Real Estate Investments and Related Intangibles

Property Acquisitions

During the three months ended March 31, 2018, the Company acquired controlling financial interests in 12 commercial properties for an aggregate purchase price of $139.9 million (the “2018 Acquisitions”), which includes $0.7 million of external acquisition-related expenses that were capitalized. During the three months ended March 31, 2017, the Company acquired a controlling interest in 16 commercial properties and three land parcels for an aggregate purchase price of $101.9 million (the “2017 Acquisitions”), which includes $0.4 million of external acquisition-related expenses that were capitalized.

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,
	2018		2017
Real estate investments, at cost:
Land	$	27,049	$	24,107
Buildings, fixtures and improvements	96,044		59,261
Total tangible assets	123,093		83,368
Acquired intangible assets:
In-place leases and other intangibles ⁽¹⁾	14,037		15,916
Above-market leases⁽²⁾	2,752		2,815
Assumed intangible liabilities:
Below-market leases ⁽³⁾	—		(185		)
Total purchase price of assets acquired	$	139,882	$	101,914

____________________________________


(1)	The weighted average amortization period for acquired in-place leases and other intangibles is 14.9 years and 10.8 years for 2018 Acquisitions and 2017 Acquisitions, respectively.


(2)	The weighted average amortization period for acquired above-market leases is 10.8 years and 20.0 years for 2018 Acquisitions and 2017 Acquisitions, respectively.


(3)	The weighted average amortization period for acquired intangible lease liabilities is 20.0 years for 2017 Acquisitions.

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, 2018 - December 31, 2018	$	824,206	$	2,240
2019	1,088,326		2,508
2020	1,057,113		2,135
2021	1,016,544		2,011
2022	938,596		1,921
Thereafter	6,036,829		2,254
Total	$	10,961,614	$	13,069

____________________________________


(1)	Related to 27 properties which 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.

Property Dispositions and Real Estate Assets Held for Sale

During the three months ended March 31, 2018, the Company disposed of 40 properties for an aggregate gross sales price of $120.8 million, of which our share was $119.2 million after the profit participation payments related to the disposition of three Red Lobster properties. The dispositions resulted in proceeds of $116.9 million after closing costs. The Company recorded a gain of $18.2 million related to the sales which is included in gain on disposition of real estate and real estate assets held for sale, net in the accompanying consolidated statements of operations.

During the three months ended March 31, 2018, the Company also disposed of one property owned by an unconsolidated joint venture for a gross sales price of $34.1 million, of which our share was $17.1 million based on our ownership interest in the joint venture, resulting in proceeds of $5.6 million after debt repayments of $20.4 million and closing costs. The Company recorded a gain of $0.7 million related to the sale and liquidation of the joint venture, which is included in equity in income (loss) and gain on disposition of unconsolidated entities in the accompanying consolidated statements of operations.

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 Lobsters. The dispositions resulted in proceeds of $195.7 million after closing costs. The Company recorded a gain of $12.5 million.

As of March 31, 2018, there were 11 properties classified as held for sale with a carrying value of $15.1 million, included in assets related to discontinued operations and real estate assets held for sale, net in the accompanying consolidated balance sheet which are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy. As of December 31, 2017, there were 30 properties classified as held for sale. During the three months ended March 31, 2018, the Company recorded a loss of $0.9 million related to held for sale properties. There was no loss related to held for sale properties during the three months ended March 31, 2017.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of March 31, 2018 and December 31, 2017 (amounts in thousands, except weighted-average useful life):



	Weighted-Average Useful Life	March 31, 2018		December 31, 2017
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $628,165 and $599,680, respectively	15.2	$	1,064,366	$	1,091,433
Leasing commissions, net of accumulated amortization of $3,279 and $2,902, respectively	11.1	13,741		13,876
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $92,351 and $88,335, respectively	16.3	233,102		241,449
Total intangible lease assets, net		$	1,311,209	$	1,346,758

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $78,738 and $73,916, respectively	18.6	$	193,703	$	198,551

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 March 31, 2018 (amounts in thousands):



	2018		2019		2020		2021		2022
In-place leases and other intangibles:
Total projected to be included in amortization expense	$	101,447	$	125,918	$	118,607	$	110,642	$	96,441
Leasing commissions:
Total projected to be included in amortization expense	1,148		1,532		1,510		1,456		1,398
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental income	17,700		21,865		21,450		21,022		20,208
Below-market lease liabilities:
Total projected to be included in rental income	14,362		18,388		17,240		16,041		15,197

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.

As part of the Company’s quarterly impairment review procedures, net real estate assets with carrying values totaling $14.2 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $8.2 million resulting in impairment charges of $6.0 million during the three months ended March 31, 2018. The impairment charges relate to certain restaurant and retail properties that, during 2018, management identified for potential sale or determined, based on discussions with the current tenants, will not be re-leased.

During the three months ended March 31, 2017, net 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.

Consolidated Joint Ventures

The Company had an interest in one consolidated joint venture that owned one property as of March 31, 2018 and December 31, 2017. As of March 31, 2018 and December 31, 2017, the consolidated joint venture had total assets of $33.2 million and $33.7 million, of which $30.4 million and $30.7 million, respectively, were real estate investments, net of accumulated depreciation and amortization. As of March 31, 2018 and December 31, 2017, the property was secured by a mortgage note payable of $14.9 million, which was non-recourse to the Company. The Company has the ability to control operating and financial policies of the consolidated joint venture. There are restrictions on the use of these assets as the Company would generally be required to obtain the approval of the partner in accordance with the joint venture agreement for any major transactions. The Company and the joint venture partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls. The partner’s share of the loss from the consolidated joint venture was $40,000 for the three months ended March 31, 2018.

As of March 31, 2017, the Company had interests in two consolidated joint ventures. The partners’ share of the two consolidated joint ventures’ loss was $7,000 for the three months ended March 31, 2017.

Unconsolidated Joint Ventures

As of March 31, 2018, the Company held an investment in an unconsolidated joint venture that owned one property with a carrying value of $33.7 million. During the three months ended March 31, 2018, the Company disposed of one property owned by an unconsolidated joint venture as previously discussed in the “Property Dispositions and Real Estate Assets Held for Sale” section herein. As of December 31, 2017, the Company held investments in two unconsolidated joint ventures that each owned one property with an aggregate carrying value of $39.5 million.

The Company had a 90% legal ownership interest in the unconsolidated joint venture at March 31, 2018 and December 31, 2017 and accounts for its investment using the equity method of accounting as the Company has the ability to exercise significant influence, but not control, over operating and financing policies of the investment. 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 venture. During the three months ended March 31, 2018 and 2017, the Company recognized $0.4 million and $0.3 million of net income, respectively, from unconsolidated joint ventures which owned one and two properties at the respective period end. The Company’s legal ownership interest may, at times, not equal the Company’s economic interest 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.

The carrying amount of the unconsolidated joint venture was greater than the underlying equity in net assets by $5.0 million as of March 31, 2018 and December 31, 2017, respectively. 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 mergers. 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. The Company and the unconsolidated joint venture partner 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.