreements, could make it more difficult for us to satisfy our
obligations with respect to our equity securities, including paying dividends. Further,
distributions with respect to our common shares are subject to our ability to first satisfy our
obligations to pay distributions to the holders of our Series A Preferred Shares, and future
offerings of preferred shares could have a preference on liquidating distributions or a preference
on dividend payments or both that could limit our ability to make a dividend distribution to the
holders of our common shares. In addition, some of our distributions may include a return of
capital or may be taxable distributions of our shares or debt securities.
Future offerings of debt securities, which would rank senior to our common and preferred
shares upon liquidation, and future offerings of equity securities, which would dilute our existing
shareholders and may be senior to our common shares or senior to or on parity with our preferred
shares for the purposes of dividend and liquidating distributions, may adversely affect the market
price of our equity securities.
In the future, particularly as we seek to acquire and develop additional real estate assets
consistent with our growth strategy, we may attempt to increase our capital resources by making
offerings of debt or additional offerings of equity securities, including senior or subordinated
notes and series of preferred shares or common shares. For example, during 2010 and thus far during
2011, we sold approximately 18.3 million common shares and 4.6 million preferred shares in
underwritten public offerings.
Our preferred shares will rank junior to all of our existing and future debt and to other
non-equity claims on us and our assets available to satisfy claims against us, including claims in
bankruptcy, liquidation or similar proceedings. Further, upon liquidation, holders of our debt
securities and preferred shares and lenders with respect to other borrowings will receive a
distribution of our available assets prior to the holders of our common shares. Additional equity
offerings may dilute the holdings of our existing shareholders or reduce the market price of our
equity securities, or both. Because our decision to issue securities in any future offering will
depend on market conditions and other factors beyond our control, we cannot predict or estimate the
amount, timing or nature of our future offerings. Thus, holders of our equity securities bear the
risk of our future offerings reducing the market price of our equity securities and diluting their
share holdings in us.
Shares eligible for future sale may have adverse effects on our share price.
The Company cannot predict the effect, if any, of future sales of common shares, or the
availability of shares for future sales, on the market price of our common shares. Sales of
substantial amounts of common shares, including common shares issuable upon (i) the redemption of
units of our Operating Partnership, (ii) exercise of options, and (iii) the conversion of our
Operating Partnerships 4.0% Exchangeable Senior Notes, or the perception that these sales could
occur, may adversely affect prevailing market prices for our common shares and impede our ability
to raise capital. Any substantial sale of our common shares could have a material adverse effect on
the market price of our common shares.
The Company also may issue from time to time additional common shares or preferred shares or
units of our Operating Partnership in connection with the acquisition of properties, and we may
grant demand or piggyback registration rights in connection with these issuances. Sales of
substantial amounts of securities or the perception that these sales could occur may adversely
affect the prevailing market price for our securities. In addition, the sale of these shares could
impair our ability to raise capital through a sale of additional equity securities.
28
Holders of Series A Preferred Shares have extremely limited voting rights.
Holders of Series A Preferred Shares have extremely limited voting rights. Our common
shares are the only class of our equity securities carrying full voting rights. Voting rights for
holders of Series A Preferred Shares exist primarily with respect to the ability to appoint
additional trustees to our Board of Trustees in the event that six quarterly dividends (whether or
not consecutive) payable on our Series A Preferred Shares are in arrears, and with respect to
voting on amendments to our declaration of trust or our Series A Preferred Shares Articles
Supplementary that materially and adversely affect the rights of Series A Preferred Shares holders
or create additional classes or series of preferred shares that are senior to our Series A
Preferred Shares. Other than very limited circumstances, holders of Series A Preferred Shares will
not have voting rights.
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ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
None.
29
The Company classifies its properties into three distinct reporting and operational segments
within the broader greater Washington D.C, region, which it refers to as the Maryland, Northern
Virginia and Southern Virginia reporting segments. The Company acquired four properties in
Washington, D.C. in 2010, including one through an unconsolidated joint venture. The Company
currently includes the properties in its Northern Virginia reporting segment as all operational and
management decisions are currently handled by the Companys Northern Virginia management team. The
following sets forth certain information for the Companys consolidated properties as of December
31, 2010 (including properties in development and redevelopment):
MARYLAND
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Leased at |
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Occupied at |
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Property |
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Year(s) of |
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Square |
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December 31, |
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December 31, |
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Property |
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Buildings |
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Type(1) |
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Location |
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Acquisition |
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Footage |
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2010(2) |
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2010(2) |
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SUBURBAN MD |
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Frederick |
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15 Wormans Mill Court |
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1 |
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OP |
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Frederick |
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2004 |
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40,051 |
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87.7 |
% |
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87.7 |
% |
Frederick Industrial Park(3) |
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3 |
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I |
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Frederick |
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2004 |
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550,418 |
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93.7 |
% |
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93.7 |
% |
Patrick Center |
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1 |
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Office |
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Frederick |
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2004 |
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66,420 |
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79.1 |
% |
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77.8 |
% |
West Park |
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1 |
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Office |
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Frederick |
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2004 |
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28,620 |
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75.2 |
% |
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75.2 |
% |
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I-270 Corridor |
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20270 Goldenrod Lane |
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1 |
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Office |
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Germantown |
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2004 |
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23,518 |
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52.0 |
% |
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52.0 |
% |
Airpark Place |
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3 |
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BP |
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Gaithersburg |
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2004 |
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82,414 |
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57.6 |
% |
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52.8 |
% |
Campus at Metro Park |
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4 |
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OP |
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Rockville |
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2004 |
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190,912 |
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85.1 |
% |
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85.1 |
% |
Gateway Center |
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2 |
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Office |
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Gaithersburg |
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2004 |
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44,150 |
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96.0 |
% |
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92.4 |
% |
Girard Business Park(4) |
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7 |
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BP |
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Gaithersburg |
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2004 |
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299,530 |
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72.7 |
% |
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72.7 |
% |
Gateway 270 |
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6 |
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BP |
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Clarksburg |
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2006 |
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243,048 |
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89.8 |
% |
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89.8 |
% |
Cloverleaf Center |
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4 |
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OP |
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Germantown |
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2009 |
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173,655 |
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100.0 |
% |
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100.0 |
% |
Redland Corporate Center II &
III(5) |
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2 |
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Office |
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Rockville |
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2010 |
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347,462 |
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43.9 |
% |
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40.4 |
% |
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Beltsville |
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Ammendale Business Park(6) |
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7 |
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BP |
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Beltsville |
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2006, 2007 |
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312,736 |
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91.8 |
% |
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59.2 |
% |
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Columbia |
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Rumsey Center |
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4 |
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BP |
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Columbia |
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2002 |
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134,431 |
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83.1 |
% |
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79.6 |
% |
Snowden Center |
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5 |
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BP |
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Columbia |
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2002 |
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144,930 |
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92.1 |
% |
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77.4 |
% |
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Other |
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Old Courthouse Square(7) |
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1 |
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Retail |
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Martinsburg, WV |
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2004 |
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201,208 |
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90.9 |
% |
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90.9 |
% |
Woodlands Business Center |
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1 |
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Office |
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Largo |
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2004 |
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37,886 |
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68.3 |
% |
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68.3 |
% |
Glenn Dale Business Center |
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1 |
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I |
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Glenn Dale |
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2005 |
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315,962 |
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92.1 |
% |
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92.1 |
% |
Annapolis Commerce Park East |
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2 |
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OP |
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Annapolis |
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2007 |
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101,898 |
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98.8 |
% |
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98.8 |
% |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
3,339,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALTIMORE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owings Mills |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owings Mills Business Park(8) |
|
|
6 |
|
|
BP |
|
Owings Mills |
|
2005, 2006 |
|
|
219,168 |
|
|
|
82.3 |
% |
|
|
82.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gateway West |
|
|
4 |
|
|
OP |
|
Westminster |
|
2004 |
|
|
111,481 |
|
|
|
37.0 |
% |
|
|
37.0 |
% |
Triangle Business Center |
|
|
4 |
|
|
BP |
|
Baltimore |
|
2008 |
|
|
74,182 |
|
|
|
76.3 |
% |
|
|
76.3 |
% |
7458 Candlewood Road |
|
|
1 |
|
|
I |
|
Hanover |
|
2010 |
|
|
295,673 |
|
|
|
99.1 |
% |
|
|
92.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
700,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Maryland |
|
|
71 |
|
|
|
|
|
|
|
|
|
4,039,753 |
|
|
|
83.1 |
% |
|
|
78.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
I = Industrial; BP = Business Park; OP = Office Park |
|
(2) |
|
Does not include space in development or redevelopment. |
|
(3) |
|
Frederick Industrial Park consists of the following properties: 4451 Georgia Pacific
Boulevard, 4612 Navistar Drive and 6900 English Muffin Way. |
|
(4) |
|
Girard Business Park consists of the following properties: Girard Business Center
and Girard Place. |
|
(5) |
|
The property was acquired through a consolidated joint venture in which the Company
has a 97% economic interest. |
|
(6) |
|
Ammendale Business Park consists of the following properties: Ammendale Commerce
Center and Indian Creek Court. |
|
(7) |
|
The property was sold on February 18, 2011. |
|
(8) |
|
Owings Mills Business Park consists of the following properties: Owings Mills
Business Center and Owings Mills Commerce Center. |
30
NORTHERN VIRGINIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased at |
|
|
Occupied at |
|
|
|
|
|
|
|
Property |
|
|
|
Year(s) of |
|
Square |
|
|
December 31, |
|
|
December 31, |
|
Property |
|
Buildings |
|
|
Type(1) |
|
Location |
|
Acquisition |
|
Footage |
|
|
2010(2) |
|
|
2010(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexandria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plaza 500 |
|
|
2 |
|
|
I |
|
Alexandria |
|
1997 |
|
|
504,089 |
|
|
|
91.7 |
% |
|
|
91.7 |
% |
Interstate Plaza |
|
|
1 |
|
|
I |
|
Alexandria |
|
2003 |
|
|
109,029 |
|
|
|
78.2 |
% |
|
|
78.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manassas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windsor at Battlefield |
|
|
2 |
|
|
OP |
|
Manassas |
|
2004 |
|
|
154,989 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Gateway Centre |
|
|
3 |
|
|
BP |
|
Manassas |
|
2005 |
|
|
101,534 |
|
|
|
83.7 |
% |
|
|
83.7 |
% |
Linden Business Center |
|
|
3 |
|
|
BP |
|
Manassas |
|
2005 |
|
|
109,838 |
|
|
|
75.4 |
% |
|
|
75.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reston/Herndon |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Van Buren Business Park |
|
|
5 |
|
|
OP |
|
Herndon |
|
1997 |
|
|
108,115 |
|
|
|
83.5 |
% |
|
|
83.5 |
% |
Herndon Corporate Center |
|
|
4 |
|
|
OP |
|
Herndon |
|
2004 |
|
|
127,812 |
|
|
|
81.7 |
% |
|
|
81.7 |
% |
Reston Business Campus |
|
|
4 |
|
|
OP |
|
Reston |
|
2005 |
|
|
82,988 |
|
|
|
86.0 |
% |
|
|
86.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sterling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sterling Park Business Center(3) |
|
|
6 |
|
|
BP |
|
Sterling |
|
2005, 2006 |
|
|
436,018 |
|
|
|
72.2 |
% |
|
|
72.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chantilly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lafayette Business Park(4) |
|
|
6 |
|
|
OP |
|
Chantilly |
|
1998, 2005 |
|
|
254,060 |
|
|
|
78.3 |
% |
|
|
78.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13129 Airpark Road |
|
|
1 |
|
|
I |
|
Culpeper |
|
1997 |
|
|
149,888 |
|
|
|
75.9 |
% |
|
|
75.9 |
% |
Newington Business Park Center |
|
|
7 |
|
|
I |
|
Lorton |
|
1999 |
|
|
254,272 |
|
|
|
91.3 |
% |
|
|
89.7 |
% |
15395 John Marshall Highway |
|
|
1 |
|
|
I |
|
Haymarket |
|
2004 |
|
|
236,082 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Aquia Commerce Center I & II |
|
|
2 |
|
|
OP |
|
Stafford |
|
2004 |
|
|
64,488 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Prosperity Business Center |
|
|
1 |
|
|
BP |
|
Merrifield |
|
2005 |
|
|
71,312 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Ashburn Center |
|
|
3 |
|
|
BP |
|
Ashburn |
|
2009 |
|
|
194,184 |
|
|
|
100.0 |
% |
|
|
76.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
2,958,698 |
|
|
|
86.6 |
% |
|
|
84.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic Corporate Park |
|
|
2 |
|
|
Office |
|
Sterling |
|
2010 |
|
|
220,610 |
|
|
|
4.1 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
3,179,308 |
|
|
|
81.1 |
% |
|
|
79.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington, DC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 First Street, NW |
|
|
1 |
|
|
Office |
|
Washington, DC |
|
2010 |
|
|
129,035 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
1211 Connecticut Ave, NW |
|
|
1 |
|
|
Office |
|
Washington, DC |
|
2010 |
|
|
125,119 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
440 First Street, NW(5) |
|
|
1 |
|
|
Office |
|
Washington, DC |
|
2010 |
|
|
105,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
359,154 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Northern Virginia |
|
|
56 |
|
|
|
|
|
|
|
|
|
3,538,462 |
|
|
|
82.5 |
% |
|
|
80.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
I = Industrial; BP = Business Park; OP = Office Park |
|
(2) |
|
Does not include space in development or redevelopment. |
|
(3) |
|
Sterling Park Business Center consists of the following properties: 403/405 Glenn
Drive, Davis Drive and Sterling Park Business Center. |
|
(4) |
|
Lafayette Business Park consists of the following properties: Enterprise Center and
Tech Court. |
|
(5) |
|
As of December 31, 2010, the property was under redevelopment. |
31
SOUTHERN VIRGINIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased at |
|
|
Occupied at |
|
|
|
|
|
|
|
Property |
|
|
|
Year(s) of |
|
Square |
|
|
December 31, |
|
|
December 31, |
|
Property |
|
Buildings |
|
|
Type(1) |
|
Location |
|
Acquisition |
|
Footage |
|
|
2010(2) |
|
|
2010(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RICHMOND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia Center |
|
|
1 |
|
|
BP |
|
Glen Allen |
|
2003 |
|
|
118,145 |
|
|
|
85.2 |
% |
|
|
85.2 |
% |
Northridge I, II |
|
|
2 |
|
|
I |
|
Ashland |
|
2006 |
|
|
140,185 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Hanover Business Center |
|
|
4 |
|
|
BP |
|
Ashland |
|
2006 |
|
|
182,967 |
|
|
|
78.3 |
% |
|
|
74.4 |
% |
Park Central |
|
|
3 |
|
|
BP |
|
Richmond |
|
2006 |
|
|
204,280 |
|
|
|
84.8 |
% |
|
|
84.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rivers Bend Center(3) |
|
|
6 |
|
|
I |
|
Chester |
|
2006, 2007 |
|
|
795,037 |
|
|
|
94.2 |
% |
|
|
94.2 |
% |
Chesterfield Business Center(4) |
|
|
11 |
|
|
BP |
|
Richmond |
|
2006, 2007 |
|
|
320,382 |
|
|
|
83.3 |
% |
|
|
75.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
1,760,996 |
|
|
|
89.3 |
% |
|
|
87.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NORFOLK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossways |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossways Commerce Center(5) |
|
|
9 |
|
|
BP |
|
Chesapeake |
|
1999, 2004, 2005,2006 |
|
|
1,089,786 |
|
|
|
91.6 |
% |
|
|
91.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenbrier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenbrier Business Center(6) |
|
|
4 |
|
|
BP |
|
Chesapeake |
|
2002, 2007 |
|
|
410,613 |
|
|
|
83.5 |
% |
|
|
83.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chesapeake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cavalier Industrial Park |
|
|
4 |
|
|
I |
|
Chesapeake |
|
2005 |
|
|
394,308 |
|
|
|
88.6 |
% |
|
|
88.6 |
% |
Diamond Hill Distribution Center |
|
|
4 |
|
|
I |
|
Chesapeake |
|
2005 |
|
|
712,683 |
|
|
|
82.0 |
% |
|
|
82.0 |
% |
Battlefield Corporate Center |
|
|
1 |
|
|
BP |
|
Chesapeake |
|
2010 |
|
|
96,720 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampton |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1000 Lucas Way |
|
|
2 |
|
|
BP |
|
Hampton |
|
2005 |
|
|
182,323 |
|
|
|
96.3 |
% |
|
|
96.3 |
% |
Enterprise Parkway |
|
|
1 |
|
|
BP |
|
Hampton |
|
2005 |
|
|
363,892 |
|
|
|
60.1 |
% |
|
|
60.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norfolk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norfolk Commerce Park(7) |
|
|
3 |
|
|
BP |
|
Norfolk |
|
2002, 2004, 2006 |
|
|
261,444 |
|
|
|
88.2 |
% |
|
|
88.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
3,511,769 |
|
|
|
85.3 |
% |
|
|
85.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Southern Virginia |
|
|
55 |
|
|
|
|
|
|
|
|
|
5,272,765 |
|
|
|
86.7 |
% |
|
|
86.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
182 |
|
|
|
|
|
|
|
|
|
12,850,980 |
|
|
|
84.4 |
% |
|
|
82.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern Virginia |
|
|
|
|
|
|
|
|
|
|
|
|
56,915 |
|
|
|
|
|
|
|
|
|
Southern Virginia |
|
|
|
|
|
|
|
|
|
|
|
|
48,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland |
|
|
|
|
|
|
|
|
|
|
|
|
12,443 |
|
|
|
|
|
|
|
|
|
|
Northern Virginia(9) |
|
|
|
|
|
|
|
|
|
|
|
|
173,762 |
|
|
|
|
|
|
|
|
|
Southern Virginia |
|
|
|
|
|
|
|
|
|
|
|
|
38,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CONSOLIDATED PORTFOLIO |
|
|
|
|
|
|
|
|
|
|
|
|
13,181,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FPO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Joint Ventures |
|
Ownership |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RiversPark I and II |
|
|
25 |
% |
|
OP |
|
Columbia, MD |
|
2008 |
|
|
306,888 |
|
|
|
94.4 |
% |
|
|
94.4 |
% |
1750 H Street, NW |
|
|
50 |
% |
|
Office |
|
Washington, DC |
|
2010 |
|
|
160,664 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Aviation Business Park |
|
|
50 |
% |
|
OP |
|
Glen Burnie, MD |
|
2010 |
|
|
120,927 |
|
|
|
12.5 |
% |
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL UNCONSOLIDATED
PORTFOLIO |
|
|
|
|
|
|
|
|
|
|
|
|
588,479 |
|
|
|
77.2 |
% |
|
|
77.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
I = Industrial; BP = Business Park |
32
|
|
|
(2) |
|
Does not include space in development or redevelopment. |
|
(3) |
|
Rivers Bend Center consists of the following properties: Rivers Bend Center and
Rivers Bend Center II. |
|
(4) |
|
Chesterfield Business Center consists of the following properties: Airpark Business
Center, Chesterfield Business Center and Pine Glen. |
|
(5) |
|
Crossways Commerce Center consists of the following properties: Coast Guard
Building, Crossways Commerce Center I, Crossways Commerce Center II, Crossways I, Crossways
II, 1434 Crossways Boulevard and 1408 Stephanie Way. |
|
(6) |
|
Greenbrier Business Center consists of the following properties: Greenbrier
Technology Center I, Greenbrier Technology Center II and Greenbrier Circle Corporate Center. |
|
(7) |
|
Norfolk Commerce Park consists of the following properties: Norfolk Business Center,
Norfolk Commerce Park II and Gateway II. |
|
(8) |
|
Represents square footage of existing structures currently under redevelopment. |
|
(9) |
|
Includes Three Flint Hill. |
As of December 31, 2010, the Companys lease expirations for each of the next ten years
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of square feet |
|
|
|
Square |
|
|
under leases |
|
|
|
Feet |
|
|
expiring |
|
MTM(1) |
|
|
113,783 |
|
|
|
1 |
% |
2010(2) |
|
|
99,710 |
|
|
|
1 |
% |
2011 |
|
|
1,660,637 |
|
|
|
15 |
% |
2012 |
|
|
819,773 |
|
|
|
8 |
% |
2013 |
|
|
1,651,304 |
|
|
|
15 |
% |
2014 |
|
|
1,269,380 |
|
|
|
12 |
% |
2015 |
|
|
903,032 |
|
|
|
8 |
% |
2016 |
|
|
1,211,574 |
|
|
|
11 |
% |
2017 |
|
|
772,879 |
|
|
|
7 |
% |
2018 |
|
|
745,702 |
|
|
|
7 |
% |
2019 |
|
|
267,516 |
|
|
|
3 |
% |
2020 |
|
|
483,687 |
|
|
|
5 |
% |
Thereafter |
|
|
759,572 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
10,758,549 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Month-to-month leases as of December 31, 2010. |
|
(2) |
|
The Company treats leases that expired on the last day of the quarter as leased
square footage since the tenant is contractually entitled to the space. Of the 99,710 square
feet of leases that expired on December 31, 2010, 81,118 square feet were moved out, 16,692
square feet were renewed and 1,900 square feet were heldover. |
The Companys average effective annual rental rate per square foot on a cash basis for
each of the previous five years is as follows:
|
|
|
|
|
|
|
Average Base |
|
|
|
Rent per Square |
|
|
|
Foot(1) |
|
2006 |
|
$ |
9.56 |
|
2007 |
|
|
9.54 |
|
2008 |
|
|
9.68 |
|
2009 |
|
|
9.87 |
|
2010 |
|
|
10.61 |
|
|
|
|
(1) |
|
Triple-net equivalent. |
The Companys weighted average occupancy rates for each of the previous five years are
summarized as follows:
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Occupancy Rates |
|
2006 |
|
|
88.1 |
% |
2007 |
|
|
86.9 |
% |
2008 |
|
|
86.3 |
% |
2009 |
|
|
86.1 |
% |
2010 |
|
|
84.1 |
% |
33
|
|
|
ITEM 3. |
|
LEGAL PROCEEDINGS |
The Company is subject to legal proceedings and claims rising in the ordinary course of its
business. In the opinion of the
Companys management, as of December 31, 2010, the Company was not involved in any material
litigation, nor, to managements knowledge, is any material litigation threatened against the
Company or the Operating Partnership.
34
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES |
Market Information
The Companys common shares are listed on the New York Stock Exchange under the symbol FPO.
The Companys common shares began trading on the New York Stock Exchange upon the closing of its
initial public offering in October 2003. At December 31, 2010, there were 87 shareholders of
record and an estimated 16,898 beneficial owners of the Companys common shares.
The following table sets forth the high and low sales prices for the Companys common shares
and the dividends paid per common share for 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Range |
|
|
Dividends |
|
2010 |
|
High |
|
|
Low |
|
|
Per Share |
|
Fourth Quarter |
|
$ |
17.24 |
|
|
$ |
14.85 |
|
|
$ |
0.20 |
|
Third Quarter |
|
|
16.50 |
|
|
|
13.73 |
|
|
|
0.20 |
|
Second Quarter |
|
|
16.65 |
|
|
|
12.99 |
|
|
|
0.20 |
|
First Quarter |
|
|
16.07 |
|
|
|
12.38 |
|
|
|
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Range |
|
|
Dividends |
|
2009 |
|
High |
|
|
Low |
|
|
Per Share |
|
Fourth Quarter |
|
$ |
12.95 |
|
|
$ |
10.94 |
|
|
$ |
0.20 |
|
Third Quarter |
|
|
11.85 |
|
|
|
9.33 |
|
|
|
0.20 |
|
Second Quarter |
|
|
11.36 |
|
|
|
7.02 |
|
|
|
0.20 |
|
First Quarter |
|
|
9.60 |
|
|
|
5.80 |
|
|
|
0.34 |
|
The Company will pay future distributions at the discretion of its board of trustees. The
Companys ability to make cash distributions in the future will be dependent upon, among other
things (i) the income and cash flow generated from Company operations; (ii) cash generated or used
by the Companys financing and investing activities; and (iii) the annual distribution requirements
under the REIT provisions of the Internal Revenue Code described above and such other factors as
the board of trustees deems relevant. The Companys ability to make cash distributions will also
be limited by the covenants contained in our Operating Partnership agreement and our financing
arrangements as well as limitations imposed by state law and the agreements governing any future
indebtedness. Historically, the Company has generated sufficient cash flows from operating
activities to fund distributions. The Company may rely on borrowings on its unsecured revolving
credit facility or may make taxable distributions of its shares or securities to make any
distributions in excess of cash available from operating activities.
Unregistered Sales of Equity Securities and Issuer Repurchases
The Company did not sell any unregistered equity securities during the twelve months ended
December 31, 2010 or purchase any of its registered equity securities during the twelve months
ended December 31, 2010. During 2010, 4,519 Operating Partnership units were redeemed for 4,519
common shares with a fair value of $0.1 million and 329 Operating Partnership units were acquired
for $5 thousand in cash.
On October 28, 2010, the Operating Partnership issued 230,876 Operating Partnership units to
partially fund the acquisition of Battlefield Corporate Center, resulting in 958,473 Operating
Partnership units outstanding as of December 31, 2010. These Operating Partnership units were
issued in reliance upon exemptions from registration under Section 4(2) of the Securities Act of
1933, as amended (the Securities Act), and/or Regulation D promulgated under the Securities Act
(Regulation D). Each of the limited partners represented to the Operating Partnership that it was
an accredited investor as defined in Regulation D and that it was acquiring the Operating
Partnership units for investment purposes. The Operating Partnership issued the units only to the
former owners of the property and did not engage in a general solicitation in connection with the
issuance.
35
The following graph compares the cumulative total return on the Companys common shares with
the cumulative total return
of the S&P 500 Stock Index and The MSCI US REIT Index for the period December 31, 2005 through
December 31, 2010 assuming the investment of $100 in each of the Company and the two indices, on
December 31, 2005, and the reinvestment of dividends. The performance reflected in the graph is not
necessarily indicative of future performance. We will not make or endorse any predictions as to our
future share performance.
COMPARISON OF CUMULATIVE TOTAL RETURNS FOR THE PERIOD
DECEMBER 31, 2005 THROUGH DECEMBER 31, 2010
FIRST POTOMAC REALTY TRUST COMMON STOCK AND S&P 500 AND
THE MSCI US REIT INDEX (RMS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending |
|
Index |
|
12/31/05 |
|
|
12/31/06 |
|
|
12/31/07 |
|
|
12/31/08 |
|
|
12/31/09 |
|
|
12/31/10 |
|
First Potomac Realty Trust |
|
|
100.00 |
|
|
|
114.24 |
|
|
|
71.84 |
|
|
|
42.42 |
|
|
|
63.41 |
|
|
|
89.38 |
|
MSCI US REIT (RMS) |
|
|
100.00 |
|
|
|
135.92 |
|
|
|
113.06 |
|
|
|
70.13 |
|
|
|
90.20 |
|
|
|
115.89 |
|
S&P 500 |
|
|
100.00 |
|
|
|
115.79 |
|
|
|
122.16 |
|
|
|
76.96 |
|
|
|
97.33 |
|
|
|
111.99 |
|
The foregoing graph and chart shall not be deemed incorporated by reference by any
general statement incorporating by reference this Annual Report on Form 10-K into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent we
specifically incorporate this information by reference, and shall not be deemed filed under those
acts.
36
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA |
The following table presents selected financial information of the Company and its
subsidiaries. The financial information has been derived from the consolidated balance sheets and
consolidated statements of operations.
The following financial information should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated
financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(amounts in thousands, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
(unaudited) |
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue and tenant reimbursements |
|
$ |
140,016 |
|
|
$ |
132,148 |
|
|
$ |
122,402 |
|
|
$ |
117,670 |
|
|
$ |
97,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(11,504 |
) |
|
$ |
3,436 |
|
|
$ |
3,967 |
|
|
$ |
(3,947 |
) |
|
$ |
(452 |
) |
(Loss) income from discontinued operations |
|
|
(171 |
) |
|
|
620 |
|
|
|
16,174 |
|
|
|
2,761 |
|
|
|
10,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(11,675 |
) |
|
|
4,056 |
|
|
|
20,141 |
|
|
|
(1,186 |
) |
|
|
10,394 |
|
Less: Net loss (income) attributable to
noncontrolling interests |
|
|
232 |
|
|
|
(124 |
) |
|
|
(615 |
) |
|
|
36 |
|
|
|
(503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders |
|
$ |
(11,443 |
) |
|
$ |
3,932 |
|
|
$ |
19,526 |
|
|
$ |
(1,150 |
) |
|
$ |
9,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common
shareholders per share basic
and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(0.32 |
) |
|
$ |
0.10 |
|
|
$ |
0.14 |
|
|
$ |
(0.17 |
) |
|
$ |
(0.02 |
) |
(Loss) income from discontinued operations |
|
|
(0.01 |
) |
|
|
0.02 |
|
|
|
0.63 |
|
|
|
0.11 |
|
|
|
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(0.33 |
) |
|
$ |
0.12 |
|
|
$ |
0.77 |
|
|
$ |
(0.06 |
) |
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared and paid per common share |
|
$ |
0.80 |
|
|
$ |
0.94 |
|
|
$ |
1.36 |
|
|
$ |
1.36 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,396,682 |
|
|
$ |
1,071,173 |
|
|
$ |
1,080,249 |
|
|
$ |
1,052,299 |
|
|
$ |
994,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans and other debt |
|
|
725,032 |
|
|
|
645,081 |
|
|
|
653,781 |
|
|
|
669,658 |
|
|
|
580,076 |
|
Equity |
|
|
618,060 |
|
|
|
377,759 |
|
|
|
365,293 |
|
|
|
337,520 |
|
|
|
371,978 |
|
37
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of the Companys financial condition and results of
operations should be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Annual Report on Form 10-K. The discussion and analysis is
derived from the consolidated operating results and activities of First Potomac Realty Trust.
Overview
The Company strategically focuses on acquiring and redeveloping properties that it believes
can benefit from its intensive property management and seeks to reposition these properties to
increase their profitability and value. The Companys portfolio of properties contains a mix of
single-tenant and multi-tenant office and industrial properties as well as business parks. Office
properties are single-story and multi-story buildings that are used primarily for office use;
business parks contain buildings with office features combined with some industrial property space;
and industrial properties generally are used as warehouse, distribution or manufacturing
facilities. At December 31, 2010, the Company owned over 13 million square feet and its
consolidated properties were 82.3% occupied by 592 tenants. Excluding the Companys fourth quarter
2010 acquisitions of Atlantic Corporate Park, which was vacant at acquisition, and Redland
Corporate Center II, which was 99% vacant at acquisition, the Companys consolidated portfolio was
85.2% occupied at December 31, 2010. The Company does not include square footage that is in
development or redevelopment in its occupancy calculation. As of December 31, 2010, the Companys
largest tenant was the U.S. Government, which along with government contractors, accounted for over
20% of the Companys total annualized rental revenue. The Company also owned land that can
accommodate approximately 1.7 million square feet of additional development. The Company derives
substantially all of its revenue from leases of space within its properties.
The primary source of the Companys revenue and earnings is rent received from customers under
long-term (generally three to ten years) operating leases at its properties, including
reimbursements from customers for certain operating costs. Additionally, the Company may generate
earnings from the sale of assets either outright or contributed into joint ventures.
The Companys long-term growth will principally be driven by its ability to:
|
|
|
maintain and increase occupancy rates and/or increase rental rates at its
properties; |
|
|
|
|
sell assets to third parties at favorable prices or contribute properties to
joint ventures; and |
|
|
|
|
continue to grow its portfolio through acquisition of new properties, potentially
through joint ventures. |
Significant 2010 Activity and Subsequent Transactions
|
|
|
In 2010, completed eight acquisitions for total consideration of $286.2
million; |
|
|
|
In 2011, completed a two property portfolio acquisition for $33.8 million; |
|
|
|
Completed two additional acquisitions through unconsolidated joint ventures
for total consideration of $73.0 million; |
|
|
|
Raised net proceeds of $264.8 million through the issuance of 18.3 million common shares; |
|
|
|
In January 2011, the Company raised net proceeds of $111.3 million through the
issuance of 4.6 million 7.750% Series A Preferred Shares; |
|
|
|
Executed 2.3 million square feet of leases, generating over 163,000 square feet of
positive net absorption; |
|
|
|
In 2010, sold two properties in the Maryland region for net proceeds of $11.4 million;
and |
|
|
|
In 2011, sold a property in the Maryland region for net proceeds of $10.8 million |
Total assets were $1.4 billion at December 31, 2010 compared to $1.1 billion at December 31,
2009.
38
Development and Redevelopment Activity
During 2010, the Company continued development of several parcels of land, including land
adjacent to previously acquired properties and land acquired with the intent to develop. The
Company constructs office, business parks and/or industrial buildings on a build-to-suit basis or
with the intent to lease upon completion of construction. At December 31, 2010, the Company owned
developable land that can accommodate approximately 1.7 million square feet of additional building
space, which includes 0.1 million square feet in its Maryland reporting segment, 0.6 million square
feet in its Northern Virginia reporting segment and 1.0 million square feet in its Southern
Virginia reporting segment. Also, the Company will continue to commence redevelopment efforts on
unfinished vacant spaces in its portfolio through the investment of capital in electrical, plumbing
and other capital improvements in order to expedite the leasing of the spaces.
During 2010, the Company completed and placed in-service redevelopment efforts on 98 thousand
square feet of space, which includes 30 thousand square feet in its Maryland reporting segment, 37
thousand square feet in its Northern Virginia reporting segment and 31 thousand square feet in its
Southern Virginia reporting segment.
As of December 31, 2010, the Company had incurred development and redevelopment expenditures
for several buildings, of which the more significant projects are noted below:
Development
|
|
|
Sterling Park Business Center a 57,000 square foot office building in the Companys
Northern Virginia reporting segment, which was completed in January 2011. A portion of the
building was pre-leased to a tenant with rent commencing in the second quarter of 2011. As
of December 31, 2010, the Company had spent $5.3 million in costs, which included civil,
architectural, mechanical, electrical and plumbing design, and permit fees as well as site,
concrete, steel, roof, electrical, mechanical, plumbing, glass, doors, frames, hardware,
paint, and landscaping work; and |
|
|
|
Greenbrier Technology Center III a 48,000 square foot three-story office building in
the Companys Southern Virginia reporting segment has been designed and all permits have
been received. Costs to date include civil, architectural, mechanical, electrical and
plumbing design as well as permit fees. |
Redevelopment
|
|
|
Enterprise Parkway a 70,000 square foot multi-tenanted office building in the
Companys Southern Virginia reporting segment. Redevelopment activities were completed on
31 thousand square feet in December 2010, which was pre-leased to a tenant with rent having
commenced in December 2010. Redevelopment of the remaining space was substantially complete
at December 31, 2010. Costs incurred include building, lobby, common corridor, and bathroom
renovations; design documents, permit fees, demolition, and construction work to prepare
space for future tenant layouts; and |
|
|
|
Three Flint Hill a 174,000 square foot eight-story Class A office building has been
redesigned and permits are in process. Costs incurred to date include architectural and
engineering design fees, permit application fees and demolition work. |
On December 28, 2010, the Company acquired 440 First Street, NW, a vacant eight-story, 105,000
square foot office building in Washington, D.C., for $15.3 million. On January 11, 2011, the
Company purchased the fee interest in the propertys 45-year ground lease for $8.0 million. The
acquisition was financed by a draw on the Companys unsecured revolving credit facility and
available cash. The Company intends to completely redevelop the property and is contemplating
adding an additional 13,000 square feet.
Critical Accounting Policies and Estimates
The Companys consolidated financial statements are prepared in accordance with U.S. generally
accepted accounting principles (GAAP) that require the Company to make certain estimates and
assumptions. Critical accounting policies and estimates are those that require subjective or
complex judgments and are the policies and estimates that the Company deems most important to the
portrayal of its financial condition and results of operations. It is possible that the use of
different reasonable estimates or assumptions in making these judgments could result in materially
different amounts being reported in its condensed consolidated financial statements. The Companys
critical accounting policies relate to revenue recognition, including evaluation of the
collectability of accounts receivable, impairment of long-lived assets, purchase accounting for
acquisitions of real estate, derivative instruments and share-based compensation.
39
The following is a summary of certain aspects of these critical accounting policies and
estimates.
Revenue Recognition
The Company generates substantially all of its revenue from leases on its office and
industrial properties as well as business parks. The Company recognizes rental revenue on a
straight-line basis over the term of its leases, which include fixed-rate renewal periods leased at
below market rates at acquisition or inception. Accrued straight-line rents represent the
difference between rental revenue recognized on a straight-line basis over the term of the
respective lease agreements and the rental payments contractually due for leases that contain
abatement or fixed periodic increases. The Company considers current information, credit quality,
historical trends, economic conditions and other events regarding the tenants ability to pay their
obligations in determining if amounts due from tenants, including accrued straight-line rents, are
ultimately collectible. The uncollectible portion of the amounts due from tenants, including
accrued straight-line rents, is charged to property operating expense in the period in which the
determination is made.
Tenant leases generally contain provisions under which the tenants reimburse the Company for a
portion of property operating expenses and real estate taxes incurred by the Company. Such
reimbursements are recognized in the period in which the expenses are incurred. The Company records
a provision for losses on estimated uncollectible accounts receivable based on its analysis of risk
of loss on specific accounts. Lease termination fees are recognized on the date of termination
when the related lease or portion thereof is cancelled, the collectability of the fee is reasonably
assured and the Company has possession of the terminated space.
Accounts Receivable
The Company must make estimates of the collectability of its accounts receivable related to
minimum rent, deferred rent, tenant reimbursements, lease termination fees and other income. The
Company specifically analyzes accounts receivable and historical bad debt experience, tenant
concentrations, tenant creditworthiness and current economic trends when evaluating the adequacy of
its allowance for doubtful accounts receivable. These estimates have a direct impact on the
Companys net income as a higher required allowance for doubtful accounts receivable will result in
lower net income. The uncollectible portion of the amounts due from tenants, including
straight-line rents, is charged to property operating expense in the period in which the
determination is made.
Investments in Real Estate and Real Estate Entities
Investments in real estate are initially recorded at fair value and carried at initial cost,
less accumulated depreciation and, when appropriate, impairment losses. Improvements and
replacements are capitalized at fair value when they extend the useful life, increase capacity, or
improve the efficiency of the asset. Repairs and maintenance are charged to expense when incurred.
Depreciation and amortization are recorded on a straight-line basis over the estimated useful
lives of the assets. The estimated useful lives of the Companys assets, by class, are as follows:
|
|
|
Buildings
|
|
39 years |
Building improvements
|
|
5 to 20 years |
Furniture, fixtures and equipment
|
|
5 to 15 years |
Tenant improvements
|
|
Shorter of the useful lives of
the assets or the terms of the
related leases |
Lease related intangible assets
|
|
Term of related lease |
The Company regularly reviews market conditions for possible impairment of a propertys
carrying value. When circumstances such as adverse market conditions, changes in managements
intended holding period or potential sale to a third party indicate a possible impairment of the
fair value of a property, an impairment analysis is performed. The Company assesses potential
impairments based on an estimate of the future undiscounted cash flows (excluding interest charges)
expected to result from the propertys use and eventual disposition. This estimate is based on
projections of future revenues, expenses, capital improvement costs, expected holding periods and
capitalization rates. These cash flows consider factors such as expected market trends and leasing
prospects, as well as the effects of leasing demand, competition and other factors. If impairment
exists due to the inability to recover the carrying value of a real estate investment based on
forecasted undiscounted cash flows, an impairment loss is recorded to the extent that the carrying
value exceeds the estimated fair value of the property. The Company is required to make estimates
as to whether there are impairments in the carrying values of its investments in real estate.
Further, the Company will record an impairment loss if it expects to dispose of a property, in the
near term, at a price below carrying value. In such an event, the Company will record an impairment
loss based on the difference between a propertys carrying value and its projected sales price,
less any estimated costs to sell.
40
The Company will classify a building as held-for-sale in the period in which it has made the
decision to dispose of the building, a binding agreement to purchase the property has been signed
under which the buyer has committed a significant amount of nonrefundable cash and no significant
financing contingencies exist that could cause the transaction not to be completed in a timely
manner. If these criteria are met, the Company will record an impairment loss if the fair value,
less anticipated selling costs, is lower than the carrying amount of the property. The Company will
classify any impairment loss, together with the buildings operating results, as discontinued
operations in its consolidated statements of operations for all periods presented and classify the
assets and related liabilities as held-for-sale in its consolidated balance sheets in the period
the sale criteria are met. Interest expense is reclassified to discontinued operations only to the
extent the held-for-sale property is secured by specific mortgage debt and the mortgage debt will
not be transferred to another property owned by the Company after the disposition.
The Company recognizes the fair value, if sufficient information exists to reasonably estimate
the fair value, of any liability for conditional asset retirement obligations when incurred, which
is generally upon acquisition, construction, development or redevelopment and/or through the normal
operation of the asset.
The Company capitalizes interest costs incurred on qualifying expenditures for real estate
assets under development or redevelopment while being readied for their intended use in accordance
with accounting requirements regarding capitalization of interest. The Company will capitalize
interest when qualifying expenditures for the asset have been made, activities necessary to get the
asset ready for its intended use are in progress and interest costs are being incurred. Capitalized
interest also includes interest associated with expenditures incurred to acquire developable land
while development activities are in progress. Capitalization of interest will end when the asset is
substantially complete and ready for its intended use, but no later than one year from completion
of major construction activity, if the property is not occupied. Capitalized interest is
depreciated over the useful life of the underlying assets, commencing when those assets are placed
into service.
Purchase Accounting
Acquisitions of rental property from third parties are accounted for at fair value. Any
liabilities assumed or incurred are recorded at their fair value at the time of acquisition. The
fair value of the acquired property is allocated between land and building (on an as-if vacant
basis) based on managements estimate of the fair value of those components for each type of
property and to tenant improvements based on the depreciated replacement cost of the tenant
improvements, which approximates their fair value. The fair value of the in-place leases is
recorded as follows:
|
|
|
the fair value of leases in-place on the date of acquisition is based on absorption
costs for the estimated lease-up period in which vacancy and foregone revenue are avoided
due to the presence of the acquired leases; |
|
|
|
the fair value of above and below-market in-place leases based on the present value
(using a discount rate that reflects the risks associated with the acquired leases) of the
difference between the contractual rent amounts to be paid under the assumed lease and the
estimated market lease rates for the corresponding spaces over the remaining non-cancelable
terms of the related leases, which range from one to fifteen years; and |
|
|
|
the fair value of intangible tenant or customer relationships. |
The Companys determination of these fair values requires it to estimate market rents for each
of the leases and make certain other assumptions. These estimates and assumptions affect the rental
revenue, and depreciation and amortization expense recognized for these leases and associated
intangible assets and liabilities.
Derivative Instruments
In the normal course of business, the Company is exposed to the effect of interest rate
changes. The Company may enter into derivative agreements to mitigate exposure to unexpected
changes in interest rates and may use interest rate protection or cap agreements to reduce the
impact of interest rate changes. The Company does not use derivatives for trading or speculative
purposes and intends to enter into derivative agreements only with counterparties that it believes
have a strong credit rating to mitigate the risk of counterparty default or insolvency.
The Company may designate a derivative as either a hedge of the cash flows from a debt
instrument or anticipated transaction (cash flow hedge) or a hedge of the fair value of a debt
instrument (fair value hedge). All derivatives are recognized as assets or liabilities at fair
value. For effective hedging relationships, the change in the fair value of the assets or
liabilities is recorded within equity (cash flow hedge), or through earnings (fair value hedge).
Ineffective portions of derivative transactions will result in changes in fair value recognized in
earnings. The Company records its proportionate share of unrealized gains or losses on its
derivative instruments associated with its unconsolidated joint ventures within equity and
Investment in Affiliates. The Company incorporates credit valuation adjustments to appropriately
reflect both its own nonperformance risk and the
respective counterpartys nonperformance risk in the fair value measurements. In adjusting the
fair value of its derivative contracts for the effect of nonperformance risk, the Company has
considered the impact of netting any applicable credit enhancements, such as collateral postings,
thresholds, mutual inputs and guarantees.
