Investments in Real Estate

A summary of our investments in properties as of December 31, 2016 and 2015 is as follows:



	As of December 31, 2016
	(in thousands)
Property Type	Land		Acquired Ground Lease		Building and Improvements (1)		Tenant Improvements		Accumulated Depreciation and Amortization			Net Investment in Properties
Internet Gateway Data Centers	$	109,714	$	—	$	1,924,869	$	93,472	$	(675,725	)	$	1,452,330
Data Centers	598,475		10,014		8,052,356		431,444		(1,924,694		)	7,167,595
Technology Manufacturing	20,199		1,321		57,766		6,333		(24,595		)	61,024
Technology Office	12,398		—		73,650		1,460		(21,407		)	66,101
Other	6,036		—		158,884		78		(22,088		)	142,910
	$	746,822	$	11,335	$	10,267,525	$	532,787	$	(2,668,509	)	$	8,889,960



	As of December 31, 2015
	(in thousands)
Property Type	Land		Acquired Ground Lease		Building and Improvements(1)		Tenant Improvements		Accumulated Depreciation and Amortization			Net Investment in Properties
Internet Gateway Data Centers	$	109,389	$	—	$	1,440,594	$	95,185	$	(607,452	)	$	1,037,716
Data Centers	539,298		11,317		7,438,334		433,679		(1,575,589		)	6,847,039
Technology Manufacturing	20,199		1,322		56,254		6,333		(22,677		)	61,431
Technology Office	12,142		—		49,470		1,459		(18,564		)	44,507
Other	8,545		—		691,775		78		(26,986		)	673,412
	$	689,573	$	12,639	$	9,676,427	$	536,734	$	(2,251,268	)	$	8,664,105


(1)	Balance includes, as of December 31, 2016 and 2015, $0.9 billion and $0.7 billion of direct and accrued costs associated with development in progress, respectively.

Acquisitions

We acquired the following real estate properties during the years ended December 31, 2016 and 2015:

2016 Acquisitions



Location	Market	Date Acquired	Amount (in millions)
Sovereign House	London	July 5, 2016	(1)
West Drayton	London	July 5, 2016	(1)
Olivers Yard	London	July 5, 2016	(1)
Bonnington House	London	July 5, 2016	(1)
Meridian Gate	London	July 5, 2016	(1)
Amsterdam Business Park	Amsterdam	July 5, 2016	(1)
Amsterdam Science Park	Amsterdam	July 5, 2016	(1)
Lyonerstrasse	Frankfurt	July 5, 2016	(1)
Land parcels ⁽²⁾	Various	Various	$	47.6
Total			$	866.5


(1)	On July 5, 2016, the Company completed the acquisition of a portfolio of eight high-quality, carrier-neutral data centers in Europe from Equinix, which we refer to as the European Portfolio Acquisition. The purchase price was $818.9 million in the aggregate (based on the exchange rate at the date of acquisition).


(2)	Represents currently vacant land which is not included in our operating property count. We completed four acquisitions of land parcels in the three months ended September 30, 2016 in Northern Virginia, Dallas and Chicago. Excludes capitalized closing costs on land acquisitions.

The table below summarizes the preliminary purchase price allocation for the European Portfolio Acquisition (in thousands):



Investments in real estate	$	270,195
Goodwill	445,137
Intangibles:
Tenant relationship value	249,070
Acquired in-place lease value	18,807
Above/below-market lease value, net	4,817
Capital lease and other long-term obligations	(118,923		)
Deferred taxes	(50,199		)
Total purchase price	$	818,904

Due to the timing of the closing of the European Portfolio Acquisition, the final purchase price allocation is expected to be completed in early 2017. As such, the estimates used as of December 31, 2016 are subject to change, including the amounts allocated to the acquired intangible assets, including goodwill, and deferred taxes.

The Company recorded transaction expenses of approximately $6.9 million in the accompanying 2016 consolidated income statement in connection with the European Portfolio Acquisition. Actual results in 2016 included total revenues and operating expenses of the acquired properties of $55.3 million and $20.1 million, respectively.

