3. Acquisitions and Divestitures

Medical Office Portfolio Acquisition

On December 29, 2016, we acquired 34 medical office buildings for a purchase price of $758.8 million (the “Medical Office Portfolio”). These properties, which collectively comprise 1.9 million square feet, are geographically dispersed throughout the U.S. and primarily affiliated with major hospitals or located on or adjacent to a major hospital campus. The portfolio is 94% occupied and primarily net leased to investment-grade health systems and major physician-owned medical groups. We utilized $491.2 million in new financing in order to fund the acquisition (as set forth in Note 10).

No goodwill or bargain purchase gains were recognized in connection with the Medical Office Portfolio acquisition as the purchase price equaled the fair value of the net assets acquired. From the acquisition date through December 31, 2016, we have recognized revenues of $0.4 million and a net loss of $9.7 million related to the Medical Office Portfolio. Such net loss includes one-time acquisition-related costs, such as legal, due diligence and hedging costs, of approximately $9.5 million.

Woodstar Portfolio Acquisition

The Woodstar Portfolio is comprised of 32 affordable housing communities with 8,948 units concentrated primarily in the Tampa, Orlando and West Palm Beach metropolitan areas.

During the year ended December 31, 2015, we acquired 18 of the 32 affordable housing communities of the Woodstar Portfolio, comprised of 5,238 units, for an aggregate acquisition price of $324.0 million. During the year ended December 31, 2016, we acquired the final 14 affordable housing communities of the Woodstar Portfolio, comprised of 3,710 units with total assets of $276.3 million and assumed liabilities of $170.4 million as of their respective acquisition dates. These assumed liabilities include federal, state and county sponsored financing and other assumed debt. Refer to Note 10 for further discussion of these assumed debt facilities.

For the 14 affordable housing communities acquired during 2016, we recognized revenues of $32.8 million and net income of $4.7 million during the year ended December 31, 2016. Such net income includes (i) bargain purchase gains of $8.4 million, (ii) depreciation and amortization expense of $14.8 million and (iii) one-time acquisition-related costs, such as legal and due diligence costs, of approximately $0.9 million.

No goodwill was recognized in connection with the Woodstar Portfolio acquisition as the purchase price did not exceed the fair value of the net assets acquired. During the year ended December 31, 2016, a bargain purchase gain of $8.4 million was recognized within other income, net in our consolidated statements of operations as the fair value of the net assets acquired exceeded the purchase price due to favorable changes in net asset fair values occurring between the date the purchase price was negotiated and the closing date.

Investing and Servicing Segment Property Portfolio Acquisition

During the year ended December 31, 2016, our Investing and Servicing Segment acquired nine controlling interests in commercial real estate properties as well as a non-performing loan from CMBS trusts for $129.8 million. In addition, during the year ended December 31, 2016, we foreclosed on the non-performing loan that was previously acquired from a CMBS trust for $8.2 million. These 10 properties, aggregated with the controlling interests in 14 U.S. commercial real estate properties acquired from CMBS trusts during the year ended December 31, 2015 for $138.7 million, comprise the Investing and Servicing Segment Property Portfolio (the “REO Portfolio”). When the properties are acquired from CMBS trusts that are consolidated as VIEs on our balance sheet, the acquisitions are reflected as repayment of debt of consolidated VIEs in our consolidated statements of cash flows.

For the 10 commercial real estate properties acquired during 2016, we recognized revenues of $12.3 million and net income of $8.0 million during the year ended December 31, 2016. Such net income includes (i) bargain purchase gains of $8.8 million, (ii) depreciation and amortization expense of $5.5 million and (iii) one-time acquisition-related costs, such as legal and due diligence costs, of approximately $1.0 million.

No goodwill was recognized in connection with the REO Portfolio acquisitions as the purchase prices did not exceed the fair values of the net assets acquired. During the year ended December 31, 2016, a bargain purchase gain of $8.8 million was recognized within change in net assets related to consolidated VIEs in our consolidated statements of operations as the fair value of the net assets acquired for certain properties exceeded the purchase price.

During the year ended December 31, 2016, in accordance with ASU 2015-16, Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments, we adjusted our initial provisional estimates of the acquisition date fair values of the identified assets acquired and liabilities assumed for certain properties acquired within the REO Portfolio to reflect new information obtained regarding facts and circumstances that existed at the respective acquisition dates. The following table summarizes the measurement period adjustments applied to the REO Portfolio’s initial provisional acquisition date balance sheets for these certain properties (amounts in thousands):


	Initial		Measurement		Adjusted
	Provisional		Period		Provisional
Assets acquired:	Amounts		Adjustments		Amounts
Properties	$	71,496	$	17,277	$	88,773
Intangible assets		25,387		(6,271)		19,116
Other assets		2,862		—		2,862
Total assets acquired		99,745		11,006		110,751
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities		3,202		2,184		5,386
Total liabilities assumed		3,202		2,184		5,386
Non-controlling interests		5,492		—		5,492
Net assets acquired	$	91,051	$	8,822	$	99,873

There was no effect attributable to our consolidated statements of operations for the years ended December 31, 2015 and 2014 as a result of the measurement period adjustments applied to the REO Portfolio’s initial provisional acquisition date balance sheets during 2016.

Ireland Portfolio Acquisition

During the year ended December 31, 2015, we acquired 12 net leased fully occupied office properties and one multi-family property all located in Dublin, Ireland. Collectively, these 13 properties comprise our “Ireland Portfolio”.

