Real Estate Investments

During the three months ended March 31, 2017, the Company acquired controlling financial interests in 16 commercial properties and three land parcels for an aggregate purchase price of $101.9 million, which includes $0.4 million of external acquisition-related expenses that were capitalized in accordance with ASU 2017-01. Prior to the adoption of ASU 2017-01, costs related to property acquisitions were expensed as incurred. During the three months ended March 31, 2016, the Company acquired a controlling interest in one commercial property for a purchase price of $20.0 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,
	2017			2016
Real estate investments, at cost:
Land	$	24,107		$	4,215
Buildings, fixtures and improvements	59,261			14,555
Total tangible assets	83,368			18,770
Acquired intangible assets:
In-place leases	15,916			1,182
Above-market leases	2,815			—
Assumed intangible liabilities:
Below-market leases	(185		)	—
Total purchase price of assets acquired	$	101,914		$	19,952

The Company has not included pro forma information or revenue and earnings for the Company’s 2016 acquisitions that were classified as business combinations prior to the adoption of ASU 2017-01, as they did not have a material impact on its consolidated financial position or results of operations.

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, 2017 - December 31, 2017	$	812,431	$	2,599
2018	1,086,126		3,016
2019	1,049,422		2,397
2020	1,013,348		2,023
2021	971,437		1,899
Thereafter	6,300,003		3,993
Total	$	11,232,767	$	15,927

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(1)	29 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, 2017 and December 31, 2016 are as follows (in thousands):



	March 31, 2017			December 31, 2016
Future minimum lease payments receivable	$	15,927		$	17,147
Unguaranteed residual value of property	23,700			27,450
Unearned income	(4,718		)	(5,142		)
Net investment in direct financing leases	$	34,909		$	39,455

Property Dispositions and Held for Sale Assets

During the three months ended March 31, 2017, the Company disposed of 50 properties for an aggregate gross sales price of $210.6 million, of which our share was $200.8 million after the profit participation payment related to the disposition of 14 Red Lobster properties. The dispositions resulted in proceeds of $195.7 million after closing costs. Additionally, the Company’s tax provision for the three months ended March 31, 2017 included $1.7 million of Canadian tax on the gain on sale of certain Canadian properties. The Company recorded a gain of $12.5 million related to the sales which is included in gain on disposition of real estate and held for sale assets, net in the accompanying consolidated statements of operations. 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, which included $11.3 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 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 (loss) income and gain on disposition of unconsolidated entities in the accompanying consolidated statements of operations.

As of March 31, 2017, there were seven 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. There was no loss related to held for sale properties, nor any goodwill allocated to the cost basis for three additional properties classified as held for sale during the three months ended March 31, 2017. During the three months ended March 31, 2016, the Company recorded a loss of $1.7 million related to properties classified as held for sale during the respective period, which included $2.2 million of goodwill allocated to the cost basis of such properties. The loss on properties held for sale is included in gain on disposition of real estate and held for sale assets, net in the accompanying consolidated statements of operations.

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.

As part of the Company’s quarterly impairment review procedures and considering the factors mentioned above, real estate assets with carrying values totaling $16.6 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $9.9 million resulting in impairment charges of $6.7 million during the three months ended March 31, 2017. 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. As a result, during the three months ended March 31, 2016, 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.

Consolidated Joint Ventures

The Company had interests in two joint ventures that owned two properties as of each of March 31, 2017 and December 31, 2016, respectively (the “Consolidated Joint Ventures”). As of March 31, 2017 and December 31, 2016, the Consolidated Joint Ventures had total assets of $67.4 million and $64.8 million, respectively, of which $58.8 million were real estate investments, net of accumulated depreciation and amortization, for each of the respective periods. One property is secured by a mortgage note payable of $13.9 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’ loss was $7,000 and $39,000 for the three months ended March 31, 2017 and 2016, respectively, and 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 venture arrangements (the “Unconsolidated Joint Ventures”) consisted of interests in two joint ventures that owned two properties as of each of March 31, 2017 and December 31, 2016. As of March 31, 2017 and December 31, 2016, the Company owned aggregate equity investments of $41.0 million and $41.3 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 March 31, 2017, the Company’s maximum exposure to risk was $41.0 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 March 31, 2017, 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 (loss) income and gain on disposition of unconsolidated entities in the consolidated statements of operations. During each of the three months ended March 31, 2017 and 2016, the Company recognized $0.3 million of net income from two 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, 2017 (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%	$	5,839
Cole/Faison JV Bethlehem GA, LLC	Faison-Winder Investors, LLC	90%	35,119
			$	40,958

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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 $6.3 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.