10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012.

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             .

Commission File Number 1-31824

FIRST POTOMAC REALTY TRUST

(Exact name of registrant as specified in its charter)

MARYLAND	37-1470730
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7600 Wisconsin Avenue, 11^th Floor, Bethesda, MD 20814

(Address of principal executive offices) (Zip Code)

(301) 986-9200

(Registrant’s telephone number, including area code)

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  x    NO  ¨

Indicate 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

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 definitions of “large accelerated filer,” “accelerated filter,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	x	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

As of November 8, 2012, there were 51,073,399 common shares, par value $0.001 per share, outstanding.

FIRST POTOMAC REALTY TRUST

FORM 10-Q

INDEX

	Page
Part I: Financial Information
Item 1. Condensed Consolidated Financial Statements
Consolidated balance sheets as of September 30, 2012 (unaudited) and December 31, 2011		3
Consolidated statements of operations (unaudited) for the three and nine months ended September  30, 2012 and 2011		4
Consolidated statements of comprehensive income (loss) (unaudited) for the three and nine months ended September 30, 2012 and 2011		5
Consolidated statements of cash flows (unaudited) for the nine months ended September  30, 2012 and 2011		6
Notes to condensed consolidated financial statements (unaudited)		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures about Market Risk		60
Item 4. Controls and Procedures		60
Part II: Other Information
Item 1. Legal Proceedings		64
Item 1A. Risk Factors		64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		64
Item 3. Defaults Upon Senior Securities		64
Item 4. Mine Safety Disclosures		64
Item 5. Other Information		64
Item 6. Exhibits		64
Signatures		65

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FIRST POTOMAC REALTY TRUST

Consolidated Balance Sheets

(Amounts in thousands, except per share amounts)

	September 30, 2012			December 31, 2011
	(unaudited)
Assets:
Rental property, net	$	1,440,813		$	1,439,661
Assets held-for-sale		3,579			5,297
Cash and cash equivalents		12,040			16,749
Escrows and reserves		14,657			18,455
Accounts and other receivables, net of allowance for doubtful accounts of $2,471 and $3,065, respectively		14,034			11,404
Accrued straight-line rents, net of allowance for doubtful accounts of $444 and $369, respectively		25,440			18,028
Notes receivable, net		54,713			54,661
Investment in affiliates		51,113			72,518
Deferred costs, net		38,894			34,683
Prepaid expenses and other assets		9,166			9,275
Intangible assets, net		49,788			59,021
Total assets	$	1,714,237		$	1,739,752
Liabilities:
Mortgage loans	$	437,014		$	432,023
Senior notes		—			75,000
Secured term loans		20,000			30,000
Unsecured term loan		300,000			225,000
Unsecured revolving credit facility		159,000			183,000
Liabilities held-for-sale		5,345			—
Accounts payable and other liabilities		62,436			53,507
Accrued interest		2,352			2,782
Rents received in advance		9,761			11,550
Tenant security deposits		5,944			5,603
Deferred market rent, net		4,005			4,815
Total liabilities		1,005,857			1,023,280
Noncontrolling interests in the Operating Partnership		35,383			39,981
Equity:
Preferred Shares, $0.001 par value, 50,000 shares authorized; Series A Preferred Shares, $25 per share liquidation preference, 6,400 and 4,600 shares issued and outstanding, respectively		160,000			115,000
Common shares, $0.001 par value, 150,000 shares authorized; 50,994 and 50,321 shares issued and outstanding, respectively		51			50
Additional paid-in capital		803,190			798,171
Noncontrolling interests in consolidated partnerships		4,321			4,245
Accumulated other comprehensive loss		(11,937	)		(5,849	)
Dividends in excess of accumulated earnings		(282,628	)		(235,126	)
Total equity		672,997			676,491
Total liabilities, noncontrolling interests and equity	$	1,714,237		$	1,739,752

See accompanying notes to condensed consolidated financial statements.

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FIRST POTOMAC REALTY TRUST

Consolidated Statements of Operations

(unaudited)

(Amounts in thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues:
Rental	$	39,800		$	35,729		$	114,844		$	101,810
Tenant reimbursements and other		8,821			8,899			28,276			24,515
Total revenues		48,621			44,628			143,120			126,325
Operating expenses:
Property operating		11,811			10,995			33,404			30,721
Real estate taxes and insurance		4,672			4,191			14,341			12,105
General and administrative		5,645			4,354			17,787			12,546
Acquisition costs		8			1,737			49			4,475
Depreciation and amortization		16,633			15,934			48,844			44,911
Impairment of real estate assets		496			—			2,444			—
Contingent consideration related to acquisition of property		112			(1,487	)		112			(1,487	)
Total operating expenses		39,377			35,724			116,981			103,271
Operating income		9,244			8,904			26,139			23,054
Other expenses, net:
Interest expense		10,555			11,126			32,654			30,066
Interest and other income		(1,522	)		(1,533	)		(4,529	)		(3,768	)
Equity in losses of affiliates		30			81			52			112
Gain on sale of investment		(2,951	)		—			(2,951	)		—
Loss on debt extinguishment		—			—			13,221			—
Total other expenses, net		6,112			9,674			38,447			26,410
Income (loss) from continuing operations before income taxes		3,132			(770	)		(12,308	)		(3,356	)
Benefit from income taxes		4,304			195			4,142			656
Income (loss) from continuing operations		7,436			(575	)		(8,166	)		(2,700	)
Discontinued operations:
Loss from operations		(1	)		(3,137	)		(1,256	)		(6,107	)
Gain on sale of real estate property		—			—			161			1,954
Loss from discontinued operations		(1	)		(3,137	)		(1,095	)		(4,153	)
Net income (loss)		7,435			(3,712	)		(9,261	)		(6,853	)
Less: Net (income) loss attributable to noncontrolling interests		(232	)		265			876			469
Net income (loss) attributable to First Potomac Realty Trust		7,203			(3,447	)		(8,385	)		(6,384	)
Less: Dividends on preferred shares		(3,100	)		(2,228	)		(8,864	)		(6,239	)
Net income (loss) attributable to common shareholders	$	4,103		$	(5,675	)	$	(17,249	)	$	(12,623	)
Basic and diluted earnings per common share:
Income (loss) from continuing operations	$	0.08		$	(0.05	)	$	(0.33	)	$	(0.19	)
Loss from discontinued operations		—			(0.07	)		(0.02	)		(0.08	)
Net income (loss)	$	0.08		$	(0.12	)	$	(0.35	)	$	(0.27	)
Weighted average common shares outstanding:
Basic		50,267			49,308			50,049			49,275
Diluted		50,346			49,308			50,049			49,275

See accompanying notes to condensed consolidated financial statements.

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FIRST POTOMAC REALTY TRUST

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(Amounts in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net income (loss)	$	7,435		$	(3,712	)	$	(9,261	)	$	(6,853	)
Unrealized gain on derivative instruments		66			55			139			163
Unrealized loss on derivative instruments		(2,456	)		(4,872	)		(6,545	)		(5,263	)
Total comprehensive income (loss)		5,045			(8,529	)		(15,667	)		(11,953	)
Net (income) loss attributable to noncontrolling interests		(232	)		265			876			469
Net loss from derivative instruments attributable to noncontrolling interests		116			221			318			240
Comprehensive income (loss) attributable to First Potomac Realty Trust	$	4,929		$	(8,043	)	$	(14,473	)	$	(11,244	)

See accompanying notes to condensed consolidated financial statements.

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FIRST POTOMAC REALTY TRUST

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(9,261	)	$	(6,853	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Discontinued operations:
Gain on sale of real estate property, net		(161	)		(1,954	)
Depreciation and amortization		131			990
Impairment of real estate assets		1,072			5,821
Depreciation and amortization		49,600			45,479
Stock based compensation		2,301			2,012
Bad debt expense		583			667
Deferred income taxes		(3,533	)		(656	)
Amortization of deferred market rent		268			(505	)
Amortization of financing costs and discounts		1,643			3,933
Equity in losses of affiliates		52			112
Distributions from investments in affiliates		1,208			84
Gain on sale of investment		(2,951	)		—
Loss on debt extinguishment		2,379			—
Impairment of real estate assets		2,444			—
Contingent consideration related to acquisition of property		112			(1,487	)
Changes in assets and liabilities:
Escrows and reserves		4,414			(6,411	)
Accounts and other receivables		(3,087	)		(167	)
Accrued straight-line rents		(7,645	)		(5,771	)
Prepaid expenses and other assets		(1,353	)		(1,683	)
Tenant security deposits		317			183
Accounts payable and accrued expenses		3,191			5,773
Accrued interest		(430	)		1,986
Rents received in advance		(1,749	)		89
Deferred costs		(9,394	)		(14,841	)
Total adjustments		39,412			33,654
Net cash provided by operating activities		30,151			26,801
Cash flows from investing activities:
Purchase deposit on future acquisitions		—			(8,168	)
Proceeds from sale of real estate assets		10,838			26,883
Proceeds from sale of investment		25,705			—
Change in escrow and reserve accounts		(36	)		(2,020	)
Investment in note receivable		—			(29,350	)
Acquisition of rental property and associated intangible assets		—			(67,583	))
Additions to rental property		(42,034	)		(26,540	)
Acquisition of land parcel		—			(7,500	)
Additions to construction in progress		(6,384	)		(11,938	)
Investment in affiliates		(2,534	)		(650	)
Net cash used in investing activities		(14,445	)		(126,866	)
Cash flows from financing activities:
Financing costs		(3,502	)		(4,063	)
Issuance of preferred shares, net		43,518			110,997
Issuance of common shares, net		3,599			—
Issuance of debt		361,400			348,000
Repayments of debt		(384,731	)		(339,471	)
Contributions from joint venture partner		—			2,152
Dividends to common shareholders		(30,513	)		(30,000	)
Dividends to preferred shareholders		(8,603	)		(5,125	)
Distributions to noncontrolling interests		(1,639	)		(1,142	)
Stock option exercises		56			83
Net cash provided by financing activities		(20,415	)		81,431
Net decrease in cash and cash equivalents		(4,709	)		(18,634	)
Cash and cash equivalents, beginning of period		16,749			33,280
Cash and cash equivalents, end of period	$	12,040		$	14,646

See accompanying notes to condensed consolidated financial statements.

6

FIRST POTOMAC REALTY TRUST

Consolidated Statements of Cash Flows – Continued

(unaudited)

Supplemental disclosure of cash flow information for the nine months ended September 30 is as follows (amounts in thousands):

	2012		2011
Cash paid for interest, net	$	31,162	$	26,292
Cash paid for income based franchise taxes		714		242
Non-cash investing and financing activities:
Debt assumed in connection with acquisitions of real estate		—		139,373
Contingent consideration recorded at acquisition		—		745
Conversion of common Operating Partnership units into common shares		3,513		19
Issuance of common Operating Partnership units in connection with the acquisition of real estate		—		28,845

Cash paid for interest on indebtedness is net of capitalized interest of $2.1 million and $1.3 million for the nine months ended September 30, 2012 and 2011, respectively.

During the nine months ended September 30, 2012, 322,302 common Operating Partnership units were redeemed for an equivalent number of the Company’s common shares. During the nine months ended September 30, 2011, 1,300 common Operating Partnership units were redeemed for an equivalent number of the Company’s common shares.

During the nine months ended September 30, 2011, the Company acquired six consolidated properties at an aggregate purchase price of $251.5 million, including the assumption of mortgage debt with an aggregate fair value of $139.4 million. During the nine months ended September 30, 2011, the Company issued 1,963,388 common Operating Partnership units valued at $28.8 million in connection with the acquisition of 840 First Street, NE. At September 30, 2012, the Company had a contingent consideration obligation of $0.7 million related to its acquisition of 840 First Street, NE, which may result in the issuance of additional units dependent upon the leasing of any of the vacant space.

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FIRST POTOMAC REALTY TRUST

NOTES TO CONDENSED 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 four distinct segments, which it refers to as the Washington, D.C., 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 Company’s 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 unaudited condensed consolidated 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 Company’s operating partnership (the “Operating Partnership”). The Company is the sole general partner of, and, as of September 30, 2012, owned a 95.2% 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 unaudited condensed consolidated financial statements, are limited partnership interests, some of which are owned by several of the Company’s executive officers and trustees who contributed properties and other assets to the Company upon its formation, and the remainder of which are owned by other unrelated parties.

At September 30, 2012, the Company wholly-owned or had a controlling interest in properties totaling 13.8 million square feet and had a noncontrolling ownership interest in properties totaling an additional 0.9 million square feet through five unconsolidated joint ventures. The Company also owned land that can support approximately 2.4 million square feet of additional development. The Company’s consolidated properties were 83.2% occupied by 621 tenants at September 30, 2012. The Company did not include square footage that was in development or redevelopment, which totaled 0.3 million square feet at September 30, 2012, in its occupancy calculation. The Company derives substantially all of its revenue from leases of space within its properties. As of September 30, 2012, the Company’s largest tenant was the U.S. Government, which along with government contractors, accounted for over 25% of the Company’s total annualized base rent. The U.S. Government accounted for approximately 17% of the Company’s outstanding accounts receivable at September 30, 2012. The Company operates so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes.

(2) Summary of Significant Accounting Policies

(a) Principles of Consolidation

The unaudited condensed consolidated financial statements of the Company include the accounts of the Company, the Operating Partnership and the subsidiaries in which the Company or Operating Partnership has a controlling interest, which includes First Potomac Management LLC, a wholly-owned subsidiary that manages the majority of the Company’s properties. All intercompany balances and transactions have been eliminated in consolidation.

The Company has condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”) in the accompanying unaudited condensed consolidated financial statements. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011 and as updated from time to time in other filings with the Securities and Exchange Commission.

In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals necessary to present fairly the Company’s financial position as of September 30, 2012, the results of its operations and its comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 and its cash flows for the nine months ended September 30, 2012 and 2011. Interim results are not necessarily indicative of full-year performance due, in part, to the timing of transactions, costs associated with the Company’s internal investigation, and the impact of acquisitions and dispositions throughout the year as well as the seasonality of certain operating expenses such as utility expense and snow and ice removal costs.

8

(b) Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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 condensed 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; derivative valuations; 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.

(c) Rental Property

Rental property is initially recorded at fair value, if acquired in a business combination, or initial cost when constructed or acquired in an asset purchase, 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 Company’s assets, by class, are as follows:

Buildings	39 years
Building improvements	5 to 20 years
Furniture, fixtures and equipment	5 to 15 years
Lease related intangible assets	The term of the related lease
Tenant improvements	Shorter of the useful life of the asset or the term of the related lease

The Company regularly reviews market conditions for possible impairment of a property’s carrying value. When circumstances such as adverse market conditions, changes in management’s 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 property’s 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 less anticipated selling costs. 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 property’s carrying value and its projected sales price less any estimated costs to sell.

The Company will classify a building as held-for-sale in accordance with GAAP in the period in which it has made the decision to dispose of the building, the Company’s Board of Trustees or a designated delegate has approved the sale, there is a high likelihood a binding agreement to purchase the property will be signed under which the buyer will be required to commit 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. The Company will classify any impairment loss, together with the building’s 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 held-for-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 assigned 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.

9

The Company capitalizes interest costs incurred on qualifying expenditures for real estate assets under development or redevelopment, which include its investment in assets owned through unconsolidated joint ventures that are 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 and interest on the direct compensation costs of the Company’s construction personnel who manage the development and redevelopment projects, but only to the extent the employee’s time can be allocated to a project. Any portion of construction management costs not directly attributable to a specific project are recognized as general and administrative expense in the period incurred. The Company does not capitalize any other general administrative costs such as office supplies, office rent expense or an overhead allocation to its development or redevelopment projects. Capitalized compensation costs were immaterial for the three and nine months ended September 30, 2012 and 2011. 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. The Company will also place redevelopment and development assets in service at this time and commence depreciation upon the substantial completion of tenant improvements and the recognition of revenue. Capitalized interest is depreciated over the useful life of the underlying assets, commencing when those assets are placed into service.

(d) Notes Receivable

The Company provides loans to the owners of real estate properties, which can be collateralized by interest in the real estate property. The Company records these loans as “Notes receivable, net” in its consolidated balance sheets. The loans are recorded net of any discount or issuance costs, which are amortized over the life of the respective note receivable using the effective interest method. The Company records interest earned from notes receivable and amortization of any discount or issuance costs within “Interest and other income” in its consolidated statements of operations.

The Company will establish a provision for anticipated credit losses associated with its notes receivable and debt investments when it anticipates that it may be unable to collect any contractually due amounts. This determination is based upon such factors as delinquencies, loss experience, collateral quality and current economic or borrower conditions. The Company’s collectability of its notes receivable may be adversely impacted by the financial stability of the Washington, D.C. region and the ability of its underlying assets to keep current tenants or attract new tenants. Estimated losses are recorded as a charge to earnings to establish an allowance for credit losses that the Company estimates to be adequate based on these factors. Based on the review of the above criteria, the Company did not record an allowance for credit losses for its notes receivable during the three and nine months ended September 30, 2012 and 2011.

(e) Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation, primarily as a result of reclassifying the operating results of several properties as discontinued operations. For more information, see footnote 7, Discontinued Operations.

(3) Earnings Per Common Share

Basic earnings or loss per common share (“EPS”) is calculated by dividing net income or loss attributable to common shareholders by the weighted average common shares outstanding for the periods presented. Diluted EPS is computed after adjusting the basic EPS computation for the effect of dilutive common equivalent shares outstanding during the periods presented, which include stock options, non-vested shares, preferred shares and exchangeable senior notes. 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 Company’s excess of distributions over earnings related to participating securities are shown as a reduction in total earnings attributable to common shareholders in the Company’s computation of EPS.

10

The following table sets forth the computation of the Company’s basic and diluted earnings per common share (amounts in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Numerator for basic and diluted earnings per common share:
Income (loss) from continuing operations	$	7,436		$	(575	)	$	(8,166	)	$	(2,700	)
Loss from discontinued operations		(1	)		(3,137	)		(1,095	)		(4,153	)
Net income (loss)		7,435			(3,712	)		(9,261	)		(6,853	)
Less: Net (income) loss from continuing operations attributable to noncontrolling interests		(280	)		118			816			336
Less: Net (income) loss from discontinued operations attributable to noncontrolling interests		48			147			60			133
Net income (loss) attributable to First Potomac Realty Trust		7,203			(3,447	)		(8,385	)		(6,384	)
Less: Dividends on preferred shares		(3,100	)		(2,228	)		(8,864	)		(6,239	)
Net income (loss) available to common shareholders		4,103			(5,675	)		(17,249	)		(12,623	)
Less: Allocation to participating securities		(162	)		(150	)		(468	)		(442	)
Net income (loss) attributable to common shareholders	$	3,941		$	(5,825	)	$	(17,717	)	$	(13,065	)
Denominator for basic and diluted earnings per common share:
Weighted average common shares outstanding:
Basic		50,267			49,308			50,049			49,275
Diluted		50,346			49,308			50,049			49,275
Basic and diluted earnings per common share:
Income (loss) from continuing operations	$	0.08		$	(0.05	)	$	(0.33	)	$	(0.19	)
Loss from discontinued operations		—			(0.07	)		(0.02	)		(0.08	)
Net income (loss)	$	0.08		$	(0.12	)	$	(0.35	)	$	(0.27	)

In accordance with GAAP regarding earnings per common share, the Company did not include the following potential common shares in its calculation of diluted earnings per common share as they are anti-dilutive for the periods presented (amounts in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock option awards		1,451		903		1,473		907
Non-vested share awards		428		388		454		406
Conversion of exchangeable senior notes(1)		—		854		—		854
Series A Preferred Shares(2)		13,067		8,303		11,816		7,636
		14,946		10,448		13,743		9,803

⁽¹⁾ On December 15, 2011, the Company repaid the outstanding balance of $30.4 million on its exchangeable senior notes. At September 30, 2011, each $1,000 principal amount of the exchangeable senior notes was convertible into 28.039 common shares.

⁽²⁾ The Company’s Series A Preferred Shares, which have a $25 per share liquidation value, are only convertible into the Company’s common shares upon certain changes in control of the Company. The dilutive shares are calculated as the daily average of the face value of the Series A Preferred Shares divided by the outstanding common share price. In March 2012, the Company issued an additional 1.8 million Series A Preferred Shares. As of September 30, 2012, the Company had a total of 6.4 million Series A Preferred Shares outstanding.

11

(4) Rental Property

Rental property represents property, net of accumulated depreciation, and developable land that are wholly-owned or owned by an entity in which the Company has a controlling interest. All of the Company’s rental properties are located within the greater Washington, D.C. region. Rental property consists of the following (amounts in thousands):

	September 30, 2012			December 31, 2011
Land and land improvements	$	386,546		$	384,409
Buildings and improvements		1,079,675			1,052,341
Construction in process		49,024			70,362
Tenant improvements		140,033			116,148
Furniture, fixtures and equipment		5,426			5,400
		1,660,704			1,628,660
Less: accumulated depreciation		(219,891	)		(188,999	)
	$	1,440,813		$	1,439,661

Development and Redevelopment Activity

The Company constructs office buildings, business parks and/or industrial buildings on a build-to-suit basis or with the intent to lease upon completion of construction. Also, the Company owns developable land that can accommodate 2.4 million square feet of additional building space. Below is a summary of the approximate building square footage that can be developed on the Company’s developable land and the Company’s current development and redevelopment activity as of September 30, 2012 (amounts in thousands):

Reporting Segment	Developable Square Feet		Square Feet Under Development		Cost to Date of Development Activities(1)		Square Feet Under Redevelopment		Cost to Date of Redevelopment Activities(1)
Washington, D.C.		713		—	$	—		135	$	8,683
Maryland		250		—		—		—		—
Northern Virginia		568		—		—		37		372
Southern Virginia		841		166		659		—		—
		2,372		166	$	659		172	$	9,055

⁽¹⁾  Costs to date amounts exclude tenant improvement and leasing commission costs, as well as the property’s original cost basis.

During the third quarter of 2012, the Company placed in-service redevelopment activities totaling 154,000 square feet in its Northern Virginia reporting segment that were completed at a cost of $11.5 million. No development activities were placed in-service during the third quarter of 2012.

At September 30, 2012, the Company had substantially completed redevelopment activities that have yet to be placed in service on 37,000 square feet, at a cost of $0.4 million, in its Northern Virginia reporting segment. The Company will place completed construction activities in service upon the shorter of a tenant taking occupancy or twelve months from substantial completion.

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(5) Notes Receivable

Below is a summary of the Company’s notes receivable at September 30, 2012 (dollars in thousands):

	Balance at September 30, 2012
Issued	Face Amount		Unamortized Origination Costs			Balance		Interest Rate			Property
December 2010	$	25,000	$	(180	)	$	24,820		12.5	%	950 F Street, NW
April 2011		30,000		(107	)		29,893		9.0	%	America’s Square
	$	55,000	$	(287	)	$	54,713
	Balance at December 31, 2011
Issued	Face Amount		Unamortized Origination Costs			Balance		Interest Rate			Property
December 2010	$	25,000	$	(211	)	$	24,789		12.5	%	950 F Street, NW
April 2011		30,000		(128	)		29,872		9.0	%	America’s Square
	$	55,000	$	(339	)	$	54,661

The Company recorded interest income of $1.5 million and $4.4 million for the three and nine months ended September 30, 2012, respectively, and $1.5 million and $3.6 million for the three and nine months ended September 30, 2011, respectively, related to its notes receivable.

The notes require monthly payments of interest to the Company. The Company recorded income from the amortization of origination costs of $17 thousand and $52 thousand for the three and nine months ended September 30, 2012, respectively, and $17 thousand and $44 thousand for the three and nine months ended September 30, 2011, respectively. The amortization of origination costs are recorded within “Interest and other income” in the Company’s consolidated statements of operations.

(6) Investment in Affiliates

The Company owns an interest in several properties in which it does not control the activities that are most significant to the operations of the properties. As a result, the assets, liabilities and operating results of these noncontrolled properties are not consolidated within the Company’s condensed consolidated financial statements. The Company’s investment in these properties is recorded as “Investment in affiliates” in its consolidated balance sheets. The Company’s investment in affiliates consisted of the following at September 30, 2012 (dollars in thousands):

	Reporting Segment	Ownership Interest			Company Investment
Metro Place III & IV	Northern Virginia		51	%	$	27,194
1750 H Street, NW	Washington, D.C.		50	%		16,169
Aviation Business Park	Maryland		50	%		4,748
RiversPark I and II	Maryland		25	%		3,002
					$	51,113

On August 24, 2012, the Company sold its 95% interest in an unconsolidated joint venture that owned an office building at 1200 17th street, NW in Washington D.C. for $43.7 million, which, after repayment of the mortgage loan encumbering the property, resulted in net proceeds to the Company of $25.7 million. The Company purchased its 95% interest in the joint venture in October 2011 for $37.7 million. After acquisition, the joint venture encumbered the property with a $20.0 million mortgage loan. The Company used the net proceeds from the sale, together with available cash, to repay $26.0 million of the outstanding balance under its unsecured revolving credit facility. During the third quarter of 2012, the Company recorded a $3.0 million gain on the sale of its 95% interest in the unconsolidated joint venture as “Gain on sale of investment” in its consolidated statements of operations.

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The net assets of the Company’s unconsolidated joint ventures consisted of the following (amounts in thousands):

	September 30, 2012		December 31, 2011
Assets:
Rental property, net	$	199,379	$	242,767
Cash and cash equivalents		5,547		4,009
Other assets		18,659		22,734
Total assets		223,585		269,510
Liabilities:
Mortgage loans(1)		110,175		132,370
Other liabilities		6,537		7,207
Total liabilities		116,712		139,577
Net assets	$	106,873	$	129,933

⁽¹⁾  Of the total mortgage debt that encumbers the Company’s unconsolidated properties, $7.0 million is recourse to the Company. Management believes the fair value of the potential liability to the Company is inconsequential as the likelihood of the Company’s need to perform under the debt agreement is remote.

The Company’s 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.” From the time of the acquisition of 1200 17^th Street, NW in October 2011 to its sale in August 2012, the Company had placed the property under development. The following table summarizes the results of operations of the Company’s unconsolidated joint ventures, which due to its varying ownership interests in the joint ventures and the varying operations of the joint ventures may or may not be reflective of the amounts recorded in its consolidated statements of operations (amounts in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Total revenues	$	6,254		$	2,896		$	18,575		$	8,860
Total operating expenses		(1,883	)		(995	)		(5,459	)		(2,917	)
Net operating income		4,371			1,901			13,116			5,943
Depreciation and amortization		(3,174	)		(1,274	)		(9,510	)		(3,835	)
Other expenses, net		(1,070	)		(854	)		(3,235	)		(2,429	)
Net income (loss)	$	127		$	(227	)	$	371		$	(321	)

The Company earns various fees from several of its unconsolidated joint ventures, which include management fees, leasing commissions and construction management fees. The Company recognizes fees only to the extent of the third party ownership interest in its unconsolidated joint ventures. The Company recognized fees from its unconsolidated joint ventures of $125 thousand and $325 thousand for the three and nine months ended September 30, 2012, respectively, and $48 thousand and $148 thousand for the three and nine months ended September 30, 2011, respectively.

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(7) Discontinued Operations

On November 7, 2012, the Company sold two buildings at Owings Mills Business Park, a six-building, 219,300 square foot business park in Owings Mills, Maryland for net proceeds of $3.5 million. On October 16, 2012, the Company used available cash of $5.7 million as a defeasance payment for the mortgage loan encumbering four buildings at Owings Mills Business Park, including the two buildings that were sold on November 7, 2012. At September 30, 2012, the Company continued to classify the two buildings that were sold at Owings Mills Business Park as held-for-sale (the Company’s criteria for determining if a property is classified as held-for-sale is described in footnote 2(c), Rental Property) and, therefore, the assets of the two buildings were classified within “Assets held-for-sale” and the liabilities of the two buildings, along with the entire mortgage loan that was defeased, were classified within “Liabilities held-for-sale” in the Company’s consolidated balance sheets. During the first quarter of 2012, the Company incurred a $0.8 million impairment charge on the two buildings that were sold, which reduced the carrying amount of the buildings to their fair value, less selling costs. The Company incurred a $0.5 million charge in the fourth quarter of 2012 related to its defeasement of the mortgage loan.

The following table is a summary of property dispositions whose operating results are reflected as discontinued operations in the Company’s consolidated statements of operations for the periods presented:

	Reporting Segment	Disposition Date		Property Type	Square Feet
Owings Mills Business Park(1)	Maryland		11/7/2012	Business Park		38,779
Goldenrod Lane	Maryland		5/31/2012	Office		23,518
Woodlands Business Center	Maryland		5/8/2012	Office		37,887
Airpark Place Business Center	Maryland		3/22/2012	Business Park		82,429
Aquia Commerce Center I & II	Northern Virginia		6/22/2011	Office		64,488
Gateway West	Maryland		5/27/2011	Office		111,481
Old Courthouse Square	Maryland		2/18/2011	Retail		201,208

⁽¹⁾  Represents two buildings, of the six building, 219,284 square foot business park, that were held-for-sale at September 30, 2012.

The Company has had, and will have, no continuing involvement with any of its disposed properties subsequent to their disposal. The operations of the disposed properties were not subject to any income based taxes for the periods presented. The Company did not dispose of or enter into any binding agreements to sell any other properties during the nine months ended September 30, 2012 and 2011.

The following table summarizes the components of net income (loss) from discontinued operations for the periods presented (amounts in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	130		$	486		$	686		$	2,531
Net loss, before taxes		(1	)		(3,137	)		(1,256	)		(6,107	)
Gain on sale of real estate property		—			—			161			1,954

There were no impairment charges included within discontinued operations for the three months ended September 30, 2012. The Company’s discontinued operations include impairment charges of $1.1 million for the nine months ended September 30, 2012 and $3.1 million and $5.8 million for the three and nine months ended September 30, 2011, respectively.

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(8) Debt

The Company’s borrowings consisted of the following (amounts in thousands):

	September 30, 2012			December 31, 2011
Mortgage loans, effective interest rates ranging from 4.40% to 7.29%, maturing at various dates through July 2022	$	442,267	(1)	$	432,023
Series A senior notes, effective interest rate of 6.41%(2)		—			37,500
Series B senior notes, effective interest rate of 6.55%(2)		—			37,500
Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014(3)(4)		20,000			30,000
Unsecured term loan, effective interest rates ranging from LIBOR plus 2.15% to LIBOR plus 2.30%, with staggered maturity dates ranging from July 2016 to July 2018(4)		300,000			225,000
Unsecured revolving credit facility, effective interest rate of LIBOR plus 2.50%, maturing January 2015(4)(5)		159,000			183,000
	$	921,267		$	945,023

⁽¹⁾ Includes a $5.2 million mortgage loan that was defeased in October 2012 and, at September 30, 2012, was classified within “Liabilities held for sale” on the Company’s consolidated balance sheet as of September 30, 2012.

⁽²⁾  On June 11, 2012, the Company prepaid the entire $75.0 million principal amount outstanding under its Series A and Series B senior notes with borrowings under the Company’s unsecured revolving credit facility.

⁽³⁾ On January 1, 2012, the loan’s applicable interest rate increased to LIBOR plus 4.50% and will increase to LIBOR plus 550 basis points in January 2013.

⁽⁴⁾ At September 30, 2012, LIBOR was 0.21%.

⁽⁵⁾  The unsecured revolving credit facility matures in January 2014 with a one-year extension at the Company’s option, which it intends to exercise.

(a) Mortgage Loans

The following table provides a summary of the Company’s mortgage debt at September 30, 2012 and December 31, 2011 (dollars in thousands):

Encumbered Property	Contractual Interest Rate			Effective Interest Rate			Maturity Date	September 30, 2012			December 31, 2011
Campus at Metro Park North(1)		7.11	%		5.25	%	February 2012	$	—		$	21,692
One Fair Oaks(2)		6.31	%		6.72	%	June 2012		—			52,604
1434 Crossways Blvd Building II(3)		7.05	%		5.38	%	August 2012		—			9,099
Crossways Commerce Center(4)		6.70	%		6.70	%	October 2012		23,361			23,720
Newington Business Park Center(4)		6.70	%		6.70	%	October 2012		14,736			14,963
Prosperity Business Center		6.25	%		5.75	%	January 2013		3,277			3,381
Cedar Hill		6.00	%		6.58	%	February 2013		15,516			15,838
Merrill Lynch Building		6.00	%		7.29	%	February 2013		13,364			13,571
1434 Crossways Blvd Building I		6.25	%		5.38	%	March 2013		7,724			7,943
Linden Business Center		6.01	%		5.58	%	October 2013		6,791			6,918
840 First Street, NE		5.18	%		6.05	%	October 2013		54,973			55,745
Owings Mills Business Center(5)		5.85	%		5.75	%	March 2014		—			5,338
Annapolis Business Center		5.74	%		6.25	%	June 2014		8,259			8,360
Cloverleaf Center(6)		6.75	%		6.75	%	October 2014		16,682			16,908
Plaza 500, Van Buren Office Park, Rumsey Center, Snowden Center, Greenbrier Technology Center II, Norfolk Business Center, Northridge and 15395 John Marshall Highway		5.19	%		5.19	%	August 2015		96,527			97,681
Hanover Business Center:
Building D		8.88	%		6.63	%	August 2015		424			520
Building C		7.88	%		6.63	%	December 2017		824			920
Chesterfield Business Center:
Buildings C,D,G and H		8.50	%		6.63	%	August 2015		1,122			1,369
Buildings A,B,E and F		7.45	%		6.63	%	June 2021		2,105			2,235
Mercedes Center– Note 1(6)		4.67	%		6.04	%	January 2016		4,686			4,713
Mercedes Center – Note 2(6)		6.57	%		6.30	%	January 2016		9,554			9,722
Gateway Centre Manassas Building I		7.35	%		5.88	%	November 2016		880			1,016
Hillside Center		5.75	%		4.62	%	December 2016		13,838			14,122
Redland Corporate Center		4.20	%		4.64	%	November 2017		68,400			—
500 First Street, NW		5.72	%		5.79	%	July 2020		37,869			38,277
Battlefield Corporate Center		4.26	%		4.40	%	November 2020		4,040			4,149
Airpark Business Center		7.45	%		6.63	%	June 2021		1,148			1,219
1211 Connecticut Avenue, NW		4.22	%		4.47	%	July 2022		30,914			—
					5.58	%(7)			437,014			432,023
Unamortized fair value adjustments									(714	)		(1,147	)
Principal balance									436,300			430,876
Owings Mills Business Center(5)									5,253			—
Unamortized fair value adjustments – Owings Mills Business Center(5)									(7	)		—
Total Principal balance								$	441,546		$	430,876

16

⁽¹⁾ The loan was repaid in February 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽²⁾ The loan was repaid in June 2012 with the issuance of a $40.0 million senior secured term loan, which was subsequently repaid in late June 2012, and borrowings under the Company’s unsecured revolving credit facility.

⁽³⁾  The loan was repaid in August 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽⁴⁾ The loan was repaid on October 1, 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽⁵⁾ On October 16, 2012, the Company used $5.7 million of available cash to defease the mortgage loan encumbering Owings Mills Business Park. At September 30, 2012, the Company classified the mortgage loan within “Liabilities held for sale” on its consolidated balance sheets.

⁽⁶⁾  Of the mortgage loan totals, $3.5 million encumbered by Cloverleaf Center and $5.0 million encumbered by Mercedes Center are recourse to the Company.

⁽⁷⁾  Weighted average interest rate on total mortgage debt.

On October 17, 2012, the Company placed a $22.0 million mortgage loan on 1005 First Street, NE, a consolidated joint venture in which the Company has a 97% ownership interest. The mortgage loan incurs interest at a variable rate of LIBOR plus a spread of 2.75% (with a floor of 5.0%) and matures in October 2014, with a one-year extension at the Company’s option. The Company used a portion of its share of the proceeds from the mortgage loan to pay down $16.0 million of the outstanding balance under the unsecured revolving credit facility.

(b) Term Loans

Unsecured Term Loan

The table below shows the outstanding balances of the three tranches of the $300.0 million unsecured term loan at September 30, 2012 (dollars in thousands):

	Maturity Date		Amount		Interest Rate(1)
Tranche A		July 2016	$	60,000	LIBOR, plus 215 basis points
Tranche B		July 2017		147,500	LIBOR, plus 225 basis points
Tranche C		July 2018		92,500	LIBOR, plus 230 basis points
			$	300,000

⁽¹⁾  Each interest rate spread will increase by 25 basis points on December 1, 2012 due to the Company’s leverage ratio at September 30, 2012. For more information, see footnote 8(e) Debt – Financial Covenants.

The term loan agreement contains various restrictive covenants substantially similar to those contained in the Company’s unsecured revolving credit facility, including with respect to liens, indebtedness, investments, distributions, mergers and asset sales. In addition, the agreement requires that the Company satisfy certain financial covenants that are also substantially similar to those contained in the Company’s unsecured revolving credit facility. The agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the agreement to be immediately due and payable.

Secured Term Loan

Of the $20.0 million balance outstanding on the Company’s secured term loan at September 30, 2012, $10.0 million matures in January 2013 and $10.0 million matures in January 2014. At September 30, 2012, the loan’s applicable interest rate was LIBOR plus 450 basis points, which will increase to 550 basis points in January 2013. The Company’s secured term loan contains several restrictive covenants, which in the event of non-compliance may cause the outstanding balance of the loan and accrued interest to become immediately due and payable.

17

(c) Unsecured Revolving Credit Facility

During the third quarter of 2012, the Company repaid $91.0 million of the outstanding balance of its unsecured revolving credit facility with proceeds from the issuance of a $68.4 million mortgage loan encumbering Redland Corporate Center and the sale of the Company’s 95% interest in an unconsolidated joint venture. During the third quarter of 2012, the Company borrowed $26.0 million under its unsecured revolving credit facility to repay a mortgage loan and for general corporate purposes. For the three and nine months ended September 30, 2012, the Company’s weighted average borrowings on its unsecured revolving credit facility were $227.4 million and $174.1 million, respectively, with a weighted average interest rate of 2.9% for both periods, compared with weighted average borrowings of $133.9 million and $133.3 million with a weighted average interest rate of 2.7% and 3.0% for the three and nine months ended September 30, 2011, respectively. The Company’s maximum outstanding borrowings were $250.0 million for both the three and nine months ended September 30, 2012 compared with maximum outstanding borrowings of $189.0 million and $191.0 million for the three and nine months ended September 30, 2011, respectively. At September 30, 2012, outstanding borrowings under the unsecured revolving credit facility were $159.0 million with a weighted average interest rate of 2.7%. 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. At September 30, 2012, the available capacity under the unsecured revolving credit facility was $27.8 million.

(d) Interest Rate Swap Agreements

At September 30, 2012, the Company had fixed LIBOR, at a weighted average interest rate of 1.5%, on $350.0 million of its variable rate debt through twelve interest rate swap agreements. See footnote 10, Derivative Instruments, for more information about the Company’s interest rate swap agreements.

