Real Estate Investments

The Company acquired controlling financial interests in 16 commercial properties, including nine land parcels for build-to-suit development, for an aggregate purchase price of $36.3 million during the year ended December 31, 2015. During the year ended December 31, 2014, the Company acquired controlling interests in 1,107 commercial properties, including a sale-leaseback transaction of 522 Red Lobster^® restaurants and 20 other branded restaurant properties and 31 land parcels, but excluding the properties acquired in the Cole Merger, CCPT Merger and the ARCT IV Merger, for an aggregate purchase price of $3.8 billion. During the year ended December 31, 2013, the Company acquired controlling interests in 1,739 properties, excluding the properties acquired in the Caplease Merger, for an aggregate purchase price of $3.5 billion.

The following table presents the allocation of the fair values of the assets acquired and liabilities assumed during the periods presented (in thousands):



	Year Ended December 31,
	2015			2014			2013
Real estate investments, at cost:
Land	$	5,051		$	808,930		$	883,491
Buildings, fixtures and improvements	26,503			2,494,379			2,311,211
Land and construction in progress	2,140			11,030			—
Total tangible assets	33,694			3,314,339			3,194,702
Acquired intangible assets:
In-place leases	2,580			545,389			334,839
Above-market leases	153			112,484			12,317
Assumed intangible liabilities:
Below-market leases	(108		)	(107,185		)	(21,446		)
Fair value adjustment of assumed notes payable	—			(23,589		)	—
Total purchase price of assets acquired	36,319			3,841,438			3,520,412
Mortgage notes payable assumed	—			(301,532		)	—
Cash paid for acquired real estate investments	$	36,319		$	3,539,906		$	3,520,412

The following table presents unaudited pro forma information as if all of the Company’s acquisitions in 2014, including the Cole Merger, the ARCT IV Merger and the CCPT Merger, as discussed in Note 3 – Mergers with Real Estate Businesses, 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 $38.8 million and $76.1 million for the years ended December 31, 2014 and 2013, respectively, and merger and other non-routine transaction related expenses of $200.5 million and $210.5 million for the years ended December 31, 2014 and 2013, respectively. Data below is presented in thousands.



	Year Ended December 31,
	2014			2013
	(Unaudited)			(Unaudited)
Pro forma revenues	$	1,853,014		$	1,585,511
Pro forma net (loss) attributable to stockholders	$	(606,549	)	$	(478,093	)

The following table presents unaudited pro forma information as if the Company’s acquisitions in 2013, including the CapLease Merger discussed in Note 3 – Mergers with Real Estate Businesses, during the year ended December 31, 2013 had been consummated on January 1, 2012. 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, 2012. Additionally, the unaudited pro forma net loss attributable to stockholders was adjusted to exclude acquisition related expenses of $76.1 million and $45.1 million for the years ended December 31, 2013 and 2012, respectively, and merger and other transaction related expenses of $278.3 million and $2.6 million for the years ended December 31, 2013 and 2012, respectively (amounts in thousands).



	Year Ended December 31,
	2013			2012
	(Unaudited)			(Unaudited)
Pro forma revenues	$	574,058		$	467,434
Pro forma net (loss) attributable to stockholders	$	(75,132	)	$	(15,708	)

Future Lease Payments

The following table presents future minimum base rent 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⁾
2016	$	1,281,206	$	4,505
2017	1,254,404		4,105
2018	1,220,730		3,071
2019	1,180,046		2,397
2020	1,140,336		2,023
Thereafter	8,545,006		5,892
Total	$	14,621,728	$	21,993

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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 December 31, 2015 and 2014 are as follows (in thousands):



	December 31, 2015			December 31, 2014
Future minimum lease payments receivable	$	21,993		$	27,199
Unguaranteed residual value of property	31,562			39,852
Unearned income	(7,243		)	(10,975		)
Net investment in direct financing leases	$	46,312		$	56,076

Development Activities

The Company has contracted with a developer to complete a portfolio of build-to-suit development projects, of which 31 have been completed as of December 31, 2015, for an aggregate cost of $45.1 million to date and the remaining six 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 year ended December 31, 2015, two other build-to-suit and expansion projects were completed and placed into service for an aggregate cost of $55.0 million. During the years ended December 31, 2015 and 2014, the Company capitalized $1.2 million and $0.3 million, respectively, of interest expense associated with development projects.The Company is also in the process of completing four other build-to-suit, redevelopment and expansion projects, which are expected to increase its 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 December 31, 2015 (dollar amounts in thousands):



Development projects in progress	10

Investment to date	$	17,185
Estimated cost to complete ⁽¹⁾	3,660
Total Investment ⁽²⁾	$	20,845

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(1)	The Company is contractually committed to fund a developer $1.9 million to complete the remaining six build-to-suit developments.


