BETHESDA, Md., July 24, 2014 /PRNewswire/ -- 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 six months
ended June 30, 2014.
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Second Quarter 2014 Highlights
- Reported Core Funds From Operations of $14.5 million, or $0.24 per diluted share.
- Executed 353,000 square feet of leases, including 166,000
square feet of new leases.
- Increased leased percentage in consolidated portfolio to
89.5% from 86.5% at June 30, 2013,
and increased leased percentage on strategic hold portfolio to
93.0% from 91.0% at June 30,
2013.
- In April, sold West Park, a 29,000 square foot office
building, and Patrick Center, a 66,000 square-foot office building,
for aggregate net proceeds of $13.8
million.
- In June, sold Corporate Campus at Ashburn Center, a 194,000
square-foot, single-story business park, for net proceeds of
$39.9 million, bringing aggregate net
proceeds from dispositions for the year to $85.3 million.
- In April, acquired 1401 K Street, NW, a 117,000 square foot
twelve-story, office building located in downtown
Washington, D.C., for $58.0 million.
- In June, acquired 1775 Wiehle Avenue, a 130,000 square foot,
five-story, fully leased office building located in Reston, Virginia, for $41.0 million, bringing the aggregate purchase
price of acquisitions for the year to $99.0
million.
Douglas J. Donatelli, Chairman
and CEO of First Potomac Realty Trust, stated, "I am very pleased
with our second quarter results, which demonstrate continued
execution of our strategic plan. We delivered our tenth
consecutive quarter of positive net absorption, achieved strong
leasing results, bringing our leased percentage to 89.5%, closed on
the acquisition of two high-quality, multi-story office buildings
and continued our capital recycling strategy. Each of these
steps gets us closer to our goal of becoming the leading owner of
office properties in our region and allows us to focus on
opportunities that we believe will lead to long-term value creation
for our shareholders."
Funds From Operations ("FFO") increased for the three months
ended June 30, 2014 compared with the
same period in 2013 due to an aggregate loss on debt extinguishment
of $4.6 million for the three months
ended June 30, 2013, primarily as a
result of selling our industrial portfolio in June 2013. As a result of the reduction in net
operating income from the sale of our industrial portfolio, FFO for
the six months ended June 30, 2014
and Core FFO for the three and six months ended June 30, 2014 decreased compared with the
comparable periods in 2013. The reduction in net operating income
from the industrial portfolio sale for the three and six months
ended June 30, 2014 was partially
offset by improvements in net operating income on a same-property
basis, as well as a reduction in interest expense, as we decreased
the weighted average interest rate on our total outstanding debt by
over 100 basis points since June 30,
2013.
A reconciliation between Core FFO and FFO available to common
shareholders for the three and six months ended June 30, 2014 and 2013 is presented below (in
thousands, except per share amounts):
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
Amount
|
|
Per diluted
share
|
|
Amount
|
|
Per diluted
share
|
|
Amount
|
|
Per diluted
share
|
|
Amount
|
|
Per diluted
share
|
Core FFO
|
$ 14,452
|
|
$ 0.24
|
|
$ 15,886
|
|
$ 0.28
|
|
$ 27,816
|
|
$ 0.46
|
|
$ 31,733
|
|
$ 0.58
|
Loss on debt
extinguishment
|
-
|
|
-
|
|
(4,615)
|
|
(0.08)
|
|
-
|
|
-
|
|
(4,615)
|
|
(0.08)
|
Deferred abatement
and straight-line amortization(1)
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,045)
|
|
(0.02)
|
|
1,567
|
|
0.03
|
Acquisition
costs
|
(1,111)
|
|
(0.02)
|
|
-
|
|
-
|
|
(1,179)
|
|
(0.02)
|
|
-
|
|
-
|
Contingent
consideration related to acquisition of
property(2)
|
-
|
|
-
|
|
(75)
|
|
-
|
|
-
|
|
-
|
|
(75)
|
|
-
|
Legal costs
associated with informal SEC inquiry
|
-
|
|
-
|
|
(55)
|
|
-
|
|
-
|
|
-
|
|
(391)
|
|
(0.01)
|
FFO available to
common shareholders
|
$ 13,341
|
|
$ 0.22
|
|
$ 11,141
|
|
$ 0.20
|
|
$ 25,592
|
|
$ 0.42
|
|
$ 28,219
|
|
$ 0.52
|
Net income
|
$ 18,334
|
|
|
|
$ 14,476
|
|
|
|
$ 16,892
|
|
|
|
$ 16,439
|
|
|
Net income
attributable to common shareholders per diluted common
share(3)
|
$ 0.25
|
|
|
|
$ 0.20
|
|
|
|
$ 0.17
|
|
|
|
$ 0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As a
result of the sale of Girard Business Center and Gateway Center in
January 2014, we accelerated the amortization of straight-line
rents and deferred abatement related to those properties. During
the first quarter of 2013, we accelerated the amortization of the
straight-line balance and the deferred abatement for Engineering
Solutions at I-66 Commerce Center, which terminated its lease prior
to completion. The tenant vacated the property at the end of March
2013. The property was sold in May 2013.
|
(2)
Reflects an increase in our contingent consideration liability
related to our acquisition of Corporate Campus at Ashburn Center in
2009. We paid $1.7 million to the seller of the property in the
third quarter of 2013 to fulfill our obligation. The property was
subsequently sold in June 2014.