(e) Financial Covenants

The Company’s 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 Company’s allowable leverage, minimum tangible net worth, fixed charge coverage and other financial metrics. As of September 30, 2012, the Company was in compliance with the covenants of its unsecured term loan, secured term loan and unsecured revolving credit facility.

As previously disclosed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, on May 10, 2012, the Company and its bank lenders amended the Company’s unsecured revolving credit facility, unsecured term loan and secured loan (together, the “Bank Debt”) to, among other things, revise certain financial and other covenants that provided additional operating flexibility for the Company to execute its business strategy and clarify the treatment of certain covenant compliance-related definitions. In addition, the unsecured revolving credit facility and the unsecured term loan were amended to give the lenders the right, at their option, to record mortgages on substantially all of the Company’s unencumbered properties, which they have not yet elected to do as of the date of this Quarterly Report on Form 10-Q. The unsecured term loan was also amended to convert the facility from a fixed interest rate spread over LIBOR to an interest rate spread that floats based on the Company’s leverage levels. The floating rate spread increased the pricing of the unsecured term loan by 25 basis points and can increase by an additional 25 basis points to the extent the Company’s leverage levels increase further or can revert to the original pricing if the Company’s leverage ratio improves. As a result of the Company’s leverage ratio at June 30, 2012, the applicable interest rate spread on the Company’s unsecured revolving credit facility and unsecured term loan decreased by 25 basis points on September 1, 2012, but will increase by 25 basis points on December 1, 2012 due to the Company’s leverage ratio at September 30, 2012.

The Company’s continued ability to borrow under the unsecured revolving credit facility is subject to compliance with financial and operating covenants, and a failure to comply with any of these covenants could result in a default under the credit facility. These debt agreements also contain cross-default provisions that would be triggered if the Company is in default under other loans, including mortgage loans, in excess of certain amounts. In the event of a default, the lenders could accelerate the timing of payments under the debt obligations and the Company may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on the Company’s liquidity, financial condition, results of operations and ability to make distributions to our shareholders.

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(9) Income Taxes

The Company owns properties located in Washington, D.C. that are subject to local income based franchise taxes at an effective rate of 9.975%. During the three and nine months ended September 30, 2012, the Company recognized a benefit from income taxes of $4.3 million and $4.1 million, respectively, and recognized a benefit from income taxes of $0.2 million and $0.7 million during the three and nine months ended September 30, 2011, respectively. The Company also has an interest in an unconsolidated joint venture that owns real estate in Washington, D.C. that is subject to the franchise tax. On August 24, 2012, the Company sold its 95% interest in an unconsolidated joint venture that owned an office building at 1200 17^th Street, NW in Washington, D.C., which had been subject to the franchise tax. The impact for income taxes related to these unconsolidated joint ventures is reflected within “Equity in losses of affiliates” in the Company’s consolidated statements of operations.

During the third quarter of 2012, there was a change in tax regulations in the District of Columbia that requires the Company to file a unitary tax return, which allows for a deduction for dividends paid to shareholders. The change in tax regulations resulted in the Company measuring all of its deferred tax assets and deferred tax liabilities using the effective tax rate expected to be in effect as these timing differences reverse. The Company also recorded a $1.0 million receivable for an expected tax refund associated with 2011 and the estimated payments made through September 30, 2012 arising from the change in regulations in its third quarter results. The Company recorded the $1.0 million receivable within “Accounts and other receivables” in its consolidated balance sheets at September 30, 2012. At December 31, 2011, the Company had deferred tax assets totaling $1.4 million recorded within “Prepaid expenses and other assets” and deferred tax liabilities totaling $5.0 million recorded within “Accounts payable and other liabilities” in the Company’s consolidated balance sheets.

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.

(10) Derivative 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. 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. 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 Company’s 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 instrument’s applicable interest rate.

At September 30, 2012, the Company had fixed LIBOR at a weighted average interest rate of 1.5% on $350.0 million of its variable rate debt through twelve interest rate swap agreements that are summarized below (dollars in thousands):

Effective Date	Maturity Date	Amount		Interest Rate Contractual Component	Fixed LIBOR Interest Rate
January 2011	January 2014	$	50,000	LIBOR		1.474	%
July 2011	July 2016		35,000	LIBOR		1.754	%
July 2011	July 2016		25,000	LIBOR		1.7625	%
July 2011	July 2017		30,000	LIBOR		2.093	%
July 2011	July 2017		30,000	LIBOR		2.093	%
September 2011	July 2018		30,000	LIBOR		1.660	%
January 2012	July 2018		25,000	LIBOR		1.394	%
March 2012	July 2017		25,000	LIBOR		1.129	%
March 2012	July 2017		12,500	LIBOR		1.129	%
March 2012	July 2018		12,500	LIBOR		1.383	%
June 2012	July 2017		50,000	LIBOR		0.955	%
June 2012	July 2018		25,000	LIBOR		1.1349	%
			$350,000

19

The Company’s interest rate swap agreements are designated as cash flow hedges and the Company records any unrealized gains associated with the change in fair value of the swap agreements within “Accumulated other comprehensive loss” and “Prepaid expenses and other assets” and any unrealized losses within “Accumulated other comprehensive loss” and “Accounts payable and other liabilities” on its consolidated balance sheets. The Company records its proportionate share of any unrealized gains or losses on its cash flow hedges associated with its unconsolidated joint ventures within “Accumulated other comprehensive loss” and “Investment in affiliates” on its consolidated balance sheets. The Company records any cash received or paid as a result of each interest rate swap agreement’s fixed rate deviating from its respective loan’s contractual rate within “Interest expense” in its consolidated statements of operations. The Company did not have any ineffectiveness associated with its cash flow hedges during the three and nine months ended September 30, 2012 and 2011, which would have been recorded into earnings or losses, and does not expect any future ineffectiveness. Therefore, as of September 30, 2012, no amounts have been or are expected to be reclassified from “Accumulated other comprehensive loss” into earnings or losses.

(11) Fair Value Measurements

The Company applies GAAP that outlines a valuation framework and create a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and a reporting entity’s own assumptions about market data (unobservable inputs). The required 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.

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 Company’s 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 Company’s consolidated assets and liabilities that are measured on a non-recurring and recurring basis as of September 30, 2012 and December 31, 2011 (amounts in thousands):

	Balance at September 30, 2012		Level 1		Level 2		Level 3
Non-recurring Measurements:
Impaired real estate assets	$	3,952	$	—	$	—	$	3,952
Recurring Measurements:
Derivative instrument-swap liabilities	$	12,536	$	—	$	12,536	$	—
Contingent consideration related to acquisition of:
Corporate Campus at Ashburn Center		1,560		—		—		1,560
840 First Street, NE		745		—		—		745

20

	Balance at December 31, 2011		Level 1		Level 2		Level 3
Non-recurring Measurements:
Impaired real estate assets	$	10,583	$	—	$	5,250	$	5,333
Recurring Measurements:
Derivative instrument-swap liabilities		6,129		—		6,129		—
Contingent consideration related to acquisition of:
Corporate Campus at Ashburn Center		1,448		—		—		1,448
840 First Street, NE		745		—		—		745

With the exception of its contingent consideration obligations, 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 three or nine months ended September 30, 2012 and 2011. Also, no transfers into and out of fair value measurements levels for assets or liabilities that are measured on a recurring basis occurred during the nine months ended September 30, 2012 and 2011.

Interest Rate Derivatives

The interest rate derivatives are fair valued based on prevailing market yield curves on the measurement date. The Company uses a third party to value 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 then compiled through a valuation process that generates daily valuations, which are used to value the Company’s interest rate swap agreements.

Contingent Consideration

The Company has classified its contingent consideration liabilities within “Accounts payable and other liabilities” and any changes in its fair value subsequent to their acquisition date valuation are charged to earnings.

On March 25, 2011, the Company acquired 840 First Street, NE, in Washington, D.C. for an aggregate purchase price of $90.0 million, with up to $10.0 million of additional consideration payable in Operating Partnership units upon the terms of a lease renewal by the building’s sole tenant or the re-tenanting of the property through November 2013. Based on assessment of the probability of renewal and anticipated lease rates, the Company recorded a contingent consideration obligation of $9.4 million at acquisition. In July 2011, the building’s sole tenant renewed its lease through August 2023 on the entire building with the exception of two floors. As a result, the Company issued 544,673 Operating Partnership units to satisfy $7.1 million of its contingent consideration obligation. The Company recognized a $1.5 million gain associated with the issuance of the additional units, which represented the difference between the contractual value of the units and the fair value of the units at the date of issuance. The fair value of the contingent consideration obligation was determined based on several probability weighted discounted cash flow scenarios that projected stabilization being achieved at certain timeframes. The fair value was based, in part, on significant inputs, which are not observable in the market, thus representing a Level 3 measurement in accordance with the fair value hierarchy. At September 30, 2012, the contingent consideration obligation was $0.7 million, which may result in the issuance of additional units depending on the leasing of any of the vacant space.

The Company has a contingent consideration obligation associated with the 2009 acquisition of Corporate Campus at Ashburn Center. As part of the acquisition price of Corporate Campus at 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 property’s operating performance and profitability. Since the Company uses discounted cash flows over a stabilization period to value its contingent consideration related to Ashburn Center, the determination of the fair value of contingent consideration performed in a subsequent period reflects a reduction in the period to achieve stabilization and an increase in the likelihood of reaching fulfillment of the obligation. As a result, the Company’s contingent consideration will immaterially increase over time. In the third quarter of 2012, the Company recorded a $0.1 million increase in its contingent consideration liability related to Ashburn Center, which reflected a reduction of the period to reach stabilization. The fair value was based, in part, on significant inputs, which are not observable in the market, thus representing a Level 3 measurement in accordance with the fair value hierarchy. At September 30, 2012, the contingent consideration obligation was $1.6 million.

21

Impairment of Real Estate Assets

The Company regularly reviews market conditions for possible impairment of a property’s carrying value. When circumstances such as adverse market conditions, changes in management’s intended holding period or potential sale to a third party indicate a possible impairment of a property, an impairment analysis is performed.

During the third quarter of 2012, the Company reduced its intended holding period for two buildings at its Owings Mills Business Park property, which is located in the Company’s Maryland reporting segment. Based on an analysis of the property’s anticipated cash flows over the Company’s reduced holding period for the property, the Company recorded a $0.5 million impairment charge in the third quarter of 2012. At September 30, 2012, the Company continued to classify two separate buildings at Owings Mills Business Park as held-for-sale. The Company recorded an impairment charge of $0.8 million in the first quarter of 2012 to reduce the property’s cost basis to its fair value. The Company continues to measure the two buildings at the lower of cost basis or fair value, which did not result in any additional impairment charges related to the two buildings during the three months ended September 30, 2012.

During the fourth quarter of 2011, the Company reduced its intended holding period for its Woodlands Business Center and Goldenrod Lane properties, which are both located in the Company’s Maryland reporting segment. Based on an analysis of each property’s cash flows over the Company’s reduced holding period for each respective property, the Company recorded impairment charges of $1.6 million and $0.9 million, respectively, in the fourth quarter of 2011. In April 2012, the Company entered into a binding contract to sell its Woodlands Business Center property and recorded an additional impairment charge of $0.2 million to reduce the Woodlands Business Center property’s carrying value to reflect its fair value, less anticipated selling costs at March 31, 2012. The Company sold both its Woodlands Business Center and Goldenrod Lane properties in May 2012 for total net proceeds of $5.5 million. The Company determined the fair value of the properties based on the execution of a contract to sell.

During the third quarter of 2011, the Company reduced its intended holding period for its Airpark Place Business Center property, which is located in its Maryland reporting segment. Based on an analysis of the property’s anticipated cash flows over the Company’s reduced holding period for the property, the Company recorded an impairment charge of $3.1 million in the third quarter of 2011. In January 2012, the Company entered into a binding contract to sell the property and recorded an impairment charge of $0.4 million to reduce the property’s carrying value to reflect its fair value, less anticipated selling costs at December 31, 2011. The property was sold in March 2012 for net proceeds of $5.2 million. The Company determined the fair value of the property based on the execution of a contract to sell.

Financial Instruments

The carrying amounts of cash equivalents, accounts and other receivables, accounts payable and other liabilities, with the exception of any items listed above, approximate their fair values due to their short-term maturities. The Company determines the fair value of its notes receivable and 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 Company deems the fair value measurement of its debt instruments as a Level 2 measurement as the Company uses quoted interest rates for similar debt instruments to value its debt instruments. The Company also uses quoted market interest rates to value its notes receivable, which the Company considers a Level 2 measurement as it does not believe notes receivable trade in an active market.

22

The carrying amount and estimated fair value of the Company’s notes receivable and debt instruments at September 30, 2012 and December 31, 2011 are as follows (amounts in thousands):

	September 30, 2012						December 31, 2011
	Carrying Value			Fair Value			Carrying Value		Fair Value
Financial Assets:
Notes receivable(1)	$	54,713		$	55,000		$	54,661	$	55,000
Financial Liabilities:
Mortgage debt	$	437,014	(2)	$	445,660	(2)	$	432,023	$	437,593
Series A senior notes(3)		—			—			37,500		39,128
Series B senior notes(3)		—			—			37,500		41,383
Secured term loans		20,000			20,000			30,000		29,990
Unsecured term loan		300,000			300,000			225,000		224,388
Unsecured revolving credit facility		159,000			159,000			183,000		182,740
Total	$	916,014		$	924,660		$	945,023	$	955,222

⁽¹⁾  The face value of the Company’s notes receivable was $55.0 million at September 30, 2012 and December 31, 2011.

⁽²⁾  Does not include a $5.2 million mortgage that encumbers four buildings at Owings Mill Business Park, which was classified within “Liabilities held for sale” on the Company’s consolidated balance sheet as of September 30, 2012. The mortgage was defeased in October 2012.

⁽³⁾  During the second quarter of 2012, the Company prepaid the entire $75.0 million principal amount outstanding under its Series A and Series B senior notes with borrowings under the Company’s unsecured revolving credit facility.

(12) Equity

On August 10, 2012, the Company paid a dividend of $0.20 per common share to common shareholders of record as of August 3, 2012 and, on August 15, 2012, paid a dividend of $0.484375 per share to preferred shareholders of record as of August 3, 2012. On October 24, 2012, the Company declared a dividend of $0.20 per common share, equating to an annualized dividend of $0.80 per common share. The dividend will be paid on November 9, 2012 to common shareholders of record as of November 5, 2012. The Company also declared a dividend of $0.484375 per share on its Series A Preferred Shares. The dividend will be paid on November 15, 2012 to preferred shareholders of record as of November 2, 2012. Dividends on all non-vested share awards are recorded as a reduction of shareholders’ equity. For each dividend paid by the Company on its common and preferred shares, the Operating Partnership distributes an equivalent distribution on its common and preferred Operating Partnership units, respectively.

The Company’s unsecured revolving credit facility, unsecured term loan and secured term loan contain certain restrictions that include, among other things, requirements to maintain specified coverage ratios and other financial covenants, which may limit the Company’s ability to make distributions to its common and preferred shareholders. Further, distributions with respect to the Company’s common shares are subject to its ability to first satisfy its obligations to pay distributions to the holders of its Series A Preferred Shares.

As a result of the redemption feature of the Operating Partnership units requiring delivery of registered shares of the Company, the noncontrolling interests associated with the Operating Partnerhsip are recorded outside of permanent equity. The Company’s equity and redeemable noncontrolling interests are as follows (amounts in thousands):

	First Potomac Realty Trust			Non- redeemable noncontrolling interests		Total Equity			Redeemable noncontrolling interests
Balance at December 31, 2011	$	672,246		$	4,245	$	676,491		$	39,981
Net (loss) income		(8,385	)		68		(8,317	)		(944	)
Changes in ownership, net		49,846			8		49,854			(1,697	)
Distributions to owners		(38,943	)		—		(38,943	)		(1,639	)
Other comprehensive loss		(6,088	)		—		(6,088	)		(318	)
Balance at September 30, 2012	$	668,676		$	4,321	$	672,997		$	35,383

23

	First Potomac Realty Trust			Non- redeemable noncontrolling interests		Total Equity			Redeemable noncontrolling interests
Balance at December 31, 2010	$	614,983		$	3,077	$	618,060		$	16,122
Net loss		(6,384	)		7		(6,377	)		(476	)
Changes in ownership, net		115,315			2,153		117,468			25,096
Distributions to owners		(35,125	)		—		(35,125	)		(1,142	)
Other comprehensive income		(4,860	)		—		(4,860	)		(240	)
Balance at September 30, 2011	$	683,929		$	5,237	$	689,166		$	39,360

A summary of the Company’s accumulated other comprehensive loss is as follows (amounts in thousands):

	2012			2011
Beginning balance at January1,	$	(5,849	)	$	(545	)
Net loss on derivative instruments		(6,406	)		(5,100	)
Net loss attributable to noncontrolling interests		318			240
Ending balance at September 30,	$	(11,937	)	$	(5,405	)

(13) Noncontrolling Interests

(a) Noncontrolling Interests in the Operating Partnership

Noncontrolling interests relate to the common 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 common Operating Partnership units. Limited partners have the right to tender their units for redemption in exchange for, at the Company’s option, common shares of the Company on a one-for-one basis or cash based on the fair value of the Company’s 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 or losses available to common shareholders, other comprehensive income or losses, distributions received or additional contributions. The Company accounts for issuances of common Operating Partnership units individually, which could result in some portion of its noncontrolling interests being carried at fair value with the remainder being carried at historical cost. Based on the closing share price of the Company’s common stock at September 30, 2012, the cost to acquire, through cash purchase or issuance of the Company’s common shares, all of the outstanding common Operating Partnership units not owned by the Company would be approximately $33.5 million. At September 30, 2012, the Company recorded an adjustment of $4.0 million to present certain Operating Partnership units at the greater of their carrying value or redemption value.

At December 31, 2011, 2,920,561 of the total common Operating Partnership units, or 5.5%, were not owned by the Company. During the nine months ended September 30, 2012, 322,302 common Operating Partnership units were redeemed for 322,302 common shares. As a result, 2,598,259 of the total common Operating Partnership units, or 4.8%, were not owned by the Company at September 30, 2012. There were no common Operating Partnership units redeemed with available cash during the nine months ended September 30, 2012.

(b) Noncontrolling Interests in the Consolidated Partnerships

When the Company is deemed to have a controlling interest in a partially-owned entity, it will consolidate all of the entity’s assets, liabilities and operating results within its condensed consolidated financial statements. The net assets contributed to the consolidated entity by the third party, if any, will be reflected within permanent equity in the Company’s consolidated balance sheets to the extent they are not mandatorily redeemable. The amount will be recorded based on the third party’s initial investment in the consolidated entity and will be adjusted to reflect the third party’s share of earnings or losses in the consolidated entity and 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 (income) loss attributable to noncontrolling interests” in the Company’s consolidated statements of operations.

24

At September 30, 2012, the Company’s consolidated joint ventures owned the following properties:

Property	Acquisition Date	Reporting Segment	First Potomac Controlling Interest			Square Footage
1005 First Street, NE	August 2011	Washington, D.C.		97	%		30,414	(1)
Redland Corporate Center	November 2010	Maryland		97	%		348,469

⁽¹⁾  The site is currently occupied by Greyhound Bus Lines, Inc., which has announced its intention to relocate. Upon the tenant leaving, the Company intends on re-developing the site, which can accommodate up to 712,000 square feet of office space.

On September 26, 2012, the Company placed a $68.4 million mortgage loan on Redland Corporate Center and on October 17, 2012, the Company placed a $22.0 million mortgage loan on 1005 First Street, NE. The Company’s joint venture partners received their proportionate share of the proceeds from the mortgage loans. The Company used its share of the proceeds from both mortgage loans to repay a portion of the outstanding balance under the unsecured revolving credit facility.

(14) Share-Based Compensation

The Company records costs related to its share-based compensation based on the grant-date fair value calculated in accordance with GAAP. 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 within “General and administrative expense” or “Property operating expense” in the Company’s consolidated statements of operations based on the employee’s job function.

Option Exercises

The Company received approximately $29 thousand and $24 thousand from the exercise of stock options during the three months ended September 30, 2012 and 2011, respectively, and $56 thousand and $88 thousand for the nine months ended September 30, 2012 and 2011, respectively. Shares issued as a result of stock option exercises are funded through the issuance of new shares. The total intrinsic value of options exercised during both the three months ended September 30, 2012 and 2011 was $10 thousand, and was $20 thousand and $45 thousand for the nine months ended September 30, 2012 and 2011, respectively.

Non-vested share awards

The Company issues non-vested share awards that either vest over a specific time period that is identified at the time of issuance or vest upon the achievement of specific performance goals that are identified at the time of issuance. The Company issues new shares, subject to restrictions, upon each grant of non-vested share awards.

The Company recognized $0.7 million and $0.5 million of compensation expense associated with its non-vested share awards during the three months ended September 30, 2012 and 2011, respectively, and $1.9 million and $1.8 million during the nine months ended September 30, 2012 and 2011, respectively. Non-vested share-based compensation expense for the three months ended September 30, 2012, included $0.2 million of expense related to the issuance of share awards, which was partially offset by the forfeiture of certain non-vested awards, as part of a severance agreement for a former officer of the Company. Dividends on all non-vested share awards are recorded as a reduction of equity.

(15) Commitments and Contingencies

The Company is subject to legal proceedings and claims arising in the ordinary course of its business, for which, it carries various forms of insurance to protect itself. At September 30, 2012, the Company was involved in legal proceedings or faced potential claims, which in aggregate could result in unfavorable judgments totaling $0.9 million. Based on the Company’s analysis, if an unfavorable judgment is reached, its insurance carriers would cover the estimated liability of $0.9 million, with the exception of an immaterial deductible associated with one of the Company’s policies. As a result, the Company recorded $0.9 million of potential legal liabilities within “Accounts payable and other liabilities” in its consolidated statements of operations and recorded the amount expected to be covered from the insurance carriers within “Accounts and other receivables” in its consolidated balance sheets. The immaterial deductible mentioned above, which is not recoverable from the insurance carriers, was recorded within general and administrative expenses in the third quarter of 2012. In the opinion of the Company’s management and legal counsel, the amount of ultimate liability with respect to these claims will not have a material impact on the Company’s financial position, results of operations or cash flows.

25

As previously disclosed on the Company’s Current Report on Form 8-K filed on October 5, 2012, Joel F. Bonder, the Company’s Executive Vice President and General Counsel, ceased to perform the responsibilities and functions of the Company’s general counsel effective October 1, 2012. Mr. Bonder’s counsel has informed the Company that Mr. Bonder has taken steps to file an arbitration claim regarding rights he asserts under his employment agreement. The Company intends to vigorously defend its rights under the employment agreement; however, we cannot be certain of the ultimate outcome of the arbitration. The Company has not accrued any loss related to this asserted claim, and resolution of this matter against the Company could result in the Company incurring up to approximately $1.1 million in charges, plus legal fees and expenses.

(16) Segment Information

The Company’s reportable segments consist of four distinct reporting and operational segments within the greater Washington D.C, region in which it operates: Maryland, Washington, D.C., Northern Virginia and Southern Virginia. 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.

26

The results of operations for the Company’s four reportable segments are as follows (dollars in thousands):

	Three Months Ended September 30, 2012
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Number of buildings		64			4			55			57			180
Square feet		3,816,878			666,714			3,655,536			5,649,203			13,788,331
Total revenues	$	13,720		$	6,977		$	15,246		$	12,678		$	48,621
Property operating expense		(3,470	)		(1,271	)		(3,286	)		(3,784	)		(11,811	)
Real estate taxes and insurance		(1,101	)		(1,053	)		(1,506	)		(1,012	)		(4,672	)
Total property operating income	$	9,149		$	4,653		$	10,454		$	7,882			32,138
Depreciation and amortization expense														(16,633	)
General and administrative														(5,645	)
Acquisition costs														(8	)
Impairment of real estate assets														(496	)
Contingent consideration related to acquisition of property														(112	)
Other expenses, net														(6,112	)
Benefit from income taxes														4,304
Loss from discontinued operations														(1	)
Net income													$	7,435
Capital expenditures(1)	$	3,328		$	3,836		$	2,877		$	3,214		$	13,429
	Three Months Ended September 30, 2011
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Number of buildings		67			4			55			57			183
Square feet		3,875,397			666,714			3,663,645			5,649,485			13,855,241
Total revenues	$	12,560		$	6,540		$	12,977		$	12,551		$	44,628
Property operating expense		(3,120	)		(1,344	)		(3,028	)		(3,503	)		(10,995	)
Real estate taxes and insurance		(1,174	)		(814	)		(1,198	)		(1,005	)		(4,191	)
Total property operating income	$	8,266		$	4,382		$	8,751		$	8,043			29,442
Depreciation and amortization expense														(15,934	)
General and administrative														(4,354	)
Acquisition costs														(1,737	)
Contingent consideration related to acquisition of property														1,487
Other expenses, net														(9,674	)
Benefit from income taxes														195
Loss from discontinued operations														(3,137	)
Net loss													$	(3,712	)
Capital expenditures(1)	$	3,570		$	514		$	5,216		$	2,090		$	12,297

27

	Nine Months Ended September 30, 2012
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Total revenues	$	43,094		$	20,968		$	41,644		$	37,414		$	143,120
Property operating expense		(10,294	)		(3,461	)		(9,219	)		(10,430	)		(33,404	)
Real estate taxes and insurance		(3,531	)		(3,326	)		(4,407	)		(3,077	)		(14,341	)
Total property operating income	$	29,269		$	14,181		$	28,018		$	23,907			95,375
Depreciation and amortization expense														(48,844	)
General and administrative														(17,787	)
Acquisition costs														(49	)
Impairment of real estate assets														(2,444	)
Contingent consideration related to acquisition of property														(112	)
Other expenses, net														(38,447	)
Benefit from income taxes														4,142
Loss from discontinued operations														(1,095	)
Net loss													$	(9,261	)
Total assets(2)(3)	$	497,966		$	313,513		$	459,153		$	365,687		$	1,714,237
Capital expenditures(1)	$	16,359		$	5,541		$	15,354		$	10,050		$	48,418
	Nine Months Ended September 30, 2011
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Total revenues	$	37,174		$	16,049		$	35,774		$	37,328		$	126,325
Property operating expense		(9,419	)		(3,211	)		(8,621	)		(9,470	)		(30,721	)
Real estate taxes and insurance		(3,450	)		(2,054	)		(3,598	)		(3,003	)		(12,105	)
Total property operating income	$	24,305		$	10,784		$	23,555		$	24,855			83,499
Depreciation and amortization expense														(44,911	)
General and administrative														(12,546	)
Acquisition costs														(4,475	)
Contingent consideration related to acquisition of property														1,487
Other expenses, net														(26,410	)
Benefit from income taxes														656
Loss from discontinued operations														(4,153	)
Net loss													$	(6,853	)
Total assets(2)(3)	$	467,101		$	320,102		$	416,347		$	365,398		$	1,673,783
Capital expenditures(1)	$	12,371		$	1,192		$	16,428		$	5,629		$	37,728

⁽¹⁾ Capital expenditures for corporate assets not allocated to any of our reportable segments totaled $174 and $907 for the three months ended September 30, 2012 and 2011, respectively, and $1,114 and $2,108 for the nine months ended September 30, 2012 and 2011, respectively.

⁽²⁾  Total assets include the Company’s investment in properties that are owned through joint ventures that are not consolidated within the Company’s condensed consolidated financial statements. For more information on the Company’s unconsolidated investments, including location within the Company’s reportable segments, see footnote 6, Investment in Affiliates.

⁽³⁾  Corporate assets not allocated to any of our reportable segments totaled $77,918 and $104,835 at September 30, 2012 and 2011, respectively.

28

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. The discussion and analysis is derived from the consolidated operating results and activities of First Potomac Realty Trust.

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 four distinct segments, which it refers to as the Washington, D.C., 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 Company’s 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.

The Company conducts its business through First Potomac Realty Investment Limited Partnership, the Company’s operating partnership (the “Operating Partnership”). The Company is the sole general partner of, and, as of September 30, 2012, owned a 95.2% 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 unaudited condensed consolidated financial statements, are limited partnership interests, some of which are owned by several of the Company’s executive officers and trustees who contributed properties and other assets to the Company upon its formation, and other unrelated parties.

At September 30, 2012, the Company wholly-owned or had a controlling interest in properties totaling 13.8 million square feet and had a noncontrolling ownership interest in properties totaling an additional 0.9 million square feet through five unconsolidated joint ventures. The Company also owned land that can accommodate approximately 2.4 million square feet of additional development. The Company’s consolidated properties were 83.2% occupied by 621 tenants. The Company does not include square footage that is in development or redevelopment in its occupancy calculation, which totaled 0.3 million square feet at September 30, 2012. The Company derives substantially all of its revenue from leases of space within its properties. As of September 30, 2012, the Company’s largest tenant was the U.S. Government, which along with government contractors, accounted for over 25% of the Company’s total annualized base rent.

The primary source of the Company’s revenue and earnings is rent received from tenants under long-term (generally three to ten years) operating leases at its properties, including reimbursements from tenants for certain operating costs. Additionally, the Company may generate earnings from the sale of assets either outright or contributed into joint ventures.

The Company’s 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, or contribute properties to joint ventures, at favorable prices; and

• continue to grow its portfolio through acquisition of new properties, potentially through joint ventures.

Executive Summary

The Company had net income of $7.4 million for the three months ended September 30, 2012 compared with a net loss of $3.7 million for the same period in 2011. Net income for the three months ended September 30, 2012 was primarily due to a $4.3 million benefit as a result of a change in tax regulations enacted by the District of Columbia that became effective in September 2012 and a $3.0 million gain on the sale of the Company’s 95% interest in an unconsolidated joint venture. The net loss for the three months ended September 30, 2011 was primarily due to a $3.1 million impairment charge for a property that was disposed of in the first quarter of 2012. The Company’s funds from operations (“FFO”) available to common shareholders were $19.9 million, or $0.38 per diluted share, compared with FFO of $13.8 million, or $0.27 per diluted share, for the three months ended September 30, 2012, respectively. The increase in FFO for the three months ended September 30, 2012 was due to an increase in net operating income and the $4.3 million benefit as a result of a change in tax regulations.

29

For the nine months ended September 2012 and 2011, the Company’s net loss was $9.3 million and $6.9 million, respectively. The Company’s FFO available to common shareholders were $35.5 million, or $0.67 per diluted share, and $38.2 million, or $0.74 per diluted share, for the nine months ended September 30, 2012 and 2011, respectively. The increase in net loss and the decrease in FFO for the nine months ended September 2012 compared with the same period in 2011 was primarily due to $13.2 million of debt extinguishment charges and $3.2 million of legal and accounting fees associated with the Company’s internal investigation and accounting fees and $0.4 million of personnel separation costs, which were partially offset by an increase in net operating income and the $4.3 million benefit from the change in tax regulations.

FFO is a non-GAAP financial measure. For a description of FFO, including why management believes its presentation is useful and a reconciliation of FFO to net income (loss) attributable to First Potomac Realty Trust, see “Funds From Operations.”

Significant Transactions

• Executed 475,000 square feet of leases, including 143,000 square feet of new leases;

• Sold a 95% interest in an unconsolidated joint venture that owned 1200 17^th Street, NW, an office building in Washington, D.C., for $43.7 million, which resulted in a $3.0 million gain on the sale;

• Entered into a $68.4 million mortgage loan encumbered by Redland Corporate Center; and,

• In October 2012, entered into a $22.0 million mortgage loan encumbered by 1005 First Street, NE.

Internal Investigation

As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, the Audit Committee of the Board of Trustees completed its internal investigation regarding the material weakness previously identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and briefed the Board of Trustees regarding the results of the investigation and recommendations as to certain remedial and enhancement measures. In response to the recommendations of the Audit Committee, the Board of Trustees adopted a number of measures designed to remediate the underlying causes of the material weakness, as well as certain other enhancement measures unrelated to the material weakness. These remedial actions and enhancement measures include enhancements to debt covenant compliance controls, enhancements to financial reporting controls, enhancement of the role of the Company’s legal and accounting functions, and general control enhancements regarding, among other things, enterprise risk management and communication by management with the Audit Committee and outside legal counsel.

Several of the foregoing remedial actions and enhancement measures have been completed or are currently underway, including, as previously disclosed, the hiring of a new chief financial officer and the engagement of a new third-party accounting firm to perform the Company’s internal audit function. Management continues to work toward the full implementation of these remedial actions and enhancement measures and will continue to provide periodic reports on the implementation of these measures to the Audit Committee. Management believes that it has made progress remediating the material weakness; however, because some of the remedial actions must be successfully tested for multiple periods, management believes that it needs to continue to monitor the successful implementation of those steps before it is able to conclude that the material weakness has been remediated. For more information regarding these matters, see “Item 4. Controls and Procedures—Background” and “-Remediation of Material Weakness and Implementation of Enhancement Measures.”

30

Properties:

The following sets forth certain information for the Company’s consolidated properties by segment as of September 30, 2012 (including properties in development and redevelopment, dollars in thousands):

WASHINGTON, D.C. REGION

Property	Buildings		Sub-Market(1)	Square Feet		Annualized Cash Basis Rent(2)		Leased at September 30, 2012(3)			Occupied at September 30, 2012(3)
Downtown DC-Office
500 First Street, NW		1	Capitol Hill		129,035	$	4,783		100.0	%		100.0	%
840 First Street, NE		1	NoMA		247,146		7,011		100.0	%		100.0	%
1005 First Street, NE(4)		1	NoMA		30,414		2,496		100.0	%		100.0	%
1211 Connecticut Avenue, NW		1	CBD		125,119		3,427		97.1	%		97.1	%
Total		4			531,714		17,717		99.3	%		99.3	%
Redevelopment
440 First Street, NW		1	Capitol Hill		135,000		—		—			—
Joint Venture Property (unconsolidated)
1750 H Street, NW		1	CBD		111,373		4,073		100.0	%		100.0	%
Region Total		6			778,087	$	21,790		99.4	%		99.4	%

⁽¹⁾  CBD = Central Business District; NoMA = North of Massachusetts Avenue.

⁽²⁾  Annualized cash basis rent, which is calculated as the contractual rent due under the terms of the lease, without taking into account rent abatements, is reflected on a triple-net equivalent basis, by deducting operating expense reimbursements that are included, along with base rent, in the contractual payments of the Company’s full service leases. The operating expense reimbursements primarily relate to real estate taxes and insurance expenses.

⁽³⁾ Does not include space in development or redevelopment.

⁽⁴⁾  The property was acquired through a consolidated joint venture in which the Company has a 97% controlling economic interest.

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MARYLAND REGION

Property	Buildings		Location	Square Feet		Annualized Cash Basis Rent(1)		Leased at September 30, 2012(2)			Occupied at September 30, 2012(2)
SUBURBAN MD
Business Park
Ammendale Business Park(3)		7	Beltsville		311,636	$	3,962		97.3	%		90.4	%
Gateway 270 West		6	Clarksburg		255,415		2,767		81.6	%		75.8	%
Girard Business Center(4)		7	Gaithersburg		298,009		3,110		88.8	%		88.8	%
Rumsey Center		4	Columbia		134,619		1,182		84.1	%		72.6	%
Snowden Center		5	Columbia		144,981		2,183		100.0	%		100.0	%
Total Business Park		29			1,144,660		13,204		90.4	%		85.9	%
Office
Worman’s Mill Court		1	Frederick		40,051		367		87.7	%		87.7	%
Annapolis Business Center		2	Annapolis		101,898		1,564		98.8	%		98.8	%
Campus at Metro Park North		4	Rockville		190,720		3,366		89.6	%		89.6	%
Cloverleaf Center		4	Germantown		173,655		2,443		86.1	%		86.1	%
Gateway Center		2	Gaithersburg		44,451		514		72.2	%		72.2	%
Hillside Center		2	Columbia		86,189		1,284		100.0	%		100.0	%
Merrill Lynch Building		1	Columbia		136,975		1,562		75.4	%		75.4	%
Patrick Center		1	Frederick		66,469		957		77.0	%		77.0	%
Redland Corporate Center		2	Rockville		348,469		6,789		88.0	%		88.0	%
West Park		1	Frederick		28,417		267		81.7	%		75.0	%
Total Office		20			1,217,294		19,113		87.0	%		86.8	%
Industrial
Frederick Industrial Park(5)		3	Frederick		550,490		4,121		91.5	%		91.5	%
Glenn Dale Business Center		1	Glenn Dale		315,962		1,521		86.9	%		86.9	%
Total Industrial		4			866,452		5,642		89.8	%		89.8	%
Total Suburban Maryland		53			3,228,406		37,959		89.0	%		87.3	%
BALTIMORE
Business Park
Owings Mills Business Park(6)		6	Owings Mills		219,284		1,675		58.8	%		58.8	%
Triangle Business Center		4	Baltimore		74,182		357		47.8	%		47.8	%
Total Business Park		10			293,466		2,032		56.0	%		56.0	%
Industrial
Mercedes Center		1	Hanover		295,006		1,303		74.0	%		74.0	%
Total Baltimore		11			588,472		3,335		65.0	%		65.0	%
Total Consolidated		64			3,816,878		41,294		85.3	%		83.9	%
Joint Venture Properties (Unconsolidated)
RiversPark I and II		6	Columbia		307,747		3,740		89.1	%		87.5	%
Aviation Business Park		3	Glen Burnie		120,662		659		37.8	%		26.3	%
Total Joint Ventures		9			428,409		4,399		74.6	%		70.2	%
Region Total		73			4,245,287	$	45,693		84.2	%		82.5	%

⁽¹⁾  Annualized cash basis rent, which is calculated as the contractual rent due under the terms of the lease, without taking into account rent abatements, is reflected on a triple-net equivalent basis, by deducting operating expense reimbursements that are included, along with base rent, in the contractual payments of the Company’s full service leases. The operating expense reimbursements primarily relate to real estate taxes and insurance expenses.

⁽²⁾  Does not include space in development or redevelopment.

⁽³⁾  Ammendale Business Park consists of the following properties: Ammendale Commerce Center and Indian Creek Court.

⁽⁴⁾ Girard Business Center consists of the following properties: Girard Business Center and Girard Place.

⁽⁵⁾ Frederick Industrial Park consists of the following properties: 4451 Georgia Pacific Boulevard, 4612 Navistar Drive, and 6900 English Muffin Way.

⁽⁶⁾ Owings Mills Business Park consists of the following properties: Owings Mills Business Center and Owings Mills Commerce Center. On November 7, 2012, the Company sold two buildings totaling 39,000 square feet at Owings Mills Business Park.

