First Potomac Realty Trust (NYSE: FPO), a leader in the ownership, management, development and redevelopment of office and business park properties in the greater Washington, D.C. region, reported results for the three and nine months ended September 30, 2016.

Third Quarter 2016 Highlights

• Reported net income attributable to common shareholders of $1.6 million, or $0.03 per diluted share.
• Reported Core Funds From Operations of $17.0 million, or $0.28 per diluted share.
• Increased same property net operating income ("Same Property NOI") by 4.1% on an accrual basis compared with the same period in 2015.
• Increased occupied percentage to 92.8% from 89.9% at September 30, 2015.
• Increased leased percentage to 94.1% from 91.0% at September 30, 2015.
• Redeemed the remaining 0.6 million 7.750% Series A Cumulative Redeemable Perpetual Preferred Shares (the "7.750% Series A Preferred Shares").
• Completed the sale of Storey Park, a development site located in Washington, D.C, for a contractual sales price of $54.5 million, which generated net proceeds of $52.7 million.
• Retained sales brokers to market Plaza 500 and One Fair Oaks, located in Northern Virginia, as well as Aviation Business Park and Rivers Park I and II, located in Maryland and owned through unconsolidated joint ventures, as part of plan to dispose of at least $350 million of assets.

Bob Milkovich, Chief Executive Officer of First Potomac Realty Trust stated, "We are pleased to announce our fourth consecutive quarter of strong operational and financial results, as we continue to execute on our strategic plan to de-risk our portfolio, de-lever our balance sheet, and create value for our shareholders. In the third quarter, we delivered strong same property growth, increased our leased and occupied percentages year-over-year, and continued to make progress on dispositions. We have made significant strides towards achieving our stated goals and believe that we are well positioned to continue delivering value for First Potomac shareholders."

Third Quarter Results

For the three months ended September 30, 2016 and 2015, net income attributable to common shareholders was $1.6 million, or $0.03 per diluted share, and $0.9 million, or $0.01 per diluted share, respectively. For the nine months ended September 30, 2016 and 2015, net loss attributable to common shareholders was $8.0 million, or $0.14 per diluted share, and $4.1 million, or $0.07 per diluted share, respectively. The increase in net income for the three months ended September 30, 2016 compared with the same period in 2015 was primarily due to an increase in Same Property NOI, which was the result of an increase in occupancy in our comparable portfolio. The increase in net loss for the nine months ended September 30, 2016 compared with the same period in 2015 was primarily due to the write off of $5.5 million of original issuance costs during the nine months ended September 30, 2016 associated with the redemption of 6.4 million shares of our 7.750% Series A Preferred Shares. The original issuance costs are deducted from net income attributable to First Potomac Realty Trust to calculate net income (loss) attributable to common shareholders on our consolidated statements of operations.

Core Funds From Operations ("Core FFO") increased for the three months ended September 30, 2016 to $17.0 million, or $0.28 per diluted share, from $15.3 million, or $0.25 per diluted share, for the same period in 2015. Core FFO increased for the nine months ended September 30, 2016 to $47.9 million, or $0.79 per diluted share, from $44.9 million, $0.74 per diluted share, for the same period in 2015. These increases were primarily due to increases in Same Property NOI, which was a result of higher occupancy in our portfolio, as well as decreases in general and administrative expenses and lower accrued preferred dividends due to the redemption of our 7.750% Series A Preferred Shares. The increases in Core FFO for the three and nine months ended September 30, 2016 compared with the same periods in 2015 were partially offset by decreases in net operating income as a result of property dispositions, and a reduction in interest income due to the repayment of the $29.7 million mezzanine loan on America's Square in the first quarter of 2015 and the repayment of the $34.0 million mezzanine loan on 950 F St., NW in the second quarter of 2016.

