REAL ESTATE AND RELATED LEASE INTANGIBLES, NET

9 Months Ended

Sep. 30, 2017

Real Estate [Abstract]

REAL ESTATE AND RELATED LEASE INTANGIBLES, NET

5. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET

The following tables present additional detail related to our real estate portfolio ($ in thousands):

	September 30, 2017			December 31, 2016
Land	$	213,402		$	143,286
Building	790,454			646,372
In-place leases and other intangibles	188,666			154,687
Less: Accumulated depreciation and amortization	(150,621		)	(122,007		)
Real estate and related lease intangibles, net	$	1,041,901		$	822,338
Below market lease intangibles, net (other liabilities)	$	(42,984	)	$	(16,506	)

The following table presents depreciation and amortization expense on real estate recorded by the Company ($ in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Depreciation expense (1)	$	7,624	$	6,272	$	20,470	$	18,540
Amortization expense	2,959		3,433		8,783		10,164
Total real estate depreciation and amortization expense	$	10,583	$	9,705	$	29,253	$	28,704

(1) Depreciation expense on the consolidated statements of income also includes $23 thousand and $28 thousand of depreciation on corporate fixed assets for the three months ended September 30, 2017 and 2016, respectively, and $70 thousand and $85 thousand of depreciation on corporate fixed assets for the nine months ended September 30, 2017 and 2016, respectively.

The Company’s intangible assets are comprised of in-place leases, favorable leases compared to market leases and other intangibles. At September 30, 2017, gross intangible assets totaled $188.7 million with total accumulated amortization of $57.5 million, resulting in net intangible assets of $131.1 million, including $9.2 million of unamortized favorable lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets. At December 31, 2016, gross intangible assets totaled $154.7 million with total accumulated amortization of $48.1 million, resulting in net intangible assets of $106.6 million, including $7.0 million of unamortized favorable lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets. For the three and nine months ended September 30, 2017, the Company recorded a net reduction in operating lease income of $0.3 million and $0.8 million, respectively, for amortization of above market lease intangibles acquired, compared to $0.7 million and $1.0 million for the three and nine months ended September 30, 2016, respectively. For the three and nine months ended September 30, 2017, the Company recorded a net increase in operating lease income of $0.6 million and $1.3 million respectively, for amortization of below market lease intangibles acquired, compared to $0.4 million and $1.2 million, for the three and nine months ended September 30, 2016, respectively.

The following table presents expected amortization expense during the next five years and thereafter related to the acquired in-place lease intangibles for property owned as of September 30, 2017 ($ in thousands):

Period Ending December 31,	Amount
2017 (last 3 months)	$	4,272
2018	16,649
2019	16,323
2020	16,323
2021	16,120
Thereafter	89,619
Total	$	159,306

There were $0.5 million and $0.7 million of unbilled rent receivables included in other assets on the consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively.

There was unencumbered real estate of $179.3 million and $70.3 million as of September 30, 2017 and December 31, 2016, respectively.

The following is a schedule of non-cancellable, contractual, future minimum rent under leases (excluding property operating expenses paid directly by tenant under net leases or rent escalations under other leases from tenants) at September 30, 2017 ($ in thousands):

Period Ending December 31,	Amount
2017 (last 3 months)	$	24,751
2018	88,129
2019	81,456
2020	79,628
2021	74,920
Thereafter	1,321,150
Total	$	1,670,034

Acquisitions

During the nine months ended September 30, 2017, the Company acquired the following properties ($ in thousands):

Acquisition Date	Type	Primary Location(s)	Purchase Price		Ownership Interest (1)
February 2017	Net Lease	Carmi, IL	$	1,411	100.0%
February 2017	Net Lease	Peoria, IL	1,183		100.0%
March 2017	Net Lease	Ridgedale, MO	1,298		100.0%
April 2017	Net Lease	Hanna City, IL	1,141		100.0%
April 2017	Other(2)	El Monte, CA	54,110		70.0%
May 2017	Net Lease	Jessup, IA	1,163		100.0%
May 2017	Net Lease	Shelbyville, IL	1,132		100.0%
May 2017	Other	Jacksonville, FL	115,641		100.0%
May 2017	Net Lease	Wabasha, MN	1,280		100.0%
May 2017	Net Lease	Port O'Connor, TX	1,255		100.0%
May 2017	Net Lease	Denver, IA	1,183		100.0%
June 2017	Net Lease	Jefferson City, MO	1,241		100.0%
August 2017	Other(3)	Miami, FL	38,145		80.0%
September 2017	Net Lease	Milford, IA	1,298		100.0%
September 2017	Other	Crum Lynne, PA	9,196		100.0%
Total			$	230,677

(1) Properties were consolidated as of acquisition date.

(2) Joint venture partner contributed $5.3 million to partnership.

(3) Joint venture partner contributed $1.6 million to the partnership.

