Real Estate Investments

6 Months Ended

Jun. 30, 2022

Note 3 — Real Estate Investments

Property Acquisitions

The following table presents the allocation of real estate assets acquired and liabilities assumed during the periods presented. All acquisitions in both periods were considered asset acquisitions for accounting purposes.


	Six Months Ended June 30,
(Dollar amounts in thousands)	2022		2021
Real estate investments, at cost:
Land	$	302,478	$	13,331
Buildings, fixtures and improvements	865,992		49,968
Total tangible assets	1,168,470		63,299
Acquired intangible assets and liabilities: (1)
In-place leases	218,454		8,281
Above-market lease assets	24,066		—
Below-market lease liabilities	(59,442)		(5,593)


Total intangible assets, net	183,078		2,688
Assets Reduced, Liabilities Assumed and Mezzanine Equity Issued:
Mortgage notes payable assumed in acquisitions (including net discounts of $1,466)	(312,246)		—
Shares subject to repurchase issued in acquisitions	(49,965)		—
Application of deposit	(23,750)		—
Accrued contingent consideration on acquired properties from the CIM Portfolio Acquisition	(10,840)
Cash paid for real estate investments	$	954,747	$	65,987
Number of properties purchased from the CIM Portfolio Acquisition	80		—
Number of other properties purchased	11		24

________

(1)Weighted-average remaining amortization periods for in-place leases, above-market and below-market lease liabilities acquired during the six months ended June 30, 2022 were 10.3 years, 7.6 years and 20.2 years, respectively, as of each property’s respective acquisition date.

The following table presents amortization expense and adjustments to revenue from tenants and property operating expenses for intangible assets and liabilities during the periods presented:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
In-place leases, included in depreciation and amortization	$	18,278	$	9,558	$	31,023	$	19,208


Above-market lease intangibles	$	(1,374)	$	(601)	$	(2,281)	$	(1,290)
Below-market lease liabilities	2,971		1,657		4,991		3,296
Total included in revenue from tenants	$	1,597	$	1,056	$	2,710	$	2,006

Below-market ground lease asset (1)	$	8	$	8	$	16	$	16
Above-market ground lease liability (1)	—		—		—		—
Total included in property operating expenses	$	8	$	8	$	16	$	16

______

(1)Intangible balances related to ground leases are included as part of the operating lease right-of-use assets presented on the consolidated balance sheets and the amortization expense of such balances is included in property operating expenses on the consolidated statements of operations.

The following table provides the projected amortization expense and adjustments to revenue from tenants for intangible assets and liabilities for the next five years:


(In thousands)	2022 (remainder)		2023		2024		2025		2026
In-place leases, to be included in depreciation and amortization	$	38,604	$	64,595	$	51,476	$	41,998	$	34,070

Above-market lease intangibles	$	3,055	$	5,790	$	4,962	$	4,137	$	3,243
Below-market lease liabilities	(5,149)		(10,165)		(9,580)		(9,151)		(8,692)
Total to be included in revenue from tenants	$	(2,094)	$	(4,375)	$	(4,618)	$	(5,014)	$	(5,449)

Deposits for Real Estate Investments

As of June 30, 2022 and December 31, 2021, the Company had $16.3 million and $41.9 million, respectively, in deposits for future acquisitions of real estate investments of which $16.3 million and $40.0 million as of June 30, 2022 and December 31, 2021 related to the deposit on the CIM Portfolio Acquisition, respectively.

Real Estate Held for Sale

When assets are identified by management as held for sale, the Company ceases depreciation and amortization of the identified assets and estimates the sales price, net of costs to sell, of those assets. If the carrying amount of the assets classified as held for sale exceeds the estimated net sales price, the Company records an impairment charge equal to the amount by which the carrying amount of the assets exceeds the Company’s estimate of the net sales price of the assets. For additional information on impairment charges, see “Impairment Charges” section below.

As of June 30, 2022, there were five properties under contract to be disposed that have been classified as held for sale, which included three vacant single-tenant properties formerly leased to Truist Bank and two multi-tenant properties, one of which was recently acquired in the CIM Portfolio Acquisition.

As of December 31, 2021, there was one property, the Company’s Sanofi property, classified as held for sale. This property was disposed on January 6, 2022.

The sales of these properties and other properties sold during their respective periods do not represent a strategic shift in the Company’s operations or strategy. Accordingly, the operating results of these properties remain classified within continuing operations for all periods presented.

