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REAL ESTATE INVESTMENTS | 12 Months Ended
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Dec. 31, 2020
Real Estate [Abstract] |
REAL ESTATE INVESTMENTS | 3. REAL ESTATE INVESTMENTS As of December 31, 2020 and 2019, the gross carrying value of the operating properties was as follows (in thousands):
| December 31, 2020 |  | December 31, 2019
Land | $ | 407,514 |  |  | $ | 489,702 |
Building and improvements | 2,665,232 |  |  | 3,049,395 |
Tenant improvements | 401,363 |  |  | 467,362 |
Total | $ | 3,474,109 |  |  | $ | 4,006,459 |
Construction-in-Progress Internal direct construction costs totaling $8.4 million in 2020, $7.4 million in 2019, and $7.0 million in 2018 and interest totaling $4.6 million in 2020, $3.2 million in 2019, and $3.6 million in 2018 were capitalized related to the development of certain properties and land holdings. During the years ended December 31, 2020, 2019 and 2018, the Company’s internal direct construction costs are comprised entirely of capitalized salaries. The following table shows the amount of compensation costs (including bonuses and benefits) capitalized for the years presented (in thousands):
| December 31,
| 2020 |  | 2019 |  | 2018
Development | $ | 4,802 |  |  | $ | 3,047 |  |  | $ | 3,185 |
Redevelopment | 543 |  |  | 775 |  |  | 968 |
Tenant Improvements | 3,021 |  |  | 3,609 |  |  | 2,811 |
Total | $ | 8,366 |  |  | $ | 7,431 |  |  | $ | 6,964 |
2020 Acquisitions The following table summarizes the property acquisitions during the year ended December 31, 2020 (dollars in thousands):
Property/Portfolio Name |  | Acquisition Date |  | Location |  | Property Type |  | Rentable Square Feet/Acres |  | Purchase Price (a)
145 King of Prussia Road |  | February 27, 2020 |  | Radnor, PA |  | Land |  | 7.75 acres |  | $ | 11,250 |
1505-11 Race Street |  | November 5, 2020 |  | Philadelphia, PA |  | Office |  | 119,763 |  |  | $ | 9,700 |
250 King of Prussia Road (b) |  | November 30, 2020 |  | Radnor, PA |  | Office |  | 169,843 |  |  | $ | 20,250 |
(a)Exclusive of transaction costs and price adjustments. See purchase price allocation table below for a breakout of the net purchase price for wholly owned properties. (b)This property was placed into redevelopment and is therefore included within Construction-in-progress on the consolidated balance sheets. The Company accounted for the acquisition of 1501-11 Race Street as an asset acquisition and therefore capitalized $0.3 million of acquisition related costs. The Company utilized a number of sources in making estimates of fair value (including comparative sales transactions and market leasing assumptions) for purposes of allocating the purchase price to tangible and intangible assets acquired The acquisition values have been allocated as follows (in thousands):
| 1505-11 Race Street |
Building, land and improvements | $ | 9,723 |  |
Intangible assets acquired | 2,422 |  |
Below market lease liabilities assumed | (2,193) |  |
Total unencumbered acquisition value | 9,952 |  |
Amortization period of intangible assets | 1.5 years |
Amortization period of below market liabilities assumed | 1.5 years |
2019 Acquisitions During the year ended December 31, 2019, the Company did not acquire any properties from a third party. 2018 Acquisitions On December 19, 2018, the Company acquired an office property containing 120,559 rentable square feet located at 4516 Seton Center Parkway in Austin, Texas, known as Quarry Lake II, for a gross purchase price of $39.5 million. On December 11, 2018, the Company acquired from DRA Advisors (“DRA”), its 50% ownership interest in the G&I Austin Office LLC real estate venture (the "Austin Venture”) for an aggregate purchase price of $535.1 million. The Austin Venture owned twelve office properties (“the Austin Venture Portfolio”) containing an aggregate 1,570,123 square feet located in Austin, Texas. As a result of the acquisition, the Company acquired complete ownership of the Austin Venture Portfolio. The aggregate purchase price reflects the sum of: (i) the amount of such investment plus (ii) a $103.8 million non-cash accounting remeasurement gain related to the Company’s original investment in the Austin Venture Portfolio, reflected in the “Net gain on real estate venture transactions” in the consolidated statements of operations plus (iii) $28.3 million on account of the value of the Company’s promoted interest in the Austin Venture plus (iv) $14.6 million on account of the carrying amount of the Company’s original investment in the Austin Venture Portfolio. At settlement, the Company assumed $115.5 million of mortgage debt and received a credit at settlement of $130.7 million for a note receivable provided to the Austin Venture on November 1, 2018. This note receivable was used to repay one of Austin Venture’s mortgage loans prior to the December 11, 2018 acquisition date. The Company also obtained working capital of $24.9 million. Subsequent to receiving cash proceeds for its promoted interest in the Austin Venture and recognizing a remeasurement gain, the Company funded the acquisition with an aggregate cash payment of $117.3 million. Additionally, the