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Net Investments in Properties and Real Estate Under Construction

9 Months Ended

Sep. 30, 2013

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

Real Estate

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


	September 30, 2013		December 31, 2012
Land	$	537,784	$	491,584
Buildings		1,756,049		1,614,188
Less: Accumulated depreciation		(114,888)		(77,245)
	$	2,178,945	$	2,028,527

During the nine months ended September 30, 2013, we entered into the following domestic investments, which were deemed to be real estate asset acquisitions because we entered into new leases in connection with the acquisitions, at a total cost of $44.4 million, including net lease intangible assets of $8.1 million (Note 7) and acquisition-related costs and fees of $2.2 million, which were capitalized:

two parcels of land for $18.2 million, which were then leased to a provider of private school education that intends to construct two buildings on the site;
an automotive dealership for $15.3 million; and
an investment of $10.9 million for a manufacturing and office facility.

Additionally, we acquired the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, at a total cost of $140.3 million, including land of $18.4 million, buildings of $83.2 million, and net lease intangible assets of $38.6 million (Note 7):
an international investment of $78.1 million for a logistics facility located in Poland. Amount is based on the exchange rate of the euro on the date of acquisition;
an international investment of $38.6 million for an office facility located in the Netherlands. Amount is based on the exchange rate of the euro on the date of acquisition;
a domestic investment of $15.7 million for an entertainment complex; and
a domestic investment of $7.9 million for a building with a ground lease.

In connection with these investments, we expensed acquisition-related costs and fees of $8.9 million, which are included in General and administrative expenses in the consolidated financial statements.

During the nine months ended September 30, 2013, we funded an additional $5.1 million for building improvements with existing tenants and $2.3 million for build-to-suit projects that were placed into service during the period.

During this period, 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 September 30, 2013 increased by 2.3% to $1.3525 from $1.3218 at December 31, 2012. The impact of this weakening was a $15.2 million increase in the carrying value of Real estate from December 31, 2012 to September 30, 2013.

Operating Real Estate

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


	September 30, 2013		December 31, 2012
Land	$	64,237	$	60,493
Buildings		216,192		193,067
Furniture, fixtures, and equipment		-		1,245
Less: Accumulated depreciation		(13,090)		(7,757)
	$	267,339	$	247,048

During the nine months ended September 30, 2013, we acquired seven self-storage properties for $28.4 million. The total cost includes buildings of $19.7 million, land of $5.1 million, and lease intangible assets of $3.6 million (Note 7). As these acquisitions were deemed to be business combinations, we expensed the acquisition-related costs of $0.6 million, which are included in General and administrative expenses in the consolidated financial statements.

During this period, one of our hotels, with a carrying value of $11.9 million, was reclassified to Assets held for sale, as discussed in Note 13. We completed the sale of the hotel in October 2013.

Real Estate Under Construction

The following table provides a reconciliation of our Real estate under construction for the periods presented (in thousands):


	Nine Months Ended			Year Ended
	September 30, 2013			December 31, 2012
Balance - beginning of period	$	71,285		$	90,176
Capitalized funds		62,243	^(a)		121,003
Placed into service		(38,698)	^(b)		(142,085)
Capitalized interest		3,568			2,100
Foreign currency translation adjustments		(41)			91
Balance - end of period	$	98,357	^(c)	$	71,285

__________

Includes five build-to-suit projects, of which three remained as open projects at September 30, 2013, and includes acquisition-related costs and fees of $2.3 million, which were capitalized.
Includes three build-to-suit projects, of which two are completed and one is partially-completed, that were placed into service during the nine months ended September 30, 2013. The two completed build-to-suit projects for $26.1 million were reclassified as Real estate, at cost, and the partially-completed build-to-suit project for $12.6 million was reclassified as Operating real estate, at cost, at September 30, 2013.
The aggregate unfunded commitment on the remaining three open projects totaled approximately $70.4 million at September 30, 2013.

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 in the consolidated balance sheets, for the periods presented (in thousands):


	Nine Months Ended		Year Ended
	September 30, 2013		December 31, 2012
Balance - beginning of period	$	19,194	$	11,453
Additions		-		6,842
Accretion expense^(a)		894		890
Foreign currency translation adjustments and other		14		9
Balance - end of period	$	20,102	$	19,194

__________

Accretion of the liability is included in Property expenses and recognized over the economic life of the properties.

- Definition

The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures.

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