Real Estate Assets, Discontinued Operations, Assets Held for Sale and Impairments

Real Estate Assets

Real estate assets, excluding assets held for sale, consisted of the following (in thousands):



	December 31, 2017		December 31, 2016
Buildings and tenant improvements	$	4,642,832	$	3,752,423
Land and improvements	1,950,735		1,392,382
Real estate assets	$	6,593,567	$	5,144,805

Discontinued Operations

All of the properties sold during the year ended December 31, 2017 and included in discontinued operations are medical office properties. Because of the size of the Medical Office Portfolio Disposition, and the fact that it represented our exit from the medical office product type, we determined that the disposition represented a strategic shift that would have a major effect on our operations and financial results. As such, the consolidated 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. Operating results pertaining to the properties classified within discontinued operations were reclassified to discontinued operations for all prior periods presented in our Consolidated Statements of Operations and Comprehensive Income.

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, 2017	Sold in 2017	Sold in 2016	Sold in 2015	Total
Industrial	—	—	—	5	5
Non-Reportable Rental Operations	—	81	—	57	138
Total properties included in discontinued operations	—	81	—	62	143
Properties excluded from discontinued operations	1	17	32	91	141
Total properties sold or classified as held-for-sale	1	98	32	153	284

Properties sold in 2017 but excluded from discontinued operations included four properties under development, which were disposed as part of the Medical Office Portfolio Disposition, as these properties did not meet the criteria to be included in discontinued operations.

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 years ended December 31, 2017, 2016 and 2015, respectively (in thousands):



	2017			2016			2015
Revenues	$	87,185		$	172,716		$	189,805
Operating expenses	(28,102		)	(52,795		)	(61,916		)
Depreciation and amortization	(25,911		)	(75,261		)	(75,082		)
Operating income	33,172			44,660			52,807
Interest expense	(14,736		)	(28,819		)	(40,911		)
Income before gain on sales	18,436			15,841			11,896
Gain on sale of depreciable properties	1,357,778			1,016			424,892
Income from discontinued operations before income taxes	1,376,214			16,857			436,788
Income tax expense	(12,465		)	—			(3,175		)
Income from discontinued operations	$	1,363,749		$	16,857		$	433,613

Income tax expense included in discontinued operations relates to the sale of certain properties owned by our taxable REIT subsidiary.

Capital expenditures on a cash basis for the years ended December 31, 2017, 2016 and 2015 were $20.9 million $33.7 million and $131.3 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 noncontrolling interests, for the years ended December 31, 2017, 2016 and 2015, respectively (in thousands):



	2017		2016		2015
Income from continuing operations attributable to common shareholders	$	288,075	$	295,452	$	186,152
Income from discontinued operations attributable to common shareholders	1,346,356		16,691		429,158
Net income attributable to common shareholders	$	1,634,431	$	312,143	$	615,310

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.

Assets Held-for-Sale

At December 31, 2017, one in-service property was 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
	December 31, 2017				December 31, 2016
		Total			Included in Continuing Operations			Included in Discontinued Operations			Total
Land and improvements		$	8,157		$	3,631		$	118,882		$	122,513
Buildings and tenant improvements		10,505			37,495			1,218,468			1,255,963
Undeveloped land		—			22,657			—			22,657
Accumulated depreciation		(2,553		)	(18,581		)	(240,685		)	(259,266		)
Deferred leasing and other costs, net		862			3,091			83,522			86,613
Other assets		579			3,334			92,444			95,778
Total assets held-for-sale		$	17,550		$	51,627		$	1,272,631		$	1,324,258

Total liabilities held-for-sale		$	1,163		$	1,661		$	54,630		$	56,291

Impairment Charges

The following table illustrates impairment charges recognized during the years ended December 31, 2017, 2016 and 2015, respectively (in thousands):



	2017		2016		2015
Impairment charges - land	$	3,622	$	14,299	$	19,526
Impairment charges - building	859		3,719		3,406
Impairment charges	$	4,481	$	18,018	$	22,932

Primarily as the result of changes in our intended use for certain of our undeveloped land holdings, we recognized impairment charges of $3.6 million, $14.3 million and $19.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The various land holdings written down to fair value totaled 12, 244 and 139 acres for the years ended December 31, 2017, 2016 and 2015, 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.