Real Estate Investments

The Company acquired controlling financial interests in eight commercial properties for a purchase price of $100.2 million during the year ended December 31, 2016 (the “2016 Acquisitions”). The Company recorded revenue for the year ended December 31, 2016 of $2.1 million and net income of $0.5 million related to the 2016 Acquisitions.

During the year ended December 31, 2015, the Company acquired controlling interests in 16 commercial properties, including nine land parcels, for an aggregate purchase price of $36.3 million (the “2015 Acquisitions”). The Company recorded revenue for the year ended December 31, 2015 of $1.2 million and net income of $0.4 million related to the 2015 Acquisitions.

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 (the “2014 Acquisitions”), 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.

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,
	2016			2015			2014
Real estate investments, at cost:
Land	$	23,187		$	5,051		$	808,930
Buildings, fixtures and improvements	67,865			28,643			2,505,409
Total tangible assets	91,052			33,694			3,314,339
Acquired intangible assets:
In-place leases ⁽¹⁾	9,613			2,580			545,389
Above-market leases ⁽²⁾	—			153			112,484
Assumed intangible liabilities:
Below-market leases ⁽³⁾	(471		)	(108		)	(107,185		)
Fair value adjustment of assumed notes payable	—			—			(23,589		)
Total purchase price of assets acquired	$	100,194		$	36,319		$	3,841,438
Mortgage notes payable assumed	—			—			(301,532		)
Cash paid for acquired real estate investments	$	100,194		$	36,319		$	3,539,906

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(1)	The weighted average amortization period for acquired in-place leases is 13.8 years, 11.0 years and 19.0 years for 2016 Acquisitions, 2015 Acquisitions and 2014 Acquisitions, respectively.


(2)	The weighted average amortization period for acquired above-market leases is 14.1 years and 19.4 years for 2015 Acquisitions and 2014 Acquisitions, respectively. There were no acquired above-market leases during the year ended December 31, 2016.


(3)	The weighted average amortization period for acquired intangible lease liabilities is 10.0 years, 15.0 years and 20.6 years for 2016 Acquisitions, 2015 Acquisitions and 2014 Acquisitions, respectively.

The Company has not included pro forma information for the Company’s 2016 or 2015 Acquisitions as they did not have a material impact on its consolidated financial position or results of operations. 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 6 – 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, which is included in litigation, merger and other non-routine costs, net of insurance recoveries in the accompanying consolidated statements of operations. 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	)

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⁾
2017	$	1,106,798	$	3,819
2018	1,096,146		3,016
2019	1,058,299		2,397
2020	1,021,668		2,023
2021	978,368		1,899
Thereafter	6,487,753		3,993
Total	$	11,749,032	$	17,147

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(1)	32 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, 2016 and December 31, 2015 are as follows (in thousands):



	December 31, 2016			December 31, 2015
Future minimum lease payments receivable	$	17,147		$	21,993
Unguaranteed residual value of property	27,450			31,562
Unearned income	(5,142		)	(7,243		)
Net investment in direct financing leases	$	39,455		$	46,312

Property Dispositions and Held for Sale Assets

During the year ended December 31, 2016, the Company disposed of 301 properties for an aggregate gross sales price of $1.08 billion, of which our share was $1.04 billion after the profit participation payment related to the disposition of 70 Red Lobster properties. The dispositions resulted in consolidated proceeds of $958.4 million after a mortgage loan assumption of $55.0 million and closing costs. The Company recorded a gain of $45.7 million related to the sales, which included $67.8 million of goodwill allocated to the cost basis of such properties. The Company’s gain on the sales is included in gain (loss) on disposition of real estate and held for sale assets, net in the accompanying consolidated statements of operations. During the year ended December 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 mortgage loan 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 (loss) and gain on disposition of unconsolidated entities in the accompanying consolidated statements of operations.

During the year ended December 31, 2015, the Company disposed of 228 properties, including two properties owned by consolidated joint ventures, for an aggregate sales price of $1.4 billion, resulting in consolidated proceeds of $966.1 million after mortgage loan assumptions and closing costs. The Company recorded a loss of $69.1 million related to the sales, which included $96.7 million of goodwill allocated in the cost basis of such properties. The Company’s loss on the sales is included in gain (loss) on disposition of real estate and held for sale assets, net in the accompanying consolidated statements of operations. 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 mortgage loan repayment and closing costs. The mortgage loan 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 equity in income (loss) and gain on disposition of unconsolidated entities in the accompanying consolidated statements of operations.

As of December 31, 2016, there were 11 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. As of December 31, 2015, there were 17 properties classified as held for sale. During the years ended December 31, 2016 and 2015, the Company recorded a loss of $0.2 million and $3.2 million, respectively, related to properties classified as held for sale as of December 31, 2016 and 2015, which included $3.2 million and $2.1 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 and held for sale assets, 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 included $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 was 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 (in thousands):



	Year Ended December 31, 2014
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.

During the year ended December 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 restaurant properties filed for bankruptcy during the year ended December 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 $668.2 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $485.4 million, resulting in impairment charges of $182.8 million during the year ended December 31, 2016. 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.

Consolidated Joint Ventures

The Company had interests in two Consolidated Joint Ventures that owned two properties as of each of December 31, 2016 and December 31, 2015. As of December 31, 2016 and December 31, 2015, the Consolidated Joint Ventures had total assets of $57.0 million and $58.5 million, of which $50.8 million and $55.2 million, respectively, were real estate investments, net of accumulated depreciation and amortization. As of December 31, 2016, one property secured a mortgage note payable of $11.6 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 respective 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 aggregate Consolidated Joint Ventures’ loss was $14,000 for the year ended December 31, 2016. The Partners’ share of income from five Consolidated Joint Ventures was $1.3 million for the year ended December 31, 2015. The Company disposed of its interest in three of these Consolidated Joint Ventures during the year ended December 31, 2015, which included one Consolidated Joint Venture, whose only assets were investments in three Unconsolidated Joint Ventures. The Partners’ share of the loss from six Consolidated Joint Ventures was $154,000 for the year ended December 31, 2014. The Company disposed of its interest in one of these Consolidated Joint Ventures during the year ended December 31, 2014. The Partners’ share of the Consolidated Joint Ventures’ income or loss is included in net loss attributable to non-controlling interests in the consolidated statements of operations.

Unconsolidated Joint Ventures

The Company’s investment in Unconsolidated Joint Ventures consisted of interests in two joint ventures that owned two properties as of December 31, 2016, and interests in three joint ventures that owned three properties as of December 31, 2015. As of December 31, 2016 and December 31, 2015, the Company owned aggregate equity investments of $41.3 million and $52.8 million, respectively, in Unconsolidated Joint Ventures.

As of December 31, 2016, the Company’s maximum exposure to risk was $41.3 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 $20.4 million as of December 31, 2016, none of which is recourse to the Company, as discussed in Note 11 – 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.

During the years ended December 31, 2016, 2015 and 2014, the Company recognized $0.9 million, $2.3 million and $1.5 million of net income, respectively, from the Unconsolidated Joint Ventures which owned two, three and six properties, at the respective year end.

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, 2016 (dollar amounts in thousands):



Name of Joint Venture	Partner	Ownership Percentage ⁽¹⁾	Carrying Amount of Investment ⁽²⁾
Cole/Mosaic JV South Elgin IL, LLC	Affiliate of Mosaic Properties and Development, LLC	50%	$	5,891
Cole/Faison JV Bethlehem GA, LLC	Faison-Winder Investors, LLC	90%	35,438
			$	41,329

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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 $6.4 million. This difference relates to a purchase price 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.