41
Share-Based Compensation
The Company measures the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. For options awards, the Company uses a
Black-Scholes option-pricing model. Expected volatility is based on an assessment of the Companys
realized volatility over the preceding five years, which is equivalent to the awards expected life.
The expected term represents the period of time the options are anticipated to remain outstanding
as well as the Companys historical experience for groupings of employees that have similar
behavior and considered separately for valuation purposes. For non-vested share awards that vest
over a predetermined time period, the Company uses the outstanding share price at the date of
issuance to fair value the awards. For non-vested shares awards that vest based on performance
conditions, the Company uses a Monte Carlo simulation (risk-neutral approach) to determine the
value and derived service period of each tranche. The expense associated with the share based
awards will be recognized over the period during which an employee is required to provide services
in exchange for the award the requisite service period (usually the vesting period). The fair
value for all share-based payment transactions are recognized as a component of income from
continuing operations.
Results of Operations
Comparison of the Years Ended December 31, 2010, 2009 and 2008
During 2010, the Company acquired the following consolidated properties: a building at Three
Flint Hill; a building at 500 First Street, NW; a building at Battlefield Corporate Center; two
buildings at Redland Corporate Center; two buildings at Atlantic Corporate Park; a building at 1211
Connecticut Ave, NW; a building at 440 First Street, NW and a building at 7458 Candlewood Road for
an aggregate purchase cost of $286.2 million.
During 2009, the Company acquired: four buildings at Cloverleaf Center and three buildings at
Ashburn Center for an aggregate purchase cost of $40.0 million.
During 2008, the Company acquired the following buildings at an aggregate purchase cost of
$46.4 million: four buildings at Triangle Business Center; and six buildings at RiversPark I and
II. In December 2008, the Company contributed the RiversPark I and II buildings to newly formed
consolidated joint ventures. On January 1, 2010 and March 17, 2009, the Company deconsolidated
RiversPark I and II, respectively, from its consolidated financial statements; however, the
operating results of the properties are included in the Companys consolidated statements of
operations through their date of deconsolidation. For more information on the deconsolidation of
RiversPark I and II, see footnote 5, Investment in Affiliates.
Collectively, the properties acquired in 2010, 2009 and 2008 are referred to as the
Non-comparable Properties.
The term Comparable Portfolio refers to all consolidated properties owned by the Company for
the entirety of the periods being presented.
Total Revenues
Total revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
113,041 |
|
|
$ |
107,383 |
|
|
$ |
5,658 |
|
|
|
5 |
% |
|
$ |
107,383 |
|
|
$ |
100,229 |
|
|
$ |
7,154 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant reimbursements and
other |
|
$ |
26,975 |
|
|
$ |
24,765 |
|
|
$ |
2,210 |
|
|
|
9 |
% |
|
$ |
24,765 |
|
|
$ |
22,173 |
|
|
$ |
2,592 |
|
|
|
12 |
% |
42
Rental Revenue
Rental revenue is comprised of contractual rent, the impacts of straight-line revenue and the
amortization of intangible assets and liabilities representing above and below market leases.
Rental revenue increased $5.7 million in 2010 as compared with 2009, due to increased revenues
resulting from the Companys Non-comparable Properties, which contributed $6.5 million of
additional rental revenue in 2010 compared with 2009. For the Comparable Portfolio, rental
revenue decreased $0.8 million in 2010 compared with 2009, primarily due to an increase in vacancy;
however, rental rates increased 9.1% on new leases during 2010. The weighted average occupancy of
the Comparable Portfolio was 84.8% during 2010 compared with 87.0% during 2009. The Company expects
rental revenues will increase in 2011 due to a full-year of revenues from the properties acquired
in 2010 and additional properties acquired in 2011. The increase in rental revenue in 2010 compared
with 2009 includes $1.2 million for the Companys Maryland reporting segment and $4.7 million for
the Northern Virginia reporting segment. For the Southern Virginia reporting segment, rental
revenue decreased $0.2 million in 2010 compared to 2009.
The Companys consolidated portfolio was 82.3% occupied at December 31, 2010 compared with
85.1% occupied at December 31, 2009. Excluding the Companys fourth quarter 2010 acquisitions of
Atlantic Corporate Park, which was vacant at acquisition, and Redland Corporate Center II, which
was 99% vacant at acquisition, the Companys consolidated portfolio was 85.2% occupied at December
31, 2010. The Company does not include square footage that is in development or redevelopment in
its occupancy calculation.
Rental revenue increased $7.2 million in 2009 as compared with 2008. Rental revenue for the
Comparable Portfolio increased $5.0 million, which can be attributed to an increase in rental
rates, as the average rental rates for the Companys entire portfolio increased on new and renewal
leases by 19.6% and 10.4%, respectively, during 2009, with the Company executing a combined 2.2
million square feet of new and renewal leases during the year. The Non-comparable Properties
contributed rental revenue of $2.2 million in 2009 compared to 2008. The increase in rental revenue
in 2009 compared with 2008 includes $2.4 million for the Companys Maryland reporting segment, $2.1
million for the Northern Virginia reporting segment and $2.7 million for the Southern Virginia
reporting segment. The increase in rental revenue for the Maryland reporting segment was due to the
addition of new properties during 2009 and 2008. The increases in rental revenue for the Northern
and Southern Virginia reporting segments was due to higher market rates and increased occupancy.
Tenant Reimbursements and Other Revenues
Tenant reimbursements and other revenues include operating and common area maintenance costs
reimbursed by the Companys tenants as well as other incidental revenues such as lease termination
payments, construction management fees and late fees. Tenant reimbursements and other revenues
increased $2.2 million in 2010 compared with 2009. The increase in tenant reimbursements and other
revenues is primarily due to the Non-comparable Properties, which contributed $1.5 million of
additional tenant reimbursements and other revenues in 2010 compared with 2009. The Comparable
Portfolio contributed $0.7 million of additional tenant reimbursements and other revenues during
2010 compared with 2009 due to an increase in termination fee income and higher recoverable
property operating expenses as a result a $0.9 million increase in recoverable snow and ice removal
costs in 2010 compared with 2009. The Company expects tenant reimbursements and other revenues to
increase in 2011 due to a full-year of recoverable operating expenses from properties acquired in
2010, partially offset by lower recoveries due to reduced snow and ice removal costs in 2011. The
increases in tenant reimbursements and other revenues in 2010 compared with 2009 include $0.6
million for the Maryland reporting segment, $0.8 million for the Northern Virginia reporting
segment and $0.8 million for the Southern Virginia reporting segment.
Tenant reimbursements and other revenues increased $2.6 million in 2009 compared with 2008.
The increase is primarily due to the Comparable Portfolio, which contributed $2.1 million of
additional tenant reimbursements and other revenues to the portfolio in 2009 due to an increase in
recoverable property operating expenses. Tenant reimbursements and other revenues increased $0.5
million as a result of the Non-comparable Properties during 2009. The increases in tenant
reimbursements and other revenues in 2009 compared with 2008 include $1.1 million for the Maryland
reporting segment, $1.2 million for the Northern Virginia reporting segment and $0.3 million for
the Southern Virginia reporting segment.
43
Total Expenses
Property Operating Expenses
Property operating expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
$ |
34,053 |
|
|
$ |
32,567 |
|
|
$ |
1,486 |
|
|
|
5 |
% |
|
$ |
32,567 |
|
|
$ |
26,854 |
|
|
$ |
5,713 |
|
|
|
21 |
% |
Real estate taxes and
insurance |
|
$ |
13,140 |
|
|
$ |
12,849 |
|
|
$ |
291 |
|
|
|
2 |
% |
|
$ |
12,849 |
|
|
$ |
12,042 |
|
|
$ |
807 |
|
|
|
7 |
% |
Property operating expenses increased $1.5 million in 2010 compared with the same period
in 2009. The Non-comparable Properties contributed property operating expenses of $1.7 million.
Property operating expenses for the Comparable Portfolio decreased $0.2 million in 2010 compared
with the same period in 2009, primarily due to lower reserves for bad debt. The Company expects
property operating expenses to increase in 2011 due to a full-year impact of properties acquired in
2010, offset by a reduction in snow and ice removal costs as the Company experienced a significant
amount of these costs in January and February 2010. The increase in property operating expenses in
2010 compared with 2009 includes $0.1 million for the Maryland reporting segment, $1.1 million for
the Northern Virginia reporting segment and $0.3 million for the Southern Virginia reporting
segment.
Property operating expenses increased $5.7 million in 2009 compared with the same period in
2008. Property operating expenses for the Comparable Portfolio increased $4.7 million in 2009
compared with the same period in 2008, primarily due to an increase in snow and ice removal costs
during the fourth quarter of 2009 and an increase in reserves for anticipated bad debt expense,
primarily incurred in the first half of 2009. The Non-comparable Properties contributed additional
property operating expenses of $1.0 million. The increase in property operating expenses in 2009
compared with 2008 includes $3.1 million for the Maryland reporting segment, $1.6 million for the
Northern Virginia reporting segment and $1.0 million for the Southern Virginia reporting segment.
Real estate taxes and insurance expenses increased $0.3 million in 2010 compared with the same
period in 2009. The Non-comparable Properties contributed an increase in real estate taxes and
insurance of $1.0 million in 2010. For the Comparable Portfolio, real estate taxes and insurance
decreased $0.7 million in 2010 compared with 2009, primarily due to lower real estate assessments
and real estate tax rates on the Companys Northern Virginia properties located in Fairfax County
and Prince William County, Virginia. The increase in real estate taxes and insurance expenses in
2010 compared with 2009 includes $0.2 million for the Maryland reporting segment and $0.2 million
for the Northern Virginia reporting segment. For the Southern Virginia reporting segment, real
estate taxes and insurance decreased $0.1 million in 2010 compared with 2009.
Real estate taxes and insurance expenses increased $0.8 million in 2009 compared with the same
period in 2008. Real estate taxes and insurance associated with the Comparable Portfolio increased
$0.6 million in 2009 compared to 2008. The Non-comparable Properties experienced an increase in
real estate taxes and insurance of $0.2 million in 2009. The increase in real estate taxes and
insurance expenses in 2009 compared with 2008 includes $0.5 million for the Maryland reporting
segment, $0.2 million for the Northern Virginia reporting segment and $0.1 million for the Southern
Virginia reporting segment.
Other Operating Expenses
General and administrative expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,523 |
|
|
$ |
13,219 |
|
|
$ |
1,304 |
|
|
|
10 |
% |
|
$ |
13,219 |
|
|
$ |
11,938 |
|
|
$ |
1,281 |
|
|
|
11 |
% |
General and administrative expenses increased $1.3 million during 2010 compared with
2009. The increase is primarily due to an increase in compensation accruals and non-cash,
share-based compensation expense as a result of the restricted shares awarded to the Companys
officers in 2009 and 2010, which are amortized over derived service periods that are comparably
shorter than those associated with previous awards.
44
General and administrative expenses increased $1.3 million during 2009 compared with
2008, primarily due to an increase in non-cash, share-based compensation expense, as the restricted
shares awarded to the Companys officers in 2009 had a shorter vesting period than previously
issued awards.
Acquisition costs are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,169 |
|
|
$ |
1,076 |
|
|
$ |
6,093 |
|
|
|
566 |
% |
|
$ |
1,076 |
|
|
$ |
|
|
|
$ |
1,076 |
|
|
|
|
|
During 2010, the Company incurred acquisition and closing costs of $7.2 million
associated with ten acquisitions, including two acquisitions through unconsolidated joint ventures,
and three pending first quarter 2011 acquisitions under contract. In 2009, the Company incurred
$1.1 million of acquisition and closing costs related to the acquisitions of two properties.
Beginning in 2009, in accordance with new accounting standards, all acquisition and closing costs
are expensed on the Companys consolidated statements of operations. Prior to 2009, all acquisition
and closing costs associated with an acquired property were capitalized as part of the basis of the
acquired business.
Depreciation and amortization expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,979 |
|
|
$ |
40,642 |
|
|
$ |
2,337 |
|
|
|
6 |
% |
|
$ |
40,642 |
|
|
$ |
36,769 |
|
|
$ |
3,873 |
|
|
|
11 |
% |
Depreciation and amortization expense includes depreciation of real estate assets and
amortization of intangible assets and leasing commissions. Depreciation and amortization expense
increased $2.3 million in 2010 compared with 2009, primarily due to the Non-comparable Properties,
which contributed additional depreciation and amortization expense of $2.6 million. The increase in
depreciation was partially offset by a $0.3 million decrease in depreciation and amortization
expense for the Comparable Portfolio due to several intangible assets associated with acquisitions
fully amortizing in 2010. The Company anticipates depreciation and amortization expense to increase
in 2011 due to recognizing a full-year of depreciation and amortization expense for properties
acquired in 2010 and new acquisitions expected in 2011.
Depreciation and amortization expense increased $3.9 million in 2009 compared with the same
period in 2008. The Comparable Portfolio generated additional depreciation and amortization
expenses of $2.8 million due to an increase in expense related to the disposal of assets from
tenants that vacated during the year. The remaining increase of $1.1 million in depreciation
expense was attributed to the Non-comparable Properties.
Impairment of real estate assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,834 |
|
|
$ |
2,541 |
|
|
$ |
3,293 |
|
|
|
130 |
% |
|
$ |
2,541 |
|
|
$ |
|
|
|
$ |
2,541 |
|
|
|
|
|
On December 29, 2010, the Company acquired 7458 Candlewood Road in the Companys Maryland
reporting segment for $22.6 million. On January 6, 2011, the Company was notified that the largest
tenant at the property filed for Chapter 11 bankruptcy protection. As a result, the Company
recorded an impairment charge of $2.4 million associated with the non-recoverable value of the
intangible assets associated with the lease.
In October 2010, the Company entered into a non-binding contract to sell Old Courthouse
Square, a non-core retail asset located in West Virginia. As a result, the Company recorded a $3.4
million impairment charge in September 2010 to reduce the propertys carrying value to reflect its
fair value, less any potential selling costs. On February 18, 2011, the Company sold the property
for net proceeds of $10.8 million. At December 31, 2010, the property did not meet the Companys
guidelines to classify it as held-for-sale as the contract was non-binding and various financing
contingencies had not been satisfied. Therefore, its operations were not classified as discontinued
operations.
45
During 2009 and 2010, the Company recorded an impairment charge of $2.5 million and $0.6
million, respectively, related to its Deer Park property, which was sold in April 2010. The
property was acquired as part of a portfolio acquisition in 2004 and is located in a non-core
submarket of Baltimore in the Companys Maryland reporting segment.
The Company did not record any additional impairment of real estate assets during 2010 and
2009 and did not record any impairment to its real estate assets during 2008.
Contingent consideration related to acquisition of property is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
710 |
|
|
$ |
|
|
|
$ |
710 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
As part of the consideration for the Companys acquisition of Ashburn Center, the Company is
obligated to record contingent consideration arising from a fee agreement entered into with the
seller in which the Company will be obligated to pay additional consideration if certain returns
are achieved over the five year term of the agreement or if the property is sold within the term of
the five year agreement. The Company initially recorded $0.7 million at the time of acquisition in
December 2009, which represented the fair value of the Companys potential obligation at
acquisition. During 2010, the Company was able to lease the vacant space faster than it had
anticipated and, therefore, recorded additional contingent consideration of $0.7 million that
reflected an increase in the potential consideration that may be owed to the seller.
Other Expenses (Income)
Interest expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
33,758 |
|
|
$ |
32,412 |
|
|
$ |
1,346 |
|
|
|
4 |
% |
|
$ |
32,412 |
|
|
$ |
35,873 |
|
|
$ |
3,461 |
|
|
|
10 |
% |
The Company seeks to employ cost-effective financing methods to fund its acquisitions and
development projects and to refinance its existing debt to provide greater balance sheet
flexibility or to take advantage of lower interest rates. The methods used to fund the Companys
activities impact the period-over-period comparisons of interest expense.
Interest expense increased $1.3 million in 2010 compared with 2009. In December 2009, the
Company extended the maturity dates on approximately $185.0 million of debt, which included
expanding the capacity of the Companys unsecured revolving credit facility, which was further
expanded in the second quarter of 2010. As part of the refinancing, the Company used the additional
capacity to repay $40.0 million of its secured term loans. The refinancing resulted in a higher
effective interest rate on the Companys unsecured revolving credit facility, which resulted in
additional interest expense of $2.9 million in 2010 compared with the same period in 2009. In 2010,
the Companys weighted average borrowings on its unsecured revolving credit facility was $123.4
million with a weighted average interest rate of 3.5% compared with weighted average borrowings of
$95.2 million with a weighted average interest rate of 1.6% in 2009. The repayment of a portion of
the Companys term loans as described above resulted in a decline in interest expense of $0.6
million in 2010 compared with the same period in 2009. The Company had fixed LIBOR on $85.0 million
of variable rate debt through two interest rate swap agreements, which both expired in August 2010.
As a result, the interest expense related to the interest rate swap agreements declined $0.8
million in 2010 compared with 2009. During the fourth quarter of 2010, the Company entered into a
$50.0 million term loan, which was scheduled to mature in February 2011 and was later extended to
May 2011. The term loan contributed additional interest of $0.3 million in 2010 compared with 2009.
Due to the Companys recent debt issuances and refinancing, it has incurred additional deferred
financing costs, which increased interest expense $0.6 million in 2010 compared with 2009.
During the second quarter of 2010, the Company issued 0.9 million common shares of its common
stock in exchange for retiring $13.0 million of its Exchangeable Senior Notes and used available
cash to retire an additional $7.0 million of its Exchangeable Senior Notes. The Company repurchased
$34.5 million of Exchangeable Senior Notes in 2009. The repurchase of Exchangeable Senior Notes
resulted in a reduction of interest expense of $1.3 million in 2010 compared with 2009. Mortgage
interest expense increased $0.2 million during 2010 compared with 2009 due to a full-year of
mortgage interest expense incurred on the Cloverleaf Center mortgage loan entered into during the
fourth quarter of 2009, and mortgage interest expense on mortgage loans encumbering 500 First
Street, NW, Battlefield Corporate Center and 7458 Candlewood Road, which were acquired in 2010. The
increase in mortgage debt was offset by a reduction in outstanding mortgages as the Company retired
$23.7 million of mortgage debt during 2010 compared with $14.3 million of mortgage debt retired
during 2009. Also, the Company deconsolidated $9.9 million of variable rate mortgage debt
encumbering RiversPark I and a related cash flow hedge
on January 1, 2010. The deconsolidated RiversPark I resulted in an increase in interest
expense of $0.4 million in 2010 compared to 2009, as the Company recognized a reduction in interest
expense related to its Financing Obligation in 2009. The Company further increased its construction
activities in 2010 compared with 2009, which resulted in additional capitalized interest of $0.5
million.
46
Interest expense increased $3.5 million in 2009 compared with 2008. In 2009, the Companys
mortgage interest expense decreased $2.8 million as the Company retired $14.2 million of mortgage
debt encumbering Glenn Dale Business Center, 4200 Tech Court and Park Central I. In 2008, the
Company retired $87.6 million of mortgage debt encumbering Herndon Corporate Center, Norfolk
Commerce Park II and the Suburban Maryland Portfolio. The prepayment of the $72.1 million Suburban
Maryland Portfolio mortgage loan, in the third quarter of 2008, was partially financed through the
issuance of a $35.0 million secured term loan, later amended to increase the total commitment to
$50.0 million, which resulted in an additional $0.8 million of interest expense in 2009 compared
with 2008. The remainder was financed with a draw on the Companys unsecured revolving credit
facility. The Company also used its unsecured revolving credit facility to primarily fund the
partial repurchase of its Exchangeable Senior Notes. Since the beginning of 2008, the Company has
repurchased $74.5 million of its Exchangeable Senior Notes at a discount, which resulted in a $2.2
million decrease of interest expense and discount amortization in 2009 compared with the same
period in 2008. The increased borrowings on the unsecured revolving credit facility were offset by
a lower weighted average interest rate. In 2009, the Companys average balance on its unsecured
revolving credit facility was $95.2 million with a weighted average interest rate 1.6%, compared
with an average balance of $71.8 million with a weighted average interest rate of 4.0% for 2008.
The lower weighted average interest rate on the unsecured revolving credit facility resulted in a
$1.4 million decrease of interest expense in 2009. The decline in interest rates in 2009 compared
with 2008 resulted in $1.3 million less of interest expense related to a $50.0 million secured term
loan that originated in 2007. The Company entered into two separate interest rate swap agreements
to fix the applicable interest rates on $85.0 million of its variable rate debt, which due to a
decline in interest rates resulted in a combined $2.1 million of additional interest expense for
2009 compared with 2008. The decrease in the Companys interest expense was partially offset by a
$1.2 million decrease in capitalized interest expense in 2009 compared with the same period in
2008, which was attributable to a decline in development and redevelopment activity in 2009.
At December 31, 2010, the Company had $725.0 million of debt outstanding with a weighted
average interest rate of 4.8% compared with $645.1 million of debt outstanding with a weighted
average interest rate of 5.4% at December 31, 2009.
Interest and other income are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
637 |
|
|
$ |
522 |
|
|
$ |
115 |
|
|
|
22 |
% |
|
$ |
522 |
|
|
$ |
667 |
|
|
$ |
145 |
|
|
|
22 |
% |
On December 21, 2010, the Company provided a $25.0 million loan to the members of the
owner of a building at 950 F Street, NW in Washington, D.C. The Companys loan is secured by a
portion of the members interest in the owner of the property. The loan has a fixed interest rate
of 12.5%, matures on April 1, 2017 and is repayable in full on or after December 21, 2013.
Interest and other income include amounts earned on the Companys funds held in various cash
operating and escrow accounts. The Company recorded interest income of $0.1 million for the year
ended December 31, 2010. Interest income on the Companys various cash operating and escrow
accounts decreased in 2010 compared with 2009 primarily due to lower average interest rates. The
Company earned a weighted average interest rate of 1.5% on an average cash balance of $7.4 million
during 2010, compared with a weighted average interest rate of 3.5% on an average cash balance of
$6.7 million during 2009.
Interest and other income decreased in 2009 compared with 2008 primarily due to lower average
interest rates in 2009 compared with 2008. The Company earned an interest rate of 3.5% on an
average cash balance of $6.7 million during 2009, compared with 3.6% on an average cash balance of
$5.1 million during 2008.
Equity in losses of affiliates is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
124 |
|
|
$ |
95 |
|
|
$ |
29 |
|
|
|
31 |
% |
|
$ |
95 |
|
|
$ |
|
|
|
$ |
95 |
|
|
|
|
|
47
Equity in losses of affiliates reflects the Companys ownership interest in the
operating results of its properties, in which, it does not have a controlling interest. On March
17, 2009 and January 1, 2010, the Company deconsolidated RiversPark II and RiversPark I,
respectively. Also, the Company acquired two properties, 1750 H Street and Aviation Business Park,
in the fourth
quarter of 2010 through unconsolidated joint ventures. The increase in equity in losses of
affiliates reflects a larger aggregate loss from the Companys nonconsolidated properties in 2010
compared with 2009.
Gains on early retirement of debt are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Decrease |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
164 |
|
|
$ |
6,167 |
|
|
$ |
6,003 |
|
|
|
97 |
% |
|
$ |
6,167 |
|
|
$ |
4,374 |
|
|
$ |
1,793 |
|
|
|
41 |
% |
In 2010, the Company issued 0.9 million of its common shares in exchange for retiring
$13.03 million of Exchangeable Senior Notes and used available cash to retire $7.0 million of its
Exchangeable Senior Notes, which resulted in a gain of $0.2 million, net of deferred financing
costs and discounts.
In 2009, the Company retired $34.5 million of its Exchangeable Senior Notes, which resulted in
a gain of $6.3 million, net of deferred financing costs and discounts. The Exchangeable Senior
Notes repurchased in 2009 were funded with proceeds from the Companys controlled equity offering
program, borrowings on the Companys unsecured revolving credit facility and available cash. The
gains on early retirement of debt were partially offset by debt retirement charges during the
fourth quarter of 2009 associated with the restructuring the Companys unsecured revolving credit
facility and two secured term loans.
In 2008, the Company retired $40.0 million of its Exchangeable Senior Notes, which resulted in
a gain of $4.4 million, net of deferred financing costs and discounts. The majority of Exchangeable
Senior Notes repurchased in 2008 were funded with borrowings on the Companys unsecured revolving
credit facility and available cash.
Provision for Income Taxes
Provision for income taxes is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Increase |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31 |
|
|
$ |
|
|
|
$ |
31 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
During 2010, the Company acquired three properties in Washington, D.C. Two of these
properties, 1211 Connecticut Avenue, NW and 440 First Street, NW, are subject to franchise taxes as
a result of conducting business in Washington, D.C. The Company recorded provision for income
taxes totaling $31 thousand in 2010. The Company did not own any properties located in Washington
D.C. prior to 2010.
Discontinued Operations
Discontinued operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Decrease |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(171 |
) |
|
$ |
620 |
|
|
$ |
791 |
|
|
|
128 |
% |
|
$ |
620 |
|
|
$ |
16,174 |
|
|
$ |
15,554 |
|
|
|
96 |
% |
Discontinued operations represents operating results and all costs associated with Deer
Park and 7561 Lindbergh Drive, formerly in the Companys Maryland reporting segment and Alexandria
Corporate Park, formerly in the Companys Northern Virginia reporting segment.
In June 2010, the Company sold 7561 Lindbergh Drive, for net proceeds of $3.9 million. The
Company reported a gain on the sale of $0.6 million in the second quarter of 2010. In April 2010,
the Company sold Deer Park for net proceeds of $7.5 million. The property was acquired as part of a
portfolio acquisition in 2004 and was located in a non-core submarket of Baltimore, Maryland.
During the first quarter of 2010, the Company recorded a $0.6 million impairment charge based on
the contractual sale price and did not recognize a gain on the sale. In June 2008, the Company sold
Alexandria Corporate Park, for net proceeds of $50.6 million and recognized a gain on sale of $14.3
million. The Company has had, and will have, no continuing involvement with these properties
subsequent to their disposal.
48
Net loss (income) attributable to noncontrolling interests
Net loss (income) attributable to noncontrolling interests are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percent |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
Decrease |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
232 |
|
|
$ |
(124 |
) |
|
$ |
356 |
|
|
|
287 |
% |
|
$ |
(124 |
) |
|
$ |
(615 |
) |
|
$ |
491 |
|
|
|
80 |
% |
Net loss (income) attributable to noncontrolling interests reflects the ownership
interests in net (loss) income attributable to parties other than the Company. During 2010, the
Company incurred a net loss of $11.7 million compared with net income of $4.1 million in 2009.
Due to the issuance of 18.3 million of the Companys common shares during 2010, the
noncontrolling interests owned by limited partners decreased to 1.9% as of December 31, 2010
compared with 2.3% as of December 31, 2009. The reduction in noncontrolling parties ownership
percentage in the Operating Partnership was partially offset by the issuance of 230,876 Operating
Partnership units to fund a portion of the Companys acquisition of Battlefield Corporate Center.
During the fourth quarter of 2010, the Company acquired Redland Corporate Center through a joint
venture, in which, it had a 97% economic interest. The Company consolidates the operating results
of the property and recognizes its joint venture partners percentage of gains or losses from
Redland Corporate Center in net loss (income) attributable to noncontrolling interests. During
2010, the joint venture partners share of the loss in the operations of Redland Corporate Center
was $2 thousand.
During 2009, the Company generated net income of $4.1 million compared with net income of
$20.1 million in 2008. During 2008, the Company sold Alexandria Corporate Park, which resulted in
an increase of $16.2 million in net income from discontinued operations, including a $14.3 million
gain on sale. The Company did not dispose of any properties during 2009. The noncontrolling
interests owned by limited partners decreased to 2.3% as of December 31, 2009 compared with 2.7% as
of December 31, 2008, primarily due to the issuance of 2.8 million shares of the Companys common
stock during 2009.
Same Property Net Operating Income
Same Property Net Operating Income (Same Property NOI), defined as operating revenues
(rental, tenant reimbursements and other revenues) less operating expenses (property operating
expenses, real estate taxes and insurance) from the properties owned by the Company for the
entirety of the periods presented, is a primary performance measure the Company uses to assess the
results of operations at its properties. Same Property NOI is a non-GAAP measure. As an indication
of the Companys operating performance, Same Property NOI should not be considered an alternative
to net income calculated in accordance with GAAP. A reconciliation of the Companys Same Property
NOI to net income from its consolidated statements of operations is presented below. The Same
Property NOI results exclude corporate-level expenses, as well as certain transactions, such as the
collection of termination fees, as these items vary significantly period-over-period and thus
impact trends and comparability. Also, the Company eliminates depreciation and amortization
expense, which are property level expenses, in computing Same Property NOI because these are
non-cash expenses that are based on historical cost accounting assumptions and management believes
these expenses do not offer the investor significant insight into the operations of the property.
This presentation allows management and investors to distinguish whether growth or declines in net
operating income are a result of increases or decreases in property operations or the acquisition
of additional properties. While this presentation provides useful information to management and
investors, the results below should be read in conjunction with the results from the consolidated
statements of operations to provide a complete depiction of total Company performance.
49
2010 Compared with 2009
The following tables of selected operating data provide the basis for our discussion of Same
Property NOI in 2010 compared with 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Number of buildings(1) |
|
|
166 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
Same property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
104,274 |
|
|
$ |
104,774 |
|
|
$ |
(500 |
) |
|
|
(0.5 |
) |
Tenant reimbursements and other |
|
|
23,459 |
|
|
|
23,278 |
|
|
|
181 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property revenues |
|
|
127,733 |
|
|
|
128,052 |
|
|
|
(319 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
30,656 |
|
|
|
30,260 |
|
|
|
396 |
|
|
|
1.3 |
|
Real estate taxes and insurance |
|
|
11,906 |
|
|
|
12,574 |
|
|
|
(668 |
) |
|
|
(5.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property operating expenses |
|
|
42,562 |
|
|
|
42,834 |
|
|
|
(272 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
85,171 |
|
|
$ |
85,218 |
|
|
$ |
(47 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
85,171 |
|
|
$ |
85,218 |
|
|
|
|
|
|
|
|
|
Non-comparable net operating income(2)(3) |
|
|
7,652 |
|
|
|
1,514 |
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
(14,523 |
) |
|
|
(13,219 |
) |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(42,979 |
) |
|
|
(40,642 |
) |
|
|
|
|
|
|
|
|
Other expenses, net |
|
|
(46,825 |
) |
|
|
(29,435 |
) |
|
|
|
|
|
|
|
|
Discontinued operations(4) |
|
|
(171 |
) |
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(11,675 |
) |
|
$ |
4,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Occupancy |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
84.8 |
% |
|
|
87.0 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
84.4 |
% |
|
|
86.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents properties owned for the entirety of the periods presented. |
|
(2) |
|
Non-comparable Properties include: RiversPark I and II, Cloverleaf Business Center,
Ashburn Center, Three Flint Hill, 500 First Street, NW, Battlefield Corporate Center, Redland
Corporate Center, Atlantic Corporate Center, 1211 Connecticut Ave, NW, 440 First Street, NW,
7458 Candlewood Road, 1750 H Street, NW and Aviation Business Park. |
|
(3) |
|
Non-comparable property NOI has been adjusted to reflect a normalized management fee
percentage in lieu of an administrative overhead allocation for comparative purposes. |
|
(4) |
|
Discontinued operations include the gain on disposal and income from the operations
of Deer Park and 7561 Lindbergh Drive. |
Same Property NOI decreased slightly, or 0.1%, for the twelve months ended December 31,
2010 as compared with the same period in 2009. Same property rental revenue decreased $0.5 million
for the twelve months ended December 31, 2010, primarily due to an increase in vacancy. Tenant
reimbursements and other revenue increased $0.2 million for the twelve months ended December 31,
2010 as a result of an increase in recoverable property operating expenses, primarily snow and ice
removal costs. Total same property operating expenses decreased $0.3 million for the full year of
2010 due to lower real estate assessments and real estate tax rates on the Companys Northern
Virginia properties located in Fairfax County and Prince William County, Virginia. The reduction in
real estate tax expense was partially offset by an increase in snow and ice removal costs, which
were partially offset by a reduction in reserves for anticipated bad debt expense.
50
Maryland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Number of buildings(1) |
|
|
64 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
Same property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
32,697 |
|
|
$ |
33,314 |
|
|
$ |
(617 |
) |
|
|
(1.9 |
) |
Tenant reimbursements and other |
|
|
7,043 |
|
|
|
6,869 |
|
|
|
174 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property revenues |
|
|
39,740 |
|
|
|
40,183 |
|
|
|
(443 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
9,876 |
|
|
|
10,017 |
|
|
|
(141 |
) |
|
|
(1.4 |
) |
Real estate taxes and insurance |
|
|
4,096 |
|
|
|
4,043 |
|
|
|
53 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property operating expenses |
|
|
13,972 |
|
|
|
14,060 |
|
|
|
(88 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
25,768 |
|
|
$ |
26,123 |
|
|
$ |
(355 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to total property operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
25,768 |
|
|
$ |
26,123 |
|
|
|
|
|
|
|
|
|
Non-comparable net operating income (2)(3) |
|
|
3,894 |
|
|
|
2,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
29,662 |
|
|
$ |
28,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Occupancy |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
81.8 |
% |
|
|
84.9 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
82.0 |
% |
|
|
84.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents properties owned for the entirety of the periods presented. |
|
(2) |
|
Non-comparable Properties include: RiversPark I and II, Cloverleaf Business Center,
Redland Corporate Center, 7458 Candlewood Road and Aviation Business Park. |
|
(3) |
|
Non-comparable property NOI has been adjusted to reflect a normalized
management fee percentage in lieu of an administrative
overhead allocation for comparative purposes. |
Same Property NOI for the Maryland properties decreased $0.4 million for the twelve
months ended December 31, 2010 compared with the same period in 2009. Total same property revenues
decreased $0.4 million during 2010 due to an increase in vacancy. Total same property operating
expenses for the Maryland properties decreased $0.1 million for the twelve months ended December
31, 2010 primarily due to lower maintenance expenses and reserves for anticipated bad debt expense,
which were partially offset by an increase in snow and ice removal costs.
51
Northern Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Number of buildings(1) |
|
|
48 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
Same property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
32,341 |
|
|
$ |
32,254 |
|
|
$ |
87 |
|
|
|
0.3 |
|
Tenant reimbursements and other |
|
|
7,178 |
|
|
|
7569 |
|
|
|
(391 |
) |
|
|
(5.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property revenues |
|
|
39,519 |
|
|
|
39,823 |
|
|
|
(304 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
8,916 |
|
|
|
9,126 |
|
|
|
(210 |
) |
|
|
(2.3 |
) |
Real estate taxes and insurance |
|
|
3,758 |
|
|
|
4,284 |
|
|
|
(526 |
) |
|
|
(12.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property operating expenses |
|
|
12,674 |
|
|
|
13,410 |
|
|
|
(736 |
) |
|
|
(5.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
26,845 |
|
|
$ |
26,413 |
|
|
$ |
432 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to total property
operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
26,845 |
|
|
$ |
26,413 |
|
|
|
|
|
|
|
|
|
Non-comparable net operating income
(loss)(2)(3) |
|
|
3,566 |
|
|
|
(219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
30,411 |
|
|
$ |
26,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Occupancy |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
85.8 |
% |
|
|
88.4 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
83.8 |
% |
|
|
87.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents properties owned for the entirety of the periods presented. |
|
(2) |
|
Non-comparable Properties include Ashburn Center, Three Flint Hill, 500 First
Street, NW, Atlantic Corporate Center, 1211 Connecticut Ave, NW, 440 First Street, NW and 1750
H Street, NW. |
|
(3) |
|
Non-comparable property NOI has been adjusted to reflect a normalized
management fee percentage in lieu of an administrative overhead allocation for
comparative purposes. |
Same Property NOI for the Northern Virginia properties increased $0.4 million for the twelve
months ended December 31, 2010 compared with the same period in 2009. Total same property revenues
decreased $0.3 million during the twelve months ended December 31, 2010 compared with 2009 as
increases in rental rates were offset by an increase in vacancy. During 2010, total same property
operating expenses decreased $0.7 million compared with 2009 as decreases in real estate taxes and
utility expenses, along with a decline in reserves for bad debt, were partially offset by an
increase in snow and ice removal costs.
52
Southern Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Number of buildings(1) |
|
|
54 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
Same property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
39,236 |
|
|
$ |
39,206 |
|
|
$ |
30 |
|
|
|
0.1 |
|
Tenant reimbursements and other |
|
|
9,238 |
|
|
|
8,840 |
|
|
|
398 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property revenues |
|
|
48,474 |
|
|
|
48,046 |
|
|
|
428 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
11,864 |
|
|
|
11,117 |
|
|
|
747 |
|
|
|
6.7 |
|
Real estate taxes and insurance |
|
|
4,052 |
|
|
|
4,247 |
|
|
|
(195 |
) |
|
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property operating expenses |
|
|
15,916 |
|
|
|
15,364 |
|
|
|
552 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
32,558 |
|
|
$ |
32,682 |
|
|
$ |
(124 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to total property operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
32,558 |
|
|
$ |
32,682 |
|
|
|
|
|
|
|
|
|
Non-comparable net operating income (loss)(2)(3) |
|
|
192 |
|
|
|
(305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
32,750 |
|
|
$ |
32,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Occupancy |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
86.2 |
% |
|
|
87.3 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
86.3 |
% |
|
|
87.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents properties owned for the entirety of the periods presented. |
|
(2) |
|
Non-comparable Properties include: Battlefield Corporate Center. |
|
(3) |
|
Non-comparable property NOI has been adjusted to reflect a normalized
management fee percentage in lieu of an administrative overhead allocation for
comparative purposes. |
Same property NOI for the Southern Virginia properties decreased $0.1 million for the
twelve months ended December 31, 2010 compared with the same period in 2009. Total same property
rental revenue increased $0.4 million primarily due to an increase in recoverable operating
expenses. Total same property operating expenses increased approximately $0.5 million during 2010
compared with 2009 due to an increase in snow and ice removal costs, which was partially offset by
a decrease in real estate tax expense.
53
2009 Compared with 2008
The following tables of selected operating data provide the basis for our discussion of Same
Property NOI in 2009 compared with 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
(dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
Number of buildings (1) |
|
|
167 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
Same property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
104,783 |
|
|
$ |
100,955 |
|
|
$ |
3,828 |
|
|
|
3.8 |
|
Tenant reimbursements and other |
|
|
23,181 |
|
|
|
20,718 |
|
|
|
2,463 |
|
|
|
11.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property revenues |
|
|
127,964 |
|
|
|
121,673 |
|
|
|
6,291 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
30,429 |
|
|
|
25,902 |
|
|
|
4,527 |
|
|
|
17.5 |
|
Real estate taxes and insurance |
|
|
12,678 |
|
|
|
12,193 |
|
|
|
485 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property operating expenses |
|
|
43,107 |
|
|
|
38,095 |
|
|
|
5,012 |
|
|
|
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
84,857 |
|
|
$ |
83,578 |
|
|
$ |
1,279 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
84,857 |
|
|
$ |
83,578 |
|
|
|
|
|
|
|
|
|
Non-comparable net operating income
(loss)(2)(3)(4) |
|
|
1,875 |
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
(13,219 |
) |
|
|
(11,938 |
) |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(40,642 |
) |
|
|
(36,769 |
) |
|
|
|
|
|
|
|
|
Other expenses, net |
|
|
(29,435 |
) |
|
|
(30,832 |
) |
|
|
|
|
|
|
|
|
Discontinued operations(5) |
|
|
620 |
|
|
|
16,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,056 |
|
|
$ |
20,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Occupancy |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
86.6 |
% |
|
|
86.2 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
86.1 |
% |
|
|
86.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents properties owned for the entirety of the periods presented. |
|
(2) |
|
Non-comparable Properties include: Alexandria Corporate Park, Triangle Business
Center, RiversPark I and II, Cloverleaf Center and Ashburn Center. |
|
(3) |
|
Excludes a 76,000 square foot redevelopment building at Ammendale Commerce Center,
which was placed in-service during the fourth quarter of 2008. |
|
(4) |
|
Non-comparable property NOI has been adjusted to reflect a normalized management fee
percentage in lieu of an administrative overhead allocation for comparative purposes. |
|
(5) |
|
Discontinued operations include the gain on disposal and income from the operations
of Deer Park, 7561 Lindbergh Drive and Alexandria Corporate Park. |
Same Property NOI increased $1.3 million, or 1.5%, for the twelve months ended December
31, 2009 as compared with the same period in 2008. Same property rental revenue increased $3.8
million for the twelve months ended December 31, 2009, primarily as the result of higher market
rental rates realized in 2009. Tenant reimbursements and other revenue increased $2.5 million for
the twelve months ended December 31, 2009 as a result of an increase in operating expenses, which
resulted in higher reimbursement revenue from the tenants, and higher ancillary fees. Total same
property operating expenses increased $5.0 million for the full year of 2009 due to an increase in
reserves for anticipated bad debt expense, higher property assessments, which led to increased real
estate taxes, and an increase in snow and ice removal costs in the fourth quarter of 2009.
54
Maryland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
(dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
Number of buildings (1) |
|
|
65 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
Same property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
33,323 |
|
|
$ |
34,255 |
|
|
$ |
(932 |
) |
|
|
(2.7 |
) |
Tenant reimbursements and other |
|
|
6,772 |
|
|
|
6,686 |
|
|
|
86 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property revenues |
|
|
40,095 |
|
|
|
40,941 |
|
|
|
(846 |
) |
|
|
(2.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
10,187 |
|
|
|
8,233 |
|
|
|
1,954 |
|
|
|
23.7 |
|
Real estate taxes and insurance |
|
|
4,146 |
|
|
|
3,953 |
|
|
|
193 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property operating expenses |
|
|
14,333 |
|
|
|
12,186 |
|
|
|
2,147 |
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
25,762 |
|
|
$ |
28,755 |
|
|
$ |
(2,993 |
) |
|
|
(10.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to total property operating
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
25,762 |
|
|
$ |
28,755 |
|
|
|
|
|
|
|
|
|
Non-comparable net operating income
(loss)(2)(3) |
|
|
2,399 |
|
|
|
(412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
28,161 |
|
|
$ |
28,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Occupancy |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
83.9 |
% |
|
|
88.7 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
83.4 |
% |
|
|
88.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents properties owned for the entirety of the periods presented. |
|
(2) |
|
Non-comparable Properties include: Ammendale Commerce Center, Annapolis
Commerce Park East, Triangle Business Center and RiversPark I and II, which was contributed to
a consolidated joint venture in December 2008. |
|
(3) |
|
Non-comparable property NOI has been adjusted to reflect a normalized
management fee percentage in lieu of an administrative
overhead allocation for comparative purposes. |
Same Property NOI for the Maryland properties decreased $3.0 million for the twelve
months ended December 31, 2009 compared with the same period in 2008. Total same property revenues
decreased $0.8 million during 2009 due to a decrease in occupancy in the region. Total same
property operating expenses for the Maryland properties increased $2.2 million for the twelve
months ended December 31, 2009, which was primarily due to an increase in reserves for anticipated
bad debt expense, particularly among the regions Baltimore area properties, and snow and ice
removal costs in the fourth quarter of 2009.
