Real Estate Investments

The Company acquired controlling financial interests in 14 commercial properties, including nine land parcels for build-to-suit development, for an aggregate purchase price of $10.2 million during the nine months ended September 30, 2015 (the “2015 Acquisitions”). During the nine months ended September 30, 2014, the Company acquired controlling interests in 1,092 commercial properties, including 28 land parcels, but excluding the properties acquired in the Cole Merger and the ARCT IV Merger, for an aggregate purchase price of $3.8 billion. The following table presents the allocation of the fair values of the assets acquired and liabilities assumed during the periods presented (in thousands):



	Nine Months Ended September 30,
	2015			2014
Real estate investments, at cost:
Land	$	2,047		$	812,712
Buildings, fixtures and improvements	5,258			2,486,868
Land and construction in progress	2,140			11,083
Total tangible assets	9,445			3,310,663
Acquired intangible assets:
In-place leases	717			522,568
Above-market leases	153			110,230
Assumed intangible liabilities:
Below-market leases	(108		)	(101,108		)
Fair value adjustment of assumed notes payable	—			(23,531		)
Total purchase price of assets acquired, net	10,207			3,818,822
Mortgage notes payable assumed	—			(301,532		)
Cash paid for acquired real estate investments	$	10,207		$	3,517,290

Future Lease Payments

The following table presents future minimum base rent payments due to the Company from October 1, 2015 through December 31, 2019 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⁾
October 1, 2015 - December 31, 2015	$	289,399	$	1,166
2016	1,225,267		4,674
2017	1,194,341		4,273
2018	1,158,149		3,183
2019	1,117,327		2,397
Thereafter	9,744,736		7,916
Total	$	14,729,219	$	23,609

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(1)	37 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 minimum base rental cash payments due to the Company under the lease agreements on these respective properties.

Investment in Direct Financing Leases, Net

The components of the Company’s net investment in direct financing leases as of September 30, 2015 and December 31, 2014 are as follows (in thousands):



	September 30, 2015			December 31, 2014
Future minimum lease payments receivable	$	23,609		$	27,199
Unguaranteed residual value of property	33,598			39,852
Unearned income	(7,963		)	(10,975		)
Net investment in direct financing leases	$	49,244		$	56,076

Development Activities

The Company has contracted with a developer to complete a portfolio of build-to-suit development projects, of which 27 have been completed as of September 30, 2015, for an aggregate cost of $47.6 million to date and the remaining 10 projects are expected to be completed within the next 12 months. Pursuant to the agreement between the Company and the developer, the Company will acquire the respective land parcel for each development and subsequently pay a fixed construction draw until the project is complete. During the nine months ended September 30, 2015, two other build-to-suit and expansion projects were completed and placed into service for an aggregate cost of $55.8 million. The Company is also in the process of completing four other build-to-suit, redevelopment and expansion projects, which are expected to increase our revenue as a result of the additional square footage and improvement of the quality of the properties. Below is a summary of the construction commitments as of September 30, 2015 (dollar amounts in thousands):



Development projects in progress	14

Investment to date	17,666
Estimated cost to complete ⁽¹⁾	7,447
Total Investment ⁽²⁾	$	25,113

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(1) The Company is contractually committed to fund a developer $4.1 million to complete the remaining 10 build-to-suit developments.

(2) Excludes tenant improvement costs incurred in accordance with existing leases. As of September 30, 2015, $16.7 million of tenant improvement costs were included in land and construction in progress in the consolidated financial statements.

Property Dispositions and Held for Sale Assets

During the nine months ended September 30, 2015, the Company disposed of 85 single-tenant properties, three anchored shopping centers and one property owned by a consolidated joint venture for an aggregate gross sales price of $675.9 million, resulting in net proceeds of $370.2 million after debt assumptions and closing costs. The Company recorded a loss of $39.3 million related to the sales, which is included in loss on disposition of real estate and held for sale assets, net in the accompanying consolidated statements of operations. During the nine months ended September 30, 2015, the Company also had one property that had been foreclosed upon with a net book value of $38.2 million at the time of foreclosure. During the nine months ended September 30, 2014, the Company disposed of 29 single-tenant properties and one anchored shopping center for an aggregate gross sales price of $158.6 million. The Company has no continuing involvement with these properties. The dispositions did not represent a change in strategic direction for the Company and will not have a significant effect on the operations or financial results of the Company. As such, the operating results of the dispositions are not classified as discontinued operations for any periods presented. See Note 20 – Subsequent Events for dispositions subsequent to September 30, 2015.