Pro forma Information (unaudited)

The following unaudited pro forma financial information presents our results as though the European Portfolio Acquisition had been consummated as of January 1, 2015. The pro forma information does not necessarily reflect the actual results of operations had the transactions been consummated at the beginning of the period indicated nor is it necessarily indicative of future operating results. The pro forma information does not give effect to any cost synergies or other operating efficiencies that could result from the European Portfolio Acquisition and also does not include any transaction and integration expenses. The pro forma results for 2016 include approximately six months of actual results for the European Portfolio Acquisition and six months of pro forma adjustments.



(amounts in thousands, except for per share amounts)	2016		2015
Total revenues	$	2,199,358	$	1,875,783
Net income (loss) available to common stockholders	$	343,235	$	239,201
Net income (loss) per share available to common stockholders - basic and diluted	$	2.28	$	1.72

Telx Acquisition

On October 9, 2015, we acquired Telx pursuant to the terms an Agreement and Plan of Merger (the "Merger Agreement"). The purchase price, which was determined through negotiations between us and the sellers, was approximately $1.886 billion (subject to certain adjustments contemplated by the Merger Agreement). Telx, a leading national provider of data center colocation, interconnection and cloud enablement solutions, was our customer for over eight years prior to the Telx Acquisition. In our consolidated financial statements, the historical results of the Company are included for the entire period presented and the results of Telx are included for the period subsequent to the Telx Acquisition.

The final purchase price allocation was completed in early 2016. The final adjustments to the preliminary purchase price allocation were not material. The following table summarizes the amounts for acquired assets and liabilities recorded at their fair values as of the acquisition date (in thousands):



Investments in real estate	$	604,870
Goodwill	316,309
Intangibles:
Tenant relationship value	734,800
Acquired in-place lease value	252,269
Trade name	7,300
Above/below-market lease value, net	(13,100		)
Capital lease and other long-term obligations	(63,962		)
Other working capital accounts and adjustments, net	47,514
Total purchase price	$	1,886,000

Prior to the acquisition, Telx leased space in several of the Company’s datacenter properties, thus in connection with the acquisition, the Company recognized a gain and additional goodwill of approximately $14.4 million related to the settlement of these pre-existing lease contracts. This gain was offset by the write-off of $75.3 million in deferred rent receivables related to the settled Telx lease contracts. The net loss on settlement related to these items is included in other operating expenses in the accompanying 2015 consolidated income statement.

The Company recorded transaction expenses of approximately $17.4 million in the accompanying 2015 consolidated income statement in connection with the Telx Acquisition.

Purchase Price Accounting for Europe Portfolio and Telx Acquisitions

The Company determined the preliminary fair value of the real estate acquired using a combination of market comparable transactions, replacement cost estimates and discounted cash flow models. These methods were significantly impacted by estimates related to comparable land values, market rents, and discount rates.

The acquisition date fair value of the intangible assets related to tenant relationship value, acquired in-place lease value and trade name were estimated using a discounted cash flow method. These measurements were significantly impacted by estimates related to forecast revenue growth rates, customer attrition rates, market rents, and expected expense synergies.

The above/below-market lease value was estimated based on comparison of the contractual rents and current market rents for similar space.

Capital lease liabilities were valued based on the discounted cash flows of the subject leases using a market discount rate for debt with similar terms and maturities.

The acquisition date fair values of the working capital related assets and liabilities were recorded based on their carrying values as of the acquisition date given the short-term nature of these items.

Goodwill is the excess consideration remaining after allocating the fair value of the other acquired assets and liabilities and represents the expected future economic benefits and synergies to be achieved by combining the Company and its respective acquisitions product and service offerings.

2015 Acquisitions



Location	Market	Date Acquired	Amount (in millions) ⁽¹⁾
Deer Park 3 ⁽²⁾	Melbourne	April 15, 2015	$	1.6
3 Loyang Way ⁽³⁾⁽⁴⁾	Singapore	June 25, 2015	45.0
Digital Loudoun 3 ⁽²⁾	Northern Virginia	November 16, 2015	43.0
Digital Frankfurt ⁽²⁾	Frankfurt	December 18, 2015	5.6
			$	95.2


(1)	Purchase prices are all in U.S. dollars and exclude capitalized closing costs on land acquisitions. Purchase prices for acquisitions outside the United States are based on the exchange rate at the date of acquisition.


