7: Impairment or Disposal of Long-Lived Assets

In 2017, the Company initiated a strategic shift whereby it planned to divest of its remaining suburban office properties. In the third quarter of 2018, the Company updated its strategy whereby it plans to divest of all of its remaining 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 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:



	Held for Sale as of March 31, 2019	Sold during the three months ended March 31, 2019	Sold during the year ended December 31, 2018	Total
Properties included in discontinued operations	16	4	37	57
Properties included in continuing operations	2	—	2	4
Properties sold or classified as held for sale	18	4	39	61

The properties held for sale with operating results in discontinued operations as of March 31, 2019 were located in the following reportable segments: five properties in Southeastern PA, one property in Chicago/Minneapolis, nine properties in Philadelphia and one property in DC Metro.

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



	Three Months Ended
	March 31, 2019			March 31, 2018
Revenues	$	13,264		$	25,631
Operating expenses	(4,288		)	(6,572		)
Depreciation and amortization	(1,981		)	(5,246		)
Impairment expense	(10,274		)	—
Interest and other income	(158		)	(3		)
Income taxes	(32		)	(26		)
Interest expense	(686		)	(789		)
Gain on property dispositions	18,941			90,012
Income from discontinued operations	14,786			103,007
Noncontrolling interest - operating partnership	(343		)	(2,400		)
Income from discontinued operations available to common shareholders	$	14,443		$	100,607

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 included in discontinued operations to the sum of total net assets plus consolidated debt.

Capital expenditures on a cash basis related to properties within discontinued operations for the three months ended March 31, 2019 and 2018 were $1.5 million and $16.2 million, respectively.

Assets Held for Sale

As of March 31, 2019, 18 properties were classified as held for sale, of which 16 properties met the criteria to be classified within discontinued operations and two properties were classified within continuing operations.

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



	March 31, 2019									December 31, 2018
	Included in Continuing Operations			Included in Discontinued Operations			Total			Included in Continuing Operations			Included in Discontinued Operations			Total
Land and land improvements	$	2,444		$	88,251		$	90,695		$	1,301		$	108,001		$	109,302
Buildings and improvements	16,577			297,375			313,952			5,638			371,461			377,099
Land held for development	36,957			—			36,957			26,253			—			26,253
Accumulated depreciation	(2,814		)	(45,440		)	(48,254		)	(1,546		)	(66,176		)	(67,722		)
Deferred financing and leasing costs, net	382			12,443			12,825			58			13,539			13,597
Other assets	796			16,875			17,671			164			19,023			19,187
Total assets held for sale	$	54,342		$	369,504		$	423,846		$	31,868		$	445,848		$	477,716

Total liabilities held for sale	$	3,695		$	14,340		$	18,035		$	141		$	16,924		$	17,065

Impairment Charges - Real Estate Assets

The Company recorded $10.4 million of impairment charges during the three months ended March 31, 2019. There were no such charges during the three months ended March 31, 2018. Of the impairment charges recorded in the current year quarter, $10.3 million was related to an office building held for sale in the Company's DC Metro segment and is included in discontinued operations in the Company's Consolidated Statements of Comprehensive Income. The remaining $99,000 of impairment was related to a land parcel held for sale in the Company's Houston segment and is classified as continuing operations.

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.

The Company has applied reasonable estimates and judgments in evaluating each of its properties and land held for development and has determined that there are no additional valuation adjustments necessary at March 31, 2019. 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 additional impairment charges in the future.