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Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

We are offering 4,000,000 common shares of beneficial interest through a syndicate of underwriters.

Our common shares are traded on the New York Stock Exchange under the symbol “FPO.” The last reported sale price of our common shares on the New York Stock Exchange on June 4, 2004 was $18.10 per share.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Investing in our common shares involves risks. See “Risk Factors” beginning on page 14.

We have granted the underwriters an option to purchase up to 600,000 common shares to cover over-allotments.

No dealer, salesperson or other individual has been authorized to give any information or to make any representation other than those contained in this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by us or the underwriters. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs or that information contained in this prospectus is correct as of any time subsequent to the date of this prospectus or dates indicated in this prospectus.

The following summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus, including “Risk Factors,” before making a decision to invest in our common shares. In this prospectus, unless the context suggests otherwise, (i) references to “our company,” “the company,” “we,” “us” and “our” mean First Potomac Realty Trust, including First Potomac Realty Investment Limited Partnership, our operating partnership, and our other subsidiaries and their predecessor entities and (ii) the information assumes the sale of 4,000,000 shares in this offering at $18.10, the closing price of our common shares on the New York Stock Exchange on June 4, 2004, and no exercise by the underwriters of their over-allotment option to purchase up to an additional 600,000 common shares.

We are a self-managed, self-administered real estate investment trust, or REIT, that owns and operates industrial and flex properties in the Washington, D.C. metropolitan area and other major markets in Virginia and Maryland, which we collectively refer to as the southern Mid-Atlantic region. We closed our initial public offering on October 28, 2003 and raised net proceeds of approximately $118.0 million. We used the proceeds to repay debt, including prepayment fees, to acquire the remaining joint venture interests in four of our properties and to acquire five additional properties. We own our properties through our operating partnership. Our current portfolio consists of 19 industrial and flex properties totaling approximately 3.0 million rentable square feet.

Our senior management team, led by Douglas J. Donatelli, our President and CEO, and Louis T. Donatelli, Chairman of our Board of Trustees, averages more than 20 years of real estate experience in the Washington, D.C. metropolitan area. All of the members of our senior management team are natives of the areas where our properties are located. Our senior management team and trustees together beneficially own approximately 10.4% of the equity interests in our company, through ownership of our common shares and units of limited partnership interest in our operating partnership.

We seek to acquire properties that can benefit from active property management to increase their profitability and value. Our portfolio contains a mix of single-tenant and multi-tenant industrial and flex properties. Industrial properties generally are used as warehouse, distribution and manufacturing facilities, while flex properties combine office building features with industrial property space.

The properties that we have acquired since our initial public offering fit our strategy. These properties were, on average, 73% leased at the time of our acquisition but, nonetheless, generated an unleveraged average return based on their in-place property level operating income at the time of acquisition of approximately 8.5%. As of April 30, 2004, we had increased the average occupancy of these newly acquired properties to 80%. When combined with the portfolio we held prior to our initial public offering, which was 94% leased at April 30, 2004, our total portfolio was 90% leased as of April 30, 2004, to a total of 176 tenants. Our largest tenant is the U.S. Government, which leases approximately 616,000 square feet under 19 leases, representing approximately 28% of our annualized base rent as of April 30, 2004.

On June 4, 2004, we acquired Aquia Commerce Center I & II, comprised of two buildings containing approximately 64,000 rentable square feet in Stafford, Virginia, for $11.2 million. In May 2004, we entered into a contract to purchase a portfolio of 14 properties (26 buildings) containing approximately 1.4 million rentable square feet located primarily in the Maryland suburbs of Washington, D.C., which we refer to as the “Suburban Maryland Portfolio,” for $123.0 million. We sometimes refer to the Suburban Maryland Portfolio in this prospectus as our “acquisition properties.” Our acquisition properties have current annualized base rent of approximately $11.7 million and average occupancy at April 30, 2004 of 93%. In addition to industrial and flex properties, the Suburban Maryland Portfolio includes four non-core properties comprised of three multi-story office buildings and one retail property. These non-core properties comprise approximately 24% of the rentable square footage and approximately 28% of the annualized base rent of the Suburban Maryland Portfolio at April 30, 2004. We intend to sell these non-core properties when practicable. However,

all of the properties included in the Suburban Maryland Portfolio are financed by a single first mortgage loan with an outstanding balance of approximately $78.0 million at March 31, 2004. This financing, which we are assuming in connection with the acquisition, will limit our ability to sell these properties prior to the loan’s maturity in September 2008. Our acquisition of the acquisition properties is subject to satisfactory completion of due diligence and customary closing conditions, including lender approval of our assumption of the outstanding mortgage debt. We expect to complete this acquisition by the end of July 2004.

Ownership of industrial and flex properties in the southern Mid-Atlantic region is highly fragmented. According to a report by Delta Associates, a real estate market research firm, the southern Mid-Atlantic region contains more than 475 million square feet of industrial and flex property, which we estimate have an aggregate fair market value of more than $25 billion based on our knowledge of comparable per square foot sale prices of these property classes in this region. According to CoStar Group, a real estate market research firm, these properties are owned by hundreds of different owners, ranging from large institutional investors to small investors and owner/ occupants, with no single owner holding a significant share of the property market. For example, in our primary market, the Washington, D.C. metropolitan area, the largest owner of industrial and flex property, as measured by square footage, owns approximately 1.5% and the top five owners collectively own less than 7% of the industrial and flex market.

The Washington, D.C. metropolitan area, our largest target market, has one of the most stable economies in the country, primarily attributable to the presence of the U.S. Government and private contractors that service the U.S. Government. The private sector is supported by the procurement spending of the U.S. Government, which has enhanced the area’s technology industry and tempered the negative impact of national economic cycles. The Washington, D.C. area is the country’s sixth largest metropolitan area in population, fifth in jobs and fourth in economic output according to the report by Delta Associates. The report also states that the area has 5.2 million residents, 3.5 million jobs, a 2002 gross regional product of $236.5 billion and more jobs per household than any other metropolitan area in the country.

Our other principal markets are the Norfolk, Virginia, Baltimore, Maryland and Richmond, Virginia metropolitan areas. Norfolk is home to the largest military station in the world, according to the United States Navy, and has an even larger percentage of federal government employees than Washington, D.C. The Baltimore metropolitan area, with approximately 157 million square feet of industrial space, has recently strengthened its position as a major trade and distribution center with strong employment growth in wholesale and retail trade. Richmond, the capital of Virginia, is strategically located in the middle of the eastern seaboard, equidistant between Boston and Atlanta.

Increased defense spending by the U.S. Government and creation of the Department of Homeland Security has begun to benefit the industrial and flex market in the southern Mid-Atlantic region. Over the two most recently completed quarters, we experienced increased leasing and reduced vacancy in our target markets, which we attribute, at least in part, to this additional spending. We believe that additional defense and homeland security related spending will continue to create further demand for industrial and flex property in our markets.

Our operating partnership was formed in 1997 to leverage our management’s knowledge of and experience in the southern Mid-Atlantic real estate market to create the leading industrial and flex property owner in the region. We believe that the large number of properties meeting our investment criteria and the fragmented ownership of industrial and flex property in the region create an opportunity for us to achieve this goal.

We typically seek to acquire individual properties or portfolios that are smaller in transaction size than those pursued by many institutional investors, such as Aquia Commerce Center I & II, often enabling us to avoid competitively bid acquisitions. The Suburban Maryland Portfolio is a large transaction, but represents a unique opportunity for us to acquire a large portfolio of industrial and flex properties in one of our target

markets. We typically finance our properties with fixed-rate first mortgage debt financing at levels that approximate 50% to 60% of the properties’ value. Our financing strategy is flexible enough to allow us to acquire properties encumbered by non-prepayable debt representing 40% to 60% of the properties’ value, which is an amount often not suited to either private buyers, who generally prefer more debt, or institutional buyers, who generally prefer no debt at all. We believe this strategy allows us to compete effectively to acquire these types of properties.

We intend to use our contacts, relationships and local market knowledge to continue to identify and opportunistically acquire additional industrial and flex properties in our target markets. We believe that our reputation for superior property management allows us to attract high-quality tenants to the properties that we acquire, enabling us to increase the profitability and value of our properties.

We believe that our business strategy and operating model distinguish us from many other owners, operators and acquirors of real estate in our target markets in a number of ways, including:


	•	Experienced Management Team with Large Ownership Stake. Our senior management team averages more than 20 years of real estate experience in the Washington, D.C. area. Our senior management team and our trustees collectively own approximately 10.4% of the equity interests in our company prior to completion of this offering.

	•	Focused Strategy. We are the only publicly traded REIT focused primarily on industrial and flex properties in the southern Mid-Atlantic region, which includes some of the largest and most stable markets for properties of this type.

	•	Value-Added Management Approach. Through our hands-on approach to management, leasing, renovation and repositioning, we endeavor to add significant value to the properties that we acquire from absentee institutional landlords and smaller, less sophisticated owners, by improving tenant quality and increasing occupancy rates and net rent per square foot.

	•	Strong Market Dynamics. Our target markets exhibit stable rental rates, frequent acquisition opportunities, and strong tenant bases, according to Delta Associates. We believe that additional U.S. Government spending for national defense and homeland security will increase demand for industrial and flex space in our markets by both U.S. Government agencies and government contractors.

	•	Local Market Knowledge. We have established relationships with local owners, the brokerage community, prospective tenants and property managers in our markets. We believe these relationships enhance our efforts to locate attractive acquisition opportunities and lease space in our properties.

	•	Acquisition Opportunities. We believe we have significant opportunities to acquire attractive properties in our target markets that are either below the minimum size thresholds of most institutional investors or that are encumbered by debt in an amount that is not suited to either private buyers, who generally prefer more debt, or institutional buyers, who prefer no debt at all. We believe these acquisitions often yield more attractive pricing than unencumbered properties or larger portfolios that attract institutional interest and more competitive bidding.

	•	Favorable Lease Terms. As of April 30, 2004, 127 of our 212 leases (representing 60% of the leased space in our portfolio) are triple net leases, under which tenants are contractually obligated to reimburse us for virtually all costs of occupancy, including property taxes, utilities, insurance and maintenance. In addition, our leases generally provide for rent growth through contractual rent increases.

	•	Tenant Mix. As of April 30, 2004, our tenants included the U.S. Government (28% of our annualized base rent), government contractors (22%), Fortune 500 companies (10%) and approximately 130 smaller tenants, most of which hold leases covering less than 15,000 square feet (40%). In our experience, smaller leases generally provide a premium rent per square foot. As of April 30, 2004, the rental rates on our smaller leases were, on average, over 20% higher than the rental rates on our larger leases. We believe our current tenant base provides a desirable mix of stability, diversity and rental growth potential.


	•	Participation in General Services Administration’s Advanced Acquisition Program. Our Washington, D.C. area properties generally participate in the General Services Administration’s Advanced Acquisition Program (AAP), which pre-approves Washington, D.C. area landlords to lease space to government agencies. We intend to include all of our eligible properties in the AAP program.

