Goodwill and Other Intangibles

12 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

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 Real Estate Investments, Inc. (“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. For discussion regarding the Company’s policies on goodwill allocation for future acquisitions and dispositions, please see Note 2 – Summary of Significant Accounting Policies.

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 years ended December 31, 2016, 2015 and 2014 resulted in impairment charges of $120.9 million, $139.7 million and $223.1 million, respectively, in the Cole Capital reporting unit. See Note 10 – Fair Value Measures for a discussion of the Company’s fair value measurements regarding goodwill and intangible assets.

The following table summarizes the Company’s goodwill activity by segment from January 1, 2015 to December 31, 2016 (in thousands):



	REI Segment			Cole Capital Segment			Consolidated
Balance, January 1, 2015	$	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, December 31, 2015	$	1,410,631		$	245,743		$	1,656,374
Goodwill allocated to dispositions and held for sale assets ^{(1) (2)}	(73,240		)	—			(73,240		)
Impairment	—			(120,931		)	(120,931		)
Balance as of December 31, 2016	$	1,337,391		$	124,812		$	1,462,203

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(1)	Included in gain (loss) on disposition of real estate and held for sale assets, net, in the consolidated statement of operations.


(2)	Includes $71.0 million of goodwill allocated to the cost basis of properties disposed of and classified as held for sale as discussed in Note 5 – Real Estate Investments and $2.3 million of goodwill allocated to the cost basis of two properties foreclosed upon as discussed in Note 11 – Debt during the year ended December 31, 2016.

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 remaining useful life of approximately three 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, 2016. Based on this analysis, the Company concluded that the fair value of the intangible assets exceeded the carrying value and no impairment charge was recorded. The Company recorded $26.2 million of amortization expense related to the intangible assets during the year ended December 31, 2016. The Company recorded $25.9 million of amortization expenses related to the intangible assets for the year ended December 31, 2015. The estimated amortization expense is expected to be $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 ending September 30, 2019. See Note 10 – Fair Value Measures for a discussion of the Company’s fair value measurements regarding goodwill and intangible assets. The intangible assets were $24.6 million and $50.8 million, net of accumulated amortization of $29.6 million and $3.4 million, respectively, as of December 31, 2016 and December 31, 2015.

Intangible Lease Assets and Liabilities

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



	Weighted-Average Useful Life	December 31, 2016		December 31, 2015
Intangible lease assets:
In-place leases, net of accumulated amortization of $494,131 and $398,770, respectively	14.8	$	1,192,756	$	1,458,354
Leasing commissions, net of accumulated amortization of $1,836 and $1,035, respectively	9.9	10,231		4,872
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $69,670 and $47,041, respectively	16.5	275,897		308,306
Total intangible lease assets, net		$	1,478,884	$	1,771,532

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $56,891 and $38,340, respectively	18.0	$	224,023	$	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 December 31, 2016 (amounts in thousands):



	2017		2018		2019		2020		2021
In-place leases:
Total projected to be included in amortization expense	$	146,814	$	134,960	$	124,008	$	115,862	$	106,889
Leasing commissions:
Total projected to be included in amortization expense	1,124		936		862		821		772
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental income	24,745		24,243		22,330		21,894		21,377
Below-market lease liabilities:
Total projected to be included in rental income	20,100		19,773		19,040		17,856		16,501

- 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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