Real Estate

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



	Net Lease⁽¹⁾			Operating Properties			Total
As of December 31, 2018
Land, at cost	$	336,740		$	133,599		$	470,339
Buildings and improvements, at cost	1,487,270			118,724			1,605,994
Less: accumulated depreciation	(287,516		)	(17,798		)	(305,314		)
Real estate, net	1,536,494			234,525			1,771,019
Real estate available and held for sale ⁽²⁾	1,055			21,496			22,551
Total real estate	$	1,537,549		$	256,021		$	1,793,570
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)	On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7) and recorded $743.6 million to "Real estate, net" on the Company's consolidated balance sheet.


(2)	As of December 31, 2018 and 2017 the Company had $20.6 million and $48.5 million, respectively, of residential condominiums available for sale in its operating properties portfolio.

Real Estate Available and Held for Sale—The following table presents the carrying value of properties transferred to held for sale, by segment ($ in millions)⁽¹⁾:



	Year Ended December 31,
Property Type	2018		2017		2016
Operating Properties	$	23.2	$	20.1	$	16.1
Net Lease	8.1		0.9		1.8
Total	$	31.3	$	21.0	$	17.9

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(1)	Properties were transferred to held for sale due to executed contracts with third parties or changes in business strategy.

Acquisitions—During the year ended December 31, 2018, the Company acquired two net lease assets for an aggregate $14.8 million. During the year ended December 31, 2017, the Company acquired one net lease asset for $6.6 million. In addition, in the third quarter 2017, in conjunction with the modification of two master leases, the Company exchanged real property with the tenant. The fair value of the property exchanged exceeded the Company's cost basis by approximately $1.5 million which will be deferred and amortized to "Operating lease income" in the Company's consolidated statements of operations over the remaining master lease terms.

During the year ended December 31, 2016, the Company acquired one net lease asset for $32.7 million. During the same period, the Company also acquired land for $3.9 million and simultaneously entered into a 99 year ground lease with the seller. This asset was one of the 12 properties comprising the Company's Ground Lease business that was disposed of in April 2017 (see "Disposition of Ground Lease Business" below).

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. The gain was recorded in "Gain from discontinued operations" in the Company's consolidated statements of operations. As a result of the adoption of ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, 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 years ended December 31, 2017 and 2016 ($ in thousands)⁽¹⁾:



	Year Ended December 31,
	2017			2016
Revenues	$	5,922		$	21,839
Expenses	(1,491		)	(3,569		)
Income from sales of real estate	508			—
Income from discontinued operations	$	4,939		$	18,270

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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.

The following table presents cash flows provided by operating activities and cash flows used in investing activities from discontinued operations for the years ended December 31, 2017 and 2016 ($ in thousands).



	Year Ended December 31,
	2017			2016
Cash flows provided by operating activities	$	5,702		$	16,662
Cash flows used in investing activities	(534		)	(7,972		)

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



	Year Ended December 31,
	2018		2017		2016
Operating Properties⁽¹⁾
Proceeds	$	327.9	$	41.3	$	326.9
Income from sales of real estate	81.0		4.5		75.4

Net Lease⁽²⁾⁽³⁾
Proceeds	$	79.7	$	175.4	$	117.2
Income from sales of real estate	45.0		87.5		21.1

Total
Proceeds	$	407.6	$	216.7	$	444.1
Income from sales of real estate	126.0		92.0		96.5

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(1)	During the year ended December 31, 2018, the Company sold 10 commercial operating properties and residential condominium units from other properties and recognized $81.0 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations, of which $9.8 million was attributable to a noncontrolling interest at one of the properties.


(2)	During the year ended December 31, 2018, the Company sold five net lease assets and recognized $45.0 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations.


(3)	During the year ended December 31, 2017, the Company sold one net lease property and recognized a gain on sale of $62.5 million. Prior to the sale, the Company acquired the noncontrolling interest with a carrying value of $3.5 million for $12.0 million.

Impairments—During the years ended December 31, 2018, 2017 and 2016, the Company recorded aggregate impairments on real estate assets totaling $90.4 million, $11.9 million and $10.7 million, respectively. Refer to Note 16 for a description of the impairments recorded during the year ended December 31, 2018. The impairments recorded in 2017 were primarily the result of shifting demand in the local condominium markets, changes in our exit strategy on other real estate assets and an impairment recorded in connection with the sale of an outparcel located at a commercial operating property. The impairments recorded in 2016 resulted from unfavorable local market conditions on residential operating properties and impairments upon the execution of sales contracts on net lease assets.

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 $22.4 million, $21.9 million and $23.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. These amounts are included in "Operating lease income" in the Company's consolidated statements of operations.

Allowance for Doubtful Accounts—As of December 31, 2018 and 2017, the allowance for doubtful accounts related to real estate tenant receivables was $1.5 million and $1.3 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.8 million and $1.3 million, 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.

Future Minimum Operating Lease Payments—Future minimum operating lease payments to be collected under non-cancelable leases, excluding customer reimbursements of expenses, in effect as of December 31, 2018, are as follows ($ in thousands):



Year	Net Lease Assets		Operating Properties
2019	$	156,968	$	22,400
2020	157,476		21,146
2021	158,453		19,953
2022	160,395		11,358
2023	154,105		10,417