You should carefully consider the matters discussed in the “Risk Factors” section prior to deciding whether to invest in our common shares. Some of these risks include:


	•	if we are unable to complete our acquisition under contract in a timely fashion or at all, we will have no designated use for a majority of the proceeds of this offering and may experience delays in locating and securing attractive alternative investments;

	•	we recently have experienced rapid growth and may not be able to adapt our management and operational systems to respond to the acquisition and integration of a large portfolio, such as the Suburban Maryland Portfolio, or any additional acquisitions in the future, without unanticipated disruption or expense;

	•	the ownership and management of the multi-level office buildings and retail properties included in the Suburban Maryland Portfolio differ from industrial and flex properties and we may experience difficulties in managing these properties;

	•	we are subject to the credit risk of our tenants, which may fail to make lease payments and thereby cause a significant decrease in our revenues;

	•	loss of a significant tenant could lead to a substantial decrease in our cash flow and an impairment of the value of our properties;

	•	we have a limited operating history as a REIT and limited experience operating a public company;

	•	our debt level may have a negative impact on our ability to make distributions to our shareholders and pursue our business plan;

	•	we compete with other parties for tenants and property acquisitions and many of these parties have substantially greater resources than we have;

	•	all of our properties are located in the southern Mid-Atlantic region, making us vulnerable to changes in economic conditions in that region, including the adverse impacts of decreased government spending;

	•	we may be unable to renew expiring leases or re-lease vacant space on a timely basis or on attractive terms, which could significantly decrease our cash flow;

	•	our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit your recourse in the event of actions not in your best interests;

	•	real estate investments are inherently risky, which could adversely affect our profitability and our ability to make distributions to our shareholders;

	•	if we fail to remain qualified as a REIT for federal income tax purposes, we will not be able to deduct our distributions, and our income will be subject to taxation; and

	•	distribution requirements relating to qualification as a REIT for federal income tax purposes limit our flexibility in executing our business plan.

Current Properties. The following table describes our current property portfolio:


(1)	Occupancy percentage includes leases executed as of April 30, 2004 that commence in future periods. The 6251 Ammendale Road property was acquired in December 2003 with 38% occupancy at the time of acquisition.

As of April 30, 2004, the weighted average remaining lease term for all of our current properties, based on 2004 contractual base rent, was 4.4 years.

Acquisition Properties. The following table describes the Suburban Maryland Portfolio we have under contract to purchase:


(1)	Purchase price includes our assumption of approximately $78 million in existing debt.

As of April 30, 2004, the weighted average remaining lease term for the acquisition properties, based on 2004 contractual base rent, was 3.5 years.

We focus on acquisitions of industrial and flex properties in our target markets that generally meet the following investment criteria:


	•	established locations;

	•	high occupancy rates, but ideally with some lease expirations in the first three years after acquisition;

	•	below-market rents; and

	•	absentee ownership.

We also target properties that we believe can be converted, in whole or in part, to a higher use. With flex property in particular, we have found that, over time, the property can be improved by converting space that is primarily warehouse space into space that contains more office use. Because office rents are generally higher than warehouse rents, we have been able to add revenue and value by converting space as market demand allows.

We own our properties and conduct substantially all of our operations through our operating partnership, First Potomac Realty Investment Limited Partnership, and its subsidiaries. As the sole general partner of our operating partnership, we have the exclusive power to manage and conduct our operating partnership’s business, subject to certain limitations described in the partnership agreement of our operating partnership. We currently own an 86.1% interest in our operating partnership and will own a 90.0% interest upon completion of this offering and contribution of the net proceeds to our operating partnership. The remaining interests in the operating partnership are owned by limited partners, including certain of our executive officers and trustees, who contributed properties and other assets to our operating partnership in exchange for limited partnership units. Limited partners may, subject to certain restrictions, tender their units for redemption for, at our option, (1) common shares on a one-for-one basis (one unit for one share), subject to adjustments for stock splits, dividends, recapitalizations and similar events, or (2) a cash amount equal to the value of the common shares. Limited partners receive distributions per unit equivalent to the per share distributions we make to holders of our common shares. See “Partnership Agreement.”

The following chart illustrates the structure of our company and respective ownership interests following completion of this offering:


(1)	Our operating partnership owns 100% of the capital interests in FPM Management, LLC and 95.5% of the profits interests. The remaining profits interests are held by William Kenefic, Scott Dodson and George Ireland, three non-executive employees of FPM Management, LLC. See “Certain Relationships and Related Party Transactions.”

Our executive offices are located at 7200 Wisconsin Avenue, Suite 310, Bethesda, Maryland 20814 and our telephone number is (301) 986-9200. We maintain a web site at http://www.first-potomac.com. The information on our web site does not constitute a part of this prospectus.

There are conflicts of interest between certain executive officers and trustees, on the one hand, and us and our shareholders, on the other, as well as conflicts of interest between our underwriters and certain of their affiliates, which could result in decisions not in your best interest.

Our Chairman, Louis T. Donatelli, beneficially owns 548,716 units of partnership interest in our operating partnership, or approximately 5.5% of the total number of units issued and outstanding, comprised of 79,397 units directly held, 85,050 units indirectly held through First Potomac Management, Inc. and 383,369 units indirectly held through Plaza 500 Limited Partnership. Mr. Donatelli is the sole shareholder of the general partner of Plaza 500, Donatelli & Klein, Inc. (D&K). Plaza 500 Limited Partnership became a unitholder in December 1997 in connection with the initial formation of our operating partnership when it contributed one of our initial properties, Plaza 500, to our operating partnership. By contributing Plaza 500 to our operating partnership in exchange for units, Plaza 500 Limited Partnership was able to defer the taxable gain that it would have otherwise realized upon the transfer of Plaza 500. Certain transactions that we might undertake with regard to Plaza 500, including a disposition or refinancing of that property, could cause Plaza 500 Limited Partnership to recognize part or all of any taxable gain that has thus far been deferred. Mr. Donatelli may have a conflict of interest in our board’s consideration of any proposed disposition or refinancing of Plaza 500 because of the tax liability that could be recognized by Plaza 500 Limited Partnership. Thus, decisions with respect to that property may not fully reflect your interests.

In addition, Mr. Donatelli could have a conflict of interest because of the nature of the business of D&K. D&K is a real estate investment firm primarily focused on developing multifamily properties. In the past,

D&K has acquired, redeveloped or repositioned commercial real estate in the Washington, D.C. metropolitan area, and thus could potentially compete with us. Mr. Donatelli has entered into an employment contract with us under which he and his affiliates, including D&K, have agreed not to compete with us in acquiring, operating and developing industrial or flex properties in a specific geographic area during the term of his employment and for an additional one-year period following his termination of employment with us. Mr. Donatelli’s agreement not to compete with us does not extend to office and retail properties. See “Certain Relationships and Related Party Transactions — Our Relationship with Donatelli & Klein, Inc.”

One of our trustees, Terry L. Stevens, currently serves as Vice President, Chief Financial Officer and Treasurer of Highwoods Properties, Inc., a fully integrated, North Carolina based REIT that owns, leases, manages, develops, and constructs office, industrial and retail properties, some of which are located in our target markets. Another of our trustees, Richard B. Chess, currently serves as Director — 1031 Transactions for Triple Net Properties, a real estate sponsor that invests in, acquires, repositions and develops real estate, primarily in the western United States. As a result, conflicts may arise when our company and Highwoods Properties Inc. or Triple Net Properties compete in the same markets for properties, tenants, personnel and other services.

Certain other of our trustees and executive officers beneficially own units of interest in our operating partnership: Douglas J. Donatelli (148,708 units); Robert H. Arnold (99,948 units owned by R.H. Arnold & Company, Inc.); Nicholas R. Smith (79,323 units); Barry H. Bass (39,835 units); Kyung Rhee (44,900 units); and James H. Dawson (32,385 units). These trustees and executive officers may have conflicting duties because, in their capacities as our trustees and executive officers, they have a duty to us and our shareholders, while at the same time, in our capacity as general partner of our operating partnership, they have a fiduciary duty to the limited partners, and they themselves are limited partners. Conflicts may arise when the interests of our shareholders and the limited partners of the operating partnership diverge, particularly in circumstances in which there may be an adverse tax consequence to the limited partners, such as upon the sale of assets or the repayment of indebtedness. The amended and restated partnership agreement of the operating partnership provides that, in the event of a conflict of interest between our shareholders and the limited partners of our operating partnership, we shall endeavor in good faith to resolve the conflict in a manner not adverse to either our shareholders or the limited partners of our operating partnership, and, if we, in our sole discretion as general partner of the operating partnership, determine that a conflict cannot be resolved in a manner not adverse to either our shareholders or the limited partners of our operating partnership, the conflict will be resolved in favor of our shareholders. In addition, our board of trustees has adopted a policy under which any disposition or refinancing of a property in which a trustee has an interest, must be approved by a majority of the disinterested trustees.

We have commercial relationships with an affiliate of our lead managing underwriter. KeyBank National Association, an affiliate of KeyBanc Capital Markets, has committed to provide us a $35.0 million bridge loan and is a lender under our revolving line of credit. In the event we acquire the acquisition properties before we complete this offering, we intend to borrow under the bridge loan and our revolving line of credit to fund the cash portion of the purchase price of our acquisition properties. These competing funding sources may result in conflicts of interest.

On January 20, 2004, we paid a dividend of $0.10 per common share for the partial period from October 23, 2003, the date of our initial public offering, through December 31, 2003. On May 10, 2004, we paid a dividend of $0.20 per common share for the first quarter of 2004.

We intend to make regular quarterly distributions to holders of our common shares. Distributions will be authorized by our board of trustees based upon a number of factors, including:


	•	the amount of funds from operations;

	•	our overall financial condition;

	•	debt service requirements;


	•	capital expenditure requirements for our properties;

	•	our taxable income;

	•	the annual distribution requirements under the REIT provisions of the Internal Revenue Code; and

	•	other factors our trustees deem relevant.

Our ability to make distributions to our shareholders will depend on our receipt of distributions from our operating partnership, which in turn depend upon the receipt of lease payments from our lessees.


(1)	Excludes up to 600,000 common shares that may be issued by us upon exercise of the underwriters’ over-allotment option.

(2)	Excludes 1,396,523 common shares issuable upon redemption of outstanding units of our operating partnership. See “Partnership Agreement — Redemption Rights.”

(3)	Excludes 555,000 common shares currently reserved for issuance upon exercise of outstanding options to purchase common shares.

You should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and related notes which are included elsewhere in this prospectus.

The following table sets forth summary consolidated and combined financial and operating information of our company. The financial information has been derived from the consolidated balance sheets and statements of operations of our company and the combined balance sheets and the statements of operations of First Potomac Predecessor, the designation for the entities comprising our company’s historical operations prior to the closing of our initial public offering on October 28, 2003. The historical operations include the activities of First Potomac Realty Investment Limited Partnership, our operating partnership, First Potomac Realty Investment Trust, Inc. (the predecessor general partner of our operating partnership) and First Potomac Management, Inc. (the predecessor management company that managed all of our assets).

The consolidated balance sheet as of December 31, 2003 and the historical combined balance sheet data as of December 31, 2002, 2001 and 2000 of our company and First Potomac Predecessor, respectively, as well as the combined statement of operations data for the years ended December 31, 2003, 2002, 2001 and 2000 of our company and First Potomac Predecessor have been derived from the consolidated financial statements of our company and the historical combined financial statements of First Potomac Predecessor audited by KPMG LLP, independent auditors, whose report with respect thereto is included elsewhere in this prospectus.

