1254595--3/15/2007--FIRST_POTOMAC_REALTY

related topics

{investment, property, distribution}

{loan, real, estate}

{provision, law, control}

{tax, income, asset}

{regulation, change, law}

{stock, price, share}

{stock, price, operating}

{cost, contract, operation}

{condition, economic, financial}

{interest, director, officer}

{personnel, key, retain}

{operation, natural, condition}

{loss, insurance, financial}

{cost, regulation, environmental}

{debt, indebtedness, cash}

{product, market, service}

{acquisition, growth, future}

Our variable rate debt subjects us to interest rate risk. We compete with other parties for tenants and property acquisitions and many of these parties have substantially greater resources than we have. Newly developed and acquired properties may not produce the cash flow that we expect, which could adversely affect our overall financial performance. All of our properties are located in the southern Mid-Atlantic region, making us vulnerable to changes in economic conditions in that region. Development and construction risks could adversely affect our profitability. Failure to succeed in new markets may limit our growth. 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. Under some of our leases, tenants have the right to terminate prior to the scheduled expiration of the lease. 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. Risks Related to Our Organization and Structure 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 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. We depend on key personnel with long-standing business relationships, the loss of whom could threaten our ability to operate our business successfully. The chairman of our board of trustees, Louis T. Donatelli, and certain other of our trustees may have conflicts of interest with our Company. 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. Our board of trustees may approve the issuance of preferred shares with terms that may discourage a third party from acquiring us. Our ownership limitations may restrict business combination opportunities. 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 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 bylaws may only be amended by our board of trustees, which could limit your control of certain aspects of our corporate governance. Maryland law may discourage a third party from acquiring us. Risks Related to the Real Estate Industry Real estate investments are inherently risky, which could adversely affect our profitability and our ability to make distributions to our shareholders. General economic conditions may adversely affect our financial condition and results of operations. 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. The costs of compliance with or liabilities under environmental laws may harm our operating results. The Company s properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem. 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 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. 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 securities trade, the markets in which we operate, our operations and our profitability. Tax Risks of our Business and Structure 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. Distribution requirements relating to qualification as a REIT for federal income tax purposes limit our flexibility in executing our business plan. Our disposal of properties may have negative implications, including unfavorable tax consequences. We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our securities. 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. If First Potomac Management, Inc. failed to qualify as an S corporation during any of its tax years, we may be responsible for any entity level taxes due. Risks Related to an Investment in Our Common Shares Our common shares trade in a limited market which could hinder your ability to sell our common shares. The market price and trading volume of our common shares may be volatile. Broad market fluctuations could negatively impact the market price of our common shares.

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1254595--3/15/2007--FIRST_POTOMAC_REALTY_TRUST