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Real Estate Investments

12 Months Ended

Dec. 31, 2018

3. REAL ESTATE INVESTMENTS

As of December 31, 2018 and 2017, the gross carrying value of the operating properties was as follows (in thousands):

	December 31,		December 31,
	2018		2017
Land	$	508,363	$	492,197
Building and improvements		3,029,427		2,896,113
Tenant improvements		415,529		444,038
Total	$	3,953,319	$	3,832,348

2018

Acquisitions

On December 19, 2018, the Company acquired an office property containing 120,559 rentable square feet located at 4516 Seton Center Parkway in Austin, Texas, known as Quarry Lake II, for a gross purchase price of $39.5 million. The purchase of Quarry Lake II is an asset acquisition under ASU 2017-01. The Company capitalized $0.1 million of acquisition-related costs and funded the acquisition with a borrowing of $39.0 million from the Company’s unsecured credit facility.

On December 11, 2018, the Company acquired from DRA Advisors (“DRA”), its 50% ownership interest in the G&I Austin Office LLC real estate venture (the “DRA Austin Venture”) for an aggregate purchase price of $535.1 million. The DRA Austin Venture owned twelve office properties (“the Austin Venture Portfolio”) containing an aggregate 1,570,123 square feet located in Austin, Texas. As a result of the acquisition, the Company acquired complete ownership of the Austin Portfolio. The aggregate purchase price includes the carrying amount of the Company’s investment in DRA Austin Venture of $14.6 million. At settlement, the Company assumed $115.5 million of mortgage debt and received a credit at settlement of $130.7 million for a note receivable provided to the DRA Austin Venture on November 1, 2018. This note receivable was used to repay one of DRA Austin Venture’s mortgage loans prior to the December 11, 2018 acquisition date. The Company also obtained working capital of $24.9 million. Subsequent to receiving cash proceeds of $28.3 million for its promoted interest in the DRA Austin Venture and recognizing a remeasurement gain of $103.8 million, reflected in the caption “Net gain on real estate venture transactions” in the consolidated statements of operations, the Company funded the acquisition with an aggregate cash payment of $117.3 million. Additionally, the assumed mortgage debt of $115.5 million was repaid at settlement. Both cash payments were funded through borrowings under the Company’s unsecured credit facility. The Company recognized a $28.3 million gain on its promoted interest in the DRA Austin Venture, reflected in the caption “Gain on promoted interest in unconsolidated real estate venture” in the consolidated statements of operations. The gain on promoted interest was based off of the returns earned over the duration of the DRA Austin Venture and the returns were determined based on operating results and real estate valuation of the venture.

The Company accounted for the acquisition of the Austin Venture Portfolio as an asset acquisition, and as a result, a nominal amount of transaction costs were capitalized to the basis of the acquired properties.

The Company previously accounted for its 50% non-controlling interest in the DRA Austin Venture under the equity method of accounting. As a result of the Company’s acquistion of DRA’s 50% ownership interest in the DRA Austin Venture, the Company obtained control of DRA Austin Venture and the Company’s existing investment balance was remeasured based on the fair value of the underlying properties acquired and the existing distribution provisions under the relevant partnership agreement, including the Company’s entitlement to a distribution on account of its promoted interest.

On June 29, 2018, the Company acquired, through a 99-year ground lease, the leasehold interest in a one-acre land parcel, located at 3025 JFK Boulevard, in Philadelphia, Pennsylvania. The Company prepaid $15.0 million of ground lease rent and, in accordance with ASC 840, capitalized $0.3 million of costs related to entering the lease. Additionally, the ground lease required the Company to pay $5.6 million for a leasehold valuation credit, which can be applied to increase the density of the projects subject to the Schuylkill Yards Project master development agreement. Of this credit, $2.4 million will be applied to the development of 3001-3003 and 3025 JFK Boulevard if the Company constructs a minimum of 1.2 million square feet of floor area ratio (“FAR”) on these land parcels. The remaining credit of $3.2 million can be used for development in excess of 1.2 million FAR at 3001-3003 and 3025 JFK Boulevard or toward future ground lease takedowns at the Schuylkill Yards Development Site. This $3.2 million credit is reimbursed if the master development agreement is terminated by the landowner. Based on the Company’s evaluation under ASC 840, the ground lease is classified as an operating lease. The ground lease and credit are included in the “Prepaid leasehold interests in land held for development, net” and “Other assets” captions, respectively, in the consolidated balance sheets.