|
(3)
Reflects amounts attributable to noncontrolling interests and the
impact of dividends on our preferred shares to arrive at net income
attributable to common shareholders.
|
A reconciliation of net income to FFO available to common
shareholders and Core FFO, as well as definitions and statements of
purpose, are included below in the financial tables accompanying
this press release and under "Non-GAAP Financial Measures,"
respectively.
Operating Performance
At June 30, 2014, our consolidated
portfolio consisted of 134 buildings totaling 8.7 million square
feet. Our consolidated portfolio was 89.5% leased and 86.0%
occupied at June 30, 2014 compared to
86.5% leased and 84.0% occupied at June 30,
2013. Year-over-year, our consolidated portfolio experienced
a 300 basis-point increase in our leased percentage and a 200
basis-point increase in our occupied percentage. Our strategic hold
portfolio was 93.0% leased and 90.5% occupied at June 30, 2014
and 91.0% leased and 88.4% occupied at June
30, 2013. Our value-add portfolio was 84.4% leased and 61.0%
occupied at June 30, 2014 and 59.7%
leased and 56.5% occupied at June 30,
2013. Our non-core portfolio was 80.6% leased and 77.7%
occupied at June 30, 2014 and 80.7%
leased and 78.5% occupied at June 30,
2013.
During the second quarter of 2014, we executed 353,000 square
feet of leases, which consisted of 166,000 square feet of new
leases and 186,000 square feet of renewal leases, and we achieved a
tenant retention rate of 65%. We had positive net absorption
of 63,000 square feet in the second quarter of 2014, which resulted
in our tenth consecutive quarter of positive net absorption.
New leases executed during the second quarter included four
new leases, totaling 17,000 square feet, at 440 First Street, NW in
Washington, D.C, which brought the
property to 34.1% leased at June 30,
2014. For the six months ended June
30, 2014, we achieved positive net absorption of 90,000
square feet, executed 609,000 square feet of leases, which included
311,000 square feet of new leases, and achieved a tenant retention
rate of 60%.
Same-Property Net Operating Income ("Same-Property NOI")
increased 0.5% and 0.7% on an accrual basis for the three and six
months ended June 30, 2014,
respectively compared with the same periods in 2013. For the three
months ended June 30, 2014, the
increase in Same-Property NOI was primarily due to increases in
occupancy at Redland Corporate Center and Gateway 270 West, which
are both located in Maryland, and
Plaza 500, which is located in Northern
Virginia. The increase in Same-Property NOI for the three
months ended June 30, 2014 was
partially offset by a decrease in Same-Property NOI for the
Washington, D.C. region compared
with the same period in 2013 as a result of a decrease in occupancy
at 1211 Connecticut Avenue, NW, the majority of which was re-leased
in the first quarter of 2014. For the six months ended
June 30, 2014, we incurred an
additional $0.5 million of snow and
ice removal costs, net of recoveries, in the same-property pool
than during the first six months of 2013. Excluding the impact of
the additional snow and ice removal costs, our Same-Property NOI
increased 1.9% for the six months ended June
30, 2014 compared with the same period in 2013.
A reconciliation of net income 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," "value add" and "non-core" as they relate to our
portfolio, can be found in our Second Quarter 2014 Supplemental
Financial Information Report, which is posted on our website,
www.first-potomac.com.
Acquisitions
Consistent with our previously disclosed strategy of focusing on
high-quality, multi-story office properties, we continued to
improve the portfolio quality with active capital recycling. On
April 8, 2014, we acquired 1401 K
Street, NW, a 117,000 square foot, twelve-story, office building in
downtown Washington, D.C. for
$58.0 million. The property is
currently 88% leased to 22 tenants. The acquisition was funded with
the assumption of a $37.3 million
mortgage loan, a $20.0 million draw
under our unsecured revolving credit facility and available
cash.
On June 25, 2014, we acquired 1775
Wiehle Avenue, a 130,000 square foot, five-story, office building
in Reston, Virginia, for
$41.0 million. The property is
located two blocks from the Wiehle-Reston East Silver Line Metro
station, which is expected to open on July
26, 2014, and is conveniently located directly off the
Dulles Toll Road. The property is currently 100% leased to eight
tenants. The acquisition was funded with the proceeds from the sale
of Corporate Campus at Ashburn Center and available cash.
