Real Estate Investments

9 Months Ended

Sep. 30, 2011

Real Estate Investments [Abstract]

REAL ESTATE INVESTMENTS

3. REAL ESTATE INVESTMENTS

As of September 30, 2011 and December 31, 2010 the gross carrying value of the Company’s rental properties was as follows (in thousands):

	September 30, 2011		December 31, 2010
Land	$	698,985	$	697,724
Building and improvements		3,748,256		3,693,579
Tenant improvements		473,487		442,808
	$	4,920,728	$	4,834,111

Acquisitions

On August 12, 2011, the Company acquired an office property located in Philadelphia, Pennsylvania, together with related ground tenancy rights under a long-term ground lease, through the foreclosure of a note receivable amounting to $18.8 million under which the said property was encumbered. The Company obtained the note receivable from a third party on August 2, 2011 and was funded through an advance under its $600.0 million Credit Facility (the “Credit Facility”) and with available corporate funds. The office property contains 192,707 of net rentable square feet and is 57.2% leased as of September 30, 2011. The Company recognized $0.3 million of transaction costs to acquire the office property and is included as part of general and administrative expenses in the Company’s consolidated statements of operations. On the acquisition date of the office property, the total purchase price was allocated as follows: $21.4 million to building, $12.0 million to intangible assets and $14.4 million to below market lease liabilities assumed. The Company also acquired other assets of $0.2 million and assumed certain liabilities of $0.4 million.

On March 28, 2011, the Company acquired two office properties totaling 126,496 of net rentable square feet in Glen Allen, Virginia known as Overlook I and II for $12.6 million. The acquired properties are 100% leased as of September 30, 2011. The Company funded the acquisition price through an advance under its Credit Facility and with available corporate funds. The Company recognized a nominal amount of acquisition related costs, which are included as part of general and administrative expenses in the Company’s consolidated statements of operations.

On January 20, 2011, the Company acquired a one acre parcel of land in Philadelphia, Pennsylvania for $9.3 million. The Company funded the cost of this acquisition with available corporate funds and a draw on its Credit Facility. The Company capitalized $0.5 million of acquisition related costs as part of land inventory on its consolidated balance sheet. The Company expects to contribute the acquired property into a real estate venture in return for a 50% limited interest in the partnership. The real estate venture is expected to be formed to construct a mixed-use development property in the city of Philadelphia. The Company received $4.9 million from the prospective partner in anticipation of the real estate venture formation. The amount received is included as part of other liabilities in the Company’s consolidated balance sheet as of September 30, 2011.

On August 5, 2010, the Company acquired a 53 story Class A office tower at 1717 Arch Street (“Three Logan Square”) in Philadelphia, Pennsylvania, together with related ground tenancy rights under a long-term ground lease, from BAT Partners, L.P. Three Logan Square contains approximately 1.0 million of net rentable square feet and is 67.2% leased as of September 30, 2011. The Company acquired Three Logan Square for approximately $129.0 million funded through a combination of $51.2 million in cash and the issuance of 7,111,112 units of a newly-established class of its limited partnership interest in the Operating Partnership designated as “Class F (2010) Units.” The Class F (2010) Units did not accrue any dividends and were not entitled to income or loss allocations prior to August 5, 2011, the first anniversary of the closing. Total cash paid after the assumption of security deposit obligations of existing tenants in the property of $0.9 million amounted to $50.3 million. The assumed security deposit obligation is included in the tenant security deposits and deferred rents in the Company’s consolidated balance sheets. The Company funded the cash portion of the acquisition price through an advance under its Credit Facility and with available corporate funds.

For purposes of computing the total purchase price, the Class F (2010) Units were valued based on the closing market price of the Parent Company’s common shares on the acquisition date of $11.54 less the annual dividend rate per share of $0.60 since these units do not accrue a dividend prior to the first anniversary. The Class F (2010) Units are subject to redemption at the option of the holder after the first anniversary of the acquisition. The Operating Partnership may, at its option, satisfy the redemption either for an amount, per unit, of cash equal to the market price of one of the Parent Company’s common shares (based on the five-day trading average ending on the date of the exchange) or for one of the Parent Company’s common shares.

The Company accounted for the acquisition using the acquisition method of accounting. As discussed in Note 2, the Company utilized a number of sources in making estimates of fair values for purposes of allocating the purchase price to tangible and intangibles assets acquired and intangible liabilities assumed. The purchase price was allocated as follows (in thousands):

	August 5,
	2010
Building and tenant improvements	$	98,188
Intangible assets acquired		28,856
Below market lease liabilities assumed		(683	)
Total	$	126,361

Intangible assets acquired and intangible liabilities assumed consist of the following (in thousands):

			Weighted Average
	August 5,		Amortization Period
	2010		(in years)
Intangible assets:
In-place lease value	$	13,584		3
Tenant relationship value		8,870		5
Above market tenant leases acquired		895		1
Below market ground lease acquired		5,507		82
Total	$	28,856		23
Intangible liabilities:
Below market leases acquired	$	683		1

The Company also recognized tenant and other receivables of $1.1 million and prepaid real estate taxes of $1.5 million from the acquisition and both were included as part of the accounts receivable and the other asset sections, respectively, of the Company’s consolidated balance sheets on the date of acquisition.

The Company recognized $0.4 million of acquisition related costs which are included as part of general and administrative expenses of the Company’s prior year consolidated statements of operations.

The unaudited pro forma information below summarizes the Company’s combined results of operations for the three and nine-months ended September 30, 2010 as though the acquisition of Three Logan Square was completed on January 1, 2010. 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 except for per share amounts).

	Three-months			Nine-months
	ended September 30, 2010			ended September 30, 2010
Pro forma revenues	$	142,920		$	433,734
Pro forma loss from continuing operations		(7,408	)		(19,279	)
Pro forma net loss attributable to common shareholders		(8,973	)		(17,862	)
Loss per common share from continuing operations:
Basic — as reported	$	(0.06	)	$	(0.20	)
Basic — as pro forma	$	(0.06	)	$	(0.20	)
Diulted — as reported	$	(0.06	)	$	(0.20	)
Diulted — as pro forma	$	(0.06	)	$	(0.20	)
Loss per common share:
Basic — as reported	$	(0.06	)	$	(0.14	)
Basic — as pro forma	$	(0.06	)	$	(0.14	)
Diulted — as reported	$	(0.06	)	$	(0.14	)
Diulted — as pro forma	$	(0.06	)	$	(0.14	)

Dispositions

On June 27, 2011, the Company sold Three Greentree Center, a 69,300 net rentable square feet office property located in Marlton, New Jersey, for a sales price of $5.9 million. The property was 13.9% occupied as of the date of sale. This sale is included in discontinued operations (see Note 10).

During the first quarter of the current year, the Company recognized a $2.8 million net gain upon the sale of its remaining 11% ownership interest in three properties which it partially sold to one of its unconsolidated Real Estate Ventures in December 2007. The Company had retained an 11% equity interest in these properties subject to a put/call at fixed prices for a period of three years from the time of the sale. In January 2011, the Company exercised the put/call and transferred full ownership in the three properties to the Real Estate Venture. Accordingly, the Company’s direct continuing involvement through its 11% interest in the properties ceased as a result of the transfer of the ownership interest. The Company has also presented the gain as part of its continuing operations in its consolidated statements of operations because of its prior significant continuing involvement with the properties through its interest in the unconsolidated Real Estate Venture and its management and leasing activities at the properties.