Real Estate Investments (Tables)

12 Months Ended

Dec. 31, 2018

Real Estate Properties [Line Items]

Gross Carrying Value of Operating Properties

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

Schedule of Purchase Price Allocation

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.

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 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.

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, 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

Summary of Gain on Sale for Each Land Parcel

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 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.

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 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 Sale Properties Included in Continuing Operations [Member]

Real Estate Properties [Line Items]

Summary of Properties Classified as Held for Sale but Which did not Meet the Criteria to be Classified within Discontinued Operations

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

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.