Note 3 – Real Estate Investments

Real Estate Portfolio

At December 31, 2015 and 2014, the Company’s gross investment in real estate assets, including properties under development and properties held for sale, totaled $755,848,938 and $589,147,012, respectively. Real estate investments consisted of the following as of December 31, 2015 and December 31, 2014:

	2015		2014

Number of Properties		278		209
Gross Leasable Area		5,207,000		4,315,000

Land	$	225,273,640	$	195,091,303
Buildings		526,911,997		393,826,467
Property under Development		3,663,301		229,242
Gross Real Estate Investments	$	755,848,938	$	589,147,012

Less Accumulated Depreciation	$	(56,401,423)	$	(59,089,851)
Net Real Estate Investments	$	699,447,515	$	530,057,161

Lease Intangibles

The following table details lease intangibles, net of accumulated amortization, as of December 31, 2015 and December 31, 2014:

	December 31,		December 31,
	2015		2014
Intangible Lease Asset - In-Place Leases	$	47,051,639	$	36,680,631
Less: Accumulated Amortization		(7,239,191)		(3,897,008)
Intangible Lease Asset - Above-Market Leases		61,241,046		31,642,267
Less: Accumulated Amortization		(7,367,216)		(4,111,435)
Intangible Lease Liability - Below-Market Leases		(21,162,576)		(15,124,210)
Less: Accumulated Amortization		4,028,614		2,289,358
Lease Intangible Asset, net	$	76,552,316	$	47,479,602

As of December 31, 2015, our portfolio was approximately 99.5% leased and had a weighted average remaining lease term of approximately 11.4 years.

Tenant Leases

The properties that the Company owns are typically leased to tenants under long term operating leases. The leases are generally net leases which typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. Certain of our properties are subject to leases under which we retain responsibility for specific costs and expenses of the property. The leases typically provide the tenant with one or more multi-year renewal options subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term.

As of December 31, 2015, the future minimum rental income to be received under the terms of all non-cancellable tenant leases is as follows:

For the Year Ending December 31,
2016	$	68,765,041
2017		68,732,996
2018		67,872,318
2019		65,552,286
2020		63,184,391
Thereafter		505,204,411
Total	$	839,311,443

Since lease renewal periods are exercisable at the option of the tenant, the above table only presents future minimum lease payments due during the current lease terms. In addition, this table does not include amounts for potential variable rent increases that are based on the CPI or future contingent rents which may be received on the leases based on a percentage of the tenant’s gross sales.

Of these future minimum rents, approximately 17.2% and 5.5% of the total is attributable to Walgreens and Walmart (and Walmart affiliates), respectively, as of December 31, 2015. The loss of these tenants or the inability of them to pay rent could have an adverse effect on the Company’s business.

No other tenant contributed 5.0% or more of the Company’s total revenues as of December 31, 2015.

Deferred Revenue

In July 2004, the Company’s tenant in a joint venture property located in Boynton Beach, FL repaid $4,000,000 that had been contributed by the Company’s joint venture partner. As a result of this repayment, the Company became the sole member of the limited liability company holding the property. Total assets of the property were approximately $4,000,000. The Company has treated the $4,000,000 as deferred revenue and accordingly, will recognize rental income over the term of the related leases.

The remaining deferred revenue of approximately $541,000 will be recognized as minimum rents over approximately 1.2 years

Land Lease Obligations

The Company is subject to land lease agreements for certain of its properties. Land lease expense was $606,134, $471,840, and $427,900 for the years ending December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, future annual lease commitments under these agreements are as follows:

For the Year Ending December 31,
2016	$	639,903
2017		639,903
2018		640,819
2019		633,778
2020		632,178
Thereafter		8,426,118
Total	$	11,612,699

The Company leased its executive offices during 2014 from a limited liability company controlled by its Executive Chairman’s children. Under the terms of the lease, which expired on December 31, 2014, the Company was required to pay an annual rental of $90,000 and was responsible for the payment of real estate taxes, insurance and maintenance expenses relating to the building. As of December 31, 2015 are no outstanding commitments or liabilities related to this lease.

