| Investments |
Note 3. Investments
As of June 30, 2019, the Company's gross investment in real estate properties and loans totaled approximately $5.4 billion, representing investments in 1,606 properties, including 43 properties securing mortgage loans. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, and the carrying amount of loans receivable, real estate assets held under direct financing leases and real estate assets held for sale. The portfolio is geographically dispersed throughout 48 states with Texas, at 11.9%, as the only state with a Real Estate Investment Value greater than 10% of the Real Estate Investment Value of the Company's entire portfolio.
Owned Properties
During the six months ended June 30, 2019, the Company had the following owned real estate activity, net of accumulated depreciation and amortization (dollars in thousands):
|
|
|
Number of Properties |
|
|
Dollar Amount of Investments |
|
|
|
|
Held in Use |
|
|
Held for Sale |
|
|
Total |
|
|
Held in Use |
|
|
Held for Sale |
|
|
Total |
|
|
Gross balance, December 31, 2018 |
|
|
1,459 |
|
|
|
3 |
|
|
|
1,462 |
|
|
$ |
5,054,524 |
|
|
$ |
22,064 |
|
|
$ |
5,076,588 |
|
|
Acquisitions/improvements (1)(2) |
|
|
126 |
|
|
|
— |
|
|
|
126 |
|
|
|
474,689 |
|
|
|
— |
|
|
|
474,689 |
|
|
Dispositions of real estate (3)(4) |
|
|
(7 |
) |
|
|
(18 |
) |
|
|
(25 |
) |
|
|
(22,082 |
) |
|
|
(123,204 |
) |
|
|
(145,286 |
) |
|
Transfers to Held for Sale |
|
|
(20 |
) |
|
|
20 |
|
|
|
— |
|
|
|
(120,344 |
) |
|
|
120,344 |
|
|
|
— |
|
|
Transfers from Held for Sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Impairments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,536 |
) |
|
|
(4,763 |
) |
|
|
(7,299 |
) |
|
Write-off of intangibles |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,471 |
) |
|
|
(2,557 |
) |
|
|
(6,028 |
) |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
12 |
|
|
Gross balance, June 30, 2019 |
|
|
1,558 |
|
|
|
5 |
|
|
|
1,563 |
|
|
|
5,380,792 |
|
|
|
11,884 |
|
|
|
5,392,676 |
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(669,696 |
) |
|
|
(1,603 |
) |
|
|
(671,299 |
) |
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,156 |
) |
|
|
(919 |
) |
|
|
(109,075 |
) |
|
Net balance, June 30, 2019 (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,602,940 |
|
|
$ |
9,362 |
|
|
$ |
4,612,302 |
|
|
(1) |
Includes investments of $24.3 million in revenue producing capitalized expenditures, as well as $3.2 million of non-revenue producing capitalized expenditures during the six months ended June 30, 2019. |
|
(2) |
The acquisition of 29 properties were completed as sale-lease back transactions, representing $313.2 million of investment, during the six months ended June 30, 2019. |
|
(3) |
For the six months ended June 30, 2019, the total gain on disposal of assets for properties held in use and held for sale was $8.2 million and $30.3 million, respectively. |
|
(4) |
Includes one deed-in-lieu property with a real estate investment of $0.8 million that was transferred to the lender during the six months ended June 30, 2019. |
|
(5) |
Reconciliation of total owned investments to the accompanying consolidated balance sheet at June 30, 2019 is as follows: |
|
Held in Use land and buildings, net of accumulated depreciation |
|
$ |
4,407,297 |
|
|
Intangible lease assets, net |
|
|
|
|
297,749 |
|
|
Real estate assets under direct financing leases, net |
|
|
|
|
16,371 |
|
|
Real estate assets held for sale, net |
|
|
|
|
9,362 |
|
|
Intangible lease liabilities, net |
|
|
|
|
(118,477 |
) |
|
Net balance |
|
|
|
$ |
4,612,302 |
|
Operating Leases
As of June 30, 2019 and December 31, 2018, the Company held 1,560 and 1,458 properties under operating leases, respectively. The following table summarizes the components of rental income recognized on these operating leases in the accompanying consolidated statements of operations (in thousands):
|
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
Base cash rent |
|
$ |
98,418 |
|
|
$ |
129,388 |
|
|
$ |
195,217 |
|
|
$ |
279,835 |
|
|
Variable cash rent (including reimbursables) |
|
|
2,942 |
|
|
|
3,591 |
|
|
|
6,580 |
|
|
|
9,121 |
|
|
Straight-line rent, net of bad debt expense (1) |
|
|
4,485 |
|
|
|
4,187 |
|
|
|
7,392 |
|
|
|
9,087 |
|
|
Amortization of above- and below- market lease intangibles, net (2) |
|
|
661 |
|
|
|
1,219 |
|
|
|
1,384 |
|
|
|
2,372 |
|
|
Total rental income |
|
$ |
106,506 |
|
|
$ |
138,385 |
|
|
$ |
210,573 |
|
|
$ |
300,415 |
|
|
(1) |
As a result of the Company's adoption of ASU 2016-02 on January 1, 2019, the Company reclassified bad debt expense to rental income on a prospective basis. See Note 2 for additional detail. |
|
(2) |
Excludes amortization of in-place leases of $6.5 million and $8.7 million for the three months ended June 30, 2019 and 2018, respectively, and $13.2 million and $18.7 million for the six months ended June 30, 2019 and 2018, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. |
Scheduled minimum future contractual rent to be received under the remaining non-cancelable term of these operating leases (including contractual fixed rent increases occurring on or after July 1, 2019) at June 30, 2019 are as follows (in thousands):
|
|
|
June 30,
2019 |
|
|
Remainder of 2019 |
|
$ |
201,055 |
|
|
2020 |
|
|
400,086 |
|
|
2021 |
|
|
383,396 |
|
|
2022 |
|
|
364,314 |
|
|
2023 |
|
|
343,755 |
|
|
Thereafter |
|
|
2,640,609 |
|
|
Total future minimum rentals |
|
$ |
4,333,215 |
|
Because lease renewals are exercisable at the lessees' options, the preceding table presents future minimum lease payments due during the initial lease term only. In addition, the future minimum rentals do not include any contingent rent based on a percentage of the lessees' gross sales or lease escalations based on future changes in the CPI.
