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Edited Transcript of FPO earnings conference call or presentation 28-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 First Potomac Realty Trust Earnings Call

Bethesda May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of First Potomac Realty Trust earnings conference call or presentation Friday, April 28, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew P. Blocher

First Potomac Realty Trust - CFO, EVP and Treasurer

* Michael H. Comer

First Potomac Realty Trust - CAO and SVP

* Randy L. Haugh

First Potomac Realty Trust - VP of Finance

* Robert M. Milkovich

First Potomac Realty Trust - CEO, President, COO and Trustee

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Conference Call Participants

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* Carol Lynn Kemple

Hilliard Lyons, Research Division - VP and Analyst for Real Estate Investment Trusts

* Craig Allen Mailman

KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst

* Michael Robert Lewis

SunTrust Robinson Humphrey, Inc., Research Division - Director and Co-Lead REIT Analyst

* Sheila Kathleen McGrath

Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the First Potomac Realty Trust First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would like to turn the call over to your host Mr. Randy Haugh, Vice President, Finance for First Potomic Realty Trust. Thank you, you may begin.

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Randy L. Haugh, First Potomac Realty Trust - VP of Finance [2]

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Good morning, and welcome to First Potomac Realty Trust First Quarter of 2017 Conference Call. On the call today are Bob Milkovich, Chief Executive Officer; Andy Blocher, Chief Financial Officer; Samantha Gallagher, General Counsel; Mike Comer, Chief Accounting Officer, Tricia Moore, SVP Investments and Portfolio Management, and other members of our management team.

After the market closed yesterday evening, our company issued its first quarter 2017 earnings press release and posted supplemental information relating to first quarter operating results and portfolio performance on our website. Shortly thereafter, we filed our 10-Q.

Many of you have signed up to receive this information automatically by e-mail. This information was also included in the 8-K furnished last evening to the SEC. The press release can also be found under the Investor Relations section of our website, first-potomac.com. During this call, we will discuss our anticipated operating results and future events, including anticipated earnings and related assumptions; certain non-GAAP financial measures, such as FFO, FFO available to common shareholders and unitholders, core FFO and same-property NOI; anticipated debt repayments and other potential financing transactions; expected dispositions and our ability to complete such dispositions; as well as our ability to identify and complete additional acquisitions.

All non-GAAP financial measures are reconciled to the most directly comparable GAAP measures in our press release and supplemental information included in last evening's 8-K. These and other statements relating to future results and events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on our current assumptions. However, the company's actual results or events might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results or events to differ is contained in our company's annual report on Form 10-K and described from time to time in the company's other filings with the SEC. Many of these factors are beyond our ability to control or predict. We assume no obligation to update our forward-looking statements.

With that, I would like to turn the call over to our Chief Executive Officer, Bob Milkovich.

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [3]

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Thank you, Randy. Good morning, everyone and thank you, for joining us. We are pleased with our first quarter results which were above our expectations and generated by continued performance in our portfolio, additional asset sales and further debt reductions. Let me spend a couple of minutes reviewing our performance. And then I'll turn the call over to Andy, to walk through some of the details, and finally we'll open up the call for your questions.

Core FFO for the first quarter was $0.23 per share, same-property NOI growth was positive at 1.2%, largely driven by improved occupancy in our higher-rent office assets, including 440 First Street and 1401 K Street. We signed 74,000 square feet of new leases and 89,000 square feet of renewal leases in the first quarter, and ended the quarter at 40 -- 94% leased and 92.4% occupied, which was essentially flat compared to first quarter of 2016.

The 74,000 square feet of new leasing was comprised of 9 leases. 3 of those leases were comparable, representing 11,000 square feet, which resulted in a roll up of 2.3% on a GAAP basis, and were basically flat on a cash basis. The 89,000 square feet of renewal leasing was comprised of 13 leases, reflecting a tenant retention rate of 32%. On the renewal leases, we experienced a roll up of 4.6% on the GAAP basis and a roll down of 4.9% on a cash basis. The retention rate included the expected 134,000 square foot termination of the Health and Human Services lease at Redland I, which occurred late in the first quarter. When we exclude the Health and Human Services termination, the retention rate would have been 61%, which is comparable to our historic average.

