Real Estate Investments

The Company acquired controlling financial interests in one commercial property for a purchase price of $20.0 million during the three months ended March 31, 2016. During the three months ended March 31, 2015, the Company acquired controlling interests in 10 commercial properties, including six land parcels, for an aggregate purchase price of $7.6 million.

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



	Three Months Ended March 31,
	2016		2015
Real estate investments, at cost:
Land	$	4,215	$	1,594
Buildings, fixtures and improvements	14,555		5,617
Total tangible assets	18,770		7,211
Acquired intangible assets:
In-place leases	1,182		416
Total purchase price of assets acquired	$	19,952	$	7,627

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⁾
April 1, 2016 - December 31, 2016	$	882,655	$	3,338
2017	1,162,408		4,036
2018	1,131,580		3,016
2019	1,090,919		2,397
2020	1,050,467		2,023
Thereafter	7,870,665		5,893
Total	$	13,188,694	$	20,703

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(1)	36 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 March 31, 2016 and December 31, 2015 are as follows (in thousands):



	March 31, 2016			December 31, 2015
Future minimum lease payments receivable	$	20,703		$	21,993
Unguaranteed residual value of property	31,562			31,562
Unearned income	(6,654		)	(7,243		)
Net investment in direct financing leases	$	45,611		$	46,312

Development Activities

As of March 31, 2016 and December 31, 2015, the Company had $15.9 million and $20.0 million, respectively, of land and construction in progress. The Company has contracted with a developer to complete a portfolio of build-to-suit development projects, of which 35 have been completed as of March 31, 2016, for an aggregate cost of $50.6 million to date and the remaining two projects are expected to be completed within the next three 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. In addition, during the three months ended March 31, 2016, one build-to-suit project was completed and placed into service for an aggregate cost of $1.4 million. During the three months ended March 31, 2016 and 2015, the Company capitalized $0.1 million and $0.3 million, respectively, of interest expense associated with development projects.The Company is also in the process of completing four other 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 March 31, 2016 (dollar amounts in thousands):



Development projects in progress	6

Investment to date	$	12,729
Estimated cost to complete ⁽¹⁾	4,563
Total Investment ⁽²⁾	$	17,292

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(1)	The Company is contractually committed to fund a developer $1.4 million to complete the remaining two build-to-suit developments.


(2)	Excludes tenant improvement costs incurred in accordance with existing leases. As of March 31, 2016, $3.2 million of tenant improvement costs were included in buildings, fixtures and improvements in the consolidated financial statements.

Property Dispositions and Held for Sale Assets

During the three months ended March 31, 2016, the Company disposed of 58 properties for an aggregate gross sales price of $193.7 million, of which our share was $193.1 million after the profit participation payment related to the disposition of one Red Lobster. The dispositions resulted in proceeds of $133.8 million after a debt assumption of $55.0 million and closing costs. The Company recorded a gain of $18.8 million related to the sales, which included $11.3 million of goodwill allocated in the cost basis of such properties, which is included in gain (loss) on disposition of real estate, net in the accompanying consolidated statements of operations. During the three months ended March 31, 2015, the Company disposed of 11 properties for an aggregate gross sales price of $271.8 million, resulting in proceeds of $245.5 million after debt assumptions and closing costs. The Company recorded a loss of $31.4 million, including $23.7 million of goodwill allocation related to the sales. During the three months ended March 31, 2015, the Company also had one property that was foreclosed upon with a prior net book value of $38.2 million. The Company has no continuing involvement with these properties. The dispositions were not classified as discontinued operations for any period presented.

During the three months ended March 31, 2016, the Company also disposed of one property owned by an unconsolidated joint venture for a gross sales price of $113.5 million, of which our share was $102.1 million based on our ownership interest in the joint venture, resulting in proceeds of $42.3 million after debt repayments of $57.0 million and closing costs. The Company recorded a gain of $10.2 million related to the sale, which is included in equity in income and gain on disposition of unconsolidated entities in the accompanying consolidated statements of operations.