The Ireland Portfolio, which collectively is comprised of approximately 600,000 square feet, included total assets of $518.2 million and assumed debt of $283.0 million at acquisition. Following our acquisition, all assumed debt was immediately extinguished and replaced with new financing of $328.6 million from the Ireland Portfolio Mortgage (as set forth in Note 10). All properties within the Ireland Portfolio were acquired from entities controlled by the same third party investment fund. No goodwill or bargain purchase gain was recognized in connection with the Ireland Portfolio acquisition as the purchase price equaled the fair value of the net assets acquired.

Purchase Price Allocations of Acquisitions

We applied the provisions of ASC 805, Business Combinations, in accounting for our acquisitions of the Medical Office Portfolio, Woodstar Portfolio, Ireland Portfolio and REO Portfolio. In doing so, we have recorded all identifiable assets acquired and liabilities assumed at fair value as of the respective acquisition dates. These amounts for the Medical Office Portfolio and certain properties within the Woodstar and REO Portfolios are provisional and may be adjusted during the measurement period, which expires no later than one year from the acquisition dates, if new information is obtained that, if known, would have affected the amounts recognized as of the acquisition dates.

The following table summarizes the identified assets acquired and liabilities assumed at the respective acquisition dates, as well as adjusted provisional estimates for the REO Portfolio (amounts in thousands):


	2016						2015
	Medical Office		Woodstar		REO		Woodstar		REO		Ireland
Assets acquired:	Portfolio		Portfolio		Portfolio		Portfolio		Portfolio		Portfolio
Cash and cash equivalents	$	—	$	6,254	$	—	$	—	$	—	$	—
Restricted cash		—		—		—		—		—		10,829
Properties		686,984		245,430		123,819		339,040		128,218		445,369
Intangible assets		85,596		8,174		25,638		11,337		19,381		59,529
Other assets		511		16,417		2,978		652		4,973		2,508
Total assets acquired		773,091		276,275		152,435		351,029		152,572		518,235
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities		14,327		19,666		7,358		18,030		6,998		17,552
Secured financing agreements		—		150,763		—		8,982		—		283,010
Total liabilities assumed		14,327		170,429		7,358		27,012		6,998		300,562
Non-controlling interests		—		—		6,462		—		6,904		—
Net assets acquired	$	758,764	$	105,846	$	138,615	$	324,017	$	138,670	$	217,673

Pro-Forma Operating Data (Unaudited)

The unaudited pro-forma revenues and net income attributable to the Company for the years ended December 31, 2016 and 2015, assuming all the properties acquired within the Medical Office Portfolio, Woodstar Portfolio, Ireland Portfolio and REO Portfolio were acquired on January 1, 2014 for the 2015 acquisitions and January 1, 2015 for the 2016 acquisitions, are as follows (amounts in thousands, except per share amounts):


	For the Year Ended
	December 31,
(Unaudited)	2016		2015
Revenues	$	854,416	$	914,355
Net income attributable to STWD		341,972		441,150
Net income per share - Basic		1.42		1.87
Net income per share - Diluted		1.41		1.87

Pro-forma net income was adjusted to include the following estimated incremental management fees the combined entity would have incurred (amounts in thousands):

European Servicing and Advisory Business Divestiture

On October 31, 2016, we contributed the equity in the subsidiary which owned our European servicing and advisory business to Situs Group Holdings Corporation (“Situs”) in exchange for a non-controlling 6.25% equity interest valued at $12.2 million. We contributed net assets with a carrying value of $3.2 million and recognized a gain of $0.2 million in connection with the exchange, which includes an $8.8 million loss resulting from a release of the accumulated foreign currency translation adjustment component of equity, all recognized within gain on sale of investments and other assets, net in our consolidated statement of operations during the year ended December 31, 2016. We account for the interest we received in Situs as a cost method investment, as discussed in Note 8.

SFR Spin-off

On January 31, 2014, we completed the spin-off of our former SFR segment to our stockholders. The real estate investment trust, Starwood Waypoint Residential Trust (“SWAY”), was listed on the New York Stock Exchange (“NYSE”) and traded under the ticker symbol “SWAY” following the spin-off until its merger with Colony American Homes in January 2016. Our stockholders received one common share of SWAY for every five shares of our common stock held at the close of business on January 24, 2014. As part of the spin-off, we contributed $100 million to the unlevered balance sheet of SWAY to fund its growth and operations. As of January 31, 2014, SWAY held net assets of $1.1 billion. The net assets of SWAY consisted of approximately 7,200 units of single-family homes and residential non-performing mortgage loans as of January 31, 2014. In connection with the spin-off, 40.1 million shares of SWAY were issued. The results of operations for the SFR segment are presented within discontinued operations in our consolidated statements of operations for the year ended December 31, 2014. We have no continuing involvement with the SFR segment following the spin-off. Subsequent to the spin-off, SWAY entered into a management agreement with an affiliate of our Manager. The following table presents the summarized consolidated results of discontinued operations prior to the spin-off (amounts in thousands):


	For the year ended December 31,
	2016		2015		2014
Total revenues	$	—	$	—	$	3,876
Total costs and expenses		—		—		6,369
Loss before other income and income taxes		—		—		(2,493)
Total other income		—		—		942
Loss before income taxes		—		—		(1,551)
Income tax provision		—		—		—
Net loss	$	—	$	—	$	(1,551)

For the Year Ended

December 31,

(Unaudited)

Management fee expense addition