One lease to note is the shared workspace tenant at 840 First Street, that we discussed last quarter. As of April 1, we have negotiated a month-to-month lease, which allows us to continue collecting rent for that space while providing us the flexibility to release the space at our option within 90 days notice. Additional key leases for the quarter include a new 31,000 square foot lease with Compass Group USA at Ammendale Commerce Center , 3 new leases totaling over 14,000 square feet at 440 First Street and a 15,000 square foot renewal and expansion lease with Mid-Atlantic Engineering Technical Services at Crossways Commerce.

Turning to dispositions. During the first quarter, we sold $108 million of non-core assets, which includes our proportionate share of the proceeds from our joint venture dispositions, bringing the total dispositions to $314 million and largely achieving the $350 million disposition goal we set just over one year ago. In January, we sold One Fair Oaks, a 214,000 square foot building in Fairfax CACI vacated at year-end as expected. The gross proceeds were $13.7 million. Shortly thereafter, we completed the sale of Plaza 500, our sole remaining industrial property for gross proceeds of $75 million. You may recall that we intentionally coordinated the timing of the sales of One Fair Oaks and Plaza 500 to limit the tax and distribution implications associated with the disposition of these assets. Finally, in March, our joint ventures with AEW sold 3 joint-venture properties in Maryland, Aviation Business Park and River's Park I and II, for gross proceeds of $59.5 million. First Potomac had a 50% ownership in Aviation Business Park in Glen Burnie, and a 25% interest in River's Park I and II in Columbia.

As a result of these sales, we generated $19 million of gross proceeds from the disposition of these joint venture assets. Proceeds from these sales were largely utilized to repay outstanding balances under our revolving credit facility. Including the repayment of our share of the mortgage debt on the sole joint ventures, we have reduced our debt balances by over $100 million since the beginning of 2017, which significantly helped to strengthen our balance sheet. We continue to move forward with our redevelopment efforts across the portfolio. We have made significant progress with the redevelopment of Redland I or 540 Gaither Road, the anticipated move out of Health and Human Services on March 22. We began demolishing work on March 27 and have already completed over half of that aspect of the work. We expect our redevelopment of both 540 Gaither as well as the Courtyard Pavilion that will house a new retail tenant to continue through the end of the third quarter. Once the base building work is complete, we'll turn the second and third floors over to Avendra to accommodate their expected occupancy in 2018. In addition, we continue to market the available space, based on the renovation plans.

As discussed last quarter, we are proceeding with the additional base building work and have successfully leased the ground floor at 1401 K Street to 3 retail tenants including, Taylor Gourmet for 2,100 square feet, Honeyfish Poke for 950 square feet and LPQ for 9,500 square feet. These tenants will be highly visible at the corner location fronting Franklin Square, and will provide a great addition to both the building and the neighborhood, which we believe will help us achieve strong rents in the future.

We continue to be bullish on the redevelopment opportunities of both 500 First Street and 11 Dupont. Expectation remain that the Bureau of Prisons will need to further extend their lease expiration past July. We are in discussions with the GSA regarding their length of extension of the property.

Finally, we have evaluated numerous redevelopment opportunities for 11 Dupont. Multiple options are being consider. Some of which includes the addition of a rooftop conference center and touchdown space, reinvigorating the lobby, courtyard, restrooms and common areas and additional glass to maximize the exceptional views that the property offers across Dupont Circle. Buildings of this vintage have strongly benefited from redevelopment efforts of this type and we're being intentionally deliberate to ensure we maximize these benefits.

Turning to the Washington region. Washington, D.C. continues to register a low unemployment rate at 3.9%, and places third among the 12 largest U.S. metro areas. Overall, the Washington area office market fundamentals were positive at the end of the first quarter of 2017. Absorption registered positive in all 3 jurisdictions, totaling 1.1 million square feet, which was in line with the total positive absorption for all of 2016. At the end of the first quarter, the overall vacancy rate decreased by 40 basis points from year-end, which is due to the lack of new construction delivery, combined with the significant amount of leasing that took place. Additionally, the weighted average asking rents increased 3.4% over the past year. We continue to monitor office construction activity across Washington, D.C. The Washington, D.C. construction pipeline remains robust and as Trophy space is delivered to the market, it could potentially place downward pressure on Class A rents. We believe our assets are well positioned to compete, offering excellent value compared to the asking rents of these Trophy properties.

