First Potomac Realty Trust (FPO) 8-K First Quarter 2004 Supplemental Financial Report

Exhibit 99.1

First Quarter 2004 Supplemental Financial Report

Matters other than historical facts set forth within this Supplemental Financial Report are forward-looking statements within the meaning of the federal securities laws. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which could materially affect actual results, performance or achievements. These factors include, without limitation, the ability to enter into new leases or renew leases on favorable terms, the financial condition of tenants, the uncertainties of acquisition activity, the cost and availability of financing, the effects of general and local economic and market conditions, regulatory changes and other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Index to Supplemental Information
March 31, 2004

	Page
Company Information		2
Results and Basis of Presentation Discussion		3
Statements of Operations		4
Pro Forma Financial Measures		5
Net Operating Income (NOI) — Same Property Analysis		6
First Potomac Predecessor Balance Sheets		7
Selected Operating Ratios		8
Total Market Capitalization		9
Description of Properties		10
Portfolio Analysis		11
Summary of Largest Tenants		12
Lease Expirations		13
Leasing Analysis		14
Debt Analysis		15
Management Statements		16

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Quarterly Supplemental Disclosure
March 31, 2004

Company Information

First Potomac Realty Trust is a self-managed, self-administered real estate investment trust formed to acquire, operate and develop industrial and flex properties in the Washington, DC metropolitan area and other major markets in Virginia and Maryland. Our focus is acquiring properties that can benefit from our intensive property management and seeking to reposition these properties to increase their profitability and value. Since its formation in 1997, First Potomac has assembled a 17-property portfolio consisting of 36 buildings totaling approximately 2.9 million square feet.

Corporate Headquarters	7200 Wisconsin Ave.	Investor Relations	Tripp Sullivan
	Suite 310		Corporate Communications, Inc.
	Bethesda, MD 20814		(615) 254-3376
			tripp.sullivan@cci-ir.com
New York Stock Exchange			Barry H. Bass Chief Financial Officer (301) 986-9200 bbass@first-potomac.com
Web Site	www.first-potomac.com

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Quarterly Supplemental Disclosure
March 31, 2004

Company Background

First Potomac Realty Trust (“the Company”) closed on its initial public offering on October 28, 2003. The Company sold 8,625,000 common shares of beneficial interest, raising net proceeds of approximately $118 million. As of March 31, 2004, the Company had used approximately $111 million of the $118 million in net proceeds from the IPO to (i) repay debt, accrued interest and prepayment fees ($48 million), including $7 million of debt in the first quarter of 2004 associated with the partial paydown and restructuring of the mortgage encumbering our Rumsey Center and Snowden Center properties, (ii) acquire joint venture interests held by an institutional partner in four of the Company’s properties ($3 million) and (iii) acquire four additional properties ($60 million). The Company intends to use the remaining proceeds for general corporate and working capital purposes, including possible future acquisitions.

Results and Basis of Presentation

The results and financial information for the three months ended March 31, 2003 that are presented in this supplemental disclosure for the Company’s pre-IPO predecessor (“First Potomac Predecessor”) are presented on a combined historical basis. First Potomac Predecessor is not a legal entity but rather a combination of the entities that comprised the historical operations of the Company and included (i) First Potomac Realty Investment Trust, Inc., the general partner of its Operating Partnership since 1997, (ii) First Potomac Realty Investment Limited Partnership, its Operating Partnership and (iii) First Potomac Management, Inc., the property management company that managed all of its assets.

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Quarterly Supplemental Disclosure
March 31, 2004

STATEMENTS OF OPERATIONS
(unaudited, in thousands)

	FIRST POTOMAC			FIRST POTOMAC
	REALTY TRUST			PREDECESSOR
	3 months ended			3 months ended
	March 31, 2004			March 31, 2003
OPERATING REVENUES
Rental revenues	$	6,652		$	3,688
Tenant reimbursments		1,060			626
	$	7,712		$	4,314
PROPERTY EXPENSES
Property operating		1,631			648
Real estate taxes and insurance		709			400
NET OPERATING INCOME	$	5,372		$	3,266
OTHER INCOME (EXPENSE)
General and administrative		(721	)		(543	)
Other income		35			100
EBITDA		4,686			2,823
Depreciation and amortization		(2,605	)		(1,064	)
Interest expense		(2,068	)		(2,749	)
Equity in loss of investees		—			(1	)
Loss on early retirement of debt		(212	)		—
Loss before minority interest		(199	)		(991	)
Minority interest		28			83
NET (LOSS)	$	(171	)	$	(908	)