assumed mortgage debt of $115.5 million was repaid at settlement. Both cash payments were funded through borrowings under the Company’s unsecured credit facility. The Company recognized a $28.3 million gain on its promoted interest in the Austin Venture, reflected in the caption “Gain on promoted interest in unconsolidated real estate venture” in the consolidated statements of operations. The gain on promoted interest was based off of the returns earned over the duration of the Austin Venture and the returns were determined based on operating results and real estate valuation of the venture. The Company previously accounted for its 50% non-controlling interest in the Austin Venture under the equity method of accounting. As a result of the Company’s acquisition of DRA’s 50% ownership interest in the Austin Venture, the Company obtained control of Austin Venture and the Company’s existing investment balance was remeasured based on the fair value of the underlying properties acquired and the existing distribution provisions under the relevant partnership agreement, including the Company’s entitlement to a distribution on account of its promoted interest. On June 29, 2018, the Company acquired, through a 99-year ground lease, the leasehold interest in a one-acre land parcel, located at 3025 JFK Boulevard, in Philadelphia, Pennsylvania. The Company prepaid $15.0 million of ground lease rent and, in accordance with ASC 840, capitalized $0.3 million of costs related to entering the lease. Additionally, the ground lease required the Company to pay $5.6 million for a leasehold valuation credit, which can be applied to increase the density of the projects subject to the Schuylkill Yards Project master development agreement. Of this credit, $2.4 million will be applied to the development of 3001-3003 and 3025 JFK Boulevard if the Company constructs a minimum of 1.2 million square feet of floor area ratio (“FAR”) on these land parcels. The remaining credit of $3.2 million can be used for development in excess of 1.2 million FAR at 3001-3003 and 3025 JFK Boulevard or toward future ground lease takedowns at the Schuylkill Yards Development Site. This $3.2 million credit is reimbursed if the master development agreement is terminated by the landowner. Based on the Company’s evaluation under ASC 840, the ground lease is classified as an operating lease. The ground lease and credit are included in the “Prepaid leasehold interests in land held for development, net” and “Other assets” captions, respectively, in the consolidated balance sheets. On March 22, 2018, the Company acquired, through a 99-year ground lease, the leasehold interest in a one-acre land parcel, located at 3001-3003 JFK Boulevard, in Philadelphia, Pennsylvania. The Company prepaid $24.6 million of ground lease rent and capitalized $0.3 million of costs related to entering the lease. The ground lease is classified as an operating lease and included in the “Prepaid leasehold interests in land held for development, net,” caption in the consolidated balance sheets. On January 5, 2018, the Company acquired, from its then partner in each of the Four Tower Bridge real estate venture and the Seven Tower Bridge real estate venture, the partner’s 35% ownership interest in the Four Tower Bridge real estate venture in exchange for the Company's 20% ownership interest in the Seven Tower Bridge real estate venture. As a result of this non-monetary exchange, the Company acquired 100% of the Four Tower Bridge real estate venture, which owns an office property containing 86,021 square feet, in Conshohocken, Pennsylvania, encumbered with $9.7 million in debt. The Company previously accounted for its noncontrolling interest in Four Tower Bridge using the equity method. As a result of the exchange transaction, the Company obtained control of the Four Tower Bridge property. The Company’s acquisition of the 35% ownership interest in Four Tower Bridge from its former partner resulted in the consolidation of the property. The unencumbered acquisition value of $23.6 million was determined under the comparative sales approach, which utilized observable transactions within the Conshohocken submarket. 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 |  | 1/5/2018
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 | 0 |  | 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 recognized at settlement, which resulted in a reduction of 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. Quarry Lake II contributed approximately $0.1 million of revenue and $0.1 million of net income, included in the Company’s consolidated statements of operations, for the twelve-month period ended December 31, 2018. Austin Venture Portfolio contributed approximately $3.4 million of revenue and $1.3 million of net loss, included in the Company’s consolidated statements of operations, for the twelve-month period ended December 31, 2018. Four Tower Bridge contributed approximately $2.8 million of revenue and $0.3 million of net income, included in the Company’s consolidated statements of operations, for the twelve-month period ended December 31, 2018. 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).
