Acquisitions and Dispositions

Acquisitions and dispositions for the periods presented were completed in accordance with our strategy to reposition our investment concentration among the product types and markets in which we operate. With the exception of certain properties that have 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.

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. 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 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.

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 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 company	$	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 have 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.

2015 Acquisitions

We acquired two industrial properties during the year ended December 31, 2015, one of which was treated as a business combination and one as an asset acquisition. The following table summarizes the fair value of amounts recognized for each major class of asset (in thousands) for these acquisitions:



Real estate assets	$	26,276
Lease-related intangible assets	2,001
Fair value of acquired net assets	$	28,277

The leases in the acquired properties had a weighted average remaining life at acquisition of approximately 9.2 years.

Fair Value Measurements

The fair value estimates used in allocating the aggregate fair value of an acquisition, to the extent accounted for as a business combination, among the individual components of real estate assets and liabilities were determined primarily through calculating the "as-if vacant" value of a building, using the income approach, and relied 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 range of the most significant assumptions utilized in making the lease-up and future disposition estimates used in calculating the "as-if vacant" value for acquisition activities during 2016 and 2015, respectively, are as follows:

Quantico Joint Venture Properties



	2016
	Low	High
Discount rate	8.00%	10.50%
Exit capitalization rate	6.50%	9.00%
Lease-up period (months)	12	36
Net rental rate per square foot - Industrial	$8.20	$8.50
Net rental rate per square foot - Office	$9.34	$18.54

Other 2016 and 2015 Acquisitions



	2016		2015
	Low	High	Low	High
Discount rate	7.46%	8.10%	7.07%	7.07%
Exit capitalization rate	6.25%	6.96%	5.57%	5.57%
Lease-up period (months)	12	12	12	12
Net rental rate per square foot - Industrial	$3.35	$3.39	$4.85	$4.85
Net rental rate per square foot - Medical Office	$15.40	$15.40	$—	$—

Acquisition-Related Activity

The acquisition-related activity in our consolidated Statements of Operations and Comprehensive Income consisted of transaction costs for completed acquisitions, which are expensed as incurred, as well as gains or losses related to acquisitions where we had a pre-existing non-controlling ownership interest. We recognized $7.2 million of income from acquisition-related activities for the year ended December 31, 2016 and $8.5 million and $1.1 million of expense for the years ended 2015 and 2014, respectively.

Acquisition-related activity during 2016 was primarily driven by a gain of $6.0 million on the step-acquisition of the 14 Quantico Joint Venture properties and a gain of $1.7 million on the step-acquisition of an additional property from another unconsolidated joint venture, which was unrelated to the previously mentioned Quantico and Duke/Hulfish acquisitions. Substantially all of the expense activity in 2015 was driven by an increase to the estimated fair value, and ultimate settlement, of contingent consideration that related to a previous period's real estate portfolio acquisition.

Dispositions

We disposed 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, which generated net cash proceeds of $538.6 million, $1.68 billion and $493.2 million in 2016, 2015 and 2014, respectively.

On April 1, 2015, we completed the previously announced suburban office portfolio sale to a joint venture with affiliates of Starwood Capital Group, Vanderbilt Partners and Trinity Capital Advisors for approximately $1.07 billion in proceeds and recorded a gain on sale of $406.1 million. The suburban office portfolio sale included all of our wholly-owned, in-service suburban office properties located in Nashville, Raleigh, South Florida and St. Louis. The portfolio included approximately 6.7 million square feet across 61 buildings and 57 acres of undeveloped land. Additionally, an office asset in Raleigh, which was under construction at the time of the suburban office portfolio sale, was completed in late 2015 and sold to the same buyers in January 2016.

A portion of the purchase price for the suburban office portfolio sale was financed through a $200.0 million first mortgage on certain of the properties in the Suburban Office Portfolio that we provided to the buyer. The first mortgage matured on December 31, 2016, was prepayable after January 1, 2016, and bore interest at LIBOR plus 1.5%. This first mortgage was repaid in full during 2016.

On April 8, 2015, we completed the sale of 51 non-strategic industrial properties for $270.0 million in proceeds and recorded a gain on sale of $107.4 million. These properties totaled 5.2 million square feet and were located in primarily Midwest markets.

Included in the building dispositions in 2014 was the sale of six office properties in Cincinnati, Ohio, which totaled 1.0 million square feet and were sold for $150.5 million, as well as the sale of two office properties in South Florida, which totaled 466,000 square feet and were sold for $128.0 million.

The income tax benefit from continuing operations in 2014 was triggered by sales of properties owned, or partially owned, by our taxable REIT subsidiary. Income tax expense included in discontinued operations in 2014 was also the result of the sale of a property, prior to the adoption of ASU 2014-08, which was partially owned by our taxable REIT subsidiary where we have no continuing involvement.

During the year ended December 31, 2014, eleven office properties, eleven industrial properties and one retail property were sold by six of our unconsolidated joint ventures, for which our capital distributions totaled $91.8 million and our share of gains, which are included in equity in earnings, totaled $84.6 million. These sales included a 436,000 square foot office tower in Atlanta, Georgia and a 382,000 square foot retail property in Minneapolis, Minnesota.

All other dispositions were not individually material.