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Quarterly Supplemental Disclosure
March 31, 2004

FINANCIAL MEASURES
(unaudited, in thousands, except per share data)

		3 months ended
		March 31, 2004
FUNDS FROM OPERATIONS (“FFO”)
Net loss		$	(171	)
Add back:
Depreciation of real estate and amortization of leasing costs			2,605
Minority interest			(28	)
	FFO	$	2,406
ADJUSTED FUNDS FROM OPERATIONS (“AFFO”)
FFO		$	2,406
Straight-line rent, net			(65	)
Deferred market rent			(102	)
Non real-estate depreciation			8
Amortization of finance costs			380
Tenant improvements			(428	)
Leasing commissions			(123	)
Capital expenditures			(71	)
	AFFO	$	2,005
Total weighted average shares and OP units
Basic			10,031
Diluted			10,157
FFO per share:
FFO per share — Basic		$	0.24
FFO per share — Diluted		$	0.24
AFFO per share — Basic		$	0.20
AFFO per share — Diluted		$	0.20

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Quarterly Supplemental Disclosure
March 31, 2004

NET OPERATING INCOME (NOI)
SAME-PROPERTY ANALYSIS
(unaudited, in thousands)

	FIRST POTOMAC			FIRST POTOMAC
	REALTY TRUST			PREDECESSOR
	3 months ended			3 months ended
	March 31, 2004			March 31, 2003
NOI	$	5,372		$	3,266
Less: Non-same property NOI		(2,499	)		(504	)
Same-property1 NOI — GAAP basis		2,873			2,762
Straight-line revenue, net		(7	)		(17	)
Deferred market rental revenue		(10	)		—
Same-property NOI — cash basis	$	2,856		$	2,745
Same-property NOI growth — GAAP basis		4.0	%
Same-property NOI growth — cash basis		4.0	%

¹ Same-properties for the periods compared include Plaza 500, Van Buren Business Park, 6600 Business Parkway, 13129 Airpark Road, 4200 and 4212 Technology Court, Newington Business Park Center, Crossways Commerce Center I, Crossways Commerce Center II and the Coast Guard Building.

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Quarterly Supplemental Disclosure
March 31, 2004

CONSOLIDATED BALANCE SHEET
(in thousands)

	(unaudited)
	March 31, 2004			December 31, 2003
Assets
Rental property, net	$	206,940		$	208,335
Cash		8,749			16,308
Escrows and reserves		2,568			3,422
Accounts and other receivables		682			575
Accrued straight-line rents		1,878			1,806
Deferred costs, net		3,103			3,205
Prepaid expenses and other assets		2,685			773
Intangible assets, net		9,306			9,724
Total assets	$	235,911		$	244,148
Liabilities
Accounts payable and accrued expenses	$	1,319		$	1,526
Accrued interest		432			152
Rents received in advance		1,041			802
Tenant security deposits		1,073			1,026
Mortgage loans and other debt		120,543			127,840
Deferred market rent		704			803
Total liabilities		125,112			132,149
Minority interest		19,700			19,867
Shareholders’ equity
Common shares, $0.001 par value, 100,000,000 common shares authorized:
8,634,000 shares issued and outstanding		9			9
Additional paid-in capital		117,526			117,525
Accumulated deficit		(26,436	)		(25,402	)
Total shareholders’ equity		91,099			92,132
Total liabilities and shareholders’ equity	$	235,911		$	244,148

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Quarterly Supplemental Disclosure
March 31, 2004

SELECTED OPERATING RATIOS
(unaudited, in thousands)

	3 months ended
	March 31, 2004
COVERAGE RATIOS
Interest Coverage Ratio
EBITDA	$	4,686
Divided by Interest Expense		2,068
		2.27	x
Fixed Charge Coverage Ratio
EBITDA	$	4,686
Divided by Interest Expense		2,068
+ Principal Amortization		297
		1.98	x
OVERHEAD RATIO
G&A to Real Estate Revenues
General and Administrative Expense	$	721
Real Estate Revenues		7,712
		9.3	%
LEVERAGE RATIOS
Debt/Total Market Capitalization
Total Debt	$	120,543
Total Market Capitalization		330,191
		36.5	%

