Acquisitions and Dispositions

Acquisitions and dispositions for the periods presented were completed in accordance with our strategy to reposition our investment concentration among the markets in which we operate and to increase our overall investments in quality industrial projects. With the exception of certain properties that have subsequently been sold or classified as held-for-sale, the results of operations for all acquired properties have been included in continuing operations within our consolidated financial statements since their respective dates of acquisition. Transaction costs related to asset acquisitions are capitalized and transaction costs related to business combinations and dispositions are expensed.

2018 Acquisitions

We paid cash of $348.1 million for asset acquisitions during the year ended December 31, 2018.

We acquired nine properties during the year ended December 31, 2018. We determined that these nine properties did not meet the definition of a business and, accordingly, we accounted for them as asset acquisitions as opposed to business combinations.

The following table summarizes amounts recognized for each major class of assets and liability (in thousands) for these acquisitions during the year ended December 31, 2018:



Real estate assets	$	328,126
Lease related intangible assets	24,996
Total acquired assets	353,122
Below market lease liability	505
Fair value of acquired net assets	$	352,617

The leases in the acquired properties had a weighted average remaining life at acquisition of approximately 11.3 years.

2017 Acquisitions

We paid cash of $982.6 million for acquisitions of 28 properties during the year ended December 31, 2017. We determined that these 28 properties did not meet the revised definition of a business as the result of adopting ASU 2017-01 and, accordingly, they were treated as asset acquisitions as opposed to business combinations.

The following table summarizes amounts recognized for each major class of asset and liability (in thousands) for these acquisitions during the year ended December 31, 2017:



Real estate assets	$	945,844
Lease related intangible assets	46,807
Total acquired assets	992,651
Below market lease liability	1,483
Fair value of acquired net assets	$	991,168

During 2017 we acquired a portfolio of real estate assets from Bridge Development Partners LLC (the "Bridge Portfolio") located in Northern New Jersey, Southern California and South Florida, for a total purchase price of $578.4 million. The Bridge Portfolio includes ten industrial buildings (included in the table above) totaling 3.4 million square feet, which were 68.9% leased at the time of acquisition, as well as 43 acres of undeveloped land.

The leases in the acquired properties had a weighted average remaining life at acquisition of approximately 8.7 years.

2016 Acquisitions

We paid cash of $170.6 million for acquisitions of 18 properties during the year ended December 31, 2016.

Quantico Joint Venture Properties

In the fourth quarter of 2016, pursuant to a pre-existing purchase option, we acquired 14 properties in the Washington D.C. area from the Quantico Joint Venture in which we had a pre-existing equity ownership interest. These 14 properties were comprised of 11 industrial properties and three office properties. These 14 properties were previously encumbered by a $131.3 million CMBS loan and, pursuant to the terms of the purchase option, we repaid the loan as consideration for the acquisition of the underlying properties.

We recognized a gain on this step-acquisition equal to the excess of the fair value of our pre-existing equity ownership interest in the acquired assets over the carrying value of our investment in those assets pursuant to the criteria that were applicable prior to our adoption of ASU 2017-01 as of January 1, 2017. The carrying value of our investment was zero as the result of accumulated operating losses at the joint venture level.

The fair value of the 14 properties acquired was internally determined, primarily using an income approach, and based upon Level 3 inputs, as previously defined. The inputs used in determining the fair value of the acquired properties, as well as allocating that fair value to the individual components of the real estate assets acquired, are disclosed hereafter in the Fair Value Measurements section of this note. The following table summarizes the fair value of the amounts recognized for each major class of assets for this acquisition as well as the computation of the gain on acquisition (in thousands):



Real estate assets	$	120,608
Lease-related intangible assets	16,724
Net working capital liabilities	(126		)
Fair value of acquired net assets	$	137,206
Less consideration transferred (CMBS loan payoff)	(131,250		)
Fair value of pre-existing equity interest	$	5,956
Less carrying value of investment in acquired properties	—
Gain on step acquisition	$	5,956

We had previously accounted for our interest in these 14 properties using the equity method. No goodwill or gain on bargain purchase was recognized in connection with this transaction. We sold one of the acquired properties, a 241,000 square foot office property, immediately following the acquisition for net proceeds of $53.4 million, which we also used as the determination of that property's fair value.

During 2017, we sold our remaining interest in the Quantico Joint Venture.

Distribution of Joint Venture Properties

Included in our property acquisitions for the year ended December 31, 2016 was an industrial property that we received as part of a non-cash distribution of properties from Duke/Hulfish LLC ("Duke/Hulfish"), a former 20% owned unconsolidated joint venture. On June 30, 2016, as part of a plan of dissolution, Duke/Hulfish distributed its ownership in seven properties to our partner in the joint venture while distributing its ownership interest in one property to us. We also received $2.8 million in cash from the joint venture in order to balance the value of the distributions received in accordance with the applicable ownership percentages. As the result of this dissolution transaction, we recognized a gain equal to the excess of the fair value of the one property distributed to us, plus the cash that we received, over the carrying value of our 20% investment in the eight properties that were distributed from Duke/Hulfish (both to us and our partner). The computation of this gain is shown as follows (in thousands):



Fair value of one property received in non-cash distribution	$	63,000
Cash received at dissolution	2,760
Carrying value of investment in properties distributed to partners	(35,063		)
Gain on dissolution of unconsolidated joint venture	$	30,697

In connection with the dissolution of Duke/Hulfish, and the sale of its final property to a third party in July 2016, we recognized promote income (additional incentive-based cash distributions from the joint venture, in excess of our 20% ownership interest), totaling $26.3 million, during the year ended December 31, 2016.

