Acquisitions of CapLease, Cole and CCPT

CapLease Acquisition

On November 5, 2013 (the “CapLease Acquisition Date”), the Company completed the CapLease Merger, an acquisition of a real estate investment trust that primarily owned and managed a diversified portfolio of single tenant commercial real estate properties subject to long-term leases, the majority of which were net leases, to high credit quality tenants, by acquiring 100% of the outstanding common stock and voting interests of CapLease. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The Company’s consolidated financial statements include the results of operations of CapLease subsequent to the CapLease Acquisition Date.

The purchase price includes a cash payment of $920.7 million, which was funded by the Company through additional borrowings under its revolving credit facility and the credit facility assumed from CapLease. See Note 12 — Other Debt and Note 13 — Credit Facilities.

The purchase price allocation for the CapLease Merger is considered preliminary, and additional adjustments may be recorded during the measurement period in accordance with U.S. GAAP. The purchase price allocation will be finalized as the Company receives additional information relevant to the acquisition, including a final valuation of the assets purchased and liabilities assumed.

The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair value. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the CapLease Acquisition Date initially recorded, as well as measurement period adjustments made and the revised estimated fair values of the assets acquired and liabilities assumed at the CapLease Acquisition Date (in thousands):



	Preliminary
	Amounts Previously Recognized as of the CapLease Acquisition Date ⁽¹⁾		Measurement Period Adjustments			Adjusted Amounts Recognized as of the CapLease Acquisition Date
Fair value of consideration given	$	920,697	$	—		$	920,697

Assets purchased, at fair value:
Land	235,843		(2,778		)	233,065
Buildings, fixtures and improvements	1,596,481		(4,836		)	1,591,645
Land and construction in process	12,352		391			12,743
Acquired intangible lease assets	191,964		308			192,272
Total real estate investments	2,036,640		(6,915		)	2,029,725
Cash and cash equivalents	41,799		—			41,799
Investment securities	60,730		—			60,730
Loans held for investment	26,457		—			26,457
Restricted cash	29,159		(40		)	29,119
Deferred costs and other assets, net	21,564		152			21,716
Deferred costs	325		—			325
Total identifiable assets purchased	2,216,674		(6,803		)	2,209,871

Liabilities assumed, at fair value:
Mortgage notes payable	1,037,510		—			1,037,510
Secured credit facility	121,000		—			121,000
Other debt	114,208		—			114,208
Below-market leases	57,058		—			57,058
Derivative liabilities	158		—			158
Accounts payable and accrued expenses	46,484		106			46,590
Deferred rent, derivative and other liabilities	8,867		(64		)	8,803
Total liabilities assumed	1,385,285		42			1,385,327

Non-controlling interest retained by third party	567		—			567

Net identifiable assets acquired by Company	830,822		(6,845		)	823,977
Goodwill	$	89,875	$	6,845		$	96,720

____________________________________


(1)	As reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

After the December 31, 2013 financial statements were issued, the Company received final purchase and sale agreements for three properties that were sold to third parties during the six months ended June 30, 2014. After giving consideration to the sales price of these properties, the Company has estimated that the fair value of these properties originally acquired as part of the CapLease Merger to be $6.9 million lower than originally valued. As a result of the sale, the carrying amount of real estate investments was retrospectively decreased by $6.9 million as of the CapLease Acquisition Date, with a corresponding increase to goodwill 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. In addition to the adjustment above, the Company identified other minor adjustments primarily relating to additional accounts receivables and accrued expenses as of the CapLease Acquisition Date.

Management is in the process of further evaluating the purchase price accounting. The fair value of real estate investments and below-market leases have been estimated by the Company with the assistance of third-party valuation firms. Based on a preliminary analysis received to-date, the estimated fair value of these assets and liabilities total $2.0 billion and $57.1 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. Upon completion of the analysis, including a review of the appraisals and assessment of current market rates, changes to the estimated fair values may result. Such post-closing adjustments are customary in nature in accordance with ASC 805, Business Combinations.

The ascribed value of the noncontrolling interest has been estimated based on the fair value of the percentage ownership of The Woodlands, Texas development activity not held by the Company. See Note 6 — Real Estate Investments for further information on this development project.

