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EX-23.1 - EX-23.1 - FIRST POTOMAC REALTY TRUSTc19495exv23w1.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 2011
FIRST POTOMAC REALTY TRUST
(Exact name of registrant as specified in its charter)
         
Maryland   001-31824   37-1470730
         
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer Identification No.)
     
7600 Wisconsin Avenue
Bethesda, Maryland
   
20814
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (301) 986-9200
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 


 

Item 8.01. Other Events
During the period from April 28, 2010 to April 8, 2011, First Potomac Realty Trust (the “Company”) purchased eleven consolidated real estate properties and completed two additional acquisitions through unconsolidated joint ventures, all of which were previously disclosed in press releases furnished as exhibits to Current Reports on Form 8-K. The consolidated acquisitions included a vacant office building that was purchased with the intent to fully redevelop the property and a newly constructed vacant office property with no prior operating history. In addition, one of the unconsolidated joint ventures referred to above acquired a newly constructed property with no prior operating history. Under the rules and regulations of the Securities and Exchange Commission, these properties are individually insignificant but, in the aggregate, are significant. Regulation S-X requires the presentation of audited statements of revenues and certain expenses for a majority of the individually insignificant properties when acquired properties are individually insignificant, but significant in the aggregate. In particular, the Company’s acquisitions in the fiscal year ended December 31, 2010 were significant in the aggregate. In addition, properties acquired subsequent to December 31, 2010 are also significant in the aggregate. As a result, the Company is presenting statements of revenues and certain expenses for 500 First Street, NW and Redland Corporate Center (a majority of all 2010 acquisitions) and 840 First Street, NE and One Fair Oaks (a majority of all 2011 acquisitions).
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Properties Acquired.
  1.  
500 First Street, NW, acquired June 30, 2010:
Independent Auditors’ Report
Statements of Revenues and Certain Expenses for the three months ended March 31, 2010
(unaudited) and year ended December 31, 2009
Notes to Statements of Revenues and Certain Expenses
 
  2.  
Redland Corporate Center, acquired November 10, 2010:
Independent Auditors’ Report
Statements of Revenues and Certain Expenses for the nine months ended September 30, 2010
(unaudited) and the period from July 1, 2009 (inception) to December 31, 2009
Notes to Statements of Revenues and Certain Expenses
 
  3.  
840 First Street, NE, acquired March 25, 2011:
Independent Auditors’ Report
Statement of Revenues and Certain Expenses for the year ended December 31, 2010
Notes to Statements of Revenues and Certain Expenses
 
  4.  
One Fair Oaks, acquired April 8, 2011:
Independent Auditors’ Report
Statements of Revenues and Certain Expenses for the three months ended March 31, 2011
(unaudited) and year ended December 31, 2010
Notes to Statements of Revenues and Certain Expenses
(b) Pro Forma Financial Information.
The following pro forma financial statements reflect the Company’s completed 2010 and 2011 acquisitions.
1.  
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2011.
 
2.  
Notes to Pro Forma Consolidated Balance Sheet as of March 31, 2011.

 

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3.  
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2011.
 
4.  
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2010.
 
5.  
Notes to Pro Forma Consolidated Statements of Operations.
(d) Exhibits.
     
Exhibit No.    
23.1
  Consent of Independent Registered Public Accounting Firm

 

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FIRST POTOMAC REALTY TRUST
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following pro forma financial information of First Potomac Realty Trust (the “Company”) have been prepared to provide pro forma financial information with respect to certain acquisitions that the Company has completed since April 28, 2010, as well as certain other adjustments described below.
The unaudited pro forma condensed consolidated balance sheet as of March 31, 2011 reflects adjustments related to the Company’s acquisition of One Fair Oaks as if it had occurred on March 31, 2011.
The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2011 assumes that all of the following occurred on January 1, 2010 (collectively, the “2011 Acquisitions”) :
   