Funds From Operations ("FFO") available to common shareholders and unitholders increased to $16.5 million, or $0.27 per diluted share, for the three months ended September 30, 2016, from $15.3 million, or $0.25 per diluted share, for the same period in 2015. FFO available to common shareholders and unitholders decreased to $42.3 million, or $0.70 per diluted share, for the nine months ended September 30, 2016 from $45.6 million, or $0.75 per diluted share, for the same period in 2015. FFO for the three and nine months ended September 30, 2016 included the write-off of $0.5 million and $5.5 million, respectively, of original issuance costs associated with the redemption of 0.6 million shares and 6.4 million shares, respectively, of our 7.750% Series A Preferred Shares. In addition, FFO for the nine months ended September 30, 2015 included a $2.4 million yield maintenance payment that we received with the prepayment of the $29.7 million mezzanine loan on America's Square in the first quarter of 2015.

Operating Performance

At September 30, 2016, our consolidated portfolio consisted of 74 buildings totaling 6.7 million square feet. Our consolidated portfolio was 94.1% leased and 92.8% occupied at September 30, 2016 compared with 94.4% leased and 93.1% occupied at June 30, 2016 and 91.0% leased and 89.9% occupied at September 30, 2015. Year-over-year, we achieved a 310 basis-point increase in our leased percentage and a 290 basis-point increase in our occupied percentage across our consolidated portfolio. The increase in occupancy during the third quarter of 2016 compared with the same period in 2015 is primarily a result of tenant move-ins at 440 First Street, NW, Greenbrier Business Park and Cloverleaf.

During the third quarter of 2016, we executed 280,000 square feet of leases, which consisted of 74,000 square feet of new leases and 206,000 square feet of renewal leases. The 206,000 square feet of renewal leases in the quarter, which included a 107,000 square foot renewal at Plaza 500 in Northern Virginia, reflected a tenant retention rate of 81%. We experienced positive net absorption of 152,000 square feet in the third quarter of 2016, which includes the 167,000 square foot lease at the Northern Virginia build-to-suit.

For the nine months ended September 30, 2016, we executed 739,000 square feet of leases, including 245,000 square feet of new leases and 494,000 square feet of renewal leases, achieved a tenant retention rate of 81% and had positive net absorption of 166,000 square feet. Our executed new and renewal leases for the nine months ended September 30, 2016 do not include a one-year lease extension with the Bureau of Prisons at 500 First Street, NW, which expires in July 2017, or the 125,000 square feet of combined new and renewal leases at our unconsolidated joint venture properties.

Same Property NOI increased 4.1% on an accrual basis for the three months ended September 30, 2016 compared with the same period in 2015. Specifically, Same Property NOI increased 9.3% in Southern Virginia, 7.9% in Maryland and 1.1% in Washington, D.C. for the three months ended September 30, 2016 compared with the same period in 2015. The increases in Same Property NOI in these regions were primarily due to increases in occupancy, particularly at the following properties: 440 First Street, NW, which is located in Washington D.C., Cloverleaf, which is located in Maryland, and Greenbrier Business Park, which is located in Southern Virginia. Same Property NOI decreased 1.2% in Northern Virginia for the three months ended September 30, 2016 compared with the same period in 2015 primarily due to a decrease in occupancy.

Same Property NOI increased 5.1% on an accrual basis for the nine months ended September 30, 2016 compared with the same period in 2015. More specifically, Same Property NOI increased 9.1% in Maryland, 8.2% in Southern Virginia and 4.0% in Washington, D.C., primarily due to increases in occupancy across the portfolio in these regions. Same Property NOI decreased 0.9% in Northern Virginia for the nine months ended September 30, 2016 compared with the same period in 2015 primarily due to an increase in bad debt reserves at several non-core properties in the second quarter of 2016.

A reconciliation of net income (loss) from our consolidated statements of operations to Same Property NOI and a definition and statement of purpose are included below in the financial tables accompanying this press release and under "Non-GAAP Financial Measures," respectively.

A list of our properties, as well as additional information regarding our results of operations, and our definition of "strategic hold," "reposition" and "non-core" as they relate to our portfolio, can be found in our Third Quarter 2016 Supplemental Financial Information Report, which is posted on our website, www.first-potomac.com.

