Real Estate Investments and Related Intangibles

6 Months Ended

Jun. 30, 2021

Real Estate Investments and Related Intangibles

Property Acquisitions

During the six months ended June 30, 2021, the Company acquired controlling financial interests in 106 commercial properties for an aggregate purchase price of $318.9 million (the “2021 Acquisitions”), which includes $3.1 million of external acquisition-related expenses that were capitalized. Additionally, the Company placed in service one build-to-suit development project in which the Company invested $45.5 million, including $0.9 million of external acquisition-related expenses and interest that were capitalized and the land parcel acquired during the year ended December 31, 2020.

During the six months ended June 30, 2020, the Company acquired controlling financial interests in 25 commercial properties for an aggregate purchase price of $147.1 million (the “2020 Acquisitions”), which includes the land parcel and capitalized external acquisition-related expenses and interest for the build-to-suit development discussed above.

The following table presents the allocation of the fair values of the assets acquired and liabilities assumed during the periods presented (in thousands):


	Six Months Ended June 30,
	2021		2020
Real estate investments, at cost:
Land	$	61,668	$	19,953
Buildings, fixtures and improvements	181,458		95,728
Total tangible assets	243,126		115,681
Acquired intangible assets:
In-place leases and other intangibles (1)	29,708		15,739
Above-market leases (2)	48,776		15,701
Assumed intangible liabilities:
Below-market leases (3)	(2,726)		—
Total purchase price of assets acquired	$	318,884	$	147,121

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(1)The weighted average amortization period for acquired in-place leases and other intangibles is 15.5 years and 18.1 years for 2021 Acquisitions and 2020 Acquisitions, respectively.

(2)The weighted average amortization period for acquired above-market leases is 17.4 years and 20.1 years for 2021 Acquisitions and 2020 Acquisitions, respectively.

(3)The weighted average amortization period for assumed below-market leases is 19.9 years for 2021 Acquisitions.

Property Dispositions and Real Estate Assets Held for Sale

During the six months ended June 30, 2021, the Company disposed of 52 properties, for an aggregate sales price of $369.9 million. The dispositions resulted in proceeds of $360.6 million after closing costs. The Company recorded a gain of $93.2 million related to the dispositions, 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 six months ended June 30, 2020, the Company disposed of 47 properties, including the sale of two consolidated properties to the office partnership, for an aggregate sales price of $219.2 million, of which our share was $216.7 million after the profit participation payments related to the disposition of three Red Lobster properties. The dispositions resulted in proceeds of $204.1 million after closing costs, including proceeds from the contribution of properties to the office partnership. The Company recorded a gain of $34.2 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.

As of June 30, 2021, there were eight properties classified as held for sale with a carrying value of $29.0 million, included in real estate assets held for sale, net, primarily comprised of land of $4.8 million and building, fixtures and improvements, net of $24.1 million, in the accompanying consolidated balance sheets, and are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy. During each of the six months ended June 30, 2021 and 2020, the Company recorded a loss of $0.2 million, related to held for sale properties.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of June 30, 2021 and December 31, 2020 (amounts in thousands, except weighted-average useful life):


	Weighted-Average Useful Life	June 30, 2021		December 31, 2020
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $825,921 and $810,597, respectively	17.5	$	715,226	$	745,026
Leasing commissions, net of accumulated amortization of $8,679 and $7,565, respectively	9.7	16,471		16,042
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $131,756 and $125,455, respectively	27.0	210,125		167,776
Total intangible lease assets, net		$	941,822	$	928,844

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $111,352 and $106,504, respectively	20.0	$	115,831	$	120,938

The aggregate amount of amortization of above-market and below-market leases and deferred lease incentives included as a net decrease to rental revenue was $3.4 million and $1.5 million for the six months ended June 30, 2021 and 2020, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $56.8 million and $73.3 million for the six months ended June 30, 2021 and 2020, 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 June 30, 2021 (in thousands):


	Remainder of 2021		2022		2023		2024		2025		2026
In-place leases and other intangibles:
Total projected to be included in amortization expense	$	52,910	$	94,296	$	84,846	$	75,829	$	63,870	$	57,575
Leasing commissions:
Total projected to be included in amortization expense	1,421		2,666		2,375		2,162		1,902		1,667
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue	10,726		21,279		20,374		19,014		17,548		15,488
Below-market lease liabilities:
Total projected to be included in rental revenue	6,995		13,145		12,464		10,673		9,456		8,921

Consolidated Joint Venture

The Company had an interest in one consolidated joint venture that owned one property as of June 30, 2021 and December 31, 2020. As of June 30, 2021 and December 31, 2020, the consolidated joint venture had total assets of $32.5 million and $33.0 million, respectively, of which $28.3 million and $29.1 million, respectively, were real estate investments, net of accumulated depreciation and amortization at each of the respective dates. The property is secured by a mortgage note payable, which is non-recourse to the Company and had a balance of $14.9 million and $14.8 million as of June 30, 2021 and December 31, 2020, 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 is generally 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.

Investment in Unconsolidated Entities

The following is a summary of the Company’s investments in unconsolidated entities as of June 30, 2021 and December 31, 2020 and for the six months ended June 30, 2021 and 2020 (dollar amounts in thousands):


	Ownership % (1)	Number of Properties	Carrying Amount of Investment				Equity in Income
							Six Months Ended
Investment	June 30, 2021		June 30, 2021		December 31, 2020		June 30, 2021		June 30, 2020
Industrial Partnership	20%	7	$	42,697	$	45,378	$	501	$	347
Office Partnership (2)	20%	5	14,964		13,435		410		199
Faison JV Bethlehem GA (3)	—%	—	—		—		—		1,197
Total unconsolidated joint ventures			$	57,661	$	58,813	$	911	$	1,743
Preferred equity (4)			22,826		22,826		—		—
Total investment in unconsolidated entities			$	80,487	$	81,639	$	911	$	1,743

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(1)The Company’s ownership interest 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 capital contributions, 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)During the six months ended June 30, 2021, the office partnership acquired one property from a third party for a purchase price of $26.4 million.

(3)During the six months ended June 30, 2020, the Company had a 90% ownership interest in one property. On October 30, 2020, the Company closed on the purchase of the joint venture partner’s 10% ownership interest.

(4)Represents a preferred equity interest in the development of one distribution center in which the Company is entitled to receive a cumulative preferred return of 9% per year on its contributions of $22.8 million. The Company has no further obligation to make additional contributions.

The aggregate debt outstanding of unconsolidated joint ventures and for the development of one distribution center in which the Company holds a preferred equity interest was $652.6 million and $550.5 million as of June 30, 2021 and December 31, 2020, respectively, which is non-recourse to the Company, as discussed in Note 6 – Debt.

The Company and the respective unconsolidated joint venture partners are subject to the provisions of the applicable joint venture agreements, which include provisions for when additional contributions may be required to fund certain cash shortfalls.