Travelers 2011 Annual Report Download - page 197

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
Real Estate
The Company’s real estate investments include warehouses, office buildings and other commercial
land and properties that are directly owned. The Company negotiates commercial leases with individual
tenants through unrelated, licensed real estate brokers. Negotiated terms and conditions include, among
others, rental rates, length of lease period and improvements to the premises to be provided by the
landlord.
In 2011 and 2009, there were no sales of real estate investments. Proceeds from the sale of real
estate investments totaled $10 million in 2010. Gross gains of $3 million were realized on those sales
and there were no gross losses. The Company had no real estate held for sale at December 31, 2011
and 2010. Accumulated depreciation on real estate held for investment purposes was $226 million and
$200 million at December 31, 2011 and 2010, respectively.
Future minimum rental income expected on operating leases relating to the Company’s real estate
properties is $80 million, $72 million, $62 million, $53 million, $36 million for 2012, 2013, 2014, 2015
and 2016, respectively, and $56 million for 2017 and thereafter.
Short-term Securities
The Company’s short-term securities consist of Aaa-rated registered money market funds, U.S.
Treasury securities and high-quality commercial paper (primarily A1/P1) with a combined average of
79 days to maturity at December 31, 2011. The amortized cost of these securities, which totaled
$3.59 billion and $5.62 billion at December 31, 2011 and 2010, respectively, approximated their fair
value.
Variable Interest Entities
Entities which do not have sufficient equity at risk to allow the entity to finance its activities
without additional financial support or in which the equity investors, as a group, do not have the
characteristic of a controlling financial interest are referred to as variable interest entities (VIE). A
VIE is consolidated by the variable interest holder that is determined to have the controlling financial
interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that
most significantly impact the VIE’s economic performance and the obligation to absorb losses or right
to receive benefits from the VIE that could potentially be significant to the VIE. The Company
determines whether it is the primary beneficiary of an entity subject to consolidation based on a
qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations
and purpose and the Company’s relative exposure to the related risks of the VIE on the date it
becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to
an entity on an ongoing basis.
The Company is a passive investor in limited partner equity interests issued by third party VIEs.
These include certain of the Company’s investments in private equity limited partnerships, hedge funds
and real estate partnerships where the Company is not related to the general partner. These
investments are generally accounted for under the equity method and reported in the Company’s
consolidated balance sheet as other investments unless the Company is deemed the primary beneficiary.
These equity interests generally cannot be redeemed. Distributions from these investments are received
by the Company as a result of liquidation of the underlying investments of the funds and/or as income
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