2015 and 2014 Acquisitions

During 2015, the Company purchased 73 retail net lease assets for approximately $220,557,000, including acquisition and closing costs. These properties are located in 24 states and 100% leased to 40 different tenants operating in 19 unique retail sectors for a weighted average lease term of approximately 12.2 years. The underwritten weighted average capitalization rate on our 2015 investments was approximately 8.0%. None of the Company’s investments during 2015 caused any new or existing tenant to comprise 10% or more of the Company’s total assets or generate 10% or more of the Company’s total annualized base rent at December 31, 2015.

The aggregate 2015 acquisitions were allocated approximately $33,801,000 to land, $152,742,000 to buildings and improvements, and $34,014,000 to lease intangible costs. The acquisitions were substantially all cash purchases and there was no contingent consideration associated with these acquisitions.

During 2014, the Company purchased 77 retail net lease assets for approximately $148,400,000, including acquisition and closing costs. These properties are located in 23 states and 100% leased to 28 different tenants operating in 14 unique retail sectors for a weighted average lease term of approximately 14.1 years. The underwritten weighted average capitalization rate on our 2014 investments was approximately 8.2%. None of the Company’s investments during 2014 caused any new or existing tenant to comprise 10% or more of the Company’s total assets or generate 10% or more of the Company’s total annualized base rent at December 31, 2015.

The aggregate 2014 acquisitions were allocated approximately $29,969,000 to land, $95,977,000 to buildings and improvements, and $22,265,000 to lease intangible costs. The acquisitions were substantially all cash purchases and there was no contingent consideration associated with these acquisitions.

The Company calculates the weighted average capitalization rate on our investments by dividing annual expected net operating income derived from the properties by the total investment in the properties. Annual expected net operating income is defined as the straight-line rent for the base term of the lease less property level expenses (if any) that are not recoverable from the tenant.

Unaudited Pro Forma Information

The following unaudited pro forma total revenue and income before discontinued operations, for 2015 and 2014, assumes all of our 2015 acquisitions had taken place on January 1, 2015 for the 2015 pro forma information, and on January 1, 2014 for the 2014 pro forma information:

Supplemental pro forma for the year ended December 31, 2015 (1)
Total Revenue	$	79,056,000
Income before discontinued operations	$	36,149,000

Supplemental pro forma for the year ended December 31, 2014 (1)
Total Revenue	$	57,840,000
Income before discontinued operations	$	19,369,000

(1)

This unaudited pro forma supplemental information does not purport to be indicative of what our operating results would have been had the acquisitions occurred on January 1, 2015 or January 1, 2014 and may not be indicative of future operating results. Various acquisitions were of newly leased or constructed assets and may not have been in service for the full periods shown.

Dispositions

During 2015, we sold eight properties for aggregate gross proceeds of $29.0 million, which resulted in a gain of $12.1 million. Dispositions included three land parcels, two single tenant buildings and three non-core community shopping centers (Marshall Plaza in Marshall, Michigan, Ferris Commons in Big Rapids, Michigan and Lakeland Plaza in Lakeland, Florida).

Impairments

As a result of our review of Real Estate Investments we recognized the following real estate impairment charges for the year ended December 31:

	2015		2014		2013

Continuing operations	$	-	$	3,020,000	$	-
Discontinued operations		-		-		450,000

Total	$	-	$	3,020,000	$	450,000

In 2014, we recognized impairment charges of $220,000 and $2,800,000, respectively, for Petoskey Town Center and Chippewa Commons, which were included in continuing operations. Petoskey Town Center was under contract for sale, but not classified as held for sale at September 30, 2014 due to contingencies associated with the contract, and a $220,000 impairment charge was taken to write down the carrying value of the property to an amount that reflected the sales price. The property was subsequently sold in the fourth quarter of 2014. In the second quarter of 2014, an anchor tenant at Chippewa Commons declined to exercise a lease extension option which we deemed would contribute to vacancy and diminished cash flows and result in a fair value that was less than the net book value of the asset. A $2,800,000 impairment charge was taken to write down the carrying value of the property to an amount that reflected management’s best estimate of fair market value.

In 2013, we recognized an impairment charge of $450,000 for Ironwood Commons, which was included in continuing operations at the time of the impairment charge. Ironwood Commons was under contract for sale, but not classified as held for sale at September 30, 2013 due to contingencies associated with the contract, and a $450,000 impairment charge was taken to write down the carrying value of the property to an amount that reflected the sales price. The property was subsequently reclassified as property held for sale and the impairment charge was included in discontinued operations as of December 31, 2014.