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Investments in Real Estate | 6 Months Ended
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Jun. 30, 2022
Real Estate [Abstract] |
Investments in Real Estate | Investments in Real Estate We acquire land, buildings and improvements necessary for the successful operations of commercial clients. A. Acquisitions During the Six Months Ended June 30, 2022, and 2021 Below is a summary of our acquisitions for the six months ended June 30, 2022:
| Number of Properties |  | Leasable Square Feet (in thousands) |  | Investment ($ in millions) |  | Weighted Average Lease Term (Years) |  | Initial Weighted Average Cash Lease Yield (1)
Six months ended June 30, 2022 (2) |  |  |  |  |  |  |  |  |
Acquisitions - U.S. | 289 |  |  | 5,551 |  |  | $ | 1,492.0 |  |  | 13.9 |  | 5.7 | %
Acquisitions - Europe | 51 |  |  | 5,391 |  |  | 1,471.2 |  |  | 9.0 |  | 5.6 | %
Total acquisitions | 340 |  |  | 10,942 |  |  | $ | 2,963.2 |  |  | 11.5 |  | 5.7 | %
Properties under development (3) | 83 |  |  | 2,721 |  |  | 267.9 |  |  | 15.9 |  | 5.7 | %
Total (4) | 423 |  |  | 13,663 |  |  | $ | 3,231.1 |  |  | 11.9 |  | 5.7 | %
(1)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 cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a client 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. Contractual net operating income used in the calculation of initial average cash yield includes approximately $6.8 million received as settlement credits as reimbursement of free rent periods for the six months ended June 30, 2022. 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 weighted 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. (2)None of our investments during the six months ended June 30, 2022, caused any one client to be 10% or more of our total assets at June 30, 2022. (3)Includes two U.K. development properties that represent an investment of £14.9 million Sterling during the six months ended June 30, 2022, converted at the applicable exchange rate on the funding date. (4)Our clients occupying the new properties are 87.4% retail and 12.6% industrial, based on rental revenue. Approximately 33% of the rental revenue generated from acquisitions during the six months ended June 30, 2022, is from investment grade rated clients, their subsidiaries or affiliated companies. The acquisitions during the six months ended June 30, 2022, which had no associated contingent consideration, were allocated as follows (in millions):
| Acquisitions - U.S. |  | Acquisitions - U.K. |  |
Six months ended June 30, 2022 | (USD) |  | (£ Sterling) |  |
Land (1) | $ | 480.3 |  |  | £ | 476.7 |  |  |
Buildings and improvements | 843.9 |  |  | 368.2 |  |  |
Lease intangible assets (2) | 185.0 |  |  | 179.4 |  |  |
Other assets (3) | 214.7 |  |  | 166.2 |  |  |
Lease intangible liabilities (4) | (27.3) |  |  | (50.2) |  |  |
Other liabilities (5) | (21.1) |  |  | — |  |  |
| $ | 1,675.5 |  |  | £ | 1,140.3 |  |  |
(1) U.K. land includes £33.2 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 10.3 years. (3) U.S. other assets consists of $182.6 million of financing receivables with above-market terms and $32.1 million of right-of-use assets accounted for as finance leases. U.K. other assets consists of £3.8 million of financing receivables with above-market terms and £162.4 million of right-of-use assets accounted for as finance leases. (4) The weighted average amortization period for acquired lease intangible liabilities is 11.4 years. (5) U.S. other liabilities consists of $14.6 million of deferred rent on certain below-market leases and $8.6 million of lease liabilities under financing leases, offset by $2.1 million of mortgage discounts. The properties acquired during the six months ended June 30, 2022, which were all accounted for as asset acquisitions, generated total revenues of $37.5 million and net income of $13.4 million during the six months ended June 30, 2022. Below is a summary of our acquisitions for the six months ended June 30, 2021:
| Number of Properties |  | Leasable Square Feet (in thousands) |  | Investment ($ in millions) |  | Weighted Average Lease Term (Years) |  | Initial Weighted Average Cash Lease Yield (1)
Six months ended June 30, 2021 (2) |  |  |  |  |  |  |  |  |
Acquisitions - U.S. | 173 |  |  | 4,485 |  |  | $ | 1,052.3 |  |  | 13.7 |  | 5.5 | %
Acquisitions - Europe | 41 |  |  | 3,133 |  |  | 994.8 |  |  | 9.8 |  | 5.6 | %
Total acquisitions | 214 |  |  | 7,618 |  |  | $ | 2,047.1 |  |  | 11.8 |  | 5.5 | %
Properties under development - U.S. | 40 |  |  | 2,016 |  |  | 114.8 |  |  | 15.6 |  | 5.7 | %
Total (3) | 254 |  |  | 9,634 |  |  | $ | 2,161.9 |  |  | 12.0 |  | 5.5 | %
(1)Contractual net operating income used in the calculation of initial average cash yield includes approximately $850,000 received as settlement credits as reimbursement of free rent periods for the six months ended June 30, 2021. (2)None of our investments during the six months ended June 30, 2021, caused any one client to be 10% or more of our total assets at June 30, 2021. (3) Our clients occupying the new properties are 75.8% retail and 24.2% industrial, based on rental revenue. Approximately 47% of the rental revenue generated from acquisitions during the six months ended June 30, 2021, was from investment grade rated clients, their subsidiaries or affiliated companies. The acquisitions during the six months ended June 30, 2021, which had no associated contingent consideration, were allocated as follows (in millions):
| Acquisitions - U.S. |  | Acquisitions - U.K.
