NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Description of Business
First Potomac Realty Trust (the “Company”) is a leader in the ownership, management, redevelopment and development of office and business park properties in the greater Washington, D.C. region. The Company’s focus is owning and operating properties that the Company believes can benefit from its market knowledge and intensive operational skills with a focus on increasing their profitability and value. The Company’s portfolio primarily contains a mix of single-tenant and multi-tenant office properties and business parks. Office properties are single-story and multi-story buildings that are primarily for office use, and business parks contain buildings with office features combined with some industrial property space. The Company separates its properties into
four
distinct reporting segments, which it refers to as the Washington, D.C., Maryland, Northern Virginia and Southern Virginia reporting segments.
References in these unaudited condensed consolidated financial statements to “we,” “our,” “us,” the “Company” or “First Potomac,” refer to the Company and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.
We conduct our business through our Operating Partnership. We are the sole general partner of, and, as of
June 30, 2017
, owned
95.8%
of the common interest in the Operating Partnership. The remaining common interests in the Operating Partnership, which are presented as noncontrolling interests in the Operating Partnership in the accompanying unaudited condensed consolidated financial statements, are limited partnership interests that are owned by unrelated parties.
At June 30, 2017
, we wholly owned properties totaling
6.0 million
square feet and had a noncontrolling ownership interest in properties totaling an additional
0.4 million
square feet through
two
unconsolidated joint ventures. We also owned land that can support
0.4 million
square feet of additional development. Our consolidated properties were
92.6%
occupied by
378
tenants at
June 30, 2017
. We do not include the square footage of properties in development or redevelopment, which totaled
0.1 million
square feet at
June 30, 2017
, in our occupancy calculation. We derive substantially all of our revenue from leases of space within our properties. As of
June 30, 2017
, our largest tenant was the U.S. Government, which accounted for
13.8%
of our total annualized cash basis rent, and the U.S. Government combined with government contractors accounted for
20.9%
of our total annualized cash basis rent as of
June 30, 2017
. We operate so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes.
Transaction with Government Properties Income Trust
As previously announced, on June 27, 2017, First Potomac entered into a definitive merger agreement with Government Properties Income Trust (NASDAQ: GOV) under which GOV will acquire all of the outstanding shares of First Potomac (the “Transaction”). Under the terms of the merger agreement, First Potomac shareholders will receive a cash payment of
$11.15
per share at closing. This represents a premium of
9.3%
to First Potomac’s 30-trading day volume weighted average price per share ended April 24, 2017, the last trading day before media speculation regarding a potential sale of First Potomac. The Transaction, which is valued at
$1.4 billion
, including the assumption of debt, is expected to close prior to year-end 2017. In the interim, pursuant to the merger agreement, the Company has agreed that it will not pay regular, quarterly distributions to the holders of the Company’s common shares prior to the closing of the Transaction, except to the extent that dividends and other distributions are necessary for each of the Company and its real estate investment trust (“REIT”) subsidiary to maintain their respective status as a REIT.
The Transaction is subject to customary closing conditions, including approval by First Potomac shareholders at a special meeting. As a result, the Company can provide no assurances regarding when the Transaction will close, if at all. The Board of Trustees of First Potomac has unanimously approved both the merger and the merger agreement, and has recommended approval of the merger by First Potomac’s shareholders.
During the three and six months ended June 30, 2017, we recorded
$2.2 million
of costs related to legal, advisory and accounting fees in connection with the Transaction, which are reflected within “General and administrative expense” in our consolidated statements of operations for the respective periods.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
Our unaudited condensed consolidated financial statements include our accounts and the accounts of our Operating Partnership, which we consider to be a variable interest entity (“VIE”), and the subsidiaries in which we or our Operating Partnership has a controlling interest, which includes First Potomac Management, LLC, a wholly-owned subsidiary that manages the majority of our properties. All intercompany balances and transactions have been eliminated in consolidation.
We have condensed or omitted certain information and note disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”) in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended
December 31, 2016
and as updated from time to time in our other filings with the SEC.
In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals necessary to present fairly our financial position as of
June 30, 2017
and the results of our operations, our comprehensive (loss) income and our cash flows for the
three and six
months ended
June 30, 2017
and
2016
. Interim results are not necessarily indicative of full-year performance due, in part, to the timing of transactions and the impact of acquisitions and dispositions throughout the year, as well as the seasonality of certain operating expenses such as utilities expense and snow and ice removal costs.
(b) Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires our management team to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Estimates include the amount of accounts receivable that may be uncollectible, future cash flows, discount and capitalization rate assumptions used to fair value acquired properties and to test impairment of certain long-lived assets and goodwill, derivative valuations, market lease rates, lease-up periods, leasing and tenant improvement costs used to fair value intangible assets acquired and probability weighted cash flow analysis used to fair value contingent liabilities. Actual results could differ from those estimates.
(c) Rental Property
Rental property is initially recorded at fair value, when acquired in a business combination, or initial cost when constructed or acquired in an asset purchase. Improvements and replacements are capitalized at cost when they extend the useful life, increase capacity or improve the efficiency of the asset. Repairs and maintenance are charged to expense when incurred. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of our assets, by class, are as follows:
|
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|
|
|
|
Buildings
|
|
39 years
|
|
Building improvements
|
|
5 to 20 years
|
|
Furniture, fixtures and equipment
|
|
5 to 15 years
|
|
Lease related intangible assets
|
|
The term of the lease
|
|
Tenant improvements
|
|
Shorter of the useful life of the asset or the term of the related lease
|
We regularly review market conditions for possible impairment of a property’s carrying value. When circumstances such as adverse market conditions, changes in management’s intended holding period or potential sale to a third party indicate a possible impairment of the carrying value of a property, an impairment analysis is performed. We assess potential impairments based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the property’s use and eventual disposition. This estimate is based on projections of future revenues, expenses, capital improvement costs to maintain
the operating capacity, expected holding periods and capitalization rates. These cash flows consider factors such as expected market trends and leasing prospects, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a real estate investment based on forecasted undiscounted cash flows, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. Further, we will record an impairment loss if we expect to dispose of a property in the near term at a price below carrying value. In such an event, we will record an impairment loss based on the difference between a property’s carrying value and its projected sales price less any estimated costs to sell.
We will classify a building as held-for-sale in accordance with GAAP in the period in which we have made the decision to dispose of the building, our Board of Trustees or a designated delegate has approved the sale, there is a binding contract pursuant to which the buyer has significant money at risk, or high likelihood a binding agreement to purchase the property will be signed under which the buyer will be required to commit a significant amount of nonrefundable cash, and no significant financing contingencies exist that could cause the transaction not to be completed in a timely manner. We will cease recording depreciation on a building once it has been classified as held-for-sale.
We will also determine whether the disposal of a building qualifies as a discontinued operation in accordance with GAAP by assessing whether the disposal of the building, or group of buildings, represents a strategic shift that has, or will have, a major effect on the Company’s operations or financial results. If the building does not qualify as a discontinued operation in accordance with GAAP, we will classify the building’s operating results, together with any impairment charges and any gains or losses on the sale of the building, in continuing operations for all periods presented in our consolidated statements of operations. We will classify the assets and liabilities related to the building as held-for-sale in our consolidated balance sheet for the period the held-for-sale criteria were met.
If the building does qualify as a discontinued operation under GAAP, we will classify the building’s operating results, together with any impairment charges and any gains or losses on the sale of the building, in discontinued operations in our consolidated statements of operations for all periods presented and classify the assets and liabilities related to the building as held-for-sale in our consolidated balance sheets for the periods presented. Interest expense is reclassified to discontinued operations only to the extent the disposed or held-for-sale property is secured by specific mortgage debt and the mortgage debt will not be assigned to another property owned by us after the disposition.
We recognize the fair value, if sufficient information exists to reasonably estimate the fair value, of any liability for conditional asset retirement obligations when assumed or incurred, which is generally upon acquisition, construction, development or redevelopment and/or through the normal operation of the asset.