As of March 31, 2016, there were 19 properties classified as held for sale, which are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy. To reflect the properties’ fair values less cost to sell, the Company recorded a loss of $1.7 million, which included $2.2 million of goodwill allocated in the cost basis of such properties, for the three months ended March 31, 2016. The loss on properties held for sale is included in gain (loss) on disposition of real estate, net in the accompanying consolidated statements of operations. As of December 31, 2015, there were 17 properties classified as held for sale, all of which were sold during the three months ended March 31, 2016.

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. Impairment indicators that the Company considers include, but are not limited to, decrease in net operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants, such as history of late payments, rental concessions and other factors, as well as significant decreases in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses or reduced lease rates.

When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, the Company assesses the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions.

During the three months ended March 31, 2016, management identified certain properties for potential sale as part of its portfolio management strategy to reduce exposure to office properties. Additionally, a tenant of 59 restaurants filed for bankruptcy during the three months ended March 31, 2016. As part of the Company’s quarterly impairment review procedures and considering the factors mentioned above, real estate assets with carrying values totaling $623.0 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $462.5 million resulting in impairment charges of $160.5 million during the three months ended March 31, 2016. The Company identified certain properties during the three months ended March 31, 2015 with impairment indicators, however, the undiscounted future cash flows expected as a result of the use and eventual disposition of the real estate and related assets was in excess of the carrying amounts and, as such, no impairment charges were recorded.

Consolidated Joint Ventures

The Company had interests in two joint ventures that owned two properties as of each of March 31, 2016 and December 31, 2015 (the “Consolidated Joint Ventures”). As of March 31, 2016 and December 31, 2015, the Consolidated Joint Ventures had total assets of $58.0 million and $58.5 million, of which $54.9 million and $55.2 million, respectively, were real estate investments, net of accumulated depreciation and amortization. One property secured a mortgage note payable of $8.4 million, which is non-recourse to the Company. The Company has the ability to control operating and financial policies of the Consolidated Joint Venture. There are restrictions on the use of these assets as the Company would generally be required to obtain the respective partner's (“the Partner”) approval in accordance with the joint venture agreement for any major transactions. The Company and the Partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls.

The Partners’ share of the Consolidated Joint Ventures’ loss of $39,000 and income of $0.2 million for the three months ended March 31, 2016 and March 31, 2015, respectively, is included in net loss attributable to non-controlling interests in the consolidated statements of operations.

Unconsolidated Joint Ventures

Investment in unconsolidated joint ventures consisted of the Company’s interest in two joint ventures that owned two properties and the Company’s interest in three joint ventures that owned three properties as of March 31, 2016 and December 31, 2015, respectively, which were comprised of 0.5 million square feet of retail space and 0.9 million square feet of retail and office space, respectively, (the “Unconsolidated Joint Ventures”). As of March 31, 2016 and December 31, 2015, the Company owned aggregate equity investments of $19.6 million and $52.8 million, respectively, in the Unconsolidated Joint Ventures. 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. As of March 31, 2016, the Company’s maximum exposure to risk is $19.6 million, the carrying value of our investment, which is presented in the investment in unconsolidated entities line item in the consolidated balance sheets. The Unconsolidated Joint Ventures had total debt outstanding of $46.3 million as of March 31, 2016, none of which is recourse to the Company, as discussed in Note 10 – Debt. The Company and the respective Unconsolidated Joint Venture partner are subject to the provisions of the joint venture agreement which include provisions for when additional contributions may be required to fund certain cash shortfalls.

The Company records its proportionate share of net income from the Unconsolidated Joint Ventures in equity in income and gain on disposition of unconsolidated entities in the consolidated statements of operations. During the three months ended March 31, 2016 and 2015, the Company recognized $0.3 million and $0.1 million, respectively, of net income from 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 March 31, 2016 (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%	$	6,452
Cole/Faison JV Bethlehem GA, LLC	Faison-Winder Investors, LLC	90%	13,185
			$	19,637

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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 $6.7 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 March 31, 2016, 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 March 31, 2016, properties located in Texas represented 13.2% 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 March 31, 2016.

Industry Concentration

As of March 31, 2016, 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 March 31, 2016.