The fair value of the remaining CapLease assets and liabilities have been calculated in accordance with the Company’s policy on purchase price allocation, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Goodwill of approximately $96.7 million is expected to be assigned to the REI segment upon completion of the valuation. The goodwill recognized is attributed to the enhancement of the Company’s year-round rental revenue stream, expected synergies and the assembled work force at CapLease.

The pro forma consolidated statements of operations in Note 6 — Real Estate Investments are presented as if CapLease had been included in the consolidated results of the Company for the entire periods ended June 30, 2014 and 2013.

Cole Acquisition

On February 7, 2014, the Company completed its acquisition of Cole, as discussed in Note 2 — Mergers and Acquisitions. The Company accounted for the Cole Merger as a business combination under the acquisition method of accounting. Therefore, the Company’s consolidated financial statements include the results of operations of Cole subsequent to the Cole Acquisition Date.

Fair Value of Consideration Transferred

The Company is in the process of gathering certain additional information in order to finalize its assessment of the fair value of the consideration transferred; thus, the fair values of currently recorded assets and liabilities are subject to change. The estimated fair value of the consideration transferred at the Cole Acquisition Date totaled approximately $7.5 billion and consisted of the following (in thousands):



	As of Cole Acquisition Date (Preliminary)
Estimated Fair Value of Consideration Transferred:
Cash	$	181,775
Common stock	7,302,480
Total consideration transferred	$	7,484,255

The fair value of the 520.8 million shares of common stock issued, excluding those common shares transferred to former Cole executives, was determined based on the closing market price of the Company’s common stock on the Cole Acquisition Date.

Allocation of Consideration

The consideration transferred pursuant to the Cole Merger Agreement was allocated to the assets acquired and liabilities assumed for the REI segment and Cole Capital, based upon their preliminary estimated fair values as of the Cole Acquisition Date. The Company is in the process of gathering certain additional information in order to finalize its assessment of the fair value of certain intangible assets; thus, the provisional measurements of intangible assets and goodwill are subject to change. Such post-closing adjustments are customary in nature in accordance with ASC 805, Business Combinations. The measurement periods recorded for the period from the Cole Acquisition Date to June 30, 2014 are presented consolidated and by segments in the tables below.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, including all measurement period adjustments, at the Cole Acquisition Date (in thousands):



	Preliminary
	Amount Previously Recorded as of the Cole Acquisition Date		Measurement Period Adjustments			Adjusted Total as of Cole Acquisition Date
Identifiable Assets Acquired at Fair Value:
Land	$	1,737,390	$	(609	)	$	1,736,781
Buildings, fixtures and improvements	5,898,895		(1,609		)	5,897,286
Acquired intangible lease assets	1,323,614		(315		)	1,323,299
Total real estate investments	8,959,899		(2,533		)	8,957,366
Investment in unconsolidated entities	103,966		—			103,966
Investment securities, at fair value	151,197		—			151,197
Loans held for investment, net	72,326		—			72,326
Cash and cash equivalents	151,160		(1,195		)	149,965
Restricted cash	15,704		—			15,704
Intangible assets	385,368		—			385,368
Deferred costs and other assets	95,974		1,615			97,589
Due from affiliates	3,301		—			3,301
Total identifiable assets acquired	9,938,895		(2,113		)	9,936,782

Identifiable Liabilities Assumed at Fair Value:
Mortgage notes payable, net	2,719,072		(12,487		)	2,706,585
Credit facilities	1,309,000		—			1,309,000
Other debt	49,013		—			49,013
Below-market lease liabilities	212,377		14			212,391
Accounts payable and accrued expenses	133,909		(3,243		)	130,666
Deferred rent, derivative and other liabilities	153,293		20,449			173,742
Dividends payable	6,271		—			6,271
Contingent consideration	51,979		—			51,979
Due to affiliates	44		—			44
Total liabilities assumed	4,634,958		4,733			4,639,691

Noncontrolling interests	20,996		—			20,996

Net identifiable assets acquired	5,282,941		(6,846		)	5,276,095
Goodwill	2,184,703		23,457			2,208,160
Net assets acquired	$	7,467,644	$	16,611		$	7,484,255