32

NORTHERN VIRGINIA REGION

Property	Buildings		Location	Square Feet		Annualized Cash Basis Rent(1)		Leased at September 30, 2012(2)			Occupied at September 30, 2012(2)
Business Park
Corporate Campus at Ashburn Center		3	Ashburn		194,184	$	2,837		100.0	%		100.0	%
Gateway Centre Manassas		3	Manassas		102,388		540		51.1	%		51.1	%
Linden Business Center		3	Manassas		109,725		843		67.8	%		62.4	%
Prosperity Business Center		1	Merrifield		71,343		903		100.0	%		100.0	%
Sterling Park Business Center(3)		7	Sterling		464,577		3,902		85.8	%		75.8	%
Total Business Park		17			942,217		9,025		83.9	%		78.4	%
Office
Atlantic Corporate Park		2	Sterling		221,372		1,080		29.8	%		29.8	%
Cedar Hill		2	Tysons Corner		102,632		2,164		100.0	%		100.0	%
Herndon Corporate Center		4	Herndon		128,063		1,740		88.4	%		88.4	%
Lafayette Business Center(4)		6	Chantilly		253,867		3,536		83.5	%		82.2	%
One Fair Oaks		1	Fairfax		214,214		5,150		100.0	%		100.0	%
Reston Business Campus		4	Reston		83,373		950		73.5	%		64.0	%
Three Flint Hill		1	Oakton		181,397		2,121		68.8	%		44.8	%
Van Buren Office Park		5	Herndon		81,564		898		77.2	%		77.2	%
Windsor at Battlefield		2	Manassas		155,511		2,069		90.3	%		90.3	%
Total Office		27			1,421,993		19,708		77.2	%		73.3	%
Industrial
13129 Airpark Road		1	Culpeper		149,888		630		75.9	%		75.9	%
I-66 Commerce Center(5)		1	Haymarket		236,082		3,470		100.0	%		100.0	%
Interstate Plaza		1	Alexandria		109,029		1,124		98.9	%		98.9	%
Newington Business Park Center		7	Lorton		254,272		2,370		82.5	%		80.1	%
Plaza 500		2	Alexandria		505,258		4,898		74.5	%		74.5	%
Total Industrial		12			1,254,529		12,492		83.2	%		82.7	%
Total Consolidated		56			3,618,739		41,225		81.0	%		77.9	%
Total Development / Redevelopment(6)					36,797		—		—			—
Joint Venture Property (Unconsolidated)
Metro Place III & IV		2	Merrifield		325,328		7,073		100.0	%		100.0	%
Region Total		58			3,980,864	$	48,298		84.2	%		82.7	%

⁽¹⁾  Annualized cash basis rent, which is calculated as the contractual rent due under the terms of the lease, without taking into account rent abatements, is reflected on a triple-net equivalent basis, by deducting operating expense reimbursements that are included, along with base rent, in the contractual payments of the Company’s full service leases. The operating expense reimbursements primarily relate to real estate taxes and insurance expenses.

⁽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 Center consists of the following properties: Enterprise Center and Tech Court.

⁽⁵⁾  Previously referred to as 15395 John Marshall Highway.

⁽⁶⁾  Includes development at Sterling Park Business Center and redevelopment at Sterling Park and Van Buren Office Park.

33

SOUTHERN VIRGINIA REGION

Property	Buildings		Location	Square Feet		Annualized Cash Basis Rent(1)		Leased at September 30, 2012(2)			Occupied at September 30, 2012(2)
RICHMOND
Business Park
Chesterfield Business Center(3)		11	Richmond		320,308	$	1,881		90.3	%		88.6	%
Hanover Business Center		4	Ashland		183,659		796		68.5	%		66.1	%
Park Central		3	Richmond		204,762		1,966		81.8	%		80.1	%
Virginia Center Technology Park		1	Glen Allen		118,579		1,270		86.7	%		85.2	%
Total Business Park		19			827,308		5,913		82.8	%		81.0	%
Industrial
Northridge		2	Ashland		139,346		775		82.9	%		82.9	%
River’s Bend Center(4)		6	Chester		795,139		4,626		95.6	%		95.6	%
Total Industrial		8			934,485		5,401		93.7	%		93.7	%
Total Richmond		27			1,761,793		11,314		88.6	%		87.7	%
NORFOLK
Business Park
Crossways Commerce Center(5)		9	Chesapeake		1,087,250		10,890		94.2	%		93.1	%
Battlefield Corporate Center		1	Chesapeake		96,720		780		100.0	%		100.0	%
Greenbrier Business Park(6)		4	Chesapeake		411,815		3,866		77.0	%		76.7	%
Hampton Roads Center(7)		3	Hampton		584,345		2,484		63.5	%		63.5	%
Norfolk Commerce Park(8)		3	Norfolk		262,683		1,949		66.6	%		66.6	%
Total Business Park		20			2,442,813		19,969		81.2	%		80.7	%
Office
Greenbrier Towers		2	Chesapeake		172,350		2,076		93.6	%		93.6	%
Total Office		2			172,350		2,076		93.6	%		93.6	%
Industrial
Cavalier Industrial Park		4	Chesapeake		394,308		1,342		80.4	%		80.4	%
Diamond Hill Distribution Center		4	Chesapeake		712,339		2,813		95.1	%		91.9	%
Total Industrial		8			1,106,647		4,155		89.9	%		87.8	%
Total Norfolk		30			3,721,810		26,200		84.3	%		83.4	%
Region Total		57			5,483,603	$	37,514		85.7	%		84.8	%

⁽¹⁾  Annualized cash basis rent, which is calculated as the contractual rent due under the terms of the lease, without taking into account rent abatements, is reflected on a triple-net equivalent basis, by deducting operating expense reimbursements that are included, along with base rent, in the contractual payments of the Company’s full service leases. The operating expense reimbursements primarily relate to real estate taxes and insurance expenses.

⁽²⁾  Does not include space in development or redevelopment.

⁽³⁾  Chesterfield Business Center consists of the following properties: Airpark Business Center, Chesterfield Business Center, and Pine Glen.

⁽⁴⁾  River’s Bend Center consists of the following properties: River’s Bend Center and River’s Bend Center II.

⁽⁵⁾  Crossways Commerce Center consists of the following properties: Coast Guard Building, Crossways Commerce Center I, Crossways Commerce Center II, 1434 Crossways Boulevard, and 1408 Stephanie Way.

⁽⁶⁾  Greenbrier Business Park consists of the following properties: Greenbrier Technology Center I, Greenbrier Technology Center II, and Greenbrier Circle Corporate Center.

⁽⁷⁾  Hampton Roads Center consists of the following properties: 1000 Lucas Way and Enterprise Parkway.

⁽⁸⁾  Norfolk Commerce Park consists of the following properties: Norfolk Business Center, Norfolk Commerce Park II, and Gateway II.

34

Development and Redevelopment Activity

The Company constructs office buildings, business parks and/or industrial buildings on a build-to-suit basis or with the intent to lease upon completion of construction. Also, the Company owns developable land that can accommodate 2.4 million square feet of additional building space. Below is a summary of the approximate building square footage that can be developed on the Company’s developable land and the Company’s current development and redevelopment activity as of September 30, 2012 (amounts in thousands):

Reporting Segment	Developable Square Feet		Square Feet Under Development		Cost to Date of Development Activities(1)		Square Feet Under Redevelopment		Cost to Date of Redevelopment Activities(1)
Washington, D.C.		713		—	$	—		135	$	8,683
Maryland		250		—		—		—		—
Northern Virginia		568		—		—		37		372
Southern Virginia		841		166		659		—		—
		2,372		166	$	659		172	$	9,055

⁽¹⁾  Costs to date amounts exclude tenant improvement and leasing commission costs, as well as the property’s original cost basis.

During the third quarter of 2012, the Company placed in-service redevelopment activities totaling 154,000 square feet in its Northern Virginia reporting segment that were completed at a cost of $11.5 million. No development activities were placed in-service during the third quarter of 2012.

At September 30, 2012, the Company had substantially completed redevelopment activities that have yet to be placed in service on 37,000 square feet, at a cost of $0.4 million, in its Northern Virginia reporting segment. The Company will place completed construction activities in service upon the shorter of a tenant taking occupancy or twelve months from substantial completion.

Lease Expirations

Approximately 2.8% of the Company’s annualized base rent, excluding month-to-month leases, which represent 0.4% of the Company’s annualized base rent, is scheduled to expire during the remainder of 2012, with 12.5% expiring through the twelve months ending September 30, 2013. Current tenants are not obligated to renew their leases upon the expiration of their terms. If non-renewals or terminations occur, the Company may not be able to locate qualified replacement tenants and, as a result, could lose a significant source of revenue while remaining responsible for the payment of its financial obligations. Moreover, the terms of a renewal or new lease, including the amount of rent, may be less favorable to the Company than the current lease terms, or the Company may be forced to provide tenant improvements at its expense or provide other concessions or additional services to maintain or attract tenants. We continually strive to increase our portfolio occupancy, and the amount of vacant space in our portfolio at any given time may impact our willingness to reduce rental rates or provide greater concessions to retain existing tenants and attract new tenants. The Company’s management continually monitors its portfolio on a regional and per property basis to assess market trends, including vacancy, comparable deals and transactions, and other business and economic factors that may influence our leasing decisions. During the three and nine months ended September 30, 2012, the Company experienced retention rates of 75% and 68%, respectively, based on square footage. After reflecting all the renewal leases on a triple-net basis to allow for comparability, the weighted average rental rate on the Company’s renewed leases increased 4.4% and 4.9% for the three and nine months ended September 30, 2012, respectively, compared with the expiring leases during such periods. During the third quarter of 2012, the Company executed new leases for 0.1 million square feet, of which substantially all of the leases (based on square footage) contained rent escalations.

35

The following table sets forth a summary schedule of the lease expirations at the Company’s consolidated properties for leases in place as of September 30, 2012 (dollars in thousands, except per square foot data):

Year of Lease Expiration	Number of Leases Expiring		Square Feet		% of Leased Square Feet			Annualized  Cash Basis Rent(1)		% of Annualized Cash Basis Rent			Average Base Rent per Square Foot(1)(2)
MTM		7		66,085		0.6	%	$	607		0.4	%	$	9.18
2012		43		353,846		3.1	%		3,921		2.8	%		11.08
2013		136		1,480,767		13.0	%		19,055		13.8	%		11.42
2014		139		1,439,473		12.6	%		14,889		10.9	%		10.34
2015		110		1,220,695		10.7	%		11,507		8.4	%		9.43
2016		98		1,916,172		16.8	%		24,440		17.8	%		12.75
2017		81		1,046,510		9.2	%		11,221		8.1	%		10.72
2018		47		1,135,772		9.9	%		11,082		8.0	%		9.76
2019		54		574,419		5.0	%		8,415		6.1	%		14.65
2020		26		594,229		5.2	%		9,252		6.7	%		15.57
2021		20		496,391		4.3	%		5,245		3.8	%		10.57
Thereafter		40		1,090,745		9.6	%		18,116		13.2	%		16.61
Total / Weighted Average		801		11,415,104		100.0	%	$	137,750		100.0	%	$	11.88

⁽¹⁾  Annualized Cash Basis Rent, which is calculated as the contractual rent due under the terms of the lease, without taking into account rent abatements, is reflected on a triple-net equivalent basis, by deducting operating expense reimbursements that are included, along with base rent, in the contractual payments of the Company’s full service leases. The operating expense reimbursements primarily relate to real estate taxes and insurance expenses.

⁽²⁾  Represents Annualized Cash Basis Rent divided by the square footage of the expiring leases.

Critical Accounting Policies and Estimates

The Company’s condensed 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, results of operations and cash flows. 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 Company’s critical accounting policies and estimates relate to revenue recognition, including evaluation of the collectability of accounts and notes receivable, impairment of long-lived assets, purchase accounting for acquisitions of real estate, derivative instruments and share-based compensation.

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 includes 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.

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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 and Notes Receivable

The Company must make estimates of the collectability of its accounts and notes receivable related to minimum rent, deferred rent, tenant reimbursements, lease termination fees and interest 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 Company’s 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. 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.

Investments in Real Estate and Real Estate Entities

Investments in real estate and real estate entities are initially recorded at fair value if acquired in a business combination or carried at initial cost when constructed or acquired in an asset purchase, 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 Company’s assets, by class, are as follows:

Buildings	39 years
Building improvements	5 to 20 years
Furniture, fixtures and equipment	5 to 15 years
Lease related intangible assets	The term of the related lease
Tenant improvements	Shorter of the useful life of the asset or the term of the related lease

The Company regularly reviews market conditions for possible impairment of a property’s carrying value. When circumstances such as adverse market conditions, changes in management’s 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 property’s 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 less anticipated selling costs. 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 property’s 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 Company’s Board of Trustees or a designated delegate has approved the sale, there is a high likelihood a binding agreement to purchase the property will be signed under which the buyer will be required to commit a significant amount of nonrefundable cash and no significant financing contingencies will 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. The Company will classify any impairment loss, together with the building’s 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 held-for-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 assigned to another property owned by the Company after the disposition.

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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, which include its investments in assets owned through unconsolidated joint ventures that are 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 and interest on the direct compensation costs of the Company’s construction personnel who manage the development and redevelopment projects, but only to the extent the employee’s time can be allocated to a project. Any portion of construction management costs not directly attributable to a specific project are recognized as general and administrative expense in the period incurred. The Company does not capitalize any other general administrative costs such as office supplies, office rent expense or an overhead allocation to its development or redevelopment projects. Capitalized compensation costs were immaterial for the three and nine months ended September 30, 2012 and 2011. 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. The Company will also place redevelopment and development assets in service at this time and commence depreciation upon the substantial completion of tenant improvements and the recognition of revenue. 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, including any associated intangible assets, are measured at fair value at the date of acquisition. 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 management’s 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 Company’s 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.

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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 counterparty’s 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.

Share-Based Payments

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 Company’s realized volatility over the preceding period that is equivalent to the award’s expected life, which in management’s opinion, gives an accurate indication of future volatility. The expected term represents the period of time the options are anticipated to remain outstanding as well as the Company’s 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 or loss from continuing operations.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2012 with the Three and Nine Months Ended September 30, 2011

During 2011, the Company acquired the following consolidated properties: Cedar Hill; Merrill Lynch Building; 840 First Street, NE; One Fair Oaks; Greenbrier Towers; 1005 First Street, NE; and Hillside Center for an aggregate purchase cost of $268.6 million. Collectively, the properties are referred to as the “Acquired Properties.”

As of September 30, 2012, the Company had not acquired any properties in 2012.

The term “Existing Portfolio” refers to all consolidated properties that were acquired prior to 2011 and owned by the Company for the entirety of the periods presented, with the exception of the two buildings at Owings Mills Business Park, which were classified as held-for-sale at September 30, 2012 and were subsequently sold on November 7, 2012.

For discussion of the operating results of the Company’s reporting segments, the terms “Washington, D.C.”, “Maryland”, “Northern Virginia” and “Southern Virginia” will be used to describe the respective reporting segments.

Total Revenues

Total revenues are summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months						Nine Months
	September 30,				September 30,							Percent					Percent
(dollars in thousands)	2012		2011		2012		2011		Change			Change			Change		Change
Rental	$	39,800	$	35,729	$	114,844	$	101,810	$	4,071			11	%	$	13,034		13	%
Tenant reimbursements and other	$	8,821	$	8,899	$	28,276	$	24,515	$	(78	)		(1	)%	$	3,761		15	%

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Rental Revenue

Rental revenue is comprised of contractual rent, the impact of straight-line revenue and the amortization of deferred market rent assets and liabilities representing above and below market rate leases at acquisition. Rental revenue increased $4.1 million and $13.0 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. Rental revenue in the Existing Portfolio increased $3.5 million and $5.4 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011 due to an increase in occupancy and the acceleration in amortization of a tenant’s deferred abatement and straight-line balance over its remaining lease term at I-66 Commerce Center. The accelerated amortization began in the third quarter of 2012 and will result in $1.6 million of additional rental revenue per quarter until the lease expires at the end of March 2013. In addition, the Acquired Properties contributed additional rental revenue of $0.6 million and $7.6 million during the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. The Company expects aggregate rental revenues to increase for the remainder of 2012 due to a full-year of revenues from the properties acquired in 2011, a higher occupancy rate compared with prior periods and the amortization of a tenant’s deferred abatement and straight-line balance over the tenant’s remaining lease term.

The increase in rental revenue for the three and nine months ended September 30, 2012 compared with the same periods in 2011 includes $1.3 million and $4.2 million, respectively, for Maryland, $0.2 million and $3.0 million, respectively, for Washington, D.C., $2.3 million and $4.9 million, respectively, for Northern Virginia and $0.3 million and $0.9 million, respectively, for Southern Virginia.

Tenant Reimbursements and Other Revenues

Tenant reimbursements and other revenues include operating and common area maintenance costs reimbursed by the Company’s tenants as well as other incidental revenues such as lease termination payments, parking revenue and joint venture and construction related management fees. Tenant reimbursements and other revenues decreased $0.1 million for the three months ended September 30, 2012 compared with the same period in 2011 due to a $0.2 million decrease in revenues for the Existing Portfolio for the three months ended September 30, 2012 compared with the same period in 2011. For the three months ended September 30, 2012, the Acquired Properties contributed increased tenant reimbursements and other revenues of $0.1 million compared with 2011.

For the nine months ended September 30, 2012, tenant reimbursements and other revenues increased $3.8 million compared with the same period in 2011 primarily due to the Acquired Properties, which contributed an additional $3.0 million in revenues. Tenant reimbursements and other revenues for the Existing Portfolio increased $0.8 million for the nine months ended September 30, 2012 compared with 2011 due to a $1.0 million termination fee received from a tenant in the Company’s Maryland reporting segment in the second quarter of 2012. The Company expects tenant reimbursements and other revenues to increase for the remainder of 2012 due to a full year of recoverable operating expenses from properties acquired in 2011.

Tenant reimbursements and other revenues for the three and nine months ended September 30, 2012 compared with the same periods in 2011 include $0.2 million and $1.9 million, respectively, for Washington, D.C. For Maryland and Northern Virginia, tenant reimbursements and other revenues remained flat for the three months ended September 30, 2012 compared with the same period in 2011 and increased $2.0 million and $0.9 million, respectively, for the nine months ended September 30, 2012 compared with the same period in 2011. For Southern Virginia, tenant reimbursements and other revenues decreased $0.2 million and $0.8 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011.

Total Expenses

Property Operating Expenses

Property operating expenses are summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months					Nine Months
	September 30,				September 30,						Percent					Percent
(dollars in thousands)	2012		2011		2012		2011		Change		Change			Change		Change
Property operating	$	11,811	$	10,995	$	33,404	$	30,721	$	816		7	%	$	2,683		9	%
Real estate taxes and insurance	$	4,672	$	4,191	$	14,341	$	12,105	$	481		11	%	$	2,236		18	%

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Property operating expenses increased $0.8 million and $2.7 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. The Acquired Properties contributed $0.3 million and $2.5 million of additional property operating expenses for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. Property operating expenses for the Existing Portfolio increased $0.5 million and $0.2 million for the three and nine months ended September 30, 2012, respectively, compared with the same period in 2011 due to an increase in operating expenses associated with higher occupancy. The Company expects property operating expenses to increase for the remainder of 2012 due to a full-year of property operating expenses from properties acquired in 2011.

The increase in property operating expenses for the three and nine months ended September 30, 2012 compared with the same periods in 2011 includes $0.5 million and $1.1 million, respectively, for Maryland, $0.3 million and $0.6 million, respectively, for Northern Virginia and $0.3 million and $1.0 million, respectively, for Southern Virginia. Property operating expenses in Washington, D.C. decreased $0.1 million for the three months ended September 30, 2012 compared with the same period in 2011 and increased $0.2 million for the nine months ended September 30, 2012 compared with the same period in 2011.

Real estate taxes and insurance expense increased $0.5 million and $2.2 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. The Acquired Properties contributed an increase in real estate taxes and insurance expense of $0.1 million and $1.1 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. For the Existing Portfolio, real estate taxes and insurance expense increased $0.4 million and $1.1 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011 due to higher real estate tax assessments.

The increase in real estate taxes and insurance expense for the three and nine months ended September 30, 2012 compared with the same periods in 2011 includes $0.2 million and $1.3 million, respectively, for Washington, D.C. and $0.3 million and $0.8 million, respectively, for Northern Virginia. Real estate taxes and insurance in Maryland decreased $0.1 million for the three months ended September 30, 2012 compared with the same period in 2011 and increased $0.1 million for the nine months ended September 30, 2012 compared with the same period in 2011. Southern Virginia experienced a slight increase in real estate taxes and insurance expense for the three and nine months ended September 30, 2012 compared with the same periods in 2011.

Other Operating Expenses

General and administrative expenses are summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months					Nine Months
	September 30,				September 30,						Percent					Percent
(dollars in thousands)	2012		2011		2012		2011		Change		Change			Change		Change
	$	5,645	$	4,354	$	17,787	$	12,546	$	1,291		30	%	$	5,241		42	%

General and administrative expenses increased $1.3 million and $5.2 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011 primarily due to legal and accounting fees associated with the Company’s internal investigation and personnel separation costs, the combined total of which was $1.1 million and $3.6 million for the three and nine months ended September 30, 2012, respectively. The increase in general and administrative expenses for the periods presented was also attributable to an increase in employee compensation costs, as the Company had 192 employees at September 30, 2012 compared with 165 employees at September 30, 2011; an increase in software expense, as the Company implemented its new enterprise accounting software in late 2011; and an increase in rent expense, as the Company expanded its corporate headquarters in 2012. The Company anticipates general and administrative expenses will increase for the remainder of 2012 as a result of a larger workforce, the amortization of costs associated with its new enterprise accounting software and increased corporate office rent expense. In addition, although the Company expects that the expenses associated with its completed internal investigation will significantly decline and be eliminated over time, the Company may continue to incur significant expenses in the near term in connection with its continued implementation of certain remedial actions and enhancement measures, including certain personnel actions, the costs of which could have a material adverse effect on its business, financial condition, results of operations and cash flows.

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Acquisition costs are summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months						Nine Months
	September 30,				September 30,							Percent						Percent
(dollars in thousands)	2012		2011		2012		2011		Change			Change			Change			Change
	$	8	$	1,737	$	49	$	4,475	$	(1,729	)		(100	)%	$	(4,426	)		(99	)%

Acquisition costs decreased $1.7 million and $4.4 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. The Company acquired six properties in the nine months ended September 30, 2011, including two properties in the third quarter of 2011. The Company did not acquire any properties during the nine months ended September 30, 2012.

Depreciation and amortization expense is summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months					Nine Months
	September 30,				September 30,						Percent					Percent
(dollars in thousands)	2012		2011		2012		2011		Change		Change			Change		Change
	$	16,633	$	15,934	$	48,844	$	44,911	$	699		4	%	$	3,933		9	%

Depreciation and amortization expense includes depreciation of real estate assets and amortization of intangible assets and leasing commissions. Depreciation and amortization expense increased $0.7 million and $3.9 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011, primarily due to the Acquired Properties. For the three and nine months ended September 30, 2012, the Acquired Properties contributed an increase in depreciation and amortization expense of $0.9 million and $2.1 million, respectively. The increase for the three months ended September 30, 2012 was partially offset by the Existing Portfolio, which experienced a decrease in depreciation and amortization expense of $0.2 million for the three months ended September 30, 2012 as certain acquired intangible assets fully amortized prior to September 30, 2012. For the nine months ended September 30, 2012, depreciation and amortization expense increased $1.8 million for the Existing Portfolio primarily due to the disposal of assets related to tenants that vacated in the first half of 2012 prior to reaching the full term of their leases. The Company anticipates depreciation and amortization expense will increase for the remainder of 2012 due to recognizing a full-year of depreciation and amortization expense for properties acquired in 2011.

Impairment of real estate assets are summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months				Nine Months
	September 30,				September 30,						Percent				Percent
(dollars in thousands)	2012		2011		2012		2011		Change		Change		Change		Change
	$	496	$	—	$	2,444	$	—	$	496		NM	$	2,444		NM

Impairment of real estate assets represent impairment charges incurred on properties that have not been sold or classified as held-for-sale as of September 30, 2012, which would result in their operations being classified as discontinued operations on the Company’s statements of operations. At September 30, 2012, the Company continued to classify two buildings at Owings Mills Business Park as held-for-sale. The two buildings were sold on November 7, 2012. The impairment charges shown above for the three and nine months ended September 30, 2012 relate to the remaining buildings at Owings Mills Business Park. The Company did not record any other impairment charges within continuing operations for the three and nine months ended September 30, 2012 and 2011.

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Contingent consideration related to acquisition of property is summarized as follows:

	Three Months Ended					Nine Months Ended					Three Months				Nine Months
	September 30,					September 30,							Percent				Percent
(dollars in thousands)	2012		2011			2012		2011			Change		Change		Change		Change
	$	112	$	(1,487	)	$	112	$	(1,487	)	$	1,599		NM	$	1,599		NM

As part of the consideration for the Company’s 2009 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 has classified its contingent consideration liabilities within “Accounts payable and other liabilities” and any changes in its fair value subsequent to their acquisition date valuation are charged to earnings. Since the Company uses discounted cash flows over a stabilization period to value its contingent consideration related to Ashburn Center, the determination of the fair value of contingent consideration performed in a subsequent period reflects a reduction in the period to achieve stabilization and an increase in the likelihood reaching fulfillment of the obligation. As a result of the above, and the Company’s determination that it will owe the maximum amount required under the contract, the Company’s contingent consideration will immaterially increase over time. In the third quarter of 2012, the Company recorded a $112 thousand increase in its contingent consideration liability related to Ashburn Center that reflected a reduction of the period to reach stabilization. There was no significant change in the fair value of the contingent consideration related to Ashburn Center during the three and nine months ended September 30, 2011.

On March 25, 2011, the Company acquired 840 First Street, NE, in Washington, D.C. for an aggregate purchase price of $90.0 million, with up to $10.0 million of additional consideration payable in Operating Partnership units upon the terms of a lease renewal by the building’s sole tenant or the re-tenanting of the property through November 2013. Based on assessment of the probability of renewal and anticipated lease rates, the Company recorded a contingent consideration obligation of $9.4 million at acquisition. In July 2011, the building’s sole tenant renewed its lease through August 2023 on the entire building with the exception of two floors. As a result, the Company issued 544,673 Operating Partnership units to satisfy $7.1 million of its contingent consideration obligation. The Company recognized a $1.5 million gain associated with the issuance of the additional units, which represented the difference between the contractual value of the units and the fair value of the units at the date of issuance. There was no significant change in the fair value of the contingent consideration related to 840 First Street, NE during the three and nine months ended September 30, 2012.

Other Expenses, net

Interest expense is summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months						Nine Months
	September 30,				September 30,							Percent					Percent
(dollars in thousands)	2012		2011		2012		2011		Change			Change			Change		Change
	$	10,555	$	11,126	$	32,654	$	30,066	$	(571	)		(5	)%	$	2,588		9	%

The Company seeks to employ cost-effective financing methods to fund its acquisitions, development and redevelopment 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 Company’s activities impact the period-over-period comparisons of interest expense.

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Interest expense decreased $0.6 million for the three months ended September 30, 2012 compared with the same period in 2011 and increased $2.6 million for the nine months ended September 30, 2012 compared with 2011. At September 30, 2012, the Company had $921.3 million of debt outstanding with a weighted average interest rate of 4.5% compared with $872.4 million of debt outstanding with a weighted average interest rate of 5.1% at September 30, 2011.

The interest expense decline for the three months ended September 30, 2012 was primarily due to the repayment of the Company’s $75.0 million senior notes in May 2012, which had a weighted average interest rate of 6.5%, with borrowings under the unsecured revolving credit facility, which had a weighted average interest rate of 2.9%. As a result of the repayment, interest expense declined $1.2 million and $1.5 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011.

Interest expense related to the Company’s unsecured revolving credit facility increased $0.7 million and $0.8 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011 due to higher weighted average borrowings outstanding. For the three and nine months ended September 30, 2012, the Company’s weighted average borrowings outstanding on its unsecured revolving credit facility were $227.4 million and $174.1 million, respectively, with a weighted average interest rate of 2.9% for both periods, compared with weighted average borrowings for the three and nine months ended September 30, 2011 of $133.9 million and $133.3 million, respectively, with a weighted average interest rate of 2.7% and 3.0%, respectively. The Company amended its unsecured revolving credit facility in the second quarter of 2012 and, as a result, expensed all its existing deferred financing costs, which resulted in a decrease in interest expense of $0.2 million and $0.3 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011.

In July 2011, the Company entered into a three-tranche $175.0 million unsecured term loan, which was subsequently increased to $225.0 million in December 2011 and further increased to $300.0 million in February 2012. The Company used the funds received in 2011 and the first quarter of 2012 to pay down $239.0 million of the outstanding balance on its unsecured revolving credit facility, to repay a $50.0 million secured term loan and for other general corporate purposes. The unsecured term loan contributed additional interest expense of $1.2 million and $5.0 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. The repayment of the $50.0 million secured term loan resulted in a $0.1 million and $1.1 million reduction in interest expense for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011.

The Company repaid a $21.6 million mortgage loan encumbering Campus at Metro Park North in the first quarter of 2012, a $52.4 million mortgage loan encumbering One Fair Oaks in the second quarter of 2012 and a $8.9 million mortgage loan encumbering 1434 Crossways Boulevard Building II in the third quarter of 2012, which collectively resulted in a $0.7 million decrease in interest expense for the three months ended September 30, 2012 compared with the same period in 2011. During 2011, the Company acquired seven properties for an aggregate purchase price of $268.6 million and assumed mortgage debt totaling $153.5 million to partially fund the acquisitions, with $139.4 million of the mortgage debt related to acquisitions that were completed in the first quarter of 2011 or shortly thereafter. The assumption of new debt in 2011, which was partially offset by the repayment of mortgage debt in 2012, resulted in a slight increase to interest expense for the nine months ended September 30, 2012 compared with the same period in 2011.

In December 2011, the Company repaid its exchangeable senior notes, which resulted in a decrease in interest expense for the three and nine months ended September 30, 2012 of $0.5 million and $1.3 million, respectively. In August 2011, the Company repaid a $20.0 million secured term loan and, in January 2012, made a $10.0 million principal payment on a secured term loan, which resulted in a combined decrease in interest expense of $0.1 million and $0.4 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. Also, the Company capitalized $0.2 million and $0.8 million of additional interest for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011 as a result of an increase in construction activities.

The Company uses derivative financial instruments to manage exposure to interest rate fluctuations on its variable rate debt. At September 30, 2012, the Company had fixed LIBOR on $350.0 million of its variable rate debt through twelve interest rate swap agreements compared with it fixing LIBOR on $200.0 million of its variable rate debt through six interest rate swap agreements at September 30, 2011. Due to the increase in the amount of debt that was subject to interest rate swap agreements and to the change in interest rates, expense related to the interest rate swap agreements increased $0.5 million and $2.1 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011.

44

Interest and other income are summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months						Nine Months
	September 30,				September 30,							Percent					Percent
(dollars in thousands)	2012		2011		2012		2011		Change			Change			Change		Change
	$	1,522	$	1,533	$	4,529	$	3,768	$	(11	)		(1	)%	$	761		20	%

In December 2010, the Company provided a $25.0 million subordinated loan to the owners of 950 F Street, NW, a 287,000 square-foot office building in Washington, D.C. The loan has a fixed interest rate of 12.5%. In April 2011, the Company provided a $30.0 million subordinated loan to the owners of America’s Square, a 461,000 square foot, office complex in Washington, D.C. The loan has a fixed interest rate of 9.0%. The Company recorded interest income related to these loans of $1.5 million during both the three months ended September 30, 2012 and 2011, respectively, and $4.4 million and $3.6 million during the nine months ended September 30, 2012 and 2011, respectively. The remaining interest income relates to interest earned on the Company’s cash accounts and the amortization of issuance costs associated with the notes receivable.

Equity in losses of affiliates is summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months						Nine Months
	September 30,				September 30,							Percent						Percent
(dollars in thousands)	2012		2011		2012		2011		Change			Change			Change			Change
	$	30	$	81	$	52	$	112	$	(51	)		(63	)%	$	(60	)		(54	)%

Equity in losses of affiliates reflects the Company’s aggregate ownership interest in the operating results of the properties, in which it does not have a controlling interest.

Gain on sale of investment is summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months				Nine Months
	September 30,				September 30,						Percent				Percent
(dollars in thousands)	2012		2011		2012		2011		Change		Change		Change		Change
	$	2,951	$	—	$	2,951	$	—	$	2,951		NM	$	2,951		NM

On August 24, 2012, the Company sold its 95% interest in an unconsolidated joint venture that owned an office building at 1200 17th street, NW in Washington D.C. for $43.7 million, which after repayment of the mortgage loan encumbering the property resulted in net proceeds to the Company of $25.7 million. The Company reported a $3.0 million gain on the sale of this interest in its third quarter results.

Loss on debt extinguishment is summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months				Nine Months
	September 30,				September 30,						Percent				Percent
(dollars in thousands)	2012		2011		2012		2011		Change		Change		Change		Change
	$	—	$	—	$	13,221	$	—	$	—		—	$	13,221		NM

On May 10, 2012, the Company and its bank lenders amended the Company’s unsecured revolving credit facility, unsecured term loan and secured loan to, among other things, revise certain financial and other covenants that provided additional operating flexibility for the Company to execute its business strategy and clarify the treatment of certain covenant compliance-related definitions. As a result of the amendments, the Company expensed $0.6 million in fees paid to the bank lenders and $2.2 million in unamortized financing costs associated with the unsecured term loan during the second quarter of 2012. On June 11, 2012, the Company prepaid the entire $75.0 million principal amount outstanding under its Senior Notes. As a result of the prepayment, the Company paid a $10.2 million make-whole amount to the holders of the Senior Notes and expensed $0.2 million of unamortized deferred financing costs associated with its Senior Notes in the second quarter of 2012.

45

Benefit from Income Taxes

Benefit from income taxes is summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months					Nine Months
	September 30,				September 30,						Percent					Percent
(dollars in thousands)	2012		2011		2012		2011		Change		Change			Change		Change
	$	4,304	$	195	$	4,142	$	656	$	4,109		2,107	%	$	3,486		531	%

The Company owns properties in Washington, D.C., that are subject to income-based franchise taxes. Benefit from income taxes increased $4.1 million and $3.5 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. During the third quarter of 2012, there was a change in tax regulations in the District of Columbia that requires the Company to file a unitary tax return, which allows for a deduction for dividends paid to shareholders. The change in tax regulations resulted in the Company measuring all of its deferred tax assets and deferred tax liabilities using the effective tax rate expected to be in effect as these timing differences reverse. The Company also recorded a $1.0 million receivable for an expected tax refund associated with 2011 and the estimated payments made through September 30, 2012 arising from the change in regulations in its third quarter results. The Company recorded the $1.0 million receivable within “Accounts and other receivables” in its consolidated balance sheets.

Loss from Discontinued Operations

Loss from discontinued operations is summarized as follows:

	Three Months Ended				Nine Months Ended				Three Months						Nine Months
	September 30,				September 30,							Percent						Percent
(dollars in thousands)	2012		2011		2012		2011		Change			Change			Change			Change
	$	1	$	3,137	$	1,095	$	4,153	$	(3,136	)		(100	)%	$	(3,058	)		(74	)%

Discontinued operations reflect the operating results of two buildings at Owings Mills Business Park (which were sold on November 7, 2012), Goldenrod Lane (which was sold in May 2012), Woodlands Business Center (which was sold in May 2012), Airpark Place Business Center (which was sold in March 2012), Aquia Commerce Center I & II and Gateway West (which were both sold in the second quarter of 2011) and Old Courthouse Square (which was sold in the first quarter of 2011). The two buildings at Owings Mills Business Park, Goldenrod Lane, Woodlands Business Center, Airpark Place Business Center, Gateway West and Old Courthouse Square were located in the Company’s Maryland reporting segment and Aquia Commerce Center I & II was located in the Company’s Northern Virginia reporting segment. The Company’s discontinued operations include impairment charges of $1.1 million for the nine months ended September 30, 2012 and $3.1 million and $5.8 million for the three and nine months ended September 30, 2011, respectively. For the nine months ended September 30, 2012 and 2011, the loss from operations of the disposed properties was partially offset by gains on the sale of real estate property of $0.2 million and $2.0 million, respectively. The Company has had, and will have, no continuing involvement with these properties subsequent to their disposal.

46

Net (income) loss attributable to noncontrolling interests

Net (income) loss attributable to noncontrolling interests is summarized as follows:

	Three Months Ended					Nine Months Ended				Three Months					Nine Months
	September 30,					September 30,							Percent				Percent
(dollars in thousands)	2012			2011		2012		2011		Change			Change		Change		Change
	$	(232	)	$	265	$	876	$	469	$	(497	)		NM	$	407		87	%

Net (income) loss attributable to noncontrolling interests reflects the ownership interests in the Company’s net income or loss attributable to parties other than the Company. The Company had net income of $7.4 million for the three months ended September 30, 2012 compared with a net loss of $3.7 million for the three months ended September 30, 2011. During the nine months ended September 30, 2012 and 2011, the Company incurred a net loss of $9.3 million and $6.9 million, respectively.

The percentage of the Operating Partnership owned by noncontrolling interests decreased due to the redemption of 322,302 Operating Partnership units for an equivalent number of the Company’s common shares. The percentage of the Operating Partnership owned by third parties was 4.8% as of September 30, 2012 compared with 5.5% as of September 30, 2011.

As of September 30, 2012 and 2011, the Company consolidated two joint ventures in which it had a controlling interest. The Company consolidates the operating results of its consolidated joint ventures and recognizes its joint venture partner’s percentage of gains or losses within net loss attributable to noncontrolling interests. The joint venture partners’ aggregate share of net income in the operating results of the Company’s consolidated joint ventures was $23 thousand and $68 thousand during the three and nine months ended September 30, 2012, respectively.

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 whose period-over-period operations can be viewed on a comparative basis, 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 Company’s operating performance, Same Property NOI should not be considered an alternative to net income calculated in accordance with GAAP. A reconciliation of the Company’s 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.

47

Comparison of the Three and Nine Months Ended September 30, 2012 with the Three and Nine Months Ended September 30, 2011

The following table of selected operating data provides the basis for our discussion of Same Property NOI for the periods presented:

CONSOLIDATED

	Three Months Ended												Six Months Ended
	September 30,												September 30,
(dollars in thousands)	2012			2011			$ Change			% Change			2012			2011			$ Change			% Change
Number of buildings (1)		172			172			—			—			167			167			—			—
Same property revenue
Rental	$	36,230		$	34,777		$	1,453			4.2		$	94,748		$	91,978		$	2,770			3.0
Tenant reimbursements		8,316			8,373			(57	)		(0.7	)		18,992			19,520			(528	)		(2.7	)
Total same property revenue		44,546			43,150			1,396			3.2			113,740			111,498			2,242			2.0
Same property operating expenses
Property		10,895			10,624			271			2.6			26,049			26,259			(210	)		(0.8	)
Real estate taxes and insurance		4,300			4,094			206			5.0			10,915			10,540			375			3.6
Total same property operating expenses		15,195			14,718			477			3.2			36,964			36,799			165			(0.4	)
Same property net operating income	$	29,351		$	28,432		$	919			3.2		$	76,776		$	74,699		$	2,077			2.8
Reconciliation to net income (loss)
Same property net operating income	$	29,351		$	28,432								$	76,776		$	74,699
Non-comparable net operating income(2)		2,787			1,010									18,599			8,800
General and administrative		(5,645	)		(4,354	)								(17,787	)		(12,546	)
Depreciation and amortization		(16,633	)		(15,934	)								(48,844	)		(44,911	)
Other(3)		(2,468	)		(9,774	)								(37,041	)		(28,876	)
Discontinued operations		43			(3,092	)								(964	)		(4,019	)
Net income (loss)	$	7,435		$	(3,712	)							$	(9,261	)	$	(6,853	)

	Weighted Average Occupancy						Weighted Average Occupancy
	2012			2011			2012			2011
Same Properties		83.7	%		81.2	%		82.8	%		80.6	%

⁽¹⁾  Same-property comparisons are based upon those consolidated properties owned for the entirety of the periods presented. Same-property results exclude the results of the following non same-properties: Three Flint Hill, 440 First Street, NW, Greenbrier Towers I & II, 1005 First Street, NE, Hillside Center, Davis Drive and two buildings at Owings Mills Business Park. Same property results for the nine months ended September 30, 2012 and 2011 also exclude One Fair Oaks, Cedar Hill I & III, Merrill Lynch, and 840 First Street, NE.

