Net Investments in Properties

Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, and real estate under construction, is summarized as follows (in thousands):



	December 31,
	2014			2013
Land	$	1,146,704		$	534,697
Buildings	3,829,981			1,972,107
Real estate under construction	29,997			9,521
Less: Accumulated depreciation	(253,627		)	(168,076		)
	$	4,753,055		$	2,348,249

During 2014, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at December 31, 2014 decreased by 11.7% to $1.2156 from $1.3768 at December 31, 2013. The impact of this strengthening was a $154.5 million decrease in the carrying value of Real estate from December 31, 2013 to December 31, 2014.

As discussed in Note 3, we acquired 225 properties subject to existing operating leases in the CPA^®:16 Merger, which increased the carrying value of our real estate by $2.0 billion during the year ended December 31, 2014. In connection with restructuring three leases, we reclassified properties with an aggregate carrying value of $13.7 million from Net investments in direct financing leases to Real estate during the year ended December 31, 2014 (Note 6).

Acquisitions of Real Estate During 2014 – We entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of $366.9 million, including land of $33.1 million, buildings of $278.1 million, and net lease intangibles of $55.7 million (Note 8):


•	$41.9 million for an office building in Chandler, Arizona on March 26, 2014;


•	$47.2 million for a warehouse/distribution facility in University Park, Illinois on May 15, 2014;


•	$117.7 million for an office building in Stavanger, Norway on August 6, 2014. Because we acquired stock in a subsidiary of the seller to complete the acquisition, we assumed the tax basis of the entity that we purchased and recorded an estimated deferred tax liability of $14.7 million. In connection with this business combination, we recorded goodwill of $11.1 million (Note 8);


•	$46.0 million for an office building in Westborough, Massachusetts on August 22, 2014;


•	$56.0 million for an office building in Andover, Massachusetts on October 7, 2014;


•	$29.1 million for an office building in Newport, United Kingdom on October 13, 2014; and


•	$29.0 million for a light-industrial/distribution center in Opole, Poland on December 12, 2014.

In connection with these transactions, we expensed acquisition-related costs totaling $3.3 million, which are included in Merger and property acquisition expenses in the consolidated financial statements. Dollar amounts are based on the exchange rates of the foreign currencies on the dates of acquisitions, as applicable.

We also entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and then entered into new leases with the sellers, at a total cost of $536.7 million, including land of $83.9 million, buildings of $366.6 million, net lease intangibles of $82.9 million (Note 8), a property classified as a net investment in direct financing lease of $3.3 million (Note 6), and acquisition-related costs of $17.8 million, which were capitalized:


•	$138.3 million for 10 industrial and 21 agricultural properties in various locations in Australia on October 28, 2014. We also committed to fund a tenant expansion allowance of $14.8 million;


•	$19.8 million for a manufacturing facility in Lewisburg, Ohio on November 4, 2014; and


•	$378.5 million for 70 office buildings in various locations in Spain on December 19, 2014.

Dollar amounts are based on the exchange rates of the foreign currencies on the dates of acquisitions, as applicable. The purchase price for our investment in Spain was allocated to the assets acquired based upon their preliminary estimated fair values, which are based on the best estimates of management to date. We are in the process of finalizing our assessment of the fair value of the assets acquired. For investments entered into subsequent to December 31, 2014, please see Note 19.

Acquisitions of Real Estate During 2013 – We entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and then entered into new leases with the sellers, at a total cost of $124.4 million, including land of $20.7 million, buildings of $77.2 million, net lease intangibles of $26.5 million (Note 8), and acquisition-related costs of $1.5 million, which were capitalized:


•	$72.4 million for an office building in Northfield, Illinois on January 11, 2013; and


•	$52.1 million for an office facility and research and development facility in Tampere, Finland on June 4, 2013.

