Investments

3 Months Ended

Mar. 31, 2020

NOTE 3. INVESTMENTS

Owned Properties

As of March 31, 2020, the Company's gross investment in owned real estate properties totaled approximately $6.3 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 11.4%, 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 three months ended March 31, 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⁾		27			—			27			215,011			—			215,011
Dispositions of real estate ⁽²⁾		(5	)		(2	)		(7	)		(17,114	)		(1,223	)		(18,337	)
Transfers to Held for Sale		(5	)		5			—			(3,362	)		3,362			—
Transfers from Held for Sale		—			—			—			—			—			—
Impairments ⁽³⁾		—			—			—			(40,468	)		—			(40,468	)
Write-off of intangibles		—			—			—			(26,594	)		—			(26,594	)
Other		—			—			—			(1,330	)		—			(1,330	)
Gross balance, March 31, 2020		1,767			5			1,772			6,266,918			3,362			6,270,280
Accumulated depreciation and amortization											(855,787	)		(236	)		(856,023	)
Net balance, March 31, 2020 ⁽⁴⁾										$	5,411,131		$	3,126		$	5,414,257

⁽¹⁾	Includes investments of $7.6 million in revenue producing capitalized expenditures, as well as $1.6 million of non-revenue producing capitalized expenditures during the three months ended March 31, 2020.

⁽²⁾	For the three months ended March 31, 2020, the total gain on disposal of assets for properties held in use and held for sale was $0.6 million and $0.1 million, respectively.

⁽³⁾	^{Impairments on owned real estate is comprised of $40.2 million of real estate and intangible asset impairment and $0.3 million of allowance for credit losses on direct financing leases.}

⁽⁴⁾	^{Reconciliation of total owned investments to the accompanying consolidated balance sheet at March 31, 2020 is as follows:}

Operating lease held in use land and buildings, net	$	5,146,530
Intangible lease assets, net		381,398
Real estate assets under direct financing leases, net		7,300
Real estate assets held for sale, net		3,126
Intangible lease liabilities, net		(124,097	)
Net balance	$	5,414,257

Operating Leases

As of March 31, 2020 and December 31, 2019, the Company held 1,760 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 March 31,
	2020		2019
Base cash rent	$	116,546	$	96,799
Variable cash rent (including reimbursables)		3,389		3,638
Straight-line rent, net of bad debt expense		1,094		2,907
Amortization of above- and below- market lease intangibles, net ⁽¹⁾		334		723
Total rental income	$	121,363	$	104,067

⁽¹⁾	Excludes amortization of in-place leases of $8.8 million and $6.7 million for the three months ended March 31, 2020 and 2019, 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-cancellable term of these operating leases (including contractual fixed rent increases occurring on or after April 1, 2020) at March 31, 2020 are as follows (in thousands):

	March 31, 2020
Remainder of 2020	$	354,330
2021		461,791
2022		444,470
2023		423,969
2024		399,829
Thereafter		3,037,487
Total future minimum rentals	$	5,121,876

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):

	March 31, 2020			December 31, 2019
In-place leases	$	454,363		$	457,616
Above-market leases		97,296			95,002
Less: accumulated amortization		(170,261	)		(167,539	)
Intangible lease assets, net	$	381,398		$	385,079

Below-market leases	$	174,965		$	176,816
Less: accumulated amortization		(50,868	)		(49,481	)
Intangible lease liabilities, net	$	124,097		$	127,335

Direct Financing Leases

As of March 31, 2020, the Company held one property under a direct financing lease, which was held in use. As of March 31, 2020, this property had $4.0 million in scheduled minimum future payments to be received under the remaining non-cancellable terms of its lease. 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 against the net investment balance of $7.6 million as of March 31, 2020, primarily as a result of the borrower’s credit rating being non-investment grade and the initial term extending until 2027.

Loans Receivable

As of March 31, 2020, the Company held two first-priority mortgage loans. The mortgage loans are secured by single-tenant commercial properties and have fixed interest rates over the term of the loans. There was one other note receivable as of March 31, 2020, which is secured by tenant assets and stock. As of March 31, 2020, these loans had an outstanding principal balance of $30.6 million and an unamortized premium balance of $0.5 million. The Company evaluated the collectability of the amounts receivable under the loans receivable and recorded an allowance for loan losses of $0.3 million against the carrying value of $31.1 million. The amount of the allowance was primarily driven by the borrowers’ having investment grade credit ratings and maturities in 2020.

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 March 31,
	2020		2019
Real estate and intangible asset impairment	$	40,164	$	3,692
Allowance for credit losses on direct financing leases		304		—
Allowance for credit losses on loans receivable		306		—
Total impairment loss	$	40,774	$	3,692