We capitalize interest costs incurred on qualifying expenditures for real estate assets under development or redevelopment, which include our investments in assets owned through unconsolidated joint ventures that are under development or redevelopment, while being readied for their intended use in accordance with accounting requirements regarding capitalization of interest. We will capitalize interest when qualifying expenditures for the asset have been made, activities necessary to get the asset ready for its intended use are in progress and interest costs are being incurred. Capitalized interest also includes interest associated with expenditures incurred to acquire developable land while development activities are in progress. We also capitalize direct compensation costs of our construction personnel who manage the development and redevelopment projects, but only to the extent the employee’s time can be allocated to a project. Any portion of construction management costs not directly attributable to a specific project are recognized as general and administrative expense in the period incurred. We do not capitalize any other general and administrative costs such as office supplies, office rent expense or an overhead allocation to our development or redevelopment projects. Capitalized compensation costs were immaterial for the three and six months ended
June 30, 2017
and
2016
. Capitalization of interest ends when the asset is substantially complete and ready for its intended use, but no later than one year from completion of major construction activity if the property is not occupied. We place redevelopment and development assets into service at this time and commence depreciation upon the substantial completion of tenant improvements and the recognition of revenue. Capitalized interest is depreciated over the useful life of the underlying assets, commencing when those assets are placed into service.
(d) Application of New Accounting Standards
In December 2016, we adopted Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
(“ASU 2014-15”), which requires an entity to evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. The adoption of ASU 2014-15 did not have a material impact on our audited consolidated financial statements and related disclosures or our unaudited condensed consolidated financial statements and related disclosures.
In January 2017, we adopted Accounting Standards Update No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”)
,
which is intended to simplify several aspects of the accounting for employee share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 requires us to classify cash payments made on behalf of employees for taxes owed on the vesting of restricted common shares, for which we withhold vested common shares owed to the employee in an amount that equates to the value of the employee’s tax obligation, as a financing activity on our statements of cash flows. We elected to adopt ASU 2016-09 retrospectively and the adoption of ASU 2016-09 did not have a material impact on our unaudited condensed consolidated financial statements and related disclosures.
In January 2017, we adopted Accounting Standards Update No. 2016-17,
Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control
(“ASU 2016-17”), which requires a single decision maker or service provider, in evaluating whether it is the primary beneficiary, to consider on a proportionate basis indirect interests held through related parties under common control. The adoption of ASU 2016-17 did not have a material impact on our unaudited condensed consolidated financial statements and related disclosures.
In January 2017, we adopted Accounting Standards Update No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”), which was issued by the Financial Accounting Standards Board (“FASB”) in January 2017. ASU 2017-01 provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We anticipate ASU 2017-01 will change our accounting treatment of future property acquisitions; however, the adoption of ASU 2017-01 did not have a material impact on our unaudited condensed consolidated financial statements and related disclosures.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. In July 2015, the FASB deferred by one year the mandatory effective date of ASU 2014-09 from January 1, 2017 to January 1, 2018. Early adoption is permitted, but not prior to the original effective date of January 1, 2017. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. We have begun to evaluate each of the revenue streams under the new model and the pattern of recognition is not expected to change significantly. We have not yet selected a transition method and are evaluating the impact that ASU 2014-09 will have on our consolidated financial statements and related disclosures.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU 2016-01”), which requires, among other things, entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value disclosed for financial instruments measured at amortized cost on the balance sheet. ASU 2016-01 is effective for periods beginning after December 15, 2017; early adoption is not permitted. The guidance is not expected to have a material impact on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
(“ASU 2016-02”), which requires a lessee to record on the balance sheet a right-of-use asset with a corresponding lease liability created by lease terms of more than 12 months. Additional qualitative and quantitative disclosures will also be required. The guidance will become effective for periods beginning after December 15, 2018 and will be applied using a modified retrospective transition method. We are currently evaluating the impact that ASU 2016-02 will have on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”)
.
The guidance addresses eight classification issues related to the statement of cash flows, including debt prepayment or debt extinguishment costs and distributions received from equity-method investees. The guidance will become effective for periods beginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 requires the use of a retrospective transition method to each period presented. If such retrospective transition is impracticable for certain issues, the adoption of ASU 2016-15 for the applicable issues may be applied prospectively as of the earliest date practicable. The guidance is not expected to have a material impact on our consolidated financial statements or related disclosures.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”), which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. ASU 2016-18 is effective for periods beginning after December 15, 2017 and early adoption is permitted. The guidance is not expected to have a material impact on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”), which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. ASU 2017-04 is effective for periods beginning after December 15, 2019 and early adoption is permitted for measurement dates after January 1, 2017. The guidance is not expected to have a material impact on our consolidated financial statements and related disclosures.
In February 2017, the FASB issued Accounting Standards Update No. 2017-05,
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
(“ASU 2017-05”), which clarifies the guidance in Subtopic 610-20 on accounting for derecognition of a nonfinancial asset. The update also defines in-substance nonfinancial assets and includes guidance on partial sales of nonfinancial assets. The amendments in ASU 2017-05 are to be applied at the same time that ASU 2014-09 is applied. We are currently evaluating the impact that ASU 2017-05 will have on our consolidated financial statements and related disclosures.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09,
Compensation - Stock Compensation (Topic 718)
(“ASU 2017-09”), which clarifies and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. ASU 2017-09 is effective for periods beginning after December 15, 2017 and early adoption is permitted. We are currently evaluating the impact that ASU 2017-09 will have on our consolidated financial statements and related disclosures.
(e) Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation, primarily as a result of adopting ASU 2016-09 in January 2017. See note 2(d),
Summary of Significant Accounting Policies - Application of New Accounting Standards
for more information.
(3) Earnings Per Common Share
Basic earnings or loss per common share (“EPS”) is calculated by dividing net income or loss attributable to common shareholders by the weighted average common shares outstanding for the periods presented. Diluted EPS is computed after adjusting the basic EPS computation for the effect of dilutive common equivalent shares outstanding during the periods presented, which include stock options and non-vested shares. We apply the two-class method for determining EPS as our outstanding unvested shares with non-forfeitable dividend rights are considered participating securities. Our excess of distributions over earnings related to participating securities is shown as a reduction in total earnings attributable to common shareholders in our computation of EPS.
The following table sets forth the computation of our basic and diluted earnings per common share (dollars in thousands, except per share amounts):
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Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator for basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(2,828
|
)
|
|
$
|
(1,992
|
)
|
|
$
|
42,201
|
|
|
$
|
(2,093
|
)
|
Less: Net loss (income) attributable to noncontrolling interests
|
123
|
|
|
390
|
|
|
(1,762
|
)
|
|
537
|
|
Net (loss) income attributable to First Potomac Realty Trust
|
(2,705
|
)
|
|
(1,602
|
)
|
|
40,439
|
|
|
(1,556
|
)
|
Less: Dividends on preferred shares
|
—
|
|
|
(794
|
)
|
|
—
|
|
|
(3,042
|
)
|
Less: Issuance costs of redeemed preferred shares
(1)
|
—
|
|
|
(3,095
|
)
|
|
—
|
|
|
(4,999
|
)
|
Net (loss) income attributable to common shareholders
|
(2,705
|
)
|
|
(5,491
|
)
|
|
40,439
|
|
|
(9,597
|
)
|
Less: Allocation to participating securities
|
(61
|
)
|
|
(53
|
)
|
|
(115
|
)
|
|
(126
|
)
|
Net (loss) income attributable to common shareholders
|
$
|
(2,766
|
)
|
|
$
|
(5,544
|
)
|
|
$
|
40,324
|
|
|
$
|
(9,723
|
)
|
Denominator for basic and diluted earnings per common share:
|
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|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
57,999
|
|
|
57,577
|
|
|
57,662
|
|
|
57,559
|
|
Weighted average common shares outstanding - diluted
|
57,999
|
|
|
57,577
|
|
|
57,940
|
|
|
57,559
|
|
Basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders
|
$
|
(0.05
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.70
|
|
|
$
|
(0.17
|
)
|
|
|
(1)
|
Represents the original issuance costs associated with the redemption of
3.6 million
and
5.8 million
7.750%
Series A Cumulative Redeemable Perpetual Preferred Shares (the “7.750% Series A Preferred Shares”) during the three and six months ended June 30, 2016, respectively.
|
In accordance with GAAP regarding earnings per common share, we did not include the following potential weighted average common shares in our calculation of diluted earnings per common share as they are anti-dilutive for the periods presented (amounts in thousands):
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Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Stock option awards
|
848
|
|
|
982
|
|
|
863
|
|
|
1,000
|
|
Non-vested share awards
|
582
|
|
|
489
|
|
|
601
|
|
|
505
|
|
|
1,430
|
|
|
1,471
|
|
|
1,464
|
|
|
1,505
|
|
(4) Rental Property
Rental property represents wholly-owned buildings and related improvements, net of accumulated depreciation, and developable land. All of our rental properties are located within the greater Washington, D.C. region. Rental property consists of the following (dollars in thousands):
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|
|
|
|
June 30, 2017
|
|
December 31, 2016
(1)
|
Land and land improvements
|
$
|
269,932
|
|
|
$
|
282,923
|
|
Buildings and improvements
|
768,937
|
|
|
824,867
|
|
Construction in progress
|
33,242
|
|
|
4,605
|
|
Tenant improvements
|
185,719
|
|
|
189,031
|
|
Furniture, fixtures and equipment
|
374
|
|
|
408
|
|
|
1,258,204
|
|
|
1,301,834
|
|
Less: accumulated depreciation
|
(237,036
|
)
|
|
(242,562
|
)
|
|
$
|
1,021,168
|
|
|
$
|
1,059,272
|
|
(1)
Excludes rental property totaling
$13.2 million
at December 31, 2016 related to One Fair Oaks, which was classified as held-for-sale at December 31, 2016 and was sold on
January 9, 2017
.
