Real Estate Investments

Excluding the Cole Merger, the ARCT IV Merger and the CCPT Merger, the Company acquired interests in 337 commercial properties, including 18 land parcels, for an aggregate purchase price of $1.5 billion during the six months ended June 30, 2014 (the “2014 Acquisitions”). The Company is in the process of obtaining and reviewing the final third-party appraisals for some of the 2014 Acquisitions, and as such, the fair value of the related asset acquired and liabilities assumed during the six months ended June 30, 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 June 30,					Six Months Ended June 30,
	2014			2013		2014			2013
Real estate investments, at cost:
Land	$	109,075		$	416,887	$	239,663		$	493,029
Buildings, fixtures and improvements	482,074			1,129,906		1,185,641			1,424,900
Total tangible assets	591,149			1,546,793		1,425,304			1,917,929
Acquired intangible assets:
In-place leases	30,801			165,576		128,581			211,748
Above-market leases	5,511			—		21,145			—
Assumed intangible liabilities:
Below-market leases	(1,869		)	—		(3,321		)	—
Fair value adjustment of assumed notes payable	—			—		(23,589		)	—
Total purchase price of assets acquired, net	625,592			1,712,369		1,548,120			2,129,677
Notes payable assumed	—			—		301,532			—
Cash paid for acquired real estate investments	$	625,592		$	1,712,369	$	1,246,588		$	2,129,677
Number of properties acquired	122			899		337			1,011

The following table presents unaudited pro forma information as if all of the 2014 Acquisitions and the Cole Merger, ARCT IV Merger and CCPT 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 $20.3 million and $47.6 million for the six months ended June 30, 2014 and 2013, respectively and merger and other transaction related expenses of $235.5 million and $144.2 million for the six months ended June 30, 2014 and 2013, respectively (in thousands).



	Six Months Ended June 30,
	2014			2013
Pro forma revenues	$	827,562		$	155,269
Pro forma net income (loss) attributable to stockholders	$	(67,207	)	$	2,386

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 the 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 of land, acquired lease assets and acquired lease liabilities were 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⁾
July 1, 2014 - December 31, 2014	$	677,188	$	2,485
2015	1,214,297		4,757
2016	1,191,214		4,674
2017	1,142,109		4,273
2018	1,087,444		3,183
Thereafter	7,706,549		10,052
Total	$	13,018,801	$	29,424

____________________________________

(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.

Investment in Direct Financing Leases, Net

The components of the Company’s net investment in direct financing leases as of June 30, 2014 and December 31, 2013 are as follows (in thousands):



	June 30, 2014			December 31, 2013
Future minimum lease payments receivable	$	29,685		$	33,729
Unguaranteed residual value of property	43,884			46,172
Unearned income	(11,475		)	(13,789		)
Net investment in direct financing leases	$	62,094		$	66,112

Development Activities

During the six months ended June 30, 2014, the Company acquired 18 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 $15.3 million in aggregate. The land acquired for an aggregate amount of $8.2 million is included in land in the accompanying consolidated balance sheet. In addition, during the six months ended June 30, 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 June 30, 2014, the Company had a total investment of $20.4 million, including capitalized interest of $37,000, and an estimated remaining investment of $1.7 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, the Company 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 June 30, 2014, the Company had a total investment of $20.0 million, including capitalized interest of $68,000, and estimated remaining investment of $14.0 million related to the development project.

Tenant Concentration

As of June 30, 2014 and June 30, 2013, there were no tenants exceeding 10% of consolidated annualized rental income. 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.

Geographic Concentration

As of June 30, 2014, properties located in Texas represented 12.9% of consolidated annualized rental income determined on a straight-line basis. There were no geographic concentrations exceeding 10% of consolidated annualized rental income at June 30, 2013.