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REAL ESTATE AND RELATED LEASE INTANGIBLES, NET
 12 Months Ended
Dec. 31, 2020
Real Estate [Abstract]  
REAL ESTATE AND RELATED LEASE INTANGIBLES, NET
5. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET

The market conditions due to the COVID-19 pandemic and the resulting economic disruption have broadly impacted the commercial real estate sector. As expected, the net leased commercial real estate properties, which comprise the majority of our portfolio, have remained minimally impacted as the majority of the net leased properties in our real estate portfolio are necessity-based businesses and have remained open and stable during the COVID-19 pandemic. We continue to actively monitor the diversified commercial real estate properties for both the immediate and long term impact of the pandemic on the buildings, the tenants, the business plans and the ability to execute those business plans.

The following tables present additional detail related to our real estate portfolio, net, including foreclosed properties ($ in thousands):
 December 31, 2020December 31, 2019
Land$220,511 $209,955 
Building838,542 883,005 
In-place leases and other intangibles157,176 161,203 
Undepreciated Real estate and related lease intangibles1,216,229 1,254,163 
Less: Accumulated depreciation and amortization(230,925)(206,082)
Real estate and related lease intangibles, net$985,304 $1,048,081 
Below market lease intangibles, net (other liabilities)$(36,952)$(39,067)

At December 31, 2020 and 2019, the Company held foreclosed properties included in real estate and related lease intangibles, net with a carrying value of $106.8 million and $89.5 million, respectively.

The following table presents depreciation and amortization expense on real estate recorded by the Company ($ in thousands):
 Year Ended December 31,
 202020192018
Depreciation expense(1)$32,383 $30,421 $31,537 
Amortization expense6,696 7,991 10,347 
Total real estate depreciation and amortization expense$39,079 $38,412 $41,884 
(1)Depreciation expense on the consolidated statements of income also includes $99 thousand, $99 thousand and $75 thousand of depreciation on corporate fixed assets for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company’s intangible assets are comprised of in-place leases, above market leases and other intangibles. The following tables present additional detail related to our intangible assets ($ in thousands):
 December 31, 2020December 31, 2019
Gross intangible assets(1)$157,176 $161,203 
Accumulated amortization66,014 62,773 
Net intangible assets$91,162 $98,430 
(1)Includes $4.2 million and $4.5 million of unamortized above market lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets as of December 31, 2020 and 2019, respectively.
The following table presents increases/reductions in operating lease income recorded by the Company ($ in thousands):

 Year Ended December 31,
 202020192018
Reduction in operating lease income for amortization of above market lease intangibles acquired$(367)$(819)$(648)
Increase in operating lease income for amortization of below market lease intangibles acquired2,600 2,177 2,387 

The following table presents expected adjustment to operating lease income and expected amortization expense during the next five years and thereafter related to the above and below market leases and acquired in-place lease and other intangibles for property owned as of December 31, 2020 ($ in thousands):
Period Ending December 31,Adjustment to Operating Lease IncomeAmortization Expense
2021$1,071 $5,509 
20221,071 5,509 
20231,071 5,509 
20241,071 5,509 
20251,071 5,509 
Thereafter27,426 59,449 
Total$32,781 $86,994 

Lease Prepayment by Lessor, Retirement of Related Mortgage Loan Financing and Impairment of Real Estate

On January 10, 2019, the Company received $10.0 million prepayment of a lease on a single-tenant two-story office building in Wayne, NJ. As of March 31, 2019, this property had a book value of $5.6 million, which is net of accumulated depreciation and amortization of $2.7 million. The Company recognized the $10.0 million of operating lease income on a straight-line basis over the revised lease term. On February 6, 2019, the Company paid off $6.6 million of mortgage loan financing related to the property, recognizing a loss on extinguishment of debt of $1.1 million. During the three months ended March 31, 2019, the Company recorded a $1.4 million impairment of real estate to reduce the carrying value of the real estate to the estimated fair value of the real estate. On May 1, 2019, the Company completed the sale of the property recognizing $3.9 million of operating lease income, $3.5 million realized loss on sale of real estate, net and $0.4 million of depreciation and amortization expense, resulting in a net loss of $20 thousand. See Note 15, Fair Value of Financial Instruments for further detail.

There were $0.5 million and $0.9 million of rent receivables included in other assets on the consolidated balance sheets as of December 31, 2020 and 2019, respectively.

There was unencumbered real estate of $75.9 million and $59.2 million as of December 31, 2020 and 2019, respectively.

During the years ended December 31, 2020 and 2019, the Company recorded $5.6 million and $2.6 million, respectively, of real estate operating income, which is included in operating lease income in the consolidated statements of income. There was no real estate operating income recorded during the year ended December 31, 2018.
 