Dispositions
In April 2014, we sold West Park,
a 29,000 square foot, four-story office building, and Patrick
Center, a 66,000 square foot, seven-story office building, which
are both located in Frederick,
Maryland, for aggregate net proceeds of $13.8 million. As previously disclosed, we
recorded an impairment charge of $2.2
million on West Park in the fourth quarter of 2013. We
reported a gain on the sale of Patrick Center of $1.4 million in the second quarter of 2014.
At June 30, 2014, the operating
results of West Park and Patrick Center for each of the periods
presented in this press release, as well as the gain on the sale of
Patrick Center are reflected as discontinued operations in our
consolidated statements of operations.
On June 26, 2014, we sold
Corporate Campus at Ashburn Center, a three-building, 194,000
square foot, single-story business park, which is located in
Ashburn, Virginia, for net
proceeds of $39.9 million and
recorded a gain on the sale of the property of $21.2 million in the second quarter. We
purchased the property in an off-market transaction in 2009 for
$14.7 million and invested an
additional approximately $5 million
in the property. At the time of acquisition, the property was
45% leased and it was 100% leased at the time of sale. We
used the net proceeds from the sale to acquire 1775 Wiehle
Avenue.
On June 23, 2014, we entered into
a non-binding contract to sell the four remaining buildings at
Owings Mills Business Park, located in Owings Mills, Maryland, which total 180,500
square feet. Based on the anticipated sales price, we
recorded an impairment charge of $4.0
million in the second quarter of 2014. The sale is expected
to be completed in the third or fourth quarter of 2014.
However, we can provide no assurances regarding the timing or
pricing of the sale, or that such sale will occur at all. At
June 30, 2014, we classified the four
buildings at Owings Mills Business Park as "held-for-sale" on our
consolidated balance sheet.
During the second quarter of 2014, we prospectively adopted new
accounting standards pursuant to the Financial Accounting Standards
Board's Accounting Standards Update No. 2014-08, which requires us
to classify the results from a disposed property within
discontinued operations only if the disposition of the property
represents a strategic shift in operations that has a major impact
on financial results. In accordance with the new accounting
standards, the operating results and gain on sale of Corporate
Center at Ashburn Center and the operating results and impairment
of Owings Mills Business Park are reflected in continuing
operations in our consolidated statements of operations for each of
the periods presented in this press release.
Financing Activity
On May 1, 2014, we prepaid,
without penalty, an $8.0 million
mortgage loan that encumbered Annapolis Business Center with a draw
under our unsecured revolving credit facility.
On July 10, 2014, our 50% owned
unconsolidated joint venture repaid a $27.9
million mortgage loan with Wells Fargo that encumbered 1750
H Street, NW, a ten-story, 113,000 square-foot office building
located in Washington, D.C.
Simultaneous with the repayment, the joint venture entered into a
new $32.0 million mortgage loan with
State Farm that has a fixed-interest rate of 3.92%, a maturity date
of August 1, 2024, and is repayable
in full without penalty on or after August
1, 2021. The new loan requires monthly interest-only
payments with a constant interest rate over the life of the
loan.
Balance Sheet
We had $718.9 million of debt
outstanding at June 30, 2014, of
which $257.4 million was fixed-rate
debt, $300.0 million was hedged
variable-rate debt and $161.5 million
was unhedged variable-rate debt.
Dividends
On July 22, 2014, we declared a
dividend of $0.15 per common share,
equating to an annualized dividend of $0.60 per common share. The dividend will be paid
on August 15, 2014 to common
shareholders of record as of August 6,
2014. We also declared a dividend of $0.484375 per share on our Series A Preferred
Shares. The dividend will be paid on August
15, 2014 to preferred shareholders of record as of
August 6, 2014.
