Real Estate Properties

As of September 30, 2018, we wholly owned 105 properties (164 buildings), with an aggregate undepreciated carrying value of $2,854,937, and had a noncontrolling ownership interest in two unconsolidated joint ventures that owned two properties (three buildings). We generally lease space at our properties on a gross lease or modified gross lease basis pursuant to fixed term contracts expiring between 2018 and 2038. 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, 2018, we entered into 24 leases for 182,220 rentable square feet, for a weighted (by rentable square feet) average lease term of 8.1 years and we made commitments for $6,479 of leasing related costs. During the nine months ended September 30, 2018, we entered into 94 leases for 858,998 rentable square feet, for a weighted (by rentable square feet) average lease term of 6.4 years and we made commitments for $21,287 of leasing related costs. As of September 30, 2018, we have estimated unspent leasing related obligations of $34,048.

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to evaluating for impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.

Disposition Activities

In March 2018, we sold an office property (one building) located in Minneapolis, MN with 193,594 rentable square feet for $20,000, excluding closing costs. We recorded a $640 loss on impairment of real estate to reduce the carrying value of this property to its estimated fair value less costs to sell during the three months ended March 31, 2018.

In February 2018, we entered an agreement to sell an office property (one building) located in Safford, AZ with 36,139 rentable square feet for $8,250. We recorded a $2,453 loss on impairment of real estate to reduce the carrying value of the property to its estimated fair value less costs to sell in the three months ended March 31, 2018. In April 2018, we terminated the sales agreement and removed this property from held for sale status. We recorded a $322 adjustment to impairment of real estate to increase the carrying value of the property to its estimated fair value during the three months ended June 30, 2018.

In May 2018, we sold an office property (one building) located in New York, NY with 187,060 rentable square feet for $118,500, excluding closing costs. We recorded a $17,329 gain on sale of real estate during the three months ended June 30, 2018 as a result of this sale.

In May 2018, we sold an office property (one building) located in Sacramento, CA with 110,500 rentable square feet for $10,755, excluding closing costs. We recorded a loss on impairment of real estate of $3,023 and $6 to reduce the carrying value of this property to its estimated fair value less costs to sell during the three months ended March 31, 2018 and June 30, 2018, respectively.

The sales of these properties do not represent significant dispositions individually or in the aggregate. The results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income.

As of September 30, 2018, we had 20 properties (50 buildings) with an aggregate undepreciated carrying value of $355,858 under agreement to sell in three separate transactions, as presented in the table below. We have classified these properties as held for sale in our condensed consolidated balance sheet at September 30, 2018.



Date of Agreement ⁽¹⁾	Number of Properties	Number of Buildings	Location	Square Footage	Gross Sale Price ⁽²⁾
August 2018	1	1	Washington D.C.	129,035	$	70,000
September 2018	8	34	Northern Virginia and Maryland	1,635,868	201,500
October 2018	11	15	Southern Virginia	1,641,109	167,000
	20	50		3,406,012	$	438,500


(1)	These pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or their terms will not change.


(2)	Gross sale price excludes closing costs.

As part of our long term plans to reduce our leverage, we expect to sell additional properties. We are currently marketing or plan to market for sale three properties (three buildings) with an aggregate carrying value of $24,566 as of September 30, 2018. We have determined that these properties did not meet the held for sale criteria as of September 30, 2018. We cannot be sure we will sell any of our properties that we are currently marketing or plan to market for sale or sell them for prices in excess of our carrying values or that we will not recognize impairment losses with respect to these properties.

Pro Forma Financial Information

On October 2, 2017, we acquired First Potomac Realty Trust, or FPO, pursuant to a merger transaction, as a result of which we acquired 35 office properties (72 buildings) with 6,028,072 rentable square feet and FPO's 50% and 51% interests in two joint ventures that own two properties (three buildings) with 443,867 rentable square feet, or collectively, the FPO Transaction. The aggregate value we paid at the closing of the FPO Transaction was $1,370,888. We financed the FPO Transaction with the assumption of certain FPO mortgage debt, borrowings under our revolving credit facility and cash on hand, including net proceeds from our public offerings of common shares and senior unsecured notes.

The following table presents our pro forma results of operations for the nine months ended September 30, 2017 as if the FPO Transaction and related financing activities had occurred on January 1, 2017. The historical FPO results of operations included in this pro forma financial information have been adjusted to eliminate the results of operations of FPO properties and joint venture interests that were sold from January 1, 2017 to October 2, 2017, the closing date of the FPO Transaction. The effect of these adjustments was a decrease in pro forma rental income of $804 and a decrease in net income of $47,019 for the nine months ended September 30, 2017.

This pro forma financial information is not necessarily indicative of what our actual financial position or results of operations would have been for the periods presented or for any future period. Differences could result from numerous factors, including future changes in our portfolio of investments, capital structure, property level operating expenses and revenues, including rents expected to be received pursuant to our existing leases or leases we may enter during the remainder of 2018 and thereafter, changes in interest rates and other reasons. Actual future results are likely to be different from amounts presented in this pro forma financial information and such differences could be significant.



	Nine Months Ended September 30, 2017
Rental income	$	328,255
Net loss	$	(4,733	)
Net loss per share	$	(0.05	)

Unconsolidated Joint Ventures

We own noncontrolling interests in two joint ventures that own two properties (three buildings). We account for these investments under the equity method of accounting. As of September 30, 2018, our investment in unconsolidated joint ventures consisted of the following:



Joint Venture	GOV Ownership	GOV Carrying Value of Investment at September 30, 2018		Property Type	Number of Buildings	Location	Square Feet
Prosperity Metro Plaza	51%	$	24,821	Office	2	Fairfax, VA	328,456
1750 H Street, NW	50%	20,340		Office	1	Washington, DC	115,411
Total		$	45,161		3		443,867

The following table provides a summary of the mortgage debt of our unconsolidated joint ventures:



Joint Venture	Interest Rate ⁽¹⁾	Maturity Date	Principal Balance at September 30, 2018 ⁽²⁾
Prosperity Metro Plaza	4.09%	12/1/2029	$	50,000
1750 H Street, NW	3.69%	8/1/2024	32,000
Weighted Average/Total	3.93%		$	82,000


(1)	Includes the effect of mark to market purchase accounting.


(2)	Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint venture we do not own. None of the debt is recourse to us.

At September 30, 2018, the aggregate $8,565 unamortized basis difference of our unconsolidated joint ventures is primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and the historical carrying value of the net assets of these joint ventures. This difference is being amortized over the remaining useful life of the properties owned by these joint ventures and the resulting amortization expense is included in equity in net earnings of investees in our condensed consolidated statements of comprehensive income.