| 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 |
Dispositions The following table summarizes the property dispositions during the years ended December 31, 2020, 2019 and 2018 (dollars in thousands):
Property/Portfolio Name |  | Disposition Date |  | Location |  | Property Type |  | Rentable Square Feet/Acres |  | Sales Price |  | Gain/(Loss) on Sale (a)
Mid-Atlantic Office Portfolio (b) (g) |  | December 21, 2020 |  | Various |  | Office |  | 1,128,645 |  |  | $ | 192,943 |  |  | $ | 15,164 |
One and Two Commerce Square (c) |  | July 21, 2020 |  | Philadelphia, PA |  | Office |  | 1,896,142 |  |  | $ | 115,000 |  |  | $ | 271,905 |
Keith Valley |  | June 15, 2020 |  | Horsham, PA |  | Land |  | 14.0 Acres |  | $ | 4,000 |  |  | $ | 201 |
52 East Swedesford Road |  | March 19, 2020 |  | Malvern, PA |  | Office |  | 131,077 |  |  | $ | 18,000 |  |  | $ | 2,336 |
1900 Gallows Rd |  | September 11, 2019 |  | Vienna, VA |  | Office |  | 210,632 |  |  | $ | 36,400 |  |  | $ | (367) |
9 Presidential Boulevard |  | March 15, 2019 |  | Bala Cynwyd, PA |  | Land |  | 2.7 Acres |  | $ | 5,325 |  |  | $ | 751 |
Subaru National Training Center (d) |  | December 21, 2018 |  | Camden, NJ |  | Mixed-use |  | 83,000 |  |  | $ | 45,300 |  |  | $ | 2,570 |
Rockpoint Portfolio (e) |  | December 20, 2018 |  | Herndon, VA |  | Office |  | 1,293,197 |  |  | $ | 312,000 |  |  | $ | 397 |
20 East Clementon Road |  | June 21, 2018 |  | Gibbsboro, NJ |  | Office |  | 38,260 |  |  | $ | 2,000 |  |  | $ | (35) |
Garza Ranch - Office (f) |  | March 16, 2018 |  | Austin, TX |  | Land |  | 6.6 acres |  | $ | 14,571 |  |  | $ | 1,515 |
Westpark Land |  | January 10, 2018 |  | Durham, NC |  | Land |  | 13.1 acres |  | $ | 485 |  |  | $ | 22 |
(a)Gain/(Loss) on Sale is net of closing and other transaction related costs. (b)The Company sold a 60% equity interest in a portfolio of twelve suburban office properties containing an aggregate of 1.1 million square feet ("Mid-Atlantic Office Portfolio"), nine of which are located in the Pennsylvania suburbs and three of which are located in Maryland, to an unrelated third party for a gross sales price of $192.9 million. The transaction resulted in deconsolidation of the properties and formation of PA/MD NNN Office JV, LLC ("Mid-Atlantic Office JV"). The Company recorded its investment at fair value and recognized a gain of $15.2 million in "Net gain on disposition of real estate" on the Consolidated Statements of Operations. See Note 4, ''Investment in Unconsolidated Real Estate Ventures," for further information. (c)The Company sold a 30% preferred equity interest in two office buildings located in Philadelphia, Pennsylvania, to an unrelated third party for $115.0 million (the "Commerce Square Venture Transaction"), which resulted in deconsolidation of the properties and formation of Brandywine Commerce I LP and Brandywine Commerce II LP (collectively, the "Commerce Square Venture"). The transaction valued the properties at $600.0 million. The Company recorded its investment at fair value and recognized a gain of $271.9 million in "Net gain on disposition of real estate" on the Consolidated Statements of Operations. See Note 4, ''Investment in Unconsolidated Real Estate Ventures," for further information. (d)During the third quarter of 2018, the tenant, Subaru, exercised its purchase option for the Subaru National Training Center Development. The lease with Subaru was classified as a direct finance lease within "Other assets" on the consolidated balance sheets. In connection with the lease, the Company recognized $1.6 million in interest income during the twelve months ended December 31, 2018, in accordance with accounting guidance for direct finance leases under ASC 840. (e)For information related to this transaction, see the “Herndon Innovation Center Metro Portfolio Venture, LLC” section in Note 4, “Investment in Unconsolidated Real Estate Ventures.” (f)The Company had continuing involvement in this property through a completion guaranty, which required the Company, as developer, to complete certain infrastructure improvements on behalf of the buyers of the land parcel. The Company recorded the cash received at settlement as “Deferred income, gains and rent” on the consolidated balance sheet. The Company subsequently