Core FFO Guidance
We modified our full-year 2014 Core FFO per share guidance to
$0.91 to $0.97 per diluted share, as
a result of our expectation that the GSA will not take occupancy at
Atlantic Corporate Park until early 2015, and the current
anticipated timing and pace of acquisitions for the remainder of
the year. Our revised guidance reflects all completed capital
recycling activities as of the date of this release. The following
is a summary of the assumptions that we used in arriving at our
guidance (unaudited, amounts in thousands except percentages and
per share amounts):
|
|
Expected
Ranges
|
Portfolio
NOI
|
|
|
|
|
|
|
|
|
|
Properties Owned
December 31, 2013
|
|
$ 104,000
|
-
|
$ 106,000
|
Properties
Sold(1)
|
|
(5,200)
|
Assumption for
Additional Dispositions(2)
|
|
(1,000)
|
Properties Acquired
(3)
|
|
3,800
|
Assumption for
Additional Acquisitions (4)
|
|
0
|
-
|
1,000
|
|
|
|
|
|
Total NOI
|
|
$101,600
|
|
$104,600
|
|
|
|
Interest and Other
Income
|
|
$ 6,500
|
|
|
|
|
|
FFO from
Unconsolidated Joint Ventures
|
|
$ 4,750
|
-
|
$ 5,250
|
|
|
|
|
|
Interest
Expense(5)
|
|
$ 24,500
|
-
|
$ 25,500
|
|
|
|
|
|
G&A
|
|
$ 20,000
|
-
|
$ 22,000
|
|
|
|
Preferred
Dividends
|
|
$ 12,400
|
|
|
|
|
|
Weighted Average
Shares and Units
|
|
60,500
|
-
|
61,000
|
|
|
|
|
|
Year-End Occupancy
(6)
|
|
87.0%
|
-
|
88.5%
|
Same Property NOI –
Accrual Basis (7)
|
|
2.0%
|
-
|
3.5%
|
(1)
Reflects the disposition of Girard Business Center and Gateway
Center, which were sold in January
2014, the disposition of West Park and Patrick Center, which
were sold in April 2014, and the
disposition of Corporate Campus at Ashburn Center, which was sold
in June 2014.
(2) Assumes
$70 million of additional
dispositions are made throughout 2014. This is solely an assumption
for the purposes of providing guidance and is in addition to the
properties sold as of the date hereof and listed in footnote (1)
above. We can provide no assurances regarding the
timing or pricing of any potential dispositions, or that such
dispositions will occur at all.
(3) Reflects
the anticipated 2014 NOI from the acquisition of 1401 K Street, NW,
which we acquired on April 8, 2014,
and the acquisition of Wiehle Avenue, which we acquired on
June 25, 2014.
(4) Reflects
the assumed NOI contribution, if any, from additional acquisitions
made throughout 2014, excluding the 2014 NOI from 1401 K Street, NW
and Wiehle Avenue. However, we can provide no assurances
regarding the timing or pricing of any potential acquisitions, or
that such additional acquisitions will occur at all.
(5) Assumes
proceeds from properties sold, as well as the assumed additional
dispositions are used to repay amounts outstanding under our
unsecured revolving credit facility, and capital for additional
acquisitions are drawn from the unsecured revolving credit
facility, with the exception of the $37.3
million mortgage we assumed with the acquisition of 1401 K
Street, NW.
(6) Assumes
Gateway Center, Girard Business Center, West Park, Patrick Center,
and Corporate Campus at Ashburn Center are the only 2014
dispositions, and 1401 K Street, NW and Wiehle Avenue are the only
2014 acquisitions. The reduction in our year-end occupancy guidance
is a result of our expectation that the GSA will not take occupancy
at Atlantic Corporate Park until early 2015.
(7) Assumes
Gateway Center, Girard Business Center, West Park, Patrick Center,
and Corporate Campus at Ashburn Center are the only 2014
dispositions. The reduction in our year-end occupancy
guidance is a result of our expectation that the GSA will not take
occupancy at Atlantic Corporate Park until early 2015.
Our guidance is also based on a number of other assumptions,
many of which are outside our control and all of which are subject
to change. We may change our guidance as actual and anticipated
results vary from these assumptions.
Guidance Range for
2014
|
|
Low Range
|
|
High Range
|
Net income
attributable to common shareholders per diluted share
|
|
$ 0.09
|
|
$ 0.13
|
Real estate
depreciation(1)
|
|
1.08
|
|
1.09
|
Net loss attributable
to noncontrolling interests and items excluded from Core FFO per
diluted share(2)
|
|
(0.26)
|
|
(0.25)
|
Core FFO per diluted
share
|
|
$ 0.91
|
|
$ 0.97
|
|
|
|
|
|
(1)
Includes our pro-rata share of depreciation from our unconsolidated
joint ventures and depreciation related to our disposed
properties.
(2) Items
excluded from Core FFO consist of the gains or losses associated
with disposed properties, the costs associated with the informal
SEC inquiry, if any, and acquisition costs.
Investor Conference Call and Webcast
First Potomac Realty Trust will host a conference call on
July 25, 2014 at 9:00 AM ET to discuss second quarter results.
The conference call can be accessed by dialing (877) 705-6003
or (201) 493-6725 for international participants. A replay of
the call will be available from 12:00 Noon
ET on July 25, 2014, until
midnight ET on August 1, 2014. The replay can be accessed
by dialing (877) 870-5176 or (858) 384-5517 for international
callers, and entering pin number 13584747.
A live broadcast of the conference call will also be available
online at our website, www.first-potomac.com, on July 25, 2014, beginning at 9:00 AM ET. An online replay will follow
shortly after the call and will continue for 90 days.