On March 22, 2018, the Company acquired, through a 99-year ground lease, the leasehold interest in a one-acre land parcel, located at 3001-3003 JFK Boulevard, in Philadelphia, Pennsylvania. The Company prepaid $24.6 million of ground lease rent and, in accordance with ASC 840, capitalized $0.3 million of costs related to entering the lease. Based on the Company’s evaluation under

ASC 840, the ground lease is classified as an operating lease and included in the “Prepaid leasehold interests in land held for development, net,” caption in the consolidated balance sheets.

On January 5, 2018, the Company acquired, from its then partner in each of the Four Tower Bridge real estate venture and the Seven Tower Bridge real estate venture, the partner’s 35% ownership interest in the Four Tower Bridge real estate venture in exchange for the Company's 20% ownership interest in the Seven Tower Bridge real estate venture. As a result of this non-monetary exchange, the Company acquired 100% of the Four Tower Bridge real estate venture, which owns an office property containing 86,021 square feet, in Conshohocken, Pennsylvania, encumbered with $9.7 million in debt. The Company previously accounted for its noncontrolling interest in Four Tower Bridge using the equity method. As a result of the exchange transaction, the Company obtained control of the Four Tower Bridge property.

The Company’s acquisition of the 35% ownership interest in Four Tower Bridge from its former partner resulted in the consolidation of the property, which has been accounted for as an asset acquisition under ASU 2017-01. As such, the Company capitalized $0.1 million of acquisition-related costs and allocated the unencumbered acquisition value, consisting of the fair value of $23.6 million and the acquisition-related costs, to tangible and intangible assets and liabilities. The unencumbered acquisition value was determined under the comparative sales approach, which utilized observable transactions within the Conshohocken submarket.

The Company utilized a number of sources in making estimates of fair value for purposes of allocating the acquisition values to tangible and intangible assets acquired. 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			01/05/2018
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		-		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 resulting recognized at settlement, which resulted in a reduction in 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.

Quarry Lake II contributed approximately $0.1 million of revenue and $0.1 million of net income, included in the Company’s consolidated statements of operations, for the twelve-month period ended December 31, 2018.

Austin Venture Portfolio contributed approximately $3.4 million of revenue and $1.3 million of net loss, included in the Company’s consolidated statements of operations, for the twelve-month period ended December 31, 2018.

Four Tower Bridge contributed approximately $2.8 million of revenue and $0.3 million of net income, included in the Company’s consolidated statements of operations, for the twelve-month period ended December 31, 2018.

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, except for per share amounts).

	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

Dispositions

The Company sold the following properties during the twelve-month period ended December 31, 2018 (dollars in thousands):

Disposition Date	Property/Portfolio Name	Location	Type	Number of Properties	Rentable Square Feet		Sales Price		Net Proceeds on Sale		Gain/(Loss) on Sale
December 21, 2018	Subaru National Training Center (a)	Camden, NJ	Mixed-use	1		83,000	$	45,300	$	44,877	$	2,570
December 20, 2018	Rockpoint Portfolio (b)	Herndon, VA	Office	8		1,293,197		312,000		262,442		397
June 21, 2018	20 East Clementon Road	Gibbsboro, NJ	Office	1		38,260		2,000		1,850		(35	)
Total Dispositions				10		1,414,457	$	359,300	$	309,169	$	2,932

(a)

During the second quarter of 2018, Subaru exercised its purchase option under the lease agreement for the Subaru NSTC and the sale occurred during the fourth quarter of 2018. See Note 2, “Summary of Significant Accounting Policies,” for further discussion of the lease agreement and related revenue recognition.