Development and Redevelopment Activity
We will place completed development and redevelopment assets in-service upon the earlier of one year after major construction activity is deemed to be substantially complete or upon occupancy. We construct office buildings and/or business parks on a build-to-suit basis or with the intent to lease upon completion of construction. At June 30, 2017, we owned developable land that can accommodate
0.4 million
square feet of additional building space, of which
34 thousand
is located in the Washington, D.C. reporting segment,
0.1 million
is in the Maryland reporting segment,
0.2 million
is in the Northern Virginia reporting segment and
0.1 million
is in the Southern Virginia reporting segment.
In March 2017, the sole tenant of 540 Gaither Road at Redland (“Redland I”) exercised its early termination option and vacated the
133,895
square-foot building, which is located in our Maryland reporting segment. Upon the tenant vacating Redland I, the building was placed into redevelopment. At June 30, 2017, our total investment in the building under redevelopment was
$25.9 million
, which included the
$23.0 million
total original cost basis of the building and land. The majority of costs incurred as of June 30, 2017 in excess of the original cost basis of the building and land related to renovating the building’s interior.
During the second quarter of
2017
, we did
no
t place in-service any completed development or redevelopment space. At June 30, 2017, we did not have any completed development or redevelopment space that had yet to be placed in-service.
(
5
) Investment in Affiliates
We own an interest in two unconsolidated joint ventures that own properties. In addition, we own an interest in three unconsolidated joint ventures that sold the properties they owned (Aviation Business Park and Rivers Park I and II) in March 2017. We do not control the activities that are most significant to the joint ventures. As a result, the assets, the liabilities and the operating results of these non-controlled joint ventures are not consolidated within our unaudited condensed consolidated financial statements. Our investments in these joint ventures are recorded as “Investment in affiliates” on our consolidated balance sheets. On
March 7, 2017
, three of our unconsolidated joint ventures collectively sold Aviation Business Park, a
120,284
square-foot office building, and Rivers Park I and II, a
307,984
square-foot business park, which were all located in our Maryland reporting segment. Based on our percentage ownership of the joint ventures, our share of gross proceeds from the sale totaled
$19.0 million
, which generated
$18.4 million
of net proceeds. We used the net proceeds from the sale to repay
$7.0 million
(our proportionate share) of mortgage debt encumbering Rivers Park I and II, and the remainder was used to repay a portion of the outstanding balance under our unsecured revolving credit facility. We have had, and will have, no continuing involvement in the ownership decisions of any of the unconsolidated joint ventures’ disposed properties subsequent to their disposal.
Our investment in affiliates consisted of the following (dollars in thousands):
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Reporting Segment
|
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Ownership
Interest
|
|
Investment at June 30, 2017
|
|
Investment at December 31, 2016
|
Prosperity Metro Plaza
|
Northern Virginia
|
|
51%
|
|
$
|
27,165
|
|
|
$
|
26,414
|
|
1750 H Street, NW
|
Washington, D.C.
|
|
50%
|
|
14,198
|
|
|
14,624
|
|
Aviation Business Park
(1)
|
Maryland
|
|
50%
|
|
—
|
|
|
5,941
|
|
Rivers Park I and II
(1)(2)
|
Maryland
|
|
25%
|
|
—
|
|
|
2,413
|
|
|
|
|
|
|
$
|
41,363
|
|
|
$
|
49,392
|
|
(1)
The unconsolidated joint ventures that owned Aviation Business Park and Rivers Park I and II sold these properties on
March 7, 2017
. During the three months ended June 30, 2017, we recognized a nominal loss from these properties, which was primarily due to a true-up of accrued liabilities subsequent to the sale of the properties. We anticipate a final true-up of all existing liabilities and a final distribution of any remaining cash to occur in the third quarter of 2017.
|
|
(2)
|
Rivers Park I and Rivers Park II were owned through two separate unconsolidated joint ventures.
|
The following table provides a summary of the mortgage debt held by our unconsolidated joint ventures (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FPO Ownership
|
|
Effective Interest Rate
|
|
Maturity Date
|
|
Principal Balance at June 30, 2017
(1)
|
|
Principal Balance at December 31, 2016
(1)
|
Rivers Park I and II
(2)
|
|
25%
|
|
LIBOR + 1.90%
(3)
|
|
September 2017
|
|
$
|
—
|
|
|
$
|
28,000
|
|
1750 H Street, NW
(4)
|
|
50%
|
|
3.92%
|
|
August 2024
|
|
32,000
|
|
|
32,000
|
|
Prosperity Metro Plaza
(5)
|
|
51%
|
|
3.91%
|
|
December 2029
|
|
50,000
|
|
|
50,000
|
|
Weighted Average / Total
|
|
|
|
3.91%
|
|
|
|
$
|
82,000
|
|
|
$
|
110,000
|
|
|
|
(1)
|
Reflects the entire balance of the debt secured by the properties, not our portion of the debt.
|
|
|
(2)
|
The unconsolidated joint ventures that owned Rivers Park I and II sold these properties on
March 7, 2017
. The unconsolidated joint venture partners used net proceeds from the sale to repay the mortgage debt encumbering the properties. At December 31, 2016,
$2.8 million
of the outstanding mortgage balance was recourse to us.
|
|
|
(3)
|
At
June 30, 2017
, LIBOR was
1.22%
. All references to LIBOR in the condensed consolidated financial statements refer to one-month LIBOR.
|
|
|
(4)
|
The loan requires interest-only payments with a constant interest rate over the life of the loan. The loan is repayable in full, without penalty, on or after August 1, 2021.
|
|
|
(5)
|
The loan requires interest-only payments through December 2024, at which time the loan requires principal and interest payments through its maturity date. The loan is repayable in full, without penalty, on or after June 1, 2029.
|
The net assets of our unconsolidated joint ventures consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Assets:
|
|
|
|
Rental property, net
|
$
|
143,184
|
|
|
$
|
189,245
|
|
Cash and cash equivalents
|
9,786
|
|
|
9,887
|
|
Other assets
|
16,509
|
|
|
20,726
|
|
Total assets
|
169,479
|
|
|
219,858
|
|
Liabilities:
|
|
|
|
Mortgage loans, net
(1)(2)
|
81,431
|
|
|
109,372
|
|
Other liabilities
|
7,608
|
|
|
8,674
|
|
Total liabilities
|
89,040
|
|
|
118,046
|
|
Net assets
|
$
|
80,439
|
|
|
$
|
101,812
|
|
|
|
(1)
|
Of the total mortgage debt that encumbers our unconsolidated properties,
none
was recourse to us at June 30, 2017 and
$2.8 million
was recourse to us at December 31, 2016.
