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):



	September 30, 2014			December 31, 2013
Land	$	1,090,425		$	534,697
Buildings	3,460,094			1,972,107
Real estate under construction	21,794			9,521
Less: Accumulated depreciation	(239,941		)	(168,076		)
	$	4,332,372		$	2,348,249

During the nine months ended September 30, 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 September 30, 2014 decreased by 7.9% to $1.2687 from $1.3768 at December 31, 2013. The impact of this strengthening was an $81.3 million decrease in the carrying value of Real estate from December 31, 2013 to September 30, 2014 (Note 11).

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 nine months ended September 30, 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 nine months ended September 30, 2014 (Note 6).

Acquisitions of Real Estate

During the nine months ended September 30, 2014, we 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 $252.0 million, including land of $26.9 million, buildings of $188.3 million, and net lease intangibles of $36.8 million (Note 8):


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


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

•

an investment of $116.9 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 $14.6 million. In connection with this business combination, we recorded goodwill of $11.7 million (Note 8). Dollar amounts are based on the exchange rate of the Norwegian krone on the date of acquisition; and


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

The purchase price for our investment in Norway was allocated to the assets acquired and liabilities assumed based upon their preliminary estimated fair values, which are based on the best estimates of management at the date of acquisition. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed.

In connection with these transactions, we expensed acquisition-related costs totaling $0.8 million, which are included in Merger and property acquisition expenses in the consolidated financial statements.

Operating Real Estate

Operating real estate, which consists of our investments in two hotels acquired in the CPA^®:16 Merger and two self-storage properties, at cost, is summarized as follows (in thousands):



	September 30, 2014			December 31, 2013
Land	$	7,027		$	1,097
Buildings	77,567			4,927
Less: Accumulated depreciation	(3,698		)	(882		)
	$	80,896		$	5,142

Assets Held for Sale

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



	September 30, 2014		December 31, 2013
Real estate, net	$	—	$	62,466
Above-market rent intangible assets, net	—		13,872
In-place lease intangible assets, net	—		12,293
Below-market rent and other intangible liabilities, net	—		(1,808		)
Assets held for sale	$	—	$	86,823

At December 31, 2013, we had nine properties classified as Assets held for sale, all of which were sold during the nine months ended September 30, 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 nine months ended September 30, 2014. In accordance with our adoption of ASU 2014-08 (Note 2), the results of operations for these properties are reflected in the consolidated financial statements as discontinued operations (Note 15).

During the nine months ended September 30, 2014, we reclassified one property with a carrying value of $1.3 million to Assets held for sale, which was then subsequently sold. In accordance with our adoption of ASU 2014-08 (Note 2), the results of operations for this property are included within continuing operations in the consolidated financial statements.