⁽²⁾  Non-comparable net operating income has been adjusted to reflect a normalized management fee percentage in lieu of an administrative overhead allocation for comparative purposes.

⁽³⁾  Includes acquisition costs, impairment of real estate assets, total other expenses, net, loss on debt extinguishment and (provision) benefit for income taxes from the Company’s consolidated statements of operations.

48

Same Property NOI increased $0.9 million and $2.1 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. Total same property revenues increased $1.4 million and $2.2 million for the three and nine months ended September 30, 2012, respectively, due to an increase in occupancy. Same property expenses increased $0.5 million and $0.2 million for the three and nine months ended September 30, 2012, respectively, compared with 2011 primarily due to higher real estate tax assessments.

MARYLAND

	Three Months Ended										Nine Months Ended
	September 30,										September 30,
(dollars in thousands)	2012		2011		$ Change			% Change			2012		2011		$ Change			% Change
Number of buildings (1)		60		60		—			—2			59		59		—			—
Same property revenue
Rental	$	11,530	$	10,349	$	1,181			11.4		$	32,505	$	29,603	$	2,902			9.8
Tenant reimbursements		1,812		1,987		(175	)		(8.8	)		5,633		5,688		(55	)		(1.0	)
Total same property revenue		13,342		12,336		1,006			8.2			38,138		35,291		2,847			8.1
Same property operating expenses
Property		3,246		2,993		253			8.5			8,545		8,297		248			3.0
Real estate taxes and insurance		1,011		1,116		(105	)		(9.4	)		3,067		3,257		(190	)		(5.8	)
Total same property operating expenses		4,257		4,109		148			3.6			11,612		11,554		58			0.5
Same property net operating income	$	9,085	$	8,227	$	858			10.4		$	26,526	$	23,737	$	2,789			11.7
Reconciliation to total property operating income
Same property net operating income	$	9,085	$	8,227							$	26,526	$	23,737
Non-comparable net operating income (2)		64		39								2,743		568
Total property operating income	$	9,149	$	8,266							$	29,269	$	24,305

	Weighted Average Occupancy						Weighted Average Occupancy
	2012			2011			2012			2011
Same Properties		83.4	%		82.2	%		83.2	%		82.3	%

⁽¹⁾  Same-property comparisons are based upon those consolidated properties owned for the entirety of the periods presented. Same property results exclude Hillside Center and two buildings at Owings Mills Business Park. Same property results for the nine months ended September 30, 2012 and 2011 also exclude Merrill Lynch.

⁽²⁾  Non-comparable net operating income 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 increased $0.9 million and $2.8 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. Total same property revenues increased $1.0 million and $2.8 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011 due to an increase in occupancy. Total same property operating expenses for the Maryland properties increased $0.1 million for both the three and nine months ended September 30, 2012 due to higher operating expenses as a result of higher occupancy, which were partially offset by a decline in taxes as a result of lower tax assessments.

49

NORTHERN VIRGINIA

	Three Months Ended											Nine Months Ended
	September 30,											September 30,
(dollars in thousands)	2012		2011			$ Change			% Change			2012		2011		$ Change			% Change
Number of buildings (1)		54		54			—			—			51		51		—			—
Same property revenue
Rental	$	10,609	$	10,436		$	173			1.7		$	25,507	$	24,903	$	604			2.4
Tenant reimbursements		2,525		2,542			(17	)		(0.7	)		5,045		5,358		(313	)		(5.8	)
Total same property revenue		13,134		12,978			156			1.2			30,552		30,261		291			1.0
Same property operating expenses
Property		3,034		2,980			54			1.8			6,546		6,978		(432	)		(6.2	)
Real estate taxes and insurance		1,397		1,198			199			16.6			3,408		3,132		276			8.8
Total same property operating expenses		4,431		4,178			253			6.1			9,954		10,110		(156	)		(1.5	)
Same property net operating income	$	8,703	$	8,800		$	(97	)		(1.1	)	$	20,598	$	20,151	$	447			2.2
Reconciliation to total property operating income
Same property net operating income	$	8,703	$	8,800								$	20,598	$	20,151
Non-comparable net operating income (loss)(2)		1,751		(49	)								7,420		3,404
Total property operating income	$	10,454	$	8,751								$	28,018	$	23,555

	Weighted Average Occupancy						Weighted Average Occupancy
	2012			2011			2012			2011
Same Properties		80.3	%		80.7	%		78.5	%		83.7	%

⁽¹⁾ Same-property comparisons are based upon those consolidated properties owned for the entirety of the periods presented. Same-property results exclude the results of the following non same-properties: Three Flint Hill and Davis Drive. Same property results for the nine months ended September 30, 2012 and 2011 also exclude One Fair Oaks and Cedar Hill I & III.

⁽²⁾ Non-comparable net operating income 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 decreased $0.1 million for the three months ended September 30, 2012 and increased $0.4 million for the nine months ended September 30, 2012 compared with the same periods in 2011. Total same property revenues increased $0.2 million and $0.3 million for the three and nine months ended September 30, 2012, respectively, compared with 2011 due to an increase in rental revenue. Total same property operating expenses increased $0.3 million during the three months ended September 30, 2012 due to an increase in real estate taxes, which was partially offset by a decline in reserves for anticipated bad debt expense, and decreased $0.2 million for the nine months ended September 30, 2012 due to a decline in snow and ice removal costs, which was partially offset by an increase in real estate taxes.

50

SOUTHERN VIRGINIA

	Three Months Ended										Nine Months Ended
	September 30,										September 30,
(dollars in thousands)	2012		2011		$ Change			% Change			2012		2011		$ Change			% Change
Number of buildings (1)		55		55		—			—			55		55		—			—
Same property revenue
Rental	$	9,706	$	9,615	$	91			0.9		$	28,697	$	29,421	$	(724	)		(2.5	)
Tenant reimbursements		2,132		2,077		55			2.6			6,352		6,759		(407	)		(6.0	)
Total same property revenue		11,838		11,692		146			1.2			35,049		36,180		(1,131	)		(3.1	)
Same property operating expenses
Property		3,211		3,154		57			1.8			8,893		8,724		169			1.9
Real estate taxes and insurance		959		966		(7	)		(0.7	)		2,898		2,952		(54	)		(1.9	)
Total same property operating expenses		4,170		4,120		50			1.2			11,791		11,676		115			1.0
Same property net operating income	$	7,668	$	7,572	$	96			1.3		$	23,258	$	24,504	$	(1,246	)		(5.1	)
Reconciliation to total property operating income
Same property net operating income	$	7,668	$	7,572							$	23,258	$	24,504
Non-comparable net operating income (2)		214		471								649		351
Total property operating income	$	7,882	$	8,043							$	23,907	$	24,855

	Weighted Average						Weighted Average
	Occupancy						Occupancy
	2012			2011			2012			2011
Same Properties		84.5	%		82.7	%		82.2	%		83.5	%

⁽¹⁾ Same-property comparisons are based upon those consolidated properties owned for the entirety of the periods presented. Same-property results exclude the results of the following non same-properties: Greenbrier Towers I & II.

⁽²⁾ Non-comparable property net operating income 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 $0.1 million for the three months ended September 30, 2012 and decreased $1.2 million for the nine months ended September 30, 2012 compared with the same periods in 2011. Total same property revenues increased $0.1 million for the three months ended September 30, 2012, compared to the same period in 2011 primarily due to an increase in occupancy. Total same property revenue decreased $1.1 million for the nine months ended September 30, 2012 compared with the same period in 2011 as a result of a decline in occupancy, due in large part to the increase in vacancy at 1434 Crossways Boulevard as the sole tenant vacated in the second quarter of 2011. The Company re-leased a portion of this space during 2012. Total same property operating expenses increased slightly and $0.1 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011 as the Company experienced a recovery of anticipated bad debt expense in 2011, which decreased its operating expenses for both the three and nine months ended September 30, 2011.

51

WASHINGTON, D.C.

	Three Months Ended										Nine Months Ended
	September 30,										September 30,
(dollars in thousands)	2012		2011		$ Change			% Change			2012		2011		$ Change			% Change
Number of buildings (1)		3		3		—			—			2		2		—			—
Same property revenue
Rental	$	4,385	$	4,377	$	8			0.2		$	8,039	$	8,051	$	(12	)		(0.1	)
Tenant reimbursements		1,847		1,767		80			4.5			1,962		1,715		247			14.4
Total same property revenue		6,232		6,144		88			1.4			10,001		9,766		235			2.4
Same property operating expenses
Property		1,404		1,497		(93	)		(6.2	)		2,065		2,260		(195	)		(8.6	)
Real estate taxes and insurance		933		814		119			14.6			1,542		1,199		343			28.6
Total same property operating expenses		2,337		2,311		26			1.1			3,607		3,459		148			4.3
Same property net operating income	$	3,895	$	3,833	$	62			1.6		$	6,394	$	6,307	$	87			1.4
Reconciliation to total property operating income
Same property net operating income	$	3,895	$	3,833							$	6,394	$	6,307
Non-comparable net operating income(2)		758		549								7,787		4,477
Total property operating income	$	4,653	$	4,382							$	14,181	$	10,784

	Weighted Average						Weighted Average
	Occupancy						Occupancy
	2012			2011			2012			2011
Same Properties		99.3	%		99.8	%		98.8	%		99.8	%

⁽¹⁾ Same-property comparisons are based upon those consolidated properties owned for the entirety of the periods presented. Same-property results exclude the results of the following non same-properties: 440 First Street, NW and 1005 First Street, NE. Same property results for the nine months ended September 30, 2012 and 2011 also exclude 840 First Street, NE.

⁽²⁾ Non-comparable property net operating income 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 Washington, D.C. properties increased $0.1 million for both the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011. Total same property revenues increased $0.1 million and $0.2 million for the three and nine months ended September 30, 2012, respectively, compared with the same periods in 2011 as a result of higher recoveries of tenant reimbursable expenses. Total same property operating expense increased slightly for the three months ended September 30, 2012 and $0.1 million for the nine months ended September 30, 2012, compared with the same periods in 2011, primarily due to an increase in real estate taxes.

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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 Company’s 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.

At September 30, 2012, the Company had $159.0 million outstanding under its unsecured revolving credit facility. On October 1, 2012, the Company repaid $38.7 million of mortgage loans encumbering Newington Business Park Center and Crossways Commerce Center with proceeds from a draw under its unsecured revolving credit facility and added both properties to the unsecured collateral pool for the Company’s unsecured revolving credit facility and unsecured term loan in November 2012. On October 17, 2012, the Company repaid $16.0 million of the outstanding balance under its unsecured revolving credit facility with a portion of the proceeds from a $22.0 million mortgage loan on 1005 First Street, NE, in which the Company has a 97% ownership interest through a consolidated joint venture. On November 9, 2012, the Company drew $13.0 million under its unsecured revolving credit facility for general corporate purposes. As of November 9, 2012, the Company had $195.0 million outstanding and $44.9 million of availability under its unsecured revolving credit facility. The Company has no mortgages or bank debt maturing for the remainder of 2012; the Company has $39.5 million of mortgage debt maturing in the first half of 2013; and has a $10.0 million principal payment due on its secured term loan in January 2013. The Company is exploring several opportunities to address its near-term debt maturities and increase the capacity under its unsecured revolving credit facility, including placing mortgage debt on unencumbered properties, refinancing existing mortgage debt, selling properties or interests in properties that do not fit the Company’s long-term goals or can be sold at advantageous prices to the Company, or amending and expanding its existing unsecured revolving credit facility. The Company anticipates that it will meet all the debt obligations mentioned above as well as increase its availability under its unsecured revolving credit facility. In the process of exploring different financing options, the Company actively monitors the impact that each potential financing decision will have on its financial covenants in order to avoid any issues of non-compliance with the terms of its existing financial covenants.

Over the next twelve months, the Company believes that it will generate sufficient cash flow from operations and have access to the capital resources, through debt and equity markets, 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 Company’s cash flow from operations and ability to access the debt and equity markets 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 Company’s tenants that are smaller companies. Further, approximately 12.5% of the Company’s annualized base rent is scheduled to expire during the next twelve months and, if it is unable to renew these leases or re-lease the space, its cash flow could be negatively impacted.

Until the Company completes its previously discussed financing transactions, potential dispositions and/or joint venture transactions, the Company will be limited in its ability to pursue additional developments, redevelopments or acquisitions in the near future without accessing capital from other sources, such as additional financings or equity issuances. In addition, the Company’s ability to access debt and equity markets could be adversely affected if the Company is unable to maintain compliance with the financial and operating covenants included in its debt agreements or remediate the material weakness described in “Item 4 – Controls and Procedures” in a timely manner.

The Company also believes, based on its historical experience and forecasted operations, that it will have sufficient cash flow or access to capital to meet its obligations over the next five years. 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, unsecured term loans and secured term loan (collectively, “Bank Debt”), proceeds from disposal of strategically identified assets (outright or through joint ventures) and the issuance of equity and debt securities including common shares through its controlled equity offering program.

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The Company’s ability to raise funds through sales of debt and equity securities and access other 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 Company’s shares. The Company will continue to analyze which sources of capital are most advantageous to it at any particular point in time, but the capital markets may not be consistently available on terms the Company deems attractive, or at all.

Amendments to Unsecured Revolving Credit Facility, Unsecured Term Loan and Secured Term Loan

As previously disclosed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, as part of the Company’s efforts to evaluate the cause and to identify actions to remediate the material weakness described under “Item 4 – Controls and Procedures,” in late March 2012, the Company began conducting a review of all of the financial and other non-financial covenants contained in its Bank Debt agreements and the processes surrounding the monitoring and oversight of compliance with such covenants. As a result of this review, on May 10, 2012, the Company and its bank lenders amended the Company’s unsecured revolving credit facility, unsecured term loan and secured term loan to, among other things, revise certain financial and other covenants to provide additional operating flexibility for the Company to execute its business strategy and clarify the treatment of certain covenant compliance-related definitions. Specifically, the following financial covenants were amended as follows:

• The maximum consolidated total leverage ratio was increased from 60.0% to 65% for each quarter ending on or after March 31, 2012 through the quarter ending December 31, 2012, and then will decrease to 62.5% through the quarter ending September 30, 2013 and to 60.0% for all quarters thereafter;

• The minimum consolidated debt yield was reduced from 11.0% to 10.0% for each quarter ending on or after March 31, 2012 through the quarter ending December 31, 2012, and then will increase to 10.5% through the quarter ending September 30, 2013 and to 11.0% for all quarters thereafter;

• The maximum unencumbered pool leverage ratio was increased from 60.0% to 65% for each quarter ending on or after March 31, 2012 through the quarter ending December 31, 2012, and then will decrease to 62.5% through the quarter ending September 30, 2013 and to 60.0% for all quarters thereafter; and

• The minimum tangible net worth was reduced from $690,289,992 to $650,000,000, in each case plus (i) 80% of the net proceeds of any future equity issuances of the Company and (ii) 80% of the value of partnership units of the Operating Partnership issued in connection with any future asset or stock acquisitions.

In addition, the unsecured revolving credit facility and the unsecured term loan were amended to permit the lenders to record mortgages on substantially all of the Company’s unencumbered properties, which they have not elected to do as of the date of this filing. The unsecured term loan also was amended to convert the fixed interest margin over LIBOR of each tranche to a margin that varies based on the Company’s leverage ratio, with the interest margin applicable to each of the three tranches ranging (1) from 2.15% to 2.3%, if the leverage ratio is less than or equal to 55%, (2) from 2.4% to 2.55%, if the leverage ratio is less than or equal to 60%, but greater than 55%, and (3) from 2.65% to 2.8%, if the leverage ratio is greater than 60%. The effect of this amendment could either increase future pricing by an additional 25 basis points or revert the pricing to the prior interest rate margin, depending on the Company’s future leverage ratio.

In connection with these amendments, the Bank Debt lenders waived (i) all financial covenant non-compliance, if any, and any cross-defaults related thereto, that may have existed with respect to periods prior to the date of such amendments and (ii) any claim to increased or additional interest that may have accrued and been owed by the Company as a result of any such default or event of default described in clause (i). Such waivers are effective with respect to such default or event of default, if any, as of the date such default or event of default occurred. The Company paid $1.2 million to the lenders in connection with the foregoing amendments and expensed $2.2 million of previously deferred financing costs associated with the unsecured term loan.

Financial Covenants

The Company’s 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 Company’s allowable leverage, minimum tangible net worth, fixed charge coverage and other financial metrics. As of September 30, 2012, the Company was in compliance with all of the financial covenants of the unsecured revolving credit facility, unsecured term loan and secured term loan.

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Below is a summary of certain financial covenants associated with these debt agreements at September 30, 2012 (dollars in thousands), each of which reflects the amendments described above:

Unsecured Revolving Credit Facility and Term Loans

	Credit Facility / Unsecured and Secured Term Loans			Covenant
Unencumbered Pool Leverage(1)		61.4	%	£	65.0	%
Borrowing Base Pool Leverage(2)		56.7	%	£	65.0	%
Unencumbered Pool Interest Coverage Ratio(1)		2.99	x	³	1.75	x
Borrowing Base Pool Debt Service Coverage Ratio(2)		1.83	x	³	1.50	x
Consolidated Total Leverage Ratio		56.1	%	£	65.0	%
Net Worth	$	771,971		³	$650,000
Consolidated Debt Yield		12.4	%	³	10.0	%
Maximum Dividend Payout Ratio		70.8	%	£	95	%
Fixed Charge Coverage Ratio		1.75	x	³	1.50	x
Restricted Investments:
Joint Ventures		5.7	%	£	10	%
Real Estate Assets Under Development		4.6	%	£	15	%
Undeveloped Land		1.9	%	£	5	%
Structured Finance Investments		3.1	%	£	5	%
Total Restricted Investments		15.3	%	£	25	%
Restricted Indebtedness:
Unhedged Variable Rate Debt		7.7	%	£	25	%
Maximum Secured Debt		29.5	%	£	40	%
Maximum Secured Recourse Debt		2.0	%	£	15	%

⁽¹⁾  Does not apply to the secured term loan.

⁽²⁾  Does not apply to the unsecured revolving credit facility.

Cash Flows

Due to the nature of the Company’s business, it relies on working capital and net cash provided by operations and, if necessary, borrowings under its unsecured revolving credit facility 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 Company’s tenants. The ability of tenants to meet their obligations, including the payment of rent contractually owed to the Company, and the Company’s ability to lease space to new or replacement tenants on favorable terms, could affect the Company’s cash available for short-term liquidity needs. The Company intends to meet short and long term funding requirements for debt maturities, interest payments, dividend distributions and capital expenditures through cash flow provided by operations, long-term secured and unsecured indebtedness, including borrowings under its unsecured revolving credit facility, proceeds from asset disposals and the issuance of equity and debt securities. However, the Company may not be able to obtain capital from such sources on favorable terms, in the time period it desires, or at all. In addition, the Company’s continued ability to borrow under its existing debt instruments is subject to compliance with their financial and operating covenants and a failure to comply with such covenants could cause a default under the applicable debt agreement. In the event of a default, the Company may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all.

The Company may 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.

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Consolidated cash flow information is summarized as follows:

	Nine Months Ended September  30,
(amounts in thousands)	2012			2011			Change
Cash provided by operating activities	$	30,151		$	26,801		$	3,350
Cash used in investing activities		(14,445	)		(126,866	)		112,421
Cash (used in) provided by financing activities		(20,415	)		81,431			(101,846	)

Net cash provided by operating activities increased $3.4 million for the nine months ended September 30, 2012 compared with the same period in 2011 primarily due to the Acquired Properties. The Company was required to escrow additional funds, principally for payment of real estate taxes and property insurance, as a result of provisions in the mortgage loans assumed in conjunction with its 2011 property acquisitions, which resulted in a $6.4 million increase in its escrows and reserves for the nine months ended September 30, 2011. During the nine months ended September 30, 2012, the Company’s escrows and reserves decreased $4.4 million as a mortgage loan assumed with a property acquired in 2011 was repaid and all the related escrowed funds were released to the Company. The increase in operating activities for the nine months ended September 30, 2012 was also a result of higher net operating income compared with the same period in 2011 due to higher occupancy and the Acquired Properties. The increase in cash provided by operating activities was partially offset by cash used for a $10.2 million make-whole payment and for internal investigation costs, and an increase in accounts and other receivables.

Net cash used in investing activities decreased $112.4 million for the nine months ended September 30, 2012 compared with the same period in 2011. The decrease in cash used in investing activities is primarily due to the Company issuing a note receivable in 2011, which resulted in a net cash outflow of $29.4 million, and the use of $75.1 million in cash to acquire six properties and a parcel of land during the nine months ended September 30, 2011 compared with no property acquisitions during the nine months ended September 30, 2012. Also, for the nine months ended September 30, 2011, the Company paid $8.2 million in deposits on potential acquisitions compared with no deposits paid on property acquisitions during the nine months ended September 30, 2012. During the nine months ended September 30, 2012, the Company sold three properties for net proceeds of $10.8 million and its 95% interest in an unconsolidated joint venture for net proceeds of $25.7 million compared with the sale of three properties for net proceeds of $26.9 million during the nine months ended September 30, 2011. The decrease in cash used in investing activities was partially offset by a $9.9 million increase in combined additions to rental property and construction in progress during the nine months ended September 30, 2012 compared with the same periods in 2011.

Net cash used in financing activities was $20.4 million for the nine months ended September 30, 2012 compared with cash provided by financing activities of $81.4 million for the nine months ended September 30, 2011. During the nine months ended September 30, 2012, the Company issued 1.8 million Series A Preferred Shares for net proceeds of $43.5 million compared with the issuance of 4.6 million Series A Preferred Shares for net proceeds of $111.0 million during the nine months ended September 30, 2011. The proceeds from the preferred share issuances during 2012 and 2011 were used to pay down a portion of the Company’s outstanding balance under its unsecured revolving credit facility. Also, during the nine months ended September 30, 2012, the Company issued 0.2 million common shares through its controlled equity offering program for net proceeds of $3.6 million. The Company did not issue any common shares during the nine months ended September 30, 2011. The Company repaid outstanding debt of $384.7 million during the nine months ended September 30, 2012 compared with the repayment of $339.5 million of outstanding debt during the nine months ended September 30, 2011. During the nine months ended September 30, 2012, the Company borrowed $361.4 million compared with borrowings of $348.0 million during the nine months ended September 30, 2011. As a result of the Company’s preferred stock issuances during 2012 and 2011, its combined cash paid for dividends on its common and preferred shares increased $4.0 million for the nine months ended September 30, 2012 compared with the same period in 2011. Also, during 2011, the Company acquired a property that was partially funded through the issuance of 2.0 million Operating Partnership units, which resulted in a $0.5 million increase in distributions to noncontrolling interests for the nine months ended September 30, 2012 compared with the same period in 2011.

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Contractual Obligations

As of September 30, 2012, the Company had development and redevelopment contractual obligations, which include amounts accrued at September 30, 2012, of $19.5 million outstanding, primarily related to redevelopment activities at 440 First Street, NW, located in the Company’s Washington, D.C. reporting segment. As of September 30, 2012, the Company had capital improvement obligations of $12.9 million outstanding. Capital improvement obligations represent commitments for roof, asphalt, HVAC and common area replacements contractually obligated as of September 30, 2012. Also, as of September 30, 2012, the Company had $7.0 million of tenant improvement obligations. The Company anticipates meeting its contractual obligations related to its construction activities with cash from its operating activities. In the event cash from the Company’s operating activities is not sufficient to meet its contractual obligations, the Company can access additional capital through its unsecured revolving credit facility.

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 September 30, 2012, the Company remained liable to those local municipalities for $1.3 million in the event that it does not complete the specified work. The Company intends to complete the improvements in satisfaction of these obligations.

On August 4, 2011, the Company formed a joint venture with an affiliate of Perseus Realty, LLC to acquire 1005 First Street, NE in Washington, D.C. for $46.8 million, of which, $38.4 million was paid at closing and the remaining $8.4 million will be paid in August 2013. The Company recorded the $8.4 million deferred purchase price obligation at its fair value at the time of acquisition within “Accounts payable and other liabilities” in its consolidated balance sheets. The Company determined the fair value of the deferred purchase price by calculating the present value of the obligation that is due in 2013 using a discount rate for comparable transactions.

On March 25, 2011, the Company acquired 840 First Street, NE, in Washington, D.C. for an aggregate purchase price of $90.0 million, with up to $10.0 million of additional consideration payable in Operating Partnership units upon the terms of a lease renewal by the building’s sole tenant or the re-tenanting of the property through November 2013. Based on an assessment of the probability of renewal and anticipated lease rates, the Company recorded a contingent consideration obligation of $9.4 million at acquisition. In July 2011, the building’s sole tenant renewed its lease through August 2023 on the entire building with the exception of two floors. As a result, the Company issued 544,673 Operating Partnership units to satisfy $7.1 million of its contingent consideration obligation. The Company recognized a $1.5 million gain associated with the issuance of the additional units, which represented the difference between the contractual value of the units and the fair value of the units at the date of issuance. At September 30, 2012, the remaining contingent consideration obligation was $0.7 million, which may result in the issuance of additional units depending upon the leasing of any of the vacant space.

In connection with the Company’s 2009 acquisition of Corporate Campus at 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 September 30, 2012, the Company’s total contingent consideration obligation to the former owner of Corporate Campus at Ashburn Center was approximately $1.6 million. The Company anticipates achieving stabilization per the terms of the agreement in June 2013.

The Company had no other material contractual obligations as of September 30, 2012.

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. The Company is the sole general partner of and, as of September 30, 2012, owned 95.2% interest in, the Operating Partnership’s units. The remaining interests in the Operating Partnership are limited partnership interests, some of which are owned by several of the Company’s executive officers and trustees who contributed properties and other assets to the Company upon its formation, and other unrelated parties. 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 Company’s management team recommends a distribution amount that is approved by the Company’s Board of Trustees. The amount of future distributions will be based on taxable income, cash from operating activities and available cash and will be at the discretion of the Company’s Board of Trustees. The Company’s 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. See “Risk Factors – Risks Related to Our Business and Properties – Covenants in our debt agreements could adversely affect our liquidity and financial condition” in Part I, Item 1A in our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2011 for additional information regarding the financial covenants.

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Dividends

On October 24, 2012, the Company declared a dividend of $0.20 per common share, equating to an annualized dividend of $0.80 per common share. The dividend will be paid on November 9, 2012 to common shareholders of record as of November 5, 2012. The Company also declared a dividend of $0.484375 per share on its Series A Preferred Shares. The dividend will be paid on November 15, 2012 to preferred shareholders of record as of November 2, 2012.

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. The Company 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.

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), represents net income (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairments of real estate assets, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company computes FFO in accordance with NAREIT’s 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. Historically, the Company did not exclude impairments in its computation of FFO. However, on October 31, 2011, NAREIT clarified that the exclusion of impairment write-downs of depreciable assets in reported FFO was always intended and appropriate. As a result, the Company began excluding impairments from FFO in the fourth quarter of 2011 and has restated FFO from prior periods to exclude such charges consistent with NAREIT’s guidance. In addition, the Company’s 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.

FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties, nor is it indicative of funds available to fund the Company’s cash needs, including its ability to make distributions. The Company presents FFO per diluted share calculations that are based on the outstanding dilutive common shares plus the outstanding Operating Partnership units for the periods presented. The Company’s presentation of FFO in accordance with NAREIT’s definition, or as adjusted by the Company, should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of its liquidity.

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The following table presents a reconciliation of net loss attributable to common shareholders to FFO available to common shareholders and unitholders (amounts in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net income (loss) attributable to First Potomac Realty Trust	$	7,203		$	(3,447	)	$	(8,385	)	$	(6,384	)
Dividends on preferred shares		(3,100	)		(2,228	)		(8,864	)		(6,239	)
Net income (loss) attributable to common shareholders		4,103			(5,675	)		(17,249	)		(12,623	)
Add: Depreciation and amortization:
Real estate assets		16,633			15,934			48,844			44,911
Discontinued operations		—			154			131			990
Unconsolidated joint ventures		1,487			520			4,456			1,556
Consolidated joint ventures		(46	)		(21	)		(129	)		(61	)
Impairment of real estate assets(1)(2)		496			3,111			3,517			5,821
Gain on sale of real estate property		(2,951	)		—			(3,112	)		(1,954	)
Net loss attributable to noncontrolling interests in the Operating Partnership		209			(272	)		(944	)		(476	)
FFO available to common shareholders and unitholders		19,931			13,751			35,514			38,164
Dividends on preferred shares		3,100			2,228			8,864			6,239
FFO	$	23,031		$	15,979		$	44,378		$	44,403
Weighted average common shares and Operating Partnership units outstanding – diluted		50,267			49,308			50,049			49,275

⁽¹⁾  Prior to the fourth quarter of 2011, the Company included impairments of real estate in its calculation of FFO, which resulted in previously reported FFO available to common shareholders of $10.6 million and $32.3 million for the three and nine months ended September 30, 2011.

⁽²⁾  For the nine months ended September 30, 2012, $2.4 million of impairment charges were included in the Company’s continuing operations in the Company’s consolidated statements of operations. The remaining impairment charges for the nine months ended September 30, 2012 are included in discontinued operations in the Company’s consolidated statements of operations.

Off-Balance Sheet Arrangements

The Company is secondarily liable for $7.0 million of mortgage debt, which represents its proportionate share of the mortgage debt that is secured by two properties it owns through unconsolidated joint ventures. Management believes the fair value of the potential liability to the Company is inconsequential as the likelihood of the Company’s need to perform under the debt agreement is remote. 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. During the fourth quarter of 2011, the Company entered into separate unconsolidated joint ventures to acquire Metro Place III & IV and 1200 17^th Street, NW. During the third quarter of 2012, the Company sold its 95% interest in 1200 17^th Street, NW. See footnote 6, Investment in Affiliates, in the notes to the Company’s condensed consolidated financial statements for more information.

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 Company’s 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 Company’s expectations include changes in general or regional economic conditions; the Company’s ability to timely lease or re-lease space at current or anticipated rents; changes in interest rates; changes in operating costs; the Company’s ability to complete current and future acquisitions; the Company’s ability to obtain additional financing; the Company’s ability to manage its current debt levels and repay or refinance its indebtedness upon maturity or other required payment dates; the Company’s ability to maintain financial covenant compliance under its debt agreements; the Company’s ability to remediate the material weakness in its internal controls over financial reporting described in “Item 4 – Controls and Procedures” and to re-establish and maintain effective internal controls over financial reporting and disclosure controls and procedures; the impact of the recently completed internal investigation, including any remedial actions and enhancement measures implemented in response to the internal investigation, as well as any costs associated with additional personnel actions; the Company’s 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 in our Annual Report on Form 10-K for the year ended December 31, 2011 and in the other documents the Company files with the SEC. Many of these factors are beyond the Company’s ability to control or predict. Forward-looking statements are not guarantees of performance. For forward-looking statements herein, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. 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.

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ITEM 3: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s 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.

The Company had $921.3 million of debt outstanding at September 30, 2012. Of the total debt outstanding, $442.3 million was fixed rate debt and $350.0 million was variable rate debt that had been swapped to a fixed interest rate. The balance of the Company’s debt, $129.0 million, was variable rate debt consisting of borrowings under unsecured and secured term loans and its unsecured revolving credit facility. A change in interest rates of 1% would result in an increase or decrease of $1.3 million in interest expense on its unhedged variable rate debt on an annualized basis. The table below summarizes the Company’s interest rate swap agreements as of September 30, 2012 (dollars in thousands):

Effective Date	Maturity Date	Amount		Interest  Rate Contractual Component		Fixed LIBOR Interest Rate
January 2011	January 2014	$	50,000		LIBOR		1.474	%
July 2011	July 2016		35,000		LIBOR		1.754	%
July 2011	July 2016		25,000		LIBOR		1.7625	%
July 2011	July 2017		30,000		LIBOR		2.093	%
July 2011	July 2017		30,000		LIBOR		2.093	%
September 2011	July 2018		30,000		LIBOR		1.660	%
January 2012	July 2018		25,000		LIBOR		1.394	%
March 2012	July 2017		25,000		LIBOR		1.129	%
March 2012	July 2017		12,500		LIBOR		1.129	%
March 2012	July 2018		12,500		LIBOR		1.383	%
June 2012	July 2017		50,000		LIBOR		0.955	%
June 2012	July 2018		25,000		LIBOR		1.1349	%
			$350,000

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 11, Fair Value Measurements, in the notes to the Company’s condensed consolidated financial statements for more information on the fair value of the Company’s debt.

ITEM 4: CONTROLS AND PROCEDURES

1) 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 SEC’s 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.

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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 and solely as a result of the successful testing required prior to concluding that the material weakness described below has been remediated, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report

Notwithstanding the foregoing, management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP for interim financial statements, and the Company’s Chief Executive Officer and Chief Accounting Officer have certified that, based on their knowledge, the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report. In light of Andrew P. Blocher’s recent commencement of the duties of the Company’s Chief Financial Officer, Michael H. Comer, the Company’s Chief Accounting Officer, has been performing the functions of the Company’s principal financial officer in connection with this Quarterly Report on Form 10-Q and, as such, has provided the certifications included as Exhibits 31.2 and 32.2 to this Form 10-Q. Mr. Blocher will begin performing the functions of the Company’s principal financial officer upon the filing of this Form 10-Q.

2) Background

As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “Form 10-K”), management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). During this assessment and in connection with the preparation of the Form 10-K and the consolidated financial statements and related disclosures contained therein, management identified a material weakness in the Company’s internal control over financial reporting as of December 31, 2011 relating to the monitoring and oversight of compliance with financial covenants under its debt agreements. Specifically, management determined that the Company did not effectively maintain and operate controls over the monitoring and oversight of compliance with financial covenants under its debt agreements, including the communication of financial covenant compliance matters with the Board of Trustees and the Audit Committee, which resulted in the Company failing to identify potential exceptions to covenant compliance and to provide related financial statement disclosures regarding potential financial covenant risks or violations under our debt agreements.

As previously disclosed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, in response to this material weakness, in late March, the Company’s Board of Trustees appointed a special committee of independent trustees to review the facts and circumstances relating to the material weakness determination and the Company’s processes surrounding the monitoring and oversight of compliance with Company’s financial covenants. Prior to the completion of the special committee’s work, the Board of Trustees determined in late April that a more detailed internal investigation of these matters should be undertaken by the Audit Committee, with the assistance of independent outside professionals. The Audit Committee has completed this internal investigation and has briefed the Board of Trustees regarding the results of the internal investigation and recommendations as to certain remedial actions and enhancement measures. In response to the recommendations of the Audit Committee, the Board of Trustees adopted a number of measures designed to remediate the underlying causes of the material weakness, as well as certain other enhancement measures unrelated to the material weakness.

With respect to the factual matters reviewed, the Audit Committee determined that the Company lacked sufficient controls surrounding the monitoring and oversight of the Company’s compliance with financial covenants under its debt agreements. This included that the Company’s interpretations of the appropriate methodology for calculating the applicable financial covenants, and the processes for reviewing debt covenant calculations, were not sufficiently exacting. In addition, the internal investigation found that there was insufficient internal communication regarding these matters.

3) Remediation of Material Weakness and Implementation of Enhancement Measures

During 2012, management began taking the following steps to remediate the underlying causes of the material weakness described above:

• Evaluated and enhanced the processes surrounding the monitoring and oversight of the Company’s compliance with financial covenants under its debt agreements;

• Instituted an additional level of review and analysis of covenant compliance calculations involving additional members of senior management;

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• Enhanced procedures regarding the reporting by management to the Board of Trustees and the Audit Committee regarding financial covenant calculation and compliance;

• Engaged in a thorough review of all debt agreements and provided additional tools for key personnel to track covenant compliance requirements; and

• Increased and accelerated outside counsel’s participation in our periodic reporting process.

As a result of the review of Company’s debt agreements, in the second quarter of 2012, the Company and its bank lenders amended the Company’s unsecured revolving credit facility, unsecured term loan and secured term loan to, among other things, revise certain financial and other covenants to provide additional operating flexibility for the Company to execute its business strategy and clarify the treatment of certain covenant compliance-related definitions. In connection with these amendments, the lenders under those loan agreements waived all financial covenant non-compliance, if any, and any cross-defaults under other indebtedness related thereto, that may have existed with respect to periods prior to the date of such amendments. See “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

In addition, in response to the findings of the internal investigation and the recommendations of the Audit Committee, the Board of Trustees adopted a number of measures designed to remediate the underlying causes of the material weakness, as well as certain other enhancement measures unrelated to the material weakness. These remedial actions and enhancement measures include the following:

• enhancements to debt covenant compliance controls, including:

• implementing a sub-certification process in connection with the preparation and review of debt covenant compliance calculations; and

• developing a plan to formalize the process of forecasting covenant compliance and improve modeling for such forecasting;

• enhancements to financial reporting controls, including:

• developing a plan to enhance disclosure controls; and

• implementing appropriate accountability protocols, such as certifications by disclosure committee members regarding matters in their areas of operational responsibility;

• enhancement of the role of the Company’s legal and accounting functions;

• general control enhancements, including:

• enhancing the Company’s enterprise risk management function; and

• enhancing communication by management with the Audit Committee and outside legal counsel with respect to significant accounting and disclosure matters;

• developing a strategy to provide more cushion on debt covenants; and

• other potential remedial measures, including additional personnel actions.

Several of the foregoing remedial actions and enhancement measures have been completed or are currently underway, including, as previously disclosed, the hiring of a new chief financial officer and the engagement of a new third-party accounting firm to perform the Company’s internal audit function. A limited internal audit review of the remediation controls was performed in conjunction with management for the quarter ended September 30, 2012. This review was specific to remediation efforts implemented during the quarter relative to strengthening the monitoring and oversight of debt compliance.

