Note 3. Real Estate Properties

As of September 30, 2013, we owned 81 properties, excluding three properties classified as discontinued operations, with an undepreciated carrying value of $1,506,891. We generally lease space in our properties on a gross lease or modified gross lease basis pursuant to fixed term operating leases expiring between 2013 and 2033. Certain of our government tenants have the right to terminate their leases before the lease term expires. Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended September 30, 2013, we entered into 15 leases for 245,446 rentable square feet for a weighted average (by square feet) lease term of 7.8 years and we made commitments for approximately $6,324 of leasing related costs. During the nine months ended September 30, 2013, we entered into 37 leases for 758,491 rentable square feet for a weighted average (by square feet) lease term of 9.1 years and we made commitments for approximately $16,126 of leasing related costs. We have unspent leasing related obligations of approximately $14,808 as of September 30, 2013.

Acquisition Activities

During the nine months ended September 30, 2013, we acquired one office property and one warehouse property for an aggregate purchase price of $30,803, excluding acquisition costs. These acquisitions were accounted for in accordance with the Business Combinations Topic of the FASB Accounting Standards Codification TM. The following allocation of the purchase prices of these acquisitions is based upon preliminary estimates of the estimated fair values of the acquired assets and assumed liabilities and may change based upon the completion of our analysis of acquired in place leases:

			Number						Buildings				Acquired
Acquisition			of	Square	Purchase				and		Acquired		Lease
Date	Location	Type	Properties	Feet	Price(1)		Land		Improvements		Leases		Obligations
Aug-13	Chester, VA	Warehouse	1	228,108	$	12,503	$	1,478	$	9,594	$	1,440	$	(9	)
Aug-13	Bethesda, MD	Office	1	128,645	18,300		3,349		11,152		4,182		(383		)
			2	356,753	$	30,803	$	4,827	$	20,746	$	5,622	$	(392	)

(1) Purchase price excludes acquisition related costs.

In August 2013, we acquired a previously disclosed warehouse property located in Chester, VA with 228,108 rentable square feet. This property is 100% leased to the U.S. Government and occupied by the United States Army. The purchase price was $12,503, excluding acquisition costs.

Also in August 2013, we acquired an office property located in Bethesda, MD with 128,645 rentable square feet. This property is 100% leased to the U.S. Government and occupied by the National Institutes of Health. The purchase price was $18,300, excluding acquisition costs.

In September 2013, we entered an agreement to acquire an office property located in Rancho Cordova, CA with 93,807 rentable square feet. This property is 100% leased to the State of California and occupied by the Department of Consumer Affairs. The contract purchase price is $20,790, excluding acquisition costs.

Also in September 2013, we entered an agreement to acquire four office properties located in Fairfax, VA with a combined total of 170,940 rentable square feet. These properties are 100% leased to eight tenants, of which 51% is leased to the Commonwealth of Virginia and occupied by Northern Virginia Community College. The contract purchase price is $31,500, excluding acquisition costs.

In October 2013, we entered an agreement to acquire an office property located in Montgomery, AL with 49,370 rentable square feet. This property is 100% leased to the U.S. Government and occupied by the Social Security Administration. The contract purchase price is $16,050, excluding acquisition costs.

These pending acquisitions are subject to our satisfactory completion of diligence and other customary closing conditions; accordingly, we can provide no assurance that we will acquire these properties or that the acquisitions will not be delayed or that the terms will not change.

In December 2012, we acquired a property located in Florence, KY. Pursuant to the terms of the purchase agreement for this property, the seller is entitled to up to $1,800 of additional purchase consideration based upon the property’s 2013 real estate tax assessment. In accounting for this acquisition in 2012, we had estimated the fair value of this additional consideration to be $273. During the three months ended September 30, 2013, we received the 2013 real estate tax assessment for this property and increased the estimated fair value of the additional consideration to $1,231 at September 30, 2013. The $958 increase in the fair value of the additional consideration is included in acquisition related costs in our condensed consolidated income statements for the three months ended September 30, 2013. See Note 7 regarding the fair value of assets and liabilities.

Disposition Activities

In February 2013, we sold an office property located in Oklahoma City, OK with 185,881 rentable square feet and a net book value of $8,069 for $16,300, excluding closing costs, and recognized a gain on sale of $8,198. In March 2013, we sold an office property located in Tucson, AZ with 31,051 rentable square feet and a net book value of $2,080 for $2,189, excluding closing costs, and recognized a loss on sale of $30.

During the three months ended September 30, 2013, we began marketing for sale three office properties located in Phoenix, AZ, San Diego, CA and Falls Church, VA, with a combined total of 356,163 rentable square feet. The aggregate net book value of these properties, after recording a $10,142 loss on asset impairment on two of the three properties during the three months ended September 30, 2013, totaled $25,567 at September 30, 2013. We can provide no assurance that sales of these properties will occur. See Note 7 regarding the fair value of assets and liabilities.

Results of operations for the two properties sold in 2013 and the three properties held for sale at September 30, 2013 are included in discontinued operations in our condensed consolidated balance sheets and condensed consolidated statements of income and comprehensive income. Summarized balance sheet and income statement information for properties in discontinued operations is as follows:

Balance Sheets:

	September 30, 2013		December 31, 2012
Real estate properties	$	25,567	$	46,784
Acquired real estate leases, net	—		82
Rents receivable	517		217
Other assets	123		59
Assets of discontinued operations	$	26,207	$	47,142

Other liabilities	$	288	$	298
Liabilities of discontinued operations	$	288	$	298

Statements of Operations:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Rental income	$	886		$	1,657		$	3,831		$	5,740
Real estate taxes	(123		)	(230		)	(505		)	(690		)
Utility expenses	(112		)	(339		)	(447		)	(810		)
Other operating expenses	(255		)	(394		)	(775		)	(1,076		)
Depreciation and amortization	(241		)	(519		)	(1,025		)	(1,639		)
General and administrative	(68		)	(108		)	(226		)	(324		)
Loss on asset impairment from discontinued operations	(10,142		)	—			(10,142		)	—
Net gain on sale of properties from discontinued operations	—			—			8,168			—
Income (loss) from discontinued operations	$	(10,055	)	$	67		$	(1,121	)	$	1,201