55
Northern Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
(dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
Number of buildings(1) |
|
|
48 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
Same property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
32,254 |
|
|
$ |
30,184 |
|
|
$ |
2,070 |
|
|
|
6.9 |
|
Tenant reimbursements and other |
|
|
7,569 |
|
|
|
6,335 |
|
|
|
1,234 |
|
|
|
19.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property revenues |
|
|
39,823 |
|
|
|
36,519 |
|
|
|
3,304 |
|
|
|
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
9,126 |
|
|
|
7,525 |
|
|
|
1,601 |
|
|
|
21.3 |
|
Real estate taxes and insurance |
|
|
4,284 |
|
|
|
4,086 |
|
|
|
198 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property operating expenses |
|
|
13,410 |
|
|
|
11,611 |
|
|
|
1,799 |
|
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
26,413 |
|
|
$ |
24,908 |
|
|
$ |
1,505 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to total property operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
26,413 |
|
|
$ |
24,908 |
|
|
|
|
|
|
|
|
|
Non-comparable net operating loss(2)(3) |
|
|
(219 |
) |
|
|
(218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
26,194 |
|
|
$ |
24,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Occupancy |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
88.4 |
% |
|
|
87.2 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
87.8 |
% |
|
|
87.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents properties owned for the entirety of the periods presented. |
|
(2) |
|
Non-comparable Properties include: Ashburn Center. |
|
(3) |
|
Non-comparable property NOI has been adjusted to reflect a normalized
management fee percentage in lieu of an administrative overhead allocation for
comparative purposes. |
Same Property NOI for the Northern Virginia properties increased $1.5 million for the twelve
months ended December 31, 2009 compared with the same period in 2008. Total same property revenues
increased $3.3 million during the twelve months ended December 31, 2009 due to an increase in
occupancy and in rental rates. The increase in operating expenses, along with higher occupancy,
resulted in an increase in tenant reimbursements and other revenues during 2009. Same property
operating expenses increased $1.8 million due to increases in snow and ice removal costs, utility
expenses and reserves for anticipated bad debt expense. The Company also experienced higher
assessed valuations on many Northern Virginia properties that, in turn, resulted in increased real
estate tax expense.
56
Southern Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
(dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
Number of buildings (1) |
|
|
54 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
Same property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
39,206 |
|
|
$ |
36,516 |
|
|
$ |
2,690 |
|
|
|
7.4 |
|
Tenant reimbursements and other |
|
|
8,840 |
|
|
|
7,697 |
|
|
|
1,143 |
|
|
|
14.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property revenues |
|
|
48,046 |
|
|
|
44,213 |
|
|
|
3,833 |
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
11,116 |
|
|
|
10,144 |
|
|
|
972 |
|
|
|
9.6 |
|
Real estate taxes and insurance |
|
|
4,248 |
|
|
|
4,154 |
|
|
|
94 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same property operating expenses |
|
|
15,364 |
|
|
|
14,298 |
|
|
|
1,066 |
|
|
|
7.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
32,682 |
|
|
$ |
29,915 |
|
|
$ |
2,767 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to total property operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property net operating income |
|
$ |
32,682 |
|
|
$ |
29,915 |
|
|
|
|
|
|
|
|
|
Non-comparable net operating (loss) income(2) |
|
|
(305 |
) |
|
|
558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
32,377 |
|
|
$ |
30,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Occupancy |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
87.3 |
% |
|
|
84.2 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
87.3 |
% |
|
|
84.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents properties owned for the entirety of the periods presented. |
|
(2) |
|
Non-comparable property NOI has been adjusted to reflect a
normalized management fee percentage in lieu of an administrative overhead allocation
for comparative purposes. |
Same property NOI for the Southern Virginia properties increased $2.8 million for the
twelve months ended December 31, 2009 compared with the same period in 2008. Same property rental
revenue increased $3.8 million during 2009 as a result of an increase in occupancy and in rental
rates. An increase in operating expenses, along with higher occupancy, resulted in an increase in
tenant reimbursements and other revenues during 2009. Same property operating expenses increased
$1.0 million during full year 2009 due to an increase in snow and ice removal costs, utility
expense and real estate taxes.
Liquidity and Capital Resources
Overview
The Company seeks to maintain a flexible balance sheet, with an appropriate balance of cash,
debt, equity and available funds under its unsecured revolving credit facility, to readily provide
access to capital given the volatility of the market and to position itself to take advantage of
potential growth opportunities. The Company expects to meet short-term liquidity requirements
generally through working capital, net cash provided by operations, and, if necessary, borrowings
on its unsecured revolving credit facility. The Companys short-term obligations consist primarily
of the lease for its corporate headquarters, normal recurring operating expenses, regular debt
payments, recurring expenditures for corporate and administrative needs, non-recurring expenditures
such as capital improvements, tenant improvements and redevelopments, leasing commissions and
dividends to preferred and common shareholders.
57
Over the next twelve months, the Company believes that it will generate sufficient cash flow
from operations and have access to the capital resources necessary to expand and develop its
business, to fund its operating and administrative expenses, to continue to meet its debt service
obligations and to pay distributions in accordance with REIT requirements. However, the Companys
cash flow from operations could be adversely affected due to uncertain economic factors and
volatility in the financial and credit markets. In particular, the Company cannot assure that its
tenants will not default on their leases or fail to make full rental payments if their businesses
are challenged due to, among other things, the economic conditions (particularly if the tenants are
unable to secure financing to operate their businesses). This may be particularly true for the
Companys tenants that are smaller companies. Further,
approximately 14% of the Companys
annualized base rent is scheduled to expire during the next twelve months and, if it is unable to
renew these leases or re-let the space, its cash flow could be negatively impacted.
The Company intends to meet long-term funding requirements for property acquisitions,
development, redevelopment and other non-recurring capital improvements through net cash provided
from operations, long-term secured and unsecured indebtedness, including borrowings under its
unsecured revolving credit facility, secured term loans and unsecured senior notes, proceeds from
disposal of strategically identified assets (outright and through joint ventures) and the issuance
of equity and debt securities. For example, as described in more detail below, in 2010, the Company
raised aggregate net proceeds of $264.8 million through the issuance of 18.3 million common shares,
expanded its unsecured credit facility by $50.0 million and entered into a $50.0 million senior
secured term loan. In addition, in January 2011, the Company raised net proceeds of $111.3 million
through the issuance of 4.6 million 7.750% Series A Preferred Shares.
The Company relies on these third party sources of capital to meet both short-term and
long-term liquidity requirements, and its ability to access these third party sources of capital in
the future will be dependent on, among other things, general economic conditions, general market
conditions for REITs, rental rates, occupancy levels, market perceptions and the trading price of
the Companys shares. The Company will continue to analyze which sources of capital are most
advantageous to it at any particular point in time, but can provide no assurance that these sources
of capital will be available on terms the Company deems attractive, or at all.
Financing Activity
Equity Offerings
On November 16, 2010, the Company issued 11.5 million common shares at a price of $15.50 per
share, which generated net proceeds of approximately $170.4 million. The Company used the majority
of the proceeds to pay down a portion of the outstanding balance on its unsecured revolving credit
facility, to fund the acquisition of Atlantic Corporate Park and for other general corporate
purposes. During the second quarter of 2010, the Company issued 880,648 common shares in exchange
for $13.03 million of Exchangeable Senior Notes. During the first quarter of 2010, the Company
issued 6.3 million common shares at a price of $14.50 per share, which generated net proceeds of
$87.1 million. The Company used $82.9 million of the proceeds to pay down a portion of the
outstanding balance on its unsecured revolving credit facility and the remainder for other general
corporate purposes.
During 2010, the Company increased the amount of its common shares that could be issued
through its controlled equity offering program by 5.0 million common shares. In 2010, the Company
sold 0.5 million common shares through its controlled equity offering program at a weighted average
offering price of $15.46 per share, which generated net proceeds of approximately $7.3 million. At
December 31, 2010, the Company had 4.8 million common shares available for issuance under its
controlled equity offering program.
In January 2011, the Company issued 4.6 million 7.750% Series A Preferred Shares at a price of
$25.00 per share, which generated net proceeds of $111.3 million. Dividends for the Series A
Preferred Shares are cumulative from the date of original issuance and payable on a quarterly basis
beginning on February 15, 2011. The Company used the proceeds from the issuance of its Series A
Preferred Shares to pay down $105.0 million of the outstanding balance on its unsecured revolving
credit facility and for other general corporate purposes.
Unsecured Revolving Credit Facility
On December 29, 2009, the Company replaced its $125.0 million unsecured revolving credit
facility with a new $175.0 million facility. In the second quarter of 2010, the Company expanded
the unsecured revolving credit facility to $225.0 million with the addition of two new lenders and
eliminated the 1% LIBOR floor associated with the facilitys applicable interest rate. The
unsecured revolving credit facility matures in January 2013 with a one-year extension at the
Companys option, which it intends to exercise. The variable interest rate on the unsecured
revolving credit facility is LIBOR plus a spread of 275 to 375 basis points, depending on the
Companys overall leverage. At December 31, 2010, the applicable spread was 300 basis points and
LIBOR was 0.26%. The Company had $33.9 million of unused capacity on its unsecured revolving credit
facility at December 31, 2010.
58
Secured Term Loans
On November 10, 2010, the Company entered into a $50.0 million senior secured term loan with
Key Bank, N.A., which originally matured in February 2011. During 2011, the Companys exercised a
three month extension and the loan now matures in May 2011. The loan has an interest rate of LIBOR
plus 350 basis points. The proceeds from the loan were used to partially finance the acquisition of
Redland Corporate Center.
At December 31, 2010, the Company had two other secured terms loans totaling $60.0 million.
The Companys $40.0 million secured term loan is separated into four $10 million loans, with their
maturities staggered in one-year intervals beginning January 15, 2011 and ending on January 15,
2014. On January 14, 2011, the Company repaid the first $10.0 million loan with available cash. At
December 31, 2010, the loan bears interest at LIBOR plus 250 basis points, which increased by 100
basis points on January 1, 2011 and will increase by 100 basis points every year, to a maximum of
550 basis points. During 2010, the Company exercised a one-year extension on its $20.0 million
secured term loan, which will mature in August 2011.
Interest Rate Swap Agreements
In July 2010, the Company entered into an interest rate swap agreement that, beginning on
January 18, 2011, fixed LIBOR at 1.474% on $50.0 million of the Companys variable rate debt. The
interest rate swap will mature on January 15, 2014.
During January 2008 and August 2008, the Company entered into a two swap agreements that fixed
LIBOR at 2.71% on $50.0 million of its outstanding variable rate debt and at 3.33% on $35.0 million
of its outstanding variable rate debt, respectively. Both swap agreements matured in August 2010.
Exchangeable Senior Notes
During 2010, the Company issued 880,648 common shares in exchange for retiring $13.03 million
of its Exchangeable Senior Notes and used $6.9 million of available cash to retire $7.02 million of
its Exchangeable Senior Notes. The retirement of Exchangeable Senior Notes in 2010 resulted in a
gain of $0.2 million, net of deferred financing costs and discounts. As of December 31, 2010, the
Company had used $66.3 million in cash and $12.4 million of the Companys common shares to
repurchase $94.6 million of its Exchangeable Senior Notes.
Repayment of Mortgage Debt
The Company has repaid the following mortgages since January 1, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
|
|
Month |
|
Year |
|
Property |
|
Interest Rate |
|
|
Amount |
|
January |
|
2011 |
|
Indian Creek Court |
|
|
5.90 |
% |
|
$ |
11,982 |
|
December |
|
2010 |
|
Enterprise Center |
|
|
5.20 |
% |
|
|
16,712 |
|
November |
|
2010 |
|
Park Central II |
|
|
5.66 |
% |
|
|
5,305 |
|
June |
|
2010 |
|
4212 Tech Court |
|
|
8.53 |
% |
|
|
1,654 |
|
November |
|
2009 |
|
Park Central I |
|
|
5.66 |
% |
|
|
4,540 |
|
October |
|
2009 |
|
4200 Tech Court |
|
|
8.07 |
% |
|
|
1,706 |
|
May |
|
2009 |
|
Glen Dale Business Center |
|
|
5.13 |
% |
|
|
8,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows
Due to the nature of the Companys business, it relies on net cash provided by operations to
fund its short-term liquidity needs. Net cash provided by operations is substantially dependent on
the continued receipt of rental payments and other expenses reimbursed by the Companys tenants.
The recent economic downturn may affect tenants ability to meet their obligations, including the
payment of rent contractually owed to the Company, and the Companys ability to lease space to new
or replacement tenants on favorable terms, all of which could affect the Companys cash available
for short-term liquidity needs. Although the recent economic downturn and uncertainty in the
global credit markets has had varying impacts that have negatively impacted debt financing and the
availability of capital across many industries, the Company anticipates that its available cash
flow from operating activities, and available cash from borrowings and other sources, will be
adequate to meet its
capital and liquidity needs in both the short and long term.
59
The Company could also fund building acquisitions, development, redevelopment and other
non-recurring capital improvements through additional borrowings, issuance of Operating Partnership
units or sales of assets, outright or through joint ventures.
Consolidated cash flow information is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
Change |
|
(amounts in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 vs. 2009 |
|
|
2009 vs. 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
|
$ |
36,664 |
|
|
$ |
40,008 |
|
|
$ |
38,064 |
|
|
$ |
(3,344 |
) |
|
$ |
1,944 |
|
Cash used in investing activities |
|
|
(349,808 |
) |
|
|
(62,938 |
) |
|
|
(21,062 |
) |
|
|
(286,870 |
) |
|
|
(41,876 |
) |
Cash provided by (used in) financing
activities |
|
|
337,104 |
|
|
|
15,898 |
|
|
|
(5,848 |
) |
|
|
321,206 |
|
|
|
21,746 |
|
Comparison of the Years Ended December 31, 2010 and 2009
Net cash provided
by operating activities decreased $3.3 million in 2010 compared with 2009,
primarily due to a net loss of $11.7 million incurred during the year ended December 31, 2010
compared with net income of $4.1 million for the year ended December 31, 2009. The decrease in net
(loss) income was primarily due to an increase in acquisition costs of $6.1 million during 2010
compared with 2009 as the Company acquired ten properties, including two through unconsolidated
joint ventures, in 2010 compared with the acquisition of two properties in 2009. Also, the decline
in net (loss) income in 2010 was due to additional snow and ice removal expenses, net of
recoveries, incurred in the first quarter of 2010 compared with 2009. The decrease in cash provided
by operating activities was also due to a reduction of rents received in advance due to the timing
of payments during 2010 compared with 2009.
Net cash used
in investing activities increased $286.9 million during 2010 compared with 2009.
The increase in cash used for investing activities is primarily due to an increase in property
acquisitions in 2010 as the Company acquired eight consolidated properties compared with the
acquisition of two consolidated properties in 2009. The Company also acquired a parcel of land for
$3.2 million in 2010. The Company paid $21.0 million in 2010 to invest in two separate
unconsolidated joint ventures. In 2010, the Company provided a $24.8 million subordinated loan to
the owners of 950 F Street, NW in Washington, D.C., which is secured by a portion of the owners
interest in the property. At December 31, 2010, the Company had paid $7.4 million in deposits on
potential acquisitions compared with $0.5 million of deposits at December 31, 2009. During the
second quarter of 2010, the Company sold its Deer Park and 7561 Lindbergh Drive properties for net
proceeds of $11.4 million. The Company did not dispose of any properties during 2009. On January 1,
2010, the Company deconsolidated a joint venture that owns RiversPark I. As a result, $0.9 million
of cash held by RiversPark I was removed from the Companys condensed consolidated financial
statements. The increase in cash used in investing activities was also attributable to a $4.6
million increase in additions to construction in progress as the Company experienced a higher
volume of development and redevelopment activity in 2010 compared with 2009.
Net cash provided by financing activities increased $321.2 million during 2010 compared with
2009. During 2010, the Company issued $362.0 million of debt, which consisted of borrowings from
the Companys unsecured revolving credit facility totaling $254.0 million, mortgage loans totaling
$58.0 million encumbering three of the Companys 2010 acquisitions and the issuance of a $50.0
million senior secured term loan used to partially fund the acquisition of Redland Corporate
Center, compared with the issuance of $109.5 million of debt issuances in 2009. The increase in
cash provided by financing activities was also attributed to the issuance of 18.3 million of the
Companys common shares in 2010, for net proceeds of $264.6 million. The proceeds were used to
repay a portion of the Companys outstanding revolving credit facility during 2010, to fund
acquisitions and for other general corporate purposes. In 2009, the Company issued 2.8 million
shares of common stock, through its controlled equity offering program, for net proceeds of $29.5
million. The increase in proceeds from the Companys debt and equity issuances in 2010 compared
with 2009 were used to acquire properties and refinance existing debt, as the Company repaid $258.3
million in 2010 compared with $92.6 million in 2009. The Companys equity issuances have resulted
in an increase in its outstanding common shares, which have resulted in a $2.3 million increase in
dividends paid in 2010 compared with 2009.
60
Comparison of the Years Ended December 31, 2009 and 2008
Net cash provided by operating activities increased $1.9 million in 2009. The increase was
attributable to an improvement in operating results in 2009 compared with 2008. The increase in
cash provided by operations was partially offset by a decrease in escrows and reserves during 2009
compared with 2008 due to the repayment, in 2008, of the mortgage encumbering the Suburban Maryland
Portfolio, which released all previously escrowed funds to the Company.
Net cash used in investing activities was $62.9 million in 2009 compared with $21.1 million in
2008. The difference is primarily attributable to $50.6 million of net proceeds the Company
received from the sale of its Alexandria Corporate Park property in 2008. The Company did not
dispose of any properties during 2009. During 2009, the Company acquired two properties for a total
purchase price of $39.3 million compared with acquisitions with a purchase price totaling $46.4
million in 2008. During 2008, the Company contributed one of its acquired properties to a joint
venture for net proceeds of $11.6 million. The increase in net cash used in investing activities
was partially offset by a $13.7 million decline in additions to rental property, development and
redevelopment activity.
Net cash provided by financing activities was $15.9 million during 2009 compared with net cash
used in financing activities of $5.8 million during 2008. During the 2009, the Company borrowed
$109.5 million compared with $217.3 million of borrowings in 2008, though the Company incurred an
additional $2.1 million of financing charges during 2009 compared with 2008. The decline in
borrowings during 2009 was a result of less debt maturing in 2009, as the Company repaid $92.6
million of its outstanding debt during 2009 compared with repayments totaling $230.6 million in
2008. The repayments of debt included $26.5 million and $28.6 million of cash used to retire $34.5
million and $40.0 million of the Companys Exchangeable Senior Notes, which resulted in gains of
$6.3 million and $4.4 million during 2009 and 2008, respectively. The Company received net proceeds
from issuance of its common stock of $29.5 million in 2009 compared with net proceeds of $43.9
million in 2008. The Company paid dividends of $0.94 per common share during 2009 compared with
dividends paid of $1.36 per common share in 2008, which resulted in a total reduction of dividends
paid to shareholders and distributions paid to unitholders of $8.0 million in 2009 compared with
2008.
Distributions
The Company is required to distribute to its shareholders at least 90% of its REIT taxable
income in order to qualify as a REIT, including some types of taxable income it recognizes for tax
purposes but with regard to which it does not receive corresponding cash. In addition, the Company
must distribute to its shareholders 100% of its taxable income to eliminate its U.S. federal income
tax liability. Funds used by the Company to pay dividends on its common shares are provided through
distributions from the Operating Partnership. For every common share of the Company, the Operating
Partnership has issued to the Company a corresponding common unit. At December 31, 2010, the
Company was the sole general partner of and owned 98.1% of the Operating Partnerships units. The
remaining interests in the Operating Partnership are limited partnership interests, some of which
are owned by certain of the Companys executive officers, trustees and unrelated parties who
contributed properties and other assets to the Company upon its formation. The Operating
Partnership is required to make cash distributions to the Company in an amount sufficient to meet
its distribution requirements. The cash distributions by the Operating Partnership reduce the
amount of cash that is available for general corporate purposes, which includes repayment of debt,
funding acquisitions or construction activities, and for other corporate operating activities. On a
quarterly basis, the Companys management team recommends a distribution amount that is approved by
the Companys Board of Trustees. The amount of future distributions will be based on taxable
income, cash from operating activities and available cash and at the discretion of the Companys
Board of Trustees.
61
Debt Financing
The following table sets forth certain information with respect to the Companys indebtedness
at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
December 31, |
|
|
Annualized Debt |
|
|
|
|
|
|
Balance at |
|
(dollars in thousands) |
|
Interest Rate |
|
|
2010 |
|
|
Service |
|
|
Maturity Date |
|
|
Maturity |
|
Fixed Rate Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indian Creek Court(1) |
|
|
5.90 |
% |
|
$ |
11,982 |
|
|
$ |
1,162 |
|
|
|
1/01/2011 |
|
|
$ |
11,982 |
|
403/405 Glenn Drive |
|
|
5.50 |
% |
|
|
7,960 |
|
|
|
746 |
|
|
|
7/01/2011 |
|
|
|
7,807 |
|
4612 Navistar Drive(2) |
|
|
5.20 |
% |
|
|
12,189 |
|
|
|
1,131 |
|
|
|
7/11/2011 |
|
|
|
11,921 |
|
Campus at Metro Park(2) |
|
|
5.25 |
% |
|
|
22,556 |
|
|
|
2,028 |
|
|
|
2/11/2012 |
|
|
|
21,581 |
|
1434 Crossways Boulevard Building II |
|
|
5.38 |
% |
|
|
9,484 |
|
|
|
826 |
|
|
|
8/05/2012 |
|
|
|
8,866 |
|
Crossways Commerce Center |
|
|
6.70 |
% |
|
|
24,179 |
|
|
|
2,087 |
|
|
|
10/01/2012 |
|
|
|
23,313 |
|
Newington Business Park Center |
|
|
6.70 |
% |
|
|
15,252 |
|
|
|
1,316 |
|
|
|
10/01/2012 |
|
|
|
14,706 |
|
Prosperity Business Center |
|
|
5.75 |
% |
|
|
3,502 |
|
|
|
305 |
|
|
|
1/01/2013 |
|
|
|
3,242 |
|
Aquia Commerce Center I |
|
|
7.28 |
% |
|
|
353 |
|
|
|
165 |
|
|
|
2/01/2013 |
|
|
|
42 |
|
1434 Crossways Boulevard Building I |
|
|
5.38 |
% |
|
|
8,225 |
|
|
|
665 |
|
|
|
3/05/2013 |
|
|
|
7,597 |
|
Linden Business Center |
|
|
5.58 |
% |
|
|
7,080 |
|
|
|
512 |
|
|
|
10/01/2013 |
|
|
|
6,596 |
|
Owings Mills Business Center |
|
|
5.75 |
% |
|
|
5,448 |
|
|
|
425 |
|
|
|
3/01/2014 |
|
|
|
5,066 |
|
Annapolis Commerce Park East |
|
|
6.25 |
% |
|
|
8,491 |
|
|
|
665 |
|
|
|
6/01/2014 |
|
|
|
8,010 |
|
Cloverleaf Center |
|
|
6.75 |
% |
|
|
17,204 |
|
|
|
1,464 |
|
|
|
10/08/2014 |
|
|
|
15,953 |
|
Plaza 500, Van Buren Business Park,
Rumsey Center, Snowden Center,
Greenbrier Technology Center II,
Norfolk Business Center, Northridge I
& II and 15395 John Marshall Highway |
|
|
5.19 |
% |
|
|
99,151 |
|
|
|
5,146 |
|
|
|
8/01/2015 |
|
|
|
91,588 |
|
Hanover Business Center: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanover Building D |
|
|
6.63 |
% |
|
|
642 |
|
|
|
161 |
|
|
|
8/01/2015 |
|
|
|
13 |
|
Hanover Building C |
|
|
6.63 |
% |
|
|
1,041 |
|
|
|
186 |
|
|
|
12/01/2017 |
|
|
|
13 |
|
Chesterfield Business Center: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chesterfield Buildings C, D, G and H |
|
|
6.63 |
% |
|
|
1,681 |
|
|
|
414 |
|
|
|
8/01/2015 |
|
|
|
34 |
|
Chesterfield Buildings A, B, E and F |
|
|
6.63 |
% |
|
|
2,398 |
|
|
|
291 |
|
|
|
6/01/2021 |
|
|
|
26 |
|
7458 Candlewood Road Note I |
|
|
6.30 |
% |
|
|
9,938 |
|
|
|
819 |
|
|
|
1/1/2016 |
|
|
|
8,821 |
|
7458 Candlewood Road Note II |
|
|
6.04 |
% |
|
|
4,761 |
|
|
|
424 |
|
|
|
1/1/2016 |
|
|
|
4,567 |
|
Gateway Centre Building I |
|
|
5.88 |
% |
|
|
1,189 |
|
|
|
219 |
|
|
|
11/01/2016 |
|
|
|
|
|
500 First Street, NW |
|
|
5.79 |
% |
|
|
38,793 |
|
|
|
2,722 |
|
|
|
7/1/2020 |
|
|
|
32,000 |
|
Battlefield Corporate Center |
|
|
4.40 |
% |
|
|
4,289 |
|
|
|
320 |
|
|
|
11/1/2020 |
|
|
|
2,618 |
|
Airpark Business Center |
|
|
6.63 |
% |
|
|
1,308 |
|
|
|
173 |
|
|
|
6/01/2021 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.71 |
%(3) |
|
|
319,096 |
|
|
|
24,372 |
|
|
|
|
|
|
|
286,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable Senior Notes(4) |
|
|
5.84 |
% |
|
|
29,936 |
|
|
|
1,218 |
|
|
|
12/15/2011 |
|
|
|
30,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Unsecured Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Notes |
|
|
6.41 |
% |
|
|
37,500 |
|
|
|
2,404 |
|
|
|
6/15/2013 |
|
|
|
37,500 |
|
Series B Notes |
|
|
6.55 |
% |
|
|
37,500 |
|
|
|
2,456 |
|
|
|
6/15/2016 |
|
|
|
37,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Rate Debt |
|
|
5.85 |
%(3) |
|
$ |
424,032 |
|
|
$ |
30,450 |
|
|
|
|
|
|
$ |
391,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Term Loan I (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan A |
|
LIBOR+2.50 |
% |
|
$ |
10,000 |
|
|
$ |
276 |
|
|
|
1/15/2011 |
|
|
$ |
10,000 |
|
Loan B |
|
LIBOR+2.50 |
% |
|
|
10,000 |
|
|
|
276 |
|
|
|
1/15/2012 |
|
|
|
10,000 |
|
Loan C |
|
LIBOR+2.50 |
% |
|
|
10,000 |
|
|
|
276 |
|
|
|
1/15/2013 |
|
|
|
10,000 |
|
Loan D |
|
LIBOR+2.50 |
% |
|
|
10,000 |
|
|
|
276 |
|
|
|
1/15/2014 |
|
|
|
10,000 |
|
Secured Term Loan II |
|
LIBOR+2.50 |
% |
|
|
20,000 |
|
|
|
552 |
|
|
|
8/11/2011 |
|
|
|
20,000 |
|
Senior Secured Term Loan (6) |
|
LIBOR+3.50 |
% |
|
|
50,000 |
|
|
|
1,880 |
|
|
|
5/10/2011 |
|
|
|
50,000 |
|
Unsecured Revolving Credit Facility
(7)(8) |
|
LIBOR+3.00 |
% |
|
|
191,000 |
|
|
|
6,227 |
|
|
|
1/15/2014 |
|
|
|
191,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Variable Rate Debt |
|
|
3.24 |
%(2)(9) |
|
$ |
301,000 |
|
|
$ |
9,763 |
|
|
|
|
|
|
$ |
301,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2010 |
|
|
4.77 |
%(2)(9) |
|
$ |
725,032 |
|
|
$ |
40,213 |
(10) |
|
|
|
|
|
$ |
692,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
(1) |
|
In January 2011, the Company repaid the $12.0 million mortgage encumbering
Indian Creek Court with available cash. |
|
(2) |
|
The maturity date on these loans represents the anticipated repayment date of the
loans, after which date the interest rates on the loans increase. |
|
(3) |
|
Represents the weighted average interest rate. |
|
(4) |
|
During 2010, the Company retired $20.1 million of its Exchangeable Senior Notes.
The principal amount of the Exchangeable Senior Notes was $30.4 million at December 31,
2010. |
|
(5) |
|
Interest on the loan is LIBOR plus 250 basis points, which increases by 100 basis
points each year beginning on January 1, 2011, to a maximum of 550 basis points. In
January 2011, the Company repaid the $10.0 million balance of Loan A with available cash. |
|
(6) |
|
On November 10, 2010, the Company entered into a three month $50.0 million senior
secured term loan with KeyBank, N.A. In February 2011, the Company extended the maturity
date of the term loan to May 10, 2011. |
|
(7) |
|
The unsecured revolving credit facility matures in January 2013 with a one-year
extension at the Companys option, which it intends to exercise. |
|
(8) |
|
As of December 31, 2009, the borrowing base for the Companys unsecured
revolving credit facility included the following properties: 13129
Airpark Road, Virginia Center, Aquia Commerce Center II, Airpark Place, Gateway West II,
Crossways II, Reston Business Campus, Cavalier Industrial Park, Gateway Centre (Building
II), Enterprise Parkway, Diamond Hill Distribution Center, Linden Business Center
(Building I), 1000 Lucas Way, Rivers Bend Center, Crossways I, Sterling Park Business
Center, Sterling Park Land, 1408 Stephanie Way, Davis Drive, Gateway 270, Gateway II,
Greenbrier Circle Corporate Center, Greenbrier Technology Center I, Pine Glen, Ammendale
Commerce Center, Rivers Bend Center II, Park Central (Building V), Hanover AB, Herndon
Corporate Center, 6900 English Muffin Way, Gateway West, 4451 Georgia Pacific, 20270
Goldenrod Lane, Old Courthouse Square, Patrick Center, West Park, Woodlands Business
Center, 15 Wormans Mill Court, Girard Business Center, Girard Place, Owings Mills
Commerce Center, 4200 Tech Court, Park Central I, Triangle Business Center and Ashburn
Center. |
|
(9) |
|
In July 2010, the Company entered into an interest rate swap agreement
that, beginning on January 18, 2011, fixed LIBOR at 1.474% on $50.0 million of the
Companys variable rate debt. The swap agreement will mature on January 15, 2014. |
|
(10) |
|
During 2010, the Company paid approximately $4.8 million in principal payments,
which excludes $23.7 million related to mortgage debt that was repaid in 2010. |
All of our outstanding debt contains customary, affirmative covenants including financial
reporting, standard lease requirements and certain negative covenants. The Company is also subject
to cash management agreements with most of its mortgage lenders. These agreements require that
revenue generated by the subject property be deposited into a clearing account and then swept into
a cash collateral account for the benefit of the lender from which cash is distributed only after
funding of improvement, leasing and maintenance reserves and payment of debt service, insurance,
taxes, capital expenditures and leasing costs.
Exchangeable Senior Notes
On December 11, 2006, the Company issued $125.0 million of 4.0% Exchangeable Senior Notes for
net proceeds of approximately $122.2 million. The Exchangeable Senior Notes mature on December 15,
2011 and are equal in right of payment with all of the Companys other senior unsubordinated
indebtedness. Interest is payable on June 15 and December 15 of each year beginning on June 15,
2007. Holders may, under certain conditions, exchange their notes for cash or a combination of cash
and the Companys common shares, at the Companys option, at any time after October 15, 2011. The
Exchangeable Senior Notes are exchangeable into the Companys common shares, which are adjusted
for, among other things, the payment of dividends to the Companys common shareholders subject to a
maximum exchange rate. Holders may exchange their notes prior to maturity under certain conditions,
including during any calendar quarter beginning after December 31, 2006 (and only during such
calendar quarter), if and only if, the closing sale price of the Companys common shares for at
least 20 trading days in the period of 30 trading days ending on the last trading day of the
preceding quarter is greater than 130% of the exchange price on the applicable trading day. The
Exchangeable Senior Notes have not been registered under the Securities Act and may not be traded
or sold except to certain defined qualified institutional buyers. The notes are senior unsecured
obligations of the Operating Partnership and guaranteed by the Company. As of December 31, 2010,
the Company was in compliance with all of the financial covenants of its Exchangeable Senior Notes.
The Company used $7.6 million of the proceeds to purchase a capped call option. The capped
call option is designed to reduce the potential dilution of common shares upon the exchange of the
notes and protects the Company against any dilutive effects of the conversion feature if the market
price of the Companys common shares is between $36.12 and $42.14 per share. This option allows the
Company to receive shares of the Companys common stock from a counterparty equal to the amount of
common stock and/or cash related to the excess conversion value that the Company would pay the
holders of the Exchangeable Senior Notes upon conversion. The option will terminate upon the
earlier of the maturity date of the notes or the first day in which the notes are no longer
outstanding due to conversion or otherwise. The option was recorded as a reduction of equity. To
the extent the then fair value per Company common share exceeds the cap price during the
observation period relating to an exchange of notes, the reduction in potential dilution will be
limited to the difference between the strike price and the cap price. The Company applied the
majority of the remaining proceeds toward the January 2007 purchase of three buildings at
Greenbrier Business Center.
63
During 2010, the Company issued 880,648 common shares in exchange for retiring $13.03 million
of its Exchangeable Senior Notes and used available cash to retire $7.02 million of its
Exchangeable Senior Notes. The retirement of Exchangeable Senior Notes resulted in a gain of $0.2
million, or approximately $0.01 per diluted share, net of deferred financing costs and
discounts. At December 31, 2010, each $1,000 principal amount of the Exchangeable Senior Notes
was convertible into 28.039 shares for a total of approximately 0.9 million shares, which is
equivalent to an exchange rate of $35.66 per Company common share. The capped call option
associated with the repurchased notes was effectively terminated on their respective repurchase
dates.
Senior Notes
On June 22, 2006, the Operating Partnership completed a private placement of unsecured Senior
Notes totaling $75.0 million. The transaction was comprised of $37.5 million in 7-year Series A
Senior Notes, maturing on June 15, 2013 and bearing a fixed interest rate of 6.41%, and $37.5
million in 10-year Series B Senior Notes, maturing on June 15, 2016 and bearing a fixed interest
rate of 6.55%. Interest is payable for the Series A and Series B Senior Notes on June 15 and
December 15 of each year beginning December 15, 2006. The Senior Notes are equal in right of
payment with all the Operating Partnerships other senior unsubordinated indebtedness. As of
December 31, 2010, the weighted average interest rate on the Senior Notes was 6.48%.
On November 8, 2010, the Company, the Operating Partnership, certain of the Companys
subsidiaries and certain holders of the Companys Senior Unsecured Series A and Series B Notes
sufficient to effect the Amendment (as herein defined) (the Noteholders) entered into a First
Amendment, Consent and Waiver dated as of November 5, 2010 to the Note Purchase Agreement dated as
of June 22, 2006 (the Amendment). Pursuant to the Amendment, the Company added certain
subsidiaries as guarantors of the Companys Senior Unsecured Series A and Series B Notes and agreed
that, to the extent the Company or any of its subsidiaries (other than certain excluded
subsidiaries) provides a lien for the benefit of the lenders or administrative agent under the
Companys unsecured revolving credit facility, the Company or its subsidiaries, as applicable, will
grant the holders of the Companys Senior Unsecured Series A and Series B Notes a similar first
priority lien over the same assets, property and undertaking as those encumbered in respect of the
unsecured revolving credit facility. In addition, the Company agreed to add a covenant to the
terms of the Companys Senior Unsecured Series A and Series B Notes that as at the end of any
fiscal quarter, (a) for the fourth quarter of 2010 through the third quarter of 2011, its
Consolidated Debt Yield (as defined in the revolving credit agreement) will not be less than 10.5%,
and (b) for each quarter thereafter, its Consolidated Debt Yield will not be less than 11.0%. The
Company also agreed to add a covenant to the terms of the Companys Senior Unsecured Series A and
Series B Notes that, as of the end of any fiscal quarter after giving effect to the Amendment, its
ratio of (i) Adjusted Net Operating Income (as defined in the unsecured revolving credit facility)
for the applicable quarter, annualized, divided by (ii) its Unsecured Interest Expense (as defined
in the revolving credit facility) for the applicable quarter, annualized, shall not be less than
1.75 to 1.0. The covenants mirror already existing covenants contained in the Companys unsecured
revolving credit agreement. In exchange for these modifications, the Noteholders agreed to waive
the Companys previous failure to provide certain subsidiary guarantees. The Company agreed to pay
a waiver and consent fee to the holders of the Companys Senior Unsecured Series A and Series B
Notes in an aggregate amount equal to $37,500. As of December 31, 2010, the Company was in
compliance with all the financial covenants of its Senior Notes.
64
Financial Covenants
The Companys outstanding corporate debt agreements contain specific financial covenants that
may impact future financing decisions made by the Company or may be impacted by a decline in
operations. These covenants differ by debt instrument and relate to the Companys allowable
leverage, minimum tangible net worth, fixed debt coverage and other financial metrics. As of
December 31, 2010, the Company was in compliance with all of the financial covenants of its
outstanding debt instruments. Below is a summary of certain financial covenants associated with
the Companys outstanding debt at December 31, 2010 (dollars in thousands):
Unsecured Revolving Credit Facility and Secured Term Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility and 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Term |
|
|
|
|
|
|
2008 Secured |
|
|
|
|
|
|
Loan |
|
|
Covenant |
|
|
Term Loan |
|
|
Covenant |
|
Unencumbered Pool Leverage(1) |
|
|
61.2 |
% |
|
|
≤ 62.5 |
% |
|
|
|
|
|
|
|
|
Unencumbered Pool Debt Service Coverage Ratio(1),(2) |
|
|
2.9x |
|
|
|
≥ 1.75x |
|
|
|
|
|
|
|
|
|
Maximum Consolidated Total Indebtedness |
|
|
51.3 |
% |
|
|
≤ 62.5 |
% |
|
|
49.1 |
% |
|
|
≤ 60 |
% |
Minimum Tangible Net Worth |
|
$ |
731,189 |
|
|
$ |
601,477 |
|
|
$ |
800,802 |
|
|
$ |
601,477 |
|
Fixed Charge Coverage Ratio |
|
|
2.04x |
|
|
|
≥1.50x |
|
|
|
2.04x |
|
|
|
≥ 1.50x |
|
Maximum Dividend Payout Ratio |
|
|
92.2 |
% |
|
|
≤ 95 |
% |
|
|
92.2 |
% |
|
|
≤ 95 |
% |
Maximum Secured Debt |
|
|
30.1 |
% |
|
|
≤ 40 |
% |
|
|
28.7 |
% |
|
|
≤ 40 |
% |
|
|
|
(1) |
|
Covenant does not apply to the Companys secured term loans. |
|
(2) |
|
Covenant applies only to the Companys unsecured revolving credit facility. |
Senior Notes
|
|
|
|
|
|
|
|
|
|
|
Senior Notes |
|
|
Covenant |
|
Unencumbered Pool Leverage |
|
|
48.2 |
% |
|
|
≤ 65 |
% |
Unencumbered Pool Debt Service Coverage Ratio(1),(2) |
|
|
3.07x |
|
|
|
≥ 1.75x |
|
Maximum Consolidated Total Indebtedness |
|
|
50.2 |
% |
|
|
≤ 65 |
% |
Minimum Tangible Net Worth |
|
$ |
764,941 |
|
|
|
≥ $601,477 |
|
Fixed Charge Coverage Ratio |
|
|
2.04x |
|
|
|
≥1.50x |
|
Maximum Dividend Payout Ratio |
|
|
92.2 |
% |
|
|
≤ 95 |
% |
Maximum Secured Debt |
|
|
29.4 |
% |
|
|
≤ 40 |
% |
Non-Financial Covenants in Mortgage Loan Documents
Certain of the Companys subsidiaries are borrowers on mortgage loans, the terms of which
prohibit certain direct or indirect transfers of ownership interests in the borrower subsidiary (a
Prohibited Transfer). Under the terms of the mortgage loan documents, a lender could assert that
a Prohibited Transfer includes the trading of the Companys common shares on the NYSE, the issuance
of common shares by the Company, or the issuance of units of limited partnership interest in the
Companys operating partnership. As of December 31, 2010, the Company believes that there were
eleven mortgage loans with such Prohibited Transfer provisions, representing an aggregate principal
amount outstanding of approximately $112 million. Two of these mortgage loans were entered into
prior to the Companys initial public offering (IPO) in 2003 and nine were assumed subsequent to
its IPO. In January 2011, the Company repaid, with available cash, a $12.0 million mortgage with a
Prohibited Transfer provision that was assumed subsequent to its IPO. In addition, in January
2011, the Company agreed to a modification of a $22.1 million mortgage loan to expressly permit
such trading and issuances. In each instance, the Company received the consent of the mortgage
lender to consummate its IPO (for the two pre-IPO loans) or to acquire the property or the
ownership interests of the borrower (for the post-IPO loans), including the assumption by its
subsidiary of the mortgage loan. Generally, the underlying mortgage documents, previously
applicable to a privately held owner, were not changed at the time of the IPO or the later loan
assumptions, although the Company believes that each of the lenders or servicers was aware that the
borrowers ultimate parent was or would become a publicly traded company. Subsequent to the IPO and
the assumption of these additional mortgage loans, the Company has issued new common shares and
shares of the Company have been transferred on the New York Stock Exchange. Similarly, the
Companys operating partnership has issued units of limited partnership interest. To date, no
lender or servicer has asserted that a Prohibited Transfer has occurred as a result of any such
transfer of shares or units of limited partnership interest. If a lender were to be successful in
any such action, the Company could be required to immediately repay or refinance the amounts
outstanding, or the lender may be able to foreclose on the property securing the loan or take other
adverse actions. In addition, in certain cases a Prohibited Transfer could result in the loan
becoming fully recourse to the Company or its Operating Partnership. In addition, if a violation of
a Prohibited Transfer provision were to occur that would permit the Companys mortgage lenders to
accelerate the indebtedness owed to them, it could result in an event of default under the
Companys Senior Unsecured Series A and Series B Notes, its unsecured revolving credit facility,
its two Secured Term Loans and its Exchangeable Senior Notes.
65
Derivative Financial Instruments
The Company is exposed to certain risks arising from business operations and economic factors.
The Company uses derivative financial instruments to manage exposures that arise from business
activities in which its future exposure to interest rate fluctuations is unknown. The objective in
the use of an interest rate derivative is to add stability to interest expenses and manage exposure
to interest rate changes. No hedging activity can completely insulate the Company from the risks
associated with changes in interest rates. Moreover, interest rate hedging could fail to protect
the Company or adversely affect it because, among other things:
|
|
|
available interest rate hedging may not correspond directly with the interest rate risk
for which the Company seeks protection; |
|
|
|
the duration of the hedge may not match the duration of the related liability; |
|
|
|
the party owing money in the hedging transaction may default on its obligation to pay;
and |
|
|
|
the credit quality of the party owing money on the hedge may be downgraded to such an
extent that it impairs the Companys ability to sell or assign its side of the hedging
transaction. |
The Company enters into interest rate swap agreements to hedge its exposure on its variable
rate debt against fluctuations in prevailing interest rates. The interest rate swap agreements fix
LIBOR to a specified interest rate, however, the swap agreements do not affect the contractual
spreads associated with each variable debt instruments applicable interest rate. During the third
quarter of 2010, the Company entered into a forward swap agreement that began on January 18, 2011.
The Company had two interest rate swap agreements, which were entered into during 2008 and matured
in August 2010. The table below summarizes the Companys interest rate swap agreements as of
December 31, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
Fixed Effective |
|
|
|
Transaction Date |
|
Maturity Date |
|
Amount |
|
|
Component |
|
Interest Rate |
|
Consolidated: |
|
July 2010 |
|
January 2014 |
|
$ |
50,000 |
|
|
LIBOR |
|
|
1.474 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated: |
|
September 2008 |
|
September 2011 |
|
|
28,000 |
(1) |
|
LIBOR |
|
|
3.47 |
% |
|
|
|
(1) |
|
The Company remains liable, in the event of default by the joint venture, for
$7.0 million, or 25% of the total, which reflects its ownership percentage in the joint venture. |
Off-Balance Sheet Arrangements
On January 1, 2010 and March 17, 2009, the Company deconsolidated the joint ventures that own
RiversPark I and II, respectively, and removed all their related assets and liabilities from its
consolidated balance sheets as of the date of deconsolidation. The Company remains liable for $7.0
million of mortgage debt, which represents its proportionate share. During the fourth quarter
2010, the Company entered into separate unconsolidated joint ventures with a third party to
acquire 1750 H Street, NW and Aviation Business Park. For more information, see footnote 5
Investment in Affiliates.