(b)

On December 20, 2018, the Company contributed a portfolio of eight properties containing an aggregate of 1,293,197 square feet, located in its Metropolitan Washington, D.C. segment (the “Rockpoint Portfolio”) to a newly-formed joint venture (the “Herndon Innovation Center Metro Portfolio Venture, LLC”) for a gross sales price of $312.0 million. The Company and its partner own 15% and 85% interests in the Herndon Innovation Center Metro Portfolio Venture, LLC, respectively. The Herndon Innovation Center Metro Portfolio Venture, LLC funded the acquisition with $265.2 million of cash, which was distributed to the Company at closing. After funding its share of closing costs and working capital contributions of $2.2 million and $0.6 million, respectively, the Company received $262.4 million of cash proceeds at settlement. The Company recorded an impairment charge of $56.9 million for the Rockpoint Portfolio during the third quarter of 2018. The Company recorded a $0.4 million gain on sale, which represents an adjustment to estimated closing costs used to determine the impairment charge in the third quarter of 2018. For further information related to this transaction, see the “Herndon Innovation Center Metro Portfolio Venture, LLC” section in Note 4, “Investment in Unconsolidated Real Estate Ventures.”

The Company sold the following land parcels during the twelve-month period ended December 31, 2018 (dollars in thousands):

Disposition Date	Property/Portfolio Name	Location	Number of Parcels		Acres		Sales Price		Net Proceeds on Sale		Gain on Sale
March 16, 2018	Garza Ranch - Office	Austin, TX		1		6.6	$	14,571	$	14,509	$	1,515	(a)
January 10, 2018	Westpark Land	Durham, NC		1		13.1		485		412		22
Total Dispositions				2		19.7	$	15,056	$	14,921	$	1,537

(a)

As of March 31, 2018, the Company had not transferred control to the buyer of this land parcel, or two other parcels at this site which were sold during 2017, because of a completion guarantee which required the Company, as developer, to complete certain infrastructure improvements on behalf of the buyers of the land parcels. The cash received at settlement was recorded as “Deferred income, gains and rent” on the Company’s consolidated balance sheets. During the three months ended June 30, 2018, the infrastructure improvements were substantially completed, at which time the Company transferred control of the land parcels. As a result, the Company then recognized the sales of the three land parcels during 2018 and recorded an aggregate $2.8 million gain. During the quarter ended December 31, 2018, the Company recognized an additional $0.2 million gain. See Note 2, “Summary of Significant Accounting Policies,” for further discussion of the infrastructure improvements and related revenue recognition.

The sales of property and land referenced above do not represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, the operating results of these properties remain classified within continuing operations for all periods presented.

Held for Use Impairment

As of December 31, 2018, the Company evaluated the recoverability of the carrying values of certain properties that triggered an assessment under the undiscounted cash flow model. Based on its evaluation, the Company determined it would not recover the carrying value of one property in its Other segment, 1900 Gallows Road, located in Vienna, Virginia, due to a reduction in the intended hold period. Accordingly, the Company recorded an impairment charge of $14.8 million at December 31, 2018, reflected in the results for the twelve-month period ended December 31, 2018, which reduced the carrying value of the property from $52.8 million to its estimated fair value of $38.0 million. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of ten years and a residual capitalization rate and discount rate of 7.5% and 9.5%, respectively. The result was 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 established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.”