The acquisition of 840 First Street, NE for approximately $97.7 million on March 25, 2011, including the assumption of a $57.2 million mortgage, fair valued at $56.5 million at acquisition; and
 
   
The acquisition of One Fair Oaks for approximately $60.3 million on April 8, 2011, including the assumption of a $52.4 million mortgage loan, fair valued at $52.9 million at acquisition.
The unaudited pro forma consolidated statement of operations for the year ended December 31, 2010 assumes that all of the following occurred on January 1, 2010:
   
The acquisition of 500 First Street, NW for approximately $67.8 million on June 30, 2010, partially funded with a new $39.0 million mortgage loan;
 
   
The acquisition of a 97% interest in Redland Corporate Center for approximately $86.4 million on November 10, 2010; and
 
   
The 2011 Acquisitions.
In the opinion of the Company’s management, all adjustments necessary to reflect the effects of these acquisitions and other transactions have been made. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the Company’s actual results of operations or financial condition would have been had the transactions described above occurred at the beginning of the periods presented, nor does it purport to represent the future results of operations or financial condition of the Company. The unaudited pro forma consolidated financial statements and accompanying notes should be read in conjunction with the financial statements included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011 and the Company’s Current Report on Form 8-K dated June 13, 2011 for the year ended December 31, 2010.

 

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FIRST POTOMAC REALTY TRUST
PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 2011
(Unaudited, in thousands)
                         
            One Fair Oaks     Pro Forma  
    Historical     Acquisition     First Potomac  
    (A)     (B)     Realty Trust  
Assets
                       
 
                       
Rental property, net
  $ 1,326,027     $ 50,833     $ 1,376,860  
Cash and cash equivalents
    18,681       (9,009 )     9,672  
Escrows and reserves
    13,504       3,794       17,298  
Accounts and other receivables, net of allowance for doubtful accounts of $3,351 and $3,246, respectively
    8,602             8,602  
Accrued straight-line rents, net of allowance for doubtful accounts of $893 and $894, respectively
    13,549             13,549  
Note receivable, net
    24,760             24,760  
Investment in affiliates
    23,994             23,994  
Deferred costs, net
    22,260       199       22,459  
Prepaid expenses and other assets
    14,966             14,966  
Intangibles assets, net
    54,673       7,083       61,756  
 
                 
Total assets
  $ 1,521,016     $ 52,900     $ 1,573,916  
 
                 
 
                       
Liabilities
                       
 
                       
Mortgage loans
  $ 391,573     $ 52,900     $ 444,473  
Exchangeable senior notes, net
    30,076             30,076  
Senior notes
    75,000             75,000  
Secured term loans
    100,000             100,000  
Unsecured revolving credit facility
    116,000             116,000  
Accounts payable and other liabilities
    34,342             34,342  
Accrued interest
    3,736             3,736  
Rents received in advance
    7,234             7,234  
Tenant security deposits
    5,620             5,620  
Deferred market rent, net
    5,676             5,676  
 
                 
 
                       
Total liabilities
    769,257       52,900       822,157  
 
                       
Noncontrolling interests in the Operating Partnership
    37,420             37,420  
 
                       
Total equity
    714,339             714,339  
 
                 
Total liabilities, noncontrolling interests and equity
  $ 1,521,016     $ 52,900     $ 1,573,916  
 
                 
See accompanying notes to unaudited pro forma consolidated balance sheet.

 

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FIRST POTOMAC REALTY TRUST
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2011
(UNAUDITED)
(A) Reflects the historical consolidated balance sheet of First Potomac Realty Trust (the “Company”) as of March 31, 2011. See the historical consolidated financial statements and notes thereto included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011.
(B) Reflects the Company’s acquisition of One Fair Oaks, which the Company acquired on April 8, 2011 for approximately $60.3 million. This acquisition was funded through the assumption of a $52.4 million mortgage, fair valued at $52.9 million and available cash. The purchase price of this property has been allocated among the building (on an as-if vacant basis), land, tenant improvements, leasing commissions, the origination value of leases and the fair value of at, above or below market leases. The fair value of One Fair Oaks’ assets are preliminary as the Company continues to assess its initial fair value determination of its assets. The weighted average amortization period for all the intangible assets associated with One Fair Oaks was 7.0 years.

