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Investments in Real Estate

6 Months Ended

Jun. 30, 2019

Real Estate Investments, Net [Abstract]

We acquire land, buildings and improvements necessary for the successful operations of commercial tenants.

A.Acquisitions During the First Six Months of 2019 and 2018

Below is a summary of our acquisitions for the second quarter and six months ended June 30, 2019:



	Number of Properties	Square Feet (in millions)	Investment ($ in millions)		Weighted Average Lease Term (Years)	Initial Average Cash Lease Yield
Three months ended June 30, 2019 ⁽¹⁾
Acquisitions - U.S. (in 28 states)	78	2.3	$	532.3	14.8	6.9	%
Acquisitions - U.K. ⁽²⁾	12	1.1	549.2		14.8	5.3	%
Total Acquisitions	90	3.4	1,081.5		14.8	6.1	%
Properties under Development - U.S.	12	0.4	13.2		15.9	7.3	%
Total ⁽³⁾	102	3.8	$	1,094.7	14.8	6.1	%

Six months ended June 30, 2019 ⁽¹⁾
Acquisitions - U.S. (in 34 states)	175	4.2	$	1,040.9	15.9	6.8	%
Acquisitions - U.K. ⁽²⁾	12	1.1	549.2		14.8	5.3	%
Total Acquisitions	187	5.3	1,590.1		15.5	6.3	%
Properties under Development - U.S.	12	0.4	24.1		16.5	7.2	%
Total ⁽⁴⁾	199	5.7	$	1,614.2	15.6	6.3	%


⁽¹⁾	None of our investments during 2019 caused any one tenant to be 10% or more of our total assets at June 30, 2019. All of our 2019 investments are 100% leased.


⁽²⁾	Represents investment of £433.9 million, multiplied by the applicable exchange rate on the closing date of the acquisition.


⁽³⁾	The tenants occupying the new properties operate in 15 industries, and are 99.4% retail and 0.6% industrial, based on rental revenue. Approximately 12% of the rental revenue generated from acquisitions during the second quarter of 2019 is from investment grade rated tenants and their subsidiaries.


⁽⁴⁾	The tenants occupying the new properties operate in 17 industries, and are 99.1% retail and 0.9% industrial, based on rental revenue. Approximately 18% of the rental revenue generated from acquisitions during the first six months of 2019 is from investment grade rated tenants and their subsidiaries.

The $1.6 billion invested during the first six months of 2019 was allocated as follows: $436.3 million to land, of which $17.4 million related to right of use assets under long-term ground leases, $976.1 million to buildings and improvements, $183.7 million to intangible assets related to leases, $60.2 million to financing receivables related to certain leases with above-market terms, $32.2 million to intangible liabilities related to below-market leases, and $8.2 million to prepaid rent related to certain leases with below-market terms. There was no contingent consideration associated with these acquisitions.

The properties acquired during the first six months of 2019 generated total revenues of $19.7 million and net income of $10.0 million during the six months ended June 30, 2019.

Below is a summary of our acquisitions for the second quarter and six months ended June 30, 2018:



	Number of Properties	Square Feet (in millions)	Investment ($ in millions)		Weighted Average Lease Term (Years)	Initial Average Cash Lease Yield
Three months ended June 30, 2018 ⁽¹⁾
Acquisitions - U.S. (in 24 states)	180	1.0	$	286.5	14.2	6.5	%
Properties under Development - U.S.	10	0.9	60.5		10.7	6.7	%
Total ⁽²⁾	190	1.9	$	347.0	13.6	6.5	%

Six months ended June 30, 2018 ⁽¹⁾
Acquisitions - U.S. (in 32 states)	348	1.8	$	792.5	14.1	6.3	%
Properties under Development - U.S.	10	1.0	64.3		10.8	6.7	%
Total ⁽³⁾	358	2.8	$	856.8	13.8	6.3	%


⁽¹⁾	All of our 2018 investments were 100% leased upon acquisition.


⁽²⁾	The tenants occupying the new properties operated in 15 industries and the property types consisted of 85% retail and 15% industrial, based on rental revenue. Approximately 52% of the rental revenue generated from acquisitions during the second quarter of 2018 was from investment grade rated tenants and their subsidiaries.


⁽³⁾	The tenants occupying the new properties operated in 17 industries, and the property types consisted of 93.7% retail and 6.3% industrial, based on rental revenue. Approximately 71% of the rental revenue generated from acquisitions during the first six months of 2018 was from investment grade rated tenants and their subsidiaries.

The $856.8 million invested during the first six months of 2018 was allocated as follows: $314.0 million to land, $489.7 million to buildings and improvements, $78.3 million to intangible assets related to leases, and $25.2 million to intangible liabilities related to certain leases with below-market terms. There was no contingent consideration associated with these acquisitions.

The properties acquired during the first six months of 2018 generated total revenues of $10.6 million and net income of $5.3 million during the six months ended June 30, 2018.

The initial average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a tenant could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above.

In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs.

B. Investments in Existing Properties

During the first six months of 2019, we capitalized costs of $6.1 million on existing properties in our portfolio, consisting of $1.0 million for re-leasing costs, $172,000 for recurring capital expenditures and $4.9 million for non-recurring building improvements. In comparison, during the first six months of 2018, we capitalized costs of $5.6 million on existing properties in our portfolio, consisting of $2.5 million for re-leasing costs, $147,000 for recurring capital expenditures and $3.0 million for non-recurring building improvements.

C. Properties with Existing Leases

Of the $1.6 billion we invested during the first six months of 2019, approximately $929.7 million was used to acquire 75 properties with existing leases. In comparison, of the $856.8 million we invested during the first six months of 2018, approximately $225.8 million was used to acquire 107 properties with existing leases. The value of the in-place and above-market leases is recorded to lease intangible assets, net on our consolidated balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on our consolidated balance sheets.

The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for the first six months of 2019 and 2018 were $57.8 million and $53.1 million, respectively.

The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the first six months of 2019 and 2018 were $7.8 million and $7.9 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate.

The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at June 30, 2019 (dollars in thousands):



	Net decrease to rental revenue			Increase to amortization expense
2019	$	(10,994	)	$	51,751
2020	(21,343		)	99,284
2021	(20,186		)	91,089
2022	(18,651		)	79,286
2023	(17,199		)	68,992
Thereafter	(76,295		)	422,601
Totals	$	(164,668	)	$	813,003