Held for Sale

The following is a summary of properties classified as held for sale but which did not meet the criteria to be classified within discontinued operations at December 31, 2018 (in thousands):

	Held for Sale Properties
	December 31, 2018
	Pennsylvania Suburbs - Land (a)		Other - Land (a)		Total
ASSETS HELD FOR SALE
Real estate investments:
Land inventory	$	4,254	$	7,345	$	11,599
Total real estate investments		4,254		7,345		11,599
Total assets held for sale, net	$	4,254	$	7,345	$	11,599

(a) As of December 31, 2018, the Company determined that the sales of one land parcel in its Pennsylvania Suburbs segment and two parcels of land in its Other segment were probable and classified these properties as held for sale in accordance with applicable accounting standards for long-lived assets. At such date, the fair value less the anticipated costs of sale of the properties exceeded the carrying values. As a result, there is no impairment. The fair value measurement will be based on the pricing in the purchase and sale agreements.

The disposals of the properties referenced above do not represent a strategic shift that has a major effect on the operations and financial results of the Company. As a result, the operating results of the properties remain classified within continuing operations for all periods presented.

Held for Sale Impairment

As of September 30, 2018, the Company determined that the sale of eight office properties, known as the Rockpoint Portfolio, containing 1,293,197 rentable square feet, in the Metropolitan Washington, D.C. segment, was probable and classified these properties as held for sale in accordance with applicable accounting standards for long-lived assets. At such date, the $366.0 million carrying value of the properties exceeded the estimated $309.1 million fair value less the anticipated costs of sale. As a result, the Company recognized an impairment loss totaling approximately $56.9 million during the three-month period ended September 30, 2018. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of ten years and residual capitalization rates and discount rates of 7.47% and 8.60%, respectively. The results were comparable to indicative pricing in the market. As significant inputs to the model are unobservable, the Company determined that the value determined for this property falls within Level 3 fair value reporting. The Rockpoint Portfolio was sold during the fourth quarter of 2018. See the “Dispositions” section above for further information relating to this sale.

2017

Acquisitions

On October 13, 2017, the Company acquired, through a 99-year prepaid ground lease, the leasehold interest in an office property containing 282,709 rentable square feet located at 3025 Market Street in Philadelphia, Pennsylvania, known as The Bulletin Building, for a gross purchase price of $35.0 million. The purchase of The Bulletin Building is an asset acquisition under ASU 2017-01. As such, the Company capitalized $2.8 million of acquisition-related costs. The Company utilized a number of sources in making estimates of fair value for purposes of allocating the purchase price to tangible and intangibles assets acquired. The purchase price has 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.

The Bulletin Building contributed approximately $1.2 million of revenue and approximately $0.4 million of net loss in the Company’s consolidated statements of operations, for the period from October 13, 2017 through December 31, 2017.

On July 28, 2017, the Company acquired an office building containing 58,587 rentable square feet located at 3000 Market Street, in Philadelphia, Pennsylvania, for $32.7 million. The acquisition was the Section 1031 exchange receiver for the sale of Concord Airport Plaza. See property disposition table below.

The purchase of 3000 Market Street is an asset acquisition under ASU 2017-01. As such, the Company capitalized $0.7 million of acquisition-related costs and allocated the purchase price, consisting of the contractual purchase price of $32.0 million and the acquisition related costs, to the tangible and intangible assets. The Company utilized a number of sources in making estimates of fair value for purposes of allocating the purchase price to tangible and intangibles assets acquired. The purchase price has 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.

3000 Market Street contributed approximately $0.8 million of revenue and a $0.5 million of net loss in the Company’s consolidated statements of operations, for the period from July 28, 2017 through December 31, 2017.