Secondly, the new administration continues to create uncertainty in the Washington D.C. real estate market, specifically as it relates to the proposed budget cuts to the local federal workforce. Should these budget cuts gain approval from Congress, it is anticipated that the agencies would be scaled down and much of the work could be outsourced to the private sector, which could lead to increased office demand from government contracts.

Uncertainty aside, Washington area job growth among office using sectors was strong in 2015 and 2016 and continued growth is projected in Washington, D.C. for 2017. In summary, our first quarter results have provided us a solid start to 2017. We remain firmly focused on driving results from what has become a smaller but stronger portfolio and we remain committed to being good stewards of capital in the business, with a focus of making decisions that we believe maximize value for our shareholders over the long run. With that, I'd like to turn the call over to Andy, to review our financial results.

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Andrew P. Blocher, First Potomac Realty Trust - CFO, EVP and Treasurer [4]

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Thanks, Bob, and good morning, everyone. Net income attributable to common shareholders improved from a net loss of $4.1 million or $0.07 per diluted share in the first quarter of 2016 to net income of $43.1 million or $0.74 per diluted share in the first quarter of 2017. Net income in the first quarter of 2017 included $46.6 million of GAAP gains on asset sales, coming largely from the disposition of Plaza 500. Core FFO decrease slightly from $14.8 million in the first quarter of 2016 to $13.9 million in the first quarter of 2017, or from $0.24 per diluted share to $0.23 per diluted share. Decrease in -- is driven by a $3.7 million reduction in net operating income from the sales of One Fair Oaks, Plaza 500, the Northern Virginia non-core portfolio and Storey Park, which actually resulted in a small improvement to NOI. At an $800,000 decrease in interest income from the repayment of the mezzanine loan at 950 F Street. These negatives were largely offset by a $2.2 million reduction in preferred dividends, $900,000 of additional NOI from the Northern Virginia build-to-suit, a $500,000 reduction in interest expenses from reduced debt balances and $300,000 of additional NOI from the same-property portfolio.

FFO available to common shareholders and unitholders, increased from $12.8 million or $0.21 per diluted share in the first quarter of 2016 to $13.9 million or $0.23 per diluted share in the first quarter of 2017. FFO available to common shareholders and unitholders on the first quarter of 2016, included the write-off of $1.9 million of original issuance cost associated with the redemption of a portion of our then outstanding preferred shares. Same-property NOI increased 1.2% during the first quarter, despite flat occupancy in the same property pool. As Bob noted, a significant portion of this improvement comes from increased occupancy at our higher rent office properties in D.C., most notably 440 First Street and 1401 K Street. In fact, our office portfolio produced 4.4% same property NOI growth in the quarter, compared with a 4.1% decline in the Business Park portfolio. While overall snow expense was down significantly even compare to the first quarter of 2016, the impact on a same property basis was small, as properties with significant snow removal expense in 2016 have been sold.

We have $94 million of consolidated debt maturing in 2017, which is comprised of a $62 million mortgage loan on 2 of the 3 buildings at Redland, 520 and 530 Gaither Road. And a $32 million construction loan on 440 First Street. At Redland, we would likely repay the existing mortgage using their revolving line of credit and wait until we have made significant redevelopment progress at the third building on the property, 540 Gaither Road, before we move forward with replacing the previous mortgage. At that point in time, the property will be better positioned for long-term financing, that encompasses all 3 buildings. At 440 First Street, we're looking into the option of extending the in place construction loan or utilizing capacity under revolving line of credit to repay the construction loan. Both options provide short-term flexibility, while we await additional leasing and occupancy on the top floor of that building, which will help our efforts to get the best capital market execution on longer-term financing. By potentially adding the 2 buildings at Redland, as well as 440 First Street to the unincumbered asset pool, we will unlock capacity on the revolving line of credit that would not have otherwise been available to us.