The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands):
|
|
|
June 30,
2019 |
|
|
December 31,
2018 |
|
|
In-place leases |
|
$ |
383,464 |
|
|
$ |
381,143 |
|
|
Above-market leases |
|
|
68,327 |
|
|
|
62,902 |
|
|
Less: accumulated amortization |
|
|
(154,042 |
) |
|
|
(149,582 |
) |
|
Intangible lease assets, net |
|
$ |
297,749 |
|
|
$ |
294,463 |
|
|
|
|
|
|
|
|
|
|
|
|
Below-market leases |
|
$ |
164,363 |
|
|
$ |
167,527 |
|
|
Less: accumulated amortization |
|
|
(45,886 |
) |
|
|
(47,365 |
) |
|
Intangible lease liabilities, net |
|
$ |
118,477 |
|
|
$ |
120,162 |
|
Direct Financing Leases
As of June 30, 2019 and December 31, 2018, the Company held three and four properties under direct financing leases, respectively, all of which were held in use. The components of real estate investments held under direct financing leases were as follows (in thousands):
|
|
|
June 30,
2019 |
|
|
December 31,
2018 |
|
|
Minimum lease payments receivable |
|
$ |
4,728 |
|
|
$ |
5,390 |
|
|
Estimated residual value of leased assets |
|
|
16,137 |
|
|
|
20,097 |
|
|
Unearned income |
|
|
(4,494 |
) |
|
|
(5,198 |
) |
|
Real estate assets under direct financing leases, net |
|
$ |
16,371 |
|
|
$ |
20,289 |
|
Scheduled minimum future payments to be received under the remaining non-cancelable term of these direct financing leases at June 30, 2019 are as follows (in thousands):
|
|
|
June 30,
2019 |
|
|
Remainder of 2019 |
|
$ |
599 |
|
|
2020 |
|
|
578 |
|
|
2021 |
|
|
527 |
|
|
2022 |
|
|
541 |
|
|
2023 |
|
|
554 |
|
|
Thereafter |
|
|
1,929 |
|
|
Total future minimum rentals |
|
$ |
4,728 |
|
Loans Receivable
The mortgage loans are secured by single-tenant commercial properties and generally have fixed interest rates over the term of the loans. There are two other notes receivable included within loans receivable, as of June 30, 2019, of which one note totaling $0.1 million is secured by tenant assets and stock and the other note, with a balance of $1.9 million, is unsecured. During the six months ended June 30, 2019, the Company had the following loan activity:
|
|
|
Mortgage Loans |
|
|
Other Notes |
|
|
Total |
|
|
|
|
Properties |
|
|
Investment |
|
|
Investment |
|
|
Investment |
|
|
Principal, December 31, 2018 |
|
|
52 |
|
|
$ |
42,660 |
|
|
$ |
2,082 |
|
|
$ |
44,742 |
|
|
Acquisitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dispositions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Principal payments and payoffs |
|
|
(9 |
) |
|
|
(7,979 |
) |
|
|
(56 |
) |
|
|
(8,035 |
) |
|
Allowance for loan losses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Principal, June 30, 2019 |
|
|
43 |
|
|
$ |
34,681 |
|
|
$ |
2,026 |
|
|
$ |
36,707 |
|
The following table details loans receivable, net of premiums, discounts and allowance for loan losses (dollars in thousands):
|
|
|
June 30,
2019 |
|
|
December 31,
2018 |
|
|
Mortgage loans - principal |
|
$ |
34,681 |
|
|
$ |
42,660 |
|
|
Mortgage loans - premiums, net of amortization |
|
|
1,706 |
|
|
|
2,527 |
|
|
Allowance for loan losses |
|
|
— |
|
|
|
— |
|
|
Mortgage loans, net |
|
|
36,387 |
|
|
|
45,187 |
|
|
Other notes receivable - principal |
|
|
2,026 |
|
|
|
2,082 |
|
|
Other notes receivable - discounts, net of amortization |
|
|
(193 |
) |
|
|
(225 |
) |
|
Allowance for loan losses |
|
|
— |
|
|
|
— |
|
|
Other notes receivable, net |
|
|
1,833 |
|
|
|
1,857 |
|
|
Total loans receivable, net |
|
$ |
38,220 |
|
|
$ |
47,044 |
|
Impairments
The following table summarizes total impairment losses recognized in the accompanying consolidated statements of operations (in thousands):
|
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
Real estate and intangible asset impairment |
|
$ |
3,607 |
|
|
$ |
1,349 |
|
|
$ |
7,299 |
|
|
$ |
15,935 |
|
|
Recovery of loans receivable, previously impaired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17 |
) |
|
Total impairment loss |
|
$ |
3,607 |
|
|
$ |
1,349 |
|
|
$ |
7,299 |
|
|
$ |
15,918 |
|
|