66
Disclosure of Contractual Obligations
The following table summarizes known material contractual obligations associated with
investing and financing activities as of December 31, 2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
More than 5 |
|
Contractual Obligations |
|
Total |
|
|
year |
|
|
1-3 Years |
|
|
3 -5 Years |
|
|
Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans |
|
$ |
319,096 |
|
|
$ |
38,898 |
|
|
$ |
96,250 |
|
|
$ |
141,775 |
|
|
$ |
42,173 |
|
Exchangeable senior notes(1) |
|
|
30,450 |
|
|
|
30,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes |
|
|
75,000 |
|
|
|
|
|
|
|
37,500 |
|
|
|
|
|
|
|
37,500 |
|
Secured term loans |
|
|
110,000 |
|
|
|
80,000 |
|
|
|
20,000 |
|
|
|
10,000 |
|
|
|
|
|
Credit facility(2) |
|
|
191,000 |
|
|
|
|
|
|
|
|
|
|
|
191,000 |
|
|
|
|
|
Interest expense(3) |
|
|
110,853 |
|
|
|
31,307 |
|
|
|
47,118 |
|
|
|
21,051 |
|
|
|
11,377 |
|
Operating leases |
|
|
1,153 |
|
|
|
619 |
|
|
|
534 |
|
|
|
|
|
|
|
|
|
Development |
|
|
182 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment |
|
|
8,358 |
|
|
|
8,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
155 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant improvements |
|
|
10,702 |
|
|
|
10,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related contractual
obligations |
|
|
1,398 |
|
|
|
|
|
|
|
1,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
858,347 |
|
|
$ |
200,671 |
|
|
$ |
202,800 |
|
|
$ |
363,826 |
|
|
$ |
91,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total carrying value of the Exchangeable Senior Notes was $29,936, net
of discounts, at December 31, 2010. |
|
(2) |
|
The unsecured revolving credit facility matures in January 2013 and provides for a
one-year extension of the maturity date at the Companys option, which the Company intends to
exercise. The table above assumes the exercise by the Company of the one-year extension of the
maturity date, which is conditional upon the payment of an extension fee, the absence of an
existing default under the loan agreement and the continued accuracy of the representations
and warranties contained in the loan agreement. |
|
(3) |
|
Interest expense for the Companys fixed rate obligations represents the amount of
interest that is contractually due under the terms of the respective loans. Interest expense
for the Companys variable rate obligations is calculated using the outstanding balance and
applicable interest rate at December 31, 2010 over the life of the obligation. |
The Company owns a 25% interest in RiversPark I and II through two unconsolidated joint
ventures. The properties are encumbered by a $28.0 million mortgage loan, which the Company
remains liable for its proportionate share, or $7.0 million. Upon formation of the joint venture
to own RiversPark I, the Company guaranteed to the joint ventures the rental payments associated
with four leases with the former owner of RiversPark I. Two of the guarantees were terminated in
2008, and another guarantee was terminated in the fourth quarter of 2009. The final guarantee will
expire in September 2011 or earlier if the space is re-leased. As of December 31, 2010, the
maximum potential amount of future payments the Company could be required to make related to the
remaining guarantee at RiversPark I is $0.1 million.
In connection with the Companys 2009 acquisition of Ashburn Center, the Company entered into
a contingent consideration fee agreement with the seller under which the Company will be obligated
to pay additional consideration upon the property achieving stabilization per specified terms of
the agreement. During the first quarter of 2010, the Company leased the remaining vacant space at
the property and recorded a contingent consideration charge of $0.7 million, which reflected an
increase in the anticipated fee to the seller. As of December 31, 2010, the Companys total
contingent consideration obligation to the former owner of Ashburn Center was approximately $1.4
million.
On December 29, 2010, the Company entered into an unconsolidated joint venture with AEW
Capital Management, L.P. and acquired Aviation Business Park, a three-building, single-story,
office park totaling 121,000 square feet in Glen Burnie, Maryland. During the third quarter of
2010, the Company used available cash to acquire a $10.6 million first mortgage loan collateralized
by the property for $8.0 million. The property was acquired by the joint venture through a
deed-in-lieu of foreclosure in return for additional consideration to the owner if certain future
leasing hurdles are met. As of December 31, 2010, the Companys total contingent consideration
obligation to the former owner of Aviation Business Park was approximately $0.1 million, which is
not reflected on the Companys consolidated financial statements.
67
As of December 31, 2010, the Company had development and redevelopment contractual obligations
of $8.5 million outstanding, primarily related to construction activities at Three Flint Hill,
which is undergoing a complete renovation, and capital improvement obligations of $0.2 million
outstanding. Capital improvement obligations represent commitments for roof, asphalt, HVAC and
common area replacements contractually obligated as of December 31, 2010. Also, as of December 31,
2010, the Company had $10.7 million of tenant improvement obligations, primarily related to a
tenant at Indian Creek Court, which it expects to incur on its in-place leases. The Company had no
other material contractual obligations as of December 31, 2010.
As of December 31, 2010, the Company had $7.4 million in deposits outstanding related to the
potential acquisition of four properties and a land parcel.
Funds From Operations
Funds from operations (FFO) is a non-GAAP measure used by many investors and analysts that
follow the real estate industry. 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. Management also considers FFO an appropriate supplemental
performance measure given its wide use by and relevance to investors and analysts. FFO, reflecting
the assumption that real estate asset values rise or fall with market conditions, principally
adjusts for the effects of GAAP depreciation and amortization of real estate assets, which assume
that the value of real estate diminishes predictably over time.
As defined by the National Association of Real Estate Investment Trusts (NAREIT) in its
March 1995 White Paper (as amended in November 1999 and April 2002), FFO represents net income
(computed in accordance with GAAP), excluding gains (losses) on sales of real estate, plus real
estate-related depreciation and amortization and after adjustments for unconsolidated partnerships
and joint ventures. The Company computes FFO in accordance with NAREITs definition, which may
differ from the methodology for calculating FFO, or similarly titled measures, used by other
companies and this may not be comparable to those presentations. The Companys methodology for
computing FFO adds back noncontrolling interests in the income from its Operating Partnership in
determining FFO. The Company believes this is appropriate as Operating Partnership units are
presented on an as-converted, one-for-one basis for shares of stock in determining FFO per diluted
share.
Further, FFO does not represent amounts available for managements 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 Companys cash needs, including
its ability to make distributions. The Companys presentation of FFO should not be considered as an
alternative to net income (computed in accordance with GAAP) as an indicator of the Companys
financial performance or to cash flow from operating activities (computed in accordance with GAAP)
as an indicator of its liquidity.
The following table presents a reconciliation of net (loss) income attributable to common
shareholders to FFO available to common shareholders and unitholders (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income attributable to common shareholders |
|
$ |
(11,443 |
) |
|
$ |
3,932 |
|
|
$ |
19,526 |
|
Add: Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets |
|
|
42,979 |
|
|
|
40,642 |
|
|
|
36,769 |
|
Discontinued operations |
|
|
231 |
|
|
|
230 |
|
|
|
918 |
|
Unconsolidated joint ventures |
|
|
793 |
|
|
|
270 |
|
|
|
|
|
Consolidated joint ventures |
|
|
(13 |
) |
|
|
(801 |
) |
|
|
|
|
Joint venture acquisition fee |
|
|
|
|
|
|
|
|
|
|
210 |
|
Gain on sale of real estate properties |
|
|
(557 |
) |
|
|
|
|
|
|
(14,274 |
) |
Net (loss) income attributable to
noncontrolling interests in the Operating
Partnership |
|
|
(230 |
) |
|
|
124 |
|
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
FFO available to common shareholders and unitholders |
|
$ |
31,760 |
|
|
$ |
44,397 |
|
|
$ |
43,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and Operating
Partnership units outstanding diluted |
|
|
37,950 |
|
|
|
28,804 |
|
|
|
25,637 |
|
68
Forward Looking Statements
This report contains forward-looking statements within the meaning of the federal securities
laws. Forward-looking statements, which are based on certain assumptions and describe future
plans, strategies and expectations of the Company, are generally identifiable by use of the words
believe, expect, intend, anticipate, estimate, project or similar expressions. The
Companys ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Certain factors that could cause actual results to differ materially from
the Companys expectations include changes in general or regional economic conditions; the length
and severity of the recent economic downturn; the Companys ability to timely lease or re-lease
space at current or anticipated rents; changes in interest rates; changes in operating costs; the
Companys ability to complete current and future acquisitions; the Companys ability to obtain
additional financing; the Companys ability to manage its current debt levels and repay or
refinance its indebtedness upon maturity or other required payment dates; the Companys ability to
obtain debt and/or financing on attractive terms, or at all; and other risks detailed under Risk
Factors in Part I, Item 1A of this Annual Report on Form 10-K and in the other documents the
Company files with the SEC. Many of these factors are beyond the Companys 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. We have no duty to, and do not intend to, update or revise the forward-looking
statements in this discussion after the date hereof, except as may be required by law. In light of
these risks and uncertainties, you should keep in mind that any forward-looking statement made in
this discussion, or elsewhere, might not occur.
69
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Companys future income, cash flows and fair values relevant to financial instruments are
dependent upon prevailing market interest rates. In the normal course of business, the Company is
exposed to the effect of interest rate changes. The Company has historically entered into
derivative agreements to mitigate exposure to unexpected changes in interest. Market risk refers to
the risk of loss from adverse changes in market interest rates. The Company periodically uses
derivative financial instruments to seek to manage, or hedge, interest rate risks related to its
borrowings. The Company does not use derivatives for trading or speculative purposes and only
enters into contracts with major financial institutions based on their credit rating and other
factors. The Company intends to enter into derivative agreements only with counterparties that it
believes have a strong credit rating to mitigate the risk of counterparty default or insolvency.
In July 2010, the Company entered into an interest rate swap agreement that, beginning on
January 18, 2011, fixed LIBOR at 1.474% on $50.0 million of the Companys variable rate debt. The
interest rate swap will mature on January 15, 2014.
In December 2006 and concurrent with the issuance of $125.0 million of Exchangeable Senior
Notes, the Company purchased, for $7.6 million, a capped call option on its common shares in a
separate transaction. The capped call option is designed to reduce the potential dilution of common
shares upon the exchange of the notes and protects the Company against any dilutive effects of the
conversion feature if the market price of the Companys common shares is between $36.12 and $42.14
per share. This option allows the Company to receive shares of the Companys common stock from a
counterparty equal to the amount of common stock and/or cash related to the excess conversion value
that the Company would pay the holders of the Exchangeable Senior Notes upon conversion. The option
will terminate upon the earlier of the maturity date of the notes or the first day in which the
notes are no longer outstanding due to conversion or otherwise. The option was recorded as a
reduction of equity. To the extent the then fair value per Company common share exceeds the cap
price during the observation period relating to an exchange of notes, the reduction in potential
dilution will be limited to the difference between the strike price and the cap price. As of
December 31, 2010, the Exchangeable Senior Notes were convertible into 28.039 shares of each $1,000
of principal amount for a total of approximately 0.9 million shares, which is equivalent to a
conversion price of $35.66 per Company common share. The Company retired $20.1 million, $34.5
million and $40.0 million of its Exchangeable Senior Notes at a discount, in 2010, 2009 and 2008,
respectively, which resulted in a gain of $0.2 million, $6.3 million and $4.4 million,
respectively, net of deferred financing costs and discounts. As of December 31, 2010, the Company
used $66.3 million in cash and $12.4 million of the Companys common shares to repurchase $94.6
million of its Exchangeable Senior Notes.
As of December 31, 2010, the Company had $301.0 million of outstanding variable rate debt,
which consisted of borrowings of $191.0 million on its unsecured revolving credit facility and
$110.0 million on three secured term loans. A change in interest rates of 1.0% would result in an
increase or decrease of $3.0 million in interest expense on an annualized basis.
For fixed rate debt, changes in interest rates generally affect the fair value of debt but not
the earnings or cash flow of the Company. See footnote 12, Fair Value Measurements for more
information on the fair value of the Companys debt.
The Companys projected long-term debt obligations, principal cash flows by anticipated
maturity and weighted average interest rates at December 31, 2010, for each of the succeeding five
years are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
Value |
|
Fixed Rate Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage debt |
|
$ |
38,898 |
|
|
$ |
77,551 |
|
|
$ |
18,698 |
|
|
$ |
33,324 |
|
|
$ |
108,451 |
|
|
$ |
42,174 |
|
|
$ |
319,096 |
|
|
$ |
289,449 |
|
Exchangeable senior notes(1) |
|
|
30,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,450 |
|
|
|
30,412 |
|
Senior notes |
|
|
|
|
|
|
|
|
|
|
37,500 |
|
|
|
|
|
|
|
|
|
|
|
37,500 |
|
|
|
75,000 |
|
|
|
75,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
5.76 |
% |
|
|
5.91 |
% |
|
|
5.81 |
% |
|
|
5.74 |
% |
|
|
5.74 |
% |
|
|
5.79 |
% |
|
$ |
424,546 |
|
|
$ |
394,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured term loans |
|
|
80,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
$ |
110,000 |
|
|
$ |
109,976 |
|
Credit facility(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,000 |
|
|
|
|
|
|
|
|
|
|
|
191,000 |
|
|
|
191,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
3.33 |
% |
|
|
3.40 |
% |
|
|
3.38 |
% |
|
|
4.36 |
% |
|
|
|
|
|
|
|
|
|
$ |
301,000 |
|
|
$ |
301,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to fixed(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
(396 |
) |
Average pay rate |
|
|
4.47 |
% |
|
|
4.47 |
% |
|
|
4.47 |
% |
|
|
4.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average receive rate |
|
|
3.26 |
% |
|
|
3.26 |
% |
|
|
3.26 |
% |
|
|
3.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The carrying value of the Exchangeable Senior Notes was $29,936, net of
discounts at December 31, 2010. |
|
(2) |
|
The unsecured revolving credit facility matures in January 2013 and
provides for a one-year extension of the maturity date at the Companys option, which the
Company intends to exercise. The table above assumes the exercise by the Company of the
one-year extension of the maturity date. |
|
(3) |
|
In July 2010, the Company entered into an interest rate swap agreement
that, beginning on January 18, 2011, fixed LIBOR at 1.474% on $50.0 million of the Companys
variable rate debt. The swap agreement will mature on January 15, 2014. |
70
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements and supplementary data required by this Item 8 are filed with this
Annual Report on Form 10-K immediately following the signature page of this Annual Report on Form
10-K and are incorporated herein by reference.
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE |
None.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our periodic reports pursuant to the Securities Exchange
Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required financial
disclosure.
The Company carried out an evaluation, under the supervision and with the participation
of our management, including the principal executive officer and principal financial officer, of
the effectiveness of the design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a 15(e) as of the end of the period covered by this report. Based upon this
evaluation, our principal executive officer and principal financial officer concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this
report.
Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting during the
quarter ended December 31, 2010 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Managements Report on Internal Control Over Financial Reporting
The Companys management is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys internal control over financial reporting
is a process designed under the supervision of its principal executive and principal financial
officers to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the Companys consolidated financial statements for external reporting purposes in
accordance with GAAP.
As of December 31, 2010, management conducted an assessment of the effectiveness of the
Companys internal control over financial reporting based on the framework established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, management has determined that the Companys internal
control over financial reporting as of December 31, 2010 was effective.
The Companys internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
transactions and dispositions of assets; provide reasonable assurances that transactions are
recorded as necessary to permit preparation of financial statements in accordance with GAAP, and
that receipts and expenditures are being made only in accordance with authorizations of the
Companys management and trustees; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Companys assets that could have a
material effect on its consolidated financial statements.
The effectiveness of the Companys internal control over financial reporting as of December
31, 2010 has been audited by KPMG, LLP, an independent registered public accounting firm, as stated
in their attestation report appearing on page 72. KPMGs report expresses an unqualified opinion on
the effectiveness of the Companys internal control over financial reporting as of December 31,
2010.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
71
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
First Potomac Realty Trust:
We have audited First Potomac Realty Trusts internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). First Potomac
Realty Trusts management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, First Potomac Realty Trust maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2010, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of First Potomac Realty Trust and
subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of
operations, equity and comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 2010, and our report dated
March 10, 2011 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
McLean, Virginia
March 10, 2011
72
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE |
The information appearing in the Companys proxy definite statement to be filed in connection
with the Companys Annual Meeting of Shareholders to be held on May 19, 2011 (the Proxy
Statement) under the headings Proposal 1: Election of Trustees, Information on our Board of
Trustees and its Committees, Executive Officers and Section 16(a) Beneficial Ownership
Reporting Compliance is incorporated by reference herein.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
The information in the Proxy Statement under the headings Compensation of Trustees,
Executive Compensation, Compensation Committee Interlocks and Insider Participation and
Compensation Committee Report is incorporated by reference herein.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan Information
A total of 4,460,800 equity securities have been authorized under the Companys 2003 and 2009
Equity Compensation Plans. The following table sets forth information as of December 31, 2010 with
respect to compensation plans under which equity securities of the Company are authorized for
issuance. The Company has no equity compensation plans that were not approved by its security
holders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to |
|
|
Weighted-Average |
|
|
Number of Securities |
|
|
|
be Issued upon Exercise |
|
|
Exercise Price of |
|
|
Remaining Available for |
|
|
|
of Outstanding Options, |
|
|
Outstanding Options, |
|
|
Future Issuance Under |
|
Plan Category |
|
Warrants and Rights |
|
|
Warrants and Rights |
|
|
Equity Compensation Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders |
|
|
811,580 |
|
|
$ |
16.72 |
|
|
|
2,366,896 |
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
811,580 |
|
|
$ |
16.72 |
|
|
|
2,366,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information in the Proxy Statement under the headings Certain Relationships and Related
Transactions and Information on Our Board of Trustees and its Committees is incorporated by
reference herein.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information in the Proxy Statement under the heading Principal Accountant Fees and
Services is incorporated by reference herein.
73
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Financial Statements and Schedules
Reference is made to the Index to Financial Statements and Schedules on page 78 for a list of
the financial statements and schedules included in this report.
Exhibits
The exhibits required by Item 601 of Regulation S-K are listed below. Management contracts or
compensatory plans or arrangements are filed as Exhibits 10.1 through 10.10 and 10.14 through
10.19.
|
|
|
|
|
Exhibit |
|
Description of Document |
|
|
|
|
|
|
3.1 |
(1) |
|
Amended and Restated Declaration of Trust of the Registrant. |
|
3.2 |
(2) |
|
Articles Supplementary designating First Potomac Realty Trusts 7.750% Series A Cumulative Redeemable Perpetual Preferred
Shares, liquidation preference $25.00 per share, par value $0.001 per share. |
|
3.3 |
(3) |
|
Form of share certificate evidencing the Companys Common Shares |
|
3.4 |
(4) |
|
Form of share certificate evidencing the 7.750% Series A Cumulative Redeemable Perpetual Preferred Shares, liquidation
preference $25.00 per share, par value $0.001 per share |
|
3.5 |
(1) |
|
Amended and Restated Bylaws of the Registrant. |
|
4.1 |
(1) |
|
Amended and Restated Agreement of Limited Partnership of First Potomac Realty Investment, L.P. dated September 15, 2004. |
|
4.2 |
(5) |
|
Amendment No. 13 to Amended and Restated Limited Partnership Agreement of First Potomac Realty Investment Limited Partnership. |
|
4.3 |
(6) |
|
Form of First Potomac Realty Investment Limited Partnership 6.41% Senior Notes, Series A, due 2013. |
|
4.4 |
(7) |
|
Form of First Potomac Realty Investment Limited Partnership 6.55% Senior Notes, Series B, due 2016. |
|
4.5 |
(8) |
|
Note Purchase Agreement by and among the Registrant, First Potomac Realty Investment Limited Partnership and the several
Purchasers listed on the signature pages thereto, dated as of June 22, 2006. |
|
4.6 |
* |
|
First Amendment, Consent and Waiver dated as of November 5, 2010 to the Note Purchase Agreement dated as of June 22, 2006, by and
among the Registrant, First Potomac Realty Investment Limited Partnership and the several Purchasers listed on the signature pages
thereto. |
|
4.7 |
(9) |
|
Trust Guaranty, entered into by the Registrant, dated as of June 22, 2006. |
|
4.8 |
(10) |
|
Subsidiary Guaranty, dated as of June 22, 2006. |
|
4.9 |
(11) |
|
Indenture, dated as of December 11, 2006, by and among First Potomac Realty Investment Limited Partnership, the Registrant,
as Guarantor, and Wells Fargo Bank, National Association, as Trustee. |
|
4.10 |
(7) |
|
Form of First Potomac Realty Investment Limited Partnership 4.0% Exchangeable Senior Note due 2011. |
|
10.1 |
(1) |
|
Employment Agreement, dated October 8, 2003, by and between Douglas J. Donatelli and First Potomac Realty Investment Limited
Partnership. |
|
10.2 |
(1) |
|
Employment Agreement, dated October 8, 2003, by and between Nicholas R. Smith and First Potomac Realty Investment Limited
Partnership. |
|
10.3 |
(1) |
|
Employment Agreement, dated October 8, 2003, by and between Barry H. Bass and First Potomac Realty Investment Limited
Partnership. |
|
10.4 |
(1) |
|
Employment Agreement, dated October 8, 2003, by and between James H. Dawson and First Potomac Realty Investment Limited
Partnership. |
|
10.5 |
(12) |
|
Employment Agreement, dated February 14, 2005, by and between Joel F. Bonder and the Registrant. |
|
10.6 |
(13) |
|
Amendment to Employment Agreement, dated December 19, 2008, by and between Douglas J. Donatelli and First Potomac Realty
Investment Limited Partnership. |
|
10.7 |
(14) |
|
Form of Amendment to Employment Agreement, dated December 19, 2008, by and between First Potomac Realty Investment Limited
Partnership and certain executive officers of the Registrant. |
|
10.8 |
(1) |
|
2003 Equity Compensation Plan. |
|
10.9 |
(15) |
|
2009 Equity Compensation Plan |
|
10.10 |
(16) |
|
2009 Employee Stock Purchase Plan |
|
10.11 |
(17) |
|
Amendment No. 1 to the 2003 Equity Compensation Plan. |
|
10.12 |
(18) |
|
Amendment No. 2 to the 2003 Equity Compensation Plan. |
|
10.13 |
(19) |
|
Amendment No. 1 to the Companys 2009 Equity Compensation Plan |
74
|
|
|
|
|
Exhibit |
|
Description of Document |
|
|
10.14 |
(20) |
|
Consent to Sub-Sublease, by and among Bethesda Place II Limited Partnership, Informax, Inc. and the Registrant, dated March
31, 2005. |
|
10.15 |
(21) |
|
Loan Agreement, by and among Jackson National Life Insurance Company, as lender, and Rumsey First LLC, Snowden First LLC, GTC
II First LLC, Norfolk First LLC, Bren Mar, LLC, Plaza 500, LLC and Van Buren, LLC, as the borrowers, dated July 18, 2005. |
|
10.16 |
(22) |
|
Second Amended and Restated Revolving Credit Agreement among First Potomac Realty Investment Limited Partnership and KeyBank
N.A., Wells Fargo N.A., PNC Bank, N.A., Wachovia Bank, N.A., Bank of Montreal, and Chevy Chase Bank (a division of Capital One,
N.A.), dated as of December 29, 2009. |
|
10.17 |
(23) |
|
Amendment No. 1 to the Second Amended and Restated Revolving Credit Agreement, dated May 14, 2010, between the Operating
Partnership, KeyBank N.A., Wells Fargo N.A., Wachovia Bank, N.A., Bank of Montreal, PNC Bank N.A., and Chevy Chase Bank |
|
10.18 |
(24) |
|
Commitment Increase Agreement, dated June 1, 2010, among the Operating Partnership and certain of its subsidiaries, KeyBank
N.A. (as administrative agent) and USBank National Association and TD Bank, N.A., each as additional lenders. |
|
10.19 |
* |
|
Amendment No. 2, dated October 27, 2010, to the Companys Second Amended and Restated Revolving Credit Agreement, dated
December 29, 2009, between the Operating Partnership, certain of the Operating Partnerships subsidiaries and KeyBank N.A., Wells
Fargo N.A., Wachovia Bank, N.A., Bank of Montreal, PNC Bank, N.A. Chevy Chase Bank (a division of Capital One, N.A.), U.S. Bank,
N.A. and TD Bank, N.A |
|
10.20 |
(25) |
|
Form of Restricted Common Shares Award Agreement for Officers. |
|
10.21 |
(26) |
|
Form of 2007 Restricted Common Shares Award Agreement for Trustees. |
|
10.22 |
(27) |
|
Form of 2008 Restricted Common Shares Award Agreement for Trustees. |
|
10.23 |
(28) |
|
Form of 2009 Restricted Common Shares Award Agreement for Trustees. |
|
10.24 |
(29) |
|
Form of 2009 Restricted Common Shares Award Agreement for Officers (Time-Vesting). |
|
10.25 |
(30) |
|
Form of 2009 Restricted Common Shares Award Agreement for Officers (Performance-Based). |
|
10.26 |
(31) |
|
Form of 2010 Form of Restricted Stock Agreement (Time-Vesting) |
|
10.27 |
(32) |
|
From of 2010 Restricted Stock Agreement (Performance-Vesting) |
|
10.28 |
(33) |
|
Form of Restricted Common Share Award Agreement for Trustees |
|
10.29 |
(34) |
|
Registration Rights Agreement, dated December 11, 2006, by and among First Potomac Realty Investment Limited Partnership, the
Registrant and Wachovia Capital Markets, LLC, as the Representative. |
|
10.30 |
(35) |
|
Letter Agreement with respect to Capped-Call Transaction, dated December 5, 2006, by and among First Potomac Realty
Investment Limited Partnership, the Registrant and Wachovia Bank, National Association. |
|
10.31 |
(36) |
|
Letter Agreement with respect to Capped-Call Transaction, dated December 8, 2006, by and among First Potomac Realty
Investment Limited Partnership, the Registrant and Wachovia Bank, National Association. |
|
10.32 |
(37) |
|
Secured Term Loan Agreement, dated August 7, 2007, by and between First Potomac Realty Investment Limited Partnership and
KeyBank National Association. |
|
10.33 |
(38) |
|
Amendment No. 1 to Secured Term Loan Agreement dated as of September 30, 2007, by and between First Potomac Realty Investment
Limited Partnership, KeyBank National Association and PNC Bank, National Association. |
|
10.34 |
(39) |
|
Amendment No. 2 to Secured Term Loan Agreement dated as of November 30, 2007, among First Potomac Realty Investment Limited
Partnership, KeyBank National Association and PNC Bank, National Association. |
|
10.35 |
(40) |
|
Amendment No. 3 to Secured Term Loan Agreement dated as of December 29, 2009, among First Potomac Realty Investment Limited
Partnership, and KeyBank National Association. |
|
10.36 |
(41) |
|
Secured Term Loan Agreement, dated August 11, 2008, by and between First Potomac Realty Investment Limited Partnership and
KeyBank National Association. |
|
10.37 |
(42) |
|
Amendment No. 1 to Secured Term Loan Agreement, dated August 11, 2008, by and between First Potomac Realty Investment Limited
Partnership and KeyBank National Association. |
|
10.38 |
(43) |
|
Amendment No. 2 to Secured Term Loan Agreement, dated August 11, 2008, by and between First Potomac Realty Investment Limited
Partnership and KeyBank National Association. |
|
10.39 |
* |
|
Amendment No. 3, dated October 27, 2010, by and among the Operating Partnership, certain of its subsidiaries (as guarantors),
KeyBank and Wells Fargo, to the Secured Term Loan Agreement, dated August 11, 2008, as amended to date, by and among the Operating
Partnership, certain of its subsidiaries (as guarantors) and the lending institutions which are parties thereto. |
|
10.40 |
* |
|
Amendment No. 4, dated October 27, 2010, by and among the Operating Partnership, certain of its subsidiaries (as guarantors) and
KeyBank, to the Secured Term Loan Agreement, dated August 7, 2007, as amended to date, by and among the Operating Partnership,
certain of its subsidiaries (as guarantors) and the lending institutions which are parties thereto. |
|
10.41 |
* |
|
Secured term loan agreement, dated November 10, 2010, between the Operating Partnership and KeyBank N.A. |
75
|
|
|
|
|
Exhibit |
|
Description of Document |
|
|
12 |
* |
|
Statement Regarding Computation of Ratios. |
|
21 |
* |
|
Subsidiaries of the Registrant. |
|
23 |
* |
|
Consent of KPMG LLP (independent registered public accounting firm). |
|
31.1 |
* |
|
Section 302 Certification of Chief Executive Officer. |
|
31.2 |
* |
|
Section 302 Certification of Chief Financial Officer. |
|
32.1 |
* |
|
Section 906 Certification of Chief Executive Officer. |
|
32.2 |
* |
|
Section 906 Certification of Chief Financial Officer. |
|
|
|
(1) |
|
Incorporated by reference to the Exhibits to the Companys
Registration Statement on Form S-11 (Registration No. 333-107172). |
|
(2) |
|
Incorporated by reference to Exhibit 3.2 to the Companys Registration
Statement on Form 8-A (Registration No. 001-31824). |
|
(3) |
|
Incorporated by reference to the Exhibits to the Companys
Registration Statement on Form S-11 (Registration No. 333-107172). |
|
(4) |
|
Incorporated by reference to Exhibit 4.1 to the Companys Registration
Statement on Form 8-A (Registration No. 001-31824). |
|
(5) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on January 19, 2011. |
|
(6) |
|
Incorporated by reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(7) |
|
Incorporated by reference to Exhibit 4.2 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(8) |
|
Incorporated by reference to Exhibit 4.3 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(9) |
|
Incorporated by reference to Exhibit 4.4 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(10) |
|
Incorporated by reference to Exhibit 4.5 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(11) |
|
Incorporated by reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on December 12, 2006. |
|
(7) |
|
Incorporated by reference to Exhibit 4.2 to the Companys Current Report on
Form 8-K filed on December 12, 2006. |
|
(12) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on February 17, 2005. |
|
(13) |
|
Incorporated by reference to Exhibit 10.1 of the Companys Current Report
on Form 8-K filed on December 24, 2008. |
|
(14) |
|
Incorporated by reference to Exhibit 10.2 of the Companys Current Report
on Form 8-K filed on December 24, 2008. |
|
(15) |
|
Incorporated by reference to Exhibit A to the Companys definitive proxy
statement on Schedule 14A filed on April 8, 2009. |
|
(16) |
|
Incorporated by reference to Exhibit B to the Companys definitive proxy
statement on Schedule 14A filed on April 8, 2009. |
|
(17) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on October 20, 2005. |
|
(18) |
|
Incorporated by reference to Exhibit A to the Companys definitive proxy
statement on Schedule 14A filed on April 11, 2007. |
|
(19) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 21, 2010. |
|
(20) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on April 28, 2005. |
|
(21) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on July 22, 2005. |
|
(22) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on January 5, 2010. |
|
(23) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 19, 2010. |
|
(24) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on June 7, 2010. |
|
(25) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on July 13, 2006. |
|
(26) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 30, 2007. |
|
(27) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 28, 2008. |
|
(28) |
|
Incorporated by reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K filed on May 26, 2009. |
|
(29) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 26, 2009. |
|
(30) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on May 26, 2009. |
|
(31) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on March 1, 2010. |
|
(32) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on March 1, 2010. |
|
(33) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 21, 2010. |
|
(34) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on December 12, 2006. |
|
(35) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on December 12, 2006. |
|
(36) |
|
Incorporated by reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K filed on December 12, 2006. |
|
(37) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on August 10, 2007. |
|
(38) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q filed on November 9, 2007. |
|
(39) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on December 6, 2007. |
|
(40) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on January 5, 2010. |
|
(41) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on August 12, 2008. |
|
(42) |
|
Incorporated by reference to Exhibit 10.28 to the Companys Current Report
on Form 10-K filed on March 5, 2010. |
|
(43) |
|
Incorporated by reference to Exhibit 10.29 to the Companys Current Report
on Form 10-K filed on March 5, 2010. |
|
* |
|
Filed herewith |
76
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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, in the state of Maryland on March 10, 2011.
|
|
|
|
|
|
FIRST POTOMAC REALTY TRUST
|
|
|
/s/ Douglas J. Donatelli
|
|
|
Douglas J. Donatelli |
|
|
Chairman of the Board and Chief Executive Officer |
|
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed by the following persons
on behalf of the registrant and in the capacities indicated on
March 10, 2011.
|
|
|
Signature |
|
Title |
|
|
|
/s/ Douglas J. Donatelli
Douglas J. Donatelli
|
|
Chairman of the Board of Trustees and
Chief Executive Officer |
|
|
|
/s/ Barry H. Bass
Barry H. Bass
|
|
Executive Vice President, Chief Financial Officer |
|
|
|
/s/ Michael H. Comer
Michael H. Comer
|
|
Senior Vice President, Chief Accounting Officer |
|
|
|
/s/ Robert H. Arnold
Robert H. Arnold
|
|
Trustee |
|
|
|
/s/ Richard B. Chess
Richard B. Chess
|
|
Trustee |
|
|
|
/s/ J. Roderick Heller, III
J. Roderick Heller, III
|
|
Trustee |
|
|
|
/s/ R. Michael McCullough
R. Michael McCullough
|
|
Trustee |
|
|
|
/s/ Alan G. Merten
Alan G. Merten
|
|
Trustee |
|
|
|
/s/ Terry L. Stevens
Terry L. Stevens
|
|
Trustee |
77
FIRST POTOMAC REALTY TRUST
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements and schedule of First Potomac Realty Trust and
Subsidiaries and report of our independent registered public accounting firm thereon are attached
hereto:
FIRST POTOMAC REALTY TRUST AND SUBSIDIARIES
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
82 |
|
|
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
FINANCIAL STATEMENT SCHEDULE |
|
|
|
|
|
|
|
|
|
|
|
|
121 |
|
All other schedules are omitted because they are not applicable, or because the required
information is included in the consolidated financial statements or notes thereto.
78
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
First Potomac Realty Trust:
We have audited the accompanying consolidated balance sheets of First Potomac Realty Trust and
subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of
operations, equity and comprehensive income (loss), and cash flows for each of the years in the
three year period ended December 31, 2010. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule of real estate and
accumulated depreciation. These consolidated financial statements and financial statement schedule
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of First Potomac Realty Trust and subsidiaries as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for each of
the years in the three year period ended December 31, 2010, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), First Potomac Realty Trusts internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated March 10, 2011 expressed an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting.
/s/ KPMG LLP
McLean, Virginia
March 10, 2011
79
FIRST POTOMAC REALTY TRUST AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2010 and 2009
(Amounts in thousands, except per share amount)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Assets: |
|
|
|
|
|
|
|
|
Rental property, net |
|
$ |
1,217,897 |
|
|
$ |
987,475 |
|
Cash and cash equivalents |
|
|
33,280 |
|
|
|
9,320 |
|
Escrows and reserves |
|
|
8,070 |
|
|
|
9,978 |
|
Accounts and other receivables, net of allowance
for doubtful accounts of $3,246 and $2,346,
respectively |
|
|
7,238 |
|
|
|
7,049 |
|
Accrued straight-line rents, net of allowance for
doubtful accounts of $849 and $1,185,
respectively |
|
|
12,771 |
|
|
|
10,967 |
|
Notes receivable, net |
|
|
24,750 |
|
|
|
|
|
Investment in affiliates |
|
|
23,721 |
|
|
|
1,819 |
|
Deferred costs, net |
|
|
20,174 |
|
|
|
17,837 |
|
Prepaid expenses and other assets |
|
|
14,230 |
|
|
|
6,625 |
|
Intangible assets, net |
|
|
34,551 |
|
|
|
20,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,396,682 |
|
|
$ |
1,071,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Mortgage loans |
|
$ |
319,096 |
|
|
$ |
301,463 |
|
Exchangeable senior notes, net |
|
|
29,936 |
|
|
|
48,718 |
|
Senior notes |
|
|
75,000 |
|
|
|
75,000 |
|
Secured term loans |
|
|
110,000 |
|
|
|
60,000 |
|
Unsecured revolving credit facility |
|
|
191,000 |
|
|
|
159,900 |
|
Financing obligation |
|
|
|
|
|
|
5,066 |
|
Accounts payable and other liabilities |
|
|
16,827 |
|
|
|
13,100 |
|
Accrued interest |
|
|
2,170 |
|
|
|
2,072 |
|
Rents received in advance |
|
|
7,049 |
|
|
|
7,267 |
|
Tenant security deposits |
|
|
5,390 |
|
|
|
5,235 |
|
Deferred market rent, net |
|
|
6,032 |
|
|
|
6,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
762,500 |
|
|
|
683,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests in the Operating Partnership |
|
|
16,122 |
|
|
|
9,585 |
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Series A Preferred Shares, $25 par value, 4,600
shares authorized and none outstanding |
|
|
|
|
|
|
|
|
Common shares, $0.001 par value, 150,000 shares
authorized;
49,922 and 30,589 shares issued and outstanding,
respectively |
|
|
50 |
|
|
|
31 |
|
Additional paid-in capital |
|
|
794,051 |
|
|
|
517,940 |
|
Noncontrolling interests in consolidated partnerships |
|
|
3,077 |
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
(545 |
) |
|
|
(1,879 |
) |
Dividends in excess of accumulated earnings |
|
|
(178,573 |
) |
|
|
(138,333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
618,060 |
|
|
|
377,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, noncontrolling interests and equity |
|
$ |
1,396,682 |
|
|
$ |
1,071,173 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
80
FIRST POTOMAC REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2010, 2009 and 2008
(Amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
113,041 |
|
|
$ |
107,383 |
|
|
$ |
100,229 |
|
Tenant reimbursements and other |
|
|
26,975 |
|
|
|
24,765 |
|
|
|
22,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
140,016 |
|
|
|
132,148 |
|
|
|
122,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
|
34,053 |
|
|
|
32,567 |
|
|
|
26,854 |
|
Real estate taxes and insurance |
|
|
13,140 |
|
|
|
12,849 |
|
|
|
12,042 |
|
General and administrative |
|
|
14,523 |
|
|
|
13,219 |
|
|
|
11,938 |
|
Acquisition costs |
|
|
7,169 |
|
|
|
1,076 |
|
|
|
|
|
Depreciation and amortization |
|
|
42,979 |
|
|
|
40,642 |
|
|
|
36,769 |
|
Impairment of real estate assets |
|
|
5,834 |
|
|
|
2,541 |
|
|
|
|
|
Contingent consideration related to acquisition of property |
|
|
710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
118,408 |
|
|
|
102,894 |
|
|
|
87,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
21,608 |
|
|
|
29,254 |
|
|
|
34,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
33,758 |
|
|
|
32,412 |
|
|
|
35,873 |
|
Interest and other income |
|
|
(637 |
) |
|
|
(522 |
) |
|
|
(667 |
) |
Equity in losses of affiliates |
|
|
124 |
|
|
|
95 |
|
|
|
|
|
Gains on early retirement of debt |
|
|
(164 |
) |
|
|
(6,167 |
) |
|
|
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net |
|
|
33,081 |
|
|
|
25,818 |
|
|
|
30,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes |
|
|
(11,473 |
) |
|
|
3,436 |
|
|
|
3,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(11,504 |
) |
|
|
3,436 |
|
|
|
3,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations of disposed properties |
|
|
(728 |
) |
|
|
620 |
|
|
|
1,900 |
|
Gain on sale of real estate properties |
|
|
557 |
|
|
|
|
|
|
|
14,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations |
|
|
(171 |
) |
|
|
620 |
|
|
|
16,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(11,675 |
) |
|
|
4,056 |
|
|
|
20,141 |
|
Less: Net loss (income) attributable to noncontrolling
interests |
|
|
232 |
|
|
|
(124 |
) |
|
|
(615 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders |
|
$ |
(11,443 |
) |
|
$ |
3,932 |
|
|
$ |
19,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders per
share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(0.32 |
) |
|
$ |
0.10 |
|
|
$ |
0.14 |
|
(Loss) income from discontinued operations |
|
|
(0.01 |
) |
|
|
0.02 |
|
|
|
0.63 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(0.33 |
) |
|
$ |
0.12 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic |
|
|
36,984 |
|
|
|
27,956 |
|
|
|
24,838 |
|
Weighted average common shares outstanding diluted |
|
|
36,984 |
|
|
|
28,045 |
|
|
|
24,858 |
|
See accompanying notes to consolidated financial statements.