Turning to our guidance. As disclosed in our press release, we increased our 2017 core FFO guidance range from $0.78 to $0.84 to a new range of $0.80 to $0.85. We now expect between $84 million and $88 million of portfolio NOI in 2017, which reflects first quarter results in greater confidence in a Bureau of Prisons extension at 500 First Street. It's important to note that this range excludes additional disposition and acquisition activity. We continue to expect between $17.5 million and $18.5 million of G&A for the year. Our year-end occupancy range remains 91% to 93%, and our same-property NOI guidance remains negative 1% to positive 1%.

With that, let me turn the call back over to Bob.

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [5]

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Thank you, Andy. Before we open up the call for Q&A, I would like assure people we're aware of the recent market rumors with respect to First Potomac. While I understand the interest in the recent media attention the company has received, like any public company, we don't comment on market rumors or speculations. As such, we would appreciate if you keep your questions focused to our financial and operational performance and outlook. Thank you, in advance for your cooperation. And operator, let's now open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Craig Mailman with KeyBanc Capital Markets.

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Craig Allen Mailman, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [2]

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Just one quick one on Bureau of Prisons. Bob you said you guys are in the midst of it. At this point kind of what's baked in the guidance for their -- kind of their move out date? And what do you think is realistic in terms of when they could get out to get in their new building?

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [3]

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Yes, just so you know Craig, thanks for calling in. We certainly have been talking to them quite frequently and trying get our arms around their scheduling. And Andy I'll let you address the -- how it's flowing through the guidance.

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Andrew P. Blocher, First Potomac Realty Trust - CFO, EVP and Treasurer [4]

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And so from a guidance perspective -- I mean we -- it's one of the reasons why we provide a range. We are not coming to a single point in time. But we do have an assumption in there that they will extend past July. So to some extent -- to the extent that they extend all the way through year-end you probably be a little bit closer to the higher end of the range. And to the extent that they didn't extend for some reason as Bob said, we don't have a deal in place but we are very confident that we will. They do probably more towards the middle of the range.

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Craig Allen Mailman, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [5]

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That's helpful. And then, so you guys are at 314 otherwise hit the 350. Can you just give an update on maybe how much more product you have in the market? And just give us a sense of postelection here and kind of seeing where things have gone with getting his agenda through? Maybe what kind of the appetite for your type of assets has been, kind of what the receptions been? And kind of just expectation on timing on getting the 350 done?

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [6]

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Yes, sure. Great question. So we -- at this time we don't have anything in the market. And as we know -- as you know, we move quickly to sell the -- over $300 million to date. If used, Aviation Rivers Park is kind of an example of what we've done in the past. We might have moved them sooner -- move them into the market sooner but we thought like we needed to do some leasing. So we're constantly monitoring our assets kind of trading off the speed versus pricing. I would say and so far as the market is concern, the investment sales market in Washington, D.C. remains very active. In fact, the statistical measures for Q1 of '17 has been pretty robust. I think some of that was a carryover from 2016 deals that did not get done. But we continue to look at and strategically look at what assets are ready to harvest.

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Craig Allen Mailman, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [7]

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You guys have been pretty happy with the pricing execution you guys have gotten relative to kind of your expectations. And how are asset valuations holding up in the Metro?

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [8]

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Yes, we are certainly pleased with the execution that we've had on the asset sales that we've completed to date and that being in '17 and in -- even in 2016. And I think the pricing has held up. The debt market are still available to buyers that need to procure debt. And those are all cash buyers have move as well.

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Andrew P. Blocher, First Potomac Realty Trust - CFO, EVP and Treasurer [9]

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Yes. And Craig, I think it goes without saying, but you know me, I'll say it anyway. The stuff that we've been selling is obviously non core. Right, so it's lesser quality properties in our portfolio and as Bob said, I think, we feel pretty good about the execution we'd be getting with respect to this.

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [10]

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And even on non core, when you look at something like Plaza 500 that was just a asset, one of the last industrial assets that we had. And you know the state of the market on industrial, I think we did really well there.