The consolidated balance sheet data as of March 31, 2004 and consolidated and combined statements of operations for the three months ended March 31, 2004 and 2003 have been derived from the unaudited consolidated statements of operations of our company and the unaudited combined financial statements of First Potomac Predecessor, respectively. In the opinion of our management, the consolidated and combined statements of operations for the three months ended March 31, 2004 and 2003 include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. Our results for the interim period ended March 31, 2004 are not necessarily indicative of the results for the full fiscal year.

Our unaudited summary pro forma consolidated financial statements and operating information as of and for the three months ended March 31, 2004 and for the year ended December 31, 2003 assume completion of this offering, acquisition of Herndon Corporate Center and Aquia Commerce Center I and II, completion of the acquisition under contract, a full-year impact for all acquisitions completed in the fourth quarter of 2003, the application of the net proceeds from our initial public offering and application of the net proceeds of this offering as described in “Use of Proceeds” as of the beginning of the periods presented for the operating data and as of the stated date for the balance sheet. Our pro forma financial data is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations.


(1)	Pro forma basic and diluted loss per share are computed assuming this offering and the initial public offering were consummated as of the first day of the period presented and equal pro forma net loss divided by the number of common shares to be outstanding after these offerings.

(2)	Basic and diluted common shares outstanding exclude 1,396,523 operating partnership units as they are antidilutive.

(3)	As defined by the National Association of Real Estate Investment Trusts, or NAREIT, funds from operations represents income (loss) before minority interest (computed in accordance with generally accepted accounting principles, or GAAP), including losses from debt restructuring and excluding gains (losses) from sales of property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Management considers funds from operations a useful additional 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 assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that funds from operations provides a meaningful supplemental indication of our performance. We compute funds from operations in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating funds from operations utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, funds from operations 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. Funds from operations should not be considered as an alternative to net income (loss) (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.

(4)	Includes (i) 12,634,000 weighted average common shares (ii) 1,396,523 operating partnership units and (iii) 64,089 options to purchase common shares based on the dilutive effect of options outstanding for the periods ended December 31, 2003 and March 31, 2004.

The following table presents a reconciliation of our pro forma net loss to our pro forma funds from operations for the periods presented:

Before you invest in our common shares, you should be aware that the occurrence of any of the events described in this risk factors section and elsewhere in this prospectus could have a material adverse effect on our business, financial condition and results of operations. You should carefully consider these risk factors, together with all other information included in this prospectus, before you decide to purchase our common shares.

If we are unable to complete our acquisitions under contract in a timely fashion or at all, we will have no designated use for a majority of the proceeds of this offering and may experience delays in locating and securing attractive alternative investments.

We have entered into a contract to purchase the Suburban Maryland Portfolio for an aggregate of approximately $123.0 million. See “Our Business and Properties — Description of Acquisition Properties.” We expect the closing of this acquisition to occur after completion of this offering. However, our ability to complete this acquisition is dependent upon many factors, such as satisfactory completion of due diligence, customary closing conditions, including lender approval of our assumption of the outstanding mortgage debt, and our ability to obtain sufficient financing. Our inability to complete this acquisition within our anticipated time frame or at all could have a material adverse effect on our results of operations, financial condition and on our dividends to shareholders. If we are unable to complete the purchase of the acquisition properties, we will have no specific designated use for a majority of the net proceeds from this offering and investors will be unable to evaluate in advance the manner in which we invest the net proceeds or the economic merits of the properties we may ultimately acquire with the net proceeds.

We have recently experienced rapid growth and may not be able to adapt our management and operational systems to respond to the acquisition and integration of a large portfolio, such as the Suburban Maryland Portfolio, or any additional acquisitions in the future, without unanticipated disruption or expense.

We are currently experiencing a period of rapid growth. Since our initial public offering in October 2003, we have acquired six properties containing approximately 783,000 rentable square feet. In addition, we have recently entered into a contract to purchase the Suburban Maryland Portfolio, comprised of 14 properties and 26 buildings containing approximately 1.4 million rentable square feet. Completion of our anticipated acquisition coupled with our acquisition of six properties subsequent to our initial public offering, nearly doubles the rentable square feet in our portfolio. See “Our Business and Properties — Description of Acquisition Properties.” As a result of our rapid growth and the size of our anticipated acquisition, we cannot assure you that we will be able to adapt our management, administrative, accounting and operational systems, or hire and retain sufficient operational staff to integrate these additional properties into our portfolio or manage any future acquisitions of properties without operating disruptions or unanticipated costs. Our anticipated acquisition and any future acquisition of properties will generate additional operating expenses that we will be required to pay. As we acquire additional properties, we will be subject to risks associated with managing new properties, including tenant retention and mortgage default. Our failure to successfully integrate our anticipated acquisition and any future acquisitions into our portfolio could have a material adverse effect on our results of operations and financial condition.

The ownership and management of the multi-level office buildings and retail properties included in the Suburban Maryland Portfolio differ from industrial and flex properties and we may experience difficulties in managing these properties.

Our current portfolio consists of single-tenant and multi-tenant industrial and flex properties, a majority of which are leased under triple net leases where tenants are contractually obligated to reimburse us for

virtually all costs of occupancy. In addition to these types of properties, the Suburban Maryland Portfolio includes three multi-level office buildings and a retail shopping center. We do not currently own or operate properties of this type and have limited experience in managing these types of properties. We may be unable to efficiently manage these new properties and may be unable to dispose of them in a timely fashion, on favorable terms, or at all. We may experience substantial unanticipated difficulties or expenses involved in owning and managing multi-level office buildings and retail properties, which could have an adverse effect on our financial condition and results of operations.

We are subject to the credit risk of our tenants, which may fail to make lease payments and thereby cause a significant decrease in our revenues.

We are subject to the credit risk of our tenants. We cannot assure you that our tenants will not default on their leases and fail to make rental payments to us. In particular, local economic conditions and factors affecting the industries in which our tenants operate may affect our tenants’ ability to make lease payments to us. Moreover, we may be unable to locate a replacement tenant in a timely manner or on comparable or better terms if a tenant defaults on its lease. The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to meet our financial obligations.

More than 100 of our 176 tenants hold leases covering less than 15,000 square feet. Many of these tenants are small companies with nominal net worth. The loss of rental revenues from a number of our tenants may adversely affect our profitability and our ability to meet our financial obligations.

Loss of the U.S Government as a tenant could lead to a substantial decrease in our cash flow and an impairment of the value of our properties.

We consider the U.S. Government to be our only significant tenant because it is the only tenant that accounted for more than 10% of our 2003 annualized base rent. The federal government accounted for approximately 28% of our annualized base rent as of April 30, 2004. The loss of the federal government as a tenant or the loss of a future significant tenant would have an adverse effect on our financial results and the value of our affected properties. A reduction or elimination of rent from significant tenants would reduce our cash flow and may adversely affect our ability to make distributions to our shareholders.

We have a limited operating history as a REIT and limited experience operating a public company and may not be able to successfully and profitably operate our business.

We completed our initial public offering in October 2003. Although our senior management team has experience acquiring, operating and developing industrial and flex properties, it has limited experience operating a REIT and managing a publicly owned company. Therefore, you should be cautious about drawing conclusions about our ability to execute our business plan.

Our debt level may have a negative impact on our ability to make distributions to our shareholders and pursue our business plan.

We have incurred indebtedness in connection with the acquisition of our properties, and we will incur new indebtedness in the future in connection with our acquisition, development and operating activities. We expect to have approximately $200 million of consolidated indebtedness upon completion of this offering and upon application of the net proceeds as described in “Use of Proceeds.”


	•	that our cash flow will be insufficient to make required payments of principal and interest;

	•	that we will be unable to refinance some or all of our indebtedness or that any refinancing will not be on terms as favorable as those of the existing indebtedness;

	•	that required debt payments are not reduced if the economic performance of any property declines;


	•	that debt service obligations will reduce funds available for distribution to our shareholders and funds available for acquisitions; and

	•	that any default on our indebtedness could result in acceleration of those obligations and possible loss of property to foreclosure.

If the economic performance of any of our properties declines, our ability to make debt service payments would be adversely affected. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, we may lose that property to lender foreclosure with a resulting loss of income and asset value.

We do not have a policy limiting the amount of debt that we may incur, although we have established 55% to 65% as the target range for our total debt to market capitalization. Accordingly, our management and board of trustees have discretion to increase the amount of our outstanding debt at any time. Our leverage levels may make it difficult to obtain any additional financing based on our current portfolio or to refinance existing debt on favorable terms or at all. In addition, the terms of our revolving credit facility limit the amount of indebtedness that we may incur. Failure to obtain additional financing could impede our ability to grow and develop our business. Our leverage levels also may adversely affect the market value of our common shares if an investment in our company is perceived to be more risky than an investment in our peers.

Upon completion of this offering and the application of the proceeds as described in “Use of Proceeds,” we expect that we will have approximately $25.5 million of variable rate debt. In addition, we have a three-year, $50.0 million secured revolving credit facility with Fleet National Bank that bears interest at a variable rate on any amounts drawn on the facility. We may incur additional variable rate debt in the future. Increases in interest rates on variable rate debt would increase our interest expense, which would adversely affect net earnings and cash available for payment of our debt obligations and distributions to our shareholders.

We compete with other parties for tenants and property acquisitions and many of these parties have substantially greater resources than we have.

Our business strategy contemplates expansion through acquisition. The commercial real estate industry is highly competitive, and we compete with substantially larger companies, including substantially larger REITs, for the acquisition, development and leasing of properties. Some of these companies are national or regional operators with far greater resources than we have. As a result, we may not be able or have the opportunity to make suitable investments on favorable terms in the future. Competition in a particular area also could adversely affect our ability to lease our properties or to increase or maintain rental rates.

Newly developed and acquired properties may not produce the cash flow that we expect, which could adversely affect our overall financial performance.

Over the last few years, we have focused our efforts on the acquisition and redevelopment of industrial and flex properties. We intend to continue to acquire, and may in the future develop, industrial and flex properties. In deciding whether to acquire or develop a particular property, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected occupancy and rental rates. If our estimated return on investment proves to be inaccurate, and the property is unable to achieve the expected occupancy and rental rates, it may fail to perform as we expected in analyzing our investment. When we acquire a property, we often plan to reposition or redevelop that property with the goal of increasing profitability. Our estimate of the costs of repositioning or redeveloping an acquired property may prove to be inaccurate, which may result in our failure to meet our profitability goals. Additionally, we may acquire new properties not fully leased, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property until the property is more fully leased. If one or more of these new properties do not perform as

All of our properties are located in the southern Mid-Atlantic region, making us vulnerable to changes in economic conditions in that region.

Economic conditions in the southern Mid-Atlantic region may significantly affect the occupancy and rental rates of our properties. A decline in occupancy and rental rates, in turn, may significantly affect our profitability and our ability to satisfy our financial obligations. The economic condition of the region may depend on one or more industries and, therefore, an economic downturn in one of these industry sectors may adversely affect our performance. Local real estate market conditions may include a large supply of competing space, and we will need to compete for tenants based on rental rates, attractiveness and location of a property, and quality of maintenance and management services. As a result of the geographic concentration of our properties, our performance, our ability to make cash distributions, and the value of one or more of our properties will depend upon economic conditions in the region, including local real estate conditions and competition. There can be no assurance that these markets will continue to grow or that economic conditions will remain favorable. If unfavorable economic conditions occur in the region, our ability to make distributions to our shareholders could be adversely affected. In particular, we are directly affected by decreases in federal government spending.