 

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FIRST POTOMAC REALTY TRUST
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2011
(unaudited, in thousands, except per share amounts)
                                         
            840     One              
            First     Fair     Other        
    Historical     Street, NE     Oaks     Transactions        
    (A)     (B)     (B)     (C)     Pro Forma  
Revenues
                                       
Rental revenue
  $ 32,359     $ 1,544     $ 1,304     $     $ 35,207  
Tenant reimbursement
    8,111       1,081       610             9,802  
 
                             
Total revenues
    40,470       2,625       1,914             45,009  
 
                                       
Operating expenses
                                       
Property operating
    10,958       611       435             12,004  
Real estate taxes and insurance
    4,002       378       158             4,538  
General and administrative
    4,008                         4,008  
Acquisition costs
    2,185                   (1,695 )     490  
Depreciation and amortization
    12,770       2,393       669             15,832  
Impairment of real estate assets
    2,711                         2,711  
 
                             
Total operating expenses
    36,634       3,382       1,262       (1,695 )     39,583  
 
                                       
Operating income (loss)
    3,836       (757 )     652       1,695       5,426  
 
                             
 
                                       
Interest and other expenses, net
    7,527       910       894       126       9,457  
 
                             
 
                                       
(Loss) income from continuing operations
    (3,691 )     (1,667 )     (242 )     1,569       (4,031 )
(Loss) income from continuing operations attributable to noncontrolling interests
    134       71       11       (71 )     145  
 
                             
(Loss) income from continuing operations attributable to First Potomac Realty Trust
    (3,557 )     (1,596 )     (231 )     1,498       (3,886 )
 
                             
 
                                       
Less: Dividends on preferred shares
    (1,783 )                       (1,783 )
 
                             
 
                                       
Net (loss) income from continuing operations available to common shareholders
  $ (5,340 )   $ (1,596 )   $ (231 )   $ 1,498     $ (5,669 )
 
                             
 
                                       
Loss from continuing operations per share:
                                       
Basic and diluted
  $ (0.12 )                           $ (0.12 )
 
                                       
Weighted average common share outstanding:
                                       
Basic and diluted
    49,234                               49,234  
See accompanying notes to unaudited pro forma consolidated statement of operations.

 

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FIRST POTOMAC REALTY TRUST
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2010
(unaudited, in thousands, except per share amounts)
                                                         
                            500 First     Redland              
            840 First     One Fair     Street,     Corporate     Other        
    Historical     Street, NE     Oaks     NW     Center     Transactions        
    (A)     (B)     (B)     (D)     (D)     (C)     Pro Forma  
Revenues
                                                       
Rental revenue
  $ 111,860     $ 7,546     $ 5,215     $ 2,072     $ 4,045     $     $ 130,738  
Tenant reimbursement
    26,687       4,790       2,544       650       2             34,673  
 
                                         
Total revenues
    138,547       12,336       7,759       2,722       4,047             165,411  
 
                                                       
Operating expenses
                                                       
Property operating
    33,714       2,715       1,795       739       1,175             40,138  
Taxes and insurance
    12,954       2,077       604       430       1,060             17,125  
General and administrative
    14,523                                     14,523  
Acquisition costs
    7,169                               1,972       9,141  
Depreciation and amortization
    42,613       9,572       2,674       1,103       2,055             58,017  
Impairment of real estate assets
    2,386                                     2,386  
Contingent consideration related to property
    710                                     710  
 
                                         
Total operating expenses
    114,069       14,364       5,073       2,272       4,290       1,972       142,040  
 
                                                       
Operations income (loss)
    24,478       (2,028 )     2,686       450       (243 )     (1,972 )     23,371  
 