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Craig Allen Mailman, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [11]

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And I guess just if you guys think about your core, that you guys want to hold that maybe has some vacancy in it. Kind of what's been the market reception to those type of assets?

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [12]

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Yes, it's -- we've actually been able to -- our occupancy and our lease percentages as you know have been very high. Always target kind of 90% as a pass fail level. So how we've been on the vacancies, we've been doing very well, certainly downtown as reflected in our first quarter performance. The higher renting type product did very well. We continue to see a fair amount of activity there and we also see some upward movement in rents.

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Craig Allen Mailman, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [13]

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And then just one last one. You guys touched on 11 Dupont that you're still kind of evaluating the different options there. From I guess dollars out the door on different type of improvements, I guess where do you guys eventually see the pricing for that asset sitting in between kind of A's and B's in the market and how does that really drive your decision making on potentially not over improving but putting in extra expense that maybe doesn't necessarily get it to a full blown A but wouldn't want to justify that type of pricing?

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [14]

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Yes, well first and foremost. So I think you have to look at the physical location of the asset, it sits fronting a park and typically buildings, it's proven out statistically that the properties that front Pennsylvania Avenue or that front a park typically do better in terms of rental rates, in terms of lease up velocity. So this building has a distinct advantage of having windows, great window line, great floor-to-glass ratio and fronts a park. And we are being cognizant of not over improving it. If you look at the tenant base for that market, which are largely associations, nonprofits, public-policy groups, we're trying to make sure that we do the right amount of improvement for the right and appropriate rent that's at the location. Having said that, I do think we have a superior position with it fronting a park.

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Andrew P. Blocher, First Potomac Realty Trust - CFO, EVP and Treasurer [15]

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Just to kind of dive into that a little more Craig. I think that when a group of us was talking about 11 Dupont just yesterday afternoon. And when you think about that second floor window line overlooking Dupont Circle, really valuable space similar to what, I think Bob has referred to for quite some time, that second floor terrace space over at 1401 K. So you know, I think that we just -- as you said, we're being very cognizant of how it is that we can drive rents and what level of improvement we need to put into the building, while also being very aware of the capital cost.

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Operator [16]

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Our next question comes from the line of Sheila McGrath with Evercore ISI.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [17]

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Bob, I was wondering if you could talk about future dispositions. Would you consider -- you're pretty much done with your previous disposition plan. Are you considering dispositions only to fund future acquisitions? And if you are, with that should we consider business parks as the next up?

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [18]

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I would say, we continue to look at some of the assets that just don't fit, so those are further out and those are business parks. And certainly, we would use those proceeds to look at reinvesting into other opportunities. And then again, for corporate purposes as well.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [19]

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Okay. And are you currently in the market right now underwriting new acquisition opportunities? And if so, are you targeting in the district? Are you targeting value add? Or how can we think about the profile of future acquisition target?

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [20]

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Sure. Great question. We're always underwriting. I think it's always -- it helps us even in terms of our activities when we are a seller. I think you need to look at it from both sides of the table. And we certainly like the more mature submarkets, we like the public transportation accessibility as part of that theme, we like the kind of liquidity of those type of assets institutional grade. So that's where we're underwriting. I would say that we're looking geographically downtown. Although, we know that's overly frothy and we are certainly looking in the Northern Virginia area as well.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [21]

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Okay. Great. And Andy, the straight lining adjustment is a bit confusing. It's been positive a few quarters. Can you just help us understand the straight lining in this quarter? And how we should think about it for the balance of the year?

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Michael H. Comer, First Potomac Realty Trust - CAO and SVP [22]

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Hey Sheila, it's Mike Comer. The straight lining adjustment, it's really just dependent on how the leases are turning and where they are in a cycle. Typically, you do think of straight line as an add back to rent but it also includes rent abatement amortization. That is a negative so we have added that back so that's what it's primarily a positive. Does that makes sense?

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [23]

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So when we look at the balance of the year. I mean I understand the calculations, but it's -- obviously it's just, it's weird how it's been a -- I think fourth quarter was you had to write off a tenant leaving so that impacted it. So do you think it'll be reversing to more typical? Is the balance of the year or...