(2)	Represents currently vacant land which is not included in our operating property count.


(3)	Represents a development property with an existing shell, which is included in our operating property count. This acquisition lacked key inputs to qualify as a business combination under purchase accounting guidance, and has therefore been accounted for as an asset acquisition, not a business combination.


(4)	Property is subject to a ground lease, which expires in February 2024, with a renewal provision for an additional 28 years upon satisfaction of certain requirements.

Dispositions

We sold the following real estate properties during the years ended December 31, 2016 and 2015:

2016 Dispositions



Location	Market	Date Sold	Gross Proceeds (in millions)		Gain on Sale (in millions)
47700 Kato Road and 1055 Page Avenue	Silicon Valley	January 21, 2016	$	37.5	$	1.0
Data center portfolio ⁽¹⁾	Various	July 11, 2016	114.5		24.5
114 Rue Ambroise Croizat ⁽²⁾	Paris	August 1, 2016	212.0		144.3
			$	364.0	$	169.8


(1)	On July 11, 2016, the Company closed on the sale of a four-property data center portfolio, including two in St. Louis and two in Northern Virginia, totaling over 454,000 square feet for approximately $114.5 million. The Company recognized a gain on the sale of approximately $24.5 million in the third quarter of 2016. The four properties were classified as held for sale as of June 30, 2016.

(2)

The Company granted Equinix an option to acquire the Company's facility in 114 rue Ambroise Croizat in Paris. Equinix elected to exercise its option to acquire the Paris property, and on July 2, 2016, the Company entered into an agreement to sell the property to Equinix for approximately €190 million (or approximately $212 million based on the exchange rate as of August 1, 2016). The Paris property sale closed on August 1, 2016. The Company recognized a gain on the sale of approximately $144.3 million in the third quarter of 2016. This property was classified as held for sale as of June 30, 2016.

2015 Dispositions



Location	Market	Date Sold	Gross Proceeds (in millions)			Gain (Loss) on Sale (in millions)
100 Quannapowitt Parkway	Boston	February 5, 2015	$	31.1		$	10.1
3300 East Birch Street	Los Angeles	March 31, 2015	14.2			7.5
833 Chestnut Street	Philadelphia	April 30, 2015	160.8		⁽¹⁾	77.1
650 Randolph Road	New York Metro	December 30, 2015	9.2			(0.1		)
			$	215.3		$	94.6


(1)	Gross proceeds includes a $9.0 million note receivable, which was collected prior to December 31, 2015.

In 2014, we identified certain non-core investment properties we intend to sell as part of our capital recycling strategy. Our capital recycling program was designed to identify non-strategic and underperforming assets that can be sold to generate proceeds that will support the funding of our core investment activity. We expect our capital recycling initiative will likewise have a meaningfully positive impact on overall return on invested capital. In addition, our capital recycling program does not represent a strategic shift, as we are not entirely exiting regions or property types. During this process, we evaluated the carrying value of certain investment properties identified for potential sale to ensure the carrying value was recoverable in light of a potentially shorter holding period. As a result of our evaluation, during the year ended December 31, 2014, we recognized approximately $126.5 million of impairment losses on five properties located in the Midwest, Northeast and West regions. The fair value of the five properties were primarily based on discounted cash flow analysis, and in certain cases, we supplemented the analysis by obtaining broker opinions of value. During 2015 and 2016, additional properties were identified for potential sale, however, no additional impairment losses were required. As of December 31, 2015, eight of the identified properties with a carrying value of $180.1 million within total assets and $5.8 million within total liabilities met the criteria to be classified as held for sale. As of December 31, 2016, three of the identified properties with a carrying value of $56.1 million within total assets and $2.6 million within total liabilities, remained in our portfolio and we concluded they continued to meet the criteria to be classified as held for sale. None of the properties that have been sold or are currently classified as held for sale represent a significant component of our portfolio, nor do the potential sales represent a significant shift in our strategy.