Management believes that it has made progress remediating the material weakness; however, because some of the remedial actions must be successfully tested for multiple periods, management believes that it needs to continue to monitor the successful implementation of those steps before management is able to conclude that the material weakness has been remediated. The remediation and ultimate resolution of the Company’s material weakness will be reviewed with the Audit Committee of the Company’s Board of Trustees. The Company cannot provide any assurance that these remediation efforts will be successful or that the Company’s internal control over financial reporting will be effective as a result of these efforts.

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4) Changes in Internal Control Over Financial Reporting

Other than the remedial actions and enhancement measures described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There may be additional changes and enhancements to the Company’s internal control processes subsequent to September 30, 2012 as a result of the implementation of the measures adopted following the completion of the internal investigation.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to legal proceedings and claims arising in the ordinary course of its business. In the opinion of the Company’s 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, financial position or cash flows of the Company.

Item 1A. Risk Factors

As of September 30, 2012, there were no material changes to the Company’s risk factors previously disclosed in Item 1A, “Risk Factors” in its Annual Report on Form 10-K for the year ended December 31, 2011 and updated in Item 1A “Risk Factors” in its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

No.	Description
10.1*	Termination Agreement, Release and Covenant Not to Sue, dated September 11, 2012, by and between First Potomac Realty Trust and Barry H. Bass.
10.2*	Offer Letter between First Potomac Realty Trust and Andrew P. Blocher, dated August 23, 2012.
31.1*	Section 302 Certification of Chief Executive Officer.
31.2*	Section 302 Certification of Chief Accounting Officer.
32.1*	Section 906 Certification of Chief Executive Officer.
32.2*	Section 906 Certification of Chief Accounting Officer.
101*	XBRL (Extensible Business Reporting Language). The following materials from the First Potomac Realty Trust’s Quarterly Report on Form 10-Q for the period ended September 30, 2012, formatted in XBRL: (i) Consolidated balance sheets as of September 30, 2012 (unaudited) and December 31, 2011; (ii) Consolidated statements of operations (unaudited) for the three and nine months ended September 30, 2012 and 2011; (iii) Consolidated statements of comprehensive loss (unaudited) for the three and nine months ended September 30, 2012 and 2011; (iv) Consolidated statements of cash flows (unaudited) for the three and nine months ended September 30, 2012 and 2011; and (v) Notes to condensed consolidated financial statements (unaudited). As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purpose of Sections 11 and 12 of the Securities Act and Section 18 of the Exchange Act.

* Filed herewith.

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SIGNATURES

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

	FIRST POTOMAC REALTY TRUST
Date: November 9, 2012	/s/ Douglas J. Donatelli
	Douglas J. Donatelli
	Chairman of the Board and Chief Executive Officer
Date: November 9, 2012	/s/ Michael H. Comer
	Michael H. Comer
	Senior Vice President and Chief Accounting Officer

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EXHIBIT INDEX

No.	Description
10.1*	Termination Agreement, Release and Covenant Not to Sue, dated September 11, 2012, by and between First Potomac Realty Trust and Barry H. Bass.
10.2*	Offer Letter between First Potomac Realty Trust and Andrew P. Blocher, dated August 23, 2012.
31.1*	Section 302 Certification of Chief Executive Officer.
31.2*	Section 302 Certification of Chief Accounting Officer.
32.1*	Section 906 Certification of Chief Executive Officer.
32.2*	Section 906 Certification of Chief Accounting Officer.
101*	XBRL (Extensible Business Reporting Language). The following materials from the First Potomac Realty Trust’s Quarterly Report on Form 10-Q for the period ended September 30, 2012, formatted in XBRL: (i) Consolidated balance sheets as of September 30, 2012 (unaudited) and December 31, 2011; (ii) Consolidated statements of operations (unaudited) for the three and nine months ended September 30, 2012 and 2011; (iii) Consolidated statements of comprehensive loss (unaudited) for the three and nine months ended September 30, 2012 and 2011; (iv) Consolidated statements of cash flows (unaudited) for the three and nine months ended September 30, 2012 and 2011; and (v) Notes to condensed consolidated financial statements (unaudited). As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purpose of Sections 11 and 12 of the Securities Act and Section 18 of the Exchange Act.

* Filed herewith.

EX-10.1

Exhibit 10.1

THIS IS A LEGAL AGREEMENT,

READ CAREFULLY BEFORE SIGNING.

TERMINATION AGREEMENT, RELEASE AND COVENANT NOT TO SUE.

We would like to offer you certain employee severance benefits which are described in this Agreement (the “Agreement”).

In consideration of the terms and provisions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is mutually agreed that:

1. Your employment First Potomac Realty Trust and First Potomac Realty Investment Limited Partnership (collectively, the “Company”) shall be terminated, effective as of September 11, 2012 (the “Termination Date”). Effective on the Termination Date, you shall not be required to perform any further services on behalf of the Company as an employee and no further compensation shall be paid to you or on your behalf, except as set forth in this Agreement.

2. On or following the Termination Date, and within the time periods required by law, the Company shall pay you any outstanding wages you have accrued and will reimburse any authorized expenses submitted by you up to and including the Termination Date, less all applicable statutory or required withholding and taxes.

3. The Company will issue a single payment to you equivalent to thirty-nine weeks of your current base salary (the “Severance Payment”) on the Termination Date. The Severance Payment shall be reduced by (i) the amount of any loans, advances or other amounts due or owing by you to the Company, and (ii) shall be net of any and all required withholding and taxes. The Severance Payment shall be issued in accordance with the Company’s payroll schedule.

For a period of nine months from the Termination Date (the “Payment Period”), the Company shall pay for continuation of your group medical and dental insurance through COBRA subject, however, to any changes or modifications (whether additions or reductions) to such benefits as the Company shall establish during such Payment Period and which apply to all employees generally.

The Company will continue in force its directors and officers liability insurance coverages with respect to any claims that may be asserted against you arising out of your employment with the Company, and you shall be eligible for indemnification on the same basis as other former officers of the Company in accordance with its bylaws and applicable law.

The foregoing continuation of benefits and severance pay does not generally include the further vesting of stock options or restricted stock awards which otherwise would have vested after the Termination Date. However, you shall be entitled to accelerated vesting of otherwise unvested stock from awards granted in 2006, 2007, 2008, 2009 and 2010. Unvested shares from awards granted in 2011 and 2012 will be forfeited. You shall have 90 days to exercise any stock options which are vested as of the Termination Date. All remaining unvested restricted stock awards shall be forfeited as of the Termination Date.

Agreement

September 11, 2012

Page 1 of 4

No other benefits are continued beyond the Termination Date.

4. Pursuant to its indemnification obligations, the Company will pay up to $177,176.37 for your personal legal expenses, based on review of the actual invoice, connected to the internal investigation conducted by Covington & Burling LLP which concluded in August 2012.

5. The Company will give you the iPad, iPhone and computer issued to you by the Company with the understanding that no maintenance, calling or data plans will be provided after the Termination Date.

You acknowledge that you are not otherwise entitled to the payments and benefits described in paragraphs 3 and five above, and it is in consideration for the releases contained herein.

6. You shall be entitled to continue your group health and medical benefits after the end of the Payment Period pursuant to the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”). The Company shall provide you with a separate notice of your rights to COBRA benefits.

7. By signing this Agreement, and in consideration of the payment of the Severance Payment, continuation of employee benefits and the other terms set forth herein, you hereby release and forever discharge the Company and its present and former officers, owners, directors, trustees, stockholders, employees, representatives, attorneys, agents and its divisions, affiliates, subsidiaries, predecessors, transferees, successors and assigns (hereinafter the “First Potomac Released Parties”) from any and all liability, actions, causes of action, proceedings, suits, debts, covenants, contracts, controversies, agreements, promises, damages, judgments, and demands of whatever nature, in law or in equity, direct or indirect, known or unknown, matured or not matured that you and/or your heirs, executors, administrators, successors or assigns ever had, now have or may have in the future from the beginning of time to and including the effective date of this Agreement against the First Potomac Released Parties or any of them, including, but not limited to, any claim, charge or cause of action for breach of contract, tort or harassment or discrimination under any federal, state or local law, rule, regulation or executive order, such as the Age Discrimination in Employment Act of 1967, as amended, the Older Workers Benefit Protection, the rehabilitation Act of 1973, the Americans with Disabilities Act, the Family and Medical Leave Act, the Employee Income Retirement Security Act of 1974, and Title VII of the Civil Rights Act of 1964, as amended. You further represent that as of the date of your execution of this Agreement, there are no complaints, charges or other matters filed by you or pending before any federal, state or local court or agency against the First Potomac Released Parties, and that in the future, you will not file or cause to be filed any court actions against the First Potomac Released Parties or any of them arising out of events occurring prior to your execution of this Agreement. Nothing contained in this “Agreement” shall restrict your right to file a charge or participate in an investigation, hearing or proceeding before the Equal Employment Opportunity Commission, except that you agree that you will not accept any further recovery, award and/or damages from the Company as a result of any such investigation. You also hereby waive and releases in perpetuity any and all other employment rights or claims that you may have against the Company.

Agreement

September 11, 2012

Page 2 of 4

8. In consideration of your signing of this Agreement, the First Potomac Released Parties hereby release and forever discharge you from any and all liability, actions, causes of action, proceedings, suits, debts, controversies, damages, judgments and demands of whatever nature, in law or in equity, direct or indirect, known or unknown, matured or not matured that the First Potomac Released Parties, or any of them, ever had, now have or may have in the future to and including the effective date of this Agreement against you, including but not limited to any claim, charge or cause of action for breach of contract (other than the Confidentiality Agreement between you and the Company), tort or harassment or discrimination under any federal, state or local law, rule, regulation or executive order.

You acknowledge that, during the course of your employment, you have had access to and/or the Company has disclosed to you information relating to the nature and operation of the Company’s business, the Company’s manner of operation, its financial condition, its business operations, it business and marketing plans and pricing methods (hereinafter “Confidential Information”). You agree that, for a period of one year from the date this Agreement is executed, you will retain in confidence such Confidential Information and that you will not, either directly or indirectly, use, misappropriate, reveal, disclose, publish, communicate or divulge any such Confidential Information to any other person or entity for any purpose whatsoever except as required by law. You expressly agree that you shall keep secret and confidential all such Confidential Information, except as authorized by the Company in writing.

After the termination date, you agree to make yourself available upon reasonable request to the Company, its external and internal auditors, and representatives for the purpose of providing information and cooperating with respect to pending investigations, audits, and inquiries on matters which you were involved during your tenure as CFO of the Company and/or have knowledge of, with you being paid a per diem fee of $500 for each day of your time which is expended on such matters on behalf of the Company ($250 for less than 4 hours time on any day).

9. You agree to return to the Company, all Company property in your possession including, but not limited to all keys, access cards, and credit cards.

10. Each party hereby agrees that it will not make any disparaging comments, negative statements or do anything that derogates the other, or its services, reputation, officers, employees, financial status, or operations or that damages the Company in any business relationship. Each party further agrees not to make any such disparaging comments on any electronic bulletin board. The foregoing shall not be violated by truthful statements in response to legal process, required governmental testimony or filings, or administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings).

11. The Company agrees that the Non-Competition and Non-Solicitation Agreements which were executed by you and the Company without date is no longer of any force and effect, and has been superseded in its entirety by this Agreement

12. You hereby acknowledge that the only consideration for signing this Agreement is as set forth herein; that such consideration is in addition to any consideration to which you are already entitled as a result of your employment with the Company; that you have been advised, or have had sufficient opportunity to consult advisors, legal and otherwise, of your own choosing; and that you have signed this Agreement voluntarily and with a full understanding of its terms and conditions, which, once effective, may not be amended, supplemented, canceled or discharged except by a writing signed by you and the Company.

Agreement

September 11, 2012

Page 3 of 4

13. This Agreement shall not constitute nor be construed as an admission by either party of any violation of any federal, state or local law, rule or regulation, or any contractual obligation or Company procedure. Accordingly, this Agreement shall not be admissible in any proceeding except to enforce the terms of this Agreement.

14. This Agreement constitutes the complete understanding between you and the Company and fully supersedes any prior understandings or agreements, whether written or oral, between you and the Company regarding the subject matter thereof.

15. This Agreement shall be subject to the laws of the State of Maryland. If any provision of this Agreement is subsequently declared by any court or agency of competent jurisdiction to be illegal, void or unenforceable, as written, the remaining provisions of this Agreement shall nevertheless remain in full force and effect.

16. You acknowledge that if you are over 40 years old: (i) you have 21 calendar days from the date hereof to consider signing this Agreement, (ii) if you choose not to sign and return this Agreement within the 21 calendar days, the Company has no obligation to pay the Severance Payment, (iii) it is understood and agreed that this Agreement shall not be effective for a period of seven days following your signing it and you may revoke this Agreement for any reason during such seven day period and (iv) it is further understood that the Severance Payment will not be paid by the Company (1) until the expiration of this seven day revocation period or (2) if you choose to revoke this Agreement.

Please confirm that this Agreement accurately sets forth our agreement by signing the signature page below.

SEVERANCE AND RELEASE SIGNATURE PAGE

I acknowledge that I have carefully read this Agreement and understand all of its terms including the full and final Release of Claims set forth in paragraph 6, above. I further acknowledge that I have voluntarily entered into this Agreement, that I have not relied upon any representation or statement, written or oral, not set forth in this Agreement, and that I have had this Agreement reviewed by my attorney, or have been given the opportunity by the Company to do so.

Employee Signature:	/s/ Barry H. Bass
Print Name:                 Barry H. Bass
Date:         9/11/12
First Potomac Realty Trust
By:             / s/Amy Louise Barker
Title:         Vice President, Human Resources

Agreement

September 11, 2012

Page 4 of 4

EX-10.2

Exhibit 10.2

August 23, 2012

Mr. Andrew Blocher

2319 Gerken Avenue

Vienna, Virginia 22181

Dear Andy:

On behalf of First Potomac Realty Trust, I am pleased to offer you the position of Executive Vice President and Chief Financial Officer, subject to and conditioned on your election by the Board of Trustees. This letter summarizes the proposed terms and conditions of this offer of employment. This offer letter does not constitute an agreement for a definite term of employment, but sets forth the terms and conditions of your employment should you accept the offer, and the Board approves of your employment. As discussed, your employment will be “at will” which means either party may terminate the employment relationship at any time. The Company policies referred to in this letter as well as the Company policies and procedures provided to you by the Company may be changed, modified or amended from time to time by the Company. We view your addition as an important step in our continued growth and development, and are excited at the prospect of you joining our team.

Start Date: October 8, 2012

Compensation: $360,000/year (paid in bi-weekly pay periods per the Company’s regular pay practices). Your base compensation will not be reviewed again until March, 2014.

Participation in the EVP short-term incentive plan with an annual target award of 80% of your base pay. Actual incentives are discretionary and will be awarded by the Compensation Committee based on meeting and exceeding goals that will be established within 90 days of your Start Date. While incentives are discretionary and will be awarded by the Compensation Committee, your 2012 annual incentive will be guaranteed to be at least $200,000 subject to satisfactory work performance.

Participation in the EVP long-term incentive plan with an annual target award of $550,000 in restricted share grants.

Andrew Blocher

August 23, 2012

Your 2012 long-term incentive award will be guaranteed at a value of $550,000 subject to satisfactory work performance.

Benefits: Health, dental and life insurance coverage after completing two consecutive months of employment under the Company’s standard benefits program.

Payment of COBRA continuation coverage for October and November 2012.

401(k) plan participation and company match after completing one consecutive year of employment.

Four weeks accrued annual vacation and six days annual sick leave in accordance with company policy.

You will receive additional information with regard to the benefit program upon your arrival.

Sign-On: $250,000 gross cash payment to be paid on your Start Date. Repayment of a pro-rated portion of this payment will be required if you resign your employment voluntarily or are separated for cause within twelve months of your Start Date. We will provide you with an acknowledgement form for receipt of this sign-on bonus as well as your acknowledgement and understanding of the repayment requirement should your employment end within your first 12 months of employment.

Restricted stock with an issue value determined by dividing $1,000,000 by the closing price of FPO stock on the day before the announcement of your appointment as an Officer of the Company. This sign-on award to be granted at the close of business on October 8, 2012 which award will vest ratably over a three-year period.

Separation: It is understood that our association is an “at-will” employment relationship, which means that either you or First Potomac Realty Trust, with or without cause, may terminate your employment at any time, however, under certain circumstances as outlined in our severance policy you may be eligible for severance compensation at the time of termination.

Andrew Blocher

August 23, 2012

You will be covered under the terms of our draft Severance Policy dated August 23, 2012 or to any amended Severance policy to which you give assent unless such amendments are required by law or regulation.

Please acknowledge your acceptance of this position, as well as the above terms and conditions, by signing and returning this letter by fax to (240) 465-1115. This offer of employment, if not previously accepted by you, will expire seven days from the date of this letter, although additional time for consideration of the offer can be made available if you find it necessary. Please retain a copy for your records. You may deliver the original signed letter on your first day.

Your employment is contingent on a satisfactory background investigation. You will be contacted for any additional information or any concerns with the investigation.

We look forward to working with you. Please contact me if you have any questions regarding this offer.

Sincerely,

Amy Barker

Vice President, Human Resources

Accepted and Agreed to by:

/s/ Andrew Blocher	8/24/12
Signature	Date

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Douglas J. Donatelli, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Potomac Realty Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2012	/s/ Douglas J. Donatelli
	Douglas J. Donatelli
	Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael H. Comer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Potomac Realty Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2012	/s/ Michael H. Comer
	Michael H. Comer
	Senior Vice President and Chief Accounting Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Potomac Realty Trust (the “Company”) on Form 10-Q for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas J. Donatelli, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2012	/s/ Douglas J. Donatelli
	Douglas J. Donatelli
	Chairman of the Board and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Potomac Realty Trust (the “Company”) on Form 10-Q for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael H. Comer, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2012	/s/ Michael H. Comer
	Michael H. Comer
	Senior Vice President and Chief Accounting Officer

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Earnings Per Common Share - Computation of Company's Basic and Diluted Earnings per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Numerator for basic and diluted earnings per common share:
Income (loss) from continuing operations	$ 7,436	$ (575)	$ (8,166)	$ (2,700)
Loss from discontinued operations	(1)	(3,137)	(1,095)	(4,153)
Net income (loss)	7,435	(3,712)	(9,261)	(6,853)
Less: Net (income) loss from continuing operations attributable to noncontrolling interests	(280)	118	816	336
Less: Net (income) loss from discontinued operations attributable to noncontrolling interests	48	147	60	133
Net income (loss) attributable to First Potomac Realty Trust	7,203	(3,447)	(8,385)	(6,384)
Less: Dividends on preferred shares	(3,100)	(2,228)	(8,864)	(6,239)
Net income (loss) attributable to common shareholders	4,103	(5,675)	(17,249)	(12,623)
Less: Allocation to participating securities	(162)	(150)	(468)	(442)
Net income (loss) attributable to common shareholders	$ 3,941	$ (5,825)	$ (17,717)	$ (13,065)
Denominator for basic and diluted earnings per common share:
Basic	50,267	49,308	50,049	49,275
Diluted	50,346	49,308	50,049	49,275
Basic and diluted earnings per common share:
Income (loss) from continuing operations	$ 0.08	$ (0.05)	$ (0.33)	$ (0.19)
Loss from discontinued operations		$ (0.07)	$ (0.02)	$ (0.08)
Net income (loss)	$ 0.08	$ (0.12)	$ (0.35)	$ (0.27)

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Discontinued Operations - Summary of Property Dispositions (Parenthetical) (Detail) (Owings Mills Business Park [Member])	Sep. 30, 2012 sqft
Owings Mills Business Park [Member]
Real Estate and Accumulated Depreciation [Line Items]
Area of real estate property held for sale	219,284

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Investment in Affiliates - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended		1 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Aug. 24, 2012 1200 17th street, NW [Member]	Sep. 30, 2012 1200 17th street, NW [Member]	Oct. 31, 2011 1200 17th street, NW [Member]
Schedule of Equity Method Investments [Line Items]
Percentage of ownership interest in unconsolidated joint venture sold					95.00%
Proceeds from sale of ownership interest in unconsolidated joint venture					$ 43,700,000
Net proceeds from sale of unconsolidated joint venture after repayment of mortgage loan					25,700,000
Ownership Interest							95.00%
Purchase price of joint venture							37,700,000
Mortgage Loan Issued							20,000,000
Repayment of unsecured revolving credit facility	91,000,000				26,000,000
Gain on sale of joint venture						3,000,000
Fees from Joint Ventures	$ 125,000	$ 48,000	$ 325,000	$ 148,000

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Equity - Additional Information (Detail) (USD $)	1 Months Ended		1 Months Ended	9 Months Ended
	Aug. 31, 2012	Sep. 30, 2012	Aug. 31, 2012 Series A Preferred Shares [Member]	Sep. 30, 2012 Common Stock [Member]	Sep. 30, 2012 Preferred Stock [Member]
Class of Stock [Line Items]
Dividends paid per common shareholders	$ 0.20
Dividends declared on Series A preferred shares	$ 0.484375		$ 0.484375
Common stock, dividends, per share, declared		$ 0.20
Common stock, dividends, per share, annualized	$ 0.80
Dividend paid date				Aug. 10, 2012	Aug. 15, 2012
Dividend record date				Aug. 03, 2012	Nov. 05, 2012
Dividend declared date				Oct. 24, 2012

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Discontinued Operations - Net (loss) Income from Discontinued Operations (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Revenues	$ 130	$ 486	$ 686	$ 2,531
Net loss, before taxes	(1)	(3,137)	(1,256)	(6,107)
Gain on sale of real estate property			$ 161	$ 1,954

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Segment Information - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2012
Segment Reporting Information [Line Items]
Number of distinct reporting segments	4
Number of distinct operating segments	4

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Notes Receivable - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Receivables with Imputed Interest [Line Items]
Interest income	$ 1,500,000	$ 1,500,000	$ 4,400,000	$ 3,600,000
Income from amortization of origination costs	$ 17,000	$ 17,000	$ 52,000	$ 44,000

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value of Assets and Liabilities

In accordance with accounting provisions and the fair value hierarchy described above, the following table shows the fair value of the Company’s consolidated assets and liabilities that are measured on a non-recurring and recurring basis as of September 30, 2012 and December 31, 2011 (amounts in thousands):

	Balance at September 30, 2012		Level 1		Level 2		Level 3
Non-recurring Measurements:
Impaired real estate assets	$	3,952	$	—	$	—	$	3,952
Recurring Measurements:
Derivative instrument-swap liabilities	$	12,536	$	—	$	12,536	$	—
Contingent consideration related to acquisition of:
Corporate Campus at Ashburn Center		1,560		—		—		1,560
840 First Street, NE		745		—		—		745

	Balance at December 31, 2011		Level 1		Level 2		Level 3
Non-recurring Measurements:
Impaired real estate assets	$	10,583	$	—	$	5,250	$	5,333
Recurring Measurements:
Derivative instrument-swap liabilities		6,129		—		6,129		—
Contingent consideration related to acquisition of:
Corporate Campus at Ashburn Center		1,448		—		—		1,448
840 First Street, NE		745		—		—		745

Fair Value of Debt Instruments

The carrying amount and estimated fair value of the Company’s notes receivable and debt instruments at September 30, 2012 and December 31, 2011 are as follows (amounts in thousands):

	September 30, 2012						December 31, 2011
	Carrying Value			Fair Value			Carrying Value		Fair Value
Financial Assets:
Notes receivable(1)	$	54,713		$	55,000		$	54,661	$	55,000
Financial Liabilities:
Mortgage debt	$	437,014	(2)	$	445,660	(2)	$	432,023	$	437,593
Series A senior notes(3)		—			—			37,500		39,128
Series B senior notes(3)		—			—			37,500		41,383
Secured term loans		20,000			20,000			30,000		29,990
Unsecured term loan		300,000			300,000			225,000		224,388
Unsecured revolving credit facility		159,000			159,000			183,000		182,740
Total	$	916,014		$	924,660		$	945,023	$	955,222

⁽¹⁾  The face value of the Company’s notes receivable was $55.0 million at September 30, 2012 and December 31, 2011.

⁽²⁾  Does not include a $5.2 million mortgage that encumbers four buildings at Owings Mill Business Park, which was classified within “Liabilities held for sale” on the Company’s consolidated balance sheet as of September 30, 2012. The mortgage was defeased in October 2012.

⁽³⁾  During the second quarter of 2012, the Company prepaid the entire $75.0 million principal amount outstanding under its Series A and Series B senior notes with borrowings under the Company’s unsecured revolving credit facility.

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Segment Information - Summary of Segment Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012 sqft Buildings	Sep. 30, 2011 Buildings sqft	Sep. 30, 2012 sqft Buildings	Sep. 30, 2011 Buildings sqft	Dec. 31, 2011
Segment Reporting Information [Line Items]
Number of buildings	180	183	180	183
Square Feet	13,788,331	13,855,241	13,788,331	13,855,241
Total revenues	$ 48,621	$ 44,628	$ 143,120	$ 126,325
Property operating expense	(11,811)	(10,995)	(33,404)	(30,721)
Real estate taxes and insurance	(4,672)	(4,191)	(14,341)	(12,105)
Total property operating income	32,138	29,442	95,375	83,499
Depreciation and amortization expense	(16,633)	(15,934)	(48,844)	(44,911)
General and administrative	(5,645)	(4,354)	(17,787)	(12,546)
Acquisition costs	(8)	(1,737)	(49)	(4,475)
Impairment of real estate assets	(496)		(2,444)		(400)
Contingent consideration related to acquisition of property	(112)	1,487	(112)	1,487
Other expenses, net	(6,112)	(9,674)	(38,447)	(26,410)
Benefit from income taxes	4,304	195	4,142	656
Loss from discontinued operations	(1)	(3,137)	(1,095)	(4,153)
Net income	7,435	(3,712)	(9,261)	(6,853)
Capital expenditures	13,429	12,297	48,418	37,728
Total assets	1,714,237	1,673,783	1,714,237	1,673,783	1,739,752
Maryland [Member]
Segment Reporting Information [Line Items]
Number of buildings	64	67	64	67
Square Feet	3,816,878	3,875,397	3,816,878	3,875,397
Total revenues	13,720	12,560	43,094	37,174
Property operating expense	(3,470)	(3,120)	(10,294)	(9,419)
Real estate taxes and insurance	(1,101)	(1,174)	(3,531)	(3,450)
Total property operating income	9,149	8,266	29,269	24,305
Capital expenditures	3,328	3,570	16,359	12,371
Total assets	497,966	467,101	497,966	467,101
Washington, D.C. [Member]
Segment Reporting Information [Line Items]
Number of buildings	4	4	4	4
Square Feet	666,714	666,714	666,714	666,714
Total revenues	6,977	6,540	20,968	16,049
Property operating expense	(1,271)	(1,344)	(3,461)	(3,211)
Real estate taxes and insurance	(1,053)	(814)	(3,326)	(2,054)
Total property operating income	4,653	4,382	14,181	10,784
Capital expenditures	3,836	514	5,541	1,192
Total assets	313,513	320,102	313,513	320,102
Northern Virginia [Member]
Segment Reporting Information [Line Items]
Number of buildings	55	55	55	55
Square Feet	3,655,536	3,663,645	3,655,536	3,663,645
Total revenues	15,246	12,977	41,644	35,774
Property operating expense	(3,286)	(3,028)	(9,219)	(8,621)
Real estate taxes and insurance	(1,506)	(1,198)	(4,407)	(3,598)
Total property operating income	10,454	8,751	28,018	23,555
Capital expenditures	2,877	5,216	15,354	16,428
Total assets	459,153	416,347	459,153	416,347
Southern Virginia [Member]
Segment Reporting Information [Line Items]
Number of buildings	57	57	57	57
Square Feet	5,649,203	5,649,485	5,649,203	5,649,485
Total revenues	12,678	12,551	37,414	37,328
Property operating expense	(3,784)	(3,503)	(10,430)	(9,470)
Real estate taxes and insurance	(1,012)	(1,005)	(3,077)	(3,003)
Total property operating income	7,882	8,043	23,907	24,855
Capital expenditures	3,214	2,090	10,050	5,629
Total assets	$ 365,687	$ 365,398	$ 365,687	$ 365,398

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Noncontrolling Interests - Additional information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 26, 2012 Redland Corporate Center [Member]	Sep. 30, 2012 1005 First Street, NE [Member]	Sep. 30, 2012 Battlefield Corporate Center [Member]	Dec. 31, 2011 Battlefield Corporate Center [Member]
Business Acquisition [Line Items]
Conversion ratio for units to common shares	0.01
Cost to acquire all of the outstanding operating partnership units not owned by the company	$ 33.5
Adjustment of present certain noncontrolling interests at greater than carrying or redemption value	4.0
Operating partnership units					2,598,259	2,920,561
Operating partnership units not owned by company	4.80%	5.50%
Operating partnership unit redeemed	322,302
Mortgage loan with 1005 First Street, NE			$ 68.4	$ 22.0

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Debt - Schedule of Borrowings (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified		9 Months Ended				9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012 Mortgages [Member]	Sep. 30, 2012 Series A senior notes [Member]	Jun. 11, 2012 Series A senior notes [Member]	Sep. 30, 2012 Series B senior notes [Member]	Sep. 30, 2012 Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014 [Member]	Sep. 30, 2012 Unsecured term loan, effective interest rates ranging from LIBOR plus 2.40% to LIBOR plus 2.55% with staggered maturity dates ranging from July 2016 to July 2018 [Member]	Sep. 30, 2012 Unsecured revolving credit facility [Member]	Sep. 30, 2012 Subsequent Event [Member]
Debt Instrument [Line Items]
Debt instrument, interest rate, effective percentage rate range, minimum		4.40%
Debt instrument, interest rate, effective percentage rate range, maximum		7.29%
Debt instrument maturity date		July 2022				January 2013 and January 2014	July 2016 to July 2018	January 2015
Effective interest rate on the notes	5.58%		6.41%		6.55%	4.50%		2.50%
Debt instrument basis spread on variable rate minimum							2.15%
Debt instrument basis spread on variable rate maximum							2.30%
Defeasement of mortgage loan									$ 5.2
Company prepaid the entire principal amount outstanding under Senior Notes				$ 75.0
Debt instrument basis spread on variable rate annual increase						4.50%
Increase in LIBOR						550
Debt instrument, basis spread on variable rate	0.21%

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Share-Based Compensation - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amount received from the exercise of stock options	$ 29,000	$ 24,000	$ 56,000	$ 88,000
Total intrinsic value of options exercised	10,000	20,000	45,000	45,000
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense associated with trustee share based awards	700,000	500,000	1,900,000	1,800,000
Non-vested share awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense associated with trustee share based awards	$ 200,000

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Commitments and Contingencies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 Contract
Contingencies And Commitments [Line Items]
Legal proceedings as a result of unfavorable judgment	$ 0.9
Insurance claims against estimated liability	0.9
Potential legal liabilities	0.9
Number of insurance policies with immaterial deductible	1
Maximum [Member]
Contingencies And Commitments [Line Items]
Personal separation costs,plus additional legal fees and expenses	$ 1.1

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Equity - Company's Allocation Between Non-controlling Interests (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Noncontrolling Interest [Line Items]
Balance	$ 676,491	$ 618,060
Net (loss) income	(8,317)	(6,377)
Changes in ownership, net	49,854	117,468
Distributions to owners	(38,943)	(35,125)
Other comprehensive (loss) income	(6,088)	(4,860)
Balance	672,997	689,166
Redeemable noncontrolling interests, Beginning Balance	39,981	16,122
Net loss, Redeemable noncontrolling interests	(944)	(476)
Change in ownership, net, Redeemable noncontrolling interests	(1,697)	25,096
Distributions to owners, Redeemable noncontrolling interests	(1,639)	(1,142)
Other comprehensive income, Redeemable noncontrolling interests	(318)	(240)
Redeemable noncontrolling interests, Ending Balance	35,383	39,360
First Potomac Realty Trust [Member]
Noncontrolling Interest [Line Items]
Balance	672,246	614,983
Net (loss) income	(8,385)	(6,384)
Changes in ownership, net	49,846	115,315
Distributions to owners	(38,943)	(35,125)
Other comprehensive (loss) income	(6,088)	(4,860)
Balance	668,676	683,929
Non-redeemable noncontrolling interests [Member]
Noncontrolling Interest [Line Items]
Balance	4,245	3,077
Net (loss) income	68	7
Changes in ownership, net	8	2,153
Balance	$ 4,321	$ 5,237

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2012

Estimated Useful Lives of Company's Assets, by Class

The estimated useful lives of the Company’s assets, by class, are as follows:

Buildings	39 years
Building improvements	5 to 20 years
Furniture, fixtures and equipment	5 to 15 years
Lease related intangible assets	The term of the related lease
Tenant improvements	Shorter of the useful life of the asset or the term of the related lease

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Investment in Affiliates - Net Assets of Company's Unconsolidated Joint Ventures (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2011	Sep. 30, 2012 Unconsolidated Entities [Member]
Schedule of Equity Method Investments [Line Items]
Mortgage debt, aggregate fair value	$ 139.4	$ 7.0

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Rental Property - Rental Property (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Land and land improvements	$ 386,546	$ 384,409
Buildings and improvements	1,079,675	1,052,341
Construction in process	49,024	70,362
Tenant improvements	140,033	116,148
Furniture, fixtures and equipment	5,426	5,400
Rental property, Gross	1,660,704	1,628,660
Less: accumulated depreciation	(219,891)	(188,999)
Rental Property, Net	$ 1,440,813	$ 1,439,661

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Noncontrolling Interests - Property Owned Under Consolidated Joint Ventures (Parenthetical) (Detail) (Greyhound Property [Member])	9 Months Ended
	Sep. 30, 2012 sqft
Greyhound Property [Member]
Business Acquisition [Line Items]
Accommodate office space Intends on re-developing the site	712,000

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Description of Business - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2012 Person Project Property sqft	Sep. 30, 2011 sqft
Real Estate Properties [Line Items]
Number of separate segments its properties	4
Interest in Operating Partnership	95.20%
Area of land parcel	13,788,331	13,855,241
Unconsolidated joint ventures	5
Square footage of land for additional development	2,400,000
Occupancy rate in the company's consolidated properties	83.20%
Number of tenants representing the 83.0% occupancy rate	621
Square footage in development or redevelopment not included on occupancy calculation	300,000
Share of U.S. Government along with government contractors in Company's total annualized rental revenue	25.00%
Percentage of outstanding account receivables accounted by government	17.00%
Wholly Owned Properties [Member]
Real Estate Properties [Line Items]
Area of land parcel	13,800,000
Unconsolidated Properties [Member]
Real Estate Properties [Line Items]
Area of land parcel	900,000

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Discontinued Operations - Additional Information (Detail) (USD $)	3 Months Ended	9 Months Ended		3 Months Ended	9 Months Ended
	Sep. 30, 2012 sqft	Sep. 30, 2012 sqft	Sep. 30, 2011 sqft	Mar. 31, 2012 Owings Mills Business Park [Member]	Sep. 30, 2012 Owings Mills Business Park [Member] sqft	Sep. 30, 2012 Subsequent Event [Member] Owings Mills Business Park [Member] Buildings sqft	Sep. 30, 2012 Subsequent Event [Member] Encumbered [Member] Owings Mills Business Park [Member] Buildings	Sep. 30, 2012 Subsequent Event [Member] Assets Held-for-sale [Member] Encumbered [Member] Owings Mills Business Park [Member] Buildings
Area of land parcel	13,788,331	13,788,331	13,855,241		38,779	219,300
Net proceeds from sale of Properties		$ 10,838,000	$ 26,883,000			$ 3,500,000
Cash used for payment of mortgage loan	500,000				5,700,000	5,700,000
Number of building sold								2
Number of buildings						6	4
Impairment charge on the assets sold				800,000
Discontinued operations impairment charges	$ 3,100,000	$ 1,100,000	$ 5,800,000

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Fair Value Measurements - Additional Information (Detail) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended	1 Months Ended				1 Months Ended	3 Months Ended						9 Months Ended
	Jul. 31, 2011 Floors	Sep. 30, 2012	Mar. 31, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Jul. 31, 2011 840 First Street, NE [Member]	Sep. 30, 2012 840 First Street, NE [Member]	Mar. 25, 2011 840 First Street, NE [Member]	Sep. 30, 2012 Corporate Campus at Ashburn Center [Member]	May 31, 2012 Woodlands Business Center [Member]	Mar. 31, 2012 Woodlands Business Center [Member]	Dec. 31, 2011 Woodlands Business Center [Member]	Dec. 31, 2011 Goldenrod Lane [Member]	Mar. 31, 2012 Airpark Place Business Center [Member]	Sep. 30, 2011 Airpark Place Business Center [Member]	Sep. 30, 2012 Owings Mills Business Park [Member]	Sep. 30, 2012 Interest Rate Swap [Member] Rate
Derivatives, Fair Value [Line Items]
Transfers into and out of fair value measurements levels				$ 0	$ 0
Minimum number of daily snapshot used for valuation of interest rate swap agreements																		7,500
Additional contingent consideration for purchase of property									10,000,000
Purchase price for acquisition of first street									90,000,000
Contingent consideration obligation					745,000				9,400,000
Number of Operating Partnership Units Issued	544,673
Payment for settlement contingent consideration obligation							7,100,000
Recognized gain associated with the issuance of additional units							1,500,000
Number of floors	2
Contingent consideration remaining								700,000		1,600,000
Increase in contingent consideration		100,000
Additional number of buildings the company intends to sell																	2,000,000
Impairment charge on property																	500,000
Buildings held for sale																	2,000,000
Impairment charges			800,000
Impairment charge on the contractual sale price		496,000		2,444,000		400,000						200,000	1,600,000	900,000		3,100,000
Proceeds from sale of Properties				$ 10,838,000	$ 26,883,000						$ 5,500,000				$ 5,200,000

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Debt - Unsecured Term Loan (Detail) (USD $) In Thousands, unless otherwise specified			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Tranche A [Member]	Sep. 30, 2012 Tranche B [Member]	Sep. 30, 2012 Tranche C [Member]
Debt Instrument [Line Items]
Maturity Date			July 2016	July 2017	July 2018
Interest Rate			LIBOR, plus 215 basis points	LIBOR, plus 225 basis points	LIBOR, plus 230 basis points
Unsecured term loan	$ 300,000	$ 225,000	$ 60,000	$ 147,500	$ 92,500

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Investment in Affiliates - Component of Investment in Affiliates (Detail) (USD $) In Thousands, unless otherwise specified			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Metro Place III & IV [Member]	Sep. 30, 2012 1750 H Street, NW [Member]	Sep. 30, 2012 Aviation Business Park [Member]	Sep. 30, 2012 Rivers Park I and II [Member]
Schedule of Equity Method Investments [Line Items]
Reporting Segment			Northern Virginia	Washington, D.C.	Maryland	Maryland
Ownership Interest			51.00%	50.00%	50.00%	25.00%
Company Investment	$ 51,113	$ 72,518	$ 27,194	$ 16,169	$ 4,748	$ 3,002

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

(a) Principles of Consolidation

The unaudited condensed consolidated financial statements of the Company include the accounts of the Company, the Operating Partnership and the subsidiaries in which the Company or Operating Partnership has a controlling interest, which includes First Potomac Management LLC, a wholly-owned subsidiary that manages the majority of the Company’s properties. All intercompany balances and transactions have been eliminated in consolidation.

