| Investments |
NOTE 3. INVESTMENTS
Owned Properties
As of September 30, 2020, the Company's gross investment in owned real estate properties totaled approximately $6.4 billion. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, and 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 11.5%, as the only state with a gross investment greater than 10.0% of the total gross investment of the Company's entire portfolio.
During the nine months ended September 30, 2020, the Company had the following 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, 2019 |
|
|
1,750 |
|
|
|
2 |
|
|
|
1,752 |
|
|
$ |
6,140,775 |
|
|
$ |
1,223 |
|
|
$ |
6,141,998 |
|
|
Acquisitions/improvements (1) |
|
|
47 |
|
|
|
— |
|
|
|
47 |
|
|
|
443,960 |
|
|
|
— |
|
|
|
443,960 |
|
|
Dispositions of real estate (2) |
|
|
(14 |
) |
|
|
(7 |
) |
|
|
(21 |
) |
|
|
(49,885 |
) |
|
|
(4,975 |
) |
|
|
(54,860 |
) |
|
Transfers to Held for Sale |
|
|
(18 |
) |
|
|
18 |
|
|
|
— |
|
|
|
(47,916 |
) |
|
|
47,916 |
|
|
|
— |
|
|
Impairments (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(65,308 |
) |
|
|
(4,621 |
) |
|
|
(69,929 |
) |
|
Reset of gross balances(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(37,807 |
) |
|
|
(2,204 |
) |
|
|
(40,011 |
) |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,339 |
) |
|
|
— |
|
|
|
(1,339 |
) |
|
Gross balance, September 30, 2020 |
|
|
1,765 |
|
|
|
13 |
|
|
|
1,778 |
|
|
|
6,382,480 |
|
|
|
37,339 |
|
|
|
6,419,819 |
|
|
Accumulated depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(938,246 |
) |
|
|
(3,454 |
) |
|
|
(941,700 |
) |
|
Net balance, September 30, 2020 (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,444,234 |
|
|
$ |
33,885 |
|
|
$ |
5,478,119 |
|
|
(1) |
Includes investments of $8.6 million in revenue producing capitalized expenditures, as well as $1.8 million of non-revenue producing capitalized expenditures during the nine months ended September 30, 2020. |
|
(2) |
For the nine months ended September 30, 2020, the total gain on disposal of assets for properties held in use and held for sale was $10.1 million and $1.9 million, respectively. |
|
(3) |
Impairments on owned real estate is comprised of real estate and intangible asset impairment and allowance for credit losses on direct financing leases. |
|
(4) |
Represents write-off of gross investment balances against the related accumulated depreciation and amortization balances as a result of basis reset due to impairment or intangibles which have been fully amortized. |
|
(5) |
Reconciliation of total owned investments to the accompanying consolidated balance sheet at September 30, 2020 is as follows: |
|
Operating lease held in use land and buildings, net |
|
$ |
5,208,509 |
|
|
Intangible lease assets, net |
|
|
|
|
349,347 |
|
|
Real estate assets under direct financing leases, net |
|
|
|
|
7,444 |
|
|
Real estate assets held for sale, net |
|
|
|
|
33,885 |
|
|
Intangible lease liabilities, net |
|
|
|
|
(121,066 |
) |
|
Net balance |
|
|
|
$ |
5,478,119 |
|
Operating Leases
As of September 30, 2020 and December 31, 2019, the Company held 1,765 and 1,745 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
September 30, |
|
|
Nine Months Ended
September 30, |
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
Base Cash Rent(1) |
|
$ |
108,398 |
|
|
$ |
100,962 |
|
|
$ |
335,110 |
|
|
$ |
296,179 |
|
|
Variable cash rent (including reimbursables) |
|
|
3,051 |
|
|
|
2,823 |
|
|
|
8,843 |
|
|
|
9,403 |
|
|
Straight-line rent, net of uncollectible reserve(2) |
|
|
899 |
|
|
|
4,770 |
|
|
|
6,385 |
|
|
|
12,162 |
|
|
Amortization of above- and below- market lease intangibles, net (3) |
|
|
568 |
|
|
|
956 |
|
|
|
1,131 |
|
|
|
2,340 |
|
|
Total rental income |
|
$ |
112,916 |
|
|
$ |
109,511 |
|
|
$ |
351,469 |
|
|
$ |
320,084 |
|
|
(1) |
Includes net impact of (amounts not deemed probable of collection)/amounts recovered of $(6.5 million) and $(0.2 million) for the three months ended September 30, 2020 and 2019, respectively, and $(12.1 million) and $0.8 million for the nine months ended September 30, 2020 and 2019, respectively. |