Dispositions

The Company sold the following properties during the twelve-month period ended December 31, 2017 (dollars in thousands):

Disposition Date	Property/Portfolio Name	Location	Type	Number of Properties	Rentable Square Feet		Sales Price		Net Proceeds on Sale		Gain/(Loss) on Sale (a)
November 22, 2017	11, 14, 15, 17 and 18 Campus Boulevard (Newtown Square)	Newtown Square, PA	Office	5		252,802	$	42,000	$	40,459	$	19,642
October 31, 2017	630 Allendale Road	King of Prussia, PA	Office	1		150,000		17,500		16,580		3,605
June 27, 2017	Two, Four A, Four B and Five Eves Drive (Evesham Corporate Center)	Marlton, NJ	Office	4		134,794		9,700		8,650		(325	)	(b)
June 12, 2017	7000 Midlantic Drive	Mount Laurel, NJ	Retail	1		10,784		8,200		7,714		1,413
March 30, 2017	200, 210 & 220 Lake Drive East (Woodland Falls)	Cherry Hill, NJ	Office	3		215,465		19,000		17,771		(249	)	(c)
March 15, 2017	Philadelphia Marine Center (Marine Piers)	Philadelphia, PA	Mixed-use	1		181,900		21,400		11,182		6,498		(d)
March 13, 2017	11700, 11710, 11720 & 11740 Beltsville Drive (Calverton)	Beltsville, MD	Office	3		313,810		9,000		8,354		-		(e)
February 2, 2017	1200 & 1220 Concord Avenue (Concord Airport Plaza)	Concord, CA	Office	2		350,256		33,100		32,010		551		(f)
Total Dispositions				20		1,609,811	$	159,900	$	142,720	$	31,135

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

(b)

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 established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.” The loss on sale in the table above represents additional closing costs.

(c)

As of December 31, 2016, 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 three 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 $7.3 million at December 31, 2016, reducing the aggregate carrying values of the properties from $25.8 million to their estimated fair value of $18.5 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 8.75% and 9.00%, 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 established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.” The loss on sale in the table above represents additional closing costs.

(d)

On March 15, 2017, the Company sold its sublease interest in the Piers at Penn’s Landing (the “Marine Piers”), which includes leasehold improvements containing 181,900 net rentable square feet, and a marina, located in Philadelphia, Pennsylvania for an aggregate sales price of $21.4 million. On the closing date, the buyer paid $12.0 million in cash. The $9.4 million balance of the purchase is 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 is appropriate to account for the sales transaction under the cost recovery method. The Company received cash proceeds of $11.2 million, after closing costs and prorations, and the net book value of the Marine Piers was $4.7 million, resulting in a gain on sale of $6.5 million. The remaining gain on sale of $9.4 million will be recognized on the second purchase price installment date. Prior to its sale, the Marine Piers had been classified as mixed-use within the Company’s property count.

(e)	During the fourth quarter of 2016, the Company recognized a $3.0 million impairment related to these properties. During the first quarter of 2017, there was a price reduction of $1.7 million under the agreement of sale and an additional impairment of $1.7 million was recognized.

(f)

During the fourth quarter of 2016, the Company recognized an $11.5 million impairment related to these properties. This sale was designated as a like-kind exchange under Section 1031 of the Internal Revenue Code (“IRC”) and, as such, the proceeds, totaling $32.0 million after closing costs and prorations, were deposited with a Qualified Intermediary, as defined under the IRC. The proceeds received at closing were recorded as “Other assets” in the Company’s consolidated balance sheets. During the third quarter of 2017, the Company acquired 3000 Market Street in Philadelphia, Pennsylvania using the full balance of the Section 1031 proceeds. See “Acquisition” section above.

In addition to the amounts in the table above, the Company recorded a $0.5 million gain during the first quarter of 2017 from the receipt of additional proceeds from the disposition of Cira Square in 2016. For further information relating to this sale, see the dispositions table in the 2016 section below.