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed for the REI segment as initially recorded at the Cole Acquisition Date, as well as measurement period adjustments made and the revised estimated fair values of the assets acquired and liabilities assumed at the Cole Acquisition Date (in thousands):



	Preliminary
	REI Segment (As initially recorded)		Measurement Period Adjustments			REI Segment (Adjusted)
Identifiable Assets Acquired at Fair Value:
Land	$	1,737,390	$	(609	)	$	1,736,781
Buildings, fixtures and improvements	5,898,895		(1,609		)	5,897,286
Acquired intangible lease assets	1,323,614		(315		)	1,323,299
Total real estate investments	8,959,899		(2,533		)	8,957,366
Investment in unconsolidated entities	100,659		—			100,659
Investment securities, at fair value	151,197		—			151,197
Loans held for investment, net	72,326		—			72,326
Cash and cash equivalents	130,747		(1,195		)	129,552
Restricted cash	15,704		—			15,704
Deferred costs and other assets	45,081		1,615			46,696
Total identifiable assets acquired	9,475,613		(2,113		)	9,473,500

Identifiable Liabilities Assumed at Fair Value:
Mortgage notes payable, net	2,719,072		(12,487		)	2,706,585
Credit facilities	1,309,000		—			1,309,000
Other debt	49,013		—			49,013
Below-market lease liabilities	212,377		14			212,391
Accounts payable and accrued expenses	73,441		13,059			86,500
Deferred rent, derivative and other liabilities	42,764		12,164			54,928
Dividends payable	6,271		—			6,271
Contingent consideration	3,606		—			3,606
Total liabilities assumed	4,415,544		12,750			4,428,294

Noncontrolling interests	20,996		—			20,996

Net identifiable assets acquired	5,039,073		(14,863		)	5,024,210
Goodwill	1,628,571		31,474			1,660,045
Net assets acquired	$	6,667,644	$	16,611		$	6,684,255

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed for Cole Capital as initially recorded at the Cole Acquisition Date, as well as measurement period adjustments made and the revised estimated fair values of the assets acquired and liabilities assumed at the Cole Acquisition Date (in thousands):



	Preliminary
	Cole Capital (As initially recorded)		Measurement Period Adjustments			Cole Capital (Adjusted)
Identifiable Assets Acquired at Fair Value:
Investment in unconsolidated entities	$	3,307	$	—		$	3,307
Cash and cash equivalents	20,413		—			20,413
Intangible assets	385,368		—			385,368
Deferred costs and other assets	50,893		—			50,893
Due from affiliates	3,301		—			3,301
Total identifiable assets acquired	463,282		—			463,282

Identifiable Liabilities Assumed at Fair Value:
Accounts payable and accrued expenses	60,468		(16,302		)	44,166
Deferred rent, derivative and other liabilities	110,529		8,285			118,814
Contingent consideration	48,373		—			48,373
Due to affiliates	44		—			44
Total liabilities assumed	219,414		(8,017		)	211,397

Net identifiable assets acquired	243,868		8,017			251,885
Goodwill	556,132		(8,017		)	548,115
Net assets acquired	$	800,000	$	—		$	800,000

The fair value of real estate investments, including acquired lease intangibles, and below-market lease liabilities allocated to the REI segment have been estimated by the Company with the assistance of a third-party valuation firm. Based on a preliminary analysis received to date, the estimated fair value of these assets and liabilities total $9.0 billion and $212.4 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. Upon completion of the analysis, including a review of the appraisals and assessment of current market rates, changes to the estimated fair values may result.

The intangible assets acquired primarily consist of management and advisory contracts that the Company has with the Managed REITs and are subject to an estimated useful life of approximately four years. The Company recorded $38.0 million of amortization expense for the period from the Cole Acquisition Date to June 30, 2014. The estimated amortization expense for the remainder of the year ending December 31, 2014 is $48.6 million. The estimated amortization expense for each of the years ending December 31, 2015, 2016 and 2017 is $96.3 million and the estimated amortization expense for the year ending December 31, 2018 is $9.8 million.