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. As of June 30, 2014,
our consolidated portfolio totaled 8.7 million square feet.
Based on annualized cash basis rent, our portfolio consists
of 57% office properties and 43% 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, with the potential for
another 700,000 square feet in future development projects.
Approximately half of the portfolio's multi-story office
square footage is LEED or Energy Star Certified. FPO common
shares (NYSE: FPO) and preferred shares (NYSE: FPO-PA) are publicly
traded on the New York Stock Exchange.
Non-GAAP Financial Measures
Funds from Operations – Funds from operations ("FFO")
represents net income (computed in accordance with U.S. generally
accepted accounting principles ("GAAP")), excluding gains (losses)
on sales of rental property and impairments of rental property,
plus real estate-related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. We
also exclude any depreciation and amortization related to third
parties from our consolidated joint ventures from our FFO
calculation.
We consider FFO a useful measure of performance for an equity
REIT because it facilitates an understanding of the operating
performance of our 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, we believe that FFO provides a meaningful indication of
our performance. We also consider FFO an appropriate performance
measure given its wide use by investors and analysts. We compute
FFO in accordance with standards established by the Board of
Governors of NAREIT in its March 1995
White Paper (as amended in November
1999, April 2002 and
January 2012), which may differ from
the methodology for calculating FFO utilized by other equity real
estate investment trusts ("REITs") and, accordingly, may not be
comparable to such other REITs. Further, 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 our cash needs, including our ability to
make distributions. We present FFO per diluted share calculations
that are based on the outstanding dilutive common shares plus the
outstanding common Operating Partnership units for the periods
presented.
Core FFO – Management believes that the computation of
FFO in accordance with NAREIT's definition includes certain items
that are not indicative of the results provided by our operating
portfolio and affect the comparability of our period-over-period
performance. These items include, but are not limited to, gains and
losses on the retirement of debt, legal costs associated with the
informal SEC inquiry, personnel separation costs, contingent
consideration charges and acquisition costs.
Our presentation of FFO in accordance with the NAREIT white
paper, or presentation of Core FFO, should not be considered as an
alternative to net income (computed in accordance with GAAP) as an
indicator of our financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as an
indicator of our liquidity.
Our FFO and Core FFO calculations are reconciled to net income
in our Consolidated Statements of Operations included in this
release.
NOI – We define net operating income ("NOI") as operating
revenues (rental income, tenant reimbursements and other income)
less property and related expenses (property expenses, real estate
taxes and insurance). Management believes that NOI is a
useful measure of our property operating performance as it provides
a performance measure of the revenues and expenses directly
associated with owning, operating, developing and redeveloping
office and business park properties, and provides a perspective not
immediately apparent from net income or FFO. Other REITs may
use different methodologies for calculating NOI, and accordingly,
our NOI may not be comparable to other REITs. Our NOI calculations
are reconciled to total revenues and total operating expenses at
the end of this release.
Same-Property NOI – Same-Property Net Operating Income
("Same-Property NOI"), defined as operating revenues (rental,
tenant reimbursements and other revenues) less operating expenses
(property operating expenses, real estate taxes and insurance) from
the properties owned by us for the entirety of the periods
compared, is a primary performance measure we use to assess the
results of operations at our properties. As an indication of
our operating performance, Same-Property NOI should not be
considered an alternative to net income calculated in accordance
with GAAP. A reconciliation of our Same-Property NOI to net income
from our 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, thus impacting trends and comparability. Also,
we eliminate depreciation and amortization expense, which are
property level expenses, in computing Same-Property NOI as these
are non-cash expenses that are based on historical cost accounting
assumptions and 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.
Forward Looking Statements
The forward-looking statements contained in this press release,
including statements regarding our 2014 Core FFO guidance and
related assumptions, potential sales and the timing of such sales,
and future acquisition and growth opportunities, are subject to
various risks and uncertainties. Although we believe the
expectations reflected in such forward-looking statements are based
on reasonable assumptions, there can be no assurance that our
expectations will be achieved. Certain factors that could cause
actual results to differ materially from our expectations include
changes in general or regional economic conditions; our ability to
timely lease or re-lease space at current or anticipated rents;
changes in interest rates; changes in operating costs; our ability
to complete acquisitions on acceptable terms; our ability to manage
our current debt levels and repay or refinance our indebtedness
upon maturity or other required payment dates; our ability to
maintain financial covenant compliance under our debt agreements;
our ability to maintain effective internal controls over financial
reporting and disclosure controls and procedures; any impact of the
informal inquiry initiated by the U.S. Securities and Exchange
Commission (the "SEC"); our ability to obtain debt and/or financing
on attractive terms, or at all; changes in the assumptions
underlying our earnings and Core FFO guidance and other risks
detailed in our Annual Report on Form 10-K and described from time
to time in our filings with the SEC. Many of these factors are
beyond our ability to control or predict. Forward-looking
statements are not guarantees of performance. For forward-looking
statements herein, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. We assume no obligation to update or
supplement forward-looking statements that become untrue because of
subsequent events.
