Discontinued Operations and Assets Held-for-Sale

Discontinued Operations

Beginning with our adoption of ASU 2014-08 on April 1, 2014, discontinued operations presentation applies only to disposals representing a strategic shift that has (or will have) a major effect on an entity’s operations and financial results (e.g., a disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity).

On April 1, 2015, we completed the sale of a portfolio of primarily suburban office properties and undeveloped land (the "Suburban Office Portfolio Sale", as defined in Note 12) that had been under agreement for sale since late January 2015. This portfolio was classified as held-for-sale at March 31, 2015. Because of the size of this disposition, and the fact that it represented our exit from the office product type in four geographic markets, we determined that the disposition represented a strategic shift that will have a major effect on our operations and financial results. As such, the in-service properties in this portfolio met the criteria to be classified within discontinued operations. As the result of its classification within discontinued operations, the in-service assets and liabilities of this portfolio are required to be presented as held-for-sale for all prior periods presented in our Consolidated Balance Sheets.

The following table illustrates the number of sold or held-for-sale properties included in, or excluded from, discontinued operations:



	Held-for-Sale at March 31, 2015	Sold through March 31, 2015	Sold in 2014	Total


Industrial	5	0	11	16
Office	56	0	0	56
Medical Office	0	1	1	2
Total properties included in discontinued operations	61	1	12	74
Properties excluded from discontinued operations	52	11	17	80
Total properties sold or classified as held-for-sale	113	12	29	154

For the properties that were classified in discontinued operations, we allocated interest expense to discontinued operations and have included such interest expense in computing income from discontinued operations. Interest expense allocable to discontinued operations includes interest on any secured debt for properties included in discontinued operations and an allocable share of our consolidated unsecured interest expense for unencumbered properties. The allocation of unsecured interest expense to discontinued operations was based upon the gross book value of the unencumbered real estate assets included in discontinued operations as it related to the total gross book value of our unencumbered real estate assets.

The following table illustrates the operational results of the buildings reflected in discontinued operations for the three months ended March 31, 2015 and 2014, respectively (in thousands):



	Three Months Ended March 31,
	2015			2014
Revenues	$	32,115		$	30,072
Operating expenses	(12,386		)	(12,403		)
Depreciation and amortization	(3,517		)	(9,966		)
Operating income	16,212			7,703
Interest expense	(6,034		)	(6,378		)
Income before gain on sales	10,178			1,325
Gain on sale of depreciable properties	18,375			19,752
Income from discontinued operations before income taxes	28,553			21,077
Income tax expense	—			(2,977		)
Income from discontinued operations	$	28,553		$	18,100

There was one medical office property that sold during the three months ended March 31, 2015, which had been classified as held for sale and included in discontinued operations prior to the adoption of ASU 2014-08, for which we recognized a gain on sale of $1.3 million. The majority of the remaining amount of gains on sale of depreciable properties recognized in discontinued operations during the period was the result of recognizing previously deferred gains on prior period sales, which had met the criteria for classification within discontinued operations prior to the adoption of ASU 2014-08, due to either receiving additional cash or resolving post-sale obligations.

Capital expenditures on a cash basis for the three months ended March 31, 2015 and 2014 were $8.6 million and $3.8 million, respectively, related to properties classified within discontinued operations.

Allocation of Noncontrolling Interests - General Partner

The following table illustrates the General Partner's share of the income attributable to common shareholders from continuing operations and discontinued operations, reduced by the allocation of income between continuing and discontinued operations to the Limited Partner Units, for the three months ended March 31, 2015 and 2014, respectively (in thousands):



	Three Months Ended March 31,
	2015		2014
Income from continuing operations attributable to common shareholders	$	36,994	$	823
Income from discontinued operations attributable to common shareholders	28,250		17,860
Net income attributable to common shareholders	$	65,244	$	18,683

Allocation of Noncontrolling Interests - Partnership

Substantially all of the income from discontinued operations for all periods presented in the Partnership's Consolidated Statements of Operations and Comprehensive Income is attributable to the common unitholders.

Properties Held-for-Sale

At March 31, 2015, the 61 in-service properties included in the Suburban Office Portfolio Sale were classified as held-for-sale and included in discontinued operations and 52 in-service properties were classified as held-for-sale but did not meet the criteria to be classified within discontinued operations (including the "Midwest Industrial Portfolio Sale", as defined in Note 12). The following table illustrates aggregate balance sheet information at March 31, 2015 and December 31, 2014 (in thousands):



	March 31, 2015									December 31, 2014
	Properties Included in Continuing Operations			Properties Included in Discontinued Operations			Total Held-For-Sale Properties			Properties Included in Continuing Operations			Properties Included in Discontinued Operations			Total Held-For-Sale Properties
Land and improvements	$	36,236		$	121,149		$	157,385		$	21,347		$	126,921		$	148,268
Buildings and tenant improvements	168,893			702,820			871,713			36,925			721,398			758,323
Undeveloped land	13,736			—			13,736			12,443			—			12,443
Accumulated depreciation	(51,217		)	(234,132		)	(285,349		)	(23,071		)	(247,269		)	(270,340		)
Deferred leasing and other costs, net	6,626			42,152			48,778			3,480			44,840			48,320
Other assets	5,896			27,859			33,755			562			27,475			28,037
Total assets held-for-sale	$	180,170		$	659,848		$	840,018		$	51,686		$	673,365		$	725,051

Secured debt	$	1,097		$	40,600		$	41,697		$	—		$	40,764		$	40,764
Accrued expenses	4,685			6,934			11,619			233			5,180			5,413
Other liabilities	2,228			9,561			11,789			434			12,481			12,915
Total liabilities held-for-sale	$	8,010		$	57,095		$	65,105		$	667		$	58,425		$	59,092