ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

In 2017, the Company initiated a strategic shift whereby it plans to divest of its remaining suburban office properties. The Company determined that the strategic shift would have a major effect on its operations and financial results. As such, properties sold or met the criteria to be classified as held for sale within the new corporate strategy were classified within discontinued operations. Consistent with the held for sale criteria these properties are expected to be sold within one year. As the result of the classification within discontinued operations, the in-service assets and liabilities of this portfolio are required to be presented as held for sale for all prior periods presented in our Consolidated Balance Sheets. Operating results pertaining to these properties were reclassified to discontinued operations for all prior periods presented in our Consolidated Statements of Comprehensive Income.

The following table illustrates the number of sold or held-for-sale properties included in, or excluded from, discontinued operations in this report:



	Held for Sale as of December 31, 2017	Sold during the year ended December 31, 2017	Total
Properties included in discontinued operations	25	2	27
Properties included in continuing operations	2	8	10
Properties sold or classified as held for sale	27	10	37

The 25 properties held for sale in discontinued operations as of December 31, 2017 and one property sold during the year ended December 31, 2017 were located in the Company's Southeastern PA reportable segment. The remaining property in discontinued operations that was sold during the year ended December 31, 2017 was located in the Company's Houston reportable segment.

A summary of the results of operations for the properties classified as discontinued operations through the respective disposition dates is as follows (in thousands):



	For the Year Ended
	December 31, 2017			December 31, 2016			December 31, 2015
Revenues	$	34,035		$	36,010		$	34,813
Operating expenses	(14,014		)	(12,989		)	(12,309		)
Depreciation and amortization	(6,753		)	(8,385		)	(8,711		)
Impairment charges - real estate assets	(6,686		)	—			(1,029		)
Interest and other income	58			133			23
Interest expense	(2,239		)	(2,778		)	(2,222		)
Net income before gain on property dispositions	4,401			11,991			10,565
Gain on property dispositions	14,578			—			—
Net income	18,979			11,991			10,565
Noncontrolling interest - operating partnership	(444		)	(282		)	(246		)
Income available to common shareholders	$	18,535		$	11,709		$	10,319

Interest expense has been allocated to discontinued operations. The allocation of interest expense to discontinued operations was based on the ratio of net assets sold and held for sale (without continuing involvement) to the sum of total net assets plus consolidated debt.

Capital expenditures on a cash basis for the year ended December 31, 2017, 2016 and 2015 were $8.1 million, $1.5 million and $9.9 million, respectively, related to properties within discontinued operations.

In October 2016, the Company completed the sale of a portfolio of 108 properties totaling approximately 7.6 million square feet and 26.7 acres of land for $969 million for a net gain of $179.1 million. As this sale did not represent a strategic shift for the Company, it is not classified as discontinued operations

A summary of net income (excluding gain on sale) related to this portfolio is as follows (in thousands):



	Year Ended December 31,
	2016			2015
Net income	$	48,609		$	58,792
Noncontrolling interest - operating partnership	(1,142		)	(1,370		)
Income available to common shareholders	$	47,467		$	57,422

Assets Held for Sale

As of December 31, 2017, 27 operating properties were classified as held for sale, of which 25 operating properties met the criteria to be classified within discontinued operations. Also as of December 31, 2017, two operating properties and 9 acres of land held for development were classified as held for sale and classified within continuing operations.

The following table illustrates aggregate balance sheet information for all held-for-sale properties (in thousands):



	December 31, 2017									December 31, 2016
	Included in Continuing Operations			Included in Discontinued Operations			Total			Included in Continuing Operations		Included in Discontinued Operations			Total
Land and land improvements	$	3,476		$	25,848		$	29,324		$	—	$	34,406		$	34,406
Buildings and improvements	80,738			163,195			243,933			—		217,833			217,833
Land held for development	863			—			863			4,548		—			4,548
Accumulated depreciation	(11,785		)	(98,346		)	(110,131		)	—		(106,933		)	(106,933		)
Deferred financing and leasing costs, net	2,210			3,502			5,712			—		6,355			6,355
Other assets	5,137			7,390			12,527			—		8,679			8,679
Total assets held for sale	$	80,639		$	101,589		$	182,228		$	4,548	$	160,340		$	164,888

Total liabilities held for sale	$	1,153		$	3,398		$	4,551		$	—	$	8,079		$	8,079

In January 2018, 14 properties totaling 641,000 square feet which were held for sale and classified in discontinued operation in the Company's Southeastern PA segment as of December 31, 2017 were sold for $76.9 million.

Asset Impairment

The Company disposes of and anticipates the potential disposition of certain properties prior to the end of their remaining useful lives. During the years ended December 31, 2017, 2016 and 2015, the Company recognized impairment losses of $10.6 million, $3.9 million and $18.2 million, respectively. The impairment losses are for operating properties or land parcels and were in the reportable segments and for the amounts as indicated below (in thousands):



	Year Ended December 31,
Reportable Segment	2017		2016		2015
Carolinas/Richmond	$	—	$	—	$	13,755
Houston	10,632		—		—
Chicago/Minneapolis	—		3,879		—
Southeastern PA	—		—		2,328
Other	—		—		2,161
Total	$	10,632	$	3,879	$	18,244

For the year ended December 31, 2017, $6.7 million in impairments related to properties sold were included in discontinued operations and $3.9 million in impairment - real estate assets, related to land held for development, in the Company's consolidated statements of comprehensive income. For the year ended December 31, 2015, $1.0 million in impairments related to properties sold were included in discontinued operations in the Company's consolidated statements of comprehensive income and $1.0 million in impairment - real estate assets, related to land held for development, in the Company's consolidated statements of comprehensive income. The Company determined these impairments based on third party offer prices and quoted offer prices for comparable transactions which are Level 2 and Level 3 inputs, respectively, according to the fair value hierarchy established in ASC 820. These measurements have occurred throughout the respective periods as circumstances arise, and the resulting estimates of fair value are not necessarily reflective of measurements at the period’s end. The Company has evaluated each of its properties and land held for development and has determined that there were no additional valuation adjustments necessary at December 31, 2017. The Company applied reasonable estimates and judgments in determining the level of impairments recognized. Should external or internal circumstances change requiring the need to shorten the holding periods or adjust the estimated future cash flows of the Company’s assets, the Company could be required to record impairment charges in the future.