81
FIRST POTOMAC REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Equity and Comprehensive Income (Loss)
Years ended December 31, 2010, 2009 and 2008
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Noncontrolling |
|
|
Dividends in |
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Other |
|
|
Interests in |
|
|
Excess of |
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Additional |
|
|
Comprehensive |
|
|
Consolidated |
|
|
Accumulated |
|
|
|
|
|
|
Comprehensive |
|
|
|
Par Value |
|
|
Paid-in Capital |
|
|
Loss |
|
|
Partnerships |
|
|
Earnings |
|
|
Total Equity |
|
|
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
24 |
|
|
$ |
438,566 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(101,070 |
) |
|
$ |
337,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,141 |
|
|
|
20,141 |
|
|
$ |
20,141 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
(3,931 |
) |
|
|
|
|
|
|
|
|
|
|
(3,931 |
) |
|
|
(3,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,210 |
|
Attributable to noncontrolling
Interests |
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
(615 |
) |
|
|
(507 |
) |
|
|
(507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
attributable to common
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,192 |
) |
|
|
(34,192 |
) |
|
|
|
|
|
Acquisition of partnership units |
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
|
|
Shares issued in exchange for
Operating Partnership units |
|
|
|
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358 |
|
|
|
|
|
Restricted stock expense |
|
|
|
|
|
|
1,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,791 |
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
Stock option expense |
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201 |
|
|
|
|
|
Issuance of common stock |
|
|
3 |
|
|
|
43,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
27 |
|
|
|
484,825 |
|
|
|
(3,823 |
) |
|
|
|
|
|
|
(115,736 |
) |
|
|
365,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,056 |
|
|
|
4,056 |
|
|
$ |
4,056 |
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
1,314 |
|
|
|
|
|
|
|
|
|
|
|
1,314 |
|
|
|
1,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,370 |
|
Attributable to noncontrolling
Interests |
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
(124 |
) |
|
|
(156 |
) |
|
|
(156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
attributable to common
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,529 |
) |
|
|
(26,529 |
) |
|
|
|
|
|
Acquisition of partnership units |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Shares issued in exchange for
Operating Partnership units |
|
|
|
|
|
|
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483 |
|
|
|
|
|
Restricted stock expense |
|
|
|
|
|
|
2,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,906 |
|
|
|
|
|
Stock option expense |
|
|
|
|
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207 |
|
|
|
|
|
Issuance of common stock |
|
|
4 |
|
|
|
29,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,522 |
|
|
|
|
|
Deconsolidation of joint venture |
|
|
|
|
|
|
|
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
31 |
|
|
|
517,940 |
|
|
|
(1,879 |
) |
|
|
|
|
|
|
(138,333 |
) |
|
|
377,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,675 |
) |
|
|
(11,675 |
) |
|
$ |
(11,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
1,067 |
|
|
|
|
|
|
|
|
|
|
|
1,067 |
|
|
|
1,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,608 |
) |
Attributable to noncontrolling
Interests |
|
|
|
|
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
232 |
|
|
|
209 |
|
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
attributable to common
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,797 |
) |
|
|
(28,797 |
) |
|
|
|
|
Acquisition of partnership units |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Shares issued in exchange for
Operating Partnership units |
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
Restricted stock expense |
|
|
|
|
|
|
3,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,465 |
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
Stock option and employee
stock purchase plan expense |
|
|
|
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270 |
|
|
|
|
|
Issuance of common stock, net of net settlements |
|
|
19 |
|
|
|
275,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,891 |
|
|
|
|
|
Adjustment of Operating
Partnership units to fair value |
|
|
|
|
|
|
(3,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,594 |
) |
|
|
|
|
Noncontrolling interest in
consolidated joint venture, at
acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,079 |
|
|
|
|
|
|
|
3,079 |
|
|
|
|
|
Loss attributable to
noncontrolling interest in
consolidated joint venture |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
Deconsolidation of joint venture |
|
|
|
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
50 |
|
|
$ |
794,051 |
|
|
$ |
(545 |
) |
|
$ |
3,077 |
|
|
$ |
(178,573 |
) |
|
$ |
618,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
82
FIRST POTOMAC REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2010, 2009 and 2008
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(11,675 |
) |
|
$ |
4,056 |
|
|
$ |
20,141 |
|
Adjustments to reconcile net (loss) income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of properties |
|
|
(557 |
) |
|
|
|
|
|
|
(14,274 |
) |
Depreciation and amortization |
|
|
231 |
|
|
|
230 |
|
|
|
918 |
|
Impairment of real estate asset |
|
|
565 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
43,805 |
|
|
|
41,507 |
|
|
|
37,640 |
|
Stock based compensation |
|
|
3,735 |
|
|
|
3,113 |
|
|
|
1,985 |
|
Bad debt expense |
|
|
1,290 |
|
|
|
2,302 |
|
|
|
533 |
|
Amortization of deferred market rent |
|
|
(1,356 |
) |
|
|
(1,572 |
) |
|
|
(1,730 |
) |
Amortization of financing costs and fair value discounts |
|
|
757 |
|
|
|
445 |
|
|
|
3,208 |
|
Equity in losses of affiliates |
|
|
124 |
|
|
|
95 |
|
|
|
|
|
Distributions from investments in affiliates |
|
|
623 |
|
|
|
107 |
|
|
|
|
|
Contingent consideration related to acquisition of property |
|
|
710 |
|
|
|
|
|
|
|
|
|
Impairment of real estate asset |
|
|
5,834 |
|
|
|
2,541 |
|
|
|
|
|
Change in financing obligation |
|
|
|
|
|
|
(378 |
) |
|
|
(81 |
) |
Gains on early retirement of debt |
|
|
(164 |
) |
|
|
(6,167 |
) |
|
|
(4,374 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Escrows and reserves |
|
|
69 |
|
|
|
(1,454 |
) |
|
|
4,552 |
|
Accounts and other receivables |
|
|
(1,844 |
) |
|
|
(1,937 |
) |
|
|
(2,936 |
) |
Accrued straight-line rents |
|
|
(1,711 |
) |
|
|
(1,180 |
) |
|
|
(1,081 |
) |
Prepaid expenses and other assets |
|
|
107 |
|
|
|
(658 |
) |
|
|
(661 |
) |
Tenant security deposits |
|
|
382 |
|
|
|
28 |
|
|
|
(179 |
) |
Accounts payable and accrued expenses |
|
|
3,372 |
|
|
|
3,139 |
|
|
|
2,414 |
|
Accrued interest |
|
|
150 |
|
|
|
(334 |
) |
|
|
(285 |
) |
Rents received in advance |
|
|
(172 |
) |
|
|
2,543 |
|
|
|
143 |
|
Deferred costs |
|
|
(7,611 |
) |
|
|
(6,418 |
) |
|
|
(7,869 |
) |
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
48,339 |
|
|
|
35,952 |
|
|
|
17,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
36,664 |
|
|
|
40,008 |
|
|
|
38,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase deposit on future acquisitions |
|
|
(7,403 |
) |
|
|
(500 |
) |
|
|
|
|
Investment in note receivable |
|
|
(24,750 |
) |
|
|
|
|
|
|
|
|
Proceeds from sale of real estate assets |
|
|
11,414 |
|
|
|
|
|
|
|
50,573 |
|
Distributions from joint venture for contribution of real estate assets |
|
|
|
|
|
|
|
|
|
|
11,572 |
|
Additions to rental property |
|
|
(18,917 |
) |
|
|
(21,928 |
) |
|
|
(26,502 |
) |
Additions to construction in progress |
|
|
(5,793 |
) |
|
|
(1,200 |
) |
|
|
(10,328 |
) |
Cash held by joint venture at deconsolidation |
|
|
(896 |
) |
|
|
|
|
|
|
|
|
Investment in unconsolidated joint ventures |
|
|
(21,015 |
) |
|
|
|
|
|
|
|
|
Acquisition of land parcel |
|
|
(3,200 |
) |
|
|
|
|
|
|
|
|
Acquisition of rental property and associated intangible assets |
|
|
(279,248 |
) |
|
|
(39,310 |
) |
|
|
(46,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(349,808 |
) |
|
|
(62,938 |
) |
|
|
(21,062 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs |
|
|
(1,745 |
) |
|
|
(3,234 |
) |
|
|
(1,145 |
) |
Issuance of debt |
|
|
361,998 |
|
|
|
109,500 |
|
|
|
217,300 |
|
Issuance of stock, net |
|
|
264,573 |
|
|
|
29,522 |
|
|
|
43,908 |
|
Repayments of debt |
|
|
(258,331 |
) |
|
|
(92,640 |
) |
|
|
(230,555 |
) |
Distributions to noncontrolling interests |
|
|
(631 |
) |
|
|
(718 |
) |
|
|
(1,057 |
) |
Dividends to shareholders |
|
|
(28,797 |
) |
|
|
(26,529 |
) |
|
|
(34,192 |
) |
Redemption of partnership units |
|
|
(5 |
) |
|
|
(3 |
) |
|
|
(145 |
) |
Stock option exercises |
|
|
42 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
337,104 |
|
|
|
15,898 |
|
|
|
(5,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
23,960 |
|
|
|
(7,032 |
) |
|
|
11,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
9,320 |
|
|
|
16,352 |
|
|
|
5,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
33,280 |
|
|
$ |
9,320 |
|
|
$ |
16,352 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
83
FIRST POTOMAC REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows Continued
Years ended December 31, 2010, 2009 and 2008
Supplemental disclosure of cash flow information (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net |
|
$ |
32,769 |
|
|
$ |
32,638 |
|
|
$ |
35,928 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt assumed in connection with
acquisitions of real estate |
|
|
14,699 |
|
|
|
|
|
|
|
|
|
Conversion of Operating Partnership units
into common shares |
|
|
55 |
|
|
|
483 |
|
|
|
358 |
|
Issuance of Operating Partnership units in
exchange for limited partnership interests |
|
|
3,519 |
|
|
|
|
|
|
|
|
|
Cash paid for interest on indebtedness is net of capitalized interest of $0.8 million, $0.4
million and $1.6 million in 2010, 2009 and 2008, respectively. During 2010, the Company did not pay
any cash for franchise taxes levied by the city of Washington D.C. Prior to 2010, the Company did
not own any properties in Washington D.C. and, therefore was not subject to any Washington D.C
franchise taxes.
During 2010, 2009 and 2008, 5 thousand, 40 thousand and 26 thousand Operating Partnership
units, respectively, were redeemed for an equivalent number of the Companys common shares.
On June 7, 2010, the Company issued 880,648 common shares in exchange for $13.03 million of
Exchangeable Senior Notes.
On January 1, 2010 and March 17, 2009, the Company deconsolidated the joint ventures that own
RiversPark I and II, respectively, and removed all related assets and liabilities from its
consolidated balance sheets as of the date of deconsolidation. Amounts shown on the statements of
cash flows represent cash held by RiversPark I, which was included in the Companys consolidated
balance sheets at December 31, 2009, and subsequently removed on its date of deconsolidation. For
more information, see footnote 5 Investment in Affiliates.
During 2010, the Company acquired eight consolidated properties at an aggregate purchase price
of $286.2 million, including the assumption of $14.7 million of mortgage debt and the issuance of
230,876 Operating Partnership units valued at $3.5 million on the date of acquisition.
84
FIRST POTOMAC REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
First Potomac Realty Trust (the Company) is a leader in the ownership, management,
development and redevelopment of office and industrial properties in the greater Washington, D.C.
region. The Company separates its properties into three distinct segments, which it refers to as
the Maryland, Northern Virginia and Southern Virginia reporting segments. The Company strategically
focuses on acquiring and redeveloping properties that it believes can benefit from its intensive
property management and seeks to reposition these properties to increase their profitability and
value. The Companys portfolio contains a mix of single-tenant and multi-tenant office and
industrial properties as well as business parks. Office properties are single-story and multi-story
buildings that are used primarily for office use; business parks contain buildings with office
features combined with some industrial property space; and industrial properties generally are used
as warehouse, distribution or manufacturing facilities.
References in these financial statements to we, our or First Potomac, refer to the
Company and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.
The Company conducts its business through First Potomac Realty Investment Limited Partnership;
the Companys operating partnership (the Operating Partnership). At December 31, 2010, the
Company was the sole general partner of, and owned a 98.1% interest in, the Operating Partnership.
The remaining interests in the Operating Partnership, which are presented as noncontrolling in the
Operating Partnership interests in the accompanying consolidated financial statements, are limited
partnership interests, some of which are owned by several of the Companys executive officers and
trustees who contributed properties and other assets to the Company upon its formation, and other
unrelated parties.
At December 31, 2010, the Company wholly-owned or had a controlling interest in properties
totaling 13.2 million square feet and had an ownership interest in properties totaling an
additional 0.5 million square feet through four unconsolidated joint ventures. The Companys
consolidated properties were 82.3% occupied by 592 tenants. Excluding the Companys fourth quarter
2010 acquisitions of Atlantic Corporate Park, which was vacant at acquisition, and Redland
Corporate Center II, which was 99% vacant at acquisition, the Companys consolidated portfolio was
85.2% occupied at December 31, 2010. The Company does not include square footage that is in
development or redevelopment in its occupancy calculation, which totaled 0.4 million square feet at
December 31, 2010. As of December 31, 2010, the Companys largest tenant was the U.S. Government,
which along with government contractors, accounted for over 20% of the Companys total annualized
rental revenue. The Company also owned land that can accommodate approximately 1.7 million square
feet of additional development. The Company derives substantially all of its revenue from leases of
space within its properties. The Company operates so as to qualify as a real estate investment
trust (REIT) for federal income tax purposes.
For the year ended December 31, 2010, the Company had consolidated net revenues of
approximately $140 million and consolidated total assets of $1.4 billion. Financial information
related to the Companys three reporting segments is set forth in footnote 18, Segment Information,
to the Companys consolidated financial statements.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company, the
Operating Partnership, the subsidiaries of the Operating Partnership in which it has a controlling
interest and First Potomac Management LLC, a wholly-owned subsidiary that manages the majority of
the Companys properties. All intercompany balances and transactions have been eliminated in
consolidation.
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally
accepted accounting principles (GAAP) requires management of the Company to make a number of
estimates and assumptions relating to the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period. Estimates include
the amount of accounts receivable that may be uncollectible; recoverability of notes receivable,
future cash flows, discount and capitalization rate assumptions used to fair value acquired
properties and to test impairment of certain long-lived assets and goodwill; market lease rates, lease-up periods, leasing and tenant improvement costs used to fair value
intangible assets acquired and probability weighted cash flow analysis used to fair value
contingent liabilities. Actual results could differ from those estimates.
85
(c) Revenue Recognition and Accounts Receivable
The Company generates substantially all of its revenue from leases on its office and
industrial properties as well as business parks. The Company recognizes rental revenue on a
straight-line basis over the term of its leases, which include fixed-rate renewal periods leased at
below market rates at acquisition or inception. Accrued straight-line rents represent the
difference between rental revenue recognized on a straight-line basis over the term of the
respective lease agreements and the rental payments contractually due for leases that contain
abatement or fixed periodic increases. The Company considers current information, credit quality,
historical trends, economic conditions and other events regarding the tenants ability to pay their
obligations in determining if amounts due from tenants, including accrued straight-line rents, are
ultimately collectible. The uncollectible portion of the amounts due from tenants, including
accrued straight-line rents, is charged to property operating expense in the period in which the
determination is made. The Company considers similar criteria in assessing impairment associated
with outstanding loans or notes receivable and whether any allowance for anticipated credit loss is
appropriate.
Tenant leases generally contain provisions under which the tenants reimburse the Company for a
portion of property operating expenses and real estate taxes incurred by the Company. Such
reimbursements are recognized in the period in which the expenses are incurred. The Company records
a provision for losses on estimated uncollectible accounts receivable based on its analysis of risk
of loss on specific accounts. Lease termination fees are recognized on the date of termination
when the related lease or portion thereof is cancelled, the collectability of the fee is reasonably
assured and the Company has possession of the terminated space. The Company recognized lease
termination fees included in Tenant reimbursement and other revenues in its consolidated
statements of operations of $1.0 million, $0.4 million and $1.2 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Concurrent with the Companys August and September 2008 acquisitions of Triangle Business
Center and RiversPark I, respectively, the former owner entered into master lease agreements for
vacant space that was not producing rent at the time of the acquisitions. Payments received under
the master lease agreements are recorded as a reduction to rental property rather than as rental
income as the payments were determined to be a reduction in the purchase consideration at the time
of acquisition, respectively. Payments received under these master lease agreements totaled $0.5
million and $1.4 million for the years ended December 31, 2009 and 2008, respectively.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of 90 days or less at the
date of purchase to be cash equivalents.
(e) Escrows and Reserves
Escrows and reserves represent cash restricted for debt service, real estate taxes, insurance,
capital items and tenant security deposits.
(f) Deferred Costs
Financing costs related to long-term debt are deferred and amortized over the remaining life
of the debt using a method that approximates the effective interest method. Leasing costs related
to the execution of tenant leases are deferred and amortized over the term of the related leases.
Accumulated amortization of these combined costs was $16.1 million and $11.5 million at December
31, 2010 and 2009, respectively.
The following table sets forth scheduled future amortization for deferred financing and
leasing costs at December 31, 2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Deferred Financing |
|
|
Leasing(1) |
|
2011 |
|
$ |
2,148 |
|
|
$ |
3,565 |
|
2012 |
|
|
1,778 |
|
|
|
2,904 |
|
2013 |
|
|
412 |
|
|
|
2,247 |
|
2014 |
|
|
296 |
|
|
|
1,412 |
|
2015 |
|
|
182 |
|
|
|
1,028 |
|
Thereafter |
|
|
206 |
|
|
|
2,146 |
|
|
|
|
|
|
|
|
|
|
$ |
5,022 |
|
|
$ |
13,302 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes the amortization of $1.5 million of leasing costs that have
yet to be placed in-service as the associated tenants have not moved into their
related spaces and, therefore, the future amortization of these leasing costs have
yet to be determined. |
86
(g) Rental Property
Rental property is carried at initial cost less accumulated depreciation and, when
appropriate, impairment losses. Improvements and replacements are capitalized at cost when they
extend the useful life, increase capacity or improve the efficiency of the asset. Repairs and
maintenance are charged to expense when incurred. Depreciation and amortization are recorded on a
straight-line basis over the estimated useful lives of the assets. The estimated useful lives of
the Companys assets, by class, are as follows:
|
|
|
Buildings
|
|
39 years |
Building improvements
|
|
5 to 20 years |
Furniture, fixtures and equipment
|
|
5 to 15 years |
Tenant improvements
|
|
Shorter of the useful lives of the
assets or the terms of the related
leases |
The Company regularly reviews market conditions for possible impairment of a propertys
carrying value. When circumstances such as adverse market conditions, changes in managements
intended holding period or potential sale to a third party indicate a possible impairment of the
fair value of a property, an impairment analysis is performed. The Company assesses potential
impairments based on an estimate of the future undiscounted cash flows (excluding interest charges)
expected to result from the propertys use and eventual disposition. This estimate is based on
projections of future revenues, expenses, capital improvement costs, expected holding periods and
capitalization rates. These cash flows consider factors such as expected market trends and leasing
prospects, as well as the effects of leasing demand, competition and other factors. If impairment
exists due to the inability to recover the carrying value of a real estate investment based on
forecasted undiscounted cash flows, an impairment loss is recorded to the extent that the carrying
value exceeds the estimated fair value of the property. The Company is required to make estimates
as to whether there are impairments in the carrying values of its investments in real estate.
Further, the Company will record an impairment loss if it expects to dispose of a property, in the
near term, at a price below carrying value. In such an event, the Company will record an impairment
loss based on the difference between a propertys carrying value and its projected sales price less
any estimated costs to sell.
The Company will classify a building as held-for-sale in the period in which it has made the
decision to dispose of the building, the Companys Board of Directors or a designated delegate has
approved the sale, a binding agreement to purchase the property has been signed under which the
buyer has committed a significant amount of nonrefundable cash and no significant financing
contingencies exist that could cause the transaction not to be completed in a timely manner. If
these criteria are met, the Company will cease depreciation of the asset and will record an
impairment loss if the fair value, less anticipated selling costs, is lower than the carrying
amount of the property. The Company will classify any impairment loss, together with the buildings
operating results, as discontinued operations in its consolidated statements of operations for all
periods presented and classify the assets and related liabilities as held-for-sale in its
consolidated balance sheets in the period the sale criteria are met. Interest expense is
reclassified to discontinued operations only to the extent the held-for-sale property is secured by
specific mortgage debt and the mortgage debt will not be secured to another property owned by the
Company after the disposition.
The Company recognizes the fair value, if sufficient information exists to reasonably estimate
the fair value, of any liability for conditional asset retirement obligations when incurred, which
is generally upon acquisition, construction, development or redevelopment and/or through the normal
operation of the asset.
The Company capitalizes interest costs incurred on qualifying expenditures for real estate
assets under development or redevelopment while being readied for their intended use in accordance
with accounting requirements regarding capitalization of interest. The Company will capitalize
interest when qualifying expenditures for the asset have been made, activities necessary to get the
asset ready for its intended use are in progress and interest costs are being incurred. Capitalized
interest also includes interest associated with expenditures incurred to acquire developable land
while development activities are in progress. Capitalization of interest will end when the asset is
substantially complete and ready for its intended use, but no later than one year from completion
of major construction activity, if the property is not occupied. Capitalized interest is
depreciated over the useful life of the underlying assets, commencing when those assets are placed
into service.
87
(h) Purchase Accounting
Acquisitions of rental property from third parties are accounted for at fair value. Any
liabilities assumed or incurred are recorded at their fair value at the time of acquisition. The fair value of the acquired
property is allocated between land and building (on an as-if vacant basis) based on managements
estimate of the fair value of those components for each type of property and to tenant improvements
based on the depreciated replacement cost of the tenant improvements, which approximates their fair
value. The fair value of the in-place leases is recorded as follows:
|
|
|
the fair value of leases in-place on the date of acquisition is based on absorption
costs for the estimated lease-up period in which vacancy and foregone revenue are avoided
due to the presence of the acquired leases; |
|
|
|
the fair value of above and below-market in-place leases based on the present value
(using a discount rate that reflects the risks associated with the acquired leases) of the
difference between the contractual rent amounts to be paid under the assumed lease and the
estimated market lease rates for the corresponding spaces over the remaining non-cancelable
terms of the related leases, which range from one to fifteen years; and |
|
|
|
the fair value of intangible tenant or customer relationships. |
The Companys determination of these fair values requires it to estimate market rents for each
of the leases and make certain other assumptions. These estimates and assumptions affect the rental
revenue, and depreciation and amortization expense recognized for these leases and associated
intangible assets and liabilities.
(i) Investment in Affiliates
The Company may continue to grow its portfolio by entering into ownership arrangements with
third parties for which it does not have a controlling interest. The structure of the arrangement
affects the Companys accounting treatment as the Company adheres to requirements regarding
consolidation of variable interest entities (VIE). In determining whether to consolidate an
entity, the Company assesses the structure and intent of the entity relationship as well its power
to direct major decisions regarding the entitys operations and whether the Companys portion of
the earnings, distributions and liability for obligations are in accordance with the Companys
ownership percentage. When the Companys investment in an entity meets the requirements for the
equity method of accounting, it will record its initial investment in its consolidated balance
sheets as Investment in affiliates. The initial investment in the entity is adjusted to recognize
the Companys share of earnings, losses, distributions received or additional contributions from
the entity. The Companys respective share of all earnings or losses from the entity will be
recorded in its consolidated statements of operations as Equity in earnings or losses of
affiliates.
When the Company is deemed to have a controlling interest in a partially-owned entity, it will
consolidate all of the entitys assets, liabilities and operating results within its consolidated
financial statements. The cash contributed to the consolidated entity by the third party, if any,
will be reflected in the permanent equity section of the Companys consolidated balance sheets to
the extent they are not mandatorily redeemable. The amount will be recorded based on the third
partys initial investment in the consolidated entity and will be adjusted to reflect the third
partys share of earnings or losses in the consolidated entity and for any distributions received
or additional contributions made by the third party. The earnings or losses from the entity
attributable to the third party are recorded as a component of net loss (income) attributable to
non-controlling interests.
(j) Sales of Real Estate
The Company accounts for sales of real estate in accordance with the requirements for full
profit recognition, which occurs when the sale is consummated, the buyer has made adequate initial
and continuing investments in the property, the Companys receivable is not subject to future
subordination, and the seller does not have a substantial continuing involvement with the property,
the related assets and liabilities are removed from the balance sheet and the resultant gain or
loss is recorded in the period the sale is consummated. For sales transactions that do not meet the
criteria for full profit recognition, the Company accounts for the transactions as partial sales or
financing arrangements required by GAAP. For sales transactions with continuing involvement after
the sale, if the continuing involvement with the property is limited by the terms of the sales
contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss
related to the nature of the continuing involvement. Sales to entities in which the Company has or
receives an interest are accounted for as partial sales.
For sales transactions that do not meet sale criteria, the Company evaluates the nature of the
continuing involvement, including put and call provisions, if present, and accounts for the
transaction as a financing arrangement, profit-sharing arrangement, leasing arrangement or other
alternate method of accounting rather than as a sale, based on the nature and extent of the
continuing involvement. Some transactions may have numerous forms of continuing involvement. In
those cases, the Company determines which method is most appropriate based on the substance of the
transaction.
88
If the Company has an obligation to repurchase the property at a higher price or at a future
indeterminable value (such as fair value), or it guarantees the return of the buyers investment or
a return on that investment for an extended period, the Company accounts for such transaction as a
financing transaction. If the Company has an option to repurchase the property at a higher price
and it is likely it will exercise this option, the transaction is accounted for as a financing
transaction. For transactions treated as financings, the Company records the amounts received from
the buyer as a Financing Obligation and continues to consolidate the property and its operating
results in its consolidated statements of operations. The results of operations of the property are
allocated to the joint venture partner for their equity interest and reflected as interest
expense on the Financing Obligation.
(k) Intangible Assets
Intangible assets include the fair value of acquired tenant or customer relationships and the
fair value of in-place leases at acquisition. Customer relationship fair values are determined
based on the Companys evaluation of the specific characteristics of each tenants lease and its
overall relationship with the tenant. Characteristics the Company considers include the nature and
extent of its existing business relationships with the tenant, growth prospects for developing new
business with the tenant, the tenants credit quality and expectations of lease renewals. The fair
value of customer relationship intangible assets is amortized to expense over the lesser of the
initial lease term and any expected renewal periods or the remaining useful life of the building.
The Company determines the fair value of the in-place leases at acquisition by estimating the
leasing commissions avoided by having in-place tenants and the operating income that would have not
been recognized during the estimated time required to lease the space occupied by existing tenants
at the acquisition date. The fair value attributable to existing tenants is amortized to expense
over the initial term of the respective leases. Should a tenant terminate its lease, the
unamortized portion of the in-place lease fair value is charged to expense by the date of
termination.
Deferred market rent liability consists of the acquired leases with below-market rents at the
date of acquisition. The fair value attributed to deferred market rent assets, which consist of
above-market rents at the date of acquisition, is recorded as a component of deferred costs. Above
and below-market lease fair values are determined on a lease-by-lease basis based on the present
value (using a discounted rate that reflects the risks associated with the acquired leases) of the
difference between the contractual rent amounts to be paid under the lease and the estimated market
lease rates for the corresponding spaces over the remaining non-cancelable terms of the related
leases including any below-market fixed rate renewal periods. The capitalized below-market lease
fair values are amortized as an increase to rental revenue over the initial term and any
below-market fixed-rate renewal periods of the related leases. Capitalized above-market lease fair
values are amortized as a decrease to rental revenue over the initial term of the related leases.
In conjunction with the Companys initial public offering and related formation transactions,
First Potomac Management, Inc. contributed all of the capital interests in First Potomac Management
LLC. The $2.1 million fair value of the in-place workforce acquired has been classified as goodwill
and is included as a component of intangible assets on the consolidated balance sheets. In
accordance with accounting requirements regarding goodwill and other intangibles, all acquired
goodwill that relates to the operations of a reporting unit and is used in determining the fair
value of a reporting unit is allocated to the Companys appropriate reporting unit in a reasonable
and consistent manner. The Company assesses goodwill for impairment annually at the end of its
fiscal year and in interim periods if certain events occur indicating the carrying value may be
impaired. The Company performs its analysis for potential impairment of goodwill in accordance with
GAAP, which requires that a two-step impairment test be performed on goodwill. In the first step,
the fair value of the reporting unit is compared with its carrying value. If the fair value exceeds
its carrying value, goodwill is not impaired, and no further testing is required. If the carrying
value of the reporting unit exceeds its fair value, then a second step must be performed in order
to determine the implied fair value of the goodwill and compare it to the carrying value of the
goodwill. If the carrying value of goodwill exceeds its implied fair value, an impairment loss is
recorded equal to the difference. No goodwill impairment losses were recognized during the years
ended December 31, 2010, 2009 and 2008.
(l) Derivatives and Hedging
In the normal course of business, the Company is exposed to the effect of interest rate
changes. The Company may enter into derivative agreements to mitigate exposure to unexpected
changes in interest rates and may use interest rate protection or cap agreements to reduce the
impact of interest rate changes. The Company does not use derivatives for trading or speculative
purposes and intends to enter into derivative agreements only with counterparties that it believes
have a strong credit rating to mitigate the risk of counterparty default or insolvency.
89
The Company may designate a derivative as either a hedge of the cash flows from a debt
instrument or anticipated transaction (cash flow hedge) or a hedge of the fair value of a debt
instrument (fair value hedge). All derivatives are recognized as assets or liabilities at fair
value. For effective hedging relationships, the change in the fair value of the assets or
liabilities is recorded within equity (cash flow hedge) or through earnings (fair value hedge).
Ineffective portions of derivative transactions will result in changes in fair value recognized in
earnings. For a cash flow hedge, the Company records its proportionate share of unrealized gains or losses on its derivative instruments associated with its unconsolidated
joint ventures within equity and Investment in Affiliates. The Company incorporates credit
valuation adjustments to appropriately reflect both its own nonperformance risk and the respective
counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of
its derivative contracts for the effect of nonperformance risk, the Company has considered the
impact of netting any applicable credit enhancements, such as collateral postings, thresholds,
mutual inputs and guarantees.
(m) Income Taxes
The Company has elected to be taxed as a REIT. To maintain its status as a REIT, the Company
is required to distribute at least 90% of its ordinary taxable income annually to its shareholders
and meet other organizational and operational requirements. As a REIT, the Company will not be
subject to federal income tax and any non-deductible excise tax if it distributes at least 100% of
its REIT taxable income to its shareholders. If the Company fails to qualify as a REIT in any
taxable year, it will be subject to federal income tax on its taxable income at regular corporate
tax rates. The Company has certain subsidiaries, including a taxable REIT subsidiary (TRS) and an
entity that has elected be taxed as a REIT (which indirectly owns 500 First Street, NW) that may be
subject to federal, state or local taxes, as applicable. A designated REIT will not be subject to
federal income tax so long as it meets the REIT qualification requirements and distributes 100% of
its REIT taxable income to its shareholders. The Companys TRS was inactive in 2010, 2009 and 2008.
During 2010, certain of the Companys subsidiaries acquired properties located in Washington D.C.,
which are subject to local franchise taxes. During 2010, the Company recorded a provision for
income tax of $31 thousand related to franchise taxes levied by the city of Washington D.C. Since
the Company did not own any properties in Washington D.C. prior to 2010, it was not subject to any
franchise taxes in 2009 and 2008.
The Company accounts for deferred income taxes using the asset and liability method. Under
this method, deferred income taxes are recognized for temporary differences between the financial
reporting basis of assets and liabilities and their respective tax bases and for operating losses,
capital losses and tax credit carryovers based on tax rates to be effective when amounts are
realized or settled. The Company will recognize deferred tax assets only to the extent that it is
more likely than not that they will be realized based on available evidence, including future
reversals of existing temporary differences, future projected taxable income and tax planning
strategies. The Company may recognize a tax benefit
from an uncertain tax position when it is more-likely-than-not (defined as a
likelihood of more than 50%) that the position will be sustained upon
examination, including resolutions of any related appeals or litigation
processes, based on the technical merits. If a tax position does not meet the
more-likely-than-not recognition threshold, despite the Company’s belief
that its filing position is supportable, the benefit of that tax position is
not recognized in the statements of operations. The Company recognizes interest
and penalties, as applicable, related to unrecognized tax benefits as a
component of income tax expense. The Company recognizes unrecognized tax
benefits in the period that the uncertainty is eliminated by either affirmative
agreement of the uncertain tax position by the applicable taxing authority, or
by expiration of the applicable statute of limitation. For the years ended December 31, 2010, 2009 and 2008, the
Company did not record any uncertain tax positions.
For federal income tax purposes, dividends to shareholders may be characterized as ordinary
income, return of capital or capital gains. The characterization of the Companys dividends for
2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Ordinary income |
|
|
70.38 |
% |
|
|
100.00 |
% |
|
|
59.42 |
% |
Return of capital |
|
|
29.62 |
% |
|
|
|
|
|
|
|
|
Long-term capital gain |
|
|
|
|
|
|
|
|
|
|
40.58 |
% |
|
|
|
(n) |
|
Noncontrolling Interests in Operating Partnership |
Noncontrolling interests relate to the interests in the Operating Partnership not owned by the
Company. Interests in the Operating Partnership are owned by limited partners who contributed
buildings and other assets to the Operating Partnership in exchange for Operating Partnership
units. Limited partners have the right to tender their units for redemption in exchange for, at
the Companys option, common shares of the Company on a one-for-one basis or cash based on the fair
value of the Companys common shares at the date of redemption. Unitholders receive a distribution
per unit equivalent to the dividend per common share. Differences between amounts paid to redeem noncontrolling interests and their carrying values
are charged or credited to equity. As a result of the redemption feature of the Operating
Partnership units, the noncontrolling interests are recorded outside of permanent equity.
Noncontrolling interests are presented at the greater of their fair value or their cost basis,
which is comprised of their fair value at issuance, subsequently adjusted for the noncontrolling
interests share of net income, losses, distributions received or additional contributions. Based
on the closing share price of the Companys common stock at December 31, 2010, the cost to acquire,
through cash purchase or issuance of the Companys common shares, all of the outstanding Operating
Partnership units not owned by the Company would be approximately $16.1 million, which exceeded the
noncontrolling interests cost basis by $3.6 million. At December 31, 2009, the Company presented
its noncontrolling interests in the Operating Partnership at their cost basis, which exceeded their
fair value basis.
90
The Company owned 98.1%, 97.7% and 97.3% of the outstanding Operating Partnership units at
December 31, 2010, 2009 and 2008, respectively. The Companys percentage ownership in outstanding
Operating Partnership units increased in 2010 due to the Companys common stock issuances as for each share of common stock issued, the Company
issues an equivalent Operating Partnership unit. During 2010, 2009 and 2008, the Company issued
shares of its common stock of 18.3 million, 2.8 million and 2.9 million, respectively.
During 2010, the Company issued 230,876 Operating Partnership units fair valued at $3.5
million to partially fund the acquisition of Battlefield Corporate Center. There were also 4,519
Operating Partnership units redeemed for 4,519 common shares fair valued at $0.1 million and 329
Operating Partnership units were acquired, from unaffiliated limited partners, for $5 thousand in
cash resulting in 958,473 Operating Partnership units outstanding as of December 31, 2010. During
2009, 40,000 Operating Partnership units were redeemed for 40,000 common shares fair valued at $0.5
million and 267 Operating Partnership units were acquired, from unaffiliated limited partners, for
$3 thousand in cash resulting in 732,445 Operating Partnership units outstanding as of December 31,
2009. During 2008, 26,181 Operating Partnership units were redeemed for 26,181 common shares fair
valued at $0.4 million and 8,340 Operating Partnership units were acquired, from unaffiliated
limited partners, for $0.1 million in cash resulting in 772,712 Operating Partnership units
outstanding as of December 31, 2008.
On November 10, 2010, the Company acquired Redland Corporate Center II and III, in Rockville,
Maryland for $83.1 million in a joint venture with a third party. As part of the joint venture
agreement, the Company receives a preferred return as the result of its retirement, upon
acquisition, of the existing $71.3 million mortgage loan that encumbered the property. The
Companys interest in the joint venture consists of a $74.5 million preferred equity interest with
a preferred return of initially 8.5%, which will be reduced to 7.5% and then further to 6.5%, if
occupancy increases, with the balance representing a common equity interest in the joint venture.
As a result, the Company has a 97% economic interest in the joint venture and the third party has
the remaining 3% interest. Since the Company has a controlling interest in the joint venture, it
consolidates the joint ventures assets, liabilities and operating results within its financial
statements. The Company reflects its joint venture partners interest in the joint venture within
the permanent equity section of its consolidated balance sheets. As of December 31, 2010, the
Company recorded noncontrolling interests of $3.1 million, which reflects the third partys common
equity interest in Redland Corporate Center II and III.
(o) Earnings Per Share
Basic earnings (loss) per share (EPS) is calculated by dividing net (loss) income available
to common shareholders by the weighted average common shares outstanding for the period. Diluted
EPS is computed after adjusting the basic EPS computation for the effect of dilutive common
equivalent shares outstanding during the period. The effect of stock options, non-vested shares and
Exchangeable Senior Notes, if dilutive, is computed using the treasury stock method. The Company
applies the two-class method for determining EPS as its outstanding unvested shares with
non-forfeitable dividend rights are considered participating securities. The Companys excess of
distributions over earnings related to participating securities are shown as a reduction in total
earnings (loss) attributable to common shareholders in the Companys computation of EPS.
91
The following table sets forth the computation of the Companys basic and diluted earnings
(loss) per share (amounts in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Numerator for basic and diluted (loss) earnings per share
calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(11,504 |
) |
|
$ |
3,436 |
|
|
$ |
3,967 |
|
(Loss) income from discontinued operations |
|
|
(171 |
) |
|
|
620 |
|
|
|
16,174 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(11,675 |
) |
|
|
4,056 |
|
|
|
20,141 |
|
Less: Net loss (income) from continuing operations
attributable to noncontrolling interests |
|
|
227 |
|
|
|
(108 |
) |
|
|
(117 |
) |
Less: Net loss (income) from discontinued operations
attributable to noncontrolling interests |
|
|
5 |
|
|
|
(16 |
) |
|
|
(498 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders |
|
|
(11,443 |
) |
|
|
3,932 |
|
|
|
19,526 |
|
Less: Allocation to participating securities |
|
|
(596 |
) |
|
|
(516 |
) |
|
|
(419 |
) |
|
|
|
|
|
|
|
|
|
|
Total (loss) earnings attributable to common
shareholders |
|
$ |
(12,039 |
) |
|
$ |
3,416 |
|
|
$ |
19,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted (loss) earnings per
share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
36,984 |
|
|
|
27,956 |
|
|
|
24,838 |
|
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and non-vested shares |
|
|
|
|
|
|
89 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
36,984 |
|
|
|
28,045 |
|
|
|
24,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common shareholders per share
basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(0.32 |
) |
|
$ |
0.10 |
|
|
$ |
0.14 |
|
(Loss) income from discontinued operations |
|
|
(0.01 |
) |
|
|
0.02 |
|
|
|
0.63 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(0.33 |
) |
|
$ |
0.12 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
In accordance with accounting requirements regarding earnings per share, the Company did
not include the following potential common shares in its calculation of diluted earnings per share
as they would be anti-dilutive (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Stock option awards |
|
|
836 |
|
|
|
767 |
|
|
|
706 |
|
Non-vested share awards |
|
|
323 |
|
|
|
228 |
|
|
|
88 |
|
Conversion of Exchangeable Senior Notes(1) |
|
|
1,098 |
|
|
|
1,735 |
|
|
|
2,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,257 |
|
|
|
2,730 |
|
|
|
3,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2010, 2009 and 2008, each $1,000 principal amount of the
Exchangeable Senior Notes was convertible into 28.039 shares. |
|
(p) |
|
Share-Based Compensation |
The Company measures the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. For options awards, the Company uses a
Black-Scholes option-pricing model. Expected volatility is based on an assessment of the Companys
realized volatility over the preceding five years, which is equivalent to the awards expected life.
The expected term represents the period of time the options are anticipated to remain outstanding
as well as the Companys historical experience for groupings of employees that have similar
behavior and considered separately for valuation purposes. For non-vested share awards that vest
over a predetermined time period, the Company uses the outstanding share price at the date of
issuance to fair value the awards. For non-vested shares awards that vest based on performance
conditions, the Company uses a Monte Carlo simulation (risk-neutral approach) to determine the
value and derived service period of each tranche. The expense associated with the share based
awards will be recognized over the period during which an employee is required to provide services
in exchange for the award the requisite service period (usually the vesting period). The fair
value for all share-based payment transactions are recognized as a component of income from
continuing operations.
92
(q) Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
(r) Application of New Accounting Standards
In June 2009, new accounting requirements became effective, which amend previous guidance
regarding the consolidation of VIEs in the determination of whether a reporting entity is required
to consolidate another entity based on, among other things, the other entitys purpose and design
and the reporting entitys ability to direct the activities of the other entity that most
significantly impacts the other entitys economic performance. The new guidance require a company
to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the
entity (1) has the power to direct matters that most significantly impact the activities of the
VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Additionally, they require an ongoing
reconsideration of the primary beneficiary and provide a framework for the events that trigger a
reassessment of whether an entity is a VIE. These new requirements were effective for fiscal years
beginning after November 15, 2009. The Company adopted the new requirements on January 1, 2010.
The adoption of the new accounting requirements resulted in the deconsolidation of a joint venture
that owned RiversPark I from the Companys consolidated financial statements effective January 1,
2010. See footnote 5, Investment in Affiliates for further information. The adoption of this
standard did not have a material impact on the Companys operating results.
In January 2010, new accounting requirements became effective regarding fair-value
measurements. Companies are required to make additional disclosures about recurring or nonrecurring
fair value measurements and separately disclose any significant transfers into and out of
measurements in the fair-value hierarchy. These new requirements also involve disclosing fair value
measurements by class instead of major category and disclosing the valuation technique and the
inputs used in determining the fair value for each class of assets and liabilities. Disclosure
requirements regarding Level 1 and Level 2 fair-value measurements were effective for fiscal years
beginning after December 15, 2009, and new disclosure requirements for Level 3 fair-value
measurements were effective for fiscal years beginning after December 15, 2010. Early adoption was
permitted. The Company adopted the Level 1 and Level 2 accounting requirements on January 1, 2010
and adopted Level 3 accounting requirements on January 1, 2011. See footnote 10, Fair Value
Measurements for further information. The adoption of these accounting requirements did not have a
material impact on the Companys consolidated financial statements.
In February 2010, new accounting guidance was issued regarding subsequent events. This
guidance removes the requirement for a Securities and Exchange Commission (SEC) filer to disclose
the date through which subsequent events have been evaluated in both issued and revised financial
statements. This amendment alleviates potential conflicts between GAAP and SEC requirements. The
new guidance became effective immediately upon final issuance. The Companys adoption of this
standard did not have a material effect on its consolidated financial statements.
In July 2010, new accounting guidance regarding specific disclosures was issued that will be
required for the allowance for credit losses and all finance receivables. Finance receivables
include loans, lease receivables and other arrangements with a contractual right to receive money
on demand or on fixed or determinable dates that is recognized as an asset on an entitys statement
of financial position. The amendment requires companies to provide disaggregated levels of
disclosure by portfolio segment and class to enable users of the consolidated financial statements
to understand the nature of credit risk, how the risk is analyzed in determining the related
allowance for credit losses and changes to the allowance during the reporting period. The required
disclosures under this amendment as of the end of a reporting period are effective for the
Companys December 31, 2010 reporting period and disclosures regarding activities during a
reporting period are effective for the Companys March 31, 2011 interim reporting period. The
Companys adoption of this standard did not have a material effect on the Companys consolidated
financial statements.
93
(3) Rental Property
Rental property represents property, net of accumulated depreciation, and developable land
that are wholly or majority owned by the Company. All of the Companys rental properties are
located within the greater Washington, D.C. region. Rental property consists of the following at
December 31 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
315,229 |
|
|
$ |
237,385 |
|
Buildings and improvements |
|
|
930,077 |
|
|
|
795,901 |
|
Construction in process |
|
|
41,685 |
|
|
|
9,832 |
|
Tenant improvements |
|
|
92,002 |
|
|
|
75,940 |
|
Furniture, fixtures and equipment |
|
|
9,894 |
|
|
|
9,898 |
|
|
|
|
|
|
|
|
|
|
|
1,388,887 |
|
|
|
1,128,956 |
|
Less: accumulated depreciation |
|
|
(170,990 |
) |
|
|
(141,481 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,217,897 |
|
|
$ |
987,475 |
|
|
|
|
|
|
|
|
Depreciation of rental property is computed on a straight-line basis over the estimated useful
lives of the assets. The estimated lives of the Companys assets range from 5 to 39 years or to the
term of the underlying lease. The tax basis of the Companys real estate assets was $1,422 million
and $1,135 million at December 31, 2010 and 2009, respectively.
Development and Redevelopment Activity
The Company constructs office, business parks and/or industrial buildings on a build-to-suit
basis or with the intent to lease upon completion of construction. At December 31, 2010, the
Company had 0.1 million square feet under development, which consisted of 57 thousand square feet
in its Northern Virginia reporting segment and 48 thousand square feet in its Southern Virginia
reporting segment. At December 31, 2010, the Company had 0.3 million square feet under
redevelopment, which consisted of 12 thousand square feet in its Maryland reporting segment, 279
thousand square feet in its Northern Virginia reporting segment and 39 thousand square feet in its
Southern Virginia reporting segment. The Company anticipates the majority of the development and
redevelopment efforts on these projects will be completed in 2011.
During 2010, the Company completed and placed in-service redevelopment efforts on 98 thousand
square feet of space, which includes 30 thousand square feet in its Maryland reporting segment, 37
thousand square feet in its Northern Virginia reporting segment and 31 thousand square feet in its
Southern Virginia reporting segment. No development efforts were placed in-service in 2010.
During 2009, the Company completed and placed in-service development and redevelopment efforts
on 151 thousand square feet of space, which includes 16 thousand square feet in its Maryland
reporting segment, 127 thousand square feet in its Northern Virginia reporting segment and 8
thousand square feet in its Southern Virginia reporting segment.
At December 31, 2010, the Company owned developable land that can accommodate approximately
1.7 million square feet of additional building space, which includes 0.1 million square feet in its
Maryland reporting segment, 0.6 million square feet in its Northern Virginia reporting segment and
1.0 million square feet in its Southern Virginia reporting segment.