Development and construction risks could adversely affect our profitability.

We may develop new properties in the future. Our renovation, redevelopment, development and related construction activities may subject us to the following risks:


	•	we may be unable to obtain, or suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, which could result in increased costs or our abandonment of these projects.

	•	we may incur construction costs for a property which exceed our original estimates due to increased costs for materials or labor or other costs that we did not anticipate.

	•	we may not be able to obtain financing on favorable terms, which may render us unable to proceed with our development activities.

	•	we may be unable to complete construction and lease-up of a property on schedule, which could result in increased debt service expense or construction costs.

Additionally, the time frame required for development, construction and lease-up of these properties means that we may have to wait years for a significant cash return. Because we are required to make cash distributions to our shareholders, if the cash flow from operations or refinancing is not sufficient, we may be forced to borrow additional money to fund such distributions.

We may make selected acquisitions outside our current geographic market from time to time as appropriate opportunities arise. Our historical experience is in the southern Mid-Atlantic region, and we may not be able to operate successfully in other market areas. We may be exposed to a variety of risks if we choose to enter new markets. These risks include:


	•	a lack of market knowledge and understanding of the local economies;

	•	an inability to identify promising acquisition or development opportunities;


	•	an inability to obtain construction trades people; and

	•	an unfamiliarity with local government and permitting procedures.

Any of these factors could adversely affect the profitability of projects outside our current markets and limit the success of our acquisition and development strategy. If our acquisition and development strategy is negatively affected, the profitability, growth, and development of our business may be impeded.

We may be unable to renew expiring leases or re-lease vacant space on a timely basis or on attractive terms, which could significantly decrease our cash flow.

Leases representing approximately 29% of our annualized base rent at April 30, 2004, expire on or before December 31, 2006. Current tenants may not renew their leases upon the expiration of their terms. Alternatively, current tenants may attempt to terminate their leases prior to the expiration of their current terms. If non-renewals or terminations occur, we may not be able to locate qualified replacement tenants and, as a result, we would lose a significant source of revenue while remaining responsible for the payment of our obligations. Moreover, the terms of a renewal or new lease may be less favorable than the current lease terms. Any of these factors could cause a decline in lease revenue, which would have a negative impact on our profitability.

Under some of our leases, tenants have the right to terminate prior to the scheduled expiration of the lease.

Some of our leases for our current properties provide tenants with the right to terminate prior to the scheduled expiration of the lease. For example, the U.S. Government leases space from us under a full service lease in the Coast Guard Building with annualized base rent of approximately $948,000, or approximately 3.1% of our annualized base rent as of April 30, 2004. The space is utilized by the U.S. Coast Guard. Under the terms of the lease, the U.S. Government may terminate the lease in its sole discretion, in whole or in part, in 2006, prior to the scheduled expiration of the lease in 2009. By purchasing the acquisition properties, we will assume additional leases that provide tenants with the right to terminate prior to the scheduled expiration of the lease. See “Our Business and Properties — Description of Properties Acquired Since our Initial Public Offering, and — Description of Acquisition Properties.”

Property owned through joint ventures, or in limited liability companies and partnerships in which we are not the sole equity holder, may limit our ability to act exclusively in our interests.

We may make investments through joint ventures in the future. Partnership, limited liability company or joint venture investments may involve various risks, including the following:


	•	our partners, co-members or joint venturers might become bankrupt (in which event we and any other remaining general partners, members, or joint venturers would generally remain liable for the liabilities of the partnership, limited liability company or joint venture);

	•	our partners, co-members or joint venturers might at any time have economic or other business interests or goals that are inconsistent with our business interests or goals;

	•	our partners, co-members or joint venturers may be in a position to take action contrary to our instructions, requests, policies, or objectives, including our current policy with respect to maintaining our qualification as a real estate investment trust; and

	•	agreements governing joint ventures, limited liability companies and partnerships often contain restrictions on the transfer of a joint venturer’s, member’s or partner’s interest or “buy-sell” or other provisions that may result in a purchase or sale of the interest at a disadvantageous time or on disadvantageous terms.

Our organizational documents do not limit the amount of available funds that we may invest in partnerships, limited liability companies or joint ventures. The occurrence of one or more of the events

Our executive officers have agreements that provide them with benefits in the event of a change in control of our company or if their employment agreement is not renewed.

We have entered into employment agreements with our executive officers, Louis T. Donatelli, Douglas J. Donatelli, Nicholas R. Smith, Barry H. Bass and James H. Dawson, that provide them with severance benefits if their employment ends under certain circumstances following a change in control of our company or if the executive officer resigns for “good reason” as defined in the employment agreements. See “Management — Employment Agreements.” These benefits could increase the cost to a potential acquirer of our company and thereby prevent or deter a change in control of the company that might involve a premium price for our common shares or otherwise be in the interests of our shareholders.

We may experience conflicts of interest with several members of our board of trustees and our executive officers relating to their ownership of units of our operating partnership.

Our trustees and executive officers may have conflicting duties because, in their capacities as our trustees and executive officers, they have a duty to our company, and in our capacity as general partner of our operating partnership, they have a fiduciary duty to the limited partners, and they themselves are limited partners. These conflicts of interest could lead to decisions that are not in your best interest. Conflicts may arise when the interests of our shareholders and the limited partners of our operating partnership diverge, particularly in circumstances in which there may be an adverse tax consequence to the limited partners, such as upon the sale of assets or the repayment of indebtedness.

We depend on key personnel with long-standing business relationships, the loss of whom could threaten our ability to operate our business successfully.

Our future success depends, to a significant extent, upon the continued services of our senior management team, including Douglas J. Donatelli, Nicholas R. Smith and Louis T. Donatelli. In particular, the extent and nature of the relationships that Messrs. Donatelli and Mr. Smith and the other members of our management team have developed in the real estate community in our markets is critically important to the success of our business. Although we have employment agreements with Messrs. Donatelli and Mr. Smith and other key executives, there is no guarantee that Messrs. Donatelli and Mr. Smith or these other key executive officers will remain employed with us. We do not maintain key person life insurance on any of our officers. The loss of services of one or more members of our senior management team, particularly Messrs. Donatelli and Mr. Smith, would harm our business and prospects. Further, loss of a key member of our senior management team could be negatively perceived in the capital markets, which could have an adverse effect on the market price of our common shares.

The chairman of our board of trustees, Louis T. Donatelli, has other business interests that may hinder his ability to allocate sufficient time to the management of our operations, which could jeopardize our ability to execute our business plan and he and certain other of our trustees may have conflicts of interest with our company.

Our Chairman, Louis T. Donatelli, has other business interests that may hinder his ability to spend adequate time on our business. Louis T. Donatelli is also Chairman of Donatelli & Klein, Inc., a real estate investment firm that focuses on the Washington, D.C. area (D&K). Mr. Donatelli’s employment agreement permits him to continue to provide management and other services to D&K. The provision of those services may reduce the time Mr. Donatelli is able to devote to our business. In addition, the terms of Mr. Donatelli’s employment agreement permit him to compete against us outside of a specific geographic area and outside of the industrial or flex property market during the term of his employment agreement. See “Management — Employment Agreements.”

Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit your recourse in the event of actions not in your best interests.

Maryland law provides that a trustee has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our declaration of trust authorizes us to indemnify our trustees and officers for actions taken by them in those capacities to the extent permitted by Maryland law. In addition, our declaration of trust limits the liability of our trustees and officers for money damages, except for liability resulting from:


	•	actual receipt of an improper benefit or profit in money, property or services; or

	•	a final judgment based upon a finding of active and deliberate dishonesty by the trustee or officer that was material to the cause of action adjudicated.

As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist. Our bylaws require us to indemnify each trustee or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service to us. In addition, we may be obligated to fund the defense costs incurred by our trustees and officers. See “Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws — Limitation of Liability and Indemnification.”

Our board of trustees may approve the issuance of preferred shares with terms that may discourage a third party from acquiring us.

Our declaration of trust permits our board of trustees initially to issue up to 50,000,000 preferred shares, issuable in one or more classes or series. Our board of trustees may increase the number of preferred shares authorized by our declaration of trust without shareholder approval. Our board of trustees may also classify or reclassify any unissued preferred shares and establish the preferences and rights (including the right to vote, participate in earnings and to convert into common shares) of any such preferred shares, which rights may be superior to those of our common shares. Thus, our board of trustees could authorize the issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of the common shares might receive a premium for their shares over the then current market price of our common shares. See “Description of Shares — Power to Reclassify Shares.”

To qualify as a REIT under the Internal Revenue Code, no more than 50% of our outstanding shares of beneficial interest may be owned, directly or under applicable attribution rules, by five or fewer individuals (as defined to include certain entities) during the last half of each taxable year (other than our first REIT taxable year). To preserve our REIT qualification, our declaration of trust generally prohibits direct or indirect ownership by any person of (i) more than 8.75% of the number or value of our outstanding common shares or (ii) more than 8.75% of the value of our outstanding shares of all classes. Generally, shares owned by affiliated owners will be aggregated for purposes of the ownership limitation. Our declaration of trust has created a special higher ownership limitation of no more than 14.9% for the group comprised of Louis T. Donatelli, Douglas J. Donatelli and certain related persons. Unless the applicable ownership limitation is waived by our board of trustees prior to transfer, any transfer of our common shares that would violate the

ownership limitation will be null and void, and the intended transferee will acquire no rights in such shares. Common shares that would otherwise be held in violation of the ownership limit will be designated as “shares-in-trust” and transferred automatically to a trust effective on the day before the purported transfer or other event giving rise to such excess ownership. The beneficiary of the trust will be one or more charitable organizations named by us. The ownership limitation could have the effect of delaying, deterring or preventing a change in control or other transaction in which holders of common shares might receive a premium for their common shares over the then current market price or that such holders might believe to be otherwise in their best interests. The ownership limitation provisions also may make our common shares an unsuitable investment vehicle for any person seeking to obtain, either alone or with others as a group, ownership of (i) more than 8.75% of the number or value of our outstanding common shares or (ii) more than 8.75% in value of our outstanding shares of all classes.

Our board of trustees may change our investment and operational policies and practices without a vote of our common shareholders, which limits your control of our policies and practices.

Our major policies, including our policies and practices with respect to investments, financing, growth, debt capitalization, REIT qualification and distributions, are determined by our board of trustees. Although we have no present intention to do so, our board of trustees may amend or revise these and other policies from time to time without a vote of our shareholders. Accordingly, our shareholders will have limited control over changes in our policies.

Our declaration of trust and bylaws do not limit the amount of indebtedness that we or our operating partnership may incur. If we become highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and harm our financial condition.

Our declaration of trust contains provisions that make removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management.

Our declaration of trust provides that a trustee may only be removed upon the affirmative vote of holders of a majority of our outstanding common shares. Vacancies may be filled by the board of trustees. This requirement makes it more difficult to change our management by removing and replacing trustees.

Our bylaws may only be amended by our board of trustees, which could limit your control of certain aspects of our corporate governance.

Our board of trustees has the sole authority to amend our bylaws. Thus, the board is able to amend the bylaws in a way that may be detrimental to your interests.

Maryland law provides broad discretion to our board of trustees with respect to its fiduciary duties in considering a change in control of our company, including that our board is subject to no greater level of scrutiny in considering a change in control transaction than with respect to any other act by our board.

