Real Estate

12 Months Ended

Dec. 31, 2019

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



	Net Lease⁽¹⁾			Operating Properties			Total
As of December 31, 2019
Land, at cost	$	199,710		$	106,187		$	305,897
Buildings and improvements, at cost	1,347,321			107,861			1,455,182
Less: accumulated depreciation	(219,949		)	(13,911		)	(233,860		)
Real estate, net	1,327,082			200,137			1,527,219
Real estate available and held for sale ⁽²⁾	—			8,650			8,650
Total real estate	$	1,327,082		$	208,787		$	1,535,869
As of December 31, 2018
Land, at cost	$	336,740		$	133,599		$	470,339
Buildings and improvements, at cost	1,487,270			118,724			1,605,994
Less: accumulated depreciation	(287,516		)	(17,798		)	(305,314		)
Real estate, net	1,536,494			234,525			1,771,019
Real estate available and held for sale ⁽²⁾	1,055			21,496			22,551
Total real estate	$	1,537,549		$	256,021		$	1,793,570

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(1)	In May 2019, the Company modified certain of its leases. As a result of these modifications, the Company classified the leases as sales-type leases and recorded $424.1 million in "Net investment in leases" and derecognized $193.4 million from "Real estate, net" and "Real estate available and held for sale" on its consolidated balance sheet (refer to Note 5).


(2)	As of December 31, 2019 and 2018, the Company had $8.6 million and $20.6 million, respectively, of residential condominiums available for sale in its operating properties portfolio.

Real Estate Available and Held for Sale—The following table presents the carrying value of properties transferred to held for sale, by segment ($ in millions)⁽¹⁾:



	Year Ended December 31,
Property Type	2019		2018		2017
Operating Properties	$	14.5	$	23.2	$	20.1
Net Lease	185.9		8.1		0.9
Total	$	200.4	$	31.3	$	21.0

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(1)	Properties were transferred to held for sale due to executed contracts with third parties or changes in business strategy. All of these properties were ultimately sold.

Acquisitions—During the year ended December 31, 2019, the Company acquired a net lease asset for $11.5 million. In addition, the Company acquired the leasehold interest in an office property for $98.2 million, inclusive of closing costs, and simultaneously entered into a new 98-year ground lease with SAFE (refer to Note 8) and also acquired the leasehold interest in a net lease asset for $110.6 million and simultaneously entered into a new 99-year Ground Lease with SAFE (refer to Note 8). During the year ended December 31, 2018, the Company acquired two net lease assets for an aggregate $14.8 million.

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., which was subsequently renamed Safehold 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 a $227.0 million financing on its Ground Lease assets. The Company received all of the proceeds of the 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 financing. The Company accounts for its investment in SAFE as an equity method investment (refer to Note 8). 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. The gain was recorded in "Gain from discontinued operations" in the Company's consolidated statements of operations. As a result of the adoption of ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, 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 year ended December 31, 2017 ($ in thousands)⁽¹⁾:



Revenues	$	5,922
Expenses	(1,491		)
Income from sales of real estate	508
Income from discontinued operations	$	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.

The following table presents cash flows provided by operating activities and cash flows used in investing activities from discontinued operations for the year ended December 31, 2017 ($ in thousands).



Cash flows provided by operating activities	$	5,702
Cash flows used in investing activities	(534		)

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



	Years Ended December 31,
	2019		2018		2017
Operating Properties⁽¹⁾
Proceeds	$	86.1	$	327.9	$	41.3
Income from sales of real estate	11.9		81.0		4.5

Net Lease⁽²⁾
Proceeds	$	469.4	$	79.7	$	175.4
Income from sales of real estate	224.7		45.0		87.5

Total
Proceeds	$	555.5	$	407.6	$	216.7
Income from sales of real estate	236.6		126.0		92.0

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(1)

During the year ended December 31, 2019, the Company sold commercial and residential operating properties with an aggregate carrying value of $73.1 million and recognized $11.9 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations. During the year ended December 31, 2018, the Company sold 10 commercial operating properties and residential condominium units from other properties and recognized $81.0 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 year ended December 31, 2019, the Company sold a portfolio of net lease assets with an aggregate carrying value of $220.4 million and recognized $219.7 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations. In connection with the sale of this portfolio of assets the buyer assumed a $228.0 million non-recourse mortgage. During the year ended December 31, 2018, the Company sold five net lease assets and recognized $45.0 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations. During the year ended December 31, 2017, the Company sold one net lease property and recognized a gain on sale of $62.5 million. Prior to the sale, the Company acquired the noncontrolling interest with a carrying value of $3.5 million for $12.0 million.

Impairments—During the years ended December 31, 2019, 2018 and 2017, the Company recorded aggregate impairments on real estate assets totaling $5.4 million, $90.4 million and $11.9 million, respectively. During the year ended December 31, 2019, the Company recorded an aggregate impairment of $5.4 million in connection with the sale of net lease and operating properties and residential condominium units. The impairments recorded in 2018 were primarily from the Company's decision to accelerate the monetization of certain legacy assets, including several larger assets. The impairments recorded in 2017 were primarily the result of shifting demand in the local condominium markets, changes in the Company's exit strategy on other real estate assets and an impairment recorded in connection with the sale of an outparcel located at a commercial operating property.

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 $21.2 million, $22.4 million and $21.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. These amounts are included in "Operating lease income" in the Company's consolidated statements of operations.

Allowance for Doubtful Accounts—As of December 31, 2019 and 2018, the allowance for doubtful accounts related to real estate tenant receivables was $1.0 million and $1.5 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.0 million and $1.8 million, 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.

Future Minimum Operating Lease Payments—Future minimum operating lease payments to be collected under non-cancelable leases, excluding customer reimbursements of expenses, in effect as of December 31, 2019, are as follows ($ in thousands):



Year	Net Lease Assets		Operating Properties
2020	$	141,993	$	16,625
2021	141,763		16,293
2022	140,165		8,112
2023	131,998		7,822
2024	126,453		7,801