94
(4) Acquisitions
The Company acquired all or a controlling interest in the following properties, which are
included in its consolidated financial statements from the date of acquisition, in 2010 and 2009
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased |
|
|
Occupied |
|
|
Aggregate |
|
|
|
|
|
|
|
Acquisition |
|
|
Property |
|
|
|
|
|
at |
|
|
at |
|
|
Purchase |
|
|
|
Location |
|
Date |
|
|
Type |
|
Square Feet |
|
|
12/31/10 |
|
|
12/31/10 |
|
|
Price |
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Flint Hill |
|
Oakton, VA |
|
|
4/28/2010 |
|
|
Office |
|
|
173,762 |
|
|
|
0 |
%(1) |
|
|
0 |
%(1) |
|
$ |
13,653 |
|
500 First Street, NW |
|
Washington, DC |
|
|
6/30/2010 |
|
|
Office |
|
|
129,035 |
|
|
|
100 |
% |
|
|
100 |
% |
|
|
67,838 |
|
Battlefield Corporate Center |
|
Chesapeake, VA |
|
|
10/28/2010 |
|
|
Office park |
|
|
96,720 |
|
|
|
100 |
% |
|
|
100 |
% |
|
|
8,310 |
(2) |
Redland Corporate Center |
|
Rockville, MD |
|
|
11/10/2010 |
|
|
Office |
|
|
347,462 |
|
|
|
44 |
% |
|
|
40 |
% |
|
|
86,358 |
(3) |
Atlantic Corporate Park |
|
Sterling, VA |
|
|
11/19/2010 |
|
|
Office |
|
|
220,610 |
|
|
|
4 |
%(4) |
|
|
0 |
%(4) |
|
|
22,550 |
|
1211 Connecticut Ave, NW |
|
Washington, DC |
|
|
12/9/2010 |
|
|
Office |
|
|
125,119 |
|
|
|
100 |
% |
|
|
100 |
% |
|
|
49,500 |
|
440 First Street, NW |
|
Washington, DC |
|
|
12/28/2010 |
|
|
Office |
|
|
105,000 |
|
|
|
0 |
%(5) |
|
|
0 |
%(5) |
|
|
15,311 |
(5) |
7458 Candlewood Road |
|
Hanover, MD |
|
|
12/29/2010 |
|
|
Industrial |
|
|
295,673 |
|
|
|
99 |
% |
|
|
92 |
% |
|
|
22,641 |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,493,381 |
|
|
|
|
|
|
|
|
|
|
$ |
286,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cloverleaf Center |
|
Germantown, MD |
|
|
10/08/2009 |
|
|
Office park |
|
|
|
173,655 |
|
|
|
100 |
% |
|
|
100 |
% |
|
$ |
25,310 |
(7) |
Ashburn Center |
|
Ashburn, VA |
|
|
12/31/2009 |
|
|
Business park |
|
|
|
194,183 |
|
|
|
100 |
% |
|
|
76 |
% |
|
|
14,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367,838 |
|
|
|
|
|
|
|
|
|
|
$ |
39,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The property was vacant at acquisition. The Company began redevelopment efforts and
plans to fully renovate the building. |
|
(2) |
|
The Company issued a new $4.3 million mortgage loan to partial fund the acquisition
of the property. |
|
(3) |
|
The property was acquired through a consolidated joint venture in which the Company
has a 97% economic interest. |
|
(4) |
|
The property was vacant at acquisition. |
|
(5) |
|
The property was vacant at acquisition. The Company intends to complete
redevelopment of the property and may add an additional 13,000 square feet. On January 11,
2011, the Company purchased the fee interest in the propertys ground lease for $8.0 million
of available cash. Also, on February 24, 2011, the Company acquired transferable development
rights for 30 thousand square feet for approximately $0.3 million. |
|
(6) |
|
The Company assumed two mortgage loans totaling $14.7 million to partially fund the
acquisition. |
|
(7) |
|
The Company issued a new $17.5 million mortgage to partially fund the acquisition. |
The Company incurred $7.2 million and $1.1 million of acquisition-related due diligence
and closing costs during 2010 and 2009, respectively.
As part of the consideration for Ashburn Center, the Company recorded contingent consideration
arising from a fee agreement entered into with the seller in which the Company will be obligated to
pay additional consideration if certain returns are achieved over the five year term of the
agreement or if the property is sold within the term of the five year agreement. As of December 31,
2010, the Company had leased the entire property, but it had not achieved the specified returns
identified in the agreement to be obligated to pay the seller. As a result, the Company recognized
$0.7 million through its statement of operations to reflect the fair value of this obligation based
on leasing activity. At December 31, 2010, the Company had accrued $1.4 million of contingent
consideration, which it expects to pay the seller in 2011, upon achieving the specified returns.
The fair value of the contingent consideration was determined based on several probability weighted
discounted cash flow scenarios that projected stabilization being achieved at certain timeframes.
The fair value was based on significant inputs, some of which are not observable in the market,
thus representing a Level 3 measurement in accordance with the fair value hierarchy. The Company
has classified the contingent consideration as a liability and any changes in its fair value in
subsequent reporting periods will be charged to earnings. For more information on the assumptions
used by the Company in determining fair value, see footnote 12, Fair Value Measurements for more
information.
95
The fair values of the acquired assets and liabilities in 2010 and 2009 are as follows
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
87,786 |
|
|
$ |
9,779 |
|
Acquired tenant improvements |
|
|
9,858 |
|
|
|
3,285 |
|
Building and improvements |
|
|
151,190 |
|
|
|
20,382 |
|
Construction in progress |
|
|
15,311 |
|
|
|
|
|
In-place leases |
|
|
15,736 |
|
|
|
5,578 |
|
Acquired leasing commissions |
|
|
4,386 |
|
|
|
798 |
|
Customer relationships |
|
|
651 |
|
|
|
|
|
Above-market leases acquired |
|
|
712 |
|
|
|
420 |
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
285,630 |
|
|
|
40,242 |
|
Below-market leases acquired |
|
|
(1,855 |
) |
|
|
(244 |
) |
Debt assumed |
|
|
(14,699 |
) |
|
|
|
|
Acquisition related contingent consideration |
|
|
|
|
|
|
(688 |
) |
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
269,076 |
|
|
$ |
39,310 |
|
|
|
|
|
|
|
|
The fair values for the 2010 acquired assets and liabilities are preliminary as the Company
continues to assess its initial fair value determination of its acquired assets and liabilities.
During the fourth quarter of 2010, the Company adjusted its initial land valuation of its 500 First
Street property, which was acquired in June 2010, and is located in the Companys Northern Virginia
reporting segment, resulting in a $7.4 million increase in land with a corresponding reduction in
building and improvements.
On
December 29, 2010, the Company acquired 7458 Candlewood Road, which is located in the
Companys Maryland reporting segment, for $22.6 million. On January 6, 2011, the Company was
notified that the largest tenant at the property filed for Chapter 11 bankruptcy protection. As a
result, the Company recorded an impairment charge of $2.4 million associated with the
non-recoverable value of the intangible assets associated with the tenants lease.
The weighted
average amortization period of the Companys consolidated intangible assets
acquired is 6.7 years in 2010, compared with 6.2 years in 2009. The intangible assets
acquired in
2010 are comprised of the following categories with their respective weighted average
amortization periods: in-place leases 6.7 years; acquired
leasing commissions 7.2 years; customer
relationships 5.6 years; above market leases 5.8 years; and below market leases 8.3 years.
Pro Forma Financial Information
The unaudited pro forma financial information set forth below presents results as of December
31 as if all of the Companys 2010 and 2009 acquisitions, and related financings, had occurred on
January 1, 2009. The pro forma information is not necessarily indicative of the results that
actually would have occurred nor does it intend to indicate future operating results (amounts in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Pro forma total revenues |
|
$ |
154,242 |
|
|
$ |
156,607 |
|
Pro forma net loss |
|
$ |
(3,883 |
) |
|
$ |
(7,295 |
) |
Pro forma net loss per share basic and diluted |
|
$ |
(0.08 |
) |
|
$ |
(0.15 |
) |
96
(5) Investment in Affiliates
The Company owns properties through joint ventures in which it does not own a controlling
interest. As a result, the assets, liabilities and operating results of these non-controlled
properties are not consolidated within the Companys consolidated financial statements. The
Companys investment in these properties is recorded as Investment in affiliates in its
consolidated balance sheets. The Companys investments in affiliates consisted of the following at
December 31 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
Ownership |
|
|
Company |
|
|
|
|
|
|
|
|
|
Interest |
|
|
Investment |
|
|
Debt |
|
|
Recourse Debt |
|
1750 H Street, NW |
|
|
50 |
% |
|
$ |
16,830 |
|
|
$ |
31,287 |
|
|
$ |
|
|
Aviation Business Park |
|
|
50 |
% |
|
|
4,190 |
|
|
|
|
|
|
|
|
|
RiversPark I and II |
|
|
25 |
% |
|
|
2,701 |
|
|
|
28,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,721 |
|
|
$ |
59,287 |
|
|
$ |
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
Ownership |
|
|
Company |
|
|
|
|
|
|
|
|
|
Interest |
|
|
Investment |
|
|
Debt |
|
|
Recourse Debt |
|
RiversPark II |
|
|
25 |
% |
|
$ |
1,819 |
|
|
$ |
18,144 |
|
|
$ |
4,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 28, 2010, the Company acquired 1750 H Street, NW, in Washington, D.C. for
$65.0 million in an unconsolidated joint venture with AEW Capital Management, L.P., which it has a
50% interest. The property is a ten-story, 111,000 square foot Class A office building in
Washington, D.C., located approximately three blocks from the White House. The property is 100%
leased to six tenants, including 47,000 square feet that was leased back to the seller at closing.
The acquisition was funded, in part, through the assumption of a $31.4 million mortgage loan. The
balance of the purchase price was funded 50% by the Company using a draw on its unsecured revolving
credit facility and available cash and 50% by AEW Capital Management, L.P.
During the third quarter of 2010, the Company used available cash to acquire a $10.6 million
first mortgage loan collateralized by Aviation Business Park for $8.0 million. Aviation Business
Park is a three-building, single-story, office park totaling 121,000 square feet in Glen Burnie,
Maryland. On December 29, 2010, the Company entered into an unconsolidated joint venture with AEW
Capital Management, L.P., which it has a 50% interest, and took title to the property through a
deed-in-lieu of foreclosure in return for additional consideration to the owner if certain future
leasing hurdles are met. The joint venture recognized the acquisition date fair value of $126
thousand in contingent consideration related to the expected payments due to meeting certain
leasing hurdles under the terms of a fee agreement with the former owner. As of December 31, 2010,
the Company remains liable, in the event of default by the joint venture, for contingent
consideration of $63 thousand, or 50% of the total, which reflects its ownership percentage.
On December 12, 2008, the Company entered into separate joint venture arrangements to own a
25% interest in both RiversPark I and II, with a third party owning the remaining 75% interests.
As a condition of the joint venture arrangements, the Company provided guarantees to the joint
venture for four separate lease agreements entered into by the former owner for certain vacancy at
RiversPark I and rental payments in the event a specified tenant did not renew its lease at
RiversPark II.
On March 17, 2009, the Company deconsolidated RiversPark II, as the specified tenant renewed
its lease, which effectively terminated the Companys lease guarantee related to RiversPark II. As
of January 1, 2010, three of the four lease agreement guarantees had been terminated at RiversPark
I as a result of entering into third-party leases. In accordance with the adoption of new
accounting standards, the Company determined that deconsolidating the joint venture that owns
RiversPark I, on January 1, 2010, was appropriate based on its lack of control over major decisions
through its ownership interest in the joint venture and, with the exception of the minimal
remaining lease guarantee, it does not have any exposure to risks in excess of its stated ownership
percentage. There was no significant gain or loss recognized upon the deconsolidation of RiversPark
I or RiversPark II.
97
The net assets of the Companys unconsolidated joint ventures consisted of the following at
December 31(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Assets: |
|
|
|
|
|
|
|
|
Rental property, net |
|
$ |
104,559 |
|
|
$ |
25,037 |
|
Cash and cash equivalents |
|
|
1,706 |
|
|
|
357 |
|
Other assets |
|
|
11,442 |
|
|
|
1,879 |
|
|
|
|
|
|
|
|
Total assets |
|
|
117,707 |
|
|
|
27,273 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Mortgage loans |
|
|
59,914 |
|
|
|
18,144 |
|
Other liabilities |
|
|
4,316 |
|
|
|
1,443 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
64,230 |
|
|
|
19,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets |
|
$ |
53,477 |
|
|
$ |
7,686 |
|
|
|
|
|
|
|
|
The following table summarizes the results of operations of the Companys unconsolidated joint
ventures. The Companys share of earnings or losses related to its unconsolidated joint ventures is
recorded in its consolidated statements of operations as Equity in Losses of Affiliates (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The period from |
|
|
|
|
|
|
|
March 17, 2009 |
|
|
|
Year Ended |
|
|
through |
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
5,923 |
|
|
$ |
2,121 |
|
Total operating expenses |
|
|
(1,547 |
) |
|
|
(458 |
) |
|
|
|
|
|
|
|
Net operating income |
|
|
4,376 |
|
|
|
1,663 |
|
Depreciation and amortization |
|
|
(2,695 |
) |
|
|
(1,087 |
) |
Interest expense, net |
|
|
(2,160 |
) |
|
|
(955 |
) |
Income tax expense |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(503 |
) |
|
$ |
(379 |
) |
|
|
|
|
|
|
|
(6) Note Receivable
On December 21, 2010, the Company provided a $25.0 million subordinated loan to the owners of
950 F Street, NW, a ten-story, 287,000 square-foot, Class-A office/retail building located in
Washington, D.C. The building is currently 94% leased to nine tenants and subject to a $149.7
million mortgage loan. The Companys loan is secured by a portion of the owners interest in the
property. The loan has a fixed interest rate of 12.5%, matures on April 1, 2017 and is repayable in
full on or after December 21, 2013. The transaction was funded by a draw on the Companys unsecured
revolving credit facility. The loan is recorded, net of $0.3 million of issuance costs, as Note
receivable, net in the Companys consolidated balance sheets. The Company recorded interest income
of $0.1 million during 2010, and payments under the loan were current at December 31, 2010. The
Company records the interest received from the note receivable in Interest and other income and
the amortization of the issuance costs in Interest expense. In determining the collectability of
the note receivable, the Company takes into consideration the financial stability of the owners,
the operations of 950 F Street and other economic conditions that could impact collectability.
98
(7) Intangible Assets
Intangible assets and deferred market rent liabilities consisted of the following at December
31 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
|
Intangibles |
|
|
Amortization |
|
|
Intangibles |
|
|
Intangibles |
|
|
Amortization |
|
|
Intangibles |
|
In-place leases |
|
$ |
53,974 |
|
|
$ |
(29,548 |
) |
|
$ |
24,426 |
|
|
$ |
42,097 |
|
|
$ |
(27,706 |
) |
|
$ |
14,391 |
|
Customer relationships |
|
|
884 |
|
|
|
(248 |
) |
|
|
636 |
|
|
|
235 |
|
|
|
(184 |
) |
|
|
51 |
|
Leasing commissions |
|
|
7,906 |
|
|
|
(2,039 |
) |
|
|
5,867 |
|
|
|
3,887 |
|
|
|
(1,562 |
) |
|
|
2,325 |
|
Deferred market rent asset |
|
|
2,525 |
|
|
|
(1,003 |
) |
|
|
1,522 |
|
|
|
3,059 |
|
|
|
(1,823 |
) |
|
|
1,236 |
|
Goodwill |
|
|
2,100 |
|
|
|
|
|
|
|
2,100 |
|
|
|
2,100 |
|
|
|
|
|
|
|
2,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,389 |
|
|
$ |
(32,838 |
) |
|
$ |
34,551 |
|
|
$ |
51,378 |
|
|
$ |
(31,275 |
) |
|
$ |
20,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred market rent
liability |
|
$ |
11,822 |
|
|
$ |
(5,790 |
) |
|
$ |
6,032 |
|
|
$ |
13,973 |
|
|
$ |
(7,965 |
) |
|
$ |
6,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized $5.5 million, $5.2 million and $7.5 million of amortization expense on
intangible assets for the years ended December 31, 2010, 2009 and 2008, respectively. The Company
also recognized $1.4 million, $1.6 million and $1.7 million of rental revenue through the net
amortization of deferred market rent assets and deferred market rent liabilities for the years
ended December 31, 2010, 2009 and 2008, respectively. Losses due to termination of tenant leases
and defaults, which resulted in the write-offs of intangible assets, were $0.2 million, $0.2
million and $1.4 million during 2010, 2009 and 2008, respectively.
Projected amortization of intangible assets, including deferred market rent assets and
liabilities, as of December 31, 2010, for each of the five succeeding fiscal years is as follows
(amounts in thousands):
|
|
|
|
|
2011 |
|
$ |
6,075 |
|
2012 |
|
|
4,893 |
|
2013 |
|
|
4,008 |
|
2014 |
|
|
3,323 |
|
2015 |
|
|
2,746 |
|
Thereafter |
|
|
5,374 |
|
|
|
|
|
|
|
$ |
26,419 |
|
|
|
|
|
(8) Income Taxes
The Company has
elected to be taxed as a REIT. To maintain its status as a REIT, the Company is
required to distribute at least 90% of its ordinary taxable income annually to
its shareholders and meet other organizational and operational requirements. As
a REIT, the Company will not be subject to federal income tax and any
non-deductible excise tax if it distributes at least 100% of its REIT taxable
income to its shareholders. If the Company fails to qualify as a REIT in any
taxable year, it will be subject to federal income tax on its taxable income at
regular corporate tax rates.
The Company has
certain subsidiaries, including a TRS and an entity that has elected be taxed
as a REIT (which indirectly owns 500 First Street, NW) that may be subject to
federal, state or local taxes, as applicable. The REIT will not be subject to
federal income tax so long as it meets the REIT qualification requirements and
distributes 100% of its REIT taxable income to its shareholders. The
Company’s TRS was inactive in 2010, 2009 and 2008. During 2010, certain
of the Company’s subsidiaries acquired properties located in Washington
D.C., which are subject to local franchise taxes. During 2010, the Company
recorded a provision for income tax of $31 thousand related to franchise taxes
levied by the city of Washington D.C. at an effective rate of 9.975%. Since the
Company did not own any properties in Washington D.C. prior to 2010, it was not
subject to any franchise taxes in 2009 or 2008.
The Company recognizes
deferred tax assets only to the extent that it is more likely than not that
deferred tax assets will be realized based on consideration of available
evidence, including future reversals of existing taxable temporary differences,
future projected taxable income and tax planning strategies. The
Company’s deferred tax assets and liabilities are primarily associated
with differences in its GAAP and tax basis of its real estate assets arising
from acquisition costs, intangible assets and deferred market rent assets and
liabilities that are associated with properties located in Washington D.C. and
recorded in its consolidated balance sheets. The Company recorded its deferred
tax assets within “Prepaid expenses and other assets” and recorded
its deferred tax liabilities within “Accounts payable and other
liabilities” in the Company’s consolidated balance sheets, both of which were inconsequential as of December 31, 2010.
The Company has not
recorded a valuation allowance against its deferred tax assets as it expects
that future operations will generate sufficient taxable income to realize the
deferred tax assets. The Company has not recognized any deferred tax assets or
liabilities as a result of uncertain tax positions and has no net operating
loss, capital loss or alternative minimum tax carryovers. There was no
(benefit) provision for income taxes associated with the Company’s
discontinued operations for any period presented.
As the Company
believes it both qualifies as a REIT and will not be subject to federal income
tax, a reconciliation between the income tax provision calculated at the
statutory federal income tax rate and the actual income tax provision has not
been provided.
99
(9) Discontinued Operations
Net (loss) income from discontinued operations represents the operating results and all costs
associated with Deer Park and 7561 Lindbergh Drive, formerly in the Companys Maryland reporting
segment and Alexandria Corporate Park, formerly in the Companys Northern Virginia reporting
segment.
In June 2010, the Company sold 7561 Lindbergh Drive, for net proceeds of $3.9 million. The
Company reported a gain on the sale of $0.6 million.
In April 2010, the Company sold Deer Park for net proceeds of $7.5 million. The property was
acquired as part of a portfolio acquisition in 2004 and was located in a non-core submarket of
Baltimore, Maryland. During the first quarter of 2010, the Company recorded a $0.6 million
impairment charge based on the contractual sale price and did not recognize a gain on the sale.
In June 2008, the Company sold Alexandria Corporate Park for net proceeds of $50.6 million.
The property was among several properties that served as collateral on a $100 million fixed-rate
mortgage loan issued by Jackson National Life Insurance Company. In June 2008, the Company removed
Alexandria Corporate Park from the loans collateral base and replaced it with two properties,
Northridge I & II and 15395 John Marshall Highway. The Company incurred approximately $0.2 million
of deferred financing costs associated with the transaction. Since the debt remained encumbered to
properties that are wholly-owned by the Company, interest expense was not reclassified to
discontinued operations.
The Company has had, and will have, no continuing involvement with 7561 Lindbergh Drive, Deer
Park or Alexandria Corporate Park subsequent to their disposal. The Company did not dispose of or
enter into any binding agreements to sell any other properties during 2010, 2009 and 2008.
100
The following table summarizes the components of net (loss) income from discontinued
operations for the years ended December 31 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
$ |
274 |
|
|
$ |
1,729 |
|
|
$ |
4,364 |
|
Property operating expenses |
|
|
(774 |
) |
|
|
(887 |
) |
|
|
(1,240 |
) |
Depreciation and amortization |
|
|
(231 |
) |
|
|
(230 |
) |
|
|
(918 |
) |
Interest expense, net of interest income |
|
|
3 |
|
|
|
8 |
|
|
|
(306 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations of disposed properties |
|
|
(728 |
) |
|
|
620 |
|
|
|
1,900 |
|
Gain on sale of real estate properties |
|
|
557 |
|
|
|
|
|
|
|
14,274 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations |
|
$ |
(171 |
) |
|
$ |
620 |
|
|
$ |
16,174 |
|
|
|
|
|
|
|
|
|
|
|
(10) Debt
The Companys borrowings consisted of the following at December 31 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Mortgage loans, effective interest rates ranging from 4.26% to 7.28%, maturing at various dates
through June 2021 |
|
$ |
319,096 |
|
|
$ |
301,463 |
|
Exchangeable senior notes, net of discounts, effective interest rate of 5.84%, maturing December
2011(1) |
|
|
29,936 |
|
|
|
48,718 |
|
Series A senior notes, effective interest rate of 6.41%, maturing June 2013 |
|
|
37,500 |
|
|
|
37,500 |
|
Series B senior notes, effective interest rate of 6.55%, maturing June 2016 |
|
|
37,500 |
|
|
|
37,500 |
|
Secured term loan, effective interest rate of LIBOR plus 2.50%, maturing January 2014(2) |
|
|
40,000 |
|
|
|
40,000 |
|
Secured term loan, effective interest rate of LIBOR plus 2.50%, maturing August 2011 |
|
|
20,000 |
|
|
|
20,000 |
|
Secured term loan, effective interest rate of LIBOR plus 3.50%, maturing May 2011(3) |
|
|
50,000 |
|
|
|
|
|
Unsecured revolving credit facility, effective interest rate of LIBOR plus 3.00%, maturing January
2014(4) |
|
|
191,000 |
|
|
|
159,900 |
|
|
|
|
|
|
|
|
|
|
$ |
725,032 |
|
|
$ |
645,081 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The principal balance of the Exchangeable Senior Notes was $30.4
million and $50.5 million at December 31, 2010 and 2009, respectively.
|
|
(3) |
|
The loan is divided into four $10 million loans, with their maturities
staggered in one-year intervals beginning January 15, 2011 and ending on January 15, 2014.
The Company repaid $10 million of the outstanding loan balance in January 2011. Interest on
the loan is LIBOR plus 250 basis points, which increases by 100 basis points each year
beginning on January 1, 2011, to a maximum of 550 basis points. |
|
(3) |
|
In February 2011, the Company extended the maturity date of the loan to
May 2011. |
|
(4) |
|
The unsecured revolving credit facility matures in January 2013 with a
one-year extension at the Companys option, which it intends to exercise. |
101
(a) Mortgage Loans
The following table provides a summary of the Companys mortgage debt at December 31, 2010 and
2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
Interest |
|
|
Maturity |
|
|
December 31, |
|
|
December 31, |
|
Encumbered Property |
|
Interest Rate |
|
|
Rate |
|
|
Date |
|
2010 |
|
|
2009 |
|
4212 Tech Court(1) |
|
|
8.53 |
% |
|
|
8.53 |
% |
|
|
|
|
$ |
|
|
|
$ |
1,665 |
|
Park Central II(2) |
|
|
8.32 |
% |
|
|
5.66 |
% |
|
|
|
|
|
|
|
|
|
5,591 |
|
Enterprise Center (3) |
|
|
8.03 |
% |
|
|
5.20 |
% |
|
|
|
|
|
|
|
|
|
17,393 |
|
Indian Creek Court (4) |
|
|
7.80 |
% |
|
|
5.90 |
% |
|
January 2011 |
|
|
11,982 |
|
|
|
12,413 |
|
403/405 Glenn Drive |
|
|
7.60 |
% |
|
|
5.50 |
% |
|
July 2011 |
|
|
7,960 |
|
|
|
8,252 |
|
4612 Navistar Drive (5) |
|
|
7.48 |
% |
|
|
5.20 |
% |
|
July 2011 |
|
|
12,189 |
|
|
|
12,672 |
|
RiversPark I (6) |
|
LIBOR+2.50% |
|
|
5.97 |
% |
|
September 2011 |
|
|
|
|
|
|
9,856 |
|
Campus at Metro Park (5) |
|
|
7.11 |
% |
|
|
5.25 |
% |
|
February 2012 |
|
|
22,556 |
|
|
|
23,376 |
|
1434 Crossways Blvd Building II |
|
|
7.05 |
% |
|
|
5.38 |
% |
|
August 2012 |
|
|
9,484 |
|
|
|
9,852 |
|
Crossways Commerce Center |
|
|
6.70 |
% |
|
|
6.70 |
% |
|
October 2012 |
|
|
24,179 |
|
|
|
24,607 |
|
Newington Business Park Center |
|
|
6.70 |
% |
|
|
6.70 |
% |
|
October 2012 |
|
|
15,252 |
|
|
|
15,522 |
|
Prosperity Business Center |
|
|
6.25 |
% |
|
|
5.75 |
% |
|
January 2013 |
|
|
3,502 |
|
|
|
3,627 |
|
Aquia Commerce Center I |
|
|
7.28 |
% |
|
|
7.28 |
% |
|
February 2013 |
|
|
353 |
|
|
|
486 |
|
1434 Crossways Blvd Building I |
|
|
6.25 |
% |
|
|
5.38 |
% |
|
March 2013 |
|
|
8,225 |
|
|
|
8,493 |
|
Linden Business Center |
|
|
6.01 |
% |
|
|
5.58 |
% |
|
October 2013 |
|
|
7,080 |
|
|
|
7,224 |
|
Owings Mills Business Center |
|
|
5.85 |
% |
|
|
5.75 |
% |
|
March 2014 |
|
|
5,448 |
|
|
|
5,552 |
|
Annapolis Commerce Park East |
|
|
5.74 |
% |
|
|
6.25 |
% |
|
June 2014 |
|
|
8,491 |
|
|
|
8,613 |
|
Cloverleaf Center |
|
|
6.75 |
% |
|
|
6.75 |
% |
|
October 2014 |
|
|
17,204 |
|
|
|
17,490 |
|
Plaza 500, Van Buren Business
Park, Rumsey Center, Snowden
Center, Greenbrier Technology
Center II, Norfolk Business
Center, Northridge I & II and
15395 John Marshall Highway |
|
|
5.19 |
% |
|
|
5.19 |
% |
|
August 2015 |
|
|
99,151 |
|
|
|
99,625 |
|
Hanover Business Center: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building D |
|
|
8.88 |
% |
|
|
6.63 |
% |
|
August 2015 |
|
|
642 |
|
|
|
756 |
|
Building C |
|
|
7.88 |
% |
|
|
6.63 |
% |
|
December 2017 |
|
|
1,041 |
|
|
|
1,154 |
|
Chesterfield Business Center: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings C,D,G and H |
|
|
8.50 |
% |
|
|
6.63 |
% |
|
August 2015 |
|
|
1,681 |
|
|
|
1,972 |
|
Buildings A,B,E and F |
|
|
7.45 |
% |
|
|
6.63 |
% |
|
June 2021 |
|
|
2,398 |
|
|
|
2,540 |
|
7458 Candlewood Road Note 1 |
|
|
6.57 |
% |
|
|
6.30 |
% |
|
January 2016 |
|
|
9,938 |
|
|
|
|
|
7458 Candlewood Road Note 2 |
|
|
4.67 |
% |
|
|
6.04 |
% |
|
January 2016 |
|
|
4,761 |
|
|
|
|
|
Gateway Centre, Building I |
|
|
7.35 |
% |
|
|
5.88 |
% |
|
November 2016 |
|
|
1,189 |
|
|
|
1,340 |
|
500 First Street, NW |
|
|
5.72 |
% |
|
|
5.79 |
% |
|
July 2020 |
|
|
38,793 |
|
|
|
|
|
Battlefield Corporate Center |
|
|
4.26 |
% |
|
|
4.40 |
% |
|
November 2020 |
|
|
4,289 |
|
|
|
|
|
Airpark Business Center |
|
|
7.45 |
% |
|
|
6.63 |
% |
|
June 2021 |
|
|
1,308 |
|
|
|
1,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Debt |
|
|
|
|
|
|
5.71 |
%(7) |
|
|
|
|
|
$ |
319,096 |
|
|
$ |
301,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The loan was repaid in June 2010. |
|
(2) |
|
The loan was repaid in November 2010. |
|
(3) |
|
The loan was repaid in December 2010. |
|
(4) |
|
The loan was repaid in January 2011. |
|
(5) |
|
The maturity date presented for these loans represents the anticipated
repayment date of the loans, after which date the interest rates on the loans will increase to
a predetermined amount identified in the debt agreement. The effective interest rate was
calculated based on the anticipated period the debt is expected to be outstanding. |
|
(6) |
|
On January 1, 2010, the Company deconsolidated RiversPark I and,
therefore, the assets and liabilities, which include $9.9 million of mortgage debt, and the
operating results of RiversPark I, are no longer included in the Companys consolidated
financial statements. For more information see footnote 5, Investment in Affiliates. |
|
(7) |
|
Weighted average interest rate on total mortgage debt. |
On December 29, 2010, the Company acquired 7458 Candlewood Road, which is located in the
Companys Maryland reporting segment, for $22.6 million. The acquisition was funded through the
assumption of two mortgage loans totaling $14.7 million and a draw on the Companys unsecured
revolving credit facility. The mortgage loans consist of two notes; the first note of $9.9 million
has a fixed contractual interest rate of 6.57% and the second note of $4.8 million has a fixed
contractual interest rate of 4.67%. Both notes mature in January 2016.
On October 28, 2010, the Company acquired Battlefield Corporate Center in Chesapeake, Virginia
for $8.0 million. The acquisition was funded with a new $4.3 million mortgage loan, the issuance of
230,876 Operating Partnership units and available cash. The mortgage loan has a fixed contractual
interest rate of 4.26% and matures in November 2020.
On June 30, 2010, the Company acquired 500 First Street, NW in Washington, D.C., for $67.8
million. The acquisition was funded with a new $39.0 million mortgage loan, a $26.3 million draw on
the Companys unsecured revolving credit facility and available cash. The mortgage loan has a fixed
contractual interest rate of 5.72% and matures in July 2020.
102
On October 8, 2009, the Company acquired Cloverleaf Center, which was funded with a $17.5
million mortgage loan and available cash that was funded with proceeds from shares issued through
the Companys controlled equity offering agreement. The mortgage loan has a fixed interest rate of
6.75% and matures in October 2014, with two one-year extension options. The Company has the right
to exercise the extension options, which provide for a fixed interest rate to be calculated at the
beginning of each extension period and not to be lower than 6.50%.
The Company has repaid the following mortgages since January 1, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
|
|
Month |
|
Year |
|
|
Property |
|
Interest Rate |
|
|
Amount |
|
January |
|
|
2011 |
|
|
Indian Creek Court |
|
|
5.90 |
% |
|
$ |
11,982 |
|
December |
|
|
2010 |
|
|
Enterprise Center |
|
|
5.20 |
% |
|
|
16,712 |
|
November |
|
|
2010 |
|
|
Park Central II |
|
|
5.66 |
% |
|
|
5,305 |
|
June |
|
|
2010 |
|
|
4212 Tech Court |
|
|
8.53 |
% |
|
|
1,654 |
|
November |
|
|
2009 |
|
|
Park Central I |
|
|
5.66 |
% |
|
|
4,540 |
|
October |
|
|
2009 |
|
|
4200 Tech Court |
|
|
8.07 |
% |
|
|
1,706 |
|
May |
|
|
2009 |
|
|
Glen Dale Business Center |
|
|
5.13 |
% |
|
|
8,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On September 26, 2008, the Company entered into a $28.0 million mortgage loan with U.S. Bank
N.A. to fund part of its RiversPark I and II acquisition. Borrowings on the loan bear interest at a
rate of LIBOR plus 250 basis points. On September 29, 2008, the Company entered into an interest
rate swap agreement that fixed the underlying interest rate on the loan at 5.97% for its initial
three-year term. On December 12, 2008, the Company contributed RiversPark I and II and its related
mortgage debt to separate consolidated joint ventures, which are both owned 25% by the Company and
75% by an outside affiliate. On March 17, 2009 and January 1, 2010, the Company deconsolidated
RiversPark II and RiversPark I, respectively, therefore, the assets, liabilities and operating
results of RiversPark II were no longer considered on the Companys consolidated financial
statements at the date of deconsolidation.
The Companys mortgage debt is recourse solely to specific assets. The Company had 30 and 31
consolidated properties that secured mortgage debt at December 31, 2010 and 2009, respectively.
Non-Financial Covenants in Mortgage Loan Documents
Certain of the Companys subsidiaries are borrowers on mortgage loans, the terms of which
prohibit certain direct or indirect transfers of ownership interests in the borrower subsidiary (a
Prohibited Transfer). Under the terms of the mortgage loan documents, a lender could assert that
a Prohibited Transfer includes the trading of the Companys common shares on the NYSE, the issuance
of common shares by the Company, or the issuance of units of limited partnership interest in the
Companys operating partnership. As of December 31, 2010, the Company believes that there were
eleven mortgage loans with such Prohibited Transfer provisions, representing an aggregate principal
amount outstanding of approximately $112 million. Two of these mortgage loans were entered into
prior to the Companys initial public offering (IPO) in 2003 and nine were assumed subsequent to
its IPO. In January 2011, the Company repaid, with available cash, a $12.0 million mortgage with a
Prohibited Transfer provision that was assumed subsequent to its IPO. In addition, in January 2011,
the Company agreed to a modification of a $22.1 million mortgage loan to expressly permit such
trading and issuances. In each instance, the Company received the consent of the mortgage lender to
consummate its IPO (for the two pre-IPO loans) or to acquire the property or the ownership
interests of the borrower (for the post-IPO loans), including the assumption by its subsidiary of
the mortgage loan. Generally, the underlying mortgage documents, previously applicable to a
privately held owner, were not changed at the time of the IPO or the later loan assumptions,
although the Company believes that each of the lenders or servicers was aware that the borrowers
ultimate parent was or would become a publicly traded company. Subsequent to the IPO and the
assumption of these additional mortgage loans, the Company has issued new common shares and shares
of the Company have been transferred on the New York Stock Exchange. Similarly, the Companys
operating partnership has issued units of limited partnership interest. To date, no lender or
servicer has asserted that a Prohibited Transfer has occurred as a result of any such transfer of
shares or units of limited partnership interest. If a lender were to be successful in any such
action, the Company could be required to immediately repay or refinance the amounts outstanding, or
the lender may be able to foreclose on the property securing the loan or take other adverse
actions. In addition, in certain cases a Prohibited Transfer could result in the loan becoming
fully recourse to the Company or its Operating Partnership. In addition, if a violation of a
Prohibited Transfer provision were to occur that would permit the Companys mortgage lenders to
accelerate the indebtedness owed to them, it could result in an event of default under the
Companys Senior Unsecured Series A and Series B Notes, its unsecured revolving credit facility,
its two Secured Term Loans and its Exchangeable Senior Notes.
103
(b) Exchangeable Senior Notes
On December 11, 2006, the Company issued $125.0 million of 4.0% Exchangeable Senior Notes for
net proceeds of approximately $122.2 million. The Exchangeable Senior Notes mature on December 15,
2011 and are equal in right of payment with all of the Companys other senior unsubordinated
indebtedness. Interest is payable on June 15 and December 15 of each year beginning on June 15,
2007. Holders may, under certain conditions, exchange their notes for cash or a combination of cash
and the Companys common shares, at the Companys option, at any time after October 15, 2011. The
Exchangeable Senior Notes are exchangeable into the Companys common shares, which are adjusted
for, among other things, the payment of dividends to the Companys common shareholders subject to a
maximum exchange rate. At December 31, 2010, each $1,000 principal amount of the Exchangeable
Senior Notes was convertible into 28.039 shares for a total of approximately 0.9 million shares,
which is equivalent to an exchange rate of $35.66 per Company common share. Holders may exchange
their notes prior to maturity under certain conditions, including during any calendar quarter
beginning after December 31, 2006 (and only during such calendar quarter), if and only if, the
closing sale price of the Companys common shares for at least 20 trading days in the period of 30
trading days ending on the last trading day of the preceding quarter is greater than 130% of the
exchange price on the applicable trading day. The Exchangeable Senior Notes have been registered under the
Securities Act. The notes are senior unsecured obligations of the Operating Partnership and
guaranteed by the Company. As of December 31, 2010, the Company was in compliance with all of the
financial covenants of its Exchangeable Senior Notes.
The Company used $7.6 million of the proceeds to purchase a capped call option. The capped
call option is designed to reduce the potential dilution of common shares upon the exchange of the
notes and protects the Company against any dilutive effects of the conversion feature if the market
price of the Companys common shares is between $36.12 and $42.14 per share. This option allows the
Company to receive shares of the Companys common stock from a counterparty equal to the amount of
common stock and/or cash related to the excess conversion value that the Company would pay the
holders of the Exchangeable Senior Notes upon conversion. The option will terminate upon the
earlier of the maturity date of the notes or the first day in which the notes are no longer
outstanding due to repurchase, conversion or otherwise. The option was recorded as a reduction of
equity. To the extent the then fair value per Company common share exceeds the cap price during the
observation period relating to an exchange of notes, the reduction in potential dilution will be
limited to the difference between the strike price and the cap price.
During 2010, the Company issued 880,648 common shares in exchange for retiring $13.03 million
of its Exchangeable Senior Notes and used $6.9 million of available cash to retire $7.02 million of
its Exchangeable Senior Notes. The retirement of Exchangeable Senior Notes in 2010 resulted in a
gain of $0.2 million, net of the accelerated amortization of deferred financing costs and
discounts.
During 2009, the Company retired $34.5 million of its Exchangeable Senior Notes at a discount,
which resulted in a gain of $6.3 million, net of deferred financing costs and discounts. As of
December 31, 2010, the Company used $66.3 million in cash and $12.4 million of the Companys common
shares to repurchase $94.6 million of its Exchangeable Senior Notes. The capped call option
associated with all the repurchased notes was effectively terminated on the notes repurchase date.
The balances of the Companys Exchangeable Senior Notes were as follows at December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Principal amount |
|
$ |
30,450 |
|
|
$ |
50,500 |
|
Unamortized discount |
|
|
(514 |
) |
|
|
(1,782 |
) |
|
|
|
|
|
|
|
|
|
$ |
29,936 |
|
|
$ |
48,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component |
|
$ |
8,696 |
|
|
$ |
8,696 |
|
|
|
|
|
|
|
|
The allocation of the equity component resulted in an effective interest rate of 5.84% on the
notes. Total interest expense related to the Companys Exchangeable Senior Notes is as follows for
the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Contractual cash interest |
|
$ |
1,609 |
|
|
$ |
2,484 |
|
|
$ |
4,018 |
|
Amortization of the discount on the
liability component |
|
|
540 |
|
|
|
866 |
|
|
|
1,385 |
|
Amortization of the issuance discount |
|
|
175 |
|
|
|
280 |
|
|
|
448 |
|
104
(c) Senior Notes
On June 22, 2006, the Operating Partnership completed a private placement of unsecured Senior
Notes totaling $75.0 million. The transaction was comprised of $37.5 million in 7-year Series A
Senior Notes, maturing on June 15, 2013 and bearing a fixed interest rate of 6.41%, and $37.5
million in 10-year Series B Senior Notes, maturing on June 15, 2016 and bearing a fixed interest rate of 6.55%. Interest is payable for the Series A and Series B
Senior Notes on June 15 and December 15 of each year beginning December 15, 2006. The Senior Notes
are equal in right of payment with all the Operating Partnerships other senior unsubordinated
indebtedness. As of December 31, 2010, the weighted average interest rate on the Senior Notes was
6.48%.
On November 8, 2010, the Company, the Operating Partnership, certain of the Companys
subsidiaries and certain holders of the Companys Series A and Series B Senior Notes sufficient to
effect the Amendment (as herein defined) (the Noteholders) entered into a First Amendment,
Consent and Waiver dated as of November 5, 2010 to the Note Purchase Agreement dated as of June 22,
2006 (the Amendment). Pursuant to the Amendment, the Company added certain subsidiaries as
guarantors of the Companys Series A and Series B Senior Notes and agreed that, to the extent the
Company or any of its subsidiaries (other than certain excluded subsidiaries) provides a lien for
the benefit of the lenders or administrative agent under the Companys unsecured revolving credit
facility, the Company or its subsidiaries, as applicable, will grant the holders of the Companys
Series A and Series B Senior Notes a similar first priority lien over the same assets, property and
undertaking as those encumbered in respect of the unsecured revolving credit facility. In
addition, the Company agreed to add a covenant to the terms of the Companys Series A and Series B
Senior Notes that as of the end of any fiscal quarter, (a) for the fourth quarter of 2010 through
the third quarter of 2011, its Consolidated Debt Yield (as defined in the revolving credit
agreement) will not be less than 10.5%, and (b) for each quarter thereafter, its Consolidated Debt
Yield will not be less than 11.0%. The Company also agreed to add a covenant to the terms of the
Companys Senior Unsecured Series A and Series B Notes that, as of the end of any fiscal quarter
after giving effect to the Amendment, its ratio of (i) Adjusted Net Operating Income (as defined in
the unsecured revolving credit facility) for the applicable quarter, annualized, divided by (ii)
its Unsecured Interest Expense (as defined in the revolving credit facility) for the applicable
quarter, annualized, shall not be less than 1.75 to 1.0. The covenants mirror already existing
covenants contained in the Companys unsecured revolving credit agreement. In exchange for these
modifications, the Noteholders agreed to waive the Companys previous failure to provide certain
subsidiary guarantees. The Company agreed to pay a waiver and consent fee to the holders of the
Companys Series A and Series B Senior Notes in an aggregate amount equal to $37,500. As of
December 31, 2010, the Company was in compliance with all the financial covenants of its Senior
Notes.
(d) Secured Term Loans
On November 10, 2010, the Company entered into a $50.0 million senior secured term loan with
Key Bank, N.A., which originally matured in February 2011. During 2011, the Companys exercised a
three month extension, which extended the loans maturity date until May 2011. The loan has an
interest rate of LIBOR plus 350 basis points. The proceeds from the loan were used to partially
finance the acquisition of Redland Corporate Center.
On December 29, 2009, the Company refinanced a $50.0 million secured term loan, issued in
August 2007, which resulted in the repayment of $10.0 million of the principal balance and the
restructuring of the remaining balance. The remaining balance was divided into four $10 million
loans, with their maturities staggered in one-year intervals beginning January 15, 2011 and ending
on January 15, 2014. On January 14, 2011, the Company repaid the first $10.0 million loan with
available cash. At December 31, 2010, the loan bears interest at LIBOR plus 250 basis points, which
increased by 100 basis points on January 1, 2011 and will increase by 100 basis points every year,
to a maximum of 550 basis points. Interest on the loan is payable on a monthly basis.
On December 29, 2009, the Company repaid $30.0 million of the $50.0 outstanding balance of a
secured term loan, which was issued in August 2008, with borrowings on its unsecured revolving
credit facility. The repayment did not impact the terms of the secured term loan. During 2010, the
Company exercised a one-year extension option on the remaining $20 million secured term loan. The
loan will mature in August 2011.
The Companys secured term loans contain several restrictive covenants, which in the event of
non-compliance may cause the outstanding balance of the loan to become immediately payable. As of
December 31, 2010, the Company was in compliance with all the financial covenants of its secured
term loans.
105
(e) Unsecured Revolving Credit Facility
On December 29, 2009, the Company replaced its $125.0 million unsecured revolving credit
facility with a new $175.0 million facility. In the second quarter of 2010, the Company expanded
the unsecured revolving credit facility to $225.0 million with the addition of two new lenders and
eliminated the 1% LIBOR floor associated with the facilitys applicable interest rate. The
unsecured revolving credit facility matures in January 2013 with a one-year extension at the
Companys option, which it intends to exercise. The variable interest rate on the unsecured
revolving credit facility is LIBOR plus a spread of 275 to 375 basis points, depending on the Companys overall leverage. At December 31, 2010, the
applicable spread was 300 basis points and LIBOR was 0.26%. The unsecured revolving credit facility
requires a minimum EBITDA to total debt requirement of 10.0%, which increased to 10.5% on December
31, 2010 and will increase to 11.0% on December 31, 2011.