Consolidated
Statements of Operations
(unaudited,
amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Revenues:
|
|
|
|
|
|
|
|
Rental
|
$
33,130
|
|
$
31,087
|
|
$
65,070
|
|
$
61,780
|
Tenant reimbursements
and other
|
8,060
|
|
7,745
|
|
17,534
|
|
16,211
|
|
|
|
|
|
|
|
|
Total
revenues
|
41,190
|
|
38,832
|
|
82,604
|
|
77,991
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Property
operating
|
10,869
|
|
9,432
|
|
23,767
|
|
19,743
|
Real estate taxes and
insurance
|
4,372
|
|
3,975
|
|
8,641
|
|
8,487
|
General and
administrative
|
5,218
|
|
4,985
|
|
10,414
|
|
10,252
|
Acquisition
costs
|
1,111
|
|
-
|
|
1,179
|
|
-
|
Depreciation and
amortization
|
15,610
|
|
14,208
|
|
30,714
|
|
28,195
|
Impairment of rental
property
|
3,956
|
|
-
|
|
3,956
|
|
-
|
Contingent
consideration related to acquisition of property
|
-
|
|
75
|
|
-
|
|
75
|
Total operating
expenses
|
41,136
|
|
32,675
|
|
78,671
|
|
66,752
|
|
|
|
|
|
|
|
|
Operating
income
|
54
|
|
6,157
|
|
3,933
|
|
11,239
|
|
|
|
|
|
|
|
|
Other (income)
expenses:
|
|
|
|
|
|
|
|
Interest
expense
|
6,102
|
|
9,353
|
|
11,914
|
|
19,310
|
Interest and other
income
|
(1,670)
|
|
(1,574)
|
|
(3,429)
|
|
(3,103)
|
Equity in (earnings)
losses of affiliates
|
(199)
|
|
(7)
|
|
28
|
|
(35)
|
Loss on debt
extinguishment
|
-
|
|
201
|
|
-
|
|
201
|
Gain on sale of rental
property
|
(21,230)
|
|
-
|
|
(21,230)
|
|
-
|
|
|
|
|
|
|
|
|
Total other (income)
expenses
|
(16,997)
|
|
7,973
|
|
(12,717)
|
|
16,373
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
|
17,051
|
|
(1,816)
|
|
16,650
|
|
(5,134)
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
(Loss) income from operations
|
(1)
|
|
1,759
|
|
(1,096)
|
|
7,040
|
Loss on debt
extinguishment
|
-
|
|
(4,414)
|
|
-
|
|
(4,414)
|
Gain on sale of rental
property
|
1,284
|
|
18,947
|
|
1,338
|
|
18,947
|
Income from
discontinued operations
|
1,283
|
|
16,292
|
|
242
|
|
21,573
|
|
|
|
|
|
|
|
|
Net income
|
18,334
|
|
14,476
|
|
16,892
|
|
16,439
|
|
|
|
|
|
|
|
|
Less: Net income
attributable to noncontrolling interests
|
(652)
|
|
(466)
|
|
(458)
|
|
(406)
|
|
|
|
|
|
|
|
|
Net income
attributable to First Potomac Realty Trust
|
17,682
|
|
14,010
|
|
16,434
|
|
16,033
|
|
|
|
|
|
|
|
|
Less: Dividends on
preferred shares
|
(3,100)
|
|
(3,100)
|
|
(6,200)
|
|
(6,200)
|
|
|
|
|
|
|
|
|
Net income
attributable to common shareholders
|
$
14,582
|
|
$
10,910
|
|
$
10,234
|
|
$
9,833
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net income
attributable to common shareholders
|
$
14,582
|
|
$
10,910
|
|
$
10,234
|
|
$
9,833
|
|
|
|
|
|
|
|
|
Depreciation and
amortization:
|
|
|
|
|
|
|
|
Rental
property
|
15,610
|
|
14,208
|
|
30,714
|
|
28,195
|
Discontinued operations
|
41
|
|
1,786
|
|
496
|
|
4,708
|
Unconsolidated joint
ventures
|
1,014
|
|
1,317
|
|
2,302
|
|
2,669
|
Consolidated joint
ventures
|
-
|
|
(53)
|
|
-
|
|
(104)
|
Impairment of
rental property
|
3,956
|
|
1,446
|
|
3,956
|
|
1,446
|
Gain on sale of rental
property
|
(22,514)
|
|
(18,947)
|
|
(22,568)
|
|
(18,947)
|
Net income
attributable to noncontrolling interests in the Operating
Partnership
|
652
|
|
474
|
|
458
|
|
419
|
|
|
|
|
|
|
|
|
Funds from operations
available to common shareholders
|
$
13,341
|
|
$
11,141
|
|
$
25,592
|
|
$
28,219
|
Consolidated
Statements of Operations
(unaudited,
amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended June
30,
|
|
2014
|
|
2013