(2)	Excludes tenant improvement costs incurred in accordance with existing leases. As of December 31, 2015, $2.8 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 year ended December 31, 2015, the Company disposed of 228 properties, including two properties owned by consolidated joint ventures, for aggregate sales price of $1.4 billion, resulting in consolidated proceeds of $966.1 million after debt assumptions and closing costs. The Company recorded a loss of $72.3 million related to the sales,which included $98.8 million of goodwill allocated in the cost basis of such properties, which is included in loss on disposition of real estate, net in the accompanying consolidated statements of operations. During the year ended December 31, 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 year ended December 31, 2014, the Company disposed of 45 single-tenant properties and 65 anchored shopping center properties for aggregate proceeds of $1.6 billion. The Company has no continuing involvement with these properties. The dispositions were not classified as discontinued operations for any period presented.

During the year ended December 31, 2015, the Company also disposed of its interest in one consolidated joint venture, whose only assets consisted of investments in three unconsolidated joint ventures, for an aggregate gross sales price of $77.5 million, of which the Company’s share was $69.8 million based on its ownership interest, resulting in consolidated 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, both of which were sold during the year ended December 31, 2015. As of December 31, 2015, there were 17 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 $3.2 million, which included $2.1 million of goodwill allocated in the cost basis of such properties, for the year ended December 31, 2015. The loss on properties held for sale is included in loss on disposition of real estate, net in the accompanying consolidated statements of operations.

Multi-tenant Shopping Center Portfolio Sale

On October 17, 2014, the Company completed the sale of a portfolio consisting of 64 multi-tenant properties and seven single-tenant properties (the “Multi-tenant Portfolio”) for $1.9 billion to the Blackstone/DDR Joint Venture. The disposition to Blackstone and DDR provided $1.3 billion of net proceeds, of which $1.2 billion were used to reduce the Company’s leverage by paying down the Company’s line of credit. In connection with the sale, $542.8 million of secured mortgage debt was either repaid or assumed by the Blackstone/DDR Joint Venture, providing the Company with $1.3 billion in net proceeds and resulting in a net loss on sale of $262.0 million, which includes $195.5 million of goodwill allocation.

The Multi-tenant Portfolio was not classified as discontinued operations for any periods presented, however, the Company has determined that the Multi-tenant Portfolio is an individually significant component of the Company. The following table summarizes the operating income from continued operations of the Multi-Tenant Portfolio for the year ended December 31, 2014 and 2013 (in thousands):



	Year Ended December 31,
	2014			2013
Total revenue	$	122,522		$	—
Total expenses	(123,776		)	—
Loss from Multi-Tenant Portfolio	$	(1,254	)	$	—

Impairment of Real Estate Investments

The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. See Note 2 – Summary of Significant Accounting Policies for a discussion on the Company’s accounting policies regarding impairment of real estate assets.

During the years ended December 31, 2015 and 2014, real estate assets with carrying values totaling $340.0 million and $199.5 million, respectively, were deemed to be impaired and their carrying values were reduced to their estimated fair values of $248.3 million and $99.0 million, respectively, resulting in impairment charges of $91.8 million and $100.5 million, respectively.

Unconsolidated Joint Ventures

As of December 31, 2015, the Company had interests in three unconsolidated joint ventures with aggregate equity investments of $52.8 million, which had interests in three properties comprising 0.9 million of square feet of retail and office space (the “Unconsolidated Joint Ventures”). The Company accounts for the Unconsolidated Joint Ventures using the equity method of accounting as discussed in detail in Note 2 – Summary of Significant Accounting Policies.

The following is a summary of the Company’s percentage ownership and carrying amount related to each of the Unconsolidated Joint Ventures as of December 31, 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%	$	6,591
Cole/LBA JV OF Pleasanton CA, LLC	Affiliate of LBA Realty	90%	32,947
Cole/Faison JV Bethlehem GA, LLC	Faison-Winder Investors, LLC	90%	13,222
			$	52,760

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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 $10.0 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.

Tenant Concentration

As of December 31, 2015, there were no tenants exceeding 10% of the Company’s consolidated annualized rental income. Annualized rental income is rental revenue under the Company’s leases on operating properties reflecting straight-line rent adjustments associated with contractual rent increases in the leases as required by U.S. GAAP, which includes the effect of any tenant concessions, such as free rent, and excludes any contingent rent, such as percentage rent.

Geographic Concentration

As of December 31, 2015, properties located in Texas represented 13.1% of the Company’s consolidated annualized rental income. There were no other geographic concentrations exceeding 10% of the Company’s consolidated annualized rental income as of December 31, 2015.

Industry Concentration

As of December 31, 2015, tenants in the restaurant - casual dining and manufacturing industries accounted for 16.6% and 10.1% of the Company’s consolidated annualized rental income, respectively. There were no other industry concentrations exceeding 10% of the Company’s consolidated annualized rental income as of December 31, 2015.