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Quarterly Supplemental Disclosure
March 31, 2004

TOTAL MARKET CAPITALIZATION
(in thousands, except per share data)

			Percent of Total
			Market
			Capitalization
Total Common Shares Outstanding		8,634
Common Operating Partnership (“OP”) Units		1,397
Total Common Shares and OP Units		10,031
Market Price at March 31, 2004	$	20.90
Total Equity Capitalization	$	209,648		63.5	%
Debt Capitalization
Fixed-Rate Debt	$	95,043		28.8	%
Floating-Rate Debt		25,500		7.7	%
Total Debt Capitalization		120,543		36.5	%
Total Market Capitalization	$	330,191		100.0	%

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Quarterly Supplemental Disclosure
March 31, 2004

DESCRIPTION OF PROPERTIES

							Occupancy
	Date of				Square		at March 31,
Property	Acquisition		Property Type	Location	Footage		0404
Plaza 500		1997	Multi-tenant industrial	Alexandria, VA		505,945		97	%
Van Buren Business Park		1997	Flex	Herndon, VA		109,233		75	%
6600 Business Parkway		1997	Single-tenant industrial	Elkridge, MD		172,200		100	%
13129 Airpark Road		1997	Multi-tenant industrial	Culpeper, VA		150,400		66	%
4200 and 4212 Technology Court		1998	Flex	Chantilly, VA		64,064		91	%
Newington Business Park Center		1999	Multi-tenant industrial	Lorton, VA		254,114		99	%
Crossways Commerce Center I		1999	Multi-tenant industrial	Chesapeake, VA		352,615		100	%
Crossways Commerce Center II		1999	Flex	Chesapeake, VA		143,736		100	%
Coast Guard Building		1999	Flex	Chesapeake, VA		61,992		100	%
Snowden Center		2002	Flex	Columbia, MD		140,438		86	%
Rumsey Center		2002	Flex	Columbia, MD		134,654		90	%
Greenbrier Technology Center II		2002	Flex	Chesapeake, VA		79,684		96	%
Norfolk Business Center		2002	Flex	Norfolk, VA		90,682		97	%
Virginia Center		2003	Flex	Glen Allen, VA		119,672		70	%
Interstate Plaza		2003	Single-tenant Industrial	Alexandria, VA		107,320		100	%
Alexandria Corporate Park		2003	Multi-tenant Industrial	Alexandria, VA		278,130		80	%
6251 Ammendale Road		2003	Flex	Beltsville, MD		86,818		38	%
TOTAL						2,851,697		90	%1

¹ Occupancy at March 31, 2004, excluding fourth-quarter 2003 acquisitions, was 94%.

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Quarterly Supplemental Disclosure
March 31, 2004

PORTFOLIO ANALYSIS

PORTFOLIO BY MARKET

	Number of				Occupancy			Annualized		Percentage of
	Buildings		Square Feet		Rate			Rent		Annualized Rent
Washington		20		1,556,024		86	%	$	15,966,663		59	%
Norfolk		6		728,709		99	%		6,147,368		23	%
Baltimore		9		447,292		93	%		4,008,261		15	%
Richmond		1		119,672		70	%		911,196		3	%
Total		36		2,851,697		90	%	$	27,033,488		100	%

PORTFOLIO BY PROPERTY TYPE

										Percentage of
	Number of				Occupancy			Annualized		Annualized
	Buildings		Square Feet		Rate			Rent		Rent
Single-tenant Industrial		2		279,520		100	%	$	2,239,084		8	%
Multi-tenant Industrial		12		1,541,204		92	%		13,756,094		51	%
Flex		22		1,030,973		84	%		11,038,309		41	%
Total		36		2,851,697		90	%	$	27,033,487		100	%

PORTFOLIO BY LEASE TYPE

	Number of				Percentage of
	Leases		Square Feet1		Portfolio
Triple Net		125		1,618,875		63	%
Industrial Gross		25		383,306		15	%
Full Service		45		556,286		22	%
Total		195		2,558,467		100	%

¹ Does not include vacant and core factor space.