We also entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of $157.7 million, including land of $17.2 million, buildings of $99.0 million, and net lease intangibles of $41.5 million (Note 8):


•	$63.3 million for an office building in Salford, United Kingdom on September 9, 2013;


•	$35.3 million for a logistics facility in Venlo, Netherlands on April 15, 2013;


•	$33.6 million for an office building in Lone Tree, Colorado on November 27, 2013. We also committed to funding a tenant improvement allowance of $5.2 million; and


•	$25.5 million for an office building in Quincy, Massachusetts on June 7, 2013.

In connection with these business combinations, we expensed aggregate acquisition-related costs of $4.2 million, which are included in Merger and property acquisition expenses in the consolidated financial statements.

We also entered into a build-to-suit transaction for the construction of an office building located in Mönchengladbach, Germany on December 4, 2013 for a total projected cost of up to $65.0 million, including acquisition expenses, of which we funded $26.4 million and incurred unpaid costs of $3.4 million through December 31, 2014. Amounts are based on the exchange rate of the euro on December 31, 2014.

Dollar amounts above are based on the exchange rate of the euro and the British pound sterling on the dates of acquisition, as applicable.

Acquisitions of Real Estate During 2012 – As discussed in Note 3, we acquired properties in the CPA^®:15 Merger, which increased the carrying value of our real estate by $1.8 billion during the year ended December 31, 2012.

On September 13, 2012, we acquired a domestic investment at a total cost of $24.8 million, including net lease intangible assets totaling $6.6 million (Note 8) and acquisition-related costs. We updated our purchase price allocation during the fourth quarter of 2012, and recorded a measurement period adjustment of $5.3 million to reduce land and buildings and to increase net lease intangibles. We deemed this investment to be a real estate asset acquisition, and as such, we capitalized acquisition-related costs of $0.2 million.

Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI-based adjustments under non-cancelable operating leases, at December 31, 2014 are as follows (in thousands):



Years Ending December 31,	Total
2015	$	569,427
2016	554,767
2017	533,942
2018	502,584
2019	454,038
Thereafter	2,388,659
Total	$	5,003,417

Operating Real Estate

At December 31, 2014, Operating real estate consisted of our investments in two hotels acquired in the CPA^®:16 Merger in January 2014 and two self-storage properties. At December 31, 2013, Operating real estate consisted of two self-storage properties. Below is a summary of our Operating real estate (in thousands):



	December 31,
	2014			2013
Land	$	7,074		$	1,097
Buildings	77,811			4,927
Less: Accumulated depreciation	(4,866		)	(882		)
	$	80,019		$	5,142

Depreciation expense, including the effect of foreign currency translation, on our real estate and operating real estate for the years ended December 31, 2014, 2013, and 2012 was $119.9 million, $61.8 million, and $25.7 million, respectively.

Assets Held for Sale

Below is a summary of our properties held for sale (in thousands):



	December 31,
	2014		2013
Real estate, net	$	5,969	$	62,466
Above-market rent intangible assets, net	838		13,872
In-place lease intangible assets, net	448		12,293
Below-market rent and other intangible liabilities, net	—		(1,808		)
Assets held for sale	$	7,255	$	86,823

At December 31, 2013, we had nine properties classified as Assets held for sale, all of which were sold during the year ended December 31, 2014. In connection with the CPA^®:16 Merger in January 2014, we acquired ten properties that were classified as Assets held for sale with a total fair value of $133.4 million, all of which were sold during the year ended December 31, 2014. In accordance with our adoption of ASU 2014-08, the results of operations for these properties are reflected in the consolidated financial statements as discontinued operations (Note 16).

During the year ended December 31, 2014, we reclassified five properties with an aggregate carrying value of $8.6 million to Assets held for sale, one of which was sold as of December 31, 2014. There can be no assurance that the remaining properties will be sold at the contracted price or at all. In accordance with our adoption of ASU 2014-08, the results of operations for these properties are included within continuing operations in the consolidated financial statements.