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations
(FFO)
|
$
16,441
|
|
$
14,241
|
|
|
$
31,792
|
|
$
34,419
|
|
Less: Dividends on
preferred shares
|
(3,100)
|
|
(3,100)
|
|
|
(6,200)
|
|
(6,200)
|
|
FFO available to
common shareholders
|
13,341
|
|
11,141
|
|
|
25,592
|
|
28,219
|
|
Loss on debt
extinguishment
|
-
|
|
4,615
|
|
|
-
|
|
4,615
|
|
Deferred
abatement and straight-line amortization
|
-
|
|
-
|
|
|
1,045
|
|
(1,567)
|
|
Acquisition costs
|
1,111
|
|
-
|
|
|
1,179
|
|
-
|
|
Contingent consideration related to acquisition of
property
|
-
|
|
75
|
|
|
-
|
|
75
|
|
Legal
costs associated with informal SEC inquiry
|
-
|
|
55
|
|
|
-
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
Core FFO
|
$
14,452
|
|
$
15,886
|
|
|
$
27,816
|
|
$
31,733
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations available to common shareholders
|
$
0.23
|
|
$
(0.09)
|
|
|
$
0.17
|
|
$
(0.21)
|
|
Income from
discontinued operations available to common shareholders
|
0.02
|
|
0.29
|
|
|
-
|
|
0.40
|
|
Net income available
to common shareholders
|
$
0.25
|
|
$
0.20
|
|
|
$
0.17
|
|
$
0.19
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
58,146
|
|
53,586
|
|
|
58,122
|
|
52,004
|
|
Diluted
|
58,220
|
|
53,586
|
|
|
58,190
|
|
52,004
|
|
|
|
|
|
|
|
|
|
|
|
FFO available to
common shareholders per share – basic and diluted
|
$
0.22
|
|
$
0.20
|
|
|
$
0.42
|
|
$
0.52
|
|
|
|
|
|
|
|
|
|
|
|
Core FFO per share –
diluted
|
$
0.24
|
|
$
0.28
|
|
|
$
0.46
|
|
$
0.58
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares and units outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
60,777
|
|
56,184
|
|
|
60,752
|
|
54,602
|
|
Diluted
|
60,850
|
|
56,289
|
|
|
60,820
|
|
54,703
|
|
Consolidated
Balance Sheets
(Amounts in
thousands, except per share amounts)
|
|
|
|
|
|
June 30,
2014
|
|
December 31,
2013
|
|
(unaudited)
|
|
|
Assets:
|
|
|
|
Rental property,
net
|
$
1,258,646
|
|
$
1,203,299
|
Assets
held-for-sale
|
13,093
|
|
45,861
|
Cash and cash
equivalents
|
13,398
|
|
8,740
|
Escrows and
reserves
|
4,753
|
|
7,673
|
Accounts and other
receivables, net of allowance for doubtful accounts of $1,104 and
$1,181, respectively
|
10,050
|
|
12,384
|
Accrued straight-line
rents, net of allowance for doubtful accounts of $199 and $92,
respectively
|
29,820
|
|
30,332
|
Notes receivable,
net
|
63,751
|
|
54,696
|
Investment in
affiliates
|
49,278
|
|
49,150
|
Deferred costs,
net
|
42,750
|
|
43,198
|
Prepaid expenses and
other assets
|
6,466
|
|
8,279
|
Intangible assets,
net
|
46,261
|
|
38,848
|
|
|
|
|
Total
assets
|
$
1,538,266
|
|
$
1,502,460
|
|
|
|
|
Liabilities:
|
|
|
|
Mortgage
loans
|
$
302,909
|
|
$
274,648
|
Unsecured term
loan
|
300,000
|
|
300,000
|
Unsecured revolving
credit facility
|
116,000
|
|
99,000
|
Accounts payable and
other liabilities
|
37,604
|
|
41,296
|
Accrued
interest
|
1,701
|
|
1,663
|
Rents received in
advance
|
5,734
|
|
6,118
|
Tenant security
deposits
|
6,125
|
|
5,666
|
Deferred market rent,
net
|
2,532
|
|
1,557
|
|
|
|
|
Total
liabilities
|
772,605
|
|
729,948
|
|
|
|
|
Noncontrolling
interests in the Operating Partnership
|
35,214
|
|
33,221
|
|
|
|
|
Equity:
|
|
|
|
Preferred Shares, $0.001 par value, 50,000
shares authorized; Series A Preferred Shares, $25 liquidation
preference, 6,400 shares issued and
outstanding
|
$
160,000
|
|
$
160,000
|
Common shares,
$0.001 par value, 150,000
shares
authorized; 58,808 and 58,704 shares issued
