Discontinued Operations and Assets Held for Sale

12 Months Ended

Dec. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations and Assets Held for Sale

Discontinued Operations, Assets Held-for-Sale and Impairments

Discontinued Operations

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

	Held-for-Sale at December 31, 2016	Sold in 2016	Sold in 2015	Sold in 2014	Total
Industrial	0	0	5	11	16
Medical Office	0	0	1	1	2
Non-reportable Rental Operations	0	0	56	0	56
Total properties included in discontinued operations	0	0	62	12	74
Properties excluded from discontinued operations	5	32	91	17	145
Total properties sold or classified as held-for-sale	5	32	153	29	219

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. There were no additional properties classified as discontinued operations during 2016 and, as such, no interest expense was allocated to discontinued operations during that year.

The following table illustrates the operational results of the buildings reflected in discontinued operations for the years ended December 31, 2016, 2015 and 2014, respectively (in thousands):

	2016		2015			2014
Revenues	$	983	$	32,549		$	120,884
Operating expenses	8		(12,498		)	(47,123		)
Depreciation and amortization	—		(3,517		)	(38,342		)
Operating income	991		16,534			35,419
Interest expense	—		(5,595		)	(24,348		)
Income before gain on sales	991		10,939			11,071
Gain on sale of depreciable properties	1,016		424,892			22,763
Income from discontinued operations before income taxes	2,007		435,831			33,834
Income tax expense	—		(3,175		)	(2,969		)
Income from discontinued operations	$	2,007	$	432,656		$	30,865

Income tax expense included in discontinued operations was 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.

Capital expenditures on a cash basis for the years ended December 31, 2015 and 2014 were $7.4 million and $32.5 million, respectively, related to properties classified within discontinued operations. We had no capital expenditures during 2016 related to properties classified within discontinued operations.

Dividends or distributions on preferred shares or Preferred Units and adjustments for the redemption or repurchase of preferred shares or Preferred Units are allocated entirely to continuing operations for both the General Partner and the Partnership.

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 noncontrolling interests, for the years ended December 31, 2016, 2015 and 2014, respectively (in thousands):

	2016		2015		2014
Income from continuing operations attributable to common shareholders	$	310,156	$	187,099	$	174,419
Income from discontinued operations attributable to common shareholders	1,987		428,211		30,474
Net income attributable to common shareholders	$	312,143	$	615,310	$	204,893

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 December 31, 2016, five in-service properties and 39 acres of undeveloped land were classified as held-for-sale but did not meet the criteria to be classified within discontinued operations. The following table illustrates aggregate balance sheet information for all held-for-sale properties (in thousands):

	Held-for-Sale Properties Included in Continuing Operations
	December 31, 2016			December 31, 2015
Land and improvements	$	3,631		$	9,797
Buildings and tenant improvements	37,495			39,480
Undeveloped land	22,657			—
Accumulated depreciation	(18,581		)	(7,183		)
Deferred leasing and other costs, net	3,091			3,293
Other assets	3,334			414
Total assets held-for-sale	$	51,627		$	45,801
Accrued expenses	$	1,363		$	322
Other liabilities	298			650
Total liabilities held-for-sale	$	1,661		$	972

Impairment Charges

The following table illustrates impairment charges recognized during the years ended December 31, 2016 and 2015, respectively (in thousands):

	2016		2015		2014
Impairment charges - land	$	14,299	$	19,526	$	33,700
Impairment charges - building	3,719		3,406		15,406
Impairment charges	$	18,018	$	22,932	$	49,106

Primarily as the result of changes in our intended use for certain of our undeveloped land holdings, we recognized impairment charges of $14.3 million, $19.5 million and $33.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. The various land holdings written down to fair value totaled 244, 139 and 442 acres for the years ended December 31, 2016, 2015 and 2014, respectively. The fair value of the land upon which we recognized impairment charges was estimated based on asset-specific offers to purchase, comparable transactions and, in certain cases, estimates made by national and local independent real estate brokers who were familiar with the land parcels subject to evaluation as well as with conditions in the specific markets where the various land parcels are located. In all cases when estimates from brokers were utilized, members of our senior management who were responsible for the individual markets where the land parcels are located, and members of the Company’s accounting and financial management team, reviewed the broker’s estimates for factual accuracy and reasonableness. In all cases, we were ultimately responsible for all valuation estimates made in determining the extent of the impairment. Our valuation estimates primarily relied upon Level 3 inputs.

During the fourth quarter of 2014, we completed a review of our existing portfolio of buildings and determined that certain buildings, which had previously not been actively marketed for disposal, were not strategic and would not be held as long-term investments. We determined that, as the result of this change to management's strategy, six properties were impaired during the year ended December 31, 2014. Impairment charges of $15.4 million were recognized for the year ended December 31, 2014. Our estimates of fair value for these buildings were based primarily upon asset-specific purchase and sales contracts as well as using the income approach for a single property. For the property for which the income approach was utilized in determining fair value, which was an office property in Washington D.C., the most significant assumptions utilized were the exit capitalization rate of 8.50% and the net rental rate of $12.50 per square foot. We have concluded that our valuation estimates for the building impairments recognized during 2014 were primarily based on Level 3 inputs.