The Company has condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”) in the accompanying unaudited condensed consolidated financial statements. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011 and as updated from time to time in other filings with the Securities and Exchange Commission.

In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals necessary to present fairly the Company’s financial position as of September 30, 2012, the results of its operations and its comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 and its cash flows for the nine months ended September 30, 2012 and 2011. Interim results are not necessarily indicative of full-year performance due, in part, to the timing of transactions, costs associated with the Company’s internal investigation, and the impact of acquisitions and dispositions throughout the year as well as the seasonality of certain operating expenses such as utility expense and snow and ice removal costs.

(b) Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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 condensed 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; derivative valuations; 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.

(c) Rental Property

Rental property is initially recorded at fair value, if acquired in a business combination, or initial cost when constructed or acquired in an asset purchase, 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 Company’s assets, by class, are as follows:

Buildings	39 years
Building improvements	5 to 20 years
Furniture, fixtures and equipment	5 to 15 years
Lease related intangible assets	The term of the related lease
Tenant improvements	Shorter of the useful life of the asset or the term of the related lease

The Company regularly reviews market conditions for possible impairment of a property’s carrying value. When circumstances such as adverse market conditions, changes in management’s 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 property’s 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 less anticipated selling costs. 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 property’s carrying value and its projected sales price less any estimated costs to sell.

The Company will classify a building as held-for-sale in accordance with GAAP in the period in which it has made the decision to dispose of the building, the Company’s Board of Trustees or a designated delegate has approved the sale, there is a high likelihood a binding agreement to purchase the property will be signed under which the buyer will be required to commit 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. The Company will classify any impairment loss, together with the building’s 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 held-for-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 assigned 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, which include its investment in assets owned through unconsolidated joint ventures that are 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 and interest on the direct compensation costs of the Company’s construction personnel who manage the development and redevelopment projects, but only to the extent the employee’s time can be allocated to a project. Any portion of construction management costs not directly attributable to a specific project are recognized as general and administrative expense in the period incurred. The Company does not capitalize any other general administrative costs such as office supplies, office rent expense or an overhead allocation to its development or redevelopment projects. Capitalized compensation costs were immaterial for the three and nine months ended September 30, 2012 and 2011. 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. The Company will also place redevelopment and development assets in service at this time and commence depreciation upon the substantial completion of tenant improvements and the recognition of revenue. Capitalized interest is depreciated over the useful life of the underlying assets, commencing when those assets are placed into service.

(d) Notes Receivable

The Company provides loans to the owners of real estate properties, which can be collateralized by interest in the real estate property. The Company records these loans as “Notes receivable, net” in its consolidated balance sheets. The loans are recorded net of any discount or issuance costs, which are amortized over the life of the respective note receivable using the effective interest method. The Company records interest earned from notes receivable and amortization of any discount or issuance costs within “Interest and other income” in its consolidated statements of operations.

The Company will establish a provision for anticipated credit losses associated with its notes receivable and debt investments when it anticipates that it may be unable to collect any contractually due amounts. This determination is based upon such factors as delinquencies, loss experience, collateral quality and current economic or borrower conditions. The Company’s collectability of its notes receivable may be adversely impacted by the financial stability of the Washington, D.C. region and the ability of its underlying assets to keep current tenants or attract new tenants. Estimated losses are recorded as a charge to earnings to establish an allowance for credit losses that the Company estimates to be adequate based on these factors. Based on the review of the above criteria, the Company did not record an allowance for credit losses for its notes receivable during the three and nine months ended September 30, 2012 and 2011.

(e) Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation, primarily as a result of reclassifying the operating results of several properties as discontinued operations. For more information, see footnote 7, Discontinued Operations.

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Debt - Unsecured Term Loan (Parenthetical) (Detail)	1 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012 BasisPoint
Debt Instrument [Line Items]
Increase in interest rate spread	(2500.00%)	2500.00%

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Rental Property - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 sqft
Operating Statistics [Line Items]
Developable land that can accommodate additional building space	2,400,000
Completed development and redevelopment activities to be placed in service	37,000
Completed development and redevelopment activities to be placed in service cost	$ 0.4
Northern Virginia [Member]
Operating Statistics [Line Items]
Area of completed development and redevelopment activities	154,000
Completed development and redevelopment activities at cost	$ 11.5

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Investment in Affiliates (Tables)

9 Months Ended

Sep. 30, 2012

Component of Investment in Affiliates

The Company’s investment in affiliates consisted of the following at September 30, 2012 (dollars in thousands):

	Reporting Segment	Ownership Interest			Company Investment
Metro Place III & IV	Northern Virginia		51	%	$	27,194
1750 H Street, NW	Washington, D.C.		50	%		16,169
Aviation Business Park	Maryland		50	%		4,748
RiversPark I and II	Maryland		25	%		3,002
					$	51,113

Net Assets of Company's Unconsolidated Joint Ventures

The net assets of the Company’s unconsolidated joint ventures consisted of the following (amounts in thousands):

	September 30, 2012		December 31, 2011
Assets:
Rental property, net	$	199,379	$	242,767
Cash and cash equivalents		5,547		4,009
Other assets		18,659		22,734
Total assets		223,585		269,510
Liabilities:
Mortgage loans(1)		110,175		132,370
Other liabilities		6,537		7,207
Total liabilities		116,712		139,577
Net assets	$	106,873	$	129,933

⁽¹⁾  Of the total mortgage debt that encumbers the Company’s unconsolidated properties, $7.0 million is recourse to the Company. Management believes the fair value of the potential liability to the Company is inconsequential as the likelihood of the Company’s need to perform under the debt agreement is remote.

Results of Operations of Company's Unconsolidated Joint Ventures

The following table summarizes the results of operations of the Company’s unconsolidated joint ventures, which due to its varying ownership interests in the joint ventures and the varying operations of the joint ventures may or may not be reflective of the amounts recorded in its consolidated statements of operations (amounts in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Total revenues	$	6,254		$	2,896		$	18,575		$	8,860
Total operating expenses		(1,883	)		(995	)		(5,459	)		(2,917	)
Net operating income		4,371			1,901			13,116			5,943
Depreciation and amortization		(3,174	)		(1,274	)		(9,510	)		(3,835	)
Other expenses, net		(1,070	)		(854	)		(3,235	)		(2,429	)
Net income (loss)	$	127		$	(227	)	$	371		$	(321	)

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Notes Receivable (Tables)

9 Months Ended

Sep. 30, 2012

Summary of Notes Receivable

Below is a summary of the Company’s notes receivable at September 30, 2012 (dollars in thousands):

	Balance at September 30, 2012
Issued	Face Amount		Unamortized Origination Costs			Balance		Interest Rate			Property
December 2010	$	25,000	$	(180	)	$	24,820		12.5	%	950 F Street, NW
April 2011		30,000		(107	)		29,893		9.0	%	America’s Square
	$	55,000	$	(287	)	$	54,713
	Balance at December 31, 2011
Issued	Face Amount		Unamortized Origination Costs			Balance		Interest Rate			Property
December 2010	$	25,000	$	(211	)	$	24,789		12.5	%	950 F Street, NW
April 2011		30,000		(128	)		29,872		9.0	%	America’s Square
	$	55,000	$	(339	)	$	54,661

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Debt - Schedule of Borrowings (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Mortgage loans, effective interest rates ranging from 4.40% to 7.29%, maturing at various dates through July 2022	$ 442,267	$ 432,023
Senior notes		75,000
Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014	20,000	30,000
Unsecured revolving credit facility, effective interest rate of LIBOR plus 2.50%, maturing January 2015	159,000	183,000
Long-term Debt, Total	921,267	945,023
Extension period option	1 year
Series A senior notes [Member]
Debt Instrument [Line Items]
Senior notes		37,500
Series B senior notes [Member]
Debt Instrument [Line Items]
Senior notes		37,500
Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014 [Member]
Debt Instrument [Line Items]
Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014	20,000	30,000
Unsecured term loan, effective interest rates ranging from LIBOR plus 2.40% to LIBOR plus 2.55% with staggered maturity dates ranging from July 2016 to July 2018 [Member]
Debt Instrument [Line Items]
Unsecured term loan, effective interest rates ranging from LIBOR plus 2.15% to LIBOR plus 2.30%, with staggered maturity dates ranging from July 2016 to July 2018	$ 300,000	$ 225,000

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Rental Property - Current Development and Redevelopment Activity (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 sqft
Operating Statistics [Line Items]
Developable Square Feet	2,372
Square Feet Under Development	166
Cost to Date of Development Activities	$ 659
Square Feet Under Redevelopment	172
Cost to Date of Redevelopment Activities	9,055
Washington, D.C. [Member]
Operating Statistics [Line Items]
Developable Square Feet	713
Square Feet Under Redevelopment	135
Cost to Date of Redevelopment Activities	8,683
Maryland [Member]
Operating Statistics [Line Items]
Developable Square Feet	250
Northern Virginia [Member]
Operating Statistics [Line Items]
Developable Square Feet	568
Square Feet Under Redevelopment	37
Cost to Date of Redevelopment Activities	372
Southern Virginia [Member]
Operating Statistics [Line Items]
Developable Square Feet	841
Square Feet Under Development	166
Cost to Date of Development Activities	$ 659

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Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2012

Summary of Property Dispositions

The following table is a summary of property dispositions whose operating results are reflected as discontinued operations in the Company’s consolidated statements of operations for the periods presented:

	Reporting Segment	Disposition Date		Property Type	Square Feet
Owings Mills Business Park(1)	Maryland		11/7/2012	Business Park		38,779
Goldenrod Lane	Maryland		5/31/2012	Office		23,518
Woodlands Business Center	Maryland		5/8/2012	Office		37,887
Airpark Place Business Center	Maryland		3/22/2012	Business Park		82,429
Aquia Commerce Center I & II	Northern Virginia		6/22/2011	Office		64,488
Gateway West	Maryland		5/27/2011	Office		111,481
Old Courthouse Square	Maryland		2/18/2011	Retail		201,208

⁽¹⁾  Represents two buildings, of the six building, 219,284 square foot business park, that were held-for-sale at September 30, 2012.

Net (loss) Income from Discontinued Operations

The following table summarizes the components of net income (loss) from discontinued operations for the periods presented (amounts in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	130		$	486		$	686		$	2,531
Net loss, before taxes		(1	)		(3,137	)		(1,256	)		(6,107	)
Gain on sale of real estate property		—			—			161			1,954

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Debt (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Borrowings

The Company’s borrowings consisted of the following (amounts in thousands):

	September 30, 2012			December 31, 2011
Mortgage loans, effective interest rates ranging from 4.40% to 7.29%, maturing at various dates through July 2022	$	442,267	(1)	$	432,023
Series A senior notes, effective interest rate of 6.41%(2)		—			37,500
Series B senior notes, effective interest rate of 6.55%(2)		—			37,500
Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014(3)(4)		20,000			30,000
Unsecured term loan, effective interest rates ranging from LIBOR plus 2.15% to LIBOR plus 2.30%, with staggered maturity dates ranging from July 2016 to July 2018(4)		300,000			225,000
Unsecured revolving credit facility, effective interest rate of LIBOR plus 2.50%, maturing January 2015(4)(5)		159,000			183,000
	$	921,267		$	945,023

⁽¹⁾ Includes a $5.2 million mortgage loan that was defeased in October 2012 and, at September 30, 2012, was classified within “Liabilities held for sale” on the Company’s consolidated balance sheet as of September 30, 2012.

⁽²⁾  On June 11, 2012, the Company prepaid the entire $75.0 million principal amount outstanding under its Series A and Series B senior notes with borrowings under the Company’s unsecured revolving credit facility.

⁽³⁾ On January 1, 2012, the loan’s applicable interest rate increased to LIBOR plus 4.50% and will increase to LIBOR plus 550 basis points in January 2013.

⁽⁴⁾ At September 30, 2012, LIBOR was 0.21%.

⁽⁵⁾  The unsecured revolving credit facility matures in January 2014 with a one-year extension at the Company’s option, which it intends to exercise.

Summary of Company's Mortgage Debt

The following table provides a summary of the Company’s mortgage debt at September 30, 2012 and December 31, 2011 (dollars in thousands):

Encumbered Property	Contractual Interest Rate			Effective Interest Rate			Maturity Date	September 30, 2012			December 31, 2011
Campus at Metro Park North(1)		7.11	%		5.25	%	February 2012	$	—		$	21,692
One Fair Oaks(2)		6.31	%		6.72	%	June 2012		—			52,604
1434 Crossways Blvd Building II(3)		7.05	%		5.38	%	August 2012		—			9,099
Crossways Commerce Center(4)		6.70	%		6.70	%	October 2012		23,361			23,720
Newington Business Park Center(4)		6.70	%		6.70	%	October 2012		14,736			14,963
Prosperity Business Center		6.25	%		5.75	%	January 2013		3,277			3,381
Cedar Hill		6.00	%		6.58	%	February 2013		15,516			15,838
Merrill Lynch Building		6.00	%		7.29	%	February 2013		13,364			13,571
1434 Crossways Blvd Building I		6.25	%		5.38	%	March 2013		7,724			7,943
Linden Business Center		6.01	%		5.58	%	October 2013		6,791			6,918
840 First Street, NE		5.18	%		6.05	%	October 2013		54,973			55,745
Owings Mills Business Center(5)		5.85	%		5.75	%	March 2014		—			5,338
Annapolis Business Center		5.74	%		6.25	%	June 2014		8,259			8,360
Cloverleaf Center(6)		6.75	%		6.75	%	October 2014		16,682			16,908
Plaza 500, Van Buren Office Park, Rumsey Center, Snowden Center, Greenbrier Technology Center II, Norfolk Business Center, Northridge and 15395 John Marshall Highway		5.19	%		5.19	%	August 2015		96,527			97,681
Hanover Business Center:
Building D		8.88	%		6.63	%	August 2015		424			520
Building C		7.88	%		6.63	%	December 2017		824			920
Chesterfield Business Center:
Buildings C,D,G and H		8.50	%		6.63	%	August 2015		1,122			1,369
Buildings A,B,E and F		7.45	%		6.63	%	June 2021		2,105			2,235
Mercedes Center– Note 1(6)		4.67	%		6.04	%	January 2016		4,686			4,713
Mercedes Center – Note 2(6)		6.57	%		6.30	%	January 2016		9,554			9,722
Gateway Centre Manassas Building I		7.35	%		5.88	%	November 2016		880			1,016
Hillside Center		5.75	%		4.62	%	December 2016		13,838			14,122
Redland Corporate Center		4.20	%		4.64	%	November 2017		68,400			—
500 First Street, NW		5.72	%		5.79	%	July 2020		37,869			38,277
Battlefield Corporate Center		4.26	%		4.40	%	November 2020		4,040			4,149
Airpark Business Center		7.45	%		6.63	%	June 2021		1,148			1,219
1211 Connecticut Avenue, NW		4.22	%		4.47	%	July 2022		30,914			—
					5.58	%(7)			437,014			432,023
Unamortized fair value adjustments									(714	)		(1,147	)
Principal balance									436,300			430,876
Owings Mills Business Center(5)									5,253			—
Unamortized fair value adjustments – Owings Mills Business Center(5)									(7	)		—
Total Principal balance								$	441,546		$	430,876

⁽¹⁾ The loan was repaid in February 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽²⁾ The loan was repaid in June 2012 with the issuance of a $40.0 million senior secured term loan, which was subsequently repaid in late June 2012, and borrowings under the Company’s unsecured revolving credit facility.

⁽³⁾  The loan was repaid in August 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽⁴⁾ The loan was repaid on October 1, 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽⁵⁾ On October 16, 2012, the Company used $5.7 million of available cash to defease the mortgage loan encumbering Owings Mills Business Park. At September 30, 2012, the Company classified the mortgage loan within “Liabilities held for sale” on its consolidated balance sheets.

⁽⁶⁾  Of the mortgage loan totals, $3.5 million encumbered by Cloverleaf Center and $5.0 million encumbered by Mercedes Center are recourse to the Company.

⁽⁷⁾  Weighted average interest rate on total mortgage debt.

Unsecured Term Loan

The table below shows the outstanding balances of the three tranches of the $300.0 million unsecured term loan at September 30, 2012 (dollars in thousands):

	Maturity Date		Amount		Interest Rate(1)
Tranche A		July 2016	$	60,000	LIBOR, plus 215 basis points
Tranche B		July 2017		147,500	LIBOR, plus 225 basis points
Tranche C		July 2018		92,500	LIBOR, plus 230 basis points
			$	300,000

⁽¹⁾  Each interest rate spread will increase by 25 basis points on December 1, 2012 due to the Company’s leverage ratio at September 30, 2012. For more information, see footnote 8(e) Debt – Financial Covenants.

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Description of Business

9 Months Ended

Sep. 30, 2012

Description of Business

(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 four distinct segments, which it refers to as the Washington, D.C., 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 Company’s 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 unaudited condensed consolidated 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 Company’s operating partnership (the “Operating Partnership”). The Company is the sole general partner of, and, as of September 30, 2012, owned a 95.2% 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 unaudited condensed consolidated financial statements, are limited partnership interests, some of which are owned by several of the Company’s executive officers and trustees who contributed properties and other assets to the Company upon its formation, and the remainder of which are owned by other unrelated parties.

At September 30, 2012, the Company wholly-owned or had a controlling interest in properties totaling 13.8 million square feet and had a noncontrolling ownership interest in properties totaling an additional 0.9 million square feet through five unconsolidated joint ventures. The Company also owned land that can support approximately 2.4 million square feet of additional development. The Company’s consolidated properties were 83.2% occupied by 621 tenants at September 30, 2012. The Company did not include square footage that was in development or redevelopment, which totaled 0.3 million square feet at September 30, 2012, in its occupancy calculation. The Company derives substantially all of its revenue from leases of space within its properties. As of September 30, 2012, the Company’s largest tenant was the U.S. Government, which along with government contractors, accounted for over 25% of the Company’s total annualized base rent. The U.S. Government accounted for approximately 17% of the Company’s outstanding accounts receivable at September 30, 2012. The Company operates so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes.

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Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Summary of Interest Rate Swap Agreements

At September 30, 2012, the Company had fixed LIBOR at a weighted average interest rate of 1.5% on $350.0 million of its variable rate debt through twelve interest rate swap agreements that are summarized below (dollars in thousands):

Effective Date	Maturity Date	Amount		Interest Rate Contractual Component	Fixed LIBOR Interest Rate
January 2011	January 2014	$	50,000	LIBOR		1.474	%
July 2011	July 2016		35,000	LIBOR		1.754	%
July 2011	July 2016		25,000	LIBOR		1.7625	%
July 2011	July 2017		30,000	LIBOR		2.093	%
July 2011	July 2017		30,000	LIBOR		2.093	%
September 2011	July 2018		30,000	LIBOR		1.660	%
January 2012	July 2018		25,000	LIBOR		1.394	%
March 2012	July 2017		25,000	LIBOR		1.129	%
March 2012	July 2017		12,500	LIBOR		1.129	%
March 2012	July 2018		12,500	LIBOR		1.383	%
June 2012	July 2017		50,000	LIBOR		0.955	%
June 2012	July 2018		25,000	LIBOR		1.1349	%
			$350,000

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Earnings Per Common Share - Anti-Dilutive Shares Not Included In Calculation of Diluted Earnings per Share (Detail) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded From Computation of Earnings Per Share Amount	14,946	10,448	13,743	9,803
Stock option awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded From Computation of Earnings Per Share Amount	1,451	903	1,473	907
Non-vested share awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded From Computation of Earnings Per Share Amount	428	388	454	406
Conversion of exchangeable senior notes [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded From Computation of Earnings Per Share Amount		854		854
Series A Preferred Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded From Computation of Earnings Per Share Amount	13,067	8,303	11,816	7,636

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Discontinued Operations - Summary of Property Dispositions (Detail)			9 Months Ended
	Sep. 30, 2012 sqft	Sep. 30, 2011 sqft	Sep. 30, 2012 Owings Mills Business Park [Member] sqft	Sep. 30, 2012 Goldenrod Lane [Member] sqft	Sep. 30, 2012 Woodlands Business Center [Member] sqft	Sep. 30, 2012 Airpark Place Business Center [Member] sqft	Sep. 30, 2012 Aquia Commerce Center I & II [Member] sqft	Sep. 30, 2012 Gateway West [Member] sqft	Sep. 30, 2012 Old Courthouse Square [Member] sqft
Real Estate and Accumulated Depreciation [Line Items]
Reporting Segment			Maryland	Maryland	Maryland	Maryland	Northern Virginia	Maryland	Maryland
Disposition Date			Nov. 07, 2012	May 31, 2012	May 08, 2012	Mar. 22, 2012	Jun. 22, 2011	May 27, 2011	Feb. 18, 2011
Property Type			Business Park	Office	Office	Business Park	Office	Office	Retail
Square Feet	13,788,331	13,855,241	38,779	23,518	37,887	82,429	64,488	111,481	201,208

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Equity - Company's Accumulated Other Comprehensive Loss (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Partners Capital And Distributions [Line Items]
Balance			$ (5,849)	$ (545)
Net loss on derivative instruments	66	55	139	163
Net loss attributable to noncontrolling interests	(232)	265	876	469
Balance	$ (11,937)	$ (5,405)	$ (11,937)	$ (5,405)

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets:
Rental property, net	$ 1,440,813	$ 1,439,661
Assets held-for-sale	3,579	5,297
Cash and cash equivalents	12,040	16,749
Escrows and reserves	14,657	18,455
Accounts and other receivables, net of allowance for doubtful accounts of $2,471 and $3,065, respectively	14,034	11,404
Accrued straight-line rents, net of allowance for doubtful accounts of $444 and $369, respectively	25,440	18,028
Notes receivable, net	54,713	54,661
Investment in affiliates	51,113	72,518
Deferred costs, net	38,894	34,683
Prepaid expenses and other assets	9,166	9,275
Intangible assets, net	49,788	59,021
Total assets	1,714,237	1,739,752
Liabilities:
Mortgage loans	437,014	432,023
Senior notes		75,000
Secured term loans	20,000	30,000
Unsecured term loan	300,000	225,000
Unsecured revolving credit facility	159,000	183,000
Liabilities held-for-sale	5,345
Accounts payable and other liabilities	62,436	53,507
Accrued interest	2,352	2,782
Rents received in advance	9,761	11,550
Tenant security deposits	5,944	5,603
Deferred market rent, net	4,005	4,815
Total liabilities	1,005,857	1,023,280
Noncontrolling interests in the Operating Partnership	35,383	39,981
Equity:
Preferred Shares, $0.001 par value, 50,000 shares authorized; Series A Preferred Shares, $25 per share liquidation preference, 6,400 and 4,600 shares issued and outstanding, respectively	160,000	115,000
Common shares, $0.001 par value, 150,000 shares authorized; 50,994 and 50,321 shares issued and outstanding, respectively	51	50
Additional paid-in capital	803,190	798,171
Noncontrolling interests in consolidated partnerships	4,321	4,245
Accumulated other comprehensive loss	(11,937)	(5,849)
Dividends in excess of accumulated earnings	(282,628)	(235,126)
Total equity	672,997	676,491
Total liabilities, noncontrolling interests and equity	$ 1,714,237	$ 1,739,752

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Notes Receivable - Summary of Notes Receivable (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Receivables with Imputed Interest [Line Items]
Face Amount	$ 55,000	$ 55,000
Unamortized Origination Costs	(287)	(339)
Balance	54,713	54,661
Notes receivables issued on December 2010 [Member]
Receivables with Imputed Interest [Line Items]
Notes receivables issued date	Dec. 01, 2010	Dec. 01, 2010
Face Amount	25,000	25,000
Unamortized Origination Costs	(180)	(211)
Balance	24,820	24,789
Interest Rate	12.50%	12.50%
Property	950 F Street, NW	950 F Street, NW
Notes receivables issued on April 2011 [Member]
Receivables with Imputed Interest [Line Items]
Notes receivables issued date	Apr. 01, 2011	Apr. 01, 2011
Face Amount	30,000	30,000
Unamortized Origination Costs	(107)	(128)
Balance	$ 29,893	$ 29,872
Interest Rate	9.00%	9.00%
Property	America's Square	America's Square

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net loss	$ (9,261)	$ (6,853)
Discontinued operations:
Gain on sale of real estate property, net	(161)	(1,954)
Depreciation and amortization	131	990
Impairment of real estate assets	1,072	5,821
Depreciation and amortization	49,600	45,479
Stock based compensation	2,301	2,012
Bad debt expense	583	667
Deferred income taxes	(3,533)	(656)
Amortization of deferred market rent	268	(505)
Amortization of financing costs and discounts	1,643	3,933
Equity in losses of affiliates	52	112
Distributions from investments in affiliates	1,208	84
Gain on sale of investment	(2,951)
Loss on debt extinguishment	(13,221)
Impairment of real estate assets	2,444
Contingent consideration related to acquisition of property	112	(1,487)
Changes in assets and liabilities:
Escrows and reserves	4,414	(6,411)
Accounts and other receivables	(3,087)	(167)
Accrued straight-line rents	(7,645)	(5,771)
Prepaid expenses and other assets	(1,353)	(1,683)
Tenant security deposits	317	183
Accounts payable and accrued expenses	3,191	5,773
Accrued interest	(430)	1,986
Rents received in advance	(1,749)	89
Deferred costs	(9,394)	(14,841)
Total adjustments	39,412	33,654
Net cash provided by operating activities	30,151	26,801
Cash flows from investing activities:
Purchase deposit on future acquisitions		(8,168)
Proceeds from sale of real estate assets	10,838	26,883
Proceeds from sale of investment	25,705
Change in escrow and reserve accounts	(36)	(2,020)
Investment in note receivable		(29,350)
Acquisition of rental property and associated intangible assets		(67,583)
Additions to rental property	(42,034)	(26,540)
Acquisition of land parcel		(7,500)
Additions to construction in progress	(6,384)	(11,938)
Investment in affiliates	(2,534)	(650)
Net cash used in investing activities	(14,445)	(126,866)
Cash flows from financing activities:
Financing costs	(3,502)	(4,063)
Issuance of preferred shares, net	43,518	110,997
Issuance of common shares, net	3,599
Issuance of debt	361,400	348,000
Repayments of debt	(384,731)	(339,471)
Contributions from joint venture partner		2,152
Dividends to common shareholders	(30,513)	(30,000)
Dividends to preferred shareholders	(8,603)	(5,125)
Distributions to noncontrolling interests	(1,639)	(1,142)
Stock option exercises	56	83
Net cash provided by financing activities	(20,415)	81,431
Net decrease in cash and cash equivalents	(4,709)	(18,634)
Cash and cash equivalents, beginning of period	16,749	33,280
Cash and cash equivalents, end of period	12,040	14,646
Cash paid for interest, net	31,162	26,292
Cash paid for income based franchise taxes	714	242
Non-cash investing and financing activities:
Debt assumed in connection with acquisitions of real estate		139,373
Contingent consideration recorded at acquisition		745
Conversion of common Operating Partnership units into common shares	3,513	19
Issuance of common Operating Partnership units in connection with the acquisition of real estate		$ 28,845

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Debt - Summary of Company's mortgage debt (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Jun. 30, 2012	Sep. 30, 2012 Owings Mills Business Park [Member]	Sep. 30, 2012 Cloverleaf Center [Member]	Sep. 30, 2012 Mercedes Center [Member]
Debt Instrument [Line Items]
Issuance of senior secured term loan		$ 40.0
Cash used for payment of mortgage loan	0.5		5.7
Mortgage loan payable recourse				$ 3.5	$ 5.0

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Noncontrolling Interests (Tables)

9 Months Ended

Sep. 30, 2012

Property Owned Under Consolidated Joint Ventures

At September 30, 2012, the Company’s consolidated joint ventures owned the following properties:

Property	Acquisition Date	Reporting Segment	First Potomac Controlling Interest			Square Footage
1005 First Street, NE	August 2011	Washington, D.C.		97	%		30,414	(1)
Redland Corporate Center	November 2010	Maryland		97	%		348,469

⁽¹⁾  The site is currently occupied by Greyhound Bus Lines, Inc., which has announced its intention to relocate. Upon the tenant leaving, the Company intends on re-developing the site, which can accommodate up to 712,000 square feet of office space.

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Derivative Instruments - Summary of Interest Rate Swap Agreements (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Derivatives, Fair Value [Line Items]
Amount	$ 350,000
Fixed Effective Interest Rate	1.50%
Interest Rate Swap One [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Jan. 31, 2011
Maturity Date	Jan. 31, 2014
Amount	50,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.474%
Interest Rate Swap Two [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Jul. 31, 2011
Maturity Date	Jul. 31, 2016
Amount	35,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.754%
Interest Rate Swap Three [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Jul. 31, 2011
Maturity Date	Jul. 31, 2016
Amount	25,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.7625%
Interest Rate Swap Four [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Jul. 31, 2011
Maturity Date	Jul. 31, 2017
Amount	30,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	2.093%
Interest Rate Swap Five [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Jul. 31, 2011
Maturity Date	Jul. 31, 2017
Amount	30,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	2.093%
Interest Rate Swap Six [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Sep. 30, 2011
Maturity Date	Jul. 31, 2018
Amount	30,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.66%
Interest Rate Swap Seven [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Jan. 31, 2012
Maturity Date	Jul. 31, 2018
Amount	25,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.394%
Interest Rate Swap Eight [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Mar. 31, 2012
Maturity Date	Jul. 31, 2017
Amount	25,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.129%
Interest Rate Swap Nine [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Mar. 31, 2012
Maturity Date	Jul. 31, 2017
Amount	12,500
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.129%
Interest Rate Swap Ten [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Mar. 31, 2012
Maturity Date	Jul. 31, 2018
Amount	12,500
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.383%
Interest Rate Swap Eleven [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Jun. 30, 2012
Maturity Date	Jul. 31, 2017
Amount	50,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	0.955%
Interest Rate Swap Twelve [Member]
Derivatives, Fair Value [Line Items]
Effective Date	Jun. 30, 2012
Maturity Date	Jul. 31, 2018
Amount	$ 25,000
Interest Rate Contractual Component	LIBOR
Fixed Effective Interest Rate	1.1349%

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies

(15) Commitments and Contingencies

The Company is subject to legal proceedings and claims arising in the ordinary course of its business, for which, it carries various forms of insurance to protect itself. At September 30, 2012, the Company was involved in legal proceedings or faced potential claims, which in aggregate could result in unfavorable judgments totaling $0.9 million. Based on the Company’s analysis, if an unfavorable judgment is reached, its insurance carriers would cover the estimated liability of $0.9 million, with the exception of an immaterial deductible associated with one of the Company’s policies. As a result, the Company recorded $0.9 million of potential legal liabilities within “Accounts payable and other liabilities” in its consolidated statements of operations and recorded the amount expected to be covered from the insurance carriers within “Accounts and other receivables” in its consolidated balance sheets. The immaterial deductible mentioned above, which is not recoverable from the insurance carriers, was recorded within general and administrative expenses in the third quarter of 2012. In the opinion of the Company’s management and legal counsel, the amount of ultimate liability with respect to these claims will not have a material impact on the Company’s financial position, results of operations or cash flows.

As previously disclosed on the Company’s Current Report on Form 8-K filed on October 5, 2012, Joel F. Bonder, the Company’s Executive Vice President and General Counsel, ceased to perform the responsibilities and functions of the Company’s general counsel effective October 1, 2012. Mr. Bonder’s counsel has informed the Company that Mr. Bonder has taken steps to file an arbitration claim regarding rights he asserts under his employment agreement. The Company intends to vigorously defend its rights under the employment agreement; however, we cannot be certain of the ultimate outcome of the arbitration. The Company has not accrued any loss related to this asserted claim, and resolution of this matter against the Company could result in the Company incurring up to approximately $1.1 million in charges, plus legal fees and expenses.

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Summary of Segment Information

The results of operations for the Company’s four reportable segments are as follows (dollars in thousands):

	Three Months Ended September 30, 2012
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Number of buildings		64			4			55			57			180
Square feet		3,816,878			666,714			3,655,536			5,649,203			13,788,331
Total revenues	$	13,720		$	6,977		$	15,246		$	12,678		$	48,621
Property operating expense		(3,470	)		(1,271	)		(3,286	)		(3,784	)		(11,811	)
Real estate taxes and insurance		(1,101	)		(1,053	)		(1,506	)		(1,012	)		(4,672	)
Total property operating income	$	9,149		$	4,653		$	10,454		$	7,882			32,138
Depreciation and amortization expense														(16,633	)
General and administrative														(5,645	)
Acquisition costs														(8	)
Impairment of real estate assets														(496	)
Contingent consideration related to acquisition of property														(112	)
Other expenses, net														(6,112	)
Benefit from income taxes														4,304
Loss from discontinued operations														(1	)
Net income													$	7,435
Capital expenditures(1)	$	3,328		$	3,836		$	2,877		$	3,214		$	13,429
	Three Months Ended September 30, 2011
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Number of buildings		67			4			55			57			183
Square feet		3,875,397			666,714			3,663,645			5,649,485			13,855,241
Total revenues	$	12,560		$	6,540		$	12,977		$	12,551		$	44,628
Property operating expense		(3,120	)		(1,344	)		(3,028	)		(3,503	)		(10,995	)
Real estate taxes and insurance		(1,174	)		(814	)		(1,198	)		(1,005	)		(4,191	)
Total property operating income	$	8,266		$	4,382		$	8,751		$	8,043			29,442
Depreciation and amortization expense														(15,934	)
General and administrative														(4,354	)
Acquisition costs														(1,737	)
Contingent consideration related to acquisition of property														1,487
Other expenses, net														(9,674	)
Benefit from income taxes														195
Loss from discontinued operations														(3,137	)
Net loss													$	(3,712	)
Capital expenditures(1)	$	3,570		$	514		$	5,216		$	2,090		$	12,297

	Nine Months Ended September 30, 2012
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Total revenues	$	43,094		$	20,968		$	41,644		$	37,414		$	143,120
Property operating expense		(10,294	)		(3,461	)		(9,219	)		(10,430	)		(33,404	)
Real estate taxes and insurance		(3,531	)		(3,326	)		(4,407	)		(3,077	)		(14,341	)
Total property operating income	$	29,269		$	14,181		$	28,018		$	23,907			95,375
Depreciation and amortization expense														(48,844	)
General and administrative														(17,787	)
Acquisition costs														(49	)
Impairment of real estate assets														(2,444	)
Contingent consideration related to acquisition of property														(112	)
Other expenses, net														(38,447	)
Benefit from income taxes														4,142
Loss from discontinued operations														(1,095	)
Net loss													$	(9,261	)
Total assets(2)(3)	$	497,966		$	313,513		$	459,153		$	365,687		$	1,714,237
Capital expenditures(1)	$	16,359		$	5,541		$	15,354		$	10,050		$	48,418
	Nine Months Ended September 30, 2011
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Total revenues	$	37,174		$	16,049		$	35,774		$	37,328		$	126,325
Property operating expense		(9,419	)		(3,211	)		(8,621	)		(9,470	)		(30,721	)
Real estate taxes and insurance		(3,450	)		(2,054	)		(3,598	)		(3,003	)		(12,105	)
Total property operating income	$	24,305		$	10,784		$	23,555		$	24,855			83,499
Depreciation and amortization expense														(44,911	)
General and administrative														(12,546	)
Acquisition costs														(4,475	)
Contingent consideration related to acquisition of property														1,487
Other expenses, net														(26,410	)
Benefit from income taxes														656
Loss from discontinued operations														(4,153	)
Net loss													$	(6,853	)
Total assets(2)(3)	$	467,101		$	320,102		$	416,347		$	365,398		$	1,673,783
Capital expenditures(1)	$	12,371		$	1,192		$	16,428		$	5,629		$	37,728

⁽¹⁾ Capital expenditures for corporate assets not allocated to any of our reportable segments totaled $174 and $907 for the three months ended September 30, 2012 and 2011, respectively, and $1,114 and $2,108 for the nine months ended September 30, 2012 and 2011, respectively.

⁽²⁾  Total assets include the Company’s investment in properties that are owned through joint ventures that are not consolidated within the Company’s condensed consolidated financial statements. For more information on the Company’s unconsolidated investments, including location within the Company’s reportable segments, see footnote 6, Investment in Affiliates.

⁽³⁾  Corporate assets not allocated to any of our reportable segments totaled $77,918 and $104,835 at September 30, 2012 and 2011, respectively.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Principles of Consolidation

(a) Principles of Consolidation

The unaudited condensed consolidated financial statements of the Company include the accounts of the Company, the Operating Partnership and the subsidiaries in which the Company or Operating Partnership has a controlling interest, which includes First Potomac Management LLC, a wholly-owned subsidiary that manages the majority of the Company’s properties. All intercompany balances and transactions have been eliminated in consolidation.

The Company has condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”) in the accompanying unaudited condensed consolidated financial statements. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011 and as updated from time to time in other filings with the Securities and Exchange Commission.

In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals necessary to present fairly the Company’s financial position as of September 30, 2012, the results of its operations and its comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 and its cash flows for the nine months ended September 30, 2012 and 2011. Interim results are not necessarily indicative of full-year performance due, in part, to the timing of transactions, costs associated with the Company’s internal investigation, and the impact of acquisitions and dispositions throughout the year as well as the seasonality of certain operating expenses such as utility expense and snow and ice removal costs.

Use of Estimates

(b) Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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 condensed 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; derivative valuations; 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.

Rental Property

(c) Rental Property

Rental property is initially recorded at fair value, if acquired in a business combination, or initial cost when constructed or acquired in an asset purchase, 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 Company regularly reviews market conditions for possible impairment of a property’s carrying value. When circumstances such as adverse market conditions, changes in management’s 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 property’s 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 less anticipated selling costs. 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 property’s carrying value and its projected sales price less any estimated costs to sell.

The Company will classify a building as held-for-sale in accordance with GAAP in the period in which it has made the decision to dispose of the building, the Company’s Board of Trustees or a designated delegate has approved the sale, there is a high likelihood a binding agreement to purchase the property will be signed under which the buyer will be required to commit 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. The Company will classify any impairment loss, together with the building’s 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 held-for-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 assigned 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, which include its investment in assets owned through unconsolidated joint ventures that are 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 and interest on the direct compensation costs of the Company’s construction personnel who manage the development and redevelopment projects, but only to the extent the employee’s time can be allocated to a project. Any portion of construction management costs not directly attributable to a specific project are recognized as general and administrative expense in the period incurred. The Company does not capitalize any other general administrative costs such as office supplies, office rent expense or an overhead allocation to its development or redevelopment projects. Capitalized compensation costs were immaterial for the three and nine months ended September 30, 2012 and 2011. 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. The Company will also place redevelopment and development assets in service at this time and commence depreciation upon the substantial completion of tenant improvements and the recognition of revenue. Capitalized interest is depreciated over the useful life of the underlying assets, commencing when those assets are placed into service.