|
|
|
(2)
|
Mortgage loans, net at both
June 30, 2017
and
December 31, 2016
included
$0.6 million
of unamortized deferred financing costs
|
Our share of earnings or losses related to our unconsolidated joint ventures is recorded in our consolidated statements of operations as “Equity in earnings of affiliates.” The following table summarizes the results of operations of our unconsolidated joint ventures for the periods presented, of which, our proportionate share is reflected in “Equity in earnings of affiliates” in our
consolidated statements of operations based on our varying ownership interests in the unconsolidated joint ventures (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Total revenues
|
$
|
4,679
|
|
|
$
|
6,240
|
|
|
$
|
10,357
|
|
|
$
|
12,529
|
|
Total operating expenses
|
(1,562
|
)
|
|
(1,814
|
)
|
|
(3,499
|
)
|
|
(3,980
|
)
|
Net operating income
|
3,117
|
|
|
4,426
|
|
|
6,858
|
|
|
8,549
|
|
Depreciation and amortization
|
(1,382
|
)
|
|
(2,006
|
)
|
|
(3,245
|
)
|
|
(3,972
|
)
|
Interest expense, net
|
(817
|
)
|
|
(997
|
)
|
|
(1,778
|
)
|
|
(1,989
|
)
|
Gain on sale of rental property
|
—
|
|
|
—
|
|
|
10,324
|
|
|
—
|
|
Net income
|
$
|
918
|
|
|
$
|
1,423
|
|
|
$
|
12,159
|
|
|
$
|
2,588
|
|
The following table summarizes the results of operations of Aviation Business Park and Rivers Park I and II, which were sold in March 2017, of which, our proportionate share is reflected in “Equity in earnings of affiliates” in our consolidated statements of operations based on our varying ownership interests in the unconsolidated joint ventures that owned the respective properties (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Total revenues
|
$
|
—
|
|
|
$
|
1,579
|
|
|
$
|
1,113
|
|
|
$
|
3,210
|
|
Total operating expenses
|
(70
|
)
|
|
(412
|
)
|
|
(342
|
)
|
|
(1,054
|
)
|
Net operating (loss) income
|
(70
|
)
|
|
1,167
|
|
|
771
|
|
|
2,156
|
|
Depreciation and amortization
|
—
|
|
|
(666
|
)
|
|
(420
|
)
|
|
(1,309
|
)
|
Interest expense, net
|
1
|
|
|
(180
|
)
|
|
(146
|
)
|
|
(354
|
)
|
(Loss) income from operations of disposed properties
|
(69
|
)
|
|
321
|
|
|
205
|
|
|
493
|
|
Gain on sale of rental property
|
—
|
|
|
—
|
|
|
10,324
|
|
|
—
|
|
Net (loss) income
|
$
|
(69
|
)
|
|
$
|
321
|
|
|
$
|
10,529
|
|
|
$
|
493
|
|
We earn various fees from several of our joint ventures, which include management fees, leasing commissions and construction management fees. We recognize fees only to the extent of the third party ownership interest in our unconsolidated joint ventures. We recognized fees from our unconsolidated joint ventures of
$0.2 million
and
$0.3 million
for the three and six months ended June 30, 2017, respectively, and
$0.2 million
and
$0.4 million
for the three and six months ended June 30, 2016, respectively, which are reflected within “Tenant reimbursements and other revenues” on our consolidated statements of operations.
(
6
) Dispositions
We will report a disposed or held-for-sale property or group of properties in discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on our operations and financial results. All other disposed properties will have their operating results reflected within continuing operations on our consolidated statements of operations for all periods presented.
We have had, and will have, no continuing involvement with any of our disposed properties subsequent to their disposal. The operations of the disposed properties were not subject to any income based taxes. Other than the properties discussed below in this note
6
,
Dispositions
, and in note
5
,
Investment in Affiliates
, we did not dispose of or enter into any agreements to sell any other properties during the three and six months ended
June 30, 2017
and
2016
.
Disposed or Held-for-Sale Properties within Continuing Operations
The following table is a summary of property dispositions whose operating results are included in continuing operations in our consolidated statements of operations for the periods presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Property
|
Reporting
Segment
|
Disposition Date
|
Property Type
|
Square Feet
|
Net Sale Proceeds
|
Plaza 500
|
Northern Virginia
|
2/17/2017
|
Industrial
|
502,830
|
|
$
|
72,499
|
|
One Fair Oaks
(1)
|
Northern Virginia
|
1/9/2017
|
Office
|
214,214
|
|
13,255
|
|
Storey Park
(2)
|
Washington, D.C.
|
7/25/2016
|
Land
|
—
|
|
52,659
|
|
NOVA Non-Core Portfolio
(3)
|
Northern Virginia
|
3/25/2016
|
Various
|
945,745
|
|
90,501
|
|
|
|
(1)
|
One Fair Oaks was classified as held-for-sale at December 31, 2016, and the building was vacant at the time of sale.
|
|
|
(2)
|
This development site could have supported up to
712,000
rentable square feet.
|
|
|
(3)
|
Consists of Van Buren Office Park, Herndon Corporate Center, Windsor at Battlefield, Reston Business Campus, Enterprise Center, Gateway Centre Manassas, Linden Business Center and Prosperity Business Center (collectively, the “NOVA Non-Core Portfolio”).
|
One Fair Oaks met our held-for-sale criteria at December 31, 2016 and, therefore, the assets of the building were classified within “Assets-held-for-sale” on our consolidated balance sheet at December 31, 2016. The assets classified within held-for-sale as of December 31, 2016 primarily consisted of $
17.6 million
in building and building improvements, $
1.6 million
of land, and $
6.0 million
of accumulated depreciation. No material liabilities were classified as held-for-sale at December 31, 2016.
The following table summarizes the aggregate results of operations for the disposed or held-for-sale properties that are included in continuing operations for the periods presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues
|
$
|
—
|
|
|
$
|
3,605
|
|
|
$
|
804
|
|
|
$
|
10,648
|
|
Property operating expenses
|
—
|
|
|
(1,341
|
)
|
|
(304
|
)
|
|
(4,163
|
)
|
Depreciation and amortization
|
—
|
|
|
(1,236
|
)
|
|
(289
|
)
|
|
(2,579
|
)
|
Interest expense
|
—
|
|
|
(208
|
)
|
|
—
|
|
|
(392
|
)
|
Loss on debt extinguishment
|
—
|
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
Impairment of rental property
(1)
|
—
|
|
|
(2,772
|
)
|
|
—
|
|
|
(2,772
|
)
|
(Loss) income from operations of disposed property
|
—
|
|
|
(1,952
|
)
|
|
211
|
|
|
694
|
|
Gain (loss) on sale of rental property
(2)
|
—
|
|
|
—
|
|
|
42,799
|
|
|
(1,155
|
)
|
Net (loss) income from continuing operations
|
$
|
—
|
|
|
$
|
(1,952
|
)
|
|
$
|
43,010
|
|
|
$
|
(461
|
)
|
(1)
During the second quarter of 2016, we recorded an impairment charge related to Storey Park based on the anticipated sales price less estimated selling costs. The property was sold on July 25, 2016.
(2)
During the first quarter of 2017, we recorded a $
0.1 million
gain on the sale of One Fair Oaks and a
$42.7 million
gain on the sale of Plaza 500. During the first quarter of 2016, we recorded a
$1.2 million
loss on the sale of the NOVA Non-Core Portfolio.
(
7
) Debt
Our debt consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2017
(1)
|
|
December 31,
2016
(1)
|
Mortgage loans, net, effective interest rates ranging from 4.22% to 6.01%, maturing at various dates through September 2030
(2)(3)
|
$
|
271,720
|
|
|
$
|
296,212
|
|
Unsecured term loan, net, effective interest rates ranging from LIBOR plus 1.45% to LIBOR plus 1.80%, with staggered maturity dates ranging from December 2020 to December 2022
(2)
|
299,462
|
|
|
299,404
|
|
Unsecured revolving credit facility, net, effective interest rate of LIBOR plus 1.50%, maturing December 2019
(2)
|
73,958
|
|
|
141,555
|
|
Total
|
$
|
645,140
|
|
|
$
|
737,171
|
|
|
|
(1)
|
The balances include a total of
$5.4 million
and
$6.2 million
of unamortized deferred financing costs at
June 30, 2017
and
December 31, 2016
, respectively.
|
|
|
(2)
|
At
June 30, 2017
, LIBOR was
1.22%
.
|
|
|
(3)
|
The balance at June 30, 2017 includes one construction loan and the balance at December 31, 2016 includes two construction loans.