Other 2016 Acquisitions

In addition to the properties acquired from the Quantico Joint Venture, we acquired three properties during the year ended December 31, 2016, which included the industrial property received as part of a non-cash distribution in connection with the dissolution of Duke/Hulfish. The following table summarizes the fair value of amounts recognized for each major class of asset (in thousands) for these acquisitions during 2016:



Real estate assets	$	94,783
Lease-related intangible assets	8,068
Fair value of acquired net assets	$	102,851

The leases in the acquired properties, including the Quantico Joint Venture properties, had a weighted average remaining life at acquisition of approximately 7.1 years.

We included $5.1 million in rental revenues and $1.1 million in earnings from continuing operations during 2016 for properties acquired during 2016, including the Quantico Joint Venture properties, since their respective dates of acquisition.

Fair Value Measurements

We determine the fair value of the individual components of real estate asset acquisitions primarily through calculating the "as-if vacant" value of a building, using an income approach, which relies significantly upon internally determined assumptions. We have determined that these estimates primarily rely on Level 3 inputs, which are unobservable inputs based on our own assumptions. The most significant assumptions used in calculating the "as-if vacant" value for acquisition activities during 2018 and 2017, respectively, are as follows:



	2018		2017
	Low	High	Low	High
Exit capitalization rate	3.80%	4.91%	4.03%	5.65%
Net rental rate per square foot	$6.50	$10.20	$3.50	$10.00

Capitalized acquisition costs were insignificant and the fair value of the nine properties acquired during the year ended December 31, 2018 was substantially the same as the cost of acquisition.

Acquisition-Related Activity

The acquisition-related activity in our consolidated Statements of Operations and Comprehensive Income consisted of the following, for the years ended December 31, 2018, 2017 and 2016, respectively (in thousands):



	2018		2017		2016
Acquisition costs	$	—	$	—	$	(96	)
Gains on step acquisitions	—		—		7,272
Contingent consideration	—		—		—
Acquisition-related activity	$	—	$	—	$	7,176

Acquisition-related activity during 2016 was primarily driven by the gain on the step acquisition of the 14 Quantico Joint Venture properties mentioned above, as well as the gain on the step acquisition of an additional property from another unconsolidated joint venture.

Effective January 1, 2017, we early adopted ASU 2017-01, which revised the definition of a business and resulted in fewer property acquisitions being accounted for as business combinations. We recognized no income or expense from acquisition-related activities for the years ended December 31, 2018 and 2017.

Prior to the adoption of ASU 2017-01, most properties that were acquired met the definition of a business and transaction costs were expensed as incurred. Gains or losses were recognized from step acquisitions.

Dispositions

Dispositions of buildings (see Note 6 for the number of buildings sold in each year, as well as for their classification between continuing and discontinued operations) and undeveloped land generated net cash proceeds of $511.4 million, $2.52 billion and $538.9 million in 2018, 2017 and 2016, respectively.

Significant 2017 Dispositions

Dispositions during the year ended December 31, 2017 included 85 consolidated properties sold as part of the Medical Office Portfolio Disposition to a subsidiary of Healthcare Trust of America, Inc. ("HTA"), as well as certain other buyers, for a total sales price of $2.78 billion and a gain on sale of $1.39 billion. The Medical Office Portfolio Disposition was executed in connection with our strategy to focus solely on the industrial real estate product type.

A portion of the sale price for the Medical Office Portfolio Disposition was financed through either unsecured notes, or first mortgage interests in a portion of the sold properties, that we provided to HTA and other buyers, totaling $400.0 million, which was reflected within notes receivable from property sales in the Consolidated Balance Sheets. These instruments mature at various points through January 2020 and all bear interest at 4.0%. During the year ended December 31, 2018, we collected $145.0 million of principal on notes receivable from the Medical Office Portfolio Disposition. We concluded that the value, and the rate of interest, for these financial instruments would approximate fair value as computed using an income approach and that this determination of fair value was primarily based upon Level 3 inputs. We have reviewed the creditworthiness of the borrowers and have concluded it is probable that we will collect all amounts due according to their contractual terms.

In connection with the Medical Office Portfolio Disposition, during the year ended December 31, 2017 we received $105.3 million for the sale of our interest in two unconsolidated joint ventures whose underlying assets were comprised of medical office properties, which was reflected within Capital Distributions from Unconsolidated Joint Ventures within the Consolidated Statements of Cash Flows. We recorded $47.5 million of income related to the sale of our interests in these unconsolidated joint ventures within equity in earnings of unconsolidated joint ventures in the Consolidated Statements of Operations and Comprehensive Income. In connection with the sale of our interest in one of these unconsolidated joint ventures, we also recorded promote income (additional incentive-based cash distributions from the joint venture, in excess of our ownership interest) of $20.0 million from the sale of our interest, which was reflected as a separate line item in the Consolidated Statements of Operations and Comprehensive Income and reflected within net cash provided by operating activities within the Consolidated Statements of Cash Flows. In connection with the sale, we recorded income tax expense totaling $17.7 million including $12.5 million classified within discontinued operations and $5.2 million classified within continuing operations in the Consolidated Statements of Operations and Comprehensive Income.

All other dispositions were not individually material.