Real Estate Investments

The Company acquired controlling financial interests in one commercial property for a purchase price of $20.0 million during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, the Company acquired controlling interests in 14 commercial properties, including nine land parcels, for an aggregate purchase price of $10.2 million.

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,
	2016		2015
Real estate investments, at cost:
Land	$	4,215	$	4,187
Buildings, fixtures and improvements	14,555		5,258
Total tangible assets	18,770		9,445
Acquired intangible assets:
In-place leases	1,182		717
Above-market leases	—		153
Assumed intangible liabilities:
Below-market leases	—		(108		)
Total purchase price of assets acquired	$	19,952	$	10,207

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⁾
October 1, 2016 - December 31, 2016	$	268,066	$	1,001
2017	1,131,536		3,818
2018	1,108,872		3,016
2019	1,068,910		2,397
2020	1,031,688		2,023
Thereafter	7,574,101		5,893
Total	$	12,183,173	$	18,148

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(1)	33 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, 2016 and December 31, 2015 are as follows (in thousands):



	September 30, 2016			December 31, 2015
Future minimum lease payments receivable	$	18,148		$	21,993
Unguaranteed residual value of property	28,235			31,562
Unearned income	(5,598		)	(7,243		)
Net investment in direct financing leases	$	40,785		$	46,312

Development Activities

As of September 30, 2016 and December 31, 2015, the Company had $8.4 million and $20.0 million, respectively, of land and construction in progress. The Company has contracted with a developer to complete a portfolio of 37 build-to-suit development projects, of which 36 have been completed as of September 30, 2016, for an aggregate cost of $52.3 million. During the nine months ended September 30, 2016 and 2015, the Company capitalized $0.2 million and $1.0 million, respectively, of interest expense associated with development projects.

As of September 30, 2016, there was one remaining development project still in progress and expected to be completed within the next six months, with $1.1 million invested to date and an estimated remaining investment of $0.7 million, for a total investment of $1.8 million. Pursuant to the agreement between the Company and the developer, the Company will pay a fixed construction draw until the project is complete. The Company is contractually committed to fund the developer $0.7 million to complete the remaining build-to-suit development project.

In addition, during the nine months ended September 30, 2016, five development projects were completed and placed into service for an aggregate cost of $14.8 million.

Property Dispositions and Held for Sale Assets

During the nine months ended September 30, 2016, the Company disposed of 223 properties for an aggregate gross sales price of $672.5 million, of which our share was $646.4 million after the profit participation payment related to the disposition of 47 Red Lobster properties. The dispositions resulted in proceeds of $573.0 million after a debt assumption of $55.0 million and closing costs. The Company recorded a gain of $50.7 million related to the sales, which included $28.8 million of goodwill allocated to 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 nine months ended September 30, 2015, the Company disposed of 88 properties and one property owned by a consolidated joint venture for an aggregate gross sales price of $675.9 million, resulting in proceeds of $370.2 million after debt assumptions and closing costs. The Company recorded a loss of $39.3 million, including $48.5 million of goodwill allocation related to the sales. The Company has no continuing involvement with these properties. The dispositions were not classified as discontinued operations for any period presented.

During the nine months ended September 30, 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. During the nine months ended September 30, 2015, the Company also 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 September 30, 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. During the nine months ended September 30, 2016 and 2015, the Company recorded a loss of $5.0 million and $23.3 million, respectively, related to properties classified as held for sale during the respective periods, which included $22.7 million and $18.3 million, respectively, of goodwill allocated to the cost basis of such properties. 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 nine months ended September 30, 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 restaurant properties filed for bankruptcy during the nine months ended September 30, 2016. As part of the Company’s quarterly impairment review procedures and considering the factors mentioned above, real estate assets with carrying values totaling $655.1 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $478.9 million resulting in impairment charges of $176.2 million during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, real estate assets with carrying values totaling $319.3 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $234.0 million, resulting in impairment charges of $85.3 million.

Consolidated Joint Ventures

The Company had interests in two joint ventures that owned two properties as of each of September 30, 2016 and December 31, 2015 (the “Consolidated Joint Ventures”). As of September 30, 2016 and December 31, 2015, the Consolidated Joint Ventures had total assets of $59.6 million and $58.5 million, of which $55.6 million and $55.2 million, respectively, were real estate investments, net of accumulated depreciation and amortization. One property secured a mortgage note payable of $9.9 million, which was non-recourse to the Company. The Company has the ability to control operating and financial policies of the Consolidated Joint Ventures. There are restrictions on the use of these assets as the Company would generally be required to obtain the approval of each partner (the “Partner”) in accordance with the joint venture agreement for any major transactions. The Company and each Partner are subject to the provisions of each 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’ income was $12,000 for the three months ended September 30, 2016 and the Partners’ share of the Consolidated Joint Ventures’ loss was $23,000 for the nine months ended September 30, 2016, respectively. The Partners’ share of the Consolidated Joint Ventures’ income or loss is included in net (income) loss attributable to non-controlling interests in the consolidated statements of operations.

The Partners’ share of income from four consolidated joint ventures was $0.4 million and $1.2 million for the three and nine months ended September 30, 2015, respectively, and is included in net (income) loss attributable to non-controlling interests in the consolidated statements of operations. The Company disposed of its interest in two of these consolidated joint ventures on or after June 30, 2015.

Unconsolidated Joint Ventures

The Company’s investment in unconsolidated joint ventures consisted of interests in two joint ventures that owned two properties, which were comprised of 0.5 million square feet of retail space as of September 30, 2016, and interests in three joint ventures that owned three properties, which were comprised of 0.9 million square feet of retail and office space as of December 31, 2015. As of September 30, 2016 and December 31, 2015, the Company owned aggregate equity investments of $18.6 million and $52.8 million, respectively, in unconsolidated joint ventures. The Company accounts for its investments in 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 earnings and distributions from the joint ventures. As of September 30, 2016, the Company’s maximum exposure to risk was $18.6 million, the carrying value of the investments, which is presented in investment in unconsolidated entities in the consolidated balance sheet. The unconsolidated joint ventures had total debt outstanding of $46.2 million as of September 30, 2016, none of which is recourse to the Company, as discussed in Note 10 – Debt. The Company and the respective unconsolidated joint venture partners are subject to the provisions of the applicable joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls.

The Company records its proportionate share of net income (loss) from the unconsolidated joint ventures in the equity in income and gain on disposition of unconsolidated entities in the consolidated statements of operations. During the three and nine months ended September 30, 2016, the Company recognized $0.2 million and $0.6 million of net income, respectively, from the unconsolidated joint ventures which owned two and three properties, respectively. During the three and nine months ended September 30, 2015, the Company recognized $0.1 million and $1.5 million of net income, respectively, from unconsolidated joint ventures which owned six properties.

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, 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%	$	6,108
Cole/Faison JV Bethlehem GA, LLC	Faison-Winder Investors, LLC	90%	12,501
			$	18,609

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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 $6.5 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.