Assets and Associated Liabilities Held for Sale

3 Months Ended

Mar. 31, 2015

Assets and Associated Liabilities Held for Sale

5.	Assets and Associated Liabilities Held for Sale

Foreign Discontinued Operations

During 2014, in connection with the Company’s evaluation of potential strategic alternatives for the Company as a whole, the Company entered into a share purchase agreement for the sale of 94.9% of its equity interest in the entities that owned the German properties. In January 2015, the Company completed the sale in exchange for aggregate proceeds of approximately $8.1 million, net of transaction costs, of which approximately $0.3 million was held back until the completion of the acquisition audit. In addition, the Company retained a 5.1% non-controlling equity interest and a 5.1% interest in a note totaling approximately $0.4 million, which was calculated on the basis of selling in-substance real estate pursuant to ASC 360-20 and, therefore, represents 5.1% of the net carrying value of the German portfolio as of the disposition date. All assets and liabilities of these entities were classified as assets held for sale and liabilities associated with assets held for sale, respectively, under guidance previous to ASU 2014-08, on the condensed consolidated balance sheet as of December 31, 2014 and all operating results relating to these properties have been treated as discontinued operations for all periods presented; refer to Note 6. “Discontinued Operations” for additional information.

Austin Property

In February 2015, the Company committed to a plan to sell the Austin Property as part of the Company’s continuous evaluation of strategic alternatives and therefore classified it as held for sale as of March 31, 2015. In March 2015, the Company entered into a purchase and sale agreement to sell the Austin Property in Pflugerville, Texas for approximately $2.7 million. A sale of the Austin Property would not cause a strategic shift in the Company nor is it considered individually significant; therefore, it does not qualify as discontinued operations under ASU 2014-08.

As of March 31, 2015, assets held for sale consisted of the following:


	Foreign Discontinued Operations		Austin Property			Total
Land and land improvements	$	—	$	1,819,000		$	1,819,000
Building and improvements		—		952,562			952,562
Tenant improvements		—		53,000			53,000
Less: accumulated depreciation		—		(365,829	)		(365,829	)

Total assets held for sale	$	—	$	2,458,733		$	2,458,733

As of December 31, 2014, assets held for sale consisted of the following:


	Foreign Discontinued Operations			Austin Property			Total
Land and land improvements	$	4,785,552		$	1,819,000		$	6,604,552
Building and improvements		14,450,480			952,562			15,403,042
Tenant improvements		—			53,000			53,000
Less: accumulated depreciation		(688,372	)		(358,562	)		(1,046,934	)

Operating real estate held for sale		18,547,660			2,466,000			21,013,660
Lease intangibles, net		1,799,349			—			1,799,349
Deferred rent		45,208			—			45,208
Restricted cash		182,345			—			182,345
Loan costs, net		130,632			—			130,632
Other assets		163,789			—			163,789

Total assets held for sale	$	20,868,983		$	2,466,000		$	23,334,983

As of December 31, 2014, liabilities associated with assets held for sale consisted of the following relating to the foreign discontinued operations:


Mortgages notes payable	$	13,228,159
Unearned rent		6,139
Accounts payable and accrued expenses		453,041
Due to related party		55,288

Total liabilities held for sale	$	13,742,627

These balance sheet amounts for the foreign discontinued operations have been converted from Euro to U.S. dollars at an exchange rate of $1.22 per Euro as of December 31, 2014.

Discontinued Operations

Assets and Associated Liabilities Held for Sale

6.	Discontinued Operations

The condensed consolidated financial statements reflect reclassifications of rental income, property expenses, interest expense and other income and expenses relating to the German properties from continuing operations to income (loss) from discontinued operations for all periods presented. The Company recognized approximately $0.2 million in gain on sale for financial statements purposes related to the January 2015 sale of its 94.9% interest in the German properties.

The following is a summary of the income from discontinued operations of the Company’s foreign operations for the three months ended March 31, 2015 and 2014:


	Three Months ⁽¹⁾ Ended March 31,
	2015 ⁽²⁾			2014
Revenues	$	184,025		$	633,800
Expenses		(79,189	)		(184,200	)
Depreciation and amortization		—			(170,089	)


Operating income		104,836			279,511

Gain on sale of foreign discontinued operations⁽³⁾		238,411			—
Interest expense and loan cost amortization		(34,958	)		(124,402	)


Income from discontinued operations before income tax expense		308,289			155,109

Income tax expense		(7,292	)		(8,034	)


Income from discontinued operations	$	300,997		$	147,075

FOOTNOTES:

(1)	These statements of operations amounts related to the German properties have been converted from Euro to U.S. dollars at the average exchange rate of $1.13 per Euro and $1.37 per Euro as of March 31, 2015 and 2014, respectively.

(2)	Amounts related to the German properties represent results of operations through the disposition date in January 2015.

(3)	Amount includes approximately $1.2 million reclassification of cumulative foreign currency translation adjustments included in the accompanying condensed consolidated statement of comprehensive loss.

The Advisor waived its rights to any disposition fee related to the sale of the 94.9% equity interest in the entities that own the German properties.

- Definition

The entire disclosure for the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain (loss) recognized in the income statement and the income statement caption that includes that gain (loss), amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations).

+ References

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+ Details

Global Income Trust, Inc. 10-Q