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,
	2013			2012
Land	$	534,697		$	509,530
Buildings	1,972,107			1,824,958
Real estate under construction	9,521			—
Less: Accumulated depreciation	(168,076		)	(116,075		)
	$	2,348,249		$	2,218,413

During 2013, the U.S. dollar weakened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at December 31, 2013 increased by 4.2% to $1.3768 from $1.3218 at December 31, 2012. The impact of this weakening was a $25.5 million increase in the carrying value of Real estate from December 31, 2012 to December 31, 2013.

In connection with restructuring six leases, we reclassified $14.0 million of properties from Net investments in direct financing leases to Real estate during 2013 (Note 6). In connection with the anticipated sales of certain properties during 2013, we reclassified one international and 12 domestic properties with an aggregate carrying value of $91.7 million to Assets held for sale. At December 31, 2013, total Assets held for sale were $86.8 million, which includes real estate, net of $62.4 million and net lease intangibles of $24.4 million. We completed the sale of six of these properties in January 2014. There can be no assurance that the remaining properties will be sold at the contracted price or at all.

Assets disposed of and reclassified as held-for-sale during 2013 are discussed in Note 17. Impairment charges recognized on these properties are discussed in Note 10.

In December 2013, one of our properties in France was partially damaged by a fire. Any loss due to the fire cannot be estimated at this time as the event is still under investigation, but we currently expect that our insurance will cover the full amount of the damages sustained. At December 31, 2013, this property had a carrying value of $18.7 million. Total dollar amount is based on the exchange rate of the euro at December 31, 2013.

Real Estate Acquired During 2013 – We entered into the following investments, which were deemed to be real estate asset acquisitions because we entered into new leases with the sellers, at a total cost of $124.4 million, including net lease intangibles of $26.5 million (Note 9) and acquisition-related costs of $1.5 million, which were capitalized:


•	a domestic investment for $72.4 million for an office building; and


•	an investment in Finland for $52.1 million for an office and research and development facility.

We also entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, 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 9):


•	an investment in the United Kingdom for $63.3 million for an office building;


•	a domestic investment for $33.6 million for an office building. We are also committed to funding a tenant improvement allowance of $5.2 million;


•	an investment in the Netherlands for $35.3 million for a logistics facility; and


•	a domestic investment for $25.5 million for an office building.

In connection with these business combinations, we expensed aggregate acquisition-related costs of $4.2 million, which are included in Merger and 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 Germany for a total cost of up to $65.0 million, including acquisition expenses, of which we funded $3.9 million through December 31, 2013 and incurred $5.6 million of unpaid construction costs.

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

Real Estate Acquired 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 9) 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.

Real Estate Acquired During 2011 – As discussed in Note 4, in connection with the CPA^®:14/16 Merger in May 2011, we purchased the remaining interests in certain investments, in which we already had a joint interest, from CPA^®:14. These three investments’ properties had an aggregate fair value of $174.8 million at the date of acquisition. Prior to this purchase, we had consolidated one of these investments and accounted for the other two investments under the equity method. As part of the transaction, we assumed the related non-recourse mortgages on the two investments previously accounted for under the equity method. These two mortgages and the mortgage on the investment we already consolidated, had an aggregate fair value of $117.1 million at the date of acquisition (Note 12). Amounts provided are the total amounts attributable to the jointly-owned investments’ properties and do not represent the proportionate share that we purchased. Upon acquiring the remaining interests in the two equity investments, we owned 100% of these investments and accounted for these acquisitions as step acquisitions utilizing the purchase method of accounting. Due to the change in control of the investments that occurred, and in accordance with ASC 810 involving a step acquisition where control is obtained and there is a previously held equity interest, we recorded an aggregate gain of approximately $27.9 million related to the difference between our respective carrying values and the fair values of our previously-held interests on the acquisition date. Subsequent to this acquisition, we consolidate all of these wholly-owned investments. The consolidation of these investments resulted in an increase of $90.2 million and $40.8 million to Real estate, net and net lease intangibles, respectively, in May 2011.

During 2011, we reclassified real estate with a net carrying value of $17.9 million to Real estate in connection with an out-of-period adjustment (Note 2).

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, 2013 are as follows (in thousands):



Years Ending December 31,	Total
2014	$	308,433
2015	286,443
2016	262,604
2017	248,578
2018	232,315
Thereafter	1,074,170
Total	$	2,412,543

Operating Real Estate

Operating real estate, which consisted of our investments in 21 self-storage properties through our Carey Storage Management LLC, or Carey Storage, subsidiary and our Livho Inc., or Livho, hotel subsidiary, at cost, is summarized as follows (in thousands):



	December 31,
	2013			2012
Land	$	1,097		$	22,158
Buildings	4,927			77,545
Less: Accumulated depreciation	(882		)	(19,993		)
	$	5,142		$	79,710

During 2013, we sold 19 self-storage properties and the Livho hotel (Note 4 and Note 17, respectively).

Depreciation expense, including the effect of foreign currency translation, on our real estate and operating real estate for the years ended December 31, 2013, 2012 and 2011 was $61.8 million, $25.7 million and $15.0 million, respectively.