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REAL ESTATE AND RELATED LEASE INTANGIBLES, NET | 3 Months Ended
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Mar. 31, 2020
Real Estate [Abstract] |
REAL ESTATE AND RELATED LEASE INTANGIBLES, NET | 5. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET The recent market volatility due to the COVID-19 pandemic has brought illiquidity in most asset classes, including real estate. The Company expects the net leased commercial real estate properties, which comprise the majority of our portfolio, to be minimally impacted as the majority of the net leased properties in our real estate portfolio are necessity-based retail and have remained open and stable during the COVID-19 pandemic. We continue to actively monitor the diversified commercial real estate properties for both the immediate and long term impact of the pandemic on the buildings, the tenants, the business plans and the ability to execute those business plans. The following tables present additional detail related to our real estate portfolio, net, including foreclosed properties ($ in thousands):
| March 31, 2020 |  | December 31, 2019
Land | $ | 227,070 |  |  | $ | 209,955 |
Building | 867,985 |  |  | 883,005 |
In-place leases and other intangibles | 159,055 |  |  | 161,203 |
Less: Accumulated depreciation and amortization | (206,692 | ) |  | (206,082 | )
Real estate and related lease intangibles, net | $ | 1,047,418 |  |  | $ | 1,048,081 |
Below market lease intangibles, net (other liabilities) | $ | (38,744 | ) |  | $ | (39,067 | )
At March 31, 2020 and December 31, 2019, the Company held foreclosed properties included in real estate and related lease intangibles, net with a carrying value of $110.0 million and $89.5 million, respectively. The following table presents depreciation and amortization expense on real estate recorded by the Company ($ in thousands):
| Three Months Ended March 31,
| 2020 |  | 2019
Depreciation expense(1) | $ | 8,273 |  |  | $ | 7,685 |
Amortization expense | 1,711 |  |  | 2,517 |
Total real estate depreciation and amortization expense | $ | 9,984 |  |  | $ | 10,202 |
(1) | Depreciation expense on the consolidated statements of income also includes $25 thousand of depreciation on corporate fixed assets for the three months ended March 31, 2020 and 2019.
The Company’s intangible assets are comprised of in-place leases, above market leases and other intangibles. The following tables present additional detail related to our intangible assets ($ in thousands):
| March 31, 2020 |  | December 31, 2019
Gross intangible assets(1) | $ | 159,054 |  |  | $ | 161,203 |
Accumulated amortization | 61,327 |  |  | 62,773 |
Net intangible assets | $ | 97,727 |  |  | $ | 98,430 |
(1) | Includes $4.4 million and $4.5 million of unamortized above market lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.
| Three Months Ended March 31,
| 2020 |  | 2019
Reduction in operating lease income for amortization of above market lease intangibles acquired | $ | (92 | ) |  | $ | (425 | )
Increase in operating lease income for amortization of below market lease intangibles acquired | 752 |  |  | 569 |
The following table presents expected adjustment to operating lease income and expected amortization expense during the next five years and thereafter related to the above and below market leases and acquired in-place lease and other intangibles for property owned as of March 31, 2020 ($ in thousands):
Period Ending December 31, |  | Adjustment to Operating Lease Income |  | Amortization Expense
2020 (last 9 months) |  | $ | 943 |  |  | $ | 4,442 |
2021 |  | 1,070 |  |  | 5,504 |
2022 |  | 1,070 |  |  | 5,504 |
2023 |  | 1,070 |  |  | 5,504 |
2024 |  | 1,070 |  |  | 5,504 |
Thereafter |  | 29,077 |  |  | 66,785 |
Total |  | $ | 34,300 |  |  | $ | 93,243 |