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Michael H. Comer, First Potomac Realty Trust - CAO and SVP [24]

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No. I think the trending and how we see this over the past few quarters it should continue in that manner. Again, we have heavy abatement associated with some of our properties and because that is a deduct to revenue, it's just -- that ends up being an add back for the other supplemental information purposes.

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Operator [25]

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Our next question comes from the line of Michael Lewis with SunTrust, Robinson Humphrey.

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Michael Robert Lewis, SunTrust Robinson Humphrey, Inc., Research Division - Director and Co-Lead REIT Analyst [26]

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Wanted to follow up a little bit on the acquisition opportunities. What you're seeing in the market, is there stuff out there that's attractive pricing for you? We know it's a competitive market. And do you think as far as the funding, is the primary source you think still dispositions? Or are you somehow thinking about how you need to maybe be a net grower and therefore maybe use some other funding sources?

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Andrew P. Blocher, First Potomac Realty Trust - CFO, EVP and Treasurer [27]

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Yes I mean from the funding source perspective, I think that we've made great progress with respect to the balance sheet. And our goal is always to achieve and maintain a balance sheet that allows us to access multiple sources of capital at advantageous pricing anytime that we want. We're certainly not going to comment about any specific funding sources for any particular assets. As we've said in the past, there are certain opportunities potentially with respect to some dispositions that could give us some additional flexibility. But as it relates to the specific timing or pricing of any capital allocation, we're just not going to comment on that.

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [28]

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Michael, I would also say when you think about acquisitions, one of the kind of areas that we believe we can drive value is through our redevelopment portfolio, so that's certainly an area of where we're looking at reinvestment directly in our current portfolio.

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Michael Robert Lewis, SunTrust Robinson Humphrey, Inc., Research Division - Director and Co-Lead REIT Analyst [29]

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And then just second, I wanted to kind of delicately ask a strategic question. The stock prices are up albeit for reasons largely for reasons we all know. But the lease percentage is high, you've done some cost-cutting, the balance sheet cleanup Andy just touched on. Would you say you're essentially complete with the plan you tackled, I know there's still maybe of couple dispositions here and there. And if that's the case what's plan 2? Where do you kind of go from here?

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [30]

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Let me reiterate on the strategic plan a few comments. One, we had always just using the 314 again the 350, we still have work to do on our strategic plan. I would also submit that the 3 major tenets of our plans are always derisk, delever and value through portfolio compositions. And those 3 tenants have a long shelf life. In fact, I would submit that whether you're in the middle of the plan or you're downstream from now, you're constantly working to improve those 3 areas. So I think we still have work to do on the plan, we'll continue to execute on the plan, we feel good about our progress to date. And we've talked about this that the plan really affords us a lot of opportunities.

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Michael H. Comer, First Potomac Realty Trust - CAO and SVP [31]

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You're just kind of jump on to that a little bit, Michael. Especially when you think about derisk, I feel really good about the process that we're going through at 540. I feel pretty good about our thoughts with respect to 500, but 500 First Street, but we haven't got the space back yet. So still some -- I feel good about where we are going. I think we got a little bit of time in order to demonstrate the fruits of those labors.

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Operator [32]

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Our next question comes from the line of Carol Kemple with Hilliard Lyons.

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Carol Lynn Kemple, Hilliard Lyons, Research Division - VP and Analyst for Real Estate Investment Trusts [33]

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On the income statement, your loss from earnings of affiliates was up quite a bit. Was there anything one time and how should we look at that for the remainder of the year?

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Andrew P. Blocher, First Potomac Realty Trust - CFO, EVP and Treasurer [34]

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The equity related to the JVs, it actually includes the gain on disposition. So included in the $4.2 million was $3.8 million, which represented our proportion of share of the gains.

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Operator [35]

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Ladies and gentleman, we have come to the end of our time for questions. I'll now turn the floor back over to Mr. Milkovich for any final remarks.

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Robert M. Milkovich, First Potomac Realty Trust - CEO, President, COO and Trustee [36]

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Thank you very much, and thank you, everyone, for taking the time today to discuss our continued progress and results. We appreciate it very much. This concludes our call. And thank you.

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Operator [37]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.