The following table details the major classes of assets associated with the properties that have been reclassified as held for sale as of June 30, 2022 and December 31, 2021:


(In thousands)	June 30, 2022		December 31, 2021
Real estate investments held for sale, at cost:
Land	$	17,658	$	16,009
Buildings, fixtures and improvements	123,054		194,288
Acquired intangible lease assets	19,619		46,980
Total real estate assets held for sale, at cost	160,331		257,277
Less accumulated depreciation and amortization	(24,951)		(70,064)
Total real estate investments held for sale, net	135,380		187,213
Impairment charges related to properties reclassified as held for sale	(54,601)		—
Assets held for sale	$	80,779	$	187,213

Real Estate Sales

During the three months ended June 30, 2022, the Company sold five properties for an aggregate contract price of $30.4 million. These property sales resulted in an aggregate gain of $13.4 million, which is reflected in gain on sale of real

estate investments on the consolidated statement of operations for the three months ended June 30, 2022. During the six months ended June 30, 2022, the Company sold 11 properties, including the Company’s Sanofi property which was held for sale as of December 31, 2021, for an aggregate contract price of $295.6 million. These property sales resulted in an aggregate gain of $67.0 million, which is reflected in gain on sale of real estate investments on the consolidated statement of operations for the six months ended June 30, 2022.

During the three months ended June 30, 2021, the Company sold three properties for an aggregate contract price of $2.5 million, resulting in a nominal gain, which is reflected in gain on sale of real estate investments in the consolidated statement of operations for the three months ended June 30, 2021. During the six months ended June 30, 2021, the Company sold five properties for an aggregate contract price of $3.1 million, resulting in a gain of $0.3 million, which is reflected in gain on sale of real estate investments in the consolidated statement of operations for the six months ended June 30, 2021.

Real Estate Held for Use

When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the property for impairment. For the Company, the most common triggering events are (i) concerns regarding the tenant (i.e., credit or expirations) in the Company’s single-tenant properties, (ii) significant or sustained vacancy in the Company’s multi-tenant properties and (iii) changes to the Company’s expected holding period as a result of business decisions or non-recourse debt maturities. For all of its held for use properties, the Company had reconsidered the projected cash flows due to various performance indicators and, where appropriate, the Company evaluated the impact on its ability to recover the carrying value of such properties based on the expected cash flows over the intended holding period. See “Impairment Charges” below for discussion of specific charges taken.

If a triggering event for held for use single-tenant properties is identified, the Company uses either a market approach or an income approach to estimate the future cash flows expected to be generated.

The market approach involves evaluating comparable sales of properties in the same geographic region as the held for use properties in order to determine an estimated sale price. The Company makes certain assumptions including, among others, that the properties in the comparable sales used in the analysis share similar characteristics to the held for use properties, and that market and economic conditions at the time of any potential sales of these properties, such as discount rates; demand for space; competition for tenants; changes in market rental rates; and costs to operate the property, would be similar to those in the comparable sales analyzed.

Under the income approach, the Company evaluates the impact on its ability to recover the carrying value of such properties based on the expected cash flows over its intended holding period. The Company makes certain assumptions in this approach including, among others, the market and economic conditions, expected cash flow projections, intended holding periods and assessments of terminal values.

Where more than one possible scenario exists, the Company uses a probability weighted approach. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analysis may not be achieved, and actual losses or additional impairment may be realized in the future.

Impairment Charges

The Company recorded impairment charges of $59.0 million for the three months ended June 30, 2022, $49.6 million of which related to a multi-tenant property located in Minnesota, $5.9 million of which related to five vacant single-tenant properties formerly leased to Truist Bank and $3.5 million of which related to a multi-tenant property acquired in the CIM Portfolio Acquisition. The Company recorded impairment charges of $64.9 million for the six months ended June 30, 2022, $49.6 million of which related to a multi-tenant property located in Minnesota, $8.0 million of which related to seven vacant single-tenant properties formerly leased to Truist Bank, $3.8 million of which related to one vacant single-tenant property formerly leased to United Healthcare and $3.5 million of which related to a multi-tenant property acquired in the CIM Portfolio Acquisition. The United Healthcare property has been vacant since June 30, 2021 when the tenant did not renew its lease. The Company previously impaired the United Healthcare property by $26.9 million during the three months ended December 31, 2021. All of the impaired properties were impaired to adjust the properties’ carrying values to their fair values as determined by their respective purchase and sales agreements if under a contract to be disposed, or their estimated fair values if not under a contract to be disposed. Three vacant single-tenant properties formerly leased to Truist Bank and two multi-tenant properties, one of which was recently acquired in the CIM Portfolio Acquisition, are under contract to be disposed and are classified as assets held for sale on our consolidated balance sheets as of June 30, 2022.

The Company recorded an impairment charge of $0.1 million for the three and six months ended June 30, 2021 related to a vacant single-tenant property formerly leased to Truist Bank, which was recorded to adjust the property to its fair value as determined by a purchase and sale agreement which was terminated prior to June 30, 2021.