Dispositions

On July 25, 2016, we sold Storey Park, a development site located in the NoMa submarket of Washington, D.C., for net proceeds of $52.7 million. We used the proceeds from the sale to prepay, without penalty, debt encumbering the Storey Park land, to make a distribution to our 3% joint venture partner for its allocable share of the joint venture's net assets and to pay down a portion of the outstanding balance of our unsecured revolving credit facility.

Aggregate gross proceeds from dispositions identified as part of our Strategic Plan now total $205.9 milliontoward our stated goal of $350 million. This amount reflects the sales of Storey Park, the combined sale of Enterprise Center, Gateway Centre Manassas, Linden Business Center, Herndon Corporate Center, Prosperity Business Center, Reston Business Campus, Windsor at Battlefield and Van Buren Office Park (collectively, the "NOVA Non-Core Portfolio"), which was sold in the first quarter of 2016, as well as Cedar Hill I and III and Newington Business Park Center, which were both sold in the fourth quarter of 2015.

Consistent with our previously announced plan to sell at least $350 million of assets, we have engaged sales brokers to sell Plaza 500 and One Fair Oaks, which are located in Northern Virginia, as well as Aviation Business Park and Rivers Park I and II, which are located in Maryland and are owned through unconsolidated joint ventures. We anticipate completing the sales in late 2016 or early 2017. However, we can provide no assurances regarding the timing or pricing of such sales, or that such sales will ultimately occur.

Northern Virginia Build-to-Suit

During the third quarter of 2016, we substantially completed construction of the tenant improvements at the build-to-suit office building in Northern Virginia (the "NOVA build-to-suit"). We commenced revenue recognition of the fully leased building in August 2016, at which time the building was placed into service.

7.750% Series A Preferred Shares Redemption

As previously disclosed, on January 19, 2016 and April 27, 2016, we used proceeds from dispositions to redeem 2.2 million shares and 3.6 million shares, respectively, of our 7.750% Series A Preferred Shares at a redemption price of $25.00 per share, plus accrued dividends up to the date of redemption.

On July 6, 2016, we used a portion of the proceeds from the repayment of the 950 F Street, NW mezzanine loan in June 2016 to redeem the remaining 0.6 million outstanding shares of our 7.750% Series A Preferred Shares at a redemption price of $25.00 per share, plus accrued dividends up to the date of redemption. Subsequent to the redemption, the 7.750% Series A Preferred Shares (NYSE: FPO-PA) were delisted from trading on the New York Stock Exchange.

Financing Activity

On July 25, 2016, we used a portion of the proceeds from the sale of Storey Park to prepay, without penalty, the $22.0 million loan encumbering the Storey Park land. The loan had a variable interest rate of LIBOR + 2.50% and was scheduled to mature in October 2016.

On October 6, 2016, we prepaid, without penalty, the $12.2 million loan encumbering Hillside I and II. The loan had a fixed interest rate of 5.75% and was scheduled to mature in December 2016. The prepayment was funded with a draw on the unsecured revolving credit facility.

Balance Sheet

We had $745.5 million of gross debt outstanding at September 30, 2016, of which $245.7 million was fixed-rate debt, $240.0 million was hedged variable-rate debt and $259.8 million was unhedged variable-rate debt. The weighted average interest rate of our debt was 3.5% at September 30, 2016.

Dividends

On October 24, 2016, we declared a dividend of $0.10 per common share, equating to an annualized dividend of $0.40 per common share. The dividend will be paid on November 15, 2016 to common shareholders of record as of November 8, 2016.

About First Potomac Realty Trust

First Potomac Realty Trust is a self-administered, self-managed real estate investment trust that focuses on owning, operating, developing and redeveloping office and business park properties in the greater Washington, D.C. region. FPO common shares (NYSE: FPO) are publicly traded on the New York Stock Exchange. As of September 30, 2016, our consolidated portfolio totaled 6.7 million square feet. Based on annualized cash basis rent, our portfolio consists of 65% office properties and 35% business park and industrial properties. A key element of First Potomac's overarching strategy is its dedication to sustainability. Over one million square feet of First Potomac property is LEED Certified and over half of the portfolio's multi-story office square footage is LEED or Energy Star Certified.