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Quarterly Supplemental Disclosure
March 31, 2004

SUMMARY OF LARGEST TENANTS

								Percentage of			Weighted Average
		Number of		Total Occupied		Total Annualized		Total Annualized			Remaining Lease
Ranking	Tenant	Leases		Square Feet		Rental Revenue1		Rental Revenue			Term
1	U.S. Government		14		521,873	$	6,695,442		24.8	%		6.0
2	First Data Corporation		1		117,336		1,184,774		4.4	%		4.7
3	Carolina Holdings		1		124,501		1,053,665		3.9	%		5.9
4	REICO Distributors		1		172,200		976,816		3.6	%		7.5
5	CACI		3		46,207		952,254		3.5	%		5.8
6	Fibertek, Inc.		1		28,719		586,155		2.2	%		1.8
7	Anteon International Corporation		5		108,700		568,616		2.1	%		2.8
8	AMSEC LLC		1		35,631		532,602		2.0	%		2.5
9	Paratek Microwave		1		29,828		391,642		1.4	%		3.6
10	Precision Partners, Inc.		1		47,495		380,581		1.4	%		5.9
	Subtotal Top 10 Tenants		29		1,232,490	$	13,322,545		49.3	%		5.4
	All Remaining Tenants		166		1,325,977	$	13,710,942		50.7	%		3.4
	Total / Weighted Average		195		2,558,467	$	27,033,487		100.0	%		4.4

¹ Annualized rental revenue is based on rental revenue as of March 31, 2004.

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Quarterly Supplemental Disclosure
March 31, 2004

LEASE EXPIRATIONS

			Gross Leased Area					Annualized Rental Revenue
	Number of
	Leases		Square		Percent of					Percent of			Average per
	Expiring		Footage		Total			Amount		Total			Sq. Ft.
Year of Lease Expiration
2004		31		148,423		5.8	%	$	1,886,900		7.0	%	$	12.71
2005		37		211,895		8.3	%		2,902,642		10.7	%		13.70
2006		33		308,462		12.0	%		3,087,082		11.4	%		10.01
2007		36		505,357		19.8	%		5,074,789		18.8	%		10.04
2008		19		272,663		10.7	%		2,995,760		11.1	%		10.99
2009		14		514,367		20.1	%		4,074,539		15.1	%		7.92
2010		5		242,298		9.4	%		2,111,759		7.8	%		8.72
2011 and thereafter		20		355,002		13.9	%		4,900,017		18.1	%		13.80
Total		195		2,558,467		100.0	%	$	27,033,487		100.0	%	$	10.57

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Quarterly Supplemental Disclosure
March 31, 2004

LEASING ANALYSIS

	3 months ended
	March 31, 2004
Total new and renewal leases
Square footage of expired leases		137,911
Square footage of new and renewal leases		175,412
Number of new and renewal leases commencing		16
New Leases1
New square footage		47,431
Number of new leases commencing		6
Average rental rate	$	8.56
Percentage growth in base rent2		17.8	%
Average capital cost per square foot	$	2.35
Renewal Leases
Square footage of renewal leases		127,981
Number of renewal leases commencing		10
Retention rate		93.0	%
New base rent	$	10.75
Expiring base rent	$	10.37
Percentage growth in base rent		3.8	%
Average capital cost per square foot	$	0.89

¹ Includes lease square footage and costs related to leases signed in 1st quarter for subsequent periods.

² Includes those leases for which there was a comparable lease in place during previous 12-month period.

Rent is presented on a cash basis. Rents have not been averaged over terms. New rent is that which is initially paid at commencement.

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Quarterly Supplemental Disclosure
March 31, 2004

DEBT ANALYSIS
(in thousands)

				Principal Balance		Annual Debt				Balance at
Encumbered Properties	Interest Rate			March 31, 2004		Service		Maturity Date		Maturity
Fixed Rate Debt		7.26	%	$	39,131	$	3,429		12/11/2007	$	36,784
Plaza 500
Van Buren Business Park
6600 Business Parkway
13129 Airpark Road
4200 Tech Court		8.07	%		1,831		168		10/1/2009		1,703
4212 Tech Court		8.53	%		1,776		169		6/1/2010		1,653
Crossways Commerce Center		6.70	%		26,570		2,087		10/1/2012		23,314
Newington Business Park Center		6.70	%		16,760		1,316		10/1/2012		14,706
Interstate Plaza		7.45	%		8,975		726		1/1/2007		8,282
				$	95,043	$	7,895			$	86,442
Floating Rate Debt
Greenbrier/Norfolk	LIBOR + 2.45%			$	10,500	$	375		11/30/2005	$	10,500
Rumsey/Snowden	LIBOR + 2.35%				15,000		518		12/31/2006		15,000
				$	25,500	$	893			$	25,500
Total				$	120,543	$	8,788			$	111,942