Notes Receivable

(d) Notes Receivable

The Company provides loans to the owners of real estate properties, which can be collateralized by interest in the real estate property. The Company records these loans as “Notes receivable, net” in its consolidated balance sheets. The loans are recorded net of any discount or issuance costs, which are amortized over the life of the respective note receivable using the effective interest method. The Company records interest earned from notes receivable and amortization of any discount or issuance costs within “Interest and other income” in its consolidated statements of operations.

The Company will establish a provision for anticipated credit losses associated with its notes receivable and debt investments when it anticipates that it may be unable to collect any contractually due amounts. This determination is based upon such factors as delinquencies, loss experience, collateral quality and current economic or borrower conditions. The Company’s collectability of its notes receivable may be adversely impacted by the financial stability of the Washington, D.C. region and the ability of its underlying assets to keep current tenants or attract new tenants. Estimated losses are recorded as a charge to earnings to establish an allowance for credit losses that the Company estimates to be adequate based on these factors. Based on the review of the above criteria, the Company did not record an allowance for credit losses for its notes receivable during the three and nine months ended September 30, 2012 and 2011.

Reclassifications

(e) Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation, primarily as a result of reclassifying the operating results of several properties as discontinued operations. For more information, see footnote 7, Discontinued Operations.

XML

Fair Value Measurements - Fair Value of Debt Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financial Assets:
Carrying value of notes receivable	$ 54,713	$ 54,661
Fair value of notes receivable	55,000	55,000
Owings Mills Business Park [Member]
Financial Liabilities:
Buildings held for sale	4,000,000
Fair Value [Member]
Financial Assets:
Fair value of notes receivable	55,000	55,000
Financial Liabilities:
Fair value of the debt instruments	924,660	955,222
Fair Value [Member] | Mortgage debt [Member]
Financial Liabilities:
Fair value of the debt instruments	445,660	437,593
Fair Value [Member] | Series A senior notes [Member]
Financial Liabilities:
Fair value of the debt instruments		39,128
Fair Value [Member] | Series B senior notes [Member]
Financial Liabilities:
Fair value of the debt instruments		41,383
Fair Value [Member] | Secured term loans [Member]
Financial Liabilities:
Fair value of the debt instruments	20,000	29,990
Fair Value [Member] | Unsecured term loan [Member]
Financial Liabilities:
Fair value of the debt instruments	300,000	224,388
Fair Value [Member] | Unsecured revolving credit facility [Member]
Financial Liabilities:
Fair value of the debt instruments	159,000	182,740
Carrying Value [Member]
Financial Assets:
Carrying value of notes receivable	54,713	54,661
Financial Liabilities:
Carrying value of the debt instruments	916,014	945,023
Carrying Value [Member] | Mortgage debt [Member]
Financial Liabilities:
Carrying value of the debt instruments	437,014	432,023
Carrying Value [Member] | Series A senior notes [Member]
Financial Liabilities:
Carrying value of the debt instruments		37,500
Carrying Value [Member] | Series B senior notes [Member]
Financial Liabilities:
Carrying value of the debt instruments		37,500
Carrying Value [Member] | Secured term loans [Member]
Financial Liabilities:
Carrying value of the debt instruments	20,000	30,000
Carrying Value [Member] | Unsecured term loan [Member]
Financial Liabilities:
Carrying value of the debt instruments	300,000	225,000
Carrying Value [Member] | Unsecured revolving credit facility [Member]
Financial Liabilities:
Carrying value of the debt instruments	$ 159,000	$ 183,000

XML

Consolidated Statements of Cash Flows (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011 Property
Capitalized interest on indebtedness paid in cash	$ 2.1	$ 1.3
Number of operating partnership units redeemed	322,302	1,300
Aggregate purchase price		251.5
Mortgage debt, aggregate fair value		139.4
Issuance of operating partnership units in connection with acquisition		1,963,388
Operating partnership units, value		28.8
Consolidated properties and a land parcel, acquired		6
Remaining contingent consideration obligation	$ 0.7

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Allowance for doubtful accounts, accounts receivable and other	$ 2,471	$ 3,065
Allowance for doubtful accounts, Accrued straight-line rents	$ 444	$ 369
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000	50,000
Series A Preferred Shares, liquidation preference	$ 25	$ 25
Series A Preferred Shares, shares issued	6,400	6,400
Series A Preferred Shares, shares outstanding	4,600	4,600
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000	150,000
Common stock, shares issued	50,994	50,994
Common stock, shares outstanding	50,321	50,321

XML

Derivative Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments

(10) Derivative 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. 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. 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 Company’s 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 instrument’s applicable interest rate.

At September 30, 2012, the Company had fixed LIBOR at a weighted average interest rate of 1.5% on $350.0 million of its variable rate debt through twelve interest rate swap agreements that are summarized below (dollars in thousands):

Effective Date	Maturity Date	Amount		Interest Rate Contractual Component	Fixed LIBOR Interest Rate
January 2011	January 2014	$	50,000	LIBOR		1.474	%
July 2011	July 2016		35,000	LIBOR		1.754	%
July 2011	July 2016		25,000	LIBOR		1.7625	%
July 2011	July 2017		30,000	LIBOR		2.093	%
July 2011	July 2017		30,000	LIBOR		2.093	%
September 2011	July 2018		30,000	LIBOR		1.660	%
January 2012	July 2018		25,000	LIBOR		1.394	%
March 2012	July 2017		25,000	LIBOR		1.129	%
March 2012	July 2017		12,500	LIBOR		1.129	%
March 2012	July 2018		12,500	LIBOR		1.383	%
June 2012	July 2017		50,000	LIBOR		0.955	%
June 2012	July 2018		25,000	LIBOR		1.1349	%
			$350,000

The Company’s interest rate swap agreements are designated as cash flow hedges and the Company records any unrealized gains associated with the change in fair value of the swap agreements within “Accumulated other comprehensive loss” and “Prepaid expenses and other assets” and any unrealized losses within “Accumulated other comprehensive loss” and “Accounts payable and other liabilities” on its consolidated balance sheets. The Company records its proportionate share of any unrealized gains or losses on its cash flow hedges associated with its unconsolidated joint ventures within “Accumulated other comprehensive loss” and “Investment in affiliates” on its consolidated balance sheets. The Company records any cash received or paid as a result of each interest rate swap agreement’s fixed rate deviating from its respective loan’s contractual rate within “Interest expense” in its consolidated statements of operations. The Company did not have any ineffectiveness associated with its cash flow hedges during the three and nine months ended September 30, 2012 and 2011, which would have been recorded into earnings or losses, and does not expect any future ineffectiveness. Therefore, as of September 30, 2012, no amounts have been or are expected to be reclassified from “Accumulated other comprehensive loss” into earnings or losses.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 08, 2012
Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	FPO
Entity Registrant Name	FIRST POTOMAC REALTY TRUST
Entity Central Index Key	0001254595
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		51,073,399

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements

(11) Fair Value Measurements

The Company applies GAAP that outlines a valuation framework and create a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and a reporting entity’s own assumptions about market data (unobservable inputs). The required 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.

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 Company’s 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 Company’s consolidated assets and liabilities that are measured on a non-recurring and recurring basis as of September 30, 2012 and December 31, 2011 (amounts in thousands):

	Balance at September 30, 2012		Level 1		Level 2		Level 3
Non-recurring Measurements:
Impaired real estate assets	$	3,952	$	—	$	—	$	3,952
Recurring Measurements:
Derivative instrument-swap liabilities	$	12,536	$	—	$	12,536	$	—
Contingent consideration related to acquisition of:
Corporate Campus at Ashburn Center		1,560		—		—		1,560
840 First Street, NE		745		—		—		745

	Balance at December 31, 2011		Level 1		Level 2		Level 3
Non-recurring Measurements:
Impaired real estate assets	$	10,583	$	—	$	5,250	$	5,333
Recurring Measurements:
Derivative instrument-swap liabilities		6,129		—		6,129		—
Contingent consideration related to acquisition of:
Corporate Campus at Ashburn Center		1,448		—		—		1,448
840 First Street, NE		745		—		—		745

With the exception of its contingent consideration obligations, 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 three or nine months ended September 30, 2012 and 2011. Also, no transfers into and out of fair value measurements levels for assets or liabilities that are measured on a recurring basis occurred during the nine months ended September 30, 2012 and 2011.

Interest Rate Derivatives

The interest rate derivatives are fair valued based on prevailing market yield curves on the measurement date. The Company uses a third party to value 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 then compiled through a valuation process that generates daily valuations, which are used to value the Company’s interest rate swap agreements.

Contingent Consideration

The Company has classified its contingent consideration liabilities within “Accounts payable and other liabilities” and any changes in its fair value subsequent to their acquisition date valuation are charged to earnings.

On March 25, 2011, the Company acquired 840 First Street, NE, in Washington, D.C. for an aggregate purchase price of $90.0 million, with up to $10.0 million of additional consideration payable in Operating Partnership units upon the terms of a lease renewal by the building’s sole tenant or the re-tenanting of the property through November 2013. Based on assessment of the probability of renewal and anticipated lease rates, the Company recorded a contingent consideration obligation of $9.4 million at acquisition. In July 2011, the building’s sole tenant renewed its lease through August 2023 on the entire building with the exception of two floors. As a result, the Company issued 544,673 Operating Partnership units to satisfy $7.1 million of its contingent consideration obligation. The Company recognized a $1.5 million gain associated with the issuance of the additional units, which represented the difference between the contractual value of the units and the fair value of the units at the date of issuance. The fair value of the contingent consideration obligation was determined based on several probability weighted discounted cash flow scenarios that projected stabilization being achieved at certain timeframes. The fair value was based, in part, on significant inputs, which are not observable in the market, thus representing a Level 3 measurement in accordance with the fair value hierarchy. At September 30, 2012, the contingent consideration obligation was $0.7 million, which may result in the issuance of additional units depending on the leasing of any of the vacant space.

The Company has a contingent consideration obligation associated with the 2009 acquisition of Corporate Campus at Ashburn Center. As part of the acquisition price of Corporate Campus at 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 property’s operating performance and profitability. Since the Company uses discounted cash flows over a stabilization period to value its contingent consideration related to Ashburn Center, the determination of the fair value of contingent consideration performed in a subsequent period reflects a reduction in the period to achieve stabilization and an increase in the likelihood of reaching fulfillment of the obligation. As a result, the Company’s contingent consideration will immaterially increase over time. In the third quarter of 2012, the Company recorded a $0.1 million increase in its contingent consideration liability related to Ashburn Center, which reflected a reduction of the period to reach stabilization. The fair value was based, in part, on significant inputs, which are not observable in the market, thus representing a Level 3 measurement in accordance with the fair value hierarchy. At September 30, 2012, the contingent consideration obligation was $1.6 million.

Impairment of Real Estate Assets

The Company regularly reviews market conditions for possible impairment of a property’s carrying value. When circumstances such as adverse market conditions, changes in management’s intended holding period or potential sale to a third party indicate a possible impairment of a property, an impairment analysis is performed.

During the third quarter of 2012, the Company reduced its intended holding period for two buildings at its Owings Mills Business Park property, which is located in the Company’s Maryland reporting segment. Based on an analysis of the property’s anticipated cash flows over the Company’s reduced holding period for the property, the Company recorded a $0.5 million impairment charge in the third quarter of 2012. At September 30, 2012, the Company continued to classify two separate buildings at Owings Mills Business Park as held-for-sale. The Company recorded an impairment charge of $0.8 million in the first quarter of 2012 to reduce the property’s cost basis to its fair value. The Company continues to measure the two buildings at the lower of cost basis or fair value, which did not result in any additional impairment charges related to the two buildings during the three months ended September 30, 2012.

During the fourth quarter of 2011, the Company reduced its intended holding period for its Woodlands Business Center and Goldenrod Lane properties, which are both located in the Company’s Maryland reporting segment. Based on an analysis of each property’s cash flows over the Company’s reduced holding period for each respective property, the Company recorded impairment charges of $1.6 million and $0.9 million, respectively, in the fourth quarter of 2011. In April 2012, the Company entered into a binding contract to sell its Woodlands Business Center property and recorded an additional impairment charge of $0.2 million to reduce the Woodlands Business Center property’s carrying value to reflect its fair value, less anticipated selling costs at March 31, 2012. The Company sold both its Woodlands Business Center and Goldenrod Lane properties in May 2012 for total net proceeds of $5.5 million. The Company determined the fair value of the properties based on the execution of a contract to sell.

During the third quarter of 2011, the Company reduced its intended holding period for its Airpark Place Business Center property, which is located in its Maryland reporting segment. Based on an analysis of the property’s anticipated cash flows over the Company’s reduced holding period for the property, the Company recorded an impairment charge of $3.1 million in the third quarter of 2011. In January 2012, the Company entered into a binding contract to sell the property and recorded an impairment charge of $0.4 million to reduce the property’s carrying value to reflect its fair value, less anticipated selling costs at December 31, 2011. The property was sold in March 2012 for net proceeds of $5.2 million. The Company determined the fair value of the property based on the execution of a contract to sell.

Financial Instruments

The carrying amounts of cash equivalents, accounts and other receivables, accounts payable and other liabilities, with the exception of any items listed above, approximate their fair values due to their short-term maturities. The Company determines the fair value of its notes receivable and 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 Company deems the fair value measurement of its debt instruments as a Level 2 measurement as the Company uses quoted interest rates for similar debt instruments to value its debt instruments. The Company also uses quoted market interest rates to value its notes receivable, which the Company considers a Level 2 measurement as it does not believe notes receivable trade in an active market.

The carrying amount and estimated fair value of the Company’s notes receivable and debt instruments at September 30, 2012 and December 31, 2011 are as follows (amounts in thousands):

	September 30, 2012						December 31, 2011
	Carrying Value			Fair Value			Carrying Value		Fair Value
Financial Assets:
Notes receivable(1)	$	54,713		$	55,000		$	54,661	$	55,000
Financial Liabilities:
Mortgage debt	$	437,014	(2)	$	445,660	(2)	$	432,023	$	437,593
Series A senior notes(3)		—			—			37,500		39,128
Series B senior notes(3)		—			—			37,500		41,383
Secured term loans		20,000			20,000			30,000		29,990
Unsecured term loan		300,000			300,000			225,000		224,388
Unsecured revolving credit facility		159,000			159,000			183,000		182,740
Total	$	916,014		$	924,660		$	945,023	$	955,222

⁽¹⁾  The face value of the Company’s notes receivable was $55.0 million at September 30, 2012 and December 31, 2011.

⁽²⁾  Does not include a $5.2 million mortgage that encumbers four buildings at Owings Mill Business Park, which was classified within “Liabilities held for sale” on the Company’s consolidated balance sheet as of September 30, 2012. The mortgage was defeased in October 2012.

⁽³⁾  During the second quarter of 2012, the Company prepaid the entire $75.0 million principal amount outstanding under its Series A and Series B senior notes with borrowings under the Company’s unsecured revolving credit facility.

XML

Segment Information - Summary of Segment Information (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Capital expenditure for corporate assets not allocated to any reportable segments	$ 174	$ 907	$ 1,114	$ 2,108
Corporate assets not allocated to any reportable segments	$ 77,918	$ 104,835	$ 77,918	$ 104,835

XML

Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues:
Rental	$ 39,800	$ 35,729	$ 114,844	$ 101,810
Tenant reimbursements and other	8,821	8,899	28,276	24,515
Total revenues	48,621	44,628	143,120	126,325
Operating expenses:
Property operating	11,811	10,995	33,404	30,721
Real estate taxes and insurance	4,672	4,191	14,341	12,105
General and administrative	5,645	4,354	17,787	12,546
Acquisition costs	8	1,737	49	4,475
Depreciation and amortization	16,633	15,934	48,844	44,911
Impairment of real estate assets	496		2,444
Contingent consideration related to acquisition of property	112	(1,487)	112	(1,487)
Total operating expenses	39,377	35,724	116,981	103,271
Operating income	9,244	8,904	26,139	23,054
Other expenses, net:
Interest expense	10,555	11,126	32,654	30,066
Interest and other income	(1,522)	(1,533)	(4,529)	(3,768)
Equity in losses of affiliates	30	81	52	112
Gain on sale of investment	(2,951)		(2,951)
Loss on debt extinguishment			13,221
Total other expenses, net	6,112	9,674	38,447	26,410
Income (loss) from continuing operations before income taxes	3,132	(770)	(12,308)	(3,356)
Benefit from income taxes	4,304	195	4,142	656
Income (loss) from continuing operations	7,436	(575)	(8,166)	(2,700)
Discontinued operations:
Loss from operations	(1)	(3,137)	(1,256)	(6,107)
Gain on sale of real estate property			161	1,954
Loss from discontinued operations	(1)	(3,137)	(1,095)	(4,153)
Net income	7,435	(3,712)	(9,261)	(6,853)
Less: Net (income) loss attributable to noncontrolling interests	(232)	265	876	469
Net income (loss) attributable to First Potomac Realty Trust	7,203	(3,447)	(8,385)	(6,384)
Less: Dividends on preferred shares	(3,100)	(2,228)	(8,864)	(6,239)
Net income (loss) attributable to common shareholders	$ 4,103	$ (5,675)	$ (17,249)	$ (12,623)
Basic and diluted earnings per common share:
Income (loss) from continuing operations	$ 0.08	$ (0.05)	$ (0.33)	$ (0.19)
Loss from discontinued operations		$ (0.07)	$ (0.02)	$ (0.08)
Net income (loss)	$ 0.08	$ (0.12)	$ (0.35)	$ (0.27)
Weighted average common shares outstanding:
Basic	50,267	49,308	50,049	49,275
Diluted	50,346	49,308	50,049	49,275

XML

Notes Receivable

9 Months Ended

Sep. 30, 2012

Notes Receivable

(5) Notes Receivable

Below is a summary of the Company’s notes receivable at September 30, 2012 (dollars in thousands):

	Balance at September 30, 2012
Issued	Face Amount		Unamortized Origination Costs			Balance		Interest Rate			Property
December 2010	$	25,000	$	(180	)	$	24,820		12.5	%	950 F Street, NW
April 2011		30,000		(107	)		29,893		9.0	%	America’s Square
	$	55,000	$	(287	)	$	54,713
	Balance at December 31, 2011
Issued	Face Amount		Unamortized Origination Costs			Balance		Interest Rate			Property
December 2010	$	25,000	$	(211	)	$	24,789		12.5	%	950 F Street, NW
April 2011		30,000		(128	)		29,872		9.0	%	America’s Square
	$	55,000	$	(339	)	$	54,661

The Company recorded interest income of $1.5 million and $4.4 million for the three and nine months ended September 30, 2012, respectively, and $1.5 million and $3.6 million for the three and nine months ended September 30, 2011, respectively, related to its notes receivable.

The notes require monthly payments of interest to the Company. The Company recorded income from the amortization of origination costs of $17 thousand and $52 thousand for the three and nine months ended September 30, 2012, respectively, and $17 thousand and $44 thousand for the three and nine months ended September 30, 2011, respectively. The amortization of origination costs are recorded within “Interest and other income” in the Company’s consolidated statements of operations.

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Rental Property

9 Months Ended

Sep. 30, 2012

Rental Property

(4) Rental Property

Rental property represents property, net of accumulated depreciation, and developable land that are wholly-owned or owned by an entity in which the Company has a controlling interest. All of the Company’s rental properties are located within the greater Washington, D.C. region. Rental property consists of the following (amounts in thousands):

	September 30, 2012			December 31, 2011
Land and land improvements	$	386,546		$	384,409
Buildings and improvements		1,079,675			1,052,341
Construction in process		49,024			70,362
Tenant improvements		140,033			116,148
Furniture, fixtures and equipment		5,426			5,400
		1,660,704			1,628,660
Less: accumulated depreciation		(219,891	)		(188,999	)
	$	1,440,813		$	1,439,661

Development and Redevelopment Activity

The Company constructs office buildings, business parks and/or industrial buildings on a build-to-suit basis or with the intent to lease upon completion of construction. Also, the Company owns developable land that can accommodate 2.4 million square feet of additional building space. Below is a summary of the approximate building square footage that can be developed on the Company’s developable land and the Company’s current development and redevelopment activity as of September 30, 2012 (amounts in thousands):

Reporting Segment	Developable Square Feet		Square Feet Under Development		Cost to Date of Development Activities(1)		Square Feet Under Redevelopment		Cost to Date of Redevelopment Activities(1)
Washington, D.C.		713		—	$	—		135	$	8,683
Maryland		250		—		—		—		—
Northern Virginia		568		—		—		37		372
Southern Virginia		841		166		659		—		—
		2,372		166	$	659		172	$	9,055

⁽¹⁾  Costs to date amounts exclude tenant improvement and leasing commission costs, as well as the property’s original cost basis.

During the third quarter of 2012, the Company placed in-service redevelopment activities totaling 154,000 square feet in its Northern Virginia reporting segment that were completed at a cost of $11.5 million. No development activities were placed in-service during the third quarter of 2012.

At September 30, 2012, the Company had substantially completed redevelopment activities that have yet to be placed in service on 37,000 square feet, at a cost of $0.4 million, in its Northern Virginia reporting segment. The Company will place completed construction activities in service upon the shorter of a tenant taking occupancy or twelve months from substantial completion.

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Segment Information

9 Months Ended

Sep. 30, 2012

Segment Information

(16) Segment Information

The Company’s reportable segments consist of four distinct reporting and operational segments within the greater Washington D.C, region in which it operates: Maryland, Washington, D.C., Northern Virginia and Southern Virginia. 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.

The results of operations for the Company’s four reportable segments are as follows (dollars in thousands):

	Three Months Ended September 30, 2012
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Number of buildings		64			4			55			57			180
Square feet		3,816,878			666,714			3,655,536			5,649,203			13,788,331
Total revenues	$	13,720		$	6,977		$	15,246		$	12,678		$	48,621
Property operating expense		(3,470	)		(1,271	)		(3,286	)		(3,784	)		(11,811	)
Real estate taxes and insurance		(1,101	)		(1,053	)		(1,506	)		(1,012	)		(4,672	)
Total property operating income	$	9,149		$	4,653		$	10,454		$	7,882			32,138
Depreciation and amortization expense														(16,633	)
General and administrative														(5,645	)
Acquisition costs														(8	)
Impairment of real estate assets														(496	)
Contingent consideration related to acquisition of property														(112	)
Other expenses, net														(6,112	)
Benefit from income taxes														4,304
Loss from discontinued operations														(1	)
Net income													$	7,435
Capital expenditures(1)	$	3,328		$	3,836		$	2,877		$	3,214		$	13,429
	Three Months Ended September 30, 2011
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Number of buildings		67			4			55			57			183
Square feet		3,875,397			666,714			3,663,645			5,649,485			13,855,241
Total revenues	$	12,560		$	6,540		$	12,977		$	12,551		$	44,628
Property operating expense		(3,120	)		(1,344	)		(3,028	)		(3,503	)		(10,995	)
Real estate taxes and insurance		(1,174	)		(814	)		(1,198	)		(1,005	)		(4,191	)
Total property operating income	$	8,266		$	4,382		$	8,751		$	8,043			29,442
Depreciation and amortization expense														(15,934	)
General and administrative														(4,354	)
Acquisition costs														(1,737	)
Contingent consideration related to acquisition of property														1,487
Other expenses, net														(9,674	)
Benefit from income taxes														195
Loss from discontinued operations														(3,137	)
Net loss													$	(3,712	)
Capital expenditures(1)	$	3,570		$	514		$	5,216		$	2,090		$	12,297

	Nine Months Ended September 30, 2012
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Total revenues	$	43,094		$	20,968		$	41,644		$	37,414		$	143,120
Property operating expense		(10,294	)		(3,461	)		(9,219	)		(10,430	)		(33,404	)
Real estate taxes and insurance		(3,531	)		(3,326	)		(4,407	)		(3,077	)		(14,341	)
Total property operating income	$	29,269		$	14,181		$	28,018		$	23,907			95,375
Depreciation and amortization expense														(48,844	)
General and administrative														(17,787	)
Acquisition costs														(49	)
Impairment of real estate assets														(2,444	)
Contingent consideration related to acquisition of property														(112	)
Other expenses, net														(38,447	)
Benefit from income taxes														4,142
Loss from discontinued operations														(1,095	)
Net loss													$	(9,261	)
Total assets(2)(3)	$	497,966		$	313,513		$	459,153		$	365,687		$	1,714,237
Capital expenditures(1)	$	16,359		$	5,541		$	15,354		$	10,050		$	48,418
	Nine Months Ended September 30, 2011
	Maryland			Washington, D.C.			Northern Virginia			Southern Virginia			Consolidated
Total revenues	$	37,174		$	16,049		$	35,774		$	37,328		$	126,325
Property operating expense		(9,419	)		(3,211	)		(8,621	)		(9,470	)		(30,721	)
Real estate taxes and insurance		(3,450	)		(2,054	)		(3,598	)		(3,003	)		(12,105	)
Total property operating income	$	24,305		$	10,784		$	23,555		$	24,855			83,499
Depreciation and amortization expense														(44,911	)
General and administrative														(12,546	)
Acquisition costs														(4,475	)
Contingent consideration related to acquisition of property														1,487
Other expenses, net														(26,410	)
Benefit from income taxes														656
Loss from discontinued operations														(4,153	)
Net loss													$	(6,853	)
Total assets(2)(3)	$	467,101		$	320,102		$	416,347		$	365,398		$	1,673,783
Capital expenditures(1)	$	12,371		$	1,192		$	16,428		$	5,629		$	37,728

⁽¹⁾ Capital expenditures for corporate assets not allocated to any of our reportable segments totaled $174 and $907 for the three months ended September 30, 2012 and 2011, respectively, and $1,114 and $2,108 for the nine months ended September 30, 2012 and 2011, respectively.

⁽²⁾  Total assets include the Company’s investment in properties that are owned through joint ventures that are not consolidated within the Company’s condensed consolidated financial statements. For more information on the Company’s unconsolidated investments, including location within the Company’s reportable segments, see footnote 6, Investment in Affiliates.

⁽³⁾  Corporate assets not allocated to any of our reportable segments totaled $77,918 and $104,835 at September 30, 2012 and 2011, respectively.

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Equity

9 Months Ended

Sep. 30, 2012

Equity

(12) Equity

On August 10, 2012, the Company paid a dividend of $0.20 per common share to common shareholders of record as of August 3, 2012 and, on August 15, 2012, paid a dividend of $0.484375 per share to preferred shareholders of record as of August 3, 2012. On October 24, 2012, the Company declared a dividend of $0.20 per common share, equating to an annualized dividend of $0.80 per common share. The dividend will be paid on November 9, 2012 to common shareholders of record as of November 5, 2012. The Company also declared a dividend of $0.484375 per share on its Series A Preferred Shares. The dividend will be paid on November 15, 2012 to preferred shareholders of record as of November 2, 2012. Dividends on all non-vested share awards are recorded as a reduction of shareholders’ equity. For each dividend paid by the Company on its common and preferred shares, the Operating Partnership distributes an equivalent distribution on its common and preferred Operating Partnership units, respectively.

The Company’s unsecured revolving credit facility, unsecured term loan and secured term loan contain certain restrictions that include, among other things, requirements to maintain specified coverage ratios and other financial covenants, which may limit the Company’s ability to make distributions to its common and preferred shareholders. Further, distributions with respect to the Company’s common shares are subject to its ability to first satisfy its obligations to pay distributions to the holders of its Series A Preferred Shares.

As a result of the redemption feature of the Operating Partnership units requiring delivery of registered shares of the Company, the noncontrolling interests associated with the Operating Partnerhsip are recorded outside of permanent equity. The Company’s equity and redeemable noncontrolling interests are as follows (amounts in thousands):

	First Potomac Realty Trust			Non- redeemable noncontrolling interests		Total Equity			Redeemable noncontrolling interests
Balance at December 31, 2011	$	672,246		$	4,245	$	676,491		$	39,981
Net (loss) income		(8,385	)		68		(8,317	)		(944	)
Changes in ownership, net		49,846			8		49,854			(1,697	)
Distributions to owners		(38,943	)		—		(38,943	)		(1,639	)
Other comprehensive loss		(6,088	)		—		(6,088	)		(318	)
Balance at September 30, 2012	$	668,676		$	4,321	$	672,997		$	35,383

	First Potomac Realty Trust			Non- redeemable noncontrolling interests		Total Equity			Redeemable noncontrolling interests
Balance at December 31, 2010	$	614,983		$	3,077	$	618,060		$	16,122
Net loss		(6,384	)		7		(6,377	)		(476	)
Changes in ownership, net		115,315			2,153		117,468			25,096
Distributions to owners		(35,125	)		—		(35,125	)		(1,142	)
Other comprehensive income		(4,860	)		—		(4,860	)		(240	)
Balance at September 30, 2011	$	683,929		$	5,237	$	689,166		$	39,360

A summary of the Company’s accumulated other comprehensive loss is as follows (amounts in thousands):

	2012			2011
Beginning balance at January1,	$	(5,849	)	$	(545	)
Net loss on derivative instruments		(6,406	)		(5,100	)
Net loss attributable to noncontrolling interests		318			240
Ending balance at September 30,	$	(11,937	)	$	(5,405	)

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Debt

9 Months Ended

Sep. 30, 2012

Debt

(8) Debt

The Company’s borrowings consisted of the following (amounts in thousands):

	September 30, 2012			December 31, 2011
Mortgage loans, effective interest rates ranging from 4.40% to 7.29%, maturing at various dates through July 2022	$	442,267	(1)	$	432,023
Series A senior notes, effective interest rate of 6.41%(2)		—			37,500
Series B senior notes, effective interest rate of 6.55%(2)		—			37,500
Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014(3)(4)		20,000			30,000
Unsecured term loan, effective interest rates ranging from LIBOR plus 2.15% to LIBOR plus 2.30%, with staggered maturity dates ranging from July 2016 to July 2018(4)		300,000			225,000
Unsecured revolving credit facility, effective interest rate of LIBOR plus 2.50%, maturing January 2015(4)(5)		159,000			183,000
	$	921,267		$	945,023

⁽¹⁾ Includes a $5.2 million mortgage loan that was defeased in October 2012 and, at September 30, 2012, was classified within “Liabilities held for sale” on the Company’s consolidated balance sheet as of September 30, 2012.

⁽²⁾  On June 11, 2012, the Company prepaid the entire $75.0 million principal amount outstanding under its Series A and Series B senior notes with borrowings under the Company’s unsecured revolving credit facility.

⁽³⁾ On January 1, 2012, the loan’s applicable interest rate increased to LIBOR plus 4.50% and will increase to LIBOR plus 550 basis points in January 2013.

⁽⁴⁾ At September 30, 2012, LIBOR was 0.21%.

⁽⁵⁾  The unsecured revolving credit facility matures in January 2014 with a one-year extension at the Company’s option, which it intends to exercise.

(a) Mortgage Loans

The following table provides a summary of the Company’s mortgage debt at September 30, 2012 and December 31, 2011 (dollars in thousands):

Encumbered Property	Contractual Interest Rate			Effective Interest Rate			Maturity Date	September 30, 2012			December 31, 2011
Campus at Metro Park North(1)		7.11	%		5.25	%	February 2012	$	—		$	21,692
One Fair Oaks(2)		6.31	%		6.72	%	June 2012		—			52,604
1434 Crossways Blvd Building II(3)		7.05	%		5.38	%	August 2012		—			9,099
Crossways Commerce Center(4)		6.70	%		6.70	%	October 2012		23,361			23,720
Newington Business Park Center(4)		6.70	%		6.70	%	October 2012		14,736			14,963
Prosperity Business Center		6.25	%		5.75	%	January 2013		3,277			3,381
Cedar Hill		6.00	%		6.58	%	February 2013		15,516			15,838
Merrill Lynch Building		6.00	%		7.29	%	February 2013		13,364			13,571
1434 Crossways Blvd Building I		6.25	%		5.38	%	March 2013		7,724			7,943
Linden Business Center		6.01	%		5.58	%	October 2013		6,791			6,918
840 First Street, NE		5.18	%		6.05	%	October 2013		54,973			55,745
Owings Mills Business Center(5)		5.85	%		5.75	%	March 2014		—			5,338
Annapolis Business Center		5.74	%		6.25	%	June 2014		8,259			8,360
Cloverleaf Center(6)		6.75	%		6.75	%	October 2014		16,682			16,908
Plaza 500, Van Buren Office Park, Rumsey Center, Snowden Center, Greenbrier Technology Center II, Norfolk Business Center, Northridge and 15395 John Marshall Highway		5.19	%		5.19	%	August 2015		96,527			97,681
Hanover Business Center:
Building D		8.88	%		6.63	%	August 2015		424			520
Building C		7.88	%		6.63	%	December 2017		824			920
Chesterfield Business Center:
Buildings C,D,G and H		8.50	%		6.63	%	August 2015		1,122			1,369
Buildings A,B,E and F		7.45	%		6.63	%	June 2021		2,105			2,235
Mercedes Center– Note 1(6)		4.67	%		6.04	%	January 2016		4,686			4,713
Mercedes Center – Note 2(6)		6.57	%		6.30	%	January 2016		9,554			9,722
Gateway Centre Manassas Building I		7.35	%		5.88	%	November 2016		880			1,016
Hillside Center		5.75	%		4.62	%	December 2016		13,838			14,122
Redland Corporate Center		4.20	%		4.64	%	November 2017		68,400			—
500 First Street, NW		5.72	%		5.79	%	July 2020		37,869			38,277
Battlefield Corporate Center		4.26	%		4.40	%	November 2020		4,040			4,149
Airpark Business Center		7.45	%		6.63	%	June 2021		1,148			1,219
1211 Connecticut Avenue, NW		4.22	%		4.47	%	July 2022		30,914			—
					5.58	%(7)			437,014			432,023
Unamortized fair value adjustments									(714	)		(1,147	)
Principal balance									436,300			430,876
Owings Mills Business Center(5)									5,253			—
Unamortized fair value adjustments – Owings Mills Business Center(5)									(7	)		—
Total Principal balance								$	441,546		$	430,876

⁽¹⁾ The loan was repaid in February 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽²⁾ The loan was repaid in June 2012 with the issuance of a $40.0 million senior secured term loan, which was subsequently repaid in late June 2012, and borrowings under the Company’s unsecured revolving credit facility.

⁽³⁾  The loan was repaid in August 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽⁴⁾ The loan was repaid on October 1, 2012 with borrowings under the Company’s unsecured revolving credit facility.

⁽⁵⁾ On October 16, 2012, the Company used $5.7 million of available cash to defease the mortgage loan encumbering Owings Mills Business Park. At September 30, 2012, the Company classified the mortgage loan within “Liabilities held for sale” on its consolidated balance sheets.

⁽⁶⁾  Of the mortgage loan totals, $3.5 million encumbered by Cloverleaf Center and $5.0 million encumbered by Mercedes Center are recourse to the Company.

⁽⁷⁾  Weighted average interest rate on total mortgage debt.

On October 17, 2012, the Company placed a $22.0 million mortgage loan on 1005 First Street, NE, a consolidated joint venture in which the Company has a 97% ownership interest. The mortgage loan incurs interest at a variable rate of LIBOR plus a spread of 2.75% (with a floor of 5.0%) and matures in October 2014, with a one-year extension at the Company’s option. The Company used a portion of its share of the proceeds from the mortgage loan to pay down $16.0 million of the outstanding balance under the unsecured revolving credit facility.

(b) Term Loans

Unsecured Term Loan

The table below shows the outstanding balances of the three tranches of the $300.0 million unsecured term loan at September 30, 2012 (dollars in thousands):

	Maturity Date		Amount		Interest Rate(1)
Tranche A		July 2016	$	60,000	LIBOR, plus 215 basis points
Tranche B		July 2017		147,500	LIBOR, plus 225 basis points
Tranche C		July 2018		92,500	LIBOR, plus 230 basis points
			$	300,000

⁽¹⁾  Each interest rate spread will increase by 25 basis points on December 1, 2012 due to the Company’s leverage ratio at September 30, 2012. For more information, see footnote 8(e) Debt – Financial Covenants.

The term loan agreement contains various restrictive covenants substantially similar to those contained in the Company’s unsecured revolving credit facility, including with respect to liens, indebtedness, investments, distributions, mergers and asset sales. In addition, the agreement requires that the Company satisfy certain financial covenants that are also substantially similar to those contained in the Company’s unsecured revolving credit facility. The agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the agreement to be immediately due and payable.

Secured Term Loan

Of the $20.0 million balance outstanding on the Company’s secured term loan at September 30, 2012, $10.0 million matures in January 2013 and $10.0 million matures in January 2014. At September 30, 2012, the loan’s applicable interest rate was LIBOR plus 450 basis points, which will increase to 550 basis points in January 2013. The Company’s secured term loan contains several restrictive covenants, which in the event of non-compliance may cause the outstanding balance of the loan and accrued interest to become immediately due and payable.

(c) Unsecured Revolving Credit Facility

During the third quarter of 2012, the Company repaid $91.0 million of the outstanding balance of its unsecured revolving credit facility with proceeds from the issuance of a $68.4 million mortgage loan encumbering Redland Corporate Center and the sale of the Company’s 95% interest in an unconsolidated joint venture. During the third quarter of 2012, the Company borrowed $26.0 million under its unsecured revolving credit facility to repay a mortgage loan and for general corporate purposes. For the three and nine months ended September 30, 2012, the Company’s weighted average borrowings on its unsecured revolving credit facility were $227.4 million and $174.1 million, respectively, with a weighted average interest rate of 2.9% for both periods, compared with weighted average borrowings of $133.9 million and $133.3 million with a weighted average interest rate of 2.7% and 3.0% for the three and nine months ended September 30, 2011, respectively. The Company’s maximum outstanding borrowings were $250.0 million for both the three and nine months ended September 30, 2012 compared with maximum outstanding borrowings of $189.0 million and $191.0 million for the three and nine months ended September 30, 2011, respectively. At September 30, 2012, outstanding borrowings under the unsecured revolving credit facility were $159.0 million with a weighted average interest rate of 2.7%. 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. At September 30, 2012, the available capacity under the unsecured revolving credit facility was $27.8 million.

(d) Interest Rate Swap Agreements

At September 30, 2012, the Company had fixed LIBOR, at a weighted average interest rate of 1.5%, on $350.0 million of its variable rate debt through twelve interest rate swap agreements. See footnote 10, Derivative Instruments, for more information about the Company’s interest rate swap agreements.

(e) Financial Covenants

The Company’s 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 Company’s allowable leverage, minimum tangible net worth, fixed charge coverage and other financial metrics. As of September 30, 2012, the Company was in compliance with the covenants of its unsecured term loan, secured term loan and unsecured revolving credit facility.

