Monday, April 11, 2005

First Potomac Realty Trust of Bethesda has been expanding its acquisitions outside of Washington to focus on Norfolk’s industrial properties.

The real estate investment trust, which buys industrial and commercial properties in the D.C. area and other markets in Maryland and Virginia, on Friday bought a 300,000-square-foot warehouse in Chesapeake, Va., for $13.2 million.

The deal for the warehouse in Cavalier Industrial Park included 7 acres that can be developed for additional distribution space.

The Cavalier building, the seventh property First Potomac has bought in the Norfolk area, is 94 percent leased to eight tenants, the company said.

Chief Investment Officer Nicholas Smith said the company has focused more on Norfolk’s industrial market because of the area’s past decade of growth, which has resulted in strong demand for building space but limited land to develop.

“We believe this property has significant upside potential by increasing the rents over the next 12 to 18 months as leases expire and through the additional development opportunity,” Mr. Smith said.

Shares of First Potomac dropped 3 cents on the New York Stock Exchange yesterday to close at $21.97 from Friday’s price of $22. The stock has stayed in the $20 range for the past six months.

Paul Adornato, a senior analyst with New York research and financial services company Maxcor Financial Group Inc., called the company’s latest acquisition a “good move to fill out its presence in the Norfolk market.” But he doubted First Potomac would expand beyond the Mid-Atlantic region.

“I would say their reputation right now is being a ‘local sharpshooter,’ meaning they know the players, properties and tenants in the [D.C.] market. It’s hard to replicate that sort of expertise in a distant market,” said Mr. Adornato, who advised investors to hold their stock.

Mr. Adornato does not own any First Potomac shares and Maxcor has no business with the company.

First Potomac, which owns 85 buildings, bought 23 industrial properties in 2004. The company posted profits for the fourth quarter ended Dec. 31 of $2.2 million (16 cents per share) compared with a loss of $6.32 million (23 cents) a year earlier.

Funds from operations, a good measure of REIT performance, reached $4.72 million (30 cents) for the fourth quarter. The company did not report FFO for the 2003 period.

Tony Howard, an analyst with Louisville, Ky., investment bank Hilliard Lyons, said he expects the Washington market to continue to drive First Potomac’s business. The company’s biggest single tenant is the federal government.

“We felt that no matter who won the presidential election, this area should see solid growth,” Mr. Howard said in his most recent report, rating the company as a “long-term buy.”

Mr. Howard does not own any First Potomac stock, but Hilliard Lyons has a banking relationship with the company.

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