The Maryland Business Combination Act restricts mergers and other business combinations between our company and an interested shareholder. An “interested shareholder” is defined as any person who is the beneficial owner of 10% or more of the voting power of our common shares and also includes any of our affiliates or associates that, at any time within the two year period prior to the date of a proposed merger or other business combination, was the beneficial owner of 10% or more of our voting power. Additionally, the “control shares” provisions of the Maryland General Corporation Law, or MGCL, are applicable to us as if we were a corporation. These provisions eliminate the voting rights of shares acquired in quantities so as to constitute “control shares,” as defined under the MGCL. Our amended and restated declaration of trust and/or bylaws provide that we are not bound by the Business Combination Act or the control share acquisition statute. However, in the case of the control share acquisition statute, our board of trustees may opt to make this statute applicable to us at any time, and may do so on a retroactive basis. See “Certain

Finally, the “unsolicited takeovers” provisions of the MGCL permit our board of trustees, without shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws, to implement takeover defenses that we do not yet have. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring or preventing a change in control of our company under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then current market price or would otherwise be in the interests of our shareholders.

Real estate investments are inherently risky, which could adversely affect our profitability and our ability to make distributions to our shareholders.

Real estate investments are subject to varying degrees of risk. If we acquire or develop properties and they do not generate sufficient operating cash flow to meet operating expenses, including debt service, capital expenditures and tenant improvements, our income and ability to make distributions to our shareholders will be adversely affected. Income from properties may be adversely affected by:


	•	decreases in rent and/or occupancy rates due to competition or other factors;

	•	increases in operating costs such as real estate taxes, insurance premiums, site maintenance and utilities;

	•	changes in interest rates and the availability of financing; and

	•	changes in laws and governmental regulations, including those governing real estate usage, zoning and taxes.

General economic conditions may adversely affect our financial condition and results of operations.

Periods of economic slowdown or recession in the United States and in other countries, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults by our tenants under existing leases, which could adversely affect our financial position, results of operations, cash flow, trading price of our common shares and our ability to satisfy our debt service obligations and to make distributions to our shareholders.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio in response to adverse changes in the performance of such properties may be limited, thus harming our financial condition. The real estate market is affected by many factors that are beyond our control, including:


	•	adverse changes in national and local economic and market conditions;

	•	changes in interest rates and in the availability, cost and terms of debt financing;

	•	changes in governmental laws and regulations, fiscal policies and zoning ordinances and costs of compliance with laws and regulations, fiscal policies and ordinances;

	•	the ongoing need for capital improvements, particularly in older buildings;

	•	changes in operating expenses; and


	•	civil unrest, acts of war and natural disasters, including earthquakes and floods, which may result in uninsured and underinsured losses.

We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.

We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. We may also acquire properties, such as the Suburban Maryland Portfolio, that are subject to a mortgage loan that may limit our ability to sell the properties prior to the loan’s maturity. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to our shareholders.

The costs of compliance with or liabilities under environmental laws may harm our operating results.

Our operating expenses could be higher than anticipated due to the cost of complying with existing or future environmental laws and regulations. An owner of real property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of:


	•	our knowledge of the contamination;

	•	the timing of the contamination;

	•	the cause of the contamination; or

	•	the party responsible for the contamination of the property.

There may be environmental problems associated with our properties of which we are unaware. Some of our properties contain, or may have contained in the past, underground tanks for the storage of petroleum-based or waste products that could create a potential for release of hazardous substances. If environmental contamination exists on our properties, we could become subject to strict, joint and several liability for the contamination by virtue of our ownership interest.

Low levels of groundwater contamination have been found under the Newington Business Park Center. The groundwater contamination was caused by the release of petroleum products from underground storage tanks previously located on the property adjacent to the Newington Business Park Center. Liability for future clean up, if any, of this groundwater contamination should be imposed on the former owner of the adjacent property, and we do not expect that the contamination will have a material adverse effect on our results of operations or financial condition. See “Our Business and Properties — Environmental Matters.”

The presence of hazardous substances on a property may adversely affect our ability to sell the property and we may incur substantial remediation costs, thus harming our financial condition. In addition, although our leases generally require our tenants to operate in compliance with all applicable laws and to indemnify us against any environmental liabilities arising from a tenant’s activities on the property, we could nonetheless be subject to strict liability by virtue of our ownership interest for environmental liabilities created by our tenants, and we cannot be sure that our tenants would satisfy their indemnification obligations under the applicable sales agreement or lease. The discovery of material environmental liabilities attached to our properties could have a material adverse effect on our results of operations and financial condition and our ability to make distributions to our shareholders.

Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property. In addition, the presence of significant mold could expose us to liability from our tenants, employees of our tenants and others if property damage or health concerns arise.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unintended expenditures that adversely impact our ability to pay dividends to shareholders.

All of our properties are required to comply with the Americans with Disabilities Act, or the ADA. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. Government or an award of damages to private litigants, or both. While the tenants to whom we lease properties are obligated by law to comply with the ADA provisions, and typically under our leases are obligated to cover costs associated with compliance, if required changes involve greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs could be adversely affected and we could be required to expend our own funds to comply with the provisions of the ADA, which could adversely affect our results of operations and financial condition and our ability to make distributions to shareholders. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties. We may be required to make substantial capital expenditures to comply with those requirements and these expenditures could have a material adverse effect on our ability to make distributions to our shareholders.

An uninsured loss or a loss that exceeds the policies on our properties could subject us to lost capital or revenue on those properties.

Under the terms and conditions of the leases currently in force on our properties, tenants generally are required to indemnify and hold us harmless from liabilities resulting from injury to persons, air, water, land or property, on or off the premises, due to activities conducted on the properties, except for claims arising from the negligence or intentional misconduct of us or our agents. Additionally, tenants are generally required, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability and full replacement value property damage insurance policies. Our largest tenant, the federal government (approximately 28% of our annualized base rent as of April 30, 2004) is not required to maintain property insurance at all. We have obtained comprehensive liability, casualty, flood and rental loss insurance policies on our properties. All of these policies may involve substantial deductibles and certain exclusions. In addition, we cannot assure you that our tenants will properly maintain their insurance policies or have the ability to pay the deductibles. Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to our shareholders.

Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war may affect any market on which our common shares trade, the markets in which we operate, our operations and our profitability.

Terrorist attacks may negatively affect our operations and your investment in our common shares. These attacks or armed conflicts may directly impact the value of our properties through damage, destruction, loss or increased security costs. The terrorism insurance that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks. In addition, certain losses resulting from these types of events are uninsurable and others would not be covered by our current terrorism insurance. Additional terrorism insurance may not be available at a reasonable price or at all.

The United States may enter into armed conflicts in the future. The consequences of any armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.

Any of these events could result in increased volatility in or damage to the United States and worldwide financial markets and economy. They also could result in a continuation of the current economic uncertainty in the United States or abroad. Adverse economic conditions could affect the ability of our tenants to pay rent, which could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to our shareholders, and may result in volatility in the market price for our securities.

If we fail to remain qualified as a REIT for federal income tax purposes, we will not be able to deduct our distributions, and our income will be subject to taxation.

We will elect to be taxed as a REIT under the Internal Revenue Code commencing with our short taxable year ending December 31, 2003, which will afford us significant tax advantages. The requirements for qualification as a REIT, however, are complex and our management has limited experience in operating a REIT. If we fail to meet these requirements, our distributions to our shareholders will not be deductible by us and we will be subject to a corporate level tax on our taxable income. This would substantially reduce our cash available to make distributions to our shareholders and your yield on your investment. In addition, incurring corporate income tax liability might cause us to borrow funds, liquidate some of our investments or take other steps that could negatively affect our operating results. Moreover, if our REIT status is terminated because of our failure to meet a REIT qualification requirement or if we voluntarily revoke our election, we would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost.

Distribution requirements relating to qualification as a REIT for federal income tax purposes limit our flexibility in executing our business plan.

Our business plan contemplates growth through acquisitions. To qualify and maintain our status as a REIT for federal income tax purposes, we generally are required to distribute to our shareholders at least 90% of our REIT taxable income each year. REIT taxable income is determined without regard to the deduction for dividends paid and by excluding net capital gains. We are also required to pay tax at regular corporate rates to the extent that we distribute less than 100% of our taxable income (including net capital gains) each year. In addition, we are required to pay a 4% nondeductible excise tax on the amount, if any, by which certain distributions we pay with respect to any calendar year are less than the sum of 85% of our ordinary income for that calendar year, 95% of our capital gain net income for the calendar year and any amount of our income that was not distributed in prior years.

We have distributed, and intend to distribute, to our shareholders all or substantially all of our taxable REIT income each year in order to comply with the distribution requirements of the Internal Revenue Code and to avoid federal income tax and the 4% nondeductible excise tax. Our distribution requirements limit our ability to fund acquisitions and capital expenditures through retained earnings. Thus, our ability to grow

through acquisitions will be limited if we are unable to obtain debt or equity financing. In addition, differences in timing between the receipt of income and the payment of expenses in arriving at REIT taxable income and the effect of required debt amortization payments could require us to borrow funds to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.

Moreover, even if we maintain our status as a REIT, the net income of the taxable REIT subsidiaries owned by our operating partnership will be subject to federal and state income taxes at regular corporate rates.

Your investment in our common shares has various federal, state and local income tax risks that could affect the value of your investment.

Although the provisions of the Internal Revenue Code relevant to your investment in our common shares are generally described in “Federal Income Tax Considerations,” we strongly urge you to consult your own tax advisor concerning the effects of federal, state and local income tax law on an investment in our common shares because of the complex nature of the tax rules applicable to REITs and their shareholders.

Our disposal of properties may have negative implications, including unfavorable tax consequences.

If we make a sale of a property directly or through an entity that is treated as a partnership for federal income tax purposes, and it is deemed to be a sale of dealer property or inventory, the sale may be deemed to be a “prohibited transaction” under federal tax laws applicable to REITs, in which case our gain, or our share of the gain, from the sale would be subject to a 100% penalty tax. If we believe that a sale of a property might be treated as a prohibited transaction, we may dispose of that property through a taxable REIT subsidiary, in which case the gain from the sale would be subject to corporate income tax but not the 100% prohibited transaction tax. We cannot assure you, however, that the Internal Revenue Service will not assert successfully that sales of properties that we make directly or through an entity that is treated as a partnership for federal income tax purposes, rather than through a taxable REIT subsidiary, are sales of dealer property or inventory, in which case the 100% penalty tax would apply.

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common shares.

At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a shareholder.

If we or our predecessor entity failed to qualify as an S corporation for any of our tax years prior to our initial public offering, we may fail to qualify as a REIT.

We will not qualify as a REIT for any year if at the close of such year we had undistributed “earnings and profits” accumulated in any non-REIT year for which we or our predecessor, First Potomac Realty Investment Trust, Inc., did not qualify as an S corporation. Although we believe that we and our predecessor corporation have qualified as an S corporation for federal income tax purposes for all tax years prior to our initial public offering, if it is determined that we did not so qualify, we may inadvertently fail to qualify as a REIT. Any such failure to qualify may also prevent us from qualifying as a REIT for any of the following four tax years.

Recent changes in the taxation of corporate dividends may adversely affect the value of our common shares.