                                         
 
                                                       
Interest and other expenses, net
    33,115       3,264       3,576       1,098             3,335       44,388  
 
                                         
 
                                                       
Loss from continuing operations
    (8,637 )     (5,292 )     (890 )     (648 )     (243 )     (5,307 )     (21,017 )
Loss from continuing operations attributable to noncontrolling interests
    174       295       50       39       22       296       876  
 
                                         
 
                                                       
Net loss from continuing operations available to common Shareholders
  $ (8,463 )   $ (4,997 )   $ (840 )   $ (609 )   $ (221 )   $ (5,011 )   $ (20,141 )
 
                                         
 
                                                       
Loss from continuing operations per share:
                                                       
Basic and diluted
    ($0.25 )                                             ($0.56 )
 
                                                       
Weighted average common share outstanding:
                                                       
Basic and diluted
    36,984                                               36,984  
See accompanying notes to unaudited pro forma consolidated statement of operations.

 

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FIRST POTOMAC REALTY TRUST
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(A) Reflects the Company’s historical consolidated statements of operations for the three months ended March 31, 2011 and the year ended December 31, 2010. See the historical consolidated financial statements and notes thereto included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011 and the Company’s Current Report on Form 8-K dated June 13, 2011 for the year ended December 31, 2010.
(B) Reflects the operating results of 2011 completed acquisitions, including depreciation and amortization expense and an adjustment to rental revenue related to allocation of the purchase price to tenant improvements, customer and tenant relationships, the origination value of leases and the fair value of at, above or below market leases.
Interest expense arising from assumed mortgage debt with fair values and effective interest rates as follows: $56.5 million and 6.05% for 840 First Street, NE; and $52.9 million and 6.72% for One Fair Oaks.
Property operating expenses have been adjusted to eliminate historical management fees for properties managed by the Company since acquisition.
(C) Reflects acquisition costs associated with the 2011 acquisitions treated as incurred effective January 1, 2010. Other expense includes the impact of interest expense associated with borrowings incurred on the Company’s revolving line of credit to partially fund the 2010 and 2011 acquisitions.
(D) Reflects the operating results of 2010 completed acquisitions, including depreciation and amortization expense and an adjustment to rental revenue related to allocation of the purchase price to tenant improvements, customer and tenant relationships, the origination value of leases and the fair value of at, above or below market leases.
The adjustment to noncontrolling interests reflects the allocable share of the properties’ operating results and the impact of other transactions.
Interest expense arising from assumed mortgage debt associated with 500 First Street, NW with a fair value and effective interest rate of $39.0 million and 5.79%, respectively.
The Company’s excess of distributions over earnings related to its participating securities are accounted for as a reduction in total earnings attributable to common shareholders in the Company’s computation of earnings or loss per share. For the three months ended March 31, 2011 and the year ended December 31, 2010, the Company’s loss from continuing operations was increased by $0.1 million and $0.6 million, respectively, related to its excess distributions over earning in the calculation of its loss from continuing operations per share.
A one-eighth percentage point fluctuation in the variable interest rate applicable to the debt instruments used to acquire 840 First Street, NE, 500 First Street, NW and Redland Corporate Center would result in a change in annual interest and other expenses of $0.2 million.

 

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INDEPENDENT AUDITORS’ REPORT
The Board of Trustees and Shareholders
First Potomac Realty Investment Trust:
We have audited the accompanying statement of revenues and certain expenses (as defined in note 2) of 500 First Street, NW for the year ended December 31, 2009. This statement is the responsibility of management. Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain expenses. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission Rule 3-14 of Regulation S-X and is not intended to be a complete presentation of the revenues and expenses of 500 First Street, NW. As described in note 2, the accompanying statement of revenues and certain expenses excludes some expenses of the property, and may not be comparable with those expenses resulting from the proposed future operations of 500 First Street, NW.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses (described in note 2) of 500 First Street, NW for the year ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
McLean, Virginia
June 30, 2011

