Land, Buildings and Improvements and Assets Held for Sale

3 Months Ended

Mar. 31, 2020

Real Estate [Abstract]

Land, Buildings and Improvements and Assets Held for Sale

Land, Buildings and Improvements and Assets Held for Sale

Land, Buildings and Improvements — Operating Leases

Land and buildings leased to others, which are subject to operating leases, and real estate under construction, are summarized as follows (in thousands):

	March 31, 2020			December 31, 2019
Land	$	1,868,126		$	1,875,065
Buildings and improvements	7,960,373			7,828,439
Real estate under construction	107,977			69,604
Less: Accumulated depreciation	(1,005,110		)	(950,452		)
	$	8,931,366		$	8,822,656

During the three months ended March 31, 2020, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro decreased by 2.5% to $1.0956 from $1.1234. As a result of this fluctuation in foreign currency exchange rates, the carrying value of our Land, buildings and improvements subject to operating leases decreased by $107.1 million from December 31, 2019 to March 31, 2020.

In connection with changes in lease classifications due to extensions of the underlying leases, we reclassified 36 properties with an aggregate carrying value of $17.5 million from Net investments in direct financing leases to Land, buildings and improvements during the three months ended March 31, 2020 (Note 5).

Depreciation expense, including the effect of foreign currency translation, on our buildings and improvements subject to operating leases was $65.9 million and $55.1 million for the three months ended March 31, 2020 and 2019, respectively.

Acquisitions of Real Estate

During the three months ended March 31, 2020, we entered into the following investments, which were deemed to be real estate asset acquisitions, at a total cost of $204.6 million, including land of $30.7 million, buildings of $145.9 million (including capitalized acquisition-related costs of $8.6 million), and net lease intangibles of $28.0 million (dollars in thousands):

Property Location(s)	Number of Properties	Date of Acquisition	Property Type	Total Capitalized Costs
Newark, United Kingdom (a)	1	1/6/2020	Warehouse	$	111,546
Aurora, Oregon (b)	1	1/24/2020	Industrial	28,755
Vojens, Denmark (a) (c)	1	1/31/2020	Warehouse	10,611
Kitzingen, Germany (a)	1	3/9/2020	Office	53,666
				$	204,578

__________

(a) Amount reflects the applicable exchange rate on the date of acquisition.

(b) Amount includes approximately $5.0 million in contingent consideration that will be released to the tenant/seller upon the tenant securing an easement on the property.

(c) We also recorded an estimated deferred tax liability of $0.5 million, with a corresponding increase to the asset value, since we assumed the tax basis of the acquired property.

The acquired net lease intangibles are comprised of (i) in-place lease intangible assets totaling $26.5 million, which have a weighted-average expected life of 18.3 years and (ii) an above-market rent intangible asset of $1.5 million, which has an expected life of 13.5 years.

As of March 31, 2020, we committed to purchase a warehouse and distribution facility in Knoxville, Tennessee, for approximately $68.0 million upon completion of construction of the property, which is expected to take place during the second quarter of 2020.

Real Estate Under Construction

During the three months ended March 31, 2020, we capitalized real estate under construction totaling $91.5 million. The number of construction projects in progress with balances included in real estate under construction was four and three as of March 31, 2020 and December 31, 2019, respectively. Aggregate unfunded commitments totaled approximately $201.3 million and $227.8 million as of March 31, 2020 and December 31, 2019, respectively.

During the three months ended March 31, 2020, we completed a redevelopment project at a laboratory facility in Westborough, Massachusetts, in January 2020 at a cost totaling $53.1 million, including capitalized interest.

During the three months ended March 31, 2020, we committed to fund $26.2 million (based on the exchange rate of the euro at March 31, 2020) for an expansion project for an existing tenant at a warehouse facility in Azambuja, Portugal, which we currently expect to complete in the third quarter of 2020.

Dispositions of Properties

During the three months ended March 31, 2020, we sold three properties, which were classified as Land, buildings and improvements subject to operating leases. As a result, the carrying value of our Land, buildings and improvements subject to operating leases decreased by $2.1 million from December 31, 2019 to March 31, 2020.

Leases

Operating Lease Income

Lease income related to operating leases recognized and included in the consolidated statements of income is as follows (in thousands):

	Three Months Ended March 31,
	2020		2019
Lease income — fixed	$	238,969	$	215,118
Lease income — variable (a)	23,080		21,263
Total operating lease income (b)	$	262,049	$	236,381

__________

(a) Includes (i) rent increases based on changes in the CPI and other comparable indices and (ii) reimbursements for property taxes, insurance, and common area maintenance services.

(b) Excludes $20.1 million and $26.6 million for the three months ended March 31, 2020 and 2019, respectively, of interest income from direct financing leases that is included in Lease revenues in the consolidated statements of income.

Land, Buildings and Improvements — Operating Properties

At both March 31, 2020, and December 31, 2019, Land, buildings and improvements attributable to operating properties consisted of our investments in ten consolidated self-storage properties and one consolidated hotel. As of December 31, 2019, we reclassified another consolidated hotel to Assets held for sale, net and sold it in January 2020, as described below. Below is a summary of our Land, buildings and improvements attributable to operating properties (in thousands):

	March 31, 2020			December 31, 2019
Land	$	10,452		$	10,452
Buildings and improvements	72,669			72,631
Less: Accumulated depreciation	(11,917		)	(11,241		)
	$	71,204		$	71,842

Depreciation expense on our buildings and improvements attributable to operating properties was $0.7 million and $2.8 million for the three months ended March 31, 2020 and 2019, respectively.

For the three months ended March 31, 2020, Operating property revenues totaling $6.0 million were comprised of $4.4 million in lease revenues and $1.6 million in other income (such as food and beverage revenue) from ten consolidated self-storage properties and two consolidated hotels. For the three months ended March 31, 2019, Operating property revenues totaling $16.0 million were comprised of $13.2 million in lease revenues and $2.8 million in other income from 37 consolidated self-storage properties and two consolidated hotels. We sold one of our two hotel operating properties in January 2020, as described below. We derive self-storage revenue primarily from rents received from customers who rent storage space under month-to-month leases for personal or business use. We derive hotel revenue primarily from room rentals, as well as food, beverage, and other services.

Assets Held for Sale, Net

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

	March 31, 2020		December 31, 2019
Land, buildings and improvements	$	—	$	105,573
Accumulated depreciation and amortization	—		(1,563		)
Assets held for sale, net	$	—	$	104,010

At December 31, 2019, we had one hotel operating property classified as Assets held for sale, net, with an aggregate carrying value of $104.0 million. The property was sold in January 2020 (Note 14).