Real Estate Investments and Related Intangibles

Property Acquisitions

During the year ended December 31, 2018, the Company acquired controlling financial interests in 52 commercial properties for an aggregate purchase price of $502.7 million (the “2018 Acquisitions”), which includes one land parcel for build-to-suit development, further discussed below, $2.1 million related to an outstanding tenant improvement allowance recorded as a payable as of the acquisition date and for which the Company received a credit at close, and $2.6 million of external acquisition-related expenses that were capitalized.

During the year ended December 31, 2017, the Company acquired a controlling interest in 88 commercial properties and three land parcels for an aggregate purchase price of $748.8 million (the “2017 Acquisitions”), which includes $3.3 million of external acquisition-related expenses that were capitalized and includes 22 properties acquired in a nonmonetary exchange discussed below.

During the year ended December 31, 2016, the Company acquired a controlling interest in eight commercial properties for an aggregate purchase price of $100.2 million (the “2016 Acquisitions”). Prior to the adoption of ASU 2017-01, costs related to property acquisitions were expensed as incurred. The Company has not included pro forma information for the Company's 2016 Acquisitions, which were acquired prior to the adoption of ASU 2017-01 and met the definition of a business combination, as they did not have a material impact on the Company's financial position or results of operations.

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,
	2018			2017			2016
Real estate investments, at cost:
Land	$	86,285		$	110,634		$	23,187
Buildings, fixtures and improvements	350,942			523,445			67,865
Total tangible assets	437,227			634,079			91,052
Acquired intangible assets:
In-place leases and other intangibles ⁽¹⁾	62,791			105,940			9,613
Above-market leases⁽²⁾	2,750			10,445			—
Assumed intangible liabilities:
Below-market leases ⁽³⁾	(116		)	(1,680		)	(471		)
Total purchase price of assets acquired	$	502,652		$	748,784		$	100,194

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(1)	The weighted average amortization period for acquired in-place leases and other intangibles is 16.3 years, 15.8 years and 13.8 years for 2018 Acquisitions, 2017 Acquisitions and 2016 Acquisitions, respectively.


(2)	The weighted average amortization period for acquired above-market leases is 10.8 years and 18.0 years for 2018 Acquisitions and 2017 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 9.9 years, 13.8 years and 10.0 years for 2018 Acquisitions, 2017 Acquisitions and 2016 Acquisitions, respectively.

As of December 31, 2018, the Company invested $3.5 million, including $0.5 million of external acquisition-related expenses that were capitalized, in one build-to-suit development project. The Company’s estimated remaining committed investment is $24.9 million, and the project is expected to be completed within the next 12 months.

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⁾
2019	$	1,107,610	$	2,448
2020	1,080,639		2,135
2021	1,042,346		2,014
2022	972,564		1,925
2023	890,327		1,541
Thereafter	5,387,232		707
Total	$	10,480,718	$	10,770

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(1)	Related to 25 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 year ended December 31, 2018, the Company disposed of 149 properties, including one property conveyed to a lender in a deed-in-lieu of foreclosure transaction as discussed in Note 7 – Debt, for an aggregate gross sales price of $526.4 million, of which our share was $504.3 million after the profit participation payments related to the disposition of 34 Red Lobster properties. The dispositions resulted in proceeds of $496.7 million after closing costs. The Company recorded a gain of $96.2 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 year ended December 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 and gain on disposition of unconsolidated entities in the accompanying consolidated statements of operations.

During the year ended December 31, 2017, the Company disposed of 137 properties, including one property owned by a consolidated joint venture, six properties transferred to the lender in either a deed-in-lieu of foreclosure or foreclosure sale transaction as discussed in Note 7 – Debt, and 15 properties disposed of in connection with a nonmonetary exchange discussed below, for an aggregate gross sales price of $594.9 million, of which our share was $574.4 million after the profit participation payment related to the disposition of 31 Red Lobster properties and the consolidated joint venture partner’s share of the sales price. The dispositions resulted in proceeds of $445.5 million after a mortgage loan assumption of $66.0 million and closing costs. Additionally, the Company’s tax provision for the year ended December 31, 2017 included $1.7 million of Canadian tax gain on the sale of certain Canadian properties. The Company recorded a gain of $64.7 million, 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 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 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, which included $67.8 million of goodwill allocated to the cost basis of such properties, 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 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 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.