Six months ended June 30, 2021 | (USD) |  | (£ Sterling)
Land(1) | $ | 384.5 |  |  | £ | 219.7 |
Buildings and improvements | 539.5 |  |  | 375.4 |
Lease intangible assets (2) | 171.8 |  |  | 125.6 |
Other assets (3) | 38.5 |  |  | — |
Lease intangible liabilities (4) | (14.4) |  |  | (5.3) |
Other liabilities (5) | (21.6) |  |  | (0.3) |
| $ | 1,098.3 |  |  | £ | 715.1 |
(1) U.K land includes £1.3 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 12.7 years. (3) U.S. other assets consists entirely of financing receivables with above-market terms and a right-of-use asset accounted for as a finance lease. (4) The weighted average amortization period for acquired lease intangible liabilities is 14.0 years. (5) U.S. other liabilities consists of deferred rent on certain below-market leases. U.K other liabilities consists entirely of a GBP mortgage premium. The properties acquired during the six months ended June 30, 2021, which were all accounted for as asset acquisitions, generated total revenues of $24.9 million and net income of $6.1 million during the six months ended June 30, 2021. B. Investments in Existing Properties During the six months ended June 30, 2022, we capitalized costs of $37.8 million on existing properties in our portfolio, consisting of $3.2 million for re-leasing costs, $2.8 million for recurring capital expenditures, and $31.8 million for non-recurring building improvements. In comparison, during the six months ended June 30, 2021, we capitalized costs of $4.3 million on existing properties in our portfolio, consisting of $827,000 for re-leasing costs, $51,000 for recurring capital expenditures, and $3.4 million for non-recurring building improvements. C. Properties with Existing Leases Of the $3.23 billion we invested during the six months ended June 30, 2022, approximately $267.9 million related to development. Of the $2.96 billion invested outside of development, $2.21 billion was used to acquire 168 properties with existing leases. In comparison, of the $2.16 billion we invested during the six months ended June 30, 2021, $114.8 million related to development. Of the $2.05 billion invested outside of development, $1.81 billion was used to acquire 143 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 assets, 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 six months ended June 30, 2022, and 2021 were $318.3 million and $77.5 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 in the 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 six months ended June 30, 2022, and 2021 were $48.6 million and $19.7 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, 2022 (dollars in thousands):
| Net increase (decrease) to rental revenue |  | Increase to amortization expense
2022 | $ | (29,835) |  |  | $ | 306,632 |
2023 | (58,837) |  |  | 545,532 |
2024 | (52,621) |  |  | 484,561 |
2025 | (46,411) |  |  | 415,549 |
2026 | (38,118) |  |  | 370,236 |
Thereafter | 276,757 |  |  | 1,736,771 |
Totals | $ | 50,935 |  |  | $ | 3,859,281 |
D. Gain on Sales of Real Estate The following table summarizes our properties sold during the periods indicated below (dollars in millions):
| Three months ended June 30, |  | Six months ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Number of properties | 70 |  |  | 42 |  |  | 104 |  |  | 69 |
Net sales proceeds | $ | 150.0 |  |  | $ | 56.9 |  |  | $ | 272.2 |  |  | $ | 91.6 |
Gain on sales of real estate | $ | 40.6 |  |  | $ | 14.9 |  |  | $ | 50.7 |  |  | $ | 23.3 |
E. Investment in Unconsolidated Entities The following is a summary of our investments in unconsolidated entities as of June 30, 2022 (in thousands):
| Ownership % (1) |  | Number of Properties |  | Carrying Amount of Investment as of (2) | Equity in income and impairment of investment in unconsolidated entities for the six months ended(2)(3)
Investment | June 30, 2022 |  | June 30, 2022 | December 31, 2021 |  | June 30, 2022 | June 30, 2021
Industrial Partnerships | 20 | % |  | 7 |  | $ | 113,562 |  | $ | 140,967 |  |  | $ | (5,673) |  | $ | — |
(1) Our ownership interest reflects legal ownership interest. Legal ownership may, at times, not equal our economic interest in the listed properties because of various provisions in certain entity agreements regarding capital contributions, distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, our actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with legal ownership interests. (2) The total carrying amount of the investments was greater than the underlying equity in net assets by $74.1 million as of June 30, 2022. The difference relates to a step-up in fair value of the investment net assets acquired in connection with the merger with VEREIT on November 1, 2021. The step up in fair value was allocated to the individual investment assets and liabilities and is being amortized over the estimated useful life of the respective underlying tangible real estate assets, the lease term of the intangible real estate assets, and the remaining term of the mortgages payable. Prior to November 1, 2021, we did not own any unconsolidated entities. (3) As of June 30, 2022, the seven assets held by our Industrial Partnerships were under agreement of sale. As the portion of the net proceeds applied to our investment basis that we expect to receive at closing was less than our $121.4 million carrying amount of investment in unconsolidated entities, we recognized an other than temporary impairment of $7.8 million , which is included in 'Equity in income and impairment of investment in unconsolidated entities' in the consolidated statements of income and comprehensive income for the three and six months ended June 30, 2022. The aggregate debt outstanding for unconsolidated entities was $431.8 million as of June 30, 2022, and December 31, 2021, all of which is non-recourse to us with limited customary exceptions which vary from loan to loan. Each of us and our unconsolidated entity partners are subject to the provisions of the applicable entity agreements for our unconsolidated partnerships, which include provisions for when additional contributions may be required to fund certain cash shortfalls.

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