Discontinued Operations

9 Months Ended

Sep. 30, 2013

Discontinued Operations

Discontinued Operations

15.   Discontinued Operations

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property. Key factors that we estimate in this analysis include projected rental rates, estimated holding periods, capital expenditures and property sales capitalization rates. If a property is classified as held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell.

For the third quarter of 2013, we recorded total provisions for impairment of $76,000 on one sold property in the restaurant-casual dining industry.  For the first nine months of 2013, we recorded total provisions for impairment of $3.0 million on seven sold properties, and two properties classified as held for sale, in the following industries: one in the automotive parts industry, two in the automotive service industry, two in the child care industry, one in the grocery store industry, one in the pet supplies and services industry, and two in the restaurant-casual dining industry.  These provisions for impairment are included in income from discontinued operations on our consolidated statement of income for the three and nine months ended September 30, 2013.  For the three and nine months ended September 30, 2012, we recorded total provisions for impairment of $667,000 on two properties, one in the convenience store industry and one in the automotive tire services industry, both of which were sold during 2012.

Operations from 22 Realty Income investment properties and two owned by our wholly owned taxable REIT subsidiary, Crest Net Lease, Inc., or Crest, investment properties classified as held for sale at September 30, 2013, plus properties previously sold, are reported as discontinued operations. Their respective results of operations have been reclassified as income from discontinued operations on our consolidated statements of income. We do not depreciate properties that are classified as held for sale.

No debt was assumed by buyers of our investment properties, or repaid as a result of our investment property sales, and we do not allocate interest expense to discontinued operations related to real estate held for investment. We allocate interest expense related to borrowings specifically attributable to Crest. The interest expense amounts allocated to Crest are included in income from discontinued operations.

The following is a summary of income from discontinued operations on our consolidated statements of income (dollars in thousands):

	Three months ended						Nine Months Ended
	September 30,						September 30,
Income from discontinued operations	2013			2012			2013			2012
Gain on sales of investment properties	$	6,163		$	2,045		$	50,467		$	6,010
Rental revenue	789			3,480			4,618			10,902
Other revenue	7			45			414			66
Depreciation and amortization	(387		)	(834		)	(1,436		)	(2,971		)
Property expenses	(136		)	(459		)	(665		)	(1,579		)
Provisions for impairment	(76		)	(667		)	(3,028		)	(667		)
Crest’s income from discontinued operations	252			225			745			505
Income from discontinued operations	$	6,612		$	3,835		$	51,115		$	12,266
Per common share, basic and diluted	$	0.03		$	0.03		$	0.27		$	0.09