REAL ESTATE INVESTMENTS (Tables)

12 Months Ended

Dec. 31, 2019

Real Estate [Abstract]

Gross Carrying Value of Operating Properties

As of December 31, 2019 and 2018, the gross carrying value of the operating properties was as follows (in thousands):

	December 31, 2019		December 31, 2018
Land	$	489,702	$	487,301
Building and improvements	3,049,395		3,048,889
Tenant improvements	467,362		415,529
Total	$	4,006,459	$	3,951,719

Capitalized Construction Costs

The following table shows the amount of compensation costs (including bonuses and benefits) capitalized for the years presented (in thousands):

	December 31,
	2019		2018		2017
Development	$	3,047	$	3,185	$	4,390
Redevelopment	775		968		319
Tenant Improvements	3,609		2,811		1,354
Total	$	7,431	$	6,964	$	6,063

Schedule of Purchase Price Allocation

The purchase price and acquisition-related costs have been allocated as follows (in thousands):

	July 28, 2017
Building, land and improvements	$	32,004
Intangible assets acquired (a)	2,562
Below market lease liabilities assumed (b)	(1,818		)
	$	32,748

(a) Weighted average amortization period of 5.9 years.

(b)

Weighted average amortization period of 6.0 years.

The acquisition values have been allocated as follows (in thousands):

	Quarry Lake II			Austin Venture Portfolio			Four Tower Bridge
Acquisition Date	12/19/2018			12/11/2018			1/5/2018
Building, land and improvements	$	35,120		$	457,390		$	20,734
Intangible assets acquired	5,809			76,925			3,144
Below market lease liabilities assumed	(1,524		)	(13,769		)	(182		)
Deferred gain (a)	—			14,594			—
Total unencumbered acquisition value	$	39,405		$	535,140		$	23,696
Mortgage debt assumed - at fair value (b)	—			—			(9,940		)
Total encumbered acquisition value	$	39,405		$	535,140		$	13,756
Total unencumbered acquisition value	39,405			535,140			23,696
Mortgage debt assumed - at fair value (b)	—			—			(9,940		)
Mortgage debt repaid at settlement (c)	—			(115,461		)	—
Investment in unconsolidated real estate ventures	—			(14,594		)	(3,502		)
Gain on promoted interest in unconsolidated real estate venture	—			(28,283		)	—
Gain on real estate venture transactions	—			(103,847		)	(11,633		)
Purchase price reduction for note receivable (d)	—			(130,742		)	—
Net working capital assumed	(368		)	(24,865		)	1,379
Total cash payment at settlement	$	39,037		$	117,348		$	—
Weighted average amortization period of intangible assets	0			5.5 years			4.1 years
Weighted average amortization period of below market liabilities assumed	3.0 years			4.6 years			4.8 years

(a) Represents a deferred gain recognized at settlement, which resulted in a reduction of the acquisition value.

(b) The outstanding principal balance on mortgage debt for Four Tower Bridge, assumed on January 5, 2018, was $9.7 million.

(c) On December 11, 2018, the Company assumed $115.5 million of mortgage debt which was repaid in full at settlement.

(d)

Represents a note receivable due from the DRA Austin Venture that represents a purchase price reduction.

The purchase price and acquisition-related costs have been allocated as follows (in thousands):

	October 13, 2017
Building and improvements	$	30,583
Construction-in-progress	672
Intangible assets acquired (a)	10,575
Below market lease liabilities assumed (b)	(4,055		)
	$	37,775

(a) Weighted average amortization period of 7.9 years.

(b)

Weighted average amortization period of 7.0 years.

Schedule of Pro Forma Information

The unaudited pro forma information below summarizes the Company’s combined results of operations for the years ended December 31, 2018 and December 31, 2017, respectively, as though the acquisition of the Austin Venture Portfolio was completed on January 1, 2017. The supplemental pro forma operating data is not necessarily indicative of what the actual results of operations would have been assuming the transaction had been completed as set forth above, nor do they purport to represent the Company’s results of operations for future periods (in thousands).

	December 31,
	2018		2017
Pro forma revenue	$	602,713	$	582,244
Pro forma net income	134,142		115,475
Pro forma net income available to common shareholders	134,142		115,475

Summary of Gain on Sale for Each Land Parcel

The following table summarizes the properties sold during the years ended December 31, 2019, 2018 and 2017 (dollars in thousands):