As of December 31, 2018, there were five properties classified as held for sale with a carrying value of $2.6 million, included in assets related to real estate assets held for sale and discontinued operations, 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 year ended December 31, 2018, the Company recorded a loss of $1.9 million related to held for sale properties. During the year ended December 31, 2017, the Company recorded a loss of $3.1 million related to held for sale properties. During the year ended December 31, 2016, the Company recorded a loss of $5.1 million related to held for sale properties, which included $3.2 million of goodwill allocated to the cost basis of such properties.

Intangible Lease Assets and Liabilities

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



	Weighted-Average Useful Life	December 31, 2018		December 31, 2017
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $703,909 and $599,680, respectively	15.5	$	980,971	$	1,091,433
Leasing commissions, net of accumulated amortization of $4,048 and $2,902, respectively	10.7	15,660		13,876
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $105,936 and $88,335, respectively	16.4	201,875		241,449
Total intangible lease assets, net		$	1,198,506	$	1,346,758

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $89,905 and $73,916, respectively	18.8	$	173,479	$	198,551

The aggregate amount of above‑ and below-market leases and deferred lease incentives amortized and included as a net decrease to rental revenue was $4.2 million for the year ended December 31, 2018 and $5.4 million for each of the years ended December 31, 2017 and 2016, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $139.6 million, $154.2 million and $170.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of December 31, 2018 (amounts in thousands):



	2019		2020		2021		2022		2023
In-place leases and other intangibles:
Total projected to be included in amortization expense	$	126,457	$	119,161	$	111,335	$	97,159	$	86,311
Leasing commissions:
Total projected to be included in amortization expense	1,911		1,778		1,620		1,556		1,359
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue	20,870		20,456		20,027		19,213		18,270
Below-market lease liabilities:
Total projected to be included in rental revenue	17,973		16,821		15,656		14,809		13,924

Nonmonetary Exchange

During the year ended December 31, 2017, the Company completed a nonmonetary exchange through the simultaneous acquisition of 22 Bob Evans properties and disposition of 15 Red Lobster properties. Pursuant to Nonmonetary Transactions, ASC (Topic 845), the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered to obtain the acquired nonmonetary asset, and a gain or loss should be recognized on the exchange. The fair value of the asset received should be used to measure the cost if the fair value of the asset received is more reliable than the fair value of the asset surrendered. The Company estimated the fair value of the Bob Evans and Red Lobster properties using valuation techniques consistent with the income approach and concluded that the fair value was $50.1 million. As the fair value of the assets received exceeded the book value of the assets surrendered, the Company recorded a gain of $7.4 million, 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.

Consolidated Joint Ventures

The Company had an interest in one consolidated joint venture that owned one property as of December 31, 2018 and 2017. As of December 31, 2018 and 2017, the consolidated joint venture had total assets of $32.5 million and $33.7 million, of which $29.9 million and $30.7 million, respectively, were real estate investments, net of accumulated depreciation and amortization. The property was secured by a mortgage note payable, which was non-recourse to the Company and had a balance of $14.0 million and $14.9 million, as of December 31, 2018 and 2017, respectively. The Company has the ability to control operating and financing 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 joint venture 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.

Unconsolidated Joint Ventures

As of December 31, 2018, the Company held an investment in an unconsolidated joint venture that owned one property with a carrying value of $35.3 million. 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. During the year ended December 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.

The Company had a 90% legal ownership interest in the unconsolidated joint venture at December 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 year ended December 31, 2018 the Company recognized $1.2 million of net income from unconsolidated joint ventures. During the years ended December 31, 2017 and 2016 the Company recognized $3.3 million and $0.9 million of net income, respectively, from two unconsolidated joint ventures. 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 $4.7 million as of December 31, 2018. The carrying amount of the unconsolidated joint ventures was greater than the underlying equity in net assets by $8.6 million as of December 31, 2017. 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, including the Company’s share of expansion project capital expenditures.