The weighted average borrowings outstanding on the unsecured revolving credit facility were
$123.4 million with a weighted average interest rate of 3.5% during 2010, compared with $95.2
million and 1.6%, respectively, during 2009. The Companys maximum outstanding borrowings were
$202.0 million and $159.9 million during 2010 and 2009, respectively. At December 31, 2010,
outstanding borrowings under the unsecured revolving credit facility were $191.0 million with a
weighted average interest rate of 3.3%. The Company is required to pay an annual commitment fee of
0.25% based on the amount of unused capacity under the unsecured revolving credit facility. As of
December 31, 2010, the available capacity on the unsecured revolving credit facility was $33.9
million. As of December 31, 2010, the Company was in compliance with all the financial covenants of
the unsecured revolving credit facility. In January 2011, the Company repaid $105.0 million of the
outstanding balance of its unsecured revolving credit facility with proceeds from the issuance of
its Series A Cumulative Redeemable Perpetual Preferred Shares (the Series A Preferred Shares).
(f) Interest Rate Swap Agreements
In July 2010, the Company entered into an interest rate swap agreement that, beginning on
January 18, 2011, fixed LIBOR at 1.474% on $50.0 million of the Companys variable rate debt. The
interest rate swap will mature on January 15, 2014.
During September 2008, the Company entered into a swap agreement that fixed the $28.0 million
variable rate mortgage encumbering RiversPark I and II at 5.97%. The mortgage has a contractual
interest rate of LIBOR plus 2.50%. On March 17, 2009 and January 1, 2010, the Company
deconsolidated the joint ventures that own RiversPark II and RiversPark I, respectively. As a
result, the $28.0 million mortgage loan and related interest rate swap for RiversPark I and II are
no longer consolidated in the Companys consolidated financial statements.
During January 2008 and August 2008, the Company entered into a two swap agreements that fixed
LIBOR at 2.71% on $50.0 million of its outstanding variable rate debt and at 3.33% on $35.0 million
of its outstanding variable rate debt, respectively. Both swap agreements matured in August 2010.
Aggregate Debt Maturities
The Companys aggregate debt maturities as of December 31, 2010 are as follows (amounts in
thousands):
|
|
|
|
|
2011(1) |
|
$ |
149,348 |
|
2012 |
|
|
87,552 |
|
2013 |
|
|
66,198 |
|
2014(2) |
|
|
234,324 |
|
2015 |
|
|
108,451 |
|
Thereafter |
|
|
79,673 |
|
|
|
|
|
|
|
|
725,546 |
|
Discount on Exchangeable Senior Notes |
|
|
(514 |
) |
|
|
|
|
|
|
$ |
725,032 |
|
|
|
|
|
|
|
|
(1) |
|
In January 2011, the Company repaid the $12.0 million mortgage loan
encumbering Indian Creek Court and repaid a $10.0 million principal payment on one of the
secured term loans. |
|
(2) |
|
The Companys unsecured revolving credit facility matures in January 2013 and
provides for a one-year extension of the maturity date at the Companys option, which it
intends to exercise. The table above assumes the Company exercises the one-year extension. |
106
(11) Derivative Instruments and Comprehensive (Loss) Income
The Company is exposed to certain risks arising from business operations and economic factors.
The Company uses derivative financial instruments to manage exposures that arise from business
activities in which its future exposure to interest rate fluctuations is unknown. The objective in
the use of an interest rate derivative is to add stability to interest expenses and manage exposure
to interest rate changes. No hedging activity can completely insulate the Company from the risks
associated with changes in interest rates. Moreover, interest rate hedging could fail to protect
the Company or adversely affect it because, among other things:
|
|
|
available interest rate hedging may not correspond directly with the interest rate risk
for which the Company seeks protection; |
|
|
|
the duration of the hedge may not match the duration of the related liability; |
|
|
|
the party owing money in the hedging transaction may default on its obligation to pay;
and |
|
|
|
the credit quality of the party owing money on the hedge may be downgraded to such an
extent that it impairs the Companys ability to sell or assign its side of the hedging
transaction. |
The Company enters into interest rate swap agreements to hedge its exposure on its variable
rate debt against fluctuations in prevailing interest rates. The interest rate swap agreements fix
LIBOR to a specified interest rate, however, the swap agreements do not affect the contractual
spreads associated with each variable debt instruments applicable interest rate. During the third
quarter of 2010, the Company entered into a forward swap agreement that began on January 18, 2011.
The Company had two interest rate swap agreements, which were entered into during 2008 and matured
in August 2010. The table below summarizes the Companys interest rate swap agreements as of
December 31, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
Fixed Effective |
|
|
|
Transaction Date |
|
|
Maturity Date |
|
|
Amount |
|
|
Component |
|
|
Interest Rate |
|
Consolidated: |
|
July 2010 |
|
January 2014 |
|
|
$ |
50,000 |
|
|
LIBOR |
|
|
1.474 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated: |
|
September 2008 |
|
September 2011 |
|
|
28,000 |
(1) |
|
LIBOR |
|
|
3.47 |
% |
|
|
|
(1) |
|
The Company remains liable, in the event of default by the joint venture, for
$7.0 million, or 25% of the total, which reflects its ownership percentage in the joint
venture. |
The Companys interest rate swap agreements are designated as effective cash flow hedges
and the Company records any unrealized gains associated with the change in fair value of the swap
agreements within equity and Prepaid expenses and other assets and any unrealized losses within
shareholders equity and Accounts payable and other liabilities. The Company records its
proportionate share of unrealized gains or losses on its cash flow hedges associated with its
unconsolidated joint ventures within equity and Investment in affiliates.
Total comprehensive (loss) income is summarized as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income |
|
$ |
(11,675 |
) |
|
$ |
4,056 |
|
|
$ |
20,141 |
|
Unrealized gain (loss) on derivative instruments |
|
|
1,067 |
|
|
|
1,314 |
|
|
|
(3,931 |
) |
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income |
|
|
(10,608 |
) |
|
|
5,370 |
|
|
|
16,210 |
|
Comprehensive loss (income) attributable to
noncontrolling interests |
|
|
209 |
|
|
|
(156 |
) |
|
|
(507 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income attributable to
common shareholders |
|
$ |
(10,399 |
) |
|
$ |
5,214 |
|
|
$ |
15,703 |
|
|
|
|
|
|
|
|
|
|
|
(12) Fair Value Measurements
The Company adopted accounting provisions that outline a valuation framework and create a fair
value hierarchy, which distinguishes between assumptions based on market data (observable inputs)
and a reporting entitys own assumptions about market data (unobservable inputs). The new
disclosures increase the consistency and comparability of fair value measurements and the related
disclosures. Fair value is identified, under the standard, as the price that would be received to
sell an asset or paid to transfer a liability between willing third parties at the measurement date
(an exit price). In accordance with GAAP, certain assets and liabilities must be measured at fair
value, and the Company provides the necessary disclosures that are required for items measured at
fair value as outlined in the accounting requirements regarding fair value.
107
The Company has a contingent consideration obligation associated with the 2009 acquisition of
Ashburn Center, which was based on several probability weighted discounted cash flow scenarios that
projected stabilization being achieved at certain timeframes. The more significant inputs
associated with the fair value determination of the contingent consideration include estimates of
cap rates, discount rates, debt financing and various assumptions regarding revenue, expense and
capital expenditures based on our expectations regarding the propertys operating performance and
profitability.
Financial assets and liabilities, as well as those non-financial assets and liabilities
requiring fair value measurement, are measured using inputs from three levels of the fair value
hierarchy.
The three levels are as follows:
Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date. An active market is
defined as a market in which transactions for the assets or liabilities occur with sufficient
frequency and volume to provide pricing information on an ongoing basis.
Level 2 Inputs include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active
(markets with few transactions), inputs other than quoted prices that are observable for the asset
or liability (i.e., interest rates, yield curves, etc.), and inputs derived principally from or
corroborated by observable market data correlation or other means (market corroborated inputs).
Level 3 Unobservable inputs, only used to the extent that observable inputs are not
available, reflect the Companys assumptions about the pricing of an asset or liability.
In accordance with accounting provisions and the fair value hierarchy described above, the
following table shows the fair value of the Companys consolidated assets and liabilities that are
measured on a non-recurring and recurring basis as of December 31, 2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Non-recurring Measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired real estate and intangible assets |
|
$ |
10,950 |
|
|
$ |
|
|
|
$ |
10,950 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instrument-swap agreement |
|
|
396 |
|
|
|
|
|
|
|
396 |
|
|
|
|
|
Contingent consideration related to
acquisition of property |
|
|
1,398 |
|
|
|
|
|
|
|
|
|
|
|
1,398 |
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Non-recurring Measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired real estate asset |
|
$ |
8,175 |
|
|
$ |
|
|
|
$ |
8,175 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instrument-swap agreements |
|
|
1,741 |
|
|
|
|
|
|
|
1,741 |
|
|
|
|
|
Contingent consideration related to
acquisition of property |
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
688 |
|
108
Impairment of Real Estate and Intangible Assets
The Company regularly reviews market conditions for possible impairment of a propertys
carrying value. When circumstances such as adverse market conditions, changes in managements
intended holding period or potential sale to a third party indicate a possible impairment of the
fair value of a property, an impairment analysis is performed.
On December 29, 2010, the Company acquired 7458 Candlewood Road, which is located in the
Companys Maryland reporting segment. On January 6, 2011, the Company was notified that the largest
tenant at the property, which currently leases approximately 217,400 square feet (or approximately
74% of the gross leasable area of the building) under a lease that represents approximately $1.5
million of annualized base rent in 2011, filed for Chapter 11 bankruptcy protection. As a result,
the Company recorded an impairment charge of $2.4 million to reflect the fair value of the
intangible asset associated with the tenants lease, which was determined to have no value. The
non-recoverable value of the intangible assets was based on, among other items, an analysis of
current market rates, the present value of future cash flows that were discounted using
capitalization rates, lease renewal probabilities, hypothetical leasing timeframes, historical
leasing commissions, expected value of tenant improvements and recently executed leases.
In September 2010, the Company, based on its desire to divest itself of a non-core asset,
adjusted its anticipated holding period for its Old Courthouse Square property, which is located in the Companys Maryland
reporting segment. The Company entered into a non-binding contract to sell the asset in October
2010. As a result, the Company recorded a $3.4 million impairment charge to reduce the propertys
carrying value to reflect its fair value, less any potential selling costs. The property was sold
on February 18, 2011 for net proceeds of $10.8 million. At December 31, 2010, the property did not
meet the Companys guidelines to classify it as held-for-sale as the contract was non-binding and
various financing contingencies had not been satisfied. Therefore, its operations were not
classified as discontinued operations. The Company determined the fair value of the property
through an assessment of market data in working with a real estate broker on the transaction and
based on the execution of a non-binding letter of intent. The fair value was further validated
through an income approach based on discounted cash flows that reflected a reduced holding period.
During the fourth quarter of 2009, the Company recorded an impairment loss of $2.5 million on
a property located in the Baltimore submarket of the Companys Maryland reporting segment. The
propertys fair value was determined based on the negotiated contract price with a prospective
buyer, and the Company anticipates disposing of this property during 2010. The Company did not
record any additional impairment of real estate assets during 2009 and 2008.
Interest Rate Derivatives
In July 2010, the Company entered into an interest rate swap agreement that beginning on
January 18, 2011, fixed LIBOR at 1.474% on $50.0 million of the Companys variable rate debt. The
interest rate swap derivative will mature on January 15, 2014. The derivative is fair valued based
on the prevailing market yield curve on the measurement date. Also, the Company evaluates
counter-party risk in calculating the fair value of the interest rate swap derivative instrument.
The Companys interest rate swap derivative is an effective cash flow hedge and any change in fair
value is recorded in the Companys equity section under Accumulated Other Comprehensive Loss.
During January 2008, the Company entered into a swap agreement that fixed LIBOR at 2.71% on
$50.0 million of its outstanding variable rate debt. During August 2008, the Company entered into a
separate swap agreement that fixed LIBOR at 3.33% on $35.0 million of its outstanding variable rate
debt. The swap agreements, which both matured in August 2010. During September 2008, the Company
entered into a swap agreement that fixed the $9.9 million variable rate mortgage that encumbers
RiversPark I at 5.97%. The Company deconsolidated all the assets and liabilities, including the
swap agreement, associated with RiversPark I on January 1, 2010.
The Company uses a third party to assist with the valuation of its interest rate swap
agreements. The third party takes a daily snapshot of the market to obtain close of business
rates. The snapshot includes over 7,500 rates including LIBOR fixings, Eurodollar futures, swap
rates, exchange rates, treasuries, etc. This market data is obtained via direct feeds from
Bloomberg and Reuters and from Inter-Dealer Brokers. The selected rates are compared to their
historical values. Any rate that has changed by more than normal mean and related standard
deviation would be considered an outlier and flagged for further investigation. The rates are than
compiled through a valuation process that generates daily valuations, which are used to value the
Companys interest rate swap agreements.
Contingent Consideration
As part of the acquisition price of Ashburn Center, the Company entered into a fee
agreement with the seller under which the Company will be obligated to pay additional consideration
upon the property achieving stabilization per specified terms of the agreement. The Company
determines the fair value of the obligation through an income approach based on discounted cash
flows that project stabilization being achieved within a certain timeframe. The more significant
inputs associated with the fair value determination of the contingent consideration include
estimates of capitalization rates, discount rates and various assumptions regarding the propertys
operating performance and profitability. During the first quarter of 2010, the Company fully
leased the property, which resulted in an increase in its potential obligation, and recorded a $0.7
million increase in its contingent consideration to reflect the increase in the Companys potential
obligation with a corresponding entry to Contingent Consideration Related to Acquisition of
Property in its consolidated statements of operations. There was no significant change in the fair
value of the contingent consideration during the remainder of 2010.
109
A summary of the Companys consolidated contingent consideration obligation as of December 31,
2010 is as follows (amounts in thousands):
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
688 |
|
Contingent consideration charge recognized in earnings |
|
|
710 |
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
1,398 |
|
|
|
|
|
With the exception of the re-measurement of its contingent consideration obligation, the
Company did not re-measure or complete any transactions involving non-financial assets or
non-financial liabilities that are measured on a recurring basis during the years ended December 31, 2010 and 2009. Also, no transfers into and out of fair
value measurements levels occurred during the years ended December 31, 2010 and 2009.
Financial Instruments
With the exception of the Companys $25.0 million note receivable, the carrying amounts of
cash equivalents, accounts and other receivables and accounts payable approximate their fair values
due to their short-term maturities. Since the Companys note receivable was issued on December 21,
2010 and negotiated at arms length. Due to the brief period of time from the origination of the
note and year end, the notes $25.0 million face amount approximates its fair value at December 31,
2010. The Companys management believes that the note was not issued with a premium or discount.
The Company calculates fair value of its debt instruments by discounting future contractual
principal and interest payments using prevailing market rates for securities with similar terms and
characteristics at the balance sheet date. The carrying amount and estimated fair value of the
Companys debt instruments at December 31 are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
Mortgage debt |
|
$ |
319,096 |
|
|
$ |
316,169 |
|
|
$ |
301,463 |
|
|
$ |
289,679 |
|
Exchangeable senior notes(1) |
|
|
29,936 |
|
|
|
30,412 |
|
|
|
48,718 |
|
|
|
48,164 |
|
Series A senior notes |
|
|
37,500 |
|
|
|
37,850 |
|
|
|
37,500 |
|
|
|
37,118 |
|
Series B senior notes |
|
|
37,500 |
|
|
|
37,251 |
|
|
|
37,500 |
|
|
|
36,146 |
|
Secured term loans |
|
|
110,000 |
|
|
|
109,976 |
|
|
|
60,000 |
|
|
|
54,390 |
|
Unsecured revolving credit facility |
|
|
191,000 |
|
|
|
191,073 |
|
|
|
159,900 |
|
|
|
143,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
725,032 |
|
|
$ |
722,731 |
|
|
$ |
645,081 |
|
|
$ |
609,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The face value of the notes were $30.4 million and $50.5 million at
December 31, 2010 and 2009, respectively. |
(13) Commitments and Contingencies
(a) Operating Leases
The Companys rental properties are subject to non-cancelable operating leases generating
future minimum contractual rental payments, which as of December 31, 2010 are as follows (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of square feet |
|
|
|
Future |
|
|
under leases |
|
|
|
minimum rents |
|
|
expiring |
|
2011 |
|
$ |
123,503 |
|
|
|
20 |
% |
2012 |
|
|
110.502 |
|
|
|
18 |
% |
2013 |
|
|
95,614 |
|
|
|
16 |
% |
2014 |
|
|
72,309 |
|
|
|
12 |
% |
2015 |
|
|
58,358 |
|
|
|
10 |
% |
Thereafter |
|
|
142,118 |
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
$ |
602,404 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
110
At December 31, 2010, the Companys consolidated portfolio was 82.3% occupied by 592 tenants.
Excluding the Companys fourth quarter 2010 acquisitions of Atlantic Corporate Park, which was
vacant at acquisition, and Redland Corporate Center II, which was 99% vacant at acquisition, the
Companys consolidated portfolio was 85.2% occupied at December 31, 2010. The Company does not
include square footage that is in development or redevelopment in its occupancy calculation.
The Company rents office space for its corporate office under a non-cancelable operating
lease, which it entered into upon relocating its corporate offices in 2005. The Company subleased
its former corporate office space to three tenants, including one related party (see footnote 14,
Related Party Transaction). The lease on the Companys former corporate office, along with the
three related sublease agreements, expired on December 31, 2010 and the Company was released from
all its obligations under the terms of the original lease on its former corporate office space.
Rent expense incurred under the terms of the corporate office leases, net of subleased
revenue, was $0.6 million for each of the years ended December 31, 2010, 2009 and 2008, respectively.
Future minimum rental payments under the corporate office lease, expiring in December 2012,
are summarized as follows (amounts in thousands):
|
|
|
|
|
|
|
Future |
|
|
|
minimum rent |
|
|
|
expense, net |
|
2011 |
|
$ |
619 |
|
2012 |
|
|
534 |
|
|
|
|
|
|
|
$ |
1,153 |
|
|
|
|
|
(b) Legal Proceedings
The Company is subject to legal proceedings and claims arising in the ordinary course of its
business. In the opinion of the Companys management and legal counsel, the amount of ultimate
liability with respect to these actions will not have a material effect on the results of
operations or financial position of the Company.
(c) Guarantees
On December 12, 2008, the Company entered into joint venture arrangements with a third party
to own RiversPark I and II. The Company guaranteed to the joint ventures the rental payments
associated with four lease agreements with the former owner for certain vacancy at RiversPark I.
Subsequently, three of the four leases were terminated for a total fee paid to the Company of $1.3
million, which was treated as an adjustment to the basis of the property. At December 31, 2010, the
maximum potential amount of future payments the Company could be required to make related to the
remaining lease guarantee is $0.1 million.
(d) Contingent Consideration
In 2009, the Company recognized the acquisition date fair value of $0.7 million in contingent
consideration related to Ashburn Center under the terms of a fee agreement with the former owner
(See footnote 4, Acquisitions, for further information). During the first quarter of 2010, the
Company leased the remaining vacant space at the property and recorded a contingent consideration
charge of $0.7 million, which reflects an increase in the anticipated fee to the seller. There was
no significant change in the fair value of the contingent consideration for the remainder of 2010.
As of December 31, 2010, the Companys total contingent consideration obligation to the former
owner of Ashburn Center was approximately $1.4 million.
The Company entered into an unconsolidated joint venture with AEW Capital Management, L.P. to
own a 50% interest in Aviation Business Park (see footnote 5, Investment in Affiliates). The joint
venture recognized the acquisition date fair value of $126 thousand in contingent consideration
related to Aviation Business Park under the terms of a fee agreement with the former owner. The
assets, liabilities and operating results of Aviation Business Park are not consolidated on the
Companys consolidated financial statements. As of December 31, 2010, the Company remains liable,
in the event of default by the joint venture, for approximately $63 thousand, or 50% of the total,
which reflects its ownership percentage.
111
(e) Capital Commitments
As of December 31, 2010, the Company had development and redevelopment contractual obligations
of $8.5 million outstanding, primarily related to construction activities at Three Flint Hill,
which is undergoing a complete renovation, and capital improvement obligations of $0.2 million
outstanding. Capital improvement obligations represent commitments for roof, asphalt, HVAC and
common area replacements contractually obligated as of December 31, 2010. Also, as of December 31,
2010, the Company had $10.7 million of tenant improvement obligations, primarily related to a
tenant at Indian Creek Court, which it expects to incur on its in-place leases. The Company had no
other material contractual obligations as of December 31, 2010.
The Company remains liable, for its proportionate ownership percentage, to fund any capital
shortfalls or commitments from properties owned through joint ventures.
The Company has various obligations to certain local municipalities associated with its
development projects that will require completion of specified site improvements, such as
sewer and road maintenance, grading and other general landscaping work. As of December 31, 2010,
the Company remained liable to the local municipalities for $3.6 million in the event that it
does not complete the specified work. The Company intends to complete the improvements in
satisfaction of these obligations.
(f) Deposits
As of December 31, 2010, the Company had $7.4 million in deposits outstanding related to the
potential acquisitions. These amounts are recorded in Prepaid expenses and other assets in the Companys
consolidated balance sheets. Of the $7.4 million of deposits outstanding at December 31, 2010, the
Company applied $1.3 million toward its first quarter 2011 portfolio acquisition of Cedar Hill I &
III and The Merrill Lynch Building.
(g) Insurance
The Company carries insurance coverage on its properties with policy specifications and
insured limits that it believes are adequate given the relative risk of loss, cost of the coverage
and standard industry practice. However, certain types of losses (such as from earthquakes and
floods) may be either uninsurable or not economically insurable. Further, certain of the properties
are located in areas that are subject to earthquake activity and floods. Should a property sustain
damage as a result of an earthquake or flood, the Company may incur losses due to insurance
deductibles, co-payments on insured losses or uninsured losses. Should an uninsured loss occur, the
Company could lose some or all of its capital investment, cash flow and anticipated profits related
to one or more properties.
(14) Related Party Transaction
In September 2005, the Company subleased a portion of its former corporate office space to
Donatelli Development, Inc. (formerly Donatelli & Klein), a privately held real estate investment
firm that develops multifamily properties, which is owned by a former member of the Companys Board
of Trustees. The rental rate under the sublease was representative of market rates on the date the
sublease was executed. The lease expired on December 31, 2010 and all rents due under the terms of
the sublease were paid in full as of December 31, 2010.
(15) Equity
On November 16, 2010, the Company issued 11.5 million common shares at a price of $15.50 per
share, which generated net proceeds of approximately $170.4 million, net of issuance costs. The
Company used the majority of the proceeds to pay down a portion of the outstanding balance on its
unsecured revolving credit facility, to fund the acquisition of Atlantic Corporate Park and for
other general corporate purposes. During the second quarter of 2010, the Company issued 880,648
common shares in exchange for $13.03 million of Exchangeable Senior Notes. During the first quarter
of 2010, the Company issued 6.3 million common shares at a price of $14.50 per share, which
generated net proceeds of $87.1 million, net of issuance costs. The Company used $82.9 million of
the proceeds to pay down a portion of the outstanding balance on its unsecured revolving credit
facility and the remainder for other general corporate purposes.
During 2010, the Company increased the amount of its common shares that could be issued
through its controlled equity offering program by 5 million common shares. In 2010, the Company
sold 0.5 million common shares through its controlled equity offering program at a weighted average
offering price of $15.46 per share, which generated net proceeds of approximately $7.3 million. The
Company used the proceeds and available cash totaling $8.0 million to purchase a $10.6 million loan
that encumbers Aviation Business Park. At December 31, 2010, the Company had 4.8 million common
shares available for issuance under its controlled equity offering program.
112
During 2009, the Company issued 2.8 million common shares through its controlled equity
offering program at a weighted average offering price of $11.00 per share, generating net proceeds
of approximately $29.5 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, to repay two outstanding mortgage loans, to fund the cash portion of the Cloverleaf
Center acquisition and for other general corporate purposes.
The Company declared dividends per share on its common stock of $0.80, $0.94 and $1.36 during
2010, 2009 and 2008, respectively. On January 25, 2011, the Company declared a dividend of $0.20
per common share. The dividend was paid on February 11, 2011 to common shareholders of record as of
February 4, 2011.
In January 2011, the Company issued 4.6 million 7.750% Series A Preferred Shares at a price of
$25.00 per share, which generated net proceeds of $111.3 million, net of issuance costs. Dividends
on the Series A Preferred Shares are cumulative from the date of original issuance and payable on a
quarterly basis beginning on February 15, 2011. The Company used the proceeds from the issuance of
its Series A Preferred Shares to pay down $105.0 million of the outstanding balance on its
unsecured revolving credit facility and for other general corporate purposes.
As a result of the redemption feature of the Operating Partnership units, the noncontrolling
interests are recorded outside of permanent equity. The Companys equity and redeemable
noncontrolling interests for the three years ended December 31 are as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable |
|
|
|
First Potomac |
|
|
noncontrolling |
|
|
|
Realty Trust |
|
|
interests |
|
Balance, December 31, 2008 |
|
$ |
365,293 |
|
|
$ |
10,627 |
|
Net income |
|
|
3,932 |
|
|
|
124 |
|
Changes in ownership, net(1) |
|
|
33,781 |
|
|
|
(480 |
) |
Distributions to owners |
|
|
(26,529 |
) |
|
|
(718 |
) |
Other comprehensive income |
|
|
1,282 |
|
|
|
32 |
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
377,759 |
|
|
|
9,585 |
|
Net loss |
|
|
(11,443 |
) |
|
|
(230 |
) |
Changes in ownership, net(1) |
|
|
279,497 |
|
|
|
7,375 |
|
Distributions to owners |
|
|
(28,797 |
) |
|
|
(631 |
) |
Other comprehensive income |
|
|
1,044 |
|
|
|
23 |
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
618,060 |
|
|
$ |
16,122 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a joint venture partners portion of accumulated other
comprehensive loss related to RiversPark II and RiversPark I, which were
deconsolidated from the Companys consolidated financial statements on March 17, 2009
and January 1, 2010, respectively. |
(16) Benefit Plans
(a) Share-based compensation
The Company has issued share-based compensation in the form of stock options and non-vested
shares as permitted in the Companys 2003 Equity Compensation Plan (the 2003 Plan), which was
amended in 2005, and the 2009 Equity Compensation Plan (the 2009 Plan), which was amended in
2010. In 2010, the Company received shareholder approval to authorize an additional 2,250,000
shares for issuance. Total combined awards authorized under the 2003 Plan and the 2009 Plan are
4,460,800 common share equity awards. The compensation plans provide for the issuance of options to
purchase common shares, share awards, share appreciation rights, performance units and other
equity-based awards. Stock options granted under the plans are non-qualified, and all employees and
non-employee trustees are eligible to receive grants. Under the terms of the amendment to the 2009
Plan, every stock option granted by the Company reduces the awards available for issuance on a
one-for-one basis. However, for every restricted award issued, the awards available for issuance
are reduced by 3.44 awards. At December 31, 2010, 2,366,896 common equity awards remained available
for issuance by the Company.
The Company records costs related to its share-based compensation based on the grant-date fair
value calculated in accordance with the accounting provisions. The Company recognizes share-based
compensation costs on a straight-line basis over the requisite service period for each award and
these costs are recorded in General and administrative expense or Property operating expense
based on the employees job function.
Stock Options Summary
As of December 31, 2010, 1,137,000 stock options were awarded of which 811,580 remained
outstanding. Options vest 25% on the first anniversary of the date of grant and 6.25% in each
subsequent calendar quarter thereafter until fully vested. The term of the options granted is ten
years. The Company recognized $0.2 million of compensation expense associated with these awards
for each of the years ended December 31, 2010, 2009 and 2008, respectively.
113
The following table summarizes the option activity in the compensation plans for the three
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Contractual Term |
|
|
Value |
|
Balance, December 31, 2007 |
|
|
637,470 |
|
|
$ |
19.11 |
|
|
6.6 years |
|
$ |
815,455 |
|
Granted |
|
|
99,500 |
|
|
|
17.24 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,500 |
) |
|
|
15.00 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(51,001 |
) |
|
|
23.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
683,469 |
|
|
|
18.49 |
|
|
5.9 years |
|
$ |
|
|
Granted |
|
|
103,250 |
|
|
|
9.30 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(35,315 |
) |
|
|
17.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
751,404 |
|
|
|
17.27 |
|
|
5.4 years |
|
$ |
307,380 |
|
Granted |
|
|
106,750 |
|
|
|
12.57 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4,931 |
) |
|
|
9.30 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(41,643 |
) |
|
|
16.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
811,580 |
|
|
$ |
16.72 |
|
|
4.8 years |
|
$ |
1,641,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
646,804 |
|
|
$ |
17.78 |
|
|
3.9 years |
|
$ |
889,576 |
|
2009 |
|
|
593,369 |
|
|
$ |
18.13 |
|
|
4.6 years |
|
$ |
|
|
2008 |
|
|
545,965 |
|
|
$ |
17.77 |
|
|
5.3 years |
|
$ |
|
|
Options expected to vest, December 31, 2010 |
|
|
147,664 |
|
|
$ |
12.28 |
|
|
8.4 years |
|
$ |
687,151 |
|
The following table summarizes information about stock options at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
Year |
|
Range of |
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Average |
|
Issued |
|
Exercise Prices |
|
|
Shares |
|
|
Contractual Life |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
2003 |
|
|
$ 15.00 |
|
|
|
343,469 |
|
|
2.7 years |
|
$ |
15.00 |
|
|
|
343,469 |
|
|
$ |
15.00 |
|
2004 |
|
|
18.70 19.78 |
|
|
|
65,000 |
|
|
3.4 years |
|
|
19.03 |
|
|
|
65,000 |
|
|
|
19.03 |
|
2005 |
|
|
22.42 22.54 |
|
|
|
68,750 |
|
|
4.0 years |
|
|
22.46 |
|
|
|
68,750 |
|
|
|
22.46 |
|
2006 |
|
|
26.60 |
|
|
|
33,450 |
|
|
5.0 years |
|
|
26.60 |
|
|
|
33,450 |
|
|
|
26.60 |
|
2007 |
|
|
29.11 29.24 |
|
|
|
54,063 |
|
|
6.0 years |
|
|
29.12 |
|
|
|
50,925 |
|
|
|
29.12 |
|
2008 |
|
|
14.32 17.29 |
|
|
|
71,687 |
|
|
7.0 years |
|
|
17.23 |
|
|
|
50,385 |
|
|
|
17.23 |
|
2009 |
|
|
9.30 |
|
|
|
81,911 |
|
|
8.0 years |
|
|
9.30 |
|
|
|
34,825 |
|
|
|
9.30 |
|
2010 |
|
|
12.57 |
|
|
|
93,250 |
|
|
9.0 years |
|
|
12.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
811,580 |
|
|
|
|
|
|
|
|
|
|
|
646,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the Company had $0.3 million of unrecognized compensation cost, net
of estimated forfeitures, related to stock option awards. The Company anticipates this cost will be
recognized over a weighted-average period of approximately 2.5 years. The Company calculates the
grant date fair value of option awards using a Black-Scholes option-pricing model. Expected
volatility is based on an assessment of the Companys realized volatility over the preceding five
years, which is equivalent to the awards expected life. The expected term represents the period of
time the options are anticipated to remain outstanding as well as the Companys historical
experience for groupings of employees that have similar behavior and considered separately for
valuation purposes. The risk-free rate is based on the U.S. Treasury rate at the time of grant for
instruments of similar term.
114
The assumptions used in the fair value determination of stock options granted for the years
ended December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Risk-free interest rate |
|
|
2.69 |
% |
|
|
1.55 |
% |
|
|
3.45 |
% |
Expected volatility |
|
|
46.6 |
% |
|
|
39.6 |
% |
|
|
24.6 |
% |
Expected dividend yield |
|
|
5.15 |
% |
|
|
5.54 |
% |
|
|
4.04 |
% |
Weighted average expected life of options |
|
5 years |
|
|
5 years |
|
|
5 years |
|
The weighted average grant date fair value of the stock options issued in 2010, 2009 and 2008
was $3.51, $1.97 and $2.89, respectively.
Option Exercises
The Company received approximately $46 thousand and $38 thousand from the exercise of stock
options during 2010 and 2008, respectively. No stock options were exercised during 2009. Shares
issued as a result of stock option exercises are funded through the issuance of new shares.
The total intrinsic value of options exercised was $29 thousand in 2010 and $5 thousand in
2008.
Non-vested share awards
The Company issues restricted share awards that either vest over a specific time period that
is indentified at the time of issuance or vest upon the achievement of specific performance goals
that are identified at the time of issuance. In February 2010, the Company granted 197,468
restricted common shares in two separate awards to its officers. The first award of 98,734 common
shares will vest ratably over a four year award term and was fair valued based on the outstanding
share price at the date of issuance. The second award of 98,734 common shares will vest in four
separate tranches based upon the Companys achievement of specified performance conditions.
The Company recognized $3.2 million, $2.6 million and $1.5 million of compensation expense
associated with its restricted share based awards in 2010, 2009 and 2008, respectively. Dividends
on all restricted share awards are recorded as a reduction of equity. The Company applies the
two-class method for determining EPS as its outstanding unvested shares with non-forfeitable
dividend rights are considered participating securities. The Companys excess of distributions over
earnings related to participating securities are shown as a reduction in income available to common
shareholders in the Companys computation of EPS.
Independent members of our Board of Trustees received annual grants of common shares as a
component of compensation for serving on the Companys Board of Trustees. In May 2010, the Company
issued a total of 20,274 common shares to all independent trustees, all of which will vest on the
completion of a twelve-month period from the award date. The trustee shares were fair valued based
on the outstanding share price at the date of issuance. The Company recognized $0.3 million of
compensation expense associated with trustee share based awards for each of the years ended
December 31, 2010, 2009 and 2008, respectively.
115
A summary of the Companys non-vested share awards as of December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Non-vested |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Non-vested at December 31, 2007 |
|
$ |
175,091 |
|
|
$ |
23.26 |
|
Granted |
|
|
198,367 |
|
|
|
9.46 |
|
Vested |
|
|
(19,060 |
) |
|
|
26.69 |
|
|
|
|
|
|
|
|
Non-vested at December 31, 2008 |
|
|
354,398 |
|
|
|
15.35 |
|
Granted |
|
|
437,976 |
|
|
|
9.03 |
|
Vested |
|
|
(26,060 |
) |
|
|
20.93 |
|
|
|
|
|
|
|
|
Non-vested at December 31, 2009 |
|
|
766,314 |
|
|
|
11.55 |
|
Granted |
|
|
217,742 |
|
|
|
12.91 |
|
Vested |
|
|
(272,024 |
) |
|
|
12.01 |
|
Expired |
|
|
(9,279 |
) |
|
|
16.09 |
|
|
|
|
|
|
|
|
Non-vested at December 31, 2010 |
|
|
702,753 |
|
|
|
11.76 |
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the Company had $3.1 million of unrecognized compensation cost
related to non-vested shares. The Company anticipates this cost will be recognized over a
weighted-average period of 2.1 years.
The Company values its non-vested time-based awards at the grant date fair value. For the
non-vested performance-based share awards issued in 2010, 2009 and 2008, the Company used a Monte
Carlo Simulation (risk-neutral approach) to determine the fair value and derived service period of
each tranche of the award. The following assumptions were used in determining the fair value of the
awards and the derived service period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Risk-free interest rate |
|
|
3.6 |
% |
|
|
3.3 |
% |
|
|
3.2 |
% |
Volatility |
|
|
42.4 |
% |
|
|
43.5 |
% |
|
|
26.0 |
% |
The
weighted average grant date fair value of the shares issued in 2010, 2009 and 2008 was
$12.91, $9.03 and $9.46, respectively. The total fair value of shares vested was
$3.3 million, $0.5
million and $0.5 million at December 31, 2010, 2009 and 2008, respectively.
The Company issues new
shares, subject to restrictions, upon each grant of non-vested share awards.
(b) 401(k) Plan
The Company has a 401(k) defined contribution plan covering all employees in accordance with
the Internal Revenue Code. The maximum employer or employee contribution cannot exceed the IRS
limits for the plan year. Employees are eligible
to contribute after one year of consecutive service. The Company matches employee
contributions after one year of service up to a specified percentage of a participants annual
compensation. The Company matched employee contributions up to 6% for each of the three years
presented. Employee contributions vest immediately. Employer contributions vest immediately for
employees hired prior to January 1, 2009. For employees hired after January 1, 2009, the vesting of
the employer contributions occurs in 25% increments over four years. The Company pays for
administrative expenses and matching contributions with available cash. The Companys plan does not
allow for the Company to make additional discretionary contributions. The Companys contributions
were $0.3 million for each of the years ended December 31, 2010, 2009 and 2008, respectively. The
employer match payable to the 401(k) plan was fully funded as of December 31, 2010.
(c) Employee Share Purchase Plan
In 2009, the Companys shareholders approved the First Potomac Realty Trust 2009 Employee
Share Purchase Plan (the Plan). The Plan allows participating employees to acquire common shares
of the Company, at a discounted price, through payroll deductions or cash contributions. Under the
Plan, a total of 200,000 common shares may be issued and the offering periods of the Plan will not
exceed five years. Each offering period will commence on the first day of each calendar quarter
(offering date) and will end on the last business day of the calendar quarter (purchase date) in
which the offering period commenced. The purchase price at which common shares will be sold in any
offering period will be the lower of: a) 85 percent of the fair value of common shares on the
offering date or b) 85 percent of the fair value of the common shares on the purchase date. The
first offering period began during the fourth quarter of 2009. The Company issued common shares of
9,850 and 1,908 under the Plan during the years ended December 31, 2010 and 2009, respectively,
which resulted in compensation expense totaling $32 thousand and $5 thousand, respectively.
116
(17) Subsequent Events
On January 25, 2011, the Company formed a joint venture with an affiliate of The Akridge
Company (Akridge) to acquire, for $39.6 million, a property located at 1200 17th Street, NW, in
Washington, DC, and to redevelop the property. The property currently consists of a land parcel
that contains an existing 85,000 square foot office building. The joint venture intends to demolish
the existing office building and develop a new Class A office building expected to have
approximately 170,000 square feet of gross leasable area. When the joint venture is fully
capitalized, the Company anticipates owning 95% of the joint venture (subject to adjustment depending on each
partys capital contributions and subject to a promoted interest granted to Akridge after specified
returns are achieved by the Company). The Companys total capital commitment to the joint venture
(including acquisition and development costs) is anticipated to be approximately $109 million, less
amounts funded through acquisition and construction financing. The acquisition of the property is
not expected to occur until late 2011 and is subject to various contingencies. Construction is
currently expected to commence in 2012 and is expected to be completed in late 2014.
On February 18, 2011, the Company sold its Old Courthouse Square property for net proceeds of
$10.8 million. The property is a 201,000 square foot retail asset in Martinsburg, West Virginia,
which the Company acquired as part of a portfolio acquisition in 2004, and was the Companys only
retail asset. The property was reflected in the Companys Maryland reporting segment. In 2010, the
Company entered into a non-binding contract to sell the property and recorded an impairment charge
of $3.4 million based on the contractual sales price, less any anticipated selling costs.
On February 22, 2011, the Company acquired a two property portfolio consisting of Cedar Hill I
& III and The Merrill Lynch Building for an aggregate purchase price of $33.8 million. Cedar Hill I
& III consist of two three-story office buildings in Tysons Corner, Virginia totaling 103,000
square feet and is 100% leased to two tenants. The Merrill Lynch Building is a 12-story, 138,000
square foot office building in Columbia, Maryland and is 70% leased to over 25 tenants. The
acquisition was funded by the assumption of two mortgage loans totaling $26.7 million, a draw on
the Companys unsecured revolving credit facility and available cash. The Company is assessing its
initial fair value determination of its acquired assets and liabilities.
(18) Segment Information
The Companys reportable segments consist of three distinct reporting and operational segments
within the broader greater Washington D.C, region in which it operates: Maryland, Northern Virginia
and Southern Virginia. During 2010, the Company acquired three properties in Washington, D.C. The
Company currently includes these properties in its Northern Virginia reporting segment as all
operational and management decisions are currently handled by the Companys Northern Virginia
management team.
The Company evaluates the performance of its segments based on the operating results of the
properties located within each segment, which excludes large non-recurring gains and losses, gains
from sale of real estate assets, interest expense,
general and administrative costs, acquisition costs or any other indirect corporate expense to
the segments. In addition, the segments do not have significant non-cash items other than
straight-line and deferred market rent amortization reported in their operating results. There are
no inter-segment sales or transfers recorded between segments.
117
The results of operations for the Companys three reportable segments for the three years
ended December 31 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
Maryland |
|
|
Northern Virginia(1) |
|
|
Southern Virginia |
|
|
Consolidated |
|
Number of buildings |
|
|
71 |
|
|
|
55 |
|
|
|
55 |
|
|
|
181 |
|
Square feet |
|
|
4,052,196 |
|
|
|
3,769,139 |
|
|
|
5,359,763 |
|
|
|
13,181,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
45,793 |
|
|
$ |
45,354 |
|
|
$ |
48,869 |
|
|
$ |
140,016 |
|
Property operating expense |
|
|
(11,597 |
) |
|
|
(10,425 |
) |
|
|
(12,031 |
) |
|
|
(34,053 |
) |
Real estate taxes and insurance |
|
|
(4,534 |
) |
|
|
(4,518 |
) |
|
|
(4,088 |
) |
|
|
(13,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
29,662 |
|
|
$ |
30,411 |
|
|
$ |
32,750 |
|
|
|
92,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,979 |
) |
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,523 |
) |
Acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,169 |
) |
Other expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,656 |
) |
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(11,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets(2) |
|
$ |
491,566 |
|
|
$ |
488,592 |
|
|
$ |
338,319 |
|
|
$ |
1,396,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures(3) |
|
$ |
5,765 |
|
|
$ |
10,046 |
|
|
$ |
8,579 |
|
|
$ |
24,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
Maryland |
|
|
Northern Virginia |
|
|
Southern Virginia |
|
|
Consolidated |
|
Number of buildings |
|
|
76 |
|
|
|
51 |
|
|
|
54 |
|
|
|
181 |
|
Square feet |
|
|
3,784,099 |
|
|
|
3,016,035 |
|
|
|
5,265,457 |
|
|
|
12,065,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
43,999 |
|
|
$ |
39,837 |
|
|
$ |
48,312 |
|
|
$ |
132,148 |
|
Property operating expense |
|
|
(11,535 |
) |
|
|
(9,359 |
) |
|
|
(11,673 |
) |
|
|
(32,567 |
) |
Real estate taxes and insurance |
|
|
(4,303 |
) |
|
|
(4,284 |
) |
|
|
(4,262 |
) |
|
|
(12,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
28,161 |
|
|
$ |
26,194 |
|
|
$ |
32,377 |
|
|
|
86,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,642 |
) |
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,219 |
) |
Acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,076 |
) |
Other expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,359 |
) |
Income from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets(2) |
|
$ |
411,083 |
|
|
$ |
305,633 |
|
|
$ |
317,695 |
|
|
$ |
1,071,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures(3) |
|
$ |
5,276 |
|
|
$ |
9,094 |
|
|
$ |
8,693 |
|
|
$ |
23,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
Maryland |
|
|
Northern Virginia |
|
|
Southern Virginia |
|
|
Consolidated |
|
Number of buildings |
|
|
75 |
|
|
|
47 |
|
|
|
54 |
|
|
|
176 |
|
Square feet |
|
|
3,754,980 |
|
|
|
2,814,799 |
|
|
|
5,257,728 |
|
|
|
11,827,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
40,552 |
|
|
$ |
36,542 |
|
|
$ |
45,308 |
|
|
$ |
122,402 |
|
Property operating expense |
|
|
(8,418 |
) |
|
|
(7,766 |
) |
|
|
(10,670 |
) |
|
|
(26,854 |
) |
Real estate taxes and insurance |
|
|
(3,791 |
) |
|
|
(4,086 |
) |
|
|
(4,165 |
) |
|
|
(12,042 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating income |
|
$ |
28,343 |
|
|
$ |
24,690 |
|
|
$ |
30,473 |
|
|
|
83,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,769 |
) |
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,938 |
) |
Other expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,832 |
) |
Income from discontinued
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets(2) |
|
$ |
433,269 |
|
|
$ |
282,690 |
|
|
$ |
311,466 |
|
|
$ |
1,077,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures(3) |
|
$ |
11,983 |
|
|
$ |
11,565 |
|
|
$ |
13,009 |
|
|
$ |
36,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 500 First Street, NW, 1211 Connecticut Ave, NW and 440 First Street, NW, which were acquired in 2010 and located in Washington, D.C. |
|
(2) |
|
Corporate assets not allocated to any of our reportable segments totaled $78,205, $36,762 and $50,526 at December 31, 2010, 2009 and 2008, respectively. |
|
(3) |
|
Capital expenditures for corporate assets not allocated to any of our reportable segments totaled $320, $65 and $273 at December 31, 2010, 2009 and 2008,
respectively. |
(19) Quarterly Financial Information
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010(1) |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
(amounts in thousands, except per share amounts) |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
35,178 |
|
|
$ |
33,494 |
|
|
$ |
34,657 |
|
|
$ |
36,687 |
|
Operating expenses |
|
|
27,955 |
|
|
|
26,106 |
|
|
|
29,167 |
|
|
|
35,181 |
|
Loss from continuing operations |
|
|
(1,562 |
) |
|
|
(442 |
) |
|
|
(2,935 |
) |
|
|
(6,565 |
) |
(Loss) income from discontinued operations |
|
|
(646 |
) |
|
|
475 |
|
|
|
|
|
|
|
|
|
Less: Net loss (income) attributable to noncontrolling
interests |
|
|
49 |
|
|
|
(1 |
) |
|
|
55 |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders |
|
$ |
(2,159 |
) |
|
$ |
32 |
|
|
$ |
(2,880 |
) |
|
$ |
(6,436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders per share
basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(0.06 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.15 |
) |
|
|
(Loss) income from discontinued operations |
|
|
(0.02 |
) |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(0.08 |
) |
|
$ |
|
|
|
$ |
(0.08 |
) |
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009(1) |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
(amounts in thousands, except per share amounts) |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
33,162 |
|
|
$ |
32,095 |
|
|
$ |
32,450 |
|
|
$ |
34,440 |
|
Operating expenses |
|
|
24,289 |
|
|
|
23,846 |
|
|
|
24,891 |
|
|
|
29,869 |
|
Income (loss) from continuing operations |
|
|
5,016 |
|
|
|
1,573 |
|
|
|
380 |
|
|
|
(3,533 |
) |
Income from discontinued operations |
|
|
122 |
|
|
|
79 |
|
|
|
244 |
|
|
|
175 |
|
Less: Net (income) loss attributable to noncontrolling
interests |
|
|
(141 |
) |
|
|
(45 |
) |
|
|
(16 |
) |
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders |
|
$ |
4,997 |
|
|
$ |
1,607 |
|
|
$ |
608 |
|
|
$ |
(3,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
per share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.18 |
|
|
$ |
0.06 |
|
|
$ |
0.01 |
|
|
$ |
(0.12 |
) |
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
0.18 |
|
|
$ |
0.06 |
|
|
$ |
0.02 |
|
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These figures are rounded to the nearest thousand, which may impact crossfooting in reconciling to full year totals. |
The Company sold 18.3 million and 2.8 million common shares in 2010 and 2009,
respectively. The sum of the basic and diluted earnings per share for the four quarters in all
years presented differs from the annual earnings per share calculation due to the required method
of computing the weighted average number of shares in the respective periods.
