Quarterly report pursuant to Section 13 or 15(d)

Real Estate

v3.7.0.1
Real Estate
3 Months Ended
Mar. 31, 2017
Real Estate [Abstract]  
Real Estate
REAL ESTATE

Development/Redevelopment

We have properties under development/redevelopment and held for current or future development as of March 31, 2017. In the office segment, we have a redevelopment project at the Army Navy Building, an office property in Washington, DC, to upgrade its common areas and add significant amenities in order to make the property more competitive within its sub-market. As of March 31, 2017, we had invested $3.4 million in the redevelopment and have placed $1.0 million of the project into service. We expect to place the remainder of the project into service during the second quarter of 2017.
 
In the multifamily segment, we have the Trove, a multifamily development adjacent to The Wellington, and own land held for future multifamily development adjacent to Riverside Apartments. As of March 31, 2017, we had invested $20.7 million and $17.1 million, including the costs of acquired land, in the Trove and the development adjacent to Riverside Apartments, respectively.

In the retail segment, we currently have a redevelopment project to add rentable space at Spring Valley Village. As of March 31, 2017, we had invested $1.1 million in the redevelopment.

Variable Interest Entity
 
In June 2011, we executed a joint venture operating agreement with a real estate development company to develop The Maxwell, a mid-rise multifamily property at 650 North Glebe Road in Arlington, Virginia. Major construction activities at The Maxwell ended during December 2014, and the building became available for occupancy during the first quarter of 2015. Washington REIT is the 90% owner of the joint venture. The real estate development company owns 10% of the joint venture and was responsible for the development and construction of the property.

We have determined that The Maxwell joint venture is a VIE primarily based on the fact that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support. We also determined that Washington REIT was the primary beneficiary of the VIE due to the fact that Washington REIT was determined to have a controlling financial interest in the entity. In January 2016, Washington REIT exercised its right to purchase at par The Maxwell’s construction loan from the original third-party lender. Upon the purchase, the construction loan became an intercompany loan payable from the consolidated VIE to Washington REIT that is eliminated in consolidation.

As of March 31, 2017 and December 31, 2016, The Maxwell’s assets were as follows (in thousands):
 
March 31, 2017
 
December 31, 2016
Land
$
12,851

 
$
12,851

Income producing property
37,954

 
37,949

Accumulated depreciation and amortization
(5,127
)
 
(4,571
)
Other assets
622

 
456

 
$
46,300

 
$
46,685



As of March 31, 2017 and December 31, 2016, The Maxwell’s liabilities were as follows (in thousands):
 
March 31, 2017
 
December 31, 2016
Mortgage notes payable (1)
$
31,798

 
$
31,869

Accounts payable and other liabilities
326

 
186

Tenant security deposits
98

 
99

 
$
32,222

 
$
32,154


(1) The mortgage notes payable balances as of March 31, 2017 and December 31, 2016 are eliminated in consolidation due to the purchase of the loan by Washington REIT in January 2016.

Properties Sold and Held for Sale

We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties, and to make occasional sales of the properties that no longer meet our long-term strategy or return objectives and where market conditions for sale are favorable. The proceeds from the sales may be reinvested into other properties, used to fund development operations or to support other corporate needs, or distributed to our shareholders. Depreciation on these properties is discontinued when classified as held for sale, but operating revenues, other operating expenses and interest continue to be recognized until the date of sale.

We did not sell or classify as held for sale any properties during the 2017 Quarter. We sold the following properties in 2016:
Disposition Date
 
Property Name
 
Segment
 
Rentable Square Feet
 
Contract
Sales  Price
(in thousands)
 
Gain on Sale
(in thousands)
May 26, 2016
 
Dulles Station II (1)
 
Office
 
N/A
 
$
12,100

 
$
527

June 27, 2016
 
Maryland Office Portfolio Transaction I (2)
 
Office
 
692,000
 
111,500

 
23,585

September 22, 2016
 
Maryland Office Portfolio Transaction II (3)
 
Office
 
491,000
 
128,500

 
77,592

 
 
Total 2016
 
1,183,000
 
$
252,100

 
$
101,704


(1) 
Land held for future development and an interest in a parking garage.
(2) 
Maryland Office Portfolio Transaction I consists of 6110 Executive Boulevard, 600 Jefferson Plaza, Wayne Plaza and West Gude Drive.
(3) 
Maryland Office Portfolio Transaction II consists of 51 Monroe Street and One Central Plaza.      

While the sale of the Maryland Office Portfolio, in the aggregate, constituted an individually significant disposition, the Maryland Office Portfolio does not qualify for presentation and disclosure as a discontinued operation as it does not represent a strategic shift in our operations. Real estate rental revenue and net income for the Maryland Office Portfolio for the three months ended March 31, 2017 and 2016 are as follows:
 
Three Months Ended March 31,
 
2017
 
2016
Real estate rental revenue
$

 
$
8,430

Net income

 
2,726



We do not have significant continuing involvement in the operations of the disposed properties.