As of December 31, 2015 and 2014, our real estate investment portfolio, at cost, consists of properties as follows (in thousands):



	December 31,
	2015		2014
Office	$	1,554,334	$	1,502,052
Retail	442,039		463,716
Multifamily	641,424		505,185
	$	2,637,797	$	2,470,953

Our results of operations are dependent on the overall economic health of our markets, tenants and the specific segments in which we own properties. These segments include office, retail and multifamily. All segments are affected by external economic factors, such as inflation, consumer confidence and unemployment rates, as well as changing tenant and consumer requirements.

As of December 31, 2015, no single property or tenant accounted for more than 10% of total assets or total real estate rental revenue.

We have properties under development and held for current or future development as of December 31, 2015. In the office segment, we have a redevelopment project to renovate Silverline Center. During the second quarter of 2015, we substantially completed major construction activities at Silverline Center and placed into service assets totaling $25.9 million. We will place into service the remaining assets totaling $10.2 million in 2016. We also have land for future potential development at Dulles Station, Phase II in Herndon, Virginia. In the multifamily segment, we have land held for future development adjacent to The Wellington, a multifamily property. During the fourth quarter of 2014, we substantially completed major construction activities at The Maxwell, a multifamily property, and placed into service assets totaling $31.3 million. During 2015, we placed into service the remaining assets totaling $19.2 million.

The cost of our real estate portfolio under development or held for future development as of December 31, 2015 and 2014 is as follows (in thousands):



	December 31,
	2015		2014
Office	$	18,711	$	36,379
Retail	1,076		500
Multifamily	16,307		39,356
	$	36,094	$	76,235

Acquisitions

Our current strategy is to recycle legacy assets that lack the income growth potential we seek and to invest in high-quality assets with compelling value-add returns through redevelopment opportunities in our existing portfolio and acquisitions that meet our stringent investment criteria. We focus on properties inside the Washington metro region’s Beltway, near major transportation nodes and in areas with strong employment drivers and superior growth demographics. Properties and land for development acquired during the three years ended December 31, 2015 were as follows:

Acquisition Date

Property

Type

# of units (unaudited)

Rentable

Square Feet

(unaudited)

Contract

Purchase Price

(in thousands)

July 1, 2015

The Wellington

Multifamily

711

N/A

167,000

February 21, 2014

Yale West

Multifamily

216

N/A

73,000

March 26, 2014

The Army Navy Club Building

Office

N/A

108,000

79,000

May 1, 2014

1775 Eye Street, NW

Office

N/A

185,000

104,500

October 1, 2014

Spring Valley Retail Center

Retail

N/A

75,000

40,500

Total 2014

216

368,000

297,000

October 1, 2013

The Paramount

Multifamily

135

N/A

48,200

The results of operations from acquired operating properties are included in the consolidated statements of income as of their acquisition dates.

The revenue and earnings of our acquisitions during their year of acquisition for the three years ended December 31, 2015 are as follows (in thousands):



	Year Ended December 31,
	2015			2014			2013
Real estate rental revenue	$	6,797		$	16,260		$	907
Net loss	(2,748		)	(3,168		)	(105		)

As discussed in note 2, we record the acquired physical assets (land, building and tenant improvements), in-place leases (absorption, tenant origination costs, leasing commissions, and net lease intangible assets/liabilities), and any other liabilities at their fair values.

We have recorded the total purchase price of the above acquisitions as follows (in thousands):



	2015		2014			2013
Land	$	30,548	$	104,403		$	8,568
Land held for development	15,000		—			—
Buildings	116,563		172,671			37,930
Tenant origination costs	—		9,377			32
Leasing commissions/absorption costs	4,889		16,474			943
Net lease intangible assets	—		7,331			102
Net lease intangible liabilities	—		(8,323		)	(117		)
Fair value of assumed mortgage	—		(107,125		)	—
Furniture, fixtures & equipment	—		932			742
Total	$	167,000	$	195,740		$	48,200

The leasing commissions/absorption costs acquired in 2015 were fully amortized as of December 31, 2015.

