Real Estate, Operating Real Estate, and Assets Held for Sale

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):



	June 30, 2017			December 31, 2016
Land	$	1,125,825		$	1,128,933
Buildings	4,144,218			4,053,334
Real estate under construction	6,933			21,859
Less: Accumulated depreciation	(538,131		)	(472,294		)
	$	4,738,845		$	4,731,832

During the six months ended June 30, 2017, the U.S. dollar weakened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro increased by 8.3% to $1.1412 from $1.0541. As a result of this fluctuation in foreign exchange rates, the carrying value of our real estate increased by $107.5 million from December 31, 2016 to June 30, 2017.

Depreciation expense, including the effect of foreign currency translation, on our real estate was $35.8 million and $37.0 million for the three months ended June 30, 2017 and 2016, respectively, and $71.2 million and $71.9 million for the six months ended June 30, 2017 and 2016, respectively. Accumulated depreciation of real estate is included in Accumulated depreciation and amortization in the consolidated financial statements.

Acquisition of Real Estate

On June 27, 2017, we acquired an industrial facility in Chicago, Illinois, which was deemed to be a real estate asset acquisition, at a total cost of $6.0 million, including land of $2.2 million, building of $2.5 million, and an in-place lease intangible asset of $1.3 million (Note 6). We also committed to fund an additional $3.6 million of building improvements at that facility by June 2018.

Real Estate Under Construction

During the six months ended June 30, 2017, we capitalized real estate under construction totaling $29.8 million, including net accrual activity of $6.0 million, primarily related to construction projects on our properties. As of June 30, 2017, we had two construction projects in progress (accrued for but not yet funded), and as of December 31, 2016, we had three construction projects in progress. Aggregate unfunded commitments totaled approximately $109.2 million and $135.2 million as of June 30, 2017 and December 31, 2016, respectively.

During the six months ended June 30, 2017, we capitalized and completed the following construction projects, at a total cost of $58.7 million, of which $35.5 million was capitalized during 2016:


•	an expansion project at an industrial facility in Windsor, Connecticut in March 2017 at a cost totaling $3.3 million;


•	an expansion project at an educational facility in Coconut Creek, Florida in May 2017 at a cost totaling $18.2 million;


•	an expansion project at two industrial facilities in Monarto South, Australia in May 2017 at a cost totaling $15.9 million; and


•	a build-to-suit project for an industrial facility in McCalla, Alabama in June 2017 at a cost totaling $21.3 million.

Dispositions of Real Estate

During the six months ended June 30, 2017, we sold five properties and a parcel of vacant land, excluding the sale of one property that was classified as held for sale as of December 31, 2016, and transferred ownership of two properties to the related mortgage lender (Note 15). As a result, the carrying value of our real estate decreased by $46.2 million from December 31, 2016 to June 30, 2017.

Future Dispositions of Real Estate

During the year ended December 31, 2016, three tenants exercised options to repurchase the properties they are leasing from us in accordance with their lease agreements for an aggregate of $29.6 million. However, in June 2017, we restructured the lease with one of the tenants (which occupies two properties), extending the lease expiration date through June 2022, and as such the tenant will not repurchase the properties during 2017, as originally expected. We currently expect that one of the other repurchases will be completed in the third quarter of 2017, and that the third repurchase will be completed in the fourth quarter of 2019, but there can be no assurance that they will be completed within those timeframes or at all. At June 30, 2017, these two properties had an aggregate asset carrying value of $8.8 million.

Operating Real Estate

At both June 30, 2017 and December 31, 2016, Operating real estate consisted of our investments in two hotels. Below is a summary of our Operating real estate (in thousands):



	June 30, 2017			December 31, 2016
Land	$	6,041		$	6,041
Buildings	75,861			75,670
Less: Accumulated depreciation	(14,278		)	(12,143		)
	$	67,624		$	69,568

Depreciation expense on our operating real estate was $1.1 million for both the three months ended June 30, 2017 and 2016, respectively, and $2.1 million for both the six months ended June 30, 2017 and 2016, respectively. Accumulated depreciation of operating real estate is included in Accumulated depreciation and amortization in the consolidated financial statements.

Assets Held for Sale

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



	June 30, 2017		December 31, 2016
Real estate, net	$	24,275	$	—
Intangible assets, net	8,195		—
Net investments in direct financing leases	—		26,247
Assets held for sale	$	32,470	$	26,247

At June 30, 2017, we had three properties classified as Assets held for sale with an aggregate carrying value of $32.5 million, including two international properties with an aggregate carrying value of $18.3 million. Subsequent to June 30, 2017 and through the date of this Report, we sold all of these properties (Note 17).

At December 31, 2016, we had one property classified as Assets held for sale with a carrying value of $26.2 million. In addition, there was a deferred tax liability of $2.5 million related to this property as of December 31, 2016, which is included in Deferred income taxes in the consolidated balance sheets. The property was sold during the six months ended June 30, 2017 (Note 15).