|
(2) |
Includes net impact of amounts not deemed probable of collection of $4.3 million for the three months ended September 30, 2020, and $11.0 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively. |
|
(3) |
Excludes amortization of in-place leases of $8.4 million and $7.2 million for the three months ended September 30, 2020 and 2019, respectively, and $25.9 million and $20.4 million for the nine months ended September 30, 2020 and 2019, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. |
Scheduled minimum future rent to be received under the remaining non-cancellable term of these operating leases (including contractual fixed rent increases occurring on or after October 1, 2020) at September 30, 2020 are as follows (in thousands):
|
|
|
September 30, 2020 |
|
|
Remainder of 2020 |
|
$ |
120,598 |
|
|
2021 |
|
|
477,810 |
|
|
2022 |
|
|
463,790 |
|
|
2023 |
|
|
445,749 |
|
|
2024 |
|
|
423,521 |
|
|
Thereafter |
|
|
3,266,987 |
|
|
Total future minimum rentals |
|
$ |
5,198,455 |
|
Because lease renewal periods 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 rentals 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):
|
|
|
September 30,
2020 |
|
|
December 31,
2019 |
|
|
In-place leases |
|
$ |
448,147 |
|
|
$ |
457,616 |
|
|
Above-market leases |
|
|
83,809 |
|
|
|
95,002 |
|
|
Less: accumulated amortization |
|
|
(182,609 |
) |
|
|
(167,539 |
) |
|
Intangible lease assets, net |
|
$ |
349,347 |
|
|
$ |
385,079 |
|
|
|
|
|
|
|
|
|
|
|
|
Below-market leases |
|
$ |
175,644 |
|
|
$ |
176,816 |
|
|
Less: accumulated amortization |
|
|
(54,578 |
) |
|
|
(49,481 |
) |
|
Intangible lease liabilities, net |
|
$ |
121,066 |
|
|
$ |
127,335 |
|
Direct Financing Leases
As of September 30, 2020, the Company held one property under a direct financing lease, which was held in use. As of September 30, 2020, this property had $3.7 million in scheduled minimum future payments to be received under its remaining non-cancellable lease term. The Company evaluated the collectability of the amounts receivable under the direct financing lease and recorded a reserve for uncollectible amounts totaling $0.3 million in the first quarter of 2020, primarily as a result of the borrower’s credit rating being non-investment grade and the initial term extending until 2027. The Company reversed $0.2 million of the reserve in the third quarter of 2020 as a result of improvement in the borrower’s credit and, as of September 30, 2020, there was a remaining reserve of $0.1 million against the net investment balance of $7.6 million.
Loans Receivable
As of September 30, 2020, all of the Company’s first-priority mortgage loans had been fully paid off. The Company had evaluated the collectability of the amounts receivable under the loans receivable and recorded an allowance for loan losses of $0.3 million in the first quarter of 2020, primarily driven by the borrowers’ having investment grade credit ratings and maturities in 2020. The Company reversed $0.2 million of the reserve in the second quarter of 2020 due to the shorter time to maturity and no change in the borrower’s credit ratings. The remaining $0.1 million of the reserve was reversed during the third quarter of 2020 due to the repayment of the remaining loans.
Impairments and Allowance for Credit Losses
The following table summarizes total impairments and allowance for credit losses recognized in the accompanying consolidated statements of operations (in thousands):
|
|
|
Three Months Ended
September 30, |
|
|
Nine Months Ended
September 30, |
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
Real estate and intangible asset impairment |
|
$ |
8,341 |
|
|
$ |
5,932 |
|
|
$ |
69,777 |
|
|
$ |
13,231 |
|
|
(Reversal)/allowance for credit losses on direct financing leases |
|
|
(152 |
) |
|
|
— |
|
|
|
152 |
|
|
|
— |
|
|
Reversal for credit losses on loans receivable |
|
|
(83 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total impairment loss |
|
$ |
8,106 |
|
|
$ |
5,932 |
|
|
$ |
69,929 |
|
|
$ |
13,231 |
|
|