The Company sold the following land parcels during the twelve-month period ended December 31, 2017 (dollars in thousands):

Disposition Date	Property/Portfolio Name	Location	Number of Parcels		Acres		Sales Price		Net Proceeds on Sale		Gain on Sale
September 13, 2017	50 E. Swedesford Square	Malvern, PA		1		12.0	$	7,200	$	7,098	$	882
July 18, 2017	Bishop's Gate	Mount Laurel, NJ		1		49.5		6,000		5,640		71	(a)
April 28, 2017	Garza Ranch - Multi-family	Austin, TX		1		8.4		11,800		11,560		-	(b)
February 15, 2017	Gateway Land - Site C	Richmond, VA		1		4.8		1,100		1,043		-	(c)
January 30, 2017	Garza Ranch - Hotel	Austin, TX		1		1.7		3,500		3,277		-	(b)
Total Dispositions				5		76.4	$	29,600	$	28,618	$	953

(a)

During the fourth quarter of 2016, the Company recognized an impairment of $3.0 million. During the second quarter of 2017, the Company recorded a held for sale impairment charge of $0.3 million, reducing the aggregate carrying value of the land parcel from $5.9 million to its estimated fair value less costs to sell of $5.6 million. The fair value measurement is based on pricing in the purchase and sale agreement for the property. As the pricing in the purchase and sale agreement is unobservable, the Company determined that the input utilized to determine fair value for the property falls within Level 3 in accordance with the fair value hierarchy established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.” The land parcel was sold on July 18, 2017.

(b)

The Company has a continuing involvement in this property through a completion guaranty, which requires 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 Company’s consolidated balance sheet and the Company will recognize the sale upon completion of infrastructure improvements.

(c)	During the fourth quarter of 2016, the Company recognized a nominal impairment related to this land parcel.

The sales of properties, land and the land parcel held for sale do not represent a strategic shift that has a major effect on the Company's operations and financial results. Accordingly, the operating results of these properties remain classified within continuing operations for all periods presented.

Held for Use Impairment

As of December 31, 2017, the Company evaluated the recoverability of the carrying value of its properties that triggered assessment. Based on the analysis, no impairment charges were identified during the three-month period ended December 31, 2017.

As of March 31, 2017, the Company evaluated the recoverability of the carrying value of its properties that triggered an 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, reflected in the results for the twelve-month period ended December 31, 2017, reducing 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 established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.”

Land Impairment

As of December 31, 2017, the Company evaluated the recoverability of the carrying value of its land parcels that triggered assessment. Based on the analysis, no impairment charges were identified during the three-month period ended December 31, 2017. See above land disposition table for detail of the Bishop’s Gate land parcel, on which a $0.3 million impairment charge was recorded as of June 30, 2017.

Held for Sale

As of December 31, 2017, the Company had land held for development, consisting of a 13.1-acre parcel of land located in the Company’s Other segment, classified as held for sale but which did not meet the criteria to be classified within discontinued operations. Accordingly, as of December 31, 2017, $0.4 million was reclassified from ‘Land held for development’ to ‘Assets held for sale, net’ on the consolidated balance sheets. There were no other reclassifications related to this parcel of land. As of December 31, 2017, the carrying value of the land was less than the fair value less the anticipated costs of sale and, as such, the Company expects to record a nominal gain on sale. The fair value measurement is based on the pricing in the purchase and sale agreement.

The sale of the Company’s fee interest in the property referenced above does not represent a strategic shift that has a major effect on the Company's operations and financial results. As a result, the operating results of this property remains classified within continuing operations for all periods presented.

2016

Acquisition

On July 1, 2016, the Company acquired 34.6 acres of land located in Austin, Texas known as the Garza Ranch for a gross purchase price of $20.6 million. The Company accounted for this transaction as an asset acquisition and capitalized approximately $1.9 million of acquisition related costs and closing costs as part of land held for development on its consolidated balance sheet. The Company funded the acquisition with $20.4 million of available corporate funds, net of prorations and other adjustments. As of December 31, 2017, the Company sold 9.5 acres (of the 34.6 acres) to two unaffiliated third parties. As of December 31, 2016, the land under this agreement of sale did not meet the criteria to be classified as held for sale. The Company had a continuing involvement through a completion guaranty, which required the Company, as developer, to complete certain infrastructure improvements on behalf of the buyers of the land parcels. See “2017” section above for information related to the sale of 1.7 acres.