Goodwill of approximately $1.7 billion is expected to be assigned to the REI segment upon completion of the external valuation. The goodwill recognized is attributed to the enhancement of the Company’s year-round rental revenue stream, realized and expected synergies, the impact of the merger on lowering the Company’s cost of capital, as well as the benefits of critical mass, improved portfolio diversification, and enhanced access to capital markets. Goodwill of approximately $548.1 million is expected to be assigned to Cole Capital upon completion of the external valuation. The goodwill is primarily supported by management’s belief that Cole Capital brings an established management platform with numerous strategic benefits including growth from new income streams and the ability to offer new products. None of the goodwill is expected to be deductible for income tax purposes.

The fair value of the remaining Cole assets and liabilities have been calculated in accordance with the Company’s policy on purchase price allocation, as disclosed in the Company’s Annual Report on Form 10-K and related financial statements in its Current Report Form 8-K filed with the SEC on May 20, 2014 for the year ended December 31, 2013.

The amounts of revenue and net income related to Cole property acquisitions and Cole Capital included in the accompanying consolidated statements of operations from the Cole Acquisition Date to the period ended June 30, 2014 was $366.2 million and $32.0 million respectively.

The pro forma consolidated statements of operations in Note 6 — Real Estate Investments are presented as if Cole had been included in the consolidated results of the Company for the entire periods ended June 30, 2014 and 2013.

CCPT Acquisition

On May 19, 2014, the Company completed its acquisition of CCPT, as discussed in Note 2 — Mergers and Acquisitions. The Company accounted for the CCPT Merger as a business combination under the acquisition method of accounting. Therefore, the Company’s consolidated financial statements include the results of operations of CCPT subsequent to the CCPT Acquisition Date.

Fair Value of Consideration Transferred

The Company is in the process of gathering certain additional information in order to finalize its assessment of the fair value of the consideration transferred; thus, the fair values of currently recorded assets and liabilities are subject to change. The estimated fair value of the consideration transferred at the CCPT Acquisition Date totaled approximately $73.2 million, which was paid in cash. The acquisition was funded by the Company through additional borrowings under its revolving credit facility.

Allocation of Consideration

The consideration transferred pursuant to the CCPT Merger Agreement was allocated to the assets acquired and liabilities assumed based upon their preliminary estimated fair values as of the CCPT Acquisition Date. The Company is in the process of gathering certain additional information in order to finalize its assessment of the fair value of certain intangible assets; thus, the provisional measurements of intangible assets and goodwill are subject to change. Such post-closing adjustments are customary in nature in accordance with ASC 805, Business Combinations. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed by segment at the CCPT Acquisition Date (in thousands):



	Preliminary
	May 19, 2014
Identifiable Assets Acquired at Fair Value:
Land	$	28,258
Buildings, fixtures and improvements	113,296
Acquired intangible lease assets	17,960
Total real estate investments	159,514
Cash and cash equivalents	167
Restricted cash	2,420
Prepaid expenses and other assets	297
Total identifiable assets acquired	162,398
Identifiable Liabilities Assumed at Fair Value:
Mortgage notes payable	85,286
Unsecured credit facility	800
Accounts payable and accrued expenses	443
Below-market lease liability	1,752
Due to affiliates	568
Deferred rent and other liabilities	390
Total liabilities assumed	89,239

Net identifiable assets acquired	$	73,159

The fair value of real estate investments, including acquired lease intangibles, and below-market lease liabilities have been estimated by the Company with the assistance of a third-party valuation firm. Based on a preliminary analysis received to date, the estimated fair value of these assets and liabilities total $159.5 million and $1.8 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. Upon completion of the analysis, including a review of the appraisals and assessment of current market rates, changes to the estimated fair values may result.

The fair value of the remaining CCPT assets and liabilities have been calculated in accordance with the Company’s policy on purchase price allocation, as disclosed in the Company’s Annual Report on Form 10-K and related financial statements in its Current Report Form 8-K filed with the SEC on May 20, 2014 for the year ended December 31, 2013.

The amounts of revenue and net loss related to CCPT property acquisitions included in the accompanying consolidated statements of operations from the Cole Acquisition Date to the period ended June 30, 2014 was $1.5 million and $0.3 million respectively.