The Jobs and Growth Tax Relief Reconciliation Act of 2003, which was signed into law on May 28, 2003, among other things, generally reduces to 15% the maximum marginal rate of tax payable by most domestic noncorporate taxpayers on dividends received from a regular subchapter C corporation. This reduced tax rate, however, generally will not apply to dividends paid to most domestic noncorporate taxpayers by a REIT on its stock, except for certain limited amounts. Although the earnings of a REIT that are distributed to

its shareholders still generally will be subject to less total federal income taxation than earnings of a non-REIT subchapter C corporation that are distributed to its shareholders net of corporate-level income tax, this legislation could cause domestic noncorporate investors to view the stock of non-REIT subchapter C corporations as more attractive relative to the stock of a REIT than was the case prior to the enactment of the legislation, because dividends from non-REIT subchapter C corporations generally will be taxed at a lower rate to the investor while dividends from REITs generally will be taxed at the same rate as the investor’s other ordinary income. We cannot predict what effect, if any, the enactment of this legislation may have on the value of the stock of REITs in general or on our common shares in particular, either in terms of absolute price or relative to other investments.

We may be affected by conflicts of interest that arise out of a contractual relationship with an affiliate of our lead managing underwriter.

We have commercial relationships with an affiliate of our lead managing underwriter. KeyBank National Association, an affiliate of KeyBanc Capital Markets, has committed to provide us a $35.0 million bridge loan and is a lender under our revolving line of credit. In the event we are unable to complete this offering before completion of the purchase of our acquisition properties, we intend to borrow under the bridge loan and our revolving line of credit to fund a portion of the purchase price of our acquisition properties. These competing funding sources may result in conflicts of interest.

Our common shares trade in a limited market which could hinder your ability to sell our shares.

Our equity market capitalization places us at the low end of market capitalization among all REITs. Because of our small market capitalization, many of our investors are individuals. Our common shares experience limited trading volume, and many investors may not be interested in owning our common shares because of the inability to acquire or sell a substantial block of our common shares at one time. This illiquidity could have an adverse effect on the market price of our common shares. In addition, a shareholder may not be able to borrow funds using our common shares as collateral because lenders may be unwilling to accept the pledge of securities having such a limited market. Any substantial sale of our common shares could have a material adverse effect on the market price of our common shares.

The market price and trading volume of our common shares may be volatile following this offering.

Following this offering, the market price of our common shares may become highly volatile and be subject to wide fluctuations. In addition, the trading volume in our common shares may fluctuate and cause significant price variations to occur. If the market price of our common shares declines significantly, you may be unable to resell your common shares at or above the price you paid for our common shares. We cannot assure you that the market price of our common shares will not fluctuate or decline significantly, including a decline below the price you paid for our common shares, in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common shares include:


	•	actual or anticipated declines in our quarterly operating results or distributions;

	•	reductions in our funds from operations;

	•	increases in market interest rates that lead purchasers of our common shares to demand a higher dividend yield;

	•	changes in market valuations of similar companies;

	•	adverse market reaction to any increased indebtedness we incur in the future;

	•	additions or departures of key management personnel;

	•	actions by institutional shareholders;


	•	speculation in the press or investment community; and

	•	general market and economic conditions.

The public offering price does not necessarily bear any relationship to our book value or the fair market value of our assets.

Broad market fluctuations could negatively impact the market price of our common shares.

In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many companies that have been unrelated to these companies’ operating performances. These broad market fluctuations could reduce the market price of our common shares. Furthermore, our operating results and prospects may be below the expectations of investors or may be lower than those of companies with comparable market capitalizations, which could lead to a material decline in the market price of our common shares.

An increase in market interest rates may have an adverse effect on the market price of our common shares.

One of the factors that investors may consider in deciding whether to buy or sell our common shares is our distribution rate as a percentage of our share price, relative to market interest rates. If market interest rates increase, prospective investors may desire a higher distribution rate on our common shares or seek securities paying higher dividends or interest. The market price of our common shares likely will be based primarily on the earnings that we derive from rental income with respect to our properties and our related distributions to shareholders, and not from the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions can affect the market price of our common shares. For instance, if interest rates rise without an increase in our distribution rate, the market price of our common shares could decrease because potential investors may require a higher yield on our common shares as market rates on interest-bearing securities, such as bonds, rise. In addition, rising interest rates would result in increased interest expense on our variable rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and make distributions to our shareholders.

Common shares eligible for future sale may have adverse effects on our share price.

We cannot predict the effect, if any, of future sales of common shares, or the availability of shares for future sales, on the market price of our common shares. Sales of substantial amounts of common shares, including up to approximately 2,000,000 common shares issuable upon (i) the conversion of units of our operating partnership, and (ii) exercise of options, or the perception that these sales could occur, may adversely affect prevailing market prices for our common shares and impede our ability to raise capital.

We also may issue from time to time additional common shares or units of our operating partnership in connection with the acquisition of properties, and we may grant demand or piggyback registration rights in connection with these issuances. Sales of substantial amounts of common shares or the perception that these sales could occur may adversely affect the prevailing market price for our common shares. In addition, the sale of these shares could impair our ability to raise capital through a sale of additional equity securities.

We make forward-looking statements in this prospectus that are subject to risks and uncertainties. These forward-looking statements are made in accordance with Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Statements regarding the following subjects are forward-looking by their nature:


	•	our business strategy;

	•	our projected operating results;

	•	our ability to obtain future financing arrangements;

	•	estimates relating to our ability to make distributions to our shareholders in the future;

	•	our understanding of our competition;

	•	market trends;

	•	pending acquisitions of properties;

	•	projected capital expenditures; and

	•	use of the proceeds of this offering.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our common shares, along with the following factors that could cause actual results to vary from our forward-looking statements:


	•	the factors referenced in this prospectus, including those set forth under the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Our Business and Properties;”

	•	general volatility of the capital markets and the market price of our common shares;

	•	changes in our business strategy;

	•	availability, terms and deployment of capital;

	•	availability of qualified personnel;

	•	changes in our industry, interest rates or the general economy; and

	•	the degree and nature of our competition.

When we use the words “believe,” “expect,” “anticipate,” “estimate” or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking statements.

We expect to receive net proceeds from this offering of approximately $68.1 million after deducting the underwriting discount and estimated offering fees and expenses payable by us. If the underwriters exercise their over-allotment option in full, we expect to receive net proceeds of approximately $78.3 million. We expect to use the net proceeds that we receive from this offering as follows:


	•	approximately $40.5 million to fund the cash portion of the purchase price for the Suburban Maryland Portfolio, net of a $5.0 million earnest money deposit, and related closing costs;

	•	approximately $18.0 million to pay down our revolving line of credit; and

	•	the remainder for general corporate and working capital purposes, including possible future acquisitions.

If we complete our purchase of the Suburban Maryland Portfolio prior to completion of this offering, we intend to fund the cash portion of the purchase price and related closing costs through borrowings under our revolving line of credit and a short term bridge facility described below and will use a portion of the net proceeds of this offering to repay those borrowings. Our revolving line of credit bears interest at LIBOR plus 1.9% to 2.5% depending on the ratio of our total indebtedness to our total asset value. The interest rate for outstanding borrowings under our revolving line of credit was 3.35% at May 26, 2004. Of the $18.0 million currently outstanding under the revolving line of credit, $13.5 million was used to fund a portion of the purchase prices for our acquisition of Herndon Corporate Center in April 2004 and Aquia Commerce Center I & II in June 2004 and approximately $4.5 million was used to fund a portion of the earnest money deposit for the Suburban Maryland Portfolio. KeyBank National Association, an affiliate of KeyBanc Capital Markets, is one of our lenders under our revolving line of credit. KeyBank National Association has committed, subject to customary conditions, to provide us up to $35.0 million under a bridge loan to fund a portion of the cash purchase price for the Suburban Maryland Portfolio if we acquire the Suburban Maryland Portfolio prior to completion of this offering. The bridge loan, if drawn, would mature on September 30, 2004 if not repaid before then, would provide for customary fees, and would bear interest at LIBOR plus 3.25% for the first month, LIBOR plus 4.50% for the second month and LIBOR plus 5.25% thereafter. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “Underwriting.”

Pending these uses, we intend to invest the net offering proceeds in interest-bearing, short-term, marketable investment grade securities or money market accounts which are consistent with our intention to qualify as a REIT. These investments may include, for example, government and government agency securities, certificates of deposit, interest-bearing bank deposits and mortgage loan participations.

Our common shares trade on the New York Stock Exchange under the symbol “FPO.” As of March 26, 2003, there were 8,634,000 of our common shares outstanding held by 32 shareholders of record and an estimated 4,800 beneficial owners. The following table sets forth the high and low sale prices of our common shares as reported by the New York Stock Exchange and the distributions declared on our common shares for the periods indicated.


(1)	We pay our dividend for any particular quarter in the following quarter. For example, the $0.10 dividend paid in the first quarter of 2004 was related to our partial fourth quarter of 2003.

We intend to distribute to our shareholders each year all, or substantially all, of our REIT taxable income to minimize corporate income and excise taxes on our earnings and to qualify for the tax benefits accorded to REITs under the Internal Revenue Code of 1986, as amended. Distributions are authorized at the sole discretion of our board of trustees and declared by us based upon a number of factors, including:


	•	the amount of funds from operations;

	•	our overall financial condition;

	•	debt service requirements;

	•	capital expenditure requirements;

	•	our taxable income;

	•	the annual distribution requirements under the REIT provisions of the Internal Revenue Code; and

	•	other factors our trustees deem relevant.

The following table sets forth our capitalization as of March 31, 2004, on a historical basis, and as adjusted to give effect to (i) our April 27, 2004 acquisition of Herndon Corporate Center, (ii) our June 4, 2004 acquisition of Aquia Commerce Center I & II, (iii) our proposed acquisition of the Suburban Maryland Portfolio and (iv) the sale as of March 31, 2004 of 4,000,000 common shares at an assumed public offering price of $18.10 per share.

This table should be read in conjunction with the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical and unaudited pro forma financial information and related notes included elsewhere in this prospectus.


(1)	Excludes (i) 1,396,523 common shares issuable upon redemption of outstanding units of our operating partnership, (ii) 555,000 common shares currently reserved for issuance upon exercise of outstanding options to purchase common shares and (iii) 600,000 common shares issuable upon exercise of the underwriters’ over-allotment option.

As of March 31, 2004, we had a net tangible book value of $78.7 million, or approximately $9.81 per common share, assuming the redemption of currently outstanding units for our common shares on a one-for-one basis. Net tangible book value per share represents the amount of our total tangible assets (consisting of total assets less intangible assets and deferred costs), less our total liabilities, divided by the number of common shares and units currently outstanding.

Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of common shares in this offering and the net tangible book value per common share immediately after this offering and the application of the estimated net proceeds. Our pro forma net tangible book value as of March 31, 2004 would have been approximately $156.2 million, or $11.14 per common share, assuming the redemption of all currently outstanding units of our operating partnership for common shares, after giving effect to:


	•	the sale of the common shares offered by this prospectus at an offering price of $18.10 per share, and our receipt of approximately $68.1 million in net proceeds from this offering, after deducting the underwriting discount and estimated offering expenses;

	•	the acquisition of Herndon Corporate Center and Aquia Commerce Center I & II, and the application of the net proceeds from this offering to fund the cash portion of the purchase price for the acquisition properties and related closing costs, and to repay amounts outstanding under our line of credit;

	•	the issuance of 1,396,523 common shares issuable upon the redemption of outstanding units of our operating partnership.