The difference in the total contract price of $167.0 million for the 2015 acquisition and cash paid for the acquisition per the consolidated statements of cash flows of $166.7 million is primarily due to credits received at settlement totaling $0.3 million.

The difference in the total contract price of $297.0 million for the 2014 acquisitions and cash paid for the acquisitions per the consolidated statements of cash flows of $194.5 million is primarily due to the assumption of two mortgage notes secured by Yale West and The Army Navy Club Building for an aggregate $100.9 million and the payment of a $3.6 million deposit for Yale West in 2013, partially offset by a credit to the seller for building renovations at 1775 Eye Street, NW for $1.9 million.

The following unaudited pro-forma combined condensed statements of operations set forth the consolidated results of operations for the years ended December 31, 2015 and 2014 as if the above described acquisition in 2015 had occurred on January 1, 2014. The pro forma adjustments include reclassifying costs related to the above-described acquisition to 2014. The unaudited pro-forma information does not purport to be indicative of the results that actually would have occurred if the acquisitions had been in effect for the years ended December 31, 2015 and 2014. The unaudited data presented is in thousands, except per share data.



	Year Ended December 31,
	2015		2014
Real estate revenues	$	313,114	$	302,120
Income from continuing operations	$	96,735	$	4,466
Net income	$	96,735	$	110,997
Diluted earnings per share	$	1.41	$	1.66

Noncontrolling Interests in Subsidiaries

In August 2007, we acquired a 0.8 acre parcel of land located at 4661 Kenmore Avenue, Alexandria, Virginia for future medical office development. The acquisition was funded by issuing operating partnership units in an operating partnership, which is a consolidated subsidiary of Washington REIT. This resulted in a noncontrolling ownership interest in this property based upon defined company operating partnership units at the date of purchase. In November 2013, 4661 Kenmore Avenue was sold as part of the Medical Office Portfolio (see "Properties Sold ") and in 2014, we distributed to the noncontrolling interest holder their share of the proceeds.

Variable Interest Entities

In November 2011, we executed a joint venture operating agreement with a real estate development company to develop a high-rise multifamily property at 1225 First Street in Alexandria, Virginia. Washington REIT and the real estate development company owned 95% and 5% of the joint venture, respectively. During the second quarter of 2015, we determined that we would not develop the property and began negotiations to sell our interest in the joint venture. We recognized a $5.9 million impairment charge for the second quarter of 2015 in order to reduce the carrying value of the property to its estimated fair value. We based this fair value on the contract sale price in the purchase and sale agreement. This fair valuation falls into Level 2 of the fair value hierarchy. During the third quarter of 2015, we sold our 95% interest in the joint venture for a contract sale price of $14.5 million and deconsolidated the entity, as this joint venture had previously been consolidated as Washington REIT was the primary beneficiary of the VIE.

In June 2011, we executed a joint venture operating agreement with a real estate development company to develop The Maxwell, a mid-rise multifamily property at 650 North Glebe Road in Arlington, Virginia. Major construction activities at The Maxwell ended during December 2014, and the building became available for occupancy during the first quarter of 2015. Washington REIT is the 90% owner of the joint venture.

We have determined that The Maxwell joint venture is a VIE primarily based on the fact that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support. As of December 31, 2015, $32.2 million was outstanding on The Maxwell's construction loan. We also determined that Washington REIT was the primary beneficiary of the VIE due to the fact that Washington REIT was determined to have a controlling financial interest in the entity.

We include joint venture land acquisitions and related capitalized development costs on our consolidated balance sheets in properties under development or held for future development until placed in service or sold. As of December 31, 2014, the land and capitalized development costs for 1225 First Street totaled $20.8 million.