The following is a schedule of non-cancellable, contractual, future minimum rent under leases (excluding property operating expenses paid directly by tenant under net leases) at December 31, 2020 ($ in thousands):
 
Period Ending December 31,Amount
2021$79,393 
202270,983 
202364,425 
202463,438 
202562,138 
Thereafter471,409 
Total$811,786 

Acquisitions

During the year ended December 31, 2020, the Company acquired the following properties ($ in thousands):
Acquisition DateTypePrimary Location(s)Purchase Price/Fair Value on the Date of ForeclosureOwnership Interest (1)
Aggregate purchases of net leased real estate$7,440 100.0%
Real estate acquired via foreclosure
March 2020DiversifiedLos Angeles, CA21,535 100.0%
June 2020DiversifiedWinston Salem, NC3,900 100.0%
December 2020DiversifiedSouth Bend, IN3,875 100.0%
Total real estate acquired via foreclosure29,310 
Total real estate acquisitions$36,750 
(1)Properties were consolidated as of acquisition date.

The Company allocates purchase consideration based on relative fair values, and real estate acquisition costs are capitalized as a component of the cost of the assets acquired for asset acquisitions. During the year ended December 31, 2020, all acquisitions were determined to be asset acquisitions.

The purchase prices were allocated to the asset acquisitions during the year ended December 31, 2020, as follows ($ in thousands):
Purchase Price Allocation
Land$25,250 
Building10,473 
Intangibles1,379 
Below Market Lease Intangibles(352)
Total purchase price$36,750 

The weighted average amortization period for intangible assets acquired during the year ended December 31, 2020 was 39.8 years. The Company recorded $0.4 million in revenues from its 2020 acquisitions for the year ended December 31, 2020, which is included in its consolidated statements of income. The Company recorded $(0.9) million in earnings (losses) from its 2020 acquisitions for the year ended December 31, 2020, which is included in its consolidated statements of income.
During the year ended December 31, 2019, the Company acquired the following properties ($ in thousands):
Acquisition DateTypePrimary Location(s)Purchase Price/Fair Value on the Date of ForeclosureOwnership Interest (1)
Aggregate purchases of net leased real estate$20,441 100.0%
Real estate acquired via foreclosure
February 2019DiversifiedOmaha, NE18,200 100.0%
December 2019DiversifiedSan Diego, CA42,250 100.0%
December 2019DiversifiedFort Worth and Arlington, TX23,700 100.0%
Total real estate acquired via foreclosure84,150 
Total real estate acquisitions$104,591 
(1)Properties were consolidated as of acquisition date.

The Company allocates purchase consideration based on relative fair values, and real estate acquisition costs are capitalized as a component of the cost of the assets acquired for asset acquisitions. During the year ended December 31, 2019, all acquisitions were determined to be asset acquisitions.

The purchase prices were allocated to the asset acquisitions during the year ended December 31, 2019, as follows ($ in thousands):
Purchase Price Allocation
Land$17,373 
Building84,725 
Intangibles3,802 
Below Market Lease Intangibles(1,309)
Total purchase price$104,591 

The weighted average amortization period for intangible assets acquired during the year ended December 31, 2019 was 34.2 years. The Company recorded $0.6 million in revenues from its 2019 acquisitions for the year ended December 31, 2019, respectively, which is included in its consolidated statements of income. The Company recorded $(2.3) million in earnings (losses) from its 2019 acquisitions for the year ended December 31, 2019, respectively, which is included in its consolidated statements of income.

Acquisitions via Foreclosure

In December 2020, the Company acquired a hotel in South Bend, IN, via foreclosure. The property previously served as collateral for a mortgage loan receivable held for investment with a basis of $4.1 million, net of an asset-specific loan loss provision of $0.5 million. The Company recorded a gain of $0.1 million resulting from the foreclosure of the loan. In December 2020, the foreclosed property was sold without any gain or loss.

In June 2020, the Company acquired a hotel in Winston Salem, NC via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a net basis of $3.8 million. The Company obtained a third-party appraisal of the property. The $3.9 million fair value was determined using the ground lease approach and the income approach to value. The appraiser utilized a terminal capitalization rate of 9.50% and a discount rate of 13.50%. There was no gain or loss resulting from the foreclosure of the loan. In September 2020, the foreclosed property was sold for a gain of $0.8 million.
In March 2020, the Company acquired a development property in Los Angeles, CA, via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a basis of $21.6 million, net of an asset-specific loan loss provision of $2.0 million. The Company obtained a third-party appraisal of the property. Substantially all of the fair value was attributed to land. The $21.5 million fair value was determined using the sales comparison approach to value. Using this approach, the appraiser developed an opinion of the fee simple value of the underlying land by comparing the property to similar, recently sold properties in the surrounding or competing area. The Company recorded a $0.1 million loss resulting from the foreclosure of the loan.

