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):



	December 31,
	2015			2014
Land	$	560,257		$	513,172
Buildings	2,098,620			1,883,543
Less: Accumulated depreciation	(225,867		)	(175,478		)
	$	2,433,010		$	2,221,237

The carrying value of our Real estate decreased $91.8 million from December 31, 2014 to December 31, 2015, due to the strengthening of the U.S. dollar relative to foreign currencies, particularly the euro, during the same period.

Acquisitions of Real Estate During 2015

During 2015, we entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and simultaneously entered into new leases in connection with these acquisitions, at a total cost of $284.2 million, including net intangibles of $69.3 million (Note 7) and acquisition-related costs and fees of $13.6 million, which were capitalized:


•	an investment of $22.2 million for an office facility in San Antonio, Texas on January 16, 2015;


•	an investment of $63.8 million for two warehouse facilities in Mszczonów and Tomaszów Mazowiecki, Poland on February 26, 2015 (dollar amount is based on the exchange rate of the euro on the date of acquisition);


•	an investment of $68.8 million primarily for four retail facilities in Fargo, North Dakota and Ashwaubenon, Brookfield, and Wauwatosa, Wisconsin on June 26, 2015;


•	an investment of $22.4 million primarily for a warehouse facility in Sered, Slovakia on July 9, 2015 (dollar amount is based on the exchange rate of the euro on the date of acquisition);


•	an investment of $33.2 million for an industrial facility in Tuchomerice, Czech Republic on December 10, 2015 (dollar amount is based on the exchange rate of the euro on the date of acquisition); and


•	an investment of $73.8 million for an office facility in Warsaw, Poland on December 11, 2015 (dollar amount is based on the exchange rate of the euro on the date of acquisition).

During the year ended December 31, 2015, we placed into service four build-to-suit projects totaling $130.7 million and capitalized $8.0 million of building improvements with existing tenants.

We are still in the process of finalizing our purchase accounting for certain investments that we made during 2015, which may result in measurement period adjustments in future periods in accordance with ASU 2015-16, Business Combinations (Note 2).

Acquisitions of Real Estate During 2014

During 2014, we entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and then entered into new leases in connection with these acquisitions, at a total cost of $40.7 million, including net lease intangibles of $8.4 million and acquisition-related costs and fees of $3.6 million, which were capitalized:


•	an investment of $4.4 million for an industrial facility in New Concord, Ohio on April 21, 2014;


•	an investment of $12.5 million for an office facility in Krakow, Poland on September 9, 2014; and


•	an investment of $23.8 million for a retail facility in Gelsenkirchen, Germany on October 13, 2014.

We also entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of $37.7 million, including land of $5.0 million, buildings of $26.8 million, net lease intangibles of $6.6 million, and a purchase option of $0.6 million to acquire an office facility adjacent to one of the properties we purchased:


•	an investment of $19.0 million for an office facility and an adjacent plot of land in Tucson, Arizona on February 7, 2014. We also assumed a non-recourse mortgage loan of $10.3 million (Note 10); and


•	an investment of $18.7 million for an office facility in Plymouth, Minnesota on December 9, 2014. This amount excludes a tenant improvement allowance of $7.3 million and a lease inducement of $2.0 million that we provided to the tenant.

In connection with these investments, we expensed acquisition-related costs and fees totaling $4.7 million, which are included in Acquisition expenses in the consolidated financial statements. Dollar amounts are based on the exchange rates of the foreign currencies on the dates of acquisitions, as applicable.

During the year ended December 31, 2014, we funded an additional $83.0 million for build-to-suit projects that were placed into service and $3.6 million for building improvements with existing tenants.

Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI-based adjustments, under non-cancelable operating leases at December 31, 2015 are as follows (in thousands):



Years Ending December 31,	Total
2016	$	262,532
2017	263,582
2018	266,243
2019	267,337
2020	270,545
Thereafter	2,806,192
Total	$	4,136,431

Operating Real Estate

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



	December 31,
	2015			2014
Land	$	66,066		$	66,066
Buildings	209,455			206,793
Less: Accumulated depreciation	(30,308		)	(22,217		)
	$	245,213		$	250,642

Partial Sale

On December 1, 2011, we entered into a contract with I Shops LLC, a real estate developer, to finance the renovation of a hotel and construction of a shopping center in Orlando, Florida. As a result of the terms of that agreement, we consolidated the hotel and the shopping center. Additionally, as a condition to providing the construction loan, we entered into a contract with the developer that granted us the option to acquire a 15% equity interest in the parent company that owns I Shops LLC. However, we did not exercise the option and it expired on January 31, 2015.

On April 24, 2014, upon the substantial repayment of the construction loan by the developer, we deconsolidated our investment in the hotel as it no longer met the criteria for consolidation, which was accounted for as a partial sale due to our purchase option. The related gain on sale of real estate was $14.6 million, of which $12.4 million, or 85%, we recognized during the year ended December 31, 2014 and $2.2 million, or 15%, we deferred until the purchase option expired, in accordance with ASC 360-20-40-3, Criteria for Recognizing Profit on Sales of Real Estate Under Full Accrual Method. We recognized the $2.2 million gain on sale of real estate during the year ended December 31, 2015, after the option expired without being exercised on January 31, 2015. In accordance with ASU 2014-08, the results of operations for assets related to the partial sale are included in continuing operations in the consolidated financial statements.

Real Estate Under Construction

The following table provides the activity of our Real estate under construction (in thousands):



	Years Ended December 31,
	2015			2014
Beginning balance	$	110,983		$	127,935
Capitalized funds	20,064			74,420
Placed into service	(130,704		)	(96,807		)
Capitalized interest	2,200			6,661
Foreign currency translation adjustments, building improvements, and other	(1,475		)	(1,226		)
Ending balance	$	1,068		$	110,983

Capitalized Funds — During 2015, total capitalized funds were primarily comprised of $7.4 million in construction draws related to three existing build-to-suit projects and $11.7 million for the funding of one new build-to-suit project, which is an expansion of property acquired in a prior year. During 2014, costs attributable to seven build-to-suit projects, including acquisition-related costs and fees related to two new build-to-suit projects, were capitalized.

Placed into Service — During 2015, we placed into service four build-to-suit projects totaling $130.7 million, of which one was completed and three were partially completed as of December 31, 2015. The total was reclassified to Real estate, at cost. During 2014, we placed four build-to-suit projects into service, of which three were completed and one was partially completed as of December 31, 2014, in the amount of $96.8 million. Of the total, $81.9 million was reclassified to Real estate, at cost, and $14.9 million was reclassified to Operating real estate, at cost.

Capitalized Interest — Capitalized interest includes amortization of the mortgage discount and deferred financing costs and interest incurred during construction, totaling $2.2 million and $6.7 million for the years ended December 31, 2015 and 2014, respectively.

Ending Balance — At December 31, 2015 and 2014 we had three open build-to-suit projects. The aggregate unfunded commitment on the remaining open projects totaled approximately $2.8 million and $12.5 million at December 31, 2015 and 2014, respectively.

Asset Retirement Obligations

We have recorded asset retirement obligations for the removal of asbestos and environmental waste in connection with certain of our investments. 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 the activity of our asset retirement obligations, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements (in thousands):



	Years Ended December 31,
	2015			2014
Beginning balance	$	23,271		$	22,076
Additions	825			—
Accretion expense ^(a)	1,467			1,233
Foreign currency translation adjustments and other	(139		)	(38		)
Ending balance	$	25,424		$	23,271

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(a)	Accretion of the liability is included in Property expenses in the consolidated financial statements and recognized over the economic life of the properties.