120
SCHEDULE III
FIRST POTOMAC REALTY TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2010
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Encumbrances at |
|
Property |
|
Location |
|
Date Acquired |
|
Property Type(1) |
|
December 31, 2010 |
|
Maryland |
|
|
|
|
|
|
|
|
|
|
Rumsey Center |
|
Columbia |
|
Oct-02 |
|
BP |
|
$ |
9,071 |
|
Snowden Center |
|
Columbia |
|
Oct-02 |
|
BP |
|
|
12,313 |
|
6900 English Muffin Way |
|
Frederick |
|
Jul-04 |
|
I |
|
|
|
|
Gateway Center |
|
Gaithersburg |
|
Jul-04 |
|
Office |
|
|
|
|
Gateway West |
|
Westminster |
|
Jul-04 |
|
OP |
|
|
|
|
4451 Georgia Pacific Boulevard |
|
Frederick |
|
Jul-04 |
|
I |
|
|
|
|
20270 Goldenrod Lane |
|
Germantown |
|
Jul-04 |
|
Office |
|
|
|
|
Girard Business Center |
|
Gaithersburg |
|
Jul-04 |
|
BP |
|
|
|
|
Girard Place |
|
Gaithersburg |
|
Jul-04 |
|
BP |
|
|
|
|
Patrick Center |
|
Frederick |
|
Jul-04 |
|
Office |
|
|
|
|
Old Courthouse Square |
|
Martinsburg, WV |
|
Jul-04 |
|
Retail |
|
|
|
|
15 Wormans Mill Court |
|
Frederick |
|
Jul-04 |
|
OP |
|
|
|
|
West Park |
|
Frederick |
|
Jul-04 |
|
Office |
|
|
|
|
Woodlands Business Center |
|
Largo |
|
Jul-04 |
|
Office |
|
|
|
|
Airpark Place |
|
Gaithersburg |
|
Aug-04 |
|
BP |
|
|
|
|
4612 Navistar Drive |
|
Frederick |
|
Dec-04 |
|
I |
|
|
12,189 |
|
Campus at Metro Park |
|
Rockville |
|
Dec-04 |
|
OP |
|
|
22,556 |
|
Glenn Dale Business Center |
|
Glenn Dale |
|
May-05 |
|
I |
|
|
|
|
Owings Mills Business Center |
|
Owings Mills |
|
Nov-05 |
|
BP |
|
|
5,448 |
|
Gateway 270 |
|
Clarksburg |
|
Jul-06 |
|
BP |
|
|
|
|
Indian Creek Court |
|
Beltsville |
|
Aug-06 |
|
BP |
|
|
11,982 |
|
Owings Mills Commerce Center |
|
Owings Mills |
|
Nov-06 |
|
BP |
|
|
|
|
Ammendale Commerce Center |
|
Beltsville |
|
Mar-07 |
|
BP |
|
|
|
|
Annapolis Commerce Park East |
|
Annapolis |
|
Jun-07 |
|
OP |
|
|
8,491 |
|
Triangle Business Center |
|
Columbia |
|
Aug-08 |
|
BP |
|
|
|
|
Cloverleaf Center |
|
Germantown |
|
Oct-09 |
|
OP |
|
|
17,204 |
|
Redland Corporate Center |
|
Rockville |
|
Nov-10 |
|
Office |
|
|
|
|
7458 Candlewood Road |
|
Hanover |
|
Dec-10 |
|
I |
|
|
14,699 |
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
113,953 |
|
|
|
|
|
|
|
|
|
|
|
Northern Virginia |
|
|
|
|
|
|
|
|
|
|
13129 Airpark Road |
|
Culpeper |
|
Dec-97 |
|
I |
|
|
|
|
Plaza 500 |
|
Alexandria |
|
Dec-97 |
|
I |
|
|
33,640 |
|
Van Buren Business Park |
|
Herndon |
|
Dec-97 |
|
OP |
|
|
7,544 |
|
Tech Court |
|
Chantilly |
|
Oct-98 |
|
OP |
|
|
|
|
Newington Business Park |
|
Lorton |
|
Dec-99 |
|
I |
|
|
15,252 |
|
Interstate Plaza |
|
Alexandria |
|
Dec-03 |
|
I |
|
|
|
|
Herndon Corporate Center |
|
Herndon |
|
Apr-04 |
|
OP |
|
|
|
|
Aquia Commerce Center I & II |
|
Stafford |
|
Jun-04 |
|
OP |
|
|
353 |
|
15395 John Marshall Highway |
|
Haymarket |
|
Oct-04 |
|
I |
|
|
20,523 |
|
Windsor at Battlefield |
|
Manassas |
|
Dec-04 |
|
OP |
|
|
|
|
Reston Business Campus |
|
Reston |
|
Mar-05 |
|
OP |
|
|
|
|
Enterprise Center |
|
Chantilly |
|
Apr-05 |
|
OP |
|
|
|
|
Gateway Centre |
|
Manassas |
|
Jul-05 |
|
BP |
|
|
1,189 |
|
403/405 Glenn Drive |
|
Sterling |
|
Oct-05 |
|
BP |
|
|
7,960 |
|
Linden Business Center |
|
Manassas |
|
Oct-05 |
|
BP |
|
|
7,080 |
|
Prosperity Business Center |
|
Merrifield |
|
Nov-05 |
|
BP |
|
|
3,502 |
|
Sterling Park Business Center |
|
Sterling |
|
Feb-06 |
|
BP |
|
|
|
|
Davis Drive |
|
Sterling |
|
Aug-06 |
|
BP |
|
|
|
|
Ashburn Center |
|
Ashburn |
|
Dec-09 |
|
BP |
|
|
|
|
Three Flint Hill |
|
Oakton |
|
Apr-10 |
|
Office |
|
|
|
|
500 First Street, NW |
|
Washington, DC |
|
Jun-10 |
|
Office |
|
|
38,793 |
|
Atlantic Corporate Park |
|
Sterling |
|
Nov-10 |
|
Office |
|
|
|
|
440 First Street, NW |
|
Washington, DC |
|
Dec-10 |
|
Office |
|
|
|
|
1211 Connecticut Ave, NW |
|
Washington, DC |
|
Dec-10 |
|
Office |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
135,836 |
|
|
|
|
|
|
|
|
|
|
|
Southern Virginia |
|
|
|
|
|
|
|
|
|
|
Crossways Commerce Center |
|
Chesapeake |
|
Dec-99 |
|
BP |
|
|
24,179 |
|
Greenbrier Technology Center II |
|
Chesapeake |
|
Oct-02 |
|
BP |
|
|
4,576 |
|
Norfolk Business Center |
|
Norfolk |
|
Oct-02 |
|
BP |
|
|
4,643 |
|
Virginia Center |
|
Glen Allen |
|
Oct-03 |
|
BP |
|
|
|
|
Crossways II |
|
Chesapeake |
|
Oct-04 |
|
BP |
|
|
|
|
Norfolk Commerce Park II |
|
Norfolk |
|
Oct-04 |
|
BP |
|
|
|
|
Cavalier Industrial Park |
|
Chesapeake |
|
Apr-05 |
|
I |
|
|
|
|
1434 Crossways Boulevard |
|
Chesapeake |
|
Aug-05 |
|
BP |
|
|
17,709 |
|
Enterprise Parkway |
|
Hampton |
|
Sep-05 |
|
BP |
|
|
|
|
Diamond Hill Distribution Center |
|
Chesapeake |
|
Oct-05 |
|
I |
|
|
|
|
1000 Lucas Way |
|
Hampton |
|
Dec-05 |
|
BP |
|
|
|
|
Rivers Bend Center |
|
Chester |
|
Jan-06 |
|
I |
|
|
|
|
Northridge I&II |
|
Ashland |
|
Jan-06 |
|
I |
|
|
6,841 |
|
Crossways I |
|
Chesapeake |
|
Feb-06 |
|
BP |
|
|
|
|
1408 Stephanie Way |
|
Chesapeake |
|
May-06 |
|
BP |
|
|
|
|
Airpark Business Center |
|
Richmond |
|
Jun-06 |
|
BP |
|
|
1,308 |
|
Chesterfield Business Center |
|
Richmond |
|
Jun-06 |
|
BP |
|
|
4,079 |
|
Hanover Business Center |
|
Ashland |
|
Jun-06 |
|
BP |
|
|
1,683 |
|
Gateway II |
|
Norfolk |
|
Nov-06 |
|
BP |
|
|
|
|
Park Central |
|
Richmond |
|
Nov-06 |
|
BP |
|
|
|
|
Greenbrier Circle Corporate Center |
|
Chesapeake |
|
Jan-07 |
|
BP |
|
|
|
|
Greenbrier Technology Center I |
|
Chesapeake |
|
Jan-07 |
|
BP |
|
|
|
|
Pine Glen |
|
Richmond |
|
Feb-07 |
|
BP |
|
|
|
|
Rivers Bend Center II |
|
Chester |
|
May-07 |
|
I |
|
|
|
|
Battlefield Corporate Center |
|
Chesapeake |
|
Oct-10 |
|
OP |
|
|
4,289 |
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
69,307 |
|
|
|
|
|
|
|
|
|
|
|
Land held for future development |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
$ |
319,096 |
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs |
|
|
|
|
|
|
Gross Amount at End of Year |
|
|
|
|
|
|
|
|
|
|
|
|
Building and |
|
|
|
|
|
|
|
|
|
|
Building and |
|
|
|
|
|
|
Accumulated |
|
Land |
|
|
Improvements |
|
|
Since Acquisition |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Depreciation |
|
$ |
2,675 |
|
|
$ |
10,196 |
|
|
$ |
2,372 |
|
|
$ |
2,675 |
|
|
$ |
12,568 |
|
|
$ |
15,243 |
|
|
$ |
4,110 |
|
|
3,404 |
|
|
|
12,824 |
|
|
|
3,382 |
|
|
|
3,404 |
|
|
|
16,206 |
|
|
|
19,610 |
|
|
|
4,841 |
|
|
3,136 |
|
|
|
8,642 |
|
|
|
25 |
|
|
|
3,136 |
|
|
|
8,667 |
|
|
|
11,803 |
|
|
|
1,497 |
|
|
1,715 |
|
|
|
3,943 |
|
|
|
166 |
|
|
|
1,715 |
|
|
|
4,109 |
|
|
|
5,824 |
|
|
|
750 |
|
|
890 |
|
|
|
6,925 |
|
|
|
1,533 |
|
|
|
890 |
|
|
|
8,458 |
|
|
|
9,348 |
|
|
|
1,681 |
|
|
3,445 |
|
|
|
8,923 |
|
|
|
5 |
|
|
|
3,445 |
|
|
|
8,928 |
|
|
|
12,373 |
|
|
|
1,546 |
|
|
1,415 |
|
|
|
2,060 |
|
|
|
183 |
|
|
|
1,415 |
|
|
|
2,243 |
|
|
|
3,658 |
|
|
|
419 |
|
|
4,671 |
|
|
|
7,151 |
|
|
|
1,506 |
|
|
|
4,671 |
|
|
|
8,657 |
|
|
|
13,328 |
|
|
|
1,780 |
|
|
5,134 |
|
|
|
9,507 |
|
|
|
784 |
|
|
|
5,134 |
|
|
|
10,291 |
|
|
|
15,425 |
|
|
|
1,745 |
|
|
1,777 |
|
|
|
8,721 |
|
|
|
1,183 |
|
|
|
1,777 |
|
|
|
9,904 |
|
|
|
11,681 |
|
|
|
1,690 |
|
|
3,485 |
|
|
|
12,862 |
|
|
|
(3,079 |
) |
|
|
2,649 |
|
|
|
10,619 |
|
|
|
13,268 |
|
|
|
2,462 |
|
|
545 |
|
|
|
3,329 |
|
|
|
41 |
|
|
|
545 |
|
|
|
3,370 |
|
|
|
3,915 |
|
|
|
625 |
|
|
520 |
|
|
|
5,177 |
|
|
|
643 |
|
|
|
520 |
|
|
|
5,820 |
|
|
|
6,340 |
|
|
|
1,082 |
|
|
1,322 |
|
|
|
2,920 |
|
|
|
640 |
|
|
|
1,322 |
|
|
|
3,560 |
|
|
|
4,882 |
|
|
|
616 |
|
|
2,697 |
|
|
|
7,141 |
|
|
|
284 |
|
|
|
2,697 |
|
|
|
7,425 |
|
|
|
10,122 |
|
|
|
1,280 |
|
|
3,808 |
|
|
|
18,658 |
|
|
|
|
|
|
|
3,808 |
|
|
|
18,658 |
|
|
|
22,466 |
|
|
|
2,919 |
|
|
9,220 |
|
|
|
32,056 |
|
|
|
43 |
|
|
|
9,220 |
|
|
|
32,099 |
|
|
|
41,319 |
|
|
|
5,749 |
|
|
3,369 |
|
|
|
14,504 |
|
|
|
1,612 |
|
|
|
3,369 |
|
|
|
16,116 |
|
|
|
19,485 |
|
|
|
2,551 |
|
|
1,382 |
|
|
|
7,416 |
|
|
|
1,318 |
|
|
|
1,382 |
|
|
|
8,734 |
|
|
|
10,116 |
|
|
|
1,497 |
|
|
18,302 |
|
|
|
20,562 |
|
|
|
4,264 |
|
|
|
18,302 |
|
|
|
24,826 |
|
|
|
43,128 |
|
|
|
3,540 |
|
|
5,673 |
|
|
|
17,168 |
|
|
|
1,305 |
|
|
|
5,673 |
|
|
|
18,473 |
|
|
|
24,146 |
|
|
|
2,314 |
|
|
3,304 |
|
|
|
12,295 |
|
|
|
766 |
|
|
|
3,304 |
|
|
|
13,061 |
|
|
|
16,365 |
|
|
|
2,044 |
|
|
2,398 |
|
|
|
7,659 |
|
|
|
5,527 |
|
|
|
2,398 |
|
|
|
13,186 |
|
|
|
15,584 |
|
|
|
2,136 |
|
|
6,101 |
|
|
|
12,602 |
|
|
|
271 |
|
|
|
6,101 |
|
|
|
12,873 |
|
|
|
18,974 |
|
|
|
1,405 |
|
|
1,279 |
|
|
|
2,480 |
|
|
|
1,058 |
|
|
|
1,237 |
|
|
|
3,580 |
|
|
|
4,817 |
|
|
|
347 |
|
|
7,097 |
|
|
|
14,211 |
|
|
|
230 |
|
|
|
7,097 |
|
|
|
14,441 |
|
|
|
21,538 |
|
|
|
860 |
|
|
17,272 |
|
|
|
63,480 |
|
|
|
750 |
|
|
|
17,272 |
|
|
|
64,230 |
|
|
|
81,502 |
|
|
|
345 |
|
|
5,924 |
|
|
|
13,832 |
|
|
|
|
|
|
|
5,924 |
|
|
|
13,832 |
|
|
|
19,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,960 |
|
|
|
347,244 |
|
|
|
26,812 |
|
|
|
121,082 |
|
|
|
374,934 |
|
|
|
496,016 |
|
|
|
51,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442 |
|
|
|
3,103 |
|
|
|
1,205 |
|
|
|
442 |
|
|
|
4,308 |
|
|
|
4,750 |
|
|
|
1,674 |
|
|
6,265 |
|
|
|
35,433 |
|
|
|
3,442 |
|
|
|
6,265 |
|
|
|
38,875 |
|
|
|
45,140 |
|
|
|
13,052 |
|
|
3,592 |
|
|
|
7,652 |
|
|
|
2,319 |
|
|
|
3,592 |
|
|
|
9,971 |
|
|
|
13,563 |
|
|
|
3,579 |
|
|
1,056 |
|
|
|
4,844 |
|
|
|
808 |
|
|
|
1,056 |
|
|
|
5,652 |
|
|
|
6,708 |
|
|
|
1,817 |
|
|
3,135 |
|
|
|
10,354 |
|
|
|
5,316 |
|
|
|
3,135 |
|
|
|
15,670 |
|
|
|
18,805 |
|
|
|
5,223 |
|
|
2,185 |
|
|
|
8,972 |
|
|
|
3,015 |
|
|
|
2,185 |
|
|
|
11,987 |
|
|
|
14,172 |
|
|
|
2,304 |
|
|
4,082 |
|
|
|
14,651 |
|
|
|
1,267 |
|
|
|
4,082 |
|
|
|
15,918 |
|
|
|
20,000 |
|
|
|
3,169 |
|
|
1,795 |
|
|
|
8,689 |
|
|
|
518 |
|
|
|
1,795 |
|
|
|
9,207 |
|
|
|
11,002 |
|
|
|
1,636 |
|
|
2,736 |
|
|
|
7,301 |
|
|
|
8,270 |
|
|
|
2,736 |
|
|
|
15,571 |
|
|
|
18,307 |
|
|
|
2,700 |
|
|
3,228 |
|
|
|
11,696 |
|
|
|
3,275 |
|
|
|
3,228 |
|
|
|
14,971 |
|
|
|
18,199 |
|
|
|
3,220 |
|
|
1,996 |
|
|
|
8,778 |
|
|
|
630 |
|
|
|
1,996 |
|
|
|
9,408 |
|
|
|
11,404 |
|
|
|
1,775 |
|
|
3,727 |
|
|
|
27,274 |
|
|
|
3,174 |
|
|
|
3,727 |
|
|
|
30,448 |
|
|
|
34,175 |
|
|
|
4,805 |
|
|
3,015 |
|
|
|
6,734 |
|
|
|
936 |
|
|
|
3,015 |
|
|
|
7,670 |
|
|
|
10,685 |
|
|
|
1,943 |
|
|
3,940 |
|
|
|
12,547 |
|
|
|
2,966 |
|
|
|
3,940 |
|
|
|
15,513 |
|
|
|
19,453 |
|
|
|
2,347 |
|
|
4,829 |
|
|
|
10,978 |
|
|
|
512 |
|
|
|
4,829 |
|
|
|
11,490 |
|
|
|
16,319 |
|
|
|
1,682 |
|
|
5,881 |
|
|
|
3,495 |
|
|
|
290 |
|
|
|
5,881 |
|
|
|
3,785 |
|
|
|
9,666 |
|
|
|
574 |
|
|
19,897 |
|
|
|
10,750 |
|
|
|
15,310 |
|
|
|
18,011 |
|
|
|
27,946 |
|
|
|
45,957 |
|
|
|
2,902 |
|
|
1,614 |
|
|
|
3,611 |
|
|
|
(33 |
) |
|
|
1,614 |
|
|
|
3,578 |
|
|
|
5,192 |
|
|
|
496 |
|
|
2,682 |
|
|
|
9,456 |
|
|
|
2,786 |
|
|
|
2,675 |
|
|
|
12,249 |
|
|
|
14,924 |
|
|
|
378 |
|
|
|
|
|
|
13653 |
|
|
|
1,361 |
|
|
|
|
|
|
|
15,014 |
|
|
|
15,014 |
|
|
|
|
|
|
25,806 |
|
|
|
33,883 |
|
|
|
83 |
|
|
|
25,806 |
|
|
|
33,966 |
|
|
|
59,772 |
|
|
|
516 |
|
|
5,895 |
|
|
|
11,655 |
|
|
|
5,000 |
|
|
|
5,895 |
|
|
|
16,655 |
|
|
|
22,550 |
|
|
|
36 |
|
|
|
|
|
|
15,300 |
|
|
|
11 |
|
|
|
|
|
|
|
15,311 |
|
|
|
15,311 |
|
|
|
|
|
|
27,077 |
|
|
|
17,520 |
|
|
|
|
|
|
|
27,077 |
|
|
|
17,520 |
|
|
|
44,597 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,875 |
|
|
|
298329 |
|
|
|
62,461 |
|
|
|
132,982 |
|
|
|
362,683 |
|
|
|
495,665 |
|
|
|
55,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,160 |
|
|
|
23,660 |
|
|
|
11,629 |
|
|
|
5,160 |
|
|
|
35,289 |
|
|
|
40,449 |
|
|
|
11,030 |
|
|
1,365 |
|
|
|
5,119 |
|
|
|
1,748 |
|
|
|
1,365 |
|
|
|
6,867 |
|
|
|
8,232 |
|
|
|
2,602 |
|
|
1,323 |
|
|
|
4,967 |
|
|
|
572 |
|
|
|
1,323 |
|
|
|
5,539 |
|
|
|
6,862 |
|
|
|
2,391 |
|
|
1,922 |
|
|
|
7,026 |
|
|
|
2,165 |
|
|
|
1,922 |
|
|
|
9,191 |
|
|
|
11,113 |
|
|
|
3,357 |
|
|
1,036 |
|
|
|
6,254 |
|
|
|
810 |
|
|
|
1,036 |
|
|
|
7,064 |
|
|
|
8,100 |
|
|
|
1,098 |
|
|
1,221 |
|
|
|
8,693 |
|
|
|
1,857 |
|
|
|
1,221 |
|
|
|
10,550 |
|
|
|
11,771 |
|
|
|
2,164 |
|
|
1,387 |
|
|
|
11,362 |
|
|
|
7,509 |
|
|
|
1,387 |
|
|
|
18,871 |
|
|
|
20,258 |
|
|
|
2,697 |
|
|
4,447 |
|
|
|
24,739 |
|
|
|
253 |
|
|
|
4,815 |
|
|
|
24,624 |
|
|
|
29,439 |
|
|
|
5,098 |
|
|
4,132 |
|
|
|
10,674 |
|
|
|
4,748 |
|
|
|
4,132 |
|
|
|
15,422 |
|
|
|
19,554 |
|
|
|
2,393 |
|
|
3,290 |
|
|
|
24,949 |
|
|
|
3,043 |
|
|
|
3,290 |
|
|
|
27,992 |
|
|
|
31,282 |
|
|
|
4,086 |
|
|
2,592 |
|
|
|
8,563 |
|
|
|
1,782 |
|
|
|
2,592 |
|
|
|
10,345 |
|
|
|
12,937 |
|
|
|
2,173 |
|
|
3,153 |
|
|
|
26,294 |
|
|
|
3,013 |
|
|
|
3,482 |
|
|
|
28,978 |
|
|
|
32,460 |
|
|
|
4,870 |
|
|
1,172 |
|
|
|
7,417 |
|
|
|
1,178 |
|
|
|
1,172 |
|
|
|
8,595 |
|
|
|
9,767 |
|
|
|
1,737 |
|
|
2,657 |
|
|
|
11,597 |
|
|
|
1,714 |
|
|
|
2,657 |
|
|
|
13,311 |
|
|
|
15,968 |
|
|
|
2,314 |
|
|
1,292 |
|
|
|
3,899 |
|
|
|
518 |
|
|
|
1,292 |
|
|
|
4,417 |
|
|
|
5,709 |
|
|
|
621 |
|
|
250 |
|
|
|
2,814 |
|
|
|
497 |
|
|
|
250 |
|
|
|
3,311 |
|
|
|
3,561 |
|
|
|
573 |
|
|
900 |
|
|
|
13,335 |
|
|
|
2,186 |
|
|
|
900 |
|
|
|
15,521 |
|
|
|
16,421 |
|
|
|
2,300 |
|
|
1,794 |
|
|
|
11,561 |
|
|
|
705 |
|
|
|
1,794 |
|
|
|
12,266 |
|
|
|
14,060 |
|
|
|
1,693 |
|
|
1,320 |
|
|
|
2,293 |
|
|
|
374 |
|
|
|
1,320 |
|
|
|
2,667 |
|
|
|
3,987 |
|
|
|
398 |
|
|
1,789 |
|
|
|
19,712 |
|
|
|
2,236 |
|
|
|
1,789 |
|
|
|
21,948 |
|
|
|
23,737 |
|
|
|
3,616 |
|
|
4,164 |
|
|
|
18,984 |
|
|
|
2,262 |
|
|
|
4,164 |
|
|
|
21,246 |
|
|
|
25,410 |
|
|
|
2,784 |
|
|
2,024 |
|
|
|
7,960 |
|
|
|
918 |
|
|
|
2,024 |
|
|
|
8,878 |
|
|
|
10,902 |
|
|
|
1,366 |
|
|
618 |
|
|
|
4,517 |
|
|
|
383 |
|
|
|
618 |
|
|
|
4,900 |
|
|
|
5,518 |
|
|
|
578 |
|
|
5,634 |
|
|
|
11,533 |
|
|
|
606 |
|
|
|
5,634 |
|
|
|
12,139 |
|
|
|
17,773 |
|
|
|
1,296 |
|
|
1,860 |
|
|
|
6,071 |
|
|
|
|
|
|
|
1,860 |
|
|
|
6,071 |
|
|
|
7,931 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,502 |
|
|
|
283,993 |
|
|
|
52,706 |
|
|
|
57,199 |
|
|
|
336,002 |
|
|
|
393,201 |
|
|
|
63,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,642 |
|
|
|
|
|
|
|
253 |
|
|
|
3,895 |
|
|
|
|
|
|
|
3,895 |
|
|
|
|
|
|
71 |
|
|
|
39 |
|
|
|
|
|
|
|
71 |
|
|
|
39 |
|
|
|
110 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
317,050 |
|
|
$ |
929,605 |
|
|
$ |
142,232 |
|
|
$ |
315,229 |
|
|
$ |
1,073,658 |
|
|
$ |
1,388,887 |
|
|
$ |
170,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
I =Industrial; BP=Business Park; OP=Office Park |
122
Depreciation of rental property is computed on a straight-line basis over the estimated
useful lives of the assets. The estimated lives of the Companys assets range from 5 to 39 years or
to the term of the underlying lease. The tax basis of the Companys real estate assets was $1,422
million and $1,135 million at December 31, 2010 and 2009, respectively.
(a) Reconciliation of Real Estate
The following table reconciles the real estate investments for the years ended December 31
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,128,956 |
|
|
$ |
1,106,571 |
|
|
$ |
1,065,181 |
|
Acquisitions
of rental property (1) |
|
|
267,312 |
|
|
|
33,446 |
|
|
|
43,528 |
|
Capital expenditures |
|
|
24,952 |
|
|
|
18,961 |
|
|
|
39,922 |
|
Impairments |
|
|
(3,448 |
) |
|
|
(2,541 |
) |
|
|
|
|
Cost of real
estate sold (2) |
|
|
(26,065 |
) |
|
|
(25,060 |
) |
|
|
(38,131 |
) |
Dispositions |
|
|
(2,820 |
) |
|
|
(2,421 |
) |
|
|
(3,929 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,388,887 |
|
|
$ |
1,128,956 |
|
|
$ |
1,106,571 |
|
|
|
|
|
|
|
|
|
|
|
(b) Reconciliation of Accumulated Depreciation
The following table reconciles the accumulated depreciation on the real estate investments for
the years ended December 31 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
141,481 |
|
|
$ |
111,658 |
|
|
$ |
88,075 |
|
Depreciation of acquisitions of rental property |
|
|
991 |
|
|
|
168 |
|
|
|
347 |
|
Depreciation of all other rental property and
capital expenditures |
|
|
32,822 |
|
|
|
31,862 |
|
|
|
27,539 |
|
Dispositions |
|
|
(1,988 |
) |
|
|
(200 |
) |
|
|
(3,508 |
) |
Dispositions write-off |
|
|
(2,316 |
) |
|
|
(2,007 |
) |
|
|
(795 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
170,990 |
|
|
$ |
141,481 |
|
|
$ |
111,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a $2.4 million impairment for the year
ended December 31, 2010 related to a property that was acquired in the fourth quarter of 2010. |
(2) |
|
Includes a $0.6 million impairment for the year
ended December 31, 2010 related to a property that was sold in the second quarter of 2010. |
123
EXHIBIT INDEX
|
|
|
Exhibit |
|
Description of Document |
|
|
|
3.1(1)
|
|
Amended and Restated Declaration of Trust of the Registrant. |
3.2(2)
|
|
Articles Supplementary designating First Potomac Realty Trusts 7.750% Series A Cumulative Redeemable Perpetual Preferred
Shares, liquidation preference $25.00 per share, par value $0.001 per share. |
3.3(3)
|
|
Form of share certificate evidencing the Companys Common Shares |
3.4(4)
|
|
Form of share certificate evidencing the 7.750% Series A Cumulative Redeemable Perpetual Preferred Shares, liquidation
preference $25.00 per share, par value $0.001 per share |
3.5(1)
|
|
Amended and Restated Bylaws of the Registrant. |
4.1(1)
|
|
Amended and Restated Agreement of Limited Partnership of First Potomac Realty Investment, L.P. dated September 15, 2004. |
4.2(5)
|
|
Amendment No. 13 to Amended and Restated Limited Partnership Agreement of First Potomac Realty Investment Limited Partnership. |
4.3(6)
|
|
Form of First Potomac Realty Investment Limited Partnership 6.41% Senior Notes, Series A, due 2013. |
4.4(7)
|
|
Form of First Potomac Realty Investment Limited Partnership 6.55% Senior Notes, Series B, due 2016. |
4.5(8)
|
|
Note Purchase Agreement by and among the Registrant, First Potomac Realty Investment Limited Partnership and the several
Purchasers listed on the signature pages thereto, dated as of June 22, 2006. |
4.6*
|
|
First Amendment, Consent and Waiver dated as of November 5, 2010 to the Note Purchase Agreement dated as of June 22, 2006, by and
among the Registrant, First Potomac Realty Investment Limited Partnership and the several Purchasers listed on the signature pages
thereto. |
4.7(9)
|
|
Trust Guaranty, entered into by the Registrant, dated as of June 22, 2006. |
4.8(10)
|
|
Subsidiary Guaranty, dated as of June 22, 2006. |
4.9(11)
|
|
Indenture, dated as of December 11, 2006, by and among First Potomac Realty Investment Limited Partnership, the Registrant,
as Guarantor, and Wells Fargo Bank, National Association, as Trustee. |
4.10(7)
|
|
Form of First Potomac Realty Investment Limited Partnership 4.0% Exchangeable Senior Note due 2011. |
10.1(1)
|
|
Employment Agreement, dated October 8, 2003, by and between Douglas J. Donatelli and First Potomac Realty Investment Limited
Partnership. |
10.2(1)
|
|
Employment Agreement, dated October 8, 2003, by and between Nicholas R. Smith and First Potomac Realty Investment Limited
Partnership. |
10.3(1)
|
|
Employment Agreement, dated October 8, 2003, by and between Barry H. Bass and First Potomac Realty Investment Limited
Partnership. |
10.4(1)
|
|
Employment Agreement, dated October 8, 2003, by and between James H. Dawson and First Potomac Realty Investment Limited
Partnership. |
10.5(12)
|
|
Employment Agreement, dated February 14, 2005, by and between Joel F. Bonder and the Registrant. |
10.6(13)
|
|
Amendment to Employment Agreement, dated December 19, 2008, by and between Douglas J. Donatelli and First Potomac Realty
Investment Limited Partnership. |
10.7(14)
|
|
Form of Amendment to Employment Agreement, dated December 19, 2008, by and between First Potomac Realty Investment Limited
Partnership and certain executive officers of the Registrant. |
10.8(1)
|
|
2003 Equity Compensation Plan. |
10.9(15)
|
|
2009 Equity Compensation Plan |
10.10(16)
|
|
2009 Employee Stock Purchase Plan |
10.11(17)
|
|
Amendment No. 1 to the 2003 Equity Compensation Plan. |
10.12(18)
|
|
Amendment No. 2 to the 2003 Equity Compensation Plan. |
10.13(19)
|
|
Amendment No. 1 to the Companys 2009 Equity Compensation Plan |
10.14(20)
|
|
Consent to Sub-Sublease, by and among Bethesda Place II Limited Partnership, Informax, Inc. and the Registrant, dated March
31, 2005. |
10.15(21)
|
|
Loan Agreement, by and among Jackson National Life Insurance Company, as lender, and Rumsey First LLC, Snowden First LLC, GTC
II First LLC, Norfolk First LLC, Bren Mar, LLC, Plaza 500, LLC and Van Buren, LLC, as the borrowers, dated July 18, 2005. |
10.16(22)
|
|
Second Amended and Restated Revolving Credit Agreement among First Potomac Realty Investment Limited Partnership and KeyBank
N.A., Wells Fargo N.A., PNC Bank, N.A., Wachovia Bank, N.A., Bank of Montreal, and Chevy Chase Bank (a division of Capital One,
N.A.), dated as of December 29, 2009. |
10.17(23)
|
|
Amendment No. 1 to the Second Amended and Restated Revolving Credit Agreement, dated May 14, 2010, between the Operating
Partnership, KeyBank N.A., Wells Fargo N.A., Wachovia Bank, N.A., Bank of Montreal, PNC Bank N.A., and Chevy Chase Bank |
10.18(24)
|
|
Commitment Increase Agreement, dated June 1, 2010, among the Operating Partnership and certain of its subsidiaries, KeyBank
N.A. (as administrative agent) and USBank National Association and TD Bank, N.A., each as additional lenders. |
124
|
|
|
Exhibit |
|
Description of Document |
|
|
|
10.19*
|
|
Amendment No. 2, dated October 27, 2010, to the Companys Second Amended and Restated Revolving Credit Agreement, dated
December 29, 2009, between the Operating Partnership, certain of the Operating Partnerships subsidiaries and KeyBank N.A., Wells
Fargo N.A., Wachovia Bank, N.A., Bank of Montreal, PNC Bank, N.A. Chevy Chase Bank (a division of Capital One, N.A.), U.S. Bank,
N.A. and TD Bank, N.A |
10.20(25)
|
|
Form of Restricted Common Shares Award Agreement for Officers. |
10.21(26)
|
|
Form of 2007 Restricted Common Shares Award Agreement for Trustees. |
10.22(27)
|
|
Form of 2008 Restricted Common Shares Award Agreement for Trustees. |
10.23(28)
|
|
Form of 2009 Restricted Common Shares Award Agreement for Trustees. |
10.24(29)
|
|
Form of 2009 Restricted Common Shares Award Agreement for Officers (Time-Vesting). |
10.25(30)
|
|
Form of 2009 Restricted Common Shares Award Agreement for Officers (Performance-Based). |
10.26(31)
|
|
Form of 2010 Form of Restricted Stock Agreement (Time-Vesting) |
10.27(32)
|
|
From of 2010 Restricted Stock Agreement (Performance-Vesting) |
10.28(33)
|
|
Form of Restricted Common Share Award Agreement for Trustees |
10.29(34)
|
|
Registration Rights Agreement, dated December 11, 2006, by and among First Potomac Realty Investment Limited Partnership, the
Registrant and Wachovia Capital Markets, LLC, as the Representative. |
10.30(35)
|
|
Letter Agreement with respect to Capped-Call Transaction, dated December 5, 2006, by and among First Potomac Realty
Investment Limited Partnership, the Registrant and Wachovia Bank, National Association. |
10.31(36)
|
|
Letter Agreement with respect to Capped-Call Transaction, dated December 8, 2006, by and among First Potomac Realty
Investment Limited Partnership, the Registrant and Wachovia Bank, National Association. |
10.32(37)
|
|
Secured Term Loan Agreement, dated August 7, 2007, by and between First Potomac Realty Investment Limited Partnership and
KeyBank National Association. |
10.33(38)
|
|
Amendment No. 1 to Secured Term Loan Agreement dated as of September 30, 2007, by and between First Potomac Realty Investment
Limited Partnership, KeyBank National Association and PNC Bank, National Association. |
10.34(39)
|
|
Amendment No. 2 to Secured Term Loan Agreement dated as of November 30, 2007, among First Potomac Realty Investment Limited
Partnership, KeyBank National Association and PNC Bank, National Association. |
10.35(40)
|
|
Amendment No. 3 to Secured Term Loan Agreement dated as of December 29, 2009, among First Potomac Realty Investment Limited
Partnership, and KeyBank National Association. |
10.36(41)
|
|
Secured Term Loan Agreement, dated August 11, 2008, by and between First Potomac Realty Investment Limited Partnership and
KeyBank National Association. |
10.37(42)
|
|
Amendment No. 1 to Secured Term Loan Agreement, dated August 11, 2008, by and between First Potomac Realty Investment Limited
Partnership and KeyBank National Association. |
10.38(43)
|
|
Amendment No. 2 to Secured Term Loan Agreement, dated August 11, 2008, by and between First Potomac Realty Investment Limited
Partnership and KeyBank National Association. |
10.39*
|
|
Amendment No. 3, dated October 27, 2010, by and among the Operating Partnership, certain of its subsidiaries (as guarantors),
KeyBank and Wells Fargo, to the Secured Term Loan Agreement, dated August 11, 2008, as amended to date, by and among the Operating
Partnership, certain of its subsidiaries (as guarantors) and the lending institutions which are parties thereto. |
10.40*
|
|
Amendment No. 4, dated October 27, 2010, by and among the Operating Partnership, certain of its subsidiaries (as guarantors) and
KeyBank, to the Secured Term Loan Agreement, dated August 7, 2007, as amended to date, by and among the Operating Partnership,
certain of its subsidiaries (as guarantors) and the lending institutions which are parties thereto. |
10.41*
|
|
Secured term loan agreement, dated November 10, 2010, between the Operating Partnership and KeyBank N.A. |
12*
|
|
Statement Regarding Computation of Ratios. |
21*
|
|
Subsidiaries of the Registrant. |
23*
|
|
Consent of KPMG LLP (independent registered public accounting firm). |
31.1*
|
|
Section 302 Certification of Chief Executive Officer. |
31.2*
|
|
Section 302 Certification of Chief Financial Officer. |
32.1*
|
|
Section 906 Certification of Chief Executive Officer. |
32.2*
|
|
Section 906 Certification of Chief Financial Officer. |
|
|
|
(1) |
|
Incorporated by reference to the Exhibits to the Companys
Registration Statement on Form S-11 (Registration No. 333-107172). |
|
(2) |
|
Incorporated by reference to Exhibit 3.2 to the Companys Registration
Statement on Form 8-A (Registration No. 001-31824). |
|
(3) |
|
Incorporated by reference to the Exhibits to the Companys
Registration Statement on Form S-11 (Registration No. 333-107172). |
|
(4) |
|
Incorporated by reference to Exhibit 4.1 to the Companys Registration
Statement on Form 8-A (Registration No. 001-31824). |
|
(5) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on January 19, 2011. |
|
(6) |
|
Incorporated by reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
125
|
|
|
(7) |
|
Incorporated by reference to Exhibit 4.2 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(8) |
|
Incorporated by reference to Exhibit 4.3 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(9) |
|
Incorporated by reference to Exhibit 4.4 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(10) |
|
Incorporated by reference to Exhibit 4.5 to the Companys Current Report
on Form 8-K filed on June 23, 2006. |
|
(11) |
|
Incorporated by reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on December 12, 2006. |
|
(7) |
|
Incorporated by reference to Exhibit 4.2 to the Companys Current Report on
Form 8-K filed on December 12, 2006. |
|
(12) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on February 17, 2005. |
|
(13) |
|
Incorporated by reference to Exhibit 10.1 of the Companys Current Report
on Form 8-K filed on December 24, 2008. |
|
(14) |
|
Incorporated by reference to Exhibit 10.2 of the Companys Current Report
on Form 8-K filed on December 24, 2008. |
|
(15) |
|
Incorporated by reference to Exhibit A to the Companys definitive proxy
statement on Schedule 14A filed on April 8, 2009. |
|
(16) |
|
Incorporated by reference to Exhibit B to the Companys definitive proxy
statement on Schedule 14A filed on April 8, 2009. |
|
(17) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on October 20, 2005. |
|
(18) |
|
Incorporated by reference to Exhibit A to the Companys definitive proxy
statement on Schedule 14A filed on April 11, 2007. |
|
(19) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 21, 2010. |
|
(20) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on April 28, 2005. |
|
(21) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on July 22, 2005. |
|
(22) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on January 5, 2010. |
|
(23) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 19, 2010. |
|
(24) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on June 7, 2010. |
|
(25) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on July 13, 2006. |
|
(26) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 30, 2007. |
|
(27) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 28, 2008. |
|
(28) |
|
Incorporated by reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K filed on May 26, 2009. |
|
(29) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 26, 2009. |
|
(30) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on May 26, 2009. |
|
(31) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on March 1, 2010. |
|
(32) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on March 1, 2010. |
|
(33) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on May 21, 2010. |
|
(34) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on December 12, 2006. |
|
(35) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on December 12, 2006. |
|
(36) |
|
Incorporated by reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K filed on December 12, 2006. |
|
(37) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on August 10, 2007. |
|
(38) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q filed on November 9, 2007. |
|
(39) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on December 6, 2007. |
|
(40) |
|
Incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on January 5, 2010. |
|
(41) |
|
Incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on August 12, 2008. |
|
(42) |
|
Incorporated by reference to Exhibit 10.28 to the Companys Current Report
on Form 10-K filed on March 5, 2010. |
|
(43) |
|
Incorporated by reference to Exhibit 10.29 to the Companys Current Report
on Form 10-K filed on March 5, 2010. |
|
* |
|
Filed herewith |
126