recognized the land sale and the $3.0 million gain on sale during the twelve months ended December 31, 2018 upon substantial completion of the infrastructure improvements and transfer of control to the buyer. (g)The sales price includes $4.1 million of variable consideration held in escrow that will be released to the Company over a six to nine month holdback period if certain tenants remain in compliance with certain payment terms of their lease agreements. The Company estimated the amount of the variable consideration that it deemed probable of collection and included such amount in the transaction price. The Company will continue to evaluate the probability of collection and recognize any changes to the amount deemed probable as incremental gain on sale. During the year ended December 31, 2019, the Company also recorded a $1.0 million gain related to contingent consideration received related to a land sale that closed in a prior period in the Other segment. The Company also received additional proceeds from a sale that closed in a prior year related to a property in the Metropolitan Washington, D.C. segment resulting in $0.7 million of additional gain on sale. Held for Use Impairment As of December 31, 2020 and 2019, the Company evaluated the recoverability of the carrying value of its properties that triggered assessment. Based on the analysis, no impairments were identified during the twelve months ended December 31, 2020 and 2019. As of December 31, 2018, the Company evaluated the recoverability of the carrying values of certain properties that triggered an assessment under the undiscounted cash flow model. Based on its evaluation, the Company determined it would not recover the carrying value of one property in its Other segment, 1900 Gallows Road, located in Vienna, Virginia, due to a reduction in the intended hold period. Accordingly, the Company recorded an impairment of $14.8 million at December 31, 2018, reflected in the results for the twelve months ended December 31, 2018, which reduced the carrying value of the property from $52.8 million to its estimated fair value of $38.0 million. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of ten years and a residual capitalization rate and discount rate of 7.5% and 9.5%, respectively. The result was comparable to indicative pricing in the market. Held for Sale As of both December 31, 2020 and 2019, the Company determined that the sale of two parcels of land within the Other segment totaling 35.2 acres was probable and classified these properties as held for sale. As such, $7.3 million was classified as “Assets held for sale, net” on the consolidated balance sheets as of December 31, 2020 and 2019. As of December 31, 2020 and 2019, the fair value less the anticipated costs of sale of the properties exceeded the carrying values. The fair value of the properties is based on the pricing in the purchase and sale agreement. Held for Sale Impairment During the year ended December 31, 2018, the Company determined that the sale of eight office properties, known as the Rockpoint Portfolio, containing 1,293,197 rentable square feet, in the Metropolitan Washington, D.C. segment, was probable and classified these properties as held for sale and, as a result, recognized an impairment of $56.9 million. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of ten years and residual capitalization rates and discount rates of 7.47% and 8.60%, respectively. The results were comparable to indicative pricing in the market. The Rockpoint Portfolio was sold during the fourth quarter of 2018. See the “Dispositions” section above for further information relating to this sale.

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- Definition The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 970 -URI http://asc.fasb.org/topic&trid=2156125 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 978 -URI http://asc.fasb.org/topic&trid=2134977 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 976 -URI http://asc.fasb.org/topic&trid=2134846 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 974 -URI http://asc.fasb.org/topic&trid=2156429 Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 972 -URI http://asc.fasb.org/topic&trid=2134617 + Details
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