and
outstanding, respectively
|
59
|
|
59
|
Additional paid-in
capital
|
910,680
|
|
911,533
|
Noncontrolling
interests in the consolidated partnership
|
942
|
|
781
|
Accumulated other
comprehensive loss
|
(4,603)
|
|
(3,836)
|
Dividends in excess of
accumulated earnings
|
(336,631)
|
|
(329,246)
|
|
|
|
|
Total
equity
|
730,447
|
|
739,291
|
|
|
|
|
Total liabilities,
noncontrolling interests and equity
|
$
1,538,266
|
|
$
1,502,460
|
Same-Property
Analysis
(unaudited,
dollars in thousands)
|
|
|
|
|
Same-Property
NOI(1)
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Total base
rent
|
$
30,116
|
|
$
29,725
|
|
$
60,290
|
|
$
59,073
|
Tenant reimbursements
and other
|
7,187
|
|
6,789
|
|
15,820
|
|
14,372
|
Property operating
expenses
|
(8,991)
|
|
(8,634)
|
|
(20,408)
|
|
(18,331)
|
Real estate taxes and
insurance
|
(3,914)
|
|
(3,593)
|
|
(7,921)
|
|
(7,676)
|
Same-Property NOI -
accrual basis
|
24,398
|
|
24,287
|
|
47,781
|
|
47,438
|
Straight-line revenue,
net
|
(301)
|
|
(228)
|
|
(686)
|
|
(564)
|
Deferred market rental
revenue, net
|
(20)
|
|
9
|
|
(41)
|
|
16
|
Same-Property NOI -
cash basis
|
$
24,077
|
|
$
24,068
|
|
$
47,054
|
|
$
46,890
|
|
|
|
|
|
|
|
|
Change in
same-property NOI - accrual basis
|
0.5%
|
|
|
|
0.7%
|
|
|
Change in
same-property NOI - cash basis
|
0.0%
|
|
|
|
0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-property
percentage of total portfolio (sf)
|
95.3%
|
|
|
|
95.3%
|
|
|
|
|
|
|
Reconciliation of
Consolidated NOI to Same-Property NOI
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Total
revenues
|
$
41,190
|
|
$
38,832
|
|
$
82,604
|
|
$
77,991
|
Property operating
expenses
|
(10,869)
|
|
(9,432)
|
|
(23,767)
|
|
(19,743)
|
Real estate taxes and
insurance
|
(4,372)
|
|
(3,975)
|
|
(8,641)
|
|
(8,487)
|
NOI
|
|
25,949
|
|
25,425
|
|
50,196
|
|
49,761
|
|
|
|
|
|
|
|
|
Less: Non-same
property NOI(2)
|
(1,551)
|
|
(1,138)
|
|
(2,415)
|
|
(2,323)
|
Same-Property NOI –
accrual basis
|
$
24,398
|
|
$
24,287
|
|
$
47,781
|
|
$
47,438
|
|
|
|
|
|
|
|
|
|
Change in
Same-Property NOI (accrual basis)
|
|
By
Region
|
Three Months
Ended
June 30,
2014
|
|
Percentage
of
Base Rent
|
|
Six Months
Ended
June 30,
2014
|
|
Percentage
of
Base Rent
|
Washington,
D.C.
|
(8.1)%
|
|
14%
|
|
(2.0)%
|
|
14%
|
Maryland
|
5.7%
|
|
28%
|
|
(1.1)%
|
|
28%
|
Northern
Virginia
|
1.4%
|
|
34%
|
|
2.4%
|
|
34%
|
Southern
Virginia
|
(0.9)%
|
|
24%
|
|
2.7%
|
|
24%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Type
|
|
|
|
|
|
|
|
Business Park /
Industrial
|
4.6%
|
|
44%
|
|
5.1%
|
|
44%
|
Office
|
(3.0)%
|
|
56%
|
|
(2.8)%
|
|
56%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Same-property comparisons are based upon those consolidated
properties owned and in-service for the entirety of the periods
presented. Same-property results exclude the operating results of
the following non same-properties that were owned as of June 30,
2014: 440 First Street, NW, Storey Park, 1401 K Street, NW, 1775
Wiehle Avenue, and a building at Redland Corporate
Center.
|
(2)
Non-same property NOI has been adjusted to reflect a normalized
management fee percentage in lieu of an administrative overhead
allocation for comparative purposes, as well as Corporate Campus at
Ashburn Center, which was sold in June 2014.
|
CONTACT:
Jaime N. Marcus
Director, Investor Relations
(301) 986-9200
jmarcus@first-potomac.com
SOURCE First Potomac Realty Trust