This amount represents an immediate increase in net tangible book value of $1.33 per share to existing shareholders and an immediate dilution in pro forma net tangible book value of $6.96 per common share to new investors. The following table illustrates this per share dilution.


(1)	Represents increase in net tangible book value per share attributable to this offering and the application of the estimated net proceeds therefrom. This amount is calculated after deducting underwriting discounts and estimated expenses of this offering.

(2)	Based on pro forma net tangible book value of approximately $156.2 million divided by the 14,030,523 common shares to be outstanding following the consummation of this offering, assuming the redemption of all currently outstanding units of our operating partnership for common shares but not including 555,000 common shares issuable upon exercise of outstanding options. There is no further impact on book value dilution attributable to the redemption of units due to the effect of minority interest.

(3)	Dilution is determined by subtracting (i) pro forma net tangible book value per share of our common shares after giving effect to this offering and the application of the net proceeds therefrom from (ii) the offering price per share in this offering.

You should read the following selected financial data in conjunction with our historical and unaudited pro forma financial statements and the related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this prospectus.

Our unaudited summary pro forma consolidated financial statements and operating information as of and for the three months ended March 31, 2004 and for the year ended December 31, 2003 assume completion of this offering, acquisition of Herndon Corporate Center and Aquia Commerce Center I and II, completion of the acquisition under contract, a full-year impact for all acquisitions completed in the fourth quarter of 2003, application of the net proceeds from our initial public offering and application of the net proceeds of this offering as described in “Use of Proceeds” as of the beginning of the periods presented for the operating data and as of the stated date for the balance sheet. Our pro forma financial data is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations.


(1)	Pro forma basic and diluted loss per share are computed assuming this offering and the initial public offering were consummated as of the first day of the period presented and equal pro forma net loss divided by the number of common shares to be outstanding after these offerings.

(2)	Basic and diluted common shares outstanding exclude 1,396,523 operating partnership units as they are antidilutive.

(3)	As defined by the National Association of Real Estate Investment Trusts, or NAREIT, funds from operations represents income (loss) before minority interest (computed in accordance with generally

accepted accounting principles, or GAAP), including losses from debt restructuring and excluding gains (losses) from sales of property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Management considers funds from operations a useful additional 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 assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that funds from operations provides a meaningful supplemental indication of our performance. We compute funds from operations in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating funds from operations utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, funds from operations 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. Funds from operations should not be considered as an alternative to net income (loss) (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.


(4)	Includes (i) 12,634,000 weighted average common shares (ii) 1,396,523 operating partnership units and (iii) 64,089 options to purchase common shares based on the dilutive effect of options outstanding for the periods ended December 31, 2003 and March 31, 2004.

The following table presents a reconciliation of our pro forma net loss to our pro forma funds from operations for the periods presented:

The following discussion and analysis of our company’s and “First Potomac Predecessor’s” financial condition and results of operations should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this prospectus. The discussion and analysis is derived from the combined consolidated operating results and activities of our company.

We are a self-managed, self-administered Maryland real estate investment trust, or REIT. We own and operate industrial and flex properties in the Washington, D.C. metropolitan area and other major markets in Virginia and Maryland, which we collectively refer to as the southern Mid-Atlantic region.

We were formed in July 2003 to be the successor general partner to First Potomac Realty Investment Trust, Inc., the general partner of First Potomac Realty Investment Limited Partnership, our operating partnership. We own all of our properties and conduct our business through the operating partnership. We closed on our initial public offering on October 28, 2003. We are the sole general partner of, and currently own an 86.1% interest in our operating partnership, and will own a 90.0% interest upon completion of this offering.

First Potomac Predecessor is not a legal entity but rather a combination of the following entities that comprised the historical operations of our company:


	•	First Potomac Realty Investment Trust, Inc., the general partner of our operating partnership since 1997;

	•	First Potomac Realty Investment Limited Partnership, our operating partnership; and

	•	First Potomac Management, Inc., the predecessor property management company that managed all of our assets.

Our consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, that require us 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 we deem most important to the portrayal of our financial condition and results of operations. The use of different reasonable estimates or assumptions in making these judgments could result in materially different amounts being reported in our Consolidated Financial Statements. Our critical accounting policies relate to revenue recognition, including evaluating the collectibility of accounts receivable, impairment of long-lived assets and purchase accounting for acquisitions of real estate.

The following section is a summary of certain aspects of these critical accounting policies.

Rental income with scheduled rent increases is recognized using the straight-line method over the term of the leases. Accrued straight-line rents included in our consolidated and combined balance sheets represents the aggregate excess of rental revenue recognized on a straight-line basis over cash received under applicable lease provisions. Our leases generally contain provisions under which our tenants reimburse us for a portion of property operating expenses and real estate taxes incurred by us. These reimbursements are recognized in the period that the expenses are incurred. Lease termination fees are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

Our company must make estimates related to the collectibility of our accounts receivable related to minimum rent, deferred rent, tenant reimbursements, lease termination fees and other income. We specifically

analyze accounts receivable and historical bad debts, tenant concentrations, tenant creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts receivable. These estimates have a direct impact on our net income because a higher bad debt allowance would result in lower net income.

Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.

Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:

We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our rental properties. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our rental properties, we would depreciate such investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

When circumstances such as adverse market conditions indicate a possible impairment of the value of a property, we review the recoverability of the property’s carrying value. Our review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the real estate investment’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and 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, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate, including any indirect investments in real estate through entities that we do not control and which we account for using the equity method of accounting. These assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income.

We estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs, similar to the income approach that is commonly used by appraisers.

We are required to make subjective assessments as to the fair value of assets and liabilities in connection with purchase accounting adjustments recorded related to rental properties and additional interests in real estate entities acquired by us. These assessments include allocating the purchase price of real estate acquired to the fair value of the building, land, tenant improvements, in place leases and other intangibles.

We allocate the components of real estate acquisitions using relative fair values computed that are based on our estimates and assumptions. These estimates and assumptions affect the amount of costs allocated between land, building, tenant improvements, furniture, fixtures and equipment and certain intangible assets. These allocations also impact depreciation expense and gains or losses recorded on sales of real estate. We also value in-place operating leases carrying rents above or below market as of the date of the acquisition; we then amortize these values over the lives of the related leases. Our determination of these values requires us to estimate market rents for each of the leases and make certain other assumptions. These estimates and

Comparison of the Three Months Ended March 31, 2004 to the Three Months Ended March 31, 2003

Our results of operations for the three months ended March 31, 2004, represent our first complete quarter of earnings and activities subsequent to our initial public offering completed in the fourth quarter of 2003. Our results of operations for the three months ended March 31, 2003 are based on the combined historical statements of operations of First Potomac Predecessor.

We acquired the remaining joint venture interest in the entities that owned interests in Rumsey Center, Snowden Center, Greenbrier Technology II and Norfolk Business Center in connection with our initial public offering. Our acquisition of these ownership interests increased our ownership to 100 percent of the interests in these properties, and we therefore began consolidating the results of operations of these activities effective November 1, 2003. Prior to this date, and throughout the first quarter of 2003, we accounted for our interests in these properties using the equity method.

We also acquired four properties, Virginia Center, Interstate Plaza, Alexandria Corporate Park and 6251 Ammendale Road, in the fourth quarter of 2003 subsequent to the closing of our initial public offering.

Rental Revenues. Rental revenue is comprised of contractual rent, including the impacts of straight-line revenue, and deferred market rental revenue. The $2,963,521 increase in rental income in 2004 was due primarily to the acquisitions of Virginia Center, Interstate Plaza, Alexandria Corporate Park and 6251 Ammendale Road which contributed $1,697,408 in rental revenue. The increase is also attributable to the consolidation of the results of Rumsey Center, Snowden Center, Greenbrier Technology II and Norfolk Business Center subsequent to acquisition of the remaining joint venture interests in the entities that owned these properties in the fourth quarter of 2003, resulting in an additional $1,302,927 of rental revenue. These investments were accounted for under the equity method in the first quarter of 2003. Average rental rates on new leases and on renewal leases increased 18% and 4%, respectively, for leases executed during the quarter ended March 31, 2004.

Occupancy at the four properties we acquired in the fourth quarter of 2003 was 68%, and the remaining portfolio occupancy at March 31, 2004 was 94%. Overall occupancy of the Company’s properties was 90% at March 31, 2004 compared to 92% at March 31, 2003.


	Per Share	Total

Public offering price	$	$
Underwriting discount	$	$
Proceeds to us (before expenses)	$	$


										Annualized
										Base Rent		Occupancy at
		No. of				Year of		Square		at April 30,		April 30,
Property	Property Type	Bldgs.		Location		Acquisition		Footage		2004		2004⁽¹⁾			Primary Tenants

Plaza 500	Multi-tenant industrial		2		Alexandria, VA		1997		505,945	$	5,102,327		97	%	U.S. Govt.; Carolina Holdings
Van Buren Business Park	Flex		5		Herndon, VA		1997		109,233		1,234,115		63	%	Fibertek
6600 Business Parkway	Single-tenant industrial		1		Elkridge, MD		1997		172,200		976,816		100	%	REICO Distributors
13129 Airpark Road	Multi-tenant industrial		1		Culpeper, VA		1997		150,400		440,720		66	%	Packard Humanities
4200 and 4212 Technology Court	Flex		2		Chantilly, VA		1998		64,064		790,845		91	%	National Christian Foundation
Newington Business Park Center	Multi-tenant industrial		7		Lorton, VA		1999		254,114		2,245,463		99	%	U.S. Government
Crossways Commerce Center I	Multi-tenant industrial		1		Chesapeake, VA		1999		352,615		1,781,745		100	%	Anteon; Visteon
Crossways Commerce Center II	Flex		2		Chesapeake, VA		1999		143,736		1,387,440		97	%	First Data
Coast Guard Building	Flex		1		Chesapeake, VA		1999		61,992		947,738		100	%	U.S. Government
Snowden Center	Flex		4		Columbia, MD		2002		140,438		1,641,329		86	%	Paratek Microwave
Rumsey Center	Flex		4		Columbia, MD		2002		134,654		1,390,116		90	%	Advance Med (CSC)
Greenbrier Technology Center II	Flex		1		Chesapeake, VA		2002		79,684		1,146,833		96	%	AMSEC
Norfolk Business Center	Flex		1		Norfolk, VA		2002		90,682		803,609		97	%	Dataline; Verizon
Virginia Center	Flex		1		Glen Allen, VA		2003		119,672		911,196		70	%	Service Partners; DaimlerChrysler
Interstate Plaza	Single-tenant industrial		1		Alexandria, VA		2003		107,320		1,262,268		100	%	U.S. Government
Alexandria Corporate Park	Multi-tenant industrial		1		Alexandria, VA		2003		278,130		4,185,959		80	%	U.S. Government; CACI
6251 Ammendale Road	Flex		1		Beltsville, MD		2003		86,818		516,622		38	%	Lockheed Martin
Herndon Corporate Center	Flex		4		Herndon, VA		2004		127,353		2,499,648		100	%	U.S. Government
Aquia Commerce Center I & II	Flex		2		Stafford, VA		2004		64,488		1,475,165		100	%	U.S. Government

