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Investments in Real Estate
 3 Months Ended
Mar. 31, 2020
Real Estate Investments, Net [Abstract]  
Investments in Real Estate Investments in Real Estate
We acquire land, buildings and improvements necessary for the successful operations of commercial tenants.
A.    Acquisitions During the First Three Months of 2020 and 2019
Below is a summary of our acquisitions for the three months ended March 31, 2020:
 
Number of Properties

 
Square Feet
(in millions)

 
Investment
($ in millions)

 
Weighted Average Lease Term (Years)
 
Initial Average Cash Lease Yield

Three Months Ended March 31, 2020 (1)
 
 
 
 
 
 
 
 
 
Acquisitions - U.S. (in 22 states)
54

 
1.4

 
$
318.3

 
14.8
 
6.5
%
Acquisitions - U.K. (2)
4

 
0.4

 
165.6

 
12.5
 
5.1
%
Total Acquisitions
58

 
1.8

 
483.9

 
14.2
 
6.0
%
Properties under Development - U.S.
7

 
0.2

 
2.1

 
10.6
 
7.5
%
Total (3)
65

 
2.0

 
$
486.0

 
14.1
 
6.0
%
(1) 
None of our investments during the first three months of 2020 caused any one tenant to be 10% or more of our total assets at March 31, 2020. All of our investments in acquired properties during the first three months of 2020 are 100% leased at the acquisition date.    
(2) 
Represents investments of £133.3 million Sterling during the three months ended March 31, 2020 converted at the applicable exchange rate on the date of acquisition.
(3) 
The tenants occupying the new properties operate in 17 industries, and are 95.4% retail and 4.6% industrial, based on rental revenue. Approximately 36% of the rental revenue generated from acquisitions during the first three months of 2020 is from investment grade rated tenants, their subsidiaries or affiliated companies.
The $486.0 million invested during the first three months of 2020 was allocated as follows: $70.2 million to land (of which $7.4 million was related to right of use assets under long-term ground leases), $56.9 million to right of use assets under ground leases, $295.9 million to buildings and improvements, $64.8 million to intangible assets related to leases, $508,000 to financing receivables related to certain leases with above-market terms, $1.4 million to
intangible liabilities related to below-market leases and $934,000 to lease liabilities under ground leases. There was no contingent consideration associated with these acquisitions.
The properties acquired during the first three months of 2020 generated total revenues of $3.9 million and net income of $1.2 million during the three months ended March 31, 2020.
Below is a summary of our acquisitions for the three months ended March 31, 2019:
 
Number of Properties

 
Square Feet
(in millions)

 
Investment
($ in millions)

 
Weighted Average Lease Term (Years)
 
Initial Average Cash Lease Yield

Three months ended March 31, 2019 (1)
 
 
 
 
 
 
 
 
 
Acquisitions - U.S. (in 25 states)
97

 
1.9

 
$
508.6

 
17.0
 
6.7
%
Properties under Development - U.S.
8

 
0.4

 
10.9

 
17.3
 
7.2
%
Total (2)
105

 
2.3

 
$
519.5

 
17.0
 
6.7
%
(1) 
None of our investments during the first three months of 2019 caused any one tenant to be 10% or more of our total assets at March 31, 2019. All of our investments in acquired properties during the first three months of 2019 were 100% leased upon acquisition.
(2) 
The tenants occupying the new properties operated in 14 industries, and the property types consisted of 98.7% retail and 1.3% industrial, based on rental revenue. Approximately 31% of the rental revenue generated from acquisitions during the first three months of 2019 was from investment grade rated tenants, their subsidiaries or affiliated companies.
The $519.5 million invested during the first three months of 2019 was allocated as follows: $121.1 million to land, $329.2 million to buildings and improvements, $52.4 million to intangible assets related to leases, $26.3 million to financing receivables related to certain leases with off-market terms, and $9.5 million to intangible liabilities related to certain leases with below-market terms. There was no contingent consideration associated with these acquisitions.
The properties acquired during the first three months of 2019 generated total revenues of $3.5 million and net income of $1.8 million during the three months ended March 31, 2019.
The initial average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a tenant could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above.
In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs.

B.    Investments in Existing Properties
During the first three months of 2020, we capitalized costs of $2.1 million on existing properties in our portfolio, consisting of $138,000 for re-leasing costs and $2.0 million for non-recurring building improvements. In comparison, during the first three months of 2019, we capitalized costs of $3.0 million on existing properties in our portfolio, consisting of $323,000 for re-leasing costs, $56,000 for recurring capital expenditures, and $2.6 million for non-recurring building improvements.

C.    Properties with Existing Leases
Of the $486.0 million we invested during the first three months of 2020, approximately $363.0 million was used to acquire 39 properties with existing leases. In comparison, of the $519.5 million we invested during the first three months of 2019, approximately $258.0 million was used to acquire 53 properties with existing leases. The value of the in-place and above-market leases is recorded to lease intangible assets, net on our consolidated balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on our consolidated balance sheets.
The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for the first three months of 2020 and 2019 were $32.6 million and $26.0 million, respectively.
The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the first three months of 2020 and 2019 were $8.2 million and $3.4 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate.
The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at March 31, 2020 (dollars in thousands):
 
Net
decrease to
rental revenue

Increase to
amortization
expense

2020
$
(17,775
)
$
96,203

2021
(22,683
)
120,617

2022
(21,135
)
108,643

2023
(19,618
)
96,339

2024
(18,031
)
87,650

Thereafter
(80,168
)
499,209

Totals
$
(179,410
)
$
1,008,661