As previously disclosed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, on May 10, 2012, the Company and its bank lenders amended the Company’s unsecured revolving credit facility, unsecured term loan and secured loan (together, the “Bank Debt”) to, among other things, revise certain financial and other covenants that provided additional operating flexibility for the Company to execute its business strategy and clarify the treatment of certain covenant compliance-related definitions. In addition, the unsecured revolving credit facility and the unsecured term loan were amended to give the lenders the right, at their option, to record mortgages on substantially all of the Company’s unencumbered properties, which they have not yet elected to do as of the date of this Quarterly Report on Form 10-Q. The unsecured term loan was also amended to convert the facility from a fixed interest rate spread over LIBOR to an interest rate spread that floats based on the Company’s leverage levels. The floating rate spread increased the pricing of the unsecured term loan by 25 basis points and can increase by an additional 25 basis points to the extent the Company’s leverage levels increase further or can revert to the original pricing if the Company’s leverage ratio improves. As a result of the Company’s leverage ratio at June 30, 2012, the applicable interest rate spread on the Company’s unsecured revolving credit facility and unsecured term loan decreased by 25 basis points on September 1, 2012, but will increase by 25 basis points on December 1, 2012 due to the Company’s leverage ratio at September 30, 2012.

The Company’s continued ability to borrow under the unsecured revolving credit facility is subject to compliance with financial and operating covenants, and a failure to comply with any of these covenants could result in a default under the credit facility. These debt agreements also contain cross-default provisions that would be triggered if the Company is in default under other loans, including mortgage loans, in excess of certain amounts. In the event of a default, the lenders could accelerate the timing of payments under the debt obligations and the Company may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on the Company’s liquidity, financial condition, results of operations and ability to make distributions to our shareholders.

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Debt - Additional Information (Detail) (USD $)	1 Months Ended		3 Months Ended		9 Months Ended				9 Months Ended						9 Months Ended			9 Months Ended
	Sep. 30, 2012 Derivative	Aug. 24, 2012	Sep. 30, 2012 Derivative	Sep. 30, 2011	Sep. 30, 2012 BasisPoint Derivative	Sep. 30, 2011	Dec. 31, 2011	Sep. 30, 2012 Redland Corporate Center [Member]	Sep. 30, 2012 Joint Venture [Member]	Dec. 01, 2012 Subsequent Event [Member]	Sep. 30, 2012 Term Loan [Member]	Sep. 30, 2012 Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014 [Member]	Dec. 31, 2011 Secured term loan, effective interest rate of LIBOR plus 4.50%, with maturity dates in January 2013 and January 2014 [Member]	Sep. 30, 2012 Term Loan [Member]	Sep. 30, 2012 Term Loan [Member] Minimum [Member]	Sep. 30, 2012 Term Loan [Member] Maximum [Member]	Sep. 30, 2012 Interest Rate Swap [Member]	Sep. 30, 2012 Financial Covenants [Member] BasisPoint
Debt Instrument [Line Items]
Mortgage loan	$ 442,267,000		$ 442,267,000		$ 442,267,000		$ 432,023,000	$ 68,400,000	$ 22,000,000
Ownership interest in joint venture									97.00%
Variable interest rate of LIBOR plus spread of mortgage loan									2.75%
LIBOR interest rate floor of mortgage loan									5.00%
Extension period option	1 year		1 year		1 year				1 year
Repayment of outstanding balance under the unsecured revolving credit facility					16,000,000
Outstanding balance of three tranches	300,000,000		300,000,000		300,000,000		225,000,000				300,000,000
Mortgage loans	20,000,000		20,000,000		20,000,000		30,000,000					20,000,000	30,000,000
Amount of each installments														10,000,000
Debt instrument second annual principal payment														10,000,000
Interest at LIBOR plus basis points															45000.00%	55000.00%
Repayment of unsecured revolving credit facility			91,000,000
sale of ownership interest in unconsolidated joint venture		95.00%	95.00%
Unsecured revolving credit facility borrowed	159,000,000		159,000,000		159,000,000		183,000,000
Weighted average borrowings outstanding on unsecured revolving credit facility			227,400,000	133,900,000	174,100,000	133,300,000
Weighted average interest rate			2.90%	2.70%	2.90%	3.00%
Maximum outstanding borrowings			250,000,000	189,000,000	250,000,000	191,000,000
Unsecured revolving credit facility	159,000,000		159,000,000		159,000,000
Weighted average interest rate	2.70%		2.70%		2.70%
Annual commitment fee					0.25%
Available capacity on the unsecured revolving credit facility	27,800,000		27,800,000		27,800,000
Weighted average rate amount on variable rate debt	$ 350,000,000		$ 350,000,000		$ 350,000,000												$ 350,000,000
Fixed Effective Interest Rate	1.50%		1.50%		1.50%												1.50%
Number of interest rate swap agreements	12,000,000		12,000,000		12,000,000
Change in debt instrument basis points	(2500.00%)				2500.00%													2500.00%
Change in debt instrument basis points										2500.00%								2500.00%

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Investment in Affiliates

9 Months Ended

Sep. 30, 2012

Investment in Affiliates

(6) Investment in Affiliates

The Company owns an interest in several properties in which it does not control the activities that are most significant to the operations of the properties. As a result, the assets, liabilities and operating results of these noncontrolled properties are not consolidated within the Company’s condensed consolidated financial statements. The Company’s investment in these properties is recorded as “Investment in affiliates” in its consolidated balance sheets. The Company’s investment in affiliates consisted of the following at September 30, 2012 (dollars in thousands):

	Reporting Segment	Ownership Interest			Company Investment
Metro Place III & IV	Northern Virginia		51	%	$	27,194
1750 H Street, NW	Washington, D.C.		50	%		16,169
Aviation Business Park	Maryland		50	%		4,748
RiversPark I and II	Maryland		25	%		3,002
					$	51,113

On August 24, 2012, the Company sold its 95% interest in an unconsolidated joint venture that owned an office building at 1200 17th street, NW in Washington D.C. for $43.7 million, which, after repayment of the mortgage loan encumbering the property, resulted in net proceeds to the Company of $25.7 million. The Company purchased its 95% interest in the joint venture in October 2011 for $37.7 million. After acquisition, the joint venture encumbered the property with a $20.0 million mortgage loan. The Company used the net proceeds from the sale, together with available cash, to repay $26.0 million of the outstanding balance under its unsecured revolving credit facility. During the third quarter of 2012, the Company recorded a $3.0 million gain on the sale of its 95% interest in the unconsolidated joint venture as “Gain on sale of investment” in its consolidated statements of operations.

The net assets of the Company’s unconsolidated joint ventures consisted of the following (amounts in thousands):

	September 30, 2012		December 31, 2011
Assets:
Rental property, net	$	199,379	$	242,767
Cash and cash equivalents		5,547		4,009
Other assets		18,659		22,734
Total assets		223,585		269,510
Liabilities:
Mortgage loans(1)		110,175		132,370
Other liabilities		6,537		7,207
Total liabilities		116,712		139,577
Net assets	$	106,873	$	129,933

⁽¹⁾  Of the total mortgage debt that encumbers the Company’s unconsolidated properties, $7.0 million is recourse to the Company. Management believes the fair value of the potential liability to the Company is inconsequential as the likelihood of the Company’s need to perform under the debt agreement is remote.

The Company’s 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.” From the time of the acquisition of 1200 17^th Street, NW in October 2011 to its sale in August 2012, the Company had placed the property under development. The following table summarizes the results of operations of the Company’s unconsolidated joint ventures, which due to its varying ownership interests in the joint ventures and the varying operations of the joint ventures may or may not be reflective of the amounts recorded in its consolidated statements of operations (amounts in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Total revenues	$	6,254		$	2,896		$	18,575		$	8,860
Total operating expenses		(1,883	)		(995	)		(5,459	)		(2,917	)
Net operating income		4,371			1,901			13,116			5,943
Depreciation and amortization		(3,174	)		(1,274	)		(9,510	)		(3,835	)
Other expenses, net		(1,070	)		(854	)		(3,235	)		(2,429	)
Net income (loss)	$	127		$	(227	)	$	371		$	(321	)

The Company earns various fees from several of its unconsolidated joint ventures, which include management fees, leasing commissions and construction management fees. The Company recognizes fees only to the extent of the third party ownership interest in its unconsolidated joint ventures. The Company recognized fees from its unconsolidated joint ventures of $125 thousand and $325 thousand for the three and nine months ended September 30, 2012, respectively, and $48 thousand and $148 thousand for the three and nine months ended September 30, 2011, respectively.

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Discontinued Operations

9 Months Ended

Sep. 30, 2012

Discontinued Operations

(7) Discontinued Operations

On November 7, 2012, the Company sold two buildings at Owings Mills Business Park, a six-building, 219,300 square foot business park in Owings Mills, Maryland for net proceeds of $3.5 million. On October 16, 2012, the Company used available cash of $5.7 million as a defeasance payment for the mortgage loan encumbering four buildings at Owings Mills Business Park, including the two buildings that were sold on November 7, 2012. At September 30, 2012, the Company continued to classify the two buildings that were sold at Owings Mills Business Park as held-for-sale (the Company’s criteria for determining if a property is classified as held-for-sale is described in footnote 2(c), Rental Property) and, therefore, the assets of the two buildings were classified within “Assets held-for-sale” and the liabilities of the two buildings, along with the entire mortgage loan that was defeased, were classified within “Liabilities held-for-sale” in the Company’s consolidated balance sheets. During the first quarter of 2012, the Company incurred a $0.8 million impairment charge on the two buildings that were sold, which reduced the carrying amount of the buildings to their fair value, less selling costs. The Company incurred a $0.5 million charge in the fourth quarter of 2012 related to its defeasement of the mortgage loan.

The following table is a summary of property dispositions whose operating results are reflected as discontinued operations in the Company’s consolidated statements of operations for the periods presented:

	Reporting Segment	Disposition Date		Property Type	Square Feet
Owings Mills Business Park(1)	Maryland		11/7/2012	Business Park		38,779
Goldenrod Lane	Maryland		5/31/2012	Office		23,518
Woodlands Business Center	Maryland		5/8/2012	Office		37,887
Airpark Place Business Center	Maryland		3/22/2012	Business Park		82,429
Aquia Commerce Center I & II	Northern Virginia		6/22/2011	Office		64,488
Gateway West	Maryland		5/27/2011	Office		111,481
Old Courthouse Square	Maryland		2/18/2011	Retail		201,208

⁽¹⁾  Represents two buildings, of the six building, 219,284 square foot business park, that were held-for-sale at September 30, 2012.

The Company has had, and will have, no continuing involvement with any of its disposed properties subsequent to their disposal. The operations of the disposed properties were not subject to any income based taxes for the periods presented. The Company did not dispose of or enter into any binding agreements to sell any other properties during the nine months ended September 30, 2012 and 2011.

The following table summarizes the components of net income (loss) from discontinued operations for the periods presented (amounts in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	130		$	486		$	686		$	2,531
Net loss, before taxes		(1	)		(3,137	)		(1,256	)		(6,107	)
Gain on sale of real estate property		—			—			161			1,954

There were no impairment charges included within discontinued operations for the three months ended September 30, 2012. The Company’s discontinued operations include impairment charges of $1.1 million for the nine months ended September 30, 2012 and $3.1 million and $5.8 million for the three and nine months ended September 30, 2011, respectively.

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

(9) Income Taxes

The Company owns properties located in Washington, D.C. that are subject to local income based franchise taxes at an effective rate of 9.975%. During the three and nine months ended September 30, 2012, the Company recognized a benefit from income taxes of $4.3 million and $4.1 million, respectively, and recognized a benefit from income taxes of $0.2 million and $0.7 million during the three and nine months ended September 30, 2011, respectively. The Company also has an interest in an unconsolidated joint venture that owns real estate in Washington, D.C. that is subject to the franchise tax. On August 24, 2012, the Company sold its 95% interest in an unconsolidated joint venture that owned an office building at 1200 17^th Street, NW in Washington, D.C., which had been subject to the franchise tax. The impact for income taxes related to these unconsolidated joint ventures is reflected within “Equity in losses of affiliates” in the Company’s consolidated statements of operations.

During the third quarter of 2012, there was a change in tax regulations in the District of Columbia that requires the Company to file a unitary tax return, which allows for a deduction for dividends paid to shareholders. The change in tax regulations resulted in the Company measuring all of its deferred tax assets and deferred tax liabilities using the effective tax rate expected to be in effect as these timing differences reverse. The Company also recorded a $1.0 million receivable for an expected tax refund associated with 2011 and the estimated payments made through September 30, 2012 arising from the change in regulations in its third quarter results. The Company recorded the $1.0 million receivable within “Accounts and other receivables” in its consolidated balance sheets at September 30, 2012. At December 31, 2011, the Company had deferred tax assets totaling $1.4 million recorded within “Prepaid expenses and other assets” and deferred tax liabilities totaling $5.0 million recorded within “Accounts payable and other liabilities” in the Company’s consolidated balance sheets.

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.

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Derivative Instruments - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012 Derivative
Derivatives, Fair Value [Line Items]
Fixed Effective Interest Rate	1.50%
Weighted average rate amount on variable rate debt	$ 350.0
Number of interest rate swaps	12,000,000

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Fair Value Measurements - Fair Value of Assets and Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2011	Sep. 30, 2012 Fair Value Measurements, Non-recurring [Member]	Dec. 31, 2011 Fair Value Measurements, Non-recurring [Member]	Sep. 30, 2012 Fair Value Measurements, Recurring [Member]	Dec. 31, 2011 Fair Value Measurements, Recurring [Member]	Sep. 30, 2012 Corporate Campus at Ashburn Center [Member] Fair Value Measurements, Recurring [Member]	Dec. 31, 2011 Corporate Campus at Ashburn Center [Member] Fair Value Measurements, Recurring [Member]	Mar. 25, 2011 840 First Street, NE [Member]	Sep. 30, 2012 840 First Street, NE [Member] Fair Value Measurements, Recurring [Member]	Dec. 31, 2011 840 First Street, NE [Member] Fair Value Measurements, Recurring [Member]	Dec. 31, 2011 Level 2 Fair Value Measurements, Non-recurring [Member]	Dec. 31, 2011 Level 2 Fair Value Measurements, Recurring [Member]	Sep. 30, 2012 Level 2 Corporate Campus at Ashburn Center [Member] Fair Value Measurements, Recurring [Member]	Sep. 30, 2012 Level 3 Fair Value Measurements, Non-recurring [Member]	Dec. 31, 2011 Level 3 Fair Value Measurements, Non-recurring [Member]	Sep. 30, 2012 Level 3 Fair Value Measurements, Recurring [Member]	Dec. 31, 2011 Level 3 Corporate Campus at Ashburn Center [Member] Fair Value Measurements, Recurring [Member]	Sep. 30, 2012 Level 3 840 First Street, NE [Member] Fair Value Measurements, Recurring [Member]	Dec. 31, 2011 Level 3 840 First Street, NE [Member] Fair Value Measurements, Recurring [Member]
Non-recurring Measurements:
Impaired real estate assets		$ 3,952	$ 10,583								$ 5,250			$ 3,952	$ 5,333
Recurring Measurements:
Derivative instrument-swap liabilities					6,129	12,536						6,129	12,536
Contingent consideration recorded at acquisition	$ 745			$ 745			$ 1,448	$ 9,400	$ 1,560	$ 745						$ 745	$ 1,448	$ 1,560	$ 745

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Income Taxes - Additional Information (Detail) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended
	Aug. 24, 2012	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Income Tax Contingency [Line Items]
Benefit from income taxes		$ 4,304,000	$ 195,000	$ 4,142,000	$ 656,000
sale of ownership interest in unconsolidated joint venture	95.00%	95.00%
Deferred tax assets						1,400,000
Deferred tax liabilities						5,000,000
Tax refund receivable						1,000,000
Accounts and other receivables		$ 1,000,000		$ 1,000,000
Washington, D.C. [Member]
Income Tax Contingency [Line Items]
Franchise taxes effective rate		9.975%		9.975%

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Equity (Tables)

9 Months Ended

Sep. 30, 2012

Company's Allocation Between Non-controlling Interests

The Company’s equity and redeemable noncontrolling interests are as follows (amounts in thousands):

	First Potomac Realty Trust			Non- redeemable noncontrolling interests		Total Equity			Redeemable noncontrolling interests
Balance at December 31, 2011	$	672,246		$	4,245	$	676,491		$	39,981
Net (loss) income		(8,385	)		68		(8,317	)		(944	)
Changes in ownership, net		49,846			8		49,854			(1,697	)
Distributions to owners		(38,943	)		—		(38,943	)		(1,639	)
Other comprehensive loss		(6,088	)		—		(6,088	)		(318	)
Balance at September 30, 2012	$	668,676		$	4,321	$	672,997		$	35,383

	First Potomac Realty Trust			Non- redeemable noncontrolling interests		Total Equity			Redeemable noncontrolling interests
Balance at December 31, 2010	$	614,983		$	3,077	$	618,060		$	16,122
Net loss		(6,384	)		7		(6,377	)		(476	)
Changes in ownership, net		115,315			2,153		117,468			25,096
Distributions to owners		(35,125	)		—		(35,125	)		(1,142	)
Other comprehensive income		(4,860	)		—		(4,860	)		(240	)
Balance at September 30, 2011	$	683,929		$	5,237	$	689,166		$	39,360

Company's Accumulated Other Comprehensive Loss

A summary of the Company’s accumulated other comprehensive loss is as follows (amounts in thousands):

	2012			2011
Beginning balance at January1,	$	(5,849	)	$	(545	)
Net loss on derivative instruments		(6,406	)		(5,100	)
Net loss attributable to noncontrolling interests		318			240
Ending balance at September 30,	$	(11,937	)	$	(5,405	)

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Investment in Affiliates - Results of Operations of Company's Unconsolidated Joint Ventures (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Schedule of Equity Method Investments [Line Items]
Total revenues	$ 48,621	$ 44,628	$ 143,120	$ 126,325
Total operating expenses	(39,377)	(35,724)	(116,981)	(103,271)
Operating income	9,244	8,904	26,139	23,054
Depreciation and amortization	(16,633)	(15,934)	(48,844)	(44,911)
Total Other expenses, net	(6,112)	(9,674)	(38,447)	(26,410)
Net income (loss)	(30)	(81)	(52)	(112)
Unconsolidated Joint Ventures [Member]
Schedule of Equity Method Investments [Line Items]
Total revenues	6,254	2,896	18,575	8,860
Total operating expenses	(1,883)	(995)	(5,459)	(2,917)
Operating income	4,371	1,901	13,116	5,943
Depreciation and amortization	(3,174)	(1,274)	(9,510)	(3,835)
Total Other expenses, net	(1,070)	(854)	(3,235)	(2,429)
Net income (loss)	$ 127	$ (227)	$ 371	$ (321)

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Share-Based Compensation

9 Months Ended

Sep. 30, 2012

Share-Based Compensation

(14) Share-Based Compensation

The Company records costs related to its share-based compensation based on the grant-date fair value calculated in accordance with GAAP. 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 within “General and administrative expense” or “Property operating expense” in the Company’s consolidated statements of operations based on the employee’s job function.

Option Exercises

The Company received approximately $29 thousand and $24 thousand from the exercise of stock options during the three months ended September 30, 2012 and 2011, respectively, and $56 thousand and $88 thousand for the nine months ended September 30, 2012 and 2011, respectively. Shares issued as a result of stock option exercises are funded through the issuance of new shares. The total intrinsic value of options exercised during both the three months ended September 30, 2012 and 2011 was $10 thousand, and was $20 thousand and $45 thousand for the nine months ended September 30, 2012 and 2011, respectively.

Non-vested share awards

The Company issues non-vested share awards that either vest over a specific time period that is identified at the time of issuance or vest upon the achievement of specific performance goals that are identified at the time of issuance. The Company issues new shares, subject to restrictions, upon each grant of non-vested share awards.

The Company recognized $0.7 million and $0.5 million of compensation expense associated with its non-vested share awards during the three months ended September 30, 2012 and 2011, respectively, and $1.9 million and $1.8 million during the nine months ended September 30, 2012 and 2011, respectively. Non-vested share-based compensation expense for the three months ended September 30, 2012, included $0.2 million of expense related to the issuance of share awards, which was partially offset by the forfeiture of certain non-vested awards, as part of a severance agreement for a former officer of the Company. Dividends on all non-vested share awards are recorded as a reduction of equity.

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Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Computation of Company's Basic and Diluted Earnings Per Share

The following table sets forth the computation of the Company’s basic and diluted earnings per common share (amounts in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Numerator for basic and diluted earnings per common share:
Income (loss) from continuing operations	$	7,436		$	(575	)	$	(8,166	)	$	(2,700	)
Loss from discontinued operations		(1	)		(3,137	)		(1,095	)		(4,153	)
Net income (loss)		7,435			(3,712	)		(9,261	)		(6,853	)
Less: Net (income) loss from continuing operations attributable to noncontrolling interests		(280	)		118			816			336
Less: Net (income) loss from discontinued operations attributable to noncontrolling interests		48			147			60			133
Net income (loss) attributable to First Potomac Realty Trust		7,203			(3,447	)		(8,385	)		(6,384	)
Less: Dividends on preferred shares		(3,100	)		(2,228	)		(8,864	)		(6,239	)
Net income (loss) available to common shareholders		4,103			(5,675	)		(17,249	)		(12,623	)
Less: Allocation to participating securities		(162	)		(150	)		(468	)		(442	)
Net income (loss) attributable to common shareholders	$	3,941		$	(5,825	)	$	(17,717	)	$	(13,065	)
Denominator for basic and diluted earnings per common share:
Weighted average common shares outstanding:
Basic		50,267			49,308			50,049			49,275
Diluted		50,346			49,308			50,049			49,275
Basic and diluted earnings per common share:
Income (loss) from continuing operations	$	0.08		$	(0.05	)	$	(0.33	)	$	(0.19	)
Loss from discontinued operations		—			(0.07	)		(0.02	)		(0.08	)
Net income (loss)	$	0.08		$	(0.12	)	$	(0.35	)	$	(0.27	)

Anti-Dilutive Shares Not Included in Calculation of Diluted Earnings Per Share

In accordance with GAAP regarding earnings per common share, the Company did not include the following potential common shares in its calculation of diluted earnings per common share as they are anti-dilutive for the periods presented (amounts in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock option awards		1,451		903		1,473		907
Non-vested share awards		428		388		454		406
Conversion of exchangeable senior notes(1)		—		854		—		854
Series A Preferred Shares(2)		13,067		8,303		11,816		7,636
		14,946		10,448		13,743		9,803

⁽¹⁾ On December 15, 2011, the Company repaid the outstanding balance of $30.4 million on its exchangeable senior notes. At September 30, 2011, each $1,000 principal amount of the exchangeable senior notes was convertible into 28.039 common shares.

⁽²⁾ The Company’s Series A Preferred Shares, which have a $25 per share liquidation value, are only convertible into the Company’s common shares upon certain changes in control of the Company. The dilutive shares are calculated as the daily average of the face value of the Series A Preferred Shares divided by the outstanding common share price. In March 2012, the Company issued an additional 1.8 million Series A Preferred Shares. As of September 30, 2012, the Company had a total of 6.4 million Series A Preferred Shares outstanding.

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Investment in Affiliates - Net Assets of Company's Unconsolidated Joint Ventures (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Dec. 31, 2010
Assets:
Rental property, net	$ 1,440,813	$ 1,439,661
Cash and cash equivalents	12,040	16,749	14,646	33,280
Total assets	1,714,237	1,739,752	1,673,783
Liabilities:
Mortgage loans(1)	20,000	30,000
Total liabilities	1,005,857	1,023,280
Unconsolidated Joint Ventures [Member]
Assets:
Rental property, net	199,379	242,767
Cash and cash equivalents	5,547	4,009
Other assets	18,659	22,734
Total assets	223,585	269,510
Liabilities:
Mortgage loans(1)	110,175	132,370
Other liabilities	6,537	7,207
Total liabilities	116,712	139,577
Net assets	$ 106,873	$ 129,933

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Earnings Per Common Share - Anti-Dilutive Shares Not Included In Calculation of Diluted Earnings per Share (Parenthetical) (Detail) (USD $)	1 Months Ended	9 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Sep. 30, 2012	Mar. 12, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Repayment of Outstanding Balance on Exchangeable Senior Notes	$ 30,400,000
Specified number of shares for each $1,000 principal of exchangeable senior notes		$ 1,000
Principal amount of exchangeable senior notes convertible to 28.039 shares		28.039
Series A Preferred Shares, liquidation preference amount per share	$ 25		$ 25
Series A Preferred stock, shares issued	6,400,000		6,400,000	1,800,000

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Consolidated Statements of Comprehensive (Loss) Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income (loss)	$ 7,435	$ (3,712)	$ (9,261)	$ (6,853)
Unrealized gain on derivative instruments	66	55	139	163
Unrealized loss on derivative instruments	(2,456)	(4,872)	(6,545)	(5,263)
Total comprehensive income (loss)	5,045	(8,529)	(15,667)	(11,953)
Net (income) loss attributable to noncontrolling interests	(232)	265	876	469
Net loss from derivative instruments attributable to noncontrolling interests	116	221	318	240
Comprehensive income (loss) attributable to First Potomac Realty Trust	$ 4,929	$ (8,043)	$ (14,473)	$ (11,244)

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Earnings Per Common Share

9 Months Ended

Sep. 30, 2012

Earnings Per Common Share

(3) Earnings Per Common Share

Basic earnings or loss per common share (“EPS”) is calculated by dividing net income or loss attributable to common shareholders by the weighted average common shares outstanding for the periods presented. Diluted EPS is computed after adjusting the basic EPS computation for the effect of dilutive common equivalent shares outstanding during the periods presented, which include stock options, non-vested shares, preferred shares and exchangeable senior notes. 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 Company’s excess of distributions over earnings related to participating securities are shown as a reduction in total earnings attributable to common shareholders in the Company’s computation of EPS.

The following table sets forth the computation of the Company’s basic and diluted earnings per common share (amounts in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Numerator for basic and diluted earnings per common share:
Income (loss) from continuing operations	$	7,436		$	(575	)	$	(8,166	)	$	(2,700	)
Loss from discontinued operations		(1	)		(3,137	)		(1,095	)		(4,153	)
Net income (loss)		7,435			(3,712	)		(9,261	)		(6,853	)
Less: Net (income) loss from continuing operations attributable to noncontrolling interests		(280	)		118			816			336
Less: Net (income) loss from discontinued operations attributable to noncontrolling interests		48			147			60			133
Net income (loss) attributable to First Potomac Realty Trust		7,203			(3,447	)		(8,385	)		(6,384	)
Less: Dividends on preferred shares		(3,100	)		(2,228	)		(8,864	)		(6,239	)
Net income (loss) available to common shareholders		4,103			(5,675	)		(17,249	)		(12,623	)
Less: Allocation to participating securities		(162	)		(150	)		(468	)		(442	)
Net income (loss) attributable to common shareholders	$	3,941		$	(5,825	)	$	(17,717	)	$	(13,065	)
Denominator for basic and diluted earnings per common share:
Weighted average common shares outstanding:
Basic		50,267			49,308			50,049			49,275
Diluted		50,346			49,308			50,049			49,275
Basic and diluted earnings per common share:
Income (loss) from continuing operations	$	0.08		$	(0.05	)	$	(0.33	)	$	(0.19	)
Loss from discontinued operations		—			(0.07	)		(0.02	)		(0.08	)
Net income (loss)	$	0.08		$	(0.12	)	$	(0.35	)	$	(0.27	)

In accordance with GAAP regarding earnings per common share, the Company did not include the following potential common shares in its calculation of diluted earnings per common share as they are anti-dilutive for the periods presented (amounts in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock option awards		1,451		903		1,473		907
Non-vested share awards		428		388		454		406
Conversion of exchangeable senior notes(1)		—		854		—		854
Series A Preferred Shares(2)		13,067		8,303		11,816		7,636
		14,946		10,448		13,743		9,803

⁽¹⁾ On December 15, 2011, the Company repaid the outstanding balance of $30.4 million on its exchangeable senior notes. At September 30, 2011, each $1,000 principal amount of the exchangeable senior notes was convertible into 28.039 common shares.

⁽²⁾ The Company’s Series A Preferred Shares, which have a $25 per share liquidation value, are only convertible into the Company’s common shares upon certain changes in control of the Company. The dilutive shares are calculated as the daily average of the face value of the Series A Preferred Shares divided by the outstanding common share price. In March 2012, the Company issued an additional 1.8 million Series A Preferred Shares. As of September 30, 2012, the Company had a total of 6.4 million Series A Preferred Shares outstanding.

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Debt - Summary of Company's mortgage debt (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Effective Interest Rate	5.58%
Total Mortgage Debt	$ 442,267	$ 432,023
Unamortized fair value adjustments	(714)	(1,147)
Owings Mills Business Center(5)	436,300	430,876
Total Principal balance	921,267	945,023
Mortgage Loans [Member]
Debt Instrument [Line Items]
Total Principal balance	441,546	430,876
Cloverleaf Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.75%
Effective Interest Rate	6.75%
Maturity Date	October 2014
Total Mortgage Debt	16,682	16,908
Campus At Metro Park North [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	7.11%
Effective Interest Rate	5.25%
Maturity Date	February 2012
Total Mortgage Debt		21,692
One Fair Oaks [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.31%
Effective Interest Rate	6.72%
Maturity Date	June 2012
Total Mortgage Debt		52,604
1434 Crossways Blvd Building II [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	7.05%
Effective Interest Rate	5.38%
Maturity Date	August 2012
Total Mortgage Debt		9,099
Crossways Commerce Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.70%
Effective Interest Rate	6.70%
Maturity Date	October 2012
Total Mortgage Debt	23,361	23,720
Newington Business Park Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.70%
Effective Interest Rate	6.70%
Maturity Date	October 2012
Total Mortgage Debt	14,736	14,963
Prosperity Business Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.25%
Effective Interest Rate	5.75%
Maturity Date	January 2013
Total Mortgage Debt	3,277	3,381
Cedar Hill [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.00%
Effective Interest Rate	6.58%
Maturity Date	February 2013
Total Mortgage Debt	15,516	15,838
Merrill Lynch Building [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.00%
Effective Interest Rate	7.29%
Maturity Date	February 2013
Total Mortgage Debt	13,364	13,571
1434 Crossways Blvd Building I [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.25%
Effective Interest Rate	5.38%
Maturity Date	March 2013
Total Mortgage Debt	7,724	7,943
Linden Business Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.01%
Effective Interest Rate	5.58%
Maturity Date	October 2013
Total Mortgage Debt	6,791	6,918
840 First Street, NE [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	5.18%
Effective Interest Rate	6.05%
Maturity Date	October 2013
Total Mortgage Debt	54,973	55,745
Owings Mills Commerce Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	5.85%
Effective Interest Rate	5.75%
Maturity Date	March 2014
Total Mortgage Debt		5,338
Annapolis Business Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	5.74%
Effective Interest Rate	6.25%
Maturity Date	June 2014
Total Mortgage Debt	8,259	8,360
Plaza 500, Van Buren Office Park, Rumsey Center, Snowden Center, Greenbrier Technology Center II, Norfolk Business Center, Northridge And 15395 John Marshall Highway [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	5.19%
Effective Interest Rate	5.19%
Maturity Date	August 2015
Total Mortgage Debt	96,527	97,681
Building D [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	8.88%
Effective Interest Rate	6.63%
Maturity Date	August 2015
Total Mortgage Debt	424	520
Building C [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	7.88%
Effective Interest Rate	6.63%
Maturity Date	December 2017
Total Mortgage Debt	824	920
Buildings C, D, G and H [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	8.50%
Effective Interest Rate	6.63%
Maturity Date	August 2015
Total Mortgage Debt	1,122	1,369
Buildings A,B, E and F [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	7.45%
Effective Interest Rate	6.63%
Maturity Date	June 2021
Total Mortgage Debt	2,105	2,235
Mercedes Center - Note 1 [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	4.67%
Effective Interest Rate	6.04%
Maturity Date	January 2016
Total Mortgage Debt	4,686	4,713
Mercedes Center - Note 2 [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	6.57%
Effective Interest Rate	6.30%
Maturity Date	January 2016
Total Mortgage Debt	9,554	9,722
Gateway Centre Manassas Building I [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	7.35%
Effective Interest Rate	5.88%
Maturity Date	November 2016
Total Mortgage Debt	880	1,016
Hillside Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	5.75%
Effective Interest Rate	4.62%
Maturity Date	December 2016
Total Mortgage Debt	13,838	14,122
Redland Corporate Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	4.20%
Effective Interest Rate	4.64%
Maturity Date	November 2017
Total Mortgage Debt	68,400
500 First Street, NW [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	5.72%
Effective Interest Rate	5.79%
Maturity Date	July 2020
Total Mortgage Debt	37,869	38,277
Battlefield Corporate Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	4.26%
Effective Interest Rate	4.40%
Maturity Date	November 2020
Total Mortgage Debt	4,040	4,149
Airpark Business Center [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	7.45%
Effective Interest Rate	6.63%
Maturity Date	June 2021
Total Mortgage Debt	1,148	1,219
1211 Connecticut Avenue, NW [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	4.22%
Effective Interest Rate	4.47%
Maturity Date	July 2022
Total Mortgage Debt	30,914
Owings Mills Business Center [Member]
Debt Instrument [Line Items]
Owings Mills Business Center(5)	5,253
Unamortized fair value adjustments	$ (7)

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Fair Value Measurements - Fair Value of Debt Instruments (Parenthetical) (Detail) (USD $)				9 Months Ended
	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Subsequent Event [Member]	Sep. 30, 2012 Owings Mills Business Park [Member] Subsequent Event [Member]
Fair Value Inputs Assets Liabilities Quantitative Information [Line Items]
Fair value of notes receivable	$ 55,000,000		$ 55,000,000
Defeasement of mortgage loan				5,200,000	5,200,000
Unsecured long term debt previously outstanding		$ 75,000,000

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Rental Property (Tables)

9 Months Ended

Sep. 30, 2012

Rental Property

Company has a controlling interest. All of the Company’s rental properties are located within the greater Washington, D.C. region. Rental property consists of the following (amounts in thousands):

	September 30, 2012			December 31, 2011
Land and land improvements	$	386,546		$	384,409
Buildings and improvements		1,079,675			1,052,341
Construction in process		49,024			70,362
Tenant improvements		140,033			116,148
Furniture, fixtures and equipment		5,426			5,400
		1,660,704			1,628,660
Less: accumulated depreciation		(219,891	)		(188,999	)
	$	1,440,813		$	1,439,661

Current Development and Redevelopment Activity

Below is a summary of the approximate building square footage that can be developed on the Company’s developable land and the Company’s current development and redevelopment activity as of September 30, 2012 (amounts in thousands):

Reporting Segment	Developable Square Feet		Square Feet Under Development		Cost to Date of Development Activities(1)		Square Feet Under Redevelopment		Cost to Date of Redevelopment Activities(1)
Washington, D.C.		713		—	$	—		135	$	8,683
Maryland		250		—		—		—		—
Northern Virginia		568		—		—		37		372
Southern Virginia		841		166		659		—		—
		2,372		166	$	659		172	$	9,055

⁽¹⁾  Costs to date amounts exclude tenant improvement and leasing commission costs, as well as the property’s original cost basis.

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Noncontrolling Interests - Property Owned Under Consolidated Joint Ventures (Detail)	9 Months Ended
	Sep. 30, 2012 sqft
1005 First Street, NE [Member]
Business Acquisition [Line Items]
Acquisition Date	Aug. 01, 2011
Reporting Segment	Washington, D.C.
First Potomac Controlling Interest	97.00%
Square Footage	30,414
Redland Corporate Center [Member]
Business Acquisition [Line Items]
Acquisition Date	Nov. 01, 2010
Reporting Segment	Maryland
First Potomac Controlling Interest	97.00%
Square Footage	348,469

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Summary of Significant Accounting Policies - Estimated Useful Lives of Company's Assets, by Class (Detail)	9 Months Ended
	Sep. 30, 2012
Property, Plant and Equipment [Line Items]
Lease related intangible assets, Useful Life	The term of the related lease
Tenant improvements, Useful Life	Shorter of the useful life of the asset or the term of the related lease
Buildings [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	39 years
Minimum [Member] | Building Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	5 years
Minimum [Member] | Furniture, fixtures and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	5 years
Maximum [Member] | Building Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	20 years
Maximum [Member] | Furniture, fixtures and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	15 years

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Noncontrolling Interests

9 Months Ended

Sep. 30, 2012

Noncontrolling Interests

(13) Noncontrolling Interests

(a) Noncontrolling Interests in the Operating Partnership

Noncontrolling interests relate to the common 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 common Operating Partnership units. Limited partners have the right to tender their units for redemption in exchange for, at the Company’s option, common shares of the Company on a one-for-one basis or cash based on the fair value of the Company’s 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 or losses available to common shareholders, other comprehensive income or losses, distributions received or additional contributions. The Company accounts for issuances of common Operating Partnership units individually, which could result in some portion of its noncontrolling interests being carried at fair value with the remainder being carried at historical cost. Based on the closing share price of the Company’s common stock at September 30, 2012, the cost to acquire, through cash purchase or issuance of the Company’s common shares, all of the outstanding common Operating Partnership units not owned by the Company would be approximately $33.5 million. At September 30, 2012, the Company recorded an adjustment of $4.0 million to present certain Operating Partnership units at the greater of their carrying value or redemption value.

At December 31, 2011, 2,920,561 of the total common Operating Partnership units, or 5.5%, were not owned by the Company. During the nine months ended September 30, 2012, 322,302 common Operating Partnership units were redeemed for 322,302 common shares. As a result, 2,598,259 of the total common Operating Partnership units, or 4.8%, were not owned by the Company at September 30, 2012. There were no common Operating Partnership units redeemed with available cash during the nine months ended September 30, 2012.

(b) Noncontrolling Interests in the Consolidated Partnerships

When the Company is deemed to have a controlling interest in a partially-owned entity, it will consolidate all of the entity’s assets, liabilities and operating results within its condensed consolidated financial statements. The net assets contributed to the consolidated entity by the third party, if any, will be reflected within permanent equity in the Company’s consolidated balance sheets to the extent they are not mandatorily redeemable. The amount will be recorded based on the third party’s initial investment in the consolidated entity and will be adjusted to reflect the third party’s share of earnings or losses in the consolidated entity and 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 (income) loss attributable to noncontrolling interests” in the Company’s consolidated statements of operations.

At September 30, 2012, the Company’s consolidated joint ventures owned the following properties:

Property	Acquisition Date	Reporting Segment	First Potomac Controlling Interest			Square Footage
1005 First Street, NE	August 2011	Washington, D.C.		97	%		30,414	(1)
Redland Corporate Center	November 2010	Maryland		97	%		348,469

⁽¹⁾  The site is currently occupied by Greyhound Bus Lines, Inc., which has announced its intention to relocate. Upon the tenant leaving, the Company intends on re-developing the site, which can accommodate up to 712,000 square feet of office space.

On September 26, 2012, the Company placed a $68.4 million mortgage loan on Redland Corporate Center and on October 17, 2012, the Company placed a $22.0 million mortgage loan on 1005 First Street, NE. The Company’s joint venture partners received their proportionate share of the proceeds from the mortgage loans. The Company used its share of the proceeds from both mortgage loans to repay a portion of the outstanding balance under the unsecured revolving credit facility.