In December 2019, the Company acquired a hotel in San Diego, CA, via foreclosure. This property previously served as collateral for two mortgage loan receivables held for investment with a net basis of $40.0 million. The receivables consisted of a $33.9 million first mortgage loan receivable to a third-party and a $5.7 million mortgage loan receivable held for investment by the Company as of the date of foreclosure. The $33.9 million first mortgage loan obligation was assumed by the Company on the date of acquisition. The Company obtained a third-party appraisal of the property with a fair value of $42.3 million. The value was determined using the income approach. The appraiser utilized a terminal capitalization rate of 8.50% and a discount rate of 10.50%. There was a $2.3 million gain resulting from the foreclosure of the loan.

In December 2019, the Company acquired a portfolio of two student housing properties in Fort Worth and Arlington, TX, via foreclosure. These properties previously served as collateral for a mortgage loan receivable held for investment with a net basis of $22.6 million. The acquisitions were recorded at fair value. The Company obtained a third-party appraisal of both properties. The $12.8 million fair value of the Fort Worth, TX property was determined using the income approach. The appraiser utilized a projected stabilized cash flow and a cap rate of 5.75%. The $10.9 million fair value of the Arlington, TX property was determined using the income approach. The appraiser utilized a projected stabilized cash flow and a cap rate of 6.00%. The Company also assumed $0.9 million of other liabilities, net in connection with the foreclosure. There was no gain or loss resulting from the foreclosure of the loan.

In February 2019, the Company acquired a hotel in Omaha, NE, via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a net basis of $17.9 million. The Company obtained a third-party appraisal of the property. The $18.2 million fair value was determined using the income approach to value. The appraiser utilized a terminal capitalization rate of 8.75% and a discount rate of 10.25%. There was no gain or loss resulting from the foreclosure of the loan.

These non-recurring fair values are considered Level 3 measurements in the fair value hierarchy.

Sales

The Company sold the following properties during the year ended December 31, 2020 ($ in thousands):
Sales DateTypePrimary Location(s)Net Sales ProceedsNet Book ValueRealized Gain/(Loss)(1)PropertiesUnits SoldUnits Remaining
VariousCondominiumMiami, FL$1,832 $1,821 $11 — 6 — 
March 2020DiversifiedRichmond, VA22,527 14,829 7,698 7 — — 
March 2020DiversifiedRichmond, VA6,932 4,109 2,823 1 — — 
August 2020Net LeaseBellport, NY19,434 15,012 4,422 1 — — 
September 2020DiversifiedLithia Springs, GA39,491 23,187 16,304 1 — — 
September 2020DiversifiedWinston Salem, NC4,647 3,803 844 1 — — 
December 2020DiversifiedSouth Bend, IN3,875 3,875 — 1 — — 
Totals$98,738 $66,636 $32,102 
(1)Realized gain (loss) on the sale of real estate, net on the consolidated statements of income also includes $32.1 million of realized gain (loss) on the disposal of fixed assets for the year ended December 31, 2020.

The Company sold the following properties during the year ended December 31, 2019 ($ in thousands):
Sales DateTypePrimary Location(s)Net Sales ProceedsNet Book ValueRealized Gain/(Loss)PropertiesUnits SoldUnits Remaining
November 2019CondominiumLas Vegas, NV$809 $415 $394 — 1 — 
VariousCondominiumMiami, FL4,715 4,282 433 — 16 6 
April 2019DiversifiedWayne, NJ1,729 4,799 (3,070)1 — — 
May 2019DiversifiedGrand Rapids, MI10,019 8,254 1,765 1 — — 
August 2019DiversifiedGrand Rapids, MI6,970 4,920 2,050 1 — — 
Totals$24,242 $22,670 $1,572 
(1)Realized gain (loss) on the sale of real estate, net on the consolidated statements of income also includes $1.4 million of realized loss on the disposal of fixed assets for the year ended December 31, 2019.


The Company sold the following properties during the year ended December 31, 2018 ($ in thousands):
Sales DateTypePrimary Location(s)Net Sales ProceedsNet Book ValueRealized Gain/(Loss)Realized Gain Allocated to Third Party InvestorPropertiesUnits SoldUnits Remaining
VariousCondominiumLas Vegas, NV$8,763 $4,458 $4,305 $— — 12 1 
VariousCondominiumMiami, FL7,851 6,716 1,135 — — 26 22 
March 2018DiversifiedEl Monte, CA71,807 52,610 19,197 6,999 1 — — 
March 2018DiversifiedRichmond, VA20,966 11,370 9,596 389 1 — — 
September 2018DiversifiedSt. Paul, MN109,275 47,627 61,648 7,928 4 — — 
Totals$218,662 $122,781 $95,881 $15,316