Real Estate

The Company's real estate assets were comprised of the following ($ in thousands):



	Net Lease⁽¹⁾			Operating Properties			Total
As of June 30, 2018
Land, at cost	$	335,926		$	181,973		$	517,899
Buildings and improvements, at cost	1,495,393			242,245			1,737,638
Less: accumulated depreciation	(298,730		)	(41,808		)	(340,538		)
Real estate, net	1,532,589			382,410			1,914,999
Real estate available and held for sale ⁽²⁾	—			37,597			37,597
Total real estate	$	1,532,589		$	420,007		$	1,952,596
As of December 31, 2017
Land, at cost	$	219,092		$	203,278		$	422,370
Buildings and improvements, at cost	888,959			318,107			1,207,066
Less: accumulated depreciation	(292,268		)	(55,137		)	(347,405		)
Real estate, net	815,783			466,248			1,282,031
Real estate available and held for sale ⁽²⁾	—			68,588			68,588
Total real estate	$	815,783		$	534,836		$	1,350,619

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(1)	On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7) and recorded $743.6 million to "Real estate, net" on the Company's consolidated balance sheet.


(2)	As of June 30, 2018 and December 31, 2017, the Company had $36.7 million and $48.5 million, respectively, of residential condominiums available for sale in its operating properties portfolio.

Disposition of Ground Lease Business—In April 2017, institutional investors acquired a controlling interest in the Company's ground lease business through the merger of a Company subsidiary and related transactions (the "Acquisition Transactions"). Ground leases generally represent ownership of the land underlying commercial real estate projects that is triple net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon ("Ground Lease"). The Company's Ground Lease business was a component of the Company's net lease segment and consisted of 12 properties subject to long-term net leases including seven Ground Leases and one master lease (covering five properties). The acquiring entity was a newly formed unconsolidated entity named Safety, Income & Growth Inc. ("SAFE"). The carrying value of the Company's Ground Lease assets was approximately $161.1 million. Shortly before the Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company received all of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounts for its investment in SAFE as an equity method investment (refer to Note 7). The Company accounted for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. As a result of the adoption of ASU 2017-05 (refer to Note 3), on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate gain on the sale of its Ground Lease business to approximately $178.9 million.

Discontinued Operations—The transactions described above involving the Company's Ground Lease business qualified for discontinued operations and the following table summarizes income from discontinued operations for the three and six months ended June 30, 2017 ($ in thousands)⁽¹⁾⁽²⁾:



	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
Revenues	$	678		$	5,922
Expenses	(505		)	(1,491		)
Income from sales of real estate	—			508
Income from discontinued operations	$	173		$	4,939

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(1)	The transactions closed on April 14, 2017. Revenues primarily consisted of operating lease income and expenses primarily consisted of depreciation and amortization and real estate expense.


(2)	For the six months ended June 30, 2017, cash flows provided by operating activities and cash flows used in investing activities from discontinued operations was $5.7 million and $0.5 million, respectively.

Other Dispositions—The following table presents the net proceeds and income recognized for properties sold, by property type ($ in millions):



	Six Months Ended June 30,
	2018		2017
Operating Properties
Proceeds⁽¹⁾	$	196.2	$	17.6
Income from sales of real estate⁽¹⁾	49.0		2.7

Net Lease
Proceeds⁽²⁾	$	38.4	$	19.5
Income from sales of real estate⁽²⁾	24.9		6.2

Total
Proceeds	$	234.6	$	37.1
Income from sales of real estate	73.9		8.9

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(1)	During the six months ended June 30, 2018, the Company sold four operating properties and recognized $49.0 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations, of which $9.8 million was attributable to a noncontrolling interest at one of the properties.


(2)	During the six months ended June 30, 2018, the Company sold three net lease assets and recognized $24.9 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations.

Impairments—During the six months ended June 30, 2018, the Company recorded aggregate impairments of $8.9 million resulting from the exercise of a below-market lease renewal option related to a net lease asset and a real estate asset held for sale due to contracts to sell the remaining four condominium units at the property. During the six months ended June 30, 2017, the Company recorded an impairment of $4.4 million on a real estate asset held for sale due to shifting demand in the local condominium market along with a change in the Company's exit strategy.

Tenant Reimbursements—The Company receives reimbursements from tenants for certain facility operating expenses including common area costs, insurance, utilities and real estate taxes. Tenant expense reimbursements were $5.0 million and $10.6 million for the three and six months ended June 30, 2018, respectively. Tenant expense reimbursements were $5.2 million and $10.7 million for the three and six months ended June 30, 2017, respectively. These amounts are included in "Operating lease income" in the Company's consolidated statements of operations.

Allowance for Doubtful Accounts—As of June 30, 2018 and December 31, 2017, the allowance for doubtful accounts related to real estate tenant receivables was $1.3 million and $1.3 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.5 million and $1.3 million as of June 30, 2018 and December 31, 2017, respectively. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred operating lease income receivable, net," respectively, on the Company's consolidated balance sheets.