Investments in Real Estate

3 Months Ended

Mar. 31, 2023

We acquire land, buildings and improvements necessary for the successful operations of commercial clients.

A. Acquisitions of Real Estate

Below is a summary of our acquisitions for the period indicated below:


	Number of Properties	Leasable Square Feet (in thousands)	Investment ($ in millions)		Weighted Average Lease Term (Years)	Initial Weighted Average Cash Lease Yield (1)
Three months ended March 31, 2023 (2)
Acquisitions - U.S.	197	5,926	$	1,048.9	10.0	7.0	%
Acquisitions - Europe	20	2,437	389.7		12.6	7.6	%
Total acquisitions	217	8,363	$	1,438.6	10.7	7.2	%
Properties under development (3)	122	2,319	235.6		14.8	6.0	%
Total (4)	339	10,682	$	1,674.2	11.2	7.0	%

(1)The initial weighted 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 client could default on the payment of contractual rent (defined as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables), we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above. Contractual net operating income used in the calculation of initial weighted average cash lease yield includes approximately $0.7 million received as settlement credits as reimbursement of free rent periods for the three months ended March 31, 2023.

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 weighted 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.

(2)None of our investments during the three months ended March 31, 2023 caused any one client to be 10% or more of our total assets at March 31, 2023.

(3)Includes three U.K. development properties that represent an investment of £3.8 million during the three months ended March 31, 2023, converted at the applicable exchange rate on the funding dates.

(4)Our clients occupying the new properties are 85.5% retail and 14.5% industrial based on annualized contractual rent. Approximately 42% of the annualized contractual rent generated from acquisitions during the three months ended March 31, 2023 is from our investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the three months ended March 31, 2023 had no contingent consideration. The aggregate purchase price of the assets acquired during the three months ended March 31, 2023 has been allocated as follows (in millions):


	Acquisitions - USD		Acquisitions - Sterling
Land (1)	$	243.9	£	74.2
Buildings and improvements	794.6		153.0
Lease intangible assets (2)	231.9		38.1
Other assets (3)	59.8		54.5
Lease intangible liabilities (4)	(84.7)		(3.8)
Other liabilities (5)	(0.6)		—
	$	1,244.9	£	316.0

(1)Sterling-denominated land includes £1.7 million of right of use assets under long-term ground leases.

(2)The weighted average amortization period for acquired lease intangible assets is 11.3 years.

(3)USD-denominated other assets consist entirely of $59.8 million of financing receivables with above-market terms. Sterling-denominated other assets consist of £8.6 million of financing receivables with above-market terms and £45.8 million of right-of-use assets accounted for as finance leases.

(4)The weighted average amortization period for acquired lease intangible liabilities is 18.8 years.

(5)USD-denominated other liabilities consist entirely of $0.6 million of deferred rent on certain below-market leases.

The properties acquired during the three months ended March 31, 2023 generated total revenues of $7.3 million and net income of $2.8 million during the three months ended March 31, 2023.

B. Investments in Existing Properties

During the three months ended March 31, 2023, we capitalized costs of $13.8 million on existing properties in our portfolio, consisting of $13.3 million for non-recurring building improvements, $0.4 million for re-leasing costs, and $0.1 million for recurring capital expenditures. In comparison, during the three months ended March 31, 2022, we capitalized costs of $12.0 million on existing properties in our portfolio, consisting of $9.6 million for non-recurring building improvements, $2.4 million for re-leasing costs and less than $0.1 million for recurring capital expenditures.

C. 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 assets, 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 three months ended March 31, 2023, and 2022 were $157.4 million and $160.1 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 in the 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 three months ended March 31, 2023, and 2022 were $39.8 million, and $21.9 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, 2023 (dollars in thousands):


	Net increase (decrease) to rental revenue		Increase to amortization expense
2023	$	(45,162)	$	459,375
2024	(54,192)		552,774
2025	(47,292)		477,383
2026	(39,501)		425,893
2027	(30,827)		369,300
Thereafter	362,274		1,672,237
Totals	$	145,300	$	3,956,962

D. Gain on Sales of Real Estate

The following table summarizes our properties sold during the periods indicated below (dollars in millions):


	Three months ended March 31,
		2023		2022
Number of properties		26		34
Net sales proceeds		$	28.6	$	122.2
Gain on sales of real estate		$	4.3	$	10.2