Total/ Average			42						3,043,538	$	30,739,954		90	%


												Annualized
												Base Rent		Occupancy at
			No. of				Purchase			Square		at April 30,		April 30,
Property		Property Type	Bldgs.		Location		Price			Footage		2004		2004			Primary Tenants

Deer Park		Flex		4		Randallstown, MD					171,140	$	1,200,407		93	%	Mattei Compressors
Gateway Center		Flex		2		Gaithersburg, MD					44,307		604,935		100	%	Montgomery County Auto Parts
Gateway West		Flex		4		Westminster, MD					110,147		827,342		68	%	Carroll County Public Library
Girard Business Center		Flex		3		Gaithersburg, MD					123,900		1,276,194		95	%	Aspen Systems Corporation
Girard Place		Flex		4		Gaithersburg, MD					175,190		1,405,502		100	%	Spirent Communications
15 Worman’s Mill Court		Flex		1		Frederick, MD					39,966		385,018		100	%	SAIC
20270 Goldenrod Lane		Flex		1		Germantown, MD					24,468		368,746		100	%	Microlog Corporation
6900 English Muffin Way		Multi-tenant industrial		1		Frederick, MD					165,690		1,061,001		100	%	BP Solarex; Capricorn Pharma
4451 Georgia Pacific Blvd		Multi-tenant industrial		1		Frederick, MD					169,750		1,080,658		100	%	American Records Management
7561 Lindbergh Drive		Single-tenant industrial		1		Gaithersburg, MD					36,000		283,190		100	%	Thomas AAA Moving
Patrick Center		Office		1		Frederick, MD					66,706		1,238,401		97	%	Miles & Stockbridge; Merrill Lynch
WestPark		Office		1		Frederick, MD					28,915		469,319		100	%	U.S. Government; Batelle Memorial Institute
Woodlands Business Center		Office		1		Largo, MD					37,940		543,357		78	%	SFA; Comcast Cable
Old Courthouse Square		Retail		1		Martinsburg, WV					201,350		997,041		83	%	U.S. Government; Food Lion

Total/Average Acquisition
	Properties —			26			$	123,000,000	(1)		1,395,469	$	11,741,111		93	%

Total/Average — Current Portfolio and Acquisition
	Properties			68							4,439,007	$	42,481,065		91	%


Common shares offered		4,000,000 shares(1)

Common shares to be outstanding upon completion of this offering		12,634,000 shares(1)(2)(3)

Common shares and units of our operating partnership to be outstanding upon completion of this offering		14,030,523 shares/units(1)(3)

Use of Proceeds		We intend to use the net proceeds of this offering, which we expect to be approximately $68.1 million after deducting the underwriting discount and estimated offering fees and expenses payable by us, as follows:

		• approximately $40.5 million to fund the cash portion of the purchase price for the Suburban Maryland Portfolio, net of a $5.0 million earnest money deposit, and related closing costs;

		• approximately $18.0 million to pay down our revolving line of credit; and

		• the remainder for general corporate and working capital purposes, including possible future acquisitions.

		If we acquire the Suburban Maryland Portfolio before completion of this offering, we intend to use borrowings under our revolving line of credit and a short term bridge facility to fund the cash portion of the purchase prices. In that event, we will use a portion of the net proceeds from this offering to repay these borrowings.

		Pending these uses, we intend to invest the net offering proceeds in marketable investment grade securities or money market accounts which are consistent with our intention to qualify as a REIT.

NYSE symbol		FPO



			Three Months Ended March 31,									Year Ended December 31,

			Pro Forma									Pro Forma
			2004			2004			2003			2003			2003			2002			2001			2000			1999

			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)															(Unaudited)
Statement of Operations Data:
Operating revenues
	Rental revenues		$	10,480,254		$	6,651,804		$	3,688,283		$	40,591,603		$	15,341,194		$	9,844,553		$	8,184,640		$	9,024,402		$	9,201,709
	Tenant reimbursements			1,798,123			1,060,695			625,657			8,078,469			3,021,575			1,668,721			1,483,401			1,621,933			1,475,229

		Total operating revenues		12,278,377			7,712,499			4,313,940			48,670,072			18,362,769			11,513,274			9,668,041			10,646,335			10,676,938

Operating expenses
	Property operating			2,593,402			1,631,794			648,261			9,192,623			3,338,647			1,541,627			1,324,715			1,225,471			1,346,190
	Real estate taxes and insurance			1,109,901			709,137			399,883			4,158,775			1,573,812			1,098,457			937,732			884,782			847,109
	General and administrative			720,098			720,098			542,742			3,156,466			4,306,466			2,314,421			2,352,057			1,886,496			2,284,149
	Depreciation and amortization			4,288,426			2,604,911			1,064,243			17,157,262			5,128,079			2,639,058			1,496,712			1,297,469			2,384,476
	Other			—			—			—			—			—			—			—			131,748			345,848

		Total operating expenses		8,711,827			5,665,940			2,655,129			33,665,126			14,347,004			7,593,563			6,111,216			5,425,966			7,207,772

		Operating income		3,566,550			2,046,559			1,658,811			15,004,946			4,015,765			3,919,711			3,556,825			5,220,369			3,469,166

Other expenses (income):
	Interest income			(35,062	)		(35,062	)		(99,617	)		(148,955	)		(221,626	)		(624,951	)		(325,079	)		(39,793	)		(46,641	)
	Interest expense			3,436,583			2,067,606			2,749,027			13,713,115			11,074,922			8,431,981			6,515,208			5,431,231			4,847,517
	Equity in net (income) loss of real estate investees			—			—			54			—			46,953			114,786			(86,047	)		186,438			—
	Cumulative effect of change in accounting principle			—			—			—			—			—			—			—			—			440,147
	Loss on early retirement of debt			212,250			212,250			—			4,566,782			4,566,782			423,194			—			—			—
	Minority interest			(4,699	)		(27,629	)		(82,758	)		(311,035	)		(1,308,038	)		1,700,232			—			—			—

		Net loss	$	(42,522	)	$	(170,606	)	$	(907,895	)	$	(2,814,961	)	$	(10,143,228	)	$	(6,125,531	)	$	(2,547,257	)	$	(357,507	)	$	(1,771,857	)

	Basic and diluted loss per share(1)		$	(0.00	)	$	(0.02	)	$	—		$	(0.22	)	$	(0.73	)		—			—			—			—
	Weighted average common shares outstanding — basic and diluted(2)			12,634,000			8,634,000			—			12,634,000			8,177,478			—			—			—			—
Balance Sheet Data (at period end):
	Investment in real estate, after accumulated depreciation and amortization		$	356,982,883		$	206,939,622		$	108,410,510		$	—		$	208,334,677		$	104,635,593		$	65,765,535		$	67,175,839		$	68,378,538
	Total assets		$	396,676,924		$	235,910,505		$	127,111,744		$	—		$	244,148,008		$	126,592,422		$	72,246,109		$	70,799,641		$	72,306,762
	Mortgages and other secured loans		$	210,988,539		$	120,543,017		$	121,770,117		$	—		$	127,840,126		$	123,937,710		$	64,140,016		$	60,680,473		$	60,007,952
	Total liabilities		$	217,822,795		$	125,112,376		$	126,237,769		$	—		$	132,148,692		$	127,500,971		$	65,884,345		$	61,693,523		$	61,957,890
	Minority interest		$	19,699,747		$	19,699,747		$	333,256		$	—		$	19,866,928		$	416,014			—			—			—
	Stockholders’/owners’ equity (deficit)		$	159,154,382		$	91,098,382		$	540,719		$	—		$	92,132,388		$	(1,324,563	)	$	6,361,764		$	9,106,118		$	10,348,872
	Total liabilities and stockholders’/owners’ equity		$	396,676,924		$	235,910,505		$	12,111,744		$	—		$	244,148,008		$	126,592,422		$	72,246,109		$	70,799,641		$	72,306,762


David C. Wright Edward W. Elmore, Jr. Hunton & Williams LLP Riverfront Plaza, East Tower 951 E. Byrd Street Richmond, Virginia 23219 (804) 788-8200		John J. Jenkins Calfee, Halter & Griswold LLP 1400 McDonald Investment Center 800 Superior Avenue Cleveland, OH 44114 (216) 622-8200


	Page

Summary		1
Risk Factors		14
A Warning About Forward-Looking Statements		29
Use of Proceeds		30
Distributions and Price Range of Common Shares		31
Capitalization		32
Dilution		33
Selected Financial Information		34
Management’s Discussion and Analysis of Financial Condition and Results of Operations		37
Our Business and Properties		52
Management		81
Certain Relationships and Related Party Transactions		93
Principal Shareholders		96
Share Ownership by Certain Beneficial Owners		97
Description of Shares		98
Certain Provisions of Maryland Law and of Our Amended and Restated Declaration of Trust and Amended And Restated Bylaws		103
Partnership Agreement		108
Federal Income Tax Considerations		111
Underwriting		128
Legal Matters		130
Experts		130
Where You Can Find More Information		130
Index To Financial Statements		F-1



		Pro Forma

		Three Months			Year Ended
		Ended			December 31,
		March 31, 2004			2003

Pro forma net loss		$	(42,522	)	$	(2,814,961	)
	Plus: minority interest		(4,699	)		(311,035	)
	Plus: pro forma real estate depreciation and amortization		4,288,426			17,157,262

Pro forma funds from operations		$	4,241,205		$	14,031,266



		Price Range				Cash
						Distribution
		High		Low		Per Share(1)

Year Ended December 31, 2003
	Fourth Quarter (from October 23, 2003, date of initial public offering)	$	18.85	$	15.50	$	—
Year Ending December 31, 2004
	First Quarter		21.40		18.41		0.10
	Second Quarter (through June 4, 2004)		20.95		16.33		0.20



		As of March 31, 2004

					Pro Forma,
		Historical			as Adjusted


		(in thousands)
Cash and cash equivalents		$	8,749		$	9,271

Debt
	Mortgage loans	$	120,543		$	210,989
Minority Interest			19,700			19,700
Owners’/Shareholders’ Equity
	Preferred shares, $0.001 par value, 50,000,000 shares authorized, no shares issued and outstanding		—			—
	Common shares, $0.001 par value, 150,000,000 shares authorized, 8,634,000 shares issued and outstanding, 12,634,000 shares issued and outstanding as adjusted(1)		9			13
	Additional paid-in capital		117,525			185,577
	Deficit		(26,436	)		(26,436	)

	Total shareholders’ equity		91,098			159,154

Total Capitalization		$	231,341		$	389,843


Public offering price			$	18.10
	Net tangible book value per share as of March 31, 2004	9.81
	Increase in pro forma net tangible book value per share attributable to this offering(1)	1.33

	Pro forma net tangible book value per share after completion of this offering(2)			11.14

Dilution per share to new investors(3)			$	6.96


Buildings and improvements		39 years
Tenant improvements		Shorter of the useful lives or the terms of the related leases
Furniture, fixtures, and equipment		5 to 15 years



	Three Months
	Ended March 31,
							Percent
	2004		2003		Increase		Change

Rental income	$	6,651,804	$	3,688,283	$	2,963,521		80%
Tenant reimbursement and other revenues	$	1,060,695	$	625,657	$	435,038		70%


	RAYMOND JAMES


	ROBERT W. BAIRD & CO.


	ADVEST, INC.


	FERRIS	, BAKER WATTS Incorporated