|
(a) Mortgage Loans
The following table provides a summary of our mortgage debt, which includes construction loans (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Encumbered Property
|
|
Contractual
Interest Rate
|
|
Effective
Interest
Rate
|
|
Maturity
Date
|
|
June 30,
2017
|
|
December 31, 2016
|
440 First Street, NW Construction Loan
(1)(2)
|
|
LIBOR + 2.50%
|
|
|
LIBOR + 2.50%
|
|
|
May 2017
|
|
$
|
—
|
|
|
$
|
32,216
|
|
Redland II and III
|
|
4.20
|
%
|
|
4.64
|
%
|
|
November 2017
|
|
62,529
|
|
|
63,214
|
|
Northern Virginia Construction Loan
(1)(3)
|
|
LIBOR + 1.85%
|
|
|
LIBOR + 1.85%
|
|
|
September 2019
|
|
43,700
|
|
|
34,584
|
|
840 First Street, NE
|
|
5.72
|
%
|
|
6.01
|
%
|
|
July 2020
|
|
34,843
|
|
|
35,201
|
|
Battlefield Corporate Center
|
|
4.26
|
%
|
|
4.40
|
%
|
|
November 2020
|
|
3,264
|
|
|
3,353
|
|
1211 Connecticut Avenue, NW
|
|
4.22
|
%
|
|
4.47
|
%
|
|
July 2022
|
|
28,190
|
|
|
28,503
|
|
1401 K Street, NW
|
|
4.80
|
%
|
|
4.93
|
%
|
|
June 2023
|
|
35,209
|
|
|
35,556
|
|
11 Dupont Circle, NW
|
|
4.05
|
%
|
|
4.22
|
%
|
|
September 2030
|
|
66,780
|
|
|
66,780
|
|
Principal balance
|
|
|
|
4.54
|
%
|
(4)
|
|
|
274,515
|
|
|
299,407
|
|
Unamortized deferred financing costs
|
|
|
|
|
|
|
|
(2,795
|
)
|
|
(3,195
|
)
|
Total balance, net
|
|
|
|
|
|
|
|
$
|
271,720
|
|
|
$
|
296,212
|
|
|
|
(1)
|
At
June 30, 2017
, LIBOR was
1.22%
.
|
|
|
(2)
|
On
May 23, 2017
, we used a
$32.0 million
draw under the unsecured revolving credit facility and available cash to repay, without penalty, the construction loan encumbering 440 First Street, NW.
|
|
|
(3)
|
This construction loan has a borrowing capacity of up to
$43.7 million
and is collateralized by the NOVA build-to-suit, which was placed in-service in the third quarter of 2016. We can repay all or a portion of the Northern Virginia Construction Loan, without penalty, at any time during the term of the loan.
|
|
|
(4)
|
Represents the weighted average interest rate on total mortgage debt.
|
(b) Unsecured Term Loan and Unsecured Revolving Credit Facility
The table below shows the outstanding balances and the interest rates of the
three
tranches of the
$300.0 million
unsecured term loan and the unsecured revolving credit facility at
June 30, 2017
and December 31, 2016 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Date
|
|
Interest Rate
(1)
|
|
June 30, 2017
|
|
December 31, 2016
|
Unsecured Term Loan
|
|
|
|
|
|
|
|
Tranche A
|
December 2020
|
|
LIBOR + 1.45%
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Tranche B
|
June 2021
|
|
LIBOR + 1.45%
|
|
100,000
|
|
|
100,000
|
|
Tranche C
|
December 2022
|
|
LIBOR + 1.80%
|
|
100,000
|
|
|
100,000
|
|
Total
|
|
|
|
|
300,000
|
|
|
300,000
|
|
Unamortized deferred financing costs
|
|
|
|
|
(538
|
)
|
|
(596
|
)
|
Total, net
|
|
|
|
|
$
|
299,462
|
|
|
$
|
299,404
|
|
|
|
|
|
|
|
|
|
Unsecured Revolving Credit Facility
|
|
|
|
|
|
|
|
Outstanding borrowings
|
December 2019
(2)
|
|
LIBOR + 1.50%
(3)
|
|
$
|
76,000
|
|
|
$
|
144,000
|
|
Unamortized deferred financing costs
|
|
|
|
|
(2,042
|
)
|
|
(2,445
|
)
|
Total, net
|
|
|
|
|
$
|
73,958
|
|
|
$
|
141,555
|
|
|
|
(1)
|
Reflects the interest rate spreads at
June 30, 2017
. At
June 30, 2017
, LIBOR was
1.22%
. The interest rate spread is subject to change based on our maximum total indebtedness ratio. For more information, see note
7
(
d
),
Debt – Financial Covenants
.
|
|
|
(2)
|
The maturity date of the unsecured revolving credit facility may be extended for two, six-month terms at our option.
|
|
|
(3)
|
At
June 30, 2017
, our outstanding borrowings under the unsecured revolving credit facility had a weighted average interest rate of
2.7%
.
|
During the three months ended June 30, 2017, we used a draw on the Northern Virginia Construction Loan to repay
$12.0 million
of the outstanding balance under our unsecured revolving credit facility. During the three months ended June 30, 2017, we borrowed
$32.0 million
under the unsecured revolving credit facility, together with available cash, to repay the 440 First Street, NW Construction Loan and borrowed
$5.0 million
for general corporate purposes.
For the
three and six
months ended
June 30, 2017
, our weighted average borrowings outstanding under the unsecured revolving credit facility were
$66.1 million
and
$81.3 million
, respectively, with a weighted average interest rate of
2.5%
and
2.4%
, respectively. For the three and six months ended June 30, 2016, our weighted average borrowings outstanding under the unsecured revolving credit facility were
$162.3 million
and
$165.9 million
, respectively, with a weighted average interest rate of
1.8%
and
1.9%
, respectively. Our maximum outstanding borrowings were
$88.0 million
and
$144.0 million
for the three and six months ended June 30, 2017, respectively, and
$204.0 million
for both the three and six months ended June 30, 2016.
As of the date of this filing, we had
$72.0 million
outstanding and
$169.3 million
available capacity under the unsecured revolving credit facility. We are required to pay a commitment fee at an annual rate of
0.15%
of the unused capacity if our usage exceeds 50% of our total capacity under the revolving credit facility, or
0.25%
if our usage does not exceed 50%.
(c) Interest Rate Swap Agreements
At
June 30, 2017
, we had
nine
interest rate swap agreements outstanding that collectively fixed LIBOR, at a weighted average interest rate of
1.4%
, on
$240.0 million
of our variable rate debt. On
July 18, 2017
, five swaps that together fixed LIBOR, at a weighted average interest rate of
1.5%
, on
$147.5 million
of our variable rate date expired. See note
8
,
Derivative Instruments
, for more information about our interest rate swap agreements.
(
d
) Financial Covenants
The credit agreement governing our unsecured revolving credit facility and unsecured term loan contains various restrictive covenants, including with respect to liens, indebtedness, investments, distributions, mergers and asset sales. The agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations under the agreement to be immediately due and payable.
Our outstanding corporate debt agreements contain specific financial covenants that may impact future financing decisions made by us or may be impacted by a decline in operations. These covenants relate to our allowable leverage, minimum tangible net worth, fixed charge coverage and other financial metrics. As of
June 30, 2017
, we were in compliance with the covenants of our amended, restated and consolidated unsecured revolving credit facility and unsecured term loan and the Northern Virginia Construction Loan.
Our continued ability to borrow under the unsecured revolving credit facility is subject to compliance with financial and operating covenants, and a failure to comply with any of these covenants could result in a default under the credit facility. These debt agreements also contain cross-default provisions that would be triggered if we were in default under other loans, including mortgage loans, in excess of certain amounts. In the event of a default, the lenders could accelerate the timing of payments under the debt obligations and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on our liquidity, financial condition, results of operations and ability to make distributions to our shareholders.
Our unsecured revolving credit facility and unsecured term loan are subject to interest rate spreads that float based on the quarterly measurement of our maximum consolidated total indebtedness to gross asset value ratio. Based on our leverage ratio at June 30, 2017, the applicable interest rate spreads on the unsecured revolving credit facility and the unsecured term loan will remain unchanged.
(
8
) Derivative Instruments
We are exposed to certain risks arising from business operations and economic factors. We use derivative financial instruments to manage exposures that arise from business activities in which our future exposure to interest rate fluctuations is unknown. The objective in the use of an interest rate derivative is to add stability to interest expenses and manage exposure to interest rate changes. We do not use derivatives for trading or speculative purposes and we intend to enter into derivative agreements only with counterparties that we believe have a strong credit rating to mitigate the risk of counterparty default or insolvency. No hedging activity can completely insulate us from the risks associated with changes in interest rates. Moreover, interest rate hedging could fail to protect us or adversely affect us because, among other things:
|
|
•
|
available interest rate hedging may not correspond directly with the interest rate risk for which we seek protection;
|
|
|
•
|
the duration of the hedge may not match the duration of the related liability;
|
|
|
•
|
the party owing money in the hedging transaction may default on its obligation to pay; and
|
|
|
•
|
the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign its side of the hedging transaction.
|
We enter into interest rate swap agreements to hedge our exposure on our variable rate debt against fluctuations in prevailing interest rates. The interest rate swap agreements fix LIBOR to a specified interest rate; however, the swap agreements do not affect the contractual spreads associated with each variable debt instrument’s applicable interest rate.
