Goodwill and Other Intangibles

Goodwill

In connection with prior mergers, the Company recorded goodwill as a result of the merger consideration exceeding the net assets acquired. The goodwill recorded as a result of the merger of Cole with and into a wholly owned subsidiary of the Company (the “Cole Merger”) was allocated between the Company’s two segments, the REI segment and the Cole Capital segment. The REI segment and the Cole Capital segment each comprise one reporting unit.

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 for the annual goodwill test is performed during the fourth quarter. The Company tests goodwill for impairment by first comparing the carrying value of net assets to the fair value of each reporting unit. If the fair value is determined to be less than the carrying value or if qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows and relevant competitor multiples. The evaluation of goodwill for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions. While the Company believes its assumptions are reasonable, there are no guarantees as to actual results. Changes in assumptions based on actual results may have a material impact on the Company’s financial results.

The fair value of the Cole Capital segment is dependent upon actual results, including, but not limited to, the timing and amount of aggregate capital raised and deployed on behalf of the Cole REITs, which is influenced by the Company’s ability to reinstate certain selling agreements that were suspended as a result of the Audit Committee Investigation and the resulting restatements, as well as regulatory requirements affecting broker-dealers. If the Company is unable to reinstate selling agreements or raise and deploy capital as estimated, the fair values of the Cole Capital segment and intangible assets may be less than the respective carrying value, resulting in an impairment that could have a material effect on a Company’s financial results. In addition, the actual timing of closing an offering or executing a liquidity event on behalf of a Cole REIT or the commencement of operations of newly formed REITs, which are not yet effective, may differ from the Company’s assumptions.

During the six months ended June 30, 2016 and 2015, management monitored the actual performance of the business segments relative to the fair value assumptions used during the annual goodwill impairment test. For the periods presented, management determined it remains more likely than not that the fair value of the reporting unit is greater than its carrying value.

The following table summarizes the Company’s goodwill activity by segment during the six months ended June 30, 2016 and 2015 (in thousands):



	REI Segment			Cole Capital Segment		Consolidated
Balance as of December 31, 2015	$	1,410,631		$	245,743	$	1,656,374
Goodwill allocated to dispositions and held for sale assets ⁽¹⁾	(36,141		)	—		$	(36,141	)
Balance as of June 30, 2016	$	1,374,490		$	245,743	$	1,620,233



	REI Segment			Cole Capital Segment		Consolidated
Balance as of December 31, 2014	$	1,509,396		$	385,398	$	1,894,794
Goodwill allocated to dispositions and held for sale assets ⁽¹⁾	(47,499		)	—		(47,499		)
Balance as of June 30, 2015	$	1,461,897		$	385,398	$	1,847,295

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

Intangible Assets

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

The Company evaluates intangible assets for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable. The Company tests intangible assets for impairment by first comparing the carrying value of the asset group to 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 intangible assets to their respective fair values and recognize an impairment loss.

The Company will estimate the fair value of the intangible assets using a discounted cash flow model specific to the applicable Cole REITs. The evaluation of intangible assets for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions. While the Company believes its assumptions are reasonable, there are no guarantees as to actual results. Changes in assumptions based on actual results may have a material impact on the Company’s financial results. There were no events or changes in circumstances that indicated that intangible assets were impaired during the six months ended June 30, 2016 or 2015.

The Company recorded $6.2 million and $13.7 million of amortization expenses related to the intangible assets for the three and six months ended June 30, 2016, respectively and $7.5 million and $15.0 million of amortization expense related to the intangible assets for the three and six months ended June 30, 2015, respectively. The estimated amortization expense is expected to be $12.5 million for the remainder of the year ending December 31, 2016, $16.6 million and $4.0 million for the years ending December 31, 2017 and 2018, respectively, and $3.8 million for the nine months ended September 30, 2019. The intangible assets were $37.1 million and $50.8 million, net of accumulated amortization of $17.1 million and $3.4 million, respectively, as of June 30, 2016 and December 31, 2015.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of June 30, 2016 and December 31, 2015 (amounts in thousands, except weighted-average useful life):



	Weighted-Average Useful Life	June 30, 2016		December 31, 2015
Intangible lease assets:
In-place leases, net of accumulated amortization of $439,249 and $398,770, respectively	14.9	$	1,306,345	$	1,458,354
Leasing commissions, net of accumulated amortization of $1,428 and $1,035, respectively	9.2	6,647		4,872
Above-market leases, net of accumulated amortization of $58,083 and $47,041, respectively	16.7	290,854		308,306
Total intangible lease assets, net		$	1,603,846	$	1,771,532

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $47,309 and $38,340, respectively	18.1	$	237,403	$	251,692

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 June 30, 2016 (amounts in thousands):



	July 1, 2016 - December 31, 2016		2017		2018		2019		2020
In-place leases:
Total projected to be included in amortization expense	$	166,779	$	152,212	$	139,390	$	127,892	$	119,201
Leasing Commissions
Total projected to be included in amortization expense	968		971		783		709		668
Above-market lease assets:
Total projected to be deducted from rental income	25,578		25,193		24,658		22,703		22,236
Below-market lease liabilities:
Total projected to be included in rental income	25,231		20,340		20,013		19,275		18,082