Real Estate Investments

Excluding the Cole Merger and the ARCT IV Merger, the Company acquired interests in 215 commercial properties, including five land parcels, for an aggregate purchase price of $936.1 million during the three months ended March 31, 2014 (the “2014 Acquisitions”). The Company is in the process of obtaining and reviewing the final third-party appraisals for the 2014 Acquisitions, as such, the fair value of the related asset acquired and liabilities assumed during the three months ended March 31, 2014 are provisionally allocated. The following table presents the allocation of the fair value of the assets acquired and liabilities assumed during the periods presented (dollar amounts in thousands):



	Three Months Ended March 31,
	2014			2013
Real estate investments, at cost:
Land	$	133,903		$	74,700
Buildings, fixtures and improvements	694,935			291,664
Total tangible assets	828,838			366,364
Acquired intangible assets:
In-place leases	120,421			45,223
Above-market leases	11,559			—
Assumed intangible liabilities:
Below-market leases	(1,156		)	—
Fair value adjustment of assumed notes payable	(23,589		)	—
Total purchase price of assets acquired, net	936,073			411,587
Notes payable assumed	263,217			—
Cash paid for acquired real estate investments	$	672,856		$	411,587
Number of properties acquired	215			112

The following table presents unaudited pro forma information as if all of the 2014 Acquisitions and the Cole Merger and ARCT IV Merger, as discussed in Note 2 — Mergers and Acquisitions, were completed on January 1, 2013 for each period presented below. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of acquisitions to reflect the additional depreciation and amortization and interest expense that would have been charged had the acquisitions occurred on January 1, 2013. Additionally, the unaudited pro forma net loss attributable to stockholders was adjusted to exclude acquisition related expenses of $11.9 million and $10.3 million for the three months ended March 31, 2014 and 2013, respectively and merger and other transaction related expenses of $222.2 million and $137.8 million for the three months ended March 31, 2014 and 2013, respectively. These costs were recognized in the pro forma information for the three months ended March 31, 2013 (in thousands):



	Three Months Ended March 31,
	2014			2013
Pro forma revenues	$	413,780		$	44,330
Pro forma net income (loss) attributable to stockholders	$	(20,374	)	$	6,056

ARCT IV GE Capital Portfolio

After the ARCT IV December 31, 2013 financial statements were issued, ARCT IV completed its review of the final appraisals received from third party firms for certain properties included in the ARCT IV GE Capital Portfolio. After giving consideration to the appraisals of these properties, the Company has estimated that the fair value of the land, building, fixtures and improvements, acquired leases assets and acquired lease liabilities to be $183.2 million, $300.4 million, $47.0 million, and $7.8 million, respectively. Additionally, as part of ARCT IV’s review of the final appraisals, assets that were classified as direct financing leases were reclassified into real estate investments. As a result of these adjustments, the carrying amount land, acquired leases assets and acquired lease liabilities was retrospectively increased by $40.7 million, $2.7 million, and $7.8 million, respectively, as of the date ARCT IV acquired the ARCT IV GE Capital Portfolio. In addition, the carrying amount of buildings, fixtures and improvements and investments in direct financing leases was decreased by $32.1 million and $3.5 million, respectively as of the same date. These adjustments to carrying value are reflected in the accompanying consolidated balance sheet as of December 31, 2013. The impact to depreciation expense recognized during the year ended December 31, 2013 was not significant, and therefore, the Company has not retrospectively adjusted its consolidated statements of operations.

Future Lease Payments

The following table presents future minimum base rental cash payments due to the Company over the next five years and thereafter. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items (in thousands):



	Future Minimum Operating Lease Base Rent Payments		Future Minimum Direct Financing Lease Payments (1)
April 1, 2014 - December 31, 2014	$	921,815	$	3,802
2015	1,152,446		4,757
2016	1,127,440		4,674
2017	1,075,967		4,273
2018	1,021,150		3,183
Thereafter	7,251,560		10,052
Total	$	12,550,378	$	30,741

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(1) 47 properties are subject to direct financing leases and, therefore, revenue is recognized as direct financing lease income on the discounted cash flows of the lease payments. Amounts reflected are the cash rent on these respective properties.

Net Investment in Direct Financing Leases

The components of the Company’s net investment in direct financing leases as of March 31, 2014 and December 31, 2013 are as follows (in thousands):



	March 31, 2014			December 31, 2013
Future minimum lease payments receivable	$	31,001		$	33,729
Unguaranteed residual value of property	47,089			46,172
Unearned income	(12,367		)	(13,789		)
Net investment in direct financing leases	$	65,723		$	66,112

Development Activities

During the three months ended March 31, 2014, the Company acquired five land parcels, upon which single tenant commercial properties will be developed. Based on budgeted construction costs, the remaining costs to complete the buildings is estimated to be $7.9 million in aggregate. The land acquired for an aggregate amount of $4.6 million is included in land in the accompanying consolidated balance sheet. In addition, during the three months ended March 31, 2014, the Company substantially completed the development of a 450,000 square foot distribution warehouse in Columbia, South Carolina. The build-to-suit project has an estimated total investment of $22.0 million. As of March 31, 2014, the Company had a total investment of $20.1 million, including capitalized interest of $37,000, and estimated remaining investment of $1.9 million related to the development project.

Prior to the CapLease Acquisition Date, CapLease entered into an agreement with a major Texas-based developer to develop a 150,000 square foot speculative office building in The Woodlands, Texas, adjacent to and part of the same development as an existing office building owned by CapLease since 2012. Costs of the project, which are budgeted to be $34.0 million, are scheduled to be funded by equity contributions from the Company and its developer partner, and $17.0 million of advances during the construction period under a development loan entered into with Amegy Bank. All equity contributions are scheduled to be borne as follows: the Company, 90%; and the developer, 10%; except for cost overruns, which will be borne 50% by each. Because the Company has a controlling financial interest in the investment, it consolidates the investment for financial accounting purposes. The Company has an option to purchase, and the developer the option to sell to the Company, in each case at fair market value, the developer’s interest in the project upon (i) substantial completion of the project and (ii) leases being entered into for 95% of the square footage of the project. Construction activity and funding of the project commenced during the quarter ended September 30, 2013 and is expected to be completed during the second half of 2014. As of March 31, 2014, the Company had a total investment of $12.3 million, including capitalized interest of $45,000, and estimated remaining investment of $21.7 million related to the development project.

Tenant Concentration

The following table lists the tenants of the Company whose annualized rental income, determined on a straight-line basis, represented greater than 10% of consolidated annualized rental income as of March 31, 2013. Annualized rental income for net leases is rental income as of the period reported, which includes the effect of tenant concessions such as free rent, as applicable. There were no tenants exceeding 10% of consolidated annualized rental income March 31, 2014.



	March 31,
Tenant	2014	2013
Dollar General	*	12.0%
Citizens Bank	*	12.0%

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* The tenants’ annualized rental income was not greater than 10% of total consolidated annualized rental income for all portfolio properties as of the period specified.

No other tenant represents more than 10% of total consolidated annualized rental income for the periods presented.

Geographic Concentration

As of March 31, 2014, properties located in Texas represented 12.2% of consolidated annualized rental income determined on a straight-line basis. There were no geographic concentrations exceeding 10% of consolidated annualized rental income at March 31, 2013.