At
June 30, 2017
, we had
nine
interest rate swap agreements outstanding that collectively fixed LIBOR, at a weighted average interest rate of
1.4%
, on
$240.0 million
of our variable rate debt. Our interest rate swap agreements are summarized below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Maturity Date
|
|
Notional
Amount
|
|
Interest Rate
Contractual
Component
|
|
Fixed LIBOR
Interest Rate
|
July 2017
|
|
$
|
30,000
|
|
|
LIBOR
|
|
2.093
|
%
|
July 2017
|
|
30,000
|
|
|
LIBOR
|
|
2.093
|
%
|
July 2017
|
|
25,000
|
|
|
LIBOR
|
|
1.129
|
%
|
July 2017
|
|
12,500
|
|
|
LIBOR
|
|
1.129
|
%
|
July 2017
|
|
50,000
|
|
|
LIBOR
|
|
0.955
|
%
|
July 2018
|
|
12,500
|
|
|
LIBOR
|
|
1.383
|
%
|
July 2018
|
|
30,000
|
|
|
LIBOR
|
|
1.660
|
%
|
July 2018
|
|
25,000
|
|
|
LIBOR
|
|
1.394
|
%
|
July 2018
|
|
25,000
|
|
|
LIBOR
|
|
1.135
|
%
|
Total/Weighted Average
|
|
$
|
240,000
|
|
|
|
|
1.442
|
%
|
On
July 18, 2017
, five swaps that together fixed LIBOR at a weighted average interest rate of
1.5%
, on
$147.5 million
of our variable rate date expired.
Our interest rate swap agreements are designated as cash flow hedges and we record the effective portion of any unrealized gains associated with the change in fair value of the swap agreements within “Accumulated other comprehensive loss” and “Prepaid expenses and other assets” and the effective portion of any unrealized losses within “Accumulated other comprehensive loss” and “Accounts payable and other liabilities” on our consolidated balance sheets. We record any gains or losses incurred as a result of each interest rate swap agreement’s fixed rate deviating from our respective loan’s contractual rate within “Interest expense” in our consolidated statements of operations. We did not have any material ineffectiveness associated with our cash flow hedges during the three and six months ended
June 30, 2017
and
2016
.
Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to “Interest expense” on our consolidated statements of operations as interest payments are made on our variable-rate debt. We reclassified accumulated other comprehensive losses as an increase to interest expense of
$0.3 million
and
$0.6 million
for the three and six months ended June 30, 2017, respectively, and
$0.8 million
and
$1.6 million
for the three and six months ended June 30, 2016, respectively. As of
June 30, 2017
, we estimated that
$0.1 million
of our accumulated other comprehensive loss will be reclassified as an increase to interest expense over the following twelve months.
(
9
) Fair Value Measurements
Our application of GAAP outlines a valuation framework and creates a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and a reporting entity’s own assumptions about market data (unobservable inputs). The required disclosures increase the consistency and comparability of fair value measurements and the related disclosures. Fair value is identified, under the standard, as the price that would be received to sell an asset or paid to transfer a liability between willing third parties at the measurement date (an exit price). In accordance with GAAP, certain assets and liabilities must be measured at fair value, and we provide the necessary disclosures that are required for items measured at fair value as outlined in the accounting requirements regarding fair value.
Financial assets and liabilities, as well as those non-financial assets and liabilities requiring fair value measurement, are measured using inputs from three levels of the fair value hierarchy.
The three levels are as follows:
Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable
for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs, only used to the extent that observable inputs are not available, reflect our assumptions about the pricing of an asset or liability.
In accordance with accounting provisions and the fair value hierarchy described above, the following table shows the fair value of our consolidated assets and liabilities that are measured on a non-recurring and recurring basis as of
June 30, 2017
and
December 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
June 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Recurring Measurements:
|
|
|
|
|
|
|
|
Derivative instrument-swap assets
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
70
|
|
|
$
|
—
|
|
Derivative instrument-swap liabilities
|
123
|
|
|
—
|
|
|
123
|
|
|
—
|
|
|
Balance at
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Recurring Measurements:
|
|
|
|
|
|
|
|
Derivative instrument-swap liabilities
|
$
|
906
|
|
|
$
|
—
|
|
|
$
|
906
|
|
|
$
|
—
|
|
We did not re-measure or complete any transactions involving non-financial assets or non-financial liabilities that are measured at fair value on a recurring basis during the six months ended
June 30, 2017
and
2016
. Also, no transfers into or out of fair value measurement levels for assets or liabilities that are measured on a recurring basis occurred during the six months ended
June 30, 2017
and
2016
.
Impairment of Rental Property
We regularly review market conditions for possible impairment of a property’s carrying value. When circumstances such
as adverse market conditions, changes in management’s intended holding period or potential sale to a third party indicate a possible impairment of a property, an impairment analysis is performed.
On
July 25, 2016
, we sold Storey Park, a development site located in our Washington, D.C. reporting segment. The property was classified as held-for-sale on our consolidated balance sheet at June 30, 2016, and during the second quarter of 2016, we recorded an impairment charge of
$2.8 million
related to the property based on the anticipated sales price, less estimated selling costs. See note
6
,
Dispositions,
for more information.
Interest Rate Derivatives
At
June 30, 2017
, we had hedged
$240.0 million
of our variable rate debt through
nine
interest rate swap agreements. On
July 18, 2017
, five swaps that together fixed LIBOR, at a weighted average interest rate of
1.5%
, on
$147.5 million
of our variable rate date expired. See note
8
,
Derivative Instruments
, for more information about our interest rate swap agreements.
The interest rate derivatives are fair valued based on prevailing market yield curves on the measurement date and also incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting any applicable credit enhancements, such as collateral postings, thresholds, mutual inputs and guarantees. We use a third party to assist in valuing our interest rate swap agreements. A daily “snapshot” of the market is taken to obtain close of business rates. The snapshot includes over
7,500
rates including LIBOR fixings, Eurodollar futures, swap rates, exchange rates, treasuries, etc. This market data is obtained via direct feeds from Bloomberg and Reuters and from Inter-Dealer Brokers. The selected rates are compared to their historical values. Any rate that has changed by more than normal mean and related standard deviation would be considered an outlier and flagged for further investigation. The rates are then compiled through a valuation process that generates daily valuations, which are used to value our interest rate swap agreements. Our interest rate swap derivatives are effective cash flow hedges and the effective portion of the change in fair value is recorded in the equity section of our consolidated balance sheets as “Accumulated other comprehensive loss.”
Financial Instruments
The carrying amounts of cash equivalents, accounts and other receivables, accounts payable and other liabilities, with the exception of any items listed above, approximate their fair values due to their short-term maturities. We determine the fair value of our debt instruments by discounting future contractual principal and interest payments using prevailing market rates for securities with similar terms and characteristics at the balance sheet date. We deem the fair value measurement of our debt instruments as a Level 2 measurement as we use quoted interest rates for similar debt instruments to value our debt instruments.
The carrying amount and estimated fair value of our debt instruments are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Carrying
Value
(1)
|
|
Fair
Value
|
|
Carrying
Value
(1)
|
|
Fair
Value
|
Financial Liabilities:
|
|
|
|
|
|
|
|
Mortgage debt
|
$
|
274,515
|
|
|
$
|
274,716
|
|
|
$
|
299,407
|
|
|
$
|
300,927
|
|
Unsecured term loan
|
300,000
|
|
|
300,000
|
|
|
300,000
|
|
|
300,000
|
|
Unsecured revolving credit facility
|
76,000
|
|
|
76,000
|
|
|
144,000
|
|
|
144,000
|
|
Total
|
$
|
650,515
|
|
|
$
|
650,716
|
|
|
$
|
743,407
|
|
|
$
|
744,927
|
|
|
|
(1)
|
The debt balances exclude a combined total of
$5.4 million
and
$6.2 million
of unamortized deferred financing costs at
June 30, 2017
and December 31, 2016, respectively.
|
(10) Equity
In December 2015, our Board of Trustees authorized the redemption of some or all of our
6.4 million
outstanding
7.750%
Series A Preferred Shares. On
January 19, 2016
and
April 27, 2016
, we used proceeds from dispositions to redeem
2.2 million
shares and
3.6 million
shares, respectively, of our
7.750%
Series A Preferred Shares at a redemption price of
$25.00
per share, plus accrued dividends up to the applicable dates of redemption. On
July 6, 2016
, we used proceeds from the repayment of a mezzanine loan to redeem the remaining
0.6 million
outstanding shares of our
7.750%
Series A Preferred Shares at a redemption price of
$25.00
per share, plus accrued dividends up to the date of redemption. The
7.750%
Series A Preferred Shares (NYSE: FPO-PA) were delisted from trading on the New York Stock Exchange upon redemption of the remaining
0.6 million
outstanding shares on
July 6, 2016
.
