Real Estate

The Company's real estate assets were comprised of the following ($ in thousands):



	Net Lease⁽¹⁾			Operating Properties			Total
As of March 31, 2018
Land, at cost	$	218,261		$	212,782		$	431,043
Buildings and improvements, at cost	888,058			340,550			1,228,608
Less: accumulated depreciation	(297,881		)	(59,627		)	(357,508		)
Real estate, net	808,438			493,705			1,302,143
Real estate available and held for sale ⁽²⁾	—			41,857			41,857
Total real estate	$	808,438		$	535,562		$	1,344,000
As of December 31, 2017
Land, at cost	$	219,092		$	203,278		$	422,370
Buildings and improvements, at cost	888,959			318,107			1,207,066
Less: accumulated depreciation	(292,268		)	(55,137		)	(347,405		)
Real estate, net	815,783			466,248			1,282,031
Real estate available and held for sale ⁽²⁾	—			68,588			68,588
Total real estate	$	815,783		$	534,836		$	1,350,619

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(1)

In 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets (the "Net Lease Venture") and gave a right of first offer to the Net Lease Venture on all new net lease investments (refer to Note 7 for more information on the Net Lease Venture). The Company is responsible for sourcing new opportunities and managing the Net Lease Venture in exchange for a promote and management fee.


(2)	As of March 31, 2018 and December 31, 2017, the Company had $40.9 million and $48.5 million, respectively, of residential condominiums available for sale in its operating properties portfolio.

Disposition of Ground Lease Business—In April 2017, institutional investors acquired a controlling interest in the Company's ground lease business through the merger of a Company subsidiary and related transactions (the "Acquisition Transactions"). Ground leases generally represent ownership of the land underlying commercial real estate projects that is triple net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon ("Ground Lease"). The Company's Ground Lease business was a component of the Company's net lease segment and consisted of 12 properties subject to long-term net leases including seven Ground Leases and one master lease (covering five properties). The acquiring entity was a newly formed unconsolidated entity named Safety, Income & Growth Inc. ("SAFE"). The carrying value of the Company's Ground Lease assets was approximately $161.1 million. Shortly before the Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company received all of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounts for its investment in SAFE as an equity method investment (refer to Note 7). The Company accounted for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. As a result of the adoption of ASU 2017-05 (refer to Note 3), on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate gain on the sale of its Ground Lease business to approximately $178.9 million.

Discontinued Operations—The transactions described above involving the Company's Ground Lease business qualified for discontinued operations and the following table summarizes income from discontinued operations for the three months ended March 31, 2017 ($ in thousands)⁽¹⁾⁽²⁾:



Revenues	$	5,244
Expenses	(986		)
Income from sales of real estate	508
Income from discontinued operations	$	4,766

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(1)	The transactions closed on April 14, 2017. Revenues primarily consisted of operating lease income and expenses primarily consisted of depreciation and amortization and real estate expense.


(2)	For the three months ended March 31, 2017, cash flows provided by operating activities and cash flows used in investing activities from discontinued operations was $6.3 million and $0.5 million, respectively.

Other Dispositions—The following table presents the net proceeds and income recognized for properties sold, by property type ($ in millions):



	Three Months Ended March 31,
	2018		2017
Operating Properties
Proceeds	$	41.9	$	10.2
Income from sales of real estate	16.6		1.9

Net Lease
Proceeds	$	2.3	$	19.5
Income from sales of real estate	0.4		6.2

Total
Proceeds	$	44.2	$	29.7
Income from sales of real estate	17.0		8.1

Impairments—During the three months ended March 31, 2018, the Company recorded an impairment of $4.1 million on a real estate asset held for sale due to impending contracts to sell the remaining four condominium units at the property. During the three months ended March 31, 2017, the Company recorded an impairment of $4.4 million on a real estate asset held for sale due to shifting demand in the local condominium market along with a change in the Company's exit strategy.

Tenant Reimbursements—The Company receives reimbursements from tenants for certain facility operating expenses including common area costs, insurance, utilities and real estate taxes. Tenant expense reimbursements were $5.6 million and $5.5 million for the three months ended March 31, 2018 and 2017, respectively. These amounts are included in "Operating lease income" in the Company's consolidated statements of operations.

Allowance for Doubtful Accounts—As of March 31, 2018 and December 31, 2017, the allowance for doubtful accounts related to real estate tenant receivables was $1.6 million and $1.3 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.5 million and $1.3 million as of March 31, 2018 and December 31, 2017, respectively. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred operating lease income receivable, net," respectively, on the Company's consolidated balance sheets.