Dispositions

The Company sold the following properties during the twelve-month period ended December 31, 2016 (dollars in thousands):

Disposition Date	Property/Portfolio Name	Location	Number of Properties	Rentable Square Feet		Sales Price		Net Proceeds on Sale		Gain/(Loss) on Sale (a)
October 13, 2016	620, 640, 660 Allendale Road	King of Prussia, PA	3		156,669	$	12,800	$	12,014	$	2,382
September 1, 2016	1120 Executive Plaza	Mt. Laurel, NJ	1		95,183		9,500		9,241		(18	)	(b)
August 2, 2016	50 East Clementon Road	Gibbsboro, NJ	1		3,080		1,100		1,011		(85	)
May 11, 2016	196/198 Van Buren Street (Herndon Metro Plaza I&II)	Herndon, VA	2		197,225		44,500		43,412		(752	)	(c)
February 5, 2016	2970 Market Street (Cira Square)	Philadelphia, PA	1		862,692		354,000		350,150		115,828
February 4, 2016	Och-Ziff Portfolio	Various	58		3,924,783		398,100		353,971		(372	)	(d)
Total Dispositions			66		5,239,632	$	820,000	$	769,799	$	116,983

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

(b)

As of June 30, 2016, the Company determined that the sale of the property was probable and classified this property as held for sale in accordance with applicable accounting standards for long lived assets. At such date, the carrying value of the property exceeded the fair value less the anticipated costs of sale. As a result, the Company recognized a provision for impairment totaling approximately $1.8 million during the three-month period ended June 30, 2016. The fair value measurement was based on the pricing in the purchase and sale agreement for the sale of the property. As the pricing in the purchase and sale agreement is unobservable, the Company determined that the inputs utilized to determine fair value for this property falls within Level 3 in accordance with the fair value hierarchy established by Accounting Standards Codification (ASC) Topic 820, "Fair Value Measurements and Disclosures.” The loss on sale represents additional closing costs recognized at closing.

(c)	During the three-month period ended March 31, 2016, the Company recognized a provision for impairment totaling approximately $7.4 million on the properties. See “Held for Use Impairment” section below. The loss on sale primarily relates to additional closing costs recognized at closing.

(d)	During the three-month period ended December 31, 2015, the Company recognized a provision for impairment totaling approximately $45.4 million. The loss on sale represents additional closing costs recognized at closing.

The Company sold the following land parcels during the twelve-month period ended December 31, 2016 (dollars in thousands):

Disposition Date	Property/Portfolio Name	Location	Number of Parcels		Acres		Sales Price		Net Proceeds on Sale		Gain on Sale (a)
December 2, 2016	Oakland Lot B	Oakland, CA		1		0.9	$	13,750	$	13,411	$	9,039
August 19, 2016	Highlands Land	Mt. Laurel, NJ		1		2.0		288		284		193
January 15, 2016	Greenhills Land	Reading, PA		1		120.0		900		837		-	(b)
Total Dispositions				3		122.9	$	14,938	$	14,532	$	9,232

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

(b)	The carrying value of the land exceeded the fair value less the anticipated costs of sale as of December 31, 2015. Therefore the Company recognized an impairment loss of $0.3 million during the three-month period ended December 31, 2015. There was no gain or loss recognized on the sale during 2016.

Held for Use Impairment

During the three-month period ended June 30, 2016, the Company evaluated the recoverability of the carrying value of its properties that triggered an assessment under the undiscounted cash flow model. Based on the analysis, the Company determined that due to the reduction in the Company’s intended hold period of a property located in the Metropolitan D.C. segment, the Company would not recover the carrying values of that property. Accordingly, the Company recorded an impairment charge on the property of $3.9 million at June 30, 2016, reducing the aggregate carrying value of the property from $37.4 million to its estimated fair value of $33.5 million. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of 10 years and residual capitalization rate and a discount rate of 7.75% and 8.25%, 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 established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.”