 

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500 FIRST STREET, NW
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Three months ended March 31, 2010 (unaudited) and Year ended December 31, 2009
                 
    2010     2009  
    (unaudited)        
Revenues:
               
Rental
  $ 767,679     $ 3,070,715  
Tenant reimbursement and other
    253,828       1,283,765  
Garage
    73,368       293,232  
 
           
 
    1,094,875       4,647,712  
 
           
 
               
Certain expenses:
               
Real estate taxes
    206,061       847,781  
Utilities
    118,218       473,085  
Payroll and Administrative
    66,673       238,433  
Service contracts
    89,842       354,352  
Management fees (note 4)
    30,000       120,000  
Repairs and maintenance
    47,346       323,710  
Insurance
    9,849       38,000  
Other
    18,293       54,092  
 
           
 
               
 
    586,282       2,449,453  
 
           
 
               
Revenues in excess of certain expenses
  $ 508,593     $ 2,198,259  
 
           
See accompanying notes to statements of revenues and certain expenses.

 

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500 FIRST STREET, NW
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Three months ended March 31, 2010 (unaudited) and Year ended December 31, 2009
(1) Background
On June 30, 2010, First Potomac Realty Trust acquired the ownership interests in 500 First Street, NW, a 129,000 square foot commercial office property in Washington, D.C.
(2) Summary of Significant Accounting Policies and Other Matters
(a) Basis of Presentation
The accompanying statements of revenues and certain expenses and have been prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. The statements exclude certain items, such as mortgage interest and depreciation and amortization, and accordingly, the statements are not representative of the actual operations for the period presented and also may not be comparable to the expenses expected to be incurred in the proposed future operations of 500 First Street, NW. Based on reasonable inquiry, management is not aware of any material factors relating to 500 First Street, NW other than those described above that would cause the reported financial information not to be necessarily indicative of future operating results.
The accompanying unaudited statement of revenues and certain expenses reflects all adjustments necessary to present fairly certain expenses of the 500 First Street, NW, for the three month period ended March 31, 2010. Interim results are not necessarily indicative of full year performance.
(b) Revenue Recognition
The straight-line basis is used to recognize rent revenues over the terms of the respective leases.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the revenues and expenses recognized during the reporting period. Actual results could differ from those estimates.
(d) Subsequent Events
First Potomac Realty Trust has evaluated the need for disclosures and/or adjustments resulting from the subsequent events through June 30, 2011, the date the statements of revenues and certain expenses were available to be issued.
(3) Tenant Leases
The building was fully leased to one tenant at December 31, 2009. The total minimum rents to be received from the tenant under the noncancelable operating lease in effect at December 31, 2009, were as follows:
         
2010
  $ 4,360,392  
2011
    4,360,392  
2012
    4,360,392  
2013
    4,360,392  
2014
    4,360,392  
Thereafter
    6,903,954  
 
     
 
       
Total
  $ 28,705,914  
 
     

 

12


 

(4) Management Fees
500 First Street, NW has a management agreement that provides for management fees based upon a percentage of rental revenues and for reimbursement of certain direct costs, including on-site management costs incurred in operating the building. Management fee expenses during the three months ended March 31, 2010 (unaudited) and the year ended December 31, 2009 were $30,000 and $120,000, respectively.