Property/Portfolio Name	Disposition Date	Location	Property Type	Rentable Square Feet/ Acres	Sales Price		Gain/(Loss) on Sale (a)
1900 Gallows Rd	September 11, 2019	Vienna, VA	Office	210,632	$	36,400	$	(367	)
9 Presidential Boulevard	March 15, 2019	Bala Cynwyd, PA	Land	2.7 Acres	5,325		751
Subaru National Training Center (b)	December 21, 2018	Camden, NJ	Mixed-use	83,000	45,300		2,570
Rockpoint Portfolio (c)	December 20, 2018	Herndon, VA	Office	1,293,197	312,000		397
20 East Clementon Road	June 21, 2018	Gibbsboro, NJ	Office	38,260	2,000		(35		)
Garza Ranch - Office (d)	March 16, 2018	Austin, TX	Land	6.6 acres	14,571		1,515
Westpark Land	January 10, 2018	Durham, NC	Land	13.1 acres	485		22
11, 14, 15, 17 and 18 Campus Boulevard (Newtown Square)	November 22, 2017	Newtown Square, PA	Office	252,802	42,000		19,642
630 Allendale Road	October 31, 2017	King of Prussia, PA	Office	150,000	17,500		3,605
50 E. Swedesford Square	September 13, 2017	Malvern, PA	Land	12.0 acres	7,200		882
Bishop's Gate	July 18, 2017	Mount Laurel, NJ	Land	49.5 acres	6,000		71
Two, Four A, Four B and Five Eves Drive (Evesham Corporate Center) (e)	June 27, 2017	Marlton, NJ	Office	134,794	9,700		(325		)
7000 Midlantic Drive	June 12, 2017	Mount Laurel, NJ	Retail	10,784	8,200		1,413
Garza Ranch - Multi-family (d)	April 28, 2017	Austin, TX	Land	8.4 acres	11,800		1,311
200, 210 & 220 Lake Drive East (Woodland Falls)	March 30, 2017	Cherry Hill, NJ	Office	215,465	19,000		(249		)
Philadelphia Marine Center (Marine Piers) (f)	March 15, 2017	Philadelphia, PA	Mixed-use	181,900	21,400		6,498
11700, 11710, 11720 & 11740 Beltsville Drive (Calverton) (g)	March 13, 2017	Beltsville, MD	Office	313,810	9,000		—
Gateway Land - Site C	February 15, 2017	Richmond, VA	Land	4.8 acres	1,100		—
1200 & 1220 Concord Avenue (Concord Airport Plaza)	February 2, 2017	Concord, CA	Office	350,256	33,100		551
Garza Ranch - Hotel (d)	January 30, 2017	Austin, TX	Land	1.7 acres	3,500		192

(a) Gain/(Loss) on Sale is net of closing and other transaction related costs.

(b) During the third quarter of 2018, the tenant, Subaru, exercised its purchase option for the Subaru National Training Center Development. The lease with Subaru was classified as a direct finance lease within "Other assets" on the consolidated balance sheets. In connection with the lease, the Company recognized $1.6 million in interest income during the twelve months ended December 31, 2018, in accordance with accounting guidance for direct finance leases under ASC 840.

(c) For information related to this transaction, see the “Herndon Innovation Center Metro Portfolio Venture, LLC” section in Note 4, “Investment in Unconsolidated Real Estate Ventures.”

(d) The Company had continuing involvement in these properties through a completion guaranty, which required the Company, as developer, to complete certain infrastructure improvements on behalf of the buyers of the land parcels. The Company recorded the cash received at settlement as “Deferred income, gains and rent” on the consolidated balance sheet. The Company subsequently recognized the land sales and the $3.0 million gain on sale during the twelve months ended December 31, 2018 upon substantial completion of the infrastructure improvements and transfer of control to the buyer.

(e) As of March 31, 2017, the Company evaluated the recoverability of the carrying value of its properties that triggered assessment under the undiscounted cash flow model. Based on the Company’s evaluation, it was determined that due to the reduction in the Company’s intended hold period of four properties located in the Other segment, the Company would not recover the carrying values of these properties. Accordingly, the Company recorded impairment charges on these properties of $1.0 million at March 31, 2017, which reduced the aggregate carrying values of the properties from $10.2 million to their estimated fair value of $9.2 million. The Company measured these impairments based on a discounted cash flow analysis, using a hold period of 10 years and residual capitalization rates and discount rates of 9.00% and 9.25%, respectively. The results were comparable to indicative pricing in the market. The assumptions used to determine fair value under the income approach are Level 3 inputs in accordance with the fair value hierarchy. The loss on sale in the table above represents additional closing costs.

(f) On the closing date, the buyer paid $12.0 million in cash and the Company received cash proceeds of $11.2 million, after closing costs and prorations. The $9.4 million balance of the purchase price was due on (a) January 31, 2020, in the event that the tenant at the Marine Piers does not exercise an option it holds to extend the term of the sublease or (b) January 15, 2024, in the event that the tenant does exercise the option to extend the term of the sublease. The Company determined that it was appropriate to recognize the sale of the sublease interest in the Marine Piers and to defer the remaining $9.4 million balance due under the purchase and sale agreement until collectability can be determined. During the first quarter of 2019, the tenant at the Marine Piers exercised its option to extend the term of its sublease. As a result, the $9.4 million balance of the purchase price is due on January 15, 2024, and the Company will recognize the additional gain on sale when the gain is realized or realizable.

(g) During the twelve months ended 2017, there was a price reduction of $1.7 million under the agreement of sale and additional impairment of $1.7 million was recognized.

The summary of the transaction is as follows (in thousands);

	October 18, 2017
Gross sales price	$	333,250
Debt principal	(150,968		)
Debt prepayment penalties	(2,120		)
Closing costs and net prorations	(7,420		)
Cash to Austin Venture	$	172,742
Company's ownership interest	50		%
Cash to the Company	$	86,371
Cash to Austin Venture	$	172,742
Austin Venture basis of sold properties	(92,559		)
Austin Venture gain on sale	$	80,183
Company's ownership interest	50		%
Company's share of gain	$	40,092
Company's share of gain	$	40,092
Deferred gain from partial sale	12,072
Gain on real estate venture transactions	$	52,164