7: 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 those that meet 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 March 31, 2018	Sold during the three months ended March 31, 2018	Sold during the year ended December 31, 2017	Total
Properties included in discontinued operations	5	23	2	30
Properties included in continuing operations	2	1	8	11
Properties sold or classified as held for sale	7	24	10	41

The five properties held for sale in discontinued operations as of March 31, 2018 were located in the Company's Arizona reportable segment. The 23 properties in discontinued operations that were sold during the three months ended March 31, 2018 were located in the Company's Southeastern PA 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):



	Three Months Ended
	March 31, 2018			March 31, 2017
Revenues	$	8,179		$	9,600
Operating expenses	(1,972		)	(3,641		)
Depreciation and amortization	(1,219		)	(2,368		)
Interest and other income	5			14
Interest expense	(709		)	(709		)
Income from discontinued operations before gain on property dispositions	4,284			2,896
Gain on property dispositions	90,049			—
Income from discontinued operations	94,333			2,896
Noncontrolling interest - operating partnership	(2,195		)	(68		)
Income from discontinued operations available to common shareholders	$	92,138		$	2,828

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 to the sum of total net assets plus consolidated debt.

Capital expenditures on a cash basis for the three months ended March 31, 2018 and 2017 were $274,000 and $7.3 million, respectively, related to properties within discontinued operations.

Assets Held for Sale

As of March 31, 2018, seven properties were classified as held for sale, of which five properties met the criteria to be classified within discontinued operations and two Operating Properties were classified within continuing operations.

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



	March 31, 2018									December 31, 2017
	Included in Continuing Operations			Included in Discontinued Operations			Total			Included in Continuing Operations			Included in Discontinued Operations			Total
Land and land improvements	$	3,199		$	20,404		$	23,603		$	3,476		$	41,191		$	44,667
Buildings and improvements	80,738			141,416			222,154			80,738			248,514			329,252
Development in progress	—			—			—			—			45,035			45,035
Land held for development	—			—			—			863			—			863
Accumulated depreciation	(11,760		)	(15,318		)	(27,078		)	(11,785		)	(105,786		)	(117,571		)
Deferred financing and leasing costs, net	2,210			6,964			9,174			2,210			10,280			12,490
Other assets	5,265			5,081			10,346			5,137			10,313			15,450
Total assets held for sale	$	79,652		$	158,547		$	238,199		$	80,639		$	249,547		$	330,186

Total liabilities held for sale	$	332		$	1,517		$	1,849		$	1,153		$	8,350		$	9,503

Impairment Charges - Real Estate Assets

The Company disposes of and anticipates the potential disposition of certain properties prior to the end of their remaining useful lives. There were no impairment charges recognized during the three months ended March 31, 2018 or March 31, 2017. The Company has applied reasonable estimates and judgments in evaluating each of its properties and land held for development and has determined that there were no valuation adjustments necessary at March 31, 2018. 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.