Quarterly report pursuant to Section 13 or 15(d)

Real Estate Facilities

v3.19.3
Real Estate Facilities
9 Months Ended
Sep. 30, 2019
Real Estate Facilities [Abstract]  
Real Estate Facilities 3. Real estate facilities

The activity in real estate facilities for the nine months ended September 30, 2019 was as follows (in thousands):

Buildings and

Accumulated

Land

Improvements

Depreciation

Total

Balances at December 31, 2018 (1)

$

762,731 

$

2,157,407 

$

(1,097,748)

$

1,822,390 

Acquisition of real estate facility

75,160 

40,765 

115,925 

Capital expenditures

26,536 

26,536 

Disposals (2)

(11,643)

11,643 

Depreciation and amortization expense

(70,896)

(70,896)

Transfer to properties held for sale

(899)

4,055 

3,156 

Balances at September 30, 2019

$

837,891 

$

2,212,166 

$

(1,152,946)

$

1,897,111 

____________________________

(1)Land, building and improvements, and accumulated depreciation, respectively, totaling $53.9 million, $217.5 million and $143.3 million were reclassified as of December 31, 2018 to “properties held for sale, net” representing 1.3 million rentable square feet of flex and office business parks located in Rockville and Silver Spring, Maryland.

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

As of September 30, 2019, we have commitments, pursuant to executed leases throughout our portfolio, to spend $10.3 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.

We 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 September 5, 2019, we acquired a multi-tenant industrial park comprised of approximately 543,000 rentable square feet in Santa Fe Springs, California, for a total purchase price of $104.3 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.

On June 8, 2018, we acquired two multi-tenant industrial parks aggregating 1.1 million rentable square feet in Springfield, Virginia, for a purchase price of $143.8 million, inclusive of capitalized transaction costs.

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

2019

2018

Land

$

75,160 

$

25,806 

Buildings and improvements

40,765 

112,230 

Other assets (above-market in-place rents)

1,487 

Accrued and other liabilities (below-market in-place rents)

(1,142)

(1,790)

Other assets (in-place lease value)

3,371 

6,033 

Total purchase price

118,154 

143,766 

Net operating assets acquired and liabilities assumed

(463)

(1,367)

Total cash paid

$

117,691 

$

142,399 

We have a 95.0% interest in 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%. On January 1, 2018, we began to consolidate our joint venture due to changes to the joint venture agreement that gave the Company control of the joint venture.

The following table summarizes the assets acquired and liabilities assumed related to the consolidation of the joint venture, which was accounted for as an asset acquisition, as of January 1, 2018 (in thousands):

2018

Land

$

21,814 

Buildings and improvements

84,903 

Other assets (in-place lease value)

1,199 

Total consolidated joint venture

107,916 

Noncontrolling interest in consolidated joint venture

(4,032)

Net book value of joint venture at consolidation

$

103,884 


Properties Sold and Held for Sale

Subsequent to September 30, 2019, we sold 1.3 million rentable square feet of flex and office business parks located in Rockville and Silver Spring, Maryland, for a gross sales price of $148.8 million. We 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 classification, the assets of the properties are separately presented as held for sale in the consolidated balance sheet as of December 31, 2018.

On March 5, 2018, we sold Corporate Pointe Business Park, a park consisting of five multi-tenant office buildings totaling 161,000 square feet located in Orange County, California, for net sale proceeds of $41.7 million, which resulted in a gain of $26.8 million. On April 18, 2018, we sold Orange County Business Center, a park consisting of five multi-tenant office buildings totaling 437,000 square feet located in Orange County, California, for net sale proceeds of $73.3 million, which resulted in a gain of $50.6 million. On April 30, 2018, we sold Northgate Business Park, a park consisting of seven multi-tenant flex buildings totaling 194,000 square feet located in Dallas, Texas, for net sale proceeds of $11.8 million, which resulted in a gain of $7.9 million. We determined that these sales also did not meet the criteria for discontinued operations presentation.