On October 1, 2016, the Company early adopted Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). As a result of this adoption, acquisitions of real estate may not meet the revised definition of a business and may be treated as asset acquisitions rather than business combinations. The measurement of assets and liabilities acquired will no longer be recorded at fair value and the Company will now allocate purchase consideration based on relative fair values. Real estate acquisition costs which are no longer expensed as incurred, will be capitalized as a component of the cost of the assets acquired. During the nine months ended September 30, 2017, all acquisitions were determined to be asset acquisitions.

The purchase prices were allocated to the net assets acquired, which also include asset acquisitions occurring after October 1, 2016, during the nine months ended September 30, 2017, as follows ($ in thousands):

	Purchase Price Allocation
Land	$	76,342
Building	151,396
Intangibles	30,686
Below Market Lease Intangibles	(27,747		)
Total purchase price	$	230,677

The weighted average amortization period for intangible assets acquired during the nine months ended September 30, 2017 was 18.6 years. The Company recorded $0.3 million and $5.6 million in revenues from its 2017 acquisitions for the three and nine months ended September 30, 2017, respectively, which are included in our consolidated statements of

income. The Company recorded $0.1 million and $3.7 million in earnings (losses) from its 2017 acquisitions for the three and nine months ended September 30, 2017, respectively, which are included in our consolidated statements of income.

During the nine months ended September 30, 2016, the Company acquired the following properties ($ in thousands):

Acquisition Date	Type	Primary Location(s)	Purchase Price		Ownership Interest (1)
April 2016	Land	St. Paul, MN	$	200	100.0%
April 2016	Net Lease	Dimmitt, TX	1,319		100.0%
April 2016	Net Lease	Philo, IL	1,156		100.0%
April 2016	Net Lease	St. Charles, MN	1,198		100.0%
May 2016	Net Lease	San Antonio, TX	1,096		100.0%
May 2016	Net Lease	Borger, TX	978		100.0%
June 2016	Net Lease	Champaign, IL	1,324		100.0%
June 2016	Net Lease	Decatur-Sunnyside, IL	1,181		100.0%
June 2016	Net Lease	Flora Vista, NM	1,305		100.0%
June 2016	Net Lease	Mountain Grove, MO	1,279		100.0%
June 2016	Net Lease	Rantoul, IL	1,204		100.0%
June 2016	Net Lease	Decatur-Pershing, IL	1,365		100.0%
June 2016	Net Lease	Cape Girardeau, MO	1,281		100.0%
June 2016	Net Lease	Linn, MO	1,122		100.0%
July 2016	Net Lease	Union, MO	1,227		100.0%
July 2016	Net Lease	Pawnee, IL	1,201		100.0%
July 2016	Net Lease	Lamar, MO	1,176		100.0%
August 2016	Other	Ewing, NJ	30,640		100.0%
Total			$	50,252

(1) Properties were consolidated as of acquisition date.

The purchase prices were allocated to the net assets acquired during the nine months ended September 30, 2016, as follows ($ in thousands):

	Purchase Price Allocation
Land	$	6,407
Building	34,396
Intangibles	11,364
Below Market Lease Intangibles	(1,915		)
Total purchase price	$	50,252

The weighted average amortization period for intangible assets acquired during the nine months ended September 30, 2016 was 20.3 years. The Company recorded $0.6 million and $1.0 million in revenues for the three and nine months ended September 30, 2016, respectively, which are included in our consolidated statements of income. The Company recorded $(0.3) million and $(0.2) million in earnings (losses) from its 2016 acquisitions for the three and nine months ended September 30, 2016, respectively, which are included in our consolidated statements of income.

Sales

The Company sold the following properties during the nine months ended September 30, 2017 ($ in thousands):

Sales Date	Type	Primary Location(s)	Net Sales Proceeds		Net Book Value		Realized Gain/(Loss)(1)		Properties	Units Sold	Units Remaining
Various	Condominium	Las Vegas, NV	$	14,568	$	7,943	$	6,625	—	37	22
Various	Condominium	Miami, FL	6,104		4,789		1,315		—	21	67
Totals			$	20,672	$	12,732	$	7,940

(1) Realized gain on the sale of real estate, net on the consolidated statements of income also includes $150 thousand of realized loss on the disposal of fixed assets for the nine months ended September 30, 2017.

The Company sold the following properties during the nine months ended September 30, 2016 ($ in thousands):

Sales Date	Type	Primary Location(s)	Net Sales Proceeds		Net Book Value		Realized Gain/(Loss)		Properties	Units Sold	Units Remaining
Mar 2016	Net Lease	Rockland, MA	$	9,148	$	8,436	$	712	1	—	—
Sep 2016	Net Lease	Crawfordsville, IN	6,190		5,723		467		1	—	—
Various	Condominium	Las Vegas, NV	24,534		13,507		11,027		—	58	74
Various	Condominium	Miami, FL	14,162		10,752		3,410		—	49	104
Totals			$	54,034	$	38,418	$	15,616

 

Real Estate Sold or Classified as Held for Sale

On January 1, 2014, the Company early adopted ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, and as the properties sold or classified as real estate held for sale in 2017 and 2016 did not represent a strategic shift (as the Company is not entirely exiting markets or property types), they have not been reflected as part of discontinued operations.