 

13


 

INDEPENDENT AUDITORS’ REPORT
The Board of Trustees and Shareholders
First Potomac Realty Investment Trust:
We have audited the accompanying statement of revenues and certain expenses (as defined in note 2) of Redland Corporate Center for the period July 1, 2009 (inception) to December 31, 2009. This statement is the responsibility of management. Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain expenses. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission Rule 3-14 of Regulation S-X and is not intended to be a complete presentation of the revenues and expenses of Redland Corporate Center. As described in note 2, the accompanying statement of revenues and certain expenses excludes some expenses of the property, and may not be comparable with those expenses resulting from the proposed future operations of Redland Corporate Center.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses (described in note 2) of Redland Corporate Center for the period July 1, 2009 (inception) to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
McLean, Virginia
June 30, 2011

 

14


 

REDLAND CORPORATE CENTER
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Nine months ended September 30, 2010 (unaudited) and the period July 1, 2009 (inception) to December 31, 2009
                 
    2010     2009  
    (unaudited)        
Revenues:
               
Rental
  $ 3,577,6579     $ 794,493  
Other
    3,419       11  
 
           
 
               
 
    3,581,076       794,504  
 
           
 
               
Certain expenses:
               
Real estate taxes
    785,823       241,844  
Utilities
    404,928       163,271  
Payroll and administrative
    157,599       63,628  
Service contracts
    238,962       44,628  
Management fees (note 4)
    27,315       18,210  
Repairs and maintenance
    68,106       8,368  
Insurance
    75,967       49,889  
Other
    186,644       72,477  
 
           
 
               
 
    1,945,344       662,315  
 
           
 
               
Revenues in excess of certain expenses
  $ 1,635,732     $ 132,189  
 
           
See accompanying notes to statements of revenues and certain expenses.

 

15


 

REDLAND CORPORATE CENTER
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Nine months ended September 30, 2010 (unaudited) and the period from July 1, 2009 (inception) to December 31, 2009
(1) Background
On November 10, 2010, First Potomac Realty Trust purchased a 97% economic interest in the joint venture that owns Redland Corporate Center, a commercial office property in Rockville, Maryland, and formed FP Redland, LLC, a Delaware limited liability company, for the purpose of owning and holding commercial rental properties. Redland Corporate Center has two buildings with an aggregate 247,000 rentable square feet.
(2) Summary of Significant Accounting Policies and Other Matters
(a) Basis of Presentation
The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. The statements exclude certain items, such as mortgage interest and depreciation and amortization, and accordingly, the statements are not representative of the actual operations for the period presented and also may not be comparable to the expenses expected to be incurred by FP Redland, LLC in the proposed future operations of Redland Corporate Center. Based on reasonable inquiry, management is not aware of any material factors relating to Redland Corporate Center other than those described above that would cause the reported financial information not to be necessarily indicative of future operating results.
The accompanying unaudited statement of revenues and certain expenses reflects all adjustments necessary to present fairly certain expenses of the Redland Corporate Center for the nine month period ended September 30, 2010. Interim results are not necessarily indicative of full year performance.
(b) Revenue Recognition
The straight-line basis is used to recognize rent revenues over the terms of the respective leases.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the revenues and expenses recognized during the reporting period. Actual results could differ from those estimates.
(d) Subsequent Events
FP Redland, LLC has evaluated the need for disclosures and/or adjustments resulting from the subsequent events through June 30, 2011, the date the statements of revenues and certain expenses were available to be issued.

 

16


 

(3) Tenant Leases
Redland Corporate Center was leased to two tenants at December 31, 2009. The total minimum rents to be received from the tenants under noncancelable operating leases in effect at December 31, 2009 were as follows:
         
2010
  $ 2,444,373  
2011
    4,226,547  
2012
    4,690,313  
2013
    4,690,512  
2014
    4,927,753  
Thereafter
    31,304,266  
 
     
 
       
Total
  $ 52,283,764  
 
     
(4) Management Fees
Redland Corporate Center has a management agreement that provides for management fees based upon a percentage of rental revenues and for reimbursement of certain direct costs, including on-site management costs incurred in operating the buildings. Management fee expenses during the nine months ended September 30, 2010 (unaudited) and the year ended December 31, 2009 were $27,315 and $18,210, respectively.