We record dividends on non-vested share awards as a reduction of shareholders’ equity. Dividends paid on non-vested share awards that subsequently do not vest are recorded as compensation expense in the period in which they are forfeited or expire. For each dividend paid by us on our common shares and, when applicable, preferred shares, the Operating Partnership distributes an equivalent distribution on our common and preferred Operating Partnership units, respectively.
On
April 25, 2017
, we declared a dividend of
$0.10
per common share. The dividend was paid on
May 15, 2017
to common shareholders of record as of
May 8, 2017
.
Pursuant to the terms of the merger agreement in connection with the Transaction, the Company has agreed that it will not pay regular, quarterly distributions to the holders of the Company’s common shares prior to the date of Transaction, except to the extent that dividends and other distributions are necessary for both the Company and its REIT subsidiary to maintain their status as a REIT. Any payment of dividends prior to the completion of the Transaction will result in a corresponding reduction in the
$11.15
per share merger consideration.
Our unsecured revolving credit facility and unsecured term loan and the Northern Virginia Construction Loan contain certain restrictions that include, among other things, requirements to maintain specified coverage ratios and other financial covenants, which may limit our ability to make distributions to our common and preferred shareholders, except for distributions required to maintain our qualification as a REIT.
As a result of the redemption feature of the Operating Partnership units, the noncontrolling interests associated with the Operating Partnership are recorded outside of permanent equity. Our equity and redeemable noncontrolling interests are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
Redeemable
noncontrolling
interests
|
Balance at December 31, 2016
|
$
|
436,383
|
|
|
$
|
28,244
|
|
Net income
|
40,439
|
|
|
1,762
|
|
Changes in ownership, net
|
2,330
|
|
|
(895
|
)
|
Distributions to owners
|
(11,643
|
)
|
|
(509
|
)
|
Other comprehensive income, net
|
817
|
|
|
35
|
|
Balance at June 30, 2017
|
$
|
468,326
|
|
|
$
|
28,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Potomac
Realty Trust
|
|
Non-redeemable
noncontrolling
interests
(1)
|
|
Total Equity
|
|
Redeemable
noncontrolling
interests
|
Balance at December 31, 2015
|
$
|
624,528
|
|
|
$
|
800
|
|
|
$
|
625,328
|
|
|
$
|
28,813
|
|
Net loss
|
(1,556
|
)
|
|
(110
|
)
|
|
(1,666
|
)
|
|
(427
|
)
|
Changes in ownership, net
|
(141,506
|
)
|
|
—
|
|
|
(141,506
|
)
|
|
(1,417
|
)
|
Distributions to owners
|
(18,953
|
)
|
|
—
|
|
|
(18,953
|
)
|
|
(651
|
)
|
Other comprehensive loss, net
|
(632
|
)
|
|
—
|
|
|
(632
|
)
|
|
(28
|
)
|
Balance at June 30, 2016
|
$
|
461,881
|
|
|
$
|
690
|
|
|
$
|
462,571
|
|
|
$
|
26,290
|
|
|
|
(1)
|
Our
97%
owned consolidated joint venture sold Storey Park on
July 25, 2016
, at which time all assets and liabilities owned by the joint venture were either sold or settled at the time of disposition and the remaining proceeds from the sale were distributed to the joint venture partners in accordance with the terms of the joint venture agreement. See note
6
,
Dispositions
, for more information.
|
A summary of our accumulated other comprehensive loss is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Beginning balance at January 1,
|
$
|
(844
|
)
|
|
$
|
(2,360
|
)
|
Net unrealized gain (loss) on derivative instruments
|
852
|
|
|
(660
|
)
|
Net (gain) loss attributable to noncontrolling interests
|
(35
|
)
|
|
28
|
|
Ending balance at June 30,
|
$
|
(27
|
)
|
|
$
|
(2,992
|
)
|
(11) Noncontrolling Interests
(a) Noncontrolling Interests in the Operating Partnership
Noncontrolling interests relate to the common interests in the Operating Partnership not owned by us. Interests in the Operating Partnership are owned by limited partners who contributed buildings and other assets to the Operating Partnership in exchange for common Operating Partnership units. Limited partners have the right to tender their units for redemption in exchange for, at our option, our common shares on a one-for-one basis or cash based on the fair value of our common shares at the date of redemption. Unitholders receive a distribution per unit equivalent to the dividend per common share. Differences between amounts paid to redeem noncontrolling interests and their carrying values are charged or credited to equity. As a result of the redemption feature of the Operating Partnership units, the noncontrolling interests are recorded outside of permanent equity.
Noncontrolling interests are presented at the greater of their fair value or their cost basis, which is comprised of their fair value at issuance, subsequently adjusted for the noncontrolling interests’ share of net income or losses available to common shareholders, other comprehensive income or losses, distributions received or additional contributions. We account for issuances of common Operating Partnership units individually, which could result in some portion of our noncontrolling interests being carried at fair value with the remainder being carried at historical cost. Based on the closing price of our common shares at
June 30, 2017
, the cost to acquire, through cash purchase or issuance of our common shares, all of the outstanding common Operating Partnership units not owned by us would be
$28.3 million
. At
June 30, 2017
and
December 31, 2016
, we recorded adjustments of
$5.2 million
and
$6.1 million
, respectively, to present certain common Operating Partnership units at the greater of their carrying value or redemption value.
At
June 30, 2017
,
2,545,602
of the total common Operating Partnership units, or
4.2%
, were not owned by us. During the six months ended
June 30, 2017
, no common Operating Partnership units were redeemed with available cash. During the six months ended June 30,
2016
,
41,591
common Operating Partnership units were redeemed with available cash.
No
common Operating Partnership units were redeemed for common shares during the six months ended
June 30, 2017
or
2016
.
(b) Noncontrolling Interests in a Consolidated Partnership
When we are deemed to have a controlling interest in a partially-owned entity, we will consolidate all of the entity’s assets, liabilities and operating results within our condensed consolidated financial statements. The net assets contributed to the consolidated entity by the third party, if any, will be reflected within permanent equity in our consolidated balance sheets to the extent they are not mandatorily redeemable. The amount will be recorded based on the third party’s initial investment in the consolidated entity and will be adjusted to reflect the third party’s share of earnings or losses in the consolidated entity and any distributions received or additional contributions made by the third party. The earnings or losses from the entity attributable to the third party are recorded as a component of “Net loss (income) attributable to noncontrolling interests” on our consolidated statements of operations.
On August 4, 2011, we formed a joint venture, in which we had a
97%
interest, with an affiliate of Perseus Realty, LLC to acquire Storey Park in our Washington, D.C. reporting segment, which was placed into development in August 2013. Storey Park was sold
July 25, 2016
, at which time all assets and liabilities owned by the joint venture were either sold or settled at the time of disposition and the remaining proceeds from the sale were distributed to the joint venture partners in accordance with the terms of the joint venture agreement. See note
6
,
Dispositions
, for more information.
(12) Share-Based Payments
We record costs related to our share-based compensation based on the grant date fair value calculated in accordance with GAAP. We recognize share-based compensation costs on a straight-line basis over the requisite service period for each award and these costs are recorded within “General and administrative expense” or “Property operating expense” in our consolidated statements of operations based on the employee’s job function.
Non-Vested Share Awards
We issue non-vested common share awards that either vest over a specific time period that is identified at the time of issuance or vest upon the achievement of specific performance goals that are identified at the time of issuance. We issue new common shares, subject to restrictions, upon each grant of non-vested common share awards. In May 2017, we granted a total of
25,090
non-vested common shares to our non-employee trustees. The awards will vest on the earlier of May 23, 2018, the date of our 2018 annual meeting of shareholders or the closing of the Transaction, subject to continued service by the trustee until such date.
We recognized compensation expense associated with all of our non-vested common share awards of
$0.8 million
and
$1.6 million
during the
three and six
months ended
June 30, 2017
, respectively, compared with
$0.5 million
and
$0.9 million
during the three and six months ended June 30, 2016, respectively. Dividends on all non-vested common share awards are recorded as a reduction of equity. We apply the two-class method for determining EPS as our outstanding non-vested common shares with non-forfeitable dividend rights are considered participating securities. Our excess of distributions over earnings related to participating securities is shown as a reduction in total earnings attributable to common shareholders in our computation of EPS.