Lease Prepayment by Lessor, Retirement of Related Mortgage Loan Financing and Impairment of Real Estate On January 10, 2019, the Company received $10.0 million prepayment of a lease on a single-tenant two-story office building in Wayne, NJ. As of March 31, 2019, this property had a book value of $5.6 million, which is net of accumulated depreciation and amortization of $2.7 million. The Company recognized the $10.0 million of operating lease income on a straight-line basis over the revised lease term. On February 6, 2019, the Company paid off $6.6 million of mortgage loan financing related to the property, recognizing a loss on extinguishment of debt of $1.1 million. During the three months ended March 31, 2019, the Company recorded a $1.4 million impairment of real estate to reduce the carrying value of the real estate to the estimated fair value of the real estate. On May 1, 2019, the Company completed the sale of the property recognizing $3.9 million of operating lease income, $3.5 million realized loss on sale of real estate, net and $0.4 million of depreciation and amortization expense, resulting in a net loss of $20 thousand. See Note 14, Fair Value of Financial Instruments for further detail. There were $0.9 million and $0.9 million of rent receivables included in other assets on the consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively. There was unencumbered real estate of $79.6 million and $59.2 million as of March 31, 2020 and December 31, 2019, respectively. During the three months ended March 31, 2020 and 2019, the Company recorded $2.0 million and $0.2 million, respectively, of real estate operating income, which is included in operating lease income in the consolidated statements of income. The following is a schedule of non-cancellable, contractual, future minimum rent under leases (excluding property operating expenses paid directly by tenant under net leases) at March 31, 2020 ($ in thousands):
Period Ending December 31, |  | Amount
2020 (last 9 months) |  | $ | 63,389 |
2021 |  | 72,729 |
2022 |  | 68,139 |
2023 |  | 66,703 |
2024 |  | 65,173 |
Thereafter |  | 504,234 |
Total |  | $ | 840,367 |
Acquisitions During the three months ended March 31, 2020, the Company acquired the following properties ($ in thousands):
Acquisition Date |  | Type |  | Primary Location(s) |  | Purchase Price/Fair Value on the Date of Foreclosure | Ownership Interest (1)
Purchases of real estate |  |  |  |  |
Aggregate purchases of net leased real estate |  | $ | 6,239 |  | 100.0%
Real estate acquired via foreclosure |  |  |
March 2020 |  | Diversified |  | Los Angeles, CA |  | 21,535 |  | 100.0%
Total real estate acquired via foreclosure |  | 21,535 |  |
Total real estate acquisitions |  |  |  | $ | 27,774 |  |
(1) | Properties were consolidated as of acquisition date.
The Company allocates purchase consideration based on relative fair values, and real estate acquisition costs are capitalized as a component of the cost of the assets acquired for asset acquisitions. During the three months ended March 31, 2020, all acquisitions were determined to be asset acquisitions. The purchase prices were allocated to the asset acquisitions during the three months ended March 31, 2020, as follows ($ in thousands):
|  | Purchase Price Allocation
Land |  | $ | 22,450 |
Building |  | 4,418 |
Intangibles |  | 1,201 |
Below Market Lease Intangibles |  | (295 | )
Total purchase price |  | $ | 27,774 |
The weighted average amortization period for intangible assets acquired during the three months ended March 31, 2020 was 39.8 years. The Company recorded $44 thousand in revenues from its 2020 acquisitions for the three months ended March 31, 2020, which is included in its consolidated statements of income. The Company recorded $(0.1) million in earnings (losses) from its 2020 acquisitions for the three months ended March 31, 2020, which is included in its consolidated statements of income. During the three months ended March 31, 2019, the Company acquired the following properties ($ in thousands):
Acquisition Date |  | Type |  | Primary Location(s) |  | Purchase Price/Fair Value on the Date of Foreclosure | Ownership Interest (1)
Purchases of real estate |  |  |  |  |
Aggregate purchases of net leased real estate |  | $ | 2,406 |  | 100.0%
Real estate acquired via foreclosure |  |  |
February 2019 |  | Diversified |  | Omaha, NE |  | 18,200 |  | 100.0%
Total real estate acquired via foreclosure |  | 18,200 |  |
Total real estate acquisitions |  |  |  | $ | 20,606 |  |
(1) | Properties were consolidated as of acquisition date.