 

17


 

INDEPENDENT AUDITORS’ REPORT
The Board of Trustees and Shareholders
First Potomac Realty Investment Trust:
We have audited the accompanying statement of revenues and certain expenses (as defined in note 2) of 840 First Street, NE for the year ended December 31, 2010. This statement is the responsibility of management. Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain expenses. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission Rule 3-14 of Regulation S-X and is not intended to be a complete presentation of the revenues and expenses of 840 First Street, NE. As described in note 2, the accompanying statement of revenues and certain expenses excludes some expenses of the property, and may not be comparable with those expenses resulting from the proposed future operations of 840 First Street, NE.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses (as defined in note 2) of 840 First Street, NE for the year ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
McLean, Virginia
June 30, 2011

 

18


 

840 FIRST STREET, NE
STATEMENT OF REVENUES AND CERTAIN EXPENSES
Year ended December 31, 2010
         
    2010  
 
       
Revenues:
       
Rental
  $ 7,143,901  
Tenant Reimbursement
    4,790,078  
 
     
 
       
 
    11,933,979  
 
     
 
       
Certain expenses:
       
Real estate taxes
    2,042,184  
Utilities
    1,121,170  
Service contracts
    747,581  
Management fees (note 4)
    124,191  
Repair and maintenance expense
    138,591  
Insurance
    34,423  
Payroll and administrative
    405,557  
Other
    177,873  
 
     
 
       
 
    4,791,570  
 
     
 
       
Revenues in excess of certain expenses
  $ 7,142,409  
 
     
See accompanying notes to statement of revenues and certain expenses.

 

19


 

840 FIRST STREET, NE
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
Year ended December 31, 2010
(1) Background
On March 25, 2011, First Potomac Realty Trust (“First Potomac”) purchased 840 First Street, NE, a 249,000 square foot commercial office property located in Washington, D.C, and simultaneously formed FP 840 First Street, LLC, a Delaware limited liability company, for the purpose of owning and holding commercial rental properties.
(2) Summary of Significant Accounting Policies and Other Matters
(a) Basis of Presentation
The accompanying statement of revenues and certain expenses relates to 840 First Street, NE and has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. The statement excludes certain items, such as mortgage interest and depreciation and amortization, and accordingly, the statement is not representative of the actual operations for the period presented and also may not be comparable to the expenses expected to be incurred by FP 840 First Street, LLC in the proposed future operations of 840 First Street, NE. Based on reasonable inquiry, management is not aware of any material factors relating to 840 First Street, NE other than those described above that would cause the reported financial information not to be necessarily indicative of future operating results.
(b) Revenue Recognition
The straight-line basis is used to recognize rent revenues over the terms of the respective leases.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the revenues and expenses recognized during the reporting period. Actual results could differ from those estimates.
(d) Subsequent Events
FP 840 First Street, LLC has evaluated the need for disclosures and/or adjustments resulting from the subsequent events through June 30, 2011, the date the statement of revenues and certain expenses were available to be issued.
(3) Tenant Leases
840 First Street, NE was occupied by one tenant at December 31, 2010. The total minimum rents to be received from the tenant under the noncancelable operating lease in effect at December 31, 2010, were as follows:
         
2011
  $ 7,845,756  
2012
    8,077,246  
2013
    5,447,915  
 
     
 
       
Total
  $ 21,370,917  
 
     

 

20


 

(4) Management Fees
840 First Street, NE has a management agreement that provides for management fees based upon a percentage of rental revenues and for reimbursement of certain direct costs, including on-site management costs incurred in operating the buildings. Management fee expenses during the year ended December 31, 2010 were $124,191.