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Quarterly Supplemental Disclosure
March 31, 2004

MANAGEMENT STATEMENTS ON NON-GAAP SUPPLEMENTAL MEASURES

Investors in and analysts following the real estate industry utilize funds from operations (“FFO”), net operating income (“NOI”), EBITDA and adjusted funds from operations (“AFFO”), variously defined, as supplemental performance measures.

While the Company believes net income available to common stockholders as defined by GAAP is the most appropriate measure, it considers FFO, NOI, EBITDA, and AFFO appropriate supplemental measures given their 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/amortization of real estate assets. NOI provides a measure of rental operations and does not factor in depreciation/amortization and non-property specific expenses such as general and administrative expenses. EBITDA provides a further tool to evaluate the ability to incur and service debt and to fund dividends and other cash needs. AFFO provides a further tool to evaluate the ability to fund dividends. In addition, FFO, NOI, EBITDA and AFFO are commonly used in various ratios, pricing multiples/yields and returns and valuation calculations used to measure financial position, performance and value.

NET OPERATING INCOME

Management believes that NOI is a useful supplemental measure of the Company’s operating performance. The Company defines NOI as operating revenues (rental income, tenant reimbursements, and other income) less property and related expenses (property expenses, real estate taxes, and insurance). Other real estate investment trust (“REITs”) may use different methodologies for calculating NOI, and accordingly, the Company’s NOI may not be comparable to other REITs.

Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, gains and losses from property dispositions, discontinued operations, and extraordinary items, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not immediately apparent from net income. The Company uses NOI to evaluate its operating performance since NOI allows the Company to evaluate the impact that factors such as occupancy levels, lease structure, lease rates, and tenant base have on the Company’s results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about the Company’s financial and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of performance in the real estate industry.

However, NOI should not be viewed as an alternative measure of the Company’s financial performance since it does not reflect general and administrative expenses, interest expense, depreciation and amortization costs, the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company’s properties.

EBITDA

Management believes that EBITDA is a useful supplemental measure of the Company’s operating performance. EBITDA is defined as earnings before interest, taxes, depreciation and amortization.

Management considers EBITDA to be an appropriate supplemental performance measure since it represents earnings prior to the impact of depreciation, amortization, gain (loss) from property dispositions and loss on early retirement of debt. This calculation facilitates the review of income from operations without considering the effect of non-cash depreciation and amortization or the cost of debt.

FUNDS FROM OPERATIONS

Management believes that FFO is a useful supplemental measure of the Company’s operating performance. As defined by the National Association of Real Estate Investment Trusts, or NAREIT, FFO represents net income (loss) before minority interest (computed in accordance with GAAP), including gains (or losses) from debt restructuring and excluding gain on sale of property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Other REITs may use different methodologies for calculating FFO and, accordingly, the Company’s FFO may not be comparable to other REITs.

Management considers FFO a useful additional 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 assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that FFO provides a more meaningful and accurate indication of our performance. In addition, management believes that FFO provides useful information to the investment community about the Company’s financial performance when compared to other REITs since FFO is generally recognized as the industry standard for reporting the operations of REITs.

However, FFO should not be viewed as an alternative measure of the Company’s operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company’s properties, which are significant economic costs that could materially impact the Company’s results of operations.

ADJUSTED FUNDS FROM OPERATIONS

Management believes that AFFO is a useful measures of the Company’s liquidity. The Company computes AFFO by adding to FFO the non-cash amortization of deferred financing costs, and then subtracting tenant improvements, leasing commissions, and recurring capital expenditures, and eliminating the net effect of straight-line rents. AFFO provides an additional perspective on the Company’s ability to fund cash needs and make distributions to shareholders by adjusting for the effect of these non-cash items included in FFO, as well as recurring capital expenditures and leasing costs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, the Company’s AFFO may not be comparable to other REITs.

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