Real Estate Investments and Related Intangibles

9 Months Ended

Sep. 30, 2021

Real Estate Investments and Related Intangibles

Property Acquisitions

During the nine months ended September 30, 2021, the Company acquired controlling financial interests in 134 commercial properties for an aggregate purchase price of $419.2 million (the “2021 Acquisitions”), which includes $4.0 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 nine months ended September 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):


	Nine Months Ended September 30,
	2021		2020
Real estate investments, at cost:
Land	$	77,303	$	19,953
Buildings, fixtures and improvements	249,850		95,728
Total tangible assets	327,153		115,681
Acquired intangible assets:
In-place leases and other intangibles (1)	40,056		15,739
Above-market leases (2)	54,698		15,701
Assumed intangible liabilities:
Below-market leases (3)	(2,726)		—
Total purchase price of assets acquired	$	419,181	$	147,121

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(1)The weighted average amortization period for acquired in-place leases and other intangibles is 15.6 years and 18.1 years for 2021 Acquisitions and 2020 Acquisitions, respectively.

(2)The weighted average amortization period for acquired above-market leases is 18.2 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 nine months ended September 30, 2021, the Company disposed of 83 properties, for an aggregate sales price of $432.7 million. The dispositions resulted in proceeds of $420.2 million after closing costs. The Company recorded a gain of $96.5 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 nine months ended September 30, 2020, the Company disposed of 63 properties, including the sale of three consolidated properties to the office partnership, for an aggregate sales price of $376.2 million, of which our share was $373.4 million after the profit participation payments related to the disposition of four Red Lobster properties. The dispositions resulted in proceeds of $346.7 million after closing costs, including proceeds from the contribution of properties to the office partnership. The Company recorded a gain of $77.2 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 September 30, 2021, there were seven properties classified as held for sale with a carrying value of $31.1 million, included in real estate assets held for sale, net, primarily comprised of land of $6.6 million and building, fixtures and improvements, net of $24.2 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 the nine months ended September 30, 2021 and 2020, the Company recorded losses of $0.2 million and $0.3 million, respectively, 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 September 30, 2021 and December 31, 2020 (amounts in thousands, except weighted-average useful life):


	Weighted-Average Useful Life	September 30, 2021		December 31, 2020
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $845,355 and $810,597, respectively	17.4	$	697,879	$	745,026
Leasing commissions, net of accumulated amortization of $9,352 and $7,565, respectively	9.9	17,347		16,042
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $137,033 and $125,455, respectively	23.2	210,285		167,776
Total intangible lease assets, net		$	925,511	$	928,844

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $113,251 and $106,504, respectively	20.2	$	111,140	$	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 $4.5 million and $1.9 million for the nine months ended September 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 $84.7 million and $103.5 million for the nine months ended September 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 September 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	$	26,485	$	94,760	$	85,369	$	76,406	$	64,463	$	58,180
Leasing commissions:
Total projected to be included in amortization expense	753		2,878		2,441		2,212		1,953		1,736
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue	5,446		21,975		21,070		19,718		18,283		16,231
Below-market lease liabilities:
Total projected to be included in rental revenue	3,481		12,924		12,248		10,494		9,290		8,766

Consolidated Joint Venture

The Company had an interest in one consolidated joint venture that owned one property as of September 30, 2021 and December 31, 2020. As of September 30, 2021 and December 31, 2020, the consolidated joint venture had total assets of $30.7 million and $33.0 million, respectively, of which $27.8 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 $14.8 million as of December 31, 2020. During the three months ended September 30, 2021, the Company repaid the balance in full and there were no amounts outstanding as of September 30, 2021. 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 September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021 and 2020 (dollar amounts in thousands):


	Ownership % (1)	Number of Properties	Carrying Amount of Investment				Equity in Income
							Nine Months Ended
Investment	September 30, 2021		September 30, 2021		December 31, 2020		September 30, 2021		September 30, 2020
Industrial Partnership	20%	7	$	42,949	$	45,378	$	753	$	584
Office Partnership (2)	20%	5	14,588		13,435		621		380
Faison JV Bethlehem GA (3)	—%	—	—		—		—		1,442
Total unconsolidated joint ventures			$	57,537	$	58,813	$	1,374	$	2,406
Preferred equity (4)			22,826		22,826		—		—
Total investment in unconsolidated entities			$	80,363	$	81,639	$	1,374	$	2,406

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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 nine months ended September 30, 2021, the office partnership acquired one property from a third party for a purchase price of $26.4 million.

(3)During the nine months ended September 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 $673.8 million and $550.5 million as of September 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.