Goodwill and Other Intangibles

12 Months Ended

Dec. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

In connection with the CapLease Merger and the Cole Merger, the Company recorded goodwill as a result of the merger consideration exceeding the net assets acquired. The goodwill recorded as a result of the Cole Merger was allocated between the Company’s two segments, the REI segment and the Cole Capital segment.

In the event the Company disposes of a property that constitutes a business under U.S. GAAP, the Company will allocate a portion of the REI segment’s goodwill to that property in determining the gain or loss on the disposal of the property. The amount of goodwill allocated to the property will be based on the relative fair value of the property to the fair value of the REI segment. Future property acquisitions that constitute a business will be integrated into the REI segment and therefore will also be allocated goodwill upon disposition.

The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value, by reporting unit, may not be recoverable. The analysis performed for the annual goodwill test during the three months ended December 31, 2015 resulted in an impairment charge of $139.7 million in the Cole Capital reporting unit. See Note 10 – Fair Value Measures for a discussion of the Company’s accounting policies regarding impairments of goodwill.

The following table summarizes the Company’s goodwill activity by segment from January 1, 2013 to December 31, 2015 (in thousands):



	REI Segment			Cole Capital Segment			Consolidated
Balance as of January 1, 2013	$	—		$	—		$	—
CapLease Merger	92,789			—			92,789
Balance as of December 31, 2013	92,789			—			92,789
Cole Merger	1,654,085			558,835			2,212,920
Measurement period adjustments	(27,339		)	49,627			22,288
Goodwill allocated to dispositions ⁽¹⁾	(210,139		)	—			(210,139		)
Impairment	—			(223,064		)	(223,064		)
Balance as of December 31, 2014	1,509,396			385,398			1,894,794
Goodwill allocated to dispositions and held for sale assets ⁽¹⁾	(98,765		)	—			(98,765		)
Impairment	—			(139,655		)	(139,655		)
Balance as of December 31, 2015	$	1,410,631		$	245,743		$	1,656,374

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(1)	Included in loss on disposition of real estate, net, in the consolidated statements of operations.

Intangible Assets

The intangible assets primarily consisted of management and advisory contracts that the Company has with certain Managed REITs, which are subject to an estimated useful life of approximately four years.

In connection with the annual goodwill impairment test, the fair value of the intangible assets were analyzed during the three months ended December 31, 2015. Based on this analysis, the Company concluded that the carrying value of the intangible assets exceeded the fair value and an impairment charge of $73.7 million was recorded. Prior to the impairment, the Company recorded $22.5 million of amortization expenses related to the intangible assets and $3.4 million subsequent to the impairment. The estimated amortization expense is expected to be $26.1 million, $16.6 million, $4.0 million for each of the years ending December 31, 2016, 2017, 2018, respectively, and $3.8 million for the nine months ended September 30, 2019. See Note 2 – Summary of Significant Accounting Policies for a discussion of the Company’s accounting policies regarding impairments of intangible assets. The intangible assets were $50.8 million and $150.4 million, net of accumulated amortization of $3.4 million and $16,000, respectively, as of December 31, 2015 and 2014.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of December 31, 2015 and 2014 (amounts in thousands, except weighted-average useful life):



	Weighted-Average Useful Life	December 31, 2015		December 31, 2014
Intangible lease assets:
In-place leases, net of accumulated amortization of $398,770 and $236,096, respectively	13.6	$	1,458,354	$	1,816,508
Leasing commissions, net of accumulated amortization of $1,035 and $505, respectively	9.1	4,872		4,205
Above-market leases, net of accumulated amortization of $47,041 and $22,471, respectively	16.0	308,306		355,269
Total intangible lease assets, net		$	1,771,532	$	2,175,982

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $38,340 and $19,123, respectively	16.8	$	251,692	$	317,838

The following table provides the projected amortization expense and adjustments to rental income related to the intangible lease assets and liabilities for the next five years as of December 31, 2015 (amounts in thousands):



	2016		2017		2018		2019		2020
In-place leases:
Total to be included in amortization expense	$	172,641	$	157,734	$	144,024	$	132,307	$	122,660
Leasing Commissions
Total to be included in amortization expense	$	720	$	693	$	506	$	434	$	413
Above-market lease assets:
Total to be deducted from rental income	$	25,901	$	25,559	$	24,999	$	23,037	$	22,557
Below-market lease liabilities:
Total to be included in rental income	$	21,304	$	21,140	$	20,804	$	19,971	$	18,661

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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