Real Estate Facilities

6 Months Ended

Jun. 30, 2020

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3. Real estate facilities

The activity in real estate facilities for the six months ended June 30, 2020 was as follows (in thousands):



			Buildings and		Accumulated
	Land		Improvements		Depreciation		Total
Balances at December 31, 2019 ⁽¹⁾	$	844,419	$	2,203,308	$	(1,158,489)	$	1,889,238
Acquisition of real estate facility		11,123		2,153		—		13,276
Capital expenditures		—		16,202		—		16,202
Disposals ⁽²⁾		—		(1,085)		1,085		—
Depreciation and amortization expense		—		—		(44,463)		(44,463)
Transfer to properties held for sale		—		(16)		46		30
Balances at June 30, 2020	$	855,542	$	2,220,562	$	(1,201,821)	$	1,874,283

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⁽¹⁾Land, building and improvements, and accumulated depreciation, respectively, totaling $2.2 million, $2.8 million and $1.2 million were reclassified as of December 31, 2019 to “properties held for sale, net,” representing two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which are subject to an eminent domain process.

⁽²⁾Disposals primarily represent the book value of tenant improvements that have been removed upon the customer vacating their space.

We have a 95.0% interest in a joint venture, which we consolidate, that owns a 395-unit multifamily apartment complex on a five-acre site within the Company’s 628,000 square foot office park located in Tysons, Virginia. An unrelated real estate development company (the “JV Partner”) holds the remaining 5.0%. This consolidated joint venture’s real estate assets and activities are included in the table above.

As of June 30, 2020, we have commitments, pursuant to executed leases throughout our portfolio, to spend $12.3 million on transaction costs, which include tenant improvements and lease commissions.

The purchase price of acquired properties is allocated to land, buildings and improvements (including tenant improvements, unamortized lease commissions, acquired in-place lease values and customer relationships, if any), intangible assets and intangible liabilities (see Note 2), based upon the relative fair value of each component, which are evaluated independently.

The Company must make significant assumptions in determining the fair value of assets acquired and liabilities assumed, which can affect the recognition and timing of revenue and depreciation and amortization expense. The fair value of land is estimated based upon, among other considerations, comparable sales of land within the same region. The fair value of buildings and improvements is determined using a combination of the income and replacement cost approaches which both utilize available market information relevant to the acquired property. The fair value of other acquired assets including tenant improvements and unamortized lease commissions are determined using the replacement cost approach. The amount recorded to acquired in-place leases is also determined utilizing the income approach using market assumptions which are based on management’s assessment of current market conditions and the estimated lease-up periods for the respective spaces. Transaction costs related to asset acquisitions are capitalized.

On January 10, 2020, we acquired a multi-tenant industrial park comprised of approximately 73,000 rentable square feet in La Mirada, California, for a total purchase price of $13.5 million, inclusive of capitalized transaction costs.

On April 18, 2019, we acquired a multi-tenant industrial park comprised of approximately 74,000 rentable square feet in Signal Hill, California, for a total purchase price of $13.8 million, inclusive of capitalized transaction costs.

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The following table summarizes the assets acquired and liabilities assumed for the six months ended June 30, (in thousands):



	2020		2019
Land	$	11,123	$	9,668
Buildings and improvements		2,153		3,978
Accrued and other liabilities (below-market in-place rents)		—		(212)
Other assets (in-place lease value)		237		390
Total purchase price		13,513		13,824
Net operating assets acquired and liabilities assumed		(90)		(88)
Total cash paid	$	13,423	$	13,736

Properties Sold and Held for Sale

During the three months ended June 30, 2020, the Company reclassified two industrial buildings totaling 40,000 square feet located in Redmond, Washington, to properties held for sale, net, which are subject to an eminent domain process that is expected to be completed later this year.

On January 7, 2020, the Company sold a 113,000 square foot office building located at Metro Park North in Montgomery County, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain of $19.6 million. The Company determined that the sale did not meet the criteria for discontinued operations presentation, as the sale of such assets did not represent a strategic shift that will have a major effect on our operations and financial results. As a result of this determination, the asset is separately presented as held for sale in the consolidated balance sheet as of December 31, 2019.