A summary of our non-vested common share awards at
June 30, 2017
is as follows:
|
|
|
|
|
|
|
|
|
Non-vested
Common
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
Non-vested at March 31, 2017
|
1,046,860
|
|
|
$
|
9.23
|
|
Granted
|
25,090
|
|
|
10.96
|
|
Vested
|
(45,378
|
)
|
|
9.45
|
|
Forfeited
|
(495
|
)
|
|
11.03
|
|
Non-vested at June 30, 2017
|
1,026,077
|
|
|
$
|
9.27
|
|
We valued the non-vested common shares granted to our non-employee trustees in May 2017 at the grant date fair value, which is the market price of our common shares. As of
June 30, 2017
, we had
$7.1 million
of unrecognized compensation cost related to non-vested common shares. We anticipate this cost will be recognized over a weighted-average period of
2.9
years.
(13) Segment Information
Our reportable segments consist of
four
distinct reporting and operational segments within the greater Washington, D.C. region in which we operate: Washington, D.C., Maryland, Northern Virginia and Southern Virginia. We evaluate the performance of our segments based on the operating results of the properties located within each segment, which excludes large non-recurring gains and losses, gains or losses from sale of rental property, interest expense, general and administrative costs, acquisition costs or any other indirect corporate expense to the segments. In addition, the segments do not have significant non-cash items in their operating results other than the impact of straight-line revenue and the amortization of deferred market rents, deferred lease incentives and deferred tenant improvement reimbursements. There are no inter-segment sales or transfers recorded between segments.
The results of operations of our
four
reporting segments for the three and six months ended
June 30, 2017
and
2016
are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Washington, D.C.
|
|
Maryland
(1)
|
|
Northern Virginia
|
|
Southern Virginia
|
|
Consolidated
|
Number of buildings
|
6
|
|
|
34
|
|
|
12
|
|
|
19
|
|
|
71
|
|
Square feet
|
918,019
|
|
|
1,887,246
|
|
|
1,169,066
|
|
|
2,023,854
|
|
|
5,998,185
|
|
Total revenues
|
$
|
11,564
|
|
|
$
|
10,035
|
|
|
$
|
6,352
|
|
|
$
|
7,437
|
|
|
$
|
35,388
|
|
Property operating expense
|
(2,818
|
)
|
|
(2,277
|
)
|
|
(1,566
|
)
|
|
(1,689
|
)
|
|
(8,350
|
)
|
Real estate taxes and insurance
|
(2,180
|
)
|
|
(890
|
)
|
|
(722
|
)
|
|
(667
|
)
|
|
(4,459
|
)
|
Total property operating income
|
$
|
6,566
|
|
|
$
|
6,868
|
|
|
$
|
4,064
|
|
|
$
|
5,081
|
|
|
22,579
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
(13,845
|
)
|
General and administrative
(2)
|
|
|
|
|
|
|
|
|
(6,214
|
)
|
Other expenses
|
|
|
|
|
|
|
|
|
(5,348
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
$
|
(2,828
|
)
|
Capital expenditures
(3)
|
$
|
1,830
|
|
|
$
|
3,427
|
|
|
$
|
1,581
|
|
|
$
|
680
|
|
|
$
|
7,994
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
Washington, D.C.
|
|
Maryland
|
|
Northern Virginia
|
|
Southern Virginia
|
|
Consolidated
|
Number of buildings
|
6
|
|
|
34
|
|
|
14
|
|
|
19
|
|
|
73
|
|
Square feet
|
917,241
|
|
|
1,885,759
|
|
|
1,716,904
|
|
|
2,023,858
|
|
|
6,543,762
|
|
Total revenues
|
$
|
11,580
|
|
|
$
|
10,900
|
|
|
$
|
8,707
|
|
|
$
|
7,306
|
|
|
$
|
38,493
|
|
Property operating expense
|
(2,563
|
)
|
|
(2,097
|
)
|
|
(2,194
|
)
|
|
(1,689
|
)
|
|
(8,543
|
)
|
Real estate taxes and insurance
|
(2,422
|
)
|
|
(960
|
)
|
|
(943
|
)
|
|
(595
|
)
|
|
(4,920
|
)
|
Total property operating income
|
$
|
6,595
|
|
|
$
|
7,843
|
|
|
$
|
5,570
|
|
|
$
|
5,022
|
|
|
25,030
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
(15,141
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
(4,305
|
)
|
Impairment of rental property
|
|
|
|
|
|
|
|
|
(2,772
|
)
|
Other expenses
|
|
|
|
|
|
|
|
|
(4,804
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
$
|
(1,992
|
)
|
Capital expenditures
(3)
|
$
|
3,287
|
|
|
$
|
2,402
|
|
|
$
|
12,297
|
|
|
$
|
837
|
|
|
$
|
18,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
Washington, D.C.
|
|
Maryland
(1)
|
|
Northern Virginia
|
|
Southern Virginia
|
|
Consolidated
|
Total revenues
|
23,286
|
|
|
21,271
|
|
|
13,664
|
|
|
14,991
|
|
|
$
|
73,212
|
|
Property operating expense
|
(5,954
|
)
|
|
(4,933
|
)
|
|
(3,526
|
)
|
|
(3,894
|
)
|
|
(18,307
|
)
|
Real estate taxes and insurance
|
(4,471
|
)
|
|
(1,872
|
)
|
|
(1,463
|
)
|
|
(1,314
|
)
|
|
(9,120
|
)
|
Total property operating income
|
$
|
12,861
|
|
|
$
|
14,466
|
|
|
$
|
8,675
|
|
|
$
|
9,783
|
|
|
45,785
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
(28,411
|
)
|
General and administrative
(2)
|
|
|
|
|
|
|
|
|
(10,712
|
)
|
Other income
|
|
|
|
|
|
|
|
|
35,539
|
|
Net income
|
|
|
|
|
|
|
|
|
$
|
42,201
|
|
Total assets
(4)
|
$
|
441,351
|
|
|
$
|
322,061
|
|
|
$
|
261,031
|
|
|
$
|
157,685
|
|
|
$
|
1,200,494
|
|
Capital expenditures
(3)
|
$
|
3,352
|
|
|
$
|
5,777
|
|
|
$
|
3,876
|
|
|
$
|
1,286
|
|
|
$
|
14,805
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
Washington, D.C
|
|
Maryland
|
|
Northern Virginia
|
|
Southern Virginia
|
|
Consolidated
|
Total revenues
|
$
|
22,869
|
|
|
$
|
22,488
|
|
|
$
|
21,014
|
|
|
$
|
14,819
|
|
|
$
|
81,190
|
|
Property operating expense
|
(5,532
|
)
|
|
(5,329
|
)
|
|
(5,514
|
)
|
|
(3,705
|
)
|
|
(20,080
|
)
|
Real estate taxes and insurance
|
(4,794
|
)
|
|
(1,889
|
)
|
|
(2,240
|
)
|
|
(1,213
|
)
|
|
(10,136
|
)
|
Total property operating income
|
$
|
12,543
|
|
|
$
|
15,270
|
|
|
$
|
13,260
|
|
|
$
|
9,901
|
|
|
50,974
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
(30,147
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
(8,884
|
)
|
Impairment of rental property
|
|
|
|
|
|
|
|
|
(2,772
|
)
|
Other expenses
|
|
|
|
|
|
|
|
|
(11,264
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
$
|
(2,093
|
)
|
Total assets
(4)
|
$
|
503,484
|
|
|
$
|
335,932
|
|
|
$
|
298,533
|
|
|
$
|
163,956
|
|
|
$
|
1,320,046
|
|
Capital expenditures
(3)
|
$
|
8,198
|
|
|
$
|
3,361
|
|
|
$
|
28,054
|
|
|
$
|
1,734
|
|
|
$
|
41,539
|
|
|
|
(1)
|
Redland I within our Maryland reporting segment was placed into redevelopment during March 2017.
|
|
|
(2)
|
Includes
$2.2 million
of legal, advisory and accounting fees associated with the Transaction.
|
|
|
(3)
|
Capital expenditures for corporate assets not allocated to any of our reportable segments totaled
$0.5 million
and
$0.1 million
for the three months ended June 30, 2017 and 2016, respectively, and
$0.5 million
and
$0.2 million
for the six months ended June 30, 2017 and 2016, respectively.
|
|
|
(4)
|
Total assets include our investment in properties that are owned through joint ventures that are not consolidated within our condensed consolidated financial statements. For more information on our unconsolidated investments, including location within our reportable segments, see note
5
,
Investment in Affiliates
. Corporate assets not allocated to any of our reportable segments totaled $
18.4 million
and $
18.1 million
at
June 30, 2017
and
2016
, respectively.
|