 

21


 

INDEPENDENT AUDITORS’ REPORT
The Board of Trustees and Shareholders
First Potomac Realty Investment Trust:
We have audited the accompanying statement of revenues and certain expenses (as defined in note 2) of One Fair Oaks for the year ended December 31, 2010. This statement is the responsibility of management. Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain expenses. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission Rule 3-14 of Regulation S-X and is not intended to be a complete presentation of the revenues and expenses of One Fair Oaks. As described in note 2, the accompanying statement of revenues and certain expenses excludes some expenses of the property, and may not be comparable with those expenses resulting from the proposed future operations of One Fair Oaks.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses (as defined in note 2) of One Fair Oaks for the year ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
McLean, Virginia
June 30, 2011

 

22


 

ONE FAIR OAKS
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Three months ended March 31, 2011 (unaudited) and Year ended December 31, 2010
                 
    2011     2010  
    (unaudited)        
Revenues:
               
Rental
  $ 1,114,241     $ 4,456,959  
Tenant reimbursement
    610,196       2,543,963  
 
           
 
               
 
    1,724,437       7,000,922  
 
           
 
               
Certain expenses:
               
Real estate taxes
    145,756       552,998  
Utilities
    180,102       610,899  
Payroll and Administrative
    44,782       171,246  
Service contracts
    109,154       488,675  
Management fees (note 4)
    46,739       186,017  
Repairs and maintenance
    93,023       401,906  
Insurance
    12,319       51,115  
Other
    8,423       122,649  
 
           
 
               
 
    640,298       2,585,505  
 
           
 
               
Revenues in excess of certain expenses
  $ 1,084,139     $ 4,415,417  
 
           
See accompanying notes to statements of revenues and certain expenses.

 

23


 

ONE FAIR OAKS
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Three months ended March 31, 2011 (unaudited) and Year ended December 31, 2010
(1) Background
On April 8, 2011, First Potomac Realty Trust acquired One Fair Oaks, a 214,000 square foot commercial office building located in Fairfax, Virginia, and formed FP One Fair Oaks, LLC, a Delaware limited liability company, for the purpose of owning and holding commercial rental properties.
(2) Summary of Significant Accounting Policies and Other Matters
(a) Basis of Presentation
The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. The statements excludes certain items, such as mortgage interest and depreciation and amortization, and accordingly, the statements are not representative of the actual operations for the periods presented and also may not be comparable to the expenses expected to be incurred by FP One Fair Oaks, LLC in the proposed future operations of One Fair Oaks. Based on reasonable inquiry, management is not aware of any material factors relating to One Fair Oaks other than those described above that would cause the reported financial information not to be necessarily indicative of future operating results.
The accompanying unaudited statement of revenues and certain expenses reflects all adjustments necessary to present fairly certain expenses of One Fair Oaks for the three month period ended March 31, 2011. Interim results are not necessarily indicative of full year performance.
(b) Revenue Recognition
The straight-line basis is used to recognize rent revenues over the terms of the respective leases.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the revenues and expenses recognized during the reporting period. Actual results could differ from those estimates.
(d) Subsequent Events
FP One Fair Oaks, LLC has evaluated the need for disclosures and/or adjustments resulting from the subsequent events through June 30, 2011, the date the statements of revenues and certain expenses were available to be issued.

 

24


 

(3) Tenant Leases
One Fair Oaks was fully leased to one tenant at December 31, 2010. The total minimum rents to be received from the tenant under the noncancelable operating lease in effect at December 31, 2010, were as follows:
         
2011
  $ 5,026,320  
2012
    5,156,010  
2012
    5,289,072  
2014
    5,425,594  
2015
    5,533,805  
Thereafter
    5,671,147  
 
     
 
       
Total
  $ 32,101,948  
 
     
(4) Management Fees
One Fair Oaks has a management agreement that provides for management fees based upon a percentage of rental revenues and for reimbursement of certain direct costs, including on-site management costs incurred in operating the buildings. Management fee expenses during the three months ended March 31, 2011 (unaudited) and the year ended December 31, 2010 were $46,739 and $186,017, respectively.

 

25


 

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FIRST POTOMAC REALTY TRUST

July 1, 2011

/s/ Barry H. Bass                                    
Barry H. Bass
Chief Financial Officer

 

1


 

EXHIBIT INDEX

     
Exhibit No.    
23.1 
  Consent of KPMG LLP

 

2