During the three-month period ended March 31, 2016, the Company evaluated the recoverability of the carrying value of the properties that triggered an assessment under the undiscounted cash flow model. Based on the analysis, the Company determined that due to a reduction in the Company’s intended hold period, the Company would not recover the carrying value of two properties located in its Metropolitan D.C. segment. Accordingly, the Company recorded an impairment charge of $7.4 million at March 31, 2016 reducing the aggregate carrying values of these properties from $51.9 million to their estimated fair values of $44.5 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 7.0%. 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 established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.”

Land Impairments

As of December 31, 2016, the Company assessed the fair value of the land parcels within its Other segment that it intends to sell in the short-term and, based on that assessment, the Company determined that it would not recover the carrying value of five land parcels, consisting of 108 acres. Accordingly, the Company recorded impairment charges of $5.6 million at December 31, 2016, reducing the aggregate carrying value of the land parcels from $18.2 million to their estimated fair values of $12.6 million. The Company measured these impairments using indicative pricing in the markets in which each land parcel is located. The assumptions used to determine fair value under the market approach are Level 3 inputs in accordance with the fair value hierarchy established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.”

Held for Sale

The following is a summary of properties classified as held for sale at December 31, 2016 but which did not meet the criteria to be classified within discontinued operations at December 31, 2016 (in thousands):

	Held for Sale Properties Included in Continuing Operations
	December 31, 2016
	Metropolitan D.C. - Office (a)			Other Segment - Office (b)			Other Segment - Land (c)		Total
ASSETS HELD FOR SALE
Real estate investments:
Operating properties	$	21,720		$	51,871		$	-	$	73,591
Accumulated depreciation		(11,935	)		(20,981	)		-		(32,916	)
Operating real estate investments, net		9,785			30,890			-		40,675
Land held for development		-			-			1,043		1,043
Total real estate investments, net		9,785			30,890			1,043		41,718
Total assets held for sale, net	$	9,785		$	30,890		$	1,043	$	41,718

LIABILITIES HELD FOR SALE
Other liabilities	$	73		$	8		$	-	$	81
Total liabilities held for sale	$	73		$	8		$	-	$	81

(a)

As of December 31, 2016, the Company determined that the sale of three office properties in the Metropolitan D.C. segment was probable and classified these properties as held for sale in accordance with applicable accounting standards for long lived assets. At such date, the carrying value of the properties exceeded their fair value less the anticipated costs of sale. As a result, the Company recognized an impairment loss totaling approximately $3.0 million during the three-month period ended December 31, 2016. The Company measured this impairment 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 10.00%, respectively. The results were comparable to indicative pricing in the market. As significant inputs to the model are unobservable, the Company determined that the value determined for this property falls within Level 3 fair value reporting.

(b)

As of December 31, 2016, the Company determined that the sale of two office properties in the Other segment was probable and classified these properties as held for sale in accordance with applicable accounting standards for long lived assets. At such date, the carrying value of the properties exceeded the fair value less the anticipated costs of sale. As a result, the Company recognized an impairment loss totaling approximately $11.5 million during the three-month period ended December 31, 2016. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of 10 years and residual capitalization rates and discount rates of 9.75% and 9.75%, respectively. The results were comparable to indicative pricing in the market. As significant inputs to the model are unobservable, the Company determined that the value determined for this property falls within Level 3 fair value reporting.

(c)

As of December 31, 2016, the Company determined that the sale of a land parcel in the Other segment was probable and classified the land parcel as held for sale in accordance with applicable accounting standards for long lived assets. At such date, the carrying value of the land approximated the fair value less the anticipated costs of sale and the Company recorded a nominal impairment. The fair value measurement was based on the pricing in the purchase and sale.

The sales of the Company’s fee interests in the properties referenced above do not represent a strategic shift that has a major effect on the Company's operations and financial results. As a result, the operating results of these properties remain classified within continuing operations for all periods presented.