As of December 31, 2015 and 2014, The Maxwell's assets were as follows (in thousands):



	December 31,
	2015			2014
Land	$	12,851		$	12,851
Income producing property	37,791			18,432
Accumulated depreciation and amortization	(2,347		)	—
Properties under development or held for future development	—			17,947
Other assets	1,188			—
	$	49,483		$	49,230

As of December 31, 2015 and 2014, The Maxwell's liabilities were as follows (in thousands):



	December 31,
	2015		2014
Mortgage notes payable, net	$	32,214	$	27,690
Accounts payable and other liabilities	256		2,196
Tenant security deposits	82		17
	$	32,552	$	29,903

Subsequent to the end of 2015, Washington REIT exercised its right to purchase without penalty The Maxwell's construction loan from the original third-party lender. Upon the purchase, the loan became an intercompany payable from the consolidated VIE to Washington REIT that is eliminated in consolidation.

Properties Sold

We dispose of assets that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable. The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs, or distributed to our shareholders.

During the second quarter of 2015, 15,000 square feet of land at Montrose Shopping Center, a retail property in Rockville, Maryland, was condemned as part of an eminent domain taking action. The taken land was at the periphery of the property and its taking did not impact the property's operations. We received $2.0 million as compensation for the taken land, and recognized a $1.4 million gain on sale of real estate during the second quarter of 2015.

We sold our interests in the following properties during the three years ended December 31, 2015:



Disposition Date	Property	Segment	# of units (unaudited)	Rentable Square Feet (unaudited)	Contract Sales Price (in thousands)		Gain on Sale (in thousands)
March 20, 2015	Country Club Towers ⁽¹⁾	Multifamily	227	N/A	$	37,800	$	30,277
September 9, 2015	1225 First Street ^{(1), (2)}	Multifamily	N/A	N/A	14,500		—
October 21, 2015	Munson Hill Towers ⁽¹⁾	Multifamily	279	N/A	57,050		51,395
December 14, 2015	Montgomery Village Center ⁽¹⁾	Retail	N/A	197,000	27,750		7,981
		Total 2015	506	197,000	$	137,100	$	89,653

January 21, 2014	Medical Office Portfolio Transactions III & IV ⁽³⁾	Medical Office	N/A	427,000	$	193,561	$	105,985
May 2, 2014	5740 Columbia Road ⁽¹⁾	Retail	N/A	3,000	1,600		570
		Total 2014	N/A	430,000	$	195,161	$	106,555

March 19, 2013	Atrium Building	Office	N/A	79,000	$	15,750	$	3,195
Various	Medical Office Portfolio Transactions I & II	Medical Office/ Office	N/A	1,093,000	307,189		18,949
		Total 2013	N/A	1,172,000	$	322,939	$	22,144

⁽¹⁾These properties are classified as continuing operations. All other sold properties are classified as discontinued operations.

⁽²⁾ Interest in land held for future development.

⁽³⁾ These properties were initially classified as held for sale during 2013.

In September 2013, we entered into four separate purchase and sale agreements to effectuate the sale of our entire medical office segment (including land held for development at 4661 Kenmore Avenue) and two office buildings (Woodholme Center and 6565 Arlington Boulevard) for an aggregate purchase price of $500.8 million. The sale was structured as four transactions. Transactions I & II closed in November 2013 and Transactions III & IV in January 2014. We do not have significant continuing involvement in the operations of the disposed properties.

The impact of the sale of our medical office segment on revenues and net income is summarized as follows (in thousands, except per share data):



	Year Ending December 31,
	2015		2014		2013
Real estate revenues	$	—	$	892	$	41,012
Net income	—		546		14,044
Basic and diluted net income per share	—		0.01		0.21

Income from properties classified as discontinued operations for the three years ended December 31, 2015 was as follows (in thousands):



	Year Ending December 31,
	2015		2014			2013
Revenues	$	—	$	892		$	45,791
Property expenses	—		(346		)	(17,039		)
Depreciation and amortization	—		—			(12,161		)
Interest expense	—		—			(1,196		)
	$	—	$	546		$	15,395

Income from properties classified as discontinued operations by property or disposal group for the three years ended December 31, 2015 was as follows (in thousands):



		Year Ending December 31,
Property	Segment	2015		2014		2013
Atrium Building	Office	$	—	$	—	$	185
Medical Office Portfolio	Medical/Office	—		546		15,210
		$	—	$	546	$	15,395