In addition, the Company disposed of its interest in one consolidated joint venture, whose only assets were investments in three unconsolidated joint ventures, for an aggregate gross sales price of $77.5 million, resulting in proceeds of $43.0 million after debt repayment and closing costs. The debt obligation of the consolidated joint venture was held by an unconsolidated entity. The Company recorded a gain of $6.7 million related to the sale of the consolidated joint venture, which is included in gain on disposition of interest in joint venture in the accompanying consolidated statements of operations.

As of December 31, 2014, there were two properties classified as held for sale (the “2014 Held for Sale Properties”), both of which were sold during the nine months ended September 30, 2015. As of September 30, 2015, there were five properties (the “2015 Held for Sale Properties”) classified as held for sale. The 2015 Held for Sale Properties are estimated to be sold in the next 12 months as part of the Company’s portfolio management strategy. To reflect the 2015 Held for Sale Properties’ fair values less cost to sell, the Company recorded a loss of $23.3 million, which includes $18.3 million of goodwill allocated in the cost basis of such properties, for the nine months ended September 30, 2015. The loss on properties held for sale is included in loss on disposition of real estate and held for sale assets, net in the accompanying consolidated statements of operations.

Unconsolidated Joint Ventures

As of September 30, 2015, the Company had interests in three unconsolidated joint ventures with aggregate equity investments of $53.7 million, which had interests in three properties comprising 0.9 million of square feet of retail and office space (the “Unconsolidated Joint Ventures”).

The following is a summary of the Company’s percentage ownership and carrying amount related to each of the Unconsolidated Joint Ventures as of September 30, 2015 (dollar amounts in thousands):



Name of Joint Venture	Partner	Ownership % ⁽¹⁾	Carrying Amount of Investment ⁽²⁾
Cole/Mosaic JV South Elgin IL, LLC	Affiliate of Mosaic Properties and Development, LLC	50%	$	6,763
Cole/LBA JV OF Pleasanton CA, LLC	Affiliate of LBA Realty	90%	33,612
Cole/Faison JV Bethlehem GA, LLC	Faison-Winder Investors, LLC	90%	13,292
			$	53,667

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(1) The Company’s ownership interest in this table reflects its legal ownership interest. Legal ownership may, at times, not equal the Company’s economic interest in the listed properties because of various provisions in certain joint venture agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interests.

(2) The total carrying amount of the investments is greater than the underlying equity in net assets by $10.2 million. This difference relates to a purchase price allocation of goodwill and a step up in fair value of the investment assets acquired in connection with the Cole Merger. The step up in fair value was allocated to the individual investment assets and is being amortized in accordance with the Company’s depreciation policy.

The Company accounts for the Unconsolidated Joint Ventures using the equity method of accounting as the Company has the ability to exercise significant influence, but not control, over operating and financial policies of these investments. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the joint ventures’ earnings and distributions. The Company records its proportionate share of net income from the Unconsolidated Joint Ventures in other income, net in the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2015, the Company recognized $0.1 million and $1.5 million, respectively, of equity in income from the Unconsolidated Joint Ventures, which is included in other income, net in the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2014, the Company recognized $0.2 million and $1.6 million of equity in income from the Unconsolidated Joint Ventures, respectively.

Tenant Concentration

As of September 30, 2015, leases with Red Lobster® restaurants represented 12.0% of consolidated annualized rental income. Annualized rental income is rental revenue under our leases on operating properties reflecting straight-line rent adjustments associated with contractual rent increases in the leases as required by GAAP, which includes the effect of any tenant concessions, such as free rent, and excludes any contingent rent, such as percentage rent. There were no other tenants exceeding 10% of consolidated annualized rental income as of September 30, 2015.

Geographic Concentration

As of September 30, 2015, properties located in Texas represented 12.9% of consolidated annualized rental income. There were no other geographic concentrations exceeding 10% of consolidated annualized rental income as of September 30, 2015.

Industry Concentration

As of September 30, 2015, tenants in the casual dining restaurant industry accounted for 19.0% of consolidated annualized rental income. There were no other industry concentrations exceeding 10% of consolidated annualized rental income as of September 30, 2015.