The purchase prices were allocated to the asset acquisitions during the three months ended March 31, 2019, as follows ($ in thousands):
|  | Purchase Price Allocation
Land |  | $ | 3,483 |
Building |  | 16,804 |
Intangibles |  | 442 |
Below Market Lease Intangibles |  | (123 | )
Total purchase price |  | $ | 20,606 |
The weighted average amortization period for intangible assets acquired during the three months ended March 31, 2019 was 36.7 years. The Company recorded $16.4 thousand in revenues from its 2019 acquisitions for the three months ended March 31, 2019, which is included in its consolidated statements of income. The Company recorded $(0.2) million in earnings (losses) from its 2019 acquisitions for the three months ended March 31, 2019, which is included in its consolidated statements of income. Acquisitions via Foreclosure In March 2020, the Company acquired a development property in Los Angeles, CA, via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a basis of $21.6 million, net of an asset-specific loan loss provision of $2.0 million. The Company obtained a third-party appraisal of the property. Substantially all of the fair value was attributed to land. The $21.5 million fair value was determined using the sales comparison approach to value. Using this approach, the appraiser developed an opinion of the fee simple value of the underlying land by comparing the property to similar, recently sold properties in the surrounding or competing area. The Company recorded a $0.1 million loss resulting from the foreclosure of the loan. In February 2019, the Company acquired a hotel in Omaha, NE, via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a net basis of $17.9 million. The Company obtained a third-party appraisal of the property. The $18.2 million fair value was determined using the income approach to value. The appraiser utilized a terminal capitalization rate of 8.75% and a discount rate of 10.25%. There was no gain or loss resulting from the foreclosure of the loan. These non-recurring fair values are considered Level 3 measurements in the fair value hierarchy. Sales The Company sold the following properties during the three months ended March 31, 2020 ($ in thousands):
Sales Date |  | Type |  | Primary Location(s) |  | Net Sales Proceeds |  | Net Book Value |  | Realized Gain/(Loss) |  | Properties |  | Units Sold |  | Units Remaining
Various |  | Condominium |  | Miami, FL |  | $ | 665 |  |  | $ | 658 |  |  | $ | 7 |  |  | — |  |  | 2 |  |  | 4 |
March 2020 |  | Diversified |  | Richmond, VA |  | 22,526 |  |  | 14,829 |  |  | 7,697 |  |  | 7 |  |  | — |  |  | — |
March 2020 |  | Diversified |  | Richmond, VA |  | 6,933 |  |  | 4,109 |  |  | 2,824 |  |  | 1 |  |  | — |  |  | — |
Totals |  |  |  |  |  | $ | 30,124 |  |  | $ | 19,596 |  |  | $ | 10,528 |  |  |  |  |  |  |
Realized gain on the sale of real estate, net on the consolidated statements of income also includes $10.5 million of realized loss on the disposal of fixed assets for the three months ended March 31, 2020 The Company sold the following properties during the three months ended March 31, 2019 ($ in thousands):
Sales Date |  | Type |  | Primary Location(s) |  | Net Sales Proceeds |  | Net Book Value |  | Realized Gain/(Loss) |  | Properties |  | Units Sold |  | Units Remaining
N/A |  | Condominium |  | Las Vegas, NV |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | — |  |  | — |  |  | 1 |
Various |  | Condominium |  | Miami, FL |  | 1,688 |  |  | 1,503 |  |  | 185 |  |  | — |  |  | 6 |  |  | 16 |
Totals |  |  |  |  |  | $ | 1,688 |  |  | $ | 1,503 |  |  | $ | 185 |  |  |  |  |  |  |

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- References No definition available. + Details
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- Definition The entire disclosure for real estate owned (as defined). Generally, the largest component of real estate owned by lenders is assets taken in settlement of troubled loans through surrender or foreclosure. Real estate investments, real estate loans that qualify as investments in real estate, and premises that are no longer used in operations may also be included in real estate owned. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=118952595&loc=d3e4437-111522 + Details
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