Quarterly report pursuant to Section 13 or 15(d)

Properties, net

v2.4.0.6
Properties, net
 9 Months Ended
Sep. 30, 2012
Real Estate [Abstract]  
Properties, net
Properties, net
 
Operating properties, net consisted of the following (in thousands):
 
 
September 30,
2012
 
December 31,
2011
Land
$
427,559

 
$
472,483

Buildings and improvements
2,626,084

 
2,801,252

Less: accumulated depreciation
(565,724
)
 
(559,679
)
Operating properties, net
$
2,487,919

 
$
2,714,056


 
Projects we had in development or held for future development consisted of the following (in thousands):
 
 
September 30,
2012
 
December 31,
2011
Land
$
220,234

 
$
229,833

Construction in progress, excluding land
394,361

 
409,086

Projects in development or held for future development
$
614,595

 
$
638,919


 
Dispositions and Impairments

 Operating property dispositions during the nine months ended September 30, 2012 consisted of the following (dollars in thousands):
Project Name
 
Location
 
Date of Sale
 
Number of Buildings
 
Total Rentable Square Feet
 
Transaction Value
 
Gain on Disposition
White Marsh Portfolio Disposition
 
White Marsh, Maryland
 
1/30/2012
 
5

 
163,000

 
$
19,100

 
$
2,445

1101 Sentry Gateway
 
San Antonio, Texas
 
1/31/2012
 
1

 
95,000

 
13,500

 
1,739

222 and 224 Schilling Circle
 
Hunt Valley, Maryland
 
2/10/2012
 
2

 
56,000

 
4,400

 
102

15 and 45 West Gude Drive
 
Rockville, Maryland
 
5/2/2012
 
2

 
231,000

 
49,107

 
—

11800 Tech Road
 
Silver Spring, Maryland
 
6/14/2012
 
1

 
240,000

 
21,300

 
—

400 Professional Drive
 
Gaithersburg, Maryland
 
7/2/2012
 
1

 
130,000

 
16,198

 
—

July 2012 Portfolio Disposition
 
Baltimore/Washington Corridor and Greater Baltimore
 
7/24/2012
 
23

 
1,387,000

 
161,901

 
16,908

 
 
 
 
 
 
35

 
2,302,000

 
$
285,506

 
$
21,194


Each of the above dispositions represent property sales except for 400 Professional Drive, the disposition of which was completed in connection with a debt extinguishment, as described further below. We also had dispositions of non-operating properties during the nine months ended September 30, 2012 for aggregate transaction values totaling $28.1 million; in addition to the gain on sales reflected above, we also recognized impairment losses on certain of these sales that are disclosed below.
 
On July 2, 2012, the mortgage lender on a $15 million nonrecourse mortgage loan that was secured by our 400 Professional Drive property accepted a deed in lieu of foreclosure on the property. As a result, we transferred title to the property to the mortgage lender and we were relieved of the debt obligation plus accrued interest. As of the transfer date, the property had an estimated fair value of $11 million. Upon completion of this transfer, we recognized a gain on extinguishment of debt of $3.7 million, representing the difference between the mortgage loan and interest payable extinguished over the fair value of the property transferred as of the transfer date.

In September 2012, our Board of Trustees approved a plan by Management to shorten the holding period for all of our office properties and developable land in Greater Philadelphia, Pennsylvania because the properties no longer meet our strategic investment criteria. We determined that the carrying amounts of these properties will not likely be recovered from the cash flows from the operations and sales of such properties over the likely remaining holding period. Accordingly, during the three months ended September 30, 2012, we recognized aggregate non-cash impairment losses of $46.1 million for the amounts by which the carrying values of the properties exceeded their respective estimated fair values. These losses contemplate our expectation that we will incur future cash expenditures of approximately $25 million to complete the redevelopment of certain of these properties.

As discussed in our 2011 Annual Report on Form 10-K, we implemented a plan in 2011 (the “Strategic Reallocation Plan”) to dispose of office properties and land that are no longer closely aligned with our strategy.  During the nine months ended September 30, 2012, we recognized aggregate net impairment losses in connection with the Strategic Reallocation Plan of $18.7 million ($23.5 million classified as discontinued operations and including $4.2 million in exit costs), including $6.9 million pertaining to certain properties in Colorado Springs, Colorado classified as held for sale at September 30, 2012.  Approximately $5.1 million of these losses related to our disposition of an additional property from which the cash flows were not sufficient to recover its carrying value.

The table below sets forth the impairment losses and exit costs recognized in the nine months ended September 30, 2012 by period of recognition and by property classification (in thousands):
 
Three Months Ended
 
9/30/2012
 
6/30/2012
 
3/31/2012
 
Total
Operating properties
$
55,829

 
$
2,354

 
$
11,833

 
$
70,016

Non-operating properties
—

 
—

 
(5,246
)
 
(5,246
)
Total
$
55,829

 
$
2,354

 
$
6,587

 
$
64,770





2012 Acquisition

On July 11, 2012, we acquired 13857 McLearen Road, a 202,000 square foot office property in Herndon, Virginia that was 100% leased, for $48.3 million. The table below sets forth the allocation of the acquisition costs of this property (in thousands):

Land, operating properties
 
$
3,507

Building and improvements
 
30,177

Intangible assets on real estate acquisitions
 
14,993

Total assets
 
48,677

Below-market leases
 
(369
)
Total acquisition cost
 
$
48,308



Intangible assets recorded in connection with the above acquisition included the following (dollars in thousands):
 
 
 
 Weighted Average Amortization Period (in Years)
Tenant relationship value
$
7,472

 
10
In-place lease value
7,109

 
5
Above-market leases
412

 
5
 
$
14,993

 
7

We expensed $229,000 in operating property acquisition costs during the nine months ended September 30, 2012 that are included in business development expenses and land carry costs on our consolidated statements of operations.

2012 Construction Activities

As of September 30, 2012, we had construction underway on eight office properties that we estimate will total 913,000 square feet upon completion, including four in the Baltimore/Washington Corridor, two in Huntsville, Alabama, one in Greater Baltimore and one in Northern Virginia. We also had redevelopment underway on two office properties in Greater Philadelphia that we estimate will total 297,000 square feet upon completion