Real Estate Facilities

6 Months Ended

Jun. 30, 2011

Real Estate Facilities

Real Estate Facilities

3.

Real estate facilities

The activity in real estate facilities for the six months ended June 30, 2011 is as follows (in thousands):

	Land	Buildings and     Equipment	Accumulated   Depreciation	Total
Balances at December 31, 2010	$     562,678	$  1,773,682	$  (772,407)	$  1,563,953
Acquisition of real estate facilities	6,447	19,868	—	26,315
Capital improvements	—	17,561	—	17,561
Disposals	—	(4,374)	4,374	—
Depreciation expense	—	—	(41,917)	(41,917)
Transfer to properties held for dispositions	—	(155)	140	(15)
Balances at June 30, 2011	$     569,125	$  1,806,582	$  (809,810)	$  1,565,897

On June 1, 2011, the Company acquired a 140,000 square foot multi-tenant office building, known as the Warren Building, located in Tysons Corner, Virginia, for $27.1 million. In connection with the purchase, the Company received a $298,000 credit for committed tenant improvements and leasing commissions. The Company incurred and expensed acquisition transaction costs of $218,000 for the three and six months ended June 30, 2011.

The following table summarizes the assets acquired and liabilities assumed during the six months ended June 30, 2011 (in thousands):

Land	$          6,447
Buildings and equipment	19,868
Above-market in-place lease value	543
Below-market in-place lease value	(56)
Total purchase price	26,802
Net operating assets acquired and liabilities assumed	(189)
Total cash paid	$        26,613

The purchase price of acquired properties is allocated to land, buildings and equipment and intangible assets and liabilities associated with in-place leases (including tenant improvements, unamortized lease commissions, value of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any) based on their respective estimated fair values. In addition, beginning January 1, 2009, acquisition-related costs are expensed as incurred.

In determining the fair value of the tangible assets of the acquired properties, management considers the value of the properties as if vacant as of the acquisition date. Management must make significant assumptions in determining the value of assets acquired and liabilities assumed. Using different assumptions in the allocation of the purchase cost of the acquired properties would affect the timing of recognition of the related revenue and expenses. Amounts allocated to land are derived from comparable sales of land within the same region. Amounts allocated to buildings and improvements, tenant improvements and unamortized lease commissions are based on current market replacement costs and other market information. The amount allocated to acquired in-place leases is determined based on management's assessment of current market conditions and the estimated lease-up periods for the respective spaces.

In January, 2010, the Company completed the sale of a 131,000 square foot office building located in Houston, Texas, for a gross sales price of $10.0 million, resulting in a net gain of $5.2 million.

The Company is currently under contract to sell Westchase Corporate Park, a 177,000 square foot flex park consisting of 13 buildings in Houston, Texas, for $9.8 million.  The Company anticipates closing on the sale in August, 2011 and has classified the asset as held for disposition. As of June 30, 2011, the net book value of the asset was $6.7 million.

The following table summarizes the condensed results of operations of the property held for disposition as of June 30, 2011 and the property sold during 2010 (in thousands):

	For the Three Months           Ended June 30,		For the Six Months           Ended June 30,
	2011	2010	2011	2010
Rental income	$        425	$        446	$        859	$     1,021
Cost of operations	(219)	(244)	(412)	(526)
Depreciation	(35)	(106)	(140)	(218)
Income from discontinued operations	$        171	$          96	$        307	$        277

In addition to minimum rental payments, tenants reimburse the Company for their pro rata share of specified operating expenses, which amounted to $175,000 and $168,000 for the three months ended June 30, 2011 and 2010, respectively. Reimbursements were $359,000 and $379,000 for the six months ended June 30, 20111 and 2010, respectively. These amounts are included as rental income in the table presented above.