Net Investments in Properties and Real Estate Under Construction

9 Months Ended

Sep. 30, 2012

Net Investments in Properties and Real Estate Under Construction

Real Estate Disclosure

Note 4.Net Investments in Properties and Real Estate Under Construction

Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, is summarized as follows (in thousands):

	September 30, 2012		December 31, 2011
Land	$	464,804	$	390,445
Buildings		1,407,113		1,109,706
Less: Accumulated depreciation		(66,263)		(40,522)
	$	1,805,654	$	1,459,629

Acquisitions of Real Estate

During the nine months ended September 30, 2012, we entered intothe following domestic investments, which were classified as operating leases, at a total cost of $316.1 million, including net lease intangible assets totaling $75.0 million(Note 7) and acquisition-related costs and fees:

• an investment for $169.0 million with Blue Cross Blue Shield, Inc(“BCBS”) for eight office facilities;
• an investment for $66.9 million with RLJ-McLarty-Landers Automotive Holdings, LLC (“RML”) for nine automotive dealerships;
• an investment for $36.3 million with R.R. Donnelley & Sons Company for an office facility;
• an investment for $25.0 million with South University for two office facilities;
• an investment for $7.0 million with Bearing Technologies, LTD for a manufacturing facility;
• an investment for $6.9 million with Clayco Inc for an office facility; and
• twofollow-on transactions in an existing investment for a total cost of $5.0 million.

In connection with these investments, which we deemed to bereal estate asset acquisitions under current authoritative accounting guidance, the purchase price was allocated to the assets acquired, based upon their fair values, and we capitalized acquisition-related costs and fees totaling $15.5 million.

Additionally, we acquired an investment for $14.6 million with Shale-Inland Holdings LLC for a multi-tenant industrial facility. As this acquisition was deemed to be a business combination under current authoritative accounting guidance, we expensed acquisition-related costs and fees totaling $0.8 million, which are included in General and administrative expenses in the consolidated financial statements.

Assets disposed of during the current year period are discussed in Note 13.During this period, 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, 2012 decreased 0.7% to $1.2860 from $1.2950 at December 31, 2011. The impact of this strengthening was a $3.3 million decrease in Real estate from December 31, 2011 to September 30, 2012.

Operating Real Estate

Operating real estate, which consists primarily ofour hotel and self-storage operations, at cost, is summarized as follows (in thousands):

	September 30, 2012		December 31, 2011
Land	$	50,214	$	43,950
Buildings		151,702		132,478
Furniture, fixtures & equipment		1,222		1,713
Less: Accumulated depreciation		(6,076)		(2,745)
	$	197,062	$	175,396

Acquisitions of Operating Real Estate

During the nine months ended September 30, 2012, we acquired seven self-storage properties throughout the U. S. for a total cost of $25.3 million, including lease intangible assets of $3.1 million (Note 7). As these acquisitions were deemed to be business combinations under current authoritative accounting guidance, we expensed the acquisition-related costs totaling $0.7million, which are included in General and administrative expenses in the consolidated financial statements.

Real Estate Under Construction

During the nine months ended September 30, 2012, we entered into three build-to-suit projects, which consisted of the following:

• one project with Nippon Sheet Glass Co., Ltd. for the construction of a warehouse located in Poland, which we funded, and placed assets totaling $25.2 million into service, which are now classified as Real Estate, at cost. Amounts are based on the exchange rate of the Euro on the date of acquisition;
• one project with Syncreon Logistics Polska Sp. for the construction of an industrial facility located in Poland for a total cost of up to $8.3 million, of which we funded $1.5 million through September 30, 2012. Amounts are based on the exchange rate of the Euro on the date of acquisition; and
• one domestic project with Sabre Communications Corp. for the construction of a new facility for a total cost of up to $17.8 million, of which we funded $2.3 million through September 30, 2012.

Amounts above are based on the estimated construction costs at the respective dates of acquisition, including acquisition-related costs and fees. In connection with these investments, which were deemed to be real estate acquisitions under current authoritative accounting guidance, we capitalized acquisition-related costs and fees totaling $3.0 million.

During the nine months ended September 30, 2012, we also funded $29.4 million and placed assets totaling $114.9 million into service, which are now classified as Real Estate, at cost, for projects that we entered into in 2011 and 2010.

In connection with our build-to-suit projects, we capitalized interest totaling $1.3 millionduring the nine months ended September 30, 2012.At September 30, 2012, the aggregate unfunded commitments on these projects totaled approximately $50.8 million.

Asset Retirement Obligations

We have recorded asset retirement obligations for the removal of asbestos and environmental waste in connection with several of our acquisitions. We estimated the fair value of the asset retirement obligations based on the estimated economic lives of the properties and the estimated removal costs provided by the inspectors. The liability was discounted using the weighted-average interest rate on the associated fixed-rate mortgage loans at the time the liability was incurred.

The following table provides a reconciliation of our asset retirement obligations, which are included in Accounts payable, accrued expenses and other liabilities on the consolidated balance sheets, for the periods presented (in thousands):

	September 30, 2012		December 31, 2011
Balance - beginning of period	$	11,453	$	1,508
Additions		3,684		9,562
Accretion expense		394		250
Foreign currency translation adjustments and other		292		133
Balance - end of period	$	15,823	$	11,453